1 14-3091-cv Wells Fargo v. Konover

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DA TABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CI TING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL. At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 17 th day of November, two thousand and fifteen.
Present: PIERRE N. LEVAL, PETER W. HALL, GERARD E. LYNCH, Circuit Judges

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____________________________________________________ W ELLS F ARGO B ANK , N.A., T RUSTEE FOR THE R EGISTERED H OLDERS OF S ALOMON B RO M ORTGAGE S ECURITIES VII I NC , M ORTGAGE P ASS -T HROUGH C ERTIFICATES , S ERIES 2000 C-2, BY O RIX C APITAL M ARKETS LLC, ITS A TTORNEY IN F ACT , Plaintiff-Appellee , v. No. 14-3091-cv
K ONOVER D EVELOPMENT C ORPORATION , K ONOVER C ONSTRUCTION C ORPORATION , K ONOVER & A SSOCIATES , I NC ., B LACKBOARD LLC, R IPPLE LLC, Defendants , M ICHAEL K ONOVER , Defendant-Appellant.

____________________________________________________2 For Defendant-Appellant: W ILLIAM J. M URPHY and Conor B. O’Croi nin, Zuckerman Spaeder LLP, Baltimore, MD; James T. Shearin, Pullman & Comley, LLC, Bridgeport, CT. For Plaintiff-Appellee: P. M ICHAEL J UNG , Strasburger & Price, LLP; John B. Nolan, Erick M. Sandler, Jeffrey P. Mueller, and John W. Cerreta, Day Pitney LLP, Hartford, CT; Jeff Joyce, Joyce + McFarland LLP, Houston, TX.

____________________________________________________ Appeal from a final judgment of the United States District Court for the District of Connecticut (Thompson, J .). UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED

