Derrick Delarosa, Sucessor Personal Representative of The Estate of Phyllis Delarosa and Derrick Delarosa, Individually v. Farmers State Bank S/B

In the Missouri Court of Appeals
Western District
DERRICK DELAROSA, Sucessor )
Personal Representative of THE )
ESTATE OF PHYLLIS DELAROSA and )
DERRICK DELAROSA, Individually, )
Respondents,
) WD77941
v. )
)
FARMERS STATE BANK S/B, ) FILED: November 10, 2015
Appellant. )
APPEAL FROM THE CIRCUIT COURT OF VERNON COUNTY
THE HONORABLE DENNIS D. REAVES, JUDGE
BEFORE DIVISION THREE: KAREN KING MITCHELL, PRESIDING JUDGE,
LISA WHITE HARDWICK AND ANTHONY REX GABBERT, JUDGES
Farmers State Bank, S/B (“Bank”) appeals from a judgment awarding actual
and punitive damages to Derrick DeLaRosa and the Estate of Phyllis DeLaRosa
(collectively “DeLaRosa”) on their conversion claim against the Bank. The Bank
contends the circuit court erred in instructing the jury on the conversion claim and
in submitting the claim for punitive damages. For the reasons explained herein, we
find no error and affirm the judgment.
FACTUAL AND PROCEDURAL HISTORY
Phyllis DeLaRosa died in March 1991, leaving her minor son, Derrick
DeLaRosa, as her sole beneficiary. The Estate of Phyllis DeLaRosa was opened in
April 1991, with Nancy Coyner appointed as personal representative and
conservator of the Estate.
In late 1995 and early 1996, Coyner wrote three checks from an Estate
account, all of which were made payable to the Bank. Each check listed the
account owner as “Phyllis R. DeLaRosa Estate, Nancy Coyner, Pers. Rep., C/O
Nancy Coyner.” The first check was written on November 13, 1995 in the amount
of $20,000. Bank teller Linda Moore, at the instruction of Coyner, deposited most
of the proceeds of the check into several of Coyner’s personal checking or savings
accounts and distributed a portion to Coyner in cash. Moore applied $2,397.80 of
the proceeds as an interest payment to the Bank on a loan that Coyner owed to the
Bank.
Coyner subsequently wrote a second check on December 1, 1995, in the
amount of $9,000, and a third check on February 29, 1996, in the amount of
$10,000. The proceeds of these checks were either deposited in Coyner’s
personal accounts at the Bank or paid out to Coyner in cash. Unlike the first
check, none of the proceeds were used to make any payment for a debt owed the
Bank.
Coyner died in April 1996, and Connie Hendren was appointed as the
successor personal representative of the Estate. Hendren reviewed the financial
records and concluded that the three checks described above were misappropriated
from the Estate. With Hendren as the party plaintiff, the Estate filed suit against
the Bank to recover the misappropriated funds in the total amount of $39,000.
2
During discovery in March 2006, the Estate asked the Bank to explain how
the proceeds of the three checks were handled. The Bank provided an
interrogatory response stating that it “Deposited [the proceeds] to [the] Phyllis
DeLaRosa Estate account.” The Bank did not disclose that it had actually
deposited the proceeds into Coyner’s personal accounts and that it received some
of the funds in payment of a debt owed the Bank. Another interrogatory inquired
whether Coyner had any loan accounts with the Bank during the period of 1995-
1996 when the checks were drawn. The Bank responded that it “does not
maintain records of loans this old.”
In 2008, the circuit court granted the Bank’s motion for summary judgment
on the Estate’s claims, and the Estate appealed to this court. Hendren v. Farmers
State Bank, S.B., 272 S.W.3d 345 (Mo. App. 2008). In reversing the summary
judgment, we concluded that the Bank failed to present any evidence that it
properly handled the proceeds of the three checks:
Though the Bank claims that the proceeds were deposited to the
[Estate] savings account, the Bank has no evidence, documentary or
otherwise, to support that assertion. The records pertaining to the
proceeds of the three checks are, according to the Bank, no longer
available. The Bank knew as early as 1999 that there were claims of
discrepancies and missing funds with regard to the DeLaRosa Estate.
