judge's order on sigillito case

UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

RICHARD AGUILAR et al.,

Plaintiffs, No. 14-CV-985-LRR

vs. ORDER

PNC BANK, N.A.,

Defendant.____________________

TABLE OF CONTENTS

I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. RELEVANT PROCEDURAL HISTORY. . . . . . . . . . . . . . . . . . . . . . . . . 2

III. SUBJECT MATTER JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . . . 2

IV. RELEVANT FACTUAL BACKGROUND .. . . . . . . . . . . . . . . . . . . . . . . 3

A. Parties.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3B. Overview of the Dispute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

V. ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

A. Standards of Review.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5B. Count VSAiding and Abetting Breach of Fiduciary Duty. . . . . . . . . . 6C. Count VISBreach of Fiduciary Duty. . . . . . . . . . . . . . . . . . . . . . . 9D. Count VIISConspiracy to Breach Fiduciary Duty. . . . . . . . . . . . . . 11E. Count VIIISNegligence.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12F. Count IXSConspiracy to Violate RICO.. . . . . . . . . . . . . . . . . . . . 15

1. Standing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172. Existence of an enterprise. . . . . . . . . . . . . . . . . . . . . . . . 183. Objective manifestation of an agreement. . . . . . . . . . . . . . . 20

VI. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

I. INTRODUCTION

The matter before the court is Defendant PNC Bank, N.A.s (PNC Bank) Partial

Motion to Dismiss Counts IV-IX of Plaintiffs First Amended Complaint (Motion)

Case: 4:14-cv-00985-LRR Doc. #: 26 Filed: 11/19/14 Page: 1 of 21 PageID #: 285

(docket no. 17).

II. RELEVANT PROCEDURAL HISTORY

On May 23, 2014, Plaintiffs filed a Complaint (docket no. 1). On July 15, 2014

Plaintiffs filed a First Amended Complaint (Complaint) (docket no. 6) asserting eight

state law claims and a Racketeer Influenced and Corrupt Organizations (RICO) claim.

On September 3, 2014, PNC Bank filed the Motion. On September 15, 2014, Plaintiffs

filed a Resistance (docket no. 21). On October 2, 2014, PNC Bank filed a Reply (docket

no. 24). Plaintiffs request oral argument, but the court finds it to be unnecessary. The

matter is fully submitted and ready for decision.

III. SUBJECT MATTER JURISDICTION

The court has federal question jurisdiction over Plaintiffs claim against PNC Bank

in Count IX, which arises under RICO, codified at 18 U.S.C. 1962(d). See 28 U.S.C.

1331 (The district courts shall have original jurisdiction of all civil actions arising under

the Constitution, laws, or treaties of the United States.).

The court has supplemental jurisdiction over Plaintiffs state-law claims in Counts

IV, V, VI, VII and VIII because those claims are so related to the claim over which the

court has federal question jurisdiction that they form part of the same case or controversy.

See 28 U.S.C. 1367(a) ([T]he district courts shall have supplemental jurisdiction over

all other claims that are so related to claims in the action within such original jurisdiction

that they form part of the same case or controversy . . . .). In other words, the federal-1

law claim[] and state-law claims in the case derive from a common nucleus of operative

fact and are such that [a plaintiff] would ordinarily be expected to try them all in one

judicial proceeding. Kan. Pub. Emps. Ret. Sys. v. Reimer & Koger Assocs., Inc., 77

The court notes that it also has supplemental jurisdiction over Counts I, II and III. 1

However, those claims are not at issue in this Motion and are therefore not discussed inthe instant order.

2


F.3d 1063, 1067 (8th Cir. 1996) (second alteration in original) (quoting Carnegie-Mellon

Univ. v. Cohill, 484 U.S. 343, 349 (1988)).

IV. RELEVANT FACTUAL BACKGROUND

Accepting all factual allegations in the Complaint as true and drawing all reasonable

inferences in favor of Plaintiffs, the facts are as follows:

A. Parties

Defendant PNC Bank is a nationally chartered bank with its principal place of

business in Pittsburgh, Pennsylvania. Plaintiffs are comprised of ninety-three individuals

who are citizens of various states and one company, Northwest Properties (1973) Ltd.,

with its principal place of business in St. Louis, Missouri.

B. Overview of the Dispute

The dispute in this case arises out of a scheme in which Martin Sigillito, a St. Louis

attorney, and others operated a fraudulent loan program called the British Lending

Program (BLP) in which individuals, including Plaintiffs, loaned money for purported

land purchases in England. Complaint 6. The BLP operated as a classic Ponzi scheme

in which payments on existing loans were paid with money from new loans. Id.

(emphasis omitted). Individual retirement accounts (IRA accounts) were the primary

source of BLP funds. Sigillito recruited investors for the BLP who would then establish

IRA accounts with a custodian, typically a bank, to invest on their behalf. Id. 8. PNC

Bank served as the IRA custodian for fourteen Plaintiffs. Interest on Lawyers Trust

Accounts (IOLTAs) were also an important component of the scheme. Id. 12.

