Behrens et al v. JP Morgan Chase Bank N. A. et al

MEMORANDUM OF LAW in Support re: 86 MOTION to Dismiss the Amended Complaint. . Document

S.D.N.Y.November 9, 2017

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------------X BRUCE BEHRENS, et al., Plaintiffs, -v- JPMORGAN CHASE BANK, N.A., et al., Defendants. ------------------------------------------------------------------X Case No. 16-cv-5508 (VSB) DEFENDANT U.S. BANK NATIONAL ASSOCIATION’S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 1 of 35 i TABLE OF CONTENTS TABLE OF AUTHORITIES ......................................................................................................... iii INTRODUCTION ...........................................................................................................................1 SUMMARY OF ALLEGATIONS AND PROCEDURAL HISTORY ..........................................2 I. The “RICO Ponzi Scheme” .................................................................................................2 II. The Collapse of PFG and Subsequent Lawsuits ..................................................................4 ARGUMENT ...................................................................................................................................5 I. Legal Standard. ....................................................................................................................5 II. Plaintiffs’ Claims Are Time-Barred. ....................................................................................6 1. Plaintiffs’ Commodity Exchange Act Claims (Counts I, V, XVI) Are Time-Barred. .........................................................................................6 2. Plaintiffs’ Breach of Fiduciary Duty And Unjust Enrichment Claims (Counts IV, XXII) Are Time-Barred. ..............................................7 3. Plaintiffs’ Fraud By Omission Claim (Count II) Is Time-Barred. ...............8 4. Plaintiffs’ Illinois Fiduciary Obligations Act Claim (Count III) Is Time-Barred. ................................................................................................9 5. Plaintiffs’ RICO And RICO Conspiracy Claims (Counts XXVIII, XXIX) Are Time-Barred. .............................................................................9 6. Plaintiffs’ Intentional Infliction of Emotional Distress Claim (Count XXIII) Is Time-Barred. ..................................................................10 B. Class Tolling Does Not Apply to Plaintiffs’ Claims. ............................................10 C. Equitable Tolling Does Not Apply to Plaintiffs’ Claims. ......................................13 III. Plaintiffs Fail To Allege That U.S. Bank Caused Their Damages. ...................................15 IV. Plaintiffs’ Fraud by Omission and Breach of Fiduciary Duty Claims (Counts II, IV) Must Be Dismissed Because U.S. Bank Did Not Owe A Fiduciary Duty To Plaintiffs. ............................................................................................................................19 V. Plaintiffs Fail Sufficiently To Allege A RICO Violation By U.S. Bank (Counts XXVIII, XXIX)..................................................................................................................20 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 2 of 35 ii 1. Plaintiffs Fail To Allege That U.S. Bank Engaged In Any Predicate Act Of Racketeering, Let Alone A Pattern Of Racketeering Activity. .....................................................................................................20 2. Plaintiffs Fail To Allege That U.S. Bank Conducted Or Participated In the Conduct Of The Affairs Of An Enterprise. .................23 3. Plaintiffs’ RICO Conspiracy Claim Fails. .................................................25 CONCLUSION ..............................................................................................................................25 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 3 of 35 iii TABLE OF AUTHORITIES Page(s) Cases Accurate Grading Quality Assurance, Inc. v. Thorpe, 2013 WL 1234836 (S.D.N.Y. Mar. 26, 2013) .........................................................................17 Alkhatib v. N.Y. Motor Grp., LLC, 2015 WL 3507340 (E.D.N.Y. June 3, 2015) ...........................................................................22 American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) ...............................................................................................10, 11, 12, 13 Anderson v. Davis Polk & Wardwell, LLP, 850 F. Supp. 2d 392 (S.D.N.Y. 2012) ......................................................................................17 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ...................................................................................................................5 Auscape Int’l v. Nat’l Geographic Soc’y, 409 F. Supp. 2d 235 (S.D.N.Y. 2004) ......................................................................................12 Baisch v. Gallina, 346 F.3d 366 (2d Cir. 2003).....................................................................................................17 Barberan v. Nationpoint, 706 F. Supp. 2d 408 (S.D.N.Y. 2010) ......................................................................................17 In re Bear Stearns Cos., Inc. Secs., Derivative, & ERISA Litig., 995 F. Supp. 2d 291 (S.D.N.Y. 2014) ................................................................................11, 12 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ...................................................................................................................5 Bernstein v. New York, 591 F. Supp. 2d 448 (S.D.N.Y. 2008) ......................................................................................20 Boyle v. United States, 556 U.S. 938 (2009) .................................................................................................................23 Butala v. Agashiwata, 916 F. Supp. 314 (S.D.N.Y. 1996)...........................................................................................14 Casey v. Merck & Co., Inc., 653 F.3d 95 (2d Cir. 2011).......................................................................................................12 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 4 of 35 iv Ciccone v. Hersh, 320 F. App’x 48 (2d Cir. 2009) .................................................................................................7 In re Ciprofloxacin Hydrochloride Antitrust Litig., 261 F. Supp. 2d 188 (E.D.N.Y. 2003) .....................................................................................12 Cont’l Cas. Co. v. Am. Nat’l Bank & Tr., 768 N.E.2d 352 (Ill. Ct. App. 2002) ..........................................................................................9 Corcoran v. N.Y. Power Auth., 202 F.3d 530 (2d Cir. 1999).......................................................................................................8 Dozier v. Deutsche Bank Tr. Co. Ams., 2011 WL 4058100 (S.D.N.Y. Sep. 1, 2011) ............................................................................17 Elsevier, Inc. v. W.H.P.R., Inc., 692 F. Supp. 2d 297 (S.D.N.Y. 2010) ................................................................................24, 25 Fargas v. Cincinnati Mach., LLC, 986 F. Supp. 2d 420 (S.D.N.Y. 2013) ........................................................................................6 Fintec Group, Inc. v. U.S. Bank, N.A., No. 1:13-cv-08076 (N.D. Ill.) ..................................................................................................18 First Capital Asset Mgt. v. Satinwood, Inc., 385 F.3d 159 (2d Cir. 2004).........................................................................................23, 24, 25 First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763 (2d Cir. 1994).............................................................................................1, 10, 15 FMS Bonds, Inc. v. Bank of N.Y. Mellon, No. 15 CIV. 9375 (ER), 2016 WL 4059155 (S.D.N.Y. July 28, 2016).....................................7 Gallagher v. Dirs. Guild of Am., Inc., 144 A.D.2d 261 (1st Dep’t 1988) ............................................................................................10 Bd. of Trs. ex rel. Gen. Ret. Sys. of Detroit v. BNY Mellon, N.A., No. 11 CIV. 6345 RJS, 2012 WL 3930112 (S.D.N.Y. Sept. 10, 2012) ............................10, 12 Ghandour v. Shearson Lehman Bros., 213 A.D.2d 304 (1st Dep’t 1995) ..............................................................................................8 Golden Pac. Bancorp v. FDIC, 273 F.3d 509 (2d Cir. 2001).......................................................................................................7 Goldfine v. Sichenzia, 118 F. Supp. 2d 392 (S.D.N.Y. 2000) ........................................................................................6 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 