Abbott v. Chemical Trust

Full title: Nola M. Abbott et al., Plaintiffs, v. Chemical Trust; U.S. Guarantee…

Court: United States District Court, D. Kansas

Date published: Apr 26, 2001

Case No. 01-2049-JWL (D. Kan. Apr. 26, 2001)

Opinion

Case No. 01-2049-JWL.

April 26, 2001.

MEMORANDUM AND ORDER

JOHN W. LUNGSTRUM, United States District Judge.

More than one hundred plaintiffs filed this suit against defendants for damages suffered as a result of securities fraud and racketeering activity arising out of a Ponzi scheme allegedly contrived and carried out by defendants. Specifically, plaintiffs allege violations of 15 U.S.C. § 78j(b) of the Securities Exchange Act of 1934 and 17 C.F.R. § 240.10b-5; 18 U.S.C. § 1961 et seq. of the Racketeer Influenced and Corrupt Organizations Act ("RICO"); the Texas Deceptive Trade Practices Act; the California Business and Professions Code; the Michigan Consumer Protection Act; and the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Plaintiffs also allege common law claims of fraud, breach of contract, negligence, constructive trust and breach of fiduciary duty. This matter is presently before the court on plaintiffs' motion for partial summary judgment against defendant First National Bank of Onaga, Kansas (doc. #80); defendant First National Bank's cross-motion for partial summary judgment (doc. #86); defendant First National Bank's motion for summary judgment on plaintiffs' remaining claims (doc. #93); defendant First National Bank's motion to dismiss certain plaintiffs (doc. #158); and plaintiffs' motion to supplement their summary judgment papers (doc. #208). As set forth in more detail below, the court grants summary judgment in favor of FNB on all claims of all plaintiffs.

• Facts

In July 1999, Cliff Wilkinson contacted defendant First National Bank of Onaga, Kansas ("FNB") about the possibility of FNB handling self-directed IRAs for people wishing to purchase an investment from Chemical Trust, an asset referred to as the Alliance Trust Guaranteed Contract Agreement.¹According to plaintiffs, Mr. Wilkinson is a trustee of Chemical Trust and a "co-manager of Chemical Trust's affairs." Mr. Wilkinson was referred to Jena Rieschick, FNB's Vice President of Operations and the IRA officer for FNB. In an effort to determine whether FNB could "hold" the Chemical Trust asset, Ms. Rieschick requested additional documentation from Mr. Wilkinson concerning the asset. On July 19, 1999, Mr. Wilkinson sent additional documents to Ms. Rieschick via facsimile, including a Certificate of Investment, a sample Surety Payment Bond and various marketing brochures. According to Ms. Rieschick, however, she did not review the marketing brochures because "we don't look at those." In any event, to determine whether FNB was willing to administer the Chemical Trust asset, Ms. Rieschick "looked at the interest rate, the maturity date, that the payments were on some type of schedule, that it had a principal amount, and that . . . it was a secured note." Ultimately, Ms. Rieschick determined that FNB could hold the asset. In fact, on the transmittal letter from Mr. Wilkinson on July 19, 1999, Ms. Rieschick made a notation, "Asset OK." Ms. Rieschick explained that this notation signified that she had determined that the asset was "administratively feasible."It is undisputed that Ms. Rieschick never reviewed or evaluated the Chemical Trust asset for purposes of assessing the asset's viability as an investment. In other words, in determining that the Alliance Trust Guaranteed Contract Agreement was administratively feasible, Ms. Rieschick did not determine what Alliance Trust or Chemical Trust did to produce income for its investors. She did not conduct any type of background check on Cliff Wilkinson. She did not check with the Better Business Bureau to ascertain whether there were any complaints about Alliance Trust or Chemical Trust. She did not check with the Secretary of State for any state to determine the nature of Alliance Trust's or Chemical Trust's business. She did not determine whether Chemical Trust was registered with the Securities Exchange Commission. In short, in evaluating Chemical Trust, Ms. Rieschick looked only at the Chemical Trust asset and simply determined that "it was a type of debt instrument, like a note" and that the asset was "OK" ( i.e., administratively feasible).²

1 Alliance Trust was the predecessor to Chemical Trust.

2 Apparently, in July 1999, two states' securities commissions (North Dakota and Iowa) had already entered cease and desist orders against Mr. Wilkinson and Alliance Trust.

After FNB agreed to administer the Chemical Trust asset, Chemical Trust sent a memorandum to various agents responsible for marketing the Chemical Trust investment in which the agents were instructed to tell investors to use either FNB or Fidelity National Bank of Atlanta as custodian banks for purposes of opening self-directed IRA accounts through which the investors could purchase the Chemical Trust asset.³Beginning in July 1999, FNB opened new IRA accounts for customers desiring to invest in Chemical Trust and, pursuant to those customers' instructions, purchased the Chemical Trust asset. None of the plaintiffs had any personal contact with FNB prior to opening their accounts. Between August 1999 and October 1999, FNB purchased Chemical Trust assets for 79 customers, including eight plaintiffs.⁴According to Ms. Rieschick, FNB made no assessment of risk prior to purchasing the Chemical Trust asset.⁵Thereafter, FNB issued monthly "Investment Reviews" to plaintiffs which identified a market value for the Chemical Trust investment. These statements indicated that the Chemical Trust investment was "currently valued at cost." According to FNB, the custodian agreement executed by plaintiffs states that FNB "may use any method or policy" to value assets and that because the Chemical Trust assets were not publicly traded, FNB decided to value the asset based on purchase price. Ms. Rieschick admitted, however, that FNB did not determine whether plaintiffs could resell the Chemical Trust asset for the original purchase price.

3 It appears that Chemical Trust's agents offered investors two options in terms of purchasing the Chemical Trust asset. Investors could either convert existing IRAs into cash (with punitive tax consequences) and write a check to Chemical Trust or, using specified custodian banks, open new self-directed IRA accounts, roll existing IRA funds into the new account, then direct the custodian bank to purchase the Chemical Trust asset with those funds (thus, transferring the funds to Chemical Trust). Presumably because it had no adverse tax consequences, plaintiffs here chose the second option.

4 During this time, at least five other states (Kansas; Arkansas; Illinois; Pennsylvania; Arizona) entered cease and desist orders against Mr. Wilkinson and Alliance Trust/Chemical Trust.

5 In fact, Ms. Rieschick testified that FNB, in its role as a custodian bank, never assesses the risk of any investments. Rather, FNB only assesses whether the bank can "hold" a particular investment as a custodian. In other words, FNB handled or evaluated the Chemical Trust asset in the same manner as it handled or evaluated all other assets.

On October 1, 1999, the United States District Court for the District of South Carolina issued a grand jury subpoena to FNB to testify in a criminal action against Mr. Wilkinson, Alliance Trust and Chemical Trust. The subpoena was accompanied by an order issued by a United States Magistrate Judge for the District of South Carolina in which the Magistrate Judge ordered that FNB "shall not provide the individuals and/or entities listed on the Grand Jury subpoena, either directly or indirectly, with notice of the fact of service upon it of the Grand Jury subpoena duces tecum . . . or of the nature of the documents whose production is commanded under the terms of the subpoena, or of the fact that such documents have been produced before the Grand Jury in compliance with the subpoena's terms, or notice of any other information furnished to the Grand Jury, for a period of ninety (90) days from the date of service of this Order upon Onaga." The order was issued based on the Magistrate Judge's belief that notification to the parties listed in the grand jury subpoena "will result in seriously jeopardizing" the grand jury's investigation.

