Midwest Feeders, Inc. v. The Bank of Franklin
ORDER granting 321 Motion for Summary Judgment; finding as moot 302 Motion to Exclude Opinions and Testimony of Edward Cordes; finding as moot 306 Motion to Exclude Opinions and Testimony of Cathy Glassman; finding as moot 316 Motion to Exclude Opinions and Testimony of John Barthel. Signed by Honorable David C. Bramlette, III on 1/18/2017 (EB)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
MIDWEST FEEDERS, INC.
CIVIL ACTION NO. 5:14-cv-78-DCB-MTP
BANK OF FRANKLIN
MEMORANDUM OPINION AND ORDER
This cause is before the Court on defendant Bank of Franklin’s
Motion for Summary Judgment (docket entry 321) and motions to
exclude the opinions and testimony of Edward Cordes (docket entry
302), Cathy C. Glassman (docket entry 306), and John D. Barthel
(docket entry 316).
Having carefully considered the motions,
responses, and applicable law, and being otherwise fully informed
in the premises, the Court finds as follows:
Facts and Procedural History
involvement in a “fictitious payee” scheme orchestrated against
Midwest Feeders, Inc. (“Midwest Feeders” or “Midwest”) by Robert
commercial cattle feedlot business based in Gray County, Kansas.
Doc. 1, ¶ 1. The Bank of Franklin is a community bank with branches
in Brookhaven and Meadville, Mississippi. Id.
In an effort to expand its operations, Midwest Feeders entered
the cattle “clearing” business in 2006. See Doc. 383-17.
entering into these arrangements with its customers, Midwest would
procurement of livestock. Id.
In that same year, Midwest Feeders
entered into a clearing agreement with Robert Rawls, who conducted
business individually and through Robert Rawls Livestock and Rawls
Trucking, LLC (collectively, “Rawls”). Id. at 13; Doc. 383-73.
Midwest entered into this agreement after obtaining favorable
recommendations about Rawls from other customers. Doc. 383-17, p.
Midwest Feeders, Midwest would deposit money into an account at
Alva State Bank & Trust of Alva, Oklahoma (“Alva”) for Rawls to
use for the purchase of livestock in exchange for a security
interest in the livestock purchased. Id.; Doc. 1, ¶ 11.
agreement was structured so that Rawls could write a check drawn
on the Alva account to purchase cattle, and the cattle would be
Livestock.” See Doc. 383-36; Doc. 383-70; Doc. 383-42.
check on this account was issued, Midwest would fund the Alva
account to cover the check drawn by Rawls. Doc. 383-17, p. 55.
The cattle in inventory would then be sold, creating an account
receivable, with proceeds from the cattle purchaser being paid
directly to the Alva account. Id.
The payment was to be made by
purchasers via deposits to a post office lock box controlled by
Deposits from the purchaser would then be credited to
Rawls’ outstanding accounts receivable. Id.
In exchange for its
funding, Midwest received compensation through fees and interest
on outstanding funds. Id.
In 2010, Rawls became a customer of the Bank of Franklin, a
banking relationship which consisted of two commercial loans and
a checking account in the name of Robert Rawls Livestock. See Doc.
383-9; Doc 321-21; Doc. 383-32. Rawls came to the bank after
Charles Magee, executive vice president and loan committee member,
solicited his business. Doc. 383-9, p. 22. Magee and Rawls had
known each other for 30 years, and the two socialized on occasion.
Magee oversaw Rawls’ accounts while he was a customer of
the bank, processing his loans and approving wire transfers when
necessary. See Doc. 383-9. On several occasions, Magee approved
transfers from Rawls’ checking account when the balance was in the
According to Magee, if Rawls’ line of credit was
sufficient to cover the transaction or if Rawls indicated that he
planned to deposit funds into his checking account, Magee would
approve the wire. Id.
At some point during Rawls’ business dealings with Midwest
Feeders, Rawls created fictitious cattle purchases and diverted
money from the Alva account for his personal use. Doc. 1, ¶ 14.
