Quintero Community Association Inc. et al v. Federal Deposit Insurance Corporation as Receiver for Hillcrest Bank et al
ORDER granting in part and denying in part 58 63 defendants' motions to dismiss. The motions are granted as to Counts 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 14, 15, and 16. The motions are denied as to Counts 1 and 11. Signed on 1/3/13 by District Judge Greg Kays. (Francis, Alexandra)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
ASSOCIATION, INC., et al.,
HILLCREST BANK, et al.,
ORDER GRANTING MOTION TO DISMISS IN PART
This case arises from Plaintiffs’ losses sustained from their investment in and purchase of
property at a failed golf course development owned and operated by Gary McClung and his
related companies and entities (the “McClung Entities”). Plaintiffs bring suit against various
parties, including Hillcrest Bank, Hillcrest Bancshares, and the officers and directors of both, for
negligent management and supervision, conversion, fraud, aiding and abetting, civil conspiracy,
intentional interference with business relationships, and breach of fiduciary duty (Doc. 56).
Pending before the Court is a “Motion to Dismiss” (Doc. 58) on behalf of the Federal
Deposit Insurance Corporation, in its capacity as Receiver for Hillcrest Bank (“FDIC-R”) and a
“Motion to Dismiss” (Doc. 63) on behalf of Separate Defendants Wheeler, Asner, Blitt,
Campbell, J. Fingerish, P. Fingersh, White, Degen, Gervy, Richards, Davies, Lieberman, Forgey,
Davis, Holderman, Schwartzkopf, Gallatin, Schneider (collectively “the Board of Directors”) and
Hillcrest Bancshares.1 Defendants argue that this Court lacks subject-matter jurisdiction to hear
the case, or in the alternative, that the Court should dismiss Plaintiffs’ complaint for failure to
Although Defendant FDIC-R and the Board of Directors submitted separate motions to dismiss, the parties’
arguments are essentially the same, and, after the Board of Directors submitted their motion to dismiss, Defendant
FDIC-R filed a motion to join (Doc. 66).
state a claim upon which relief can be granted. For the reasons discussed below, Defendants’
motions to dismiss are DENIED in part and GRANTED in part.2
Plaintiffs are purchasers of, and investors in, property belonging to an Arizona golf
course community development, Quintero Golf and Country Club, LLC (“QGCC”), initiated by
Gary McClung and his related companies (the “McClung Entities”).
Some, but not all,
individual Plaintiffs are also members of Quintero Community Association (“QCA”), an Arizona
non-profit which itself owns property in the QGCC and is a plaintiff in the case. Hillcrest Bank
and Hillcrest Bancshares, the corporation which held all the stock in Hillcrest Bank, were also
investors in QGCC, having lent over $50,000,000 in loans to the McClung Entities.
Plaintiffs allege that Hillcrest Bank and its Board of Directors financed the McClung
Entities’ QGCC development knowing of the McClung Entities’ dire financial condition and
inability to service the debt. Furthermore, Plaintiffs allege that Hillcrest Bank and its directors
“concocted a scheme with McClung” to conceal QGCC’s financial condition from Plaintiffs
rather than declaring a default on the loan (“the Quintero loan”). As a result of what Plaintiffs
allege to be Defendants’ concealment and misrepresentation about the financial condition of
QCGG,3 Plaintiffs maintain they were improperly induced to invest in an illegitimate business
venture which was never completed.
Therefore, Plaintiffs bring claims against Hillcrest
Bancshares, Hillcrest Bank, and the board of directors of both4 (“the Board of Directors”) under
In ruling on these motions, the Court also considered Docs. 61, 66, 67, 73, 78, 86, 87, 88, 89, and 90.
After an FDIC inspection of Hillcrest Bank, the FDIC found that Hillcrest Bank had violated several banking rules
including “imprudent lending and collection practices” (Doc. 37, at 8). It also found that Hillcrest’s management
“failed to provide adequate supervision over and direction to the management of the bank.” Id.
Plaintiffs allege that each of the Defendant Board of Directors are either directors of Hillcrest Bank or Hillcrest
a variety of theories of liability including, but not limited to, breach of contract, fraud, fraud by
silence, breach of fiduciary duty, and civil conspiracy.
On May 3, 2010, Plaintiffs filed their initial petition against Hillcrest Bank in the Circuit
Court of Jackson County, Missouri under various lender liability theories. In October of that
year, the Office of the State Banking Commissioner of Kansas closed Hillcrest Bank and
appointed the FDIC-R to serve as its receiver. On February 28, 2011, counsel representing
Hillcrest Bank moved to substitute the FDIC-R for Hillcrest Bank in the state court action. On
March 1, 2011, the state court granted Hillcrest Bank’s motion and substituted the FDIC-R for
On January 4, 2011, Plaintiff filed a separate petition against the McClung Entities and
former Board of Directors of Hillcrest Bank and its parent company, Hillcrest Bancshares also in
the Circuit Court of Jackson County, Missouri. The court consolidated these cases into one
action on April 21, 2011. Defendants removed the case to this Court on September 6, 2011.
On June 11, 2012, Plaintiffs filed an amended complaint entitled the “Omnibus Petition,”
with leave of the Court, which consists of 72 single-spaced pages and 340 numbered paragraphs.
Defendants now maintain that the Omnibus Petition is unnecessarily long, lacks organization and
structure, sets forth only vague allegations, and fails to state any cognizable claims against them.
A. Rule 12(b)(1) standard for subject matter jurisdiction
Motions asserted pursuant to Rule 12(b)(1) challenge the Court’s power to hear the
claims before it. Giandinoto v. Chemir Analytical Servs., Inc., 545 F. Supp. 2d 952, 956 (E.D.
