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In a victory for two Philadelphia lawyers, a Lackawanna County, Pa., jury last week awarded $17.3 million to the owners of a Scranton shoe business that went bankrupt in 1997 after what the owners claimed was wrongdoing on behalf of its bank, CoreStates. The 12-member jury announced its unanimous verdict Friday after nine days of trial, finding that CoreStates’ successor, Wachovia Bank, should be responsible for $10.3 million in compensatory damages and $7 million in punitive damages. Busy Bee Inc. v. Wachovia Bank is a lender liability lawsuit filed by a group of family-owned shoe businesses called B. Levy & Son. The plaintiffs, represented by Steven M. Coren and David Dormont of Kaufman Coren & Ress, alleged that CoreStates provided them with false information that ultimately forced them into bankruptcy, according to court documents. Specifically, B. Levy & Son claimed that the bank negligently misled it into liquidating its retail assets in 1996 and then used the liquidation as grounds for declaring the company in default on its loan agreement with the bank. Friday’s verdict came at the conclusion of the damage phase of a bifurcated trial. In September, a different 12-member jury unanimously found CoreStates liable for breach of contract and fiduciary duty, and fraudulent and negligent misrepresentation. That jury also found the bank’s conduct toward the plaintiffs to be “outrageous,” according to the Sept. 30 verdict sheet. During the damages phase, the defense argued that B. Levy & Son should receive only nominal compensatory damages and no punitive damages, contending that the bank never caused the plaintiffs any harm. The bank highlighted how the 108-year-old shoe business had suffered losses in the years before its demise and argued that the business was worth little when the alleged wrongdoing occurred in the mid-1990s, Coren said. An expert for the plaintiffs had estimated that the loss of the company’s retail and wholesale operations totaled more than $39 million, according to court documents. Coren said the highest settlement offer from Wachovia was $10 million — a proposal that came shortly before the jury came back with a verdict after three hours of deliberations. The plaintiffs refused. Coren estimated that the total verdict, including interest, will be roughly $24 million.Counsel for Wachovia during the damages phase of the trial was Elizabeth Ainslie of Schnader Harrison Segal & Lewis. She could not be reached for immediate comment. Lackawanna County Common Pleas Judge Terrence R. Nealon presided over both phases of the trial. He wrote at least two opinions in response to motions filed by the parties. Ruling on a motion in limine prior to trial, Nealon addressed a novel evidentiary issue that he said no Pennsylvania appellate court has addressed: “Whether the net worth of the successor corporation (Wachovia) or the net worth of the predecessor corporation and original tortfeasor (CoreStates) is the appropriate measure of ‘the wealth of the defendant’ for purposes of assessing punitive damages.” In 1998, CoreStates was succeeded by First Union Bank, which merged with Wachovia in 2001. The defense wanted to preclude the plaintiffs from telling the jury about Wachovia’s present net worth. It argued that the first jury found that CoreStates had engaged in “outrageous conduct” in 1995 and 1996, and, therefore, only the net worth of CoreStates was relevant to the issue of punitive damages, according to the opinion. Nealon rejected this reasoning and said he would permit the parties to introduce evidence of Wachovia’s wealth in 2005, as well as CoreStates’ in 1995 and 1996, letting the jury decide whether the wealth of either the successor or the predecessor bank was more appropriate. Nealon concluded that “since punitive damages also serve to deter the actions of like-minded tortfeasors and Wachovia’s wealth reflects the defendant’s current ability to pay any punitive damages award secured by the plaintiffs, the net worth of CoreStates is likewise relevant.” The jury learned from the plaintiffs that CoreStates was sold for $17 billion, that Wachovia’s annual net income is $5 billion, and its market capitalization is $83 billion, Coren said. On a different issue, Nealon considered Wachovia’s motion for partial summary judgment in August. He ruled that the economic-loss doctrine did not bar the plaintiffs’ claim of negligent misrepresentation. Wachovia had argued that the doctrine barred such recovery without evidence of physical injury or property damage. Nealon reasoned a defendant may be liable for compensatory damages under the negligent misrepresentation theory if it gave inaccurate information to a plaintiff for purposes of influencing a business transaction. Nealon also concluded that a jury should decide whether the bank intended to commit fraud and the plaintiffs justifiably relied on this fraudulent misrepresentation in deciding to liquidate.Nealon summarized the facts of the case in his opinion. CoreStates’ loan to B. Levy & Son was subject to annual review by May 31 of each year and renewed at the bank’s discretion. Their loan agreement noted that B. Levy & Son would be considered in default if it submitted to liquidation. In December 1995, a bank official advised one of the Levy brothers, which together owned the business, to liquidate their lagging retail assets because a bank economist predicted a continuous downturn in the retail environment. The official said the bank would continue to finance the business’s retail operations beyond their May 31, 1996, review date only if the Levy brothers terminated the retail portion of their business — which would reduce their debt to the bank by an estimated $2.5 million before June 1996. However, according to an internal bank memorandum cited in the opinion, the bank had planned to discontinue the Levy brothers’ line of credit prior to the 1996 review date. B. Levy & Son proceeded to make preparations for the liquidation, including canceling merchandise orders and terminating leases. The bank encouraged the company to retain a liquidation consultant — never telling B. Levy & Son that its planned liquidation would be in default of the loan agreement or that the bank objected to the liquidation. Less than two months after B. Levy & Son confirmed its liquidation plan in a letter to the bank, the company received notice that it was in default of its loan because of the liquidation. In the lawsuit, B. Levy & Son claimed the bank declared a “sham default” that was meant to terminate the loan months before it was due. The default forced the shoe business to declare bankruptcy in July 1997, according to the opinion. Schnader Harrison did not represent the bank during the liability phase of the trial in September. That defense was provided by Joan R. Sheak of Duane Morris’s Allentown office.

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