Buffets, Inc. et al v. Leischow et al
Filing
201
MEMORANDUM OPINION AND ORDER. 1. Defendant BMO Harris Bank's (f/k/a M&I Marshall & Ilsley Bank) Motion for Summary Judgment (Doc. No. 164 ) is GRANTED as follows: a. BMO is entitled to judgment on its guaranty cross-claim (Doc. No. 47 ) agai nst Dean Leischow in the amount of $3,346,404.33. b. BMO is entitled judgment with respect to Counts II, III, IV, VII, VIII, X, XI, XII, XIII, XIV, XV, and XVI of Plaintiffs' Second Amended Complaint (Doc. No. 41 ). 2. Defendant U.S. Bank, N.A.'s Motion for Summary Judgment (Doc. No. 170 ) is GRANTED. U.S. Bank is entitled to judgment with respect to Counts IV, VII, VIII, X, XII, XIII, XIV, XV, and XVI of Plaintiffs' Second Amended Complaint (Doc. No. 41 ). (Written Opinion). Signed by Judge Donovan W. Frank on 6/26/2012. (BJS)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Buffets, Inc.; OCB Restaurant Company,
LLC; Ryan’s Restaurant Group, Inc.;
HomeTown Buffet, Inc.; Tahoe Joe’s, Inc.;
and Fire Mountain Restaurants, LLC,
Civil No. 11-405 (DWF/TNL)
Plaintiffs,
v.
MEMORANDUM
OPINION AND ORDER
Dean Leischow; BMO Harris Bank f/k/a
M&I Marshall & Ilsley Bank; and U.S. Bank,
N.A.,
Defendants.
_______________________________________________________________________
William F. Mohrman, Esq., Erick G. Kaardal, Esq., and James R. Magnuson, Esq.,
Mohrman & Kaardal, PA, counsel for Plaintiffs Buffets, Inc., OCB Restaurant Company,
LLC, Ryan’s Restaurant Group, Inc., HomeTown Buffet, Inc., Tahoe Joe’s, Inc., and Fire
Mountain Restaurants, LLC.
Seth J.S. Leventhal, Esq., LEVENTHAL, pllc; and Rolin L. Cargill, Esq. and William R.
Skolnick, Esq., Skolnick & Shiff, PA, counsel for Defendant Dean Leischow.
Allen I. Saeks, Esq., Elizabeth A. Larsen, Esq., and Keith S. Moheban, Esq., Leonard
Street and Deinard, PA, counsel for Defendant BMO Harris Bank, N.A.
Michelle Kreidler Dove, Esq., Bassford Remele; and Eric R. Sherman, Esq., and Peter W.
Carter, Esq., Dorsey & Whitney LLP, counsel for Defendant U.S. Bank, N.A.
_______________________________________________________________________
INTRODUCTION
This matter is before the Court on Defendant BMO Harris Bank f/k/a M&I
Marshall & Ilsley Bank’s (“BMO” or “M&I”) Motion for Summary Judgment (Doc.
No. 164) and Defendant U.S. Bank, N.A.’s (“U.S. Bank”) Motion for Summary
Judgment (Doc. No. 170). For the reasons set forth below, the Court grants BMO and
U.S. Bank’s (together, “Defendant Banks”) motions.
BACKGROUND
On January 7, 2007, Plaintiff Buffets, Inc. (“Buffets”) 1 entered into a contract with
LGI Energy Solutions (“LGI”) for energy management services, including bill pay.
(Doc. No. 167, Moheban Decl. ¶ 2, Ex. A (“Wall Aff.”) ¶ 16.) LGI’s bill pay service
consisted of reviewing Buffets’ utility bills and creating an accounts payable report that
would be sent to Buffets for approval. (Id. ¶¶ 17-18.) Once approved, Buffets would
initiate a deposit to LGI’s designated bank account via ACH or wire transfer, and LGI
would pay the utility bills. (Id.; Doc. No. 176, Sherman Decl. ¶ 7, Ex. 5 at 60:1-6.)
