United States District Court, N.D. Illinois
February 20, 2004.
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO,
ALPS ELECTRIC CO., LTD., NIT HOLDINGS LIMITED, MATHIAS BURLET, and DONALD WEST, Defendants
The opinion of the court was delivered by: BLANCHE MANNING, District Judge
MEMORANDUM AND ORDER
Alps Electric and Seishin's cross-claims against Donald West are the
only pending claims left in this convoluted interpleader action. Alps and
Seishin have filed an unopposed motion for summary judgment as to those
claims. For the following reasons, the motion is granted.
A. Local Rules
Under the local rules, a party seeking summary judgment must file "a
statement of material facts as to which the moving party contends there
is no genuine issue and that entitle the moving party to a judgment as a
matter of law." Local Rule 56.1(a)(3). "All material facts set forth in
the statement required of the moving party will be deemed admitted unless
controverted by the statement of the opposing party." Local Rule 56.1(b).
Here, West has failed to respond to Alps and Seishin's motion for summary
judgment. Accordingly, all properly supported facts in Alps and Seishin's
Rule 56 statements are deemed admitted for the purposes of the pending
motion for summary judgment.
Alps is a publicly traded company that produces and sells electronic
components throughout the world. Early in 1999, Yoshiaki Ichiyama (Alps'
director of finance) and Hiroshi Aihara (the manager of Alps' Finance
Department) retained Toshimasa Yamada as a consultant to pursue potential
investments for Alps in bond trading programs in Europe. In connection
with his consulting work, Yamada (an obviously very trusting person) met
with Al Grillo, who told him about Perry Hammer, a bond trader who could
provide a 200% profit per month.
In July of 1999, Yamada met twice with Hammer and Donald West, an
attorney. Hammer and West told Yamada that they represented Northgold
International Trust, a company involved in a bond trading program in
Europe. They told Yamada that Northgold could buy bonds with a fixed
interest rate from top banks in Europe at a large discount and then
immediately resell them for profit. They also told him that a special
condition of the program was that Northgold had to give 30% of its
profits to either a charity or a public works project. Finally, they told
him that Alps could participate in this bond trading program by
depositing funds in an account in Alps's name and then having the bank
issue a "bank guarantee," which Northgold would use to obtain a line of
credit to conduct the trading program. A key part of the program was that
Alps' funds would not need to leave Alps' account at the Anglo Irish
Yamada signed a joint venture agreement with Northgold Trust on behalf
of Alps so that Alps could participate in the program. West subsequently
told Yamada that Alps needed to transfer funds from its Anglo Irish Bank
account to a client fiduciary account in West's name at the American
National Bank and Trust Company in Chicago. West assured Yamada that he
would hold the funds as a fiduciary of Alps and Northgold Trust in a
segregated account. He
also told Yamada that only attorneys, such as he, could open such
an account, and that such an account imposed very strict obligations,
including personal liability for misuse of the funds.
Based on these representations, Yamada agreed to transfer $12 million
from Alps's Anglo-Irish Bank account to an account in the name of "Donald
W. West CFA Northgold" at the American National Bank. As a precaution,
Yamada wrote to West and asked him to agree to return the money to Alps's
account at the Anglo-Irish Bank if trading did not commence within seven
days of the transfer. West wrote back and agreed to do this. Alps
subsequently needed the money back and thus had one of its shareholders
(Seishin, formerly known as Seto Industry) deposit money into its account
with the understanding that Seishin would be the beneficiary of any
return on that investment. Thus, $12M belonging to Seishin was
transferred by Alps to the American National Bank account.
The next morning, West changed the client name on the American National
Bank account from Northgold Trust to NIT Holdings and began to make wire
transfers from the account to entities including the West Family trust
and West's creditors. The timing and nature of the transfers made
American National Bank suspicious and after an investigation, it froze
the account. At about the same time, West misled Yamada by telling him
that the first trade had taken place and that Alps would be receiving a
$308,000 profit shortly. West intended to send Alps $308,000 of its own
money to make it believe that the trading program was legitimate and to
give West time to abscond with the remaining money in the account.
West failed to give Alps the purported "profit" so Yamada asked West to
return the $12M. Unsurprisingly, West did not return the money. In the
meantime, based on American National Bank's investigation and its belief
that something suspicious was going on with the account, American
National Bank filed an interpleader action with this court. Eventually,
told American National Bank to return the money. It did not do so
as the money had, by that time, already been deposited with the court.
Pursuant to the court's order resolving the parties' cross-motions for
summary judgment regarding entitlement to the money in the American
National Bank, Seishin received $10,792,063.99.
Alps and Seishin seek a judgment against West for $1,207,934.01 (the
difference between the $12M it put in the American National Bank account
and the amount it got back) plus prejudgment interest. They contend that
West defrauded them and breached his contractual agreement with Alps to
return the money if no trades took place within seven days of depositing
the $12M in the American National Bank account.
A. Standard on a Motion for Summary Judgment
Summary judgment is proper when the "pleadings, deposition, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue of any material fact."
Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The party opposing the summary judgment motion "may not rest upon the
mere allegations or denials of the adverse party's pleading"; rather, it
must respond with "specific facts showing that there is a genuine issue
for trial." Fed.R.Civ.P. 56(e). A court should grant a motion for summary
judgment only when the record shows that a reasonable jury could not find
for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986); Valenti v. Qualex, Inc., 970 F.2d 363, 365 (7th Cir. 1992).
