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Regions Bank v. Kaplan

United States District Court, M.D. Florida, Tampa Division

June 23, 2017

REGIONS BANK, an Alabama banking corporation, Plaintiff,
v.
MARVIN I. KAPLAN, an individual, et al., Defendants.

          MEMORANDUM OPINION

          ELIZABETH A. KOVACHEVICH JUDGE

         The Court presided over a bench trial from May 2, 2016 through May 25, 2016 on the remaining claims asserted by Plaintiff Regions Bank against Defendants Marvin I. Kaplan, R1A Palms, LLC ("R1A"), Triple Net Exchange ("TNE"), LLC, MK Investing, LLC ("MKI"), and BNK Smith, LLC ("BNK") ("Kaplan Parties") in the Corrected Second Amended Complaint (Dkt. 671):

Count VI

R1A

Fraudulent Concealment

Count VII

R1A

Aiding and Abetting

Count XIII

TNE

Fraudulent Concealment

Count XIV

TNE

Aiding and Abetting

Count XX

MKI

Fraudulent Concealment

Count XXI

MKI

Aiding and Abetting

Count XXVII

BNK

Fraudulent Concealment

Count XXVIII

BNK

Aiding and Abetting

Count XXIX

Kaplan

Fraudulent Concealment

Count XXXIII

Kaplan Kaplan Cos.

Civil Conspiracy

         In the Joint Pretrial Statement, the issues which remain to be litigated are: (Dkt. 649, Exh. N):

Issues of Fact
1. Whether Kaplan Parties used the Kaplan Accounts to kite with SAA;
2. Whether Kaplan Parties deposited the First Deal Checks knowing they were issued on insufficient funds in SAA's account with BBG;
3. Whether Kaplan Parties failed to disclose material facts to Regions including that they would be or were involved in wires-for-checks transactions, kiting, illegal use of the Kaplan Accounts, depositing checks knowing they were issued on insufficient funds;
4. Whether Kaplan Parties knowingly diverted or attempted to divert funds from the Kaplan Accounts after Kaplan Parties became aware of issues involving the SAA account at BBG;
5. Whether Kaplan Parties knowingly diverted recoveries from SAA instead of reducing the overdrafts.

(Dkt. 649, Exh. R.):

         Issues of Law

1. Whether Kaplan Parties knowingly conducted a kite between/among the Kaplan Accounts and SAA's Account with BBG;
2. Whether the Kaplan Parties are liable for conversion with respect to the overdrafts in the Kaplan Accounts resulting from the dishonor and return of the First Deal Checks;
3. Whether the Kaplan Parties are liable for fraudulent concealment with respect to the overdrafts in the Kaplan Accounts resulting from the dishonor and return of the First-Deal Checks;
4. Whether the Kaplan Parties are liable for aiding/abetting with respect to the overdrafts in the Kaplan Accounts resulting from the dishonor and return of the First-Deal Checks;
5. Whether the Kaplan Parties are liable for conspiracy with respect to the overdrafts in the Kaplan Accounts resulting from the dishonor and return of the First-Deal Checks;
6. Whether the Kaplan Parties are liable for punitive damages on the tort claims.
I. Preliminary Issues
A. Regions and the Kaplan Parties stipulated that Articles 3, 4, and 4A of Florida's Uniform Commercial Code apply to the dispute between Regions and the Kaplan Parties. The Parties do not stipulate as to whether the Code displaces or does not displace all common law principles with respect to this dispute. (Dkt. 649, Exh. J, p. 122)
B. Judicial Notice as to Formation of Kaplan Entities The Court takes judicial notice of the records of the State of Florida Division of Corporations as follows:
MK Investing, LLC was formed on March 26, 2010;
BNK Smith, LLC was formed on October 3, 2011.
C. Judicial Notice of Related Criminal Cases In Case No. 8:16-CR-36-T-33TGW, Marcia Caulder was charged in an Information (Dkt. 1) with Conspiracy to Commit Wire and Mail Fraud in violation of 18 U.S.C. Sec. 371. Defendant Caulder entered into a plea agreement (Dkt. 3). The Court accepted Defendant Caulder's plea and adjudicated Defendant Caulder guilty (Dkt. 16). Defendant Caulder was sentenced on September 21, 2016 to 60 months imprisonment, a 3 year term of supervised release, a special assessment of $100.00, restitution of $57, 797, 575.90, to be paid jointly and severally with Tanisha Melvin (Case No. 8:16-CR-34-T-17JSS), Amber Mathias (Case No. 8:16-CR-35-T-35MAP) and Gary Todd Smith (Case No. 8:16-CR-120-T-17TGW), and forfeiture of $120, 000.00 (Dkt. 33). A Corrected Judgment was entered on October 18, 2016 (Dkt. 37). The Corrected Judgment lists each victim and the restitution amounts due to each victim.
In Case No. 8:16-CR-34-T-17TGW, Defendant Tanisha Melvin was charged in an Information (Dkt. 1) with Conspiracy to Commit Wire and Mail Fraud in violation of 18 U.S.C. Sec. 371. Defendant Melvin entered into a plea agreement (Dkt. 4). The Court accepted Defendant Melvin's plea and adjudicated Defendant Melvin guilty (Dkt. 18). Defendant Melvin is set for sentencing on June 30, 2017 (Dkt. 45).
In Case No. 8:16-CR-35-T-17MAP, Defendant Amber Mathias was charged in an Information (Dkt. 1) with Conspiracy to Commit Wire and Mail Fraud in violation of 18 U.S.C. Sec. 371. Defendant Mathias entered into a plea agreement (Dkt. 5). The Court accepted Defendant Mathias' plea and adjudicated Defendant Mathias guilty. Defendant Mathias will be sentenced on a date to be determined.
In Case No. 8:16-CR-120-T-17TGW Gary Todd Smith was charged in an Indictment with Conspiracy to Commit Mail and Wire Fraud in violation of 18 U.S.C. Sec. 1349 (Count One), and Wire Fraud Affecting a Financial Institution in violation of 18 U.S.C. Sec. 1343 (Count Two) (Dkt. 18). Case No. 8:16-CR-120-T-17TGW was commenced on May 5, 2014 with the filing of a Criminal Complaint against Defendants Gary Todd Smith and Gary Truman Smith. Joint motions to extend the time to file an indictment were granted. The Indictment was filed on March 16, 2016.
The Government filed a Notice of Maximum Penalties, Elements of Offense, Personalization of Elements, and Factual Basis (Dkt. 51). On June 7, 2017, Defendant Gary Todd Smith entered an open plea of guilty to Counts One and Two of the Indictment. Defendant Gary Todd Smith will be sentenced on a date to be determined.

