QUINTERO COMMUNITY ASSOCIATION INC., et al., Plaintiffs-Appellants v. FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for Hillcrest Bank, et al., Defendants-Appellees.
No. 14-2266.
United States Court of Appeals, Eighth Circuit.
Submitted: Feb. 10, 2015. Filed: July 8, 2015.
Rehearing and Rehearing En Banc Denied Sept. 9, 2015.
Thomas R. Larson, Lewis, Rice & Fingersh, L.C., Kansas City, MO, argued (Scott A. Wissell, on the brief), for appellees Robert Campbell, et al.
Jerome A. Madden, Fed. Deposit Ins. Corp., Arlington, VA, argued (Colleen J. Boles, Asst. Gen. Counsel, Kathryn R. Norcross, Senior Counsel, on the brief), for appellee FDIC.
Before LOKEN, SMITH, and COLLOTON, Circuit Judges.
LOKEN, Circuit Judge.
Appellants are investors who suffered losses when an Arizona golf course and residential development failed, allegedly due to the fraud and mismanagement of the developer, Gary McClung. Unable to recover from the insolvent McClung, appellants filed this action in state court against the development‘s principal lender, Hillcrest Bank, and its directors, officers, and sole shareholder, asserting numerous claims. The Kansas Banking Commissioner closed Hillcrest Bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. Some months later, the FDIC removed the case to federal court under
I. Background
McClung‘s failed development was a golf course and residential subdivision in Peoria, Arizona, named Quintero Golf and Country Club (Quintero). Appellant Quintero Community Association (QCA) was the homeowners association for the subdivision and a property owner in Quintero. The remaining appellants are individuals who between 1999 and 2008 invested in Quintero by purchasing “Revenue Producing Membership Collateral Certificates” or by loaning money to McClung. In March 2005, Hillcrest Bank loaned McClung $31 million to finance Quintero‘s construction and issued a number of irrevocable standby letters of credit naming QCA as beneficiary. As beneficiary, QCA had the right to demand payment of a letter of credit in the event Quintero failed to complete the particular improvement specified in the letter of credit by a certain date.
Appellants’ Omnibus Petition alleged that, by late 2006, McClung was unable to pay development contractors on time, and many had ceased working. Appellants alleged that defendants knew of McClung‘s financial distress but loaned him money anyway, contrary to sound banking practices, thereby “prolong[ing his] financial life” to appellants’ detriment. They further alleged that defendants “concocted a scheme with McClung” to conceal his insolvency from appellants, banking regulators, and the Arizona Department of Real Estate (ADRE). The alleged scheme included “jimm[ying]” the Bank‘s books to make the Quintero project look to be in better financial health than it was, thereby assisting McClung‘s fraudulent communications to appellants, and allowing McClung to “sen[d] back” letters of credit in March 2007 contrary to their terms and ADRE requirements. On March 31, 2010, the ADRE suspended Quintero‘s public report due to McClung‘s failure to complete required infrastructure. See
In May 2010, appellants filed suit against Hillcrest Bank in Missouri state court. On October 22, 2010, the Kansas Banking Commissioner determined the Bank was “critically undercapitalized” and appointed the FDIC as receiver. In preparation for litigation, some Hillcrest Bank directors had caused Bank records to be copied onto digital storage media and sent to lawyers at the Bryan Cave law firm for review. The FDIC accepted appointment as receiver and demanded return of the copied files. Bryan Cave complied.
In January 2011, appellants filed a separate action in state court against Hillcrest Bank officers and directors and its holding company, Hillcrest Bancshares (the “Director Defendants“). The state court consolidated the two cases. On February 28, Hillcrest Bank filed a motion to substitute the FDIC as defendant. The state court granted the motion on March 1, but on May 7, appellants moved to vacate the substitution order because the Bank‘s mo-
Counsel for the FDIC entered an appearance in state court on May 24, filed a motion to substitute as a party for Hillcrest Bank on May 27, and filed a pleading opposing appellants’ motion for default judgment against Hillcrest Bank on June 6. The state court granted the FDIC‘s motion for substitution on June 9. The FDIC removed the case to federal court under
II. Denial of the Motion To Remand
Plaintiffs first argue the district court erred in denying their motion to remand because the FDIC‘s removal was untimely, and therefore the court lacked subject matter jurisdiction over the removed action. The state court granted the FDIC‘s motion to substitute as a party on June 9, 2011, and the FDIC removed the case to federal district court on September 6, ninety days later.2 The FDIC contends that the removal is timely applying the plain meaning of
We need not decide whether removal was untimely, because even if the district court erred in failing to remand, that error would not be grounds to reverse at this stage of the litigation. In Caterpillar Inc. v. Lewis, 519 U.S. 61, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996), the Supreme Court considered whether the absence of complete diversity at the time of removal, required by
The “timeliness of removal is a procedural defect—not a jurisdictional one.” Moore v. N. Am. Sports, Inc., 623 F.3d 1325, 1329 (11th Cir. 2010). Here, when the FDIC became a substituted par-
In this case, multiple claims and a complex factual background resulted in nearly four years of litigation after the district court denied appellants’ motion to remand based on a procedural defect. “To wipe out the adjudication postjudgment, and return to state court a case . . . satisfying all federal jurisdictional requirements, would impose an exorbitant cost on our dual court system, a cost incompatible with the fair and unprotracted administration of justice.” Caterpillar, 519 U.S. at 77, 117 S.Ct. 467. To do so here would be particularly unwarranted, as Congress intended
III. The Merits Rulings
After denying appellants’ motion to remand, the district court dismissed fourteen counts for failure to state a claim in January 2013, leaving only a breach of contract claim against Hillcrest Bank and a conversion claim against the Director Defendants for copying Hillcrest Bank‘s records and transmitting them to attorneys at Bryan Cave. In September 2013, the FDIC determined that Hillcrest Bank in receivership lacked sufficient assets to make distributions to unsecured creditors. See 78 Fed. Reg. 56,228 (Sept. 12, 2013);