Mo. 2007). Plaintiff “has the burden of establishing that the Court has the requisite subject
matter jurisdiction to grant the requested relief.” Id. (citing Kokkonen v. Guardian Life Ins. Co.
of Am., 511 U.S. 375 (1994)). If the court finds that jurisdiction is not present, it must dismiss
the case. Fed. R. Civ. P. 12(h)(3); Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583-84
(1999). Where the court’s jurisdiction is challenged based upon the face of the pleadings, the
standard for determining the motion is the same as that which is applied for motions filed
pursuant to Rule 12(b)(6). Giandinoto, 545 F. Supp. 2d at 956.
B. Choice of law provisions
A federal district court applies the choice of law rules of the forum state. Interstate
Cleaning Corp. v. Commercial Underwriters Ins. Co., 325 F.3d 1024, 1028 (8th Cir. 2003). In
tort cases, Missouri utilizes the Second Restatement’s “most significant relationship” test.
Goede v. Aerojet Gen. Corp., 143 S.W. 3d 14, 24 (Mo. Ct. App. 2004). Under this approach, the
court looks to the following factors to determine the applicable state law: “(a) the place where
the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile,
residence, nationality, place of incorporation and place of business of the parties, and (d) the
place where the relationship, if any, between the parties is centered.” Restatement (Second)
Conflict of Laws § 145. Claims asserting breach of fiduciary duty, however, are governed by the
law of the state of incorporation for the business entity involved. In re Farmland Indus., Inc.,
335 B.R. 398 (Bankr. W.D. Mo. 2005) (citing Ranch Hand Foods, Inc. v. Polar Pak Foods, Inc.,
690 S.W.2d 437, 444 (Mo. Ct. App. 1985)). Under Missouri law, a conflict of laws does not
exist “unless the interests of two or more states cannot be reconciled.” Brown v. Home Ins. Co.,
176 F.3d 1102, 1105 (8th Cir. 1999).
C. Rule 12(b)(6) standard for failure to state a claim
The court must dismiss a complaint if it fails to state a claim on which relief can be
granted. Fed. R. Civ. P. 12(b)(6). In reviewing the adequacy of a complaint, the court assumes
that the factual allegations in the complaint are true and construes them in the light most
favorable to the plaintiff. Data Mfg, Inc. v. UPS, Inc., 557 F.3d 849, 851 (8th Cir. 2009). To
survive a 12(b)(6) motion to dismiss, the complaint must do more than recite the bare elements
of a cause of action. Ashcroft v. Iqbal, 556 U.S. 662, 686 (2009). Rather, it must include
“enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007). “While a complaint . . . does not need detailed factual
allegations,” a plaintiff must provide the grounds of his entitlement with more than mere “labels
and conclusions,” or “a formulaic recitation of the elements of a cause of action.” Benton v.
Merrill Lynch & Co., Inc., 524 F.3d 866, 870 (8th Cir. 2008) (quoting Twombly, 550 U.S. at 545)
(internal citations omitted). A complaint that alleges only “naked assertion[s] devoid of ‘further
factual enhancement’” will not survive a motion to dismiss. Iqbal, 129 S. Ct. at 1949 (quoting
Twombly, 550 U.S. at 557).
The Court possesses subject matter over the instant action.
Defendant FDIC-R first argues that the Court lacks subject-matter jurisdiction over
Counts 1, 7, and 15 because these are new causes of action against FDIC-R, and, such claims
were not exhausted during the administrative claims process as required by 12 U.S.C. §
The Court’s jurisdiction over claims seeking payment from the assets of a closed bank
institution is contingent upon exhausting the administrative claims process. Brech v. CU Mortg.
Direct, LLC, Civ. No. 10-4123-KES, 2011 WL 486155, at *3 (D. S. D. 2011). Where the FDIC
acts as receiver for a federally-insured failed institution, all claims must be submitted to the
FDIC by the claims bar date before they can be asserted in court. Brech, 2011 WL 486155, at
*3; see also 12 U.S.C. §§ 1821(d)(3)-(13). “No court has jurisdiction over the claim until the
exhaustion of the administrative process.” Intercontinental Travel Mktg., Inc. v. FDIC, 45 F.3d
1278, 1282 (9th Cir. 1994).5
The record is not clear on what claims were submitted during the administrative review
Neither Plaintiffs nor Defendants provided the Court with a copy of the claims
submitted during the administrative review process. Plaintiffs’ failure to produce these materials
stem from what they allege is the FDIC’s failure to provide them with a copy of their claims. In
Doc. 89, Plaintiffs state that “The plaintiffs as claimants were provided no recordation of their
respective proof of claims during the electronic FDIC claims process and therefore are
prejudiced at this stage of the proceeding, having no ability to provide this documentation to the
Court as ordered or to brief the Court as to the content of any proof of claim.” While the Court
finds this argument compelling, it also notes that Plaintiffs did not retain a copy of the claims
they submitted for themselves when the claims were initially filed.
The FDIC, the party most likely in a position to provide a copy of the claims submitted
during the administrative process, gives no reason for failing to produce a copy of these claims.
Rather than produce a copy of the claims submitted, Defendants merely argue that because
Plaintiffs’ Omnibus Petition asserts three claims against the FDIC which were not part of
Plaintiffs’ original or amended petition in state court, these claims were not brought as part of the
administrative claims process.6
However, this argument is purely conjecture and is without
The Court notes that the FDIC-R cited this quote to the case Bueford v. Resolution Trust Corp., 991 F.2d 481, 485
(8th Cir. 1993) which is not accurate. The Court cautions the FDIC-R in the future to ensure the accuracy of their
filings so as to not incorrectly cite relevant authority.
Plaintiffs engage in a lengthy discussion of the difference between claims and causes of action:
“The phrasing of the FDIC in comparing a proof of claim to counts 1, 7, and 15 under the framework of
‘causes of action’ is wholly ill suited for that analysis. The nomenclatures redefine what a FDIC ‘proof of
claim’ is or must contain. The definition of ‘claim,’ as used in FIRREA, is not the definition of ‘cause of
Plaintiffs bear the burden to establish that jurisdiction exists here. See Osborn v. United
States, 918 F.3d 635, 730 (8th Cir. 2003) (finding that the plaintiff bears the burden of proving
that jurisdiction exists). While the FDIC has asserted that Plaintiffs bring additional claims
which were not exhausted during administrative review, the FDIC has not provided any evidence
to support this assertion. Accordingly, the Court finds it has jurisdiction over all counts asserted
in the Omnibus Petition.