. Michael Konover (“Konover”) appeals fr om an August 19, 2014 final judgment of liability entered in the United States District Court for the District of Connecticut (Thompson,
J .). A jury found Konover jointly and severally li able for the full unpaid amounts due pursuant to the judgments entered against Konover Manageme nt Corporation (“KMC” ) by the Circuit Court for Baltimore County, Maryland in the matter of Wells Fargo Bank Minnesota, NA. v. Diamond Point Plaza Limited Partnership , No. 3-c-03-002499 (“Maryland J udgment”). In this appeal Konover argues that the district court lacked subjec t matter jurisdiction, incorrectly applied Connecticut veil piercing law when admitting ev idence and instructing the jury, and erred by giving collateral estoppel effect to the Mary land Judgment. Konover also contends that the plaintiff’s claims were barred by res judicata and that the di strict court erred by denying his motion for judgment as a matter of law and by awarding litigation expenses. We assume the parties’ familiarity with the unde rlying facts, procedural histor y, and issues on appeal. For the reasons stated below, we affirm.3 Beginning with Konover’s argument that th e district court lacked subject matter jurisdiction, “we review f actual findings for clear e rror and legal conclusions de novo .” Creaciones Con Idea, S.A.de C.V. v. Mashreqbank PSC , 232 F.3d 79, 81 (2d Cir. 2000). Federal district courts have original jurisdiction wh ere the matter in controversy exceeds $75,000 and is
between “citizens of different States.” 28 U.S.C. § 1332(a)(1). “Trustees of an express trust are entitled to bring diversity actions in thei r own names and upon the basis of their own citizenship.” Navarro Sav. Ass’n v. Lee , 446 U.S. 458, 462 (1980). Wh en a trustee “possesses certain customary powers to hold, manage, and dis pose of assets for the benefit of others,” the trustee qualifies as a “real party to the controve rsy” and may sue based on its own citizenship. Id. at 464. Wells Fargo is a citizen of South Dakota and the defendants are citizens of Connecticut; thus the named parties are “citizen s of different States.” Wells Fa rgo is the trustee of the SBMS VII pool, retains “certain customary powers to hold, manage, and dispose of assets” for the trust’s beneficiaries, and is bringing su it to enforce a judgment in its name. Navarro at 464. Wells Fargo’s delegation of its powers to ORIX Capital Markets LLC does not alter Wells Fargo’s status as a real party to the controversy and does not tran sform it into a “naked trustee[] who act[s] as [a] mere conduit [] fo r a remedy flowing to others.” Id. at 465 (internal quotation omitted). We therefore hold that the district co urt had subject matter jurisdiction over the suit based on complete diversity of the parties. We next address Konover’s claims that th e district court erred by admitting irrelevant evidence at trial. We review evidentiary rulings for abuse of discretion and will reverse only where the improper admission of evidence “affects a s ubstantial right of one of the parties” such that “it is likely th at in some material resp ect the factfinder’s judgment was swayed by the error.” Constantino v. David M. Herzog, M.D., P.C. , 203 F.3d 164, 174 (2d Cir. 2000) (internal4 quotation omitted). Evidence is relevant if “it has any tendency” to make a fact of consequence “more or less probable than it would be with out the evidence.” Fed. R. Evid. 401. Under Connecticut’s veil piercing laws, the identity rule requires that “there [have been] such a unity of interest and ownership that the independence of the corporation ha d in effect ceased or had never begun, [such that] an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting th e economic entity to escape liabil ity arising out of an operation conducted by one corporation for the benefit of the whole enterprise.” Saphir v. Neustadt , 413 A.2d 843, 854 (Conn. 1979). The district court did not abuse its discretion when it admitted evidence related to KMC’s guaranty of the underlyi ng loan because that evidence was relevant to whether KMC and Konover had “such a unity of interest and ownership” that recognizing separate identities “would serve only to defeat justice and equity.” Turning to the district court’s jury instruc tions, “[w]e review a jury instruction challenge de novo , but [] will reverse only where the charge, view ed as a whole, demonstrates prejudicial
error.” United States v. Coppola , 671 F.3d 220, 247 (2d Cir. 2012). A jury instruction is erroneous “if it misleads the jury as to the correc t legal standard or does not adequately inform the jury on the law.” Anderson v. Branen , 17 F.3d 552, 556 (2d Cir. 1994). Under Connecticut’s veil piercing law there is “[n]o hard and fast rule,” Angelo Tomasso, Inc. v. Armor Const. & Paving, Inc. , 447 A.2d 406, 411 (Conn. 1982), and each case “shoul d be regarded as sui generis, to be decided in accordance with its own underlying facts,” Comm’r of Envtl. Prot. v. State Five Indus. Park, Inc ., 37 A.3d 724, 731 n. 13 (Conn. 2012). When describing the elements of Connecticut’s veil piercing rules to the jury, the district court reci ted language directly from the opinions of the Supreme Court of Connecticut. See Zaist v. Olson , 227 A.2d 552, 558 (Conn. 1967); Angelo Tomasso , 447 A.2d at 411. The instructions adequately informed the jury of the5 correct legal standard. Further, we find no error in the district court’s de cision not to specify in its instructions which transact ions the jury could consider under each theory of liability. Connecticut law imposes no bright-line rule prohib iting a jury from finding that a pre-judgment transfer proximately caused a party’s inability to collect a judgment, and the jury was entitled to make its own proximate cause determination fo r each of the transactions challenged by Wells Fargo. As to Konover’s argument that the district c ourt improperly applied co llateral estoppel to the Maryland Judgment, we revi ew “a district court’ s application of . . . collateral estoppel de

novo ,” Chartier v. Marlin Mgmt., LLC , 202 F.3d 89, 93 (2d Cir. 2000), and the generalized assessment of “whether collateral estoppe l is fair” for abuse of discretion, Bear, Stearns & Co. v. 1109580 Ont., Inc. , 409 F.3d 87, 92 (2d Cir. 2005). Collateral estoppel bars re-litigation of previously decided issues, even where “the issu e recurs in the context of a different claim.” Taylor v. Sturgell , 553 U.S. 880, 892 (2008). Under Maryland la w collateral esto ppel requires that “in a second suit between the same parties, even if the cause of action is different, any determination of fact that was actually litigated and was essential to a valid and final judgment [be] conclusive.” Standard Fire Ins. Co. v. Berrett , 910 A.2d 1072, 1083 (Md. 2006). The district court did not err when it gave collateral estopp el effect to the Maryland Judgment: Konover was an actual party to the Maryland litigation and was in privity with his co-defendants, see Bodnar v. Brinsfield , 483 A.2d 1290, 1296–97 (Md. Ct. Spec. App. 1984) ; the parties in the Maryland action had a full and fair opportunity to litigate and actually litigated the issues; and the findings of fact made in those proceedings were necessary to the judgment. In considering the fairness of applying collateral estoppel, we see no inequity in its application and determine that the district court did not abuse its discretion in so doing.6 Addressing Konover’s assertion that res judicata bars this liti gation, we review a district court’s application of the pr inciples of res judicata de novo