A. The Rule 12(b)(6) Dismissals.
Appellants argue the district court erred in dismissing fourteen counts for failure to state a claim. “We review de novo the district court‘s grant of a motion to dismiss.” Gorog v. Best Buy Co., 760 F.3d 787, 792 (8th Cir. 2014). “To survive a motion to dismiss, a complaint must con-
Like the district court, we find it “incredibly difficult to sift through [appellants‘] 72 single-spaced pages and 340 numbered paragraphs to ascertain any coherent argument as to why [defendants] are liable.” The bulk of appellants’ highly confusing Omnibus Petition consists of sheer speculation and conclusory allegations of defendants’ wrongdoing. At oral argument, counsel declined to prioritize appellants’ fifteen claims of reversible error. The district court discussed in detail why each count failed to state a claim. We have little to add.
Appellants’ brief on appeal argues at great length that the fourteen dismissed counts adequately pleaded claims that Hillcrest Bank breached fiduciary duties to appellants; aided and abetted McClung‘s fraudulent financial misrepresentations and his fraudulent and improper cancellation of letters of credit, which intentionally interfered with appellants’ contract or business relations; negligently cancelled the letters of credit and negligently failed “to learn of and prevent” McClung‘s fraudulent activities; and conspired with McClung to engage in various vaguely pleaded torts. These are claims against Hillcrest Bank we need not review.
The claims we need to review because they survived dismissal of the FDIC and Hillcrest Bank are appellants’ claims against the Director Defendants, including Hillcrest Bancshares. As to these claims, appellants’ brief says little beyond conclusory assertions such as, “The petition repeatedly avers that each defendant knew about McClung‘s bad financial condition, his scam attempts to get more financing, knew that the development had not been completed, and knew that the Bank had engaged in improper banking practices . . . to conceal its own bad financial condition and avoid being shut down by the FDIC.”
The district court concluded that the allegations in appellants’ Omnibus Petition were similarly deficient, failing to plead facts establishing plausible claims that each officer and director could be personally liable to appellants. Appellants fail to provide specific cites to the Omnibus Petition refuting this conclusion. “Without some guidance, we will not mine a summary judgment record searching for nuggets of factual disputes to gild a party‘s arguments.” Rodgers v. City of Des Moines, 435 F.3d 904, 908 (8th Cir. 2006). Likewise, without guidance, we will not mine a seventy-two-page complaint searching for nuggets that might refute obvious pleading deficiencies.
