Jo Ann Howard & Assocs., P.C. v. Nat'l City Bank, s. 19-2554

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Writing for the Court: COLLOTON, Circuit Judge.
• Citation: 11 F.4th 876
• Parties: JO ANN HOWARD AND ASSOCIATES, P.C., Special Deputy Receiver of Lincoln Memorial Life Insurance Company, Memorial Service Life Insurance Company, and National Prearranged Services, Inc.; National Organization of Life and Health Insurance Guaranty Associations; Missouri Life and Health Insurance Guaranty Association ; Texas Life and Health Insurance Guaranty Association, formerly known as Texas Life, Accident, Health and Hospital Service Insurance Guaranty Association; Illinois Life and Health Insurance Guaranty Association ; Kansas Life and Health Insurance Guaranty Association ; Oklahoma Life and Health Insurance Guaranty Association; Kentucky Life and Health Insurance Guaranty Association ; Arkansas Life and Health Insurance Guaranty Association, Plaintiffs - Appellees, v. NATIONAL CITY BANK, Defendant - Appellant, PNC Bank, N.A., Defendant - Appellant
• Docket Number: 19-3662,20-1438,Nos. 19-2554,s. 19-2554
• Decision Date: 30 August 2021

11 F.4th 876

JO ANN HOWARD AND ASSOCIATES, P.C., Special Deputy Receiver of Lincoln Memorial Life Insurance Company, Memorial Service Life Insurance Company, and National Prearranged Services, Inc.; National Organization of Life and Health Insurance Guaranty Associations; Missouri Life and Health Insurance Guaranty Association ; Texas Life and Health Insurance Guaranty Association, formerly known as Texas Life, Accident, Health and Hospital Service Insurance Guaranty Association; Illinois Life and Health Insurance Guaranty Association ; Kansas Life and Health Insurance Guaranty Association ; Oklahoma Life and Health Insurance Guaranty Association; Kentucky Life and Health Insurance Guaranty Association ; Arkansas Life and Health Insurance Guaranty Association, Plaintiffs - Appellees,
v.
NATIONAL CITY BANK, Defendant - Appellant,

PNC Bank, N.A., Defendant - Appellant,

Nos. 19-2554
19-3662
20-1438

United States Court of Appeals, Eighth Circuit.

Submitted: January 12, 2021
Filed: August 30, 2021

Farrell A. Carfield, Anthony Lawrence Giacomini, Robert J. Kelly, Clare S. Pennington, Daniel M. Reilly, Michael P. Robertson, Reilly LLP, Denver, CO, Sean Connelly, Connelly Law LLC, Denver, CO, Maurice B. Graham, Gray & Ritter, Saint Louis, MO, Eric John Magnuson, Robins & Kaplan, Minneapolis, MN, John M. McHugh, Fennemore & Craig, Denver, CO, Larry Pozner, LSPozner, LLC, Denver, CO, for Plaintiff-Appellees.

Meghan E. Ball, James F. Bennett, Elizabeth C. Carver, Edward L. Dowd, Jr., Gabriel E. Gore, Megan Heinsz, Jeffrey R. Hoops, James G. Martin, Caitlin E. O'Connell, Dowd & Bennett, Saint Louis, MO, for Defendant-Appellants

Before COLLOTON, WOLLMAN, and SHEPHERD, Circuit Judges.

COLLOTON, Circuit Judge.

PNC Bank and National City Bank appeal an award of damages after a bench trial that resulted in a judgment in favor of the appellees, Jo Ann Howard and Associates, P.C., and a group of state guaranty associations. The district court¹ ruled that Allegiant Bank breached its fiduciary duties in administering seven trusts, and that PNC was liable for the breach as the successor-in-interest to National City Bank, which in turn had acquired Allegiant. On appeal, the appellants, to whom we will refer as PNC, contest four aspects of the damages award. PNC argues that the district court: (1) improperly calculated compensatory damages, (2) erred in awarding prejudgment interest, (3) improperly awarded punitive damages, and (4) exceeded its authority by awarding attorney's fees and declining to reduce the award. We conclude that none of PNC's arguments establishes reversible error, and therefore affirm the judgment.

I.

This case arises out of the nationwide fraud scheme of National Prearranged Services, Inc. (NPS), a Missouri-based seller of pre-need funeral contracts. The Cassity family owned and operated NPS. The Cassitys also owned two Texas-based life insurance companies, Lincoln Memorial Life Insurance and Memorial Service Life Insurance Company.

Chapter 436 of the Missouri Revised Statutes, now repealed, governed the making of pre-need funeral contracts in Missouri during the relevant period. Mo. Rev. Stat. §§ 436.005-.071 (2008) (repealed 2009). A pre-need contract was an arrangement that required the current payment of money in consideration for funeral services to be provided later at the time of a death. Id. § 436.005(5). NPS sold pre-need funeral contracts that allowed consumers to purchase funeral services at a fixed price. When the pre-need contract's beneficiary died, the purchaser's chosen funeral home performed the funeral according to the contract. After the funeral, the funeral home submitted a written certification to

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NPS establishing that it provided the funeral services to the deceased beneficiary. Id. § 436.045. Upon receipt of the certification, NPS paid the funeral home the amount specified in the pre-need contract plus a "growth" payment.

