American Bank of St. Paul v. Carolina First Bank
Filing
290
MEMORANDUM OPINION AND ORDER denying 271 Plaintiff's Motion to Alter/Amend/Correct Judgment; granting in part 275 Plaintiff's Motion to Alter/Amend/Supplement Pleadings; denying 278 Defendant's Motion for Judgment as a Matter of Law (Written Opinion). Signed by Judge Ann D. Montgomery on 03/06/2012. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
American Bank of St. Paul,
Plaintiff,
v.
MEMORANDUM OPINION
AND ORDER
Civil No. 09-2240 ADM/TNL
TD Bank, N.A.,
Defendant.
______________________________________________________________________________
Eric J. Nystrom, Esq., Anthony N. Kirwin, Esq., Daniel N. Sacco, Esq., John C. Ekman, Esq., and
William P. Wassweiler, Esq., Lindquist & Vennum PLLP, Minneapolis, MN, on behalf of Plaintiff.
Alan L. Kildow, Esq., Jeffrey E. Mitchell, Esq., and Sonya R. Braunschweig, Esq., DLA Piper LLP,
Minneapolis, MN and San Francisco, CA, and Eric S. Golden, Esq., Howard S. Marks, Esq., and Joe
A. Joseph, Esq., Burr & Forman LLP, Orlando and Winter Park, FL and Birmingham, AL, on behalf
of Defendant.
_____________________________________________________________________________
I. INTRODUCTION
This matter is before the undersigned United States District Judge for a ruling on Plaintiff1
1
Plaintiff American Bank originally filed this suit in its own right as a plaintiff. Because American
Bank sought relief on behalf of other banks, this Court’s May 9, 2011 Order [Docket No. 109]
required American Bank to seek ratification from the other participating banks in the Participation
Agreement. American Bank received ratification from the participant banks which include: Alerus
Financial Corporation; Bank of Hazelton; Border State Bank; Dakota Western Bank; First State Bank
& Trust; Republic Bank; Ridgedale State Bank (n/k/a Highland Bank); American State Bank & Trust
Company of Williston; Bank of Bozeman; Border Trust Company; Crown Bank; Farmers &
Merchants State Bank of Pierz; Farmers & Merchants State Bank of Tolna; First International Bank &
Trust; First National Bank in Wadena; First Security Bank of Canby; First State Bank; Forreston State
Bank; Frontier Bank; Integrity Bank; Security State Bank of North Dakota (n/k/a Bank Forward);
State Bank in Eden Valley; United Minnesota Bank; United Prairie Bank Springfield; and Wadena
State Bank. For clarity and ease of reference, this Order will refer to them collectively as the
“participating banks.”
American Bank of St. Paul’s (“American Bank”) Motion to Alter or Amend the Judgment [Docket No.
271] (“Pl.’s Mot. to Amend”) and Supplemental Motion to Alter or Amend the Judgment [Docket No.
275] (“Pl.’s Supp. Mot.”). Also before this Court is Defendant TD Bank, N.A.’s (“TD Bank”) Motion
in Support of Judgment as a Matter of Law [Docket No. 278] (“Def.’s Summ. J. Mot.”). For the
reasons set forth below, Defendant’s Motion is denied, Plaintiff’s Motion to Amend is denied, and
Plaintiff’s Supplemental Motion is granted in part.
II. BACKGROUND
On August 26, 2009, Plaintiff filed a Complaint [Docket No. 1] alleging Defendant committed
fraud by omission, fraud, civil conspiracy to commit fraud, common law aiding and abetting, breach of
the duty of good faith and fair dealing, and breach of contract. In March 2010, Plaintiff filed an
Amended Complaint [Docket No. 44] adding punitive damages. This Court dismissed most of
Plaintiff’s claims on Defendant’s motion for summary judgment, leaving only civil conspiracy to commit
fraud and common law aiding and abetting as triable issues. May 9, 2011 Order.
The trial began on November 7, 2011 and concluded with a verdict on December 1, 2011.
