Lewis v. Telephone Employees Credit Union

Decision Date20 June 1996
Docket NumberKODAMA-SCHULMA,INC,94-56049 and 94-56077,Nos. 94-56045,s. 94-56045
Parties, 29 UCC Rep.Serv.2d 1121, 96 Cal. Daily Op. Serv. 4450, 96 Daily Journal D.A.R. 7190 Margaret LEWIS, Plaintiff-Appellant, v. TELEPHONE EMPLOYEES CREDIT UNION; Universal Savings Bank; Bay View Federal Savings and Loan Association; The Bank of America, Defendants-Appellees, American Independent Bank; Willie Gillyard; Mahogany Check Cashing; Defendants-cross-defendants Appellees, City National Bank, Defendant-cross-claimant-Appellee. Angus G. MacLEOD, as personal representative of the estate of Jean P. MacLeod, Plaintiff-Appellant, v. Willie J. GILLYARD; Mahogany Check Cashing, Defendants-Appellees. Angus G.S. MacLEOD, as personal representative of the estate of Jean P. MacLeod, Plaintiff-Appellant, v.; George Schulman; Doe Kodama; Doe Oswalt; Doe 1 a/k/a "Ira Singerman"; Willie T. Gillyard; Mahogany Check Cashing; American Independent Bank; Glendale Federal Bank; Sumitomo Bank of California; Federal Home Loan Bank, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Angus M. MacLeod, Wilke, Fleury, Hoffelt, Gould & Birney, Sacramento, California, for appellants.

Greta T. Hutton, Knapp, Peterson & Clarke, Glendale, California, for Telephone Employees Credit Union.

Kenneth R. Wachtel, Leland, Parachini, Steinberg, Flinn, Matzger & Melnick, San

Francisco, California, for Sumitomo Bank of California.

Jacob J. Stettin, Stettin and Cass, Los Angeles, California, for Universal Savings Bank and Bay View Federal Bank.

Nancy R. Tragarz, Prenovost, Normandin, Bergh & Dawe, Santa Ana, California, for American Independent Bank.

Jeffrey C. Briggs, Gibson, Dunn & Crutcher, Los Angeles, California, for Willie J. Gillyard & Mahogany Check Cashing.

Stephen T. Hicklin, Howard, Everakes & Associates, Glendale, California, for Glendale Federal Bank.

Gregory J. Hughes and Benjamin Webster, Pillsbury, Madison & Sutro, Sacramento, California, for Federal Home Loan Bank of San Francisco.

Diane Wemple Baxa, Office of the General Counsel, Beverly Hills, California, for City National Bank.

F. Thomas Eck, IV, Office of General Counsel, Los Angeles, California, for Bank of America.

George Schulman, Kodama-Schulman, Inc., Newport Beach, California, in propria persona.

Appeals from the United States District Court for the Central District of California, Manuel L. Real, Chief District Judge, Presiding. D.C. Nos. CV-93-06099-R, CV-94-02766-R and CV-93-05259-R.

Before BRIGHT, * NORRIS, and WIGGINS, Circuit Judges.

WIGGINS, Circuit Judge:

Two elderly women, Jean P. MacLeod and Margaret Lewis, were separately swindled out of hundreds of thousands of dollars by telephone fraud artists who persuaded the women to write numerous personal, cashier's, and teller's checks, purportedly for investment in valuable coins and gems. MacLeod's estate and Lewis each filed suit against the check cashing company that cashed most of the checks, the principals of a suspended corporation that received the proceeds of some of the checks, and several Doe defendants, charging them with RICO violations and fraud. Both plaintiffs also sued the banks that had sold, collected, or paid the checks, alleging, inter alia, breach of contract, breach of warranty, and conversion. The district court granted the banks' motions to dismiss under Fed.R.Civ.P. 12(b)(6). As a sanction for an alleged discovery violation, the district court excluded one of plaintiffs' important witnesses. The plaintiffs dismissed with prejudice their remaining claims against the remaining defendants so that they could immediately appeal the district court's exclusion of their witness.

MacLeod's estate and Lewis appeal the district court's dispositions in favor of the banks and the RICO and fraud defendants. We have jurisdiction under 28 U.S.C. § 1291 and affirm in part and reverse and remand in part.

PLEADED FACTS

The facts are pleaded in the complaint as follows. In June 1992, Jean P. MacLeod, a 78-year-old woman, living alone in Long Beach, California, and suffering from incurable cancer, was contacted over the phone by a man who identified himself as "Ira Singerman." MacLeod was convinced by "Singerman" to make substantial investments in valuable coins. At his urging, MacLeod purchased 31 teller's checks totalling $241,400 from Glendale Federal Bank ("Glendale"), which were drawn on Glendale's account at Federal Home Loan Bank of San Francisco ("FHLB"). Twenty-nine of the checks were written in the name of a number of individuals who "Singerman" claimed would sell coins to MacLeod, and two of the checks were written to "Kodama-Schulman," purportedly "Singerman's" accountant. MacLeod also wrote seven personal checks totalling $101,066 to "Kodama-Schulman." MacLeod was directed by "Singerman" to turn the checks over to a messenger who came to her apartment. MacLeod never received any coins.

