Am. Bank of St. Paul v. TD Bank, N.A., s. 12–1806

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Citation: 713 F.3d 455
• Docket Number: 12–1862,Nos. 12–1806,12–2399.,s. 12–1806
• Parties: AMERICAN BANK OF ST. PAUL, Plaintiff–Appellee v. TD BANK, N.A., Defendant–Appellant. American Bank of St. Paul, Plaintiff–Appellant v. TD Bank, N.A., Defendant–Appellee. American Bank of St. Paul, Plaintiff–Appellee v. TD Bank, N.A., Defendant–Appellant.
• Decision Date: 26 April 2013

713 F.3d 455

AMERICAN BANK OF ST. PAUL, Plaintiff–Appellee
v.
TD BANK, N.A., Defendant–Appellant.
American Bank of St. Paul, Plaintiff–Appellant
v.
TD Bank, N.A., Defendant–Appellee.
American Bank of St. Paul, Plaintiff–Appellee
v.
TD Bank, N.A., Defendant–Appellant.

Nos. 12–1806, 12–1862, 12–2399.

United States Court of Appeals,
Eighth Circuit.

Submitted: Feb. 12, 2013.
Filed: April 26, 2013.

[713 F.3d 460]

Michele Odorizzi, argued, Chicago, IL, Howard J. Roin, Chicago, IL, Alan L. Kildow, Sonya R. Braunschweig, Minneapolis, MN, on the brief, for Appellant/Cross–Appellee TD Bank.

Eric J. Nystrom, argued, John C. Ekman, on the brief, Minneapolis, MN, for Appellee/Cross–Appellant American Bank of St. Paul.

Before SMITH, MELLOY, and BENTON, Circuit Judges.

BENTON, Circuit Judge.

Mercantile Bank lent money to Louis J. Pearlman, who was perpetrating a large fraud. Before the fraud was exposed, American Bank of St. Paul and 25 other banks lent him money. Part of those funds paid off Mercantile's outstanding loans to Pearlman. American sued Mercantile, claiming it aided, abetted, and conspired with Pearlman. The jury found for American, awarding one-half of the requested damages. Mercantile claims that the district court ¹ made erroneous evidentiary rulings, gave faulty jury instructions, and should have dismissed the claims as a matter of law. American cross-appeals, claiming that the court should have increased the award to the full amount of the loss. Having jurisdiction under 28 U.S.C. § 1291, this court affirms.

I.

Pearlman was a music producer, real-estate developer, and businessman in Florida. He had a banking relationship with Mercantile.² In April 2003—when Mercantile had about $10 million in loans outstanding to Pearlman—it agreed to lend him an additional $6 million. The new loan was collateralized by stock Pearlman held in Transcontinental Airlines, Inc. (TCA), a private charter airline company. TCA was supposedly audited by Cohen & Siegel, purportedly a German auditing firm with an office in Coral Gables, Florida.

Pearlman borrowed yet another $6 million from Mercantile on a line of credit in

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February 2004. In early 2005, Pearlman sought to consolidate all his outstanding debts to Mercantile (about $14 million) into one loan. During Mercantile's due diligence and underwriting process, it twice extended Pearlman's line of credit, and then added an additional $3 million credit line.

A new credit analyst at Mercantile evaluated Pearlman's loans. Through her own research, she could not confirm the existence of Cohen & Siegel. Mercantile hired an investigative firm, which also could not confirm the accounting firm. Mercantile then met with attorneys to develop a plan to collect Pearlman's debt, which was now in default.

Mercantile and Pearlman met three times to discuss the situation. At one meeting, Mercantile's president, Andy Cheney, met one-on-one with Pearlman. Cheney claims that in this conversation he stressed to Pearlman only the importance of being truthful. Pearlman, however, contends he told Cheney that TCA was a “can of worms” that no one wanted to open, and that it could get “very messy.” At trial, over objection, Pearlman was allowed to testify that Cheney understood that TCA was a “house of cards.” After this meeting, Mercantile and Pearlman entered into a forbearance agreement giving Pearlman time to repay the loans.

In Fall 2005, Pearlman worked with North American Capital Markets (NACM) to assemble a new financing facility. According to the offering materials, the facility's purpose was to pay off existing debt (including Mercantile's), and finance Pearlman's purchase and production of the “Top of the Pops” television program from the BBC. Several small, local banks—with American as the lead—participated in the financing. The participation agreement stated that each bank performed its own due diligence and made its own investment decision.

In March 2006, Pearlman said he needed $5 million from the new facility to make a licensing payment for the television program. The facility was not yet fully participated, so it could not close. NACM presented two options to Mercantile: (1) close the facility and receive partial payoff of the debt, with Mercantile taking a participation interest in the new facility for the amount left outstanding; or (2) NACM would provide the additional funds necessary to close the transaction, but once the facility was fully participated, NACM would be paid off before Mercantile. Mercantile chose the first option. It participated in the new facility for $1.89 million. Mercantile's participation was paid off in April 2006.

