Bank of China, New York Branch v. Nbm LLC

Decision Date17 February 2004
Docket NumberDocket No. 02-9267.
Citation359 F.3d 171
PartiesBANK OF CHINA, NEW YORK BRANCH, Plaintiff-Appellee, v. NBM LLC, Yang Mei Corp., GEG International Inc., BOC Company, Non-Ferrous BM Corporation, Shumin Wang, John Chou, Dao Zhong Liu, CBL Ltd. a/k/a CBL Investment Company Grand Cayman, and Century Ltd., Defendants-Counter-Claimants-Appellants, RCHFINS, Inc., Defendant-Appellant, Sherry Liu, a/k/a Sherry Ping Liu, Defendant-Third-Party-Plaintiff-Appellant, Bank of China, Hong Kong Branch, a/k/a Bank of China (Hong Kong) Limited, Kwangtung Provincial Bank, Bank of China, Tokyo Branch, Bank of China, Cayman Islands Branch, PO Sang Bank Ltd., Bank of China, Third-Party-Defendants, C.H.G. Enterprises, Inc., National Budget Merchandise Inc., Sino-Place Alliance, Inc., BHK LLC, Minkang GU, Linda Xiao, Helen Zhou, Patrick Young, John and Jane Does 1-200, Sinco Trust Ltd., a/k/a Synco Trust, IFB Inter Establishment, Sunleaf, Inc., Beda A. Singerberger, Defendants, Hui Liu, Defendant-Counter-Claimant.
CourtU.S. Court of Appeals — Second Circuit

Richard D. Willstatter, Green & Willstatter, White Plains, NY, for Appellants John Chou, Sherry Liu, NBM LLC, Non-Ferrous BM Corp., Yang Mei Corp., and RCHFINS Inc.

Joshua L. Dratel and Marshall A. Mintz, Joshua L. Dratel P.C., New York City, for Appellants Shumin Wang, Dao Zhong Liu, GEG International, Inc., BOC Company, CBL Ltd., a/k/a CBL Investment Company Grand Cayman, and Century Ltd.

Richard A. DePalma and Kathryn M. Ryan, Coudert Brothers L.L.P., New York City, for Appellee.

Before: McLAUGHLIN and KATZMANN, Circuit Judges, SCHEINDLIN, District Judge.*

SCHEINDLIN, District Judge.

NBM LLC, Yang Mei Corporation, GEG International, Incorporated, BOC Company, Non-Ferrous BM Corporation, Shumin Wang, John Chou, Dao Zhong Liu, CBL Limited, Century Limited, RCHFINS Incorporated, and Sherry Liu ("Appellants") appeal from a decision of the United States District Court for the Southern District of New York (Denny Chin, Judge) denying them judgment as a matter of law following a jury verdict entered in favor of Bank of China, New York Branch. Bank of China alleged that Appellants, together with numerous non-appealing defendants, engaged in a scheme to defraud the Bank out of millions of dollars.

At trial, the jury found that all defendants were unjustly enriched at Bank of China's expense, committed fraud against Bank of China, and violated section 1962(d) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). The jury further found that defendants NBM LLC and Yang Mei Corporation breached loan agreements with Bank of China, that non-appealing defendant Patrick Young breached his fiduciary duties to the Bank, that defendants John Chou, Sherry Liu, NBM LLC, Yang Mei Corporation, BOC Company, and RCHFINS aided and abetted Young in breaching his fiduciary duties, and that defendants John Chou, Sherry Liu, NBM LLC, Yang Mei Corporation, GEG International, BOC Company, CBL Limited, Century Limited, and RCHFINS violated section 1962(c) of RICO. The jury awarded approximately $132 million to Bank of China, including $35.4 million in compensatory damages and a total of $96.4 million in punitive damages.

On September 11, 2002, Judge Chin denied defendants' motion to set aside the verdict. See Bank of China, New York Branch v. NBM, L.L.C., No. 01 Civ. 0815, 2002 WL 31027551 (S.D.N.Y. Sept.11, 2002). On September 13, 2002, the District Court entered judgment in favor of Bank of China, against NBM, Yang Mei, RCHFINS, John Chou, Sherry Liu, GEG, BOC, CBL, Century, Shumin Wang, Dao Zhong Liu, Helen Zhou, Hui Liu, Patrick Young, National Budget, CHG, BHK, Sino-Place, and Sunleaf, jointly and severally, in the amount of $106,361,504.40. This amount equaled $35,453,834.80 in compensatory damages, trebled pursuant to section 1964(c) of RICO.1 Appellants now appeal, arguing that the District Court committed various errors that deprived the defendants of a fair trial.