The Court declines to engage in a choice of law analysis.
With regard to Plaintiffs’ claims against Defendants for breach of fiduciary duty, Kansas
law applies as Hillcrest Bank is a Kansas corporation. See In re Farmland, 335 B.R. at 404-05.
To the extent that Counts 6 and 9 allege violations of Arizona statutes, Arizona law applies.
With regard to all other claims, the Court declines to engage in a choice of law analysis because
there is no apparent conflict between the laws of Kansas and Arizona.7 See Brown, 176 F.3d at
Plaintiffs adequately delineated the parties against whom each claim is brought.
Defendant FDIC-R argues that Plaintiffs’ Omnibus Petition must be dismissed because it
fails to name FDIC-R as a party. Specifically, Defendant FDIC-R claims it is unclear whether
Plaintiffs’ claims against Hillcrest Bank are claims against Hillcrest Bancshares, Hillcrest Banks’
Board of Directors, or the FDIC-R as receiver for Hillcrest Bank. The Court finds no merit to
this argument. Although Plaintiffs’ Omnibus Petition alleges claims against Hillcrest Bank
action.’ The analysis is not comparing a petition attached to a claim to those counts—rather the analysis is
comparing the aggregate of facts implicated as between the claim and those counts” (Doc. 89, p. 1).
The Court need not address this argument here where it has already decided there is no evidence that Plaintiffs did
not properly pursue their administrative remedies prior to bringing the instant lawsuit.
Based on an analysis of the Restatement factors, the Court finds that Kansas or Arizona law, and not the law of any
other state, applies.
rather than FDIC-R, it is clear that the reference to Hillcrest Bank refers to allegations against
FDIC-R as receiver.8
Moreover, the Court finds no merit to FDIC-R’s contention that Plaintiffs’ allegations
are against FDIC-R in its corporate capacity and not in its capacity as receiver for Hillcrest Bank.
The FDIC-R provides no evidentiary support for this argument, apart from citation to three
paragraphs in the record, one of which does not even mention FDIC-R. Accordingly, all claims
against Hillcrest Bank are construed as claims against FDIC-R in its capacity as receiver for
Plaintiffs’ Counts 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 14, 15, and 16 fail to state
claims upon which relief can be granted. Plaintiffs sufficiently state claims, in part,
with regard to Counts 1 and 11.
As a preliminary matter, Defendants FDIC-R, the Board of Directors, and Hillcrest
Bancshares argue that the Court must dismiss Plaintiffs’ Omnibus Petition because it is unclear,
unnecessarily long, rambling, and does not clearly state a claim against them, in violation of the
Court’s May 18th Order. The Court finds it incredibly difficult to sift through Plaintiffs’ 72
single-spaced pages and 340 numbered paragraphs to ascertain any coherent argument as to why
FDIC-R, Hillcrest Bancshares, or the Board of Directors are liable. While it is questionable
whether Plaintiffs’ confusing and garbled Omnibus Petition complies with the Court’s May 18th
Order to provide a “clear and concise” statement of the case, the Court declines to dismiss the
case on these grounds. However, finding that the Omnibus Petition fails to state a claim for
The Court notes that all parties have taken an unnecessarily litigious approach to this case. Although Plaintiffs’
complaint did not specifically list claims against FDIC-R, the Court finds it hard to imagine that Defendant FDIC-R
was confused as to whom claims against Hillcrest Bank applied. Plaintiffs’ Omnibus Petition listed claims against
“Hillcrest Bank,” “Board Members,” and “Hillcrest Bancshares.” Although Plaintiffs should have been clearer in
delineating the parties, it is not difficult to ascertain that the claims Plaintiffs assert against “Hillcrest Bank” are
those brought against FDIC-R in its capacity as receiver for Hillcrest Bank.
relief on Counts 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 14, 15, and 16, the Court dismisses those Counts
under Rule 12(b)(6).
A. Count 1: “Violation of Consumer Protection, Federal Law, Conversion, Breach of
Fiduciary Duty, Invasion of Privacy, and Breach of Confidences”
In Count 1, Plaintiff QCA alleges a number of theories under which Defendants FDIC-R
and the Hillcrest Board of Directors are liable. Of these claims, the Court finds Plaintiff QCA
has stated a claim only with regard to its action for conversion against Defendant Board of
In Arizona, conversion is the “wrongful dominion or control over personal property in
denial of or inconsistent with the rights of another.” Sears Consumer Fin. Corp. v. Thunderbird
Prods., 166 Ariz. 333, 335 (Ariz. Ct. App. 1990) (citing Huskie v. Ames Bros. Motor & Supply
Co., 139 Ariz. 396, 402 (Ariz. Ct. App. 1984)). In an action for conversion, a plaintiff must
show that when the conversion occurred, the plaintiff was “in possession of the property or was
entitled to the immediate possession thereof.” Empire Fire & Marine Ins. Co. v. First Nat. Bank
of Ariz., 26 Ariz. App. 157, 159 (Ariz. Ct. App. 1976) (citing Time Plans, Inc. v. Wornall Bank,
419 S.W.2d 491 (Mo. Ct. App. 1967)). Conversion is similarly defined in Kansas as the
“unauthorized assumption or exercise of the right of ownership over goods or personal chattels
belonging to another to the exclusion of the other’s rights.” Snider v. MidFirst Bank, 42 Kan.
App. 2d 265, 271 (2009) (internal citations omitted).
