Lyons v. Jefferson Bank & Trust

• Decision Date: 03 May 1993
• Docket Number: 92-1212 and 92-1377,Nos. 92-1209,s. 92-1209
• Citation: 994 F.2d 716
• Parties: David J. LYONS, Commissioner of Insurance for the State of Iowa and receiver for the Iowa Trust, Plaintiff-Appellee/Cross-Appellant, v. JEFFERSON BANK & TRUST, a Colorado corporation, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 716

994 F.2d 716

25 Fed.R.Serv.3d 1005

David J. LYONS, Commissioner of Insurance for the State of Iowa and receiver for the Iowa Trust Plaintiff-Appellee/Cross-Appellant, v. JEFFERSON BANK & TRUST, a Colorado corporation Defendant-Appellant/Cross-Appellee.

Nos. 92-1209, 92-1212 and 92-1377.

United States Court of Appeals, Tenth Circuit.

May 3, 1993.

Rehearing Denied June 17, 1993.

William C. Waller, Jr. (Denis H. Mark and Robert M. Vinton with him, on the briefs) of Vinton, Waller, Slivka & Panasci, Denver, CO, for defendant-appellant/cross-appellee.

Walter W. Garnsey, Jr., of Kelly/Haglund/Garnsey & Kahn, Denver, CO (Edwin S. Kahn of Kelly/Haglund/Garnsey & Kahn, Bonnie J. Campbell, Atty. Gen., and Anuradha Vaitheswaran, Asst. Atty. Gen., Iowa Securities Bureau, Des Moines, IA, with him, on the briefs), for plaintiff-appellee/cross-appellant.

Before McKAY, Chief Judge, McWILLIAMS and KELLY, Circuit Judges.

McKAY, Chief Judge.

I

This case is a dispute between two innocent parties, both of which had the misfortune of retaining Mr. Steven Wymer as their investment counselor. On November 25, 1991, Defendant Jefferson Bank & Trust sought to temporarily liquidate its portfolio of $44.7 million under the management of Mr. Wymer. Jefferson Bank re-invested these moneys the next day. On December 9, 1991, the Securities and Exchange Commission filed a civil action against Mr. Wymer and the companies he controlled. On December 10, 1991, Jefferson Bank liquidated its position with Mr. Wymer for a second time, this time permanently. Two hours later, all of Mr. Wymer's assets were frozen at the request of the SEC.

On December 13, 1991, the Iowa Trust, an investment vehicle for several public organizations in the state of Iowa, informed Jefferson Bank that the moneys it received as proceeds of the first liquidation on November 25, were actually the proceeds of Iowa Trust's portfolio with Mr. Wymer, which had been embezzled earlier that day. Iowa Trust claimed that it could trace those funds through a complex series of transactions to Jefferson Bank's account.

Four days later, on December 17, a criminal complaint was filed in United States District Court for the Central District of California, charging Mr. Wymer with securities fraud and mail fraud. On September 29, 1992, Mr. Wymer plead guilty to one count of violating the RICO statute, 18 U.S.C. § 1962(c) (1988), three counts of mail fraud contrary to 18 U.S.C. § 1341 (1988), one count of bank fraud contrary to 18 U.S.C. § 1344 (1988), three counts of securities fraud contrary to 15 U.S.C. § 78j(b) (1988) and 17 C.F.R. § 240.10b-5 (1991), and one count of obstruction of the SEC contrary to 18 U.S.C. § 1505 (1988). He also agreed to forfeit substantially all his assets to create a fund to reimburse his victims. The companies he controlled are now in Chapter 7 liquidation proceedings.

When Jefferson Bank refused Iowa Trust's demand to return the funds in question, Iowa Trust ¹ filed this diversity suit in the District of Colorado, and asked for a temporary restraining order placing the money in escrow. The trial court denied the T.R.O. but subsequently granted a preliminary injunction under which Jefferson Bank was ordered to place $43.1 million in escrow. Lyons v. Jefferson Bank & Trust, 781 F.Supp. 1525 (D.Colo.1992) [hereinafter Lyons I ]. ²

The suit progressed on an expedited basis and came to trial in late April 1992. At trial, Iowa Trust presented detailed evidence of a long series of transactions, all occurring on November 25, 1991, through which its funds were transferred to Jefferson Bank's account. It also presented evidence which showed that the portfolio assets that Jefferson Bank thought were sold on November 25 did not in fact exist. Jefferson Bank, in presenting its case, relied almost exclusively on the records provided by Mr. Wymer to demonstrate that it did indeed own a substantial portfolio, and that all it received on November 25 were the proceeds of the sale of those assets.

In its findings of fact and conclusions of law, the trial court found that "the overwhelming credible evidence" supported Iowa Trust's version of the facts. Lyons v. Jefferson Bank & Trust, 793 F.Supp. 981, 984 (D.Colo.1992) [hereinafter Lyons II ]. Accordingly, it awarded Iowa Trust $42,843,614.13 plus the interest attributable to that amount from the escrow account. Id. at 987. ³ The trial court rejected Iowa Trust's claim for statutory pre-judgment interest. Id. at 986-87. It also stated that Iowa Trust was entitled to any profits that were attributable to the $42.8 million trust res prior to the sequestration of the funds in escrow. Id. at 986. However, because it found that Iowa Trust had failed to prove the amount of such profits, it awarded no additional amounts to Iowa Trust. Id. at 986.

