Amegy Bank N.A. v. Deutsche Bank Alex.Brown, 081015 FED11, 14-12568

Docket Nº:14-12568
Opinion Judge:WILSON, Circuit Judge
Party Name:AMEGY BANK NATIONAL ASSOCIATION, Plaintiff - Appellee, v. DEUTSCHE BANK ALEX.BROWN, a division of Deutsche Bank Securities, Inc., Defendant-Appellant.
Judge Panel:Before WILSON, FAY, and RIPPLE, Circuit Judges. RIPPLE, Circuit Judge, dissenting:
Case Date:August 10, 2015
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit



DEUTSCHE BANK ALEX.BROWN, a division of Deutsche Bank Securities, Inc., Defendant-Appellant.

No. 14-12568

United States Court of Appeals, Eleventh Circuit

August 10, 2015


Appeal from the United States District Court for the Middle District of Florida D.C. Docket No. 2:12-cv-00243-SPC-CM.

Before WILSON, FAY, and RIPPLE, [*] Circuit Judges.

WILSON, Circuit Judge

In this appeal, we decide whether there was sufficient evidence to support a jury verdict finding a securities broker liable for the unlawful conversion of property by collusion. The jury found that Deutsche Bank Alex.Brown (Alex.Brown) colluded with William Johnson to convert a partnership interest he owned so that it would defeat Amegy Bank N.A.'s (Amegy Bank) prior perfected lien. Alex.Brown then filed a motion for judgment as a matter of law, both as to liability and as to punitive damages, or, alternatively, for a new trial. The district court denied the motion, and this appeal followed. We affirm the order denying judgment as a matter of law. We also affirm the denial of the alternative motion for a new trial.


On May 1, 2008, Amegy Bank loaned Monarch Flight II, LLC (Monarch), $15 million to buy a jet. Johnson was Monarch's sole owner. Johnson, as guarantor for Monarch, gave Amegy Bank a security interest in his partnership interest in Host Hotels & Resorts LP (HLP) worth at least $9 million. The security agreement prohibited the sale, transfer, or other disposition of the collateral without Amegy Bank's prior approval. The security agreement also gave Amegy Bank a security interest in any proceeds from the transfer of the HLP partnership interest, expressly including any equity interest Johnson might obtain in Host Hotels & Resorts, Inc. (HINC) as a result of the exchange or redemption of his HLP partnership interest. Pursuant to that security agreement, Amegy Bank could enforce its security interest upon default under the promissory note by taking possession and effecting sale of the collateral. Amegy Bank also filed a Uniform Commercial Code financing statement with the State of Georgia, giving Amegy Bank a perfected security interest in the collateral.

William Rhodes was managing director of the Atlanta office of Alex.Brown. Working in wealth advising, financial planning, and stock brokerage roles, Rhodes was experienced in financial matters. He and Johnson had worked together on prior business deals before, and had known one another socially for at least ten years. Rhodes had attended a Christmas party Johnson hosted at Johnson's home, had accompanied him on Johnson's private jet on four separate occasions, 1 and had given Johnson general investment advice.

In May 2009, Rhodes helped Johnson refinance two properties with $11.5 million dollars in loans funded through Deutsche Bank Private Wealth Mortgage, Ltd. (Deutsche Bank PWM). As part of what was essentially due diligence (on behalf of Deutsche Bank PWM) incident to the transaction, Rhodes analyzed Johnson's liquidity and determined that the same HLP partnership interest subject to the Amegy Bank loan could be a source of repayment for the Deutsche Bank loans in the event of default. In the refinance application, Johnson included a personal financial statement that listed Johnson's partnership interest in HLP as an asset. The statement represented that the interest was unencumbered, in spite of Amegy Bank's security interest.

Rhodes directed the initiation of background research on Johnson for a "Know Your Customer" report which included Amegy Bank's recorded UCC lien on the HLP partnership interest.2 The Know Your Customer report totaled over 1, 000 pages. Rhodes received and reviewed the Know Your Customer report. While the Know Your Customer report alone would not have alerted Rhodes to Amegy Bank's security interest, the entry included an identification number that would have allowed Rhodes to look up the associated financing statement and determine that the subject collateral included the HLP partnership interest and any HINC stock Johnson obtained from the redemption of the HLP partnership interest. At the close of drafting the Know Your Customer report, Rhodes signed and sent a letter to Deutsche Bank PWM representing that the Know Your Customer report was "complete and accurate." Deutsche Bank PWM subsequently loaned Johnson $11.5 million, from which AB received a $58, 000 commission. Rhodes personally received forty percent of that commission.