Yet the Bank now has no records concerning the proceeds of the three
checks. All that is known is that the Bank received the $39,000 in
proceeds. What happened after the Bank’s receipt of the money is
unknown.
The Bank acknowledges that the funds were not tendered for the Bank
to keep, as in payment of a debt owed the Bank. That being the case,
the burden is on the Bank to protect itself from the presumption that
the Bank improperly benefited from the funds.
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Id. at 352. Because the Bank could not account for the funds “beyond its naked,
undocumented assertion that it placed the funds on deposit,” we held that there
was an inference that the Bank improperly benefited from the funds. Id. at 352–
53. We reversed the summary judgment and remanded the case to allow the Bank
to present evidence to “overcome the presumption of bad faith and the
presumption that the Bank still owes the funds to the [Estate].” Id. at 353.
In March 2009, the Bank “supplemented” the discovery responses in which
it had previously denied the existence of any records related to the three checks.
The Bank explained that it was unable to find the records originally, but now the
records had been found after a more thorough search. The Bank provided records
to show: (1) how the proceeds of the three checks were applied; (2) that Coyner in
fact had loans with the Bank during 1995–1996; and (3) that the Bank received a
portion of the proceeds from the first check as payment on one of Coyner’s loans.
Upon reaching the age of majority in 2011, Derrick DeLaRosa was
substituted as the successor personal representative of the Estate (replacing
Hendren). He also was added as an individual plaintiff in the lawsuit against the
Bank. The court granted DeLaRosa leave to file a First Amended Petition seeking
compensatory and punitive damages for the Bank’s alleged conversion of the
Estate’s funds in violation of the Uniform Fiduciaries Law, Section 469.270. At
trial, the jury returned a verdict against the Bank on the conversion claim and
awarded punitive damages. The court thereupon entered a judgment awarding
DeLaRosa $104,660.31 in actual damages ($39,000 plus prejudgment interest)
and $150,000 for punitive damages. The Bank appeals.
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STANDARD OF REVIEW
Whether the jury was properly instructed is a question that an appellate
court reviews de novo. Hayes v. Price, 313 S.W.3d 645, 650 (Mo. banc 2010).
“Any issue submitted to the jury in an instruction must be supported by substantial
evidence from which the jury could reasonably find such issue.” Id. (citation and
internal quotations omitted). “Substantial evidence is evidence which, if true, is
probative of the issues and from which the jury can decide the case.” Id. (citation
omitted). On review of a jury-tried civil case, we consider the facts in the light
most favorable to the jury’s verdict, and we do not determine the credibility of the
witnesses, resolve conflicts in testimony, or re-weigh the evidence. Host v. BNSF
Ry. Co., 460 S.W.3d 87, 94 n.2 (Mo. App. 2015); Brandt v. Csaki, 937 S.W.2d
268, 273 (Mo. App. 1996).
ANALYSIS
Conversion Claim under the UFL
In Point I, the Bank contends the circuit court erred in overruling its objection
to DeLaRosa’s verdict director, which provided that the jury could find the Bank
liable if it “received a financial benefit from processing payment” of the first check
drawn by Coyner. The Bank argues that this instruction failed to include a required
element of the conversion claim under the Uniform Fiduciaries Law (UFL).
Specifically, the Bank asserts that the UFL also requires proof that the Bank had
actual knowledge that Coyner was breaching her fiduciary duty when it accepted
the benefit of the proceeds.
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The UFL is the Missouri codification of the Uniform Fiduciaries Act (UFA),
which “alters the common law with respect to the duties of parties who deal with
fiduciaries.” Watson Coatings, Inc. v. Am. Exp. Travel Related Services, Inc., 436
F.3d 1036, 1040 (8th Cir. 2006) (citation and internal quotations omitted). The
UFL’s purpose is to “reliev[e] banks of their common law duty of inquiring into the
propriety of each transaction conducted by a fiduciary” and to prevent “banks and
others who typically deal with fiduciaries [from being] held liable for a fiduciary’s
breach of duty.” Id. (citation omitted).
