Court Opinion

ID: 9676816
Source: CourtListenerOpinion
Date Created: 2023-08-24 05:34:55.035235+00
Date Added: 2024-06-11T18:16:51.509324
License: Public Domain

Ray Thornton, Justice, dissenting. This appeal arises from a trial court’s denial of a motion for judgment notwithstanding the verdict filed by appellants, Bank of Eureka Springs (“Bank”) and John Cross (“president”), after a jury entered a verdict in favor of appellee, Floyd Carroll Evans, on his claim for malicious prosecution. I. Historical development of the case On April 1, 1994, appellee sought to purchase 1,120 acres of unimproved property for the agricultural purpose of raising cattle. Appellee went to the Bank and met with his loan officer, Gary Kleck, to finance the purchase of the 1,120 acres. Mr. Kleck prepared a loan worksheet that stated that the purpose of the loan was to purchase 1,120 acres in Carroll County and that the source of the repayment would be to cut timber from the property at an estimated value of $200,000 to $250,000, personal income, and construction and farm income of $200,000 plus annually. Mr. Kleck presented the loan to the Bank’s Board of Directors for consideration, and on February 15, 1994, the loan was approved at their meeting. In the minutes of the board’s meeting, it was noted that the loan would be repaid through the use of timber proceeds. In order to secure approval of the April 1, 1994 loan, appellee executed a promissory note and mortgage. The mortgage included a clause that stated, “[I]t is agreed that mortgagor may not cut the timber from any land encumbered hereby. . . [,]”1 . During 1994 and 1995, appellee began removing timber from the property through a contract with Holt Sawmill. Appellee deposited checks from Holt Sawmill directly into his account. In February or March of 1995, appellee became involved in a real estate project known as Cedar Bluff. In June 1995, the cattle market began to fall, and the bonding for Cedar Bluff did not come through as appellee anticipated. Because of this business failure, appellee’s finances were depleted. In 1996, appellee defaulted on the promissory note and mortgage. The Bank foreclosed on the property, and a sale was conducted on May 23, 1997. On June 11, 1997, appellee filed for bankruptcy, listing the Bank as a creditor. A first meeting of creditors was held in the bankruptcy case on August 21, 1997. Charles Cross, who handled the loan after Mr. Kleck, attended the first meeting of creditors on behalf of appellants and determined that a bulldozer and a boat, which were collateral on a previous note, were no longer in appellee’s possession. According to appellee, these items were released by Mr. Kleck and were sold. There was no documentation to support this assertion. Once the Bank learned of the cut timber, Mr. Cross reviewed his loan file and determined that there was no written permission or notations granting appellee the authority to cut the timber. Mr. Cross contacted Mr. Kleck, who stated that no permission was given releasing the boat or the bulldozer or allowing the timber to be cut. A suspicious activity report (“SAR”) was filed on September 17, 1997, by the Bank’s attorney, Wade Williams. Based upon the information provided prior to October 15, 1997, Mr. Williams contacted Kenny Elser, a deputy prosecutor, to file a criminal complaint alleging that appellee disposed of collateral on notes held in favor of appellants. A second suspicious activity report was faxed by the Bank on May 4, 1998. On May 4, 1998, an affidavit of reasonable cause was filed, charging appellee with defrauding a secured creditor. A bench warrant was issued for appellee’s arrest. On June 19, 1998, an amended affidavit was filed when the prosecutor’s office learned that some payments had been made on the loan. Exhibits show that of the $160,721.71 received by Mr. Evans for cut timber, only $21,693.43 was applied to the loan.2  Appellee sought relief from a U.S. Bankruptcy Court, alleging that appellant violated U.S. bankruptcy law and seeking an injunction of criminal prosecution. Following testimony by appellants and their agents at two hearings, the petition for relief was denied. The criminal prosecution of appellee proceeded, but before trial, the trial court dismissed the case on the basis that the statute of limitations had run on the claim. Following entry of the order of dismissal, appellee filed suit against appellants for the tort of malicious prosecution. Appellants filed an amended answer, denying the allegations in appellee’s complaint and alleging affirmatively that they had complete immunity and that they relied on the advice of counsel, the prosecuting attorney. Appellants also filed a motion for summary judgment, which was denied, and the case proceeded to trial. At trial, at the close of appellee’s case-in-chief, appellants moved for a directed verdict, which the trial court denied. The jury returned a verdict in favor of appellee and awarded $100,000 in compensatory damages and $300,000 in punitive damages against appellants. On December 11, 2001, the judgment was entered. Appellants filed a motion for judgment notwithstanding the verdict and an alternative