Southland Health Services, Inc. et al v. Bank of Vernon et al
MEMORANDUM OPINION. Signed by Judge L Scott Coogler on 8/9/12. (KGE, )
2012 Aug-09 PM 02:47
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SERVICES, INC., et al.,
BANK OF VERNON, et al.,
MEMORANDUM OF OPINION
Before the Court are three motions for summary judgment filed by the various
Defendants; one from Citizens State Bank (“Citizens”), one jointly submitted by Bank
of Vernon (“BOV”) and West Alabama Bank and Trust (“WABT”), and one filed by
Dudley Bell, Clanton Dubose, and T. Alan Walls (collectively the “individual
defendants”). (Docs. 117, 118, and 119, respectively.) Each of these summaryjudgment motions incorporates arguments that were made in earlier motions to
dismiss. (See Doc. 117 at 4, 118 at 3, 119 at 4.) The Court therefore considers the
arguments made in those earlier motions (Docs. 16, 19, 78, 80, and 83), and their
associated briefs, in addition to the arguments presented in the present summaryPage 1 of 67
judgment motions and briefs. Also before the Court are three motions to strike, filed
by Defendant Citizens. All of these motions have been fully briefed and are now ripe
Plaintiff Southland Health Services, Inc., (“Southland”) was an ambulance and
medical services company that operated across seven states through its various
subsidiaries.2 At one point it employed over 800 people. Plaintiff Larry Lunan
(“Lunan”) was the majority shareholder and CEO of Southland throughout the
relevant time period, and was also the personal guarantor of Southland’s debt.
Southland then became wholly owned by Paladin Holdings (“Paladin”). Lunan is also
the sole3 shareholder and president of Paladin.
The facts set out in this opinion are gleaned from the parties’ individual submissions of facts
claimed to be undisputed, their respective responses to those submissions, as well as the Court’s own
examination of the evidentiary record. Additional facts relevant to specific Defendants are given in
the appropriate sections below. Wherever they are discussed, all reasonable doubts about the facts
have been resolved in favor of the nonmoving party. See Info. Sys. & Networks Corp. v. City of Atlanta,
281 F.3d 1220, 1224 (11th Cir. 2002). These are the “facts” for summary judgment purposes only.
They may not be the actual facts. See Cox v. Adm’r U.S. Steel & Carnegie Pension Fund, 17 F.3d 1386,
1400 (11th Cir. 1994).
All of Southland’s subsidiaries, including Emergystat, Inc., have assigned their claims to
Southland, and to the extent they are discussed here, are included in the term “Southland.”
Because Plaintiffs refer to Lunan as “the shareholder” of Paladin, the Court assumes that
he is the sole shareholder.
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The Individual Defendants—Dudley Bell (“Bell”), Clanton Dubose
(“Dubose”), and T. Alan Walls (“Walls”)—were officers of Southland. Plaintiffs
claim that over the course of three years, the individual defendants engaged in a
scheme of intentionally devaluing the plaintiff corporations through the “systematic
theft of checks and negotiable instruments, unauthorized use of company funds for
payment of personal expenses, misuse of corporate credit cards, unauthorized checks
and wire transfers to personal accounts, and other unauthorized takings of corporate
monies and assets.” (Doc. 75 at 6.) Plaintiffs claim that the defendant banks
“disregarded obvious and suspicious circumstances, its own procedures, and industry
norms in repeatedly cashing or accepting for deposit, without inquiry, over
$3,000,000.00 in stolen checks that bore forged, unauthorized or missing
endorsements.” (Doc. 21 at 2.) Plaintiffs filed suit in this Court on December 29,
2008, for “violations of state and federal lending laws, civil RICO violations,
conversion, violations of certain sections of Title 7 of the Alabama Code, unjust
enrichment, money had and received, and various and sundry other violations of
statutory law, federal law and Alabama common law.” (Doc. 21 at 1.) The amended
complaint, filed on May 2, 2011, listed a total of fourteen counts—some specific to the
bank defendants, some specific to the individual defendants, and some against all
Defendants. Since the filing of the amended complaint, the relevant issues have been
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somewhat narrowed by Plaintiffs’ voluntary dismissal of two other individual
defendants, Susan Bell and Gary Bradford. (Doc. 87 at 4.) Plaintiffs have also
voluntarily withdrawn Count Ten, alleging civil RICO violations, as to all defendants
(Doc. 81 at 7, Doc. 82 at 1 n. 1) in addition to withdrawing Count Eleven—alleging
fraudulent suppression—as against Citizens (Doc. 81 at 7).
Summary judgment is proper “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.” FED. R. CIV. P. 56(c). The party moving for
summary judgment “always bears the initial responsibility of informing the district
court of the basis for its motion, and identifying those portions of [the evidence] which
it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp.
v. Catrett, 477 U.S. 317, 323 (1986). The movant can meet this burden by presenting
evidence showing that there is no genuine dispute of material fact, or by showing that
the nonmoving party has failed to present evidence in support of some element of its
case on which it bears the ultimate burden of proof. Celotex, 477 U.S. at 322-23. In
evaluating the arguments of the movant, the court must view the evidence in the light
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most favorable to the nonmoving party. Mize v. Jefferson City Bd. of Educ., 93 F.3d 739,
742 (11th Cir. 1996).
Once the movant has met its burden, Rule 56(e) “requires the nonmoving party
to go beyond the pleadings and by her own affidavits, or by the ‘depositions, answers
to interrogatories, and admissions on file,’ designate ‘specific facts showing that there
is a genuine issue for trial.’” Celotex, 477 U.S. at 324 (quoting FED. R. CIV. P. 56(e)).
“A factual dispute is genuine only if a ‘reasonable jury could return a verdict for the
nonmoving party.’” Info. Sys. & Networks Corp. v. City of Atlanta, 281 F.3d 1220, 1224
(11th Cir. 2002) (quoting United States v. Four Parcels of Real Property, 941 F.2d 1428,
1437 (11th Cir. 1991)).
There are essentially three motions for summary judgment for the Court to
consider. One was filed jointly by BOV and WABT, who share the same counsel. (Doc.
118.) Defendant Citizens filed its own motion. (Doc. 117.) Finally, the individual
Defendants, who are represented jointly, filed a joint motion for summary judgment.
(Doc. 119.) The analysis below addresses each of these three motions in turn.
A. Claims against BOV and WABT
BOV and WABT raise a host of arguments in support of dismissal or summary
judgment, including arguments based on statute of limitations, preemption, and other
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defenses. They also point to the presence of arbitration agreements between them and
the Plaintiffs. Notably, BOV and WABT raise arbitration last, asking the Court to first
rule on their motions to dismiss and for summary judgment, and only then to send any
remaining claims to arbitration. (Doc. 16 at 16, Doc. 118 at 34.) But as Plaintiffs point
out, this would put the proverbial cart before the horse. (Doc. 21 at 2 n.1) Addressing
the dispositive motions before considering the arbitration agreements would frustrate
the purpose of the arbitration clause, and would unfairly provide BOV and WABT
with “two bites at the apple.” Instead, whenever enforcement of an arbitration
agreement is requested, this Court is required to send the parties to arbitration “upon
being satisfied that the issue involved in such suit or proceeding is referable to
arbitration.” 9 U.S.C. § 3. It does not matter that BOV and WABT wish to treat
arbitration as a last-ditch effort rather than their first line of defense; since they have
raised the issue, the first question for the Court is to determine whether the claims
against them are “referable to arbitration.”
BOV and WABT argue that this claim is subject to binding arbitration as a result
of several arbitration agreements, entered into by Lunan both in his personal capacity
and as a representative of Southland, and by Dubose as Vice President of Southland.
Arbitration agreements between BOV or WABT and one or more Plaintiffs were
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signed on March 3, 2006 (Doc. 16-5 at 1–2), October 7, 2006 (Doc. 16-7 at 1–2),
January 31, 2007 (Doc. 16-9 at 1), and November 6, 2007 (Doc. 16-3 at 1). The material
terms of these agreements are all identical:
Lender and the undersigned acknowledge that all the
transactions contemplated by this Agreement have a
substantial impact on interstate commerce and agree that all
disputes, claims, or controversies whether based upon any
prior, current, or future agreement, loan, account, service,
activity, transaction (proposed or actual), event or
occurrence (“Disputes”) whether individual, joint, or class
in nature, including contract and tort disputes and any other
matter at law or equity between them, their heirs, personal
representatives, agents, employees, officers, directors,
affiliated companies, parent companies, subsidiaries and
shareholders, present, future or past (“Parties”) shall be
resolved by arbitration upon request of either party at any
time, notwithstanding the prior filing by either party of any
legal action, except as indicated in this Agreement or agreed
to in writing by the parties. . . . It is understood and agreed
that arbitration pursuant to this agreement shall be binding
upon the Parties.
(Docs. 16-3 at 1, 16-5 at 1, 16-7 at 1, 16-9 at 1.) Plaintiffs raise essentially two arguments
against the enforcement of these arbitration agreements. First, they contend that the
arbitration agreements do “not relate to the acts alleged in Plaintiff’s Complaint,”
making them inapplicable to the claims at issue. (Doc. 21 at 6.) Second, Plaintiffs
challenge “whether the Plaintiffs have agreed to arbitrate their claims at all,” asserting
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they are “non-signatories” who are outside the arbitration agreements in question.
(Doc. 21 at 10.)
a. Claims subject to the arbitration agreement
The crux of Plaintiffs’ first argument is that a dispute, in order to be arbitrable,
must be “characterized as arising out of or relating to the subject matter of the
contract.” (Doc. 21 at 7 (quoting Ex parte Cupps, 782 S. 2d 772, 776 (Ala. 2000).)
Plaintiffs cite several Alabama and Eleventh Circuit cases in support of this position,
including Amsouth Bank v. Dees, 847 So. 2d 923 (Ala. 2002), and Hemispherx
Biopharma, Inc. v. Johannesburg Consol. Investments, 553 F.3d 1351 (11th Cir. 2008).
Plaintiffs claim that “[h]ere, just as in Hemispherx Biopharma, Inc., the dispute does not
fall within the scope of the agreements’ arbitration clauses.” (Doc. 21 at 10.) But in
making this argument, Plaintiffs gloss over the language of the applicable agreements.
In Hemispherx, for example, the court emphasized the limited scope of the agreement
at issue there:
This discussion takes place in the context of a class of
arbitration agreements that use similar language, such as
“arising from,” “arising under,” “pursuant to,” and
“arising during” the contract in question. The clause at
issue in this case uses “arising out of or pursuant to.” We
do not believe there is a significant difference between these
slightly different formulations, but do recognize that
substantially broader language in the arbitration clause
would alter the result of the analysis. See, e.g., Brown v. ITT
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Consumer Fin. Corp., 211 F.3d 1217, 1221 (11th Cir.2000)
(discussing arbitration clause covering “any dispute
between them or claim by either [party to the contract]
against the other”).