         To the extent that any findings of fact may constitute conclusions of law, they are adopted as such. To the extent that any conclusions of law may constitute findings of fact, they are adopted as such.

         II. Findings of Fact

         1. The operative complaint is the Corrected Second Amended Complaint (Dkt. 671).

         The Parties

         2. Regions Bank is a banking corporation organized and existing under the laws of Alabama, with its principal place of business in Birmingham, Alabama. Regions Bank is a citizen of Alabama. (Dkt. 649, Exh. F, Stipulated Facts ("SF"), p. 115). Regions Bank operates branches in Sarasota, Florida.

         3. At all material times, Marvin I. Kaplan resided in Sarasota, Florida. (Dkt. 649, SF, p. 115).

         4. R1A Palms, LLC ("R1A"), Triple Net Exchange, LLC ("TNE"), MK Investing, LLC ("MKI"), and BNK Smith, LLC ("BNK") (the "Kaplan Entities") are limited liability companies. (Dkt. 649, SF, p. 115).

         5. R1A Palms, LLC, MK Investing, LLC and BNK Smith, LLC were organized under Florida law, with their principal place of business in Sarasota County, Florida. (Dkt. 649, SF, p. 115).

         6. Triple Net Exchange, LLC is a limited liability company organized under Delaware law, with its principal place of business in Sarasota County, Florida. (Dkt. 649, SF, p. 115). TNE maintained a deposit account with Regions Bank in Florida out of which this action arises; TNE breached its agreement with Regions Bank requiring acts to be performed in Florida. Regions Bank alleges that TNE committed torts in Florida. (Dkt. 671).

         7. Marvin I. Kaplan owned, managed and controlled the Kaplan Entities (R1A, TNE, MKI, BNK). (Dkt. 649, SF, p. 115).

         8. In his capacity as owner and managing agent, Marvin I. Kaplan directed all deposit and withdrawal activities on the deposit accounts maintained by the Kaplan Entities with Regions Bank.

         Jurisdiction

         9. The Complaint was filed in Sarasota County Circuit Court on February 23, 2012, and was removed on August 13, 2012. Cross-Defendant Bridgeview Bancorp, Inc. removed this case on the basis of federal question jurisdiction. The Counterclaim/Crossclaim included claims for violation of 18 U.S.C. Sec. 1962(c), (d) and for breach of 12 C.F.R. Part 229 (Dkt. 3, Count IV; Counts XII, XIII).

