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A Philadelphia Common Pleas Court Judge on Monday softened the punitive blow that a jury landed on the former CoreStates Bank in July by cutting the judgment against it from $352 million to $55.79 million, but he rejected the bank’s claims that the trial was unfair and the jury was inflamed by improper advocacy. Judge Gene D. Cohen found that the jury “had every reason to punish the defendant CoreStates having found essentially that the bank took what belonged to the plaintiff, refused to return it to the plaintiff when properly notified, and as a result drove the plaintiff’s business into the ground.” But he held that “the degree of punishment was excessive.” The judge left standing the jury’s award of $1.79 million in compensatory damages and $13.5 million in consequential damages to plaintiff Pioneer Commercial Funding Corp., but he slashed the punitive award from $337 million to $40.5 million — three times the compensatory award. Cohen also found that evidence of discovery violations by CoreStates’ lawyer were properly before the jury and that the comments of Pioneer’s lawyer, Maurice Mitts, “though extreme, were ultimately based upon the evidence.” Mitts’ arguments, therefore, did not influence the jury to resolve the issues before them solely by an appeal to passion and prejudice, Cohen held. “To the extent that any passion might have slipped into the jury’s deliberations,” the judge wrote, “that result is cured by the remittitur.” The case, Pioneer Commercial Funding Corp. v. American Financial Mortgage, began as a dispute over $1.79 million that was deposited into American Financial Mortgage Co.’s CoreStates account by Norwest Funding Inc. after American Financial forwarded a group of mortgages to Norwest. “Unbeknownst to Pioneer,” wrote Cohen in a summary of the facts, “AMFC, through its principal Thomas Flatley, was caused to be overdrawn in the checking accounts it maintained at CoreStates in excess of $4 million with the tacit complicity of the bank.” CoreStates eventually seized the $1.79 million. The bank claimed it had a legal right of setoff. But Pioneer maintained that the deposit was made in error; the money was supposed to have been sent to Pioneer’s account at Banc One in Texas. American Financial was merely a “conduit” in a deal among other parties, attorney Mitts said; it never owned the mortgages or the money. Therefore, Pioneer said, no right of setoff existed. Shortly after CoreStates’ seizure of the funds, AFMC’s lawyer wrote the bank and “provided proof that an affiliate in a mortgage loan transaction, Norwest, had wrongly and mistakenly deposited into AFMC’s settlement account at CoreStates some $1.7 million,” Cohen continued. Nevertheless, CoreStates never returned the money, and eventually the bank entered into a workout agreement with Flatley and AFMC “whereby the parties conspired to keep Pioneer’s money and keep the matter secret. The resulting effect was the severe impairment of capital and business credibility of [Pioneer]. It ceased operations and went out of business,” Cohen said. Cohen’s discussion of CoreStates’ motion for a judgment notwithstanding the verdict on its liability for conversion begins with a subsection titled, “Whose money was it, anyway?” CoreStates, represented at trial by former U.S. Attorney Michael Baylson and Nolan N. Atkinson Jr., both of Duane Morris & Hecksher, and on appeal by former 3rd U.S. Circuit Court of Appeals Judge Arlin Adams, Ralph Wellington and Carl Solano of Schnader Harrison Segal & Lewis, argued that Pioneer was mistaken in its contention that AFMC never owned the money that was swept from its account by CoreStates. CoreStates pointed to the fact that the loans endorsed to AFMC were without conditions and were in turn endorsed unconditionally to Norwest without any mention of Pioneer’s security interest. But Cohen found that “the determinative testimony” was that given by executives of the companies involved, who clearly agreed that the money was intended to go to Pioneer’s account but was miswired to AMFC’s CoreStates account. CoreStates argued that the parol evidence rule should have precluded such testimony, but Cohen disagreed: “The parol evidence rule enters the picture when the central player in the contractual drama is a completely integrated agreement. It is abundantly clear that no single agreement governs the relationships among the parties in this setting,” Cohen held. The judge also pointed to documentary evidence that the money belonged to Pioneer, ruling that the jury had ample evidence to conclude that AMFC was not its owner. Next, Cohen rejected CoreStates’ invocation of article 4(a) of the Uniform Commercial Code Federal Reserve Regulation J, finding that the district court cases the bank stated in support of its reading of those rules were inapposite. Specifically, Cohen found that Regulation J’s authorization of the right of setoff depends on the ownership of the funds. “The ownership interest on the part of Pioneer had been fully established by the time CoreStates exercised its setoff,” Cohen found. NO NEW TRIAL Cohen