5 of 35 v Goodman v. Bremby, 2017 WL 4169427 (D. Conn. Sept. 20, 2017) .........................................................................24 Grimes v. Fremont Gen. Corp., 785 F. Supp. 2d 269 (S.D.N.Y. 2011) ......................................................................................21 Hands Cnty., Miss. v. Wachovia Bank Nat’l. Ass’n., 700 F. Supp. 2d 378 (S.D.N.Y. 2010) ......................................................................................14 Hermitage Corp. v. Contractor Adjustment Co., 651 N.E.2d 1132 (Ill. 1995) .......................................................................................................9 High Tides, LLC v. DeMichele, 88 A.D.3d 954 (2d Dep’t 2011) ...............................................................................................19 Janowiak v. Tiesi, 932 N.E.2d 569 (Ill. Ct. App. 2010) ........................................................................................16 Johnson v. Nyack Hosp., 86 F.3d 8 (2d Cir. 1996)...........................................................................................................14 Koch v. Christie’s Int’l, PLC, 699 F.3d 141 (2d Cir. 2012).......................................................................................................9 Korwek v. Hunt, 827 F.2d 874 (2d Cir. 1987)...............................................................................................12, 13 Kurth v. Van Horn, 380 N.W.2d 693 (Iowa 1986) ..................................................................................................19 Laub v. Faessel, 297 A.D.2d 28 (1st Dep’t 2001) ..............................................................................................15 Lenz v. Associated Inns & Restaurants Co. of Am., 833 F. Supp. 362 (S.D.N.Y. 1993)...........................................................................................14 Levy v. BASF Metals Ltd., et al., No. 1:15-cv-7317, 2017 WL 2533501 (S.D.N.Y. June 9, 2017) .........................................7, 13 In re LIBOR-Based Fin. Instruments Antitrust Litig., 935 F. Supp. 2d 666 (S.D.N.Y. 2013) ......................................................................................14 Mantana v. Merkin, 957 F. Supp. 2d 473 (S.D.N.Y. 2013) ..................................................................................7, 12 Menominee Indian Tribe of Wis. v. United States, 136 S. Ct. 750 (2016) ...............................................................................................................13 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 6 of 35 vi In re Merrill Lynch & Co., Inc. Research Reports Sec. Litig., 273 F. Supp. 2d 351 (S.D.N.Y. 2003) ........................................................................................6 In re Merrill Lynch Ltd. P’ships Litig., 154 F.3d 56 (2d Cir. 1998).........................................................................................................9 Mills v. Polar Molecular Corp., 12 F.3d 1170 (2d Cir. 1993)...............................................................................................21, 22 Morin v. Trupin, 778 F. Supp. 711 (S.D.N.Y. 1991)...........................................................................................22 Musa v. SuperShuttle Int’l, Inc., No. 12-CV-2418 DLI RLM, 2013 WL 5507143 (E.D.N.Y. Sept. 30, 2013) ..........................13 In re Nat. Gas Commodity Litig., 337 F. Supp. 2d 498 (S.D.N.Y. 2004) ........................................................................................6 Nghiem v. U.S. Dep’t of Veterans Affairs, 451 F. Supp. 2d 599 (S.D.N.Y. 2006) ........................................................................................6 Norwest Mortg., Inc. v. Dime Sav. Bank of N.Y., 280 A.D.2d 653 (2d Dep’t 2001) .............................................................................................19 Parada v. Banco Industrial De Venezuela, C.A., 753 F.3d 62 (2d Cir. 2014).......................................................................................................14 Picard v. Kohn, 907 F. Supp. 2d 392 (S.D.N.Y. 2012) ......................................................................................25 Quintero Community Ass’n Inc. v. FDIC, 792 F.3d 1002 (8th Cir. 2015) .................................................................................................19 Rao v. Med. Soc. Of State of N.Y., No. 98-cv-1675, 1998 WL 799191 (S.D.N.Y. Nov. 17, 1998)................................................14 Rentas v. Ruffin, 816 F.3d 214 (2d Cir. 2016).....................................................................................................10 Reuben H. Donnelly Corp. v. Mark I Mktg. Corp., 893 F. Supp. 285 (S.D.N.Y. 1995)...........................................................................................19 Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).....................................................................................................15 Rosenson v. Mordowitz, 2012 WL 3631308 (S.D.N.Y. Aug. 23, 2012) .........................................................................23 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 7 of 35 vii Rotella v. Wood, 528 U.S. 549 (2000) ...................................................................................................................9 Smith v. McGinnis, 208 F.3d 13 (2d Cir. 2000).......................................................................................................13 Spool v. World Child Int’l Adoption Agency, 520 F.3d 178 (2d Cir. 2008)...............................................................................................20, 21 Spreitzer v. Hawkeye State Bank, 779 N.W.2d 726 (Iowa 2009) ..................................................................................................15 Stuart v. Am. Cyanamid Co., 158 F.3d 622 (2d Cir. 1998).......................................................................................................6 In re Terrorist Attacks on Sept. 11, 2001, 349 F. Supp. 2d 765 (S.D.N.Y. 2005) ......................................................................................19 Thea v. Kleinhandler, 807 F.3d 492 (2d Cir. 2015).......................................................................................................6 Thomas H. Lee Equity Fund V. L.P. v. Mayer Brown, Rowe & Maw LLP, 612 F. Supp. 2d 267 (S.D.N.Y. 2009) ......................................................................................15 Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737 (2d Cir. 1979).......................................................................................................8 Twersky v. Yeshiva Univ., 993 F. Supp. 2d 429 (S.D.N.Y. 2014) ........................................................................................8 Tymoshenko v. Firtash, 57 F. Supp. 3d 311 (S.D.N.Y. 2014) ........................................................................................22 Union County v. Piper Jaffray & Co. 741 F. Supp. 2d 1063 (S.D. Iowa 2010) ..................................................................................15 United States v. Turkette, 452 U.S. 576 (1981) .................................................................................................................24 Vinson v. Linn-Mar Cmty. Sch. Dist., 360 N.W.2d 108 (Iowa 1984) ..................................................................................................15 W. 79th St. Corp. v. Congregation Kahl Minchas Church, 2004 WL 2187069 (S.D.N.Y. Sept. 30, 2004) .........................................................................23 Wang v. Palmisano, 51 F. Supp. 3d 521 (S.D.N.Y. 2014) ........................................................................................14 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 8 of 35 viii Weizmann v. Inst. of Science v. Neschis, 229 F. Supp. 2d 234 (S.D.N.Y. 2002) ......................................................................................20 Wetzel v. Town of Orangetown, No. 06-cv-611, 2010 WL 743039 (S.D.N.Y. Mar. 2, 2010) ......................................................5 Wingspan Records, Inc. v. Simone, No. 12 CIV. 2172 NRB, 2014 WL 2116191 (S.D.N.Y. May 16, 2014) ...................................7 Zap Cellular, Inc. v. Kurland, 2015 WL 8207315 (E.D.N.Y. Dec. 6, 2015) ...........................................................................22 Statutes 7 U.S.C. § 6d(a)(2) ...........................................................................................................................5 7 U.S.C. § 25 ..................................................................................................................................15 7 U.S.C. § 25(c) ...............................................................................................................................6 18 U.S.C. § 1343 ............................................................................................................................22 