FNB received the grand jury subpoena on or about October 5, 1999. After receiving the grand jury subpoena, Ms. Rieschick contacted FBI agent Paul Jacobs, who told her that the FBI was investigating Chemical Trust as a fraudulent scheme. According to Ms. Rieschick, "per the direction of the subpoena and based upon the advice of legal counsel," FNB did not disclose the receipt of the subpoena to any outside party, including investors in the Chemical Trust asset, and continued to purchase Chemical Trust assets for new customers.⁶According to Ms. Rieschick, FNB continued to purchase the assets because "at that time we had nothing that was public knowledge that would allow us to stop purchasing the asset." According to plaintiffs, however, the grand jury subpoena did not state that FNB could not inform its customers that Chemical Trust investments were the subject of a criminal investigation. In any event, on October 7, 1999, a customer service representative at FNB received a phone call from Charles Kilway, a state representative, asking whether FNB had heard anything negative about Chemical Trust and indicating that Chemical Trust was under state investigation. Nonetheless, FNB continued to purchase Chemical Trust assets for its customers.

6 Ms. Rieschick averred that she asked Agent Jacobs whether FNB should stop purchasing Chemical Trust assets and that Agent Jacobs advised Ms. Rieschick to continue to handle the accounts as it had been. Ms. Rieschick further averred that she asked Agent Jacobs whether FNB should conduct some form of due diligence with respect to Chemical Trust. According to Ms. Rieschick, Agent Jacobs told her that he would prefer that FNB not do so unless it was FNB's standard procedure to do so. As conducting such due diligence was not FNB's standard procedure, FNB conducted no due diligence at that point with respect to Chemical Trust.

On approximately November 1, 1999, a customer of FNB sent to FNB a copy of a letter from the Oklahoma Securities Commission indicating that the Commission was investigating Chemical Trust. Because the Oklahoma notice was "public information," Ms. Rieschick discussed with legal counsel the possibility of taking "further action in regards to the asset." With the apparent approval of its legal counsel, FNB called a special meeting of its executive committee. At that meeting, FNB resolved that the "corporate policy of the Bank be amended and revised to restrict the bank from serving as custodian for Guaranteed Contract Agreements and similar type of investments" and that "the Bank should resign immediately as the custodian of any Guaranteed Contract Agreements and similar type of investments, as soon as conveniently and legally possible." According to Ms. Rieschick, the policy change "was a means for our attorney to come up for-with a reason for us not to take them without having to say why, basically." In any event, FNB did not purchase any Chemical Trust assets after November 3, 1999.

After the executive committee meeting, FNB sent letters to all of its customers whose funds it had invested in Chemical Trust. In the letter, FNB explained that it was resigning as the custodian of those accounts-including plaintiffs' accounts-simply because "we were informed that your investment was going to be in the form of a promissory note, but we now believe that your investment will be in the form of a guaranteed contract agreement."⁷ In other words, FNB did not advise its customers of the true reason it was resigning as custodian. On November 16, 1999, FNB sent a letter to Chemical Trust explaining that it would no longer act as a custodian for the guaranteed contract agreements. Despite the fact that FNB issued resignation letters to its current customers and to Chemical Trust, FNB continued to open IRA accounts for new customers desiring to purchase Chemical Trust assets. According to plaintiffs, once these new accounts were open and the requisite fees paid to FNB,⁸FNB refused to purchase the Chemical Trust assets it had been directed to purchase by new investors. Ms. Rieschick averred, however, that if the account application and accompanying documents did not mention Chemical Trust, then FNB could have established an account without knowing that the customer intended to purchase the Chemical Trust asset.⁹In any event, once FNB learned that a new customer desired to invest in Chemical Trust, FNB informed the customer of the policy change and gave the customer the option of closing the new account.

7 Ms. Rieschick admitted, however, that a guaranteed contract agreement is no different from a promissory note.

8 Pursuant to the custodian agreement between the parties, FNB was entitled to collect a base fee of $42 annually; a special asset fee of $24 annually; and a $6 safekeeping fee for holding the asset in FNB's vault.

9 Although plaintiffs assert in their papers that FNB "knew at the time these new IRA account applications were submitted that these new customers intended to invest in Chemical Trust," plaintiffs direct the court to no evidence in the record supporting that statement.

Plaintiffs' Motion for Partial Summary Judgment and Defendant's Cross-Motion for Partial Summary Judgment

Seventeen of the plaintiffs in this action move for summary judgment¹⁰against FNB on their claims for fraud, negligence, breach of fiduciary duty, constructive trust, breach of contract, violation of the Texas Deceptive Trade Practices Act and violation of the California Business and Professions Code. These seventeen plaintiffs are the plaintiffs in this action who invested funds in Chemical Trust through FNB. Defendant has responded to the motion and, in turn, has filed a cross-motion for summary judgment with respect to these seventeen plaintiffs and these particular claims. As set forth in more detail below, the court grants summary judgment in favor of FNB on these seventeen plaintiffs' claims for fraud, negligence, breach of fiduciary duty, constructive trust, breach of contract, violation of the Texas Deceptive Trade Practices Act and violation of the California Business and Professions Code.

10 Five of the seventeen plaintiffs-Amelia and Torrance Adcock, Regina Cobb by Phillip Cacioppo, and Don and Neta Graves-are the subject of FNB's motion to dismiss certain plaintiffs (doc. #158). FNB moves to dismiss these plaintiffs (and one other plaintiff, Judith Hunter) on the grounds that these plaintiffs have been repaid any monies they sought to invest in Chemical Trust through FNB. Plaintiffs have filed a response to the motion stating that they do not oppose the motion. Thus, FNB's motion to dismiss these plaintiffs is granted.

Summary Judgment Standard¹¹Summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In applying this standard, the court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc. , 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587 (1986)). A fact is "material" if, under the applicable substantive law, it is "essential to the proper disposition of the claim." Id. (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986)). An issue of fact is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way." Id. (citing Anderson, 477 U.S. at 248).

11 The legal standard does not change simply because the parties file cross-motions for summary judgment. Each party has the burden of establishing the lack of a genuine issue of material fact and entitlement to judgment as a matter of law. See Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000). Although the court will not automatically decide the case at the summary judgment stage merely because the parties have filed cross-motions for summary judgment, see id., summary judgment is appropriate if there are no genuine issues of material fact.

The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Id. at 670-71. In attempting to meet that standard, a movant that does not bear the ultimate burden of persuasion at trial need not negate the other party's claim; rather, the movant need simply point out to the court a lack of evidence for the other party on an essential element of that party's claim. Id. at 671 (citing Celotex Corp. v.Catrett, 477 U.S. 317, 325 (1986)).

Once the movant has met this initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson , 477 U.S. at 256; see Adler , 144 F.3d at 671 n. 1 (concerning shifting burdens on summary judgment). The nonmoving party may not simply rest upon its pleadings to satisfy its burden. Anderson , 477 U.S. at 256. Rather, the nonmoving party must "set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Adler , 144 F.3d at 671. "To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein." Id.

Finally, the court notes that summary judgment is not a "disfavored procedural shortcut;" rather, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action." Celotex, 477 U.S. at 327 (quoting Fed.R.Civ.P. 1).