Missouri law requires attorneys to maintain IOLTAs, which operate as a trust account for

client funds. Id. 23. There are rules regulating how attorneys may manage the funds

flowing into and out of IOLTAs, including rules against commingling client funds with the

attorneys business or personal funds. These rules render the attorney a fiduciary of the

client, and the attorney is subject to the heightened responsibilities associated with that

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role. Investment funds were deposited into Sigillitos IOLTAs at various banks, including

the predecessors to PNC Bank. Plaintiffs allege various instances of wire fraud and money

laundering involving funds in IOLTAs throughout the Complaint.

PNC Bank is the successor in interest to Allegiant Bank, National City Bank and

Pioneer Bank. Id. 5. Allegiant Bank was an initial IRA custodian for Sigillitos clients,

including fourteen of the Plaintiffs. Sigillito held multiple business and personal accounts

at Allegiant Bank, including an IOLTA. Id. 35. Allegiant Bank uncovered Sigillitos

fraud in early October 2001 when it learned that Sigillito was paying himself and others

up-front fees and paying interest on existing loans from fiduciary funds allocated for new

loans. Id. 10, 14. Allegiant Banks Chief Executive Officer, Shaun Hayes, and

President, Richard Markow, were very involved with Sigillito and his accounts at the bank

and had sufficient information to unmask Sigillitos misappropriation of fiduciary funds.

Id. 46-53. Once Allegiant Bank uncovered Sigillitos fraud, it conspired with him to

transfer the IRAs to Millenium Trust Company in 2001 without disclosing any information

regarding the fraud. Id. 10. After leaving Allegiant Bank, Sigillito opened multiple

accounts at Pioneer Bank, including an IOLTA. Id. 203-05. National City Bank

purchased Allegiant Bank in 2004, id. 15, and then purchased Pioneer Bank in 2006.

Id. 228. National City Bank and Pioneer Bank knew of Sigillitos illicit activities based

on his prior involvement with Allegiant Bank, yet assisted him in avoiding detection. Id.

231-38. In addition to the IRA accounts, Sigillito also maintained an IOLTA at

Allegiant Bank from 2000 to 2001, at Pioneer Bank from 2002 to 2006 and at National

City Bank during 2006. Id. 12. PNC Bank purchased National City Bank in 2009,

making it the successor in interest to Allegiant Bank, Pioneer Bank and National City

Bank. Id. 17.

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V. ANALYSIS2

The Motion requests that the court dismiss Counts IV-IX of the Complaint. In the

Resistance, Plaintiffs request that the court dismiss Count IV. Therefore, the remaining

claims at issue in the Motion are Count V (aiding and abetting breach of fiduciary duty),

Count VI (breach of fiduciary duty), Count VII (conspiracy to breach fiduciary duties),

Count VIII (negligence) and Count IX (conspiracy to violate RICO).

A. Standards of Review

The Federal Rules of Civil Procedure provide for the dismissal of a complaint on

the basis of failure to state a claim upon which relief can be granted. Fed. R. Civ. P.

(12)(b)(6). When analyzing a Rule 12(b)(6) motion, the court must accept all of the factual

allegations in the complaint as true. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(noting that for the purposes of a motion to dismiss [the court] must take all of the factual

allegations in the complaint as true). To survive a motion to dismiss under Rule 12(b)(6),

a complaint must contain sufficient factual matter . . . to state a claim to relief that is

plausible on its face. Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

(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

The court shall apply Missouri law in its analysis of the state-law claims. See2

MRO Commcns, Inc. v. Am. Tel. & Tel. Co., 197 F. 3d 1276, 1282 (9th Cir. 1999) (Ina federal question action where the federal court is exercising supplemental jurisdictionover state claims, the federal court applies the choice-of-law rules of the forumstate . . . .) (quoting Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1164(9th Cir. 1996)) (internal quotation marks omitted); Am. Online, Inc. v. Natl Health CareDiscount, Inc., 121 F. Supp. 2d 1255, 1268 (N.D. Iowa 2000) (same). Missouri followsthe most significant relationship test from the Restatement (Second) of Conflicts of Laws 145 for resolving choice-of-law questions in tort actions. Am. Guarantee & Liab. Ins.Co. v. U.S. Fid. & Guar. Co., 668 F.3d 991, 996 (8th Cir. 2012) (quoting Thompson byThompson v. Crawford, 833 S.W.2d 868, 870 (Mo. 1992)). The parties do not disputethat Missouri law governs the state-law claims.

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misconduct alleged. Varga v. U.S. Bank Nat. Assn, 764 F.3d 833, 838-39 (8th Cir.

2014) (quoting Iqbal, 556 U.S. at 678) (internal quotation marks omitted). This standard

requires a complaint to contain factual allegations sufficient to raise a right to relief

above the speculative level. Parkhurst v. Tabor, 569 F.3d 861, 865 (8th Cir. 2009)

(quoting Twombly, 550 U.S. at 570).

Pursuant to Federal Rule of Civil Procedure 9(b), [i]n alleging fraud or mistake,

a party must state with particularity the circumstances constituting fraud or mistake. Fed.