During contract negotiations, Buffets requested that LGI set up the bank accounts
to which Buffets would remit payments as fiduciary accounts, with Buffets as the named
beneficiary. (Moheban Decl. ¶ 4, Ex. C (“Wall Dep.”) at 111:1-16.) LGI refused to do
so; instead, LGI agreed to the insertion of a contractual stipulation that LGI had a
fiduciary duty to Buffets and no interest in Buffets’ bill pay funds. (Id. at 111:14-16;
Wall Aff. ¶¶ 19, 21; Moheban Decl. ¶ 5, Ex. D ¶¶ 3b, 5.) As a result, the accounts to
which Buffets sent funds at U.S. Bank and M&I were standard business checking
1
Buffets owns the following entities also named as plaintiffs: OCB Restaurant
Company, LLC; Ryan’s Restaurant Group, Inc.; HomeTown Buffet, Inc.; Tahoe Joe’s,
Inc.; and Fire Mountain Restaurants, LLC. (Wall Aff. ¶ 2.) Buffets and its related
entities own and operate over 500 restaurants in 39 states. (Id. ¶ 7.)
2
accounts in LGI’s name alone—not trust or fiduciary accounts. 2 (Doc. No. 175, Sweeney
Decl. ¶¶ 5-6; Moheban Decl. ¶ 7, Ex. F (“M&I Depository Agreement”).) There is no
evidence that either Defendant Bank was provided with a copy of the contractual
agreement between LGI and Buffets or was notified of the fiduciary relationship between
them.
The agreement between LGI and Buffets did not include any restrictions on how
the funds were to be held; thus, Buffets’ bill pay funds were commingled with money
belonging to LGI and other LGI customers. (Moheban Decl. ¶ 3, Ex. B (“Leischow
Dep.”) at 40:17-25.) For example, Buffets remitted not only bill pay funds (that were
subject to a fiduciary obligation) but also direct payments to LGI (for its energy
management services) to the accounts at U.S. Bank and M&I. (Id. at 38:12-21; Doc.
No. 187, Mohrman Decl. ¶ 4, Ex. 4 (“Senger Dep.”) at 26:5-7, 121:17-22.) Other LGI
customers made similar payments and bill pay deposits to the same designated accounts.
(Leischow Dep. at 40:17-20.) Consequently, Buffets’ funds were not segregated from
those of other LGI customers, and customer deposits for bills were not held separately
from LGI’s earned fees.
Until November 3, 2008, Buffets remitted payments to LGI’s account at U.S.
Bank. (Sherman Decl. ¶ 11, Ex. 9 (“Smith Dep.”) at 126:9-15.) The account was an
ordinary business checking account in the sole name of LGI, without any designation that
2
Buffets transferred money to LGI’s Account “3321” at U.S. Bank and later to
Account “3116” at M&I. (Moheban Decl. ¶ 6, Ex. E at 3-4.)
3
LGI was acting in a fiduciary or representative capacity. 3 (Sweeney Decl. ¶ 6.) In
October 2007, Defendant Dean Leischow (“Leischow”) requested a line of credit on
behalf of LGI to cover delays in customer reimbursements for advance payments to
utilities. (Sweeney Decl. ¶ 17, Ex. 10 at USBL00000184.) U.S. Bank extended a
$1,000,000 line of credit to LGI on October 26, 2007. (Id. at USBL00000180.) In
November 2007, U.S. Bank began monitoring LGI’s accounts due to a pattern of
overdrafts, followed by wire transfers to cover the overdrafts, which had begun prior to
the extension of the line of credit. 4 (Mohrman Decl. ¶ 53, Ex. 53.) Based on the
monitoring, U.S. Bank concluded that the overdrafts were not a sign of improper activity.
(Mohrman Decl. ¶ 36, Ex. 36 (“Sweeney Dep.”) at 168:23-169:12.) The line of credit
was reduced to $512,012 in February 2008. (Sweeney Decl. ¶ 15.) LGI closed the line
of credit in April 2008 when it transitioned its banking to M&I. (Sweeney Dep. at
131:12-132:3.)
In April 2008, LGI received a three million dollar loan 5 from M&I, secured by a
personal guaranty from Leischow. (Mohrman Decl. ¶ 9, Ex. 9 at 4-5.) As a condition to
3
LGI also maintained a separate operating account at U.S. Bank ending in “7551.”
(Mohrman Decl. ¶ 41, Ex. 41.)
4
While the overdrafts had not previously been a cause for concern because they
were consistently covered by a prompt transfer of funds into the account, the monitoring
was implemented after the line of credit was extended because of U.S. Bank’s increased
exposure risk. (Mohrman Decl. ¶ 36, Ex. 36 (“Sweeney Dep.”) at 91:21-92:14, 94:1025.)
