Midwest Feeders, Inc. v. The Bank of Franklin

Filing 33

ORDER granting in part and denying in part 11 Motion to Dismiss. Signed by Honorable David C. Bramlette, III on July 7, 2015. (AA)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
WESTERN DIVISION
MIDWEST FEEDERS, INC.
VS.

PLAINTIFF
CIVIL ACTION NO: 5:14-cv-78-DCB-MTP

THE BANK OF FRANKLIN

DEFENDANT

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS
This matter is before the Court on Defendant’s, The Bank of
Franklin, Motion to Dismiss [docket entry no. 11]. Having reviewed
the motion and responses, applicable statutory and case law, and
being otherwise fully informed in the premises, the Court finds as
follows:
I. Factual And Procedural Background
In 2006, Robert Rawls entered into a financing contract with
Plaintiff

Midwest

Feeders,

Inc.

(“Midwest

Feeders”).

Rawls

conducted business individually and through two corporate entities:
Robert Rawls Livestock and Rawls Trucking, LLC. Midwest Feeders
deposited money into an account at Alva State Bank & Trust of Alva,
Oklahoma (“Alva”). Rawls was to use the Alva account to purchase
livestock, and in exchange Midwest Feeders was granted a security
interest in the livestock. And as Midwest Feeders asserts in its
complaint, “[a]t some point, Rawls decided to steal from Midwest
[Feeders].” Compl. ¶ 14, ECF No. 1. Rawls made out checks to

1

fictitious payees from the Alva account and endorsed them and
stamped them as payable to his livestock company for deposit only.
Rawls then deposited the checks into an account at The Bank of
Franklin (“Bank of Franklin”), which turned them over to Alva for
payment. Between October 2013 and March 2014, Rawls fraudulently
endorsed and cashed 891 checks for over $85 million through a
“fictitious payee” scheme. In litigation in the District Court of
Finney County, Kansas, Rawls confessed to the fraudulent activity,
but invoked his Fifth Amendment rights against self-incrimination
in response to certain deposition questions.
Midwest Feeders sued Bank of Franklin on September 5, 2014,
alleging its involvement in Rawls’s scheme. In its complaint,
Midwest Feeders lists six claims for relief: (1) conversion of
instruments under Mississippi Code Annotated (“MCA”) Section 75-3420, (2) failure to exercise ordinary care under MCA 75-3-404(d),
(3) common law conversion of funds, (4) negligence, (5) negligent
hiring and supervision, and (6) civil conspiracy. Compl. 12-20. On
October 9, 2014, Bank of Franklin moved to dismiss all of these
claims for failure to state a claim. The Court having ruled on two
intervening motions, see Order, ECF No. 26, the Motion to Dismiss
is now ripe.1

1

Having considered the arguments made in footnote one of
Bank of Franklin’s rebuttal memorandum and the surreply filed by
Midwest Feeders, the Court finds the arguments are without merit.
First, even if Midwest Feeders’ brief was filed out of time, the
Court will consider it because “the arguments asserted therein
2

II. Analysis
Bank of Franklin has moved to dismiss for failure to state a
claim under Federal Rule of Civil Procedure 12(b)(6). “To survive
a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(internal quotation omitted). The plaintiff must plead sufficient
facts so that the court may reasonably infer the defendant’s
liability for the alleged misconduct. Id. “[A] plaintiff armed with
nothing

more

than

conclusions

cannot

unlock

the

doors

of

discovery.” Doe v. Robertson, 751 F.3d 383, 393 (5th Cir. 2014)
(internal quotations omitted). Because this Court sits in diversity
in this case, it must apply the substantive law of Mississippi. See
Krieser v. Hobbs, 166 F.3d 736, 739 (5th Cir. 1999).
A. Conversion Claims
1. Under the UCC
In Midwest Feeders’ first claim, it alleges conversion under

are helpful to a resolution of [the] motion.” Merit Elec., Inc.
v. Motiva Enters., LLC, No. 10501DM2, 2011 WL 900306, at *1 n.1
(M.D. La. Mar. 14, 2011) (citing Nelson v. Star Enter., 220 F.3d
587 (5th Cir. 2000) (holding that district courts have broad
discretion to consider untimely opposition to motions)). Second,
the Court finds that no relief is appropriate for Bank of
Franklin’s suggested violation of Federal Rule of Civil Procedure
11. A motion for sanctions must first be served on the opposing
party, and the alleged violation must remain uncorrected for
twenty-one days before the motion is filed with the court. Fed.
R. Civ. P. 11(c)(2). There is no evidence that this procedure was
followed.
3