R. Civ. P. 9(b). This particularity requirement appl[ies] to allegations of . . . wire fraud

. . . when used as [a] predicate act[] for a RICO claim. Murr Plumbing, Inc. v. Scherer

Bros. Fin. Servs. Co., 48 F.3d 1066, 1069 (8th Cir. 1995). The Eighth Circuit

interpret[s] the requirements of Rule 9(b) in harmony with the principles of notice

pleading. Abels v. Farmers Commodities Corp., 259 F.3d 910, 920 (8th Cir. 2001)

(quoting Gunderson v. ADM Investor Servs., Inc., No. 99-4032, 230 F.3d 1363 (Table),

2000 WL 1154423, at *3 (8th Cir. Aug. 16, 2000)). Therefore,

[t]he special nature of fraud does not necessitate anything otherthan notice of the claim; it simply necessitates a higher degreeof notice, enabling the defendant to respond specifically, at anearly stage of the case, to potentially damaging allegations ofimmoral and criminal conduct. Thus, a plaintiff mustspecifically allege the circumstances constituting fraud, Fed.R. Civ. P. 9(b), including such matters as the time, place andcontents of false representations, as well as the identity of theperson making the misrepresentation and what was obtained orgiven up thereby.

Id. (quoting Bennett v. Berg, 685 F.2d 1053, 1062 (8th Cir. 1982)).

B. Count VSAiding and Abetting Breach of Fiduciary Duty

In Count V of the Complaint, Plaintiffs allege that PNC Bank aided and abetted

Sigillitos breach of fiduciary duty. PNC Bank argues that the court should dismiss Count

V because Missouri does not recognize a cause of action for aiding and abetting breach of

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fiduciary duty.

The Missouri Supreme Court has yet to decide whether Missouri recognizes a cause

of action for aiding and abetting breach of fiduciary duty. When the highest state court has

yet to rule on a matter of law, the federal court must try to predict how the state court

would decide the issue. JPMorgan Chase Bank, N.A. v. Johnson, 719 F.3d 1010, 1015

(8th Cir. 2013). To do so, [the court] consider[s] relevant state precedent, analogous

decisions, considered dicta, and any other reliable data. Id. (quoting HOK Sport, Inc.

v. FC Des Moines, L.C., 495 F.3d 927, 935 (8th Cir. 2007)); Yoder v. Nu-Enamel Corp.,

117 F.2d 488, 489 (8th Cir. 1941) (stating that a federal court should have regard for any

persuasive data that [are] available, such as compelling inferences or logical implications

from other related adjudications). In Brandt v. Medical Defense Associates, the Missouri

Supreme Court heard a case alleging claims for aiding and abetting breach of fiduciary

duty, but it resolved the case on other grounds. Brandt v. Med. Def. Assocs., 856 S.W.2d

667, 674-75 (Mo. 1993). In Brandt, the Missouri District Court had granted a motion to

dismiss for failure to state a claim, but the Missouri Court of Appeals reversed, finding

plaintiffs had stated claims for breach of fiduciary duty and aiding and abetting breach of

fiduciary duty. Id. at 669. Although the Missouri Supreme Court did not rule on whether

aiding and abetting in the commission of a tort is a valid claim under Missouri law,

nothing in the opinion suggests that the Missouri Court of Appeals was incorrect in its

statement of the law. See id. at 669 (stating that the [Missouri Court of Appeals] also

held that plaintiffs petition stated a cause of action . . . for aiding and abetting . . . in the

commission of a tort, i.e., breach of fiduciary duty).

In Bradley v. Ray, the Missouri Court of Appeals rejected a claim for aiding and

abetting in the commission of a tort, noting that [p]laintiff has not cited any Missouri case

which recognizes a claim for aiding and abetting in the commission of a tort, and none

were located through the [Missouri Court of Appeals] own research. Bradley v. Ray,

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904 S.W.2d 302, 315 (Mo. Ct. App. 1995). However, the Missouri Court of Appeals

went on to reject the claim on the merits rather than as a matter of law, applying the test

for aiding and abetting. See id. (finding that the facts do not establish that defendants

affirmatively acted by giving substantial assistance or encouragement). The Western

District of Missouri also rejected a claim for aiding and abetting breach of fiduciary duty,

noting that Missouri courts have not expressly adopted aiding and abetting liability under

the Restatement of Torts. Omaha Indem. Co. v. Royal Am. Managers, Inc., 755 F. Supp.

1451, 1459 (W.D. Mo. 1991) (Plaintiffs citation of one New York district opinion does

not convince me that Missouri courts would recognize a cause of action for aiding and

abetting a breach of fiduciary duty.). The Eastern District of Missouri likewise rejected

such a claim in Jo Ann Howard & Assocs., P.C. v. Cassity, No. 4:09CV01252 ERW,

2012 WL 3984486, at *6-*10 (E.D. Mo. Sept. 11, 2012).

However, Missouri courts have recognized aiding and abetting claims in several

cases. See Curlee v. Donaldson, 233 S.W.2d 746, 752-55 (Mo. Ct. App. 1950) (applying

the rule for aiding and abetting trespass); Knight v. W. Auto Supply Co., 193 S.W.2d 771,

776 (Mo. Ct. App. 1946) (analyzing a claim for aiding and abetting an assault); Cooper

v. Mass. Bonding & Ins. Co., 186 S.W.2d 549, 551 (Mo. Ct. App. 1944) (applying the

rule for aiding and abetting trespass). In Lonergan v. Bank of America, N.A., the Western

District of Missouri rejected the argument that aiding and abetting in the commission of

a tort is not a viable claim in Missouri, citing Missouri cases recognizing aiding and

abetting in the context of battery, assault and trespass. Lonergan v. Bank of Am., N.A.,

No. 2:12-CV-04226-NKL, 2013 WL 176024, at *11-*12 (W.D. Mo. Jan. 16, 2013)

(noting that the defendant offer[ed] no principled reason why aiding and abetting would

exist for [some] torts, but not for . . . other intentional torts). The Lonergan court found

that the defendants had not shown that as a matter of law, aiding and abetting liability

does not exist for torts in Missouri. Id. at 12.

