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

Background

The case followed a 17-day jury trial concerning claims arising from a Ponzi scheme orchestrated by Thomas Petters, Deanna Coleman, and Robert White. The scheme used Petters Company, Inc. (PCI) to obtain billions of dollars from investors through fraud. The money moved through a depository account at M&I Marshall and Ilsley Bank, for whose conduct BMO Harris was legally responsible.

The Trustee asserted four claims: violation of the Minnesota Uniform Fiduciaries Act, breach of fiduciary duties to PCI, aiding and abetting fraud against PCI, and aiding and abetting the breach of fiduciary duties owed to PCI. The jury found for BMO Harris on the first three claims and for the Trustee on the fourth. It awarded $484,209,716 in compensatory damages and $79,533,392 in punitive damages.

The court also discussed M&I’s destruction of email backup tapes containing tens of thousands of documents despite a litigation hold. The bankruptcy court imposed spoliation sanctions, including an adverse-inference instruction. The jury was permitted, but not required, to infer that the destroyed evidence would have harmed BMO Harris’s case.

The Trustee’s Interest Motion

The Trustee sought to amend the judgment under Federal Rule of Civil Procedure 59(e) to add pre- and post-judgment interest. The court held that federal law governed post-judgment interest and that the applicable rate was 4.74 percent. It directed the Clerk to add post-judgment interest at that rate, calculated from the date of the verdict through the date of the order.

The court held that Minnesota law governed prejudgment interest because the Trustee’s claims were state-law claims for allegedly tortious conduct, not federal bankruptcy avoidance claims. Under Minnesota law, prejudgment interest was mandatory and was not subject to an equitable reduction. The court held that the Trustee was entitled to 10 percent prejudgment interest on the verdict amount from the date the lawsuit was filed through the date of the verdict. The Trustee’s motion for pre- and post-judgment interest was granted as addressed in the order.

The Trustee’s Motion for Judgment as a Matter of Law

The Trustee sought judgment as a matter of law on BMO Harris’s twenty-third affirmative defense, which asserted consent and ratification. The court first concluded that the Trustee’s request was not ripe because he sought no relief other than a ruling for potential appellate purposes and identified no concrete, impending injury that the ruling would remedy.

The court also addressed the merits. It held that the consent-and-ratification defense was properly submitted to the jury. Although certain equitable defenses may be unavailable against a trustee or receiver, consent and ratification was a matter for the jury, and the Trustee had not shown that the defense was unavailable. The court further held that evidence supported a reasonable jury finding for BMO Harris without attributing Petters’s knowledge to PCI. The Trustee’s motion for judgment as a matter of law was denied. The court also concluded that BMO Harris was not entitled to judgment as a matter of law on that defense.

BMO Harris’s Motion for Judgment as a Matter of Law

BMO Harris renewed its request for judgment as a matter of law on the Trustee’s aiding-and-abetting claim, the compensatory-damages award, the punitive-damages award, and several affirmative defenses.

As to the aiding-and-abetting claim, the court held that sufficient evidence supported the jury’s findings on actual knowledge, substantial assistance, and proximate cause. Actual knowledge could be proved through direct or circumstantial evidence, including evidence of willful blindness. The court held that the adverse-inference instruction, together with evidence concerning M&I employees’ actions and inaction, could support the knowledge finding. The court also held that a reasonable jury could find substantial assistance and that M&I’s conduct was a proximate cause of PCI’s harm, even though Petters and his associates were also responsible and other banks might have provided banking services.

The court rejected BMO Harris’s argument that the verdict was irreconcilable because the jury found that BMO Harris did not itself breach fiduciary duties but aided and abetted a breach of those duties. This part of the motion was denied.

The court declined to set aside the compensatory-damages award. It rejected BMO Harris’s proposed limits based on amounts recovered elsewhere, PCI’s insolvency, alleged lack of causation, and the amount of the officers’ self-dealing. The court held that the evidence provided a reasonable basis for the jury’s award.

The court also rejected BMO Harris’s challenges to punitive damages. It held that the evidence, including the adverse inference, could support a finding that M&I acted with deliberate disregard for others’ rights. The court further held that evidence concerning managerial-level employees could support imposing punitive damages on BMO Harris and that the amount of punitive damages was not excessive in relation to the compensatory award. BMO Harris’s motion for judgment as a matter of law was denied.

Regarding affirmative defenses, the court denied BMO Harris’s request concerning acquiescence, waiver, and the statute of limitations. The court held that the evidence did not establish that PCI as a whole had the required knowledge for acquiescence or waiver. It also held that a reasonable jury could find that the breach-of-fiduciary-duty claim accrued within the applicable six-year period and could reject the statute-of-limitations defense. The order also denied, without further discussion, BMO Harris’s request concerning defenses previously rejected by the court, including in pari delicto, UCC preemption, and the contractual limitations period.

New Trial and Remittitur

BMO Harris sought a new trial based on alleged errors involving the knowledge instruction, willful blindness, substantial assistance, affirmative-defense instructions, investor-complicity evidence, the Trustee’s testimony, proposed jury instructions, evidence concerning an FBI investigation, and alleged prejudicial statements. The court rejected each asserted ground and denied the motion for a new trial.

BMO Harris alternatively sought a conditional remittitur, which would reduce the damages award. The court held that the compensatory-damages award was supported by the evidence and that the punitive-damages award was not excessive or unconstitutional. The court denied the request for remittitur.

Disposition

Judge Wright ordered that the Trustee’s motion for pre- and post-judgment interest was granted as addressed in the order. The Trustee’s motion for judgment as a matter of law was denied. BMO Harris’s motion for judgment as a matter of law was denied. BMO Harris’s motion for a new trial or conditional remittitur was denied. The court directed that judgment be entered accordingly.