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Date: 01-11-2019
Case Style:
R.J. Zayed v. Associated Bank, N.A.
Case Number: 17-1250
Judge: Grasz
Court: United States Court of Appeals for the Eighth Circuit on appeal from the District of Minnesota (Hennepin County)
Plaintiff's Attorney:
Defendant's Attorney:
Description:
Over a period of several years, a group of scammers based in Minnesota
swindled investors out of more than one hundred million dollars in a prolific Ponzi
scheme utilizing numerous business entities. A receiver1 was appointed to take
charge of what assets remained in the business entities that were used to perpetrate
the scheme and to recover any assets he could for the victims of the fraud. The
Receiver sued Associated Bank, N.A., which provided banking services to some of
the scammers’ entities, accusing the bank of aiding and abetting the Ponzi scheme.
At issue in this appeal is whether the district court2 correctly concluded there was not
sufficient evidence to reasonably infer the bank knew about and assisted the
scammers’ tortious conduct. Because a conclusion that the bank aided and abetted
the Ponzi scheme could only be reached through considerable conjecture and
speculation, we affirm the district court.
I. Background
From 2006 to 2009, five individuals — Trevor Cook, Christopher Pettengill,
Jason Beckman, Gerald Durand, and Patrick Kiley (“the scammers”) — perpetrated
a Ponzi scheme that took in over $193 million from investors and returned only $49
million (all from new investors’ money). See United States v. Beckman, 787 F.3d
466, 474 (8th Cir. 2015) (discussing the scheme in an appeal from some of the
scammers’ criminal convictions). The scammers used a number of business entities
that went by several variations of names that included “UBS,” “Universal Brokerage,”
“Oxford,” “Crown Forex,” and “Basel Group.” See id. at 475, 488; Zayed v.
Associated Bank, N.A. (“Zayed I”), 779 F.3d 727, 730 (8th Cir. 2015). They told
potential investors that their investments would be held in segregated accounts,
1 After this case was filed, the receiver, R.J. Zayed, was granted leave to recuse
himself from the case and withdrew; three other attorneys were appointed to act in his
capacity as receiver in this litigation. As in our prior opinion in this case, “the
Receiver” is used to refer to the office of receiver and not any particular person.
Zayed v. Associated Bank, N.A. (“Zayed I”), 779 F.3d 727, 729 n.1 (8th Cir. 2015).
2 The Honorable David S. Doty, United States District Judge for the District of
Minnesota.
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completely liquid, and invested in a currency exchange program through a Swiss
company, Crown Forex, S.A. Zayed I, 779 F.3d at 730. Eventually, the scammers
were caught and ultimately sentenced to lengthy prison terms for various crimes
including wire and mail fraud and money laundering. See Beckman, 787 F.3d at 477.
When the fraud was uncovered in 2009, the U.S. Securities and Exchange
Commission and the U.S. Commodity Futures Trading Commission filed civil actions
against the scammers and their entities. In those civil actions, the district court
appointed a receiver, granting him the power to take control over the scammers’
entities and assets and to bring legal actions in order to discharge his duties.
In 2013, the Receiver filed suit against Associated Bank for allegedly aiding
and abetting the torts of fraud, breach of fiduciary duty, conversion, and negligent
misrepresentation. The allegations underlying these claims centered on one former
Associated Bank employee, Lien Sarles. Sarles helped open accounts for the
scammers and then serviced those accounts at the bank. The Receiver alleged Sarles
knew about and assisted in the scheme.
Later that year, the district court granted Associated Bank’s motion to dismiss,
concluding that the Receiver had not sufficiently pled a plausible claim that the bank
aided and abetted the scammers’ tortious conduct. On appeal, this Court reversed the
district court’s dismissal, concluding the Receiver’s pleadings were sufficient to
survive a motion to dismiss. See Zayed I, 779 F.3d 737.
After remand and discovery, Associated Bank moved for summary judgment.
The district court granted the motion, concluding there was insufficient evidence that
Associated Bank knew of and provided substantial assistance to the scammers’
tortious conduct. The Receiver filed a timely appeal.
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II. Discussion
The Receiver argues on appeal that the district court erred in granting summary
judgment to Associated Bank. Summary judgment is appropriate where a party
shows “there is no genuine dispute as to any material fact” and the party “is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A dispute of fact is “genuine”
if a factfinder could reasonably determine the issue in the non-moving party’s favor.
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factfinder’s
decision is reasonable if it is based on “sufficient probative evidence” and not on
“mere speculation, conjecture, or fantasy.” See Williams v. Mannis, 889 F.3d 926,
931 (8th Cir. 2018) (quoting Barber v. C1 Truck Driver Training, LLC, 656 F.3d 782,
801 (8th Cir. 2011). “We review an order granting summary judgment de novo.”
Oppedahl v. Mobile Drill Int'l, Inc., 899 F.3d 505, 509 (8th Cir. 2018).
The Receiver’s claims against Associated Bank are for aiding and abetting the
torts of conversion, breach of fiduciary duty, fraud, and negligent misrepresentation
— all under Minnesota law. Aiding and abetting is not an independent tort, but a
theory of liability under which a party may be held jointly and severally liable for the
underlying tort. See Leiendecker v. Asian Women United of Minnesota, 848 N.W.2d
224, 228 n.2 (Minn. 2014); Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179,
185–86 (Minn. 1999).
