Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 78 C 1689 -- Frank J. McGarr, Judge.
Cummings, Chief Judge, Coffey, Circuit Judge, and Hill,*fn* Senior District Judge.
This diversity action was brought by the corporate Personal Representative of the Estate of Philip Litner, Jefferson National Bank of Miami Beach, for the benefit of the beneficiaries under the decedent's will. The Personal Representative claims that the defendant corporate Trustee, "Central National Bank in Chicago," breached the fiduciary duty it owed to Mr. Philip Litner by failing to act prudently and conscientiously with the best interest of Philip paramount during the entire period the defendant acted as Trustee of the decedent's revocable inter vivos trust. The Trustee filed a third-party complaint against the decedent's son, Jerry Litner, seeking indemnification from any losses that it might suffer as a result of the Personal Representative's lawsuit. The Trustee maintains that the son wrongfully represented that he had the authority to act as the decedent's agent. Following a jury trial in the district court, verdicts were returned in favor of the Personal Representative and the decedent's son. Actual damages were assessed against the Trustee in the amount of $394,475.40, while punitive damages were denied. We AFFIRM.
On August 2, 1968, Philip Litner retired from his post as Chief Executive Officer of a subsidiary of Curtis Electro Corporation ("Curtis"),*fn1 resigned as an officer of Curtis and sold all of his Curtis stock to the corporation. Although its common stock was publicly traded, the Curtis Electro Corporation was controlled by members of the Litner family. Philip's brothers and son were not only directors of the corporation but also occupied senior management positions.
Curtis agreed to purchase the stock of Philip Litner for $511,560. At the time of sale, Philip Litner received a cash down payment of $148,352.40 and an unsecured promissory note of $363,207.60 for the remaining balance bearing interest at 5 percent and calling for payment of the principal in three installments: one payment due on January 2, 1969; one on January 2, 1971; and the last payment due January 2, 1972. Curtis made the first installment to Philip Litner, but failed to make the two remaining payments of $127,890 each.
William Purcell, a vice president of plaintiff-appellant "Central National Bank in Chicago" ("Central"), called on Philip Litner shortly after he sold his Curtis stock. At this time, Mr. Purcell, responsible for the development of new trust business for Central, suggested to Philip that he consider establishing a "revocable living trust" for estate planning purposes.*fn2 Philip Litner expressed concerns regarding the administration of the trust and Purcell agreed that the Trustee would consult him (Philip) before making any investment decisions. Mr. Purcell supported this agreement with a statement that the bank would not exercise investment control without Mr. Litner's permission.*fn3
Philip requested that Central supply Eli Fink (Philip's attorney) with a proposed trust agreement. Mr. Fink and an attorney for Central negotiated the language to be contained in the agreement creating the inter vivos trust and on September 25, 1969, Philip Litner and a representative of Central signed the agreement designating Central as the Trustee of "Philip Litner Trust No. 1." ("Trust"). During his lifetime, Philip was to be the sole beneficiary of the Trust and upon his death new trusts were to be established for the benefit of his wife and children. The initial Trust corpus consisted of Curtis Electro's promissory note of $255,780 and, in addition, other securities valued at approximately $220,000.
From September of 1969 until January of 1971, Central communicated with Philip Litner concerning Trust investments and on one occasion Mr. Litner gave Central written approval of an investment change. Prior to January 17, 1971, there was limited discussion between Central and Philip Litner regarding the Curtis promissory note.
On January 17, 1971, Philip Litner suffered a severe stroke, was hospitalized for several weeks and thereafter was confined to a nursing home for temporary care. The residuals of this stroke were rather severe in that Philip Litner was left partially paralyzed and no longer able to speak. On or about January 25, 1971, Jerry Litner (Philip's son)*fn4 contacted Central and informed the bank that his father had suffered a stroke and was in a coma. The following month, Jerry Litner met with various officers of Central and advised them of his father's disability, reciting that his father could comprehend what was going on about him but was only able to communicate through physical gestures. At this time, Jerry Litner expressed concern about how his father's increased medical, personal and living expenses would be paid. After discussion, an agreement was reached whereby the Trustee would make monthly disbursements to Betty (Philip's wife) and she, in turn, would take care of the expenses.