Rawls made out checks to fictitious payees drawn on the Alva
account and endorsed them and stamped them as payable to his
livestock company for deposit only.
Rawls then deposited the
checks into his checking account at Bank of Franklin, which turned
them over to Alva for payment. See Doc. 383-77.
In an effort to
disguise these transactions as legitimate, Rawls also created
fictitious invoices to accompany the checks. See Doc. 383-17, p.
215. In March of 2014, Rawls confessed his scheme to Midwest
president, Jeff Sternberger, who then notified Charles Magee.1 Id.
In 2011, prior to Rawls’ confession, executives at the Bank
of Franklin made an inquiry concerning Rawls’ account and deposit
transactions, specifically his uncollected funds balance and the
checks being deposited into his checking account. See Doc. 383-1;
Doc. 383-2; Doc. 383-8.
The type of checks deposited by Rawls
were uncommon at the bank,2 and Magee was instructed to speak with
Rawls about the nature of these deposits. Doc. 383-3, p. 129; Doc.
383-9, p. 72.
When asked about the checks, Rawls explained that
these transactions were common practice in the cattle industry.
Doc. 838-9, p. 73.
Being satisfied with this explanation, the
activity. See Doc. 838-9; Doc. 383-8.
On September 5, 2014, Midwest Feeders filed suit against Bank
of Franklin, alleging six claims against the bank in connection
with Rawls’ fraudulent scheme.
The Court dismissed two claims at
1 In August 2014, the District Court of Finney County, Kansas entered a
judgment against Rawls in favor of Midwest in the amount of $30,283,566.86.
Doc. 1, ¶ 7.
The checks in question appeared to be drawn on the Alva account to third
party payees, then endorsed by the third party and stamped as payable to Rawls.
the motion to dismiss stage, and four claims remain pending:
failure to exercise ordinary care under Mississippi Code Section
75-3-404(d), negligence, negligent hiring and supervision, and
Bank of Franklin filed its Motion for Summary
Judgment, along with motions to exclude the opinions and testimony
of three expert witnesses designated by Midwest Feeders.
II. Motion for Summary Judgment
A. Standard of Review
Summary judgment shall be granted “if the movant shows that
there is no genuine dispute as to any material fact and that the
movant is entitled to judgment as a matter of law.” Fed. R. Civ.
A “material fact” is one that might affect the outcome
of the suit under the governing law. Spansel v. State Farm, 683 F.
Supp. 2d 444, 447 (S.D. Miss. 2010).
A genuine dispute exists
when the evidence is such that a reasonable jury could return a
verdict for the nonmoving party. Id.
In determining whether there
is a genuine dispute as to any material fact, the Court considers
credibility determinations or weighing the evidence. Flock v.
Scripto-Tokai, 319 F.3d 231, 236 (5th Cir. 2003).
responsibility of informing the district court of the basis for
its motion, and identifying those portions of [the record] which
it believes demonstrate the absence of a genuine issue of material
fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
the moving party makes such a demonstration, the burden shifts to
the nonmovant to “go beyond the pleadings” and “designate specific
facts showing that there is a genuine issue for trial.” Estate of
Sanders v. U.S., 900 F.Supp.2d 730, 733 (S.D. Miss. 2012).
The Court views the evidence and draws reasonable inferences
in the light most favorable to the nonmovant.
Maddox v. Townsend
and Sons, Inc., 639 F.3d 214, 215 (5th Cir. 2011).
But in the
absence of any proof, the Court will not assume that the nonmoving
party could or would prove the necessary facts. Little v. Liquid
Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
1. Failure to Exercise Ordinary Care
Franklin for failure to exercise ordinary care under the Uniform
Commercial Code (“UCC”), as codified by Mississippi Code Annotated
The statute provides:
With respect to an instrument to which subsection (a) or
(b) applies, if a person paying the instrument 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 loss may recover
from the person failing to exercise ordinary care to the
extent the failure to exercise ordinary care contributed
to the loss.