Testimony from 37 witnesses was heard, and 139 exhibits out of 1489 proposed exhibits were
admitted into evidence. The jury verdict found in favor of the participating banks on both remaining
claims. Judgment [Docket No. 269] 1. The jury awarded damages to the participating banks in the
amount of $13,557,900.50, id., but declined to award punitive damages in the second stage of the
bifurcated trial. Judgment was entered on December 13, 2011. Id. Plaintiff filed its Motion to Amend
on December 23, 2011, and its Supplemental Motion on January 9, 2012. Defendant filed its Motion
for Summary Judgment on January 10, 2012.
2
III. DISCUSSION
A. Plaintiff’s Motion to Amend or Alter the Judgment
Plaintiff’s Motion to Amend requests that this Court amend the judgment by increasing the
jury’s damage award. Rule 59(e) of the Federal Rules of Civil Procedure permits a motion to alter or
amend a judgment. District courts have broad discretion in determining whether to amend their own
judgment. Innovative Home Health Care, Inc. v. P.T.-O.T. Assocs. of the Black Hills, 141 F.3d 1284,
1286 (8th Cir. 1998). Such motions are to be granted sparingly because of the interest in finality and
conservation of scarce judicial resources. Pa. Ins. Guar. Ass’n v. Trabosh, 812 F.Supp. 522, 524
(E.D.Pa. 1992). A motion to amend serves “the limited function of correcting manifest errors of law or
fact or to present newly discovered evidence.” United States v. Metro. St. Louis Sewer Dist., 440
F.3d 930, 933 (8th Cir. 2006) (internal quotations omitted).
A motion to amend a court’s judgment which seeks increased damages is sharply constrained
by the Seventh Amendment, which guarantees trial by jury and thereby prohibits a federal court from
increasing a jury verdict through additur. See Novak v. Gramm, 469 F.2d 430, 432–33 (8th Cir.
1972). While remittitur does not violate the Seventh Amendment, “an increase by the court is a bald
addition of something which in no sense can be said to be included in the verdict.” Dimick v. Schiedt,
293 U.S. 474, 486 (1935).
Plaintiff avers that the jury impermissibly reduced its damages from the entire amount of loss,
$27,137,550, to the awarded $13,557,900.50. Plaintiff contends that the damages were undisputed,
and because the jury found Defendant fully liable on both counts this Court should therefore increase
the judgment as a matter of law. Plaintiff cites several cases from other jurisdictions in its support.
3
Decato v. Travelers Ins. Co., 379 F.2d 796, 798 (1st Cir. 1967) (“[T]he constitutional rule against
additur is not violated in a case where the jury has properly determined liability and there is no valid
dispute as to the amount of damages.”) (internal citation omitted) (footnote omitted); Liriano v. Hobart
Corp., 170 F.3d 264, 272–73 (2d Cir. 1999) (finding it permissible for a district court to increase a
damage award where it “did not divine a figure and then make the defendants choose between an
increased damage award and a new trial” but “simply adjusted the jury award to account for a discrete
item that manifestly should have been part of the damage calculations and as to whose amount there
was no dispute”).
The Eighth Circuit Court of Appeals, however, has not adopted this legal theory. Rather, the
Eighth Circuit has stated that, “If . . . . the issue of damages was an issue of fact for the jury, as the
parties and the court obviously thought it was when the case was submitted, the court was
unquestionably without power to increase the judgment entered on the jury’s verdict.” Milprint, Inc. v.
Donaldson Chocolate Co., 222 F.2d 898, 901 (8th Cir. 1955). Here, the issue of damages was a
question of fact for the jury. The Special Verdict Form, to which neither Plaintiff nor Defendant
objected, specifically allowed the jury the opportunity to award damages in any amount up to the
maximum $27,137,550. See Special Verdict Form [Docket No. 262] § 11 (asking the jury to
determine “what amount of compensatory damages, if any, are each of the banks entitled to receive”)
and § 29 (“In deciding damages, decide the amount of money that will fairly and adequately
compensate American Bank and/or each participating bank for the damages directly caused by relying
on Louis Pearlman’s misrepresentation.”). No manifest error of law or fact occurred. In fraud claims,
the misrepresentation must be the proximate cause of the damages. See Martens v. Minn. Min. & Mfg.