Because Curtis Electro suffered economic difficulties they were unable to make the January 2, 1971 note payment due to cash flow problems. In lieu thereof, Curtis executed a new two-year promissory note in the amount of $127,890 bearing interest at the prime rate. On or about March 15, 1971, Central, as Trustee, agreed to the substitution of a replacement note for the then due cash payment.
Subsequent to Jerry Litner's advising the Trustee of his father's condition, Central took no action to ascertain on its own the mental condition or competency of Philip Litner. Even though Philip was the sole beneficiary of the Trust, Central never communicated, or attempted to communicate, directly with him about the Trust for several years after his stroke. Instead of consulting with Philip, Trust matters were communicated to Jerry and Betty Litner. Monthly Trust statements were forwarded to Betty Litner and monthly Trust income payments were deposited in her bank account without obtaining Philip's approval. On several occasions between 1971 and 1973, investment recommendations for the Trust were also forwarded to Betty Litner and she indicated her approval of the same on Central's written consent forms.
As Curtis Electro's principal lender, Central entered into a commercial loan agreement which provided Curtis with an unsecured revolving line of credit in the amount of $1,500,000 for general business purposes. It should be noted that Philip Litner was personally aware of the Curtis loan agreement and of Central's position as principal commercial banker of Curtis at the time he designated the bank as Trustee. During the late 1960s and prior to August of 1972, pursuant to the revolving credit agreement, Central made unsecured loans to Curtis, the parent company, without taking collateral or obligating the subsidiaries in any way. The loan agreement with Central prohibited Curtis from pledging, mortgaging, encumbering or otherwise granting any security interest in any of Curtis' properties without the prior written approval of Central.
In 1970, Curtis lost in excess of $700,000 and, thereafter, was unable to meet its financial obligations as its economic well-being continued to deteriorate. At the September, 1971, meeting of the Curtis Board, attended by Jerry Litner and Michael Gaffigan, Curtis director and Central commercial loan officer, the payment of the third installment obligation on the Philip Litner note was discussed. The Curtis directors determined that due to the corporation's severe financial problems the payment could not be made and the Trustees should be contacted to negotiate a modification of the note obligation. Subsequently, Jerry Litner informed Bruce Duff, Central National's account administrator for the Trust, that Central would be contacted by Curtis concerning the company's cash flow problem vis-a-vis the January, 1972 note payment and urged him to "work out an arrangement" with the company.
Prior to being contacted by Curtis, Mr. Duff questioned Mr. Gaffigan regarding Curtis Electro Corporation's relationship with Central's Commercial Lending Department. Duff, the Litner Trust officer, was informed by Gaffigan that Curtis was a "good customer" of the bank and had been since 1968. On or about March 15, 1972, Central, acting as Trustee of the Litner Trust, and Curtis entered into a new repayment agreement and canceled the Curtis notes then held by the Trustee. The new repayment agreement provided for a five-year $255,780 unsecured note bearing an increased interest rate of seven and one-half percent. As a concession to Curtis, the monthly payments on the note were initially set at $2,000 per month and were to be increased during the term of the note.
On August 18, 1972, Central, again acting as Curtis' commercial lender, and Curtis Electro entered into an additional commercial loan agreement whereby, in contrast to the earlier agreements, each of the Curtis subsidiaries gave notes to Central for the entire amount then owed by Curtis, $1,900,000, and the bank obtained a security interest in the equipment of the subsidiaries. To further protect themselves as Curtis' banker, Central obtained a security interest in one hundred percent (100%) of the stock of the Curtis subsidiaries.