Then, in December of 2009, Johnson defaulted on the Amegy Bank loan. On December 10, 2009, Amegy Bank formally demanded a fifty percent pay down and threatened to accelerate the loan in three weeks if there was no payment.

John Bobo, Johnson's attorney, responded with a letter dated December 31 confirming that Johnson still owned the HLP partnership interest, that its value was $9, 666, 101.44, and that it remained pledged to Amegy Bank. But a few days later, Johnson converted the partnership units into HINC stock and sold the stock before Amegy Bank was able to take action.

The sequence of events transpired quickly. On January 5, 2010, Johnson sent a notice of redemption of his HLP partnership interest to HLP. In the notice, Johnson requested that the redemption be "handled as expeditiously as possible, " and he represented that the partnership interest was unencumbered and that he had "the full right, power and authority to redeem and surrender [the HLP partnership interest]." HINC, general partner of HLP, purchased the partnership interest from Johnson, paying him with shares of HINC stock. Notice of the redemption was withheld from Amegy Bank.

By then, Johnson was also in default on the $11.5 million dollar Deutsche Bank PWM loan that Rhodes set up. On January 12, Johnson attempted to stave off Amegy Bank by sending them an email claiming that their payment would be made in ten days. Twenty-four minutes after this correspondence, Johnson's assistant contacted Rhodes who then proceeded to expeditiously open a securities account for Johnson. Rhodes emailed his assistant the following: "We openned [sic] an account for [Johnson] to do a loan last year. Please take that information and let me know what we need to do to set it up to trade stocks. Need FAST." Johnson opened a margin account with Alex.Brown on January 15. By opening the account, Johnson authorized the investigation of his credit standing and business conduct, as well as the sharing of any other information Alex.Brown had about Johnson among Alex.Brown and any of its affiliates. The account was opened with the purported objectives of "growth" and "capital appreciation."

Johnson's assistant sent an email on January 19 to ComputerShare, the transfer agent issuing the HINC stock, requesting that the stock certificate be overnighted to Johnson's office on the date of issue; Rhodes was blind copied on this email. On January 22, Johnson directed Alex.Brown, via Rhodes, to sell the HINC stock. Also on January 22, Johnson satisfied the delinquencies on the Deutsche Bank PWM loans using checks drawing on his JPMorgan Chase Bank account.3 The HINC stock sale was completed on January 26. On the same day, Johnson received the $9, 516, 052.12 from the sale of the stock; he deposited that amount into his JPMorgan Chase Bank account on January 27. In the course of carrying out the transaction, Rhodes drove and personally picked up the physical stock certificate from Johnson's office.

By the time of trial, the Amegy Bank loan's outstanding balance was over $16 million dollars. Amegy Bank filed a complaint4 against Alex.Brown and Deutsche Bank PWM alleging, inter alia, that AB wrongfully converted Amegy Bank's collateral. Alex.Brown raised "UCC 8-115, as codified under the state law applicable to the transaction, "5 asserting that, as a securities intermediary, Alex.Brown was entitled to immunity under that section. The parties moved for partial summary judgment on that issue. The district court, however, denied the motions, and the action proceeded to a jury trial. At trial, Rhodes testified and denied reviewing the financing statement reflecting Amegy Bank's prior perfected security interest or even noticing the entry in the Know Your Customer report referencing it on page 14. And when Rhodes was asked at trial whether Johnson's conduct would raise a "red flag" under federal securities regulations, he said no. Rhodes admitted, however, knowing that Johnson received the HINC stock in return for redemption of the HLP partnership interest.

The jury found that Alex.Brown acted through Rhodes as a securities intermediary for Johnson and colluded with him in converting Amegy Bank's collateral, defeating Alex.Brown's section 11-8-115 defense. Based on the district court's instruction that O.C.G.A. § 44-12-152 set the applicable standard for an action for damages for conversion, the jury set compensatory damages at $16.7 million. The jury also found that Alex.Brown had acted with willful misconduct and assessed $201, 000 in punitive damages. The district court entered a final judgment on the jury's verdict. Alex.Brown moved for judgment as a matter of law or, alternatively, a new trial. See Fed. R. Civ. P. 50(b), 59. Alex.Brown argued that the evidence was insufficient to support the jury verdict as to liability and as to punitive damages. Alex.Brown alternatively argued that it was entitled to a new trial based on the district court's purportedly defective jury instructions and an allegedly inconsistent jury verdict. The district court denied the motion, and this appeal ensued.


We first consider whether the trial judge erred by denying the motion for judgment as a matter of law. Alex.Brown argues that Amegy Bank presented no evidence of Alex.Brown's actual knowledge of the wrongfulness of Johnson's conduct or of Rhodes's substantial assistance to Johnson, each...

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