Opinion
No. 12–P–538.
2013-08-6
BANK OF AMERICA, N.A. v. PRESTIGE IMPORTS, INC., & others.
By the Court (COHEN, HANLON & AGNES, JJ.).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
This case returns to us following a jury trial on remand, pursuant to Bank of America, N.A. v. Prestige Imports, Inc., 75 Mass.App.Ct. 741, 917 N.E.2d 207 (2009) ( Prestige I ).
The plaintiff, Bank of America, N.A. (bank), appeals from the denial of its motion for judgment notwithstanding the verdict and for a new trial. Prestige Imports, Inc. (Prestige) cross appeals from the denial of its motion to offset the bank's loan deficiency judgment, the result of an earlier summary judgment ruling in the bank's favor. We affirm.
For the prior proceedings, including the remand order, see Prestige I.
1. Motion for judgment notwithstanding the verdict. In accordance with Prestige I, the issue to be tried on remand was whether the bank acted in bad faith in issuing nine treasurer's checks, debited to Prestige's account, at the direction of Wajahat Malick, a Prestige employee who lacked authorization to withdraw Prestige funds.
We framed the question of bad faith, under the Uniform Commercial Code (Code), G.L. c. 106, § 4–103(5),
The underlying scheme is described in Prestige I, supra at 743–747, 917 N.E.2d 207.
as whether bank officials remained consciously and deliberately indifferent to the fraud Malick was committing against Prestige using the treasurer's check scheme. Prestige I, supra at 758, 917 N.E.2d 207. Our review of the record from the present trial persuades us that there was sufficient evidence from which the jury could have found, or reasonably inferred, bad faith in connection with the bank's issuing the nine treasurer's checks to Malick. See generally General Dynamics Corp. v. Federal Pac. Elec. Co., 20 Mass.App.Ct. 677, 683, 482 N.E.2d 824 (1985). The judge instructed the jury that, in order to prove bad faith, “Prestige must prove that the bank knew of Malick's fraud and intentionally decided to ignore it”; he reiterated that bad faith required that the bank “actually knew of the fraud.” However, the judge also explained that the bank's knowledge could be proven by circumstantial evidence, and the bank does not challenge that instruction on appeal.
We apply the version of the Code applicable to the transactions here, which took place in 1989 and 1990. See Prestige I, supra at 748 n. 11, 917 N.E.2d 207.
The bank's reliance on Cahaly v. Benistar Property Exch. Trust Co., 451 Mass. 343, 350–357, 885 N.E.2d 800 (2008), is misplaced. The plaintiffs in that case sought to prove aiding and abetting conversion and aiding and abetting breach of fiduciary duty under New York law, which required proof of the defendant's actual knowledge and assistance. There, the record showed that the defendant had no contractual relationship with the plaintiffs and insufficient information to know of the nature of the primary wrongdoer's relationship with the plaintiffs to infer actual knowledge of the theft of their funds.
A reasonable view of the evidence indicates that the jury heard a combination of facts from which a rational inference of bad faith could be drawn. See generally Poirer v. Plymouth, 374 Mass. 206, 212, 372 N.E.2d 212 (1978). In particular, there was testimony from the bank's branch managers that the redeposit of a Prestige check made payable to the bank was not a proper deposit, and that such a transaction should have been either questioned or rejected. See Prestige I, supra at 759–760, 917 N.E.2d 207 (redeposit scheme constituted wrongful debit, as bank was supposed to ensure that named payee on the customer's check got the benefit of the funds). See also Govoni & Sons Constr. Co. v. Mechanics Bank, 51 Mass.App.Ct. 35, 40–41, 742 N.E.2d 1094 (2001) (bank bears the risk of paying out funds under a check listing the bank as payee).
Here, the bank employees who actually handled Malick's transactions testified that they made exceptions for him from the requirements of banking policy and procedure because he was familiar to them.
Prestige also introduced evidence of the bank's policy and procedure regarding the bank's duty to ensure that only the legitimately named payee of a check received the funds.
In addition, according to Malick, Paul Levandosky, the bank officer in charge of Prestige's loan account, questioned him on as many as four occasions, specifically asking if the account owner knew that Malick was redepositing Prestige checks, payable to the bank, in Prestige's account. From this, it was reasonable for the jury to infer that at least one bank employe, who was directly involved with Malick's redeposit of the Prestige loan payoff checks, had communicated concerns to Levandosky that the checks were being deposited in a manner that was contrary to the payee identified on the face of the check. In addition, there was evidence that, in November, 1989, Levandosky expressly approved the redeposit of four Prestige loan payoff checks lacking the account owner's signature. This provides further support for the inference that bank employees knew of, and were suspicious of, the manner in which Malick was handling Prestige funds, but that they nevertheless chose to ignore the irregularities rather than contact the account owner.