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In determining whether the Missouri Supreme Court would recognize a cause of

action for aiding and abetting breach of fiduciary duty, the court determines that based on

the states history of recognizing aiding and abetting in the context of other torts, it would

likely recognize a claim for aiding and abetting breach of fiduciary duty. Therefore,

Plaintiffs have stated a valid claim in Count V. Accordingly, the court shall deny the

Motion with respect to Count V, aiding and abetting breach of fiduciary duty.

C. Count VISBreach of Fiduciary Duty

In Count VI of the Complaint, Plaintiffs allege that PNC Bank breached its fiduciary

duty to Plaintiffs. The Complaint alleges that PNC Bank had a superior position

compared to Plaintiffs and possessed knowledge of material facts that were not disclosed

to Plaintiffs. Complaint 317. Additionally, the Complaint alleges that PNC Bank

made decisions that injured Plaintiffs interests. Id. 318. PNC Bank argues that the

court should dismiss Count VI because PNC Bank did not owe a fiduciary duty to the non-

customer Plaintiffs and because there was no fiduciary relationship between PNC Bank and

the customer Plaintiffs.

In deciding a claim for breach of fiduciary duty with respect to a bank in Missouri,

it is not certain whether the [Uniform Fiduciaries Law] and [Uniform Commercial Code]

have totally supplanted the common law claims against banks involving a breach of

fiduciary duty or whether those laws are seen only to supplement or modify the common

law causes of action. Chouteau Auto Mart, Inc. v. First Bank of Mo., 148 S.W.3d 17,

24 (Mo. Ct. App. 2004). For purposes of the Motion, the court will assume, arguendo,

that a common law claim of breach of fiduciary duty is a viable claim in Missouri.

To adequately plead a breach of fiduciary duty, Plaintiffs must demonstrate: (1)

the existence of a fiduciary relationship between the parties, (2) a breach of that fiduciary

duty, (3) causation and (4) harm. Koger v. Hartford Life Ins. Co., 28 S.W.3d 405, 411

(Mo. Ct. App. 2000). To show the existence of a fiduciary relationship, Plaintiffs must

9


demonstrate certain elements:

(1) as between the parties, one must be subservient to thedominant mind and will of the other as a result of age, state ofhealth, illiteracy, mental disability, or ignorance; (2) things ofvalue such as land, monies, a business, or other things of valuewhich are the property of the subservient person must bepossessed or managed by the dominant party; (3) there must bea surrender of independence by the subservient party to thedominant party; (4) there must be an automatic or habitualmanipulation of the actions of the subservient party by thedominant party; and (5) there must be a showing that thesubservient party places a trust and confidence in the dominantparty.

Chmieleski v. City Prods. Corp., 660 S.W.2d 275, 294 (Mo. Ct. App. 1983). Although

Missouri courts do not appear to have addressed the question of fiduciary relationships in

the specific context of IRA account custodians, they have considered it in the more general

bank-depositor context. Generally, the relationship of a general depositor to its bank is

that of creditor-debtor, which does not arise to a fiduciary relationship. Pinkstaff v. Hill,

827 S.W.2d 747, 750 (Mo. Ct. App. 1992). Therefore, unless Plaintiffs can demonstrate

evidence establishing a fiduciary relationship between the customers and the bank, there

is no such relationship. Hall v. NationsBank, 26 S.W.3d 295, 297 (Mo. Ct. App. 2000);

see also Oliver v. Resolution Trust Corp., 747 F. Supp. 1351, 1356 (E.D. Mo. 1990)

(There is no confidential or fiduciary relationship between a bank and a customer

borrowing funds.). Furthermore, a bank has

no special duty to counsel the customer and inform him ofevery material fact relating to [a] transaction including thebanks motive, if material, for participating in the transactionunless special circumstances exist, such as where the bankknows or has reason to know that the customer is placing histrust and confidence in the bank and is relying on the bank soto counsel and inform him.

Id. (quoting Pigg v. Robertson, 549 S.W.2d 597, 600 (Mo. Ct. App. 1977)). The court

10


found a fiduciary relationship in Pigg when a customer told a purported bank

representative about his plans to purchase a farm, and the purported representative then

purchased the same farm for himself before the customer received the bank loan. Pigg,

549 S.W.2d at 599. The court found a confidential relationship existed between the

customer and the purported representative which could have formed the basis for breach

of fiduciary duty. Id. at 601-02. However, here, nothing indicates that the bank violated

a confidential relationship for its own advantage, therefore, the general rule that a

fiduciary relationship does not exist between a bank and customer applies. See UT

Commcns Credit Corp. v. Resort Dev., Inc., 861 S.W.2d 699, 710 (Mo. Ct. App. 1993).

With respect to PNC Banks argument that Count VI must be dismissed because

PNC Bank did not owe a fiduciary duty to the 77 non-customer Plaintiffs, the court agrees.