motion for new trial. The trial court denied these motions. Appellants filed a timely notice of appeal. On appeal, appellants seek reversal of the trial court’s order affirming the judgment and denying appellant’s motion for judgment notwithstanding the verdict, or in the alternative, motion for new trial. I believe we should reverse and dismiss for the following reasons. II. Applicable principles of law relating to immunity from prosecution and required elements for action of malicious prosecution The majority opinion effectively strikes from a federal statute its provisions granting immunity from prosecution when a financial institution reports suspicious activity to law enforcement agencies. The majority then brushes aside this court’s own well-established precedents articulating five essential elements to support an action for malicious prosecution. I do not believe that the majority opinion is consistent with the statutory interpretations already made by the federal judiciary, and I do not think we can substitute our interpretation of a federal statute for that announced by the great majority of federal courts interpreting that same statute. Even if this court has that authority, until the United States Supreme Court settles the issue, I could not agree that we should ignore our own five-pronged requirements for maintaining an action for malicious prosecution. For reasons I will now express, I respectfully dissent. A. Immunity under 3i U.S.C. $ 5318 In my view, appellants have full immunity from the suit for the tort of malicious prosecution under the safe-harbor provision of the Annunzio-Wylie Anti-Money Laundering Act (“Act”), codified at 31 U.S.C. § 5318 (1992). The Act, which was enacted by Congress in 1992, imposes a duty upon financial institutions to report suspicious transactions, and provides in pertinent part: (g) Reporting of suspicious transactions.— (1) In general. — The Secretary may require any financial institution, and any director, officer, employee, or agent of any financial institution, to report any suspicious transaction relevant to a possible violation of law or regulation. 31 U.S.C. § 5318(g)(1). Financial institutions may report “any suspicious transaction relevant to a possible violation of law or regulation,” id., by way of a suspicious activity report (“SAR”). A bank files a SAR with the United States Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), and banks are “encouraged to file a copy of the suspicious activity report with state and local law enforcement agencies where appropriate.” 12 C.F.R. § 353.3(c). The Act further contains a safe-harbor provision, codified at 31 U.S.C. § 5318(g)(3), to protect a bank when it reports suspicious transactions. This safe-harbor provision provides: (3) Liability for disclosures.— (A) In general. — Any financial institution that makes a voluntary disclosure of any possible violation of law or regulation to a government agency or makes a disclosure pursuant to this subsection or any other authority, and any director, officer, employee, or agent of such institution who makes, or requires another to make any such disclosure, shall not be liable to any person under any law or regulation of the United States, any constitution, law, or regulation of any State or political subdivision of any State, or under any contract or other legally enforceable agreement (including any arbitration agreement), for such disclosure or for any failure to provide notice of such disclosure to the person who is the subject of such disclosure or any other person identified in the disclosure. (B) Rule of construction. — Subparagraph (A) shall not be construed as creating— (i) any inference that the term “person”, as used in such sub-paragraph, may be construed more broadly than its ordinary usage so as to include any government or agency of government; or (ii) any immunity against, or otherwise affecting, any civil or criminal action brought by any government or agency of government to enforce any constitution, law, or regulation of such government or agency. Id. (emphasis added). The Eleventh Circuit recognized three types of safe harbors in Lopez v. First Union National Bank of Florida, 129 F.3d 1186 (11th Cir. 1997). They are: (1) disclosure of any possible violation of law or regulation, (2) a disclosure pursuant to the provisions of Section 5318, or (3) a disclosure pursuant to any other authority. Id. With regard to the first safe harbor, the circuit court wrote: [T]he text of that subdivision indicates Congress deliberately did not limit the safe harbor to disclosure of any specific type of transaction. For example, § 5318(g)(3) provides that a financial institution is entitled to immunity for a disclosure of “any possible violation of law.” 31 U.S.C. § 5318(g)(3) (emphasis added). As we have recently had occasion to explain, when used in a statute, “the adjective ‘any’ is not ambiguous; it has a well-established meaning.” Merritt v. Dillard Paper Company, 120 F.3d 1181, 1186 (11th Cir.1997). “Read naturally, the word ‘any’ has an expansive meaning, that is, one or some indiscriminately of whatever kind.” Id., quoting United States v. Gonzales, 520 U.S. 1, —, 