From all of the evidence, the jurors reasonably could have found that the bank deliberately closed its eyes when Malick's activities later turned more blatant in the treasurer's check scheme. Thus, they were warranted in concluding that, by permitting Malick's misuse of treasurer's checks in a manner that did not conform with the face of the checks and Prestige's usual practice, the bank was wilfully blind to Malick's lack of authorization to obtain such checks payable at his direction.
Indeed, bank employees admitted that they knew Malick was not the account owner and yet saw no need to check the Corporate Deposit and Borrowing Resolutions document, which Prestige had provided to the bank, to confirm Malick's authority to obtain Prestige funds with a check made payable solely to the bank.
The jury heard testimony that bank policy specified that only a person with full signatory authority could purchase a treasurer's check with a corporate check made payable to the bank.
The bank introduced Prestige checks made out to South Shore Bank, used to purchase treasurer's checks in early 1989, as proof that the checks used by Malick to purchase the nine treasurer's checks at issue here were not out of the ordinary for Prestige. However, those Prestige checks were not signed by Helmut Schmidt and, according to the record, predated Schmidt's sole ownership of Prestige; nor was there any indication that those checks had been used to obtain treasurer's checks to pay lienholders. Schmidt himself testified that ninety-nine percent of Prestige checks made payable to South Shore Bank were loan payoff checks; that occasionally checks made payable to South Shore Bank were used to obtain certified funds to pay taxes; and that, while lienholders typically were paid directly with Prestige checks, on the rare occasion that Prestige needed a treasurer's check to pay off a lien, the Prestige check used to obtain the treasurer's check listed the lienholder as payee. The jurors were entitled to credit Schmidt's testimony.
Overall, evidence supporting the jury's finding of bad faith in connection with the treasurer's check scheme, though not overwhelming, nonetheless was sufficient to justify the denial of the bank's motion for judgment notwithstanding the verdict. See Phelan v. May Dept. Stores Co., 443 Mass. 52, 55, 819 N.E.2d 550 (2004). The fact that the bank offered contrary evidence did not require that its motion for judgment notwithstanding the verdict be allowed. See Prestige I, supra at 761, 917 N.E.2d 207.
2. Redeposit scheme evidence. The bank seeks a new trial based on the judge's decision to admit evidence of Malick's redeposit scheme. According to the bank, by admitting such evidence, the judge, in essence, permitted Prestige to relitigate its bad faith claim against the bank for its role in connection with the redeposit of Prestige checks. Because a jury in the first trial had resolved that claim in the bank's favor, the bank argues that claim preclusion prohibited introduction of evidence concerning the redeposit scheme on retrial.
The record makes clear that the challenged redeposit scheme evidence was admissible for reasons apart from Prestige's previously-tried claim of bad faith. As this court observed in Prestige I, supra at 750, 917 N.E.2d 207, the jury in the first trial found that the bank wrongly had debited the redeposit checks to Prestige's account, in violation of c. 106, § 4–401. That finding was separate from Prestige's bad faith claim, which the jury in that trial resolved in the bank's favor. Because the redeposit transactions resulted in a wash to Prestige's account, we held in Prestige I, supra at 761–766, 917 N.E.2d 207, that no direct damages arose from the redeposits, and we dismissed Prestige's wrongful debit claim on that basis.
In the present case, we are satisfied that the judge acted within his discretion in deciding the relevance of the redeposit scheme evidence and any prejudice likely to be caused by its admission. See Sidney Binder, Inc. v. Jewelers Mut. Ins. Co., 28 Mass.App.Ct. 459, 462, 552 N.E.2d 568 (1990). Evidence of the redeposit scheme was relevant to the jury's understanding of Malick's entire embezzlement scheme and the bank employees' state of mind as that scheme unfolded; it plainly was relevant to Prestige's claim that the redeposit scheme was part of Malick's strategy, common to all three schemes, to ensure that the bank would make exceptions for him, as a familiar face associated with a valued business customer, and would come to treat Prestige loan payoff checks in accordance with his instructions, not in the manner they were written, and without notifying the account owner.
The judge rejected the bank's argument that the redeposit scheme was unrelated to the treasurer's checks scheme, observing that “[t]he gentleman has a scheme to cheat and steal from his employer, and he has little different angles to do it, different ways to do it.” As the judge reasoned, Malick was stealing from his employer, and “[h]e does it by manipulating the bank account in various ways, and [the jury] should hear all the ways it seems to me .” Malick himself confirmed that the redeposit of payoff checks served as the vehicle for his eventual thefts, first by substituting payoff checks for cash and customer checks, and then by using payoff checks to purchase treasurer's checks, payable to his own bank.
