Pleading Knowledge and Assistance in Florida Aiding-and-Abetting Fraud: Otto Candies, LLC v. Citigroup, Inc.

Introduction

Otto Candies, LLC v. Citigroup, Inc. is a landmark Eleventh Circuit decision clarifying how plaintiffs must plead fraud and related claims under Florida law and federal procedural rules. Thirty-one plaintiffs—shipping and leasing firms, bondholders, investment funds, and a bank—alleged that Citigroup, through its subsidiary Banamex and its Institutional Client’s Group (ICG), knowingly participated in a transnational fraudulent scheme with Mexican oil‐services contractor Oceanografía S.A. de C.V. (“OSA”). Between 2008 and 2014, Citigroup advanced over $3.3 billion to OSA, far in excess of the value of the underlying Pemex contracts, based on forged documents and lax internal controls. When OSA collapsed, the plaintiffs lost over $1 billion. The district court dismissed all counts for failure to state a claim; on appeal, the Eleventh Circuit reversed, holding that the plaintiffs met the heightened pleading standards of Rule 9(b) and stating key principles for aiding‐and‐abetting fraud, substantive RICO claims, vicarious liability, and conspiracy.

Summary of the Judgment

In a unanimous opinion by Judge Grant, the Eleventh Circuit reversed the district court’s dismissal of seven causes of action. It held that:

The plaintiffs adequately pleaded that Citigroup knew of OSA’s fraudulent cash-advance scheme and provided substantial assistance, satisfying the elements of a Florida aiding-and-abetting-fraud claim under Rule 9(b).
Citigroup could be held liable for its own misrepresentations and omissions, and for those of its agents (Banamex and Citibank) and third parties (OSA’s financial consultant and Pareto), because it knowingly supplied and circulated false or incomplete financial information to investors.
The complaint sufficiently alleged reliance by each plaintiff on specific misstatements or omissions when investing in or dealing with OSA.
The plaintiffs pled a viable substantive RICO claim (18 U.S.C. § 1962(c)) based on a pattern of wire‐fraud predicate acts, at least two of which fell within the ten-year “continuity” window.
The RICO conspiracy (18 U.S.C. § 1962(d)) and common-law fraud conspiracy claims were adequately supported by detailed allegations of agreement, overt acts, and joint participation in the scheme.
Vicarious-liability counts—actual and apparent agency—survived because the plaintiffs incorporated hundreds of pages of factual detail showing Banamex and Citibank acted as Citigroup’s agents in perpetrating the fraud.

The court remanded for further proceedings and declined to reassign the case, finding no basis to question the district judge’s impartiality.

Analysis

Precedents Cited

Rule 9(b) (Fed. R. Civ. P.): “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud.”
Mizzaro v. Home Depot, 544 F.3d 1230 (11th Cir. 2008): Knowledge may be alleged generally; the “who, what, when, where, how” standard governs the misstatement itself, not the defendant’s state of mind.
Sun Life Assurance Co. v. Imperial Premium Fin., 904 F.3d 1197 (11th Cir. 2018): Even under Rule 9(b), knowledge can be pleaded generally.
Chang v. JPMorgan Chase, 845 F.3d 1087 (11th Cir. 2017): Florida’s aiding-and-abetting-fraud tort requires actual knowledge and substantial assistance.
Bridge v. Phoenix Bond, 553 U.S. 639 (2008): Reliance is not required for wire-fraud predicate acts in a civil RICO claim.
H.J. Inc. v. Northwestern Bell Tel., 492 U.S. 229 (1989): Explains open-ended and closed-ended continuity for RICO patterns.

Legal Reasoning

1. Aiding-and-Abetting Fraud under Florida Law
– Actual knowledge: The court rejected a novel “strong inference” requirement borrowed from the PSLRA. Under Rule 9(b) and Florida law, “[k]nowledge may be alleged generally,” and allegations that Citigroup employees were terminated or criminally charged for involvement in the scheme, together with suspiciously inflated cash-advance amounts, suffice to plead knowledge.
– Substantial assistance: Citigroup’s approval of hundreds of millions in fraudulent cash advances, its participation in investor presentations, and its supervisory role over Banamex all constituted substantial assistance.