Miss. Code Ann. § 75-3-404(d) (emphasis added).
Bank of Franklin
argues that Midwest lacks standing to recover under Section 75-36
404 because Midwest was not a party to any of the checks deposited
into Rawls’ Bank of Franklin account.
In response, Midwest
maintains that Mississippi’s fictitious payee statute provides a
right of recovery for any person who suffers loss caused by a
Although Midwest’s argument hinges on the phrase “person
bearing loss,” this statutory language does not exist in a vacuum.
language of the statute, and “the Court looks to the whole of the
statute to avoid adhering to one sentence or phrase […] in a way
that skews its true meaning.” Manufab, Inc. v. Miss. State Tax
Comm’n, 808 So. 2d 947, 949 (Miss. 2002).
Article 3 of the UCC
negotiable instruments. See Miss. Code Ann. § 75-3-102.
remedies provided by the UCC “must be liberally administered to
the end that the aggrieved party may be put in as good a position
as if the other party had fully performed.” § 75-1-305(a).
“aggrieved party” is defined as “a party entitled to pursue a
remedy.” § 75-3-103(a).
There are three categories of persons
entitled to enforce negotiable instruments under Article 3:
“Person entitled to enforce” an instrument means (i) the
holder of the instrument, (ii) a nonholder in possession
of the instrument who has the rights of a holder, or
(iii) a person not in possession of the instrument who
is entitled to enforce the instrument pursuant to
Section 75-3-309 or 75-3-418(d).3 A person may be a
person entitled to enforce the instrument even though
the person is not the true owner of the instrument or is
in wrongful possession of the instrument.
Miss. Code Ann. § 75-3-301.
By its own account, Midwest Feeders cannot qualify as a
“person entitled to enforce” the checks deposited into Rawls’ Bank
of Franklin account.
Midwest was not a party to any of the
instruments — it was not the payee or the drawer on the checks,
and Midwest never possessed any of the checks at issue.
Midwest Feeders may have an interest in the funds behind the forged
checks, “an interest in funds backing the checks” is not the same
as “an interest in the checks themselves.” Am. Nat’l Ins. Co. v.
Citibank, N.A., 543 F.3d 907, 910 (7th Cir. 2008) (holding that a
party with only an equitable interest in a check could not assert
a claim for conversion under a UCC provision identical to the
section codified by the Mississippi legislature). Because Midwest
is not a “person entitled to enforce” the instrument under Article
3, it necessarily follows that Midwest cannot maintain a cause of
action against Bank of Franklin under Section 75-3-404(d).4
Section 75-3-309 governs the enforcement of lost, destroyed, or stolen
instruments, and Section 75-3-418(d) applies when an instrument is paid or
accepted by mistake and the payor or acceptor recovers payment or revokes
acceptance. Neither of these provisions are applicable here.
4 In a substantially similar case, the United States District Court for
the Middle District of Georgia also held that Midwest Feeders lacked standing
to sue under Georgia’s UCC where Midwest was not a “person entitled to enforce
an instrument” under the statute. See Midwest Feeders v. Regions Bank (Inc.)
(Alabama), 2016 WL 5796894, *4 (M.D. Ga. Sept. 30, 2016).
Though the case law interpreting Section 75-3-404(d) appears
to be void of any interpretation as to who may qualify as a “person
bearing loss,” the official comments to the UCC are instructive
envisioned recovery under the fictitious payee statute.5
comments explain, Section 3-404 was enacted as a comparative loss
provision, allocating liability between parties to the instrument:
But in some cases the person taking the check might have
detected the fraud and thus have prevented the loss by
the exercise of ordinary care. In those cases, if that
person failed to exercise ordinary care, it is
reasonable that the person bear loss to the extent the
failure contributed to the loss.
Subsection (d) is
intended to reach that result. It allows the person who
suffers loss as a result of payment of the check to
recover from the person who failed to exercise ordinary
care. In Case #1, Case #2, and Case #3, the person
suffering the loss is Corporation, the drawer of the
check. In each case the most likely defendant is the
depository bank that took the check and failed to
exercise ordinary care. In those cases, the drawer has
a cause of action against the offending bank to recover
a portion of the loss.
