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LASALLE BANK LAKE VIEW v. SEGUBAN

August 23, 1996

LASALLE BANK LAKE VIEW, an Illinois banking corporation, Plaintiff,
v.
ELLEN SEGUBAN, RAFAEL SEGUBAN and JOHN DOE, Defendants.



The opinion of the court was delivered by: NORGLE

 CHARLES R. NORGLE, SR., District Judge:

 Before the court is the renewed motion for summary judgment of Plaintiff LaSalle Bank Lake View ("Bank"). For the following reasons, the motion is granted in part and denied in part.

 I. Background1

 A. Procedural History

 The Segubans claim that a criminal investigation is currently proceeding against both Segubans. *fn2" In response to the Bank's discovery requests throughout litigation of the instant civil suit, the Segubans invoked their Fifth Amendment privileges against self-incrimination and did not answer the Bank's attempts at discovery. At both the original summary judgment phase of this litigation and the instant renewed summary judgment phase, the Segubans did not file a Local Rule 12(N) statement answering the Bank's 12(M) statement.

 On the original summary judgment motion, this court granted summary judgment in favor of the Bank in a previous opinion and order. See LaSalle Bank Lake View v. Seguban, 851 F. Supp. 336, 340 (N.D. Ill. 1994). In so doing, the court stated that (1) the Segubans' failure to file a Local Rule 12(n) statement deemed admitted the facts contained in the Bank's 12(m) statement; *fn3" (2) the court drew a negative inference from the Seguban's assertion of the Fifth Amendment in this civil case; and (3) in light of the preceding, there was no material issue of fact for trial. Id.

 That judgment was reversed and remanded by the United States Court of Appeals, Seventh Circuit. LaSalle Bank Lake View v. Seguban, 54 F.3d 387, 394 (7th Cir. 1995). The opinion of the Seventh Circuit states,

 
Rule 12(N), which deems admitted un-rebutted Rule 12(M) facts that are evidentiarily supported, does no more than operationalize an inference that could in any event be reasonably drawn from Fifth Amendment silence in the face of such evidence - that the facts it reveals are true.

 Id. at 391 (emphasis original). This inference alone does not lead to the entry of summary judgment, but simply establishes the facts upon which summary judgment analysis will proceed. Id. at 392. It was the analysis by this court which the Seventh Circuit found inadequate on appeal. Further, the Seventh Circuit opinion raised two legal issues, which it left to the consideration of this court: (1) whether the Bank, as a victim of an alleged RICO violation, could also be the "enterprise" through which the Segubans accomplished that violation, and (2) whether E. Seguban had sufficient control over the "operation or management" of the Bank to have caused such a violation. Id. at 393. This court reviews the Bank's renewed motion for summary judgment in light of the Seventh Circuit's observations.

 B. Underlying Facts

 The Bank states that E. Seguban created fictitious credit and debit transactions which rendered undetectable her many unauthorized cash withdrawals from the Bank's vault. She allegedly did so by taking advantage of an opportunity in the system used by the Bank to monitor cash flow in and out of its vault. The system consisted of various "checks and balances." Each time a bank teller received cash from the vault, the teller and the vault supervisor executed corresponding credit and debit receipts, known as "teller tickets." At the close of each day, the vault manager and the tellers submitted their teller tickets for entry into the Bank's records. Because corresponding credit and debit teller tickets arrived in separate batches from the vault and teller departments, they were processed separately. After approximately three days, if credit and debit receipts did not balance, the Bank's internal security controls were triggered and the unmatched transactions were investigated. The Bank states that, in September 1993, it discovered a discrepancy in the teller tickets which led it to investigate the transactions on the tickets in question.