. Duane Reade, Inc. v. St. Paul Fire &
Marine Ins. Co. , 600 F.3d 190, 195 (2d Cir. 2010). Claim preclusion “foreclos[es] successive litigation of the . . . same claim,” New Hampshire v. Maine , 532 U.S. 742, 748 (2001), in a second lawsuit between the same parties for claims arising out of the same transaction or natural grouping of operative facts, Colandrea v. Wilde Lake Comty. Ass’n , 761 A.2d 899, 910 (Md. 2000). Res judicata also bars claims “that could have been litigated in the original suit”; therefore, “a party must assert all the legal th eories he wishes to in his initial action.” Colandrea , 761 A.2d at 910. Maryland applies the “transac tional” approach to claim preclusion, id. at 908– 09, which defines transaction as a “natural gr ouping or common nucleus of operative facts.” Restatement (Second) of Judgments § 24 & cmt. b (1982). Here, res judicata does not bar Wells Fargo’s claims because despite significant overl ap between the Maryland litigation and Wells Fargo’s veil piercing claims before the district court, the veil piercing claims involve operative facts that had not occurred, or that Wells Fargo was not aware of, at the time of the Maryland litigation. The district court properly declined to apply res judicata to bar Wells Fargo’s veil piercing claims. Konover further contends that the district court erred by denying his motion for judgment as a matter of law. We review de novo the denial of a motion for judgment as a matter of law and “draw all reasonable inferences in favor of the nonmoving party.” SR Int’l Bus. Ins. Co., Ltd. v. World Trade Ctr. Props., LLC , 467 F.3d 107, 118 (2d Cir. 2006) . Judgment may be entered “only when there is such a complete absence of evidence” that no fair minded juror could have reasonably arrived at the verdict. Id. at 119 (internal quotation omitted). “Whether the circumstances of a particular case justify the pier cing of the corporate veil presents a question of7 fact.” State Five , 37 A.3d at 732 (quoting Naples v. Keystone Bldg. & Dev. Corp. , 990 A.2d 326, 340 (Conn. 2010)). Wells Fargo presented evidence of 1) Konover’s domination of KMC during the loan procurement, 2) Konover’s decision to sell a portfolio of pr operties after the loan default, and 3) a flurry of transactions in 2005 when the Maryland litig ation had concluded but prior to the award of judgment . Drawing all reasonable inferenc es in Wells Fargo’s favor, we cannot say that there was such a complete lack of evidence that no fair minded juror could have found that either Konover was a su bstantial factor in preventing Wells Fargo from collecting the Maryland Judgement under the instrumentality rule or that Konover dominated KMC completely under the identity ru le. We therefore affirm the district court’s denial of Konover’s motion for judgment as a matter of law. Finally, we review the district court’ s decision to award attorneys’ fees under Connecticut’s punitive damages law or, in the alte rnative, under the fee sh ifting provisions in the underlying loan documents. We review a dist rict court’s determination of state law de novo

. Salve Regina College v. Russell , 499 U.S. 225, 231 (1991). In Connecticut, punitive damages “compensate the plaintiff for hi s injuries, and thus, are properl y limited to the plaintiff’s litigation expenses less taxable costs.” Berry v. Loiseau , 614 A.2d 414, 435 (Conn. 1992). Connecticut courts look to the ch aracter of a defendant’s actions to determine whether an award of punitive damages is appropriate even if the underlying claims do not usually warrant such a remedy. See L.F. Pace & Sons, Inc. v. Travelers Indem. Co. , 514 A.2d 766, 775–76 (Conn. 1986). When a defendant’s conduct is malicious, wa nton, or recklessly indiffe rent to the interests of others, it is within a court’s discretion to award punitive damages. Id. Here, a jury found that Konover acted with reckless indiffe rence and intentionally violat ed Wells Fargo’s rights. We discern no error in the district court’s award of punitive damages. We need not address the8 district court’s decision to award attorneys’ fees under the fee shif ting provisions in the underlying loan documents because the awar d of punitive damages was appropriate under Connecticut law. We have considered Konover’s remaining arguments, and find them to be without merit. The judgment of the district court is AFFIRMED

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FOR THE COURT: CATHERINE O’HAGAN WOLFE, CLERK