• Choice of LawThe threshold issue the court must resolve is which state's law to apply. In determining the applicable law, a federal court sitting in diversity must apply the substantive law of the state in which it sits, including that state's choice of law rules. Klaxon Co. v. Stentor Elec.Mfg. Co. , 313 U.S. 487, 496 (1941); Bancoklahoma Mortgage Corp. v.Capital Title Co. , 194 F.3d 1089, 1103 (10th Cir. 1999). With respect to plaintiffs' breach of contract claim, the custodian agreement executed by the parties contains an express choice-of-law provision whereby the parties agreed that "Kansas law shall govern this instrument, any other instrument executed in connection with [plaintiffs'] account[s] and [the parties'] rights and obligations hereunder or otherwise with respect to the account and assets." See Agreement § 8.15. Kansas courts generally give effect to such provisions if the forum selected bears a reasonable relation to the contract at issue. See National EquipmentRental, Ltd. v. Taylor , 225 Kan. 58, 587 P.2d 870, 873 (1978). As Kansas certainly bears a reasonable relation to the custodian agreement executed by the parties, and as plaintiffs do not suggest that they did not freely enter into the choice-of-law provision, the court will apply Kansas law to plaintiffs' breach of contract claim. According to defendant, the court should also apply Kansas law to plaintiffs' tort claims. Plaintiffs have failed to address whatsoever the choice-of-law issue in their papers and, thus, are deemed to acquiesce to the application of Kansas law to their tort claims.¹²

12 Plaintiffs may have acquiesced to the application of Kansas law to their tort claims because of the broad choice-of-law provision in the custodian agreement. While Kansas has not yet addressed the issue, several courts have held that a broad choice-of-law provision in a contract may govern not only interpretation of the contract in which it is contained, but also tort claims arising out of or relating to the contract, particularly when those tort claims involve the same operative facts as a parallel claim for breach of contract. See, e.g., Hitachi Credit America Corp. v. Signet Bank, 166 F.3d 614, 628 (4th Cir. 1999) (applying contractual choice-of-law provision to fraudulent inducement claim because the choice-of-law provision was sufficiently broad to indicate that the parties intended "to cover more than merely contract claims"); Marinechance Shipping, Ltd. v. Sebastian, 143 F.3d 216, 222-23 (5th Cir. 1998) (district court did not err in applying forum selection clause to tort claims where nothing in clause justified limiting its application to contract claims); Terra Int'l, Inc. v. Mississippi Chemical Corp., 119 F.3d 688, 693-95 (8th Cir. 1997) (forum selection clause applied to tort claims where tort claims involved the same operative facts as would a parallel claim for breach of contract); Turtur v. Rothschild Registry Int'l, Inc., 26 F.3d 304, 309-10 (2d Cir. 1994) (applying contractual choice-of-law provision to fraudulent inducement claim because the choice-of-law provision by its terms applied to disputes "arising out of or relating to" to the contract); Hugel v. Corporation of Lloyd's, 999 F.2d 206, 209 (7th Cir. 1993) ("Regardless of the duty sought to be enforced in a particular cause of action, if the duty arises from the contract, the forum selection clause governs the action."); Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 203 (3d Cir. 1983) (forum selection clause that expressly applied to "any dispute arising" between the parties applied to tort claims where court found no evidence to suggest that the clause was not intended to address all claims emerging from the contractual relationship); see also Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) (broad forum selection clause in form ticket contract enforceable with respect to passenger's negligence action).

• Plaintiffs' Tort Claims¹³In support of its cross-motion for summary judgment with respect to plaintiffs' tort claims, FNB initially argues that the representations and nondisclosures that form the basis of plaintiffs' tort claims are the very same representations and nondisclosures that form the basis of plaintiffs' breach of contract claim and that, as a result, plaintiffs' tort claims are not actionable under Kansas law. Plaintiffs have not responded to this argument. FNB is correct that under Kansas law, the existence of a contractual relationship bars the assertion of tort claims covering the same subject matter governed by the contract. See AtchisonCasting Corp. v. Dofasco, Inc. , 889 F. Supp. 1445, 1461 (D.Kan. 1995) (collecting cases). Kansas cases "distinguish claims in tort, which arise when a party violates some duty imposed by law, and contractual duties, which are defined by the parties' agreement, and find that tort duties may not be imposed where the party's duties and rights are specifically defined by contract." Id. (citations omitted). As explained below, plaintiffs' breach of contract claim is based on FNB's failure to review and investigate the Chemical Trust asset and FNB's failure to notify plaintiffs of the grand jury subpoena. Plaintiffs' tort claims are based on the same conduct-FNB's failure to investigate and review the Chemical Trust asset; FNB's failure to advise plaintiffs of the grand jury subpoena; and FNB's failure to notify plaintiffs of possible state investigations of Chemical Trust. Because the custodian agreement specifically defined FNB's duties with respect to these matters, extracontractual tort duties regarding these matters are precluded. Seeid. (citing Ford Motor Credit Co. v. Suburban Ford , 237 Kan. 195, 204 (1985) (citing Isler v. Texas Oil Gas Corp. , 749 F.2d 22, 23-24 (10th Cir. 1984))). In any event, even if plaintiffs' tort claims were not precluded, the court would nonetheless grant summary judgment in favor of FNB on the merits of plaintiffs' tort claims as explained below.

13 After the parties' summary judgment papers had been fully briefed, plaintiffs filed a motion to supplement their papers (doc. #208) by attaching copies of their Rule 26(a)(2) expert witness reports. While plaintiffs make no effort to explain how these reports bear on the issues before the court, a review of the reports reveals the alleged significance of them. Both expert reports are propounded by local law professors. Both professors purport to opine, inter alia, about the nature of FNB's legal duty owed to plaintiffs. Robert Downs, for example, opines that any reasonable investigation by FNB of the Chemical Trust asset would have disclosed the fraudulent nature of the asset and that a number of facts should have put FNB on notice of the need to investigate the asset. Francis Hanna opines that the custodial relationship between FNB and plaintiffs "carries with it certain fiduciary duties and obligations" and that FNB "was negligent in not investigating the nature of the Chemical Trust [asset] before agreeing to purchase this asset for its customers." Mr. Hanna further opines that despite the particular custodian agreement executed by the parties, the bank owed a duty to plaintiffs to competently evaluate the nature of the asset.
These experts, then, purport to draw legal conclusions from the facts of the case. Because such questions of law are not the proper subject of expert testimony, the court disregards the expert reports submitted by plaintiffs. See A.E. ex rel. Evans v. Independent Sch. Dist. No. 25, 936 F.2d 472, 476 (10th Cir. 1991). Stated another way, plaintiffs' motion to supplement their papers (doc. #208) is granted, but the supplemental materials have no bearing on the court's analysis of the pending motions for summary judgment in terms of the nature of any duty owed by FNB to plaintiffs.

• Fraud and NegligenceIn support of their fraud claim, plaintiffs allege that FNB failed to disclose the existence of the grand jury subpoena; failed to disclose the phone call from Charles Kilway concerning the state investigation of Chemical Trust; failed to disclose that the Oklahoma Securities Commission was investigating Chemical Trust; misrepresented to plaintiffs that it had reviewed the Chemical Trust asset; misrepresented to plaintiffs the value of the Chemical Trust asset each month; and misrepresented the true reason that it resigned as custodian of plaintiffs' accounts. With respect to their negligence claim against FNB, plaintiffs allege that a "reasonably prudent custodian of funds would have investigated the type of investment being made prior to transferring funds to ensure that it was not fraudulent and that it complied with applicable state and federal laws." Plaintiffs further allege that Ms. Rieschick's review of the Chemical Trust asset failed to "meet even the minimal duty of reasonable care." FNB maintains that summary judgment is appropriate in its favor because plaintiffs have failed to identify any facts which arguably give rise to any legal duty owed by FNB to plaintiffs beyond those duties set forth in the contract between the parties. As set forth below, the court concludes as a matter of law that FNB had no common law duty to investigate or review the Chemical Trust asset and had no common law duty to disclose any information concerning the Chemical Trust asset. In the absence of such a duty, summary judgment is properly granted in favor of FNB on plaintiffs' claims of fraud and negligence.