 The Bank questioned E. Seguban, who admitted to disguising fraudulent transactions by executing false teller tickets approximately every three days over a twelve-year period. E. Seguban also confirmed that she prepared the false teller tickets which triggered the Bank's internal investigation. She signed a statement to the effect that she did so in order to conceal a fraudulent transaction made by a former bank manager, identified only as "John Doe." She refused to disclose his "true" identity. The Bank's investigation revealed that E. Seguban's story about "John Doe" was false. *fn4" The Bank also discovered that E. Seguban had diverted increasing amounts of money through each fraudulent transaction. The investigation revealed that she diverted a total of $ 940,000. The fraudulent transactions went undetected during the twelve-year period because, in her supervisory capacity, E. Seguban created new false teller tickets, totalling the full amount taken, every three days over that period, thus evading the Bank's three-day internal control trigger.

 The Bank alleges that R. Seguban aided and abetted E. Seguban's embezzlement scheme. According to the Bank, R. Seguban knew that his wife was embezzling funds from the Bank over many years. Those funds were used to finance a family lifestyle which required far more than the Segubans' combined reported annual income of approximately $ 50,000.

 The Bank claims that E. Seguban violated 18 U.S.C. § 1344 by knowingly executing a scheme (1) to defraud a financial institution, or (2) to procure funds under the custody of a financial institution by means of fraudulent pretenses, representations, or promises. Such a violation amounts to "racketeering activity" as defined by 18 U.S.C. § 1961. As it alleges that E. Seguban engaged in several acts of such racketeering activity over approximately twelve years, the Bank states that she engaged in a "pattern of racketeering activity" within the meaning of 18 U.S.C. § 1961. The Bank also alleges that E. Seguban is a "person" possessing the ability to operate or manage the Bank's business within the meaning of 18 U.S.C. § 1961. The Bank contends that it is an "enterprise" within the meaning of § 1961(4). Consequently, the Bank asserts that E. Seguban violated 18 U.S.C § 1962(c) by conducting a pattern of racketeering activity via her employment at the Bank. The Bank claims resulting injury to its business or property in the amount of at least $ 940,000 of its funds.

 The Bank requests an award of treble damages and attorney fees from E. Seguban. In addition, the Bank claims that the Segubans conspired to violate 18 U.S.C. § 1962(c), in violation of 18 U.S.C. § 1962(d). Therefore, the Bank asserts that both are jointly and severally liable for treble damages and attorney fees pursuant to 18 U.S.C. § 1964(c).

 The Bank's first supplemental state claim asserts that E. Seguban breached her fiduciary duties of loyalty, honesty, and fair dealing to the Bank. The Bank also claims that R. Seguban knew of, encouraged, and solicited her embezzlement of the funds. Thus, according to the Bank, he is jointly and severally liable. Further, the Bank states claims for conversion and fraud against the Segubans. *fn5"

 In support of its 12(M) statement, the Bank submits the following:

 
. The affidavit of Toni Stanek, Vice-President of the Bank since January 1994. Stanek's duties at the Bank include performing market valuations of real estate proposed as collateral for loans made by the Bank. Stanek inspected the Seguban's two-family home to estimate its market value. The second floor apartment was occupied by E. Seguban's parents, and the first by the Segubans. Stanek describes a "marked disparity" in the condition of the two units. Unlike the second floor, the first floor was "rehabbed," with a remodeled and upgraded kitchen. The living room contained a large-screen (forty-three inch) television and newer furniture. The bedroom closets and basement contained an "extremely large amount of clothing." Approximately sixty percent of the basement was used for clothing storage and included a segregated area containing hanging racks filled with clothing. There were numerous boxes containing unidentified items stacked in the kitchen pantry (which measured four feet by eight feet), two of the bedroom closets, and the basement. The property had been improved by a newer, high efficiency boiler with a water circulating pump servicing the radiator system. The building had a high capacity water heater. Each of the two apartments had window air conditioners. There were three new circuit breaker panels, one for each floor and the basement. It appeared to Stanek that the property had been partially rewired. The property also had an electronic security system controlled by a touch pad in the front hallway. E. Seguban refused to allow Stanek to inspect the outside rear of the property or the two-car garage located at the rear of the property.
 
. Two affidavits of George Malekovic, the Bank's Assistant Vice President - Security. As part of his job, Malekovic is responsible for reviewing Bank policies and procedures, and for investigating instances of possible employee misconduct. Malekovic's affidavit sets forth in detail the teller ticket procedure summarized supra.
 