         10. Counterclaim/Crossclaim Plaintiffs Marvin I. Kaplan and the Kaplan Entities filed an Amended Counterclaim/Crossclaim (Dkt. 93), which included claims for violation of 18 U.S.C. Sec. 1962(c), (d) and for breach of 12 C.F.R. Part 229

(Dkt. 93, Counts IV, V; Counts XV, XVI).

         11. The Court denied Motions to Dismiss the RICO and RICO conspiracy claims, and the claims for breach of 12 C.F.R. Part 229 (Dkt. 244).

         12. On reconsideration, the Court granted Motions to Dismiss the RICO and RICO conspiracy claims (Dkts. 351, 378).

         13. The Court granted Motions for Summary Judgment in favor of Bridgeview Bank Group and Wells Fargo Bank, N.A. on the claims for breach of 12 C.F.R. Part 229 (Dkts. 655, 656).

         14. In the Corrected Second Amended Complaint, Regions Bank alleges jurisdiction pursuant to 28 U.S.C. Sec. 1332 because the amount in controversy exceeds $75, 000.00, exclusive of interest and costs, and the action is between citizens of different states.

         Chronology of Kaplan and Kaplan Entities with SAA/Smiths

         15. SAA was run and operated by Gary and Todd Smith. (Dkt. 649, SF, p. 115).

         16. At all relevant times, Smith Advertising and Associates, Inc. ("SAA") maintained a deposit account with Bridgeview Bank Group in Illinois. (Pl. Exhs. 349D, 349E).

         17. During the relevant time, Gary T. Smith ("G. Smith") and G. Todd Smith ("T. Smith") operated the SAA Account. Both signed the checks issued by SAA. (e.g. PI. Exh. 70). G. Todd Smith signed the promissory notes in his capacity as COO and owner of SAA. Both signed the promissory notes as guarantors, (e.g. PI. Ex. 32).

         18. During the relevant time, Marvin I. Kaplan owned and operated many businesses; each business had a bank account. Marvin I. Kaplan was very familiar with bank accounts, and how they operate. Marvin I. Kaplan testified that he has owned and operated many bank accounts. (Dkt. 774, p. 115, I. 15).

         19. During the relevant time, Marvin I. Kaplan's office was in the same building as the branch of Regions Bank. After opening the accounts at Regions Bank, Marvin I. Kaplan utilized online banking, made internal transfers between accounts, and made wire transfers out of the accounts. (Pl. Exh. 62).

         Marvin I. Kaplan understood the check collection process. Marvin I. Kaplan understood that checks drawn on Bridgeview Bank Group in Illinois did not clear the same day the checks were deposited in Regions Bank in Sarasota, Florida. Marvin I. Kaplan understood that Regions Bank extended provisional credit for checks drawn on Bridgeview Bank Group in Illinois and deposited in Regions Bank in Sarasota, Florida, and that Regions Bank would not know that checks from SAA would be dishonored until Bridgeview Bank Group determined to pay or return the checks and then notified Regions of the returned item. Marvin I. Kaplan understood the float time created by the check collection process after the deposit of checks drawn on Bridgeview Bank Group to the accounts of the Kaplan Parties at Regions Bank in Sarasota, Florida. (Dkt. 774, pp. 116-126, 159-162).

         20. Marvin I. Kaplan denied any knowledge of provisional credit and any knowledge that Regions wired out funds provisionally extended to the Kaplan Entities. Although at trial, Marvin I. Kaplan testified he could not recall instructing Regions to wire only cleared funds, in deposition Marvin I. Kaplan testified that at all relevant times Regions Bank was instructed to wire only cleared funds. (Dkt. 774, pp. 142-152).

         21. Marvin I. Kaplan began making short term loans to SAA in 2008, in exchange for payment of interest and incentives. Although Defendant Kaplan asserted in his Amended Crossclaim/Counterclaim that Defendant Kaplan began making short term loans to SAA in August, 2009, in deposition, Defendant Kaplan admitted that his bank statement showed a wire transfer of $52, 000.00 to SAA on July 14, 2008. (Dkt. 540-1, p. 219).

         22. The loans were pitched to Marvin I. Kaplan as an investment opportunity. (Dkt. 649, SF, p. 115).

         23. Marvin I. Kaplan understood as follows: SAA would request the loans in order to take advantage of vendor discounts, which were offered if SAA could pay the vendor invoices before the due date. SAA would request money to be wired to its bank account to pay the printing costs up front at a discount, and then pay back the loan to Marvin I. Kaplan, splitting the discount amount as interest on the loan. (Dkt. 649, SF, p. 115).