Under Minnesota law, a plaintiff must show three things to hold a defendant
liable for aiding and abetting a tort: first “the primary tortfeasor must commit a tort
that causes an injury to the plaintiff,” second “the defendant must know that the
primary tortfeasor's conduct constitutes a breach of duty,” and third “the defendant
must substantially assist or encourage the primary tortfeasor in the achievement of the
breach.” Zayed I, 779 F.3d at 733 (quoting Witzman, 601 N.W.2d at 187).
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The parties do not dispute the first element, that the scammers committed torts.
The question in this case is whether Associated Bank knew that the scammers were
engaged in the tortious Ponzi scheme, and substantially assisted the scammers in
achieving that scheme. See id. at 733.
A. Knowledge of the Ponzi Scheme
1. Actual Knowledge
Under Minnesota law, the scienter (knowledge requirement) for aiding and
abetting is “actual knowledge.” Varga v. U.S. Bank Nat. Ass’n, 952 F. Supp. 2d 850,
857 (D. Minn. 2013) aff’d, 764 F.3d 833 (8th Cir. 2014) (applying Minnesota law).
The evidence necessary to sufficiently show actual knowledge “depends in part on
the particular facts and circumstances of each case.” Witzman, 601 N.W.2d at 188.
“[W]here there is a minimal showing of substantial assistance, a greater showing of
scienter is required.” Id. (quoting Camp v. Dema, 948 F.2d 455, 459 (8th Cir.1991)).
Courts consider “[f]actors such as the relationship between the defendant and the
primary tortfeasor, the nature of the primary tortfeasor’s activity, the nature of the
assistance provided by the defendant, and the defendant’s state of mind.” Id.
“While knowledge may be shown by circumstantial evidence, ‘courts stress that
the requirement is actual knowledge and the circumstantial evidence must
demonstrate that the aider-and-abettor actually knew of the underlying wrongs
committed.’” Varga, 952 F. Supp. 2d at 857 (quoting Wiand v. Wells Fargo Bank,
N.A., 938 F. Supp. 2d 1238, 1244 (M.D. Fla. 2013)). A plaintiff must show more than
“awareness of the conduct in question . . ., that it raised ‘red flags,’ . . . or even that
it amounted to gross negligence,” but must show that the defendant “was aware of the
wrongfulness of the challenged conduct.” Id. at 858 (citing Camp, 948 F.2d at 459,
463; Wiand, 938 F. Supp. 2d at 1244; Witzman, 601 N.W.2d at 188).
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The summary judgment record contains no direct evidence Sarles or anyone at
Associated Bank knew of the Ponzi scheme. In fact, all of the direct evidence was
to the contrary. The Receiver’s own expert witness agreed that “[there was] nobody
at the bank who put this information together and determined there was a Ponzi
scheme going on.” Associated Bank’s expert stated that he agreed with the
Receiver’s expert that “there is no one at Associated Bank who actually concluded
. . . that the [scammers’ entities] were engaged in a Ponzi scheme.” David Martens,
Associated Bank’s regional security officer, testified based on his extensive law
enforcement experience that he believed Sarles’s actions were attributable to “sloppy
banking” rather than anything “nefarious.” Two of Sarles’s coworkers testified that
they did not observe anything that would indicate to them that Sarles knew about the
Ponzi scheme. Ryan Rasske, Associated Bank’s Director of Risk and Financial
Crimes, testified that he had not uncovered any evidence that Sarles or anyone at
Associated Bank knew of the Ponzi scheme. Furthermore, an employee of one of the
scammers testified that she had no evidence Sarles knew of the Ponzi scheme. One
of the scammers, Pettengill, said that Sarles was not part of the fraud. Another
scammer, Cook, testified that Sarles “knew nothing about what was going on.”
Given this absence of direct evidence, the Receiver attempted to amass
circumstantial evidence that he claimed showed that Sarles had actual knowledge of
the Ponzi scheme. But none of the circumstantial evidence compiled by the Receiver
points to anything more than “sloppy banking” by Sarles or “red flags” that, with the
benefit of hindsight, should have prompted further investigation or inquiry. Even on
this twenty-seven volume, six-thousand page record, the leap cannot be made to infer
that Sarles or anyone at Associated Bank actually knew about the Ponzi scheme
without resorting to speculation and conjecture. See Williams, 889 F.3d at 931
(discussing the summary judgment standard).
Sarles first met Kiley, one of the scammers, around December 2007 when
Sarles pitched him on switching his business’s banking services to Associated Bank.
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Sarles, who held the position of assistant vice president at Associated Bank, had the
primary job duties of “marketing, opening new commercial accounts, and providing
account management and services to new and existing commercial customers.”
Sarles first opened an account for Kiley for the entity Universal Brokerage FX
Management, LLC in January 2008. Between then and June 2009, Sarles opened a
total of eight accounts at Associated Bank for Kiley and fellow scammer Cook for
different entities.