Plaintiff QCA alleges liability against FDIC-R and the Board of Directors on the basis
that Directors Degen, Wheeler, and Schneider, provided copies of Hillcrest Bank documents
pertaining to QCA to their attorneys at Bryan Cave even though they were not authorized to
Count 1 includes claims against Hillcrest Bank and the Board of Directors. The Court interprets the language of the
Petition to state a claim for conversion only against the Board of Directors and not Hillcrest Bank.
remove the records from the bank premises (Petition, Doc. 56 at ¶ 167). Because Plaintiff
properly alleges that the Board of Directors had no ownership interest in QCA’s bank records
and yet provided these records to a third party (Petition, Doc. 56 at ¶ 174), the Defendant Board
of Director’s motion to dismiss the conversion claim is denied.
Plaintiff QCA also alleges that Defendants are liable for breach of their fiduciary duties.
However, Plaintiff does not plead any facts establishing that either Hillcrest Bank or its Board of
Directors owed a fiduciary duty to Plaintiff. Specifically, Plaintiff QCA has failed to identify
how the letters of credit granted to QGCC, identifying QCA as a third-party beneficiary, created
any fiduciary duty owed by Hillcrest Bank or its Board of Directors to Plaintiff QCA or the
individual investors in QGCC.
In support of its argument, Plaintiff QCA maintains that “Arizona statutes governing
development of commercial property” create fiduciary duties regarding letters of credit (Petition,
Doc. 56 at ¶ 191). However, Plaintiff does not identify this statute. And, an Arizona court has
held that an individual’s status as a third party beneficiary to a contract does not create a
fiduciary duty absent an agreement between the parties. See Urias v. PCS Health Sys., Inc., 211
Ariz. 81, 87 (Ariz. Ct. App. 2005) (“A commercial contract creates a fiduciary relationship only
when one party agrees to serve in a fiduciary capacity.”); Kesselman v. Nat’l Bank of Ariz., 188
Ariz. 419, 421 (Ariz. Ct. App. 1997) (upholding the trial court’s decision that a bank “owe[s] no
duty to disclose irregularities detected in a fiduciary account to third-party beneficiaries”).
Here, Plaintiff QCA has cited no case law supporting its proposition that its status as a
beneficiary of the letters of credit created a fiduciary duty owed to it by Hillcrest Bank or the
Board of Directors. Moreover, Plaintiff has failed to show that Hillcrest Bank undertook to serve
as a fiduciary to QCA with regard to the letters of credit. Finally, while Plaintiff QCA alleges
that it maintained a bank account at Hillcrest Bank, Plaintiff has not alleged facts showing that
this relationship created any duty owed to QCA beyond maintenance of the account.
Under Kansas law, which governs here, the result is the same. One cannot unilaterally
impose a fiduciary duty upon another “without a conscious assumption of such duties by the one
sought to be held liable as a fiduciary.” Denison State Bank v. Madeira, 230 Kan. 684, 696
(1982). Here, there is no allegation that Hillcrest Bank agreed or led Plaintiff QCA to believe it
would serve as a fiduciary to QCA with regard to the letters of credit, and Plaintiff has set forth
no Kansas case law suggesting that Hillcrest Bank owed a duty to QCA based on the issuance of
the letters of credit. Accordingly, the Court finds Plaintiff QCA has failed to allege necessary
facts and law sufficient to show that Hillcrest Bank or its Board of Directors owed a fiduciary
duty to them, and its claim for breach of fiduciary duty is dismissed.
The remainder of Plaintiff QCA’s claims in Count I are also dismissed for failure to state
a claim because Plaintiff fails to provide specific factual allegations to support the claimed
violations. For example, Plaintiff asserts violations of “consumer protection” but fails to identify
any statute that has been violated.
Plaintiff also alleges breach of contract, breach of
confidences, and invasion of privacy. However, Plaintiff provides no specific factual allegations
relating to these counts. Additionally, although Plaintiff references six federal statutes and
regulations, five of these statutes and regulations are standards established and enforced by
federal regulatory authorities and do not create a private civil right of action. Plaintiff has not
alleged facts demonstrating violation of the sixth.
B. Count 2: “Interference with Contract & Intentional Interference with Business
Relationship and Aiding and Abetting Intentional Interference with Business
Expectancy and Contract”
In Count 2, Plaintiffs essentially allege that Defendants’ cancelation of certain letters of
credit at the request of McClung caused McClung to breach his various loan agreements with
Plaintiffs. Although the title of Count 2 identifies four different causes of action, the Court can
ascertain only one cause of action from the facts alleged: tortious interference with a contract.
To state a claim for tortious interference with a contract, Plaintiffs must establish “(1) existence
of a valid contractual relationship, (2) knowledge of the relationship on the part of the interferer,
(3) intentional interference inducing or causing a breach, (4) resultant damage to the party whose
relationship has been disrupted, and (5) that the defendant acted improperly.” Wells Fargo Bank
v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz.
474, 493 (Ariz. 2002).
Here, Plaintiffs fail to allege the necessary elements of the claim. Plaintiffs do not aver
how Hillcrest Bank’s failure to stop McClung from terminating irrevocable letters of credit was
an intentional act to interfere with McClung’s relationship with Plaintiffs.
Plaintiffs provide nothing more than a conclusory allegation that this act had any causal
relationship to McClung’s breach of his various loan agreements with Plaintiffs such that
Plaintiffs were damaged by Defendants’ actions. This is insufficient to properly plead the
element of damages. Van Weelden v. Hillcrest Bank, No. 2:10-CV-01833-PHX-JAT, 2011 WL
772522, at *5 (D. Ariz. Feb. 28, 2011). Finally, Plaintiffs have failed to show that Defendants
acted improperly or that their motives were anything but self-interested. Id. (“There is no
indication that [any] Defendant acted with an ‘affirmative strategy’ or an ‘improper purpose’ to
deprive Plaintiffs of a fully-completed infrastructure of their property.”).
For these reasons,
Plaintiffs have failed to state a claim for tortious interference with a contract.