Pearlman subsequently pled guilty to several charges of bank frauds and Ponzi schemes. He defaulted on the new facility in December 2006. He admitted that TCA and Cohen & Siegel were fabricated.

American sued Mercantile on six grounds attempting to recover the unpaid balance on the facility. The district court granted summary judgment to Mercantile on four theories, but allowed a trial on aiding and abetting as well as conspiracy. The court denied Mercantile's Rule 50 motion for judgment as a matter of law. The jury found for American on both theories. Using a special verdict form, the jury awarded American $13,557,900.50, one-half of the amount outstanding when Pearlman defaulted. Mercantile timely renewed its motion for judgment as a matter of law and sought, in the alternative, a new trial. The district court denied both motions.

II.

Mercantile argues that the district court should have granted its motion for judgment as a matter of law. Under

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Rule 50, a court may grant the motion if “a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue.” Fed.R.Civ.P. 50(a)(1). This court reviews de novo a denial, viewing the evidence most favorable to the jury's verdict. Wilson v. Brinker Int'l, Inc., 382 F.3d 765, 769 (8th Cir.2004). This court will reverse only if “there is a complete absence of probative facts to support the verdict.” Sanders v. Lee Cnty. Sch. Dist. No. 1, 669 F.3d 888, 894 (8th Cir.2012), quoting Wilson, 382 F.3d at 769. “Judgment as a matter of law is appropriate only when the record contains ‘no proof beyond speculation to support the verdict.’ ” Wilson, 382 F.3d at 770,quoting Phillips v. Collings, 256 F.3d 843, 847 (8th Cir.2001).

Mercantile contends that judgment as a matter of law was appropriate on the aiding and abetting claim as well as the conspiracy claim.

A.

An aiding and abetting claim in Minnesota has three elements:

(1) the primary tort-feasor must commit a tort that causes an injury to the plaintiff;

(2) the defendant must know that the primary tort-feasor's conduct constitutes a breach of duty; and

(3) the defendant must substantially assist or encourage the primary tort-feasor in the achievement of the breach.

Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 187 (Minn.1999). Mercantile contends the third element was not met because Mercantile did not provide substantial assistance to Pearlman. Some affirmative step is required, because “the mere presence of the particular defendant at the commission of the wrong, or his failure to object to it, is not enough to charge him with responsibility.” Id. at 189,quoting Olson v. Ische, 343 N.W.2d 284, 289 (Minn.1984).

Mercantile offers Minnesota's general rule that banks have no duty to disclose financial information about customers absent special circumstances. See Klein v. First Edina Nat'l Bank, 293 Minn. 418, 196 N.W.2d 619, 622–23 (1972). The court gave three examples of special circumstances:

(a) One who speaks must say enough to prevent his words from misleading the other party. Newell v. Randall [32 Minn. 171], 19 N.W. 972 (Minn.1884).

(b) One who has special knowledge of material facts to which the other party does not have access may have a duty to disclose these facts to the other party. Marsh v. Webber, 13 Minn. 109, Gil. 99 (1868).

(c) One who stands in a confidential or fiduciary relation to the other party to a transaction must disclose material facts. See, e.g., Wells–Dickey Trust Co. v. Lien [164 Minn. 307], 204 N.W. 950 (Minn.1925).

Id. at 622. Minnesota courts also recognize a specific exception when the bank is aware that the client is “irretrievably insolvent.” Richfield Bank & Trust Co. v. Sjogren, 309 Minn. 362, 244 N.W.2d 648, 651 (1976). Mercantile cites Boubelik v. Liberty State Bank, 553 N.W.2d 393 (Minn.1996), to argue that even when a bank is aware of a “scheme,” it is not required to disclose information about its client to another party. That was true in Boubelik, but only because the material facts of the scheme were publically available. Boubelik, 553 N.W.2d at 400. The Boubelik court simply applied the second exception from Klein. The parties disagree about the amount of information

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available to American in this case. All of the parties' discussion about the no-duty rule, however, misses the mark regarding the allegations of aiding and abetting. Liability is based on Mercantile's affirmative acts, not acts it should have taken.³

Mercantile contends it did nothing more than enter into normal banking transactions with a customer, emphasizing it did not draft the offering materials or solicit the participating banks. It was a mere forbearance of debt collection, so the argument goes, and the participation rolled old debt into new debt—no additional capital was provided. A decision from the Second Circuit closely parallels this case. See In re Sharp Int'l Corp., 403 F.3d 43 (2d Cir.2005). There, three brothers, the Spitzes, owned Sharp International. Id. at 46. They perpetrated a fraud through that business. Id. State Street was one of Sharp's lenders. Id. at 47. The Spitzes borrowed money from new noteholders to pay off State Street (when State Street allegedly knew of the...