553 F.3d at 1367 n.1. In Hemispherx and the other cases cited by Plaintiffs, the court’s
willingness to compel arbitration was limited because the scope of the agreement in
question was itself limited. See also Dees, 847 So. 2d at 936 (construing an arbitration
clause applying only to claims “arising out of, in connection with, or relating to” the
agreement it formed a part of ). The arbitration agreements at issue here are far more
expansive. Instead of being limited to claims “arising from” a single contract or
transaction, the arbitration agreements apply to “any prior, current, or future
agreement, loan, account, service, activity, transaction (proposed or actual), event or
occurrence,” and even specifically “includ[e] contract and tort disputes and any other
matter.” (Docs. 16-3 at 1, 16-5 at 1, 16-7 at 1, 16-9 at 1.) Plaintiffs’ argument that their
“claims do not arise from the loan agreements” (Doc. 21 at 10) is therefore completely
beside the point. Whether or not they arise from the agreement, their claims are clearly
within the scope of claims subject to the agreement.
The wide scope of these arbitration agreements does not pose an obstacle to
their enforcement. As explained by the Eleventh Circuit, a clear but broad provision
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There also is nothing unusual about an arbitration clause,
especially in an account agreement, that requires arbitration
of all disputes between the parties to the agreement. We
have enforced such a clause before because it “evince[d] a
clear intent to cover more than just those matters set forth
in the contract.”
Board of Trustees of City of Delray Beach Police and Firefighters Retirement System v.
Citigroup Global Markets, Inc., 622 F.3d 1335, 1343 (11th Cir. 2010) (quoting Belke v.
Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023, 1028 (11th Cir.1982)). See also
Brown, 211 F.3d at 1221 (enforcing agreement covering “any dispute” between the
parties). Because Plaintiffs’ claims fall within the scope of the agreement, and the
breadth of the agreement does not make it unenforceable, Plaintiffs’ first argument
b. Parties subject to the arbitration agreement
The second objection Plaintiffs raise to arbitration is that “WABT and BOV
seek to enforce an arbitration clause against non-signatories.” (Doc. 21 at 10.)
Plaintiffs contend that “there is no evidence . . . that Lunan signed any document
other than as a guarantor on behalf of either Emergystat or Southland Health Services,
Inc.” (Doc. 21 at 12.) This is patently untrue, as Lunan clearly signed an arbitration
agreement on his own behalf (Doc. 16-9) in addition to those he signed as a corporate
officer. (Docs. 16-3, 16-5.) Plaintiffs also state that “[i]t is uncontroverted that
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Defendants do not have a signed written agreement with Plaintiff subsidiary
corporations and parent Paladin.” (Id.) But “signed written [arbitration] agreements”
actually were made with both Southland Health Services and one of its subsidiaries,
Emergystat. (Doc. 16-7, Doc. 16-3.) Plaintiffs are correct that Paladin Holdings is not
a direct signatory to the agreements, but all of Paladin’s claims arise through—and
therefore are subject to the arbitration agreements of—its subsidiaries.
The only mention of Paladin in the amended complaint is that it “purchased one
hundred percent of the stock of Southland,” one of the signatories to the arbitration
agreements. (Doc. 75 ¶ 15.) Paladin also purchased Emergystat, another of the
signatories. (Doc. 124 at 4–5). Finally, the president and sole shareholder of Paladin
is yet another signatory, Larry Lunan.
In their efforts to avoid arbitration, Plaintiffs emphasize that “[i]t is vital for
this Court to understand” that each Plaintiff is a separate and distinct entity from the
others. (Doc. 21 at 6 n.2.) But untangling the various claims and interests of Paladin,
Southland, and its myriad subdidiaries is made worse by Plaintiffs’ own treatment of
them. Throughout the rest of their submissions to the Court, Plaintiffs ignore the
“vital” distinctions and lump all the entities together. For example, in the amended
complaint, Plaintiffs begin by explaining that all the various subsidiaries are “referred
to collectively as ‘Southland.’” (Doc. 75 ¶ 1.) The reason for this is that “[b]y means
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of written assignments, all of Southland’s subsidiaries . . . transferred to Southland
Health Services, Inc. all right, title and interest to any and all claims.” (Doc. 75 ¶ 2.)
Plaintiffs elsewhere emphasize “the fact that all of the subsidiaries’ claims . . . were
assigned, prior to litigation, to the parent Paladin, for value, in order to pursue
litigation.” (Doc. 27 at 5.) In light of these assignments, Plaintiffs’ statement that
“[n]o allegations have been or could be made that the acts of either Plaintiff Lunan or
non-party Emergystat can or should be attributed to either the other subsidiaries or
other Plaintiffs” is disingenuous at best. (Doc. 21 at 6 n.2.) Because Paladin’s claims
are inseparable from its subsidiaries’, Paladin appears to be properly bound by the
Adding to this conclusion is the arbitration language itself, which purports to
bind “personal representatives, agents, employees, officers, directors, affiliated
companies, parent companies, subsidiaries and shareholders, present, future[,] or
past.” (Docs. 16-3 at 1, 16-5 at 1, 16-7 at 1, 16-9 at 1, emphasis added). In many
circumstances, the ability of a corporation to bind its shareholders, parent companies,
or officers would obviously raise serious concerns. In this case, however, Larry Lunan
signed three of the arbitration agreements, one on behalf of himself (Doc. 16-9 at 1),
one on behalf of Emergystat (Doc. 16-3 at 1), and one of behalf of Southland (Doc. 16-7
at 2). Significantly, Lunan also happens to be the sole shareholder and president of
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Paladin, and able, as such, to act on Paladin’s behalf. Especially in light of this, there
appears to be little question that Paladin’s claims, in addition to Southland’s and
Lunan’s, are subject to arbitration.
c. Scope of the arbitrator’s jurisdiction
Based on the discussion above, it appears to the Court that all of the claims and
parties at issue are “referable to arbitration.” But deciding the exact scope of the
arbitration agreement is not necessarily the job of this Court; the Court must
determine if that question is more appropriately left to the arbitrator.
In First Options v. Kaplan, the Supreme Court addressed the issue of who should
determine arbitrability. 514 U.S. 938 (1995). The Court opined that questions
regarding the jurisdiction of the arbitrator were “fairly simple.” Id. at 943. In a
unanimous opinion, the Court announced that “[j]ust as the arbitrability of the merits
of a dispute depends upon whether the parties agreed to arbitrate that dispute, so the
question ‘who has the primary power to decide arbitrability’ turns upon what the
parties agreed about that matter.” Id. (internal citations omitted). In determining the
parties’ intent, the Supreme Court warned that lower courts “should not assume that
the parties agreed to arbitrate arbitrability unless there is clear and unmistakable
evidence that they did so.” Id. at 944 (internal citations omitted).
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The Eleventh Circuit took up the question of “clear and unmistakeable
evidence” of arbitrability in Terminix Int'l Co. LP v. Palmer Ranch Ltd. P'ship, 432 F.3d
1327 (11th Cir. 2005). In Terminix, the court found that the parties clearly and
unmistakably evidenced their intention to have arbitrability determined by the
arbitrator by incorporating the Commercial Arbitration Rules of the American
Arbitration Association (“AAA”), which mandate that the arbitrator will determine
his own jurisdiction. Id. at 1332 (quoting AAA Rule 8(a), now Rule 7(a), which states
that “the arbitrator shall have the power to rule on his or her own jurisdiction,
including any objections with respect to the existence, scope or validity of the
arbitration agreement”); see also CitiFinancial Corp., L.L.C. v. Peoples, 973 So. 2d 332,
340 (Ala. 2007) (“We find the reasoning of the Eleventh Circuit . . . persuasive and
hold that an arbitration provision that incorporates rules that provide for the arbitrator
to decide issues of arbitrability clearly and unmistakably evidences the parties’ intent
to arbitrate the scope of the arbitration provision.”).
The arbitration agreements here clearly demonstrate the parties’ intent to
empower the arbitrator with the authority to determine his own jurisdiction. Each
agreement states that it is subject to the rules of the AAA. As discussed above, the
relevant AAA rule grants the arbitrator “the power to rule on his or her own
jurisdiction, including any objections with respect to the existence, scope or validity
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of the arbitration agreement.” AAA Commercial Arbitration Rules and Mediation
Procedures, Rule 7(a) ( June 1, 2009) (.pdf version available for download at
www.adr.org). Because the agreements empower the arbitrator to determine
jurisdiction, this Court is bound by its obligation to “rigorously enforce agreements
to arbitrate.” Hemispherx, 553 F.3d at 1366.
Plaintiffs’ only chance of avoiding arbitration would be to allege fraud in the
procuring of the arbitration agreement itself, or else to challenge its very existence.
The Supreme Court has cautioned that if a party alleges “fraud in the inducement of
the arbitration clause itself—an issue which goes to the making of the agreement to
arbitrate—the federal court may proceed to adjudicate it.” Buckeye Check Cashing, Inc.
v. Cardegna, 546 U.S. 440, 445 (2006). This is the natural result of the rule in First
Options: if the arbitration clause is void from the outset, there is no agreement to
arbitrate, and therefore no authority to submit conflicts of any sort to an arbitrator.
Buckeye, 546 U.S. at 445. Here, although Plaintiffs claim to “challege the very
existence of a contract to arbitrate,” (Doc. 21 at 10), their actual challenge is only to
the scope of the agreement. Plaintiffs certainly do not contend that the agreements
themselves were procured by fraud, or are the product of forgery or duress. The
Court’s analysis above, in Parts IV.A.1.(a)–(b), shows that the claims against BOV and
WABT are, at a minimum, “referable to arbitration” for purposes of 9 U.S.C. § 3. To
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the extent that Plaintiffs wish to argue that claims or parties fall outside the arbitration
agreement, it is the place of the arbitrator—not this Court—to decide.
Plaintiffs will be directed to arbitrate their claims against BOV and WABT. It
is therefore unnecessary to consider the remaining arguments concerning such claims.
B. Claims against Citizens State Bank
There are seven counts against Citizens in Plaintiffs’ amended complaint.4 The
first five of these—Counts One, Four, Five, Six, and Seven—are for violations of
various provisions of the Alabama Code. (Doc. 75 at 12, 15–18.) Count Eight is a claim
for common-law negligence. (Id. at 19.) The final claim against Citizens is Count
Twelve, alleging civil conspiracy. (Doc. 75 at 27.) Before addressing each of these
counts, and Citizens’ defenses to them, there are four preliminary matters to address.
1. Preliminary matters
Citizens has filed three motions to strike, each pertaining to an evidentiary basis
relied upon by Plaintiffs in responding to the summary-judgment motion. The first
seeks to exclude Plaintiffs’ two expert reports. (Doc. 129.) The second motion asks
that Plaintiff Lunan’s declaration be struck for purposes of summary judgment. (Doc.
130.) The third asks the Court to disallow Plaintiffs’ reliance on their own unverified
This number excludes the claims for civil RICO violations and for fraudulent suppression,
which Plaintiffs have voluntarily withdrawn as to Citizens. (Doc. 81 at 7, Doc. 82 at 1 n. 1.)
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interrogatory responses and unauthenticated documents. (Doc. 131.) Before addressing
these, however, there is a threshold matter to address: Plaintiffs’ standing to bring suit.
The issue of Plaintiffs’ standing is raised in both Citizens’ motion to dismiss and
its summary-judgment motion. Acknowledging that “[s]tanding is determined at the
time a complaint is filed,” Citizens points out that the assignments of rights giving rise
to some of Plaintiffs’s claims were executed after the filing of the complaint. (Doc. 117
at 30 (citing Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570–71 (2004)).)
