Investments v. TD Bank, N.A.

• Citation: 760 F.3d 1300
• Decision Date: 29 July 2014
• Docket Number: No. 12–11161.,12–11161.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)
• Parties: COQUINA INVESTMENTS, Plaintiff–Appellee, Cross–Appellant, v. TD BANK, N.A., Defendant–Appellant, Cross–Appellee.

760 F.3d 1300

COQUINA INVESTMENTS, Plaintiff–Appellee, Cross–Appellant,

v.TD BANK, N.A., Defendant–Appellant, Cross–Appellee.

No. 12–11161.

United States Court of Appeals, Eleventh Circuit.

July 29, 2014.

Miguel A. Estrada, Gibson, Dunn & Crutcher LLP, Washington, DC, David Scott Mandel, Nina Stillman Mandel, Camellia Noriega, Jason Brent Savitz, Mandel & Mandel, LLP, Miami, FL, for Plaintiff–Appellee, Cross–Appellant.

Peter James Covington, McGuire Woods, LLP, Charlotte, NC, Lawrence Robbins, Joshua Sean Bolian, Donald J. Russell, Mark Thomas Stancil, Robbins Russell Englert Orseck Untereiner & Sauber, LLP, Washington, DC, Donna M. Evans, Greenberg Traurig, LLP, Boston, MA, Danielle N. Garno, Glenn E. Goldstein, Mark Paul Schnapp, Holly R. Skolnick, Greenberg Traurig, LLP, Fort Lauderdale, FL, Marcos Daniel Jimenez, McDermott Will & Emery, LLP, Miami, FL, for Defendant–Appellant, Cross–Appellee.

Appeals from the United States District Court for the Southern District of Florida. D.C. Docket No. 0:10–cv–60786–MGC.

Before ANDERSON and GILMAN,^* Circuit Judges, and JOHNSON, ^** District Judge.

ANDERSON, Circuit Judge:

This case arises out of the billion-dollar Ponzi scheme perpetrated by Scott Rothstein. Plaintiff Coquina Investments (“Coquina”) invested with Rothstein and lost over $6.7 million when his scheme collapsed. Defendant TD Bank, N.A. (“TD Bank”) was the bank through which Rothstein handled transactions with his investors. Coquina claims that TD Bank made material misrepresentations and took other actions to help Rothstein perpetrate the fraud.

The case was tried before a jury, which returned a verdict for Coquina. The district court subsequently denied TD Bank's renewed motion for judgment as a matter of law and alternative motion for a new trial, to alter and amend judgment, and for remittitur. TD Bank appeals that denial on multiple grounds. It also appeals the district court's post-trial order imposing sanctions for discovery misconduct— i.e., as a sanction, the district court deemed two crucial facts established. Coquina cross-appeals the district court's denial of its motion to amend its complaint to better plead a Racketeer Influenced and Corrupt Organizations Act (“RICO”) claim. We affirm in all respects.

I. BACKGROUND ¹

A. Rothstein's Ponzi scheme ²

In 2009, Scott Rothstein, then a prominent South Florida lawyer, purported to represent whistleblowers and victims of sexual harassment. According to Rothstein, the defendants in those cases agreed to pay enormous sums to avoid litigation. To ensure confidentiality, they supposedly entered into “structured settlements” in which they paid large amounts to Rothstein's law firm, Rothstein Rosenfeldt Adler (“RRA”), but required RRA to release the money over time, with the proviso that the victims would forfeit the deferred payments if they breached confidentiality. Some victims, Rothstein claimed, desperately wanted immediate payment and would forgo a large portion of the settlement to get it. On that pretext, Rothstein asked wealthy investors to finance immediate payments to victims of a fraction of the settlement in exchange for receiving the entire settlement in very quick installments. Rothstein assured his investors that the defendants had already deposited the full amount of the settlements in TD Bank trust accounts that RRA administered, so there was little or no risk of loss in the investments that he offered. In reality, the clients, defendants, and settlements were all fictitious; Rothstein used the money provided by new investors to repay old investors and to finance an elaborate lifestyle.

Coquina is a Texas investment partnership. Partners and non-partners can apparently contribute capital to Coquina, which invests the capital in its own name and divides the profits in proportion to each investor's contribution. Between April and October 2009, Coquina invested $37.7 million with Rothstein. Coquina lost around $6.7 million when Rothstein's Ponzi scheme collapsed in late October 2009.

