Federal Deposit Ins. Corp. v. First Interstate Bank of Des Moines, N.A.

• Decision Date: 27 October 1989
• Docket Number: 88-1725,Nos. 88-1683,s. 88-1683
• Citation: 885 F.2d 423
• Parties: , 28 Fed. R. Evid. Serv. 1188 FEDERAL DEPOSIT INSURANCE CORPORATION, Appellant, v. FIRST INTERSTATE BANK OF DES MOINES, N.A. f/k/a United Central Bank of Des Moines, N.A., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 423

885 F.2d 423

58 USLW 2260, 28 Fed. R. Evid. Serv. 1188

FEDERAL DEPOSIT INSURANCE CORPORATION, Appellant, v. FIRST INTERSTATE BANK OF DES MOINES, N.A. f/k/a United

Central Bank of Des Moines, N.A., Appellee.

Nos. 88-1683, 88-1725.

United States Court of Appeals,

Eighth Circuit.

Submitted Nov. 16, 1988.

Decided Sept. 11, 1989.

Rehearing and Rehearing En Banc Denied Oct. 27, 1989.

Patrick McNulty, Des Moines, Iowa, for appellant.

David L. Charles, Des Moines, Iowa, for appellee.

Before HEANEY, ^* Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge, and NICHOL, ^** Senior District Judge.

JOHN R. GIBSON, Circuit Judge.

First Interstate Bank of Des Moines, N.A., formerly known as United Central Bank of Des Moines, appeals from a judgment entered on a jury verdict in favor of the Federal Deposit Insurance Corporation. United Central was held liable for aiding and abetting stockbroker Gary Lewellyn as he defrauded the First National Bank of Humboldt, Iowa (Humboldt Bank) of over $16 million in cash and securities. United Central contends that the district court ¹ erred in denying its motions for directed verdict and for judgment notwithstanding the verdict on the aiding and abetting count, and in instructing the jury on aiding and abetting, arguing that the FDIC produced no evidence that United Central knowingly intended to aid Lewellyn in committing fraud. It also argues that a new trial is warranted by the improper admission and exclusion of evidence, other erroneous jury instructions, and inconsistent answers of the jury to special interrogatories. The FDIC cross-appeals, raising a number of issues which we need not reach and presenting several other arguments as to the calculation of damages which we reject. In all respects, we affirm the judgment of the district court.

Gary Lewellyn is the son of Cliff Lewellyn, the former president of the Humboldt Bank. In 1981 and 1982, Gary Lewellyn stole some $16.7 million from his father's bank by convincing its management to transfer funds and securities to accounts maintained by Lewellyn at United Central. As a result, the Humboldt Bank was declared insolvent on April 2, 1982, and the FDIC was appointed as the receiver of the bank. After Gary Lewellyn was later convicted of embezzlement, mail fraud, and making a false statement, he was sentenced to twenty years' imprisonment. See United States v. Lewellyn, 723 F.2d 615 (8th Cir.1983); FDIC v. National Ass'n of Sec. Dealers, 582 F.Supp. 72, 73 & n. 2 (S.D.Iowa), aff'd, 747 F.2d 498 (8th Cir.1984).

The mechanics by which Gary Lewellyn defrauded the Humboldt Bank are complex. In four United Central checking accounts, all opened between December 1980 and March 1982, Lewellyn received wire transfers of large amounts of cash or securities from the Humboldt Bank. Lewellyn had convinced the Humboldt Bank that his brokerage firm, G.V. Lewellyn & Co., would restructure the bank's investment portfolio, and that securities which Lewellyn received from the bank would be sold in order to purchase new ones on its behalf. Lewellyn in fact converted the securities for his own use.

In this appeal, we must consider whether the evidence established that United Central aided and abetted Lewellyn in his fraud. The central issue is whether United Central had knowledge of Lewellyn's scheme as it developed. It is undisputed that Lewellyn maintained at United Central the bank accounts which received securities and funds stolen from the Humboldt Bank, and that United Central provided a variety of banking services to Lewellyn. The parties, however, hotly dispute the character of United Central's knowledge of Lewellyn's conduct and its intent in providing Lewellyn with banking services. On its cross-appeal, the FDIC challenges the district court's granting of judgment notwithstanding the verdict on three theories on which the FDIC prevailed before the jury, those of failure to prevent misappropriation, conversion by an agent, and permitting another to use one's instrumentalities while committing a tort. In view of our decision on the central issues presented by United Central, we need not reach these issues.

I.

