U.S. Bank, N.A. et al v. Northern Trust Company, The et al
ORDER denying 14 Motion to Dismiss/General (Written Opinion). Signed by Senior Judge David S. Doty on 6/22/2011. (TMW)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 10-4079(DSD/JSM)
U.S. Bank, N.A., as successor
Trustee to Wachovia Bank, N.A.,
as Trustee for Chase Funding
Loan Acquisition Trust (Chase
CFLAT 2004-AQ1), by and through
Chase Home Finance, LLC as servicer,
The Northern Trust Company and
Kanabec State Bank,
Monica L. Davies, Esq., Curtis D. Ripley, Esq., Edwin H.
Caldie III, Esq., Jennifer L. Kopischke, Esq. and
Leonard, Street and Deinard, PA, 150 South Fifth Street,
Suite 2300, Minneapolis, MN 55402, counsel for plaintiff.
Brooks F. Poley, Esq., Brent A. Lorentz, Esq. and
Winthrop & Weinstine, PA, 225 South Sixth Street, Suite
3500, Minneapolis, MN 55402, counsel for Northern Trust.
Stephanie A. Ball, Esq. and Fryberger, Buchanan, Smith &
Frederick, PA, 302 West Superior Street, Suite 700,
Duluth, MN 55802, counsel for Kanabec State Bank.
This matter is before the court upon the amended motion to
dismiss by defendant The Northern Trust Company (Northern Trust).
Based on a review of the file, record and proceedings herein, and
for the following reasons, the court denies the motion.
This insurance-proceeds dispute arises out of a mortgage loan
obtained by nonparties Shayne and Elisabeth Dalbec in 2004 for real
property located at 20297 Ann River Drive in Mora, Minnesota.
2004-AQ1)1 purchased the securitized mortgage loan; plaintiff Chase
Home Finance, LLC (collectively, Chase) is the servicer of the
The Dalbecs maintained an insurance policy on the property
through nonparty Safeco Insurance (Safeco).
Pursuant to the
mortgage, the Safeco policy named Chase as an additional loss
A fire destroyed the property, and the Dalbec’s submitted a
claim to Safeco.
Compl. ¶ 16.
Chase was unaware of the fire and
On October 1, 2007, Safeco issued a check in the
amount of $191,581.58 jointly payable to the Dalbecs and Chase.
Id. ¶ 17.
The check was negotiated at defendant Kanabec State
Bank2 on October 29, 2007, bearing the apparent signatures of
Elisabeth Dalbec and a person signing “C/O Chase” followed by a
Plaintiff U.S. Bank, N.A. (U.S. Bank) is the successor
trustee of Chase CFLAT 2004-AQ1.
Kanabec State Bank is both the depository bank and a
collecting bank in this action. See Minn. Stat. § 336.4-105(2)
(depository bank is first bank to take check); see id. § 336.4105(5) (collecting bank means any bank handling check except payor
number and a Chase stamp.
See id. Ex. A.
check on behalf of Safeco.
Northern Trust3 paid the
Chase did not indorse the check, and
filed an affidavit of forgery with Safeco on March 25, 2009.
Plaintiffs filed this action on September 28, 2010, claiming
that Kanabec State Bank and Northern Trust each converted the
check, in violation of Minnesota Statutes § 336.3-420.
Trust moves to dismiss for failure to state a claim and for failure
to join a necessary party under Rule 19.
The court now addresses
Failure to State a Claim
To survive a motion to dismiss for failure to state a claim,
“‘a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.’”
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009)
(quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)). “A claim
has facial plausibility when the plaintiff [has pleaded] factual
content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Iqbal, 129 S.
Ct. at 1949 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
Northern Trust is the payor bank in this action.
Stat. §§ 336.3-103(4), 336.4-105(3).
Although a complaint need not contain detailed
factual allegations, it must raise a right to relief above the
See Twombly, 550 U.S. at 555.
conclusions or a formulaic recitation of the elements of a cause of
action” are not sufficient to state a claim.
