Bank of Eureka Springs v. Evans

• Decision Date: 05 June 2003
• Docket Number: No. 02-623.,02-623.
• Citation: 109 S.W.3d 672
• Parties: The BANK OF EUREKA SPRINGS and John Cross v. Floyd Carroll EVANS.
• Court: Arkansas Supreme Court

109 S.W.3d 672

The BANK OF EUREKA SPRINGS and John Cross v. Floyd Carroll EVANS.

No. 02-623.

Supreme Court of Arkansas.

June 5, 2003.

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Bassett Law Firm; Davis, Wright, Clark, Butt & Carithers, by: Curtis L. Nebben, Fayetteville, for appellants.

Everett Law Firm, by: John C. Everett; and Mason Law Firm, by: George Chaddwick Mason, Fayetteville, for appellee.

Allen W. Bird II, Little Rock, for amicus curiae Arkansas Bailers Association.

John J. Gill, John J. Byrne, Michael F. Crotty, and Allen W. Bird II, Little Rock, for amicus curiae American Bankers' Association.

Robert Rowe and Quattlebaum, Grooms, Tull & Burrow, by: Leon Holmes, Little Rock, for amicus curiae Independent Community Bankers of America.

Quattlebaum, Grooms, Tull & Burrow, by: Leon Holmes, Little Rock, for amicus curiae Arkansas Community Bankers Association.

Candace Franks, Deputy Bank Commissioner & Legal Counsel, Little Rock, for amicus curiae Arkansas State Bank Department.

Kathleen V. Gunning, Counsel, Federal Deposit Insurance Corporation, and Earl Fletcher Jackson, U.S. Attorney's Office, Little Rock, for amicus curiae Federal Deposit Insurance Corporation.

W.H. "DUB" ARNOLD, Chief Justice.

In this appeal, appellants The Bank of Eureka Springs and John Cross (referred to hereafter as the Bank) seek to reverse the decision of a Carroll County jury holding the Bank liable for the malicious prosecution of appellee Floyd Carroll Evans. Appellants argue that they are entitled to a dismissal, either because the circuit court erred in holding that their actions were not protected by the "safe harbor" provision of the Annunzio-Wylie Money Laundering Act, 31 U.S.C. § 5318(g)(3) (Supp. 1999) (Act), or, in the alternative, because the jury's verdict is not supported by substantial evidence. Finally, they urge that they are at least entitled to a new trial because the jury's damage award was excessive and unconstitutional. We hold that the Bank's behavior toward the appellee — which was continuous, malicious, and based on information that the appellant knew was false — is not protected by the Act's safe harbor provision. We also uphold the jury's verdict and damage award.

I. Background

The facts, viewing the evidence and all reasonable inferences therefrom in the light most favorable to the appellee, as this court's standard of review dictates, see, e.g., State Auto Prop. & Cas. Ins. Co. v. Swaim, 338 Ark. 49, 991 S.W.2d 555 (1999), are as follows.

Mr. Evans is a Carroll County resident engaged in the cattle and construction businesses. He was a long-time customer at the Bank of Eureka Springs who, at the time relevant to this case, carried several notes at the Bank. In 1994, Mr. Evans approached his loan officer at the Bank, Gary Kleck, and asked the Bank to loan him $460,000 so that he could purchase 1,120 acres of undeveloped land adjacent to his home. According to Mr. Evans's trial testimony, he informed Mr. Kleck that he intended to clear the land and run cattle on it. He told Mr. Kleck that the timber could be used as a repayment source, but that the land would have to be surveyed, fenced, and money invested in bulldozing the land before it would begin producing repayment funds.

Based on this information, Mr. Evans and Mr. Kleck prepared a loan worksheet. The worksheet stated that the source of repayment for the loan would be "[c]ut timber from property — $200,000-$250,000 estimated value" and "[p]ersonal income — construction & farm income $200M + (sic) annually." The loan worksheet listed the 1,120 acres as collateral, as well as $90,000 equity in Mr. Evans's home.

On February 15, 1994, the Board of Directors of the Bank approved a $460,000 loan for Mr. Evans. The minutes of the meeting reflected the information specified in the loan worksheet, including that one source of repayment for the loan would be money made by harvesting timber on the land. Mr. Kleck testified at trial that he informed the board during his presentation of Mr. Carroll's loan that repayment would come from timber sales and construction income. On April 1, 1994, Mr. Evans executed a mortgage and promissory note in favor of the Bank. The mortgage contained a clause stating that "it is agreed that mortgagor may not cut the timber from any land encumbered hereby ...."

In 1994 and 1995, Mr. Evans put his plan for the land into action. He surveyed and fenced the land, and then began harvesting timber. Mr. Evans testified at trial that he tried to remove the timber himself but did not have the expertise to do so. He therefore contracted with Holt Sawmill to remove the timber for him. Mr. Evans seeded and bladed off the land that he cleared, and ran cattle on it. In all, Mr. Evans succeeded in turning 140 out of the 1,120 acres into cattle pasture.