2. Common-Law Fraud and Reliance
– The plaintiffs meticulously pleaded “who, what, when, where, how” for each misrepresentation or omission by Citigroup, its agents, OSA, or third‐party financial consultants.
– Specific examples (e.g., a September 26, 2012 call assuring Otto Candies that its debt was “over-collateralized,” a Banamex email promising MADISA “no problem receiving payments,” and Citigroup’s logo on investor decks) demonstrate actionable statements and omissions.
– Reliance: Each plaintiff tied its decision to invest, renew credit, or restructure loans directly to those misstatements or omissions.

3. Substantive RICO
– Predicate acts of wire fraud were pleaded with particularity. The continuity requirement was met by alleging repeated fraudulent cash advancements and failures of internal control from 2008 to 2014.
– The PSLRA bar (18 U.S.C. § 1964(c)) does not apply to non-securities-fraud claims by shipping companies, lenders, or holders who simply “maintained” investments.

4. Conspiracy
– RICO conspiracy (18 U.S.C. § 1962(d)) need only allege knowledge of the RICO enterprise. The plaintiffs pleaded a years-long collaboration with OSA to inflate advances, falsify documents, and mislead investors.
– Common-law conspiracy under Florida law requires only an agreement to commit fraud, an overt act, and resulting damage. Detailed charts and factual narratives supplied ample evidence of agreement and overt acts.

5. Vicarious Liability
– Citibank and Banamex acted as actual and apparent agents of Citigroup. By incorporating hundreds of pages of factual allegations, the plaintiffs showed that those entities made misrepresentations in the course of Citigroup’s business.

Impact on Future Cases

Reaffirms that under Rule 9(b) plaintiffs may plead a defendant’s knowledge generally, without PSLRA’s “strong inference” standard.
Clarifies that banks can be held liable for third-party fraud if they knowingly supply or circulate false or incomplete financial data.
Emphasizes that reliance need not be pleaded in RICO claims and that continuity can encompass long-running schemes spanning multiple years.
Confirms that conspiracy claims—both RICO and common law—survive on circumstantial evidence of agreement and overt acts in complex, multi-actor schemes.
Strengthens the enforceability of aiding-and-abetting fraud under Florida law, spotlighting actual knowledge and substantial assistance elements.

Complex Concepts Simplified

Rule 9(b) vs. PSLRA Pleading: 9(b) demands specificity on “who, what, when, where, how” of fraud but allows general allegations of knowledge; PSLRA requires a “strong inference” of scienter only in securities cases.
Aiding-and-Abetting Fraud: A tort under Florida law requiring (1) underlying fraud, (2) actual knowledge, (3) substantial assistance.
Substantial Assistance: Affirmative support of fraud—e.g., approving bogus advances or providing false data to investors.
Vicarious Liability: Principals are liable for wrongful acts of agents (actual or apparent) committed within their scope.
RICO Continuity: “Open-ended” (ongoing threat) or “closed-ended” (a series of related acts) patterns of racketeering within a decade.
Conspiracy: Agreement + unlawful objective + overt act + damages. Direct or circumstantial proof of agreement suffices.

Conclusion

Otto Candies v. Citigroup clarifies how sophisticated fraud and RICO schemes must be pleaded in federal court under Florida law. The Eleventh Circuit rejected a heightened “strong inference” requirement for knowledge, confirmed that banks may incur liability for assisting or concealing fraud by third parties, and upheld detailed conspiracy claims. Plaintiffs who meticulously map out misstatements, omissions, reliance, and agency relationships will clear the Rule 9(b) threshold and advance to discovery. This decision will guide litigants in framing fraud, aiding-and-abetting, RICO, and conspiracy claims against complex financial enterprises in the years to come.