MARINE MIDLAND BK. v. RUSSO PRODUCE CO., INC, N.Y. App. Div., Judgment, Law, casemine.com

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Mark C. Dillon

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Smart Summary

Factual and Procedural Background

This case involves an action for fraud and conversion brought by Marine Midland Bank (appellant) against John E. Russo Produce Co., Inc., John E. Russo, Rita Russo, Canestraro Produce, Inc., and Joseph Russo (respondents). The appellant alleged damages resulting from a "check-kiting" scheme whereby Russo deposited checks drawn on its Citibank account, which lacked sufficient funds, into its account with appellant and covered those with checks drawn on its account with appellant, causing an overdraft on January 19, 1977. Numerous checks drawn on Russo's Citibank account were also deposited in Canestraro's account. The jury found no fraud or conversion liability on the defendants but found appellant was damaged by $309,800. The trial court entered judgment for all defendants. The appellant appealed seeking reversal or a new trial.

Legal Issues Presented

Whether the jury's verdict finding no liability for fraud or conversion, despite finding damages, was inconsistent and warranted reversal.
Whether the trial court erred in instructing the jury that no adverse inference could be drawn from John and Rita Russo's invocation of the Fifth Amendment privilege.
Whether there was sufficient evidence to support findings of fraud or conversion against the defendants, particularly John E. Russo Produce Co., Inc., John E. Russo, Rita Russo, and Canestraro Produce, Inc.
Whether the trial court erred in refusing to charge a theory of recovery based on "money had and received."
Whether the plaintiff was entitled to a new trial based on the trial court's jury instructions and evidentiary findings.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Matter of Bernard v Lavine, 48 A.D.2d 616, affd 36 N.Y.2d 982, affd 37 N.Y.2d 773	Permitting adverse inference from invocation of Fifth Amendment privilege.	The court held that the trial court erred by instructing the jury that no unfavorable inference could be drawn from John and Rita Russo invoking the Fifth Amendment, as their knowledge was central to the case.
Matter of Gonzales v Dumpson, 46 A.D.2d 861, affd 36 N.Y.2d 806	Adverse inference from Fifth Amendment invocation.	Supported the court's conclusion that the jury should have been allowed to infer against the defendants who invoked the privilege.
Bradley v O'Hare, 2 A.D.2d 436, 442	Adverse inference from Fifth Amendment invocation.	Reinforced the principle that the jury may draw the strongest permissible inferences against a party who refuses to testify on privilege grounds.
Rosa v Blander, 47 A.D.2d 865	Adverse inference from Fifth Amendment invocation.	Referenced in support of the court's reasoning on jury instructions regarding privilege invocation.
Marrone v Williamson, 40 A.D.2d 873, app withdrawn 32 N.Y.2d 645	Adverse inference from Fifth Amendment invocation.	Referenced to support jury instruction on adverse inference.
Abdoo v Wentworth, 49 A.D.2d 1002	Standard for setting aside verdict against weight of evidence.	The court applied this to affirm that the verdict for defendants would not be set aside unless plaintiff's evidence was overwhelmingly in favor.
McDowell v Di Pronio, 52 A.D.2d 749	Standard for setting aside verdict against weight of evidence.	Supported the court's conclusion that the jury's verdict was not against the weight of credible evidence except as to Russo defendants.
A. Sam Sons Produce Co. v Campese, 14 A.D.2d 487	Knowledge imputed to corporate officers as drawers of checks.	Used to hold John Russo to have knowledge of the corporate accounts and check activity.
Gordon v Hostetter, 37 N.Y. 98	Money can be subject of conversion action if owned by plaintiff.	Applied to reject plaintiff's conversion claim as no specific funds belonging to plaintiff were identified.
Jones v McHugh, 37 A.D.2d 878	Money may be subject to conversion.	Referenced in context of conversion claims.
Melnick v Kukla, 228 App. Div. 321	Conversion does not lie for mistaken payments under contract.	Supported rejection of conversion claim based on mistake of contract payments.
Laurent v Williamsburgh Sav. Bank, 28 Misc.2d 140, 144	Conversion requires tangible personalty or specific property.	Held conversion claim invalid where no tangible or specifically identifiable property was involved.
King v King, 13 A.D.2d 437	Conversion requires identifiable property.	Supported court's rejection of conversion claim.
Copeland v Hugo, 212 App. Div. 229	Requirements for pleading amendments and objections to jury charges.	Referenced regarding plaintiff's failure to specify scope of intended amendment and objections.
Geier v Pacific Mut. Life Ins. Co. of Cal., 229 App. Div. 811	Requirements for pleading amendments and objections to jury charges.	Referenced in context of pleading amendment procedures.
Way v Prudential Ins. Co. of Amer., 252 App. Div. 424	Requirements for pleading amendments and objections to jury charges.	Referenced in context of pleading amendment procedures.
Farrington v Farrington, 272 App. Div. 818	Requirements for pleading amendments and objections to jury charges.	Referenced in context of pleading amendment procedures.
Rogers v Long Is. R.R. Co., 29 A.D.2d 47, affd 22 N.Y.2d 918	Requirement to make specific objections to jury charges to preserve error.	Applied to hold that plaintiff's failure to specify objection scope did not make refusal to charge reversible error.
Read v Nichols, 118 N.Y. 224	Requirement to specify objections to jury charge.	Referenced in support of procedural requirements for objections.
Smedis v Brooklyn Rockaway Beach R.R. Co., 88 N.Y. 13, 23	Requirement to specify objections to jury charge.	Referenced in support of procedural requirements for objections.

