Bank of Am., N.A. v. Prestige Imports, Inc.

• Citation: 84 Mass.App.Ct. 1106,991 N.E.2d 189
• Decision Date: 06 August 2013
• Docket Number: No. 12–P–538.,12–P–538.
• Court: Appeals Court of Massachusetts
• Parties: BANK OF AMERICA, N.A. v. PRESTIGE IMPORTS, INC., & others.

84 Mass.App.Ct. 1106

991 N.E.2d 189

BANK OF AMERICA, N.A.

v.PRESTIGE IMPORTS, INC., & others.¹

No. 12–P–538.

Appeals Court of Massachusetts.

Aug. 6, 2013.

OPINION TEXT STARTS HEREBy the Court (COHEN, HANLON & AGNES, JJ.).

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

This case returns to us following a jury trial on remand, pursuant to Bank of America, N.A. v. Prestige Imports, Inc., 75 Mass.App.Ct. 741, 917 N.E.2d 207 (2009) ( Prestige I ).² The plaintiff, Bank of America, N.A. (bank), appeals from the denial of its motion for judgment notwithstanding the verdict and for a new trial. Prestige Imports, Inc. (Prestige) cross appeals from the denial of its motion to offset the bank's loan deficiency judgment, the result of an earlier summary judgment ruling in the bank's favor. We affirm.

1. Motion for judgment notwithstanding the verdict. In accordance with Prestige I, the issue to be tried on remand was whether the bank acted in bad faith in issuing nine treasurer's checks, debited to Prestige's account, at the direction of Wajahat Malick, a Prestige employee who lacked authorization to withdraw Prestige funds.³ We framed the question of bad faith, under the Uniform Commercial Code (Code), G.L. c. 106, § 4–103(5),⁴ as whether bank officials remained consciously and deliberately indifferent to the fraud Malick was committing against Prestige using the treasurer's check scheme. Prestige I, supra at 758, 917 N.E.2d 207. Our review of the record from the present trial persuades us that there was sufficient evidence from which the jury could have found, or reasonably inferred, bad faith in connection with the bank's issuing the nine treasurer's checks to Malick. See generally General Dynamics Corp. v. Federal Pac. Elec. Co., 20 Mass.App.Ct. 677, 683, 482 N.E.2d 824 (1985). The judge instructed the jury that, in order to prove bad faith, “Prestige must prove that the bank knew of Malick's fraud and intentionally decided to ignore it”; he reiterated that bad faith required that the bank “actually knew of the fraud.” However, the judge also explained that the bank's knowledge could be proven by circumstantial evidence, and the bank does not challenge that instruction on appeal.⁵

A reasonable view of the evidence indicates that the jury heard a combination of facts from which a rational inference of bad faith could be drawn. See generally Poirer v. Plymouth, 374 Mass. 206, 212, 372 N.E.2d 212 (1978). In particular, there was testimony from the bank's branch managers that the redeposit of a Prestige check made payable to the bank was not a proper deposit, and that such a transaction should have been either questioned or rejected. See Prestige I, supra at 759–760, 917 N.E.2d 207 (redeposit scheme constituted wrongful debit, as bank was supposed to ensure that named payee on the customer's check got the benefit of the funds). See also Govoni & Sons Constr. Co. v. Mechanics Bank, 51 Mass.App.Ct. 35, 40–41, 742 N.E.2d 1094 (2001) (bank bears the risk of paying out funds under a check listing the bank as payee).⁶ Here, the bank employees who actually handled Malick's transactions testified that they made exceptions for him from the requirements of banking policy and procedure because he was familiar to them.

In addition, according to Malick, Paul Levandosky, the bank officer in charge of Prestige's loan account, questioned him on as many as four occasions, specifically asking if the account owner knew that Malick was redepositing Prestige checks, payable to the bank, in Prestige's account. From this, it was reasonable for the jury to infer that at least one bank employe, who was directly involved with Malick's redeposit of the Prestige loan payoff checks, had communicated concerns to Levandosky that the checks were being deposited in a manner that was contrary to the payee identified on the face of the check. In addition, there was evidence that, in November, 1989, Levandosky expressly approved the redeposit of four Prestige loan payoff checks lacking the account owner's signature. This provides further support for the inference that bank employees knew of, and were suspicious of, the manner in which Malick was handling Prestige funds, but that they nevertheless chose to ignore the irregularities rather than contact the account owner.