Under Kansas law, a failure to disclose or an affirmative misrepresentation is actionable fraud only when the party is under a legal or equitable obligation to communicate. See DuShane v. Union Nat'lBank , 223 Kan. 755, 759-60 (1978). While "[t]he question of what gives rise to a legal or equitable obligation to communicate is not always an easy question to resolve, . . . generally the duty must arise from a relationship between the parties when the suppression or concealment is alleged to have occurred." Id . at 760. It may arise between two contracting parties when there is a disparity of bargaining power or of expertise or if the parties to a bargain are in a fiduciary relationship to one another. Id. Similarly, an essential element of a cause of action for negligence is the existence of a duty of reasonable care owed by the defendant to the plaintiff. Hammig v. Ford , 246 Kan. 70, 73 (1990). If no duty is owed, there can be no negligence. Cansler v. State , 234 Kan. 554, 558 (1984). Whether a duty exists is a question of law for the court. Schrader v. Great Plains Elec. Co-op., Inc ., 19 Kan. App. 2d 276, 278 (1994) (citing Durflinger v. Artiles , 234 Kan. 484, 488 (1983)).

The court has uncovered two cases analyzing the nature of the duty owed to investors in self-directed IRAs by the administrator of the IRAs and finds that those cases are particularly instructive here. In Brown v.California Pension Administrators Consultants, Inc., 45 Cal.App.4th 333 (Cal.Ct.App. 1996), investors in self-directed IRAs brought an action to recover funds based on the failure of the administrator of their IRAs to notify plaintiffs that the borrower of their funds had defaulted in payments to other investors. The California Court of Appeal held that the agreements between plaintiffs and the administrator limited the administrator's contractual and common law duties, absolving it of any duty to investigate, select or monitor plaintiff's IRA investments. Seeid. at 346-47. With respect to plaintiffs' negligence claim, the California court stated:

Respondents certainly had the duty to perform ministerial functions as plan administrator and trustee with due care; no claim is made that they failed to do so. But respondents retained no discretion as to appellants' choice of investments, nor any responsibility for advising about the risk of any investments. Those functions were expressly excluded from their relationship, and allocated to appellants as part of appellants' authority to "self direct" their accounts. Since appellants' losses were allegedly caused by their lack of notice that Lewis had defaulted on other loans, and since respondents had no duty to provide that notice, appellants cannot succeed on their cause of action for negligence.

Id. at 347 (citations omitted). Similarly, in Paszamant v. RetirementAccounts, Inc ., 776 So.2d 1049 (Fla.Dist.Ct.App. 2001), investors in self-directed IRAs brought negligence claims against the custodian of their IRAs based on the custodian's failure to seek or assure reasonable verification that the investors' funds had been invested in mortgages actually assigned to the investor. See id. at 1051. The trial court granted summary judgment to the custodian, finding that no duty existed independent of the Custodian Agreement between the parties and that the Custodian Agreement provided that the custodian had no duty other than to transfer funds as directed by the particular investor. See id. Relying in large part on the California court's decision in Brown , the Florida District Court of Appeal affirmed the trial court's decision as follows:

We agree with the trial court that Brown is dispositive of this case. The investors' complaint in Brown was that the administrator failed to give notice of a default and the allegation in the instant case is that RAI failed to give notice that Plaza did not respond correctly to RAI's request for recorded documents. In Brown , the investors sued in contract and in tort and lost on both theories because the contract excluded any duty to advise of choice or risk of investments, and thus, no independent duty of due care arose. In the instant case, the Investors did not pursue any contract claim because the Custodian Agreement also excluded advice with respect to choice or risk. It was the Investors who chose the options of directing and managing the IRA funds, and consequently, the obligation to determine the form of documentation that would reflect their investments.

Id. at 1053.

With this framework in mind, the court turns back to the facts of this case. Like the circumstances in Brown and Paszamant , the relationship between the parties here-as evidenced by the written agreements between the parties-encompassed very limited responsibilities. The custodial agreement between the parties clearly states that FNB has "no responsibility or involvement in evaluating or selecting any assets for disposition, and shall have no liability for any loss or damages that may result from or be associated with any requested investment transaction." See Agreement § 8.05(a). The agreement also clearly states that FNB "assume[s] no responsibility for rendering investment advice with respect to your IRA, nor will we offer any opinion or judgment to you on matters concerning the value or suitability of any investment or proposed investment for your IRA." See id. § 8.05(b). With respect to plaintiffs' negligence claim, then, the agreement between the parties provided that FNB had no duty to plaintiffs other than to transfer funds as directed by plaintiffs and plaintiffs have failed to identify any independent duty of due care owed by FNB to plaintiffs. Thus, because FNB had no duty to investigate or review the Chemical Trust asset, plaintiffs' negligence claim fails as a matter of law. With respect to plaintiffs' fraud claim, plaintiffs have wholly failed to show that the relationship between FNB and plaintiffs was one which would give rise to a duty on the part of FNB to communicate the information that plaintiffs contend FNB should have disclosed. While FNB may have had some fiduciary duty to plaintiffs, that duty was limited to executing the transactions requested by plaintiffs. See infra part II.C.2. While the parties certainly had a contractual relationship, the contract itself expressly limited FNB's obligations to communicate investment information to plaintiffs. Thus, because plaintiffs have failed to demonstrate that FNB had a legal or equitable obligation to communicate various facts to plaintiffs, plaintiffs' fraud claim fails as a matter of law.

• Breach of Fiduciary Duty

Plaintiffs also move for summary judgment on their claim that FNB breached its fiduciary duty to plaintiffs. In support of their argument, plaintiffs assert, in conclusory fashion, that FNB owed a fiduciary duty to plaintiffs because FNB "undertook a review of the Alliance/Chemical Trust Guaranteed Contract Agreement" and because FNB "undertook to value the investments of [the plaintiffs] each month." According to plaintiffs, FNB breached its fiduciary duty when it failed to disclose the existence of the grand jury subpoena to plaintiffs; when it "misled" plaintiffs concerning the reason why FNB would no longer act as custodian for accounts holding the Chemical Trust asset; and when it opened new accounts for individuals desiring to invest the Chemical Trust asset, accepted fees and funds related to those accounts, but refused to make the requested investment. In response, and in support of its cross-motion for summary judgment, FNB argues that it owed no fiduciary duty to plaintiffs. As set forth in more detail below, the uncontroverted facts demonstrate that to the extent FNB owed a fiduciary duty to plaintiffs, that duty was limited to executing the particular transactions requested by plaintiffs. Thus, summary judgment in favor of FNB is appropriate.

It is beyond dispute that plaintiffs' self-directed IRAs with FNB were nondiscretionary accounts. That is, plaintiffs instructed FNB to purchase specific assets and FNB exercised no discretion in that regard. Moreover, despite plaintiffs attempt to argue that FNB somehow assumed a duty to review or value the Chemical Trust asset, it is uncontroverted that any review of the asset was limited to assessing the administrative feasibility of the asset. In addition, there is no evidence that plaintiffs actually believed that FNB would review or evaluate the Chemical Trust asset for purposes of assessing the soundness of plaintiffs' investment decision. In such circumstances, the law is clear that FNB's fiduciary duty to plaintiffs-to the extent such a duty exists-is limited to carrying out the transactions requested by plaintiffs. See Arst v. Stifel, Nicolaus Co. , 86 F.3d 973, 978 (10th Cir. 1996) (where broker had nondiscretionary authority in the sale of client's shares, the fiduciary duty owed by the broker to the client was "to carry out the ordered sale with due care and loyalty and not to make unauthorized sales") (applying Kansas law); Hotmar v. Lowell H. Listrom Co. , 808 F.2d 1384, 1385-87 (10th Cir. 1987) (in the absence of evidence that broker exercised control over account, no fiduciary duty was imposed on broker beyond executing requested transactions) (applying Kansas law); Hill v. Bache Halsey Stuart Shields Inc ., 790 F.2d 817, 824 (10th Cir. 1986) (where broker's duties with respect to nondiscretionary account were limited to executing orders, fiduciary duty owed would be very narrow-"primarily not to make unauthorized trades"); accord MartinezTapia v. Chase Manhattan Bank, N.A. , 149 F.3d 404, 412 (5th Cir. 1998) (where investor controls a nondiscretionary account and retains the ability to make investment decisions, scope of any duties owed by broker will generally be confined to executing investor's orders); CommodityFutures Trading Comm'n v. Heritage Capital Advisory Servs., Ltd. , 823 F.2d 171, 173 (7th Cir. 1987) (only a broker operating a discretionary account-in which the broker determined which investments to make-is viewed as a fiduciary). See also Dugan v. First Nat'l Bank inWichita , 227 Kan. 201, 208-09 (1980) (no fiduciary relationship existed between bank and customer where there was no evidence that bank served as a financial adviser to customer; there was no direct contact regarding the transaction; the bank did not induce customer to enter particular agreement; bank was not requested by customer to disclose any information; and bank did not withhold any information that it had a duty to disclose).