In June 2008, Sarles opened an account for “Crown Forex LLC” for Cook. The
Receiver argues that the fact this account was opened in the name of a domestic entity
shows that Sarles knew about the Ponzi scheme and was attempting to help the
scammers avoid detection. According to Cook, he intended to open an account for
Crown Forex, S.A., the Swiss investing entity, but Sarles suggested that he open it
under the name of a domestic limited liability company. Cook explained that he did
not think Sarles thought this was improper or fraudulent:
[Sarles] certainly understood it was . . . a different entity, but . . . I don’t
think that he thought there was a fraud going on. . . . I think it’s common
that businesses have all kinds of holding companies and sub entities and
different entities. . . . [W]e told him that . . . the Crown Forex, LLC
account was part of Crown Forex, and it was on their books, so I’m not
so sure I’d say [Sarles] knew something, you know, fishy was going on.
Sarles himself testified that he believed that in order for foreign business entities to
open a bank account, “they have to have a domestic entity.” He was merely following
policy for foreign-owned corporations, and nothing in the record suggests Sarles
thought that it was in any way illegitimate or fraudulent to open the Crown Forex
account under the name of a domestic entity.
The Crown Forex LLC account was opened as a “checking/money market”
account. The Receiver argues that opening this type of account was intended by
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Sarles to help the scammers avoid detection. He claims that Sarles should have
selected an account type that indicated fiduciary status or that it held investor funds.
But the Receiver has not pointed to anything in the record that shows that Associated
Bank had such specific types of accounts, much less policies requiring their use. In
fact, the portfolio specialist who actually prepared the account opening form selected3
the “checking/money market” option from a list of account types that also included
“savings, time deposit, [and] loan account.” The record does not support the claim
that the Crown Forex account was nefariously opened as a checking account by Sarles
or anyone else at Associated Bank to avoid detection and further the Ponzi scheme.
The Receiver also places great emphasis on the fact that Sarles opened the
Crown Forex LLC account for Cook without receiving proof that the company was
registered with the Minnesota Secretary of State. Sarles received all the necessary
documentation, except for the proof of registration, but did receive an application for
articles of incorporation which he was told was being submitted to the state. Sarles
testified that he:
receiv[ed] the application that was completed that was en route to be
filed with the Secretary of State, therefore, the rapport and trust that I
believed I had, I was providing above and beyond customer service to
execute the client’s request by opening up the account with the
assumption I’d be receiving the state certificate within that two week
period or so it takes to generate from the Secretary of State.
The account opening form, under the section for “documentation provided,” listed
“[r]eport from a state registration information website,” although the specialist who
opened the account was not sure if she typed that response or selected it from a drop-
There is some evidence 3 that Sarles directed (or that a banker in his position
would typically direct) the selection of the account type. Assuming Sarles was
responsible for the choice of account type, this fact still does not support the
Receiver’s allegation of actual knowledge.
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down menu as “the one option that closest describe[d] the one item [of
documentation] that we ha[d].” Sarles did not follow up on the missing paperwork.
He said that after the Ponzi scheme was uncovered, he learned that Crown Forex LLC
was never registered with the state. Of the eight accounts opened by the scammers
at Associated Bank, only the Crown Forex LLC account and an account for Basel
Group LLC were opened without certifying that the entities were registered with the
state. Concluding that Sarles opened the Crown Forex and Basel Group accounts
because he knew that Cook and others were engaged in a Ponzi scheme, rather than
simply out of an effort to please an important client, would require speculation and
is not a reasonable inference.
The Receiver also emphasizes that Sarles socialized with the scammers. The
precise extent of that socialization is disputed, but none of the evidence supports an
inference that Sarles learned about the Ponzi scheme through it. Interestingly, the
Receiver also resorts to arguing that Sarles had knowledge of the Ponzi scheme
because the scammers would sometimes quote lines about greed from movies like
Wall Street and Boiler Room. This argument borders on absurdity and illustrates the
lack of meaningful evidence that Sarles had knowledge of the Ponzi scheme. Quoting
lines from movies about greed and scheming does not reveal one to be running a
Ponzi scheme any more than quoting lines from The Godfather reveals one to be a
mobster.
The receiver also claimed that Sarles duped a contractor who worked for the
scammers into signing a blank account opening form. This assertion is unsupported
by the record. The contractor never claimed the form was blank or that he was
misled. The form he signed made him a signatory so he could cash checks and get
a company credit card, as he had with their Wells Fargo account, in order to purchase
supplies for the maintenance of the mansion in which the scammers conducted their
business.
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Another basis for the Receiver’s claim that Sarles knew about the Ponzi scheme
is the allegations by one of the scammers that Sarles was present at certain meetings.
Pettengill claimed that around April 2008 he saw Sarles in attendance at an
investment seminar at the Van Dusen mansion, although Sarles testified that he never
attended any such seminars. The Receiver claims that a sophisticated banker like
Sarles must have known that the investment pitch was a scam. But Pettengill
admitted that Sarles did not say or do anything that would lead him to believe that
Sarles did not believe the investment pitch or knew it was fraudulent.
Pettengill also claimed that Sarles attended a meeting in April or May 2008 at
which the scammers discussed segregating client accounts. A closer look at this
claim shows that it does not support an inference that Sarles knew the scammers were
engaged in fraud. Pettengill himself said that he did not know client funds were
being used to make up the shortfall in money until months after this meeting. Prior
to the meeting, the scammers had been advised by their attorneys to “repaper” their
client accounts by segregating their single, pooled bank account into separate client
accounts. According to Pettengill, it was discussed that Associated Bank would
facilitate the wire transfers from the Swiss Crown Forex account, back to the U.S.
Crown Forex account, then back again into segregated client accounts in Switzerland.
