An investor urged the appellate panel to keep his claims moving forward in federal court, where he is trying to hold JPMorgan Chase liable for his loss of $1.85 million in a movie-financing scheme.
(CN) — JPMorgan Chase was met with skepticism from the 11th Circuit’s chief judge Wednesday while pushing for arbitration in a civil conspiracy case filed against it in connection with a movie-funding fraud scheme.
The case arose over a scheme in which movie producer Benjamin McConley convinced investors to hand over millions of dollars based on bogus claims that he would help fund their film projects. McConley falsely claimed the money would be held safely in bank accounts and used as collateral for movie-financing credit lines.
According to the Department of Justice, McConley and his partner Jason Van Eman funneled the money to themselves and used fake bank documents to keep the scheme going. Both men were established film producers with popular movie projects in their credits.
The plaintiff, Brad Tuckman, claims McConley and Van Eman bamboozled him into handing over $1.85 million. The money was supposed to be returned after a credit line was obtained to help Tuckman fund production of the film “Dr. Bird’s Advice for Sad Poets.”
Tuckman secured consent judgments against McConley’s and Van Eman’s companies, and then filed the federal lawsuit at hand against JPMorgan Chase and a former Chase banker in November 2019.
Tuckman claims Chase and the then-banker facilitated the scheme by allowing McConley and Van Eman to continue their Chase banking relationship in the face of red flags. He also alleges that the banker legitimized the alleged fraudsters’ false promises in a series of email communications between the parties.
On Wednesday, Chase continued on a long-running effort to route the civil case into arbitration. Its attorney urged an 11th Circuit panel to overturn a district court decision, which shot down attempts to invoke an arbitration agreement in Tuckman’s original funding deal with McConley’s and Van Eman’s companies.
Chief U.S. Circuit Judge William Pryor Jr. appeared skeptical that Chase had the right to enforce the arbitration agreement, given that neither Chase nor Tuckman, as an individual, were parties to the contract. The judge noted that Tuckman had signed the arbitration agreement on behalf of Bird Film Fund, a company he partly owned.
“You’re trying to enforce an arbitration agreement against another non-party. … I don’t see how we can possibly allow that,” said Pryor, a George W. Bush appointee.
Chase’s counsel Peter Homer responded that Tuckman should not be able to avoid arbitration by “artfully” pleading around it. Namely, the lawyer argued that Tuckman intentionally sued as an individual rather than through his company to avoid being bound by the arbitration agreement.
“The reason we are having this debate is because of [Tuckman’s] attempt to plead around the agreement itself in such a way as to eviscerate the effect of [it],” the lawyer argued. “If you allow that kind of behavior to go on, you’re going to have people engaging in exactly this kind of thing to eviscerate arbitration provisions.”
Homer argued in his brief that the bank can invoke the arbitration under the equitable estoppel doctrine, and as a potential third-party beneficiary of the funding contract.
He recounted that Tuckman’s company already obtained millions of dollars in consent judgments against the fraud’s alleged perpetrators in state court. As Homer framed it, Tuckman’s litigation against Chase is an “attempt to collect even more money, this time from deep-pocketed banks.”
Tuckman’s counsel Freddy Funes urged the court to uphold the district judge’s decision and keep the litigation moving forward in federal court.
Funes argued in his brief that the arbitration agreement is void because it meets the definition of an “artifice of criminal fraud.” If enforced against the alleged perpetrators of the fraud, the agreement as written “would have shielded the scheme from judicial scrutiny,” he wrote.
“If enforced here among three non-signatories, the result would be no different: Chase and [the former banker] would be able to evade ‘the powerful discovery process of federal courts’ by hatching a ride on delegation and other arbitration clauses originally designed to protect Van Eman and McConley … from precisely such scrutiny,” Funes continued, citing Fifth Circuit precedent.
Funes also contends that any entitlement to arbitrate was voided back in 2018, when Tuckman and the companies that allegedly bilked him surrendered their contractual rights under a settlement process.
He characterized Chase’s attempt to frame itself as a third-party beneficiary of the funding contract as a “farce.”
Chief Judge Pryor was joined on the panel by U.S. Circuit Judge Jill Pryor, a Barack Obama appointee, and Tripp Self, a visiting judge from the Middle District of Georgia.
Both McConley and Van Eman were criminally charged in connection with the alleged movie-funding scheme. In October 2019, McConley pleaded guilty to conspiracy to commit wire fraud.