4
Co., 616 N.W.2d 732, 747 (Minn. 2000). Although the jury found that each participating bank’s
reliance was reasonable and that Defendant was liable, the jury had the discretion to determine which
participating banks relied on the misrepresentation.2 The jury could have determined that the
participating banks’ reasonable reliance only caused some of their damage and therefore only awarded
partial damages. Here, where the issue of damages hinged on whether the participating banks
reasonably relied on the misrepresentations and whether that reliance caused the alleged damages, the
issue of damages was a fact for the jury and cannot now be overturned by this Court.
B. Plaintiff’s Supplemental Motion to Amend or Alter the Judgment
Plaintiff also filed a Supplemental Motion requesting that this Court award prejudgment interest
in one of the following fashions: (1) prejudgment interest calculated on the full $27,137,550 from the
date the damages became liquidated, December 1, 2006, until December 13, 2011; (2) prejudgment
interest calculated on the jury award of $13,557,900.50 from December 1, 2006, to December 13,
2011; or (3) prejudgment interest calculated on $13,557,900.50 from the date the Complaint was filed,
August 26, 2009, until December 13, 2011. Defendant rejects the argument that Plaintiff is entitled to
any prejudgment judgment but contends that, at the most, Plaintiff’s prejudgment interest must be based
on Defendant’s most recent settlement offer because it was closest to the eventual verdict.
In Minnesota, prejudgment interest on liquidated or sum-certain claims can be awarded from
the date the claims first arose. ICC Leasing Corp. v. Midwestern Mach. Co., 257 N.W.2d 551, 556
2
While representatives from American Bank, Alerus Financial Corporation, Bank of Hazelton,
Border State Bank, Dakota Western Bank, First State Bank & Trust, Republic Bank
and Ridgedale State Bank (n/k/a Highland Bank) testified, the parties stipulated to the testimony of the
remaining nineteen banks. See Court Exhibit List [Docket No. 270] Ex. 1 (“Stipulation”).
5
(Minn. 1977) (“[W]here a claim is unliquidated but is readily ascertainable by computation or by
reference to generally recognized objective standards of measurement, interest should be allowed the
same as for a liquidated claim.”). Where the damages are not liquidated and not readily ascertainable,
Minnesota law requires that prejudgment “interest on pecuniary damages shall be computed . . . from
the time of the commencement of the action or a demand for arbitration, or the time of a written notice
of claim, whichever occurs first.” Minn. Stat. § 549.09, subd. 1(b); see also Simeone v. First Bank
Nat’l Ass’n, 73 F.3d 184, 191 (8th Cir. 1996) (quoting Lienhard v. State, 431 N.W.2d 861, 865
(Minn. 1988)) (stating that Minn. Stat. § 549.09 permits prejudgment interest “irrespective of a
defendant’s ability to ascertain the amount of damages for which [it] might be held liable”). The statute
clearly dictates that the prevailing party “shall receive interest” on any award, with few limited
exceptions. Id. “If either party serves a written offer of settlement, the other party may serve a written
acceptance or a written counteroffer within 30 days,” and “[s]ubsequent offers and counteroffers
supersede the legal effect of earlier offers and counteroffers.” Minn. Stat. § 549.09, subd. 1(b). When
judgments are over $50,000, the interest rate is ten percent each year until paid. Minn. Stat. § 549.09,
subd. 1(c)(2).
Defendant argues that this Court should calculate the prejudgment interest from its final offer of
November 11, 2011. See Braunschweig Aff. [Docket No. 284] Ex. 2. This final settlement offer
came during the jury trial, and it failed to include several participating banks — American Bank of St.
Paul, Republic Bank, First State Bank of Bayport, and Alerus Financial “[t]o the extent [its
representative] testifies [on November 11, 2011] . . . .” Id. Since “the purpose of [Minn. Stat. §
549.09] is to promote settlement, [and] this is best accomplished by penalizing the party who fails to
6
respond to a settlement overture . . . .”, Hodder v. Goodyear Tire & Rubber Co., 426 N.W.2d 826,
841 n.17 (8th Cir. 1988), Plaintiff’s failure to make a counteroffer does not remove this settlement offer
from the purview of Minn. Stat. § 549.01(1)(b). However, because the Minnesota legislature’s
purpose was to promote settlement and final resolution of cases, “[v]alid offers . . . must offer, in
sufficiently clear and definite terms, to dispose completely the claims between the negotiating parties.”