But Pettengill admitted in his deposition that the manner in which the transfers were
to be done — by performing multiple transfers in order to cover up the shortfall of
money in the Swiss account — was never disclosed to Sarles. Pettengill claimed that
it was “implied” that they were covering up a shortfall of money, although he
provides no support for this assertion. Even assuming Sarles knew there was a
shortfall in the Swiss Crown Forex entity, and that the scammers wanted to avoid
disclosing that, it does not follow that Sarles knew their enterprise was a Ponzi
scheme or that they were engaged in tortious conduct. If true, this should have been
a red flag, but it does not show actual knowledge. Moreover, Pettengill never
claimed the scammers discussed in Sarles’s presence using new clients’ money to
make up for the shortfall in the Swiss Crown Forex account. Pettengill’s testimony
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is insufficient to support an inference that Sarles knew the scammers were engaged
in tortious conduct.
The Receiver also claimed Sarles improperly approved transfers of money
between bank accounts for the scammers. Specifically, he claims that Sarles
approved transfers at Cook’s behest from the Crown Forex accounts, on which Kiley
and Smith — but not Cook — were signatories, into accounts on which Cook was
a signatory. Only three of the transfer forms cited by the Receiver, however, actually
reference Cook. Assuming that Sarles authorized these transfers for Cook, there is
still no evidence that the account signatories did not approve of these transfers. Smith
would at times transfer money by forwarding emailed directions from Cook to the
bank. Even if Sarles had transferred money at Cook’s behest on an account on which
Smith was the signatory, this would only show that he was being sloppy with
formalities when he knew that Cook and Smith (and the other scammers) were
working together — it would not show that Sarles knew there was a Ponzi scheme
afoot. Additionally, in June 2009, Cook requested a $600,000 withdrawal from the
Oxford Global account, on which he was a signatory. The withdrawal was approved
only after Sarles contacted his supervisor and the bank ensured that all procedures
had been properly followed. Nothing about these transfers or the withdrawal suggest
that Sarles knew about the Ponzi scheme.
The Receiver argues that in 2009, money continued to flow in and out of the
Crown Forex account, even “after Sarles had learned that Swiss authorities had shut
down Crown Forex, S.A., rendering the sole investment vehicle of the scheme
obviously impossible.” But the record contains no evidence to support the claim that
Sarles knew the Swiss entity had been shut down. In fact, the Receiver’s own expert
report states that if Associated Bank had the proper due diligence procedures, it
would have learned of this information, but does not claim that anyone at the bank
actually did learn of it.
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Finally, the Receiver argues in his brief that just before Sarles was fired, “the
Bank itself began a drumbeat of instructions to Sarles to delete emails – prohibiting
him from using the email account unless he did so,” and that “[n]othing indicates that
Sarles failed to destroy these documents, as the Bank instructed him to do.”
Examination of these emails shows they are not the nefarious messages the Receiver
makes them out to be. Rather, they are standard notifications that the storage on
Sarles’s email inbox was full, sent by the bank’s Microsoft Exchange Server.
Moreover, prior to these notifications and Sarles’s termination, his email inbox was
preserved and reviewed by a bank security officer, which revealed “[n]othing out of
the ordinary.” The characterization of these emails by the Receiver to this Court is,
at best, misleading. Sarles’s full inbox does not show him to be aware of the Ponzi
scheme or that the bank was attempting to cover anything up.
In sum, the evidence cited by the Receiver simply does not support a
reasonable inference that Sarles or anyone at Associated Bank had actual knowledge
of the scammers’ torts. Nor does looking to all the circumstantial evidence
collectively allow for such a conclusion without resorting to speculation and
conjecture. After all, “in law as in mathematics zero plus zero equals zero.”
Henderson v. Kennedy, 253 F.3d 12, 19 (D.C. Cir. 2001).
2. Constructive Knowledge
The Receiver alternatively argues that he need not show that Associated Bank
had actual knowledge of the scammers’ torts to impose aiding and abetting liability,
but that “constructive knowledge” is sufficient. We disagree, but in any event, the
summary judgment record here is insufficient to support a finding of constructive
knowledge.
The Receiver rests his constructive knowledge argument on a single reference
in the Minnesota Supreme Court’s opinion in Witzman, in which the Court stated
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while discussing aiding and abetting liability that “some courts” have found that a
defendant may be deemed to have constructive knowledge of a tort “where the
primary tortfeasor’s conduct is clearly tortious or illegal,” where “[the] defendant
[has] a long-term or in-depth relationship with that tortfeasor,” and “where the
conduct is [] a facial breach of duty.” 601 N.W.2d at 188. After making this
observation, however, the Court in Witzman applied an actual knowledge test. Id.
We agree with the district court in Varga, 952 F. Supp. 2d at 857, that under
Minnesota law, “[c]onstructive knowledge will not suffice.”
Even assuming that constructive knowledge could be sufficient, it cannot be
imputed to Sarles and Associated Bank on this record. The actions of the scammers
known to Associated Bank were not “clearly tortious or illegal.” Rather, what was
later revealed to be a fraud was a sophisticated Ponzi scheme that went undetected for
years. Nor did Sarles or Associated Bank have “a long-term or in-depth relationship”
with the scammers. The professional relationship between the scammers and Sarles
and the bank, even with Sarles’s socializing, does not meet this standard. Nor was
the Ponzi scheme “a facial breach of duty.” On its face, it appeared to be a legitimate
investing business. Thus, a finding of constructive knowledge could not be supported
by this record, even if constructive knowledge was sufficient under Minnesota law
to impose aiding and abetting liability.