If the depository bank failed to exercise ordinary care
and the failure substantially contributed to the loss,
the drawer in Case #4 or the drawee bank in Case #5 has
a cause of action against the depository bank under
U.C.C. § 3-404, cmt. 3 (emphasis added).
Though the list is not
exhaustive, the case illustrations provided in the comments each
Though the comments have not been adopted by the Mississippi legislature,
“[s]till we look to official comments about uniform laws, when those laws have
been adopted all but verbatim by the legislature, as the most informed source
explaining provisions of the original enactment.” Holifield, 891 So. 2d at 248.
depict scenarios in which the injured party is the drawer or maker
of the check, and none of the examples anticipate recovery for a
third party, like Midwest Feeders, which has no relationship with
Midwest has not cited to any legal authority granting a person
or entity in its position a right to recover against a bank under
The Court is similarly unaware of any circumstances
which would allow a plaintiff to recover on a negotiable instrument
under Article 3 without first having an interest in the instrument
Accordingly, the Court finds that Midwest Feeders cannot
maintain its claim against the Bank of Franklin under Section 753-404(d), and summary judgment shall be granted on the remaining
2. Negligence Claims
Midwest Feeders brings two claims in negligence against the
negligence are: “duty or standard of care, breach of that duty or
standard of care, proximate causation, and damages or injury.”
Midwest cites one Michigan case in an effort to demonstrate that other
courts have allowed non-party plaintiffs to recover for failure to exercise
ordinary care under the UCC. See Hantz Fin. v. Chemical Bank, 2014 WL 5500383
(Mich. Ct. App. 2014) (allowing recovery where the plaintiff was not a party to
the instruments, but where the plaintiff was the intended payee). But the facts
in this case are distinguishable from Hanz Fin. Midwest Feeders was never listed
as payee, nor were any of the checks intended for Midwest.
Lyle v. Mladinich, 584 So. 2d 397, 398 (Miss. 1991).
order “[t]o prevail on any type of negligence action, a plaintiff
must first prove the existence of a duty.” Douglas v. Trustmark
Nat’l Bank, 2016 WL 4442829, *4 (S.D. Miss. Aug. 17, 2016) (citing
Enterprise Leasing Co. v. Bardin, 8 So. 3d 866, 868 (Miss. 2009)).
Bank of Franklin maintains that it is entitled to summary judgment
on both negligence-based claims because the bank owed no duty to
Relying on a wealth of cases from other jurisdictions, Bank
of Franklin urges the Court to apply “[t]he almost-universal rule
that banks do not owe a common law duty of care to third-party
non-customers.” VIP Mortgage Corp. v. Bank of America, N.A., 769
F. Supp. 2d 20, 27 (D. Mass. 2011); see Lerner v. Fleet Bank, N.A.,
459 F.3d 273, 286 (2d Cir. 2006) (“banks do not owe non-customers
Notably, courts within the Fifth Circuit have also
See also SFS Check, LLC v. First Bank of Del., 774 F.3d 351, 357 (6th
Cir. 2014); Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220, 225 (4th Cir. 2002);
Conder v. Union Planters Bank N.A., 384 F.3d, 397, 400 (7th Cir. 2004); Wiand
v. Wells Fargo Bank, N.A., 938 F.Supp.2d 1238 (M.D. Fla. 2013); Chaney v.
Dreyfus Service Corp, 595 F.3d 219, 232 (5th Cir. 2010) (applying New York law);
Old Republic Nat. Title Ins. Co. v. Landmark Closing Co., 2010 WL 2228436, *2
(E.D. Ark. 2010); Public Service Co. of Okla. v. A Plus, Inc., 2011 WL 3329181,
*7 (W.D. Okla. 2011); Volpe v. Fleet Nat. Bank, 710 A.2d 661, 664 (R.I. 1998)
(depository bank owed no duty of care to non-customer payee whose indorsement
was forged); Weil v. First Nat. Bank of Castle Rock, 983 P.2d 812, 814 (Colo.
