Commercial Litigation and Arbitration

RICO Conspiracy: Neither Suspicions about Nor Investigation into Miscreant’s Conduct = Conspiracy, Which Requires More Than Knowledge & Presence — Pleading: Importance of Including a General Denial in Answer (Good Language to Quote)

Aguilar v. PNC Bank, N.A., 2017 U.S. App. LEXIS 2150 (8th Cir. Feb. 7, 2017):

Ninety-two plaintiffs1 filed suit against PNC Bank, N.A. (PNC), alleging, among other things, (1) violations of Missouri's Uniform Fiduciaries Law (UFL); (2) aiding and abetting the breach of fiduciary duties; (3) conspiracy to breach fiduciary duties; and (4) conspiracy to violate [*3]  the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(d). These claims arise from the plaintiffs' investment in the British Lending Program (BLP)--a Ponzi scheme operated by Martin Sigillito. The plaintiffs allege that PNC's predecessor, Allegiant Bank ("Allegiant"), conspired with and aided Sigillito in his scheme to defraud investors when it served as the custodian for the self-directed individual retirement accounts (IRAs) of those who chose to invest in the BLP at its inception. The district court2 granted summary judgment to PNC, and the plaintiffs appeal. We affirm.

1   The amended complaint is brought by 91 individuals who are citizens of various states and one company, Northwest Properties (1973) Ltd. The plaintiffs are not a certified class. One plaintiff, Mary O'Sullivan, brings her claims in her individual capacity and in her representative capacity. Plaintiffs Carol McCarthy, Barbara O'Hanlon, and Brad Werner bring their claims solely in their representative capacities.

2   The Honorable Linda R. Reade, Chief Judge, United States District Court for the Northern District of Iowa, sitting by designation.

I. Background

A. Martin Sigillito and the BLP

In the late 1990s, Sigillito, an attorney located in St. Louis, Missouri, and J. Scott Brown, an attorney in Kansas, formed the BLP. They organized the BLP as an investment program to facilitate loans to an English law firm, Mark Gilbert Morse (MGM), to fund "black lung" claims brought on behalf of English coal miners. In approximately 2000 or 2001, the BLP began marketing loans for purported investments in real estate developments in England.

Sigillito solicited American investors for the BLP and often instructed them to hold the loan notes in self-directed IRAs. He [*4]  directed them to fund the investments by depositing money into his Interest on Lawyers Trust Account (IOLTA). According to the unsworn declaration of John Morse, an MGM partner, MGM "agreed . . . for each £100 [that MGM] borrowed[,] one third (32%) would be deducted at source representing [Sigillito's and Brown's] commission." MGM agreed to "pay interest of 25% on the full £100 of the loan." Although Morse considered "the fees and interest . . . a huge amount," he found the deal agreeable because MGM "needed the money[,] and the rewards [MGM] stood to reap in the UK would outweigh the costs."

B. Allegiant's Role

Beginning in July of 2000, Allegiant, a Missouri trust company with banking powers, served as the custodian for the self-directed IRAs of those who chose to invest in the BLP.3 Allegiant was the first bank to serve as the IRA custodian for BLP loans; the majority of those loans went to fund MGM loans. "Nine of the Plaintiffs, Richard Aguilar, David Caldwell, Donald Horner, Rudolf Ouwens, William Phillips, Carol Phillips, Leonard Roman, Lewis Vollmar and Linda Givens, were customers of Allegiant Bank and held self-directed individual retirement accounts ('IRAs') at Allegiant Bank [*5]  ('Customer Plaintiffs')."4

3   In 2004, Allegiant was acquired by National City Bank, which, in turn, was acquired by PNC in 2008.

4   The remainder of the plaintiffs "were not customers of PNC Bank or its predecessors ('Non-Customer Plaintiffs')."

Although Allegiant acted as the custodian for these accounts, the Customer Plaintiffs were "solely responsible for deciding how to invest the money in these IRAs, and . . . [the Customer] Plaintiffs made all investment decisions in these IRAs maintained at Allegiant Bank's trust department." Each Customer Plaintiff signed an IRA Simplifier, which provided, in relevant part:

   8.03 Representations and Responsibilities: You represent and warrant to us that any information you have given or will give us with respect to this Agreement is complete and accurate. Further, you agree that any directions you give us, or action you take will be proper under this Agreement and that we are entitled to rely upon any such information or directions. We shall not be responsible for losses of any kind that may result from your directions to us or your actions or failures to act and you agree to reimburse us for any loss we may incur as a result of such directions, actions or failures to act.