Here, there is no evidence whatsoever that FNB served as an advisor to plaintiffs with respect to their investment decisions or that FNB had any obligation to supervise or monitor plaintiffs' investment decisions. There is no evidence that FNB induced plaintiffs to make particular investments. There is no evidence that plaintiffs requested FNB to investigate or review the asset, that plaintiffs believed that FNB would undertake an investigation or review of the asset or that FNB had any obligation to undertake any investigation or review of the asset. In short, to the extent FNB owed a fiduciary duty to plaintiffs, that duty was limited to executing the transactions requested by plaintiffs. FNB fulfilled that duty. Thus, plaintiffs' claim for breach of fiduciary duty fails as a matter of law. Summary judgment in favor of FNB is granted on this claim.

• Constructive Trust

Finally, plaintiffs ask the court to impose a constructive trust on FNB that, according to plaintiffs, "requires the funds invested be returned to plaintiffs or, since FNB has turned the funds over to the Receiver appointed in the criminal action, a judgment should be entered against FNB for the value of the funds invested and the proceeds derived from them." In response, and in support of its cross-motion for summary judgment, FNB asserts that it holds no funds belonging to plaintiffs and that the only property it holds is the guaranteed contracts which plaintiffs directed FNB to purchase and which FNB is willing to produce to plaintiffs. According to FNB, there are no monies on which to impose a constructive trust.

Under Kansas law, "[a] constructive trust . . . arises in those cases where a person by fraud, actual or constructive, or by any form of unconscionable conduct, or questionable ethics has obtained or holds title to property which in equity and good conscience he ought not to possess or which justly belongs to another." In re Estate of Zimmerman, 207 Kan. 354, 357 (1971). A constructive trust will not be imposed unless an "aroma of wrongdoing permeates the atmosphere." In re Topeka MotorFreight, Inc. , 553 F.2d 1227, 1231 (10th Cir. 1977) (quoting In reZimmerman , 207 Kan. at 357). As set forth above, no improper motive can be ascribed to FNB in this case. FNB committed no fraud upon plaintiffs and breached no fiduciary duty to plaintiffs. For these reasons, no basis exists to impose a constructive trust on any funds held by FNB.¹⁴

14 Plaintiffs have not responded to FNB's argument that it is not even holding any funds. Assuming FNB is no longer holding any funds belonging to plaintiffs, then plaintiffs' constructive trust theory is not viable in any event.

• Breach of ContractPlaintiffs' breach of contract claim is based on three separate allegedbreaches by FNB of the custodian agreement between the parties and FNB'salleged breach of a separate (but related) contract between the partiesentitled "Account Options/Agreement." The court begins with the custodianagreement. First, plaintiffs allege that FNB breached the followingprovision of the custodian agreement:

Your selection of investments, however, shall be limited to publicly traded securities, mutual funds, money market instruments and other investments that are obtainable by us and that we are capable of holding in the ordinary course of our business.

See Agreement § 8.05(a). According to plaintiffs, because the Chemical Trust asset was not a publicly traded security, mutual fund or money market instrument, FNB made a determination that Chemical Trust was an investment that FNB was able to obtain and which FNB was "capable of holding in the ordinary course of its business." Plaintiffs assert that "FNB breached its contract when it determined that it could hold the Alliance/Chemical Trust Guaranteed Contract Agreement 'in the ordinary course of business' without first determining whether the asset was fraudulent." This argument lacks merit. Under the express terms of the custodian agreement, FNB was only required to determine whether a particular investment was "administratively feasible" ( i.e., whether the investment was in a form that FNB could administer and track on its computer system). A determination, therefore, that FNB could hold the Chemical Trust asset "in the ordinary course of business" within the meaning of the custodian agreement suggests only that the asset was administratively feasible. In short, nothing in the language of the custodian agreement required FNB to determine whether a particular asset was fraudulent.

Second, plaintiffs highlight the following provision in the custodian agreement executed by the parties:

Except to the extent, if any, that may be required by applicable law, we shall have no duty or obligation to monitor or make you or your Account Representative aware of the receipt or non-receipt of any funds payable to your account with respect to assets in such account (e.g., dividends, interest or other distributions) or to provide you with any other information or documentation ( other than pleadings,orders or official notices arising from any judicialproceeding) that we may receive or become aware of with respect to such assets.

See Agreement § 8.05(b) (emphasis added). According to plaintiffs, FNB breached this provision when it failed to notify plaintiffs of the grand jury subpoena. The court rejects this argument for several reasons. First, a grand jury subpoena is not a "pleading, order or official notice." See Black's Law Dictionary 756, 799, 995 (6th ed. 1991) (pleadings are "formal allegations by the parties to a lawsuit of their respective claims and defenses, with the intended purpose being to provide notice of what is to be expected at trial"; an "order" is "[d]irection of a court or judge made or entered in writing, and not included in a judgment, which determines some point or directs some step in the proceedings"; a subpoena is "a command to appear at a certain time and place to give testimony upon a certain matter"; a "subpoena duces tecum" is "[a] court process . . . compelling production of certain specific documents and other items, material and relevant to facts in issue in a pending judicial proceeding"). Second, even if the provision contemplated that FNB would disclose the existence of a grand jury subpoena related to an investor's account, the provision would violate the law and thus be unenforceable. See 18 U.S.C. § 1510(b)(2) (making it a crime for a bank to directly or indirectly notify "a customer of that financial institution whose records are sought by a grand jury subpoena" about the existence or contents of that subpoena); Nagel v. ADMInvestor Servs., Inc ., 217 F.3d 436, 439 (7th Cir. 2000) (contracts made in violation of law are unenforceable) (collecting cases). Finally, if FNB had notified plaintiffs of the grand jury subpoena, then Chemical Trust, in all likelihood, would have learned "indirectly" about the existence of the subpoena (assuming plaintiffs contacted Chemical Trust in an effort to retrieve their funds) and, thus, FNB would have violated the magistrate judge's order accompanying the subpoena. In short, the court concludes as a matter of law that FNB had no obligation-contractual or otherwise-to disclose the existence of the grand jury subpoena to plaintiffs.

The last provision of the custodian agreement that plaintiffs allege FNB breached is as follows:

All transactions shall be subject to any and all applicable Federal and state laws and regulations and the rules, regulations, customs and usages of any exchange, market or clearing house where the transaction is executed and to our policies and practices.