Ct. App. 1999); McCallum v. Rizzo, 1995 WL 1146812, *2 (Mass. Super. Ct. Oct.
13, 1995) (“The mere fact that a bank account can be used in perpetrating a
fraud does not mean that banks have a duty to persons other than their own
customers.”); Commerce Bank/Pa. v. First Union. Nat. Bank., 911 A.2d 133, 140
(“banks do not have a duty to inform other banks of their suspicion of checkkiting activity”).
taken a position consistent with this general rule. See Guidry v.
Bank of LaPlace, 954 F.2d 278, 286 (5th Cir. 1992) (applying
Louisiana law to find that “under normal circumstances a bank owes
no duty to those who are not its customers respecting investigation
or disclosure concerning its customers”); Red Rock v. Jafco Ltd.,
79 F.3d 1146, 1996 WL 97549, *4 (5th Cir. 1996) (unpublished)
(finding that under Texas law a bank owes “no legal duty of care
to investigate or disclose its customers’ conduct or intent to
third parties with whom the bank’s customers do business”); Marlin
v. Moody Nat. Bank, N.A., 248 Fed. App’x 534, 540 (5th Cir. 2007)
(unpublished) (“a bank owes a duty of care to customers but not
The rationale behind finding an absence of duty
has been explained as follows:
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 a right to treat
the check as it would any other deposit. To require the
bank to investigate the underlying transaction which led
to issuance of the instrument or to permit a third person
to challenge a depositor’s ownership . . . would result
in an unreasonable burden upon, and disruption of,
regular and normal banking transactions.
Shreveport Prod. Credit Ass’n v. Bank of Commerce, 405 So. 2d 842,
845-46 (La. 1981). See also Eisenberg, 301 F.3d at 226 (citing
McCallum, 1995 WL 1146812 at *3 (“to extend a duty of care to [non-
customers] would be contrary to the normal understanding of the
purpose of a bank account and would expose banks to unlimited
liability for unforeseeable frauds”)).
In response, Midwest Feeders attempts to distinguish the
class of cases relied upon by Bank of Franklin, noting that even
exceptions in certain circumstances. See In re Liberty State
Benefits, 541 B.R. 219, 251 (Bankr. D. Del. 2015) (noting that
banks may owe a duty to non-customers if the bank was on notice of
the non-customer’s concerns or special needs); Morgan Stanley &
Co. Inc. v. JP Morgan Chase Bank, N.A., 645 F. Supp. 2d 248, 256
(S.D.N.Y. 2009) (imposing a duty to foreseeable non-customers
where the bank voluntarily allowed non-customers to utilize its
“lockbox” facility); Chicago Title v. Allstate Bank, 905 A.2d 366,
378 (M.D. App. 2006) (recognizing a duty of care where there was
an intimate nexus between the depository bank and the non-customer
through contractual privity or its equivalent); In re McMullen
Oil, 251 B.R. 558, 571-72 (Bankr. C.D. Cal. 2000) (depository bank
owed a duty of care to payee where the bank accepted checks without
the payee’s indorsement); Chaney, 595 F.3d at 232 (noting that a
bank may be held liable for its customer’s misappropriation where
“(1) there is a fiduciary relationship between the customer and
non-customer, (2) the bank knows or ought to know of the fiduciary
relationship, and (3) the bank has actual knowledge or notice that
diversion is to occur or is ongoing").
While Bank of Franklin
limited exceptions to the general rule that a bank owes no duty to
The appellate courts in Mississippi have not addressed the
duties, if any, which a bank owes to non-customers under facts
similar to those in the case sub judice.
“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, and the Court’s task in making such a guess is “to
predict state law, not to create or modify it.”
Keen v. Miller
Envtl. Grp., Inc., 702 F.3d 239, 243 (5th Cir. 2012).
an Erie guess, [courts] defer to intermediate state appellate court
decisions, 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).