Nor was evidence of the redeposit scheme unfairly prejudicial to the bank, at least in part because the jury repeatedly heard testimony that the redeposit scheme itself resulted in a wash—that it caused no harm to Prestige. We also reject the bank's assertion that the conversations between Malick and Levandosky regarding the redeposit scheme were unfairly prejudicial and not relevant because Levandosky did not work at the bank's South Weymouth branch and was not involved in the treasurer's check transactions. As noted, the jury reasonably could infer that Levandosky was contacted by a bank employee from the South Weymouth branch concerning Malick's misuse of the payoff checks, and it was for the jury to assess the credibility of the bank employees who denied contacting Levandosky.
In addition, the bank argues that evidence of the redeposit scheme should have been excluded as impermissible evidence of the banks' prior bad acts or character. See, e.g., Maillet v. ATF–Davidson Co., 407 Mass. 185, 188, 552 N.E.2d 95 (1990). The redeposit evidence was not admitted to prove that the bank's tellers processed the treasurer's checks; they admitted as much. Rather, the evidence was relevant to show the bank's course of conduct in handling Malick's banking transactions and the exceptions made for him over the course of his embezzlement scheme. See Brodin & Avery, Massachusetts Evidence § 4.4.6 (8th ed.2007).
The decision whether to instruct the jury regarding the earlier jury's finding of no bad faith in connection with the redeposit scheme was likewise a matter within the judge's discretion. See General Dynamics Corp. v. Federal Pac. Elec. Co., 20 Mass.App.Ct. at 684, 482 N.E.2d 824. The jury were repeatedly reminded throughout the current trial that the only issue to be resolved was the bank's bad faith in connection with the issuance of the nine treasurer's checks; the scope of the issue for their decision was reiterated in the judge's instructions. We presume the jury followed those instructions. See Costa v. Brait Builders Corp., 463 Mass. 65, 75, 972 N.E.2d 449 (2012).
3. Damages. The bank seeks a new trial based on the judge's instructions to the jury on the issue of consequential damages. The bank maintains that expert testimony was necessary to school the jury on the extent to which the bank's issuance of the nine treasurer's checks to Malick caused loss to Prestige. However, the judge's instructions were consistent with Prestige I, supra at 765, 917 N.E.2d 207, wherein we observed that Prestige's recoverable damages for the treasurer's check scheme were those proximately caused by the bad faith conduct.
See, e.g., Or v. Edwards, 62 Mass.App.Ct. 475, 486, 818 N.E.2d 163 (2004) (proximate cause turns on reasonable foreseeability of the harm). The bank provides no authority to support its position that expert testimony was needed to establish the causal link.
See also comment 6 to G.L. c. 106, § 4–103( c ), as amended by St.1998, c. 24, § 8, which indicates that proximate cause regarding the recovery of consequential damages “is to be tested by the ordinary rules applied in comparable cases.”
As a final matter, we see no abuse of discretion in the judge's denial of the bank's motion for a new trial on the grounds that the verdict was markedly against the weight of the evidence. See, e.g., Robertson v. Gaston Snow & Ely Bartlett, 404 Mass. 515, 520–521, 536 N.E.2d 344 (1989).
The bank also provided no authority for its contention that a new trial was warranted based on the evidence of business value offered by Prestige's expert, which included future cash flow projections, and we do not reach the issue. Mass.R.A.P. 16(a)(4), as amended, 367 Mass. 921 (1975).
4. Cross appeal on deficiency judgment. In Prestige I, supra at 767 & n. 37, 917 N.E.2d 207, this court set forth the procedure for addressing the deficiency judgment on remand. Prestige failed to follow that procedure, which required a determination by the trial judge, on proper motion by Prestige, that the prior summary judgment ruling should be reopened and the issue presented to the jury. Indeed, counsel for Prestige stated in his opening that there had already been a pretrial finding by the judge in the foreclosure action that the bank was within its legal rights to foreclose. See, e.g., Prestige I, supra at 747–748, 917 N.E.2d 207 (summary judgment for bank on claim for wrongful default based on Schmidt's own admission that Prestige had been out of trust during 1989 and 1990, for failing to remit payment to the bank for vehicles sold).
Prestige's attempt, at the end of the current trial, to add a jury instruction and special question on the issue of wrongful default came too late for purposes of trying the claim, and, in any event, Prestige does not seek a new trial on that basis. Without a separate finding of wrongful default by the jury, the judge rightly declined to disturb the bank's deficiency judgment.
Judgment affirmed.