5
The line of credit was later increased to $3.5 million. (Doc. No. 168, Howard
Decl. ¶ 2, Ex. A.)
4
the credit agreement, LGI also agreed to open general depository accounts at M&I for use
in conjunction with LGI’s bill pay service. 6 (Mohrman Decl. ¶ 10, Ex. 10.) Starting on
November 3, 2008, Buffets began depositing its utility payments into LGI’s M&I account
ending in 3116 (“Account 3116”). (Wall Aff. ¶ 27.) During the following month, M&I
noted activity in LGI’s accounts that triggered an investigation into possible check
kiting. 7 (Mohrman Decl. ¶ 26, Ex. 26 at M&I02252.) After concluding that the activity
was not fraudulent check kiting, M&I chose to allow LGI’s accounts to remain open with
daily monitoring. (Moheban Decl. ¶ 13, Ex. L at 77:17-25; Mohrman Decl. ¶ 29, Ex. 29.)
On December 10, 2008, LGI sent notification to its customers that it was ceasing
business operations. (Wall Aff. ¶ 31.) LGI did not make any more utility payments on
Buffets’ behalf after December 10, 2008. (Senger Dep. at 281:1-22; Mohrman Decl.
¶ 19, Ex. 19.)
On January 2, 2009, Plaintiffs sued LGI, M&I, and Leischow in state court.
Buffets, Inc. v. LGI Energy Solutions, Inc., Civ. No. 09-548, (Doc. No. 1, Ex. 2
(“Compl.”)). Buffets alleged that it remitted payments to LGI that were not applied
toward Buffets’ utility bills, requiring Buffets to make additional payments directly to the
utility companies. (Id. ¶¶ 10-12; Wall Aff. ¶ 33.) Buffets also sought to recover funds
6
In addition, LGI opened a separate operating account ending in “3072.”
(Mohrman Decl. ¶ 11, Ex. 11.)
7
Check kiting is a process through which an account holder falsely inflates the
balance of an account by depositing a check from another banking institution so as to
take advantage of the processing time in order to effectively obtain a short-term “loan”
before depositing funds into the latter account to cover the amount of the check.
5
remaining in LGI’s M&I account that Buffets had transferred to LGI for the payment of
its utility bills. (Compl. ¶ 13.)
Defendant M&I removed the case to the United States District Court for the
District of Minnesota, where it was then referred to United States Bankruptcy Court.
Buffets, Inc. v. LGI Energy Solutions, Inc., Civ. No. 09-548 (Doc. Nos. 1 & 40). Buffets
later amended the Complaint to add a Uniform Fiduciaries Act claim and common law
claims against M&I and to drop all claims against LGI (the bankruptcy debtor). (Doc.
No. 27, Am. Compl.) Plaintiffs amended a second time to add U.S. Bank as a defendant.
(Doc. No. 41, Second Am. Compl. ¶ 18.) The claims against Defendants BMO and U.S.
Bank center on LGI’s alleged improper use of Buffets’ funds, which Buffets claims to
have deposited with Defendant Banks in a fiduciary capacity. (Id. ¶¶ 17-18.) M&I also
asserted two cross-claims against Defendant Leischow: a guaranty claim; and a claim for
indemnification, arising from Leischow’s personal guaranty agreement. (Doc. No. 30
¶¶ 106-10.)
After Plaintiffs dropped their claims against LGI, the case was transferred to this
Court. (Doc. No. 80.) Later, pursuant to Plaintiffs’ and Leischow’s Stipulation of
Dismissal, the Court dismissed all of Plaintiffs’ claims against Leischow without
prejudice. (Doc. Nos. 161 & 162.)
Plaintiffs’ remaining claims against Defendant Banks are: Unjust Enrichment
(Count II); Conversion (Count III); Tortious Interference with Contract (Count IV);
Constructive Trust (Count VII); Participant in Breach of Fiduciary Duty and Breach of
Trust (Count VIII); Participation in Misappropriation (Count X); Conversion of Funds
6
Belonging to a Third Person (Count XI); Violation of Minn. Stat. § 520.01, et seq.,
Uniform Fiduciaries Act (Count XII); Violation of Common Law Duties to Principal of a
Fiduciary Account (Count XIII); Negligence (Count XIV); “Special Deposit” Claim
(Count XV); and Breach of Fiduciary Duty based on “Special Deposit” (Count XVI). 8
(Second Am. Compl.)
