Opinion
No. 1 CA-CV 13-0462 December 23, 2014
12-23-2014
ALDO ALESII and SHARON HOLLAND; MARY S. ALLEN; RONALD ALLEN and TRISHA ALLEN; SALVADOR ARREAOLA; DENNIS BETHKE; STEPHEN M. BOSKI; TOBY J. BOWKER and KRISTIN BOWKER; COLLEEN ENGEL-BROWN; MICHAEL CALDWELL and LORRIE CALDWELL; CAROL CARVELL; GARY D. CHASTAIN and SHERIAN K. CHASTAIN; MARTIN CHESLER and RACHEL CHESLER; JAMES CLIFTON and DIANE CLIFTON; MICHAEL COPE and ANTOINETTE COPE; KEVIN CULVER; DAVID CHARLES DAVIS; JIM DAVIS and ANN DAVIS; DENNIS DEAN and CHESTENE DEAN; JAY DUDLEY and KRISTINE DUDLEY; JERRY EMERY and BECKY EMERY; JIM ESTEVANOVICH and LOIS ESTEVANOVICH; CLIFF FERRELL and CONNIE FERRELL; KIM D. FORTNEY and FARIDA FORTNEY; JOHN FUSTE and CAROL FUSTE; DONALD C. GIBSON and GAYLE GIBSON; GREGORY C. GIBSON and LORRAINE ELIZABETH GIBSON; DANIEL GNADE and JUDY GNADE; LINDA M. GORE; JEFFREY N. HALL; MICHAEL T. HARMON and KATE HARMON; DICK P. HUIE; TOM IMPERATO and DAYLE A. IMPERATO; CHAD JOHNSON; CATHY MARSHALL; JAMES MARTIN and RAYONA MARTIN; TIMOTHY J. MARTIN and SHELLEY MARTIN; PATRICK MCGRATH; MICHAEL MERICANTANTE and CAROLE MERICANTANTE; MARIA MIRELES;ED MULDER and CHERYL MULDER; CHARLES MURPHEY and SUSAN MURPHEY; WILLIAM L. OAKLEY, JR.; KENNETH OWEN and MARGARET OWEN; JAMES L. and TERESA PATTERSON; MIKE PETTERSON; JOHN PINEDO and SANDI PINEDO; BRETT ROSS; KENNETH ROSS; ROBERT ROSS; FRANK W. SCHMIDT and MARINA T. SCHMIDT; DANIEL SEARCY and DIANA SEARCY; RICHARD SUNDE and PAMELA SUNDE; MARK THALKEN and BONNIE THALKEN; JAMES TOAL and SHARON TOAL; DR. LYLE M. TVEDT; IRIS S. VANCOURT; RAY WARD; DANIEL WILLIAMS and JEAN WILLIAMS; H. GARY WILLIAMS and SUSAN C. WILLIAMS; MELINDA YOUNG; AARON ZEESE; JEFFREY GOLDBERG; MURRAY GOLDBERG; CHARLIE GUZMAN; BRIAN BELL; CHRIS REED; LAPORTE INVESTMENTS, LLC; BARRY ZEESE; KAREN PERKINS; ADAM ZINGG; JAN PAUL SCHRAGE; Plaintiffs/Appellants, v. BANK OF AMERICA, N.A., Defendant/Appellee.
COUNSEL Bonnett, Fairbourn, Friedman & Balint, PC, Phoenix By Andrew S. Friedman, Kathryn A. Honecker (Jann) Counsel for Plaintiffs/Appellants Poli & Ball, PLC, Phoenix By Michael N. Poli, Jeffrey Zane Counsel for Defendant/Appellee
NOTICE: NOT FOR PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED. Appeal from the Superior Court in Maricopa County
Nos. CV2007-007115, CV2007-008311, CV2007-009235, CV2007-009375, CV2007-053479, and CV2008-008323 (Consolidated)
The Honorable Douglas L. Rayes, Judge
REVERSED AND REMANDED
COUNSEL Bonnett, Fairbourn, Friedman & Balint, PC, Phoenix
By Andrew S. Friedman, Kathryn A. Honecker (Jann)
Counsel for Plaintiffs/Appellants
Poli & Ball, PLC, Phoenix
By Michael N. Poli, Jeffrey Zane
Counsel for Defendant/Appellee
MEMORANDUM DECISION
Judge Donn Kessler delivered the decision of the Court, in which Presiding Judge Jon W. Thompson and Judge Kent E. Cattani joined. KESSLER, Judge:
¶1 Plaintiffs/Appellants appeal the superior court's dismissal of their claim against Defendant/Appellee Bank of America, N.A. ("the Bank"), for aiding and abetting fraud. For the following reasons, we reverse and remand for further proceedings.