the Uniform Commercial Code (“UCC”) as codified in Mississippi.
Section 75-3-420 provides that an instrument can be
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 (I) the
issuer or acceptor of the instrument or (ii) a payee or
indorsee who did not receive delivery of the instrument
either directly or through delivery to an agent or a copayee.
Miss. Code Ann. § 75-3-420 (1993). Bank of Franklin argues that
Midwest Feeders has failed to properly plead this claim because
“the instrument was properly negotiated and payable to Rawls.” Mem.
Supp. 9, ECF No. 12. Midwest Feeders argues this is not true
because “the payee did not exist to provide any valid endorsement
to Rawls.” Mem. Opp. 13, ECF No. 14. Section 75-3-110 provides that
“[t]he person

to

whom an

instrument

is

initially

payable

is

determined by the intent of the person . . . signing as . . . the
issuer of the instrument.” Miss. Code Ann. § 75-3-110(a) (1993).
Bank of Franklin argues that because Rawls always intended to be
the payee, the instrument was properly negotiated. But the comments
to

Section

75-3-110

make

clear

that

in

“fictitious

payee”

situations, courts apply the rules laid out in Section 75-3-404(b).
Section 75-3-404(b) provides that “[a]n indorsement by any person
in the name of the payee stated in the instrument is effective as
the indorsement of the payee in favor of a person who, in good
faith,

pays

the

instrument

or
4

takes

it

for

value

or

for

collection.” Miss. Code Ann. § 75-3-404(b)(2) (1993). Midwest
Feeders argues that it has pled that Rawls did not indorse the
checks in good faith, rendering the negotiation of the instrument
in his favor improper.
Bank of Franklin next argues that the claim fails because
Midwest Feeders “is not the proper party to assert a claim for
conversion.” Reply 18, ECF No. 20. Bank of Franklin cites to a case
from

the

equitable

Seventh
interest

Circuit
in

a

holding
check

that

could

a

not

party

with

assert

a

only

claim

an
for

conversion under the UCC in Illinois. See Am. Nat’l Ins. Co. v.
Citibank, N.A., 543 F.3d 907, 909-10 (7th Cir. 2008). The Seventh
Circuit held that “an interest in the funds backing the checks” was
not the same as “an interest in the checks themselves.” Id., at
910.

And

that

allowing

a

claim

to

go

forward

under

those

circumstances would impose an untenable burden on banks:
Instead of being able to look at the payee line and [sic]
to verify that the person presenting the check was indeed
entitled to do so, banks . . . would need to conduct a
full-blown investigation every time to make sure that a
party with an equitable interest in the check was not
lurking in the background. Such a system would bring
commercial transactions to a grinding halt.
Id., at 909-10. The UCC provision at issue in American National is
identical

to

Mississippi’s

section

75-3-420.

See

Polles

v.

F.D.I.C., 749 F. Supp. 136, 139 n.9 (N.D. Miss. 1990) (noting that
the Mississippi legislature codified a UCC section verbatim). The
elements of a claim for conversion of a negotiable instrument

5

against a depositary bank in Mississippi are identical as those for
a claim against a financial institution in Illinois. A plaintiff
“in choosing to sue in conversion [under the UCC] must . . .
show[]: (1) title to, possession of or right to possession of a
check, (2) the payee’s forged, unauthorized or missing endorsement
on

the

check,

and

(3)

the

depositary

or

collecting

bank’s

unauthorized payment of the check.”2 Delta Chem. & Petroleum, Inc.
v. Citizens Bank of Byhalia, Miss., 790 So. 2d 862, 871 (Miss.
2001). Because Midwest Feeders can show nothing more than an
interest in the funds behind the forged checks, it cannot maintain
an action in conversion against Bank of Franklin. Therefore, the
motion will be granted as to this claim.
2. Under the Common Law
Midwest

Feeders

in

its

third

claim

alternatively

pleads

conversion under the common law “[t]o the extent Defendant asserts
that Miss. Code § 75-3-420 is inapplicable.” Compl. ¶ 53. Bank of
Franklin argues: (1) that Midwest Feeders has failed to plead a
claim for common law conversion and (2) that Mississippi’s UCC
displaces this claim for relief. Mem. Supp. 11.
First, Midwest Feeders has properly pled the elements of a
claim for common law conversion. The Mississippi Supreme Court