8.5 Investment of Amounts in the IRA:

   a. Direction of Investment--You have exclusive responsibility for and control over the investment of the assets of your IRA. You shall direct all investment [*6]  transactions, including earnings and the proceeds from securities sales. Your selection of investments, however, shall be limited to publicly traded securities, mutual funds, money market instruments and other investments that are obtainable by us and that we are capable of holding in the ordinary course of our business.


b. Our Investment Powers and Duties--We shall have no discretion to direct any investment in your IRA. We assume no responsibility for rendering investment advice with respect to your IRA, nor will we offer any opinion or judgment to you on matters concerning the value or suitability of any investment or proposed investment for your IRA. We shall exercise the voting rights and other shareholder rights with respect to securities in your IRA but only in accordance with the instructions you give to us.

c. Delegation of Investment Responsibility--We may, but are not required to, permit you to delegate your investment responsibility for your IRA to another party acceptable to us by giving written notice of your delegation in a format we prescribe. We shall follow the direction of any such party who is properly appointed and we shall be under no duty to review or question, [*7]  nor shall we be responsible for, any of that party's directions, actions or failures to act.

(Emphasis added in part.) (Bold omitted.)

After deciding to invest in the BLP, each Customer Plaintiff opened a self-directed IRA at Allegiant at Sigillito's direction (or at the direction of one of his associates). "Each of the Allegiant Customer Plaintiffs designated Martin Sigillito as his or her authorized representative in connection with their self-directed IRA account at Allegiant Bank" and "directed Allegiant Bank to accept direction from Sigillito on [their] behalf." Allegiant's trust department maintained the self-directed IRAs. Allegiant employees in the trust department knew that Sigillito represented the Customer Plaintiffs and had authority to act on their behalf.

During 2000 and 2001, Sigillito held an IOLTA and other retail banking accounts at Allegiant. "Sigillito's IOLTA was a demand deposit account maintained on the retail banking side of Allegiant with his other business accounts." "Sigillito owed fiduciary duties to persons whose money was deposited into [his] IOLTA . . . ." The funds held in a Missouri IOLTA account may contain a variety of funds, including individual client [*8]  funds, multiple client funds, and attorney's fees.5 In the present case, it is undisputed that

   [i]n 2001, Allegiant Bank's understanding of the nature and function of IOLTA accounts was that an IOLTA account is an interest on lawyer's trust account and that funds in an IOLTA account can be funds for an individual client, multiple clients, and could include funds that belong to the lawyer, themselves, and that essentially, IOLTA accounts were accounts which were used to facilitate the operation of a law practice.

(Emphases added.)

5   In 2001, Missouri Supreme Court Rule 4-1.15 stated, in relevant part:

   (a) A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property. Funds shall be kept in a separate account maintained in the state where the lawyer's office is situated, or elsewhere with the consent of the client or third person. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.

(b) Upon receiving funds or other property in which a client or third person has an interest, [*9]  a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

(c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interests, the lawyer shall keep the property separate until there is an accounting and severance of their interests. If a dispute arises concerning their respective interests, the lawyer shall keep the portion in dispute separate until the dispute is resolved.

(d) Except as provided in paragraph (e), a lawyer or law firm shall establish and maintain one or more interest-bearing insured depository accounts into which shall be deposited all funds of clients or third persons that are nominal in amount or are expected to be held for a short period of time . . . .

In 2001, the commentary to Rule 4-1.15 explained that

   [l]awyers often receive funds from third parties from which the lawyer's fee will be paid. If there is risk that the client [*10]  may divert the funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds should be kept in trust and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds shall be promptly distributed.

(Emphases added.)