DISCUSSION
I.
Summary Judgment Standard
Summary judgment is proper if there are no disputed issues of material fact and
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The
Court must view the evidence and the inferences that may be reasonably drawn from the
evidence in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank
of Mo., 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated,
“[s]ummary judgment procedure is properly regarded not as a disfavored procedural
shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed
‘to secure the just, speedy, and inexpensive determination of every action.’” Celotex
Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed. R. Civ. P. 1).
The moving party bears the burden of showing that there is no genuine issue of
material fact and that it is entitled to judgment as a matter of law. Enter. Bank, 92 F.3d at
747. The nonmoving party must demonstrate the existence of specific facts in the record
that create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th
8
Counts II, III, and XI are only asserted against BMO.
7
Cir. 1995). A party opposing a properly supported motion for summary judgment “may
not rest upon the mere allegations or denials of his pleading, but must set forth specific
facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 256 (1986).
II.
Summary Judgment Motions
A.
UFA Claim (Count XII)
Buffets asserts a claim that Defendant Banks violated the Uniform Fiduciaries Act
(“UFA”) as codified at Minnesota Statutes §§ 520.01-520.33. The UFA governs a bank’s
liability for deposits involving fiduciaries. To establish a claim under the UFA, a
plaintiff must show that a deposit was made: in the name of a fiduciary and designated as
such (Minn. Stat. § 520.07); in the name of a principal (Minn. Stat. § 520.08); or into a
fiduciary’s personal account (Minn. Stat. § 520.09). The record indicates that the
deposits were made into checking accounts in LGI’s name, with no designation of
fiduciary status. (Sweeney Decl. ¶¶ 5-6; M&I Depository Agreement.) Therefore,
Buffets’ UFA claim must satisfy the elements of section 520.09, which provides:
If a person who is a fiduciary makes a deposit in a bank to the person’s
personal credit of checks drawn by the person upon an account in the
person’s name as fiduciary, or of checks payable to the person as fiduciary,
or of checks drawn by the person upon an account in the name of the
principal if the person is empowered to draw checks thereon, or of checks
payable to the principal and endorsed by the person, if empowered to
endorse such checks, or if the person otherwise makes a deposit of funds
held as fiduciary, the bank receiving such deposit is not bound to inquire
whether the fiduciary is committing thereby a breach of an 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 of an
8
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.
Minn. Stat. § 520.09.
Defendant Banks argue that: (1) Buffets’ deposits were not subject to a fiduciary
duty once they were commingled in the same accounts as money belonging to LGI and
other LGI customers; (2) Defendant Banks had no notice of LGI’s fiduciary duty to
Buffets and no duty to inquire because Minnesota law presumes that funds in a personal
account belong to the account holder; and (3) the banks acted in good faith because they
did not act dishonestly or with actual knowledge of a breach of fiduciary obligation.
BMO adds that Buffets fails to identify a single bank employee who acted with actual
knowledge of a breach of fiduciary duty or who acted dishonestly or made a “conscious
effort to avoid knowledge.”
Buffets argues that bad faith can be attributed to a bank if it acts in a
“commercially unjustifiable” manner. Buffets cites Defendant Banks’ failures to close
LGI’s accounts (after observing overdrafts and potential check kiting by LGI) as
evidence that the banks acted in a commercially unjustifiable manner. Buffets also
argues that because Defendant Banks were aware of the nature of LGI’s business 9 and the
separation of LGI’s operating account from the client funded account, they were aware of
9
Buffets contends that LGI qualifies as a “money services business” under the Bank
Secrecy Act and the Anti-Money Laundering Act, which require that the Bank exercise
“enhanced due diligence” in inquiring about the fiduciary status of the funds.
9
LGI’s fiduciary duty to Buffets. In addition, Buffets asserts that liability under the UFA
is not limited to designated fiduciary accounts or segregated funds.
Still, to establish a violation of section 520.09, a plaintiff must show that the bank
was aware of a fiduciary relationship and had knowledge that processing a transaction
was a breach of fiduciary duty or amounted to acting in bad faith. Minn. Stat. § 520.09.