117 S. Ct. 1032, 1035, 137 L. Ed.2d 132 (1997) (citation and some quotation marks omitted). Lopez, supra; see also Lee v. Bankers Trust Co., 166 F.3d 540 (2d Cir. 1999) (stating that the Act broadly and unambiguously provides for immunity from any law except the federal constitution for any statement in a suspicious activity report). In Coronado v. Bankatlantic Bancorp, Inc., 222 F.3d 1315 (11th Cir. 2000), a case involving the disclosure of customers’ financial information to federal authorities, the Eleventh Circuit held that the bank was immune from suit and broadly interpreted the safe-harbor provision, stating: The plain language of this section supplies “an affirmative defense to claims against a financial institution for disclosing an individual’s financial records or account-related activity.” Lopez, 129 F.3d at 1191. Few courts have had the opportunity to examine this section in detail, but we recently explained in Lopez that § 5318(g)(3) grants to financial institutions “immunity from liability for three different types of disclosures: (i.) A disclosure of any possible violation of law or regulation, (ii.) A disclosure pursuant to § 5318(g) itself, or (iii.) A disclosure pursuant to any other authority.” Id. These safe harbors are not limited to currency transactions, and any one of them provides a disclosing bank complete immunity. See id. at 1192. Coronado, supra. A similar case to the case before us is Stoutt v. Banco Popular de Puerto Rico, 320 F.3d 26 (1st Cir. 2003). In Stoutt, the Banco Popular de Puerto Rico (“Bank”) filed a criminal referral form with the FBI stating the Bank’s suspicion of Stoutt engaging in check kiting, knowingly writing a check against an account with insufficient funds. Stoutt was arrested on the charge, but the United States voluntarily dismissed the charges without prejudice. Stoutt then brought an action against the Bank, alleging malicious prosecution and other tort claims. The district court granted summary judgment in favor of the Bank, ruling that the Bank was entided to absolute immunity under the safe-harbor provision of 31 U.S.C. § 5318(g)(3). On appeal, the First Circuit held that the Bank was entided to immunity from the tort action of malicious prosecution under the safe-harbor provision of the Act. Id. Based upon the clear authority of federal circuit courts’ interpretations of the federal statute and my own reading of that statute, I believe the Bank in this case has complete immunity. Under the language of the Act, the bank had a duty to report “any possible violation of-law or regulation.” Id. Upon making the report as required by federal law, it is clear to me that the bank is protected against any action contending bad faith or malicious prosecution based upon further exploration of the suspicious activities. Here, pursuant to the requirements of the Act, the Bank filed two SARs, naming appellee as a suspect. The first SAR was mailed by the Bank’s attorney on September 17, 1997, after the meeting of the creditors was held in August of 1997. On the first SAR, the bank listed the suspicious activity as “consumer loan fraud” for the unauthorized sale of mortgaged equipment of a bulldozer, boat, and motor, which were held as collateral on a previous note and were no longer in appellee’s possession. On May 4, 1998, a second SAR was faxed by the Bank, noting that appellee was “cutting and removal of timber of mortgage property without the bank’s knowledge or consent.” On May 4, 1998, the same day that the second SAR was filed, á warrant was issued for appellee’s arrest by the prosecuting attorney, alleging that appellee violated three counts of Ark. Code Ann. § 5-37-203, defrauding a secured creditor, a class D felony.3 The first count includes selling collateral, which included a bulldozer, boat, and motor. The second count includes selling timber on encumbered property when the mortgage specifically provided that appellee may not cut the timber. The third count was based upon the fact that appellee had received $160,721.71 from the sale of the timber, but had only paid $21,693.43 of those proceeds. The Bank had a duty under the federal statute to report any suspicious activity that constituted “any possible violation of the law” under 31 U.S.C. § 5318(g)(3). It did so after the first meeting of creditors was held in the bankruptcy case on August 21, 1997. Based upon the broad interpretation of this federal statute under Coronado, supra, the Bank should receive immunity from prosecution. The majority avoids any discussion of the question whether immunity is granted subject to the requirement of good faith. Rather, the majority addresses the Bank’s alleged malicious actions under appellee’s claim for malicious prosecution. Perhaps the majority does not address the issue of good faith as a requirement for immunity for two reasons. First, a good-faith requirement is not expressly stated in 31 U.S.C. § 5318, nor was it intended to be inferred. The Second Circuit notes in Lee, supra: [Although the safe harbor provision is unambiguous, and does not require resort to legislative history, the history of the Act demonstrates that Congress did not intend to limit