Allegiant's retail and trust departments operated separately and used separate computer systems. Employees in the trust department lacked routine access to bank accounts in the retail department, including IOLTAs. Allegiant had no system to compare transactions between the two departments. But, upon proper request, employees in the trust department could review retail banking activities.

1. The Womack Transaction

On September 26, 2001, Sigillito informed Allegiant that his client, Betty Womack, wanted to liquidate her self-directed IRA. The only asset in Womack's IRA was an unmatured BLP loan note6 with a face value of $56,715.19. Womack had previously designated Sigillito as her authorized representative to conduct transactions on her account. On September [*11]  28, 2001, Allegiant's trust department received a check from Sigillito drawn on his IOLTA and dated September 27, 2001.7 The check was in the amount of $56,715.19. It included the notation "Womack" in the memo line. Allegiant's trust department understood from Sigillito's prior communication that this check was for the purchase of Womack's unmatured BLP loan note. The record does not reflect the source of the IOLTA funds that Sigillito used to fund the purchase. On October 9, 2001, Allegiant's trust department credited Womack's IRA with $56,715.19. On October 19, 2001, Allegiant's trust department disbursed the same amount by wire transfer to Womack at her request.

6   Specifically, the note was an MGM loan note. MGM loans were the loans made to fund "black lung" litigation in England.

7   The envelope that the check was delivered in had a handwritten note stating that Robin Fitzgibbons, an Allegiant trust officer, received the check on September 28, 2001.

2. Allegiant's Resignation as Custodian

In September 2001, Allegiant was in the process of acquiring Southside Bank ("Southside"). Matthew Finn, Southside's head of trust operations, began attending Allegiant trust committee meetings during this time. On September 28, 2001, Southside merged with Allegiant, and Finn became Allegiant's chief investment officer.

In Finn's unsworn declaration, much of which he has since recanted,8 he states that he "attended a meeting in early October 2001 where Martin Sigillito explained the particulars [*12]  of the investments he was promoting called the [BLP]." After hearing Sigillito's presentation, Finn concluded "[f]rom [his] prior experience running a trust department, the high interest rates, lending to a foreign law firm, and investment in foreign real estate development were red flags."

8   In a subsequent deposition, Finn recanted large portions of his declaration. Finn also submitted a sworn affidavit that rejects the plaintiffs' interpretation of his declaration. Before the district court, PNC urged the court to disregard Finn's unsworn declaration because of the circumstances under which the plaintiffs obtained it. The court, however, "consider[ed] the declaration in determining whether a genuine issue of material fact exists with respect to PNC Bank's manifestation of an agreement to participate." We, like the district court, will consider Finn's unsworn declaration and afford the plaintiffs the benefit of it.

Shortly after the meeting with Sigillito, Finn contacted MGM and set up a meeting with MGM partners John Mark and John Morse. At that meeting on approximately October 4, 2001, Mark and Morse "described how they borrowed money from the States to fund litigation having something to do with coal miners and the British government. They stated that their claims were going well but said they were not in a position to repay the loans at that time."9 They also told Finn "that 32% of the loans were taken as fees and that this was paid to Mr. Sigillito and his associates directly from the loan funds." Finn thought "that fees of 32% of the loan amount seemed outrageous." Having reviewed the loan agreements, Finn "knew that up-front fees were not disclosed in the loan agreements." Finn considered the information about the fees to be "another red flag in a series of red flags." Morse recalls Finn stating "that he was [*13]  concerned about various aspects which had come to his attention about the loans, [the] fact that they were loans out of the jurisdiction, the high interest rates, and he also questioned [MGM's] ability to repay the loans." According to Morse, Finn "indicated that he thought the loans did not comply with regulatory requirements." At the meeting's conclusion, Mark and Morse agreed to an "urgent meeting" at Allegiant's headquarters.

9   Ultimately, MGM did repay all amounts borrowed from the Customer Plaintiffs, along with the interest and fees. But, at the time of the October 4, 2001 meeting, MGM had not yet repaid the loans.