First, the plaintiff must demonstrate that the banks were aware of the fiduciary
relationship between Buffets and LGI. Id. It is undisputed that neither bank was shown a
copy of the contract between Buffets and LGI; moreover, the accounts in question were
not set up as designated fiduciary accounts, and funds belonging to LGI and to other LGI
customers were commingled in the same accounts to which Buffets made deposits.
(Sweeney Decl. ¶¶ 5-6; M&I Depository Agreement; Leischow Dep. at 38:12-21,
40:17-20; Senger Dep. at 26:5-7, 121:17-22.) Therefore, there is no evidence in the
record to support the contention that either Defendant Bank had notice of LGI’s fiduciary
duty to Buffets or that LGI’s accounts were fiduciary in nature.
Buffets must also demonstrate that the banks acted with knowledge that
processing the transactions in question constituted a breach of LGI’s fiduciary duty or
amounted to acting in bad faith. Minn. Stat. § 520.09. While Buffets cites knowledge of
behavior that it contends would create a duty to inquire, it fails to identify any specific
employee who processed a specific transaction with actual knowledge that the transaction
constituted a breach of LGI’s fiduciary duty to Buffets. Under Minnesota law, funds in a
personal account are presumed to belong to the account holder and can be used by the
account holder for any purpose. Estate of Whish v. Bienfang, 622 N.W.2d 847, 850
10
(Minn. Ct. App. 2001). Because of the presumption of ownership and because the
accounts in question contained commingled funds, Buffets cannot show actual
knowledge on the part of Defendant Banks.
Moreover, a court cannot find bad faith under the UFA “if the bank was acting
honestly.” Rheinberger v. First Nat’l Bank of St. Paul, 150 N.W.2d 37, 41 (Minn. 1967)
(citing Minn. Stat. § 520.01, subd. 6). Buffets implies that, in addition to acting in a
commercially unjustifiable manner, M&I acted dishonestly by failing to close LGI’s
accounts after discovering potential check kiting in order to continue generating fees
from LGI. Notably, however, M&I launched an investigation, implemented monitoring,
and concluded that LGI was not engaged in check kiting. (Mohrman Decl. ¶ 26, Ex. 26
at 1; Moheban Decl. ¶ 13, Ex. L at 77:17-25; Mohrman Decl. ¶ 29, Ex. 29.) The Court
concludes that Buffets is unable to demonstrate bad faith on the part of the banks.
In light of the foregoing and the undisputed record evidence, Buffets cannot fulfill
each of the required elements to establish a violation of the UFA. The Court finds that no
genuine issue of material fact exists with regard to whether Defendant Banks had notice
of LGI’s fiduciary duty to Buffets or whether Defendant Banks acted in bad faith or with
actual knowledge that any withdrawals constituted a breach of LGI’s fiduciary obligation
to Buffets. Moreover, Buffets cannot substantiate its claim that LGI’s accounts with
BMO and U.S. Bank were fiduciary in nature. Because the Court concludes that no
genuine issues of material fact exist, Defendant Banks are entitled to summary judgment
on Count XII.
11
B.
Common Law Claims
The eleven remaining claims are: Unjust Enrichment (Count II); Conversion
(Count III); Tortious Interference with Contract (Count IV); Constructive Trust
(Count VII); Participant in Breach of Fiduciary Duty and Breach of Trust (Count VIII);
Participation in Misappropriation (Count X); Conversion of Funds Belonging to a Third
Person (Count XI); Violation of Common Law Duties to Principal of a Fiduciary
Account (Count XIII); Negligence (Count XIV); “Special Deposit” Claim (Count XV);
and Breach of Fiduciary Duty based on “Special Deposit” (Count XVI).
1.
Fiduciary Duty Claims
In addition to its statutory UFA claim, Buffets asserts several common law claims
based on a fiduciary duty theory, including constructive trust, participant in breach of
fiduciary duty and breach of trust, violation of common law duties to principal of a
fiduciary account, and breach of a fiduciary duty based on “special deposit.” Defendant
Banks argue that all common law claims are abrogated by the UFA.
At a minimum, the UFA implies intent to abrogate common law claims based on
fiduciary obligations by providing that the rules of law and equity shall apply only to
situations not covered within the UFA. Minn. Stat. § 520.12. Courts have also held that
the common law duty to inquire into transactions is eliminated by the UFA. Bradley v.
