Maryott v. First Nat. Bank of Eden

• Citation: 2001 SD 43,624 N.W.2d 96
• Decision Date: 04 April 2001
• Docket Number: No. 21552., No. 21539
• Parties: Ned MARYOTT, Plaintiff and Appellee, v. FIRST NATIONAL BANK OF EDEN, South Dakota, Peter Mehlhaff, President of First National Bank of Eden, South Dakota, and Tim Hofer, officer/director of First National Bank of Eden, South Dakota, Defendants and Appellants.
• Court: Supreme Court of South Dakota

624 N.W.2d 96

2001 SD 43

Ned MARYOTT, Plaintiff and Appellee, v. FIRST NATIONAL BANK OF EDEN, South Dakota, Peter Mehlhaff, President of First National Bank of Eden, South Dakota, and Tim Hofer, officer/director of First National Bank of Eden, South Dakota, Defendants and Appellants.

Nos. 21539, 21552.

Supreme Court of South Dakota.

Argued February 13, 2001.

Decided April 4, 2001.

Scott N. Heidepriem, Matthew T. Tobin of Johnson, Heidepriem, Miner, Marlow and Janklow, Sioux Falls, SD, Attorneys for plaintiff and appellee.

Reed Rasmussen of Siegel, Barnett and Schutz, Aberdeen, SD, Attorneys for defendants and appellants. GILBERTSON, Justice.

[¶ 1.] Ned Maryott (Maryott) sued First National Bank of Eden (Bank), its president and its branch manager under SDCL 57A-4-402 for the wrongful dishonor of three checks. A jury awarded Maryott $600,000 in damages for lost income, lost value of his business and emotional distress. On appeal, we affirm in part and reverse in part.

FACTS AND PROCEDURE

[¶ 2.] Maryott has owned and operated a cattle-dealing business known as Maryott Livestock Sales near Britton, South Dakota, since 1973. In the cattle industry, Maryott had a reputation for honesty and integrity. Because of his respected reputation, he was considered one of the best dealers in the business. Maryott earned a commission of $.50 per hundred weight on the cattle he sold. In an average year, he would sell approximately 50,000 head of cattle, generating revenues of $175,000.

[¶ 3.] Maryott began doing business with Bank in 1977. Over the years, Maryott had borrowed substantial amounts of money from Bank. During that time, Maryott had never written a bad check, had never incurred an overdraft, and had never been late on a loan payment. On December 29, 1993, Maryott and his wife signed a promissory note in favor of Bank for $176,171.60. That note served as a line of operating credit and was secured by mortgages on Maryott's real estate and security interests on most of his personal property and inventory. Bank valued the property mortgaged by Maryott at $663,861. The note was due on December 29, 1999. On March 13, 1996, the Bank loaned Maryott an additional $100,000, due on November 1, 1996. That note was secured by a security agreement and real estate mortgage.

[¶ 4.] One of Maryott's major customers was the Oconto Cattle Company (Oconto), located in Custer County, Nebraska. Oconto was owned by Warren Bierman, who Maryott had been doing business with for more than twenty years. In the normal course of business, Oconto paid Maryott within six to seven days after shipping the cattle. Between July 16 and August 29, 1996, Maryott shipped 887 head of cattle to Oconto. The value of those cattle was approximately $480,000. After repeated attempts to collect payment from Bierman were unsuccessful, Maryott ceased shipping cattle to Oconto. Maryott did receive two sight drafts from Oconto, drawn on its line of credit. However, these drafts were returned because Oconto's lender had revoked the line of credit. Despite repeated assurances from Bierman that he "was good for it," Maryott never received payment on the 887 head of cattle shipped to Oconto.¹

[¶ 5.] Bank first became aware of the Oconto situation when the two drafts were returned in mid-September. This situation caused concern to Tim Hofer, Bank's manager, and Peter Mehlhaff, its president. After visiting with Maryott regarding the situation on September 30, 1996, Mehlhaff and Hofer noticed that three large checks had been processed through Maryott's checking account. These checks were payable to Tri-County Livestock Auction for $30,544.38; to Tri-County Livestock (collectively "Tri-County") for $72,070.24; and to Schaffer Cattle Company (Schaffer) for $132,990. Each of these checks had been presented to Bank and paid in full on September 25, 1996. Maryott's checking account had been debited accordingly. In light of their concerns over the Oconto situation and after examining the physical checks, Hofer and Mehlhaff concluded Maryott was involved in or the victim of "suspicious activity."² That afternoon, Bank decided to dishonor the three "suspicious" checks, even though Bank was aware such a dishonor was a potential violation of the "midnight deadline" rule found in SDCL 57A-4-302(1). Although Maryott had met with Hofer earlier in the day, he was not informed that Bank intended to dishonor his checks.