1. As to the claims that the Director Defendants breached fiduciary duties to appellants, they alleged no facts plausibly suggesting that each Hillcrest Bank officer, director, or shareholder consciously assumed to act as their fiduciaries in these business transactions. See Urias v. PCS Health Sys., Inc., 211 Ariz. 81, 118 P.3d 29, 35 (App. 2005); Denison State Bank v. Madeira, 230 Kan. 684, 640 P.2d 1235, 1243-44 (1982).4 Nor did they allege how each Director Defendant substantially
Appellants also failed to plausibly allege how each Director Defendant aided and abetted breaches of fiduciary duty when undescribed letters of credit were allegedly canceled by either McClung or Hillcrest Bank. Under Arizona and Kansas law, “a director cannot be liable without some kind of personal participation in the tort or at least acquiescence by knowledge of the tort combined with a failure to act.” Dawson v. Withycombe, 216 Ariz. 84, 163 P.3d 1034, 1051 (App. 2007); accord Kerns ex rel. Kerns v. G.A.C., Inc., 255 Kan. 264, 875 P.2d 949, 957-58 (1994). Defendant Robert Sperry is alleged to have issued letters of credit to McClung and then agreed to “free up” funds when McClung asked that letters of credit be “sent back” to Hillcrest in March 2007. That does not plausibly allege that Sperry participated in canceling any letters of credit. The only letter of credit in the record on appeal expired of its own terms in March 2006. Once issued, an irrevocable letter may not be cancelled except according to its terms or with the consent of the beneficiary. See
2. Appellants failed to plead fraud with the specificity required by
The allegations in Count 4 did not come close to meeting this standard. Appellants entirely failed to plead facts plausibly showing that any Director Defendant knew of any of McClung‘s alleged fraudulent misrepresentations to appellants regarding Quintero‘s financial health, some of which occurred years before Hillcrest Bank began dealing with McClung. See E-Shops, 678 F.3d at 664; Mays, 811 P.2d at 1232 (aiding and abetting liability requires knowledge of principal‘s tortious activity) Cal X-Tra, 276 P.3d at 40 (same). Allegations that the Director Defendants assisted McClung‘s fraud by jimmying the Bank‘s books and “execut[ing] transactions that gave the false appearance of financial viability” were far too vague to satisfy
3. Regarding the claim in Count 8 that the Director Defendants assisted and participated in Hillcrest Bank‘s alleged negligent mismanagement, we agree with the district court that Count 8 failed to state a claim even if it plausibly alleged the Defendant Directors owed appellants a duty of care. In general, banks owe no duty of care to non-customers. See Eisenberg v. Wachovia Bank, 301 F.3d 220, 225 (4th Cir. 2002); Gilbert Tuscany Lender, LLC v. Wells Fargo Bank, 232 Ariz. 598, 307 P.3d 1025, 1028 (App. 2013); N. Cent. Kan. Prod. Credit Ass‘n v. Hansen, 240 Kan. 671, 732 P.2d 726, 730-31 (1987). Arguably, Hillcrest Bank and therefore the Director Defendants had some duty of care by reason of the Bank‘s complex relationships with appellants. But the Omnibus Petition did not plausibly allege breaches of a specific duty, for example, by showing how each Director knew of alleged problems with the Quintero loans, why each Director‘s knowledge created a duty to act, and how the Directors’ failure to act was both the actual and proximate cause of appellants’ injuries. See Shirley v. Glass, 297 Kan. 888, 308 P.3d 1, 6 (2013); Dawson, 163 P.3d at 1051; Kerns, 875 P.2d at 957-58; Wisener v. State, 123 Ariz. 148, 598 P.2d 511, 512 (1979).
4. The remaining counts do not require extended discussion. Count 2 failed to allege facts showing that any defendant canceled letters of credit with the intent to interfere with appellants’ contractual or business relationships or caused appellants’ losses. See generally Restatement (Second) of Torts § 766. Count 5 contained only conclusory and speculative assertions that an agreement existed between the Director Defendants and McClung to accomplish vaguely pleaded torts. This was insufficient to support a claim of civil conspiracy. See Iqbal, 556 U.S. at 678, 129 S.Ct. 1937; Wells Fargo Bank v. Ariz. Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 38 P.3d 12, 36 (2002) (elements of civil conspiracy); Mays, 811 P.2d at 1226 (same).
Count 7, which charged the Director Defendants with aiding and abetting Hillcrest Bank in converting funds owed to two appellants, failed to allege facts showing the personal participation of any Director. Count 9 alleged “Violations of Consumer Protection Law,” and referenced “Arizona Consumer Protection Statutes,” but did not explain which law was violated. In substance, Count 9 simply re-alleged the aiding-and-abetting-fraud claim in Count 4 with nothing approaching the particularity required by
The district court‘s
B. Summary Judgment on the Conversion Claim.
Count 1 alleged that the Director Defendants converted property in which appellants had an interest when defendants copied Hillcrest Bank‘s records and transferred the copies to Bryan Cave. The district court granted summary judgment dismissing this claim. Reviewing de novo, we agree. See Alexander v. Avera St. Luke‘s Hosp., 768 F.3d 756, 759 (8th Cir. 2014) (standard of review). Under Kansas law, conversion is “the unauthorized assumption or exercise of the right of ownership over goods or
C. Denial of Leave to Amend.
Finally, appellants argue that the district court abused its discretion in denying QCA leave to amend its petition to include a new tort claim for spoliation of evidence during litigation. See O‘Neil v. Simplicity, Inc., 574 F.3d 501, 505 (8th Cir. 2009) (standard of review). The district court concluded that QCA unduly delayed seeking leave to amend, defendants were prejudiced by the delay, and the amendment would likely be futile. We agree. The Supreme Court of Kansas has not yet recognized an independent tort of spoliation when a party destroys evidence that would have been useful to an adverse or potentially adverse litigant. See Superior Boiler Works, Inc. v. Kimball, 292 Kan. 885, 259 P.3d 676, 685-90 (2011). There was no abuse of the district court‘s substantial discretion.
The judgment of the district court is affirmed.