The next day, October 5, 2001, the MGM partners met with Richard Markow, president of Allegiant's trust department, Finn, and Sigillito to "discuss[] the bank's concerns about these investments." During that meeting, a "gentleman from Arthur Anderson was concerned about compliance[,] and [Morse] recall[ed] a mention of regulatory authorities having to be informed." At the meeting's conclusion, Morse found it "clear . . . that Allegiant Bank would not be lending [MGM] any further money" and that Allegiant "would not support anything going further in respect of the current loans. There was concern expressed about the legality of the loans in general as they appeared to be loans of Trust monies out of the jurisdiction and breaching the mandatory limit of a one[-]year [*14]  term." Morse noted that Sigillito disagreed with this assessment. According to Morse, Allegiant explained "that the Bank could not be involved in loans that could be in breach of various laws or regulations."

"Following the meeting, [Allegiant] looked into Martin Sigillito's accounts at Allegiant Bank and discovered checks deposited into the accounts showing payment of up-front fees with names on the IRAs at the bank." According to Finn, "the activity in Martin Sigillito's accounts showed that he used investor money deposited into his [IOLTA] to pay interest and principal on some of the loans."

Finn found the Womack transaction "suspicious" because of the "means by which the Womack loan was repaid."10 Finn "knew that the borrowers had not paid [Womack] back because the lawyers from England told [him] that they had not repaid any of the loans." Sigillito's use of investor money from Sigillito's account "to pay other investors confirmed [Finn's] suspicions that [Allegiant] did not want to custody these loans."

10   The plaintiffs point out that despite having received Sigillito's check from the Womack loan on September 28, 2001, Allegiant Bank did not credit Womack's account until October 9, 2001, after the meeting with MGM.

Finn recommended to Arthur Weiss, Allegiant's Executive Vice President, that Allegiant no longer act as a custodian for self-directed IRAs containing BLP investments. According to Finn, [*15]  they were "inappropriate investments to be held in an IRA" because they were "highly illiquid, . . . not marketable through any of the accepted channels of investments, [and] they had high fees." The account agreements included a provision that permitted Allegiant to resign as custodian with or without cause; it stated: "Either party may terminate this Agreement at any time by giving written notice to the other. We can resign as Custodian at any time effective 30 days after we mail written notice of our resignation to you."

On October 26, 2001, Allegiant informed Sigillito that it would be resigning as the IRA custodian. Thereafter, "Sigillito and his associates requested that Allegiant not communicate the resignation decision directly to the account owners, but rather, allow Sigillito's team to do it." Sigillito and his associates asked that Allegiant "simply advise account owners that Millennium Trust would be the new custodian, rather than offer account owners an opportunity to name another custodian."

On November 13, 2001, Allegiant sent a letter to the Customer Plaintiffs, informing them of its resignation as IRA custodian, effective December 14, 2001. It said:

   It is Allegiant Bank's [*16]  understanding that arrangements have been made to transfer custodianship of [the] self-directed IRA[s] to Millennium Trust Company, LLC. Please note that it is important that you act promptly to complete the transfer . . . to another financial organization of your choice. If the transfer of your IRA is not completed by December 14, 2001, it may result in the distribution of assets as permitted by your IRA Agreement, which could have adverse tax consequences to you.

Each of the Customer Plaintiffs either elected to have his or her account transferred to Millennium Trust Company, LLC, or relied upon Sigillito and his associates to transfer his or her IRA. "None of [the] . . . Customer Plaintiffs received any advice from Allegiant Bank in making the decision to transfer their IRA from Allegiant to Millennium."

3. End of the BLP

The BLP continued for more than eight years after Allegiant resigned as custodian in 2001. Between 2001 and 2010, a series of other financial institutions served as custodian for BLP loans held in self-directed IRA accounts and maintained Sigillito's business accounts and IOLTA. While no evidence exists that the BLP was fraudulent from its inception, as the district court [*17]  noted, "it is undisputed that [by 2010] the BLP 'operated as a classic Ponzi scheme, in which payments on existing loans were paid with money from new loans.'"