2

In Illinois, “a plaintiff must prove (1) her ownership of,
interest in or right to possession of the check; (2) the fact
that her apparent endorsement of the check was forged or
unauthorized; and (3) the fact that the defendant bank was not
authorized to cash the check.” Am. Nat’l Ins., 543 F.3d at 909.
6

stated that “[t]he elements of conversion are established in
Mississippi.” Cmty. Bank, Ellisville, Miss. V. Courtney, 884 So. 2d
767, 773 (Miss. 2004). Common law conversion requires “a wrongful
possession” with “intent to exercise dominion or control over goods
which is inconsistent with the true owner’s right.” Id., at 773-74.
The intent need not be that of a wrongdoer, id., at 774, meaning
that “one may be liable for the tort of conversion even if acting
under a good-faith mistake of fact or law,” In re Blake, 516 B.R.
352, 358 (Bankr. N.D. Miss. 2014).
Midwest Feeders alleges that
Bank of Franklin converted funds because it obtained
payment of the Fraudulent Purchase Checks over fraudulent
endorsements by a fictitious payee, when Rawls had no
right to enforce the negotiable instrument. . . Bank of
Franklin acted in bad faith by its repeated pattern of
accepting for deposit the Fraudulent Checks without
inquiry and by refusing to repay the amounts to Midwest
[Feeders] represented by such instruments.
Compl. ¶¶ 56-57. Bank of Franklin argues that Midwest Feeders did
not have any interest in the funds after they were deposited into
the Alva account. Reply p. 23. Midwest Feeders, however, alleges
that it provided secured financing to Rawls who was contractually
permitted only to use the funds to purchase livestock in which
Midwest Feeders would then have a security interest. Midwest
Feeders responds that it did allege a security interest in the
funds in the Alva account because of its obligation to make
deposits in the account. Mem. Opp. p. 18. At this stage of
litigation, it is sufficient that Midwest Feeders plausibly alleges
7

an interest in the funds.
Second, however, the UCC provisions relating to conversion of
negotiable instruments have supplanted fully the common law cause
of action. “Once the checks were presented to the bank for deposit,
the ‘rights and responsibilities of the parties are determined by
reference to the Mississippi [UCC].’” Hancock Bank v. Ensenat, 819
So.2d 3, 9 (Miss. Ct. App. 2001) (quoting White v. Hancock Bank,
477 So. 2d 265, 271 (Miss. 1985)). In Ensenat, the plaintiff sought
to avoid application of the UCC by not pleading a claim for
conversion; however, the court found that the UCC “displace[d] [the
plaintiff’s] common law claims insofar as [the] common law claims
relate to the conversion of the instruments.” Berhow v. The Peoples
Bank, 423 F. Supp. 2d 562, 567-68 (S.D. Miss. 2006) (discussing
Ensenat).

Because

Midwest

Feeders’

claim

clearly

relates

to

conversion of instruments, it is governed by the UCC. Therefore,
the motion will be granted as to this claim.
B. Negligence Claims
1. Failure to Exercise Ordinary Care
In Midwest Feeders’ second claim, it alleges a failure to
exercise ordinary care as defined by the UCC. Section 75-3-404(d)
provides:
if a person paying the instrument [subject to this
statute] or taking it for value or for collection fails
to exercise ordinary care in paying or taking the
instrument and that failure substantially contributes to
loss resulting from payment of the instrument, the person
bearing the loss may recover from the person failing to
8

exercise ordinary care to the extent the failure to
exercise ordinary care contributed to the loss.
Miss. Code Ann. § 75-3-404(d) (1993). The Code further defines
ordinary care:
“Ordinary care” in the case of a person engaged in
business means observance of reasonable commercial
standards, prevailing in the area in which the person is
located, with respect to the business in which the person
is engaged. In the case of a bank that takes an
instrument for processing for collection or payment by
automated means, reasonable commercial standards do not
require the bank to examine the instrument if the failure
to examine does not violate the bank’s prescribed
procedures and the bank’s procedures do not vary
unreasonably from general banking usage not disapproved
by [the UCC].
Miss. Code Ann. § 75-3-103(a)(9) (2010). Bank of Franklin argues
that