Section 469.2701 of the UFL provides exceptions to the general rule that
third party banks should not be held liable for a fiduciary’s breach of duty:
If a check . . . is drawn by a fiduciary as such, or in the name of his
principal by a fiduciary . . . the payee is not bound to inquire whether
the fiduciary is committing a breach of his obligation as fiduciary in
drawing or delivering the instrument, and is not chargeable with notice
that the fiduciary is committing a breach of his obligation as fiduciary
unless he takes the instrument with actual knowledge of such breach
or with knowledge of such facts that this action in taking the
instrument amounts to bad faith. If, however, such instrument is
payable to a personal creditor of the fiduciary and delivered to the
creditor in payment of . . . a personal debt of the fiduciary to the
actual knowledge of the creditor . . . the creditor or other payee is
liable to the principal if the fiduciary in fact commits a breach of his
obligation as fiduciary in drawing or delivering the instrument.
(Emphasis added). The Bank interprets this statute to provide three bases for
liability of a third party payee: (1) actual knowledge of the breach; (2) bad faith; or
(3) “bank benefit”—in which “such instrument is payable to a personal creditor of
1
This provision of the UFL was renumbered from § 456.270 to § 469.270 by the Missouri
legislature on July 9, 2004. H.B. 1551, 92d Gen. Assem., Second Reg. Sess. (Mo. 2004).
6
the fiduciary and delivered to the creditor in payment of . . . a personal debt of the
fiduciary to the actual knowledge of the creditor.”
Under the third basis of liability, the Bank argues that because the statute
requires a payment toward the fiduciary’s personal debt to the Bank’s “actual
knowledge,” the Bank must not only benefit from the transaction, but must also
have actual knowledge that the fiduciary is breaching his fiduciary duty in making
such payment. However, this interpretation of the statute conflates bases (1) and
(3), as set out above. The first basis imposes liability on the Bank if it had actual
knowledge that the fiduciary was breaching its fiduciary duty. If the third basis for
liability also required the Bank to have actual knowledge of the breach, the statute
becomes redundant. The third basis for liability would be superfluous, as the first
basis would necessarily encompass the situation described under the third basis.
Any interpretation rendering statutory language superfluous is not favored. See
Dubinsky v. St. Louis Blues Hockey Club, 229 S.W.3d 126, 130 (Mo. App. 2007).
Another interpretation of the statute is that it creates only two bases of
liability—actual knowledge or bad faith—and the second sentence which imposes
liability in the bank benefit scenario is an illustration of actual knowledge or bad
faith. See Trenton Trust Co. v. W. Sur. Co., 599 S.W.2d 481, 493 (Mo. banc
1980) (the fact that the bank benefited “is a factor to be considered in determining
whether [it] acted in bad faith under the [UFL].”). This approach to the UFA-based
provision was taken in Maryland Cas. Co. v. Bank of Charlotte, 340 F.2d 550 (4th
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Cir. 1965), which is directly on point and has been cited favorably by our courts. 2
There, the court noted that the UFA adopted the common law presumption that in
bank benefit cases “liability was imposed because [the bank] acted with knowledge
of facts that were presumed to constitute a misappropriation.” Id. at 553 n.3. In
other words, the UFA explicitly made the bank benefit scenario a basis of liability
“without stopping to categorize it as ‘actual knowledge’ or ‘bad faith.’ ” Id. at
554. The court concluded that the UFA thus implied that such conduct constitutes
either actual knowledge or bad faith. Id.