In their response, Plaintiffs do not dispute that the assignments did take place after the
original complaint was filed. (Doc. 124 at 10.) They add, however, that the assignments
took place well before the filing of the amended complaint. (Id. at 33.) Citizens’ reply
does not controvert this, or otherwise argue that Plaintiffs lack standing under the
amended complaint. The Court is satisfied that Plaintiffs have standing to bring their
b. Motion to strike expert reports
Citizens’ first motion to strike (Doc. 129) concerns two expert reports. One
report was prepared by Dayne C. Gray, of the firm Matson, Driscoll, and Damico
(“the Gray report”). (Doc. 127-19.) The other report was prepared by W. Timothy
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Finn II of the Financial Management Consulting Group (“the Finn report”). (Doc.
The Gray report purports to provide accounting expertise, and focuses on
alleged discrepancies between amounts transferred to Southland from Defendants
Dubose and Bell, and the amounts transferred from Southland accounts to Dubose and
Bell. The report concludes that the amounts that Dubose and Bell received “are in
excess of the funds provided by these gentlemen to Southland in the amount of
$916,613 and $256,740 respectively.” (Doc. 127-19 at 6.)
The Finn report focuses on banking standards of care, and contains several
opinions concerning Citizens. The report concludes that Citizens “failed to comply
with standard banking practices, failed to exercise due diligence, and failed to observe
reasonable commercial standards and adequate standard of care in the handling of
many transactions involving Southland Health Services and Emergystat.” (Doc. 12721 at 5.)
Citizens seeks to have these reports struck on several grounds, but primarily
because they constitute mere “unsworn preliminary expert reports.” (Doc. 129 at
1–3.) Citizens contends that the reports , as such, fall outside the universe of materials
that can properly be considered in reviewing a summary judgment motion. (Id. at 2
(citing FED. R. CIV. P. 56(c).) In support of this argument, Citizens cites to Carr v.
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Tatangelo, in which the Eleventh Circuit addressed the admissibility of an unsworn
“preliminary report by [an] expert witness” as part of summary judgment review.
338 F.3d 1259, 1273 (11th Cir. 2003). The court found that the district court properly
excluded the report from its consideration:
Importantly, the alleged expert’s report is unsworn. Only
“pleadings, depositions, answers to interrogatories, and
admissions on file, together with affidavits” can be
considered by the district court in reviewing a summary
judgment motion. FED.R.CIV.P. 56(c) (emphasis added).
. . . Unsworn statements do not meet the requirements of
[Rule 56] and cannot be considered by a district court in
ruling on a summary judgment motion. Because the
preliminary report was submitted without attestation, it had
no probative value . . . .
Carr, 338 F.3d 1273 n.26 (internal quotation and alteration omitted) (quoting Adickes
v. S.H. Kress & Co., 398 U.S. 144, 158 n. 17 (1970)). Under Carr, an unsworn opinion
can be considered only if there are supporting affidavits, made on personal knowledge,
that “show affirmatively that the affiant is competent to testify to the matters related
therein.” Id. (quoting FED. R. CIV. P. 56(e) (now 56(c)(4)). Plaintiffs have submitted
no such affidavits from their experts.
Plaintiffs respond that although the “reports may be unsworn, this is not a bar
to these reports’ admissibility.” (Doc. 137 at 4.) But although Plaintiffs criticize
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Citizens’ reliance on Carr as being “only a footnote in a single case,” they fail to
provide any contrary Eleventh Circuit case law of their own. (Doc. 137 at 6.) Instead,
Plaintiffs cite to a handful of district-court cases—some from other circuits—as
evidence of what the law is “[i]n the Eleventh Circuit.” (Id. at 4.) Relying on a
footnote themselves from Medtronix Xomed, Inc. v. Gyrus ENT L.L.C., 440 F. Supp.
2d 1300, 1310 (M.D. Fla. 2006), Plaintiffs assert that “unsworn expert reports may be
considered at summary judgment where the expert identifies the report at deposition
and does not retract the opinions therein.” (Id., emphasis added.) But even assuming
Plaintiffs’ standard to be correct, the admissibility of the reports is far from certain.
Both Grey and Finn were deposed and questioned about their respective
reports. Plaintiffs’ characterization of these depositions is that both “experts
repeatedly voiced their continued support for their conclusions and reaffirmed their
opinions.” (Doc. 137 at 5.) The depositions themselves indicate otherwise.
i. Grey’s deposition
With respect to Grey, Plaintiffs rely on two sections of Grey’s deposition, which
allegedly show that he “repeatedly affirmed his report’s conclusions, and “was
prepared to testify at trial to that extent.” (Doc. 137 at 9.) The first section cited by
Plaintiffs does nothing of the kind. Instead, Grey merely affirmed the limited scope of
his opinion, agreeing that the “sum total and limit of [his] expert opinion” was to
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examine the funds transferred from Dubose and Bell to Southland and vice versa.
(Doc. 129-1 at 26.) Grey makes no statement regarding his continued support for his
The second cited portion of Grey’s deposition is, at first glance, more
promising. Plaintiffs quote the following statement by Grey: “I believe my report
states what my opinion is.” (Doc. 137 at 9, quoting Doc. 129-1 at 39.) In context,
however, this statement is evidence against Plaintiffs’ contention. Grey was being
questioned as to why, without knowledge of whether certain transactions had been
authorized by Southland, his report labeled them as “illegitimate.” (Doc. 129-1 at 39.)
When asked whether this language constituted an accusation of wrongdoing, Grey
deflected the question by saying “I believe my report states what my opinion is.” (Id.)
Grey could not remember whether he or his assistant had chosen the “illegitimate”
label, but he admitted that they “perhaps could have used a different word.” (Id.) Far
from an endorsement of his written opinion, the cited portion of Grey’s deposition
only highlights misgivings about the language that he used in the report.
The rest of Grey’s deposition casts serious doubt on his continued support for
his opinion. Grey admitted that he lacked relevant information in preparing it. He was
unaware, for example, whether the supposedly “illegitimate” transactions he
examined were made with Southland’s permission or not:
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. . . . Now, did we have any documentation to tell us
whether anyone authorized them to write a check for
cash and put it in their account? I don’t have that
Did you have any information that would enable you
to provide an opinion as to whether any specific
transaction was authorized by the company?
No, not any specific information.
(Doc. 129-1 at 26.) Grey also acknowledged that although he scrutinized funds paid
directly from Dubose and Bell to Southland, he failed to take account of any funds
used to pay loans on Southland’s behalf:
To the extent that money from Mr. Dubose’s loans
went into a Southland account, you’ve noted it?
But you haven’t noted the flow of funds from any of
Mr. Dubose’s loans directly to vendors or other
I don’t—I don’t think I’ve seen those records.
Okay. That information was not provided to you?
(Doc. 129-1 at 31.) Even more concerning are transactions central to his opinion that
Grey simply could not account for. Grey was questioned, for example, about a $65,000
transfer that was missing from his analysis, and he acknowledged its relevance:
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Okay. Why does that [$65,000] payment not appear
as an outflow of funds to the company on Schedule
As I sit here today, I—I don’t—I cannot tell you why
it’s not included there.
Should it be included?
Well I see the deposit for the bank statement on
6/30; that it cleared. Unless there’s anything
indicating that it—that it was sent back, I don’t
understand why it’s not included.
Assuming the check was not returned, would that
affect your opinion in this case?
In what way could it affect your opinion?
Well, again, looking at it, it appears to be a check
written on Mr. Dubose’s account, deposited into a
corporate account. So, you know, by what we were
—what we were doing, all accounts, you know,
sitting here today, this looks like it should have been
(Doc. 129-1 at 29.) When confronted with discrepancies between entries in his report
and Citizens’ own account statements, Grey acknowledged that it “[i]t certainly is
possible that I could have made a mistake,” and that “other errors in the entries that
[he] made” were also possible. (Doc. 129-1 at 52–53.)
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These facts, as Plaintiffs tacitly acknowledge, cast serious doubt on the
reliability of Grey’s report. (Doc. 137 at 6.) But without even reaching the question of
reliability, these facts are—under Plaintiffs’ own proposed standard—fatal to the
report’s admissibility. It can hardly be said, from reading Grey’s deposition, that he
affirmed the conclusions in his report. Medtronix, 440 F. Supp. 2d at 1310.
Plaintiffs seemingly acknowledge that this is the case, and state that “even
where an expert partially-disavows [sic] portions of an expert report, the report may
nevertheless be admissible.” (Doc. 137 at 10.) In support, Plaintiffs rely on In re Mentor
Corp. ObTape Transobturator Sling Products Liability Litigation, 711 F. Supp. 2d 1348,
1368 (M.D. Ga. 2010). Even if it were binding on this Court, the cited case would do
nothing to help Plaintiffs. The court there noted that “[w]ith one exception, [the
defendant did] not contend that any of Plaintiffs’ experts retracted or disavowed their
opinions,” and concluded that “[u]nder these circumstances, the Court concludes that
it may properly consider the unsworn expert reports.” Id. at 1309 (emphasis added).
The circumstances here are quite different, as Citizens does contend that Grey’s
deposition serves to discredit, rather than affirm, his report’s conclusions. In these
circumstances, where a defendant does contend, supported by the record, that an
expert “retracted or disavaowed” his opinion, In re Mentor only suggests that an
unsworn copy of the opinion should not be considered.
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If this were not enough, the Grey report itself calls for the same result. The
“Scope of Work” section of the report emphasizes that its “conclusions are
dependent on [the] documentation being accurate and complete in all material
respects.” (Doc. 127-19 at 6.) As Grey’s deposition shows, the documentation
undergirding his opinion was manifestly not “accurate and complete in all respects.”
In fact, Plaintiffs themselves highlight this fact at several points. They concede that
Grey “had not finished his work,” and his final calculation “does not include [other]
transactions identified by Plaintiffs.” (Doc. 124 at 11.) They also claim elsewhere that
“Plaintiff Lunan has identified additional sums which were not included in the [Grey]
report.” (Doc. 137 at 8–9.)
Because the Grey report is unsworn and unsupported by an appropriate
affidavit, its consideration for summary-judgment purposes is improper. Even if
Plaintiffs are correct that an expert’s affirmation of his report at deposition can take
the place of an affidavit, no such affirmation can be found here. The Court therefore
will not consider the report in its review of the summary-judgment motion.
ii. Finn’s deposition
The Finn report is similarly problematic. Plaintiffs cite the report several times
in their summary-judgment response for the proposition that Citizens “ignored
obvious conversion of corporate funds.” (Doc. 124 at 8, 9, 13, 15, 16.) The report itself
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references the “fraud being perpetrated” by the individual Defendants, and opines
that many transactions “were improper, and involved conversion of corporate funds.”
(Doc. 127-21 at 12.) The opinion then goes even further, claiming that many of
Dubose’s transactions “were obvious conversion [sic] of corporate funds,” and that
Citizens was clearly “aiding him in his conversion of company funds.” (Id.) But at his
deposition, Finn retreated from this aspect of his opinion:
And I assume you also conclude that they obtained
those corporate funds improperly or without
—without proper authorization; correct?
I’m not sure I would agree with the—that I assumed
they obtained them without proper authorization.