it

did

not

“violate[]

the

narrowly

subscribed

duty

of

‘ordinary care’” and that it did not “cause[] or ‘substantially
contribute[] to’ [Midwest Feeders’] claimed loss.” Mem. Supp. 14,
ECF No. 12.
Despite the allegations of a failure of internal reporting
procedures and those required by the Bank Secrecy Act and Patriot
Act, Bank of Franklin took facially valid checks from Rawls.
Midwest Feeders alleged that the failure to examine a facially
valid check violated the duty of ordinary care. Determining whether
this

allegation

demonstrates

that

Bank

of

Franklin

bucked

“reasonable commercial standards, prevailing in the area in which
the person is located, with respect to the business in which the
person is engaged,” see §75-3-103(a)(9), requires further factual

9

development; therefore, the Court will deny the motion as to this
claim.
2. Pure Negligence and Negligent Hiring and Supervision
In its fourth and fifth claims for relief, Midwest Feeders
argues

that

Bank

of

Franklin

is

liable

under

theories

of

negligence: pure negligence and negligent hiring and supervision.
Bank of Franklin primarily argues that Midwest Feeders’ negligencebased claims must fail for the same reason: a bank does not owe a
duty of care to a non-customer.3 Mem. Supp. 5-8, ECF No. 12. Both
parties assert that whether a bank owes a duty in negligence to a
non-customer is an issue never decided by the Supreme Court of
Mississippi, and the Court can find no authority otherwise. “When
there is no ruling by the state’s highest court, it is the duty of
the federal court to determine as best it can, what the highest
court of the state would decide.” Transcon. Gas Pipe Line Corp. v.
Transp.

Ins.

Co.,

953

F.2d

985,

988

(5th

Cir.

1992).

This

determination is known as an Erie guess. See generally, Erie R.R.
Co. v. Tompkins, 304 U.S. 64 (1938). “In making an Erie guess,
[courts] defer to intermediate state appellate court decisions,

3

In Mississippi, “the traditional elements of negligence
[are] duty or standard of care, breach of that duty or standard,
proximate causation, and damages or injury.” Lyle v. Mladinich,
584 So. 2d 397, 398-99 (Miss. 1991). “In order to make a claim
for negligent supervision, [the plaintiff] must establish the
same elements as a regular negligence claim. . . .” Miller v.
Union Planters Bank, N.A., No. 2:05cv2144, 2006 WL 3391095, at *6
(S.D. Miss. Nov. 22, 2006) (citing Warren v. Glascoe, 852 So. 2d
634, 639 (Miss. 2003)).
10

unless convinced by other persuasive data that the highest court of
the state would decide otherwise, and [courts] may consult a
variety of sources, including the general rule on the issue,
decisions from other jurisdictions, and general policy concerns.”
Travelers Cas. & Sur. Co. of Am. v. Ernst & Young LLP, 542 F.3d
475, 483 (5th Cir. 2008) (internal citations and quotation marks
omitted).

The

Court

can

find

no

relevant

decisions

of

the

Mississippi Court of Appeals, and so it looks to other persuasive
authority.
“The almost-universal law in this county is that banks owe a
duty of care only to their own customers.” SFS Check, LLC v. First
Bank of Del., 774 F.3d 351, 357 (6th Cir. 2014); accord Lerner v.
Fleet Bank, N.A., 459 F.3d 273, 286 (2d Cir. 2006) (“As a general
matter, banks do not owe non-customers a duty to protect them from
the intentional torts of their customers.” (internal quotation
marks omitted)). The Supreme Court of Louisiana explained the
reasoning behind the absence of a duty most eloquently:
The banking industry handles a tremendous volume of
transactions which involve small, as well as large, sums
of money. To meet the requirements and complexities of
our present financial system, the negotiable instrument
has emerged as the universal method of insuring the
certainty of commercial transactions. . . [W]hen a bank
receives a check for deposit which, in all aspects, is
valid on its face . . . , that bank has the right to
treat that check as it would any other deposit. To
require
the
bank
to
investigate
the
underlying
transaction which led to the issuance of the instrument
or to permit a third person to challenge the depositor’s
ownership . . . would result in an unreasonable burden
upon, and disruption of, regular and normal banking
11