The parties dispute the applicability of three Mississippi
Citizens Nat’l Bank v. First Nat’l Bank, 347 So. 2d 964
(Miss. 1977) (holding that in the absence of a fiduciary or
confidential relationship, or some other legal duty, a depository
bank had no duty to inform a drawee bank that customer was engaged
in check kiting scheme), Holifield v. Bancorp South Inc., 891 So.
knowledge,8 a bank owed no duty to third-party investors to prevent
bank customer from using his account in furtherance of fraudulent
scheme), and Delta Chem. & Petroleum v. Citizens Bank, 790 So. 2d
862 (Miss. Ct. App. 2001) (discussing a bank’s duty owed to noncustomer payee when accepting checks with forged indorsements).
Though none of these cases are dispositive of the issue, the Court
finds that these holdings are instructive insofar as they suggest
that the Supreme Court of Mississippi would join a majority of
courts by finding that Bank of Franklin owed no duty to Midwest
circumstances under which the Mississippi Supreme Court may take
exception to the general rule that banks owe no duty to noncustomers, the Court declines to carve out a special exception in
this case. See VIP Mortg. Corp, 769 F. Supp. 2d at 27 (“federal
“Actual knowledge was defined as ‘awareness at the moment of the
transaction that the fiduciary is defrauding the principal. It means factual
information that the funds are being used for private purposes in violation of
the fiduciary relationship.’” Holifield, 891 So. 2d at 249 (quoting Collier v.
Trustmark Nat’l Bank, 678 So. 2d 693 (Miss. 1996) (bank could not be negligent
in allowing trustee to transfer funds from trust account to trustee’s personal
account without having actual knowledge of trustee’s fraudulent actions)).
courts siting in diversity should be cautious about ‘push[ing]
state law to new frontiers.’”).
Midwest does not dispute that it was not a customer of the
Bank or a party to the checks deposited into Rawls’ Bank of
Further, Midwest has failed to establish that
Bank of Franklin knew that Rawls was violating the terms of a
fiduciary relationship that he had or may have had with Midwest.
Angela Smith, the branch manager at the bank’s Brookhaven location,
testified by deposition that although she heard the name “Midwest”
in connection with Rawls, she did not know any specifics regarding
Rawls’ relationship to Midwest. Doc. 383-3, p. 124.
Morse, the president of Brookhaven branch, testified that he never
heard the name “Midwest Feeders” prior to speaking with his
attorneys in relation to the pending suit. Doc. 383-4, p. 92.
Midwest produced no evidence that the Bank of Franklin knew the
terms of the clearing arrangement entered between Rawls and Midwest
Feeders, and there is no evidence that the Bank of Franklin had
knowledge that the payees on the subject checks were non-existent
and thus beyond the scope of the agreement between Rawls and
What’s more, Alva State Bank never returned an unpaid
check to the Bank of Franklin.
While there is evidence that Bank
of Franklin knew Midwest Feeders had a lien on the real property
where Rawls’ facility was located, and that the bank knew Rawls
had an account and line of credit at Alva State Bank, these facts
fail to establish that the Bank of Franklin was aware of the
arrangement between Midwest Feeders, Rawls, and the Alva State
Bank. See Doc. 383-9, p. 62; Doc. 383-75, ¶ 14.
transactions and data.
See generally Doc. 383-17; Doc. 383-22;
Yet, this scrutiny did not reveal Rawls’ fraud until
March 2014 when Rawls informed Sternberger that he had written
checks to fictional individuals to pay for non-existent cattle,
then deposited those checks into the Bank of Franklin. Also, Magee
and other bank employees testified that they were unaware of Rawls’
fraudulent scheme prior to March 2014, and that testimony is
uncontradicted by Midwest Feeders.9 See Doc. 383-9, pp. 39-52; Doc.
383-2, pp. 72-76; Doc. 383-17, pp. 210, 224.