. . . I didn’t form an opinion about the propriety of
receiving them. My opinion was based on how they
So, the ultimate question of whether they actually
embezzled funds, you’re not—you’re not making a
judgment as to that; correct?
That is not one of my opinions.
(Doc. 129-2 at 14–15.) Finn also admitted that he had “no idea” what happened with
any of the funds after they were transferred. (Doc. 129-3 at 24.) As a result, he could
not say they “were not used for company purposes.” (Id. at 26.)
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From Finn’s deposition it is clear that he had no information concerning the
very point for which Plaintiffs cite his report. It essentially assumes what it seeks to
prove, or at least what Plaintiffs attempt to prove by it. To the extent that the Finn’s
report opines that any transaction constituted conversion or fraud, or was otherwise
wrongful, those opinions were retracted at Finn’s deposition. As a result, this Court
should not rely upon them.
c. Motion to strike Lunan’s declaration
Citizens’ second motion to strike addresses the sworn declaration of Larry
Lunan. (Doc. 130.) The motion does not seek to have the entire declaration struck, but
targets approximately twenty specific portions which it alleges are “speculation,
conclusory allegations, and statements that are in direct contradiction to the prior
testimony in this case.” (Id. at 3.)
Rather than discuss each statement in order, the admissibility of contested
portions will be addressed as they become relevant to the analysis below. The Court,
however, can rely only on facts which are properly supported by the evidence, and “set
forth by affidavit or otherwise.” Lewis v. Casey, 518 U.S. 343, 358. The evidence in
question must be such that it would be admissible at trial. See Echaide v. Confederation
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of Canada Life Ins., 459 F.2d 1377, 1381 n.5 (5th Cir. 1972)5 (“[Rule 56], of course,
requires that affidavits be based on personal knowledge and contain only such evidence
as would be admissible at a trial.”); see also FED. R. CIV. P. 56 (c)(2) (providing that a
party may object to summary judgment materials that would not be admissible in
“A witness may not testify to a matter unless evidence is introduced sufficient
to support a finding that the witness has personal knowledge of the matter.” FED. R.
EVID. 602. Of course, this does not mean that the source of a witness’ knowledge
always needs external corroboration, since “evidence to prove personal knowledge
may. . . consist of the witness’ own testimony.” Id. But a party cannot create a genuine
issue of material fact simply by stating, without any apparent foundation, that one
exists. If that were allowed, there would be no meaningful way to discern the issues of
fact that are truly genuine. The very purpose of a summary-judgment motion is to
“pierce the pleadings and to assess the proof in order to see whether there is a genuine
need for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587
(1986). To accept a party’s own unsupported statements as “proof” would defeat the
point of summary-judgment review. Accordingly, the Court will not—and can
The Eleventh Circuit, in Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981),
adopted as binding precedent the decisions of the former Fifth Circuit rendered prior to October 1,
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not—entertain testimony from Mr. Lunan which is beyond the scope of his own
d. Motion to Strike Interrogatory Responses and Exhibits
The subject of Citizens’ third motion to strike is Plaintiffs’ supplemental
interrogatory responses, which Plaintiffs rely on extensively in their response to
summary judgment. (Doc. 131.) As with the contested portions of Lunan’s affidavit,
Citizens objects to numerous assertions made within the discovery responses, on the
basis that they are “conclusory and unsupported by specific facts.” (Id. at 4.) But
unlike Lunan’s declaration, the discovery responses at issue were not originally made
under oath. Accordingly, Citizens also objects to the supplemental interrogatory
responses in their entirety, on the basis that they—like the expert witness reports
discussed above—are unverified and unsworn.
Plaintiffs reply to this general objection that supplemental responses do not need
to be verified. (Doc. 138 at 5.) The only case Plaintiffs cite for this proposition,
however, determined that such responses do require verification. See Knights Armament
Co. v. Optical Systems Technology, Inc., 254 F.R.D. 463 , 467 (M.D. Fla. 2008) (“The
purpose of verifying interrogatory responses is to have the party attest to the truth of
the responses. Thus, if a party amends or supplements its response, the party must
attest to the truthfulness of the new response.”). While consideration of unverified
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responses would likely be improper, Plaintiffs have also submitted, along with their
response brief, signed verification pages from Larry Lunan. (Docs. 138-1, 138-2.)
Even assuming that these now-verified responses are proper to consider, many
of the individual assertions they contain are not. At best, Lunan’s verification of them
puts the responses on the same footing as his declaration, and subject to the same
qualifications. This is evidenced by Lunan’s own verification statement, which states
that the supplemental interrogatory responses are “true and correct to the best of my
knowledge.” (Doc. 138-1 at 10, emphasis added.) The Court cannot rely on them any
further than this. Accordingly, any unsupported assertions in the interogatory
responses, particularly those outside the scope of Lunan’s personal knowledge, will be
excluded from the Court’s consideration.6
One additional argument merits a brief response. Plaintiffs contend that Citizens cannot
seek to strike the supplemental responses, because Citizens “has introduced these responses into
evidence” on its own. (Doc. 138 at 3.) This argument fails for at least two reasons. First, Citizens was
careful to note that it referenced the supplemental responses “solely for the limited purpose of trying
to identify what transactions the Plaintiffs now claim are at issue.” (Doc. 131 at 3 n.1.) Second, there
is a vast difference between a party seeking to rely on its own unsupported statements, and an
adversary making use of those same statements. While the former is inappropriate, the latter is
completely proper, since such statements are explicitly exempted from the hearsay rule as admissions
by party-opponent. See FED. R. EVID. 801(d)(2).
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2. Plaintiffs’ Claims Against Citizens
a. Count One: ALA. CODE § 7-3-420
The first of Plaintiffs’ claims against Citizens is for violating § 7-3-420 of the Alabama
Code. Title Seven of the Alabama Code is the state’s codification of the Uniform
Commercial Code (“UCC” or “the code”). This particular provision addresses
conversion, as it applies to negotiable instruments:
An instrument is converted under circumstances which
would constitute conversion under personal property law.
An instrument is also converted if it is taken by transfer,
other than a negotiation, from a person not entitled to
enforce the instrument or a bank makes or obtains payment
with respect to the instrument for a person not entitled to
enforce the instrument or receive payment. An action for
conversion of an instrument may not be brought
by . . . the issuer or acceptor of the instrument . . . .
Ala. Code § 7-3-420(a) (emphasis added). Citizens relies on the language in bold in
making its motion for summary judgment. The UCC defines “issue” to mean “the
first delivery of an instrument by the maker or drawer.” § 7-3-105(a). Thus, the word
“[i]ssuer . . . means a maker or drawer of an instrument.” § 7-3-105(c). Citizens argues
that Plaintiffs, as the issuers of the instruments in question, are barred under this
section from bringing claims for the conversion of such instruments. (Doc. 117 at 30.)
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Plaintiffs seemingly concede that this is correct; their only response is to assert
that this argument “of course is inapplicable to the conversion claim based on checks
made by customers of Southland,” since Southland was not the issuer of those
instruments. (Doc. 124 at 28.) Plaintiffs do not, however, identify the checks to which
they are referring, despite Citizens’ assertion that all of the of the conversion claims
against it are “based upon checks in which either Southland was the issuer, or else it
purports to assert rights on behalf of an assignor who was the issuer (i.e.,
Emergystat).” (Doc. 117 at 30.)
Because Plaintiffs do not identify which transactions they refer to, the Court has
looked elsewhere for guidance, and has located an interrogatory addressed to this exact
question.7 Interrogatory No. 8 asked Plaintiffs to identify, by date and amount, “all
transactions involving Defendant Citizens State Bank that Plaintiffs claim violated
Alabama Code § 7-3-420 as alleged in Count One of Plaintiffs’ Amended Complaint.”
(Doc. 127-13 at 6–7.) In response, Plaintiffs do not identify these transactions “by date
and amount.” Instead, they simply reference “Finn’s expert report and deposition
transcripts” as well as “Exhibit B hereto.” (Id. at 7.) There is, however, no Exhibit B
attached. Finn’s report, meanwhile, discusses several checks “written on Southland’s
By looking to Plaintiffs’ interrogatory responses, the Court does not mean to suggest that
the contents of such responses would be sufficient to overcome summary judgment; any transactions
identified in the discovery responses would still need to be supported by admissible evidence.
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account [that were] payable to Clanton Dubose,” but makes no mention of any checks
made by customers of Southland that were paid into the accounts of either Dubose or
Bell. (Doc. 127-21 at 12–8, emphasis added.)
The Court has also looked to the contents of Plaintiffs’ “third supplemental
answers and objections.”(Doc. 127-20.) It purports to provide “a specification as to
the specific transactions that are at issue with respect to each specific count of the
complaint asserted against [Citizens].” (Id. at 4.) With respect to Count One, Plaintiffs
contend that the contents of “Schedules 1, 2, 3, and 5 are at issue.” (Id.) To the extent
that Schedules 1–3 refer to checks, they are checks drawn on Southland accounts.
(Doc. 127-20 at 5–9.) Schedule 5 claims to list amounts of “Southland receipts,”
ostensibly from Southland’s customers. It does not, however, identify which amounts
were alleged to have been taken by Dubose, much less identify any specific transaction,
whether by check number, issuer, date, or even the account into which it was
deposited. (Doc. 127-20 at 12.)
By its terms, § 7-3-420 applies only to instruments, and Schedule 5 does not
identify any instruments that could give rise to such a claim. Although § 7-3-420
provides that conversion may occur “under circumstances which would constitute
conversion under personal property law,” it is well established under common-law
doctrine that undifferentiated funds may not be the subject of a conversion claim. See
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Hensley v. Poole, 910 So.2d 96, 101 (Ala. 2005) (collecting cases). See also Part IV.C.1
below. Because an issuer of an instrument may not bring an action for its conversion,
and Plaintiffs have not identified—much less provided actual evidence of—any
specific instruments for which Southland was not the issuer, the Court must conclude
that Plaintiffs’ claims under § 7-3-420 fail as a matter of law.
b. Count Four: ALA. CODE § 7-3-307
Count Four alleges violations of § 7-3-307. Citizens has moved for dismissal of
this Count on grounds that it does not “create an independent cause of action” and
therefore “fail[s] as a matter of law.” (Doc. 117 at 30–18.) Plaintiffs respond by
asserting that Citizens has failed to show “that a private right of action is precluded.”
(Doc. 124 at 29.) But it is Plaintiffs, not Citizens, who bear the onus of showing that
a particular statute provides a cause of action. See American Auto. Ins. Co. v. McDonald,
812 So. 2d 309, 311 (Ala. 2001) (“One claiming a private right of action within a
statutory scheme must show clear evidence of a legislative intent to impose civil
liability for a violation of the statute.”). This Court has a duty of “ascertaining and
applying state law,” but is powerless to create a cause of action that is not already
recognized. See Beasley v. Fairchild Hiller Corp., 401 F.2d 593, 596 (5th Cir. 1968).
Notably, § 7-3-307 does not appear to supply the cause of action in any of the
cases citing it. See, e.g., Brooks ex rel. Vickers v. First Fed. Sav. and Loan Ass’n of
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Sylacauga, 726 So.2d 640 (Ala. 1998). At least one court has rejected the attempts of
a plaintiff to use the provisions of § 7-3-307 to “piece together the elements” of a
novel claim. See Continental Cas. Co. v. Compass Bank, 2006 WL 566900 at *10 (S.D.