transactions.
Shreveport Prod. Credit Ass’n v. Bank of Commerce, 405 So.2d 842,
845-46 (La. 1981) (footnote omitted); see also Guidry v. Bank of
LaPlace, 954 F.2d 278, 286-87 (5th Cir. 1992) (“The Louisiana
Supreme Court has found as a matter of law that under normal
circumstances a bank owes no duty to those who are not its
customers respecting investigation or disclosure concerning its
customers.” (citing Shreveport Prod. Credit Ass’n, 405 So.2d at
845-46)).
While the Court acknowledges the above persuasive authorities,
the Court finds that it is premature to make just such an Erie
guess. The Court is guided by the circumspection of previous
decisions

in

this

jurisdiction

when

faced

with

similar

circumstances:
This Court acknowledges that authority cited by
Defendants in which other courts have held, in situations
where an Erie guess was made, that the particular state
law under consideration would likewise not recognize a
private right of action. However, . . . the analysis in
[the persuasive authority] was made at the summary
judgment stage.
This Court is not at the point of discussing Mississippi
law on the potential theories of recovery and related
issues, and is not foreclosing consideration of a
motion(s) for summary judgment following a full
development of the record. At th[e motion to dismiss]
stage, however, it cannot be stated that Plaintiffs’
cause of action fails under [Rule] 12(b)(6).
Sutton v. Citimortgage, Inc., No. 1:05cv706, 2006 WL 5287263, at
*2-3 (S.D. Miss. Nov. 14, 2006) (internal citations omitted); see

12

also, Duhon v. Trustmark Bank, No. 1:06cv718, 2007 WL 627889, at *4
(S.D. Miss. Feb. 25, 2007) (granting motion to remand because
“[a]pplying an Erie guess to Mississippi substantive law at this
stage puts the cart before the horse and is inconsistent with the
notion that all ambiguities in the controlling state law are
resolved in favor of the plaintiff”). Midwest Feeders’ claims for
negligence and negligent hiring and supervision may turn on a
question of law, but the Court believes that question must wait to
be answered.
Next, the Court turns to the remaining elements of negligence.
“[T]here appears to be scant evidence to support the viability of
these claims; however, the Court will deny the motion to dismiss
for failure to state a claim at this stage in anticipation of
careful review after discovery and at the summary judgment stage.”
Smith v. Antler Insanity, LLC, 58 F. Supp. 3d 716, 724 (S.D. Miss.
2014). As to breach, Midwest Feeders alleges that Bank of Franklin
failed in its duty of care to investigate the checks and discover
Rawls’ fraud. As to causation, Midwest Feeders alleges that but for
Bank of Franklin’s negligent acceptance of the checks, it would not
have been damaged. As to damages, Midwest Feeders alleges it lost
roughly $85 million dollars through Rawls’ fraudulent scheme, aided
by Bank of Franklin’s negligence. These allegations are sufficient
to create a factual issue on the claim for ordinary negligence.
As for negligent hiring, “a plaintiff must prove that (i) the

13

employer had actual notice of the employee’s incompetence or
unfitness; or (ii) the employer’s situation was such as to cast
upon the employer the duty of inquiring and the employer could have
discovered the employee’s incompetence or unfitness by proper
diligence.” Keen v. Miller Envtl. Grp, Inc., 702 F.3d 239, 245 (5th
Cir. 2012) (citing Doe ex rel. Brown v. Pontotoc Cnty. Sch. Dist.,
957 So. 2d 410, 416-17 (Miss. Ct. App. 2007)). As for negligent
supervision, the Mississippi Court of Appeals has recognized that
an employer must have actual or constructive knowledge of an
employee’s tendency for improper behavior for liability to attach.
See Holmes v. Campbell Props., Inc., 47 So. 3d 721, 729 (Miss. Ct.
App. 2010).
Based on the above analysis, the Court will deny the motion
to dismiss as to these claims.
C. Civil Conspiracy
In its sixth and final claim, Midwest Feeders alleges a civil
conspiracy between Rawls and Bank of Franklin. Bank of Franklin
argues that Midwest Feeders has not properly pled this claim.
To establish a civil conspiracy in Mississippi, a plaintiff
must plead (1) an agreement between two or more persons, (2) an
unlawful

purpose,

(3)

an

overt

act

in

furtherance

of

the

conspiracy, and (4) resulting damages to the plaintiff. Bradley v.
Kelley Bros. Contractors, 117 So. 3d 331, 339 (Miss. Ct. App.
2013). “A person can conspire with a corporate entity.” Id., at 339