Hodder, 426 N.W.2d at 840. Because Defendant’s settlement offer failed to include several
participating banks,3 and therefore could not completely dispose of the claim, its offer was not a valid
offer under Minn. Stat. § 549.01(1)(b) and prejudgment interest will not be calculated based on that
sum.
Plaintiff’s argument that prejudgment interest should be calculated from the time the damages
became liquidated and on the total $27,137,550 is unpersuasive. The traditional rule in Minnesota,
which predates Minn. Stat. § 549.09(1)(b) and which continues to be applied,4 permits prejudgment
interest on liquidated claims and on unliquidated claims except when they are “not readily ascertainable
by computation or by reference to generally recognized standards, or where the amount of the claim is
dependent in whole or in part upon the discretion of the jury.” Clements Auto Co. v. Service Bureau
Corp., 444 F.2d 169, 189 (8th Cir. 1971). Damages are liquidated when they arise out of a breach of
contract claim. See St. Jude Med., Inc. v. Medtronic, Inc., 536 N.W.2d 24, 28 (Minn. Ct. App.
3
Defendant’s settlement offer conspicuously failed to include the lead bank in this case,
American Bank, and it declined to make an offer to the two participating banks alleging the most
damages — American Bank ($4,759,926) and Republic Bank ($3,799,257).
4
Minn. Stat. § 549.09, subd. 1(b) applies “[e]xcept as otherwise provided by contract or
allowed by law,” specifically recognizing the traditional rule regarding unliquidated claims.
7
1995) (“A liquidated damages analysis is inappropriate here, however, because this case lacks the
breach of contract necessary to invoke such analysis.”). Damages in this case are not liquidated
because they do not arise out of a breach of contract claim. Although Plaintiff alleged a breach of
contract claim in its Complaint, this Court dismissed that cause of action in its May 9, 2011 Order, and
the damages arising from the conspiracy and aiding and abetting claims were not contractual in nature
and therefore not liquidated.
The unliquidated damages here were also dependent upon the discretion of the jury,5 see
Special Verdict Form § 11, so the prejudgment interest cannot be calculated on the $27,137,550
Plaintiff requested. Because the damages were not liquidated or readily ascertainable prior to the filing
of Plaintiff’s Complaint, the prejudgment interest is calculated under Minn. Stat. § 549.09. Plaintiff did
not serve Defendant with a written notice of claim, so the prejudgment interest is properly calculated
from the time of the commencement of the action, August 26, 2009,6 until the verdict was awarded,
December 1, 2011, on the amount of the jury award, $13,557,900.50, at ten-percent interest under
Minn. Stat. § 549.09, subd. 1(c). The total amount of prejudgment interest to which Plaintiff is entitled
5
Notably, Plaintiff’s Complaint and Amended Complaint both requested actual damages in
excess of $36,000,000; this also suggests that the unliquidated damages were not readily ascertainable.
6
Defendant avers that Plaintiff cannot seek prejudgment interest from the commencement of the
action because they had initially asserted claims on behalf of other banks and on loans to which they
were not the real party in interest. This issue has already been discussed in this Court’s May 9, 2011
Order, when Plaintiff was allowed a “reasonable time after objection” for ratification of the participating
banks because no showing of undue prejudice had been made by Defendant. Id. at 22. Because the
participating banks all ratified, the date of the original filing of the action — August 26, 2009 — is the
proper date for calculating prejudgment interest.
