Cruz et al v. PNC Bank, National Association et al
ENTRY AND ORDER granting #14 Defendant's Motion to Dismiss for Failure to State a Claim. Signed by Judge Thomas M. Rose on 1-10-2017. (de)
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
RAFAEL M. CRUZ, et al.,
Case No. 3:16-cv-292
Judge Thomas M. Rose
PNC BANK, NATIONAL
ASSOCIATION, et al.,
ENTRY AND ORDER GRANTING DEFENDANTS PNC BANK, NATIONAL
ASSOCIATION AND THE PNC FINANCIAL SERVICES GROUP, INC.’S
MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM (DOC. 14)
This case is before the Court on the Motion to Dismiss (Doc. 14) pursuant to Fed. R. Civ.
P. 12(b)(6) filed by Defendants PNC Bank, National Association (“PNC Bank”) and The PNC
Financial Services Group, Inc. (“PNC Financial Services”). Plaintiffs Dr. Rafael M. Cruz, Dr.
Gloria Cruz, and Dr. Rafael F. Cruz (“Plaintiffs”) brought this putative class action lawsuit
against PNC Bank and PNC Financial Services for alleged violation of the Ohio Securities Act,
Ohio Rev. Code § 1707.01, et seq. PNC Bank and PNC Financial Services move to dismiss the
Complaint for failure to state a claim on the grounds that Plaintiffs have not alleged that they
engaged in anything more than ordinary banking activities, which Defendants contend are not
actionable under the Ohio Securities Act. Defendants’ Motion to Dismiss is fully briefed and
ripe for review. (Docs. 14-1, 16, 18.) As more fully discussed below, the Complaint fails to
allege conduct on behalf of Defendants that is sufficient to state a cause of action under the Ohio
Securities Act and, therefore, the Court GRANTS the Motion to Dismiss.
Plaintiffs allege that they are victims of a massive financial fraud perpetrated by William
Apostelos and his wife, Connie Apostelos, with the assistance of his sister, niece and other
As alleged in the Complaint, between January 2010 and October 2014, the
Aposteloses and their associates raised at least $66.7 million from at least 350 investors across
the United States. (Doc. 1 at ¶ 2.) William Apostelos, who portrayed himself as a sophisticated
investor and businessman, falsely represented to investors that their funds would be pooled with
other funds and invested in real estate, stock, bonds, or precious metals, or used to make high
risk loans to businesses and farmers. (Id. at ¶ 3.) Instead, the Aposteloses used investors’ funds
to operate a Ponzi scheme, in which early investors were paid fictitious returns on their
investments with money received from later investors. (Id. at ¶¶ 3-4.) In October 2014, the
Ponzi scheme collapsed when a group of defrauded investors forced William and Connie
Apostelos into involuntary bankruptcy. (Id. at ¶ 5.)
In October 2015, a federal grand jury returned a twenty-seven count indictment against
William and Connie Apostelos alleging that they operated various investment schemes that
defrauded hundreds of investors of millions of dollars. (Doc. 1 at ¶ 1.) That criminal case,
styled United States v. William M. Apostelos, et al., Case No. 3:15-cr-148, is also pending before
Plaintiffs allege that the Defendants in this civil case—PNC Bank and PNC Financial
Services—played an “indispensable role” in the success of the Aposteloses’ fraudulent scheme.
(Id. at ¶ 6.) According to Plaintiffs, the Aposteloses “deposited virtually all of the money” that
they raised into one primary PNC business account (referred to as the “8143 Account”) and paid
“monthly interest payments” to investors from that account. (Id. at ¶ 6.) Plaintiffs also allege
that PNC allowed its facilities to be used by the Aposteloses to sell promissory notes and
“membership unit certificates” in their investment portfolio, among other allegedly unlawful
activities. (Id. at ¶ 7.)