Iqbal, 129 S. Ct. at
1949 (citation and internal quotation marks omitted).
Conversion of Negotiable Instruments
Checks may be converted under Minnesota’s version of the
Uniform Commercial Code (U.C.C.). See Minn. Stat. §§ 336.3-104(b),
(e), (f); id. § 336.3-420(a). The version of the U.C.C. adopted by
Minnesota contains a defense, which since 1992 applies to “[a]
representative, other than a depositary bank, who has in good faith
dealt with an instrument or its proceeds on behalf of one who was
not the person entitled to enforce the instrument.”
420(c) (emphasis added).
Id. § 336.3-
Such representative “is not liable in
conversion ... beyond the amount of any proceeds that it has not
Northern Trust argues that it is a representative
for purposes of § 336.3-420(c), and therefore may invoke the
Plaintiffs respond that Northern Trust is
not a representative, as that term is used in the statute.
The U.C.C. defines a representative elsewhere as “a person
empowered to act for another, including an agent, an officer of a
administrator of an estate.”
Minn. Stat. § 336.1-201(33).
Minnesota Supreme Court examined the scope of term “representative”
for the representative defense under the previous version of the
conversion statute, then codified as Minnesota Statutes § 336.3419. See Denn v. First State Bank of Spring Lake Park, 316 N.W.2d
532 (Minn. 1982).
Former § 336.3-419 stated:
a representative, including a depositary or
collecting bank, who has in good faith and in
accordance with the reasonable commercial
standards applicable to the business of such
representative dealt with an instrument or its
proceeds on behalf of one who was not the true
owner is not liable in conversion or otherwise
to the true owner beyond the amount of any
proceeds remaining in his hands.
In Denn, as here, a payee sued the depository and payor banks
for converting fraudulently indorsed checks.
The banks filed
crossclaims, and the trial court granted summary judgment in favor
of the payor bank on its crossclaim against the depository bank.
Thereafter, the payee dismissed the action against the payor bank.
depository bank based on the representative defense.
appealed, arguing that the depository bank should not be exempt
The Minnesota Supreme Court first noted that § 336.1-201
defined “representative” as “an agent, an officer of a corporation
or association, and a trustee, executor or administrator of an
estate, or any other person empowered to act for another.”
316 N.W.2d at 534 (quoting Minn. Stat. § 336.1-201(35) (1980)). It
then considered the history of the representative defense and its
At common law, a broker was exempt from liability
when dealing with stolen negotiable bonds.
Id. at 535.
Minnesota Supreme Court determined that the drafters of the U.C.C.
initially intended to exempt only those brokers who were exempt at
common law, but that amendments leading to the then-current version
of the statute expanded the common-law exception to brokers,
collecting banks and depository banks.
Id. at 535–36 (quoting
collecting bank”). Notably, the court only expanded the meaning of
“representative” to include the entities named in the statute.
a result, a payee could not proceed against the depository bank
directly because it was exempt, but rather had to sue the payor
Id. at 535–37.
The principle underlying Denn is that payor
banks are not absolved by the representative exception.
In 1992, the Minnesota Legislature adopted revised article 3
of the U.C.C.
The revised code eliminated the representative
defense for depository banks, because “[t]he depositary bank is
ultimately liable in the case of a forged indorsement check because
of its warranty to the payor bank.”
See Minn. Stat. § 336.3-420
cmt. 3; see also Denn, 316 N.W.2d at 537 (“[T]he people of
Minnesota would benefit from a change which would hold a depository
bank directly liable to the true payee.”).
The comments to
§ 336.3-420 further state: “In revised Article 3, the defense
provided by Section 3-420(c) is limited to collecting banks other
Payor banks are not collecting banks.
The relevant difference between the statute as interpreted in
Denn and the present statute is the removal of depository banks as
The Minnesota Legislature was aware of Denn
when it amended the statute, and it did not expand the meaning of
Payor banks were not absolved in the previous
version of the statute, and the revision narrowed the scope of the
Therefore, the interpretation of Northern
Trust is inconsistent with the interpretation of the Minnesota
interpretation suggested by Northern Trust: “[O]ne might argue that
even the drawee is a ‘representative’ who is freed from liability
That is wrong.