Mr. Evans testified that he divided the proceeds from the timber between making payments on the loan and keeping the logging operation going. Mr. Evans's sister, Judy Worley, who was also Mr. Evans's bookkeeper, testified at trial that she deposited checks at the Bank into Mr.

Evans's loan account. Timber receipts and bank records from this time period entered into evidence at trial indicate that Mr. Evans applied $21,693.43 out of $160,721.71 in timber proceeds towards repaying his loan.

Mr. Evans's business ventures took a downward turn in 1995 and 1996. In early 1995 Mr. Evans became involved in the Cedar Bluff project, a real estate development in Huntsville, Arkansas. The bonding fell through on Cedar Bluff, the project failed, and Mr. Evans, who was the chairman of the Cedar Bluff subdivision, suffered financially. In addition, the cattle market began to fall in June of 1995. Mr. Evans attempted to restructure his various projects, but in December 1996, he defaulted on the promissory note and mortgage. Mr. Evans began to think about filing for bankruptcy protection.

The Bank was not at all happy about the prospect of Mr. Evans filing for bankruptcy. When Mr. Evans informed appellant Mr. Cross, the president and CEO of the Bank, about his plans, Mr. Cross warned him that he would "make his life hell" if he filed for bankruptcy. In December, 1996, Mr. Cross questioned Mr. Evans's brother Troy (who was in the Bank on unrelated business) about a missing boat, motor and bulldozer, which were held as collateral on another of Mr. Evans's notes. Mr. Cross then told Troy that "[y]ou need to tell Carroll to get in there and play ball with me or I'm going to have you guys arrested." Mr. Evans filed for bankruptcy on June 11, 1997, and Mr. Cross eventually made good on his threat.

During the first meeting of creditors on August 21, 1997, Charles Cross — Executive Vice President of the Bank, and appellant's son — questioned Mr. Evans about the bulldozer, boat, and motor, which were not in Mr. Evans's possession. Mr. Evans stated that Mr. Kleck had released these items, and that they had been sold. Internal loan documents held by the Bank at that time indicated that the bulldozer had indeed been released by the Bank because it had been destroyed in a fire and the Bank had been paid the insurance proceeds. Testimony at trial indicated that Mr. Evans had never sold the boat but instead, had loaned it to a man named Jeff Birchfield. Nevertheless, Wade Williams, the Bank's attorney, filed a Suspicious Activity Report ("SAR") with federal authorities. The SAR alleged that Mr. Evans had wrongfully disposed of collateral on notes held by the Bank. Mr. Williams also contacted Deputy Prosecutor Kenny Elser and filed a criminal complaint against Mr. Evans.

The Bank followed up the first SAR with a second on May 4, 1998, alleging that Mr. Evans had cut timber on the 1,120 acres without permission from the Bank. The Bank stated on the SAR form that "Mr. Evans cut and sold the timber off of this mortgaged property without obtaining a Timber Deed or stating his intentions to the bank prior to the cutting of said timber." The Bank also averred that "our bank never received any payments on the indebtedness here at the bank."

Mr. Cross and his son then met with Deputy Prosecutor Kenny Elser and Carroll County Sheriffs Office Investigator Leighton Ballard and filed a second criminal complaint against Mr. Evans. They again alleged that Mr. Evans had wrongfully disposed of a bulldozer, boat, and motor, that they had never given permission to Mr. Evans to harvest timber off of the land, and that Mr. Evans had never made any payments on his loan. Mr. Ballard wrote an affidavit of reasonable cause, which rested on the Bank's allegations. A bench warrant was issued for Mr. Evans's arrest. Mr. Evans subsequently surrendered himself to custody and was arrested. He was charged with three counts of defrauding a secured creditor, a class D felony punishable by up to six years' imprisonment. See Ark.Code Ann. §§ 5-37-203(b); 5-4-401(a)(5) (Supp.2001). News of his arrest made the local papers.

During the course of the investigation, the prosecutor learned that some of the proceeds from the timber harvesting had, in fact, been applied to the loan. The prosecutor filed an amended affidavit, but did not dismiss the charges. During the run up to trial, Mr. Evans unsuccessfully sought protection from the U.S. Bankruptcy court by alleging that his arrest and criminal prosecution violated U.S. bankruptcy law. The criminal prosecution proceeded.

Before trial, Mr. Cross called a friend who worked in the governor's office and asked him to check and see if the prosecutor, Brad Butler, had received his phone messages regarding the case. Mr. Cross received a call from Mr. Butler shortly thereafter. Also before trial, on June 1, 1999, Mr. Cross sent a letter to the prosecuting attorney stating that the Bank would be willing to settle the case in exchange for a sum of money and a land exchange. In the letter, Mr. Cross urged the prosecutor to impress on Mr. Evans's lawyer how beneficial the settlement...