FACTUAL AND PROCEDURAL HISTORY
¶2 Plaintiffs brought these consolidated actions in the superior court to recover money lost when they invested in what they later discovered was a Ponzi scheme.
A Ponzi scheme is "an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors." U.S. Sec. and Exch. Comm'n, Ponzi Schemes, http://www.sec.gov/answers/ponzi.htm (last visited 12/16/14).
¶3 Miko Wady operated several entities that purported to be in the business of promoting concerts by popular music artists but, in fact, were created for the sole purpose of effectuating a fraud. To perpetuate the scheme, Wady enlisted several members of the Cundiff family, who through their company, TransCapital, LLC, solicited "investors" for Wady's alleged concert promotion business. Plaintiffs made short-term loans to TransCapital to finance specific concert performances. TransCapital transferred Plaintiffs' money to an account jointly maintained by Wady and the Cundiffs at the Bank ("the Joint Account"), from which Wady purportedly financed the performances. Alleged concert revenues were then paid to TransCapital and distributed to Plaintiffs as investment returns. However, as Wady did not actually promote any concerts, there were no revenues to distribute and Plaintiffs later learned that their early "investment returns" were paid from monies acquired by subsequent victims of the fraud. In the meantime, Wady transferred approximately $2.8 million from the Joint Account to his own account at the Bank ("the Wady Account") through the improper use of cashier's checks.
¶4 Plaintiffs alleged that the Bank aided and abetted Wady's fraud by repeatedly allowing him to immediately return cashier's checks drawn on the Joint Account and deposit the proceeds in the Wady Account, an unusual and highly suspicious transaction. The Bank moved to dismiss the aiding and abetting claim on the grounds that Arizona law prohibits an employer's vicarious liability when the employee did not commit the underlying fraud. Plaintiffs argued the Bank could be held liable for its employees' participation in Wady's fraud and requested, in the alternative, leave to amend their complaint to cure its alleged deficiencies. The superior court granted the Bank's motion, ruling that Plaintiffs' aiding and abetting fraud claim against the Bank was prohibited under Arizona law.
¶5 The court denied Plaintiffs' request that it certify the dismissal for immediate appeal pursuant to Arizona Rule of Civil Procedure 54(b). Plaintiffs timely appealed after the court entered final judgment on the remaining claims. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(A)(1) (Supp. 2013).
Although the court entered an amended judgment after Plaintiffs filed their notice of appeal, it simply attached an omitted exhibit referenced in the original judgment and did not substantively alter it. Accordingly, Plaintiffs were not required to file an amended notice of appeal. See Fields v. Oates, 230 Ariz. 411, 416, ¶ 21, 286 P.3d 160, 165 (App. 2012) (holding that a substantively identical second judgment was not an "amended judgment" that commenced a new time for appeal); Baker v. Emmerson, 153 Ariz. 4, 8, 734 P.2d 101, 105 (App. 1986) (explaining that a party must file a notice of appeal from an amended judgment that substantially alters the original judgment).
Unless otherwise noted, in the absence of material changes since the relevant events we cite the current version of all applicable statutes.
DISCUSSION
¶6 Plaintiffs argue the superior court erred by dismissing their claim against the Bank for aiding and abetting fraud and abused its discretion by denying their request for leave to amend their complaint.
¶7 We review de novo the superior court's dismissal of a complaint under Arizona Rule of Civil Procedure 12(b)(6) and will affirm only if, as a matter of law, Plaintiffs would not be entitled to relief under any interpretation of the alleged facts. Coleman v. City of Mesa, 230 Ariz. 352, 355-56, ¶¶ 7-8, 284 P.3d 863, 866-67 (2012). We assume the truth of all well-pleaded factual allegations and indulge all reasonable inferences therefrom. Id. at 356, ¶ 9, 284 P.3d at 867.
I. The appeal is not moot.
¶8 As an initial matter, we consider the Bank's argument that Plaintiffs' appeal is moot because, after the superior court granted the motion to dismiss, Plaintiffs dismissed their claims against Bank employee Yarjanic Nath with prejudice.
¶9 Plaintiffs alleged the Bank facilitated Wady's fraud because Bank employees allowed Wady to repeatedly conduct unusual and suspicious transactions. In particular, Plaintiffs identified Bank employee Nath as a Wady "insider" who assisted him with the majority of the suspicious transactions. In addition to their allegations against the Bank, Plaintiffs asserted a claim against Nath for aiding and abetting fraud, but later stipulated to dismiss that claim with prejudice.