8
is $3,075,600.44.7
C. Defendant’s Motion for a New Trial
Defendant requests that this Court grant its motion for judgment as a matter of law or,
alternatively, a new trial or an amended judgment. Defendant argues that Plaintiff failed to prove
Defendant had actual knowledge of the fraud and substantially assisted that fraud, that Plaintiff’s
reliance was not proven reasonable, that inadmissible evidence was permitted in court and admissible
evidence was excluded, and that the jury instructions were erroneous. The decision whether to grant a
new trial under Federal Rule of Civil Procedure 59(a) is committed to the discretion of the district
court. Pulla v. Amoco Oil Co., 72 F.3d 648, 656 (8th Cir. 1995). “A new trial is required only when
necessary to avoid a miscarriage of justice.” Gearin v. Wal-Mart Stores, Inc., 53 F.3d 216, 219 (8th
Cir. 1994) (citation omitted). “While the standard for granting a new trial is less stringent than for
judgment as a matter of law, a new trial shall be granted only to prevent injustice or when the verdict
strongly conflicts with the great weight of evidence.” Maxwell v. Baker, Inc., 160 F.R.D. 580, 581 (D.
Minn. 1995). Similar to the standard for granting judgment as a matter of law, a district court reviewing
a motion for a new trial is “not free to reweigh the evidence and set aside the jury verdict merely
7
YEAR
AMOUNT
RATE
DAYS
TOTAL
2009
$13,557,900.50
.1
128
$475,455.14
2010
$13,557,900.50
.1
365
$1,355,790.05
2011
$13,557,900.50
.1
335
$1,244,355.25
GRAND TOTAL=
$3,075,600.44
9
because the jury could have drawn different inferences or conclusions or because judges feel that other
results are more reasonable.” Fireman's Fund Ins. Co. v. Aalco Wrecking Co., 466 F.2d 179, 186
(8th Cir. 1972) (quoting Tennan v. Peoria & Pekin Union Ry., 321 U.S. 29, 35 (1944)).
1. Substantial Assistance
Defendant specifically argues that its participation in the Participation Agreement and its
forbearance on Lou Pearlman’s loans do not constitute “substantial assistance,” citing for support a
case from the Second Circuit, In re Sharp Int’l Corp. v. State Street Bank, 403 F.3d 43 (2d Cir.
2005). While the Sharp court did hold that forbearance was insufficient to constitute substantial
assistance, that reasoning is neither binding nor persuasive here. Defendant did more than merely
forebear on the loan; the evidence showed that Defendant affirmative entered into the Participation
Agreement, which enabled it to close and the fraud to occur. Coupled with the forbearance, it was not
unjust or in conflict with the evidence for the jury to determine that Defendant substantially assisted the
fraud. Moreover, Defendant’s argument that the jury could not have found they had actual knowledge
of the fraud also fails. The testimony and evidence presented at trial was sufficient for a jury to find
Defendant had actual knowledge of Pearlman’s fraud.
2. Reasonable or Justifiable Reliance
Defendant’s argument that Plaintiff’s reliance was not proven reasonable or justifiable does not
pass muster. The jury was presented evidence about the participating banks’ due diligence, evidence
that information about Pearlman and Transcontinental Airlines (“TCA”) were publicly available, and
evidence about what each bank did or did not do prior to engaging in the Participation Agreement.
Given this evidence, no miscarriage of justice occurred when the jury concluded that Plaintiff relied on
10
Pearlman’s fraudulent statements in the Offering Memorandum and that Plaintiff’s reliance was
justifiable or reasonable. Accordingly, the jury verdict will not be overturned or retried on this issue.
3. Evidentiary Rulings
Defendant’s contentions that evidentiary determinations require a new trial are unavailing. Trial
courts have “broad discretion in determining the relevancy and admissibility of evidence.” United States
v. Watson, 650 F.3d 1084, 1089 (8th Cir. 2011) (citation omitted). These evidentiary rulings were
decided throughout the course of the trial and the Court rests on its rulings and rationale as set forth in
the court transcript.8 In summary, though, the post-loan emails and evidence to which Defendant
objects reflected Defendant’s state of mind at the time of the Participation Loan, were more relevant
than prejudicial, and were therefore admissible. Similarly, the Legg email was admissible because it
was relevant and not unfairly prejudicial. The transcript of Pearlman’s hearing was properly excluded
because it was not relevant, lacked foundation, and was hearsay. Les Alexander’s expert testimony
was properly excluded to the extent it dealt with post-closing evidence, because such evidence was
unfairly prejudicial and not relevant. Also properly excluded was Galen Clements’ testimony relating
to what a full fraud investigation would have entailed, given that the testimony lacked relevance and was
unfairly prejudicial. The Court accordingly affirms its evidentiary rulings and will not grant a new trial on
this basis.