"The BLP began to crumble when [Phil] Rosemann filed suit against [Derek] Smith for repayment of [a BLP] loan." United States v. Sigillito, 759 F.3d 913, 921 (8th Cir. 2014), cert. denied, 135 S. Ct. 1019 (2015). Smith was a real estate investor in the United Kingdom. Id. at 920. Sigillito had persuaded Rosemann "to loan a significant amount to the BLP; however, Rosemann sought acceleration of the loan after the BLP made late payments to him." Id. at 921. To satisfy Rosemann's demands, Sigillito continued marketing the BLP and misrepresented the safety of the BLP and Smith's liabilities. Id. When Rosemann filed suit against Smith, Smith responded that he never received any of Rosemann's money. Id. Rosemann sought an explanation from Sigillito. Id. "During this time, Sigillito's secretary . . . contacted the Federal Bureau of Investigation (FBI) about the BLP. The FBI then initiated a criminal investigation, which led to Sigillito's arrest and indictment." Id. In 2012, a jury convicted Sigillito of multiple counts of wire fraud, mail fraud, conspiracy to commit wire fraud, and money laundering. Id. at 920. On appeal, we affirmed Sigillito's [*18]  conviction and sentence. Id.

4. Procedural History

After Sigillito's conviction in 2012, 92 plaintiffs filed suit against PNC as successor to Allegiant. In their amended complaint, the plaintiffs alleged, among other things,11 (1) violation of Missouri's UFL due to actual knowledge ("Count I"); (2) violation of Missouri's UFL under Missouri Revised Statute § 469.270 ("Count II"); (3) violation of Missouri's UFL due to bad faith ("Count III"); (4) aiding and abetting breach of fiduciary duty ("Count V"); (5) conspiracy to breach fiduciary duties ("Count VII"); and (6) conspiracy to violate RICO, 18 U.S.C. § 1962(d) ("Count IX"). PNC moved for summary judgment on these claims, and the plaintiffs moved for partial summary judgment on the UFL claims set forth in Counts I--III.

11   The district court granted PNC's motion to dismiss the plaintiffs' claims for aiding and abetting fraud ("Count IV"); breach of fiduciary duty ("Count VI"); and negligence ("Count VIII").

The district court granted summary judgment in PNC's favor on all the claims and denied the plaintiffs' motion on the UFL claims. The court noted that the plaintiffs did not put forth evidence of when the BLP became fraudulent and stated that "Sigillito's criminal activity at some point in time cannot be the basis for finding another party liable merely because it interacted with Sigillito during what may have been the early stages of his criminal scheme." The court concluded [*19]  that the plaintiffs failed to identify evidence that

   PNC Bank agreed to participate in a RICO enterprise; PNC Bank and Sigillito had a "meeting of the minds" regarding an unlawful act; PNC Bank knowingly or substantially assisted Sigillito in breaching a fiduciary duty; or PNC Bank acted in bad faith or with actual knowledge that Sigillito misappropriated fiduciary funds out of his IOLTA.

Additionally, the court found that the plaintiffs failed to "put forth sufficient evidence for the court to determine what underlying breach of fiduciary duty Sigillito allegedly committed during the relevant period."

II. Discussion

On appeal, the plaintiffs argue that the district court improperly granted PNC's motion for summary judgment on Counts V, VII, and IX because genuine issues of material fact exist. They also argue that the district court erroneously granted summary judgment on Counts I--III (the UFL claims) to PNC and denied their motion for partial summary judgment on those claims because the undisputed facts show that Sigillito was a fiduciary who breached his fiduciary duties with Allegiant's actual knowledge of the breach. They contend that the undisputed facts show that Allegiant acted [*20]  in bad faith by not investigating its suspicions about Sigillito's conduct.

"We review de novo a district court's grant or denial of summary judgment." Myers v. Lutsen Mountains Corp., 587 F.3d 891, 892 (8th Cir. 2009).


A. Common-law Claims and RICO Claim

The plaintiffs argue that "[t]he record is replete with evidence" supporting Count V (aiding and abetting breach of fiduciary duty); Count VII (conspiracy to breach fiduciary duty); and Count IX (RICO). According to the plaintiffs, their evidence "is at least controverted and creates an issue of fact for the jury."