The approach used to determine whether a different UCC provision provides
an independent cause of action is also instructive here. The Alabama Supreme Court
addressed the question with regard to § 7-1-203 in Gov’t St. Lumber Co. v. AmSouth
Bank N.A., 553 So.2d 68, 72–73 (Ala. 1989). Section 7-1-203 mandates an obligation
of good faith in the performance of contracts. The court determined that § 7-1-203
“does not create a substantive cause of action.” Id. It rejected an attempt to imply an
independent cause of action because “[t]here [was] no indication, either in the text or
the comments, that section 1-203 was intended to be remedial rather than directive.”
Chandler v. Hunter, 340 So.2d 818, 821 (Ala. Civ. App. 1976). See Gov’t St. Lumber Co.,
553 So. 2d at 72 (“We expressly adopt the reasoning of the Alabama Court of Civil
Appeals in Chandler v. Hunter . . . since § 7–1–203 is directive rather than remedial.”).
That same rationale applies here: there is nothing in the text or comments to
§ 7-3-307 that indicates that it is to be the source of any remedy. To the contrary, the
first of the official comments explains the “directive” nature of the section:
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This section states rules for determining when a person
who has taken an instrument from a fiduciary has notice of
a breach of fiduciary duty that occurs as a result of the
transaction with the fiduciary. Former Section 3-304(2) and
(4)(e) related to this issue, but those provisions were
unclear in their meaning. Section 3-307 is intended to
clarify the law by stating rules that comprehensively
cover the issue of when the taker of an instrument has
notice of breach of a fiduciary duty and thus notice of a
claim to the instrument or its proceeds.
ALA. CODE § 7-3-307 cmt. 1 (emphasis added). Aside from any relevance it may have
to Plaintiffs claims, it is clear that § 7-3-307 does not provide a source of those claims.
Plaintiffs have not produced a single authority to the contrary. Thus, Plaintiffs have
failed to state a claim upon which relief can be granted, and Count Four is due to be
c. Count Five: ALA. CODE § 19-1-1 et seq.
The code section at issue in Count Five is “Alabama’s version of the Uniform
Fiduciary Act,” or “UFA.” Heffner v. Cahaba Bank and Trust Co., 523 So.2d 113, 114
(Ala. 1988). Citizens argues, as with the previous claim, that the UFA does not provide
for an independent cause of action. (Doc. 117 at 30.) Plaintiffs merely respond that
Alabama cases dealing with the statute “do not even dismiss the possibility that there
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might not be a private right of action.”8 (Doc 123 at 20.) Once again, Plaintiffs have
failed to demonstrate that a separate cause of action was contemplated. The question
is closer here, as the Alabama Supreme Court has at least discussed the possibility of
being “subjected . . . to liability under § 19-1-9.”9 Heffner v. Cahaba Bank and Trust Co.
523 So. 2d 113, 115 (Ala. 1988).
Even if an independent claim does exist, summary judgment would still be
appropriate due to the defenses that the statute unmistakably does establish. For
example, if a fiduciary deposits funds that he holds—as a fiduciary—into his personal
account, the UFA provides that bank with significant protection:
[T]he bank receiving such deposit is not bound to inquire
whether the fiduciary is committing thereby a breach of his
obligation as fiduciary; and the bank is authorized to pay the
amount of the deposit or any part thereof upon the personal
check of the fiduciary without being liable to the principal,
unless the bank receives the deposit or pays the check with
actual knowledge that the fiduciary is committing a breach
The Court assumes that the Plaintiff intended “do not even entertain” rather than “do not
even dismiss.” Whatever Plaintiffs meant to say, the point stands that Alabama courts have not
squarely addressed the existence of a independent cause of action under ALA. CODE § 19-1-1 et seq.
The amended complaint cites all of Chapter 1 of Title 19 of the Alabama Code, and fails to
specify which provision forms the basis of the claim. It certainly is not § 19-1-1 itself, which merely
provides that “This chapter may be cited as the Uniform Fiduciaries Act.” Section 19-1-9,
concerning deposits made into a fiduciary’s personal account, seems the most likely candidate under
the circumstances, but the specific provision makes little difference: the same standard is employed
throughout the Act. See, e.g., § 19-1-4 (in the context of transferring a negotiable instrument), § 19-18 (drawing checks on a principal’s account).
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of his obligation as fiduciary in making such deposit or in
drawing such check, or with knowledge of such facts that its
action in receiving the deposit or paying the check amounts
to bad faith.
ALA. CODE § 19-1-9. Thus, even if the UFA does provide Plaintiffs a cause of action,
it also requires Citizens to have had “actual knowledge” that the individual defendants
were committing a breach of their fiduciary duties, or else knowledge of facts
rendering its aid an act of bad faith. See Brooks, 726 So. 2d at 643 (“The U.F.A.
insulates banks that deal with wrongdoing fiduciaries from liability unless the
beneficiary can show that the bank had actual knowledge of the wrongdoing or had
knowledge of such facts that prove bad faith on the part of the bank.”) (emphasis
added). Plaintiffs rely on the second of these, alleging that Citizens “had knowledge
of such facts that their action in receiving the deposits or paying the checks amounted
to bad faith.” (Doc. 123 at 20) (quoting ALA. CODE § 19-1-9) (internal brackets
omitted).10 But Plaintiffs fail to present facts supporting such knowledge.
The undisputed facts show that Citizens understood Dubose and Bell to be
acting for Southland’s benefit. Southland opened an account at Citizens in October
of 2006. Around that time, Southland also approached Citizens for a loan, and was
Plaintiffs also contend, without authority, that merely suspecting fraudulent activity is also
sufficient. (Doc. 123 at 21.) The plain text of § 19-1-9 does not support such a reading.
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denied “based on its financial issues.” (Doc. 117 at 9.) Citizens was, however, willing
to make a loan to Dubose, based on his history with the bank, the fact that he had
recently paid back another short-term loan, and because he was willing to pledge real
property as collateral for the loan. (Id.)11 Plaintiffs themselves describe how Southland
approached Citizens for a loan and was refused: “In October [of ] 2006, [Citizens]
refused to loan funds to the Company. However, [Citizens] agreed to loan to Dubose
for the benefit of the company.” (Doc. 124 at 19) (emphasis added) (internal citations
omitted). Citizens was given a written consent letter that bore Lunan’s signature,
which purported to “approve and ratify Clanton Dubose to sign on . . . any loan made
to Southland Health Services, Inc. by Citizens Bank, Vernon, Alabama.” (Doc. 12744.) Plaintiffs dispute the authenticity of this letter, but they do not dispute that
Citizens received it without notice of any apparent fraud. Citizens relied on the letter,
as Plaintiffs themselves put it, “to serve as authorization to debit Southland accounts
for payments of debts.” (Doc. 124 at 20.) Plaintiffs also describe how Dubose
Plaintiffs attempt to deny Citizens’ reasons for denying the Loan to Southland and its
willingness to deal with Dubose. Their denials, however, are based only on Lunan’s deposition and
declaration. But because Citizens’ reasons are clearly beyond the scope of Lunan’s personal
knowledge and experience, the Court takes these facts, given by a witness with personal knowledge,
to be undisputed. See Uniform Initial Order, App’x II (Doc. 17 at 16–17) (“Any statements of fact
that are disputed by the non-moving party must be followed by a specific reference to those portions
of the evidentiary record upon which the dispute is based. All material facts set forth in the statement
required of the moving party will be deemed to be admitted for summary judgment purposes unless
controverted by the response of the party opposing summary judgment.”).
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presented Citizens with “evidence of a loan obligation from the Company to him.”
(Id.) The appearance of Southland’s financial difficulties, and the need for loans from
creditworthy individuals, was heightened by Southland’s request for “Bank Official
checks” for the purpose of paying vendors that would no longer accept checks from
Southland’s own accounts. (Doc. 116-4 at 18.)
When Southland’s Citizens account was established, Dubose was one of the
authorized signatories on it—along with Lunan, Bell, and two others. (Doc. 116-4 at
29.) Because Dubose obtained loans in his own name for the benefit of Southland, and
did so with the apparent authority of Lunan and Southland, there was nothing about
Dubose’s actions, in general, that would indicate that Citizens had knowledge of fraud,
or that would put Citizens on notice that honoring his transactions would be in bad
In support of their opposition to summary judgment on their § 19-1-1 claims,
Plaintiffs appeal to one of the provisions already discussed, § 7-3-307. But the
comments to that very section refer to the rationale behind the UFA, and explain
why—under similar circumstances—a bank can safely assume that an individual’s
actions were proper:
For example, Doe as President of Corporation writes a
check on Corporation’s account to the order of Doe
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personally. . . . In this case there is no notice of breach of
fiduciary duty because there is nothing unusual about the
transaction. Corporation may have owed Doe money for
salary, reimbursement for expenses incurred for the benefit
of Corporation, or for any other reason. If Doe is authorized
to write checks on behalf of Corporation to pay debts of
Corporation, the check is a normal way of paying a debt
owed to Doe. Bank may assume that Doe may use the
instrument for his personal benefit.
ALA. CODE § 7-3-307 cmt. 4 (emphasis added).
In addition to general allegations that Citizens should have known that Dubose’s
actions were unauthorized, Plaintiffs also point to specific “red flags” that they claim
should have also triggered suspicion on Citizens’ part. One such “red flag” is the
alleged overall discrepancy between the amounts that Dubose loaned to Southland and
the amount that he received from Southland. This argument, however, is based on the
discredited Grey report, which the Court has excluded from consideration. Moreover,
the uncontroverted affidavit from Citizens’ expert, J. Wray Pierce, shows that the
majority of these transactions can in fact be directly traced to “the benefit of
Southland and its affiliates.” (Doc. 116-14 at 3.)
Plaintiffs also contend that the specific use of some of the funds—for things
such as jewelry and car payments—should have triggered scrutiny. But the Alabama
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Supreme Court has found that there was no notice, under § 19-1-9, for exactly those
sorts of transactions:
The plaintiff specifically points to certain checks, such as
those to Weil Furs, Golbro Jewelers, and Cobb-Kirkland, an
automobile dealership, to show that [the bank] should have
been on notice that [the fiduciary] was breaching her
fiduciary duty. We disagree.
We do not believe that the amount and number of
transactions carried out on an account containing fiduciary
funds, nor the mere names of payees on checks drawn on
that account, are sufficient to create bad faith liability based
on the bank’s action in paying such checks.
Heffner, 523 So.2d at 115.
In short, Plaintiffs have not provided any evidence from which Citizens’ liability
under § 19-1-1 et seq. could be inferred, even if such an independent cause of action
exists. In addition to disposing of any claims which Plaintiffs might have under the
UFA, the UFA also provide Citizens with additional protections from its other claims.
d. Count Six: ALA. CODE § 7-4-401 et seq.
Citizens makes two arguments with regard to Count Six, Plaintiffs’ claims
under§ 7-4-401 et seq. The first concerns Citizens’ defense under the statute of repose,
§ 7-4-406(f ), which is addressed further below. The second argument is that Plaintiffs
are barred from recovering consequential damages, by operation of § 7-4-103(5).
