Marion v. Bryn Mawr Trust Co.
| Decision Date | 19 January 2023 |
| Docket Number | 72 MAP 2021 |
| Citation | 288 A.3d 76 |
| Parties | David H. MARION, Receiver for Bentley Financial Services, Inc. and Entrust Group, Appellees v. BRYN MAWR TRUST COMPANY, Appellant |
| Court | Pennsylvania Supreme Court |
Thomas Ben Fiddler, Esq., Edward Michael Koch, Esq., Justin Edward Proper, Esq., White and Williams LLP, Marc Lloyd Penchansky, Esq., for Appellee.
Emily Ann Cathcart, Esq., Thomas R. Hurd, Esq., Ryan Joseph Murphy, Esq., McElroy, Deutsch, Mulvaney & Carpenter, LLP, Steven B. Feirson, Esq., Michael Hugh McGinley, Esq., Justin M. Romeo, Esq., Dechert LLP, for Appellant.
Michael Lee Kichline, Esq., Morgan Lewis & Bockius, LLP, for Amicus Curiae PA Coalition for Civil Justice Reform and PA Institute of Certified Public Accountants.
Raymond Paul Pepe, Esq., for Amicus Curiae Pennsylvania Bankers Association.
OPINION
We granted limited discretionary review to consider whether to recognize a cause of action for aiding and abetting fraud and, if so, to determine the scienter requirement for this tort. For the reasons detailed below, we hold aiding and abetting fraud is a cognizable claim under Pennsylvania law, and the required state of mind is actual knowledge of the fraud. Accordingly, the Superior Court's decision is affirmed in part and reversed in part, and the case is remanded to the trial court for a new trial.
Robert Bentley (Bentley) was a broker of certificates of deposits (CDs). He operated his business through two entities: Bentley Financial Services (BFS) and Entrust Group (Entrust). Entrust had a $2 million line of credit with Main Line Federal Savings Bank (Main Line). In 1996, Main Line terminated the line of credit, which was fully drawn, after the bank discovered Bentley had forged his accountant's signature on a document. Main Line demanded repayment of the outstanding $2 million balance. In order to pay back Main Line, Bentley sold $2 million of fake CDs. Thereafter, Bentley engaged in a Ponzi scheme in which he would sell fraudulent or fictitious CDs to new investors in order to pay off previous investors.
In 1997, as he continued to defraud investors, Bentley opened deposit and wire transfer accounts with a new bank, Bryn Mawr Trust Company (BMT). In addition, he applied to BMT for a $2 million line of credit. He subsequently withdrew his credit application, however, after BMT asked him to provide a favorable credit reference from Main Line. Bentley became one of BMT's largest customers.
In 2001, the Securities and Exchange Commission commenced an action against Bentley for his Ponzi scheme.1 The federal court appointed David Marion (Marion) as a receiver for BFS and Entrust. In 2004, Marion initiated the present case by filing in state court a civil complaint against BMT. Marion's complaint, which he subsequently amended in 2012, raised claims of breach of fiduciary duty, breach of the Uniform Fiduciaries Act (UFA), aiding and abetting fraud, and negligence. In 2014, the trial court granted summary judgment to BMT on the claim of aiding and abetting fraud. The court noted "Pennsylvania appellate courts have not expressly recognized [aiding and abetting fraud] as a cause of action under Pennsylvania law[.]" Marion v. Bryn Mawr Tr. Co. , No. 03-19232, Order, Murphy, J. (C.P. Montgomery, Jan. 21, 2014).
The case proceeded to a jury trial in 2018. Marion withdrew his claim of breach of fiduciary duty at the close of his evidence. Ultimately, the jury returned a verdict for BMT. Specifically, the jury found BMT was not negligent, and did not act in bad faith in violation of the UFA. The trial court denied Marion's motion for post-trial relief.
Marion appealed to the Superior Court, which reversed the judgment in favor of BMT and remanded for a new trial. Initially, the panel held the trial court erred in granting summary judgment in favor of BMT on the aiding and abetting fraud claim. The panel noted that in opposing summary judgment, Marion argued BMT's conduct was actionable under section 876 of the Restatement (Second) of Torts (section 876), which provides:
RESTATEMENT (SECOND) OF TORTS § 876 ( AM. L. INST. 1979). The panel recounted that, in Skipworth v. Lead Indus. Ass'n , 547 Pa. 224, 690 A.2d 169 (1997), this Court found the Superior Court's interpretations of the concert of action theory of liability under section 876(a) to be " ‘eminently reasonable’ and expressly adopted them." Marion v. Bryn Mawr Tr. Co. , 253 A.3d 682, 689 (Pa. Super. 2021), quoting Skipworth , 690 A.2d at 175. The panel noted that subsequently, in Sovereign Bank v. Valentino , 914 A.2d 415 (Pa. Super. 2006), the Superior Court upheld a cause of action for aiding and abetting fraud under section 876(b). Thus, the panel argued, "the trial court erred in concluding that [Marion] alleged a nonexistent cause of action." Marion , 253 A.3d at 689. The panel acknowledged this Court "has not expressly recognized a claim for aiding and abetting fraud under § 876(b) ( Skipworth addressed § 876(a) )." Id. at 689 n.2. Yet, the panel reasoned, "[t]his is of no moment here," as the Superior Court did recognize the claim in the published decision in Sovereign Bank , which "is binding on this panel." Id.