The comment and the history show
indorsement and that the drawee is not merely a ‘representative.’”
2 James J. White & Robert S. Summers, Uniform Commercial Code § 18-
The term “drawee bank” is snyonymous with “payor bank.”
4 (5th ed. 2008).
Therefore, based on the interpretation of the
Minnesota Supreme Court, the language of the statute and its
evolution from the common law, the court determines that the
Minnesota Supreme Court would not expand the representative defense
to include Northern Trust as a representative for purposes of
§ 336.3-420, and dismissal is not warranted on this basis.
Failure to Join a Party Under Rule 19
Northern Trust next argues that dismissal under Rule 12(b)(7)
or compulsory joinder of homeowners Shayne and Elisabeth Dalbec is
warranted because they are required parties under Rule 19(a) of the
Federal Rules of Civil Procedure.
Rule 19(a) states:
1) Required Party. A person who is subject to
service of process and whose joinder will not
jurisdiction must be joined as a party if:
(A) in that person’s absence, the court cannot
accord complete relief among existing parties;
(B) that person claims an interest relating to
the subject of the action and is so situated
that disposing of the action in the person’s
(i) as a practical matter impair or impede the
person’s ability to protect the interest; or
(ii) leave an existing party subject to a
obligations because of the interest.
Fed. R. Civ. P. 19(a). Inquiry under Rule 19(a) focuses “on relief
between the parties and not on the speculative possibility of
further litigation between a party and an absent person.”
Corp. v. Pension Ben. Guar. Corp., 703 F.2d 301, 305 (8th Cir.
In the present case, Chase claims an interest in the check.
The face of the check establishes the existence of the interest,
but not the extent of that interest.
The Minnesota conversion
statute limits potential recovery to “the amount of the plaintiff’s
According to Chase, the Dalbecs gave a mortgage on the insured
property, and the outstanding balance of the mortgage loan exceeds
the value of the check.
As a result, Chase claims that it is
entitled to the full amount payable on the check.
Northern Trust first argues that complete relief in this case
is not possible if the Dalbecs are absent from this action.
However, discovering evidence of the existence of a mortgage-loan
obligation, the amount of that obligation and the nature of the
insurance claim submitted does not require the Dalbecs as parties.
Indeed, these issues might be resolved without participation by the
The present dispute is between Chase and the banks that
accepted and paid the check.
Therefore, the Dalbecs are not
necessary parties under Rule 19(a)(1)(A).
Northern Trust next argues that the Dalbecs have an interest
in the subject of the action and their absence from this action
will impede their ability to protect that interest.
Even if the
Dalbecs may claim an interest in some or all of the value of the
check, it appears that they have realized that interest.
present action does not concern whether the Dalbecs committed check
Instead, it involves whether Northern Trust and Kanabec
State Bank converted a check for which Chase was a payee.
possibility that a party to this action might bring a separate suit
against the Dalbecs does not make them necessary parties to the
instant conversion dispute.
Northern Trust also argues that should Chase be entitled to
some or all of the value of the check, then Northern Trust or
Kanabec State Bank could be subject to double obligations.
argument is without merit: for Chase to prevail, it would have to
show that one or both banks unlawfully converted the check, and the
Dalbecs have already received the amount payable of the check. The
Dalbecs appear not to have a conversion claim against the banks;
they have already received the full amount payable.
The court has
already noted that the possibility of a separate action by Kanabec
State Bank or Northern Trust against the Dalbecs does not make them
necessary to the instant action.
Therefore, the Dalbecs are not
compulsory joinder is not warranted.
Accordingly, based on the above, IT IS HEREBY ORDERED that the
motion to dismiss [ECF No. 14] is denied.
Dated: June 22, 2011
s/David S. Doty
David S. Doty, Judge
United States District Court
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