Section 7-4-103(5) provides that the measure of damages for failure to “exercise
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ordinary care in handling an item” cannot exceed the amount of the item unless there
“is bad faith.” See also Bar-Ram Irrigation Products, Inc. v. Phenix-Girard Bank, 779 F.
2d 1501, 1505 (finding that consequential damages are subject to the bad faith standard
of § 7-4-103(5)).
Plaintiffs do not dispute that consequential damages hinge on the presence of
bad faith. (Doc. 124 at 32–33.) Instead, they merely argue that “there is ample
evidence of Citizens State Bank’s knowledge and bad faith.” (Id. at 33.) As explained
above in Part IV.B.2.c, Plaintiffs have failed to put forward any evidence from which
a finding of bad faith could be made. Citizens is correct that consequential damages are
e. Count Seven: ALA. CODE § 7-4A-201 et seq.
Article 4A of the UCC governs funds transfers. ALA. CODE § 7-4A-102.
Citizens’ motion to dismiss Count Seven is based on Plaintiffs’ failure to identify any
funds transfers that are the subject of its Article 4A claims. (Doc. 117 at 31.) Citizens
cites to interrogatory responses where Plaintiffs were asked to identify, by date and
amount, “all transactions involving Defendant Citizens State Bank that Plaintiffs claim
violated Alabama Code § 7-4A-201 et seq.” (Doc. 127-13 at 8.)
In their second supplemental answers, Plaintiffs did not provide any specific
transactions in response. (Id.) In their third supplemental answers, Plaintiffs declare
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“that the specific transaction on Schedule 7 are [sic] at issue with respect to Count
Seven.” (Doc. 116-13 at 4.) The only transaction mentioned in Schedule 7, however,
is a check; not a wire transfer, nor other transfer subject to Article 4A. (Doc. 116-13 at
15.) Additionally, Plaintiffs’ only response to summary judgment is to flatly declare,
without support or elaboration, that Citizens’ motion as to this claim “must be
denied.” (Doc. 124 at 28.) Count Seven is therefore due to be dismissed.
f. Count Eight: Negligence
In addition to UCC and UFA claims, Plaintiffs make a common-law negligence
claim in Count Eight. (Doc. 75 at 19.) Citizens has moved to dismiss Count Eight as
“preempted by the specific statutory provisions of the Alabama Code dealing with
unauthorized transactions.” (Doc. 117 at 29.)
The UCC contains an internal rule addressing its preemption of common-law
principles. Unless such principles are “displaced by the particular provisions” of the
UCC, they only “supplement its provisions.” ALA. CODE § 7-1-103(b). Applying this
provision, the Alabama Supreme Court has noted that summary judgment is
appropriate where UCC provisions “appear to displace the plaintiffs’ action for
common law negligence or wantonness, and the plaintiffs have cited no authority to
establish that it does not displace their claims.” C & N Contractors, Inc. v. Community
Bancshares, Inc., 646 So.2d 1357, 1362 (Ala. 1994). That is certainly the case here,
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where Plaintiffs have raised a host of UCC provisions, and do not identify how their
negligence claim would not be displaced by those provisions. Moreover, Plaintiffs do
not even bother to respond to Citizens’ preemption argument in their summaryjudgment brief.
Plaintiffs do briefly address the preemption issue elsewhere, in their response
to the motion to dismiss filed by BOV and WABT (Doc. 82 at 10–12.) Even here,
however, Plaintiffs do not cite a single case from Alabama state court, this district, or
the Eleventh Circuit Court of Appeals. Like the plaintiffs in C & N Contractors,
Plaintiffs have not explained how their negligence claim is not displaced, nor have they
cited any relevant authority to show that it is not. Thus, as in C & N Contractors, “it
appears that [Citizens is] entitled to a judgment as a matter of law” as to the
negligence claim. 646 So.2d at 1362.
g. Count Twelve: Civil Conspiracy
The final claim against Citizens is for civil conspiracy. Civil conspiracy exists
to provide plaintiffs with “some means of redress when it is shown that persons have
combined and conspired to injure him.” Snyder v. Faget, 326 So. 2d 113 (Ala. 1976).
Accordingly, a claim for conspiracy requires that there “must, of course, be concerted
action between two or more persons.” AmSouth Bank, N.A. v. Spigener, 505 So. 2d
1030, 1040 (Ala. 1986) (quoting Snyder, 326 So. 2d 119).
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Citizens contends, among other things, that this requirement has not been met
since “Plaintiffs have no evidence that Citizens entered into an agreement to commit
a tort against Southland.”(Doc. 117 at 29.) Plaintiffs respond that “there is ample
evidence” of such an agreement. But merely saying there was an agreement is hardly
sufficient. See Helmich v. Kennedy, 796 F.2d. 1441, 1443 (11th Cir. 1986) (“Statements
of fact in a party’s brief, not in proper affidavit form, cannot be considered in
determining if a genuine issue of material fact exists.”). The only citation Plaintiff
provide is to their other brief, filed in response the summary-judgment motion from
BOV and WABT. The Court accordingly treats the cited section of that brief as being
incorporated into Plaintiffs’ response to Citizens’ motion. Even so, Plaintiffs do not
provide any evidence that could prevent summary judgement: Citizens is not even
mentioned in connection with the conspiracy claim. (Doc. 123 at 26–27.) Plaintiffs do
discuss Citizens in connection with conspiracy claims in its interrogatory responses,
but makes only speculative allegations that are not based upon personal knowledge.
(Doc. 127-13 at 9–12.) Plaintiffs have failed to put forward evidence of any agreement
involving Citizens, and are therefore missing an essential element of their conspiracy
claim against Citizens.
In addition to requiring an agreement, civil conspiracy also requires that the
object of the agreement be wrongful or tortious. As explained above, Plaintiffs have
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failed to provide evidence of Citizens’ wrongful conduct. The only claim remaining
after the analysis above is Count Six, for making payment on checks that were not
properly payable, and that claim is due to be dismissed based on the defenses discussed
below. Without other independent claims on which to base it, the conspiracy claim
fails as a matter of law; “[a] civil conspiracy cannot exist in the absence of an
underlying tort.” Goolesby v. Koch Farms, LLC, 955 So.2d 422, 430 (Ala.2006).
3. Citizens’ Defenses
In addition to showing that Plaintiffs have failed to provide evidence such that
a jury could find in favor of their claims, Citizens also raises an alternative basis: two
defenses that allegedly entitle it to judgment as a matter of law as to all of Plaintiffs’
claims. The first defense arises under § 7-3-418, the “final payment rule.” (Doc. 117
at 25.) The second is the statute of repose provided by § 7-4-406. (Id. at 23.)
a. Final Payment Rule: § 7-3-418
Section 7-3-418 is a codification of the common-law rule that “a drawee who
accepts or pays an instrument on which the signature of the drawer is forged is bound
on his acceptance and cannot recover back his payment.” Perini Corp. v. First Nat.
Bank of Habersham County, 553 F.2d 398, 404 (5th Cir. 1977). It provides that:
(a) Except as provided in subsection (c), if the drawee of a
draft pays or accepts the draft and the drawee acted on the
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mistaken belief that . . . the signature of the drawer of the
draft was authorized, the drawee may recover the amount
of the draft from the person to whom or for whose benefit
payment was made or, in the case of acceptance, may
revoke the acceptance. Rights of the drawee under this
subsection are not affected by failure of the drawee to
exercise ordinary care in paying or accepting the draft.
(c) The remedies provided by subsection (a) . . . may not be
asserted against a person who took the instrument in good
faith and for value or who in good faith changed position in
reliance on the payment or acceptance. This subsection
does not limit remedies provided by Section 7-3-417 or
ALA. CODE § 7-3-418. These provisions “expressly appl[y] to actions brought
by drawee banks against depository banks.” Cagle’s Inc. v. Valley Nat. Bank, 153
F.Supp.2d 1288, 1293 (M.D. Ala. 2001). Just as the plaintiff in Cagle’s, Plaintiffs do not
dispute that this provision also “applies to claims brought by drawers against
depository banks.” Id. So this Court “does not address that issue” either. Id.
Although Plaintiffs devote an entire section of their response brief to addressing
§ 7-3-418, that section consists of only a single sentence: “Numerous other courts have
found genuine factual issues regarding a bank’s lack of good faith sufficient to avoid
summary judgment.” (Doc. 124 at 26, emphasis added) This assertion is followed by
a footnote listing several cases. These are offered without any analysis or explanation
as to their relevance to the present facts.
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The lack of evidence for Citizens’ bad faith has already been discussed above,
and need not be repeated here. It bears emphasizing, however, that when Alabama
adopted revisions to Articles 3 and 4 of the UCC, it deliberately “chose to retain the
existing good faith definition” rather than accepting the proposed change to the
standard, which would have “expand[ed] the good faith concept to include observance
of reasonable commercial standards of fair dealing.” ALA. CODE § 7-3-418 Ala. cmt.
1. As it currently stands, Alabama’s conception of good faith is a subjective standard,
defined simply as “honesty in fact in the conduct or transaction concerned.” ALA.
CODE § 7-3-103(4). This deliberate divergence from the UCC revisions makes it
problematic to look for guidance in other jurisdictions. Noteably, not one of the cases
cited by Plaintiffs is from Alabama. (Doc. 124 at 26 n.7.)
The undisputed facts are that Citizens understood Southland’s employees to
be personally borrowing money in efforts to keep the company solvent, and therefore
believed that payments from Southland to the individual defendants were in
repayment for these loans. Especially in light of Alabama’s subjective good-faith
standard, Plaintiffs have failed to show any evidence that would cast doubt on
Citizen’s good faith in honoring these transactions. Accordingly, § 7-3-418 operates
to bar claims by Plaintiffs against Citizens as a depository bank.
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b. Statute of Repose: § 7-4-406(f )
Citizens asserts that summary judgment is appropriate as to all of Plaintiffs
claims due to § 7-4-406(f ), in addition to all of the grounds discussed above. Section
§ 7-4-406 provides limits to the amount of time in which a bank customer can assert
that an item12 is fraudulent:
Without regard to care or lack of care of either the customer
or the bank, a customer who does not within 180 days after
the statement and the items or a legible copy or image of the
items are sent to the customer, or within one year after the
statement or items are otherwise made available to the
customer . . . discover and report the customer’s
unauthorized signature on or any alteration on the item is
precluded from asserting against the bank the unauthorized
signature or alteration.
ALA. CODE 1975 § 7-4-406(f ). In addition to the official UCC comments that were
adopted along with the UCC text, there is an Alabama-specific comment that deals
directly with subsection (f ). It explains that the requirements of § 7-4-406(f ) are “are
in the nature of a statute of repose,” and constitute “the periods within which the
customer must notify the drawee bank of the fraud or be absolutely barred from recovery.”
ALA. CODE § 7-4-406(f ) Ala. cmt. (emphasis added).
The term “item” is defined in Article 4 as “an instrument or a promise or order to pay
money handled by a bank for collection or payment. The term does not include a payment order
governed by Article 4A or a credit or debit card slip.” ALA. CODE § 7-4-104(a)(9).
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Although the terms of § 7-4-406(f ) provide for a 180-day period in which to
bring notice, that provision appears to have been modified by agreement of the parties.
