A jury has awarded a Miami businessman $6 million after finding that U.S. Bank and its equipment finance arm acted in bad faith when they pushed him into involuntary bankruptcy.
The unusual verdicts, which include $5 million in punitive damages, were filed in recent weeks in U.S. District Court in Miami. Lawyers for the businessman say the punitive damages are the largest in history for such a case.
While the decisions don’t end a prolonged dispute between the Minneapolis-based bank and businessman Maury Rosenberg, they illustrate a bare-knuckled side of an above-the-fray lender often regarded as one of the best-run banks in the country.
Rosenberg and the nation’s No. 5 bank accuse each other of attacking like a junkyard dog.
Rosenberg and his lawyers say U.S. Bank is using involuntary bankruptcy as a collection tool, something federal law prohibits. They say the bank’s refusal to back down and settle the dispute, even after the bankruptcy petitions were tossed out and the bank lost two appeals, has destroyed Rosenberg.
“It’s wrong,” Rosenberg said in an interview. “I will never get my life back. It’s finished. My life is over.
“These collection techniques are better related to the mob than to the fifth- or sixth-largest bank in the country,’’ he said. “They could have stopped. Most people don’t have the money to fight these fights.”
The bank insists it’s done nothing wrong and is properly pursuing a litigious businessman who owes money. Its equipment finance group has had only one other client wind up in involuntary bankruptcy since 2006, U.S. Bank spokesman Tom Joyce said.
“We respectfully disagree with the jury’s verdict,” Joyce said. “Regardless of the amount, we believe the award is not supported by the evidence, nor do we believe there is any basis for any punitive damages.”
U.S. Bank will be filing post-trial motions and is evaluating a possible appeal, Joyce said.
Meanwhile, the lender is pursuing Rosenberg for breach of contract in U.S. District Court in Pennsylvania, claiming he still owes $4.9 million on a personal guaranty.
“Rosenberg is a savvy and experienced businessperson who signed a personal guaranty — a guaranty on which he has yet to pay a penny on,” said Joyce. “We are confident we will be successful in our efforts to enforce his personal guaranty.”
Richard Friedman, a former trial attorney with the U.S. Trustee Program in Chicago, said jury trials are almost completely unheard of in bankruptcy cases.
“It strikes me as something I’ve never seen,” he said.
Rosenberg’s company, National Medical Imaging, owned and operated 23 outpatient centers equipped with diagnostic equipment, with annual sales as high as $72 million.
It leased equipment from DVI Financial Services Inc. Lyon Financial Services Inc., an equipment finance company now based in Marshall, Minn., that is part of U.S. Bank’s equipment finance operation, became the servicer of the leases.
Rosenberg’s leasing debt was put in several special-purpose entities, most of which were called some variation of “DVI,” and securitized, or resold to investors on the secondary market. Lyon serviced the debt. U.S. Bank, as trustee, took the payments and paid investors.
In 2008, Rosenberg approached U.S. Bank and Lyon to restructure his debt. Rosenberg was trying to steer his company in other directions since new federal regulations were set to cut insurance reimbursements. However, U.S. Bank wouldn’t meet with him or talk while he was current on his payments, he said, so he stopped payments to get the talks going.
U.S. Bank said he defaulted, and Lyon Financial and the DVI entities filed involuntary Chapter 7 bankruptcy petitions against Rosenberg, National Medical Imaging and its holding company. Lyon had filed such petitions against Rosenberg’s company once before in 2005, but at that time the parties settled and Rosenberg’s debt was written down.
Being forced into bankruptcy triggered other defaults and caused him to lose financing, Rosenberg said. In trying to fund the company itself, the family was forced to sell most of their investment assets.
Their standing among the philanthropic groups they were involved in — the Rosenbergs were honored in 2009 at a Lincoln Center gala — has crumbled. Gone too is his son’s $50 million trust fund, which Rosenberg said he first established through his earlier career, buying and renovating office properties.
Ultimately he had to close his company. He and his wife now live with their son Doug, 27, in a million-dollar condo in downtown Miami.
The 2008 petitions might have ended the story. But U.S. Bankruptcy Judge A. Jay Cristol in Miami tossed out the petition against Rosenberg. Cristol held that the special-purpose DVI entities weren’t actual creditors with standing to file the petitions but pass-through entities. A different judge dismissed petitions against Rosenberg’s company on similar grounds.
U.S. Bank and the other entities appealed Cristol’s decision twice, and lost twice.
Meanwhile, the parties agreed to a jury trial outside bankruptcy court to handle the requisite damages from the dismissed petition.
A jury recently found seven defendants, including U.S. Bank, to have acted in bad faith in filing the bankruptcy petitions. Jurors were instructed to determine bad faith by considering such things as whether the petitioners were motivated by the desire to embarrass or harass, or whether they filed the petition solely as a substitute for regular debt collection procedures to coerce a settlement, among other things.
The jurors awarded Rosenberg $6.12 million in damages: $5 million in punitive damages and $1.12 million for such things as emotional distress. To award punitive damages the jurors had to find that the bank acted with malice or that its actions were particularly egregious. U.S. Bank is also on the hook for Rosenberg’s estimated $3.9 million in legal expenses.
In closing arguments Yale Galanter, the criminal defense lawyer Rosenberg hired for the trial, said the jurors should award punitive damages high enough to be “a wake-up call” to an institution with a net worth of $38 billion. Though jurors awarded far less, Rosenberg’s lawyers are proclaiming total victory.
“They just got body slammed,” Galanter said. “It was about holding this giant of a bank responsible for their illegal use of the bankruptcy code.”
Galanter, a $600-an-hour lawyer known for representing celebrities such as O.J. Simpson, said he thinks the case is the first time a contested involuntary bankruptcy has resulted in a jury trial in civil court. According to him, the $6 million award is the largest punitive-damage award in U.S. history in such a case.
David Wheeler, a bankruptcy specialist on the board of the American Bankruptcy Institute, said he’s never heard of an involuntary bankruptcy case going so far. It is rare to get a bad-faith finding or punitive damages in bankruptcy court, Wheeler said, and he’s never heard of an amount such as $6 million.
Carlos Sardi at Genovese Joblove & Battista, the Rosenbergs’ bankruptcy lawyer, called the verdicts pioneering. It’s a warning, he said, for any creditor considering filing an involuntary bankruptcy petition: “Creditors beware.”
Jennifer Bjorhus • 612-673-4683