In September 1993, Sonia Vargas, the Bank's Operations Officer, brought to Malekovic's attention a discrepancy in a series of teller tickets. The tickets were irregular, as the dates on the face of the tickets varied, but the dates of processing (shown by a stamp on the back of the tickets) were the same and the processing numbers were consecutive. This indicated that the tickets were not created in the ordinary course of business. Malekovic took the tickets to the Teller Manager, Eneida Feliciano, asking her to explain the discrepancy. Feliciano subsequently asked all teller supervisors and the Bank's Assistant Manager to explain in writing the operation of the vault and teller tickets.
 
Feliciano called Malekovic on September 16 and told him that E. Seguban admitted engaging in improper activity relating to the transfer tickets. Malekovic met with Feliciano and her supervisor, to discuss E. Seguban's apparent activity. Before Malekovic spoke to E. Seguban, Feliciano asked E. Seguban to write out a statement, describing what had happened. She did so before speaking to Malekovic. *fn6"
 
Afterwards, Feliciano brought E. Seguban to the Bank's board room so that Malekovic could interview her. Feliciano was present during the interview. At the beginning of the interview, E. Seguban gave the written statement to Malekovic.
 
E. Seguban then told Malekovic that she decided to process the certificate by writing fictitious names on teller tickets in order to process the transaction through the Bank without drawing attention to it. To prevent the Bank from discovering the false teller tickets, E. Seguban wrote a new teller ticket every few days for a period of several months. The new tickets created book entries which cancelled-out the earlier tickets. Provided that the new tickets were submitted every three days and totalled the same amount, the Bank's internal controls did not detect the false transaction. Several months after the initial transaction, the manager who had ordered her to process the ticket was terminated, without detection of his scheme. E. Seguban stated that she could not recall the amount of the false teller ticket at that time.
 
E. Seguban told Malekovic that, after the manager was fired, she held the false teller ticket for one week. She then decided that she could not report the manager's improper conduct and her cover-up, because she feared losing her job. Therefore, she decided to break-up the one large teller ticket into a series of smaller tickets.
 
E. Seguban then told Malekovic that she maintained the same false teller ticket balance for the following twelve years. She told him that she never increased the amount taken, and that she never personally received any of the money. She submitted new false teller tickets every three days for twelve years.
 
E. Seguban refused to identify the manager who supposedly told her to process the false transaction.
 
When Malekovic asked E. Seguban how she managed to submit the false teller tickets during vacations and an extended maternity leave, she responded that she would prepare batches of teller tickets in advance. Either E. Seguban or her daughter would deliver them to the Bank and tell a Bank employee that E. Seguban was working on a special project and that the tickets had to be processed. In addition, she had given groups of tickets to a teller in advance, directing the teller to hold the batches and process them on specified days.
 
E. Seguban also told Malekovic that, during the twelve-year period, she put approximately $ 10,000 of her own money into the Bank as a partial repayment for the money that was missing. She stated that, after the first several years of the scheme, she determined that she would take the blame for the entire scheme, and that she did not wish to get anyone else in trouble.
 
At the end of the interview, Malekovic asked E. Seguban to sign her previously-written statement, which she did in Malekovic's presence.
 
Since that time, Malekovic has worked with Frederick Hausmann, the Bank's Assistant Vice President - Assistant Controller, in reviewing the Bank's records. Their review - described more fully in Hausmann's affidavit - demonstrate's the falsity of E. Seguban's statement that the amount of her fake transaction had remained the same for twelve years. In 1986, the amount of money taken from the Bank could not have exceeded $ 540,000. During the period from June 1992 to February 1993, the amount increased from approximately $ 874,000 to $ 940,000.
 
Malekovic examined the Bank's personnel file and other records concerning E. Seguban. In addition to being the Assistant Teller Manager responsible for thirty-seven tellers from February 1992 to September 1993, E. Seguban was a Teller Supervisor from 1979 until February 1992. As of September ...

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