United States District Court, E.D. Pennsylvania
May 27, 2004.
DAVID H. MARION, as Receiver for Bentley Financial Services, Inc.
TDI, INC. (f/k/a Traders and Dealers, Inc., f/k/a The Trading Desk, Inc. and f/k/a U.S. Central Securities, Inc.), SOUTHEASTERN SECURITIES, INC., SFG FINANCIAL SERVICES, INC., PENINSULA BANK, THEODORE BENGHIAT, CASTO EDWIN RIVERA, JERRY MANNING, JOHN STRINE, JEFFREY WILSON and JOSEPH MARZOUCA
The opinion of the court was delivered by: JOHN FULLAM, Senior District Judge
MEMORANDUM AND ORDER
The Securities and Exchange Commission brought suit against Robert L.
Bentley, Bentley Financial Services, Inc. and Entrust Group, alleging
serious violations of the securities laws, and obtained the appointment
of a receiver for those entities (C.A. No. 01-5366). David H. Marion,
Esquire, was appointed Receiver, and given "complete jurisdiction over,
and control of all property, real, personal or mixed, including any
assets or funds, wherever located, of all defendants" (Order dated
November 7, 2001).
Briefly summarized, Robert L. Bentley and his corporations, Bentley
Financial Services, Inc. and Entrust Group, conducted an elaborate
financial swindle which eventuated into a Ponzi-scheme. Investors were led to believe that they were
purchasing from BFS federally-insured certificates of deposit (CD's),
whereas actually they were purchasing unregistered IOU's of BFS. Some $4
billion dollars worth of these unregistered securities were sold, far in
excess of BFS's ability to repay. Funds received from current investors
were used to keep the scheme afloat as long as possible, but, like all
Ponzi schemes, the arrangement collapsed.
In his capacity as Receiver of Bentley Financial Services, Inc., Mr.
Marion has brought this action against various entities and individuals
whose wrongful conduct allegedly helped to perpetuate the scheme, and
thus damaged BFS by increasing its liabilities to defrauded investors.
The defendants are:
1. Southeastern Securities, Inc., SFG Financial Services, Inc.,
Theodore Benghiat, and Casto Edwin Rivera (the "Benghiat Defendants").
Southeastern Securities is a registered broker-dealer which acted as
co-broker in many of the sales of unregistered securities; Benghiat was
President of Southeastern Securities and its related company "SFG, " and
Rivera was compliance officer.
2. Peninsula Bank and Joseph Marzouca, its executive vice president.
Peninsula Bank purported to be acting as escrow agent holding the
legitimate CD's which the securities sold by BFS were supposed to represent (i.e., in which the investors supposedly
obtained an interest).
3. TDI, Inc. ("TDI" and various related entities (hereinafter
collectively referred as "TDI") was a broker-dealer registered with NASD,
which employed Mr. Bentley for a time, and was allegedly involved in many
of the fraudulent sales. Defendant Jerry Manning was CEO and compliance
officer for TDI. Defendants John Strine and Jeffrey Wilson were,
respectively, vice president and president of TDI, and also compliance
Plaintiff's claims are set forth in a first amended complaint, 64 pages
in length, containing 271 paragraphs. Plaintiff is proceeding on several
theories, set forth in 20 separate counts. The Benghiat Defendants and
Peninsula Bank and its vice president Joseph Marzouca have filed motions
to dismiss under Fed.R.Civ.P. 12(b)(6). Peninsula Bank and Mr.
Marzouca also seek dismissal for lack of jurisdiction.
The amended complaint includes the following claims: Count I, violation
of the Securities Exchange Act, § 20(a), 15 U.S.C. § 78t(a);
Count II, respondeat superior liability under § 20(a) of the
Securities Exchange Act; Count III, respondeat superior liability for
failure to supervise registered representatives of a securities broker;
Counts IV and V, negligence; Count VI, negligent supervision; Count VII,
deepening insolvency; Counts VIII and IX, breach of fiduciary duty; Count X,
fraud; Count XI, breach of contract; Count XII, conversion; Count XIII,
violation of Pennsylvania securities law (70 P.S. §§ 1-501, 1-503);
Count XIV, aiding and abetting fraud; Count XV, aiding and abetting
constructive fraud; Count XVI, aiding and abetting breach of fiduciary
duty; Count XVII, aiding and abetting conversion; Count XVIII, aiding and
abetting deepening insolvency; Count XIX, negligent misrepresentation;
and, Count XX, unjust enrichment.
Since I am required, at this stage, to accept as true all factual
averments of the amended complaint, and since dismissal is improper
unless it is clear that plaintiff cannot possibly prove the claim
asserted; and since the amended complaint has obviously been prepared
with great care and skill, I am satisfied that, except for the issues
discussed below, the motions to dismiss lack arguable merit. Plaintiff
may well be unable to prove the claims being asserted, but he is entitled
to proceed with the attempt.
The potentially dispositive issues do require discussion. They are: (1)
whether this court has jurisdiction over the claims being asserted
against Peninsula Bank and Joseph Marzouca, in view of a forum-selection
clause in the document setting forth Peninsula Bank's role as escrow
agent; (2) whether plaintiff has standing to assert claims for conduct
which allegedly increased BFS's liability to defrauded investors; and (3)
whether plaintiff's claims are barred by the doctrine of in pari
I. The Forum-Selection Clause
Entrust, one of the Bentley receivership entities, entered into three
"custodian agreements" with the defendant Peninsula Bank, setting forth
the terms under which the Bank was to maintain a custody account for
federally-insured CD's. Each of these agreements contained the following
"This agreement is governed by the laws of the
state of Florida and by applicable federal law.
