Kelley v. BMO Harris Bank N.A., as successor to M&I Marshall and IIsley Bank

Background

The case arises from a Ponzi scheme operated by Thomas J. Petters and associates from 1994 through 2008. Petters Company, Inc. obtained billions of dollars from investors through false statements about its business. PCI used a depository account at National City Bank, which M&I Marshall and Ilsley Bank acquired in 2001. BMO Harris is M&I’s successor.

Douglas A. Kelley, acting as trustee of the BMO Litigation Trust, alleges that BMO Harris was complicit in the scheme through its handling of PCI’s account. Four claims remained unresolved: violation of the Minnesota Uniform Fiduciaries Act, breach of fiduciary duties owed to PCI, aiding and abetting fraud against PCI, and aiding and abetting breaches of fiduciary duties owed to PCI. The parties filed motions in limine, which are requests to decide before trial whether particular evidence may be presented to the jury.

Plaintiff’s Motions

Investor complicity. The court granted the trustee’s motion to exclude evidence that PCI’s investors were complicit in the underlying fraud. The court held that investor complicity would not make it less likely that BMO Harris was a proximate cause of the trustee’s injuries, because an injury may have more than one cause. It also would not affect whether BMO Harris substantially assisted the alleged primary wrongdoers. The court rejected BMO Harris’s arguments that investor complicity was relevant to contract defenses, offsets, or rebuttal, while explaining that direct rebuttal evidence about M&I’s own knowledge or conduct could still be admissible.

Recoveries, offsets, and reductions. The court granted the trustee’s motion to exclude evidence of recoveries, offsets, and reductions obtained by PCI and its creditors. The court reasoned that the alleged injury belonged to PCI and the bankruptcy estate, not to individual creditors, and that creditor recoveries were not relevant to the trustee’s damages. Applying Minnesota’s collateral-source rule, the court also concluded that compensation from other sources generally does not reduce the alleged tortfeasor’s responsibility for the harm it caused. The court stated that BMO Harris could seek a reduction based on qualifying payments after trial, but it could not use the disputed evidence at trial for that purpose.

Criminal convictions. The court granted in part and denied in part the trustee’s motion to admit evidence of criminal convictions from the underlying fraud case. The judgments of conviction involving PCI, Thomas Petters, Deanna Coleman, and Robert White, together with facts essential to those convictions, were admissible. The court approved a jury instruction explaining the essential facts the jury could infer from the convictions, including that PCI was used to operate a scheme that obtained money through false statements and used fake documents. The plea agreements and plea-hearing transcripts were inadmissible as hearsay and were not final judgments of conviction within the applicable evidence rule.

Federal investigations. The court granted in part and denied in part the trustee’s motion to exclude evidence of federal fraud investigations. Evidence consisting of hearsay or relating solely or mainly to investigators’ knowledge, state of mind, conduct, findings, or conclusions was inadmissible. This included investigators’ notes and statements about M&I’s innocence or culpability. But either party could seek to introduce specific evidence about the investigations if it was relevant and sufficiently probative of M&I’s knowledge, state of mind, or conduct. The court would decide such disputes at trial and could provide a limiting instruction.

Defendant’s Motions

Prior settlement. BMO Harris’s motion to exclude evidence concerning its prior settlement with the United States Department of Justice was denied as moot. The trustee represented that he did not intend to offer the evidence, and the court stated that evidence about criminal prosecution or whether federal investigators considered M&I culpable was irrelevant and inadmissible.

Duties owed to investors. The court granted in part and denied in part BMO Harris’s motion to exclude evidence and argument that M&I owed or breached disclosure duties to PCI’s investors. Evidence directly concerning duties owed to investors was inadmissible because the remaining claims concerned duties owed to PCI. However, the court would not categorically exclude evidence about PCI’s business model, account activity, alleged sham Deposit Account Control Agreements, or similar facts when offered as circumstantial evidence of M&I’s knowledge, state of mind, or conduct.

Wisconsin lawsuit. BMO Harris’s motion to exclude evidence concerning sanctions imposed in an unrelated Wisconsin state-court lawsuit was denied as moot because the trustee said he would not offer that evidence. The court stated that the parties could present limited evidence about the circumstances surrounding BMO Harris’s destruction of email backup tapes, including evidence supporting or rebutting an innocent explanation, but evidence about BMO Harris’s conduct in the unrelated lawsuit was outside that limited scope.

Bank of Montreal’s financial condition. The court denied BMO Harris’s motion to exclude evidence about the financial condition of its parent company, Bank of Montreal. The court held that the evidence was not categorically inadmissible because the parent’s financial condition might be relevant to punitive damages, particularly in light of evidence about ownership, consolidated financial reporting, enterprise-wide capital allocation, and reliance on consolidated financial information. The court reserved rulings on objections to particular exhibits for trial.

Other Trial Procedures

The court directed the parties to meet and confer about deposition designations and objections before trial. At least 48 hours before using deposition testimony, the offering party had to provide the court and opposing counsel with the transcript, the intended use and method of presentation, a list of outstanding objections, and a color-coded annotated copy. The court also stated that it intended to empanel twelve jurors with no alternates and required counsel to exchange likely next-day trial-exhibit lists by 7:00 p.m. each day, subject to stated exceptions.

Disposition

The order granted the trustee’s motions to exclude investor-complicity evidence and evidence of recoveries, offsets, and reductions. It granted in part and denied in part the trustee’s motions concerning criminal convictions and federal investigations. It denied as moot BMO Harris’s motions concerning the prior settlement and the Wisconsin lawsuit. It granted in part and denied in part BMO Harris’s motion concerning duties allegedly owed to investors, and denied BMO Harris’s motion concerning Bank of Montreal’s financial condition. Judge Wilhelmina M. Wright did not decide the parties’ underlying claims in this order.