¶10 The Bank argues on appeal that the Plaintiffs' stipulation to dismiss claims against Nath rendered this appeal moot because an employer cannot be held vicariously liable for the actions of an employee if the plaintiff releases the employee. See De Graff v. Smith, 62 Ariz. 261, 269, 157 P.2d 342, 345 (1945) (stating that "the release of an employee from liability for injuries inflicted while acting for the employer operates as a release of the employer") (emphasis omitted); Law v. Verde Valley Med. Ctr., 217 Ariz. 92, 96, ¶ 13, 170 P.3d 701, 705 (App. 2007) (holding that when a plaintiff stipulates to a judgment, including a dismissal with prejudice, of an agent, the principal may not be held liable under a theory of vicarious liability).
¶11 The appeal is not moot. Plaintiffs' complaint alleged the Bank aided and abetted Wady's fraud through the actions of Nath and other employees. Plaintiffs alleged that other unnamed Bank employees, identified in the complaint by a "Teller number," conducted some of the purportedly improper transactions. Plaintiffs stated that the transactions specifically identified in the complaint were mere examples of transactions Bank employees performed for Wady for more than two years.
The Bank complains Plaintiffs did not cite these allegations in response to the motion to dismiss and asserts that they were not pled with particularity. However, the Bank moved to dismiss on the grounds that the aiding and abetting claim was barred under Arizona law based solely on double vicarious liability and did not challenge the adequacy of Plaintiffs' allegations that other Bank employees were involved in the wrongful conduct. Accordingly, we will not consider that argument nor the other arguments by the Bank that dismissal was proper based on insufficiently alleged misconduct by the Bank and/or its employees. See Chalpin v. Snyder, 220 Ariz. 413, 424-25, ¶ 47, 207 P.3d 666, 677-78 (App. 2008) (refusing to consider argument that aiding and abetting claims were not properly pled because trial court did not dismiss the claims on that ground, but erroneously ruled the cause of action was not recognized; "[m]oreover, if such a pleading defect exists, the trial court should first give [plaintiffs] the opportunity to amend the complaint to provide additional detail"); Airfreight Exp. Ltd. v. Evergreen Air Ctr., Inc., 215 Ariz. 103, 109-10, ¶ 17, 158 P.3d 232, 238-39 (App. 2007) (refusing to consider argument first raised by defendant after trial court granted motion to dismiss as an alternate basis to affirm the dismissal).
¶12 Because the complaint contains allegations concerning the conduct of other Bank employees that, if proven, would support liability against the Bank, Plaintiffs' dismissal with prejudice of their claim against Nath does not render this appeal moot.
II. Arizona law does not preclude Plaintiffs' aiding and abetting claim.
¶13 Plaintiffs argue that the superior court erred by dismissing their claim against the Bank for aiding and abetting fraud on the basis of Baker ex rel. Hall Brake Supply, Inc. v. Stewart Title & Trust of Phoenix, Inc., 197 Ariz. 535, 5 P.3d 249 (App. 2000). We agree the court erred.
¶14 In Baker, we considered whether the plaintiffs could pursue a claim against Stewart Title for aiding and abetting a customer's scheme to defraud them by purchasing land under a false name and then reselling it to the plaintiffs at an inflated price. 197 Ariz. at 538, ¶ 2, 5 P.3d at 252. The plaintiffs alleged a Stewart Title employee, DeAngio, processed escrows that the customer had established in the name of fictitious buyers, notarized the signature of a fictitious person, and assisted the customer in impersonating a fictitious buyer, in exchange for payments the customer made directly to DeAngio. Id. at 539, ¶¶ 4-5, 5 P.3d at 253. We held that Stewart Title could be liable, under a theory of respondeat superior, for DeAngio's negligent or fraudulent conduct if her wrongdoing fell within the scope of her employment. Id. at 541, ¶ 24, 5 P.3d at 255.
Respondeat superior is a form of vicarious liability under which an employer may be liable for the acts of its employee. See Alosi v. Hewitt, 229 Ariz. 449, 455, ¶¶ 33-34, 276 P.3d 518, 524 (App. 2012).
¶15 The Baker plaintiffs also alleged DeAngio had conspired with the customer and taken actions to further his fraud. Id. at 542, ¶ 30, 5 P.3d at 256. As a result, DeAngio could be held liable for the fraudulent transactions in which she participated directly as well as the customer's other fraudulent transactions, "because a conspirator is liable for any tortious act, even unknown, committed in furtherance of the conspiracy, including acts not personally committed." Id. at 542, ¶ 31, 5 P.3d at 256. We concluded, however, that Stewart Title could not be vicariously liable for DeAngio's acts in furthering the conspiracy because that would result in "double" vicarious liability: "DeAngio would be liable for a concerted action she did not personally perform and Stewart Title would be further liable." Id. at 542-43, ¶¶ 32-33, 5 P.3d at 256-57.
¶16 In this case, the superior court ruled that Plaintiffs' claims for aiding and abetting common law fraud derived from the same type of vicarious liability as the conspiracy claim discussed in Baker and, therefore, could not be asserted against the Bank. Plaintiffs maintain this was incorrect because the Bank may be liable for its employees' misconduct without implicating the concept of "double" vicarious liability described in Baker.