PNC Bank did not owe a common law fiduciary duty to the 77 non-customer Plaintiffs, as

they had no relationship with the bank other than that their attorney, Sigillito, held

accounts with PNC Bank and their funds were deposited in his IOLTA. That tenuous

connection does not give rise to a fiduciary duty on the part of PNC Bank.

With respect to PNC Banks argument that Count VI must be dismissed because a

fiduciary relationship did not exist between the bank and the 14 customer Plaintiffs, the

court also agrees. Although Plaintiffs allege that PNC Bank had more information than

the customer Plaintiffs regarding Sigillitos accounts and due to its position as an IRA

custodian, the Complaint does not sufficiently establish that a fiduciary relationship existed

between PNC Bank and the customer Plaintiffs. There is no evidence of special

circumstances giving rise to a fiduciary relationship. Accordingly, the court shall grant

the Motion with respect to Count VI, breach of fiduciary duty.

D. Count VIISConspiracy to Breach Fiduciary Duty

In Count VII of the Complaint, Plaintiffs allege that PNC Bank conspired to breach

fiduciary duties. PNC Bank argues that the court should dismiss Count VII because

11


Plaintiffs cannot state an independent claim for breach of fiduciary duty and, therefore, the

conspiracy claim must fail.

A civil conspiracy is an agreement or understanding between two or more persons

to do an unlawful act, or to use unlawful means to do an act which is lawful. Gettings

v. Farr, 41 S.W.3d 539, 541 (Mo. Ct. App. 2001) (quoting Mills v. Murray, 472 S.W.2d

6, 12 (Mo. Ct. App. 1971)). To establish a claim for conspiracy, there must be (1) two

or more persons; (2) with an unlawful objective; (3) after a meeting of the minds; (4)

committed at least one act in furtherance of the conspiracy; and (5) the plaintiff was

thereby damaged. Id. at 542.

The Complaint alleges that Allegiant Bank owed a special duty of trust to Plaintiffs

with IRAs at Allegiant, arising out of a special financial relationship of trust and

confidence. Complaint 322. Plaintiffs then allege that Allegiant Bank and Sigillito

conspired to breach the fiduciary duty that Allegiant Bank owed to Plaintiffs. Id. 323.

As noted above, PNC Bank, as successor in interest to Allegiant Bank, National City Bank

and Pioneer Bank, did not owe Plaintiffs a fiduciary duty. However, the Complaint also

alleges that PNC Bank, through Allegiant Bank, National City Bank and Pioneer Bank,

conspired with Sigillito with respect to breaching Sigillitos fiduciary duties to Plaintiffs.

See id. 14, 188-89, 236, 249, 254. For the purposes of a motion to dismiss, the facts

in the Complaint are sufficient to state a claim for conspiracy to breach a fiduciary duty.

Accordingly, the court shall deny the Motion with respect to Count VII, conspiracy to

breach fiduciary duty.

E. Count VIIISNegligence

In Count VIII of the Complaint, Plaintiffs allege that PNC Bank was negligent in

failing to ensure the safekeeping of Plaintiffs funds in Sigillitos IOLTA. PNC Bank

argues that the court should dismiss Count VIII because PNC Bank did not owe a common

law duty to Plaintiffs.

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Under Missouri law, a party may recover for negligence only after proving the

following elements: (1) the existence of a legal duty owed to the plaintiff, (2) breach of

that duty through a negligent act by the defendant, (3) proximate causation between the

breach and the resulting injury, and (4) resulting damages. Ostrander v. OBanion, 152

S.W.3d 333, 338 (Mo. Ct. App. 2004); MEMC Elec. Materials, Inc v. Sunlight Grp.,

Inc., No. 4:08CV00535 FRB, 2008 WL 4642866, at *4 (E.D. Mo. Oct. 17, 2008). To

determine whether a duty exists, Missouri courts start with an examination of the source

of the duty. Natl Union Fire Ins. Co. of Pittsburgh, Pa. v. Raczkowski, 764 F.3d 800,

803 (8th Cir. 2014) (quoting Parra v. Bldg. Erection Servs., 982 S.W.2d 278, 283 (Mo.

Ct. App. 1998). The common denominator that must be present is the existence of a

relationship between the plaintiff and defendant that the law recognizes as the basis of a

duty of care. Id. (quoting Parra, 982 S.W.2d at 283) (internal quotation marks omitted).

Plaintiffs allege that PNC Bank had the duty to use such skill, prudence, and

diligence as other banks commonly exercise, including the safekeeping of Plaintiffs funds

in Sigillitos IOLTA account, and that PNC Bank was negligent in performing that duty.

Complaint 328-29. PNC Bank argues that it did not owe a duty of care to the seventy-

seven Plaintiffs who were not customers of the bank. PNC Bank also argues that the only

duties it owed to the fourteen customer Plaintiffs were contractual duties related to the IRA

custodial accounts and that, therefore, there is no cognizable negligence claim.

Memorandum in Support of Motion (docket no. 18) at 17-18.

