El Camino Resources Ltd. and ePLUS Group, Inc., two computer-equipment leasing companies, were defrauded by Cyberco Holdings, Inc., which misrepresented itself and its affiliated shell corporation, Teleservices Group, Inc., in a fraudulent scheme involving non-existent computer equipment. El Camino entered into Master Equipment Leases with Cyberco, believing it was leasing equipment that was never produced. Cyberco, using the fraudulent guise of Teleservices, issued certificates of acceptance to El Camino to facilitate payments, which were then funneled back to Cyberco. El Camino subsequently sued Huntington National Bank for conversion, aiding and abetting conversion, aiding and abetting fraud, and unjust enrichment, claiming Huntington accepted the fraudulent funds. The district court granted summary judgment in favor of Huntington on three of the claims, ruling that El Camino failed to demonstrate the necessary knowledge for aiding and abetting. The unjust enrichment claim was dismissed but not appealed. The court affirmed the lower court’s decision, stating that the case falls under diversity jurisdiction and is governed by Michigan law. Huntington had established a banking relationship with Cyberco, during which it received conflicting information about Teleservices, further complicating the fraudulent activities.
In late 2002, Cyberco experienced significant overdrafts, prompting Huntington Bank employees to contact company leaders Barton Watson and James Horton. They attributed the issues to premature checks and delays in customer deposits. In 2003, Cyberco requested a “hard hold” on its automated clearinghouse account due to suspected security breaches, leading to over 20 overdrafts and an NSF check for $2.3 million from Teleservices. Huntington employee Gail White investigated Cyberco’s account and noticed large transactions, including those involving foreign entities linked to potential money laundering. After meeting with Watson, who provided conflicting information on Teleservices, White suspected the NSF check was part of a check-kiting scheme. She began tracking Cyberco’s account activity and raised her concerns with Huntington's Chief Risk Officer, John Kalb, without alleging fraud, but indicating that something seemed amiss. By early 2004, Huntington decided to terminate its banking relationship with Cyberco, citing longstanding “red flags” despite no clear financial reasons. Kalb communicated this decision internally, and staff informed Cyberco that their relationship was not a “good fit,” without detailing the red flags. Cyberco chose a gradual migration from Huntington, which agreed to extend credit during the transition, contingent upon receiving overdue audited financial statements for 2002.
Huntington extended Cyberco's line of credit twice, with the second extension on April 22, 2004, prompting Hutchings to question Cyberco about overdrafts and banking agreement violations. Cyberco representatives, Krista Watson and Horton, dismissed these concerns as clerical errors. White raised suspicions of receivables fraud to Kalb, leading Huntington's security officer, Rodriguez, to investigate. He suspected fraud and informed his supervisor, who authorized contact with the FBI. Rodriguez learned of an ongoing FBI investigation into Cyberco and arranged a meeting between White and FBI Agent Gilligan, where White disclosed her findings and concerns. Huntington, meanwhile, demanded Cyberco pay off its credit line by August 27, 2004, while simultaneously engaging with El Camino in lease transactions after severing its banking relationship with Cyberco. From July to October 2004, Huntington accepted nearly $9 million in checks from Teleservices. Following the unraveling of Cyberco’s fraud, the FBI executed search warrants in November 2004. El Camino filed multiple claims against Huntington related to these fraudulent transactions. The district court granted summary judgment for Huntington, stating El Camino lacked the necessary knowledge to support its claims. A year later, in a related bankruptcy case, the bankruptcy court ruled that Huntington did not accept checks from Teleservices in good faith. Consequently, El Camino's motion to reconsider the summary judgment was denied.
A grant of summary judgment is reviewed de novo, meaning that it is assessed without deference to the lower court's decision. Summary judgment is warranted when there is no genuine dispute regarding material facts and the moving party is entitled to judgment as a matter of law. All reasonable factual inferences must be made in favor of the nonmoving party.
In Michigan, while the Supreme Court has not formally recognized a common-law claim for aiding and abetting tortious conduct, the Michigan Court of Appeals has acknowledged it in various contexts, such as aiding and abetting breach of fiduciary duties and conversion. The Sixth Circuit has indicated that Michigan law allows for a cause of action for aiding and abetting conversion and suggests that the Michigan Supreme Court would align with the principles of § 876(b) of the Restatement (Second) of Torts. This provision states that one may be liable for assisting in another's breach of duty if they know of the wrongful conduct and provide substantial assistance.
The key issue on appeal is the level of knowledge required to establish an aiding and abetting claim under Michigan law. The Michigan Supreme Court has not ruled on this, so the court looks to available data, including appellate decisions and secondary sources. El Camino contended that circumstantial evidence could demonstrate an aider's knowledge, but it was conceded that actual knowledge is necessary, which can also be established through circumstantial evidence. The court has previously interpreted "knowledge" under aiding and abetting claims as requiring actual knowledge.
The sufficiency of evidence regarding actual knowledge is critical. Assuming the Michigan Supreme Court would adopt this standard, the court must evaluate if a genuine issue of material fact exists regarding Huntington's awareness of Cyberco's alleged fraud. The evidence shows that Huntington only had suspicions of wrongdoing and lacked actual knowledge of Cyberco’s fraudulent actions, resulting in El Camino's inability to succeed on its claims.
Huntington lacked actual knowledge of Cyberco's fraudulent activities against El Camino, as there was no evidence indicating Huntington was aware of the specific torts or the nature of Cyberco's transactions, including dealings in nonexistent inventory. Although Huntington recognized suspicious behavior in Cyberco’s account, such as large payments from Teleservices, it did not understand the relationship between the two companies. Huntington was also aware that Barton Watson had been previously sanctioned by the SEC, but it had no knowledge of any wrongdoing by Watson in connection with Cyberco. El Camino claimed that Huntington employee White had knowledge of Cyberco's fraud and communicated this to the FBI; however, the district court found no support for this claim in the record. The FBI did not suspect Teleservices of fraud until November 2004, when it obtained a search warrant for Cyberco. The absence of actual knowledge of wrongdoing led the district court to grant summary judgment to Huntington on the aiding and abetting claims.
Regarding the conversion claim, Michigan law requires proof of actual knowledge that property was stolen, embezzled, or converted for liability under MCL § 600.2919a. The district court found that El Camino did not provide sufficient evidence to establish Huntington's actual knowledge of any wrongdoing related to the funds in Cyberco's account, thus granting summary judgment on this claim as well.
Finally, El Camino contended that the district court erred in denying its motion for reconsideration based on the bankruptcy court's findings, which suggested that Huntington lacked good faith in accepting payments from Teleservices. El Camino argued that this lack of good faith implied actual knowledge of Cyberco's fraud, but the district court maintained that it had correctly ruled on the summary judgment.
Good faith is a separate issue from actual knowledge, which is crucial to El Camino's appeal concerning Huntington's awareness of Cyberco’s wrongdoings. El Camino fails to provide authority mandating the district court to consider the bankruptcy court's findings, which only address Huntington's good faith in accepting payments from Teleservices, not actual knowledge. The district court clarified that the cases were based on different legal contexts, and there was no conflict between the opinions. Additionally, the bankruptcy court's findings are preliminary and non-binding, and the district court is not obligated to reconsider its summary judgment ruling based on them. The findings may be reviewed later, and since the bankruptcy court's conclusion pertains to a different issue, the district court's refusal to reassess its decision was not an error. The ruling is affirmed.