B. Substantial Assistance in the Scheme
In addition to showing actual knowledge, a plaintiff must show that a defendant
provided substantial assistance to the primary tortfeasor in order to impose aiding and
abetting liability. Witzman, 601 N.W.2d at 188–89. This element is evaluated in
tandem with the knowledge requirement. Id. Thus, the weaker the evidence of
knowledge is, the greater the showing of substantial assistance must be. See id.
“[C]onduct that inadvertently advances the [underlying tort] does not amount to
substantial assistance.” Varga, 764 F.3d at (quoting Camp, 948 F.2d at 460). In
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addition, “‘[s]ome element of blameworthiness’ must be present in the defendant’s
assistance.” Id.
The Minnesota Supreme Court has said that in the context of professionals,
“‘substantial assistance’ means something more than the provision of routine
professional services.” Witzman, 601 N.W.2d at 189. The Court in Witzman said that
allegations against the defendant, an accounting firm, involved nothing more than the
“performance of routine accounting duties,” and went on to say: “If we were to
recognize that such routine services constitute substantial assistance, then it would
be the rare accountant indeed who would not be subject to automatic liability merely
because his client happened to be a tortfeasor.” Id. The same could easily be said of
banks.
While the Receiver’s claim fails because of the lack of evidence of actual
knowledge, we also conclude that no reasonable factfinder could conclude that
Associated Bank provided substantial assistance to the scammers in the commission
of their torts. The evidence that the Receiver claims shows substantial assistance is
largely the same evidence it claims shows knowledge. The substantial assistance
element is found wanting for many of the same reasons as the knowledge element.
The record shows nothing beyond the provision of routine banking services or, at
worst, sloppy banking. The bank provided nothing beyond its standard professional
services to assist the scammers in perpetrating their Ponzi scheme. No reasonable
factfinder could conclude that Associated Bank provided substantial assistance to the
scammers’ tortious conduct.
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III. Conclusion
To show a genuine dispute of material fact, a party must provide more than
conjecture and speculation. The Receiver has not done so. We affirm.
KELLY, Circuit Judge, dissenting.
“[A] ‘judge’s function’ at summary judgment is not ‘to weigh the evidence and
determine the truth of the matter but to determine whether there is a genuine issue for
trial.’” Tolan v. Cotton, 572 U.S. 650, 656 (2014) (per curiam) (quoting Anderson,
477 U.S. at 249). And it is “axiom[atic] that in ruling on a motion for summary
judgment, ‘[t]he evidence of the nonmovant is to be believed, and all justifiable
inferences are to be drawn in his favor.’” Id. at 651 (second alteration in original)
(quoting Anderson, 477 U.S. at 255). Our task at summary judgment is particularly
delicate where, as here, the record is fact-intensive and much of the evidence is
circumstantial. After all, we have explained that “[a] given piece of circumstantial
evidence may equally support many inferences,” and it is a “fallacy” to “assum[e] that
only inferences that are more probable than other inferences may be drawn from
[such] evidence.” Grinder v. S. Farm Bureau Cas. Ins. Co., 590 F.2d 741, 744 (8th
Cir. 1979). The “drawing of legitimate inferences”—that is, deciding which of the
permissible inferences ultimately to draw—is a function for the jury. Anderson, 477
U.S. at 255. Our task here is simply to assess “whether the evidence presents a
sufficient disagreement to require submission to a jury or whether it is so one-sided
that one party must prevail as a matter of law.” Id. at 251–52. In my view, the
evidence here is not “so one-sided,” and I would reverse the judgment of the district
court and allow the Receiver’s claims to proceed to trial.
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When properly viewed in the light most favorable to the Receiver, the record
reveals a genuine dispute of material fact as to both (1) whether Sarles actually
“kn[ew] that the primary tortfeasor[s’] conduct constitute[d] a breach of duty;”4 and
(2) whether he “substantially assist[ed] or encourage[d] the primary tortfeasor[s] in
the achievement of the breach.” Zayed I, 779 F.3d at 733 (quoting Witzman, 601
N.W.2d at 187). As the court notes, we evaluate these elements in tandem, Witzman,
601 N.W.2d at 188, and both can be proved by circumstantial evidence, K & S P’ship
v. Cont’l Bank, N.A., 952 F.2d 971, 977 (8th Cir. 1991); Ariola v. City of Stillwater,
889 N.W.2d 340, 356–57 (Minn. Ct. App. 2017), review denied (Apr. 18, 2017).
“[W]here there is a minimal showing of substantial assistance, a greater showing of
scienter is required.” Camp v. Dema, 948 F.2d 455, 459 (8th Cir. 1991) (quoting
Metge v. Baehler, 762 F.2d 621, 624 (8th Cir. 1985)). “Factors such as the
relationship between the defendant and the primary tortfeasor, the nature of the
primary tortfeasor’s activity, the nature of the assistance provided by the defendant,
and the defendant’s state of mind all come into play.” Witzman, 601 N.W.2d at 188.
I.