See Agreement § 8.05(a). According to plaintiffs, Chemical Trust "clearly violated state and federal law with its fraudulent scheme . . . [and] FNB breached its contract with Plaintiffs by investing their funds in Chemical Trust, whose actions violated both state and federal securities law, as well as other laws." As FNB points out, however, FNB was obligated under the contract to execute investment transactions as instructed by the investors. In other words, plaintiffs instructed FNB to purchase the Chemical Trust asset and FNB, as custodian, was required to carry out that transaction. In sum, the provision of the custodian agreement set forth above in no way obligated FNB to ascertain the legality or authenticity of any particular assets and, in fact, the remainder of the custodian agreement clearly expresses that FNB had no such obligation.The court now turns to plaintiffs' allegations of breach with respect to the Account Options/Agreement between the parties. This document sets forth various fees charged by FNB with respect to different types of accounts. The document also describes to investors various options in terms of fee payment ( i.e., monthly, quarterly or annually). With respect to plaintiffs' self-directed IRAs, the agreement contemplated a $25.00 "review fee." Plaintiffs argue that "according to the terms of this agreement, FNB charged its clients $25 each for reviewing their investment in Chemical Trust, . . . [but] FNB either never reviewed Chemical Trust's investment product to determine whether it was a legitimate investment, or turned a blind eye to a fraudulent investment scheme." This argument is meritless. The only paragraph concerning the $25.00 review fee states in relevant part as follows:

A $25.00 non-refundable fee will be assessed for each note reviewed for administrative feasibility. If the Note is administratively feasible, the $25.00 review fee will apply to the $25.00 purchase fee.

Clearly, this language in no way suggests that the "review" by FNB included a review of the legitimacy of any investment. Rather, the paragraph expressly limits the review undertaken to a review "for administrative feasibility." Moreover, as discussed extensively in this opinion, the custodian agreement between the parties clearly and unequivocally relieved FNB of any duty to investigate or evaluate plaintiffs' particular investment decisions. Perhaps recognizing the weakness of their argument that FNB was required to review the investment for legitimacy, plaintiffs' final argument in support of its breach of contract claim is that FNB breached "its agreement with Plaintiffs when it determined that the Chemical Trust 'note' was administratively feasible [for] clearly it was not feasible or FNB would have continued to take it as an investment." Of course, there has been no evidence presented showing that the administrative feasibility of the asset had any bearing on FNB's decision to resign as custodian for accounts holding the Chemical Trust asset. Thus, this argument is rejected.

Texas Deceptive Trade Practices ActThe plaintiffs who are residents of Texas also contend that FNB violated the Texas Deceptive Trade Practices Act, Tex. Bus. Com. Code. Ann. §§ 17.41-.63. According to plaintiffs, FNB violated the DTPA by failing to reveal that it was approached by Mr. Wilkinson; by failing to reveal the true reason that it resigned as custodian of accounts holding the Chemical Trust asset; by failing to reveal that it had received a grand jury subpoena concerning Chemical Trust; and by representing that it had reviewed the Chemical Trust asset. In response to plaintiffs' motion and in its cross-motion for summary judgment, FNB contends that summary judgment in its favor is appropriate on this claim because plaintiffs are not "consumers" within the meaning of the DTPA and because plaintiffs have failed to demonstrate that the alleged nondisclosures and representations would support a claim under the DTPA. Because the court concludes that plaintiffs are not "consumers" for purposes of the DTPA, it grants summary judgment in favor of FNB and declines to address FNB's alternative argument.

It is undisputed that only a "consumer" can maintain a cause of action under the DTPA. Crown Life Ins. Co. v. Casteel,, 22 S.W.3d 378, 386 (Tex. 2000) (citing Tex. Bus. Com. Code § 17.50(a)). A "consumer" is defined as one "who seeks or acquires by purchase or lease, any goods or services." Id. (citing Tex. Bus. Com. Code § 17.45(4)). Apparently conceding that FNB did not provide any goods to plaintiffs, seeHand v. Dean Witter Reynolds Inc., 889 S.W.2d 483, 497 (Tex.Ct.App. 1994) (intangibles are not goods and are thus excluded from coverage under the DTPA) (collecting cases), plaintiffs contend that FNB provided services to plaintiffs in connection with the opening, maintenance and servicing of their IRA accounts. In support of their argument, plaintiffs direct the court to one case, LaSara Grain Co. v. First Nat'l Bank ofMercedes,, 673 S.W.2d 558 (Tex. 1984). In LaSara,, the court stated that "services provided by a bank in connection with a checking account are within the scope of the DTPA." Id. at 564. The court failed to elaborate on this statement and the issue apparently was not even raised by the parties in LaSara. In any event, more recent Texas case law clearly reflects that plaintiffs here are not consumers within the meaning of the DTPA. Under Texas law, whether a party is a consumer depends on whether the services provided are an objective of the transaction or merely incidental to it. See Hendricks v. Grant Thornton , 973 S.W.2d 348, 356 (Tex.Ct.App. 1998) (collecting cases). In other words, to be entitled to consumer status under the DTPA, a plaintiff must show that the services acquired were an important objective of the transaction. See id. at 356-57. Thus, the court must ascertain whether FNB has demonstrated as a matter of law that its services regarding the Chemical Trust asset were merely incidental to plaintiffs' purchase of the Chemical Trust asset rather than an objective of the purchase. See id. at 356. Clearly the answer is "yes." FNB's service of transferring funds was merely ancillary to the purchase of the asset itself. Stated another way, plaintiffs were seeking to exchange their funds for the Chemical Trust asset. They were not interested in any particular services provided by FNB. There is no evidence, for example, that FNB agreed to advise plaintiffs about their investment decisions or that FNB would perform any due diligence with respect to the assets selected by plaintiffs. In short, there is no evidence that plaintiffs "would not have sought or purchased the [asset] but for the collateral services offered" by FNB. See id. Based on established Texas case law, then, plaintiffs are not consumers under the DTPA. See id. at 356-57 (accountants' services were incidental to trading transactions where accountants were not hired to perform audit or verification of trades); Hand , 889 S.W.2d at 500 (where plaintiff sought to exchange money for commodity option contract, brokerage services with respect to nondiscretionary account were incidental to transaction and plaintiff was therefore not consumer under DTPA).

F. California Business and Professions Code

Finally, the one plaintiff who is a resident of California asserts that FNB engaged in unfair competition under the California Business and Professions Code, West's Ann. Cal. Bus. Prof. Code § 17200 et seq., by representing to plaintiffs that it had reviewed the Chemical Trust asset and found it to be "OK"; by failing to disclose to plaintiffs the existence of the grand jury subpoena; and by failing to disclose the true reason that it resigned as custodian of accounts holding the Chemical Trust asset. In response to plaintiffs' motion and in support of its cross-motion for summary judgment, FNB contends that summary judgment in its favor is appropriate because plaintiffs have not demonstrated that any of FNB's nondisclosures or representations were "unlawful, unfair or fraudulent."

California's unfair competition law prohibits unfair competition, which is defined as "any unlawful, unfair or fraudulent business act or practice." See id. § 17200. Because section 17200 is written in the disjunctive, it establishes three varieties of unfair competition-acts or practices which are unlawful, or unfair, or fraudulent. Shvarts v. BudgetGroup, Inc., 81 Cal.App.4th 1153, 1157 (Cal.Ct.App. 2000) (quoting Podolsky v. First Healthcare Corp., 50 Cal.App.4th 632, 647 (Cal.Ct.App. 1996)). As set forth above in other parts of this opinion, nothing about FNB's conduct with respect to plaintiffs was unlawful or fraudulent.¹⁵Thus, the court need only examine whether FNB's conduct was "unfair" within the meaning of California's unfair competition law. The "unfairness" prong of the unfair competition law is "intentionally broad." Id. (citing Podolsky, 50 Cal.App.4th at 647). However, the scope of the law "is not unlimited." Id. For example, "if the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination." Id. at 1157-58 (quoting Cel-Tech Communications, Inc. v. Los Angeles CellularTelephone Co. , 20 Cal.4th 163, 182 (Cal. 1999)). California courts have said that "a business practice may be 'unfair' within the meaning of the UCL . . . if the conduct in question 'offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.'" Schnall v. Hertz Corp ., 78 Cal.App.4th 1144, 1166 (Cal.Ct.App. 2000) (citations omitted).¹⁶Here, the undisputed facts demonstrate that FNB acted within the contours of the custodian agreement and fulfilled its obligations thereunder. Having no duty to evaluate or investigate the Chemical Trust asset beyond the administrative feasibility inquiry and having no duty to disclose the existence of the grand jury subpoena or the reason for its resignation as custodian of plaintiffs' accounts, the court cannot conclude that FNB acted immorally, unethically, unscrupulously or in a way that was "substantially injurious" to plaintiffs. For these reasons, plaintiffs' claim under the California unfair competition law fails as a matter of law.

