Wells Fargo Bank, N.A. Ex Rel. Registered Holders of Salomon Bro Mortgage Securities VII Inc. v. Konover Development Corp.
630 F. App'x 46
2d Cir.2015Background
- Wells Fargo (trustee of SBMS VII mortgage pool) sued Michael Konover and related entities in D. Conn. to pierce the corporate veil and enforce a prior Maryland judgment against Konover Management Corporation (KMC).
- A Maryland court had entered a judgment against KMC in Wells Fargo Bank v. Diamond Point Plaza; Wells Fargo sought to hold Konover personally liable for unpaid amounts.
- At trial the district court admitted evidence about KMC’s guaranty and post-judgment transfers and instructed the jury on Connecticut veil-piercing doctrines (identity and instrumentality rules).
- The jury found Konover jointly and severally liable and awarded punitive damages/attorneys’ fees; the district court entered final judgment in August 2014.
- Konover appealed, arguing lack of subject-matter jurisdiction, improper evidentiary rulings and jury instructions, erroneous application of collateral estoppel and res judicata, insufficiency of evidence (JMOL), and improper award of fees.
- The Second Circuit reviewed the mixed legal and factual claims and affirmed the district court in all respects.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject-matter jurisdiction (diversity) | Wells Fargo, as trustee, is a real party in interest and diverse from CT defendants | Konover: trustee status/delegation to ORIX defeats diversity | Court: Wells Fargo retained customary trustee powers; diversity jurisdiction proper |
| Admissibility of evidence re: KMC guaranty and transfers | Evidence was relevant to unity of interest and causation for veil piercing | Konover: evidence irrelevant and prejudicial | Court: admission within discretion; relevant to identity/instrumentality analyses |
| Jury instructions on veil piercing (Connecticut law) | Instructions accurately recited CT precedents and left proximate-cause findings to jury | Konover: instructions misstated law/should have limited transactions jurors could consider | Court: instructions adequate and not prejudicial; jury may assess proximate cause across transactions |
| Collateral estoppel effect of Maryland judgment | Maryland findings binding; Konover was party/in privity and had full litigation opportunity | Konover: preclusion improper given different forum/claims | Court: collateral estoppel appropriately applied under Maryland law; fair to do so |
| Res judicata (claim preclusion) | Wells Fargo: veil-piercing claims arose after or were not known in Maryland case | Konover: claims barred by prior Maryland litigation | Court: res judicata does not bar these claims because operative facts differed or arose later |
| JMOL (sufficiency of evidence for veil piercing) | Plaintiff produced evidence of domination, post-default sales, and transfers sufficient for a reasonable juror | Konover: evidence insufficient as a matter of law | Court: drawing inferences for nonmovant, evidence adequate; denial of JMOL affirmed |
| Attorneys’ fees/punitive damages award | Fees recoverable as litigation expenses under CT punitive-damages principles (or alternatively contract fee-shifting) | Konover: award improper | Court: jury found reckless/intentional misconduct; punitive damages (litigation expenses) permissible under Connecticut law |
Key Cases Cited
- Navarro Sav. Ass’n v. Lee, 446 U.S. 458 (U.S. 1980) (trustee with customary powers can sue in its own name for diversity purposes)
- Creaciones Con Idea, S.A. de C.V. v. Mashreqbank PSC, 232 F.3d 79 (2d Cir. 2000) (standard of review for jurisdictional factual findings)
- Constantino v. David M. Herzog, M.D., P.C., 203 F.3d 164 (2d Cir. 2000) (relevance/harmless-error standard for evidentiary rulings)
- Taylor v. Sturgell, 553 U.S. 880 (U.S. 2008) (collateral estoppel bars relitigation of actually litigated issues)
- Standard Fire Ins. Co. v. Berrett, 910 A.2d 1072 (Md. 2006) (Maryland collateral estoppel requirements)
- Angelo Tomasso, Inc. v. Armor Const. & Paving, Inc., 447 A.2d 406 (Conn. 1982) (Connecticut veil-piercing principles; sui generis, fact-specific inquiry)
- State Five Indus. Park, Inc. v. Comm’r of Envtl. Prot., 37 A.3d 724 (Conn. 2012) (veil-piercing is fact question; identity/instrumentality guidance)
- SR Int’l Bus. Ins. Co. v. World Trade Ctr. Props., LLC, 467 F.3d 107 (2d Cir. 2006) (standard for reviewing JMOL denial)