Antitrust Law Daily Wrap Up, RICO—SDOhio: Bank’s Motion for Preliminary Injunction Granted in Check Deposit Fraud RICO Case, (Nov 28, 2012)

By Tobias J. Gillett, J.D., LLM.

The federal district court in Columbus, Ohio has granted Huntington National Bank’s motion for a preliminary injunction to freeze accounts held by individuals and a corporate entity the bank alleges have engaged in fraudulent deposits of federal checks (Huntington National Bank v. Guishard, Wilburn & Shorts, LLC, November 26, 2012, Marbley, A.). Among other claims, the court concluded that the bank is likely to succeed on the merits of its RICO claim against three individuals and the corporation.

In its motion for temporary restraining order and preliminary injunction, Huntington alleged that Allen Pendergrass, Nathan Pendergrass, Clyde Parks, and Joseph Gray conducted a check fraud scheme under which federal checks, such as tax refunds and social security checks, totaling $806,358.51, were deposited to an account at Huntington. The account belonged to Guishard, Wilburn & Shorts, LLC (GWS), a corporate entity with an allegedly false address and apparently without assets whose account documents listed Allen Pendergrass as its president. Shortly after the checks were deposited, the individuals made large withdrawals from the GWS account, totaling over $500,000.

Huntington later received reclamation requests from the federal government concerning a majority of the checks deposited, requiring that the bank repay the funds received from the federal government. The original payee had initiated each reclamation request, and had asserted that he or she did not receive the check, obtain benefit from it, or authorize anyone else to deposit it. Huntington alleged that Pendergrass submitted forged copies of a payee’s driver’s license.

Huntington alleged it believed all the checks deposited to the account were likely stolen and had forged endorsements, and believed the defendants would have no way to repay the reclamation costs other than through the funds received from the checks. Huntington brought its motion to enjoin the defendants from transferring money out of Huntington accounts, and to permit it to stop transactions involving the defendants.

Both Parks and Gray asserted that they had no knowledge of the fraud. Parks claimed he only deposited a few check for Allen Pendergrass, in exchange for a nominal fee. Gray claimed he believed the checks were involved in activities he had previously conducted for Pendergrass as part of an asset recovery business. He alleged that he received 3% of each check deposited.

In holding that Huntington would likely succeed in its RICO claim against Pendergrass, Gray, and GWS, the court reviewed the elements of a RICO claim, including (1) conduct (2) of an enterprise (3) through a pattern (two or more acts) (4) of racketeering activity. The court determined that GWS and the individual defendants constituted an enterprise for RICO purposes. The court concluded that intentionally depositing 51 stolen federal checks with forged endorsements, negotiating them at Huntington, and later withdrawing the funds “satisfie[d] RICO’s definition of bank fraud.” As some of the checks had allegedly been stolen from out-of-state payees, and significant amounts of the funds obtained had apparently been transferred out-of-state, the defendants’ conduct also met the definition of interstate transport of stolen property, in the court’s view. The court also determined that “the frequency and repetition of these Defendants’ conduct in this case evinces a pattern of such racketeering activity.”

However, the court concluded that Parks likely did not possess the necessary scienter to satisfy “the ‘racketeering activity’ element of the RICO statute.” Although Gray made a similar assertion of lack of knowledge and intent, the court observed that “the unsupported allegations in his favor carry limited weight.” The court thus found that Huntington would likely “succeed on the merits of its RICO claims against GWS, Allen Pendergrass, Gray and Nathan Pendergrass.”

The court also found that Huntington would likely succeed on the merits of its claims for common law fraud, recovery under Ohio’s Uniform Commercial Code, and civil conspiracy against GWS, Allen Pendergrass, Gray and Nathan Pendergrass. As the court found the other elements of irreparable harm to the plaintiff, the balance of harms between plaintiff and defendants, and the public interest were also met, the court granted Huntington’s request for a preliminary injunction, except as it related to Parks.

The case is No. 2:12-CV-1035.

Albert Grant Lin (Ice Miller LLP) for Huntington National Bank. Guishard, Wilburn & Shorts, LLC, pro se.

Cases: RICO OhioNews