Regarding the scienter required for aiding and abetting fraud, the panel opined Grimm v. Grimm , 149 A.3d 77 (Pa. Super. 2016), "held that § 876(b) could apply where the defendant knew of or could reasonably foresee the underlying bad actor's misdeed." Id. at 690. Moreover, the panel determined HRANEC Sheet Metal, Inc. v. Metalico Pittsburgh, Inc. , 107 A.3d 114 (Pa. Super. 2014) "relied on the defendant's ‘intentional ignorance’ in concluding that the defendant knew or should have known it was participating in tortious conduct." Id. at 691. The panel also relied on Resolution Tr. Corp. v. Farmer , 823 F. Supp. 302 (E.D. Pa. 1993), which stated "the proof offered must establish conscious involvement in impropriety or constructive notice of intended impropriety." Id. , quoting Resolution Tr. , 823 F. Supp. at 309. Pursuant to Grimm , HRANEC , and Resolution Trust , the panel concluded, "a defendant's actual knowledge of the underlying tort is not necessary to sustain a cause of action" for aiding and abetting fraud. Id. "Rather," the panel determined, "if the defendant knew or should have known of the underlying bad actor's misdeeds, but instead exhibited intentional ignorance, ... the knowledge element of [the tort] is satisfied." Id. According to the panel, "a genuine issue of material fact existed as to whether BMT exercised intentional ignorance toward Bentley's unlawful activity." Id. at 693. There was also sufficient evidence, the panel held, to establish a triable issue of fact as to whether BMT provided substantial assistance or encouragement to Bentley.
In addition to reversing the dismissal of Marion's claim of aiding and abetting fraud, the panel also held the trial court erred in permitting BMT to introduce evidence of the attorneys’ fees Marion incurred in his role as receiver and his decision as receiver to redeem and liquidate CDs prior to their maturity dates. See id. at 695-706. The panel concluded "[t]hese errors were not harmless and permeated both the liability and damages phase[s] of the trial." Id. at 706. Accordingly, the panel vacated the judgment for BMT, and remanded for a new trial, "which shall include [Marion's] § 876(b) cause of action." Id. at 707.
BMT sought allowance of appeal, which this Court granted, limited to the following issue as stated by BMT: "Whether the Superior Court erred when it: (a) recognized a novel cause of action for aiding and abetting fraud; (b) held that actual knowledge is not required to satisfy the elements of the tort; and (c) failed to recognize that the jury's no-liability finding necessarily barred relief[?]" Marion v. Bryn Mawr Tr. Co. , 264 A.3d 336 (Pa. 2021) (per curiam) (alteration in original).2 Because this issue raises pure questions of law, our standard of review is de novo and our scope of review is plenary. See Pennsylvania Env't Def. Found. v. Commonwealth , ––– Pa. ––––, 279 A.3d 1194, 1202 (2022).
BMT urges this Court to reverse the panel's remand for a new trial. It argues this Court should not recognize a cause of action for aiding and abetting fraud. According to BMT, the Court has never previously recognized this claim. It contends Skipworth involved a claim of concert of action under section 876(a), not an allegation of aiding and abetting under section 876(b). Indeed, BMT insists "this Court expressly rejected any suggestion that it has recognized aiding-and-abetting liability under § 876(b)" in Off. Comm. of Unsecured Creditors of Allegheny Health Educ. & Rsch. Found. v. PriceWaterHouseCoopers, LLP , 605 Pa. 269, 989 A.2d 313 (2010). Appellant's Brief at 24. BMT maintains "[t]his Court does not lightly adopt new causes of action[,]" and does so only when it is "able to see with reasonable clarity the results of its decision and to say with reasonable certainty that the change will serve the best interests of society." Id. at 25, quoting Cafazzo v. Cent. Med. Health Servs., Inc. , 542 Pa. 526, 668 A.2d 521, 527 (1995). Here, BMT advocates, there is no pressing need to adopt an aiding and abetting fraud claim because there are existing causes of action under Pennsylvania law that can provide adequate relief, including fraud,...
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