The Third Circuit recently affirmed a summary judgment in favor of a plaintiff for more than $10 million in damages on federal and state RICO claims. In the process, the court shed light on what evidence shows an “intent to defraud a financial institution” as required to establish bank fraud.
In Liberty Bell Bank v. Rogers, et al., a bank sued an individual and entities he owned and controlled, alleging, among other things, violations of the federal and New Jersey RICO statutes. The bank alleged that the defendants developed a scheme through which they fraudulently obtained loans from the bank and further defrauded it by making payments on the loans using a check-kiting scheme. On a motion for summary judgment – in response to which the individual pro se defendant failed to file a responsive statement of material facts, thereby enabling the court to deem certain facts admitted – the district court entered summary judgment in favor of the bank, holding the defendants jointly and severally liable to the bank for more than $10 million, plus attorneys’ fees and costs.
The defendants appealed, and the Third Circuit affirmed. In particular, the court affirmed the district court’s finding that defendants had committed the predicate crime of bank fraud, which makes it an offense to execute, or attempt to execute, a scheme (1) to defraud a financial institution or (2) to obtain money from it by false or fraudulent means. Significantly, the first prong of this analysis required a showing of intent, i.e., the defendant had to intend to defraud a financial institution. The Third Circuit held the defendants violated the bank fraud statute, and thus, had intended to defraud the bank, in three ways.
First, the court held that the defendants’ check-kiting scheme – taking advantage of next-day available allowances to write checks to funnel funds between three banks while artificially inflating account balances – constituted bank fraud. The summary judgment record confirmed that the defendants acted with a specific intent to use the check-kiting scheme to defraud the bank in light of the individual defendant’s “extensive business and banking experience,” the “size of the losses” to the banks, and “the absence of a legitimate purpose for the” frequent transactions involved.
Second, the court affirmed the finding that defendants engaged in bank fraud by failing to purchase equipment that was to secure numerous bank loans. As to this point, the Third Circuit noted that defendants’ failure to buy equipment used as collateral for the loans, such as obtaining a loan for the purchase of copy machines and then never purchasing the machines nor returning the loan funds, was evidence of intent to defraud.
Third, the court considered the district court’s finding that the individual defendant “must have known” that the defendant entities “doubly-pledged leases as collateral to multiple banks, thereby committing bank fraud.” Although there was “no ‘smoking gun’ evidence,” the Third Circuit noted that “intent may be inferred from circumstantial evidence,” and held that “the sheer volume of leases that were doubly pledged” and “the simultaneous nature of the transactions requiring the same extensive documentation” was “sufficient evidence to demonstrate” an intent to defraud. As the district court aptly stated: “27 leases were presented to two different banks at the same time. That’s fraud.” According to the Third Circuit, no reasonable jury could have concluded otherwise.
Liberty Bell is instructive not only as to the degree of proofs sufficient to show an intent to defraud, but also as to the importance of comporting with the court rules when opposing a dispositive motion. This case is extraordinary in light of the substantial sum awarded to the plaintiff at the summary judgment phase. This decision is a tutorial on the importance of adhering to civil procedure in motion practice. The defendants’ failure to oppose the plaintiff’s summary judgment motion, and particularly the accompanying statement of material facts, resulted in the district court and the Third Circuit accepting the bank’s statement of material facts as undisputed. The court stringently applied the rules – specifically Local Civil Rule 56.1 – despite the fact that the individual defendant in the case appeared pro se. Accordingly, it is unclear whether the outcome in Liberty Bell would have varied had an opposing statement of material facts been filed, and Liberty Bell acts as a reminder to all litigants of the importance of following the procedural rules governing dispositive motion practice.