15 Unlike common law fraud or deception, a violation of the "fraud" prong of the UCL can be shown even if no one was actually deceived, relied upon the fraudulent practice or sustained any damage. Schnall v. Hertz Corp., 78 Cal.App.4th 1144, 1167 (Cal.Ct.App. 2000). Rather, it is only necessary to show that members of the public are likely to be deceived. Id. Nothing in the custodian agreement or the Account Options/Agreement executed by the parties here was "likely" to deceive, confuse or mislead plaintiffs concerning the nature of FNB's obligations with respect to plaintiffs' IRA accounts. The only conclusion to be drawn from those documents is that FNB had no duty whatsoever to evaluate or investigate the assets selected by plaintiffs for purchase.

16 In Cel-Tech, the California Supreme Court stated that this formulation of unfairness was "too amorphous" and disapproved of its use. See Cel-Tech, 20 Cal.4th at 184-85. That disapproval, however, was expressly limited to claims of unfair competition between two direct competitors and was stated not to relate to actions by consumers. Id. at 187 n. 12. In any event, under the Cel-Tech approach, "unfairness" under the UCL must be "tethered to some legislatively declared policy." Id. at 186. Plaintiffs make no suggestion that FNB's conduct here offended any "legislatively declared policy." Thus, even assuming the Cel-Tech formulation of unfairness applies to this case, plaintiffs have not established that FNB's conduct fits into that formulation.

• Defendant's Motion for Summary Judgment on Plaintiffs' RemainingClaims

In its motion for summary judgment on plaintiffs' remaining claims, FNB seeks summary judgment on the securities fraud and RICO claims of all plaintiffs and on the state law claims alleged by those plaintiffs not party to plaintiffs' motion for partial summary judgment ( i.e., those plaintiffs who did not open accounts with FNB and, thus, had no contact whatsoever with FNB). As set forth in more detail below, the court grants summary judgment in favor of FNB on all claims of all plaintiffs.

• Securities FraudPlaintiffs allege in their complaint that FNB violated section 10(b) ofthe Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), andRule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. Defendant moves for summaryjudgment on plaintiffs' securities fraud claims on the grounds thatplaintiffs cannot show that FNB made false or misleading statements ofmaterial fact and that plaintiffs cannot establish scienter or reliance.Because the court concludes that FNB, as a matter of law, made no falseor misleading statements, the court grants summary judgment in favor ofFNB and declines to address FNB's additional arguments.Rule 10b-5 provides:

It shall be unlawful for any person, directly orindirectly, by the use of any means or instrumentalityof interstate commerce, or of the mails or of anyfacility of any national securities exchange,

To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact orto omit to state a material fact necessary in order tomake the statements made, in light of thecircumstances under which they were made, notmisleading, or

To engage in any act, practice or course of businesswhich operates or would operate as fraud or deceitupon any person,

in connection with the purchase or sale of any security.17 C.F.R. § 240.10b-5. The Tenth Circuit has explained the elementsof liability under this rule as follows:

In order to establish primary liability under §10(b), a party must allege and prove facts showingthat the conduct complained of occurred "in connectionwith" the purchase or sale of a security-that theactor made an untrue statement of a material fact, orfailed to state a material fact, that in so doing, theparty acted knowingly and with intent to deceive ordefraud, and that plaintiff relied on themisrepresentations, and sustained damages as aproximate result of the misrepresentation.

Arst v. Stifel, Nicolaus Co. , 86 F.3d 973, 981 (10th Cir. 1996) (quoting Farlow v. Peat, Marwick, Mitchell Co. , 956 F.2d 982, 986 (10th Cir. 1992)).In their papers, plaintiffs do not argue that FNB failed to disclose information in violation of Rule 10b-5; they argue only that FNB misrepresented to them that FNB had conducted a "thorough and impartial" review of the Chemical Trust asset. To the extent that plaintiffs do contend that FNB failed to disclose information (e.g., the existence of the grand jury subpoena; the "true reason" that it resigned as custodian of accounts holding the Chemical Trust asset), as discussed above in connection with plaintiffs' motion for summary judgment, FNB had no duty to disclose such information. Thus, FNB's failure to disclose such information does not support liability under the federal securities laws. See id. (in the absence of a duty to disclose, silence is not fraudulent and not actionable under federal securities laws). Turning, then, to plaintiffs' contention that FNB represented that it would review the Chemical Trust asset, it is undisputed that this alleged representation stems only from the $25 review fee as noted in the Account Options/Agreement executed by the parties. In other words, plaintiffs do not contend that FNB made any oral statements to any plaintiffs concerning the review of the Chemical Trust asset or that FNB had any written communications with plaintiffs concerning the review of the Chemical Trust asset. In fact, plaintiffs do not dispute that they had no personal contact or written communications with anyone at FNB prior to opening their accounts. And, as discussed in other portions of this opinion, the $25 review fee charged by FNB and described in the agreement between the parties in no way suggested that FNB would undertake a "thorough and impartial" review of the Chemical Trust asset. Rather, the single paragraph describing the $25 fee clearly indicates only that the asset would be "reviewed for administrative feasibility." The custodian agreement, of course, clearly states that FNB would not evaluate or investigate any asset or provide any advice concerning the wisdom of any investment decision. In short, plaintiffs have presented no evidence that FNB represented to them that it would review the Chemical Trust asset for purposes of determining the soundness of the investment. In the absence of any evidence that FNB made untrue statements of material fact (or failed to state a material fact), FNB cannot be liable under the federal securities laws. See Farlow , 956 F.2d at 986. Summary judgment in favor of FNB is granted.

