National Union Fire Insurance Company of Pittsburgh, PA v. Guaranty Bank & Trust Company, et al
Filing
97
ORDER granting 69 Motion for Partial Summary Judgment or, In the Alternative, For an Order Limiting Plaintiff's Damages Claim filed by Defendant Guaranty Bank and Trust Company. Summary judgment shall enter in favor of Defendant on the Second Claim for Relief. Guaranty Bank is dismissed and awarded its costs, by Judge Lewis T. Babcock on 3/5/2015. (ebuch)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
LEWIS T. BABCOCK, JUDGE
Civil Case No. 13-cv-00926-LTB-KLM
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, As Subrogee and
Assignee for, THE HAIN CELESTIAL GROUP, INC.,
Plaintiff,
v.
GUARANTY BANK AND TRUST COMPANY,
JEFFREY M. WAGNER,
JOHN D. WAGNER,
KRISTIE WAGNER,
Defendants.
______________________________________________________________________________
ORDER
______________________________________________________________________________
This matter is before me on a Motion for Partial Summary Judgment or, In the
Alternative, For an Order Limiting Plaintiff’s Damages Claim, filed by Defendant Guaranty
Bank and Trust Company (“Guaranty Bank”). [Doc #69] The motion seeks either judgment in
Guaranty Bank’s favor, or an order limiting damages, on the sole claim raised against it by
Plaintiff National Union Fire Insurance Company of Pittsburgh, PA. Oral arguments would not
materially assist me in my determination. After consideration of the parties’ arguments, and for
the reason stated, I GRANT the motion and ENTER SUMMARY JUDGMENT in favor of
Defendant Guaranty Bank.
I. Background
Plaintiff – an insurance company – issued a Crime Loss Insurance Policy to Hain
Celestial Group, Inc. (“Hain”), the parent company of Celestial Seasonings. In September of
2006, Celestial Seasonings hired Defendant Jeffrey M. Wagner as a Distribution Manager, where
he remained employed in that capacity until June of 2012. During his employment, Jeffrey
Wagner embezzled monies from Celestial Seasonings by submitting fraudulent freight invoices
to his employer for payment to a fictional freight vendor named “JDW.” Celestial Seasonings
paid 233 of the JDW invoices, via corporate checks, in the aggregate amount of $1,787,987.70.
The checks – which were drawn on an account held by Hain at Bank of America – were
made payable to JDW and were mailed to the address provided on JDW’s vendor application,
which was actually the residential address of Defendant John D. Wagner (Jeff Wagner’s father).
It is alleged that the Wagners (collectively, Defendants Jeffrey Wagner, John D. Wagner and
Kristie Wagner, Jeffrey’s wife) illegally endorsed the checks issued by Celestial Seasonings to
JDW, and then deposited them into one or more of their personal bank accounts at Defendant
Guaranty Bank. The check were subsequently presented by Guaranty Bank to Bank of America
for payment.
After discovering the embezzlement, Hain submitted a claim to Plaintiff under its Crime
Loss Insurance Policy for the sums paid by Celestial Seasonings to JDW on the fraudulent
invoices. Thereafter, Hain agreed to a full settlement of its loss claim with Plaintiff, and
executed an Assignment and Release pursuant to which Hain assigned Plaintiff its rights to
pursue the claims raised here. As a result, Plaintiff filed this action, as Hain’s subrogee, against
the Wagners and Guaranty Bank. In its amended complaint, Plaintiff raises three claims for
relief against the Wagners for Unjust Enrichment (Third Claim for Relief); Conversion (Fourth
Claim for Relief); and Theft (Fifth Claim for Relief). [Doc #30] In addition, Plaintiff asserts a
claim against Guaranty Bank for Breach of Warranties under the Colorado Uniform Commercial
Code (“UCC”)(Second Claim for Relief). Specifically, Plaintiff asserts that Guaranty Bank
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breached its warranties under Colorado Revised Statute §4-3-416, §4-3-417, 4-4-207, and
§4-4-208 accepting “deposits of checks into the personal accounts of the Wagners that contained
forged endorsements and breached [UCC ] warranties . . . that obligated Guaranty [Bank] to only
accept deposits that contained proper endorsements.” [Doc #30 ¶45] Plaintiff avers that
Guaranty Bank breached its UCC presentment and transfer warranties it owed to Bank of
America, and that Bank of America has, in turn, assigned to Plaintiff its rights and claims against
Guaranty Bank for such breaches. [Doc #30 ¶46, Ex. A] Plaintiff also asserts that it suffered
damages as a result of Guaranty Bank’s breaches. [Doc #30 ¶47]
In this motion, Guaranty Bank seeks summary judgment in its favor on Plaintiff’s claim
for breach of its UCC transfer or presentment warranties on the basis that Plaintiff, as the
assignee of Bank of America, cannot establish any recoverable damages. Or, in the alternative,
it seeks an order limiting Plaintiff’s damages on this claim to those actually incurred, if any, by
the Bank of America.