         24. After an initial short term loan to SAA was successful, Marvin I. Kaplan used the Kaplan Entities to continue to make more short term loans to SAA. SAA continued to offer more "deals" to the Kaplan Entities; the Kaplan Entities accepted the new deals offered and reinvested both principal and the returns on the deals. Between 2008 and 2011, Marvin I. Kaplan, on behalf of the Kaplan Entities, completed hundreds of short term loan transactions with SAA without any problems such as checks returned NSF, or for any other reason. (Pl. Exh. 62).

         25. On February 24, 2011, T. Smith, for SAA, emailed Larry Starr about "bundled" deals. Larry Starr questioned T. Smith: "Are these going to be 1 or 2 days only and not stretch to 3 or 4 and how do you gain from having money for one or two days." T. Smith responded, explaining "last minute prepay opportunities]" where "SAA knows that payment has been made by the client but it has not posted to SAA's account yet." T. Smith stated: "Many times it is a matter of a day to grab a discount. The vendor says he will do it if we can send money that a.m. or by 2:00. The issue is timing and being able to strike quickly." (Pl. Exh. 15).

         26. The above email shows it was forwarded to Marvin I. Kaplan on February 24, 2011, but no action was taken by Marvin I. Kaplan on behalf of the Kaplan Entities regarding the "bundled" deals at that time.

         Kaplan Entities' Accounts with Regions

         27. The Kaplan Entities maintained four deposit accounts at Regions' Sarasota Branch. (Dkt. 649, SF, p. 116).

         28. On July 13, 2011, Marvin I. Kaplan opened a deposit account at Regions Bank in the name of TNE, with Marvin I. Kaplan as one of the authorized signatories. (Pl. Exh. 23).

         29. On November 8, 2011 and December 22, 2011, Marvin I. Kaplan signed the Wire Transfer Agreement, authorizing Defendant Kaplan to initiate wire transfers for TNE. (Pl. Exhs. 29, 30).

         30. The Wire Transfer Agreement of 12/22/2011 specifies four accounts from which the Signatory Representative was authorized to transfer funds, TNE Account xxxxxx4180, MKI Account xxxxxx4105, BNK Account xxxxxx9817, and R1A Account xxxxxx0211. (Pl. Exh. 30).

         31. On January 11, 2012, Marvin I. Kaplan, Manager, signed Exhibit 6 to the Wire Transfer of Funds Agreement, as to Repetitive/Semi-Repetitive Transfer Instructions for the TNE Account. The maximum dollar amount per transfer is "unlimited." (Pl. Exh. 31, pp. 2, 6).

         32. On September 12, 2011, Marvin I. Kaplan opened a deposit account at Regions Bank in the name of MKI, with Marvin I. Kaplan as one of the authorized signatories (Pl. Exh. 26).

         33. On January 11, 2012, Marvin I. Kaplan, Manager, signed Exhibit 6 to the Wire Transfer of Funds Agreement, as to Repetitive/Semi-Repetitive Transfer Instructions for the MKI Account. The maximum dollar amount per transfer is "unlimited." (Pl. Exh. 31, pp. 3, 7).

         34. On October 28, 2011, Defendant Kaplan executed a Business Name Change Maintenance Request to correct the business name on the BNK account, changing the business name from BNK Smith Inc. to BNK Smith LLC, applied to account xxxxx9817. (Pl. Exh. 28).

         35. On January 11, 2012, Marvin I. Kaplan, Manager, signed Exhibit 6 to the Wire Transfer of Funds Agreement, as to Repetitive/Semi-Repetitive Transfer Instructions for the BNK Account. The maximum dollar amount per transfer is "unlimited." (Pl. Exh. 31, pp. 4, 8).

         36. On December 21, 2011, Marvin I. Kaplan opened a deposit account at Regions Bank in the name of R1A, with Marvin I. Kaplan as one of the authorized signatories. (Pl. Exhs. 26, 27).

         37. On January 11, 2012, Marvin I. Kaplan, Manager, signed Exhibit 6 to the Wire Transfer of Funds Agreement, as to Repetitive/Semi-Repetitive Transfer Instructions for the R1A Account. (Pl. Exh. 31, pp. 1, 5).

         38. From May, 2011 to January, 2012, R1A also maintained a deposit account at Wells Fargo, N.A. (S-582).

         39. From March, 2011 through August, 2011, R1A maintained a deposit account at Landmark Bank. (S-582).

         40. In his deposition, Marvin I. Kaplan testified:

Q. How-why did you use two banks? Why did you use both Wells ...

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