Carr v. Bankers Trust Co., 94-2061

• Decision Date: 17 April 1996
• Docket Number: No. 94-2061,94-2061
• Citation: 546 N.W.2d 901
• Court: Iowa Supreme Court
• Parties: Robert CARR, Elaine Gundacker, and Richard Heidloff, Appellants, v. BANKERS TRUST COMPANY; Bryan H. Hall; Tom Smith; Davis, Hockenberg, Wine, Brown, Koehn & Shors, P.C.; and David B. Van Sickel, Appellees.

Page 901

546 N.W.2d 901

Robert CARR, Elaine Gundacker, and Richard Heidloff, Appellants, v. BANKERS TRUST COMPANY; Bryan H. Hall; Tom Smith; Davis, Hockenberg, Wine, Brown, Koehn & Shors, P.C.; and David B. Van Sickel, Appellees.

No. 94-2061.

Supreme Court of Iowa.

April 17, 1996.

Peter C. Riley of Tom Riley Law Firm, P.C., Cedar Rapids, for appellants.

Roger T. Stetson of Belin Harris Lamson McCormick, P.C., Des Moines, and Patrick J. McNulty of Grefe & Sidney, Des Moines, for appellees Bankers Trust Company, Bryan H. Hall, and Tom Smith.

James K. Horstman and Lloyd E. Williams, Jr. of Williams & Montgomery, Ltd., Chicago, IL, and Dennis D. Jerde and Diane M. Stahle of Davis, Hockenberg, Wine, Brown, Koehn & Shors, P.C., Des Moines, for appellees Davis, Hockenberg, Wine, Brown, Koehn & Shors, P.C. and David B. Van Sickel.

Considered by LARSON, P.J., and CARTER, NEUMAN, SNELL, and ANDREASEN, JJ.

LARSON, Justice.

This is a suit for damages indirectly arising out of the loss of trust funds owned by various Iowa municipalities. The plaintiffs sued the trust custodian and the lawyers representing the trust, asserting theories of defamation and negligence in their handling of the fund. The district court granted the defendants' motions for summary judgment, and we affirm.

The Iowa Trust was established in 1990 for the pooling and investing of surplus public funds. The treasurer of each participating municipality served as a member of a supervisory board, which annually elected trustees. The trustees were charged with investment and administrative powers as outlined under an indenture of trust.

The trustees hired Bankers Trust Company and its employees (Bankers) as custodian for the trust, and Bryan H. Hall, a Bankers employee, provided the primary custodial services. The trustees retained the law firm of Davis, Hockenberg, Wine, Brown, Koehn & Shors, P.C. as special counsel for the trust. David B. Van Sickel, an attorney at Davis, provided the primary legal services. We will refer collectively to the lawyers as Davis.

In 1991 an investment advisor for the trust, Steven Wymer, misappropriated over $65 million in trust assets. Wymer also made a profit of over $6 million by selling securities to the trust at an inflated price. Because of the resulting financial loss to the trust, several of the trust participants sued the trustees, alleging mismanagement and a breach of fiduciary duties. See City of Dubuque v. Iowa Trust, 519 N.W.2d 786 (Iowa 1994). They also sought the trustees' removal. The trustees were removed, and a receiver was appointed for the trust. None of these actions are involved in the present appeal.

This appeal involves a case filed by three of the trustees, Robert Carr, Elaine Gundacker, and Richard Heidloff, who sued Bankers and the attorneys representing the trustees, claiming that Wymer's misappropriation of funds resulted from the negligence of these defendants.

The trustees also brought a defamation claim against Bankers and its executive vice president (collectively Bankers) over an article published in the Des Moines Register on December 13, 1991. The pertinent part of the article stated:

Officers of Bankers Trust said Thursday that their contract as a custodial agent for Iowa Trust did not require the bank to do a number of things that a custodial agency might normally be expected to do, such as make sure that collateral was received before transferring securities in a reverse repurchase agreement.

Tom Smith, executive vice president, said the bank has other custodial arrangements in which it performs broader services "but they cost more," and that Trust's officers made it clear they did not want those broader services.

The plaintiffs claim damages for the costs of defending themselves in the actions brought against them by the trust participants, monetary losses personally suffered, and damage to their reputations.

The district court (Judge Reade) granted Bankers' motion for summary judgment on the defamation claim, finding the trustees had not sustained their burden of establishing malice. Later, the court (Judge Eisenhauer) granted Bankers' and Davis's motions for summary judgment on the negligence claims, finding that, as a matter of law, the defendants owed no duty to the trustees.