Under either approach, Section 469.270 requires only that the Bank had
actual knowledge that it was applying the proceeds to a debt owed the Bank, and
not actual knowledge that the fiduciary was breaching a duty. See Watson
Coatings, Inc., 436 F.3d at 1043 (holding that defendant bank could not have
violated Section 469.270 “because it did not have actual knowledge that the
checks were in payment of a personal debt of [the fiduciary].”) (Emphasis added).
Because the Bank was the payee on the instrument drawn by Coyner, and
knowingly accepted a portion of the proceeds as payment for the personal debt of
Coyner to the Bank, the Bank is liable under Section 469.270 for failing to inquire
as to the propriety of the transaction. See Gen. Ins. Co. of Am. v. Commerce Bank
of St. Charles, 505 S.W.2d 454, 457 (Mo. App. 1974) (stating that “[t]he bank’s
failure to inquire . . . will render itself liable only if the bank itself benefits
2
See S. Agency Co. v. Hampton Bank of St. Louis, 452 S.W.2d 100 (Mo. 1970); Gen. Ins. Co. of
Am. v. Commerce Bank of St. Charles, 505 S.W.2d 454 (Mo. App. 1974).
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financially from the transaction.”). Thus, the court did not err in overruling the
Bank’s objection to DeLaRosa’s verdict director.
The Bank also argues that it can only be held liable for the amount that it
actually accepted in satisfaction of Coyner’s debt —$2,397.80. Thus, the Bank
contends the court erred in allowing the jury to find the Bank liable for the entire
$39,000. The Bank cites no authority for this proposition and ignores caselaw to
the contrary.
In Maryland Cas. Co., the defendant bank was found liable for all check
proceeds that were misappropriated subsequent to the bank’s acceptance of funds
in satisfaction of a debt owed by the fiduciary. 340 F.3d at 553. The court
reasoned that upon receiving the benefit of debt repayment, the bank gained
knowledge that provided sufficient notice of the fiduciary’s breach and could not
thereafter “divest itself of its continuing knowledge.” Id. Thus, the bank was
liable “for all later checks in the series, whether the amounts were credited to [the
fiduciary]’s account or paid into her hand.” Id. Likewise here, once the Bank
accepted debt payments from the proceeds of Coyner’s first check, it had
sufficient notice and knowledge of Coyner’s breach of duty on the second and third
check transactions. The circuit court did not err in finding the Bank liable for the
full amount of the misappropriated funds on all three checks.
Point I is denied.
Punitive Damages
In Point II, the Bank contends the trial court erred in submitting the punitive
damages instruction because DeLaRosa failed to present clear and convincing
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evidence of intentional acts that would amount to an evil motive or a reckless
disregard for DeLaRosa’s rights. “Whether there is sufficient evidence for an award
of punitive damages is a question of law.” Perkins v. Dean Mach. Co., 132
S.W.3d 295, 299 (Mo. App. 2004). We review the record in the light “most
favorable to submissibility to determine whether, as a matter of law, the evidence
was sufficient to submit the claim for punitive damages.” City of Greenwood v.
Martin Marietta Materials, Inc., 299 S.W.3d 606, 627 (Mo. App. 2009). “A
submissible case is made if the evidence and the inferences drawn therefrom are
sufficient to permit a reasonable juror to conclude that the plaintiff established with
convincing clarity . . . that the defendant’s conduct was outrageous because of evil
motive or reckless indifference.” Perkins, 132 S.W.3d at 299 (citation and internal
quotations omitted).
In the context of intentional torts, courts generally consider punitive
damages based on the state of mind that prompted the commission of the tort or
existed contemporaneously therewith. Topper v. Midwest Div., Inc., 306 S.W.3d
117, 132 (Mo. App. 2010). In other words, the defendant must have acted with
an evil motive or reckless indifference to the rights of others when it engaged in
the conduct that caused the underlying injury. See Collins v. Trammell, 911
S.W.2d 635, 639 (Mo. App. 1995).
At trial, DeLaRosa argued for punitive damages based on the Bank’s efforts
to “cover up” records of check transactions in response to discovery requests.