First Nat’l Bank of Walker, NA, 711 N.W.2d 121, 124 (Minn. Ct. App. 2006); In re
Lauer, 98 F.3d 378, 383 (8th Cir. 1996), aff’d on reh’g as modified on other grounds, 371
F.3d 406 (8th Cir. 2004). Because the obligations of banks regarding funds held in trust
are governed by the UFA, the instant case is governed by the UFA, and the common law
12
claims based on fiduciary duty (if not all remaining claims) are abrogated by the statutory
claim. Even assuming, without deciding, that the remaining common law claims are not
abrogated, they fail on the merits as discussed below.
2.
Unjust Enrichment
Buffets asserts an unjust enrichment claim against BMO for retaining funds that
were transferred from LGI’s account to make payments on its $3.5 million loan from
M&I. An unjust enrichment claim cannot be based solely on facts that indicate the
defendant benefited from the actions of the plaintiff, but must also show that the
enrichment was unjust which “could mean illegally or unlawfully.” First Nat’l Bank of
St. Paul v. Ramier, 311 N.W.2d 502, 504 (Minn. 1981). Where the plaintiff had the
opportunity to request terms to protect its interests and failed to do so, the court will not
find unjust enrichment. Id. The record contains no evidence that M&I had knowledge of
the terms of the contract between LGI and Buffets or notice that the funds in LGI’s
account belonged to Buffets. To the contrary, Minnesota law requires the presumption
that the funds in LGI’s accounts belonged to LGI. Whish, 622 N.W.2d at 850.
Moreover, the undisputed facts indicate that Buffets negotiated the terms of its contract
with LGI and failed to include any terms restricting how the funds were to be held. (Wall
Dep. at 111:1-16; Wall Aff. ¶¶ 19, 21; Moheban Decl. ¶ 5, Ex. D ¶¶ 3b, 5.) Because
Buffets cannot show that any loan payments were unlawfully retained by the bank, BMO
is entitled to summary judgment on the unjust enrichment claim.
13
3.
Conversion Claims
Buffets also asserts two conversion claims against BMO. Conversion is “an act of
willful interference with personal property, ‘done without lawful justification by which
any person entitled thereto is deprived of use and possession.’” DLH, Inc. v. Russ, 566
N.W.2d 60, 71 (Minn. 1997) (quoting Larson v. Archer-Daniels-Midland Co., 32 N.W.2d
649, 650 (Minn. 1948)). The undisputed facts show that the client funded accounts were
held in LGI’s name alone and were not designated as trust accounts. (M&I Depository
Agreement at M&I00342-43.) The record also indicates that M&I did not exercise any
control over the expenditures made from the accounts and that M&I was contractually
obligated by the Depository Agreement to honor transactions authorized by designated
signers. (Id. at M&I00344.) Therefore, Buffets cannot demonstrate willful interference,
and BMO is entitled to summary judgment on the conversion claims.
4.
Tortious Interference with Contract
Buffets further claims that Defendant Banks tortiously interfered with the contract
between Buffets and LGI by causing LGI “to use Plaintiff Buffets’ funds for purposes
other than the payment of utility invoices.” (Second Am. Compl. ¶ 88.) “Under
Minnesota law, the elements of tortious interference with contract are (1) the existence of
a contract, (2) the tortfeasor’s knowledge of the contract, (3) the tortfeasor’s intentional
causation of a breach of the contract, (4) a lack of justification for the tortfeasor’s action,
and (5) damages resulting from the breach.” Storage Tech. Corp. v. Cisco Sys., Inc., 395
F.3d 921, 924 (8th Cir. 2005). Buffets is unable to point to any evidence of intentional
causation of a breach of the contract. The record also fails to establish that Defendant
14
Banks were aware of either the terms of Buffets’ contract with LGI or that LGI was in
breach of that contract by failing to make utility payments on behalf of Buffets. To the
contrary, the undisputed facts show that LGI was in total control of transfers from the
account and that neither Defendant Bank directed or attempted to direct LGI’s
expenditures. (Sherman Decl. ¶ 10, Ex. 8 at 182:23-183:7; M&I Depository Agreement
at M&I00344.) Because there is no evidence that Defendant Banks intentionally caused
LGI to breach its contract with Buffets, Defendant Banks are entitled to summary
judgment on Buffets’ tortious interference claim.
5.
