R.J. Zayed v. Associated Bank, N.A., 779 F.3d 727

Background

From ~2006–2009, principals of a Ponzi scheme (including Trevor Cook and Patrick Kiley) solicited investor funds allegedly for trading through a Swiss trader, Crown Forex, SA; investors’ checks were deposited into U.S. accounts controlled by scheme entities.
Lien Sarles, an Associated Bank vice‑president, aided in opening domestic accounts (e.g., Crown Forex LLC, Basel Group LLC) despite knowing required Secretary of State registration documents were missing and that Crown Forex LLC was a sham entity.
Over $79 million of investor funds were deposited into the Crown Forex LLC account at Associated Bank; funds were not sent to Crown Forex, SA, but instead were transferred to other accounts and to schemers’ personal accounts. Sarles approved transfers by non‑signatory Cook and authorized cashier’s checks and remitters disguising the source.
Associated Bank employees flagged concerns; FINMA froze Crown Forex, SA accounts in late 2008 and announced liquidation in 2009, yet Associated Bank continued to approve large transfers. Sarles was fired shortly thereafter.
The receiver (appointed in related SEC litigation) sued Associated Bank in federal court on behalf of receiver entities, alleging aiding and abetting four Minnesota torts (fraud, breach of fiduciary duty, conversion, false representations/omissions). The district court dismissed all counts for failure to state a claim; receiver appealed.
The Eighth Circuit reversed and remanded, holding the complaint plausibly alleged the aiding‑and‑abetting elements (actual knowledge and substantial assistance) and declined to resolve res judicata and in pari delicto defenses in the first instance.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether complaint plausibly alleges actual knowledge for aiding and abetting	Receiver: Sarles knew (1) Crown Forex LLC was unregistered and fictitious, (2) funds were meant to go to Crown Forex, SA but never did, (3) Cook (non‑signatory) was authorized to withdraw investor funds—showing actual knowledge of tortious purpose.	Associated Bank: Allegations show at most negligence or that bank “should have known” from red flags; no specific factual pleading of actual intent to assist fraud.	Reversed: Complaint plausibly alleges actual knowledge based on particular factual allegations about Sarles’ conduct and statements.
Whether complaint plausibly alleges substantial assistance	Receiver: Sarles and the bank took affirmative, non‑routine steps—opened undocumented accounts, signed bank documents falsely asserting registration, approved unauthorized transfers and cashier’s checks—thus furthering the fraud.	Associated Bank: Actions were routine banking services and do not constitute the ‘‘substantial assistance’’ needed for professional defendants.	Reversed: Allegations (nonroutine account setup, authorization of withdrawals/transfers to schemers) suffice at pleading stage to allege substantial assistance.
Whether appellee may advance res judicata or in pari delicto defenses on appeal without cross‑appeal	Associated Bank: Alternative defenses can sustain dismissal and may be urged on appeal without cross‑appeal because they support the same judgment.	Receiver: Allowing these defenses on appeal would expand Associated Bank’s rights and preclusive effects beyond the district court’s dismissal.	Court: Appellee may urge alternative grounds sustaining the same judgment without cross‑appeal, but the panel declined to resolve res judicata or in pari delicto here and remanded for district court to consider them in the first instance.
Whether denial of leave to amend or reconsider should be reviewed now	Receiver: Requested leave locally to file motion to amend dismissal to without prejudice to permit amendment.	District court denied; Associated Bank urged dismissal with prejudice.	Court: Because dismissal was improper, there was no need to decide the appeal from denial of leave to reconsider; remanded for further proceedings.

Key Cases Cited

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions insufficient; context‑specific plausibility)
Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179 (Minn. 1999) (elements of aiding and abetting under Minnesota law)
E‑Shops Corp. v. U.S. Bank N.A., 678 F.3d 659 (8th Cir. 2012) (Rule 9(b) particularity applies to aiding and abetting fraud)
Am. Ry. Exp. Co. v. United States, 265 U.S. 425 (appellee may support judgment on alternative grounds without cross‑appeal)
Braden v. Wal‑Mart Stores, Inc., 588 F.3d 585 (complaint read as whole for plausibility analysis)
Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (receivership entities as victims/creditors in Ponzi schemes)