The plaintiffs do not set forth the elements of their common-law claims or the RICO claim, nor do they discuss any caselaw relevant to these claims. Instead, they dispute the district court's review of the facts, identifying 16 pieces of evidence that purportedly generate genuine issues of material fact on these claims.

Even if we overlook the plaintiffs' failure to cite any legal authorities in support of their RICO and common-law claims,12 those claims still fail. To prove a RICO violation, a plaintiff must produce evidence

   (1) that an enterprise existed;13 (2) that the enterprise affected interstate or foreign commerce; (3) that the defendant associated with the enterprise; (4) that the defendant [*21]  participated, directly or indirectly, in the conduct of the affairs of the enterprise; and (5) that the defendant participated in the enterprise through a pattern of racketeering activity by committing at least two racketeering (predicate) acts.

United States v. Darden, 70 F.3d 1507, 1518 (8th Cir. 1995). Racketeering (predicate) acts include money laundering, mail fraud, and wire fraud. See RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2105 (2016).

12   PNC argues that the plaintiffs did not properly present their RICO and common-law claims to this court because they failed to cite any legal authorities to support these claims. Federal Rule of Appellate Procedure 28(a)(8)(A) requires an appellant's brief to contain "appellant's contentions and the reasons for them, with citations to" legal authorities and the record. "[We] regularly decline to consider cursory or summary arguments that are unsupported by citations to legal authorities." United States v. Stuckey, 255 F.3d 528, 531 (8th Cir. 2001).

13   To prove that a RICO enterprise existed, a plaintiff

   must offer proof of (1) a common or shared purpose that animates the individuals associated with it, (2) a formal or informal organization of the participants in which they function as a unit, including some continuity of both structure and personnel, and (3) an ascertainable structure distinct from that inherent in the conduct of a pattern of racketeering activity.

United States v. Henley, 766 F.3d 893, 906 (8th Cir. 2014) (citing United States v. Kragness, 830 F.2d 842, 855 (8th Cir. 1987)).

"To establish the charge of conspiracy to violate the RICO statute . . . , [a party] must prove, in addition to elements one, two, and three described immediately above, that the defendant 'objectively manifested an agreement to participate . . . in the affairs of [the] enterprise.'" Darden, 70 F.3d at 1518 (second alteration and second ellipsis in original) (quoting United States v. Bennett, 44 F.3d 1364, 1374 (8th Cir. 1995)). The plaintiff need not provide "[p]roof of an express agreement." Id. Instead, the plaintiff "need only establish a tacit understanding between the parties, [*22]  and this may be shown wholly through the circumstantial evidence of [each defendant's] actions." Id. (alteration in original) (quoting United States v. Fregoso, 60 F.3d 1314, 1325 (8th Cir. 1995)). But the plaintiff "does have to show more than 'mere association with conspirators, knowledge of a conspiracy, and presence during conspiratorial discussions . . . .'" United States v. Muskovsky, 863 F.2d 1319, 1324 (7th Cir. 1988) (ellipsis in original) (quoting United States v. Percival, 756 F.2d 600, 610 (7th Cir. 1985)). The plaintiff must prove "that the defendant was aware of the scope of the enterprise and intended to participate in it." United States v. Stephens, 46 F.3d 587, 592 (7th Cir. 1995).

Under Missouri law,14 to prove conspiracy to breach fiduciary duties, a plaintiff must prove the elements of civil conspiracy,

   which are: (1) two or more persons, (2) an object to be accomplished, (3) a meeting of the minds on the object or course of action, (4) one or more unlawful overt acts, and (5) resulting damages. The essence of a civil conspiracy is an unlawful act agreed upon by two or more persons.