Court's Reasoning and Analysis

The court analyzed the jury's verdict, noting that although the jury found damages to the appellant, it also found no liability for fraud or conversion on the part of the defendants. The court found this apparent inconsistency was not grounds for reversal because the jury was instructed that if they found no liability, they need not answer the damage questions. The jury disregarded this instruction but their answers were interpreted as a verdict for defendants. The court held this failure to formally articulate the verdict was inadvertent and nonprejudicial.

The court found reversible error in the trial court's jury instruction that no adverse inference could be drawn from John and Rita Russo invoking the Fifth Amendment. Since their knowledge was central, the jury should have been allowed to infer that their testimony would not support their defense and to draw the strongest inferences against them.

Regarding the evidence, the court found that plaintiff established the elements of fraud against Russo and John Russo by uncontroverted evidence, including actual knowledge of the accounts. However, there was insufficient evidence to impute knowledge or liability to Canestraro Produce, Inc. or Rita Russo, whose role was limited to mechanical functions. The court also rejected the conversion claim because no specific funds belonging to plaintiff were identified, and conversion requires tangible or specifically identifiable property.

The court noted that the trial court did not err in allowing plaintiff to conform pleadings to the proof, which is permissible to change the theory of recovery, but plaintiff failed to specify the scope of the intended amendment or objections to jury instructions, so refusal to charge on "money had and received" was not reversible error.

Ultimately, the court concluded the judgment for John E. Russo Produce Co. and John E. Russo was against the weight of the evidence and that the failure to instruct the jury on adverse inferences from the Fifth Amendment invocation warranted a new trial as to these defendants.

Holding and Implications

The judgment was unanimously modified by reversing as to respondents John E. Russo Produce Co., Inc., John E. Russo, and Rita Russo, and a new trial was granted as to them. The judgment was otherwise affirmed with costs to defendants Canestraro Produce, Inc., and Joseph Russo.

The direct effect is that the Russo defendants will face a new trial due to erroneous jury instructions and the weight of evidence supporting liability. No new legal precedent was established; the decision primarily addresses proper jury instructions regarding adverse inferences from Fifth Amendment invocation and the sufficiency of evidence to support fraud and conversion claims.