Because the discovery responses were not provided until many years after the
actual conversion of funds, the Bank argues that there was not a sufficient “nexus”
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to prove that it acted with an evil motive or reckless indifference when the tortious
conduct occurred. The Bank also asserts that discovery responses cannot provide
the basis for a punitive damages award, and that DeLaRosa was only entitled to
request sanctions for any misconduct during discovery.
As DeLaRosa points out, the Bank’s argument “misses the point” by
focusing on when the conduct occurred, rather than the nature of the conduct
itself. Notwithstanding the passage of time, the Bank’s conduct in concealing the
records of the proceeds bears a direct relationship to the conversion of those
proceeds. That the Bank may have been successful in shielding evidence which
showed that it had benefited from the misappropriation for such a long time does
not somehow render the subsequent conduct unrelated.
Our courts have routinely upheld punitive damages awards based on cover-
up activities that occurred after the conduct causing the underlying harm. Most
recently, in Ellison v. O’Reilly Auto. Stores, Inc., 463 S.W.3d 426, 436 (Mo. App.
2015), we affirmed punitive damages based, in part, on an employer’s after-the-
fact attempt to conceal its unlawful discrimination against a disabled employee.
See also Kaplan v. U.S. Bank, N.A., 166 S.W.3d 60, 73–74 (Mo. App. 2003)
(recognizing that the jury could consider the timeliness and sincerity of the
defendant’s offer to correct the initial harm in determining whether there was a
complete indifference to the plaintiff’s rights); Budget Rent-A-Car of Missouri, Inc.
v. B&G Rent-A-Car, Inc., 619 S.W.2d 832, 837–38 (Mo. App. 1981) (upholding
punitive damages for breach of noncompetition agreement when the evidence
showed breach to have been willful and the breach “was sought to be
11
concealed.”). Misconduct during discovery supported the punitive damages award
in Haynes v. Hawkeye Sec. Ins. Co., 579 S.W.2d 693 (Mo. App. 1979), where the
defendant falsely responded to interrogatories in an effort to conceal a
conspiratorial agreement.
DeLaRosa presented sufficient evidence to support the punitive damages
claim based on the Bank’s effort to conceal records and information about the
conversion of funds from the Estate. The Bank initially responded to discovery
requests by stating that it deposited the proceeds of the subject checks into the
account for the Estate. The Bank also responded that it had no records regarding
the check transactions. After this Court reversed the grant of summary judgment
based on the Bank’s failure to produce evidence regarding the check transactions
and account information, the Bank conducted a further search and “found” records
that showed the initial discovery responses were false. The Bank had no
“legitimate, evidentiary basis” for its initial discovery response and, therefore, the
jury could have concluded that the Bank either knowingly provided a false
statement or acted with reckless indifference to DeLaRosa’s rights. See Topper,
306 S.W.3d at 132. The jury likely disbelieved the Bank’s explanation that the
“discrepancy” in discovery responses was the result of an innocent mistake.
Viewing the conflicting evidence and the inferences to be drawn therefrom in the
light most favorable to DeLaRosa, a reasonable juror could have concluded that the
Bank intentionally misrepresented that it did not have the records in an effort to
conceal the conversion.
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Finally, the Bank argues that imposing punitive damages upon a defendant
when its discovery responses have changed would be “poor precedent.” The Bank
points out that Rule 56.01(e) requires parties to supplement discovery responses,
and that the Bank should not be punished for complying with this rule. Rule
56.01(e), however, imposes a duty on a party to supplement its responses when it
“learns” that its initial response was incomplete or incorrect. In the case where a
party has intentionally provided false information in the first instance, as the jury
could have inferred here, that party has not “learned” that the response was
incorrect. The Bank’s argument improperly assumes that its innocent explanation
for the discrepancy in discovery responses was credible and, therefore, is rejected.
Point II is denied.
CONCLUSION
We affirm the circuit court’s judgment.
____________________________________
LISA WHITE HARDWICK, JUDGE
ALL CONCUR.
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