DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
ALAN GILISON and SUSAN GILISON,
Appellants,
v.
FLAGLER BANK, a Florida Financial Institution,
Appellee.
No. 4D19-3379
[August 26, 2020]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; John S. Kastrenakes, Judge; L.T. Case No.
502017CA012551XXXXMB.
Jeffrey B. Shalek and Gary S. Phillips of Phillips, Cantor & Shalek, P.A.,
Hollywood, for appellants.
Richard S. Cohen, West Palm Beach, and Marjorie Gadarian Graham,
Palm Beach Gardens, for appellee.
MAY, J.
The plaintiffs appeal an order dismissing two counts of their Fifth
Amended Complaint with prejudice for failure to state a cause of action.
They argue the court erred in this ruling because they sufficiently alleged
claims for: (1) aiding and abetting fraud; and (2) conspiracy to commit
fraud. We agree and reverse.
The plaintiffs’ claims arose from loans they made to Chariots of Palm
Beach, Inc. (“Chariots”), a retail seller and renter of luxury cars. The
plaintiffs alleged that when Chariots filed for bankruptcy, they became
aware of Chariots’ fraud with regard to their loans. 1 The plaintiffs alleged
Flagler Bank (“bank”), Chariots’ second largest floor plan lender, aided and
abetted the fraud and conspired to commit fraud.
Chariots’ accountants, Mackail & Sterling CPA’s and Associates, P.A.,
prepared Chariots’ accounting books and records and the necessary tax
1 Chariots is not a party due to the pending bankruptcy.
documents for Chariots’ lenders. Ron Mackail and Edward Sterling were
both on the bank’s board of directors. In fact, Sterling served as the bank’s
CEO and President.
Chariots utilized a floor plan financing program, a typical method used
to acquire inventory. Money is borrowed against each car in inventory and
the lender either holds title or secures the loan with a UCC-1 financing
statement. Over the years, the plaintiffs financed vehicles for Chariots.
As security, Chariots provided the plaintiffs with the original title to each
car. Purportedly, Chariots could not sell a car unless it obtained the title
from the plaintiffs, which occurred when the car’s loan was paid off.
In 2016, Chariots paid the plaintiffs $409,511.81 in interest. However,
Chariots’ final balance sheets prepared by the accountants showed a total
liability of only $598,000, much smaller than would account for the large
interest payment. A staff member of the accounting firm flagged this
discrepancy and notified Mackail. The lienholder records indicated a
reduced amount owed to the plaintiffs and noted “8/6/14 per Hugh Bate—
never provided documentation.”
Meanwhile, Chariots obtained duplicate titles from the Florida
Department of Motor Vehicles for the cars financed by the plaintiffs. It
would then sell the cars and collect the purchase money, but did not pay
the plaintiffs. Instead, Chariots paid the bank’s loan with the plaintiffs’
money. It kept the plaintiffs’ secured cars on the bank’s floor plan
inventory list and obtained multiple loans on a single vehicle. Sixty days
before Chariots filed for bankruptcy, it paid the bank $2,527,952.03.
In the two counts against the bank, the plaintiffs alleged claims for: (1)
aiding and abetting fraud; and (2) conspiracy to commit fraud. They
alleged the accountants and the bank maneuvered critical funding to
Chariots so that it would appear solvent for as long as possible to attract
investors.
The complaint further alleged the accountants failed to engage in
generally accepted accounting principles, which allowed the bank to
receive the funds owed to the plaintiffs. Lastly, the complaint alleged the
accountants and bank knew Chariots’ modus operandi and substantially
assisted Chariots’ owner and Chariots by maneuvering critical funding
into the scheme while hiding the wrongdoing.
The bank moved to dismiss the complaint, arguing the plaintiffs failed
to state a cause of action. As to the aiding and abetting fraud claim, the
bank argued the plaintiffs failed to allege the bank knew of the fraud. As
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to the conspiracy to commit fraud claim, the bank argued it did not
perform an overt, unlawful, or lawful act by unlawful means.
The trial court granted the motion with prejudice for failure to state a
cause of action, finding the plaintiffs “failed to allege the bank had actual
knowledge of the fraud and the bank owed no fiduciary duty to the
[p]laintiffs.” From this order, the plaintiffs now appeal.
A ruling on a motion to dismiss for failure to state a cause of action is
reviewed de novo. Regis Ins. Co. v. Miami Mgmt.,
902 So. 2d 966, 968 (Fla
4th DCA 2005).