Here, the Receiver has “present[ed] evidence from which a jury might”
conclude that Sarles knew that the principals were committing the torts of conversion,
breach of fiduciary duty, fraud, and false representations, and that he substantially
assisted them in committing those torts. Anderson, 477 U.S. at 257. Viewed in the
light most favorable to the Receiver, the record demonstrates that Sarles was
intimately aware of the principals’ business (which was a fraud); took action to assist
4Were it necessary to reach the issue, I would be inclined to agree with the
court that Minnesota does not recognize a “constructive knowledge” standard. But
it is unnecessary to resolve that issue now because there is substantial circumstantial
evidence from which a jury could reasonably conclude that Sarles had actual
knowledge of the principals’ tortious conduct.
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them in furthering their tortious conduct; and was unusually close with the principals,
and with Cook in particular.
For instance, a jury could reasonably conclude that Sarles knew of the tortious
conduct based in part on his attendance at several key meetings in 2008. Pettengill
testified that around April 2008, he saw Sarles at an investment seminar, which Sarles
attended to “see what [the principals] did.” As we have previously described, the
principals would pitch a “risk-free,” “completely safe” investment scheme that duped
investors into believing that “they would be investing in foreign currency trading,
which was guaranteed and had a fixed rate every month.” Beckman, 787 F.3d at 475
(cleaned up). Sarles was an experienced banker who had received bank secrecy and
anti-money laundering training. At the very least, a jury could reasonably conclude
that from this point on, Sarles began to gather sufficient information to know that the
principals were dishonest and pitching a scam. The court, however, dismisses this
evidence because Pettengill agreed that Sarles said nothing at the seminar to indicate
he (Sarles) knew the pitch was fraudulent. But Pettengill said that his only interaction
with Sarles at the seminar was to exchange a simple greeting, and that it was before
the seminar even began.
After the investment seminar, Sarles attended a critical meeting where,
according to Pettengill, the principals made Sarles aware of two key facts: (1) that the
Swiss Crown Forex S.A. account had a $2 million balance that they needed to make
appear as a $15 million balance through a “repapering” effort involving wire transfers
from the insolvent Swiss account to a U.S. account; and (2) that they needed a
“friendly banker” to “make it look clean” and “get around Wells Fargo’s questioning
all the wire transfers” and that bank’s growing suspicions. According to Pettengill,
Sarles “agree[d] to the process,” which was impliedly illegal, and said something
along the lines of, “Yes, I can move the money in this way.” Again according to
Pettengill, Cook said that Sarles “[is] going to be our new banker. . . . And he will do
whatever we need to do to open accounts and do the wire transfer and do whatever
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we need[] to have done.” Pettengill’s impression was that Cook chose to work
specifically with Sarles because Sarles “was our guy and . . . would do whatever Cook
wanted, even if it was legal or illegal.”
The timing of these events is important. It was after attending the seminar and
the above-described meeting that Sarles helped the principals open several accounts
that became central to the principals’ torts. The first was the U.S. Crown Forex LLC
account. Kiley and Smith were the only signatories on the account, but Sarles opened
it at Cook’s direction. Sarles knew that the account was supposed to hold investor
funds, yet evidence in the record indicates that it was opened as a “Checking/Money
Market” account. Moreover, although the account-opening form states that a
“[r]eport from a state registration information website” had been received to verify
LLC status, Sarles admitted that “when [he] opened the Crown Forex LLC account,
[he] was not provided with Secretary of State registration documentation,” in
violation of Associated Bank’s procedures. It is true, as the court notes, that Sarles
testified that all he was doing by opening the account without proper documentation
was providing “above and beyond customer service.” But it is not up to us to
definitively credit this testimony where there is conflicting evidence in the record.5
Although Sarles claims he expected to receive the required documents at a later date,
5There is plenty of evidence impeaching Sarles’s credibility, including his
conflicting testimony about the nature of his social interactions with the principals.
See Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 151 (2000) (noting
that at summary judgment, courts “must disregard all evidence favorable to the
moving party that the jury is not required to believe. That is, the court should give
credence to the evidence favoring the nonmovant as well as that ‘evidence supporting
the moving party that is uncontradicted and unimpeached, at least to the extent that
that evidence comes from disinterested witnesses’” (citation omitted) (quoting 9A
Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2529 (2d
ed.1995))). Moreover, at least two witnesses suggested that Sarles asked them to sign
blank bank forms—or, in other words, that he opened accounts without required
documentation.
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he never received them and he never followed up. After assessing the credibility of
those involved, a jury could reasonably conclude that this evidence supports a finding
that Sarles had knowledge of the principals’ tortious conduct. See Anderson, 477
U.S. at 255 (“[C]redibility determinations . . . and the drawing of legitimate
inferences from the facts are jury functions, not those of a judge . . . .”).
After opening the Crown Forex LLC account, Sarles opened four more
accounts associated with the scheme. These accounts contained a variant of the name
“Oxford,” had the same address, and were opened 6 within a three-month period.
According to Sarles, Cook told him that one of these accounts, Oxford Global FX, on
which Cook was the sole signatory, would not hold investor funds. Leo
Domenichetti, a contractor hired to perform general maintenance on Cook’s
properties, was also a signatory on one of the Oxford Global accounts. This was so
even though he had no substantive role in the principals’ “business.” According to
Domenichetti, Sarles directed him to sign an account form that he had not read.