18 U.S.C. § 1956(c)(7), and (3) .....................................................................................................22 18 U.S.C. § 1961 ............................................................................................................................20 Other Authorities 17 C.F.R. §1.20(c) (2009) ..............................................................................................................16 Fed. R. Civ. P. 9(b) ..................................................................................................................14, 20 N.Y. C.P.L.R. 203(g) & 213(8) .......................................................................................................8 N.Y. C.P.L.R. 215(3) .....................................................................................................................10 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 9 of 35 1 INTRODUCTION For the last nine years, Plaintiffs have been searching for someone to make them whole for failed investments in risky commodity futures options. After being awarded no damages in arbitrations against their introducing broker and futures commissions merchant (“FCM”), Plaintiffs turn their sights on U.S. Bank National Association (“U.S. Bank”), whom they allege conspired with a diverse group of defendants to cause their losses during the stock market crash of October 2008. According to Plaintiffs, U.S. Bank’s role in the conspiracy was its alleged failure to monitor a customer segregated account held by the FCM, Peregrine Financial Group (“PFG”), allowing PFG’s CEO, Russell Wasendorf, Sr. (“Wasendorf”), to misappropriate funds. Plaintiffs’ claims against U.S. Bank fail as a matter of law for several reasons. First, Plaintiffs’ claims are time-barred. Plaintiffs suffered and discovered their alleged injuries in October 2008. Plaintiffs commenced this action on July 11, 2016. None of the applicable statutes of limitations allows such stale claims to proceed, nor can Plaintiffs’ tolling allegations revive them. Second, Plaintiffs fail to allege that U.S. Bank caused their losses. As in their earlier Complaint, Plaintiffs’ Amended Complaint alleges that other defendants-not U.S. Bank- caused Plaintiffs’ PFG accounts to become worthless in October 2008 in a series of unsuitable and unauthorized futures options trades that were “guaranteed to fail.” New to Plaintiffs’ Amended Complaint are allegations made “upon information and belief in retrospect” that, instead of losing their money in the market, Wasendorf misappropriated their funds and then “shadow traded” their accounts, falsifying trades to make Plaintiffs believe they suffered losses they really had not. But these new “shadow trading” allegations can and should be disregarded. Not only do the new allegations contradict Plaintiffs’ other allegations and the documents attached to their pleadings, they are wholly implausible. Among many other reasons, one of the Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 10 of 35 2 primary goals of any fraud is to avoid scrutiny and detection, a goal hardly advanced by the prompt notice Plaintiffs received of their losses. Finally, even if Plaintiffs could surmount the challenges posed by applicable statutes of limitations and causation, Plaintiffs’ fraud by omission, breach of fiduciary duty, RICO, and RICO conspiracy claims all fail for additional reasons specific to those claims. As a result, the Court should dismiss Plaintiffs’ claims against U.S. Bank with prejudice. SUMMARY OF ALLEGATIONS AND PROCEDURAL HISTORY Plaintiffs are five individuals who allege they suffered significant losses in their PFG accounts during the market crash of early October 2008. Am. Compl. ¶¶ 66, 72, 88, 93. That same month, Plaintiffs were informed that their accounts had been wiped out and closed after losses in risky commodity futures options trades. Id. ¶¶ 100-01 & Compl. Ex. 2. I. The “RICO Ponzi Scheme” Plaintiffs allege their losses were part of a massive conspiracy, which they dub the “RICO Ponzi Scheme.” Am. Compl. ¶ 11. Plaintiffs allege that Defendants conspired to permit Wasendorf to misappropriate customer funds from segregated accounts held by PFG. Id. ¶¶ 10, 281, et seq. PFG held one such account at U.S. Bank. Id. ¶ 15. Plaintiffs allege Wasendorf carried out the scheme by intercepting accurate account statements issued by U.S. Bank and then sending forged statements to regulators and other interested parties so that PFG would appear to have a sufficient amount of funds in segregation to meet regulatory requirements. Id. ¶ 323. Plaintiffs allege that U.S. Bank knew of or ignored red flags and should have disclosed that knowledge to them. Id. ¶¶ 526, 536. Plaintiffs allege further that Wasendorf conspired with certain of the other broker and trading advisor defendants-but not U.S. Bank-to “purposefully cause losses in each plaintiff’s account by selling naked puts and/or naked calls in each plaintiff’s account during the volatile Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 11 of 35 3 week of October 2 through October 8, 2008 . . . which ensured a total collapse of each account.” Am. Compl. ¶ 104. Plaintiffs allege these “naked puts and calls will cause losses 95% of the time,” and thus constituted “a perfect strategy to wipe out plaintiffs’ remaining account balances so that Wasendorf Sn. and his co-conspirators could nicely reconcile their books after having previously pocketed the investment funds in plaintiffs’ accounts.” Id. ¶ 105. Plaintiffs allege that “[d]uring the week of October 2, 2008 through October 9, 2008, [their] entire investments were wiped out” as a result. Id. ¶ 100. Throughout their Amended Complaint, Plaintiffs allege that these trades were at once real and fictitious. On the one hand, Plaintiffs allege repeatedly that certain defendants (not U.S. Bank) are liable because they “invested customer funds on behalf of plaintiffs” “over the Chicago Mercantile Exchange,” and that other defendants (not U.S. Bank) wrongly “allow[ed] these investments to proceed,” “allowed trading to continue,” and “continued to place trades even where Plaintiffs were on margin calls.” See, e.g., Am. Compl. ¶¶ 8, 103-04, 153, 169-71, 191, 229, 277, 449, 452, 462, 587. On the other hand, Plaintiffs’ Amended Complaint alleges for the first time that Wasendorf “shadow traded” their accounts. See, e.g., id. ¶ 28, 34, 37, 193, 581. That is, Plaintiffs allege that “to cover his conversion of customer funds,” Wasendorf “created a second set of phony books by which he operated the futures and options trading business with fictitious trades which were recorded on these separate set of books rather than actual options and futures trading.” Id. ¶ 554. Plaintiffs allege further that Wasendorf “falsified customer statements to show customer losses in each customer’s account” corresponding to the fake trades. Id. ¶¶ 581, 618(d). Plaintiffs do not allege that U.S. Bank played any role in their trading activity-real or fake. Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 12 of 35 4 On June 30, 2009, Plaintiffs filed arbitrations before the National Futures Association against PFG and their introducing broker to recoup the same losses they seek here. Id. ¶ 490. The arbitrators awarded Plaintiffs no damages. Id. ¶ 492. II. The Collapse of PFG and Subsequent Lawsuits Wasendorf attempted suicide on July 9, 2012, nearly four years after Plaintiffs’ accounts were closed. Am. Compl. ¶ 110. In a suicide note, Wasendorf described how he carried out his fraud, explaining how he concealed misappropriations of customer funds by establishing a fake U.S. Bank P.O. Box to intercept regulatory balance confirmation requests to which he responded with forgeries of U.S. Bank account statements. See, e.g., United States v. Wasendorf, Case No. 12-MJ-131 (N.D. Iowa) (ECF No. 2) (July 11, 2012 criminal complaint quoting from Wasendorf note). As Plaintiffs acknowledge, “extensive media coverage” followed PFG’s collapse. Am. Compl. ¶ 496. The next day, July 10, 2012, PFG filed for bankruptcy, and the CFTC filed an action against Wasendorf and PFG. U.S. Commodity Futures Trading Commission v. Peregrine Financial Group, Inc., 12-cv-05383 (N.D. Ill.) (ECF No. 1). The CFTC’s complaint alleged details regarding Wasendorf’s fraud, including allegations regarding his use of a U.S. Bank account to carry it out. Id. ¶ 15. Shortly thereafter, multiple plaintiffs filed class actions in the Northern District of Illinois against Wasendorf, U.S. Bank, and several of the other defendants in this action. The class actions were consolidated as In re Peregrine Financial Group Litigation, Case No. 12-cv-05546 (N.D. Ill.) (ECF No. 50) on October 5, 2012 (the “Illinois Class Action”). The Illinois Class Action sought to recover funds that putative class members had believed were on deposit with PFG as of its collapse. Id. (ECF Nos. 66, 169, 398). The Illinois