C. Count 3: “Aiding and Assisting Hillcrest Bank, Quintero Golf and Country Club,
and McClung in Breaching Their Respective Fiduciary Duties and Guaranteed
Funding in the Letters of Credit”
Count 3 apparently seeks to hold the Defendant Board of Directors liable for assisting
Hillcrest Bank, QGCC, and McClung in breaching their fiduciary duties through cancellation of
the letters of credit. To state a claim for aiding and abetting, Plaintiffs are required to allege
three elements: “(1) the primary tortfeasor must commit a tort that causes injury to the plaintiff;
(2) the defendant must know that the primary tortfeasor’s conduct constitutes a breach of duty;
and (3) the defendant must substantially assist or encourage the primary tortfeasor in the
achievement of the breach.” Wells Fargo, 201 Ariz. at 485.
As the Court determined in Count 1, Plaintiff QCA has failed to allege any facts
establishing that Hillcrest Bank or the Board of Directors owed QCA a fiduciary duty.
Furthermore, Plaintiffs who are individual investors in QGCC have failed to allege how they, as
third-party creditors of a contract, are owed a fiduciary duty by Hillcrest Bank or its Board of
Directors. See Speer v. Dighton Grain, Inc., 229 Kan. 272, 273 (1981) (“A creditor of an
insolvent corporation who sues solely on his own behalf cannot maintain a personal action
against directors or officers who, by negligent mismanagement of the corporation’s affairs, have
breached their duty to the corporation to the consequent damage or injury of its creditors.”).
Therefore, Plaintiffs’ claim that the Board of Directors assisted Hillcrest Bank in breaching this
duty is dismissed.
With regard to assisting McClung and QGCC in breaching their fiduciary duties, the
Court similarly finds Plaintiffs’ claim without merit. Although the Court questions whether
McClung owed a fiduciary duty to Plaintiffs, see Van Weelden, 2011 WL 772522, at *4 (finding
McClung owed no fiduciary duty to Plaintiffs under Arizona law), it need not decide that issue
here. Regardless of whether McClung and QGCC owed Plaintiffs a fiduciary duty, Plaintiffs
have failed to allege how Defendants’ cancellation of letters of credit materially contributed to a
breach of this duty. Therefore, this count is dismissed.
D. Count 4: “Aiding and Abetting and Participating in Hillcrest Bank, Quintero Golf
and Country Club, and McClung’s Torts and Wrongdoing”
In Count 4, Plaintiffs essentially allege that every wrongdoing by any entity throughout
the life of the Quintero project is the responsibility of the Defendant Board of Directors and that
the Board of Directors should be liable for it. This Count relies on Plaintiffs’ allegation that
Hillcrest Bank fraudulently manipulated its accounting on the Quintero loans to assist McClung
in his “fraudulent scheme.”
As a preliminary matter, Plaintiffs have not sufficiently specified which torts Defendant
Board of Directors aided and abetted. To state a claim for aiding and abetting, Plaintiffs are
required to allege three elements: “(1) the primary tortfeasor must commit a tort that causes
injury to the plaintiff; (2) the defendant must know that the primary tortfeasor’s conduct
constitutes a breach of duty; and (3) the defendant must substantially assist or encourage the
primary tortfeasor in the achievement of the breach.” Wells Fargo, 201 Ariz. at 485.
Here, Plaintiffs have failed to plead these elements because they fail to identify specific
torts committed by McClung that the Board of Directors aided and abetted. More importantly,
Plaintiffs have failed to allege facts supporting their assertion that the Defendant Board of
Directors had knowledge that they were assisting McClung in committing a tort.
Plaintiffs make the conclusory statement that Defendants “had a general awareness” of
McClung’s “fraudulent scheme,” (Petition, Doc. 56 at ¶ 211), there are no factual allegations
supporting this conclusion.
Furthermore, to the extent Plaintiffs are pleading that Defendants aided and abetted
McClung’s fraud or misrepresentation, Plaintiffs have not pleaded these allegations with
sufficient particularity as required by Rule 9, and, therefore, Count 4 fails to state a claim upon
which relief can be granted. See Van Weelden, 2011 WL 772522, at *6 (“Rule 9(b) requires that
allegations of fraud must be specific enough to give defendants notice of the particular
misconduct which is alleged to constitute the fraud charged so that they can defend against the
charge and not just deny that they have done anything wrong.”) (internal citations omitted).
E. Count 5: “Joint Enterprise, Conspiracy, and Concerted Action by Agreement”
In Count 5, Plaintiffs allege that the Defendant Board of Directors conspired with
McClung in his “shady enterprise.” “For a civil conspiracy to occur two or more people must
agree to accomplish an unlawful purpose or to accomplish a lawful object by unlawful means,
causing damages.” Wells Fargo, 201 Ariz. at 498 (quoting Baker v. Stewart Title & Trust of
Phoenix, 197 Ariz. 535, 542 (Ariz. Ct. App. 2000)). Essentially, “the individuals must agree and
thereupon accomplish an underlying tort.” Van Weelden, 2011 WL 772522, at *7 (citing Wells
Fargo, 201 Ariz. at 498).
Here, Plaintiffs have identified no underlying tort which the parties conspired to commit.
As Plaintiffs’ allegations now stand, the agreement between the parties was simply to act
unlawfully. This is not sufficient to state a claim for civil conspiracy. Rather, “[p]laintiffs must
present clear and convincing evidence that there was an agreement to accomplish a specific tort.”
Van Weelden, 2011 WL 772522 at *8. Furthermore, a claim of civil conspiracy requires a
showing that a tort was actually committed, Id., and Plaintiffs have similarly failed to plead this
F. Count 6: “Breach of Fiduciary Duty, Aiding and Abetting Securities Fraud”
In Count 6, Plaintiffs allege that the Defendant Board of Directors personally owed a
fiduciary duty to QCA and that the Directors breached this duty by cancelling letters of credit
issued by Hillcrest Bank to QCGG.
This allegation, however, cannot support a claim for
reasons discussed in Counts 1 and 3.