Missouri law recognizes that a tort may be committed in the nonobservance of

contract duties and that a negligent failure to perform a contractual undertaking may result

in tort liability. Preferred Physicians Mut. Mgmt. Grp. v. Preferred Physicians Mut. Risk

Retention, 918 S.W.2d 805, 813 (Mo. Ct. App. 1996). Additionally, [a]n obligation

may, likewise, be assumed by contract, out of which may arise a duty to others than the

party to the contract. Howell v. Welders Prods. and Servs., Inc., 627 S.W.2d 311, 313

13


(Mo. Ct. App. 1981) (quoting Lowery v. Kansas City, 85 S.W.2d 104, 110 (Mo. 1935))

(internal quotation marks omitted). However, Plaintiffs negligence claim does not appear

to be related to PNC Banks duties as an IRA account custodian but rather to an alleged

duty on the part of PNC Bank to ensure that Sigillitos IOLTA was properly maintained

in accordance with how other banks oversee similar trust accounts. While Sigillito and

PNC Bank probably had a contract governing the operation of the IOLTA, nothing in the

Complaint alludes to the existence of this contract or references any way that PNC Bank

may have breached such a contract if one existed.

Plaintiffs rely on one case upholding a negligence claim against a bank for a

fiduciarys misappropriation of funds. See Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d

Cir. 2006). In Lerner, the Second Circuit applied New York law and found that a bank

had a duty to make reasonable inquiries and to safeguard attorney trust funds from [an

attorneys] misappropriation. Id. at 289. However, the Lerner court noted that this duty

arose only when a bank had been put on notice of the misappropriation, such as if there

were consistent overdrafts in the account. Id. at 287-88. Nothing in the courts research

uncovered anything in Missouri law supporting the existence of a common law duty to

safeguard funds in a trust account from a fiduciarys misappropriation.

With the enactment of the Uniform Fiduciaries Law (UFL), [t]he Missouri

Supreme Court held that mere negligence on the part of the depository bank is not

sufficient to hold it liable to the principal if the fiduciary in fact misappropriated the fund.

Dean v. Centerre Bank of North Kansas City, 684 S.W.2d 373, 374 (Mo. Ct. App. 1984).

The purpose of Missouris UFL is to reliev[e] banks of their common law duty of

inquiring into the propriety of each transaction conducted by a fiduciary. Watson

Coatings, Inc. v. Am. Exp. Travel Related Servs., Inc., 436 F.3d 1036, 1040 (8th Cir.

2006) (alteration in original) (quoting In re Lauer, 98 F.3d 378, 383 (8th Cir. 1996)).

Under the UFL, a bank must have actual knowledge or act in bad faith to be held liable

14


for the misappropriation of fiduciary funds. In re Broadview Lumber Co., 118 F.3d 1246,

1251 (8th Cir. 1997) (explaining Missouris UFL). Bad faith requires something more

than mere negligence. Id.

Based on the UFL, the court finds that banks in Missouri do not have a common

law duty to safeguard funds in a trust account. Rather, the circumstances under which a

bank can be held liable for a fiduciarys misappropriation of funds are governed by the

standards set forth in the UFL. To ignore those standards would defeat the purpose of3

relieving banks of the common law duty of inquiry. The court agrees that PNC Bank did

not owe a common law duty to the non-customer Plaintiffs. Although the Missouri courts

do not appear to have answered this question directly, there is an overwhelming consensus

that banks do not owe a duty of care to non-customers. See Natl Union Fire Ins. Co. of

Pittsburgh, Pa., 764 F.3d at 804. As for the Plaintiffs who were customers of the bank,

negligence is not a viable claim. Because state law relieves banks of certain common law

duties in Missouri, Plaintiffs cannot state a claim for negligence with regard to PNC

Banks supervision of Sigillitos IOLTA. Accordingly, the court shall grant the Motion

with respect to Count VIII, negligence.

F. Count IXSConspiracy to Violate RICO

In Count IX of the Complaint, Plaintiffs allege that PNC Bank violated RICO,

codified at 28 U.S.C. 1962(d). PNC Bank argues that the court should dismiss Count

IX because Plaintiffs have failed to allege the existence of an independent enterprise and

have failed to show that PNC Bank agreed to assist the enterprise.

Congress enacted RICO to curb the infiltration of legitimate business organizations

by racketeers. Sinclair v. Hawke, 314 F.3d 934, 943 (8th Cir. 2003) (quoting Atlas Pile

Driving Co. v. DiCon Fin. Co., 886 F.2d 986, 990 (8th Cir. 1989)) (internal quotation

Counts I, II and III of the Complaint allege violations of Missouris UFL. These3

claims are not at issue in the instant Motion.

15


marks omitted). To this end, Congress created a private cause of action for those injured

by racketeering activity. Pursuant to 18 U.S.C. 1964(c),

Any person injured in his business or property by reason of aviolation of [18 U.S.C. 1962] may sue therefor in anyappropriate United States district court and shall recoverthreefold the damages he sustains and the cost of the suit,including a reasonable attorneys fee, except that no personmay rely upon any conduct that would have been actionable asfraud in the purchase or sale of securities to establish aviolation of [18 U.S.C. ] 1962.

18 U.S.C. 1964(c). Under 18 U.S.C. 1962(c), it is unlawful for any person

employed by or associated with any enterprise engaged in, or the activities of which affect,

interstate or foreign commerce, to conduct or participate, directly or indirectly, in the

conduct of such enterprises affairs through a pattern of racketeering activity or collection

of unlawful debt. Id. Racketeering activity includes the offenses of mail fraud, wire

fraud and money laundering. 18 U.S.C. 1961(1)(B).