II. Standard of Review
Summary judgment is appropriate when the moving party can demonstrate that there is
no genuine issue of material fact and it is entitled to judgment as a matter of law. Celotex Corp.
v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Fed.R.Civ.P. 56(c).
If there is no genuine issue of material fact in dispute, then a court must determine whether the
movant is entitled to judgment in its favor as a matter of law. See, e.g., Jenkins v. Wood, 81 F.3d
988, 990 (10th Cir. 1996); Celotex v. Catrett, supra, 477 U.S. at 322.
III. Analysis
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Guaranty Bank argues that it is entitled to summary judgment on Plaintiff’s UCC breach
of warranty claim against it because, as a matter of law, Plaintiff cannot establish that Bank of
America incurred any recoverable damages as a result of the alleged breach. In so arguing,
Guaranty Bank assumes that its actions in accepting for deposit the 223 checks made out to JDW
– on the Celestial Seasonings account held at Bank of America – into the personal accounts of
the individual Defendants violated Colorado Revised Statute §4-4-401 which requires that a
bank may not charge against an account an item that is not properly payable. Isaac v. American
Heritage Bank and Trust Co., 675 P.2d 742, 744 (Colo. 1984)(ruling that a bank may not charge
against an account an item that is not properly payable, pursuant to §4-4-401, and in such a case
the customer may demand that his account be recredited). In turn, Guaranty Bank concedes
liability – for the purposes of this motion – in the breach of its presentment warranty to Bank of
America for its presentment and demand for payment of those checks in violation of Colorado
Revised Statute §4-4-208. See also Colo. Rev. Stat. §4-3-417 (regarding negotiable
instruments); Vectra Bank v. Bank W., 890 P.2d 259, 262 (Colo. App. 1995)(holding that a bank
that accepts a check with an unauthorized endorsement warrants its validity to subsequent
transferees).
Guaranty Bank maintains, however, that Plaintiff’s claim must be dismissed in that Bank
of America incurred no damages as a result of that breach because it was reimbursed in full for
the payments it made on those checks. Plaintiff, in response, asserts that Guaranty Bank has not
provided legal authority for the proposition that a payor bank’s breach of warranty claim against
a depositary bank is limited to loss actually incurred. It argues that the UCC does not require the
payor to incur out-of-pocket losses in order for a breach of warranty claim to accrue.
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As an initial matter, I note that Plaintiff’s claim is grounded in Guaranty Bank’s breach
of its presentment warranties to Bank of America pursuant to Colorado Revised Statute §4-4208. Presentment warranties are imposed on a presenting bank (here, Guaranty Bank) that
obtains payment or acceptance of a draft in favor the payor bank that pays the draft (here, Bank
of America). See 2A Colo. Prac., Methods Of Practice §84:15 (6th ed.); see also Colo. Rev. Stat
§4-4-105(6)(defining a “presenting bank”) and §4-4-105(3)(defining a “payor bank”). The
specific presentment warranty that is alleged to have been breached by Guaranty Bank is that
“[t]he warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to
enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person
entitled to enforce the draft.” Colo. Rev. Stat §4-4-208(a)(1). To the extent that Plaintiff argues
that Guaranty Bank also breached a transfer warranty to Bank of America, pursuant to Colo.
Rev. Stat §4-4-207, I disagree. “[P]resentment warranties are imposed for the benefit of payor
banks and transfer warranties are imposed for the benefit of transferees and subsequent
collecting banks . . .”. 2A Colo. Prac., Methods Of Practice §84:15 (6th ed.)(noting that transfer
warranties are imposed on a collecting bank); see also Colo. Rev. Stat §4-4-207(a); §4-4-105(5);
and §4-4-105(3).
The UCC sets forth the recoverable damages on a breach of presentment warranty claim
as follows:
A drawee making payment may recover from a warrantor damages for breach of
warranty equal to the amount paid by the drawee less the amount the drawee
received or is entitled to receive from the drawer because of the payment. In
addition, the drawee is entitled to compensation for expenses and loss of interest
resulting from the breach. . . .
Colo. Rev. Stat §4-4-208(b). Under this section, Bank of America (as the drawee making
payment) may recover from Guaranty Bank (as the warrantor) damages of the amount paid by
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Bank of America minus the amount Bank of America received from the drawer (Celestial
Seasonings). Plaintiff does not challenge Guaranty Bank’s assertion that it is undisputed that
Bank of America did not sustain damages because the amount it paid on the fraudulently
endorsed checks presented by Bank of America was reimbursedl in Celestial Seasonings’
account. In addition, Plaintiff concedes that it may only recover the damages that Bank of
America itself could have recovered. See Abady v. Certain Underwriters at Lloyd’s London
Subscribing to Mortg. Bankers Bond-No. MBB-06-0009, 317 P.3d 1248, 1252 (Colo. App.