Domenichetti also said that, when he signed it, portions of the form were covered up,
and the other signatories’ lines were blank. Domenichetti also testified that the
“Administrative Assistant” title that was next to his name on the form—a title
Domenichetti characterized as “baloney”—was added after he signed it.
The circumstances surrounding the opening of the Oxford accounts are not
insignificant.7 A jury, of course, would be entitled to give this evidence little weight,
6For example, Oxford Global Investments Inc., Oxford Global Partners LLC,
and Oxford Global FX, LLC.
7In fact, David Martens, who was employed in bank security at Associated
Bank while the fraud unfolded, testified that the opening, within a short time period,
of multiple bank accounts with similar names listing the same address might evince
fraud. Although he characterized Sarles’s conduct as nothing but “sloppy banking,”
the drawing of ultimate conclusions from Martens’s testimony is a function for the
jury.
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or to decline to draw an inference of knowledge from these facts. But at this juncture,
we can do neither.
A reasonable jury could also consider the evidence that Sarles personally
assisted Cook in improperly transferring millions of dollars from investor accounts
to Cook’s account. For instance, on April 30, 2009, Sarles approved Cook’s request
to transfer $1.7 million of investor funds from the Crown Forex LLC account (on
which Cook was not a signatory) to Cook’s Oxford Global FX account (on which he
was the sole signatory). Substantial record 8 evidence, including from Associated
Bank security employees, indicates that Sarles’s approval of that transfer violated
bank policy and industry standards. This improper transfer went undetected until
Cook sought to withdraw $600,000 of that $1.7 million, in cash, to buy a yacht. At
that point, the transfer caught the attention of other bankers. Associated Bank Senior
Vice President Steven Bianchi halted the $600,000 withdrawal. He explained that
Cook could not withdraw the money because the funds came from the $1.7 million
that had been improperly transferred by Sarles. He explained:
The [$1.7 million] should have been transferred by Crown Forex with
an internal wire transfer instead of [the] internal bank transfer [approved
by Sarles]. Because ownership and signers are not the same or
overlapping, the money should be deposited into Oxford Global via
check or wire. The accounts are not related. Therefore, the transfer
will be reversed (money taken out of Oxford Global and returned to
Crown Forex) and Crown Forex will be instructed to transfer via internal
wire transfer the $600,000 in question. After this internal wire has been
verified, I will provide approval for this order to purchase cash.
(emphasis added).
8Smith initiated the request, but the record shows Cook directed her to do so.
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Associated Bank ultimately permitted Cook to leave the bank with $600,000
of investor funds, but the process leading up to that withdrawal is relevant to the
analysis. I respectfully disagree with the court’s conclusion that this evidence
suggests Sarles “contacted his supervisor” to ensure that “all procedures had been
properly followed” before Cook could withdraw the $600,000. To the contrary, when
viewed in the light most favorable to the Receiver, this evidence suggests that Sarles
directly assisted Cook—in violation of bank policy and industry standards—in
withdrawing investor funds for Cook’s own use. Moreover, this improper transfer
(and withdrawal) is not an outlier. Record evidence shows Sarles approved additional
transfers of $1 and $2 million of investor funds from the Crown Forex LLC account
to Cook’s own Oxford Global FX account. The jury—not judges—must evaluate and
weigh this evidence.
In determining whether there is sufficient evidence of knowledge, both the
relationship between Sarles and the “primary tortfeasor[s]” and Sarles’s “state of
mind . . . come into play.” Witzman, 601 N.W.2d at 188. Repeatedly, Pettengill
indicated that the principals created an environment where the “operation” was seen
as a “‘game’ to get people’s money.” Pettengill “knew that things weren’t right from
the beginning,” even if he did not know the precise “details” and “extent” of the fraud
until later. According to Pettengill, Sarles too was immersed in this environment.
Pettengill stated that he saw Sarles at the Van Dusen mansion “perhaps a dozen
times,” and with Cook “around six times discussing business and drinking.”9 As to
these interactions, Pettengill said, “[m]any times we would just hang out in Cook’s
office and we . . . would just be drinking and [Cook] would spout off on, you know,
‘Greed is good’” and quote movie lines about greed and money. The point of this
evidence is not whether Sarles knew about the tortious conduct simply because he
heard the principals recite movie lines. The point is whether a jury could reasonably
9Sarles himself testified that he spoke to Cook on the phone at a “minimum”
once a week, and often more frequently than that.
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infer that Sarles knew of the tortious conduct based, at least in part, on his active
participation in an atmosphere where greed was openly glorified and getting people’s
money was viewed as a game—a 193-million-dollar game that cost some victims their
entire life savings. See Beckman, 787 F.3d at 474.
To be sure, each individual piece of evidence described above, standing alone,
may not be sufficient to indicate Sarles knew of every detail of the Ponzi scheme and
its full extent. But the case before us is for aiding and abetting the specific torts of
breach of fiduciary duty, conversion, false representation, and fraud. Associated
Bank, in fact, concedes that these specific torts were “committed by the operators of
a Ponzi scheme who stole investors’ money from 2006 until 2009.” When viewed as
a whole, see Reeves, 530 U.S. at 151, the evidence could lead a reasonable jury to
conclude that Sarles knew that the principals’ conduct constituted each of the alleged
torts. A jury could conclude that Sarles knew 10 of the principals’ breach of fiduciary
duty because, among other things, he helped Cook withdraw hundreds of thousands
of dollars of investor funds for use inconsistent with the funds’ intended purpose and
helped the principals implement an illegal scheme designed to mask a $13 million
shortfall of investor funds. Cf. Reisdorf v. i3, LLC, 129 F. Supp. 3d 751, 767 (D.