Also in Count 6, Plaintiffs allege that the Defendant Board of Directors aided and abetted
securities fraud committed by McClung in his sale of “Revenue Membership Certificates.”10 To
support this claim, Plaintiffs’ petition references several statements made by McClung and then
makes a conclusory allegation that McClung’s statements “were material and were known to be
false or untrue by McClung or were recklessly made without knowledge concerning them”
(Petition, Doc. 56 at ¶ 124).
Plaintiffs have not provided any factual support as to how
McClung’s statements were false or constituted fraud. In addition, Plaintiffs have not alleged
that any of the statements McClung made were in connection with a sale of a Revenue
Membership Certificate. Because of Plaintiffs failure to allege these elements with sufficient
particularity, Count 6 does not satisfy the pleading requirements of Rule 9 and is dismissed.
In addition to failing to plead McClung’s fraud with specificity with regard to the
Membership Certificates, Plaintiffs have also failed to plead facts supporting that each of the
Defendant Board of Directors aided and abetted any alleged fraud by McClung. Plaintiffs state
The Court assumes that the “Revenue Membership Certificates” referenced in Count 6 are the same as the
“Revenue Producing Membership Collateral Certificate and Agreement” that Plaintiffs reference numerous times in
their Petition, Doc. 56, beginning at ¶ 77. These “Revenue Membership Certificates” allegedly were used as a way
for some of the Plaintiffs to loan money to QGCC with McClung pledging repayment (Petition, Doc. 56, at ¶ 77).
that the Board of Directors was “generally aware” of McClung’s alleged fraudulent plans and
“encouraged him” to continue the project anyway (Petition, Doc. 56 at ¶ 254). These conclusory
allegations provide no factual basis as to how the Board of Directors were aware of McClung’s
alleged fraud and are insufficient to state a claim. Because Plaintiffs fail to allege McClung’s
fraud with particularity and do not provide any basis as to how the Defendant Board of Directors
aided and abetted the alleged fraud, Plaintiffs’ claim for aiding and abetting securities fraud is
G. Count 7: “Conversion and Aiding and Abetting Conversion”
Count 7 is brought on behalf of Plaintiffs Kenneth Nichols and Larry Hilcher and asserts
that Hillcrest Bank, with the assistance of the Defendant Board of Directors, converted money
owed to Nichols and Hilcher.11 Specifically, Plaintiffs Nichols and Hilcher allege that Hillcrest
Bank “did not pay or otherwise deliver the money” (Petition, Doc. 56 at ¶ 256), and that the
Board of Directors “voted or otherwise took decisions to keep the money rather than give it to
Nichols and Hilcher” (Petition, Doc. 56 at ¶ 257).
Plaintiffs’ Omnibus Petition, however, is contradictory on the facts of whether Hillcrest
Bank actually received Plaintiffs’ money. In the Omnibus Petition (Doc. 56 at ¶ 100), for
example, Plaintiffs state that “the amounts may have been wired to Hillcrest,” while elsewhere in
the petition (Doc. 56 at ¶ 256), Plaintiffs state that “Hillcrest Bank received Nichols’ and
Hilcher’s monies paid to Hillcrest Bank by FATCO.”
Furthermore, Plaintiffs have not pled
sufficient facts to show how the Defendant Board of Directors aided and abetted Hillcrest Bank’s
alleged conversion. Accordingly, Plaintiffs’ claims against Hillcrest Bank for conversion and
against the Board of Directors for aiding and abetting conversion are dismissed.
Plaintiffs Nichols and Hilcher allege they had valid liens on lots in the QGCC development, which QCGG
allegedly sold in August and September 2004 (Petition, Doc. 56 at ¶ 99).
H. Count 8: “Negligence, Assisting and Participating in the Negligence of Hillcrest
In Count 8, Plaintiffs attempt to hold the Defendant Board of Directors liable on a theory
of negligent management, arguing that if a director’s management leads the corporation to act
negligently, the individual directors are personally liable, even to non-customers for negligent
management and supervision. Plaintiffs cannot state a claim on this ground because Plaintiffs
cannot establish the necessary predicate of this theory, that Hillcrest Bank was negligent.
In a claim of negligence, the plaintiff must allege “the existence of a duty, breach of that
duty, injury, and a causal connection between the duty breached and the injury suffered.”
Honeycutt By and Through Phillips v. City of Wichita, 251 Kan. 451, 463 (1992) (quoting
McGee v. Chalfant, 248 Kan. 434, 437 (1991)). First, as discussed in Counts 1 and 3, Plaintiffs
do not properly allege that the Board of Directors owed a general duty of care to them.
Moreover, even if there was a duty, Plaintiffs have failed to properly allege that the
Defendant Board of Directors breached this duty. Plaintiffs allege that the Defendant Board of
Directors were aware of “red flags” that should have alerted each director of the problems with
the Quintero loan, but Plaintiffs do not allege what the red flags were or how Hillcrest Bank or
the Board of Directors are liable (Petition, Doc. 56 at ¶ 267).
The Court in Dawson v.
Withycombe, 216 Ariz. 84, 110 (Ariz. Ct. App. 2007) held that the plaintiff must establish the
direct involvement of the individual directors, officers, or shareholders in committing the alleged
Accordingly, Plaintiffs have failed to plead facts sufficient to establish a claim against the
Defendant Board of Directors for negligence or for aiding and abetting negligence, and this
claim is dismissed.
I. Count 9: “Violations of Consumer Protection Law, Assisting and Participating in
Violations of Consumer Protection Law”
Count 9 alleges that Defendants violated Arizona consumer protection laws by assisting
and participating in McClung’s alleged fraud. Plaintiffs make reference to “Arizona Consumer
Protection statutes,” but do not identify any statutory provisions for this cause of action. By not
identifying the specific statutory violations, Plaintiffs attempt to hold Defendants liable without
giving Defendants notice of the claim. See Mansour v. Cal-Western Reconveyance Corp., 618 F.
