Hsi Chang v. JPMorgan Chase Bank, N.A.
841 F.3d 914
| 11th Cir. | 2016Background
- Plaintiff Hsi Chang wired $750,000 to an account titled “OPT Title & Escrow Inc Escrow Account” at JPMorgan Chase (the Bank) to be held in escrow by OPT Title; OPT Title’s CEO Charles Gordon diverted the funds and pled guilty to wire fraud.
- Chang alleged during discovery that Olga Padgett-Perdomo, a Bank vice president who opened OPT Title’s accounts, (1) knew the funds were supposed to be held in escrow, (2) assisted Gordon by labeling and vouching for the account and misleading others, and (3) received $100,000 surreptitiously from Gordon via an entity she controlled.
- The district court dismissed Chang’s First Amended Complaint with prejudice, denied leave to amend as futile, and denied his Rule 59(e) motion to alter the judgment; the Bank then received attorney’s fees under Florida’s offer-of-judgment statute.
- On appeal, Chang argued his Rule 59(e) allegations supplied facts sufficient to state claims for negligence, gross negligence, aiding-and-abetting fraud, and aiding-and-abetting conversion against the Bank despite being a noncustomer.
- The Eleventh Circuit held Chang’s additional allegations, if true, permitted a reasonable inference that (a) OPT Title owed Chang a fiduciary duty as escrow holder, (b) Padgett-Perdomo (and thus the Bank) knew of the fiduciary relationship and of Gordon’s misappropriation, and (c) the Bank provided substantial assistance by affirmative acts and inaction.
- The court reversed the denial of the Rule 59(e) motion, vacated the fee award, and remanded for further proceedings, directing that Chang be allowed to amend his complaint.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bank owed duty to noncustomer (negligence) | Chang: Bank (via employee) knew escrow relationship and misappropriation; duty exists when bank knows fiduciary relationship and actual misappropriation | Bank: No duty to noncustomers; no knowledge or substantial assistance shown | Held: Duty sufficiently pled because (1) escrow created fiduciary duty, (2) employee knew of relationship and misappropriation, and knowledge imputable to Bank |
| Whether imputable knowledge of employee binds Bank | Chang: Padgett-Perdomo learned within scope of employment; imputation permitted because her actions gave Bank short-term benefit | Bank: Her knowledge was adverse and personal; should not be imputed | Held: Imputation allowed—exception for adverse interest not shown because conduct produced some benefit to Bank |
| Whether aiding-and-abetting fraud sufficiently alleged | Chang: Bank had actual/ inferable knowledge and provided substantial assistance (affirmative acts and failure to stop theft) | Bank: Allegations at best show routine banking services, not substantial assistance or knowledge | Held: Pled sufficient—substantial assistance by both affirmative acts and inaction where bank knew funds were trust funds being mishandled |
| Whether dismissal and fee award proper | Chang: Denial of leave to amend was abuse of discretion; fee award depends on reversed judgment | Bank: Dismissal and fees appropriate | Held: District court abused discretion in denying amendment; underlying dismissal reversed and fee award vacated |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (standards for plausibility on a motion to dismiss)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility and pleading requirement principles)
- Beck v. Deloitte & Touche, 144 F.3d 732 (11th Cir.) (when agent knowledge is imputed to corporation and adverse-interest exception)
- Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir. 2006) (substantial-assistance standard for aiding-and-abetting fraud)
- In re First Alliance Mortgage Co., 471 F.3d 977 (9th Cir. 2006) (bank’s ordinary transactions can satisfy substantial assistance if bank knew they were assisting a tort)
- Chaney v. Dreyfus Serv. Corp., 595 F.3d 219 (5th Cir.) (bank liability to outsiders where fiduciary relationship and bank knowledge of misappropriation exist)
- Watkins v. NCNB Nat’l Bank of Fla., N.A., 622 So. 2d 1063 (Fla. Dist. Ct. App.) (escrow holders owe fiduciary duties)