Plaintiffs allege that Defendants should have heeded “numerous telltale-warning signs of
illegitimate and criminal conduct” and refused to engage in banking activities on behalf of the
Aposteloses. (Id. at ¶ 9.) Plaintiffs allege that Defendants instead facilitated the transfer of more
than $84,000,000 in investor funds to the Aposteloses and their affiliated companies, “approved
and enabled” the Aposteloses to maintain the 8143 Account and at least eight other PNC
accounts, provided the “banking infrastructure” for funds to be deposited in the Aposteloses’
PNC accounts from anywhere in the United States, and provided the “banking infrastructure” for
funds to be transferred from the Aposteloses’ PNC accounts to “anywhere in the United States or
other parts of the world.” (Id. at ¶ 8.)
The Complaint contains a single count against Defendants for the sale of unregistered
securities in violation of the Ohio Securities Act, Ohio Rev. Code § 1707.01. (Id. at ¶¶ 69-82.)
Plaintiffs allege that the Aposteloses sold the unregistered securities to them and the members of
the proposed class. Plaintiffs contend that the Aposteloses and Defendants are jointly and
severally liable to Plaintiffs and the proposed class for their purchases because Defendants
“participated in or aided” the Aposteloses in making the unlawful sales. (Id. at ¶ 77 (citing Ohio
Rev. Code § 1707.43(a)).)
When considering a motion to dismiss under Rule 12(b)(6), courts must construe the
complaint in the light most favorable to the plaintiff and accept as true all “well-pleaded
allegations” in the complaint. Republic Bank & Trust Co. v. Bear Stearns & Co., 683 F.3d 239,
246 (6th Cir. 2012). The court need not, however, accept “a legal conclusion couched as a
factual allegation.” Id. (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)) (internal quotation
marks omitted). “[A] plaintiff's obligation to provide the ‘grounds’ of his ‘entitlement to relief’
requires more than labels and conclusions, and a formulaic recitation of the elements of a cause
of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal alterations
omitted). “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
Plaintiffs’ cause of action is premised on the allegation that Defendants “participated in
or aided” the Aposteloses in the sale of unregistered securities in violation of the Ohio Securities
Act. See Ohio Rev. Code §§ 1743(a); 1707.44(C)(1). Defendants argue that the Complaint
should be dismissed because it alleges only that Defendants engaged in “standard commercial
banking activities,” not that they assisted in the sale of securities. (Doc. 14-1 at 4.) Defendants
do not contest, at least for purposes of their Motion to Dismiss, that the Aposteloses sold
securities that required registration under the Ohio Securities Act. (Id.)
Plaintiffs assert that the Aposteloses could not have perpetrated their fraud and completed
their sales of unregistered securities without transferring large sums of money through PNC
accounts with the Defendants’ assistance. Plaintiffs also dispute Defendants’ interpretation of
the Ohio caselaw construing the Ohio Securities Act.
This Court recently dismissed a nearly identical complaint alleging the same cause of
action under the Ohio Securities Act against another financial institution that the Aposteloses
used to perpetrate their alleged fraudulent scheme. See Boyd v. Kingdom Trust Co., No. 3:16-
CV-009, 2016 WL 6441411, at *3 (S.D. Ohio Nov. 1, 2016). In that case, the plaintiffs also
alleged that, but for the defendant’s banking services, it would have been impossible for the
Aposteloses to sell their unregistered securities. Id. at *3. The plaintiffs failed to make any
allegation, however, that the defendant “acted outside the scope of routine banking activities,”
which Ohio courts have held do not subject financial institutions to liability under Ohio Rev.
Code § 1707.43. Id. (citing Wells Fargo v. Smith, 2013-Ohio-855, ¶ 29 (Ohio Ct. App. Mar,.
11, 2013)). The Court therefore granted the defendant’s motion to dismiss under Fed. R. Civ. P.
Plaintiffs here similarly argue that Defendants are liable for the Aposteloses’ sale of
unregistered securities under Ohio Rev. Code § 1743. That provision states in relevant part:
Subject to divisions (B) and (C) of this section, every sale or contract for sale
made in violation of Chapter 1707. of the Revised Code, is voidable at the
election of the purchaser. The person making such sale or contract for sale, and
every person that has participated in or aided the seller in any way in making
such sale or contract for sale, are jointly and severally liable to the purchaser, in
an action at law in any court of competent jurisdiction, upon tender to the seller in
person or in open court of the securities sold or of the contract made, for the full
amount paid by the purchaser and for all taxable court costs, unless the court
determines that the violation did not materially affect the protection contemplated
by the violated provision.