Mackey v. Mackey, 914 S.W.2d 48, 50 (Mo. Ct. App. 1996) (citation omitted). Regarding the third element, there must be evidence "that any two of the Defendants involved in the alleged civil conspiracy met, negotiated, and more importantly, achieved a meeting of the minds to carry out some unlawful purpose." Intertel, Inc. v. Sedgwick Claims Mgmt. Servs., Inc., 204 S.W.3d 183, 204-05 (Mo. Ct. App. 2006). "A meeting of the minds is present if each participant acted with 'a unity [*23]  of purpose or a common design and understanding.'" Glob. Control Sys., Inc. v. Luebbert, No. 4:14-CV-657-DGK, 2016 WL 910190, at *2 (W.D. Mo. Mar. 9, 2016) (quoting Oak Bluff Partners, Inc. v. Meyer, 3 S.W.3d 777, 781 (Mo. 1999) (en banc)); see also John Knox Vill. v. Fortis Constr. Co., LLC, 449 S.W.3d 68, 80 (Mo. Ct. App. 2014) ("Clear and convincing circumstantial evidence established that each of the Appellants acted with a 'unity of purpose,' a 'common design and understanding,' or 'a meeting of the minds' to unlawfully benefit themselves . . . .").

14   The parties agree that Missouri law applies to the plaintiffs' common-law claims.

To prove that a defendant aided and abetted,15 a plaintiff must show that the defendant "kn[ew] that the other's conduct constitutes a breach of duty and g[ave] substantial assistance or encouragement to the other so to conduct himself." Bradley v. Ray, 904 S.W.2d 302, 315 (Mo. Ct. App. 1995) (emphases in original) (quoting Restatement (Second) of Torts § 876(b) (Am. Law Inst. 1965)). The plaintiff must prove that the defendant "affirmatively act[ed] to aid the primary tortfeasor; neither failure to object to the tortious act nor defendant's mere presence at the commission of the tort is sufficient to charge one with responsibility." Id. The defendant must have "associate[d] himself in some way with the principal in bringing about the commission of the crime, and mere negative acquiescence is not sufficient." Id. (quoting State v. Clark, 596 S.W.2d 747, 751 (Mo. Ct. App. 1980)).

15   As the district court recognized, the Missouri Supreme Court has yet to decide whether Missouri recognizes a cause of action for aiding and abetting a breach of fiduciary duty. For purposes of appeal, we will assume that it does.

The plaintiffs rely primarily on Finn's unsworn declaration to prove their claims. In summary, that declaration shows that (1) [*24]  MGM paid Sigillito high fees (32 percent of the loan amount), which were "paid to Mr. Sigillito and his associates directly from the loan funds"; (2) these "up-front fees were not disclosed in the loan agreements"; (3) before her loan came due, Womack was repaid from Sigillito's IOLTA; (4) at the time of the Womack transaction, MGM had not repaid any of the loans; and (5) Finn had "suspicions that [Allegiant] did not want to custody these loans" based on "[t]he fact that investor money from Martin Sigillito's account was used to pay other investors." The plaintiffs also rely on Morse's unsworn declaration, in which he states that Finn "questioned [MGM's] ability to repay the loans" and "indicated that he thought the loans did not comply with regulatory requirements."17 And, the plaintiffs cite PNC's original answer in which it admitted that Allegiant "advised its counsel upon becoming suspicious of the activity in Sigillito's accounts and that counsel investigated the matter."18

17   The plaintiffs also rely on the "Minutes of Trust Committee Meeting" taken on August 14, 2001, which provide that "Markow . . . reported that the Co-Trustee and income beneficiary under the Bosse trust has again requested consideration of the purchase of first and second charges on real property in England (deeds of trust on English real property). After discussion, [Chief Financial Officer Jeff] Schatz stated that he would investigate the proposed investment further." As PNC points out, the record contains no evidence that Schatz conducted the investigation or what, if anything, he discovered. More importantly, this court is prohibited from considering the meeting minutes in light of the parties' stipulation prohibiting the plaintiffs from "refer[ring] to or introduc[ing] any evidence at trial or in dispositive motion briefing relating to (1) any member of the Bosse family . . . ."