Supp. 2d 1178, 1183 (D. Ariz. 2009) (dismissing various claims for failure to cite to the specific
claimed statutory violation). Plaintiffs’ claim also fails because they have not met the Rule 9
requirement to plead with particularity any acts of fraud by McClung or the Defendants.
J. Count 10: “Intentional Interference with Business Relationship”
In Count 10, Plaintiffs allege that Defendant Hillcrest Bank’s cancellation of certain
letters of credit constituted intentional interference with the business relationship between
Plaintiffs and McClung.
To state a claim for intentional interference with a business
relationship, Plaintiffs must establish “(1) the existence of valid contractual relationship or
business expectancy; (2) knowledge of the relationship or expectancy on the part of the
interferer; (3) intentional interference inducing or causing a breach or termination of the
relationship or expectancy; and (4) resultant damage to the party whose relationship or
expectancy has been disrupted.” Antwerp Diamond Exch. of Am., Inc. v. Better Bus. Bureau of
Maricopa Cnty., Inc., 637 130 Ariz. 523, 530 (Ariz. 1981) (quoting Calbom v. Knudtzon, 65
Wash. 2d 157, 162-3 (1964)).
Similar to Count 2 against Defendant Board of Directors, Plaintiffs fail to allege the
necessary elements of this claim.
Plaintiffs allege there was a contract or valid business
relationship between McClung and the Plaintiffs (element one) and that Hillcrest Bank was
aware of the relationship (element two). However, Plaintiffs’ petition falls short of alleging
intentional interference (element three), or, more specifically, how Hillcrest Bank’s termination
of the irrevocable letters of credit was an intentional act to interfere with McClung’s relationship
with Plaintiffs. For example, although the petition includes conclusory allegations that Hillcrest
Bank “caused or induced” QGCC to breach its duties as a developer, there is nothing to suggest
that Hillcrest Bank did so with the intent of inducing QGCC to breach its relationship with QCA.
Plaintiffs also state only a conclusory allegation that they were damaged, which is insufficient to
plead the element of damages. See Van Weelden, 2011 WL 772522 at *5. Because two required
elements of Plaintiffs’ claim are missing, Count 10 is dismissed.
K. Count 11: “Breach of Contract”
Count 11 is brought by Plaintiff QCA against Defendant Hillcrest Bank for breach of
contract. In a breach of contract claim under Arizona law, the Plaintiff must allege “(1) the
existence of the contract, (2) its breach and (3) the resulting damages.” Graham v. Asbury, 112
Ariz. 184, 185 (Ariz. 1975) (citing Clark v. Compania Ganadera de Cananea, S.A., 95 Ariz. 90,
95 (Ariz. 1963). Kansas law requires similar elements: “(1) the existence of a contract between
the parties, (2) sufficient consideration to support the contract, (3) the plaintiff’s performance or
willingness to perform in compliance with the contract, (4) the defendant’s breach of the
contract, and (5) damages to plaintiff caused by the breach.” City of Andover v. Sw. Bell Tel.,
L.P., 37 Kan. App. 2d 358, 362 (2007).
Plaintiff’s petition alleges “there was a contractual relationship between Hillcrest and
QCA who was the beneficiary of irrevocable letters of credit issued by Hillcrest Bank” (Petition,
Doc. 56 at ¶ 287). This allegation satisfies element one of a breach of contract claim. Plaintiff
also alleges that Hillcrest Bank breached the contract when Hillcrest Bank “failed to perform its
duties under the irrevocable letters of credit” (Petition, Doc. 56 at ¶ 289). Plaintiff QCA has,
therefore, properly pleaded element two. Plaintiff QCA also alleges that it has been damaged as
a result, and this is sufficient to satisfy element three of the claim. Because Plaintiff QCA has
properly pled all the necessary elements of a breach of contract claim, Defendant Hillcrest
Bank’s motion to dismiss Count 11 is denied.
L. Count 12: “Negligence”
In Count 12, Plaintiff QCA alleges that Hillcrest Bank was negligent with regard to the
canceling of letters of credit issued by Hillcrest Bank for the benefit of QCA. In a claim of
negligence, the Plaintiff must allege “the existence of a duty, breach of that duty, injury, and a
causal connection between the duty breached and the injury suffered.” Honeycutt, 251 Kan. at
463 (quoting McGee v. Chalfant, 248 Kan. 434, 437 (1991). However, like Count 8 against the
Board of Directors, Plaintiff QCA fails to allege any plausible theory under which Hillcrest Bank
owes it a duty “to exercise reasonable care” regarding the issuance of the letters of credit.
Having failed to properly allege this element, the Court finds Plaintiff QCA has failed to state a
claim against the FDIC-R for negligence.
M. Count 13: “Aiding and Abetting McClung”
In Count 13, Plaintiffs allege that Defendant Hillcrest Bank aided and abetted QGCC and
McClung’s torts, wrongdoing, and violations. While the Omnibus Petition states many torts for
which McClung may be responsible, Plaintiffs fail to identify any specific torts or legal
violations in this count. Thus, Plaintiffs’ petition gives Defendant Hillcrest Bank no basis upon
which to assert a defense and fails to state a claim upon which relief can be granted.
N. Count 14: “Aiding and Abetting McClung’s Fraud”
Plaintiffs’ claim against Hillcrest Bank for aiding and abetting McClung’s fraud12 fails
for the same reason Plaintiffs’ claim against the Board of Directors (Count 4) failed: Plaintiffs
have not pleaded these allegations with sufficient particularity as required by Rule 9. See Van
Weelden, 2011 WL 772522, at *6 (“Rule 9(b) requires that allegations of fraud must be specific
enough to give defendants notice of the particular misconduct which is alleged to constitute the
fraud charged so that they can defend against the charge and not just deny that they have done
anything wrong.”) (internal citations omitted).