¶17 We reject the Bank's argument that claims for conspiracy and aiding and abetting fraud are "functionally identical" for the purpose of applying the Baker court's "double" vicarious liability analysis. Although found in the same Restatement section, see Restatement (Second) of Torts § 876 (1979), the claims are wholly different in nature and require a different burden of proof. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 485, 490, 498-99, ¶¶ 34, 58 n.16, 99-101, 38 P.3d 12, 23, 28 n.16, 36-37 (2002) (discussing the elements of and burden of proof for each claim). Further, "[t]he essence of conspiracy liability is an agreement of the parties" which leads to the parties being "liable for the tortious acts of the other[]" parties involved in that agreement. Edward M. Mannino, Lender Liability and Banking Litigation § 7.01 [2] (2011); see also Baker, 197 Ariz, at 542, ¶ 31, 5 P.3d at 256 (in a civil context, "a conspirator is liable for a tortious act, even unknown, committed in furtherance of the conspiracy, including acts not personally committed."). But cf. State ex rel. Woods v. Cohen, 173 Ariz. 497, 498-501, 844 P.2d 1147, 1148-1151 (1992) (rejecting the notion that an accused always may be held liable for the acts of his co-conspirators under the Arizona criminal code and holding that "[a] conspirator to a completed offense is not always an accomplice to that offense" and cannot automatically be held criminally liable). "Aiding and abetting liability, by contrast, involves two levels of wrongdoing— primary and secondary — with secondary liability being imposed upon the aider and abettor for rendering assistance to the [primary] wrongdoer with knowledge of its independent violation." Mannino at § 7.01[2]. Therefore, the aider and abettor, unlike the conspirator, is liable only for his or her own actions in assisting the primary wrongdoer's tortious conduct. Id.; cf. Wells Fargo, 201 Ariz, at 484, ¶¶ 31, 34, 38 P.3d at 23 (holding that a person who aids and abets a tortfeasor is liable for the resulting harm to the victim, and to be liable for aiding and abetting, the primary tortfeasor must commit a tort that causes injury, the defendant must know the primary tortfeasor's conduct breached a duty, and the defendant must substantially assist or encourage the primary tortfeasor in the achievement of the breach). Accordingly, we determine it is not appropriate to simply apply the Baker analysis regarding vicarious liability for a conspiracy claim to Plaintiffs' aiding and abetting claim.
¶18 Further, the Bank misconstrues the nature of Plaintiffs' allegations, arguing that the aiding and abetting claim is based solely on a theory that the Bank is vicariously responsible for Nath's actions in substantially assisting Wady's fraud. In fact, as discussed above, Plaintiffs' allegations concern the acts of multiple Bank employees for aiding and abetting fraud. See Wells Fargo, 201 Ariz, at 485-90, ¶¶ 31-58, 38 P.3d at 23-28 (finding a material question of fact concerning a claim against a bank for aiding and abetting fraud based upon the actions of bank employees). Thus, this case is distinguishable from Baker, in which the plaintiffs asserted a conspiracy claim against DeAngio and sought to hold her employer, Stewart Title, liable for that claim solely under a theory of respondeat superior, without alleging that Stewart Title participated in the conspiracy. 197 Ariz, at 542, ¶¶ 29-32, 5 P.3d at 256.
¶19 While the Bank cannot be held liable for all of the acts committed in furtherance of Wady's fraud, see Baker at 542-43, ¶¶ 32-33, 5 P.3d at 256-57, it may nevertheless be liable for the specific acts of its employees (except those committed by Nath) if Plaintiffs establish those employees knew Wady's conduct was fraudulent and, while in the course and scope of their employment, substantially assisted or encouraged that conduct. Wells Fargo, 201 Ariz. at 485, ¶ 34, 38 P.3d at 23; see also Koss Corp. v. American Express Co., 233 Ariz. 74, 93, ¶ 65, 309 P.3d 898, 917 (App. 2013) (stating a bank or credit card company cannot simply "ignore defalcations about which it is allegedly aware" and may be liable for aiding and abetting a fraud by its customer); Mannino at § 7.01[2] (stating that "an aider and abettor does not adopt as his or her own the tort of the primary violator" and is only secondarily liable because "the act of aiding and abetting is distinct from the primary violation." (internal quotation marks omitted)).
¶20 Because the superior court erred in ruling that Plaintiffs' aiding and abetting claim against the Bank was barred under Arizona law, we reverse the dismissal and remand for further proceedings.
We therefore do not address Plaintiffs' argument that the superior court erred by denying their request for leave to amend their complaint.
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CONCLUSION
¶21 For the foregoing reasons, we reverse and remand for further proceedings consistent with this decision.