Class Action did not seek to recoup trading or “shadow trading” losses. The first paragraph of the first consolidated complaint in the Illinois Class Action identified the putative class as consisting of “patrons who Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 13 of 35 5 have lost money as a result of the collapse of PFG in July 2012,” and the class definition included only “PFG futures account holders or customers who held open commodity futures or options positions, swaps, and/or cash collateral or cash deposits for futures collateral in their PFG accounts.” Id. (ECF No. 66) at ¶¶ 1, 124 (emphasis added). The wording of the class definition was modified slightly in the final amended consolidated complaint to “all persons or entities who held money, property, and/or securities pursuant to 7 U.S.C. § 6d(a)(2), at [PFG], as of the bankruptcy of PFG on July 10, 2012.” Id. (ECF No. 398). U.S. Bank entered into a settlement agreement in the Illinois Class Action on June 18, 2015, in which it denied any fault, liability, or wrongdoing. Id. (ECF No. 410). Final judgment was entered on April 4, 2016. Id. (ECF No. 445). Plaintiffs filed this action on July 11, 2016, and their Amended Complaint on October 11, 2017. U.S. Bank now moves to dismiss. ARGUMENT I. Legal Standard. To withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). Mere conclusory statements and “formulaic recitation[s] of the elements of a cause of action” are not sufficient. Twombly, 550 U.S. at 555. “Furthermore, if allegations taken as true are consistent with plaintiff’s claim, but there is an ‘obvious alternative explanation’ the court will find that the plaintiff’s claim is not plausible.” Wetzel v. Town of Orangetown, No. 06-cv-611, 2010 WL 743039, at *3 (S.D.N.Y. Mar. 2, 2010) (quoting Twombly, 550 U.S. at 567). Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 14 of 35 6 These requirements apply with particular force to civil RICO claims. Goldfine v. Sichenzia, 118 F. Supp. 2d 392, 397 (S.D.N.Y. 2000). “‘Because the mere assertion of a RICO claim . . . has an almost inevitable stigmatizing effect on those named as defendants, . . . courts should strive to flush out frivolous RICO allegations at an early stage of the litigation.’” Id. at 397 (omissions in original) (quoting Schmidt v. Fleet Bank, 16 F. Supp. 2d 340, 346 (S.D.N.Y. 1998)). II. Plaintiffs’ Claims Are Time-Barred. Plaintiffs’ claims are time-barred. A complaint is subject to dismissal if it is “clear on the face of the complaint that the statute of limitations has run.” Fargas v. Cincinnati Mach., LLC, 986 F. Supp. 2d 420, 427 (S.D.N.Y. 2013). In making that determination, a court may refer to matters of public record, including documents filed in other matters. See Nghiem v. U.S. Dep’t of Veterans Affairs, 451 F. Supp. 2d 599, 606 n.3 (S.D.N.Y. 2006) (citing cases); In re Merrill Lynch & Co., Inc. Research Reports Sec. Litig., 273 F. Supp. 2d 351, 378-79 (S.D.N.Y. 2003). Federal courts considering state law claims “must apply the choice-of-law rules of the forum state.” Thea v. Kleinhandler, 807 F.3d 492, 497 (2d Cir. 2015). Under New York’s borrowing statute, “when a nonresident plaintiff sues upon a cause of action that arose outside of New York, the court must apply the shorter limitations period, including all relevant tolling provisions, of either: (1) New York; or (2) the state where the cause of action accrued.” Stuart v. Am. Cyanamid Co., 158 F.3d 622, 627 (2d Cir. 1998) (citing N.Y. C.P.L.R. § 202). 1. Plaintiffs’ Commodity Exchange Act Claims (Counts I, V, XVI) Are Time-Barred. Plaintiffs’ CEA claims are time-barred under 7 U.S.C. § 25(c), which “provides that any private action for violation of the CEA ‘shall be brought not later than two years after the date the cause of action arises.’” In re Nat. Gas Commodity Litig., 337 F. Supp. 2d 498, 512 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 15 of 35 7 (S.D.N.Y. 2004) (quoting 7 U.S.C. § 25(c)). A CEA claim accrues upon discovery of injury. Levy v. BASF Metals Ltd., et al., No. 1:15-cv-7317, 2017 WL 2533501, at *5 (S.D.N.Y. June 9, 2017). Plaintiffs discovered their injuries in October 2008 when they learned that their PFG accounts had been wiped out. See, e.g., Am. Compl. ¶ 483 (“plaintiff’s trading accounts were terminated at Peregrine in October, 2008, and they were told by Garlon Maxwell that they had been financially wiped out around that time”). Because Plaintiffs had actual notice of their injuries in 2008, their CEA claims (Counts I, V, and XVI) are time-barred. 2. Plaintiffs’ Breach of Fiduciary Duty And Unjust Enrichment Claims (Counts IV, XXII) Are Time-Barred. Plaintiffs’ breach of fiduciary duty and unjust enrichment claims are time-barred. Because Plaintiffs seek monetary damages, not equitable relief, the limitations period applicable to each claim is three years. Ciccone v. Hersh, 320 F. App’x 48, 50 (2d Cir. 2009); FMS Bonds, Inc. v. Bank of N.Y. Mellon, No. 15 CIV. 9375 (ER), 2016 WL 4059155, at *15 (S.D.N.Y. July 28, 2016) (“[B]ecause this is a fiduciary-duty claim for money damages, not equitable relief, the applicable statute-of-limitations is three-years”); Wingspan Records, Inc. v. Simone, No. 12 CIV. 2172 NRB, 2014 WL 2116191, at *9 (S.D.N.Y. May 16, 2014) (“Where, as here, an unjust enrichment claim seeks monetary relief, it is subject to a three-year statute of limitations”). A breach of fiduciary duty claim accrues when “the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated.” Golden Pac. Bancorp v. FDIC, 273 F.3d 509, 518 (2d Cir. 2001). Similarly, an unjust enrichment claim accrues “upon the occurrence of the wrongful act giving rise to a duty of restitution and not from the time . . . facts constituting [a] fraud are discovered.” Mantana v. Merkin, 957 F. Supp. 2d 473, 494 (S.D.N.Y. 2013). Here, any alleged fiduciary relationship with Plaintiffs was openly repudiated or otherwise terminated in, and any alleged wrongful act occurred no later than, October 2008 when Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 16 of 35 8 their PFG accounts “went to zero” and were closed. As a result, Plaintiffs’ breach of fiduciary duty and unjust enrichment claims are time-barred. 3. Plaintiffs’ Fraud By Omission Claim (Count II) Is Time-Barred. Plaintiffs’ fraud claim is likewise time-barred. New York courts “are wary of plaintiffs who cast their claims in fraud for the sole purpose of [avoiding] a shorter statute of limitations applicable to other claims in their complaint.” Twersky v. Yeshiva Univ., 993 F. Supp. 2d 429, 450 (S.D.N.Y. 2014). Fraud claims are thus dismissed when “not essential to the cause of action pleaded except as an answer to an anticipated defense of statute of limitations.” Id. at 450. A fraud claim is essential to a cause of action when “(1) the fraud occurred separately from and subsequent to the injury forming the basis of the alternate claim; and (2) the injuries caused by the fraud are distinct from the injuries caused by the alternate claim.” Corcoran v. N.Y. Power Auth., 202 F.3d 530, 545 (2d Cir. 1999). Plaintiffs’ fraud claim against U.S. Bank is based upon the same alleged facts and damages as their breach of fiduciary duty claim. Plaintiffs also cite their alleged fiduciary relationship with the Bank as supplying the duty to disclose underlying their fraud claim. See Am. Compl. ¶ 525. Accordingly, Plaintiffs’ fraud claim is time-barred under the same three-year statute of limitations applicable to their breach of fiduciary duty claim. But even if the three-year statute did not apply, Plaintiffs’ fraud claim is still barred under New York’s general statute of limitations for fraud claims. “A cause of action sounding in fraud must be commenced within 6 years from the date of the fraudulent act or 2 years from the date the party discovered the fraud or could, with due diligence, have discovered it.” Ghandour v. Shearson Lehman Bros., 213 A.D.2d 304, 305 (1st Dep’t 1995); N.Y. C.P.L.R. 203(g) & 213(8). Any fraudulent act that harmed Plaintiffs must have happened before the end of October 2008 when Plaintiffs’ PFG accounts “went to zero.” See Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 748 (2d Cir. 1979) (six-year period begins to run when the plaintiff suffers Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 17 of 35 9 damages). As a result, the six-year limitations period expired no later than October 2014. Plaintiffs further admit that they discovered the fraud on July 9, 2012, such that the two-year period had already run by that time. See Am. Compl. ¶ 500. Plaintiffs’ fraud claim is accordingly time-barred. 