Special Deposit Claims
Additionally, Buffets asserts a “special deposit” claim (Count XV) and a breach of
fiduciary duty based on “special deposit” claim (Count XVI) against Defendant Banks. 10
A “special deposit” is “made under an agreement that the bank is to apply it to a
particular purpose, or is to perform some specified service for the depositor in respect to
it.” Hjelle v. Veigel, 210 N.W. 891, 891 (Minn. 1926). The undisputed facts show that
there were no communications or agreements between Defendant Banks and Buffets
regarding Buffets’ deposits into LGI’s accounts; thus, Buffets cannot establish that it
made any “special deposit” with the banks. (Sherman Decl. ¶ 26, Ex. 23 at 15; Wall Dep.
at 46:21-24.) Because there is no evidence that either Buffets or LGI directed Defendant
Banks to apply the deposits “to a particular purpose” or to perform a specified service
10
The Court notes that it has previously addressed the abrogation of claims based on
a purported fiduciary duty above.
15
related thereto, Defendant Banks are entitled to summary judgment on Buffets’ “special
deposit” claims.
6.
Negligence
Buffets claims that Defendant Banks were negligent in allowing Buffets’
deposited funds to be used for a purpose other than paying Buffets’ utility invoices. The
necessary elements to maintain a negligence claim are: (1) the existence of a duty of
care; (2) breach of duty of care; (3) causation; and (4) injury. See Hudson v. Snyder
Body, Inc., 326 N.W.2d 149, 157 (Minn. 1982). Under Minnesota law, a bank does not
have a duty to ensure that an accountholder applies withdrawn funds according to the
terms of a contract between the accountholder and a third party. Farmers State Bank of
Fosston v. Sig Ellingson & Co., 16 N.W.2d 319, 325 (Minn. 1944). Because Defendant
Banks did not owe such a duty of care to Buffets, they are entitled to summary judgment
on the negligence claim.
7.
Participation Claims
Lastly, Buffets asserts claims against Defendant Banks for participation in breach
of fiduciary duty, breach of trust, and misappropriation. Such claims must fail, however,
because Buffets cannot establish actual knowledge or bad faith on the part of Defendant
Banks as discussed with respect to the UFA claim above. See Lerner v. Fleet Bank, N.A.,
459 F.3d 273, 294-95 (2d Cir. 2006). Therefore, Defendant Banks are entitled to
summary judgment on the participation in breach of fiduciary duty, breach of trust, and
misappropriation claims.
16
For the reasons discussed above, the Court concludes that Defendant Banks are
entitled to summary judgment with respect to Counts II-IV, Counts VII-VIII, and
Counts X-XVI.
C.
BMO’s Cross-Claims Against Defendant Dean Leischow
Because the Court has determined that BMO is not liable to Buffets on any
asserted claim, BMO’s indemnity claim against Defendant Leischow is moot. (See Doc.
No. 47 ¶ 130.)
The Court further concludes that BMO is entitled to judgment on its personal
guaranty claim against Leischow. (See id. ¶¶ 126-29.) There is no dispute that Leischow
signed the guaranty agreement and that LGI defaulted on the line of credit. (Doc.
No. 168, Howard Decl. ¶ 4, Ex. C.) Moreover, Leischow concedes liability on the loan
guaranty. (Doc. No. 186 at 2 n.2.) BMO is thus entitled to judgment against Leischow in
the amount of $3,346,404.33. (Howard Decl. ¶ 17.)
Consequently, no claims remain for trial.
ORDER
Based upon the foregoing, and the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1.
Defendant BMO Harris Bank’s (f/k/a M&I Marshall & Ilsley Bank) Motion
for Summary Judgment (Doc. No. [164]) is GRANTED as follows:
a.
BMO is entitled to judgment on its guaranty cross-claim (Doc.
No. [47]) against Dean Leischow in the amount of $3,346,404.33.
17
b.
BMO is entitled judgment with respect to Counts II, III, IV, VII,
VIII, X, XI, XII, XIII, XIV, XV, and XVI of Plaintiffs’ Second Amended
Complaint (Doc. No. [41]).
2.
Defendant U.S. Bank, N.A.’s Motion for Summary Judgment (Doc.
No. [170]) is GRANTED. U.S. Bank is entitled to judgment with respect to Counts IV,
VII, VIII, X, XII, XIII, XIV, XV, and XVI of Plaintiffs’ Second Amended Complaint
(Doc. No. [41]).
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: June 26, 2012
s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge
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