Pursuant to 18 U.S.C. 1962(d), it is unlawful for any person to conspire to

violate any of the provisions of subsection (a), (b), or (c) of [18 U.S.C. 1962]. To

demonstrate a conspiracy to violate RICO, the Eighth Circuit Court of Appeals requires

a party to prove the first three elements of a substantive RICO offense: (1) that an

enterprise existed; (2) that the enterprise affected interstate or foreign commerce; [and] (3)

that the defendant associated with the enterprise. United States v. Darden, 70 F.3d 1507,

1518 (8th Cir. 1995). Additionally, a party must prove that: [t]he defendant . . .

objectively manifested an agreement to participate directly or indirectly, in the affairs of

an enterprise through the commission of two or more predicate crimes. United States v.

Bennett, 44 F.3d 1364, 1374 (8th Cir. 1995) (quoting United States v. Phillips, 664 F.2d

971, 1012 (5th Cir. 1981)) (internal quotation marks omitted). [S]tanding to bring a civil

suit pursuant to 18 U.S.C. 1964(c) and based on an underlying conspiracy violation of

18 U.S.C. 1962(d) is limited to those individuals who have been harmed by a 1961(1)

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RICO predicate act committed in furtherance of a conspiracy to violate RICO. Bowman

v. W. Auto Supply Co., 985 F.2d 383, 388 (8th Cir. 1993).

1. Standing

A party must have standing to bring a claim of conspiracy to violate RICO under

18 U.S.C. 1962(d). PNC Bank argues that the seventy-seven Plaintiffs who were not

customers of the bank do not have standing and, therefore, the RICO claim should be

dismissed with respect to those Plaintiffs.

The class of persons who may sue under RICO is limited to those whose injuries

were directly caused by RICO violations. Hamm v. Rhone-Poulenc Rorer Pharm, Inc.,

187 F.3d 941, 953 (8th Cir. 1999). A plaintiff has standing only if, and can only recover

to the extent that, he has been injured in his business or property by the conduct

constituting the violation. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985).

Standing under RICO, like the statute itself, is to be liberally construed to effectuate its

remedial purposes. Id. at 498 (quoting Pub. L. 91-452, 904(a), 84 Stat. 947). In

bringing a RICO conspiracy claim, however, standing is limited to those individuals who

have been harmed by a 1961(1) RICO predicate act committed in furtherance of a

conspiracy to violate RICO. Bowman, 985 F.2d at 388.

Plaintiffs allege that PNC Bank, through its predecessor banks, conspired to violate

RICO through money laundering and wire fraud when it ignored its responsibility to notify

regulators, assisted Sigillito with bringing his accounts current before leaving the bank to

prevent inquiries from IRA account holders and accepted misappropriated fiduciary funds

for debt payments on loans. Resistance at 19-20. The Complaint alleges that this conduct

facilitated the BLPs continued existence and resulted in Plaintiffs continued investments

and subsequent financial losses. Complaint 386, 393, 395-99. Viewing the facts in the

light most favorable to the Plaintiffs and accepting the allegations as true, Plaintiffs have

adequately demonstrated standing to assert a RICO claim under 18 U.S.C. 1962(d).

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Accordingly, the court shall deny the Motion with regard to the seventy-seven non-

customer Plaintiffs standing to sue under RICO.

2. Existence of an enterprise

To satisfy the first element of a claim under 18 U.S.C. 1962(d), a plaintiff must

establish the existence of an enterprise. Darden, 70 F.3d at 1518. An enterprise is

defined to include any individual, partnership, corporation, association, or other legal

entity, and any union or group of individuals associated in fact although not a legal

entity. Craig Outdoor Adver., Inc. v. Viacom Outdoor, Inc., 528 F.3d 1001, 1026 (8th

Cir. 2008) (quoting 18 U.S.C. 1961(4)). An enterprise is proved by evidence of an

ongoing organization, formal or informal, and by evidence that the various associates

function as a continuing unit. United States v. Turkette, 452 U.S. 576, 583 (1981). To

demonstrate the existence of an association-in-fact enterprise, there must be at least three

structural features: a purpose, relationships among those associated with the enterprise,

and longevity sufficient to permit [the] associates to pursue the enterprises purpose.

Boyle v. United States, 556 U.S. 938, 946 (2009). Although the existence of an

enterprise is an element distinct from the pattern of racketeering activity and proof of one

does not necessarily establish the other[,] . . . the evidence used to prove the pattern of

racketeering activity and the evidence establishing an enterprise may in particular cases

coalesce. Id. at 947 (quoting Turkette, 452 U.S. at 583).

Under Boyle, the standard for demonstrating the existence of an enterprise is more

flexible than previous Eighth Circuit case law instructed. See United States v. Lee, 374

F.3d 637, 647 (8th Cir. 2004) (requiring a party to show an ascertainable structure

distinct from the conduct of a pattern of racketeering to satisfy a RICO conspiracy claim);

Handeen v. Lemaire, 112 F.3d 1339, 1352 (8th Cir. 1997) (same). The Supreme Court

emphasized that the term enterprise, like all provisions in the RICO statute, must be

construed broadly. See Boyle, 556 U.S. at 945. The Supreme Court then reiterated that

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it would not add structural requirements to RICO where none exist within the language of

the statute. Id. at 948. The Boyle Court approved of jury instruction language permitting

a jury to find the existence of an association-in-fact from what [the enterprise] does,

rather than by abstract analysis of its structure, noting that proof of a pattern of

racketeering activity may be sufficient in a particular case to permit a jury to infer the

existence of an association-in-fact enterprise. Id. at 951 (internal quotation marks

omitted).