This agreement binds you and your heirs, personal
representatives, successors and assigns. You and
[Peninsula State Bank] agree that any legal action
related to this agreement shall be solely
determined by the federal or state courts sitting
in Date County, Florida. You and PSB agree to
irrevocably waive the right to trial by jury in
any action arising from this agreement."
It is clear that this lawsuit is not an "action arising from this
agreement." A closer question is whether this lawsuit constitutes a
"legal action related to this agreement." Peninsula contends that this
action is "related to" the escrow agreement because, in its view, certain
provisions of that agreement provide a complete defense against the
claims now being asserted by the Receiver. According to Peninsula, the
escrow agreements required Peninsula to carry out the instructions of Entrust, without any obligation to inquire into the propriety of
I have concluded that the forum-selection clause should not be
enforced, for several reasons. In the first place, the language "any
legal action related to this agreement" is less precise than the language
"any action arising from this agreement," and it is reasonable to suppose
that the contracting parties intended the two phrases to have the same
meaning. I am thus led to conclude that this lawsuit is not covered by
the forum-selection clause. Ambiguities should be resolved against PSB,
which drafted it.
I note also that, in Coastal Steel Corp. v. Tilghman Wheelabrator,
Ltd., 709 F.2d 190 (3d Cir. 1983), the Court stated "a
forum-selection clause is presumptively valid and will be enforced by the
forum unless the party objecting to its enforcement establishes (1) that
it is the result of fraud or overreaching, (2) that enforcement would
violate a strong public policy of the forum, or (3) that enforcement
would in the particular circumstances of the case result in litigation in
a jurisdiction so seriously inconvenient as to be unreasonable." If, as
plaintiff alleges, the escrow arrangements between Entrust and the
Peninsula Bank were an integral part of the fraudulent activities of the
Bentley entities, and Peninsula Bank tortiously aided and abetted in the
execution and prolongation of the fraudulent scheme, it would be contrary to public policy (of this
or any other forum) to permit the wrongdoers to select the forum in which
their liability would be determined.
Finally, it is at least arguable that Peninsula Bank should be deemed
to have submitted to the jurisdiction of this court by submitting a claim
letter demanding attorneys' fees (pursuant to paragraph 8 of the
custodian agreement) for defending this action. See Travellers Int'l
AG v. Robinson, 982 F.2d 96, 99 & n.5 (3d Cir. 1992);
Lancrenkamp v. Culp, 498 U.S. 42 (1990).
The motion of the Peninsula Bank defendants to dismiss for lack of
jurisdiction will therefore be denied.
The defendants argue that plaintiff's claims for securities law
violations, fraud, etc., are really the claims of the defrauded
investors. It is undoubtedly true that persons who were directly
victimized by the alleged sale of unregistered securities under false
pretenses, the alleged fraud, etc. have claims against the parties
directly involved, BFS, Entrust and Robert Bentley. And, presumably, they
would have claims which they might assert against these defendants, for
alleged participation in the fraudulent scheme and in its continuation.
But this does not mean that the plaintiff, as Receiver for BFS, should be
precluded from asserting that the defendants' wrongful conduct has rendered BFS liable to the defrauded investors, thus
increasing the liabilities of BFS. So long as double recoveries are
avoided, I see no reason why the Receiver should be precluded from
proceeding against wrongdoers who damaged BFS by increasing its
liabilities, merely because, eventually, any recovery by the Receiver
would enure to the benefit of the defrauded investors.
The Receiver has been authorized to take control of all of the assets
of the receivership entities. As pleaded in the amended complaint, the
assets of the receivership entities include their claims against these
defendants. The Receiver has control of these assets, and may seek to
realize upon them. Of course, any recovery which is ultimately
distributed to the defrauded investors will be credited against their
claims, just as any direct recoveries by the defrauded investors against
these defendants would be credited against the claims asserted by
plaintiff in this action.
III. In Pari Delicto
The defendants, understandably, contend that since Robert Bentley and
his companies, BFS and Entrust Group conceived and carried out the
fraudulent plan, they are precluded by the doctrine of in pari
delicto from complaining against other alleged participants in the
scheme. I conclude, however, that the plaintiff Receiver, as an innocent
successor-in-interest, does not suffer from the same handicap. As the
Third Circuit Court of Appeals has stated, the defense of in pari
delicto "loses its sting" when the bad actor is eliminated. See
In re Personal & Bus. Ins. Agency, 334 F.3d 239, 246 (3d Cir.
2003); Official Comm. of Unsecured Creditors v. R.F. Lafferty &
Co., 267 F.3d 340, 358 (3d Cir. 2001); FDIC v. O'Melveny &
Meyers, 61 F.3d 17, 19 (9th Cir. 1994); but see Knauer v.
Jonathan Roberts Fin. Group, Inc., 348 F.3d 230 (7th Cir. 2003).
For all of the foregoing reasons, defendants' motions to dismiss the
complaint will be denied, without prejudice to a properly supported
motion for summary judgment, if justified by the facts. ORDER
AND NOW, this day of May 2004, upon consideration of defendants'
motions to dismiss, IT IS ORDERED:
That the respective motions of Southeastern Securities Inc., SFG
Financial Services Inc., Theodore Benghiat and Casto Edwin Rivera, and
Peninsula Bank and Joseph Marzouca to dismiss plaintiff's first amended
complaint are DENIED.
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