McCulley v. U.S. Bank of Montana, 2015 MT 100 (April 14, 2105) (Rice, J.) (5-0, aff’d & rev’d)
Issue: Whether district court properly excluded lay witness testimony; (2) whether the district court properly excluded McCulley’s medical records; (3) whether McCulley presented sufficient evidence for the jury to find U.S. Bank committed actual fraud; (4) whether the district court properly held that U.S. Bank could be held liable for punitive damages from pre-merger conduct; (5) whether the district court properly upheld the jury’s punitive damages award; and (6) whether the district court properly ordered post-judgment interest to accrue from the date it confirmed the jury’s punitive damages award.
Short Answer: (1) Yes; (2) yes; (3) yes; (4) yes; (5) yes; and (6) no.
Affirmed (1-5) and reversed (6)
Facts: McCulley entered into a buy-sell for a Bozeman condo in 2006. She applied for a 30-year residential loan for $300,000 from Heritage Bank, which was later bought by U.S. Bank. The bank’s internal credit memo noted that the condo was residential but the lot was zoned commercial. The bank manager suggested to a senior VP, and the senior VP approved, that McCulley be given an 18-month $300,000 commercial loan in lieu of the loan McCulley requested. The bank recognized McCulley’s income would not allow her to repay the loan in 18 months, and understood it would be difficult for her to refinance in 18 months because of the zoning. The bank did not show the memo to McCulley, who was unaware of the significance of the commercial zoning, nor did it tell McCulley it had changed the terms of the loan from a 30-year residential to an 18-month commercial loan.
The bank’s disclosure statement disclosed a 30-year $200,000 loan, prompting McCulley to contact the bank and ask for the original amount of $300,000. The bank agreed after McCulley offered additional collateral. It then generated a good faith estimate that reference a 30-year payment plan for the loan. The bank did not provide a written document explaining that the term of the loan would be 18 months. At closing, McCulley was presented with and signed three different and inconsistent loan applications. The bank did not provide McCulley a loan commitment letter, which is standard practice in the banking industry.
Heritage Bank merged with U.S. Bank in 2007. In late 2007, U.S. Bank sent a letter to McCulley telling her the balloon payment on her 18-month loan was soon due. McCulley contacted the bank, which initially agreed to convert the loan to a 30-year term if McCulley reduced the principal by $100,000. McCulley agreed, and the bank then said it would need a $200,000 reduction. The bank refused to restructure the loan, and McCulley could not find long-term financing. The bank placed the loan into foreclosure. McCulley sold her home one week before the foreclosure sale for about $40,000 less than the loan balance.
McCulley sued U.S. Bank in 2009. Both parties moved for summary judgment, and the district court granted judgment to the bank. McCulley appealed, and the Supreme Court reversed, finding genuine issues of material fact that were in dispute. The district court learned after remand that sworn affidavits made by the bank to the court, upon which the court had relied in granting summary judgment, were inaccurate.
Procedural Posture & Holding: The case went to trial, and on Feb. 7, 2014, the jury awarded McCulley $1 million in compensatory damages and $5 million in punitive damages. On April 14, 2014, the district court entered an order affirming the punitive damages award and ordered post-judgment interest to accrue from that date. The bank appeals several issues, and McCulley cross-appeals the date from which post-judgment interest accrued. The Supreme Court affirms all issues raised by the bank, and reverses the post-judgment interest issue raised on cross-appeal.
Reasoning: (1) The district court excluded a bank witness’s personal journals that contradicted his deposition testimony, finding they were responsive to two of McCulley’s discovery requests, and were not disclosed until trial. The district court was constrained by rule 37(c)(1) to exclude the journals unless the bank established its failure to supplement was substantially justified or harmless, which is has not attempted to do.
(2) The district court excluded McCulley’s medical records when McCulley objected, the court instructed the bank to lay a proper foundation, and the bank failed to do so. Excluding the records because of a lack of foundation was not an abuse of discretion.
(3) The Court reviews the record and finds there was sufficient evidence for the jury to have found all of the elements of actual fraud.
(4) Because a successor bank is deemed to be the same corporation as the merging banks and is responsible for all liabilities of the merging banks, U.S. Bank is liable for all damages, including punitive damages.
(5) The Court holds that the reprehensibility of the bank’s conduct, the single-digit ratio between punitive and compensatory damages, and deference to the legislature support the award of punitive damages under Gore.
(6) Section 25-9-204, MCA, provides for interest on a verdict from the time it was rendered or made, which it holds was the date of the jury’s verdict.