rejected the bank’s request for a new trial on the grounds of an allegedly incorrect jury instruction, finding that “no issue was omitted and that the charge as a whole adequately instructed the jury.” The judge also refuted CoreStates’ contention that the trial was unfair because of evidentiary rulings before and during the trial. First, the bank argued that Cohen’s preclusion of defense testimony by Walter Weir, the bank’s original lawyer in the case, was devastatingly prejudicial to its case. The preclusion of Weir’s testimony was a sanction for the bank’s failure to produce relevant documents until after the plaintiff had already rested its case. “The nadir of this trial,” Cohen wrote, “occurred on June 28, 2000, when the bank produced a parcel of probative documents it clearly had at its disposal for years.” In a footnote, the judge countered the bank’s claim that the sanction was too harsh with a characterization of the sanction as “velvet-gloved in that Mr. Weir had already testified as of cross-examination and been directly examined comprehensively. To suggest that Mr. Weir’s absence from the dramatis personae of the extensive defense presentation was a mortal blow is mystifying,” the judge wrote. DISCOVERY ABUSES The contentious discovery process gave rise to another “unfairness” claim by CoreStates — that the jury should never have been allowed to hear evidence relating to discovery violations by the bank’s lawyers. Such an action, the bank argued, took the authority to sanction out of the judge’s hands, where it belonged, and gave it to the jury. But Cohen found that evidence of CoreStates “erratic and resistant response to reasonable discovery requests” was properly before the jury. “To support its straightforward conversion claim,” Cohen explained, “the plaintiff alleged that the defendants … found means to cover up the alienation of Pioneer’s money. As a component of this theory the plaintiff sought to prove that the workout agreement entered into by the defendants was shaped in such a way that the act of conversion would acquire legitimacy. “Accordingly, to resist proof of this theory the defendants tried by every means possible to keep the workout agreement and all evidence associated with it out of the record. There were unheard of seven discovery orders entered against CoreStates. “Hence,” the judge held, there was a close correspondence between the defendant’s behavior in the discovery stage of this trial and their conduct during the operative moments attendant to the conversion of Pioneer’s money. It follows that Pioneer had every forensic reason” to put evidence of the bank’s discovery abuses before the jury. Finally, Cohen addressed the bank’s criticism of Mitts’ statements during closing arguments. While the judge agreed that “at times the language plaintiff’s counsel used … may have crossed the line of advocacy and wandered into the land of the extreme,” he found that “the comments of counsel were an expression of his emotions and frustrations after spending $1,200,000 of his client’s money in the face of constant cheating and provocations on the part of CoreStates and its lawyers.” Mitts’ statements, while occasionally extreme and less than professional, were based on facts in the record, Cohen found, and were not calculated to inflame the jury’s prejudice or passion. To the extent that they did, he found, he took care of that problem with a big remittitur. WHAT’S TOO PUNITIVE? Cohen wrote that although the jury had reason too punish CoreStates for its conduct, the amount it awarded in punitive damages was too high — the sole fault he found in the jury’s verdict. The judge found “the degree of punishment excessive. Among other considerations the $337 million punitive damage award would likely penalize innocent parties, namely depositors and borrowers who depend on the viability of the bank to feel insured of their own financial stability. Searching for guidance in determining a properly punitive amount, Cohen turned to the U.S. Supreme Court’s decision in Gore v. BMW, which “suggests that a court look to applicable legislative sanctions for comparable conduct.” “Of course,” Cohen went on, “there are no state statutes which punish errant conduct by banks. The only statute that approaches addressing the bank’s conduct in the underlying case is the Pennsylvania Unfair Trade Practices and Consumer Protection Act, which would award treble damages on a finding of unfair trade practices which victimized the consumer.” The federal Sherman Antitrust Act, too, applies the treble damage formulation for predatory business practices, Cohen noted, so he adopted treble damages as a guideline to a fair reprimand and arrived at $40.5 million — treble the amount of money converted and the $13.5 million consequential finding. Mitts said Monday that while he would have preferred that judgment be entered in the entire amount, he thought that the $55.8 million judgment that stood “will give the bank pause before it repeats its outrageous conduct.” Lawyers for CoreStates were not available for comment Monday.

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