4. Plaintiffs’ Illinois Fiduciary Obligations Act Claim (Count III) Is Time-Barred. Plaintiffs’ Illinois Fiduciary Obligations Act (“FOA”) claim is also time-barred under the FOA’s three-year statute of limitations. Cont’l Cas. Co. v. Am. Nat’l Bank & Tr., 768 N.E.2d 352, 367 (Ill. Ct. App. 2002). FOA claims accrue when a plaintiff knows he has suffered an injury that was wrongfully caused. Id. at 364; Hermitage Corp. v. Contractor Adjustment Co., 651 N.E.2d 1132, 1135 (Ill. 1995). Under this rule, Plaintiffs’ claim accrued no later than June 30, 2009, and expired no later than June 30, 2012. Plaintiffs learned they had been injured in October 2008 when they lost everything in their PFG accounts. Plaintiffs knew their injury was wrongfully caused no later than June 30, 2009, when they filed their arbitrations. Am. Compl. ¶ 490. Accordingly, Plaintiffs’ FOA claim is time-barred. 5. Plaintiffs’ RICO And RICO Conspiracy Claims (Counts XXVIII, XXIX) Are Time-Barred. Plaintiffs’ RICO and RICO conspiracy claims are also time-barred under RICO’s four- year statute. In re Merrill Lynch Ltd. P’ships Litig., 154 F.3d 56, 58 (2d Cir. 1998). A RICO claim accrues when the plaintiff discovers his injury, not when the plaintiff discovers the full pattern of alleged RICO activity. Rotella v. Wood, 528 U.S. 549, 553-54 (2000); Koch v. Christie’s Int’l, PLC, 699 F.3d 141, 150 (2d Cir. 2012). Again, Plaintiffs knew of their injuries in October 2008, and thus the four-year limitations period expired in October 2012. Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 18 of 35 10 6. Plaintiffs’ Intentional Infliction of Emotional Distress Claim (Count XXIII) Is Time-Barred. Plaintiffs’ intentional infliction of emotional distress claim is also time-barred. That claim is governed by a one-year statute of limitations. See N.Y. C.P.L.R. 215(3); Rentas v. Ruffin, 816 F.3d 214, 226 (2d Cir. 2016); Gallagher v. Dirs. Guild of Am., Inc., 144 A.D.2d 261, 263 (1st Dep’t 1988). Plaintiffs’ injury occurred in October 2008, and the limitations period thus expired no later than October 2009. B. Class Tolling Does Not Apply to Plaintiffs’ Claims. Attempting to save their claims from dismissal, Plaintiffs invoke the rule of American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), which generally provides that individual claims of putative class members are tolled during the pendency of a class action. Class action tolling cannot save Plaintiffs’ claims for four reasons. First, Plaintiffs’ alleged belief that they were putative class members in the Illinois Class Action was not reasonable. Class tolling does not apply if a plaintiff “could never have been part of the putative class” in the prior class action. Bd. of Trs. ex rel. Gen. Ret. Sys. of Detroit v. BNY Mellon, N.A., No. 11 CIV. 6345 RJS, 2012 WL 3930112, at *10 (S.D.N.Y. Sept. 10, 2012). The first paragraph of the first Consolidated Amended Complaint in the Illinois Class Action stated that the plaintiffs sued on behalf of themselves and other PFG customers “who have lost money as a result of the collapse of PFG in July 2012.” In re Peregrine Financial Group Litig. Case No. 12-cv-05546 (N.D. Ill.) (ECF No. 50). Plaintiffs here did not-and could not have-lost money as a result of the collapse of PFG in July 2012 because they did not have open accounts at PFG. Plaintiffs’ losses were then nearly four years old, and they had already litigated their arbitrations against PFG to conclusion. Thus, American Pipe cannot save Plaintiffs’ claims. Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 19 of 35 11 Second, “American Pipe tolling can apply to a statute of limitations only when the earlier-filed class action ‘involved exactly the same cause of action subsequently asserted.’” In re Bear Stearns Cos., Inc. Secs., Derivative, & ERISA Litig., 995 F. Supp. 2d 291, 303 (S.D.N.Y. 2014) (quoting Johnson v. Ry. Exp. Agency, Inc., 421 U.S.454, 467 (1975)). The class action must give the defendant “fair notice not only of the substantive claims being asserted . . ., but also of the number and generic identities of the potential plaintiffs . . . .” Id. at 303-04 (internal quotation marks omitted). The alleged facts supporting Plaintiffs’ claims are “fundamentally different from the claims asserted in the [Illinois Class Action],” and thus the running of the limitations period for Plaintiffs’ claims was not tolled. Id. at 303. The central basis of Plaintiffs’ claims is that the value of their PFG accounts fell to zero in 2008 either because Plaintiffs were unsuitably invested in risky commodity futures options or because Wasendorf falsified PFG account statements that told them they had been. Plaintiffs devote the majority of their nearly 700-paragraph Amended Complaint to discussing the trading activity within their PFG accounts, the particulars of the losing trades, and the margin calls that followed. The Illinois Class Action, by contrast, contained no allegations related to market losses, “shadow trading,” margin calls, or the particulars of any plaintiff’s trades. Rather, the plaintiffs in the Illinois Class Action alleged that Wasendorf had misappropriated some portion of the funds they collectively had deposited with PFG and had believed were still on deposit there until July 9, 2012. Unlike Plaintiffs here, the Illinois Class Action plaintiffs consistently “received account information from PFG that did not show a discrepancy or shortfall in their account balances.” In re Peregrine Financial Group Litigation, Case No. 12-cv-05546 (N.D. Ill.) (ECF No. 66) ¶ 122. The Illinois Class Action thus never placed U.S. Bank on notice that it might face claims of former PFG customers, let alone former customers who received falsified Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 20 of 35 12 PFG statements, or who sought to recover trading losses. Accordingly, the Illinois Class Action did not toll the limitations period applicable to Plaintiffs’ fundamentally different claims. Third, “American Pipe tolling does not apply to [Plaintiffs’] state claims because it only applies to federal law causes of action.” Bear Stearns, 995 F. Supp. 2d at 311; Matana v. Merkin, 957 F. Supp. 2d 473, 488 (S.D.N.Y. 2013). The Supreme Court has made clear that its ruling in American Pipe is narrow, as it “‘depended heavily on the fact that those filings [in the prior class action] involved exactly the same cause of action subsequently asserted,’” as well as on the fact that the “there was a federal, and not a state, statute of limitations at issue.” BNY Mellon, 2012 WL 3930112, at *9 (quoting Johnson, 421 U.S. at 467 (1975)). Because American Pipe cannot toll the limitations period for state law claims, “a federal court evaluating the timeliness of state law claims must look to the law of the relevant states to determine whether, and to what extent, the statute of limitations should be tolled by the filing of a putative class action in another jurisdiction.” Casey v. Merck & Co., Inc., 653 F.3d 95, 100 (2d Cir. 2011) (refusing to apply American Pipe to state law claims). In such cases, courts only allow class tolling if it is “clearly recognized by authoritative state court decisions” in the state whose statute of limitations applies. Bear Stearns, 995 F. Supp. 2d at 312. Here, “[N]ew York currently does not recognize tolling where [a] class action is filed outside New York state court.” Id. at 311. Accordingly, class action tolling cannot save Plaintiffs’ tardy state law claims. Fourth, “the American Pipe tolling rule does not apply to permit putative class members to file a subsequent class action,” but instead only permits subsequent individual suits. Korwek v. Hunt, 827 F.2d 874, 876 (2d Cir. 1987); see also Auscape Int’l v. Nat’l Geographic Soc’y, 409 F. Supp. 2d 235, 249 n.69 (S.D.N.Y. 2004) (“A second class action does not get the benefit of the filing date of the first”); In re Ciprofloxacin Hydrochloride Antitrust Litig., 261 F. Supp. 2d Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 21 of 35 13 188, 221 (E.D.N.Y. 2003) (“the class action tolling exception does not permit filing of additional class action claims as opposed to subsequent individual lawsuits”). Courts have “expressed concern that members of a putative class may abuse the American Pipe rule by . . . attempting to ‘piggyback one class action onto another and thus toll the statute of limitations indefinitely.’” Musa v. SuperShuttle Int’l, Inc., No. 12-CV-2418 DLI RLM, 2013 WL 5507143, at *4 (E.D.N.Y. Sept. 30, 2013) (quoting Korwek, 827 F.2d at 878). As a result, to apply American Pipe tolling to later class action suits “would be inimical to the purposes behind statutes of limitations and the class action procedure.” Korwek, 827 F.2d at 879. The instant case presents exactly the circumstances warned against in Korwek, as plaintiffs are seeking to “piggyback” new class claims onto the prior Illinois Class Action, which was resolved years ago. Plaintiffs are thus not entitled to class tolling. C. Equitable Tolling Does Not Apply to Plaintiffs’ Claims. The Court should also reject Plaintiffs’ allegations that they are entitled to equitable tolling under the doctrine of fraudulent concealment. Am. Compl. ¶¶ 493-513. The doctrine of equitable tolling only applies in “rare and exceptional circumstances.” Smith v. McGinnis, 208 F.3d 13, 17 (2d Cir. 2000). “The Second Circuit has found tolling to be appropriate where ‘extraordinary circumstances’ prevented the plaintiff from filing a complaint on time and where ‘the party seeking equitable tolling . . . acted with reasonable diligence throughout the period he seeks to toll.’” Levy, 2017 WL 2533501, at *8 (quoting McGinnis, 208 F.3d at 17). Application of the doctrine is within the Court’s discretion as a matter of fairness. Id. For a limitations period to toll on the basis of fraudulent concealment, a plaintiff must establish “(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstance stood in his way and prevented timely filing.” Menominee Indian Tribe of Wis. v. United States, 136 S. Ct. 750, 755 (2016). A theory of fraudulent concealment must furthermore be pleaded with Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 22 of 35 14 particularity in accord with Fed. R. Civ. P. 9(b). Hands Cnty., Miss. v. Wachovia Bank Nat’l. Ass’n., 700 F. Supp. 2d 378, 399 (S.D.N.Y. 2010). Plaintiffs do not come close to establishing “extraordinary circumstances” justifying application of the doctrine here. Foremost, Plaintiffs do not allege that U.S. Bank “prevented the plaintiff’s discovery of the nature of the claim within the limitations period.” Butala v. Agashiwata, 916 F. Supp. 314, 319 (S.D.N.Y. 1996). To the contrary, Plaintiffs admit that they knew of their injury in October 2008 when their accounts were wiped out. Nothing more is required to start the limitations period. See Lenz v. Associated Inns & Restaurants Co. of Am., 833 F. Supp. 362, 375 (S.D.N.Y. 1993); In re LIBOR-Based Fin. Instruments Antitrust Litig., 935 F. Supp. 2d 666, 706 (S.D.N.Y. 2013). Moreover, any contention that U.S. Bank somehow concealed unlawful conduct is wholly inconsistent with Plaintiffs’ June 2009 arbitrations seeking to recover the same trading losses they seek to recover here. Am. Compl. ¶ 460; see Wang v. Palmisano, 51 F. Supp. 3d 521, 533 (S.D.N.Y. 2014) (refusing to equitably toll limitations period “in light of Plaintiff’s decision to bring parallel actions against [other defendants] over the course of a half-decade”); Parada v. Banco Industrial De Venezuela, C.A., 753 F.3d 62, 71 (2d Cir. 2014) (refusing to equitably toll limitations period when plaintiff’s actions “showed that she was capable of taking legal action much earlier”). Finally, Plaintiffs do not allege that U.S. Bank interacted or communicated with them at all, let alone in a manner that would “lull [them] into believing it was not necessary to commence the litigation,” as is typically the basis for applying the fraudulent concealment doctrine. See Rao v. Med. Soc. Of State of N.Y., No. 98-cv-1675, 1998 WL 799191, at *6 (S.D.N.Y. Nov. 17, 1998). In sum, Plaintiffs were not “prevented in some extraordinary way” from pursuing their claims before July 2016, and certainly not by U.S. Bank. Johnson v. Nyack Hosp., 86 F.3d 8, 12 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 23 of 35 15 (2d Cir. 1996). Plaintiffs knew of their losses and believed they were wrongfully caused in October 2008, as made clear by the arbitrations they commenced less than one year later in 2009. Equitable tolling is not appropriate here. III. Plaintiffs Fail To Allege That U.S. Bank Caused Their Damages. Apart from being time-barred, Plaintiffs’ claims against U.S. Bank also fail because Plaintiffs fail plausibly to allege that U.S. Bank caused their losses. Though Plaintiffs’ various claims are governed by slightly different standards, Plaintiffs must plausibly allege “proximate,” “legal,” or “loss” causation as to each of them. Spreitzer v. Hawkeye State Bank, 779 N.W.2d 726, 740 (Iowa 2009) (“As with other torts, it is generally recognized the causation element of a fraud claim is composed of both factual and legal causation of the loss.”); Union County v. Piper Jaffray & Co. 741 F. Supp. 2d 1063, 1089 (S.D. Iowa 2010) (fiduciary duty); Vinson v. Linn- Mar Cmty. Sch. Dist., 360 N.W.2d 108, 118 (Iowa 1984) (intentional infliction of emotional distress).1 The Second Circuit requires plaintiffs raising RICO claims based on fraud to prove “loss causation.” First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 769 (2d Cir. 1994). A private action under the CEA cannot be maintained absent proof of “actual damages . . . caused by [a] violation” of the Act. 7 U.S.C. § 25. Illinois courts have not yet specifically addressed the causation standard for claims under the Illinois Fiduciary Obligations Act, but do 1 Iowa law most likely applies to Plaintiffs’ common-law claims because, among other things, Plaintiffs reside in Iowa, Wasendorf and PFG were based in Iowa, and Wasendorf and PFG conducted business with U.S. Bank in Iowa. See Rogers v. Grimaldi, 875 F.2d 994, 1002 (2d Cir. 1989) (“A federal court . . . adjudicating state law claims that are pendent to a federal claim must apply the choice of law rules of the forum state.”); Thomas H. Lee Equity Fund V. L.P. v. Mayer Brown, Rowe & Maw LLP, 612 F. Supp. 2d 267, 283-84 (S.D.N.Y. 2009) (“For tort actions, the jurisdiction with the greatest interest is generally the jurisdiction in which the loss occurred-or where the plaintiff is located.”). Even if Iowa law did not apply, these principles of causation are consistent across jurisdictions, such that Plaintiffs’ claims would fail for the same reasons. See, e.g., Laub v. Faessel, 297 A.D.2d 28 (1st Dep’t 2001) (discussing transaction and loss causation in the context of fraud claims). Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 24 of 35 16 require proof of “proximate cause between the breach and the injury” for an underlying breach of fiduciary duty. Janowiak v. Tiesi, 932 N.E.2d 569, 583 (Ill. Ct. App. 2010). There can be no question that it is lawful for an FCM to take and apply a futures customer’s funds to settle that customer’s losing trades. 17 C.F.R. §1.20(c) (2009) (customer funds may be “withdrawn and applied” to “settle the trades, contracts or commodity options of such commodity or options customers”). The most plausible inference to be drawn from Plaintiffs’ allegations is that an amount equal to or greater than their net deposits in PFG was applied in just such a fashion in October 2008, directly giving rise to Plaintiffs’ pecuniary losses. See Am. Compl. ¶ 66 (trading losses were such that “each customer ended up with a zero balance or a deficient balance whereby the customer owed the FCM money in the end”). Because Plaintiffs fail to plead a causal link between any act or omission of U.S. Bank and their trading losses, Plaintiffs fail plausibly to allege that U.S. Bank proximately caused their injury. In apparent recognition of this failure, Plaintiffs’ Amended Complaint offers a new2 series of strained and speculative allegations made “on information and belief in retrospect.” Plaintiffs now allege that their trades were never placed, but that Wasendorf first misappropriated their deposits and then engaged in “fictitious” “shadow trading” designed to falsely depict losses equal to or exceeding those deposits. See, e.g., id. ¶¶ 28-38. Plaintiffs fault U.S. Bank for ignoring or failing to uncover the misappropriation. 2 U.S. Bank notes that Plaintiffs’ new allegations are contradicted by their counsel’s correspondence with another court. On March 18, 2015, Plaintiffs’ counsel wrote to the Honorable Carol Doyle to explain that the Schefferts’ claim in the PFG bankruptcy should be allowed priority because their trades were not “fraudulent,” but instead were merely “unauthorized.” In re Peregrine Financial Group, Inc., No. 12-27488 (Bankr. N.D. Ill.) (ECF No. 3554). Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 25 of 35 17 The Court should disregard Plaintiffs’ new allegations as implausible. Although a court generally accepts a plaintiff’s well-pleaded factual allegations as true, it “is not required to accept as true pleadings that are directly contradicted by other factual statements” in a complaint. Barberan v. Nationpoint, 706 F. Supp. 2d 408, 424 (S.D.N.Y. 2010) (citations omitted); see also, e.g., Anderson v. Davis Polk & Wardwell, LLP, 850 F. Supp. 2d 392, 411 (S.D.N.Y. 2012). Accordingly, “when the facts alleged by the plaintiff are so contradictory that doubt is cast upon their plausibility, the court may pierce the veil of the complaint’s factual allegations” and “dismiss the claim.” Accurate Grading Quality Assurance, Inc. v. Thorpe, 2013 WL 1234836, at *8 (S.D.N.Y. Mar. 26, 2013) (quotation omitted). In the same vein, “the court need not accept as true allegations that conflict with a plaintiff’s prior allegations.” Dozier v. Deutsche Bank Tr. Co. Ams., 2011 WL 4058100, at *2 (S.D.N.Y. Sep. 1, 2011) (citing Colliton v. Cravath, Swaine & Moore LLP, No. 08-CV-400, 2008 WL 4386764, at *6 (S.D.N.Y. Sept. 24, 2008)). It cannot be true both that (i) Plaintiffs’ exposure to market losses was wholly “fictitious,” while (ii) their accounts also “collapse[d]” through trading “over the