By arguing that the
bank should have discovered Rawls’ fraud and thus prevented the
losses sustained by the plaintiff, Midwest attempts to shield and
defend its own lack of care in the monitoring of its cattle
clearing business by placing the blame squarely on the Bank of
Franklin, which was not in a fiduciary relationship with Midwest
To expose the Bank of Franklin to liability under these
circumstances for undiscovered and unknown fraud to a non-customer
Testimony from Jeff Sternberger actually lends support for the bank’s
proposition that it had no prior knowledge of Rawls’ wrongdoings.
Applying the law to the facts, the Court is unpersuaded that
the Mississippi Supreme Court would find that the Bank of Franklin
owed any duty to Midwest Feeders, a non-customer whose name did
not appear on any of the checks at issue, and with which the bank
had no relationship.
While there is evidence that some of the
checks deposited into Rawls’ Bank of Franklin account lacked
sufficient endorsements, and that accepting unendorsed checks for
deposit is generally not within the bounds of reasonable commercial
practices, a bank does not assume a duty to non-customers by merely
adequately train its employees.
Absent any duty owed by the Bank
of Franklin, the Court finds that Midwest’s negligence based claims
fail as a matter of law.
3. Civil Conspiracy
A conspiracy under Mississippi law is “a combination of
persons for the purpose of accomplishing an unlawful purpose or a
lawful purpose unlawfully.” Gallagher v. Bassett Service, Inc. v.
Jeffcoat, 887 So. 2d 777, 786 (Miss. 2004).
To establish a civil
conspiracy a plaintiff must prove: “(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. Kelly Bros. Contractors, 117 So. 3d 331,
339 (Miss. Ct. App. 2013).10 “It is imperative that a plaintiff
asserting a cause of action for conspiracy prove that the parties
had an agreement, either to accomplish an unlawful purpose or to
accomplish a lawful purpose unlawfully.” Gallegos v. Mid-South
Mortg. & Inv., Inc., 956 So. 2d 1055, 1060 (Miss. Ct. App. 2007).
For conspiracy to arise, “the alleged confederates must be aware
agreement.” Bradley v. Kelly Bros. Contractors, 117 So. 3d 331
(Miss. Ct. App. 2013).
A review of Mississippi case law suggests that courts in this
state will not hesitate to render judgment where there is no
credible evidence of one or more elements of conspiracy.
Gallagher, 887 So. 2d at 786-87 (Miss. 2004) (finding no evidence
of any agreement, open or tacit, between the entities such that a
combination of persons was formed for an unlawful purpose); First
Nat’l Bank of Iuka v. Alcorn, Inc., 361 So. 2d 481, 494 (Miss.
1978) (the fact that alleged co-conspirator admitted to knowing
the bank employee in a business and social manner, coupled with
the employee’s negligence and wrongful banking transactions, was
not sufficient to prove conspiracy); Southern Health Corp. of
“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 862.
(acquiescence to act does not constitute an agreement to commit an
unlawful act); see also Marlin, 248 Fed. App’x at 538 (5th Cir.
2007) (unpublished) (finding no support for conspiracy claims
under Texas law where there was no evidence that bank and its
manager knew of sham transactions perpetrated by account holder,
or that the bank agreed to assist the holder in executing fraud).
Bank of Franklin argues that, despite extensive discovery,
Midwest Feeders has produced no credible evidence to show that the
bank or any of its agents conspired with Rawls to defraud the
In response, Midwest Feeders maintains that the record
contains sufficient circumstantial evidence to create a reasonable
inference of conspiracy between Rawls and the Bank of Franklin.
In support of its position, Midwest Feeders points to the bank’s
eagerness to obtain Rawls’ business, a high uncollected funds
balance in Rawls’ Bank of Franklin checking account, the bank’s
acceptance of unendorsed checks for deposit into Rawls’ account,
and a personal friendship between Rawls and Charles Magee, his
account and loan officer at the bank.