The plaintiffs also argue that PNC admitted certain things by failing to deny them. In their amended complaint, the plaintiffs allege that "Allegiant's counsel, Jan Alonzo, after an extensive investigation, informed Hayes and Markow that Sigillito was diverting fiduciary funds in his IOLTA account in a classic Ponzi scheme where IOLTA payments to existing investors were being paid by IOLTA deposits from new investors." PNC originally responded, "PNC lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph and therefore denies the same." Thereafter, in its amended answer, PNC responded, "PNC can neither admit nor deny this allegation, because the substance of any communications between Allegiant Bank and its lawyers is privileged. PNC denies any remaining allegations contained in this paragraph." The plaintiffs argue that PNC admitted the allegation by failing to deny it. But in both its original and amended answer, PNC also made a general denial, stating, "PNC denies each and every allegation contained in Plaintiffs' First Amended Complaint, including all headings and sub-headings, that is not specifically admitted to be true in the preceding paragraphs of this Answer and Affirmative Defenses." Federal Rule of Civil Procedure 8(b)(3) provides that "[a] party that intends in good faith to deny all the allegations of a pleading . . . may do so by a general denial. A party that does not intend to deny all the allegations must either specifically deny designated allegations or generally deny all except those specifically admitted." In light of this general denial, we conclude that PNC satisfied the federal pleading rules.

18   In its amended answer, PNC denied the allegation. PNC argues on appeal that its amended answer superseded its original answer; therefore, we should not consider the original. Our consideration of the original answer, however, does not change the result.

We conclude that the plaintiffs' RICO and common-law claims fail because the aforementioned evidence does not generate genuine issues of material fact. The record is insufficient to establish a reasonable fact dispute [*25]  as to whether Allegiant, PNC's predecessor, objectively manifested an agreement to participate in criminal activity with Sigillito, had a meeting of the minds with Sigillito, or substantially assisted or encouraged Sigillito's conduct.19 First, none of the aforementioned evidence demonstrates that Allegiant "objectively manifested an agreement to participate . . . in the affairs of [the] enterprise." Darden, 70 F.3d at 1518 (alteration and ellipsis in original) (quoting Bennett, 44 F.3d at 1374). As the district court explained, "[a]t most, Finn's declaration demonstrates that [Allegiant] became suspicious of activity related to the Womack self-directed IRA and engaged in some level of review of the self-directed IRAs containing BLP loans." But Allegiant's suspicions about Sigillito's conduct are insufficient to prove that Allegiant "was aware of the scope of the enterprise and intended to participate in it." Stephens, 46 F.3d at 592. The district court correctly observed that "[i]f anything, the evidence establishes that [Allegiant] took steps to remove itself as custodian of accounts that contained problematic or unsuitable investments." Therefore, the plaintiffs' RICO claim fails as a matter of law.

19   As the district court correctly observed, the plaintiff failed to produce evidence of "the criminal activity being undertaken by Sigillito or Brown during the time Allegiant Bank served as the custodian for self-directed IRAs containing BLP loans." The plaintiffs have not put forth "evidence that establishes the BLP was fraudulent from its inception." Nonetheless, we will assume, without deciding, that some form of racketeering activity occurred during this time for purposes of the RICO claim. Additionally, we agree with the district court that the plaintiff failed to "establish[] what specific breach of fiduciary duty, or other unlawful act, Sigillito allegedly committed with respect to the[] common[-]law claims during th[e] [relevant] time period." Again, we will assume, without deciding, that Sigillito did breach a fiduciary duty for purposes of the common-law claims.

Second, the evidence fails to establish a "meeting [*26]  of the minds" between Allegiant and Sigillito. See Mackey, 914 S.W.2d at 50. Again, the plaintiffs' evidence shows only that Allegiant investigated Sigillito's suspicious activity. Allegiant's investigation of Sigillito's actions does not equate to conspiratorial conduct. Thus, the plaintiffs' claim of conspiracy to breach fiduciary duty fails.

Finally, the plaintiffs have produced no evidence showing how Allegiant substantially assisted or encouraged Sigillito's breach of fiduciary duty. See Bradley, 904 S.W.2d at 315. Instead, the plaintiffs' evidence shows the opposite--that Allegiant became suspicious of Sigillito and the loans to MGM and subsequently terminated its relationship with Sigillito. As a result, the plaintiffs' claim of aiding and abetting breach of fiduciary duty fails.


III. Conclusion

Accordingly, we affirm the judgment of the district court.

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