To convince Coquina to make multi-million dollar investments, Rothstein promised Coquina that the settlement money allegedly deposited by settling defendants could be held in a TD Bank trust account that contained heightened transfer restrictions. Rothstein sent Coquina so-called “lock letters” signed by TD Bank's then-regional vice president Frank Spinosa, which claimed that the funds in the trust account could be disbursed only to Coquina. That claim was false: Rothstein was able to transfer funds to himself from that account and did so on occasion. Further, according to Coquina's version of the events, Spinosa falsely assured Coquina's investors that the restriction described in the “lock letters” was effective and commonplace at TD Bank. Spinosa also allegedly told the investors that there were millions of dollars in the restricted account when in fact there was only $100 in the account at the time.

B. The settlement agreement

In November 2009, shortly after Rothstein's Ponzi scheme was discovered, creditors of RRA petitioned the Bankruptcy Court for the Southern District of Florida to reorganize the law firm under Chapter 11 of the Bankruptcy Code. On May 5, 2010, the appointed bankruptcy trustee (“the Trustee”) sent Coquina a demand letter asserting claims against Coquina for avoidable transfers; the essence of the Trustee's claims against Coquina was to “claw back” the “return on investment” that Rothstein had previously distributed to Coquina. Coquina settled with the Trustee shortly before the trial in this case.

Under the settlement, Coquina agreed to immediately return $12.5 million to the RRA estate. Moreover, if Coquina prevailed in this case against TD Bank, the estate would receive a portion of Coquina's recovery—up to a maximum of $18.6 million. In return, the Trustee agreed to release any claims he might have against Coquina and its agents, partners, and related individuals or entities. The Trustee further agreed that Coquina would be allowed a general unsecured claim in the bankruptcy case for the amounts paid pursuant to the settlement.

As relevant to this appeal, the settlement agreement also contained the following recital:

[A]s a material inducement to entering into this Settlement, Coquina and its counsel have represented to the Trustee and his counsel that neither Coquina, nor its partners, [nor] investors ... had any knowledge of the Rothstein Ponzi scheme ... and that, as of the date of this Settlement Agreement, the Trustee has no knowledge to the contrary nor any indication of Coquina's knowledge of or complicity in or with the Rothstein Ponzi scheme.

C. Proceedings before the district court

Coquina filed this lawsuit against TD Bank on May 12, 2010, alleging that the bank aided and abetted Rothstein's Ponzi scheme, made fraudulent misrepresentations, and engaged in a pattern of racketeering activity in violation of RICO.³ The district court granted summary judgment in favor of TD Bank on the RICO claim and denied Coquina's request to amend. The aiding and abetting and fraudulent misrepresentation claims went to trial.

This appeal primarily concerns three rulings made by the district court at trial. First, the court allowed Spinosa to be called to testify even though he had decided to invoke his Fifth Amendment privilege against self-incrimination in response to all substantive questions. The district court further instructed the jury that it could, but was not required to, draw adverse inferences against TD Bank from Spinosa's silence, and that it could, in conjunction with other evidence that was presented, consider Spinosa's silence in determining TD Bank's liability.

Second, the district court admitted into evidence, over TD Bank's hearsay objection, the settlement agreement between Coquina and the Trustee, including the recital quoted above that Coquina had represented to the Trustee that it did not know about Rothstein's fraud and that the Trustee knew of no information that would indicate otherwise. Coquina then used the recital for the truth of the matter asserted; that is, in its rebuttal at closing, Coquina used the recital as substantive evidence to counter TD Bank's defense that Coquina's investors knew or should have known that Rothstein's venture was fraudulent.

And third, the district court ruled that Coquina could claim as damages the amount that it paid—and will pay if it prevails in this case—in settlement to the RRA estate because the amount was reasonable and attributable to TD Bank's alleged misconduct.

The jury returned a verdict in favor of Coquina on both the aiding and abetting and the fraudulent misrepresentation claims. For each claim, the jury awarded Coquina $16 million in compensatory damages and $17.5 million in punitive damages. Thus, the total compensatory damages award was $32 million, of which approximately $7 million represented Coquina's actual loss from the Ponzi scheme ($6.7 million plus interest), and the remaining $25 million represented the sum of the $12.5 million that Coquina had already paid in settlement to the Trustee and the amount (another $12.5 million) that the Trustee is entitled to receive under the settlement from Coquina's recovery in this case.⁴ The total damages award was $67 million. The district court subsequently denied TD Bank's renewed motion for judgment as a matter of law and alternative motion for a new trial, to alter and amend judgment, and for remittitur.

D. Post-trial discovery sanctions

Multiple problems with TD Bank's discovery came to light during and after the trial. For example: ⁵

1) TD Bank's Federal Rule of Civil Procedure 30(b)(6) designee testified before trial that there were no anti-money laundering (“AML”) alerts for Rothstein's bank accounts until late September 2009 and less than five thereafter. But weeks before trial, TD Bank produced around 150 pages of AML alerts for Rothstein's accounts; TD Bank then produced more AML alerts,...