• The Aiding and Abetting Fraud Claim
The plaintiffs argue the trial court erred in finding the complaint failed
to allege the bank’s knowledge of the fraud. They contend the complaint
sufficiently alleged the bank’s CEO and president and a member of its
board of directors, who were also Chariots’ accountants, knew of the fraud.
The bank responds the plaintiffs failed to plead the bank had actual
knowledge. We agree with the plaintiffs.
To successfully plead the claim of aiding and abetting fraud, the
plaintiffs must allege the: (1) existence of the underlying fraud; (2)
knowledge of the fraud; and (3) the defendant provided substantial
assistance to the commission of the fraud. ZP No. 54 Ltd. P’ship v. Fidelity
& Deposit Co. of Maryland,
917 So. 2d 368, 372 (Fla. 5th DCA 2005).
1) The Complaint Alleged an Underlying Fraud.
An underlying fraud exists when the defendant makes a false statement
concerning a material fact. Ramel v. Chasebrook Constr. Co.,
135 So. 2d
876, 881 (Fla. 2d DCA 1962). The defendant must know the statement to
be false, have the intention to induce the plaintiff to rely upon the
representation, and in reliance on that representation the plaintiff will
suffer an injury.
Id. “[A] statement of a party having exclusive or superior
knowledge may be regarded as a statement of fact. . . .”
Id. at 879.
Here, the bank had superior knowledge through the accountants that
Chariots’ books contained fraudulent misrepresentations. The
accountants, one of whom also served as the bank’s President and CEO
and another as a board member, prepared Chariots’ balance sheets. The
plaintiffs alleged through them the bank knew the books contained
inaccurate and fraudulent information.
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Since 2011, the accountants reported 1099-INT income to the plaintiffs
in excess of $300,000 per year. But Chariots’ books reflected a
significantly smaller debt than would support those interest payments. An
employee of the accounting firm flagged the discrepancy and notified
Mackail, a principal of the accountants and CEO of the bank. The
discrepancy remained on Chariots’ books without proper documentation.
The complaint alleged the plaintiffs relied on Chariots’ representation
that it could sell the cars it financed only after Chariots paid off their loan.
It alleged the bank knew through the accountants that Chariots obtained
duplicate titles for those cars. The plaintiffs’ reliance on this
representation caused them injury when Chariots paid the bank money
owed to them.
In short, the plaintiffs alleged an underlying fraud.
1) The Complaint Alleged the Bank’s Knowledge of the Underlying
Fraud.
A defendant has knowledge of an underlying fraud if it has a general
awareness that its role was part of an overall improper activity. Woods v.
Barnett Bank of Fort Lauderdale,
765 F.2d 1004, 1009 (11th Cir. 1985).
Knowledge can be imputed on a corporation when the plaintiff
demonstrates, “without dispute, that a corporate officer’s fraud intended
to and did benefit the corporation, to the detriment of” the plaintiff.
Seidman & Seidman v. Gee,
625 So. 2d 1, 3 (Fla. 3d DCA 1992) (imputing
knowledge onto corporation where its managing officer knew about the
ongoing fraud and the corporation obtained a benefit from the managing
officer’s fraudulent conduct).
Here, the complaint alleged the bank had general knowledge of
Chariots’ scheme because the bank was the only lender that had direct
access to Chariots’ financial records and the discrepancies within them.
The accountants prepared Chariots’ final balance sheets, which reflected
Chariots’ debt to the plaintiffs of $598,000 in 2016. However, the 2016
1099-INT, prepared by the accountants, reflected Chariots’ payment to the
plaintiffs of $409,511.18 in interest. Simply put, the numbers did not add
up.
The complaint alleged the accountants were on the bank’s board of
directors; one served as the bank’s CEO and President while another was
a board member. They had control over the bank. The bank advanced
funds to Chariots, giving it the appearance of a stronger financial condition
than existed. This allowed Chariots to prolong the life of its scheme. The
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bank benefited when Chariots made substantial interest payments to the
bank while the plaintiffs’ loans remained unpaid.
The plaintiffs sufficiently alleged the bank had knowledge of the
underlying fraud.
3) The Complaint Alleged the Bank Provided Substantial Assistance.