Furthermore, Plaintiffs have not met the pleading requirements for elements two and
three of an aiding and abetting claim: that Defendant Hillcrest Bank knew McClung’s conduct
constituted a breach of duty and that it substantially assisted in this breach. While Plaintiffs
allege that “Hillcrest Bank was aware of or willfully blind to the misrepresentations of McClung
to the plaintiffs and other Quintero Entity investors” (Petition, Doc. 56 at ¶ 305) and that
“Hillcrest Bank actively participated or substantially assisted in or encouraged the breach to the
degree that Hillcrest Bank could not reasonably be held to have acted in good faith” (Petition,
Doc. 56 at ¶ 311), these conclusory allegations cannot support Plaintiffs’ aiding and abetting
O. Count 15: “Joint Enterprise Conspiracy Concerted Action by Agreement”
Plaintiffs’ claim of conspiracy against Defendant Hillcrest Bank is dismissed for the same
reasons that Plaintiffs’ claim of conspiracy against the Defendant Board of Directors (Count 5) is
dismissed. “For a civil conspiracy to occur two or more people must agree to accomplish an
Again, to state a claim for aiding and abetting, plaintiffs must allege three elements: “(1) the primary tortfeasor
must commit a tort that causes injury to the plaintiff; (2) the defendant must know that the primary tortfeasor’s
conduct constitutes a breach of duty; and (3) the defendant must substantially assist or encourage the primary
tortfeasor in the achievement of the breach.” Wells Fargo, 201 Ariz. at 485.
unlawful purpose or to accomplish a lawful object by unlawful means, causing damages.” Wells
Fargo, 201 Ariz. at 493 (quoting Baker, 197 Ariz. at 542). Essentially, “the individuals must
agree and thereupon accomplish an underlying tort.” Van Weelden, 2011 WL 772522, at *7
(citing Wells Fargo, 201 Ariz at 493). Plaintiffs fail to identify any underlying tort that the
Defendant Hillcrest Bank and McClung conspired to commit. While Plaintiffs allege the parties
had an agreement to act unlawfully, Plaintiffs have not alleged any specific torts the parties
agreed to commit. Without an agreement to accomplish a specific tort, Plaintiffs do not have a
claim for conspiracy.
P. Count 16: “Tortious Interference with Contracts, Aiding and Abetting Hillcrest
Bank’s and McClung’s Tortious Conduct”
Count 16 first alleges liability against Defendant Hillcrest Bancshares for tortious
interference with contracts. Specifically, Plaintiffs allege, among other things, that Hillcrest
Bancshares manipulated the Quintero loan and the Hillcrest Bank’s books to bolster McClung’s
allegedly false representations about the viability of his development (Petition, Doc. 56, at ¶
However, although Plaintiffs list a variety of common “goals” between Hillcrest
Bancshares, Hillcrest Bank, and McClung, Plaintiffs do not allege any specific facts illustrating
how Hillcrest Bancshares had any direct interference with the ongoing business between
McClung and any other entities.
Plaintiffs also allege that Defendant Hillcrest Bancshares aided and abetted Hillcrest
Bank’s and McClung’s tortious conduct, including aiding and abetting tortious interference with
contract and business expectations, fraud, and breach of fiduciary duty.
Plaintiffs’ allegations are conclusory at best. Although Plaintiffs list conclusory statements of
alleged wrongs committed by Hillcrest Bank, Plaintiffs fail to specify Hillcrest Bancshares
involvement in these wrongs apart from its ownership of Hillcrest Bank. Furthermore, Plaintiffs’
petition does not allege an important element of an aiding and abetting claim, which is that
Defendant Hillcrest Bancshares knew that the McClung’s and Hillcrest Bank’s actions were a
breach of duty.
The only way under which the Court could possibly conceive Plaintiffs might have a
claim against Defendant Hillcrest Bancshares is under a theory of piercing the corporate veil.
However, Plaintiffs assert that “Count 16 does not depend at all on a piercing of the corporate
veil theory” (Doc. 73, at 23) and the Court agrees that such an argument would be meritless.13
For these reasons, Count 16 is dismissed.
Having thoroughly sifted through the long, rambling, and often incoherent allegations set
forth in Plaintiffs’ Omnibus Petition, the Court finds Plaintiffs have failed to state a cognizable
claim against Defendant FDIC, Defendant Board of Directors, and Defendant Hillcrest
Bancshares on Counts 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 14, 15, and 16. However, having properly
stated a claim for conversion against the Defendant Board of Directors in Count 1 and a claim
for breach of contract against Defendant Hillcrest Bank in Count 11, Defendants’ motions to
dismiss with regard to those motions are denied.
For Plaintiffs’ allegations under Count 16 to be maintained under a theory of piercing the corporate veil, Plaintiffs
must establish that “(1) the corporation is the alter ego or business conduit of a person,” and that (2) “to observe the
corporation would work an injustice.” Dietel v. Day, 16 Ariz. App. 206, 208(1972). To support their claim,
Plaintiffs allege that Hillcrest Bancshares “controlled and had complete domination” of Hillcrest Bank, which “had
no separate mind, will or existence of its own” (Petition, Doc. 56 at ¶ 29). However, Plaintiffs fail to allege any
facts establishing that the purpose of Hillcrest Bank was to act as the alter ego of Hillcrest Bancshares or that
Hillcrest Bank was used to shield Hillcrest Bancshares from individual tort liability. Plaintiffs also fail to establish
the second element because they have not pleaded any facts indicating that upholding Hillcrest Bancshares’
corporate status would constitute an injustice. Additionally, because this Court has already dismissed Plaintiffs’
claims for tortious interference with contract and business expectations, fraud, and breach of fiduciary duty,
Plaintiffs have no underlying tort claim against Defendant Hillcrest Bancshares to impose liability through a claim
of piercing the corporate veil.
IT IS SO ORDERED.
Date: January 3, 2013
/s/ Greg Kays
GREG KAYS, JUDGE
UNITED STATES DISTRICT COURT
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