The personal checks and two teller's checks written to "Kodama-Schulman" were deposited in the account at Sumitomo Bank of California ("Sumitomo") of Kodama-Schulman, Inc., a suspended California corporation. None was indorsed by the payee, but eight of the nine were indorsed with bank-produced stamps indicating either that the proceeds were credited to the account of "Kodama/Oswalt/Schulman Inc," or the "within named payee." The ninth check, a personal check, had neither a payee's indorsement nor a bank supplied indorsement. The other twenty-nine teller's checks were indorsed with the names of the payees and cashed in Los Angeles at Mahogany Check-Cashing, owned by Willie Gillyard ("Gillyard"). All twenty-nine checks were deposited by Gillyard and credited to his account at American Independent Bank ("AIB"). AIB transferred the checks to FHLB, which paid the checks and debited Glendale's account at FHLB.

Margaret Lewis, an elderly woman living alone in Orange County, California, was convinced by a man calling himself "Larry Yeleti" to purchase twenty-nine cashier's and teller's checks worth a total of $130,776 made payable to "non-existent" individuals whose names were provided by "Yeleti" for investment in coins and jewels. Lewis purchased twenty-three cashier's checks from the Telephone Employees Credit Union ("TECU"), one cashier's check from Bank of America ("BofA"), three teller's checks from Universal Savings Banks ("Universal"), and two teller's checks from Bay View Savings Bank ("Bay View"). Each of the checks was indorsed with the names of the payee, cashed at Gillyard's place of business, deposited at AIB, and credited to Gillyard's account. Five of the checks were routed through City National Bank ("CNB") before being paid by the drawee banks. The remainder were transferred directly for payment from AIB to the drawee banks. Lewis received only "samples" of the coins and jewels, worth less than $50.

PROCEDURAL HISTORY

In early 1993, MacLeod's family reported the swindle to the Long Beach Police. MacLeod died soon thereafter in March 1993. In June 1993, while the police investigation apparently proceeded slowly, MacLeod's estate ("the Estate") filed suit against Gillyard, Kodama-Schulman, Inc. and its principals, and several Doe defendants for RICO violations and fraud; against Sumitomo and Glendale for wrongful payment of the personal and teller's checks written to Kodama-Schulman; and against AIB, FHLB, and Glendale for wrongful payment and conversion of the other teller's checks. The police informed Jean MacLeod's nephew and counsel for the Estate, Angus MacLeod ("Attorney MacLeod"), of the similar swindle of Lewis. Lewis was given Attorney MacLeod's name by local police and she eventually became his client. In October 1993, Lewis filed suit against Gillyard, Kodama-Schulman, Inc. and its principals, and several Doe defendants for RICO violations and fraud; against TECU, Universal, BofA, and Bay View for breach of contract in the sale of teller's and cashier's checks; and against AIB and CNB for wrongful payment, breach of warranty and conversion. 1

Disposition of the Claims Against the Bank Defendants

AIB filed a motion under Fed.R.Civ.P. 12(b)(6) to dismiss the Estate's claims against it on the grounds that MacLeod, as a remitter of the cashier's checks, had no standing to bring any claims arising out of payment of the checks and that AIB was a holder in due course. Sumitomo filed a 12(b)(6) motion to dismiss the Estate's claims against it on the grounds that it was a holder in due course of the checks it paid and that the intended payee had received the proceeds of the checks deposited in Kodama-Schulman, Inc.'s account with Sumitomo. Glendale joined both motions. In November 1993, the district court, without stating its reasoning, granted the motions to dismiss on behalf of all three parties. After the district In Lewis's case, Bay View and Universal filed a joint 12(b)(6) motion, relying in large part on the district court's grant of AIB's similar motion in the MacLeod case, and also arguing that Lewis lacked standing to bring claims arising out of payment of the cashier's checks and that the banks were not liable for payment of checks written to a fictitious person. AIB and TECU filed similar 12(b)(6) motions to dismiss Lewis's claims against them, and BofA joined AIB's motion. In January and February 1994, the district court granted the motions to dismiss on behalf of Bay View, Universal, AIB, TECU, and BofA, specifically stating that Lewis did not have standing to bring her claim against AIB, BofA, and TECU. In April 1994, the claims against CNB were dismissed by stipulation.

court denied the Estate's motion for reconsideration, the claims against FHLB were dismissed by stipulation in February 1994.

Disposition of the Claims Against the Fraud Defendants

Detectives Ross Smillie and Leonard Gaeta of the Long Beach Police Department began investigating the swindle of MacLeod in early 1993....

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