Lewellyn's relationship with United Central began in December, 1980, when G.V. Lewellyn & Co. opened its first account at United Central. Activity in this account remained minimal for several months. In January, 1981, Lewellyn met with James Mackay, a senior vice president at United Central, to arrange a $100,000 unsecured loan. After the meeting, Mackay prepared a memorandum for Hank Wilmer, a senior credit officer at United Central, in which he assessed Lewellyn as a potentially substantial customer. Stating that Lewellyn's business involved tax-sheltered investments rather than stocks and bonds, the memorandum predicted that Lewellyn would realize little income in 1981 and noted that Lewellyn was recently sanctioned by the National Association of Securities Dealers and the Securities and Exchange Commission (SEC). It further warned that Lewellyn was aggressive and hard to handle, one who would "constantly skate on thin ice and ride the razor's edge." Mackay's memorandum concluded, however, that if Lewellyn were handled properly, he would "pay for his privileges and be a good advocate" of United Central.

In March 1981, the Humboldt Bank began transacting a portion of its securities business with G.V. Lewellyn & Co. The Humboldt Bank authorized the Federal Reserve Bank in Chicago to wire transfer its funds to Lewellyn's account at United Central, believing that securities were to be purchased with these funds through Lewellyn's firm and that these securities were to be held in safekeeping either at Salomon Brothers in New York or at G.V. Lewellyn & Co. In truth, Lewellyn neither enjoyed a relationship with Salomon Brothers nor used the funds that the Humboldt Bank wired to him to buy securities on its behalf.

Thus, on March 13, 1981, the Humboldt Bank wired $508,361 to the G.V. Lewellyn & Co. account at United Central. With this money, Lewellyn made the initial deposit in a repurchase account which he had opened at United Central. By March 30, 1982, United Central was to process 57 additional wire transfers for Lewellyn. The documentation on these transfers identified the Humboldt Bank as sender. Typically, Lewellyn would invest the proceeds of the transfers in a United Central repurchase account, later withdraw the funds in smaller increments, and then deposit them in other accounts which he maintained at United Central.

United Central monitored customer accounts through "exception reports" which noted significant changes in account balances, overdrafts, and problems with uncollected funds. By August 4, 1981, Lewellyn's accounts had appeared twenty times in exception reports and had been overdrawn nine times in amounts up to $42,829.82. On July 24, 1981, Robert Millen, the president of United Central, had prepared a memorandum which noted that, "Our greatest challenge in handling this customer relationship is to control Gary within his financial means."

When Lewellyn opened a second repurchase account in August, 1981, Lee Anna Chaplin, an assistant in United Central's wire transfer department, suspected that the account was not for legitimate business purposes. She was disturbed that Lewellyn did not furnish her with a tax identification number, and that he directed that confirmation slips be sent to a post office box rather than to the address used for his initial repurchase account. She believed that Lewellyn was "a crook."

On two occasions, Chaplin discussed her concerns with Ronald Nienow, the head of United Central's investment division. Chaplin was told that her concerns would be raised at an upcoming meeting between Lewellyn, Nienow, and Millen. During that meeting, which occurred on August 27, Lewellyn solicited business from United Central. Among other things, he represented that he had maintained large balances in his business accounts. Neinow and James Weiser, another officer in United Central's investment division, later discovered this claim to be false.

By December 31, 1981, Lewellyn's accounts had appeared on United Central exception reports 63 times. He continued to receive wire transfers from the Humboldt Bank, and as before, he transferred most of the sums received to repurchase accounts in order to periodically withdraw money as required. One account of his under the name "GVL Co." was overdrawn four times during the months of October, November, and December, 1981 in amounts as high as $445,449.65.

Despite these prior warnings and irregular account activity, United Central on December 30, 1981 permitted Lewellyn to open a checking account under the name of "GVL/Solomon" without required documentation. At a meeting, Lewellyn told Weiser that the business was a joint venture with Salomon Brothers of New York City, and that Salomon would provide the securities. ² Weiser, who was familiar with Salomon Brothers by reputation, was not aware of any other brokers of Lewellyn's size with a comparable relationship with Salomon. Weiser mentioned to Lewellyn that "Solomon" was misspelled and the customary "Bros." abbreviation was not used. As to the misspelling, Lewellyn responded that his secretary had made a typographical error. Richard Hickman, a senior investment officer who assisted Weiser in opening the GVL/Solomon account, did not believe from the beginning that Lewellyn truly had a joint venture with Salomon Brothers. Six months earlier, when Lewellyn had opened a joint account at United Central with Swiss American Securities, Inc., William Bunten, senior executive vice president at United Central, called Swiss American to confirm the existence of their relationship with Lewellyn. In the case of the GVL/Solomon account, however, United Central never contacted the firm to ascertain whether it actually dealt with Lewellyn.

On January 5, 1982, United Central received nine securities by wire...