Following trial, Jefferson Bank realized that it, too, had been a victim of Mr. Wymer's fraud. Jefferson Bank retained new counsel and filed an extensive post-trial brief that, for the first time, proceeded on the basis of Iowa Trust's version of the facts. Specifically, it argued that the records from Mr. Wymer, which it had relied on at trial, were fraudulent, and that the money it received from the "sale" of bonds that did not in fact exist was actually funds that Mr. Wymer had embezzled from Iowa Trust.

In short, they claimed that Mr. Wymer embezzled Iowa Trust's money to cover up his prior embezzlement of Jefferson Bank's money. They requested that the evidence be re-opened to allow the trial court to make new findings of fact and made several new legal arguments. Their principal new theory was that no justice was achieved by transferring a loss from one innocent victim to another, and, therefore, that the court should leave the parties where it found them.

The trial court declined to exercise its discretion under Fed.R.Civ.P. 52 and 59 to re-open the evidence or grant a new trial. Lyons v. Jefferson Bank & Trust, 793 F.Supp. 989, 993 (D.Colo.1992) [hereinafter Lyons III ]. The court also rejected Jefferson Bank's legal arguments as untimely, calling the tardiness a "dispositive deficiency." Id. at 990. Nonetheless, it addressed Jefferson Bank's arguments on the merits "in the interest of a complete record," id., and rejected each in turn.

After the district court denied post-judgment relief under Rules 52 and 59, Jefferson Bank returned a second time, this time seeking relief from judgment under Rule 60(b). It claimed that Mr. Wymer's guilty plea, which substantially corroborated the factual allegations in their post-trial motion, ⁴ constituted new evidence that justified a new trial. The district court rejected that motion as well. ⁵

This consolidated appeal followed. ⁶

II

A

We consider first the issues raised in Jefferson Bank's initial appeal from the judgment of the district court. We defer until part VI infra our discussion of Jefferson Bank's subsequent appeal from the district court's denial of its motion to re-open the judgment under Fed.R.Civ.P. 60(b).

In its initial appeal, Jefferson Bank asks us to review numerous issues that Iowa Trust claims were not properly preserved for appeal. We therefore begin our discussion with a review of the principles regarding the preservation of issues for appeal.

In Singleton v. Wulff, 428 U.S. 106, 96 S.Ct. 2868, 49 L.Ed.2d 826 (1976), the Supreme Court stated that "[i]t is the general rule, of course, that a federal appellate court does not consider an issue not passed upon below." Id. at 120, 96 S.Ct. at 2877. The court elaborated:

[T]his is "essential in order that parties may have the opportunity to offer all the evidence that they believe relevant to the issues ... [and] in order that litigants may not be surprised on appeal by final decision there of issues upon which they have had no opportunity to introduce evidence." We have no idea what evidence, if any, [the opposing party] would, or could, offer ..., but this is only because [it] has had no opportunity to proffer such evidence. Moreover, even assuming that there is no such evidence, [the opposing party] should have the opportunity to present whatever legal arguments he may have....

Id. (quoting Hormel v. Helvering, 312 U.S. 552, 556, 61 S.Ct. 719, 721, 85 L.Ed. 1037 (1941)).

In the years since, we have further fleshed out other reasons underlying this rule. Thus, we have noted that review of issues not raised below "would ... require us to frequently remand for additional evidence gathering and findings," Hicks v. Gates Rubber Co., 928 F.2d 966, 970-71 (10th Cir.1991); would undermine the "need for finality in litigation and conservation of judicial resources," id. at 971; would often "have this court hold everything accomplished below for naught," Bradford v. United States, 651 F.2d 700, 704 (10th Cir.1981); and would often allow "[a] party ... to raise [a] new issue on appeal [when that party] invited the alleged error below." Id.

However, this rule is not without exceptions. We have held that it does not apply to "cases where the jurisdiction of a court to hear a case is questioned, [or] sovereign immunity is raised." Hicks, 928 F.2d at 970. More generally, the Supreme Court has stated:

The matter of what questions may be taken up and resolved for the first time on appeal is one left primarily to the discretion of the courts of appeals, to be exercised on the facts of individual cases. We announce no general rule. Certainly there are circumstances in which a federal appellate court is justified in resolving an issue not passed on below, as where the proper resolution is beyond any doubt ... or where "injustice might otherwise result."

Singleton, 428 U.S. at 121, 96 S.Ct. at 2877 (citations omitted) (quoting Hormel, 312 U.S. at 557, 61 S.Ct. at 721).

Consequently, we have exercised our discretion to hear issues for the first time on appeal only in the most unusual circumstances. See Petrini v. Howard, 918 F.2d 1482, 1483 n. 4 (10th Cir.199...