Minn. 2015) (Under Minnesota law, “[f]iduciary duty requires officers and directors
‘to act in good faith, with honesty in fact, with loyalty, in the best interests of the
[beneficiary].’”); Vacinek v. First Nat’l Bank of Pine City, 416 N.W.2d 795, 799
(Minn. Ct. App. 1987) (explaining that fiduciary relationships are characterized by
two attributes: “superiority of knowledge of one party and confidence reposed by the
other”).
10Regrettably, the Receiver fails to engage in the required tort-by-tort analysis
in its brief, even though he argues that the district court erred in failing to analyze the
claims individually. The fact that Associated Bank concedes the principals
committed the torts, but neither party elaborates on this point, further complicates our
task at summary judgment.
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A jury could also conclude that Sarles had knowledge of the tort of conversion
based on this same evidence, that is, that he personally assisted the principals in
transferring (and withdrawing) at least $600,000 of investor funds for Cook’s own
use. See Rudnitski v. Seely, 452 N.W.2d 664, 668 (Minn. 1990) (“Conversion is the
exercise of dominion and control over goods inconsistent with, and in repudiation of,
the owner’s rights in those goods.”). Similarly, a jury could find that Sarles had
knowledge of the tort of false representations because he knew what the principals
promised investors, but also knew that investor funds were being misused. See
Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 532 (Minn. 1986) (listing the
elements of an affirmative misrepresentation claim in Minnesota as requiring that:
“(1) there was a false representation by a party of a past or existing material fact
susceptible of knowledge; (2) made with knowledge of the falsity of the
representation . . . ; (3) with the intention to induce another to act in reliance thereon;
(4) that the representation caused the other party to act in reliance thereon; and (5)
that the party suffer pecuniary damage as a result of the reliance”).
Sarles’s knowledge of the fraud claim presents a closer call. The Receiver’s
complaint alleges the fraud claim specifically as a “Ponzi scheme”—a type of fraud
in which “the operator promises investors returns on their investment which the
operator intends to pay from funds provided by new investors, rather than from
profits generated by the underlying business venture.” In re Armstrong, 285 F.3d
1092, 1093 n.3 (8th Cir. 2002). In my view, however, Sarles’s willingness to help the
principals open accounts to make a $2 million balance appear as a $15 million
balance coupled with the other evidence of banking improprieties prevents us from
concluding, as a matter of law, that he had no knowledge of the Ponzi scheme.
As the court notes, the evidence in this case is largely circumstantial. But
refusing to submit to a jury circumstantial evidence of the type found here comes far
too close to impermissibly requiring direct evidence of actual knowledge even where
circumstantial evidence in fact can and may suffice. See United States v. Hirani, 824
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F.3d 741, 747 (8th Cir. 2016) (“In both civil and criminal cases, circumstantial
evidence is considered just as probative as direct evidence . . . .”). Moreover, as we
have often explained, fact-intensive inquiries, in particular those containing a
knowledge component, “[are] generally inappropriate for summary judgment.” Best
Buy Stores, L.P. v. Benderson-Wainberg Assocs., L.P., 668 F.3d 1019, 1030 (8th Cir.
2012) (reversing grant of summary judgment on affirmative defenses containing
knowledge as an element). “[A] non-moving party survives summary judgment when
the facts, while thin, enable a jury to draw a reasonable inference for its claim.” Hill
v. Sw. Energy Co., 858 F.3d 481, 487 (8th Cir. 2017) (cleaned up).
II.
The above-described circumstantial evidence could also lead a jury reasonably
to conclude that Sarles substantially assisted the principals’ torts. To qualify under
Minnesota law, “[a]ssitance must further the [tort] itself, and not merely constitute
general aid to the tortfeasor.” Zayed I, 779 F.3d at 735 (cleaned up). “‘[S]ubstantial
assistance’ means something more than the provision of routine professional
services.” Witzman, 601 N.W.2d at 189. Viewing the evidence in the light most
favorable to the Receiver, a jury could reasonably conclude that Sarles did more than
provide the principals with ordinary banking services. He opened accounts—without
the proper documentation—to assist them in an illegal “repapering” effort after Wells
Fargo had grown suspicious of the principals’ banking activity. He helped Cook
transfer and withdraw large sums of investor funds for his own use and in violation
of Associated Bank’s policies and industry standards. Cf id. (holding that the
plaintiff failed to state a claim when “[t]he only ‘assistance’” she alleged was
“performance of routine accounting duties—i.e., preparing financial statements,”
etc.). Assessed in tandem with the evidence of Sarles’s knowledge of the principals’
“business model” promising risk-free and guaranteed returns, and viewed in the light
most favorable to the Receiver, this evidence suggests that Sarles was far more than
a mere bystander. Cf id. (“The mere presence of the particular defendant at the
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commission of the wrong, or his failure to object to it, is not enough to charge him
with responsibility.” (cleaned up)).
In sum, I believe the Receiver has presented sufficient evidence to defeat
summary judgment. Accordingly, I respectfully dissent.
Outcome: Affirmed
Plaintiff's Experts:
Defendant's Experts:
Comments: