HSI Chang v. JP Morgan Chase bank, N.A.
845 F.3d 1087
| 11th Cir. | 2017Background
- Chang wired $750,000 to an account titled “OPT Title & Escrow Inc Escrow Account” at JPMorgan, believing OPT Title would hold the funds in escrow for a financing transaction.
- Charles Gordon, CEO of OPT Title and Ziggurat, diverted escrow funds (including Chang’s) to operating and personal accounts; he was later criminally convicted.
- Chang sued JPMorgan after the district court dismissed his complaint with prejudice and denied leave to file a Second Amended Complaint alleging bank employee Olga Padgett-Perdomo assisted Gordon.
- In the proposed Second Amended Complaint Chang alleged Padgett-Perdomo (1) opened/allowed the account to be labeled as an escrow account despite noncompliance with escrow procedures, (2) wrote a Bank-letter overstating escrow balances (the “Seven-digit Letter”), and (3) secretly received $100,000 from Gordon.
- The district court concluded those allegations were insufficient to show JPMorgan knew of or substantially assisted Gordon’s fraud and denied leave to amend; the bank also obtained attorney’s fees under Florida’s offer-of-judgment statute.
- The Eleventh Circuit granted rehearing, vacated the dismissal and fee award, and held Chang’s proposed amendments were not futile as to negligence, gross negligence, aiding-and-abetting fraud, and aiding-and-abetting conversion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether JPMorgan owed a duty to Chang (a noncustomer) | Chang: bank knew OPT Title was holding escrow funds (account labeled "escrow"; employee drafted representations), so duty exists under fiduciary-exception | JPMorgan: banks generally owe no duty to noncustomers; employee knowledge should not be imputed or show bank knew of misappropriation | Held: Allegations support fiduciary relationship, employee knowledge is imputable, and bank plausibly knew of misappropriation — duty adequately alleged |
| Whether allegations plausibly show bank knew of misappropriation | Chang: employee’s actions (escrow label, Seven-digit Letter, $100k payment) permit inference of actual knowledge | JPMorgan: allegations show only routine banking and timing of payment does not indicate knowledge | Held: Court may infer actual knowledge from circumstances; payment and post-theft letter support inference |
| Whether bank substantially assisted fraud / aiding-and-abetting fraud | Chang: bank’s affirmative acts and inaction (failure to stop or warn) while knowing facts amounted to substantial assistance | JPMorgan: ordinary banking services do not constitute substantial assistance absent clear knowledge | Held: Given alleged knowledge and fiduciary duty, bank’s inaction and employee’s affirmative assistance plausibly constitute substantial assistance |
| Whether amendment was futile and dismissal with prejudice was appropriate | Chang: proposed Second Amended Complaint cures defects and states plausible claims | JPMorgan: proposed allegations still fail to state claims; leave to amend should be denied as futile | Held: Amendment not futile; district court erred in denying leave and in awarding fees — case remanded for further proceedings |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard: plausibility requirement)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard and raising claim above speculative level)
- Beck v. Deloitte & Touche, 144 F.3d 732 (11th Cir. 1998) (imputation of agent knowledge to corporation; adverse-interest exception)
- Ave. CLO Fund, Ltd. v. Bank of Am., N.A., 723 F.3d 1287 (11th Cir. 2013) (actual knowledge may be established through inference)
- Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir. 2006) (substantial assistance: affirmative acts or failure to act where fiduciary duty exists)
- In re First Alliance Mortg. Co., 471 F.3d 977 (9th Cir. 2006) (ordinary bank transactions can satisfy substantial assistance if bank knew they aided specific tort)
- Chaney v. Dreyfus Serv. Corp., 595 F.3d 219 (5th Cir. 2010) (bank liability to noncustomer where fiduciary relationship exists and bank knew of misappropriation)
- Watkins v. NCNB Nat’l Bank of Fla., N.A., 622 So. 2d 1063 (Fla. Dist. Ct. App. 1993) (escrow holders owe fiduciary duties)