See ALA. CODE § 7-1-302(a) (“[T]he effect of provisions of this title may be varied by
agreement.”). The account agreement between Plaintiffs and Citizens provided for a
14-day period in which to notify Citizens of any unauthorized signatures or alterations,
unless Citizens failed to exercise due care. (Doc. 116-4 at 30.) The agreement further
provided for a maximum 60-day window, even in the absence of due care. (Id.) Those
time period begin from the time that the relevant statement was sent or made
Plaintiffs’ response to the statute of repose is twofold. First, Plaintiffs contend
that § 7-4-406 “was not sufficiently pled,” and that “[b]ecause Defendants failed to
properly raise this defense in their answers to the amended pleadings, they have
waived this defense and cannot rely on it now.”13 (Doc. 124 at 23.) To allow Citizens
to rely on § 7-4-406 would, according to Plaintiffs, “surprise and unduly prejudice”
them. (Id. at 24.) This argument does not warrant much discussion. Citizens’ amended
answer specifically states, as a defense, that “Plaintiffs’ claims are barred and/or
limited by Alabama Code 7-4-406.” (Doc. 74 at 39.) Additionally, the very first
Despite arguing here that Citizens’ defense was inadequately pleaded, Plaintiffs condemn
Citizens’ efforts to dismiss claims on the same as a resort to “hyper-technical pleading standards and
formalities.” (Doc. 81 at 2.)
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interrogatory propounded by Plaintiffs asked the Defendants to “[s]et for the factual
basis for each and every Affirmative Defense [they] asserted, or intend to assert in this
action.” (Doc. 132 at 3.) Citizens response begins by asserting that “Plaintiffs’ claims
are barred by the applicable provisions of their account agreement with Citizens and
by Alabama Code § 7-4-406( f ).” (Id. at 3–4, emphasis added.) The suggestion that
Plaintiffs had no notice of this defense is mistaken.
Plaintiffs’ second argument is that “Citizens ignores the statutory prerequisite
to the application of this statute of repose, i.e., that the ‘customer should have
reasonably discovered the unauthorized payment.’” (Doc. 124 at 25.) Plaintiffs allege
that this prerequisite is lacking, because there is a significant “question of fact” as to
“whether Citizens ‘provided’ the statements to Southland.” (Id.) The record shows,
however, that there is not really a genuine issue of material fact on this point. The
parties agree that the Citizens statements were sent to the home address of Clanton
Dubose. How the statements came to be sent there, and what became of them
afterwards, are questions that Plaintiffs attempt—unsucessfully—to put into
According to the sworn affidavit of Eddie Collins, the executive vice-president
of Citizens, the initial monthly account was “sent by First Class U.S. Mail to the
address provided by Southland on its signature card: P.O. Box 1497, Vernon, Alabama
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35592.” (Doc. 116-4 at 7.) Shortly after the initial statement was sent, the U.S. Postal
Service returned it, saying that the post office box belonged to another company, “and
it would not deliver Southland mail to that address.” (Id.) Citizens then contacted
Southland for an alternative address, and was told to send the statements to
“Southland Health Services, Inc., c/o Clanton Dubose,” at an address which proved
to be Dubose’s home.14
Plaintiffs attempt to dispute this account of the facts, but without providing any
facts of their own. The only citations to the record they provide are to Lunan’s
declaration. (Doc. 124 at 6–7.) As discussed above in Part IV.B.1.c, the Court cannot
consider Lunan’s testimony when it comes to matters outside his personal knowledge
or experience. The mere fact that Lunan declares to “have personal knowledge of each
of the factual matters set forth in [his] affidavit” does not qualify him to speak to the
motivations and decisions of either Citizens or the U.S. Postal Service. There is no
showing of any basis on which Lunan can dispute Collins’ explanation for why the
statements were sent to Dubose’s address, and Plaintiffs have pointed to nothing else
to contradict his account. Plaintiffs cannot merely declare that a fact is disputed; such
Plaintiffs argue that Citizens had Dubose’s home address on file as a result of his prior
dealings with Citizens. They do not dispute that the Citizens’ employee making the call was not
informed at the time that it was Dubose’s home address.
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declarations “must be followed by a a specific reference to those portions of the
evidentiary record upon which the dispute is based.”(Doc. 17 at 16–17.)
Even more important to Plaintiffs’ argument is what happened to the
statements after they were sent to Dubose.15 According to Collins, account statements
were sent every month between October of 2006 (when the account was opened), and
September of 2008 (when the account was closed). (Doc 116-4 at 8–17.) The
statements were delivered to Dubose’s and each month he “would take them to
Southland’s corporate headquarters in Vernon and turn them over to Southland’s
bookkeeper, Donica Allison Garland.” (Doc. 117 at 11–12.) Garland would “reconcile
those statements with the company’s own internal accounting records,” and then
would keep the statements in her office “where they were available for Mr. Lunan or
anyone else at Southland to review.” (Id. at 12.) This account is supported by the
sworn testimony of both Dubose and Garland.
Plaintiffs attempt to dispute aspects of this account, but again without adequate
support. Plaintiffs deny that Dubose would take the statement’s to Southland’s
headquarters, or gave them to Garland. The only support for this denial, however, is
Lunan’s testimony. Because Lunan—by his own account—never saw where the
There is a question of whether mailing the statements to Dubose would itself be sufficient
notice to Southland on agency principles. But given the facts as described below, the Court need not
address this question.
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statements were, he certainly cannot testify as to where they were not. The only
“fact” which Plaintiffs raise in this regard is the accusation that Garland “cooperated
in [the] efforts to take unauthorized monies.” This, too, lacks any basis in the record.
The same goes for the assertion that the statements were stored in Garland’s office;
Plaintiffs offer no evidence to contradict this, only the unsupported assertion that
“[t]he statements were [not] in the control of anyone other than the Defendants or
unindicted conspirators conspiring with them.”16 (Doc. 124 at 7.) The undisputed facts
show that the banks statements were delivered to Southland’s headquarters on a
regular basis. It would be absurd to suggest that delivery of statements to a company’s
headquarters did not constitute being “sent to the customer.” ALA. CODE 1975 §
7-4-406(f ). Plaintiffs had sufficient access to the statements to trigger the deadlines
imposed by the statute of repose.
The only remaining question, then, is whether Plaintiffs provided notice as
required by § 7-4-406(f ). They did not. By Lunan’s own account, he did not contact
Citizens regarding the Southland account until August of 2008, well after the
triggering of repose for most of the time that the account was open. (Doc. 116-1 at 83
–84.) Even then, Lunan only placed a phone call stating that he “was investigating”
Interestingly, Plaintiffs do not dispute the fact that “Ms. Garland would reconcile [the]
statements with the company’s own internal accounting records,” except “to the extent this
information was shared with Plaintiffs.” (Doc. 117 at 12, Doc. 124 at 7.)
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and wanted copies of specific checks, which Citizens promptly furnished. (Id.) Lunan
did not follow up to report any fraudulent activity. (Id.)
In short, Plaintiffs have offered no evidence that timely notice was made.17 By
operation of § 7-4-406(f ) and their own account agreement, Plaintiffs are barred from
any recovery for transactions involving their account with Citizens. For multiple
reasons, then, summary judgment is appropriate as to all of Plaintiffs claims against
C. Claims Against the Individual Defendants
The three remaining individual Defendants are Clanton Dubuse, Dudley Bell,
and T. Alan Walls. Of the six counts against them, four are the subject of their motion
for summary judgment: Count Two, for common-law conversion; Count Three, for
breach of fiduciary duty; Count Nine, for money had and received; and Count Twelve,
for civil conspiracy.18 Each is addressed in turn.
The bare statement that “Plaintiffs and their agents informed Citizens that there were
unadorned transactions in their account and pointed to certain transactions,” (Doc. 127-26 at 8),
without actually pointing to any certain transactions, is plainly insufficient to create a genuine issue
of material fact.
The individual Defendants also argue against Count Thirteen, for an accounting, and
Count Fourteen, for the imposition of a constructive trust. (Doc. 128 at 5.) These arguments were
raised for the first time in their reply brief with no opportunity for Plaintiffs to respond; thus, it
would be improper for the Court to take up these arguments. The Court also notes that other
defenses—such as the doctrine of unclean hands—might have been raised, but were not. Regardless,
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1. Count Two: Common-Law Conversion
Count Two of Plaintiffs’ amended complaint alleges “common law conversion
against the individual defendants.” (Doc. 75 at 13.) To prevail on a claim for
conversion, a plaintiff must show “a wrongful exercise of dominion over property in
exclusion or defiance of a plaintiff's rights, where said plaintiff has . . . the immediate
right to possession. ” Limbaugh v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 732 F.2d
859, 863 (11th. Cir. 1984) (quoting Empiregas, Inc., of Gadsden v. Geary, 431 So. 2d
1258, 1260–61 (Ala. 1983)) (ellipsis in original). This can be shown through “a
wrongful taking, an illegal assumption of ownership, an illegal use or misuse of
another’s property, or a wrongful detention or interference with another’s
property.”Southtrust Bank v. Donely, 925 So. 2d 934, 939 (Ala. 2005) (quoting Riscorp,
Inc. v. Norman, 915 So. 2d 1142, 1152 (Ala. 2005)).
While conversion has long provided a remedy for the recovery of personal
property, its application to money has been “complicated as a result of the evolution
of our economic system.” Donely, 925 So. 2d at 940. Originally, the rule was that
conversion applied only to tangible physical property, and there “could be no
conversion” of money. Id. (citing W. PAGE KEETON ET AL., PROSSSER AND KEETON ON
the Court will limit its discussion to the arguments briefed by the parties.
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THE LAW OF TORTS, § 15, at 91 (5th ed.
1984)). The rule was then relaxed to include
money that was specifically identifiable, and that could not—by virtue of being in a
container of some kind—be intermingled with other funds. (Id.) While different in
practice, the same principle holds true today; money in a conversion action “must be
‘described with such reasonable certainty that the jury may know what money is meant
and the defendants protected from another action based upon the same grounds.’”
Limbaugh, 732 F.2d at 862 (quoting Russell v. The Praetorians, Inc., 28 So.2d 786 (Ala.
1947)). See also Donely, 925 So. 2d at 939 (“Generally, an action for conversion of
money will not lie unless the money is specific and capable of identification.”)
(quoting Riscorp, Inc., 915 So. 2d at 1152).
Plaintiffs contend that checks, wire transfers, and ACH transfers are all subject
to conversion claims. Defendants argue that even if such transfers can be the subject
of a conversion claim in general, they cannot here because Plaintiffs have failed to
specifically identify the transactions at issue. This appears to be correct: the amended
complaint does not identify any specific transactions under the conversion claim.
(Doc. 75 at 13.) Additionally, many of the exhibits cited by Plaintiffs concern only their
claims against Citizens, and are silent as to their claims against the individual
Defendants. (Doc. 127-22 at 4–13, Doc. 127-13 at 4–14.)
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Even assuming that the transactions here could support a conversion claim, and
assuming that Plaintiffs had sufficiently identified them, summary judgment would still
be appropriate because there was not a wrongful taking of any specific check. The
essence of Plaintiffs’ claims is not that individual Defendants forged, intercepted, or
otherwise misappropriated certain checks, but that they “reimbursed” themselves
with far more money than they were entitled to. Quite simply, Plaintiffs seek the
return of their money, not the return of any particular check.