[¶ 6.] The next morning, October 1, 1996, Mehlhaff gave notice of dishonor for the three checks by filing a claim for late return with the Federal Reserve. Once the items were dishonored by the Federal Reserve, the funds were returned to Maryott's checking account. Bank immediately froze the assets in Maryott's checking account, meaning any additional checks drawn on his account would not be honored. That same day, Hofer received a call from Don Kampmeier, president of Central Livestock Company (Central). Kampmeier informed Hofer that Central was holding a check for $68,528 from Maryott. Hofer informed Kampmeier that the check would not be honored, despite the fact that Maryott's checking account contained nearly $300,000 at the time.³ Later that same day, Bank deemed itself insecure and used the proceeds of the dishonored checks to pay down the balance of Maryott's loans, leaving $1 owing on each to maintain its superior priority date in the collateral.

[¶ 7.] Pursuant to the Packers and Stockyards Act, licensed livestock dealers must be bonded. Maryott was bonded in the amount of $70,000. After being informed that Bank would not honor the check it held from Maryott, Central made a claim against Maryott's bond on October 7, 1996. It submitted a claim for $247,030, which included the $68,538 check as well as Maryott's other outstanding debt owed to Central.⁴ On October 31, 1996, Schaffer, an intended payee on one of the dishonored checks, also submitted a claim against Maryott's bond. Because the claims exceeded the amount of the bond, Maryott was required to forfeit his dealer's license. Without a license, Maryott could not independently deal livestock, which effectively shut down his business.

[¶ 8.] The payees on the dishonored checks, Tri-County and Schaffer, subsequently sued Bank for the face value of the checks. Bank admitted that it had violated the midnight deadline rule and agreed to settle those claims for an aggregate amount of $168,534.⁵ The settlement amount was then applied against Maryott's line of credit. Maryott commenced this action against Bank on December 5, 1996, alleging breach of contract and conversion, later adding a claim for wrongful dishonor. Summary judgment was granted in favor of Bank as to the conversion claim, and Maryott abandoned the breach of contract claim at trial. A jury trial was commenced on March 27, 2000 on only the wrongful dishonor claim. On March 31, 2000, the jury returned a verdict in favor of Maryott in the amount of $250,000 for lost income, $200,000 for lost value of Maryott's business and $150,000 for emotional distress. With prejudgment interest, the total judgment came to $713,750. After the verdict, the trial court allowed a setoff in favor of Bank for $168,534, the amount of the settlement on the dishonored checks. Bank appeals the jury verdict, raising three issues for our review:

1. Whether the wrongful dishonor of the checks proximately caused Maryott's damages;

2. Whether Maryott was entitled to emotional damages;

3. Whether the damages awarded were excessive.

By notice of review, Maryott raises two additional issues:

4. Whether the issue of punitive damages should have been submitted to the jury;

5. Whether Bank is entitled to a set-off of the jury's verdict.

ANALYSIS AND DECISION

[¶ 9.] 1. Whether the wrongful dishonor of the checks proximately caused Maryott's damages.

[¶ 10.] Bank appeals from the denial of its motion for judgment notwithstanding the verdict. As such a motion is based on, and relates back to, a motion for directed verdict, we "review the testimony and evidence in a light most favorable to the verdict...." Martinmaas v. Engelmann, 2000 SD 85, ¶ 20, 612 N.W.2d 600, 606. Without weighing the evidence, we then decide if there is evidence which would have supported the verdict. Id. In other words, we apply the abuse of discretion standard to the trial court's ruling. Id.

[¶ 11.] SDCL 57A-4-402(b) provides that "[a] payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item." Bank has not appealed the jury's determination that it wrongfully dishonored the three checks. Whether the wrongful dishonor proximately caused Maryott's damages is a question of fact for the jury to decide "in `all but the rarest of cases.'" Thompson v. Summers, 1997 SD 103, ¶ 18, 567 N.W.2d 387, 394 (citing Bauman v. Auch, 539 N.W.2d 320, 325 (S.D.1995)). Only when legal minds cannot differ as to the failure of proximate cause is judgment as a matter of law in favor of Bank appropriate. See Walther v. KPKA Meadowlands Ltd. Partnership, 1998 SD 78, ¶ 54, 581 N.W.2d 527, 537

. Bank claims this is one of those rarest cases. After reviewing the evidence in a light most favorable to the verdict, we cannot agree.

[¶ 12.] Bank's argument is based upon its claim that there is no connection between the three dishonored checks and the damage caused to Maryott, namely the loss of his dealer's license and the closing of his business after Central made a claim against his bond. Bank argues that Maryott had given Central the $68,543 check, knowing that he did not have sufficient funds in his account to cover the check. Therefore, according to Bank, the check would have bounced regardless of whether Bank had dishonored the checks and frozen his account. Hence, according to Bank, the wrongful dishonor did not proximately cause Maryott any damage.

[¶ 13.] Maryott points to testimony that he informed Central on the day he issued the check that he did not have enough...