Chicago Mercantile Exchange,” “in the Futures and Options markets,” due to “imprudent and risky investments,” culminating in defendants “continu[ing] to place trades even where Plaintiffs were on margin calls,” thus depriving Plaintiffs of the ability to “limit [their] losses precipitously” had the trading stopped. Am. Compl. ¶¶ 8, 16, 27, 449, 587. Plaintiffs’ allegations thus fall short of Twombly’s plausibility threshold and need not be accepted as true. See Accurate Grading Quality Assurance, Inc., 2013 WL 1234836, at *8. Nor are Plaintiffs’ new allegations plausible in light of their “Ponzi scheme” allegations. In a Ponzi scheme, the alleged perpetrator has every incentive to conceal losses, because happy investors have no reason to ask questions or withdraw money. See, e.g., Baisch v. Gallina, 346 Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 26 of 35 18 F.3d 366 (2d Cir. 2003). The prompt notice Plaintiffs received of their losses begat immediate scrutiny and arbitration before one of PFG’s primary regulators-obvious consequences wholly at odds with concealing a continuing fraud. Attempting to bolster their “shadow trading” theory in light of these glaring contradictions, Plaintiffs allege two “evidentiary inferences,” neither of which is reasonable. First, Plaintiffs allege that Schedule F to PFG’s Chapter 7 bankruptcy Petition does not include fees or commissions for guaranteed introducing brokers, and thus “[t]hese ‘0’ balance entries [show] that there were no actual trades to generate any fees to any brokers; hence these trades were all fictitious and off-the-books as shadow-trading.” Am. Compl. ¶¶ 34-36. This allegation is not only contradicted by the document itself, which lists various claims for “commissions payable” to these same brokers, but ignores that U.S. Bank was previously sued by a putative class of introducing brokers seeking to recover commissions PFG owed them as of its Chapter 7 petition date. Fintec Group, Inc. v. U.S. Bank, N.A., No. 1:13-cv-08076 (N.D. Ill.) (ECF No. 1). Next, Plaintiffs allege that Schedule F includes “numerous blank entries for customer accounts,” which somehow leads to an inference of shadow-trading because “false statements sent to the customers had shadow trading entries.” Am. Compl. ¶ 37. But the referenced portions of Schedule F do not reflect “blank customer accounts with nothing in them.” Id. Exhibit 1 instead lists claims concerning certain “Customer Metals Accounts” of “unknown” value. Id. Ex. 1. The values of these “Metals” accounts are undoubtedly “unknown” because they are-according to the same document-“unliquidated,” meaning the claims are “one[s] for which there may be a definite liability but where the amount of the claim has not been determined.” Bankr. Ct., Instructions For Bankr. Forms For Non-Individuals, at p. 10, available at http://www.uscourts.gov/sites/default/files/instructions-non-individuals-2015.pdf. Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 27 of 35 19 In sum, Plaintiffs offer only unreasonable speculation to support their allegations of “shadow trading.” The Court therefore need not-and should not-accept them as true. Plaintiffs have not plausibly alleged that U.S. Bank caused their losses, and their claims should accordingly be dismissed. IV. Plaintiffs’ Fraud by Omission and Breach of Fiduciary Duty Claims (Counts II, IV) Must Be Dismissed Because U.S. Bank Did Not Owe A Fiduciary Duty To Plaintiffs. Plaintiffs’ claims for fraud by omission and breach of fiduciary duty also fail because U.S. Bank owed no legal duty to Plaintiffs. Banks “do not owe non-customers a duty to protect them from the intentional torts of their customers.” In re Terrorist Attacks on Sept. 11, 2001, 349 F. Supp. 2d 765, 830 (S.D.N.Y. 2005); Norwest Mortg., Inc. v. Dime Sav. Bank of N.Y., 280 A.D.2d 653, 654 (2d Dep’t 2001) (a bank has “no duty to monitor fiduciary accounts maintained at its branches in order to safeguard funds in those accounts from fiduciary misappropriation”); Quintero Community Ass’n Inc. v. FDIC, 792 F.3d 1002, 1011 (8th Cir. 2015) (“In general, banks owe no duty of care to non-customers”). Nor do banks owe fiduciary duties to their customers, let alone non-customers. Kurth v. Van Horn, 380 N.W.2d 693, 696 (Iowa 1986) (“a fiduciary or confidential relationship does not arise solely from a bank-depositor relationship”). To state a claim for fraud by omission, however, a plaintiff must allege the existence of a special or fiduciary relationship which would raise a duty to speak. See High Tides, LLC v. DeMichele, 88 A.D.3d 954, 959 (2d Dep’t 2011). A fiduciary relationship only arises when a plaintiff places trust and confidence in a defendant, thereby placing the defendant in a position of influence and superiority over the plaintiff. Reuben H. Donnelly Corp. v. Mark I Mktg. Corp., 893 F. Supp. 285, 289 (S.D.N.Y. 1995). Plaintiffs fail to allege that any of them ever communicated with U.S. Bank concerning their dealings with PFG, let alone that U.S. Bank obtained a position of Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 28 of 35 20 influence or superiority over them. Accordingly, Plaintiffs fail to state a claim against U.S. Bank for fraud by omission or breach of fiduciary duty. Counts II and IV must therefore be dismissed. V. Plaintiffs Fail Sufficiently To Allege A RICO Violation By U.S. Bank (Counts XXVIII, XXIX). In addition to the grounds set forth above, Plaintiffs’ RICO and RICO conspiracy claims must be dismissed because Plaintiffs fail adequately to allege the elements of a RICO violation against U.S. Bank. The elements of a violation of section 1962(c) are “‘(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.’” Bernstein v. New York, 591 F. Supp. 2d 448, 461 (S.D.N.Y. 2008) (quoting Anatian v. Coutts Bank (Switzerland) Ltd., 193 F.3d 85, 88 (2d Cir. 1999)). To withstand dismissal, a RICO complaint may not generalize among multiple defendants. Rather, the elements of a section 1962(c) violation “‘must be established as to each individual defendant.’” Weizmann v. Inst. of Science v. Neschis, 229 F. Supp. 2d 234, 255 (S.D.N.Y. 2002) (quoting DeFalco v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001)). Plaintiffs’ Complaint fails adequately to allege a section 1962(c) violation by U.S. Bank. 1. Plaintiffs Fail To Allege That U.S. Bank Engaged In Any Predicate Act Of Racketeering, Let Alone A Pattern Of Racketeering Activity. Plaintiffs fail adequately to allege that U.S. Bank engaged in a pattern of racketeering activity. “Racketeering activity” is defined to include a number of crimes including mail and wire fraud and money laundering as defined in sections 1341, 1343, and 1956 of title 18 of the United States Code. See 18 U.S.C. § 1961(1). A “‘pattern of racketeering activity’ requires at least two acts of racketeering activity . . . .” 18 U.S.C. § 1961. To state a claim against a particular defendant, a plaintiff must sufficiently allege two predicate acts of racketeering committed by that defendant. See Weizmann, 229 F. Supp. 2d at 255. When, as here, a plaintiff alleges that violations of the mail or wire fraud statutes supply the racketeering activity element, the plaintiff must meet the heightened pleading standards of Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 29 of 35 21 Rule 9(b) of the Federal Rules of Civil Procedure. See Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 185 (2d Cir. 2008). “The elements of a mail or wire fraud violation are: (1) a scheme to defraud, (2) money or property as the object of the scheme, and (3) the use of the mails or wires to further the scheme.” Grimes v. Fremont Gen. Corp., 785 F. Supp. 2d 269, 299 n.45 (S.D.N.Y. 2011) (internal quotation marks omitted). A plaintiff’s mail or wire fraud allegations “‘should state the contents of the communications, who was involved, [and] where and when they took place, and [should] explain why they were fraudulent.’” Spool, 520 F.3d at 185 (alterations in original) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir. 1993)). A complaint alleging mail and wire fraud must also “plead facts that give rise to a strong inference that the defendant possessed fraudulent intent.” Mills, 12 F.3d at 1176. Plaintiffs’ allegations do not suffice to allege a single act of racketeering by U.S. Bank, let alone a pattern of such activity. Plaintiffs’ only mail fraud allegation against U.S. Bank is that “Defendants Wasendorf, Sn., JPMorgan, and U.S. Bank intentionally used the Postal Service to mail or caused to be mailed to victims: (1) customer daily and monthly statements and (2) year-end tax statements to their customers, and (3) margin call notices.” Am. Compl. ¶ 685. Missing from this vague statement is any particularized allegation regarding U.S. Bank’s role in these mailings, especially since Plaintiffs do not claim to be U.S. Bank customers, and U.S. Bank is not a futures commission merchant. Plaintiffs likewise fail to allege who at U.S. Bank