The alleged wrongfulness of any specific transaction is undermined by Lunan’s
own testimony. When asked to confirm that a particular check was one of the
“unauthorized” instruments, Lunan explained, at length, his strong disagreement with
characterizing any particular check as unauthorized:
And that check—who does that check appear to be
made out to?
The fifty-one thousand made out to Mr. Dubose.
Now, this is one of the transactions that you have
challenged in this case as being unauthorized,
The challenge to authorization, okay, is a net
number, in essence the cumulation of all the checks
written to Clanton minus repayment for legitimate
loans and the net, okay? So to claim this one
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specifically or that one specifically—they go into the
total. This is included in the accumulation, okay.
If payments were made to Mr. Dubose that
were—from Southland’s accounts that were
repayment of legitimate loans that he made to the
company or expenses that he personally incurred on
behalf of the company, you do not have an objection
to him getting repaid for those legitimate expenses?
And my question is if you had seen this check written
to Mr. Dubose for fifty-one thousand dollars or an
image of this check, would that have raised concerns
I would have assumed that was a repayment for the
two hundred thousand dollars that he borrowed,
. . . . Would you have done any follow-up to confirm
that or would you have just accepted that it was a
repayment for money he had borrowed and not
queried Mr. Dubose about it?
Under the impression that Mr. Dubose loaned the
company money, I probably wouldn’t have
questioned that. It’s no the single check, it’s the
accumulation of checks. I never questions Mr.
Dubose until I got the printout of him receiving 1.3
So you knew he was incurring expenses on the
company’s behalf, so if some checks were—went
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from Southland’s Citizens account to him, you
would have naturally assumed he was just getting
repaid for legitimate expenses?
That is absolutely correct.
(Doc. 116-1 at 124–25.) Other portions of Lunan’s deposition and affidavit indicate,
consistent with this exchange, that he did not authorize Dubuse or Bell to take the
amounts they allegedly took. But in light of Lunan’s explanation here, Plaintiffs cannot
legitimately maintain that any specific transaction was “unauthorized” as such.19
Thus, Plaintiffs cannot show an essential element of their conversion claim: that the
taking or use of any specific instrument was wrongful. Summary judgment is therefore
appropriate with respect to Count Two.
2. Count Three: Breach of Fiduciary Duty
The third count of the complaint alleges breach of fiduciary duty against the
individual Defendants “[a]s directors and officers of Southland.” (Doc. 75 at 14.) In
their motion for summary judgment, the individual Defendants concede that they are
officers subject to fiduciary duties. (Doc. 119 at 9–10.) They also do not dispute, after
This is also confirmed by the work of Plaintiffs’ own expert, Grey. He was tasked by
Plaintiffs with looking at the net difference between the overall “inflow” and “outflow” between
Southland and the individual Defendants, without regard to specific transactions. (Doc. 129-1 at 25.)
The “sum total and limit of [Grey’s] expert opinion” was that the amounts received by Dubose and
Bell were greater than the amounts they had loaned to Southland, not that any particular check or
other transfer was improper. (Id. at 26.) While the actual opinion produced by Grey is inadmissible
for present purposes, the scope and purpose his work, as described in his deposition, is telling.
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the issue was raised in Plaintiffs’ response brief (Doc. 125 at 19), that Florida law
applies to the breach-of-fiduciary-duty claim, since Southland is incorporated in the
state of Florida. (Doc. 128 at 7.)
Under Florida law, corporate officers and directors “owe a fiduciary duty to the
corporation and to the shareholders and must act in good faith and in the best interest
of the corporation.” Rehabilitation Advisors, Inc. v. Floyd, 601 So.2d 1286, 1288 (Fla.
Dist. Ct. App. 1992). As fiduciaries they “cannot deal in funds or property of the
corporation to [their] own advantage.” Pruyser v. Johnson, 185 So.2d 516, 521 (Fla.
Dist. Ct. App. 1966) (citing Orlando Orange Groves Co. v. Hale, 144 So. 674 (Fla.
1932)). They also are forbidden to “make any profit or acquire any other personal
benefit or advantage [that is] not also enjoyed by the fiduciary beneficiary, and if they
do, they may be compelled to account to the beneficiary in an appropriate action.”
Cohen v. Hattaway, 595 So.2d 105, 107 (Fla. Dist. Ct. App. 1992) (citing Seestedt v.
Southern Laundry, Inc., 5 So.2d 859 (Fla. 1942)).
The individual Defendants contend that summary judgment is appropriate on
the fiduciary-duty claims for several reasons, but each is misplaced. They rely
extensively on the shield from liability provided by ALA. CODE § 10A-2-8.42, but as
noted above, Florida law governs the claims for breach of fiduciary duty. The
individual Defendants have not pointed to any equivalent provision of Florida law.
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The individual Defendants also contend that the claims for breach of fiduciary
duty fail because Plaintiffs “fail to consider the other, substantial factors that led to
Southland’s demise.” (Doc. 119 at 12.) Needless to say, a fiduciary breach need not be
solely responsible for the failure of a company in order to be actionable. The extent to
which other factors may have contributed—or even been entirely responsible—for
Southland’s collapse is entirely beside the point. Another argument is based on the
level of “personal commitment . . . with Southland and its entities” that the individual
Defendants shared. (Doc. 119 at 13–14.) But the fact that the individual Defendants
may have had Southland’s best interest at heart with regard to many of their actions
does not insulate them from liability for any breaches of their duties.
Central to the individual Defendants’ motion for summary judgment is the
assertion that all transactions were legitimate, that “[a]ny company funds received by
the individual Defendants were repayment of personal loans granted to Plaintiffs,
reimbursements for expenses or loans to Dudley Bell.” (Doc. 119 at 9.) This issue is
far from settled, however. Even though the Grey report’s account of these
discrepancies has been excluded, there are still genuine questions as to the extent that
the individual Defendants netted a profit.20 Even Defendants’ own expert opinion is
As discussed above, Citizens cannot be charged with knowledge, or even notice, of the
alleged impropriety of the individual Defendants’ conduct. But this does not have any bearing on
whether the conduct was improper in fact. Similarly, although the Court finds that Plaintiffs have
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not definitive; it shows at most that a “majority of the transactions” were done for the
benefit of Southland, indicating that at least some could not be considered that way.
(Doc. 116-14 at 3.)
Plaintiffs also point to other circumstances from which a breach of fiduciary
duty could be inferred: the $3,300 in monthly rent for a “repair shop and ice skating
rink” that Dubuse charged to Southland, and Bell’s purchases of personal items on a
nonexistent “deferred compensation agreement.” (Doc. 125 at 22–23.) There is no
need to recount all circumstances from which inferences of self-dealing could be made.
Taking the evidence in the light most favorable to Plaintiffs, there are genuine
questions of material fact regarding whether, in making and repaying such loans from
Southland funds, Dubose and Bell dealt in Southland’s funds to their own advantage.
Finally, the individual Defendants assert that the silence of T. Alan Walls,
regarding the actions of Dubose and Bell, does “not [provide] a legally cognizable
claim for breach of fiduciary duty.” (Doc. 119 at 11.) But no support is offered for this
assertion, and several Florida cases hold otherwise. See, e.g., Artec Group, Inc. v.
Chugach Management Services, Inc., 470 F.Supp.2d 1353, 1356 (M.D. Fla. 2006) (“A
duty to disclose arises when a fiduciary relationship is present.”) (citing Friedman v.
failed to identify any specific transactions that could support a conversion claim, this does not
preclude a finding that the individual Defendants were, in the aggregate, misappropriating funds
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Am. Guardian Warranty Servs., Inc., 837 So.2d 1165, 1166 (Fla. Dist. Ct. App. 1966)).
“A fiduciary has a fundamental duty to furnish information that entails not only a
negative duty not to misinform, but also an affirmative duty to inform when that
silence might be harmful.” Rushing v. Wells Fargo Bank, N.A. 752 F. Supp. 2d 1254,
1265 (M.D. Fla. 2010) (internal alterations omitted) (quoting Glaziers & Glassworkers
Union Local No. 252 Annuity Fund v. Newbridge Sec., Inc., 93 F.3d 1171, 1180 (3d Cir.
1996). Thus, summary judgment on Count Three is due to be denied as to all three of
the individual Defendants.
3. Count Nine: Money Had and Received
Count Nine of Plaintiffs amended complaint is for “money had and received.”
(Doc. 75 at 21.) Walls is not implicated here; only Dubose and Bell are the subjects of
this claim. (Id.) In their motion to dismiss this count, Dubose and Bell refer to case law
involving “unjust enrichment” rather than “money had and received,” but the two
share similar requirements:
In order to prevail on claims of unjust enrichment and
money had and received, “the plaintiffs must establish that
the defendants hold money that, in equity and good
conscience, belongs to the plaintiffs, or that the defendants
hold money that was improperly paid to the defendants
because of mistake or fraud.”
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State Farm Fire and Cas. Co. v. Evans, 956 So.2d 390, 400 (Ala. 2006) (quoting Funliner
of Alabama, L.L.C. v. Pickard, 873 So.2d 198, 209 (Ala. 2003).
Dubose and Bell assert that summary judgment should be granted because “[a]ll
company funds received by Dubose and Bell were proper reimbursements or
authorized by CEO of Southland Larry Lunan.” (Doc. 119 at 16.) But this assertion
only serves to illustrate that there is a genuine dispute does exist. The propriety of
Dubose and Bell’s “reimbursements” is not clear from the record, as discussed earlier.
Additionally, whether Dubose and Bell’s actions were “authorized” is vehemently
disputed.21 Summary judgment is therefore not appropriate on this claim.
4. Count Twelve: Civil Conspiracy
The same principles of civil conspiracy, discussed above at Part IV.B.2.g, apply
here as well. A claim of civil conspiracy requires an underlying wrong, as well as an
agreement to commit that wrong. Spigener, 505 So. 2d at 1040. Unlike the claim for
conspiracy against Citizens, there are surviving claims here that could support a
conspiracy claim. The remaining question is whether there is any evidence of
“concerted action” between the individual Defendants.
As to the overall amounts that the individual Defendants are alleged to have taken, not with
respect to individual transactions. See above at Part IV.C.1.a.
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If Plaintiffs are successful in demonstrating any of their substantive claims, a
reasonable juror could also find in favor of Plaintiffs that the individual Defendants
worked together to that end. As Plaintiffs point out, Dubose and Bell co-signed loans
and signed checks on each other’s behalf. (Doc. 125 at 32.) It would be reasonable to
infer, based on the apparent interactions of the individual Defendants in preparing
such checks, that they were acting in concert. While Plaintiffs do not muster much
evidence in support of the conspiracy claim, there is at least enough in the record for
the Court to conclude that summary judgment is inappropriate at this stage.
In light of the analysis above, Plaintiffs will be directed to arbitrate their claims
against WABT and BOV. Citizens’ motion for summary judgment will be GRANTED
as to all of Plaintiffs Claims against it. Summary judgment is likewise due to be
GRANTED as to Plaintiffs’ common-law conversion claim, but DENIED as to the
other claims against the individual Defendants. Separate orders consistent with this
opinion will be entered.
Done this 9th day of August, 2012.
L. Scott Coogler
United States District Judge
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