4. Jury Instructions
Defendant argues that the jury instructions were clearly erroneous. A new trial may be ordered
8
The entire transcript has not yet been made available on CM/ECF.
11
if the court erred in instructing the jury on the applicable law. T.H.S. Northstar Assocs. v. W.R. Grace
& Co.-Conn., 860 F. Supp. 640, 650 (D. Minn. 1994), vacated on other grounds, 66 F.3d 173 (8th
Cir. 1995). A district court, however, has broad discretion in framing instructions and “need not give
every proposed instruction as long as the court adequately presents the law and the issues to the jury.”
Fleming v. Harris, 39 F.3d 905, 907 (8th Cir. 1994). Moreover, the instructions are to be considered
“in their entirety to determine whether, when read as a whole, the charge fairly and adequately submits
the issues to the jury.” Laubach v. Otis Elevator Co., 37 F.3d 427, 429 (8th Cir. 1994). “A single
erroneous instruction will not necessarily require reversal.” Id.
Defendant avers that Jury Instruction No. 23 was clearly erroneous because it failed to include
the language “blind reliance” and instead stated, “[R]eliance is unreasonable or not justifiable when a
business relies on a representation it knows to be false or is obviously false.” Jury Instructions [Docket
No 260] 25. Defendant cites Mitec Partners, LLC v. U.S. Bank Nat’l Ass’n, 605 F.3d 617 (8th Cir.
2010), which states that the victim of fraud cannot recover if it “blindly relies on a misrepresentation the
falsity of which would be patent to [it] if [it] had utilized [its] opportunity to make a cursory examination
or investigation.” Id. at 623 (citation omitted). However, the words “blind reliance” are not required
for a jury instruction, and the given instruction sufficiently and accurately reflects the law on reasonable
or justifiable reliance.
Defendant also takes issue with Jury Instruction No. 26, stating that the instruction was clearly
erroneous for failing to provide additional instructions about “actual knowledge.” Defendant states that
it was vital for the jury to be instructed that “suspicions,” “red flags,” and hindsight evaluations are not
actual knowledge. The Court adheres to the validity of its instructions. Constructive knowledge was
12
not at issue in this trial, so lengthy explanations about “actual knowledge” would not have been helpful
to the jury. Moreover, the elements of substantial assistance and actual knowledge are analyzed
together on a sliding scale,9 so further definition would have been likely to mislead or confuse the jury as
to the amount of knowledge required. For all these reasons, the jury instructions were not erroneous
and do not warrant a new trial.
The jury heard counsel’s arguments and weighed the evidence. The jury’s final determination
that TD Bank had actual knowledge of the fraud and substantially assisted that fraud, as well as that
Plaintiff’s reliance was reasonable, is supported by the weight of the evidence. The jury also properly
exercised its fact-finding role in determining the amount of damages. The jury’s verdict is fair and just.
IV. CONCLUSION
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1. American Bank’s Motion to Alter or Amend the Judgment [Docket No. 271] is DENIED;
2. American Bank’s Supplemental Motion to Alter or Amend the Judgment [Docket No. 275]
is GRANTED;
3. American Bank is awarded $3,075,600.44 in prejudgment interest; and
9
In pertinent part, Jury Instruction No. 26 states that “a greater showing of knowledge on the
part of [Defendant] of the details of Pearlman’s fraudulent conduct towards [Plaintiff] and/or the
participating banks, and [Defendant’s] role within that conduct, requires a lesser showing of substantial
assistance. On the other hand, a greater showing of substantial assistance requires a lesser showing of
knowledge.” Id. at 28.
13
4. TD Bank’s Motion in Support of Judgment as a Matter of Law [Docket No. 278] is
DENIED.
LET JUDGMENT BE ENTERED ACCORDINGLY.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: March 6, 2012.
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