was involved in these mailings, when they were made, what was communicated by them, why they were fraudulent, or how they furthered an alleged fraud. In the absence of such allegations, Plaintiffs fail to allege a predicate act of mail fraud by U.S. Bank. See Mills, 12 F.3d at 1176. Plaintiffs also fail properly to allege a predicate act of wire fraud. Plaintiffs allege that U.S. Bank “knowingly used wire transfers to transfer monies out of the segregate customer Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 30 of 35 22 accounts to PFG non-customer accounts . . . from June 2008 through July 2012,” pointing to a lengthy list of funds transfers between U.S. Bank accounts. Am. Compl. ¶ 684b (citing Am. Compl. Ex. 7). Plaintiffs also point to “[e]-mails in May 2011 between U.S. Bank (through Hope Timmerman), PFG, and the NFA . . . .” Id. ¶ 684d. But because Plaintiffs must demonstrate that their October 2008 injury proximately resulted from alleged racketeering activity, Plaintiffs cannot rely on use of the wires that post-dated that injury. See Morin v. Trupin, 778 F. Supp. 711, 719 (S.D.N.Y. 1991). With respect to the transfers on Plaintiff’s list that predate October 8, 2008, Plaintiffs fail to explain how such transfers-wholly internal to U.S. Bank-supposedly involved U.S. Bank’s use of interstate wire facilities. See 18 U.S.C. § 1343. As a result, none of the transfers that Plaintiffs identify could possibly support an allegation of wire fraud. See Zap Cellular, Inc. v. Kurland, 2015 WL 8207315, at *8 (E.D.N.Y. Dec. 6, 2015); Alkhatib v. N.Y. Motor Grp., LLC, 2015 WL 3507340, at *13 (E.D.N.Y. June 3, 2015). Even if Plaintiffs could overcome these fatal flaws, Plaintiffs fail to allege that U.S. Bank had any intent to defraud. See Mills, 12 F.3d at 1176. Plaintiffs accordingly fail to allege that U.S. Bank committed any predicate act of wire fraud. Finally, Plaintiffs fail to allege that U.S. Bank committed money laundering. To plead money laundering, Plaintiffs must allege (1) that U.S. Bank conducted a financial transaction, (2) that the transaction in fact involved the proceeds of specified unlawful activity as defined in 18 U.S.C. § 1956(c)(7), and (3) that U.S. Bank knew that the property involved in the financial transaction represented the proceeds of some form of unlawful activity. Tymoshenko v. Firtash, 57 F. Supp. 3d 311, 322 (S.D.N.Y. 2014). Plaintiffs must also allege either that U.S. Bank knew that the transaction was designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity, Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 31 of 35 23 or that U.S. Bank conducted or attempted to conduct the transaction with the intent to promote the carrying on of specified unlawful activity. Id. at 322. In their attempt to satisfy this burden, Plaintiffs allege that “U.S. Bank, JP Morgan and Wasendorf Sn.” committed money laundering “in that they engaged in, and otherwise caused, numerous financial transactions and transfers of proceeds of the mail and wire fraud violations above . . . .” Am. Compl. ¶ 686. Insufficient mail and wire fraud allegations, however, cannot supply the “specified unlawful activity” necessary to a money laundering allegation. See W. 79th St. Corp. v. Congregation Kahl Minchas Church, 2004 WL 2187069, at *9 (S.D.N.Y. Sept. 30, 2004). Moreover, Plaintiffs fail to allege that U.S. Bank knew of any design to conceal or disguise proceeds of specified unlawful activity or that U.S. Bank intended to promote such activity. Because they have failed to allege any act of racketeering-let alone a pattern of racketeering-by U.S. Bank, Plaintiffs’ RICO claim must be dismissed. 2. Plaintiffs Fail To Allege That U.S. Bank Conducted Or Participated In the Conduct Of The Affairs Of An Enterprise. Plaintiffs’ RICO claim also fails because Plaintiffs fail to allege that U.S. Bank conducted or participated in the conduct of the affairs of an enterprise. “‘[T]o establish liability under § 1962(c) one must allege and prove the existence of two distinct entities: (1) a ‘person’; and (2) an ‘enterprise’ that is not simply the same ‘person’ referred to by a different name.’” Rosenson v. Mordowitz, 2012 WL 3631308, at *5 (S.D.N.Y. Aug. 23, 2012) (alteration in original) (quoting Cedric Kushner Promotions, Ltd. v. King, 553 U.S. 158, 161 (2001)). “[F]or an association of individuals to constitute an enterprise, the individuals must share a common purpose to engage in a particular fraudulent course of conduct and work together to achieve such purposes.” First Capital Asset Mgt. v. Satinwood, Inc., 385 F.3d 159, 174 (2d Cir. 2004) (internal quotation marks omitted); see Boyle v. United States, 556 U.S. 938, 946 (2009) Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 32 of 35 24 (association-in-fact enterprise must have “both interpersonal relationships and a common interest”). Plaintiffs attempt to satisfy this burden by alleging that “each Defendant had a common purpose with each other as they worked together to transfer monies from segregated customer accounts . . . .” Am. Compl. ¶¶ 679. These transfers, however, are apparently the same ones upon which Plaintiffs base their allegations of wire fraud and money laundering. As such, Plaintiffs fail to plead that the alleged “Enterprise” existed “separate and apart from the [alleged] pattern of [racketeering] activity . . . .” United States v. Turkette, 452 U.S. 576, 583 (1981); see also Goodman v. Bremby, 2017 WL 4169427, at *9 (D. Conn. Sept. 20, 2017) (no enterprise where complaint lacked “allegations that defendants functioned as an enterprise, apart from coordinating the alleged predicate acts”). Plaintiffs similarly fail to allege any facts concerning the hierarchy and organization of the supposed association between Wasendorf, JPMorgan, and U.S. Bank. Without such explanation, Plaintiffs’ RICO claim fails. See Satinwood, 385 F.3d at 174-75. Even if Plaintiffs had adequately alleged the existence of an enterprise, Plaintiffs must also allege facts that “if proved, would demonstrate some degree of control over the enterprise.” Elsevier, Inc. v. W.H.P.R., Inc., 692 F. Supp. 2d 297, 308 (S.D.N.Y. 2010). Here, Plaintiffs allege only that U.S. Bank “caused . . . monies to be diverted to PFG and Wasendorfs,” ostensibly by permitting transfers between different U.S. Bank accounts. Am. Compl. ¶ 680. Plaintiffs, however, fail to explain how such activity involved U.S. Bank exercising control over an association-in-fact consisting of itself, JPMorgan, and Wasendorf. Because Plaintiffs have failed sufficiently to allege the racketeering activity, pattern, and enterprise elements of their RICO claim, that claim must be dismissed. Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 33 of 35 25 3. Plaintiffs’ RICO Conspiracy Claim Fails. Plaintiffs’ RICO conspiracy claim must be dismissed because Plaintiffs fail to allege that U.S. Bank conspired to violate the RICO statute. A complaint that fails adequately to allege a substantive RICO violation cannot state a claim for RICO conspiracy. See Satinwood, 385 F.3d at 182. For the reasons stated above, Plaintiffs have failed to allege that U.S. Bank committed a substantive RICO violation. Plaintiffs’ RICO conspiracy claim therefore necessarily fails as well. Plaintiffs’ RICO conspiracy claim is also doomed by Plaintiffs’ failure to allege a factual basis sufficient to support a plausible inference that a conspiracy took place. At a minimum, a plaintiff alleging the existence of a RICO conspiracy must allege “‘some factual basis for a finding of a conscious agreement among the defendants.’” Picard v. Kohn, 907 F. Supp. 2d 392, 400 (S.D.N.Y. 2012) (quoting Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 26 n.4 (2d Cir. 1990)). Though the Complaint recites the existence of an agreement, Plaintiffs fail to explain which Defendants agreed with which other Defendants, when the agreement took place, or how the agreement came about. See Am. Compl. ¶ 695. In the absence of any such factual content, Plaintiffs cannot state a claim for RICO conspiracy. See Elsevier, 692 F. Supp. 2d at 313 (dismissing RICO conspiracy claim where complaint contained “nothing more than a conclusory allegation of an agreement among defendants”). Accordingly, Plaintiffs’ RICO conspiracy claim must be dismissed. CONCLUSION For the foregoing reasons, Defendants respectfully request that that the Court dismiss Plaintiffs’ Amended Complaint in its entirety with prejudice. Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 34 of 35 26 Dated: New York, New York November 9, 2017 s/Eric R. Sherman Eric R. Sherman admitted pro hac vice DORSEY & WHITNEY LLP Suite 1500, 50 South Sixth Street Minneapolis, MN 55402 (612) 340-2600 sherman.eric@dorsey.com Dai Wai Chin Feman DORSEY & WHITNEY LLP 51 West 52nd Street New York, NY 10019-6119 (212) 415-9200 chinfeman.daiwai@dorsey.com Attorneys for Defendant U.S. Bank National Association Case 1:16-cv-05508-VSB Document 88 Filed 11/09/17 Page 35 of 35