protection to statements made in good faith. An earlier draft of the safe harbor provision included an explicit good faith requirement for statements made in an SAR. See 137 Cong. Rec. S16,642 (1991). However, the requirement was dropped in later versions of the bill, and was not included in the bill that was eventually enacted by Congress. See 137 Cong. Rec. S17,910, S17,969 (1991); 31 U.S.C. § 5318(g)(3). Lee, supra (emphasis added). Second, under the plain meaning of the statute, the timing of the suspicious activity report does not show that the Bank acted in bad faith. Appellees suggest that the SARs were not filed until after appellants effectuated appellee’s arrest in April 1998, but that assertion is false. The record shows that an SAR was mailed by the Bank’s attorney on September 17, 1997 after the first meeting of creditors was held. Based upon the authority of federal court interpretations of federal law and my own reading of those provisions, I would reverse the trial court’s order denying appellants’ motion for judgment notwithstanding the verdict. B. Alleged substantial evidence of malicious prosecution After rejecting the applicability of the safe-harbor provisions of 31 U.S.C. § 5318, the majority affirms the trial court’s denial of appellant’s motion for judgment notwithstanding the verdict and holds that “the elements viewed in the light most favorable to the appellee reveals substantial evidence to support the jury’s verdict.” Even if the majority has authority to interpret the federal act contrary to the interpretation of federal courts, this case does not meet our own requirements for a charge of malicious prosecution. The essential elements of malicious prosecution are: (1) a proceeding instituted or continued by the defendant against the plaintiff; (2) termination of the proceeding in favor of the plaintiff; (3) absence of probable cause for the proceeding; (4) malice on the part of the defendant; and (5) damages. McLaughlin v. Cox, 324 Ark. 361, 922 S.W.2d 327 (1996). Where the defendant makes a full, fair, and truthful disclosure of all the facts known to him before competent counsel and then acts bona fide upon such advice, this will be a complete defense to a claim of malicious prosecution. Id.; see also Machen Ford-Lincoln-Mercury, Inc. v. Michaelis, 284 Ark. 255, 681 S.W.2d 326 (1984). In Wal-Mart v. Binns, 341 Ark. 157, 15 S.W.3d 320 (2000), the management at Wal-Mart suspected that Caroline Binns, an employee, was engaging in theft through falsification of computer cash-register entries. Management notified local law enforcement, and after an investigation and a probable-cause hearing, a warrant was issued for Binns’s arrest. One year later, the prosecuting attorney nolle prossed the charges based upon insufficient evidence. Binns brought a claim against Wal-Mart for malicious prosecution, and a jury returned a verdict in Binns’s favor. On appeal, we held that Wal-Mart was entitled to a directed verdict on the malicious prosecution claim because (1) there was not sufficient evidence for the jury to determine that Wal-Mart lacked probable cause and (2) there was an absence of malice. Id. Likewise, in the present case, I see no showing that these five elements of malicious prosecution were satisfied. It is correct that a proceeding was instituted or continued by appellants against appellee when suspicious activity was suspected and a suspicious activity report was filed. The first element is satisfied if there is no federal immunity for the reporting. The second element fails because there was no termination of the proceedings in favor of the plaintiff. The charges against appellee were dismissed before the case went to the jury because the statute of limitations had run. There was no determination that the prosecution would have failed if the statute of limitations had not run. Therefore, in my view, the second element is not satisfied. With regard to the third element, I find nothing to suggest that there was an absence of probable cause for the proceeding. Here, a warrant was issued for appellee’s arrest based upon a one and one-half page amended affidavit setting forth facts constituting reasonable cause. In the amended affidavit, I strongly believe that the facts alleged support reasonable cause to bring charges that appellee had committed three violations of Ark. Code Ann. § 5-37-203, defrauding a secured creditor, a class D felony. I am unable to comprehend the majority’s conclusion that there was an absence of probable cause — not even a suspicious activity, according to the majority. Therefore, the third element is not satisfied. Fourth, I do not believe that the prosecuting attorney’s decision to prosecute the case rose to the level of malice. The United States Supreme Court has expressed its position on this question on several occasions. I believe the following statement in Bordenkircher v. Hayes, 434 U.S. 357 (1978), is sufficiently clear on this question: In our system, so long as the prosecutor has probable cause to believe that the accused committed an offense defined by statute, the decision whether or not to prosecute, and what charge to file or bring before a grand