The general rules regarding our review of summary judgments are well-settled. We review them for correction of errors at law. Schaefer v. Cerro Gordo County Abstract Co., 525 N.W.2d 844, 846 (Iowa 1994); Fischer v. UNIPAC Serv. Corp., 519 N.W.2d 793, 796 (Iowa 1994); Iowa R.App. P. 4. Summary judgment is appropriate only when the entire record before the court shows that there are no genuine issues of material fact and that the district court correctly applied the law. Schaefer, 525 N.W.2d at 846; Fischer, 519 N.W.2d at 796; Iowa R.Civ.P. 237(c). The record on summary judgment includes the pleadings, depositions, affidavits, and exhibits. Schaefer, 525 N.W.2d at 846; Fischer, 519 N.W.2d at 796.

I. The Defamation Claim.

New York Times v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964), significantly restricted the power of courts to grant damage awards in defamation cases brought by public officials.

The constitutional guarantees require, we think, a federal rule that prohibits a public official from recovering damages for a defamatory falsehood relating to his official conduct unless he proves that the statement was made with "actual malice"--that is, with knowledge that it was false or with reckless disregard of whether it was false or not.

Id. at 279-80, 84 S.Ct. at 726, 11 L.Ed.2d at 706. New York Times changed the defamation law in Iowa by requiring for the first time proof of actual malice. McCarney v. Des Moines Register & Tribune Co., 239 N.W.2d 152, 155 (Iowa 1976).

The allegedly libelous statements to the Des Moines Register reporter were made by Tom Smith, who was Bankers' executive vice president. To show that Smith knew his statements to the Register were false, the plaintiffs rely on deposition testimony by another person, Bryan Hall, the Bankers Trust employee handling the trust matters.

The plaintiffs rely on Hall's testimony in the deposition that Bankers had only one standard custodial agreement and that it had not offered the Iowa Trust a choice between "various forms" of custodial arrangements. Hall also stated that the trustees had not turned down an offer by Bankers to perform more extensive services as custodian. Thus, these portions of Hall's deposition contradicted Smith's comments quoted in the Register. The plaintiffs argue that Hall was the source of Smith's information; therefore, when Smith relayed information to the Register that was contrary to Hall's deposition testimony, he must have been lying, or at least a jury could infer that he was lying. Bankers argues that any such inference is too remote and that the record falls short of establishing falsity or malice.

Moreover, Bankers has another view of the facts. It points to evidence that the trustees did know that Bankers could offer other services. For example, an agent for the trust told Bankers that the trustees wanted Bankers to merely keep a ledger of aggregate deposits, and an agent for the trust discussed with Bankers the possibility that Bankers' fees would be lower if it did not perform administrative duties. The Hall deposition itself, on which the plaintiffs principally rely to show falsity, states that Bankers in fact offered other levels of services, thus supporting the truthfulness of the newspaper article. The deposition stated:

Q. I take it, then, that if the customer has unique circumstances where they desire specific tailored services, the trust department will endeavor to accommodate the customer if it is capable of doing so. Is that a fair statement? A. We would attempt to work with people on that end, yes.

Q. And if they don't ask for any special services, you enter into a standard custodial arrangement; is that correct? A. Generally, yes.

Because the evidence was in conflict as to whether Bankers had offered alternative arrangements to the trust, a jury could have concluded that the statement in question was false. But falsity is not enough. In New York Times v. Sullivan, the Court said:

The question is whether [the publication] forfeits that [constitutional] protection by the falsity of some of its factual statements and by its alleged defamation of respondent.

New York Times, 376 U.S. at 271, 84 S.Ct. at 721, 11 L.Ed.2d at 701. The Court further stated:

That erroneous statement is inevitable in free debate, and that it must be protected if the freedoms of expression are to have the "breathing space" that they "need ... to survive...."

Id. at 271-72, 84 S.Ct. at 721, 11 L.Ed.2d at 701.

In addition to showing falsity, the plaintiffs must show that the statement by Smith was made with actual malice. Id. at 279-80, 84 S.Ct. at 726, 11 L.Ed.2d at 706. The statement was made with actual malice if it was made with knowledge that it was false or with reckless disregard for its truth or falsity. Id. at 279-80, 84 S.Ct. at 725-26, 11 L.Ed.2d at 706; Jones v. Palmer Communications, Inc., 440 N.W.2d 884, 894 (Iowa 1989); McCarney, 239 N.W.2d at 156. Further,

[t]o show malice there must be an intent to inflict harm through the falsehood. Actual antagonism or contempt has been held insufficient to show malice.

Jones, 440 N.W.2d at 894.

Reckless disregard has been defined as a "high degree of awareness of probable falsity." Garrison v. Louisiana, 379 U.S. 64, 74, 85 S.Ct. 209, 216, 13 L.Ed.2d 125, 133 (1964); accord Jones, 440 N.W.2d at 894; McCarney, 239 N.W.2d at 156.

Because of the conflicting evidence in this record on falsity and knowledge, the plaintiffs have arguably shown a genuine issue of material fact--ordinarily enough under rule of civil procedure 237 to avoid summary judgment. A more stringent test applies, however, to avoid summary judgment here....