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MARINE MIDLAND BANK, Appellant, v. JOHN E. RUSSO PRODUCE CO., INC., et al., Respondents.

Order and judgment unanimously modified by reversing as to respondents John E. Russo Produce Co., Inc., John E. Russo and Rita Russo, and a new trial granted as to them, with costs to abide the event, and, as so modified, order and judgment affirmed, with costs to defendants Canestraro Produce, Inc., and Joseph Russo, against plaintiff. Memorandum: In this action for fraud and conversion, appellant claims that it was damaged as the result of a "check-kiting" scheme engaged in by the defendants. At the trial appellant offered proof to show that John E. Russo Produce Co., Inc. (Russo) deposited checks in its account with appellant based on checks drawn on Russo's Citibank account, where no real funds existed, and covered the Citibank checks with checks drawn on its account with appellant, causing the account to be overdrawn on January 19, 1977. During this period numerous checks were drawn on the Russo Citibank account to Canestraro Produce, Inc. (Canestraro), a family-owned corporation with close familial and business ties to Russo and were deposited in Canestraro's account with plaintiff. In response to written interrogatories the jury found that these acts did not constitute fraud or conversion and that appellant was damaged in the amount of $309,800 on which the court entered judgment in favor of all defendants. Appellant requests a reversal of the judgment or in the alternative a new trial. The apparent inconsistency of the jury's verdict does not merit its reversal. The jury was supplied with a list of 12 questions headed by the statement "in addition to a general verdict, you must answer the following questions." The first 10 questions inquired whether the five defendants were liable for either fraud or conversion. The eleventh question asked: "Marine Midland has alleged that it was damaged in the amount of $309,800.00 * * * In what amount, if any, do you determine it was injured?" The Trial Judge instructed the jury that if they answered "no" to the first 10 questions, they need not answer Questions Nos. 11 and 12, and that their verdict would then be no cause of action as to all the defendants. The jury answered "no" to Questions Nos. 1 through 10 and, disregarding the court's instructions, answered "$309,800" to Question No. 11. Question No. 12 was not answered. Thus the jury found no liability on the part of respondents under the only two theories submitted. Question No. 11 is couched in terms of "injury" not liability and the bank's injury was never disputed. A general verdict is merely a conclusion drawn from the components of the jury's findings. "When the answers are consistent with each other but one or more is inconsistent with the general verdict, the court shall direct the entry of judgment in accordance with the answers, notwithstanding the general verdict" (CPLR 4111, subd [c]). Here the only conclusion that can be drawn from their answers is that the jury rendered a verdict in favor of the defendants and the failure by the jury to formally articulate that conclusion must be held to be inadvertent and nonprejudicial. However, the court committed reversible error in charging that no unfavorable inference could be drawn from the invocation by John and Rita Russo of the Fifth Amendment when questioned about the "check-kiting" scheme. Their knowledge was a central issue in the controversy. The trial court should have charged the jury that it could infer that their testimony would not support their version of the case and that the jury could draw the strongest inferences against them that the opposing evidence allowed (Matter of Bernard v Lavine, 48 A.D.2d 616, app dsmd 36 N.Y.2d 982, app dsmd 37 N.Y.2d 773; Matter of Gonzales v Dumpson, 46 A.D.2d 861, app dsmd 36 N.Y.2d 806; Bradley v O'Hare, 2 A.D.2d 436, 442; see Rosa v Blander, 47 A.D.2d 865; Marrone v Williamson, 40 A.D.2d 873, app withdrawn 32 N.Y.2d 645; Richardson, Evidence [10th ed], § 534; see PJI 1:75). A verdict in favor of the defendant will not be set aside as against the weight of the credible evidence "unless the preponderance in favor of the plaintiff was so great that the finding in favor of the defendant could not have