2012)(ruling that with respect to an assignment, an assignee stands in the assignor’s shoes and
takes only as good a claim as his assignor had)(citations omitted). Thus, I agree with Guaranty
Bank that Plaintiff is not entitled to recover any damages for payment on the fraudulently
endorsed checks presented to Bank of America for payment. In so doing, I reject Plaintiff’s
contention that the statutory language and well reasoned case law holds otherwise. I find that the
statutory language does not support this assertion, and that Plaintiff’s cited case law is not
binding nor persuasive. See e.g. Lewittes Furniture Enterprises, Inc. v. Peoples Nat. Bank of
Long Island, 82 Misc.2d 1013, 1015, 372 N.Y.S.2d 830, 832 - 833 (N.Y. Dist.Ct. 1975)(ruling
that lawsuits by assignees of drawee banks have been upheld on challenges that if the drawee
sustained no damages, the assignee must be barred from suing the collecting bank)(citations
omitted).
Furthermore, although recoverable damages include “compensation for expenses and loss
of interest resulting from the breach” of a presentment warranty under Colo. Rev. Stat
§4-4-208(b), Plaintiff does not claim, nor does the record indicate, that Bank of America
incurred any such expenses. Additionally, to the extent that Plaintiff asserts that Bank of
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America was damaged because it incurred attorney fees in connection with the negotiation of the
agreement that assigned its claims to Plaintiff, I note that such attorney fees are not recoverable
damages for breach of UCC warranties under Colorado law. See Vectra Bank v. Bank W., supra,
890 P.2d at 264 (ruling that while the statute might authorize the award of attorney fees
expended by a payor bank in defending an action brought against it by a third party as a result of
the breach of warranty, there is no statutory authorization for recovery of “the attorney fees
incurred . .. in prosecuting this action” as such fees are not damages for breach of a transfer
warranty under former Colorado Revised Statute §4-4-207(3)).
Finally, I reject Plaintiff’s argument that by allowing it to amend its breach of UCC
warranties claim, as set forth in my order on the motion to amend dated September 26, 2013
[Doc #29], I somehow decided the merits of Guaranty Bank’s argument that Plaintiff’s damages
are limited to those that were incurred by Bank of America. Rather, I allowed the amendment
so that Plaintiff could supplement its claim by asserting that Bank of America assigned its rights
and claims against Guaranty Bank to Plaintiff pursuant to Fed. R. Civ. P. 15(a), which provides
that leave to amend “shall be freely given when justice so requires,” and the requirement that
amendments be freely allowed in the absence of a narrowly defined set of exceptional
circumstances. In so doing, I declined to address Guaranty Bank’s argument that the request to
amend was futile, on the basis that “[t]he futility question is functionally equivalent to the
question whether a complaint may be dismissed for failure to state a claim.” [Doc #29] My prior
ruling allowing amendment of Plaintiff’s complaint neither addressed nor ruled upon Guaranty
Bank’s argument here.
Therefore, I conclude that Plaintiff cannot establish any damages recoverable by its
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assignee, Bank of America, against Defendant Guaranty Bank for its alleged breach of its
presentment warranty to Bank of America under Colorado Revised Statute §4-4-208(b). As
such, Defendant Guaranty Bank is entitled to summary judgment in its favor on Plaintiff’s
Second Claim for Relief against it for breach of its UCC warranties. And, because I have ruled
in favor of Defendant Guaranty Bank on its request for summary judgment on Plaintiff’s claim
for breach of Guaranty Bank’s presentment warranty to Bank of America, I do not address its
alterative argument that it is entitled to an order limiting Plaintiff’s damages to those “actually
incurred by Bank of America, if any.”
ACCORDINGLY, I GRANT the Motion for Partial Summary Judgment or, In the
Alternative, For an Order Limiting Plaintiff’s Damages Claim filed by Defendant Guaranty Bank
and Trust Company. [Doc #69] As a result, I ENTER SUMMARY JUDGMENT, as a matter of
law, in favor of Defendant on the Second Claim for Relief filed against it by Plaintiff National
Union Fire Insurance Company of Pittsburgh, PA., for Breach of Colorado UCC Warranties
(Second Claim for Relief) and, as such, I DISMISS Defendant Guaranty Bank as a party to this
matter and I AWARD Guaranty Bank its costs.
Dated: March
5 , 2015, in Denver, Colorado.
BY THE COURT:
s/Lewis T. Babcock
Lewis T. Babcock, Judge
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