“Substantial assistance occurs when a defendant affirmatively assists,
helps conceal, or fails to act when required to do so, thereby enabling the
breach to occur.” Chang v. JP Morgan Chase Bank, N.A.,
845 F.3d 1087,
1098 (11th Cir. 2017) (quoting Lerner v. Fleet Bank, N.A.,
459 F.3d 273,
295 (2d Cir. 2006)). “Substantial assistance requires the plaintiff to allege
that the actions of the aider/abettor proximately caused the harm on
which the primary liability is predicated.” Cromer Finance Ltd. v. Berger,
137 F. Supp. 2d 452, 470 (S.D.N.Y. 2001), accord Neilson v. Union Bank of
Cal., N.A.,
290 F. Supp. 2d 1101, 1129 (C.D. Cal. 2003).
Here, the complaint alleged the bank assisted Chariots by leading the
plaintiffs to believe their loans were properly documented on Chariots’
books and records. The complaint alleged the bank concealed that
Chariots obtained duplicate titles for cars financed by the plaintiffs. This
allowed Chariots to collect the purchase money for the cars and pay the
bank without paying the plaintiffs.
In Neilson, the banks gave the primary party of the scheme access to
large sums of money that kept a scheme afloat for a significant time.
Id.
at 1108–09. Without the bank’s assistance, the Ponzi scheme could not
have succeeded.
Id. at 1110. The court held that the bank’s participation
was a substantial factor in bringing about the plaintiffs’ alleged injury.
Id.
at 1129. The same is true here.
The complaint sufficiently alleged an underlying fraud, the bank’s
knowledge of it, and its substantial assistance in its commission, the
requisite elements of a claim for aiding and abetting fraud. Taken as true,
these allegations withstood the bank’s motion to dismiss.
• The Conspiracy to Commit Fraud Claim
The plaintiffs next argue the trial court erred in finding the complaint
failed to allege a cause of action for conspiracy because it alleged the bank
agreed to and participated in the underlying fraud. The bank responds
that the allegations are conclusory and fail to allege what overt acts the
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bank performed in furtherance of, and how the bank assisted in, the fraud.
We once again agree with the plaintiffs.
To state a claim for civil conspiracy, a plaintiff must allege: (1) an
agreement between two or more parties, (2) to do an unlawful act or to do
lawful act by unlawful means, (3) an overt act in furtherance of the
conspiracy, and (4) damage to the plaintiff as a result of the act performed
in furtherance of it. Walters v. Blankenship,
931 So. 2d 137, 140 (Fla 5th
DCA 2006).
An agreement between two or more parties occurs when there is an
express or implied agreement of two or more persons to engage in a
criminal or unlawful act. Charles v. Fla. Foreclosure Placement Ctr., LLC.,
988 So. 2d 1157, 1160 (Fla. 3rd DCA 2008) (quoting Witmer v. Dep’t of
Bus. & Prof’l Regulation Div. of Pari-Mutuel Wagering,
631 So. 2d 338, 342
(Fla. 4th DCA 1994)).
Here, the complaint alleged the bank had an implied agreement with
Chariots to deceive the plaintiffs. The accountants prepared inaccurate
books for Chariots; the bank knew that Chariots’ books were inaccurate
because Chariots’ accountants were on the bank’s Board of Directors.
This allowed Chariots to secure additional loans from the plaintiffs.
A conspirator only needs to know of the scheme and assist in it in some
way to be held responsible for all the acts of his conspirators.
Charles,
988 So. 2d at 1160; MP, LLC v. Sterling Holding, LLC,
231 So. 3d 517 (Fla.
3d DCA 2017) (when pleading an overt act in furtherance of a conspiracy,
there is no requirement that each co-conspirator commit acts in
furtherance of the scheme).
The complaint alleged the bank assisted Chariots in the fraud because
the bank’s underwriters approved additional funds to Chariots. The
additional funds gave Chariots the appearance of a strong financial
condition. That appearance allowed Chariots to prolong the existence of
its scheme. This ultimately allowed the bank to recover a large share of
its debt from Chariots by receiving payments due the plaintiffs.
Those allegations were sufficient for the conspiracy claim to survive the
bank’s motion to dismiss. See
Charles, 998 So. 2d at 1160.
We need not address the issue of whether the dismissal should have
been with prejudice in light of our holding. We reverse and remand the
case to the trial court for further proceedings consistent with this opinion.
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Reversed and Remanded.
WARNER, J., and HILAL, JENNIFER, Associate Judge, concur.
* * *
Not final until disposition of timely filed motion for rehearing.
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