been reached upon any fair interpretation of the evidence" (Abdoo v Wentworth, 49 A.D.2d 1002; McDowell v Di Pronio, 52 A.D.2d 749). In its case against the defendants Russo and John Russo, plaintiff established all the elements of its cause of action for fraud by uncontroverted evidence. Unrebutted testimony confirmed that John Russo had actual knowledge of the state of the corporate accounts. Also, as an officer and active participant in the management of the corporation, he would be held to have knowledge of the accounts as drawer of the checks (see A. Sam Sons Produce Co. v Campese, 14 A.D.2d 487 and cases cited therein). A finding of liability against Canestraro for fraud is dependent upon a finding of knowledge that the checks from Russo were drawn on "kited" funds. Although at times overdrafts in the Canestraro account were covered by Russo Citibank checks, no Russo check deposited by Canestraro was returned as uncollectible and its account was not overdrawn on January 19, 1977. It had no involvement with the checks in question. When Canestraro deposited Russo's checks in its account with appellant it made no representation express or implied as to the sufficiency of Russo funds. Furthermore, there was sufficient evidence for the jury to conclude that Rita Russo, an employee and authorized signatory, performed only mechanical functions for Canestraro and, therefore, her knowledge of the account activity could not be imputed to it. There was sufficient evidence in the record for the jury to find that the checks were drawn to pay Russo's sales obligations to Canestraro and that its corporate officers did not know about the activity of the Russo accounts and were not guilty of any tort. Any error in the trial court's instructions to the jury had no bearing on the judgment in favor of Canestraro and its officers. The evidence does not support plaintiff's cause of action for conversion. Although money may be the subject of an action for conversion (Gordon v Hostetter, 37 N.Y. 98; Jones v McHugh, 37 A.D.2d 878), the money sued upon must have been the property of or belonged to the plaintiff and a mere claim of moneys paid out by mistake based upon contract will not support an action for conversion (Melnick v Kukla, 228 App. Div. 321). In the instant case, defendants are not obligated to refund any specifically identifiable fund and "Conversion will not lie as a cause of action [where] No object or tangible personalty was involved" (Laurent v Williamsburgh Sav. Bank, 28 Misc.2d 140, 144; see, also, King v King, 13 A.D.2d 437). It is unnecessary to reach other questions raised, except to point out that in the event of a retrial defendants are entitled to produce evidence as to plaintiff's banking procedures which may be relevant on the element of reliance. Further, plaintiff may be well advised to seek an amendment of the complaint prior to the new trial. It was not error for the trial court to grant plaintiff's motion to conform the pleadings to the proof (CPLR 3025, subd [c]) which normally allows a change in the theory of recovery sought by the plaintiff (3 Weinstein-Korn-Miller, N Y Civ Prac, par 3025.28). The court did not err in its refusal to charge a theory of recovery as requested in writing by plaintiff based on "money had and received." Plaintiff's failure to point out definitely the scope of the intended amendment (see Copeland v Hugo, 212 App. Div. 229; Geier v Pacific Mut. Life Ins. Co. of Cal., 229 App. Div. 811; Way v Prudential Ins. Co. of Amer., 252 App. Div. 424; Farrington v Farrington, 272 App. Div. 818; 3 Weinstein-Korn-Miller, N Y Civ Prac, par 3025.29) and to make known the specific nature of plaintiff's objection to the charge (Rogers v Long Is. R.R. Co., 29 A.D.2d 47, affd 22 N.Y.2d 918; Read v Nichols, 118 N.Y. 224; Smedis v Brooklyn Rockaway Beach R.R. Co., 88 N.Y. 13, 23) does not make the refusal to charge reversible error. The judgment for the defendants John E. Russo Produce Co. and John E. Russo was against the weight of the evidence and the failure by the trial court to charge that an adverse inference could be drawn by John E. Russo's and Rita Russo's invocation of the Fifth Amendment privilege merits the granting of a new trial against these three defendants.

MARINE MIDLAND BK. v. RUSSO PRODUCE CO., INC