When a consumer purchased a pre-need funeral contract, NPS could retain up to twenty percent of the proceeds of the contract, id. § 436.027, and was required to deposit the other eighty percent into a trust. Id. §§ 436.021.1(2), 436.027, 436.031.1. Once NPS paid the funeral home, NPS was entitled to a distribution from the trust equal to all deposits made into the trust for the particular pre-need contract. Id. § 436.045. Missouri law required NPS to appoint a state or federally chartered financial institution as trustee of its trusts. Id. § 436.031.1.

Allegiant Bank served as the trustee for seven of NPS's Missouri trusts. Allegiant served as trustee until May 2004, when it resigned after being acquired by National City Bank. Because National City Bank did not want to assume Allegiant's role as trustee, Allegiant transferred the trust assets to Bremen Bank, which became the trustee.

Allegiant's responsibilities as trustee were set forth in the NPS trust agreement, which was governed by Chapter 436. During Allegiant's tenure as trustee, Herbert Morisse served as Allegiant's trust administrator for the NPS trusts. Morisse's responsibilities included complying with the trust agreement and Chapter 436. Because the NPS trusts held funds in excess of $250,000, NPS was allowed to appoint an independent qualified investment advisor to make investment decisions for the trust property. Mo. Rev. Stat. § 436.031.2 (repealed). When Allegiant assumed its role as trustee, NPS already had appointed Wulf Bates & Murphy (Wulf) as its investment advisor. Wulf served throughout Allegiant's tenure as trustee. During this time, Wulf used trust assets to purchase Lincoln life insurance policies. The policies insured the lives of NPS's pre-need consumers in Missouri. When a consumer died, Lincoln paid the proceeds of the policies to the NPS trusts.

In 2007, insurance regulators discovered that NPS had engaged in massive fraud for years. At the direction of NPS, Lincoln routinely issued policy loans to NPS against Lincoln life insurance policies owned by the Missouri trusts without the trustee's written approval. NPS caused the loans to issue even though the trustee was the only party permitted to take such a loan. This practice depleted trust assets. Separately, and outside of Missouri, NPS manipulated the payment amounts reflected on life insurance policy applications, allowing it to retain most of the money that should have been sent to the issuing life insurance company. For example, if a consumer paid fifteen hundred dollars for an insurance policy, NPS would change the amount paid to five dollars, send five dollars to Lincoln, and keep the rest of the money.

As a result of this fraud, a Texas receivership court placed NPS, Lincoln, and Memorial into receivership, and the court appointed a special deputy receiver. After the three entities were placed into receivership, the receiver and the state guaranty associations agreed to a liquidation plan for the entities. Under the plan, the associations agreed that any death benefits that would otherwise be due or payable to NPS or its trusts under the policies would be paid to funeral homes. The funeral homes and consumers, in turn, agreed to assign to the associations any rights under, and causes of action relating to, the policies.

In August 2009, the appellees commenced this action. They sued on behalf of NPS, funeral homes, and consumers. The

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complaint alleged that Allegiant, PNC's predecessor, breached its fiduciary duties as trustee, acted negligently, and aided and abetted fraud and breach of fiduciary duty. Appellees asserted that Allegiant breached its fiduciary duties and acted negligently when it allowed NPS to take policy loans on the trust-owned insurance policies, failed to ensure that the loans were adequately secured, neglected to account adequately for the funds in the NPS pre-need trusts, failed to keep and review adequate records of trust transactions, and failed to verify trust account records. The complaint alleged that as a result of these breaches of duty and negligent acts, Allegiant allowed NPS agents to manipulate trust assets and siphon millions of dollars from the NPS trusts. In separate aiding-and-abetting claims, the complaint alleged that Allegiant knew of independent breaches of fiduciary duty by Wulf and acts of fraud by NPS, and substantially assisted or encouraged them.

In 2015, a jury awarded appellees $355.5 million in compensatory damages and $35.55 million in punitive damages. PNC appealed the judgment, and we concluded that the plaintiffs’ claims arose under trust law rather than tort law and should have been tried to the court. Jo Ann Howard & Assocs., P.C. v. Cassity , 868 F.3d 637, 645-49 (8th Cir. 2017). We also determined that the appropriate measure of damages is set forth in Restatement (Second) of Trusts § 205. Id. at 646.

On remand, the district court held a bench trial and issued a comprehensive opinion. The court concluded that Allegiant breached fiduciary duties that it owed the beneficiaries, and that PNC's defenses failed to relieve Allegiant of liability. The district court awarded damages for losses to the trusts under Restatement (Second) of Trusts § 205(a), but declined to award damages for profits made from the breach under § 205(b). The award totaled $100 million, and included compensatory damages, punitive damages, and prejudgment interest. After entry of the...