Ohio Rev. Code § 1707.43(A) (emphasis added).
Plaintiffs premise liability on the legal
contention that Defendants “participated in or aided” the Aposteloses in selling the securities at
issue. The relevant question then, here as in Boyd, is what allegations are sufficient to state a
claim under this provision.
Ohio law governs the interpretation of the Ohio Securities Act. See Murphy v. Stargate
Def. Sys. Corp., 498 F.3d 386, 391 (6th Cir. 2007). Ohio courts have consistently held that
banks engaged in normal commercial activity are not liable for aiding in the unlawful sale of
securities under Section 1707.43(A). Smith, 2013-Ohio-855, ¶ 29 (bank and its loan officer were
not liable under § 1707.43(A) where their actions did not go beyond “normal commercial
banking activities”); Boomershine v. Lifetime Capital, Inc., 2008-Ohio-14, ¶ 15 (Ohio Ct. App.
Jan. 4, 2008) (defendants that collected and held premiums from investors, facilitated payments
on insurance policies, and assisted in the distribution of insurance proceeds did not participate or
aid in the sale of securities); In re Nat’l Century Fin. Enterprises, Inc., Inv. Litig., No. 2:03-MD1565, 2006 WL 2849784, at *11 (S.D. Ohio Oct. 3, 2006) (dismissing claims under Ohio
Securities Act where plaintiffs failed to allege that bank participated in the sale of notes).
Plaintiffs identify the acts alleged in the Complaint that they believe constituted
participating in or aiding the sale of securities. Plaintiffs allege, for example, that Defendants
approved transfers of funds into and out of the 8143 Account, authorized overrides to account
holds so that the Aposteloses could clear transactions faster, and adopted special rules to
accommodate the Aposteloses’ large withdrawals of cash. (Doc. 16 at 10 (citing Doc. 1 at ¶ 48.)
None of these acts, however, went beyond “normal commercial banking activities.”
2013-Ohio-855, ¶ 29. Nor did they directly assist the Aposteloses in making any sale of
unregistered securities to Plaintiffs. Cf. Federated Mgmt. Co. v. Coopers & Lybrand, 738
N.E.32d 842, 862 (10th Dist. 2000) (underwriting the sale of unregistered securities is
participating in the sale of those securities under § 1707.43(A)).
Plaintiffs also argue that Defendants should be held liable because they failed to act on
the Aposteloses’ suspicious activity by filing a Suspicious Activity Report (“SAR”) with federal
officials or shutting down the Aposteloses’ accounts. (Doc. 16 at 10-11.) This argument must
be intended to appeal to a sense of equity, because Defendants’ knowledge of the Aposteloses’
fraud (or lack thereof) is irrelevant to the question of whether they assisted in the sale of illegal
securities. In addition, as noted by Defendants in their Reply, the Complaint does not actually
contain any allegation that Defendants had actual knowledge of the Aposteloses’ Ponzi scheme.
(Doc. 18 at 9; Doc. 1.)
On a Rule 12(b)(6) motion to dismiss, the Court is tasked with
determining whether the allegations in the Complaint state a plausible claim for relief. The
allegations that appear only in an opposing memorandum are not considered.
Plaintiffs also argue that Defendants claim entitlement to an “exemption” to liability
under Section 1707.43, which must be pled as an affirmative defense. Defendants have not,
however, cited to any exemption in the statute and the Court is not aware of any such statutory
exemption that must be pled as an affirmative defense. The specific issue raised by Defendants’
Motion to Dismiss is whether—reading the Complaint in the light most favorable to Plaintiffs—
Plaintiffs plausibly allege that Defendants participated in or assisted the Aposteloses in the sale
of unregistered securities. The Court concludes that Plaintiffs have not done so.
For the foregoing reasons, the Court GRANTS the Motion to Dismiss (Doc. 14) and
DISMISSES the Complaint (Doc. 1).
DONE and ORDERED in Dayton, Ohio, this Tuesday, January 10, 2017.
s/Thomas M. Rose
THOMAS M. ROSE
UNITED STATES DISTRICT JUDGE
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