From all of the evidence, the jurors reasonably could have found that the bank deliberately closed its eyes when Malick's activities later turned more blatant in the treasurer's check scheme. Thus, they were warranted in concluding that, by permitting Malick's misuse of treasurer's checks in a manner that did not conform with the face of the checks and Prestige's usual practice, the bank was wilfully blind to Malick's lack of authorization to obtain such checks payable at his direction.⁷ Indeed, bank employees admitted that they knew Malick was not the account owner and yet saw no need to check the Corporate Deposit and Borrowing Resolutions document, which Prestige had provided to the bank, to confirm Malick's authority to obtain Prestige funds with a check made payable solely to the bank.⁸

Overall, evidence supporting the jury's finding of bad faith in connection with the treasurer's check scheme, though not overwhelming, nonetheless was sufficient to justify the denial of the bank's motion for judgment notwithstanding the verdict. See Phelan v. May Dept. Stores Co., 443 Mass. 52, 55, 819 N.E.2d 550 (2004). The fact that the bank offered contrary evidence did not require that its motion for judgment notwithstanding the verdict be allowed. See Prestige I, supra at 761, 917 N.E.2d 207.

2. Redeposit scheme evidence. The bank seeks a new trial based on the judge's decision to admit evidence of Malick's redeposit scheme. According to the bank, by admitting such evidence, the judge, in essence, permitted Prestige to relitigate its bad faith claim against the bank for its role in connection with the redeposit of Prestige checks. Because a jury in the first trial had resolved that claim in the bank's favor, the bank argues that claim preclusion prohibited introduction of evidence concerning the redeposit scheme on retrial.

The record makes clear that the challenged redeposit scheme evidence was admissible for reasons apart from Prestige's previously-tried claim of bad faith. As this court observed in Prestige I, supra at 750, 917 N.E.2d 207, the jury in the first trial found that the bank wrongly had debited the redeposit checks to Prestige's account, in violation of c. 106, § 4–401. That finding was separate from Prestige's bad faith claim, which the jury in that trial resolved in the bank's favor. Because the redeposit transactions resulted in a wash to Prestige's account, we held in Prestige I, supra at 761–766, 917 N.E.2d 207, that no direct damages arose from the redeposits, and we dismissed Prestige's wrongful debit claim on that basis.

In the present case, we are satisfied that the judge acted within his discretion in deciding the relevance of the redeposit scheme evidence and any prejudice likely to be caused by its admission. See Sidney Binder, Inc. v. Jewelers Mut. Ins. Co., 28 Mass.App.Ct. 459, 462, 552 N.E.2d 568 (1990). Evidence of the redeposit scheme was relevant to the jury's understanding of Malick's entire embezzlement scheme and the bank employees' state of mind as that scheme unfolded; it plainly was relevant to Prestige's claim that the redeposit scheme was part of Malick's strategy, common to all three schemes, to ensure that the bank would make exceptions for him, as a familiar face associated with a valued business customer, and would come to treat Prestige loan payoff checks in accordance with his instructions, not in the manner they were written, and without notifying the account owner.⁹

Nor was evidence of the redeposit scheme unfairly prejudicial to the bank, at least in part because the jury repeatedly heard testimony that the redeposit scheme itself resulted in a wash—that it caused no harm to Prestige. We also reject the bank's assertion that the conversations between Malick and Levandosky regarding the redeposit scheme were unfairly prejudicial and not relevant because Levandosky did not work at the bank's South Weymouth branch and was not involved in the treasurer's check transactions. As noted, the jury reasonably could infer that Levandosky was contacted by a bank employee from the South Weymouth branch concerning Malick's misuse of the payoff checks, and it was for the jury to assess the...