Late in June of 1973, Mr. Duff discovered that Curtis was in default on the March 15, 1972 promissory note. On several occasions Mr. Duff contacted Curtis regarding the default and Mr. William Robinson, Curtis' Chief Financial Officer, informed Duff that the company was in a "very deep cash crisis" and would be unable to make the regular monthly payments on the Trust's note. Two months later, in August of 1973, Duff received two checks from Curtis making the interest payments current on the note's then outstanding principal balance.
As Central was aware of Curtis' continuing severe financial problems, it now saw fit to protect itself as commercial banker by acquiring and perfecting security interests in additional collateral in conjunction with a September, 1973 business loan to one of Curtis' subsidiaries. Although this loan was repaid shortly thereafter, the additional collateral was retained and continued to secure loans Central had previously made to Curtis.
During December of 1973, Bruce Duff and members of the Special Assets Committee of Central's Trust Department discussed the advisability of retaining an attorney to initiate collection of the Curtis promissory note. Toward the end of that month, Mr. Duff contacted Attorney Fink (Philip's lawyer) and discussed with him the problems the Trust was having obtaining payment of the promissory note from Curtis.
The next month, on January 7, 1974, Duff informed Curtis that the Trust was considering retaining an attorney to commence litigation to collect the Curtis debt. Curtis management informed Duff that if a lawsuit were filed it would force Curtis into bankruptcy and, furthermore, all of Curtis' assets had previously been pledged to Central to secure its commercial loans.*fn5 Based on this information, Duff and Curtis then agreed the Trust would not file suit and Curtis would bring the interest payments up to a current status. Attorney Fink was advised by letter to take no legal action.
Three months later, on April 29, 1974, Curtis filed a Chapter 11 bankruptcy petition for reorganization. After the filing of the petition, Mr. Duff concluded that Central was facing a "potential conflict of interest" dilemma as Trustee, due to the problem existing between Curtis' secured and unsecured creditors. Mr. Duff informed the Litner family by letter of May 24, 1974 that it was the opinion of Central's top management that independent counsel should now be obtained by the Litner family to seek collection of the note as "vigorously as possible." Central stated that it did not recommend attempting the appointment of a successor trustee for the Litner Trust in view of the "questionable competency" of Philip Litner.*fn6
In the summer of 1974, Jerry Litner informed Bruce Duff that it was the opinion of the Litner family that Central should absorb any loss inuring to the Trust as a result of Curtis' insolvency. Mr. Duff replied that Central had not acted improperly and had only relied on his (Jerry Litner's) advice. In early August 1974, the Litner family contemplated filing an action on behalf of Philip Litner against Central as Trustee of the Litner Trust.
Prior to his death on September 5, 1976, Philip Litner revoked the Trust and ordered the Trust assets transferred to Jefferson National Bank of Miami ("Jefferson National"), the plaintiff-appellee herein.*fn7 On May 1, 1978, Jefferson National, as Personal Representative of the Estate of Philip Litner, instituted the instant action and alleged, as noted above, that Central had breached the fiduciary relationship owed to Philip Litner while it acted as Trustee of the Litner Trust and sought recovery of actual and punitive damages. As referred to above, Central subsequently answered and filed a third-party complaint against Jerry Litner for reimbursement of any damages that might be recovered by Jefferson National. After a lengthy jury trial, judgment was entered in favor of Jefferson National in the amount of $394,475.40. The jury further determined there was no liability on the part of Jerry Litner and the trial court entered judgment accordingly. This appeal followed.
Issue 1: Did the district court commit error in determining that Jefferson National's action was of a legal nature and properly triable to a jury?
Issue 2: Did the district court commit error in determining that Jefferson National's action was not barred by the doctrine of laches or the applicable statute of limitations?
Issue 3: Did the district court improperly instruct the jury as to the standard of care expected of Central while acting as Trustee of the Philip Litner Trust?
Issue 4: Did the district court improperly instruct the jury on the issue of the proper measure of damages ...