Court Opinion

ID: 9474485
Source: CourtListenerOpinion
Date Created: 2023-08-05 04:58:27.893346+00
Date Added: 2024-06-11T17:44:06.738864
License: Public Domain

CLARK, Chief Judge,
dissenting:
WHO’S WATCHING THE WATCHDOG?
Based upon an appellate reappraisal of the facts, the majority overturns the verdict of a properly instructed jury. I respectfully dissent.
To protect its position as Pritchett’s creditor Armco employed SLT and Conklin as fiduciaries to monitor Pritchett’s inventory condition. SLT described Conklin’s responsibilities in a set of “General Instructions” comprising nine single-spaced typed pages, which included the following express trust undertakings:
Supervision____ You are the SLT Representative on Customer’s premises, and your duties and responsibilities, in addition to the specific recordkeeping trans*488action ... [are] to assure that all proper procedures will be followed____
[N]otify SLT ... if you should learn of any conditions at Customer’s premises detrimental to our interest or those of the Holder____
Inventory Control Records____
It is your responsibility to be sure ... that proper records are kept so that inventory received and withdrawn may be reflected on our Inventory Certificates and Inventory Withdrawal Reports.
Summary____ The performance of your duties and responsibilities____ involve the legal rights of Holder [Armco] and SLT. Any deviation from these instructions constitutes ... a breach of trust____
AGENT’S ACKNOWLEDGEMENT
The undersigned has carefully read and understands the above General Instructions ____
I understand that I am bonded under Fidelity Bond for the faithful performance of my duties.
/s/ Richard Conklin Agent
In the course of performing his work, Conklin made an initial actual count of Pritchett’s inventory. Thereafter, he used invoices and receipts to calculate weekly variations. Pritchett’s invoices were critical to Conklin’s computations. When Pritchett employees began to create fake invoices, they sought to deceive Conklin by designating the initial shams as “drop shipments” made direct from suppliers to customers and told Conklin they did not affect the warehouse inventory he was keeping. However, when the volume of phony paper grew too great to permit continued deception, Conklin personally began to segregate the real invoices from those he knew to be spurious. He did this shuffling so well that he never mistook a single specious invoice for an actual one. His calculated inventories were always substantially accurate. Only Armco was deceived by the counterfeits. The jury could and did reasonably infer from these facts that Conklin knew Pritchett employees were obtaining Armco’s monies through this fraud and that silence on his part was necessary to keep the scam working.
The majority holds Conklin had no duty to disclose to SLT or Armco that $37 million out of $45 million in Pritchett’s invoices were bogus because Conklin was only employed to keep an accurate inventory. Thus, they say, his juggling of the records and breach of his trust relationship amounted to “mere negative acquiescence” in an effort to keep his own records “honest.” They say that neither he nor SLT had any responsibility for reporting the falsified records Conklin had to identify and deal with as false in order to perform his primary job.
The majority calls Conklin a “watchdog.”
Some Watchdog!
Under the majority’s view, since Conklin was only hired to watch the goods, it was OK to silently lick the hands of those who were robbing the till.
Both Conklin and SLT were trustees. As such they were bound by higher standards.1 Obviously the jury so regarded them too, and thus found sufficient evidence to warrant its verdict. The scope of SLT’s and Conklin’s undertakings and Armco’s reasonable expectation of what those undertakings entailed establish that *489Conklin’s silence in the face of a duty to speak made him an aider and abetter of Pritchett’s deception. Because Conklin’s coverup was both a suppression of information and a breach of trust, the fraudulent mailings to Armco which failed to disclose the fraud were sufficient to support the jury’s verdicts against Conklin and SLT.

. In Justice Cardoza’s lyrical words, "A trustee is held to something stricter than the morals of the market place. Not honor alone, but the punctilio of an honor the most sensitive is then the standard of behavior." Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928).