jury, generally rests entirely in his discretion. Within the limits set by the legislature’s constitutionally valid definition of chargeable offenses, ‘the conscious exercise of some selectivity in enforcement is not in itself a federal constitutional violation’ so long as “the selection was (not) deliberately based upon an unjustifiable standard such as race, religion, or other arbitrary classification.” Id. Ultimately, the criteria for a malicious prosecution must be based upon whether the prosecutor was malicious. We have said that malice has been defined as any improper or sinister motive for instituting the suit. Cordes v. Outdoor Living Ctr., Inc., 301 Ark. 26, 781 S.W.2d 31 (1989). Malice need not spring from any spirit of malevolence nor be prompted by any malignant passion. Foster v. Pitts, 63 Ark. 387, 38 S.W. 1114 (1897). Malice may be inferred from lack of probable cause. Cordes, supra. Here, the prosecutor stated that he never felt any pressure from the Bank to continue to prosecute this case. Rather, he chose to pursue prosecution based upon an affidavit of facts constituting reasonable cause, executed by Leighton Ballard, an investigator with the Carroll County Sheriffs Department. There, it is noted that appellee violated three counts of Ark. Code Ann. § 5-37-203, defrauding a secured creditor, a class D felony. Additionally, the trial court concluded that the prosecutor had probable cause to pursue the prosecution. For these reasons, I cannot agree that the prosecutor’s actions rose to the level of malice under Wal-Mart, supra. Fifth, no damages were assessed against appellee in the underlying claim by the Bank because the charges were ultimately dismissed. The fifth element is not satisfied, and I invite elaboration on this element by the majority. Our standard of review on motions for judgment notwithstanding the verdict was enunciated in Wal-Mart Stores, Inc. v. Lee, 348 Ark. 707, 74 S.W.3d 634 (2002), where we stated: [I]n reviewing the denial of a motion for judgment notwithstanding the verdict, we will reverse only if there is no substantial evidence to support the jury’s verdict and the moving party is entitled to judgment as a matter of law. Conagra, Inc. v. Strother, 340 Ark. 672, 13 S.W.3d 150 (2000); Dodson v. Dicker, 306 Ark. 108, 812 S.W.2d 97 (1991). Substantial evidence is that which goes beyond suspicion or conjecture and is sufficient to compel a conclusion one way or the other. City of Caddo Valley v. George, 340 Ark. 203, 9 S.W.3d 481. It is not the appellate court’s place to try issues of fact; rather, this court simply reviews the record for substantial evidence to support the jury’s verdict. Id. In reviewing the sufficiency of the evidence as being substantial on appellate review, we need only consider the testimony of the appellee and the evidence that is most favorable to the appellee. Wal-Mart Stores, Inc. v. Dolph, 308 Ark. 439, 825 S.W.2d 810 (1992). Circumstantial evidence may meet the substantial-evidence test. Id. Lee, supra. Based upon this standard of review, as well as the foregoing principles of the supremacy of federal law and an analysis of the elements of malicious prosecution, I would hold that the trial court erred in allowing this case to be submitted to a jury. Because I would dispose of the case on the first issue regarding the Bank’s immunity, I would not reach the issue of damages. I respectfully dissent.   The majority states that “the Bank knew from the very start that Mr. Evans planned to cut timber on the propérty.” That is true, but the majority does not address the requirement, secured by the written language of the mortgage, that the cutting of timber would be based upon the written consent of the Bank, thereby giving the Bank control over the application of the proceeds to reduce the indebtedness for which the timber was held as collateral. This was not done. Out of the $160,721.71 received by Mr. Evans for cut timber, only $21,693.43 was applied to the loan.    The majority holds that the disposal of mortgaged property — namely the bulldozer, boat, and timber-did not support the filing of two SARs. The majority states, “[T]here was no possible violation [of law].” I disagree. Here, the trial court at a hearing during the criminal proceedings indicated that the prosecuting attorney possessed information supporting his filing of an affidavit of probable cause. At the hearing held on June 28, 2000, Judge Chandler stated in his rulings from the bench, “That is not to say that the State did not have probable cause to bring these charges. They certainly did . . . [.]” Indeed, all that is required to trigger the immunity from tort liability against the Bank was suspicious activity reflected by the filing of an SAR. If probable cause existed, then clearly there were suspicious activities.    Ark. Code Ann. § 5-37-203, defrauding secured creditors, provides: (a) A person commits the offense of defrauding secured creditors if he destroys, removes, cancels, encumbers, transfers, or otherwise disposes of property subject to a security interest with the purpose to hinder enforcement of that interest. (b) Defrauding secured creditors is a Class D felony. Id.