• RICOPlaintiffs allege that FNB's conduct violates section 1962(c) of the Racketeer Influenced and Corrupt Organizations (RICO) Act. Section 1962(c) makes it unlawful for "any person employed by or associated with [an] enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." FNB moves for summary judgment on plaintiffs' RICO claim on the grounds that FNB did not "conduct or participate in the conduct" of the alleged RICO enterprise.¹⁷In response, plaintiffs maintain that FNB participated in the enterprise by transferring funds from investors to accounts controlled by Chemical Trust. As set forth below, because the only reasonable inference that can be drawn from the evidence before the court is that FNB was an outsider to a scheme operated and managed by others, the court concludes that FNB has not "conducted or participated in the conduct of a racketeering enterprise" under section 1962(c).To establish a civil RICO claim under section 1962(c), plaintiffs must show that FNB "(1) participated in the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." See BancoklahomaMortgage Corp. v. Capital Title Co. , 194 F.3d 1089, 1100 (10th Cir. 1999). The Supreme Court has adopted the "operation or management" test to determine whether a defendant has "participated in the conduct" of the affairs of a RICO enterprise. Id . (citing Reves v. Ernst Young , 507 U.S. 170 (1993)). For liability to attach under that test, it must be shown that the defendant "participated in the operation or management of the enterprise itself," Reves , 507 U.S. at 183, and that requires that the defendant play " some part in directing the enterprise's affairs." Id . at 179 (emphasis in original). Section 1962(c)'s reach, however, is not limited to upper-level management; an enterprise also may be operated "by lower-rung participants . . . who are under the direction of upper management." Id . at 184. Under Reves , therefore, a RICO enterprise may be operated at least by "upper management, 'lower-rung participants in the enterprise who are under the direction of upper management,' or 'others associated with the enterprise who exert control over it, as for example, by bribery.'" MCM Partners, Inc. v. Andrews-Bartlett Assocs.,Inc ., 62 F.3d 967, 977 (7th Cir. 1995) (quoting Azrielli v. Cohen LawOffices , 21 F.3d 512, 521 (2d Cir. 1994) (quoting Reves, 507 U.S. at 184)). In short, mere participation in the activities of the enterprise is insufficient; the defendant must participate in the operation or management of the enterprise. Goren v. New Vision Int'l, Inc ., 156 F.3d 721, 727 (7th Cir. 1998).Applying this test to the record before the court, it is clear that plaintiffs have not established that FNB "participated in the conduct" of a RICO enterprise. There is no evidence suggesting that FNB directed any part of the alleged enterprise. Rather, FNB "did nothing more than provide [its] regular services" as a custodian, including executing the purchase orders of investors. See Bancoklahoma , 194 F.3d at 1101 (no RICO liability for title companies that did nothing more than provide their regular services which included closing-related services such as recording documents and issuing title commitments). In other words, the activities that FNB performed allegedly as part of the enterprise are activities that FNB performed in the normal course of business in dealing with all customers holding self-directed IRAs, not just plaintiffs. Seeid. at 1102. While FNB may have had a business relationship with Chemical Trust in the sense that Mr. Wilkinson sought out FNB to perform specific tasks for the alleged enterprise ( i.e., the transferring of funds), simply "provid[ing] goods or services that ultimately benefit the enterprise does not mean that one becomes liable under RICO as a result." See id. (quoting University of Maryland at Baltimore v. Peat,Marwick, Main Co. , 996 F.2d 1534, 1539 (3d Cir. 1993)); accord Goren , 156 F.3d at 728 ("Indeed, simply performing services for an enterprise, even with knowledge of the enterprise's illicit nature, is not enough to subject an individual to RICO liability under section 1962(c); instead, the individual must have participated in the operation and management of the enterprise itself."). In short, there is no evidence presented by plaintiffs from which a reasonable jury could conclude that FNB was involved in directing the affairs of Chemical Trust. As such, summary judgment in favor of FNB is appropriate on plaintiffs' RICO claim. SeeYochim v. First of Am. Bank-Michigan, N.A. , Civ. No. 91-76283, 1994 WL 791186, at *6 (E.D.Mich. Dec. 16, 1994) (plaintiffs failed to state RICO claim against custodian of nondiscretionary account where plaintiffs alleged only that custodian complied with instructions to transfer plaintiffs' funds to an investment which ultimately was revealed to violate securities law).¹⁸

17 FNB also moves for summary judgment on the grounds that plaintiffs "have no evidence of any predicate act which FNB supposedly committed." The court declines to address this argument because it concludes that summary judgment is warranted on the grounds that FNB did not direct any activities of the alleged enterprise.

18 Plaintiffs suggest in their papers a great deal of nefarious conduct on the part of FNB. For example, plaintiffs state that FNB resigned as the custodian for existing Chemical Trust accounts because FNB "feared being caught," and that FNB "attempted to withdraw from the Chemical Trust enterprise when it appeared that FNB might be caught." These allegations find no support in the record.

• Consumer Protection LawsFNB moves for summary judgment on the claims of the Michigan-residentplaintiffs under the Michigan Consumer Protection Act ("MCPA"), M.C.L.§ 445.901 et seq., and on the claims of the Pennsylvania-residentplaintiffs under the Pennsylvania Unfair Trade Practices and ConsumerProtection Law ("UTP/CPL"), 73 P.S. § 201 et seq. As set forthbelow, summary judgment is granted in favor of FNB on these claims.¹⁹

19 FNB also moved for summary judgment on the claims of plaintiffs residing in Florida under the Florida Deceptive and Unfair Trade Practices Act, West's F.S.A. § 501.204. As plaintiffs highlight in response, plaintiffs' second amended complaint withdrew the claims of the Florida plaintiffs. Thus, as stated by plaintiffs, plaintiffs have abandoned any claim under the Florida Deceptive and Unfair Trade Practices Act.

In support of its motion, FNB first argues that plaintiffs have no standing to sue FNB under these statutes as FNB did no business in Michigan or Pennsylvania and took no action of any kind with respect to those plaintiffs who are residents of those states. In response, plaintiffs concede that none of the Michigan or Pennsylvania plaintiffs opened accounts with FNB (or had any contact with FNB) but argue that "nevertheless FNB is liable to all Plaintiffs residing in those states by virtue of its connection with the Chemical Trust enterprise, which did affect Plaintiffs in those states." Plaintiffs direct the court to no authority suggesting that FNB may be held liable under the MCPA or the UTP/CPL based solely on its limited connection to Chemical Trust. Moreover, the court has failed to uncover any authority suggesting that FNB may be liable under the MCPA or the UTP/CPL in the absence of any evidence that FNB had contacts with residents of those states. Thus, summary judgment in favor of FNB is warranted on these claims.

In any event, summary judgment is appropriate for another reason, independent of defendant's standing argument. In that regard, FNB asserts that neither the MCPA nor the UTP/CPL applies to the purchase of securities. Plaintiffs do not respond to this argument in their papers and, thus, apparently concede the accuracy of FNB's argument. In any event, the relevant case law supports FNB's argument. See Wheeling, Inc. v. Stelle, No. 97-76267, 2000 WL 791782, at *7 (E.D.Mich. May 30, 2000) (the sale of securities and claims of security fraud are exempt from the MCPA); Klein v. Opp , 944 F. Supp. 396, 398 (E.D.Pa. 1996) (dismissing claim under the UTP/CPL "because that statute is inapplicable to purchases of securities"), aff'd, 118 F.3d 1576 (3d Cir. 1997). Thus, summary judgment in favor of FNB is appropriate on this basis as well.²⁰

20 Plaintiffs obviously concede that the Chemical Trust asset is a security as the expert reports submitted by plaintiffs in connection with the summary judgment briefing include the conclusions and opinions that the Chemical Trust asset is a security.

• Common Law ClaimsFinally, FNB moves for summary judgment on the remaining plaintiffs'claims for fraud, negligence, breach of fiduciary duty, constructivetrust and breach of contract. With respect to the tort claims, FNB makesthe same arguments that it did in connection with the seventeenplaintiffs' motion for partial summary and its cross-motion for partialsummary judgment-namely, that FNB had no duty to these plaintiffs. Withrespect to the breach of contract claims, FNB argues that it had nocontract with any of these plaintiffs as they did not have accounts withFNB. In response, plaintiffs simply incorporate by reference thearguments made by the seventeen plaintiffs in their motion for partialsummary judgment. Thus, for the same reasons the court rejectedplaintiffs' arguments in connection with their motion for partial summaryjudgment, the court rejects them here. Summary judgment is granted infavor of FNB on the remaining plaintiffs' claims.IT IS THEREFORE ORDERED BY THE COURT THATplaintiffs' motion to supplement previously filed motions for summary judgment (doc. #208) isgranted; FNB's motion to dismiss certain plaintiffs (doc. #158) isgranted; plaintiffs' motion for partial summary judgment (doc. #80) isdenied; FNB's cross-motion for partial summary judgment (doc. #86) isgranted; and FNB's motion for summary judgment on remaining claims (doc. #93) isgranted. The claims of all plaintiffs are dismissed as to defendant First National Bank of Onaga, Kansas.

IT IS SO ORDERED.