Alps and Seishin contend that West obtained the $12M by committing
fraud. In order to prevail on a fraud claim in Illinois, a claimant must
show: (1) a false statement of material fact;
(2) by one who knows or believes it to be false; (3) made with the
intent to induce action by another in reliance on the statement; (4)
action by the other in reliance on the truthfulness of the statement; and
(5) injury to the other resulting from that reliance. TRW Title Ins.
Co.v. Security Union Title Ins. Co., 153 F.3d 822, 828 (7th Cir. 1998);
Athey Prods. Corp. v. Harris Bank Rosette, 89 F.3d 430, 434 (7th Cir.
1996). In addition, the reliance on the misrepresentation must have been
reasonable. Cozzi Iron & Metal, Inc. v. U.S. Office Equipment, Inc.,
250 F.3d 570, 573 (7th Cir. 2001). Moreover, the party alleging the fraud
bears the burden of proving intent to defraud by clear and convincing
evidence. Athey Prods., 89 F.3d at 434.
Here, it is undisputed that West falsely told Alps that a bond trading
program existed to get it to transfer a large amount of money, told
Yamada that he would hold the funds as a fiduciary when he in fact
intended to withdraw money for his own purposes, told Yamada that Alps
had earned $308,000 in profits from trades that had never taken place,
and intended to give Alps $308,000 from its own account to cover up his
misuse of the funds.
The court finds that West made knowingly false representations in what
turned out to be a successful attempt to induce Alps to transfer funds
into an account that he could control, that Alps relied on West's
statements, and that Alps was injured. But, was Alps' reliance on what
West told it reasonable? In the court's prior summary judgment opinion,
it noted that reliance is normally a question of fact and can be
determined as a matter of law when only one conclusion can be drawn from
the evidence. Cozzi Iron & Metal, Inc. v. U.S. Office Equip., Inc., 250
F.3d at 574. The court also observed that to determine whether reliance
was justified, the court must consider all of the facts that the
plaintiff knew, as well as those facts that the plaintiff could have
learned through the exercise of ordinary prudence. Id, Moreover, although
the alleged victim
may not ignore a manifest danger, he is "not obliged to dig beneath
apparently adequate assurances." AMPAT/Midwest, Inc. v. Ill Tool Works,
Inc., 896 F.2d 1035, 1042 (7th Cir. 1990).
Here, West told Yamada about his 200% profit per month bond trading
program. A reasonable person may well have thought that such a program,
like the proverbial deal on land in Florida that turns out to be a swamp,
was too good to be true. West also told Yamada that he would hold the
money in a special fiduciary account which imposed strict obligations on
him, including personal liability for misuse of the funds. The record
presently before the court does not indicate whether Yamada, Alps, or
Seishin conducted any investigation regarding the bond trading program or
West prior to entrusting him with a very substantial sum of money.
The court flagged this issue in its prior opinion, noting that it was
unclear exactly what investigation, if any, occurred. The court also
observed that the parties had failed to provide the court with any
evidence as to what would constitute "due diligence" or a reasonable
investigation under the circumstances presented by this case. It thus
concluded that it could not determine whether the reliance on West's
statements was reasonable.
The motion for summary judgment presently before the court does not
address any of these concerns. It is true that the motion is unopposed.
However, as noted above, the party alleging the fraud bears the burden of
proving intent to defraud by clear and convincing evidence. Athey Prods.,
89 F.3d at 434. Given the complete lack of evidence regarding the
reasonableness of Yamada's actions on behalf of Alps/Seishin, the court
cannot determine as a matter of law that his reliance was reasonable.
Accordingly, Alps and Seishin are not entitled to summary judgment on
their fraud cross-claim against West.
C. Breach of Contract
All is not lost for Alps and Seishin, as they alternatively contend
that West breached a contract with Yamada wherein West agreed to return
the money to Alps's account at the Anglo-Irish Bank if trading did not
commence within seven days of the transfer. To prevail on their breach of
contract claim, Alps/Seishin must establish: (1) the existence of a valid
contract (offer, acceptance, and consideration); (2) the plaintiffs'
performance of their obligations under the contract; (3) the defendant's
failure to perform his obligations under the contract; and (4) the
existence of damages to the plaintiffs as a result of the breach.
Trustmark Life Ins. Co. v. University of Chicago Hospitals, 207 F.3d 876,
882 (7th Cir. 2000); Carroll v. Acme-Cleveland Corp., 955 F.2d 1107,
1114-15 (7th Cir. 1992).
Here, the parties agreed in writing that West would return the money if
trading did not commence within seven days of the transfer. In reliance
on that statement, Alps put $12M into a purported fiduciary account
controlled by West. It is undisputed that a trade did not occur within
seven days, that West did not return the money after the seven day period
had elapsed, and that Alps/Seishin have not been able to get all of the
$12M back. Thus, the court finds that West breached a valid contract with
Alps and Seishin. Alps and Seishin are, therefore, entitled to summary
judgment on their breach of contract cross-claim against West in the
amount of $1,207,934.01.
For the above reasons, Alps and Seishin's motion for summary judgment
as to its cross-claims against West is granted. Judgment is entered
against West in the amount of $1,207,934.01 plus prejudgment interest.
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