I. BACKGROUND

Bank of China alleged that the defendants defaulted on their loan obligations and perpetrated a massive fraud on Bank of China, beginning in 1991 and continuing until mid-2000. In sum, Bank of China claimed that various defendants borrowed huge sums from the Bank through false and misleading representations, and in many cases, forged documents. In violation of representations and contractual undertakings, the borrowed funds were converted into different currencies and transferred into accounts held by other defendants, which were represented to the Bank to be independent businesses; in fact, the "third-party businesses" were controlled by the borrowing defendants. The borrowed funds were then falsely represented to Bank of China to be "trade debt" owed to the borrowing defendants, thus creating the illusion that the borrowing defendants and the "third-party businesses" were thriving businesses with sufficient cash flows to sustain the borrowing limits approved by the Bank. The borrowed funds were also disguised as "collateral" for further loans, creating further indebtedness to the Bank. Finally, additional monies were drawn down against letters of credit issued under the increased credit facilities by the presentation of false and forged documents for non-existent transactions. The success of the fraud was dependent, in part, on bribes paid to defendant Patrick Young, then a deputy manager at Bank of China who handled defendants' transactions with the Bank.

II. DISCUSSION

Appellants argue that there was insufficient evidence to support the jury's verdict, and that the District Court committed numerous errors constituting abuses of discretion, thereby depriving the defendants of a fair trial. We conclude that two of Appellants' arguments are meritorious, and address each of those arguments in turn.

A. Jury Instructions

On the last day of trial, defendants requested that the Court instruct the jury that if senior Bank management knew of defendants' activities, that knowledge must be imputed to the Bank. As a result of its own research, the District Court concluded that defendants' proposed instruction misstated the law, and that the law was, in fact, the opposite of defendants' proposition. In so finding, the District Court relied on United States v. Rackley, 986 F.2d 1357, 1361 (10th Cir.1993) (upholding bank fraud conviction where the owner and director of the bank knew of the fraudulent activity); United States v. Weiss, 752 F.2d 777, 783-84 (2d Cir.1985) (upholding mail fraud conviction where the defendant argued that the illegal scheme was "presumptively used for the benefit of the corporation"); United States v. Yarmoluk, 993 F.Supp. 206, 209 (S.D.N.Y. 1998) ("[A]n institution may be defrauded even if its employees allow or participate in the fraudulent practices."). The District Court noted that it relied on criminal cases rather than civil cases, but found this distinction irrelevant because there is no difference between criminal bank fraud and bank fraud as a predicate act in a civil RICO claim. See Trial Transcript ("Tr." at 1744-45). The District Court also observed that general agency law would not support the defendants' proposed instruction because it is well established that when an agent acts adversely to its principal, the agent's actions are not imputed to the principal. See Wight v. BankAmerica Corp., 219 F.3d 79, 87 (2d Cir.2000).

The District Court therefore instructed the jury as follows:

[T]he bank is also an entity, a financial institution, as opposed to an individual, and it also must act through natural persons as its agents and employees. Now, certain defendants have argued that certain agents and employees of the bank knew of the true nature of the transactions in question, and that therefore the bank could not have been the victim of fraud. I instruct you that an institution may be defrauded, even if its agents and employees permitted or participated in the fraud. Where a financial institution is defrauded by an outsider working with agents and employees of that institution, it is the institution, not its agents or employees, that is the victim of the fraud. Accordingly, even if certain officers of the bank knew the true nature of the transactions, the bank nevertheless could have been defrauded. It is up to you, of course, to determine whether the bank has proven fraud by clear and convincing evidence.2

Tr. at 1872.

Appellants maintain that this instruction was erroneous because it relieved the Bank of its burden of proving reliance. Specifically, Appellants argue that the instruction precluded the jury from considering their defense that the actions complained of were sanctioned and authorized by the Bank's officers, and that therefore the Bank could not have detrimentally relied on any of the defendants' representations.

1. Standard of Review

"A jury instruction is erroneous if it misleads the jury as to the correct legal standard or does not adequately inform the jury on the law." Anderson v. Branen, 17 F.3d 552, 556 (2d Cir.1994). "An instruction must [ ] allow the jury to adequately assess evidence relied on by a party." District Council 37, Am. Fed'n of State, County & Mun. Employees, AFL-CIO v. New York City Dep't of Parks and Recreation, 113 F.3d 347, 355 (2d Cir.1997) (citing Carvel Corp. v. Diversified Mgmt. Group, 930 F.2d 228, 231-32 (2d Cir.1991)). "An erroneous instruction requires a new trial unless the error is harmless. An error is harmless only if the court is convinced that the error did not influence the jury's verdict. If an instruction improperly directs the jury on whether the plaintiff has satisfied her burden of proof, it is not harmless error because it goes directly to the plaintiff's claim, and a new trial is warranted." Gordon v. New York City Bd. of Educ., 232 F.3d 111, 115-16 (2d Cir.2000) (citations and quotation marks omitted); see also Girden v. Sandals Int'l, 262 F.3d 195, 203 (2d Cir....

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