Midwest Feeders’ conspiracy theory is largely predicated on
the close relationship that existed between Rawls and Magee.
the record, it appears that Rawls and Magee were personally
acquainted for 30 years, and that Rawls’ relationship with the
Bank of Franklin began when Magee invited Rawls to do business
commercial loans for Rawls, both secured by real property, and
Rawls opened his checking account with the bank shortly thereafter.
When bank executives raised questions about deposited checks and
the uncollected funds balance of Rawls’ checking account in 2011,
Magee, as the account officer, was instructed to obtain more
information from Rawls about his account activity.
representations made by Rawls and relayed by Magee, executives at
the Bank of Franklin were satisfied that Rawls had legitimate
business reasons for his account activity.
While Rawls was a
customer of the bank, he and Magee exchanged text messages about
personal and business matters, and the two socialized frequently
outside of the office.
As the bank officer in charge of overseeing
Rawls’ checking account when there was a negative balance in the
account, and also advised a co-worker to refrain from reporting
any of Rawls’ loans to the credit bureau, waive any late fees, and
remove a past due loan payment from the account history.
While it appears that Rawls may have obtained favorable
treatment from the Bank of Franklin due to his close relationship
with Magee, friendship and preferential treatment, without more,
are insufficient to prove the existence of a conspiracy between
parties. See Delta Chem. & Petroleum, Inc., 790 So. 2d at 878 (“The
fact that [one party] received some favorable loans and other items
of compensation due to their personal relationship with [the other]
does not ipso facto create the existence of a conspiracy.”); Esmark
Apparel, Inc. v. James, 1992 WL 565223 (N.D. Miss. July 6, 1992)
(unreported) (an inference of guilt formed solely by association
was not an inference sturdy enough to withstand summary judgment
on conspiracy claim).
And although conspiracy is often proven
through circumstantial evidence and inferences fairly drawn from
the behavior of alleged conspirators, “inferences favorable to the
plaintiff must be within the range of reasonable probability and
it is the duty of the court to withdraw the case from the jury if
the necessary inference is so tenuous that it rests merely upon
speculation and conjecture.” Harris v. Miss. Valley State Univ.,
873 So. 2d 970, 981 (Miss. 2004).
The Court finds that the evidence proffered by Midwest Feeders
in this case offers no more than speculation and conjecture
insufficient to create a genuine issue of material fact as to the
Like an unidentified sound in the night,
Midwest’s argument beckons wild assumptions about hidden schemes
skulking beneath a shadow of the facts.
But to accept the
conspiracy theory advanced by Midwest Feeders would require the
fact-finder to pile inference upon inference, namely that Magee
knew of Rawls’ fraudulent scheme, that he agreed to conspire with
Rawls, and that he acted on behalf of the Bank of Franklin in
furtherance of that agreement.
While the record may suggest a
close friendship together with certain waivers allowed by Magee
visa vi Rawls, this evidence alone is insufficient to sustain a
claim for conspiracy.
Thus, the Court finds that summary judgment
is also appropriate on Midwest’s conspiracy claim.
III. Motions to Exclude Expert Testimony
Having found that Bank of Franklin is entitled to summary
judgment on all claims stated against it, the Court shall deny
Bank of Franklin’s pending motions to exclude the expert testimony
of Edward Cordes, Cathy Glassman, and John Barthel as moot.
IT IS HEREBY ORDERED that Defendant’s Motion for Summary
Judgment (docket entry 321) is GRANTED;
IT IS FURTHER ORDERED that Defendant’s Motion to Exclude
Opinions and Testimony of Edward Cordes (docket entry 302) is MOOT;
IT IS FURTHER ORDERED that Defendant’s Motion to Exclude
Opinions and Testimony of Cathy Glassman (docket entry 306) is
IT IS FURTHER ORDERED that Defendant’s Motion to Exclude
Opinions and Testimony of John Barthel (docket entry 316) is MOOT.
A Final Judgment dismissing this cause with prejudice shall
be entered of even date herewith.
SO ORDERED, this the 18th day of January, 2017.
/s/ David Bramlette_________
UNITED STATES DISTRICT JUDGE
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