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Savino v. Lloyds TSB Bank

June 8, 2007

WILLIAM F. SAVINO AND PETER J. FIORELLA, AS CO-RECEIVERS OF MUTO, ET AL., PLAINTIFFS,
v.
LLOYDS TSB BANK, PLC, DEFENDANT.



The opinion of the court was delivered by: John T. Elfvin S.U.S.D.J.

MEMORANDUM and ORDER*fn1

INTRODUCTION

In this action, plaintiffs William F. Savino and Peter J. Fiorella*fn2 (hereinafter "Savino"), as Co-Receivers of several individuals and entities associated with Richard Muto , allege various causes of action including but not limited to breach of contract, breach of third party beneficiary rights, conversion, aiding and abetting conversion and breach of fiduciary duty against the defendant Lloyds TSB Bank, Plc ("Lloyds"). Although still in the initial pleading stage, this action already has a complicated history. Savino commenced this action in New York State Supreme Court, Erie County and Lloyds removed it to this Court on October 11, 2005. On November 14, 2005, Lloyds filed a Motion to Dismiss the Complaint and Savino filed a Motion to Remand. On December 19, 2005, while those Motions were being briefed by the parties, Savino filed an Amended Complaint which mooted Lloyds' Motion to Dismiss and Savino's Motion to Remand.

Thereafter, Lloyds filed a Motion to Dismiss the Amended Complaint or for More Definitive Statement. Savino filed a Memorandum and Exhibits in Opposition to the Motion as well as a proposed second amended complaint to be filed in the event the Court finds the Amended Complaint to be deficient. The proposed second amended complaint, in addition to clarifying Savino's factual allegations, purports to add new factual allegations and causes of action against Lloyds. In fact, Savino's Memorandum in Opposition to the Motion cites to the proposed second amended complaint, rather than to the Amended Complaint. However, the operative pleading at this point in time is the Amended Complaint and the Court will consider Lloyds's arguments in support of its Motion as well as Savino's arguments in opposition only with respect to the allegations contained within the Amended Complaint.

BACKGROUND

In 2002 and 2003, two civil actions were commenced in New York State Supreme Court, Erie County against Richard Muto and other defendants. Those actions were Ciura v. Muto, Index No. I2002-6499, and Matheis v. Muto, Index No. I2003-8802. Approximately 75 plaintiffs in Ciura and approximately 54 plaintiffs in Matheis, sued, among others, Richard Muto, Deborah Muto, DebRick Trust, Tax & Investment Strategies Trust, Kenneth R. Darnley a/k/a Matthew Business Trust, Robert H. Matheis, Sr. a/k/a Continental Asset Management Trust, Leonard Palumbo a/k/a LenJen Trust, Allen Sinal a/k/a Scaramouche Trust and Scott Prokaska ("the Muto Defendants"), alleging that they had been defrauded by the Muto Defendants when the Muto Defendants solicited the plaintiffs' investments in a scheme managed by Merit Quest Management International, Ltd. and Hercules Holdings ("the Merit Quest scheme"). The Matheis and Ciura plaintiffs alleged that, collectively, they were defrauded of millions of dollars through their investments in the Merit Quest scheme. The actions were thereafter consolidated and designated a class action pursuant to New York State law. On June 23, 2003, a default judgment was entered against DebRick Trust, Tax & Investment Strategies Trust and others. In October 2003, Richard and Deborah Muto consented to the entry of a judgment against them in the amount of $15 million dollars.*fn3

On December 8, 2004, the State Court appointed William Savino*fn4 as Judgment Receiver for the Muto Defendants in the consolidated actions.*fn5 As part of the Receiver's duty, Savino was authorized to prosecute any claims on behalf of the Muto Defendants so that any potential recovery would inure to the benefit of the Matheis and Ciura plaintiffs. The State Court's Order specified that Savino could prosecute in his name, but on behalf of the Muto Defendants, any action against defendant Lloyds.

In May 2005, Savino commenced the instant action in New York State Supreme Court, Erie County. Although the action is commenced in Savino's name as Receiver of Muto, Savino purports to represent "the Muto Parties," which group is comprised of the Muto Defendants as well as the plaintiffs in the Matheis and Ciura actions ("the Muto Plaintiffs").

FACTS

Savino alleges that, in 1999, the Muto Defendants approached the Muto Plaintiffs about investing in the Merit Quest scheme. Savino alleges that the Muto Parties - i.e., both the Muto Defendants and the Muto Plaintiffs - "were advised"*fn6 that funds invested in the Merit Quest scheme would be held in a Merit Quest trust account maintained by Lloyds, specifically Trust Account No. 1800 4546 ("the Trust Account") in London, England. As a return on their investment, Savino alleges that the Muto Parties were promised interest payments of at least 25% per month on the funds they invested. Savino further alleges that the "managers" of the Merit Quest scheme provided the Muto Parties with a Trust Agreement*fn7 wherein Lloyds agreed that all principal funds deposited into the Trust Account "would not be withdrawn unless so demanded by the individual investors who deposited funds in the Trust Account."*fn8 Am. Compl. ¶18.

The following facts are alleged by Savino only upon information and belief:

that, through the Trust Agreement, Lloyds agreed with the Muto Parties that the funds they deposited into the Trust Account would not be withdrawn except upon their directions; that Lloyds provided wire transfer instructions to the Muto Parties*fn9; that from 1999 to 2000 the Muto Parties wire transferred funds intothe Trust Account in London, England; that the Muto Parties followed the specific wire transfer instructions provided by Lloyds; that Lloyds represented*fn10 to the Muto Parties that the funds wired in to the Trust Account were guaranteed, insured and monitored by Lloyds by agreement; that, when Merit Quest ceased making interest payments in or about October 2000, the Muto Parties requested that Lloyds return the funds they had deposited into the Trust Account; and that, by act or omission, Lloyds misrepresented to the Muto Parties that Merit Quest maintained a Trust Account with Lloyds.

Savino further alleges that Lloyds refused to return the funds deposited by the Muto Parties despite demand for same, that Lloyds failed to follow the specific wiring instructions provided by the Muto Parties, that Lloyds failed to send notice to the sending bank that Lloyds deviated from the specific wiring instructions provided by the Muto Parties and that Lloyds knew or should have known that the Trust Account was not properly executed or established.

Savino makes several allegations that Lloyds accepted the wire transfers of the Muto Parties into an account not properly executed as a trust account, yet makes contradictory allegations that Lloyds knew or should have known that the managers of the Merit Quest scheme had no account with Lloyds. Compare Am. Compl. ¶¶29-32, with Am. Compl. ¶33. Further complicating the issue, Savino alleges that, after the funds were deposited by the Muto Parties into the Trust Account, the funds were fraudulently transferred to other unknown accounts - see Am. Compl. ¶36 -, yet later alleges that the funds were "actually misdirected by [Lloyds] into an account of the fraudulent, ...


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