14

n.4. “These elements are quite similar to those required of a
criminal conspiracy, with the distinguishing factor being that ‘an
agreement is the essence of a criminal conspiracy,’ while ‘damages
are the essence of a civil conspiracy.’” Id., at 339 (quoting 15A
C.J.S. Conspiracy § 7 (2012)). Further, “a civil conspiracy claim
cannot stand alone, but must be based on an underlying tort.” Aiken
v. Rimkus Consulting Grp., Inc., 333 F. App’x 806, 812 (5th Cir.
2008) (per curiam) (citing Wells v. Shelter Gen. Ins. Co., 217 F.
Supp. 2d 744, 755 (S.D. Miss. 2002) (applying Mississippi law;
collecting cases)).
Midwest Feeders alleges in its complaint (1) that “Rawls had
a personal relationship with one or more of the Bank of Franklin
officers who had supervisory authority at the Brookhaven Branch of
Bank of Franklin;” (2) that Rawls deposited more than $85 million
over six months in at least 891 transactions with the Bank of
Franklin;

(3)

that

“[d]espite

its

own

internal

policies

and

procedures, Bank of Franklin . . . took no steps to investigate,
detect, report, or disclose Rawls’ obviously suspicious banking
activities to any regulatory or law enforcement agency;” and (4)
that

Rawls

invoked

his

Fifth

Amendment

right

against

self-

incrimination when questioned under oath “whether he gave anything
of value to any employee, officer, or director of Bank of Franklin
as part of his scheme” to convert money from Midwest Feeders.
Compl. ¶¶ 77-80.

Midwest Feeders argues these four facts provide

15

circumstantial evidence of a conspiracy between Rawls and Bank of
Franklin.
Bank of Franklin argues that Midwest Feeders is barred by res
judicata from arguing an agreement existed between itself and
Rawls, that Midwest Feeders has not properly pled the fraud or
conversion on which the conspiracy is based, and that a negative
inference from Rawls’s invocation of the Fifth Amendment cannot be
drawn against it. Mem. Supp. 20-24; Reply 24-25. Midwest Feeders
argues instead that res judicata is inappropriate in this case and
that

the

negative

inference

can

be

applied

against

Bank

of

Franklin. Mem. Opp. 18-21.
First, res judicata is inapplicable in this case. “A federal
court, asked to give res judicata effect to a state court judgment,
must apply the res judicata principles of the law of the state
whose decision is set up as a bar to further litigation.” Hernandez
v. City of Lafayette, 699 F.2d 734, 736 (5th Cir. 1983). Therefore,
the Court must apply Kansas’s res judicata law to determine the
preclusive effect of prior litigation between Rawls and Midwest
Feeders. Kansas law4 requires: “(1) the same claim; (2) the same

4

There are apparently two versions of the test for res
judicata in Kansas jurisprudence. See Tri-State Truck Ins., Ltd.
v. First Nat. Bank of Wamego, 564 F. App’x 345, 348 (10th Cir.
2014). The second requires: “(1) identity in the thing sued for,
(2) identity of the cause of action, (3) identity of persons and
parties to the action, and (4) identity in the quality of person
for or against whom claim is made.” Waterview Resolution Corp. V.
Allen, 58 P.3d 1284, 1290 (Kan. 2002). The Tenth Circuit and the
district court before it “found no Kansas cases discussing,
16

parties; (3) claims that were or could have been raised; and (4) a
final judgment on the merits.” State v. Martin, 279 P.3d 704, 706
(Kan. 2012). This case does not involve the same claims or the same
parties.
Second, because the Court has already dismissed both claims
for conversion above, the conspiracy claim cannot rest on that
tort. The Court, however, finds that the claim for conspiracy can
be supported by the fraud committed by Rawls.5 Bank of Franklin
argues that the elements of fraud have not been properly pled. In
Mississippi, those elements are:
(1) a representation, (2) its falsity, (3) its
materiality, (4) the speaker’s knowledge of its falsity
or ignorance of its truth, (5) his intent that it should
be acted upon by the person and in the manner reasonably
contemplated, (6) the hearer’s ignorance of its falsity,
(7) his reliance on its truth, (8) his right to rely
thereon, and (9) his consequent and proximate injury.

