Opinion ID: 1118080
Heading Depth: 1
Heading Rank: 3

Heading: Compensatory Damages for Allied's Tort Claims

Text: The jury awarded $513,972 as compensatory damages on Allied's conversion, breach-of-fiduciary-duty, and fraudulent-suppression claims. That award consists of $425,309 in actual compensatory damages (i.e., the face value of the checks payable to Allied that Edwards retained and deposited into her personal accounts) and approximately $89,000 in prejudgment interest. Before closing argument, the trial court ruled that Edwards's counsel was prohibited from arguing to the jury (a) that Allied's damages related to the checks retained by Edwards and deposited into her accounts were less than the face value of those instruments or (b), alternatively, if Allied's interest in those checks was the face value of the checks, that the amount of damages should be mitigated by (i) $155,000 (the amount of branch-operating expenses Edwards paid directly from the d/b/a account) and (ii) the branch-account closing balance ($125,300) retained by Allied. [10] We apply a de novo standard in reviewing the conclusions of law on which the trial court based those rulings. BT Sec. Corp. v. W.R. Huff Asset Mgmt. Co., 891 So.2d 310, 312 (Ala.2004). Paragraph 2.8 of the agreement provided: All monies received by [Edwards] for [Allied] or to be held for others shall be made payable to [Allied] and received in trust by [Edwards] for [Allied] and delivered immediately to [Allied]. Edwards does not dispute that, during the term of the agreement, she deposited into her personal accounts checks totaling $425,309 that were payable to Allied. Further, it is undisputed that Edwards did not disclose to Allied the existence of those checks and the related loan closings that generated those funds. Based largely on those facts, the trial court found Edwards liable on Allied's conversion and fraudulent-suppression claims when Allied moved for a partial summary judgment. [11] Edwards's challenge concerning the judgment entered on Allied's tort claims is limited to the amount of compensatory damages. Edwards argues that the jury's award on the tort claims (i.e., the principal sum of $425,309) exceeded Allied's actual loss. Under the agreement, Allied retained a corporate fee of 0.30% of the amount of each closed loan that originated through the branch. Edwards's accountant testified at trial that, if Edwards had sent Allied the $425,309 in checks she had retained and deposited into her personal accounts, the corporate fee earned by Allied on the related closings would have totaled $64,467. Jeannie Seach, Allied's representative at trial, testified that Allied would have retained between $67,000-$80,000 in additional corporate fees if Edwards had forwarded all closing checks to Allied. Accordingly, Edwards argues that Allied's actual economic loss on the checks Edwards retained could not have been $425,309, but was $64,467. Allied contends that the trial court did not err when it prohibited Edwards from arguing to the jury that Allied's interest in the checks retained by Edwards was less than the aggregate face value of the checks or that the $425,309 damages amount should be mitigated. According to Allied, Edwards had no interest in the converted checks under the agreement, and she forfeited any right to argue mitigation by concealing loan closings and retaining checks associated with those closings that were payable to Allied. Counsel for Allied waived its claim for punitive damages in his opening statement. Further, the only damages that Allied proved at trial concerning its tort claims were Edwards's retention of checks payable to Allied totaling $425,309. [12] Both parties reference § 7-3-420, Ala. Code 1975, in support of their respective arguments. That section, which addresses the conversion of checks and other negotiable instruments, states: (a) An instrument is converted under circumstances which would constitute the conversion under personal property law. . . . (b) In an action under subsection (a), the measure of liability is presumed to be the amount payable on the instrument, but recovery may not exceed the amount of the plaintiff's interest in the instrument.  (Emphasis supplied.) The Official Comment to § 7-3-420(b) states:  The `but' clause in subsection (b) addresses the problem of conversion actions in multiple payee checks. Section 3-110(d) states that an instrument cannot be enforced unless all payees join in the action. But an action for conversion might be brought by a payee having no interest or a limited interest in the proceeds of the check. This clause prevents such a plaintiff from receiving a windfall. An example is a check payable to a building contractor and a supplier of building material. The check is not payable to the payees alternatively. . . . The check is delivered to the contractor by the owner of the building. Suppose the contractor forges supplier's signature as an indorsement of the check and receives the entire proceeds of the check. The supplier should not, without qualification, be entitled to recover the entire amount of the check from the bank that converted the check. Depending upon the contract between the contractor and supplier, the amount of the check may be due entirely to the contractor . . ., entirely to the supplier . . ., or part may be due one and the rest to the other . . . .  (Emphasis supplied.) Edwards argues that the qualifying clause in § 7-3-420(b) limits Allied's compensatory damages for the conversion of the checks to the amount of the corporate fee Allied would have earned had Edwards forwarded those instruments to Allied. Allied does not contest that the face value of the checks retained by Edwards exceeds the aggregate corporate fee it would have earned from the related closings. On the other hand, Allied argues that the Official Comment to § 7-3-420(b) restricts the qualifying language in subsection (b) to circumstances involving multiple-payee checks. Because the checks converted by Edwards were payable to Allied exclusively, Allied argues, the measure of liability and Allied's interest in those checks is their face value. Further, Allied asserts that Edwards's right to compensation or to receive credit for expenses she paid from the checks she converted are contract, not tort, considerations that are not germane to the interpretation of § 7-3-420(b). Allied's arguments on the compensatory-damages issue are not well-founded. The trial court should not have prohibited Edwards from arguing to the jury that Allied's interest in the converted checks was less than their face value. This Court is bound by rules of statutory construction to interpret the language of [a statute] to mean exactly what it says and to give effect to the apparent intent of the legislature. IMED Corp. v. Systems Eng'g, Assocs. Corp., 602 So.2d 344, 349 (Ala.1992). The first clause in § 7-3-420(b) states that the measure of liability is presumed to be the amount payable on the instrument. Although the statute creates that presumption, the plain language in the clause that immediately follows the first clause indicates that the measure of liability is not equal to the face amount if the recovery . . . exceed[s] the amount of the plaintiff's interest in the instrument. The Official Comment to § 7-3-420(b) states that the purpose of that qualifying clause is to prevent . . . a plaintiff [with no interest or little interest in the proceeds of the check] from receiving a windfall. That Comment concludes that the amount of recovery for conversion of a check could be depend[ent] upon [a] contract between the parties. Section 7-3-420(b), Ala.Code 1975, creates a rebuttable presumption that the amount of compensatory damages for conversion of a negotiable instrument is the face value of the instrument. [13] Here, Allied presumptively established that Edwards's liability for her conversion of checks payable to Allied was $425,309 (i.e., the face value of the converted checks). Edwards rebutted that presumption, however, when she presented testimony that, considering the rights of the parties in the agreement, Allied's interest in those checks was $64,467  the aggregate corporate fee Allied would have earned had Edwards delivered the closing checks she had retained to Allied. Compensatory damages are intended to reimburse a claimant only for the loss suffered by reason of its injury. Torsch v. McLeod, 665 So.2d 934, 940 (Ala.1995). The jury's award of $425,309 (excluding prejudgment interest) in compensatory damages on Allied's tort claims when it incurred an actual loss ranging from $64,467 (according to the testimony of Edwards's accountant) to $80,000 (according to the testimony of Allied's representative) was a windfall to Allied that is unsupported by the evidence of economic loss or the law. In summary, the trial court erred when it prohibited Edwards's counsel from arguing to the jury that Allied's interest in the converted checks was less than the face amount of those checks. Because of that ruling, the jury's award of $513,972 ($425,309 plus prejudgment interest) was in error. We reverse the judgment on Allied's tort claims insofar as it awarded $513,972 in damages and order a new trial on the issue of compensatory damages for those claims. [14]