The opinion of the court was delivered by: DENNY CHIN
On January 17, 1995, following a six-day trial in this case, the jury returned a verdict in favor of defendant The Dime Savings Bank of New York, FSB (the "Dime") on the fraud claim and in favor of plaintiffs Evelyn A. Scott and Leon Scott (the "Scotts") on the breach of fiduciary duty and negligence claims. The jury awarded the Scotts damages of $ 36,000, and found, with respect to the negligence claim, that the Scotts were 54% at fault and that the Dime was 46% at fault.
In 1987, after unsuccessfully applying to two other banks for a $ 5,000 loan (Tr. 17-19; PX 144), Leon Scott ("Mr. Scott") went to the Dime branch in Mamaroneck, New York to inquire about getting a $ 5,000 loan for him and his mother, Evelyn A. Scott ("Mrs. Scott"). (Tr. 22). Mr. Scott met with Shirley Traendly of the Dime on several occasions. (Tr. 23-24). The first time, he told her that he was interested in a $ 5,000 loan; she asked what kind of security the Scotts had; he responded that they had a house, "free and clear"; she said she was "pretty sure" that they could get a $ 5,000 loan, and she told him that they could get a larger loan if they wanted. (Tr. 24-25).
Mr. Scott also testified that Traendly spoke to him about investing the proceeds of the loan. (Tr. 30).
On or about June 1, 1987, with her son acting as her attorney-in-fact, Mrs. Scott borrowed $ 100,000 from the Dime, mortgaging her house as security. (Tr. 30, 33, 37, 40-41, 48, 66, 181; DX D, E).
At some point on one of his visits to the Dime, Mr. Scott saw a sign at the branch about certain investments that paid 12-1/2% interest. (Tr. 25). He spoke with David Cruz, an employee of the Dime, who offered to send Mr. Scott some information regarding investments. (Tr. 25-26). Cruz sent Mr. Scott a letter on Dime letterhead stating in part as follows:
Here at The Dime Savings Bank of N.Y., we try to help you in every way we can. We offer a wide variety of high interest bearing plans, plus plans with safety, through the Dime Agency.
(PX 50). Cruz signed the letter as a "Financial Services Consultant." He testified at trial and described the letter as "[a] canvassing letter, called a hook." (Tr. 291). Mr. Scott received the letter before he took out the loan. (Tr. 27).
Mr. Scott also had at least one conversation with Sebastian Bulfamante at a Dime branch about different types of investments. (Tr. 31). At that time, Bulfamante was a "dual" employee who was employed by both the Dime and a company called Invest. (Tr. 260-61). Invest was a securities brokerage firm that had contracted to provide brokers and brokerage services to the Dime. (Tr. 261). In 1987, Bulfamante had a desk located inside the Dime branch. (Tr. 273). He was paid, strictly on a commission basis, by both the Dime and Invest. (Tr. 273-74).
Invest and Dime were required by their contract to keep their respective businesses in "strict and total separation . . . so as not to lead to confusion between the business conducted by [the Dime] and the business conducted by [Invest] through the operation of the Invest Centers located at [the Dime's] branches." (PX 261, P 14). In fact, however, there was some confusion.
The Invest sign and desks were located within the Dime branch and the "dual" employees operated out of the Dime branches. (Tr. 273, 276, 368, 395). At trial, Cruz testified that he thought he was a "dual employee," but he was not sure, and he noted that his employment status "was a little confusing at the time." (Tr. 294). Although Bulfamante's business card stated that he was an Invest Representative, it gave his address as "The Dime Savings Bank of New York, FSB . . . ." (PX 41). Bulfamante testified that he met with Mr. Scott "to introduce him to the Invest and Dime agency products other than the bank products." (Tr. 262). Mr. Scott also testified that he had a conversation -- at a Dime branch -- with George Harrienger, a manager of Invest and a dual employee, during which Harrienger told him that he could make 20 to 25% by investing the proceeds of a loan. (Tr. 69-70, 420).
Non-dual employees of the Dime were trained or instructed to refer clients to dual employees, i.e., the employees who worked for both the Dime and Invest. (Tr. 451). As Harrienger testified:
The system was if we had people that came in and expressed an interest in investing in something other than banks -- and, frankly, there were a lot of them because there was a lot of talk about Ginny Maes and mutual funds -- rather then sending them out the door to Merrill Lynch or E.F. Hutton, they would send them over to one of our [Invest] representatives to get prudent advice.
At that point in time the person would be either walked over or referred over, and a phone call would be made.
On June 16, 1987, approximately two weeks after the loan closed, Mr. Scott opened a trading account with Invest. (DX A). The account was opened as a cash account, but was converted in August 1987 to a margin account, which permitted Mr. Scott to purchase stock by borrowing against his existing portfolio of stocks. (Tr. 360). Although it was apparently Mr. Scott's idea to convert from a cash to a margin account, neither James McPartland (the dual employee responsible for Mr. Scott's account) nor anyone else at Invest made any inquiry into Mr. Scott's suitability to trade on a margin basis. (Tr. 408-09). McPartland acknowledged that clients were required to have the financial ability to meet losses to trade on a margin basis. (Tr. 409-10). Indeed, before a margin account could be opened, someone at Invest headquarters "downtown" would have to "sign off on it." (Tr. 411).
Mr. Scott invested some $ 52,000 of his mother's money in the stock market through Invest. (Tr. 185). Eventually, his investments started losing money, but Mr. Scott testified that Invest kept telling him "that the stock market was going to reach 3,000 by Christmas and that the whole thing was really booming." (Tr. 82). At one point, McPartland went away on vacation and Harrienger was supposed to cover for him. (Tr. 126-27). According to Mr. Scott, however, Harrienger was "overloaded," and when McPartland returned, he was unable to handle everything that Harrienger "dumped" on him. (Tr. 129, 131). As a consequence, Mr. Scott testified, McPartland was unable to make the trades that Mr. Scott wanted him to make. (Tr. 131).
On October 19, 1987, the stock market "crashed," and Mr. Scott's account with Invest was "wiped out." (Tr. 129, 133).
Dime's mortgage on Mrs. Scott's home is a first mortgage. (Hall Aff. P 3). She has been in default of her obligations under the mortgage since June 1, 1988. (Id.). The loan was called in 1988 and again in 1991, but the Dime has refrained from pursuing foreclosure pending resolution of the Scotts' claims against it. (Id. P 8). As of February 6, 1995 (the date the Hall Affidavit was executed), Mrs. Scott owed the Dime $ 110,893.40 in principal, interest of $ 62,773.79, late ...