analyzing or even acknowledging the fact that courts sometimes
articulate the test differently,” and ultimately it upheld the
district court’s application of the “same claim” test because it
was “most plainly stated” and there was “little or no substantive
difference between the tests.” Tri-State Truck, 564 F. App’x at
348 (internal quotation marks omitted). Therefore, this Court
will apply that test, as well.
5

Because this is a civil conspiracy to commit fraud, it is
worth noting that the Mississippi Court of Appeals has separately
enumerated the elements of this kind of conspiracy: “While
Mississippi has never expressly defined the elements in a
conspiracy to defraud suit, we agree that the common elements,
generally accepted, are: 1) a conspiracy; 2) an overt act of
fraud in furtherance of the conspiracy; and 3) damages to the
plaintiff as a result of the fraud.” Delta Chem. & Petroleum, 790
So. 2d at 377. Though the elements of this claim are stated
slightly differently, the Court finds that the difference does
not affect its analysis.
17

Martin v. Winfield, 455 So.2d 762, 764 (Miss. 1984). They must be
shown by clear and convincing evidence. Id. Midwest Feeders did not
separately plead fraud in this case because it does not make a
claim for fraud against Bank of Franklin. The Court finds, however,
that Midwest Feeders may rely on its assertion of Rawls’ fraud to
satisfy its pleading requirement. The Court finds that Midwest
Feeder’s allegation against Bank of Franklin whose alleged coconspirator Rawls has already confessed to fraud is sufficient to
survive a motion to dismiss.6
Third, a negative inference based on Rawls’s invocation of the
Fifth Amendment can be drawn against Bank of Franklin. “The Fifth
Amendment ‘does not forbid adverse inferences against parties to
civil actions when they refuse to testify in response to probative
evidence offered against them.’” F.D.I.C. v. Fidelity & Deposit Co.
of Maryland, 45 F.3d 969, 977 (5th Cir. 1995) (quoting Baxter v.
Palmigiano, 425 U.S. 308, 318 (1976)). And “a non-party’s silence

6

Because Rawls’ admitted his fraud outside of Mississippi,
the Court also finds that the elements of fraud in both
jurisdictions, Kansas and Mississippi, are substantially similar.
In a Kansas fraud action, a plaintiff must prove by clear and
convincing evidence that:
(1) false statements were made as a statement of
existing and material fact; (2) the representations
were known to be false by the party making them or were
recklessly made without knowledge concerning them; (3)
the representations were intentionally made for the
purpose of inducing another party to act upon them; (4)
the other party reasonably relied and acted upon the
representations made; and (5) the other party sustained
damage by relying upon them.
Kelly v. Vinzant, 197 P.3d 803, 808 (Kan. 2008).
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in a civil proceeding implicates Fifth Amendment concerns to an
even lesser degree.” Id. (quoting RAD Servs., Inc. v. Aetna Cas. &
Sur. Co., 808 F.2d 271, 275 (3d Cir. 1986)).
Ultimately, the Court finds that the circumstantial evidence
alleged by Midwest Feeders is sufficient to create a factual
inquiry

regarding

sufficiently

a

alleged

civil
an

conspiracy.

agreement

Midwest

between

Rawls

Feeders
and

Bank

has
of

Franklin to defraud Midwest Feeders by not investigating Rawls’
check scheme that resulted in substantial financial loss to Midwest
Feeders. Therefore, the Court will deny the motion as to this
claim.
III. Conclusion
In sum, the Court finds that some of Midwest Feeders’ claims
against Bank of Franklin should be dismissed. The claim for UCC
conversion must fail as a matter of law, and the claim for common
law conversion has been fully supplanted by the UCC. The claim for
failure

to

exercise

ordinary

care

requires

further

factual

development, as do the claims for negligence and negligent hiring
and supervision. They therefore survive the motion. Lastly, the
claim

for

civil

conspiracy

survives

because

Midwest

Feeders

sufficiently pled an agreement between Bank of Franklin and Rawls
to defraud Midwest Feeders. Thus, based on the above reasoning, the
Court grants in part and denies in part the motion to dismiss.
IV. Order

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IT IS HEREBY ORDERED that Defendant’s Motion to Dismiss for
Failure to State a Claim is GRANTED IN PART and DENIED IN PART.
FURTHER ORDERED that the claims for conversion under the UCC
and common law conversion are dismissed.

SO ORDERED this the 7th day of July 2015.
/s/ David Bramlette
UNITED STATES DISTRICT JUDGE

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