PNC Bank argues that Plaintiffs have not alleged the existence of an independent

enterprise because each allegation only relates to the individual conduct of the enterprises

membersSnot to the enterprise itself. . . . The enterprise alleged by Plaintiffs existed solely

to operate the British Lending Program and to hide its illegal existence. Memorandum

in Support of Motion at 24-25. In the Complaint, Plaintiffs allege that the RICO enterprise

consisted of Martin Sigillito and his company, Martin T. Sigillito & Associates Ltd.; Scott

Brown and his companies, J. Scott Brown Associates and British American Group, Inc.;

Hal Milsap and his company, Retirement Benefit Solutions; Bob Mack and his company,

M&M Financial Investors, LLC; and David Fazio and his company, Fountain Capital

Management LLC. Complaint 342. Plaintiffs allege that the common purpose of this

enterprise was the operation and management of the BLP. Id. The Complaint goes on to

identify the relationships between the different members of the enterprise and how each

contributed to the operation of the scheme.

The court will only require Plaintiffs to plead, not to prove, their case at this early

stage of the proceedings. After reviewing the Complaint in its entirety, the court

concludes that Plaintiffs adequately pled the existence of a RICO enterprise by showing

a common purpose, the relationships among the members of the alleged enterprise and

longevity sufficient to allow the associates to pursue the enterprises purpose.

Accordingly, the court shall deny the Motion with regard to pleading the existence of an

19


enterprise.

3. Objective manifestation of an agreement

Another required element of a claim under 18 U.S.C. 1962(d) is that the

defendant objectively manifested an agreement to participate . . . in the affairs of [the]

enterprise. Darden, 70 F.3d at 1518 (quoting Bennett, 44 F.3d at 1374). To show an

objective manifestation of an agreement, [p]roof of an express agreement is not required;

the [plaintiff] need only establish a tacit understanding between the parties, and this may

be shown wholly through the circumstantial evidence of [each defendants] actions.

Darden, 70 F.3d at 1518 (third alteration in original) (quoting United States v. Fregoso,

60 F.3d 1314, 1325 (8th Cir. 1995)); see also Handeen, 112 F.3d at 1355 (applying 18

U.S.C. 1962(d) in a civil case). Although Plaintiffs allege that PNC Bank conspired to

violate 18 U.S.C. 1962(c), they need not prove that each alleged conspirator agreed that

he or she would be the one to commit the two predicate acts required under that statute.

See Salinas v. United States, 522 U.S. 52, 64-65 (1997) (A conspirator must intend to

further an endeavor which, if completed, would satisfy all of the elements of a substantive

criminal offense, but it suffices that he adopt the goal of furthering or facilitating the

criminal endeavor.). Here, Plaintiffs allege that the predicate acts consist of various

instances of wire fraud and money laundering. Complaint 367.

PNC Bank argues that Plaintiffs failed to adequately allege that PNC Bank agreed

to assist the RICO enterprise because they have neither established that PNC Bank knew

of the enterprise prior to October 2001, Memorandum in Support of Motion at 26-27, nor

that PNC Bank assisted the enterprise after October 2001. Id. at 27-28. Plaintiffs allege

that Sigillito maintained IOLTA accounts at Allegiant Bank, Pioneer Bank and National

City Bank (subsequently acquired by PNC Bank) and that each of the three banks served

as IRA custodians for BLP investors. Complaint 347, 387. Plaintiffs allege that the

banks discovered Sigillitos misuse of fiduciary funds and facilitated the enterprise in

20


moving funds to different banks to avoid disclosing the wrongdoing. Complaint 380-

84. Although it is true that Plaintiffs have not shown that PNC Bank entered into an

express agreement to participate in the enterprise, all that is required is that the conspirator

intend[s] to further an endeavor which, if completed, would satisfy all of the elements of

a substantive criminal offense or that the conspirator adopt[s] the goal of furthering . . .

the criminal endeavor. Salinas, 522 U.S. at 64-65. Construing the facts in the light most

favorable to Plaintiffs and accepting the allegations as true, Plaintiffs have adequately pled

that PNC Bank objectively manifested an agreement to participate in the RICO enterprise.

Accordingly, the court shall deny the Motion with respect to the objective manifestation

of an agreement.

VI. CONCLUSION

In light of the foregoing, the Motion to Dismiss (docket no. 17) is GRANTED IN

PART and DENIED IN PART. The Clerk of Court is DIRECTED to dismiss Count IV,

Count VI and Count VIII of the Complaint. Additionally, Plaintiffs motion requesting

oral arguments (docket no. 25) is DENIED.

IT IS SO ORDERED.

DATED this 19th day of November, 2014.

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judge's order on sigillito case

Documents

plaintiffs statelaw

supplemental jurisdiction

federal question jurisdiction

defendant pnc bank

pnc bankin count

count vsaiding

count viisconspiracy

count ixsconspiracy