Statewide Ins. Co. of Illinois v. Valley Nat. Bank of Arizona
| Citation | 919 F.2d 146 |
| Decision Date | 29 November 1990 |
| Docket Number | Nos. 89-15219,89-15276,s. 89-15219 |
| Parties | Unpublished Disposition NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. STATEWIDE INSURANCE COMPANY OF ILLINOIS, an Illinois Corporation, Northwestern National Insurance Company, a Wisconsin corporation, Plaintiffs-Appellees-Cross-Appellants, v. VALLEY NATIONAL BANK OF ARIZONA, a federally chartered bank, Defendant-Appellant-Cross-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Before TANG, NORRIS and FERNANDEZ, Circuit Judges.
Valley National Bank of Arizona ("VNB") appeals the district court's judgment, following a jury trial, in favor of Statewide Insurance Company of Illinois and Northwestern National Insurance Company (collectively "Statewide") in Statewide's diversity action for special deposit, equitable estoppel/conversion, and bad faith. We reverse and remand for entry of judgment in favor of VNB.
Hopkins Excavating Co. ("Hopkins") was an Arizona corporation in the business of excavating, ditching, and selling concrete ready-mix and asphalt. Hopkins started its business in 1976, and also began its relationship with VNB at that time. Hopkins had one VNB checking account through which all of its receipts and expenses for both aspects of its business were funneled. Prior to 1984, Hopkins used a revolving line of credit from VNB to finance its construction projects.
In May of 1984, VNB became concerned about Hopkins' deteriorating financial condition and referred Hopkins' account to VNB's Broadway office, an office with more expertise in handling credit problems. VNB also loaned Hopkins $406,013.00, seventy percent of which was guaranteed by the Small Business Administration ("SBA"). In addition, VNB changed its lending practices with Hopkins. It replaced the former revolving line of credit method of financing all of Hopkins' projects with an individualized, limited line of credit method of financing each of Hopkins' projects. VNB financed the three projects at issue in this case--Mohave, Acoma and Ak-Chin--in the latter manner. Statewide and Northwestern were Hopkins' sureties and provided bonding for these projects.
The financing for each project involved a separate line of credit note, security agreement, 1 and assignment of contract proceeds. The amount of the line of credit was based upon the projected payroll costs for the project. Credit was extended on a progressive basis. Hopkins would submit its anticipated payroll costs for the week to VNB. VNB would then credit Hopkins' account with that sum of money.
Although Hopkins assigned all of its progress payments from each project to VNB, they orally agreed that the bank was to be repaid only the outstanding payroll loans incurred during that pay period on the project in question, and that the remaining balance of the payment would be available to pay materialmen and other project expenses. Every progress payment was to be transferred directly to VNB or deposited by Hopkins. This was accomplished either by an assignment and direct transmittal of the progress payments from the owner of the project to VNB, as in the Acoma project, or by a joint check which Hopkins would deposit in its account, as in the Mohave project. Hopkins' account would then be debited the amount of the outstanding payroll debt for the particular project from which Hopkins was being paid. It was agreed that the balance would not be used to satisfy payroll debts for other projects, but would instead be available to Hopkins to pay its suppliers and other project expenses. However, although the funds in the account were available, their use was unrestricted. They were completely at Hopkins' disposal, and Hopkins used them as it saw fit.
In early July of 1985, the outstanding balances on Hopkins' payroll debts for each project were so high that when VNB applied the progress payments to the debt, there was no remaining balance with which to pay materialmen, suppliers, and other project costs. Therefore, checks written on Hopkins' account were returned for insufficient funds. In response, Hopkins requested an immediate meeting with VNB's loan officers.
On July 8, 1985, VNB loan officers met with Hopkins to discuss the situation. VNB indicated that it had a right to apply the full progress payments received on the projects to the outstanding payroll loans for the respective projects because the total payroll debt exceeded the amount of the payment. VNB also stated that it planned to continue to apply the entire amount of the progress payment to the outstanding payroll debt if necessary. Hopkins requested that VNB loan Hopkins at least enough money to make payroll for the week. VNB agreed. However, any other checks that Hopkins needed to write had to be preapproved by VNB officers.
On July 18, 1985, the parties met again to try dealing with Hopkins' financial situation. At the meeting, VNB extended Hopkins another line of credit not to exceed $230,000.00 which was to be used to pay suppliers. This was a consolidated note for all projects. The $230,000.00 figure was the amount VNB had calculated was necessary to get suppliers to finish the Ak-Chin project without first contacting Statewide. The note was secured by payment rights to Hopkins' other projects. At that time, work on two of the three projects (Mohave and Acoma) had already been completed, but the suppliers had not been paid. Therefore, some of the consolidated line advances went to pay suppliers on those projects.
On July 25, 1985, the bank advanced Hopkins $146,053.58 to pay suppliers. According to the testimony of Diane Hopkins, the availability of the funds was conditioned upon Hopkins supplying VNB with the $212,087.30 payment that was due on the Mohave project. On July 26, 1985, Hopkins deposited the $212,087.30 payment from the Mohave project into its account. On that same The funds advanced on the consolidated line of credit were strictly monitored by VNB for the first couple of weeks after VNB provided the line of credit. VNB subsequently loosened some of its controls over the account.
day, the bank withdrew over $200,000.00 and applied it to the outstanding payroll debts for all three projects. Also, within a month VNB had paid the majority of the checks that had been originally returned for insufficient funds.
The last advance by the bank was September 11, 1985. At that point, the Ak-Chin project was basically completed. After the completion of the Ak-Chin project, Hopkins continued to do business, but reduced the scale of the projects in which it became involved, and began selling off its equipment. The smaller contracts were unbonded and internally financed.
From late October 1985 through 1987, Northwestern and Statewide received unpaid bills from suppliers and materialmen for the three projects. Statewide paid a total of $162,256.43 in claims. Northwestern paid a total of $52,408.48 in claims. Since Statewide reinsured Northwest against claims, Statewide was ultimately forced to pay all claims on the bonds for all three projects. In May of 1986, Hopkins ceased doing business. Jack and Diane Hopkins filed for Chapter 7 bankruptcy individually and the assets of the corporation were liquidated by VNB and Statewide.
On January 27, 1987, VNB charged off $50,404.74 which was the part of the SBA loan that was not secured. It also charged off $31,545.62 on the remaining debt.
On May 20, 1987, Statewide commenced this action in federal court. The trial began on November 8, 1988. At the end of the plaintiff's presentation of the evidence, VNB moved for a directed verdict. Its motion was denied. VNB immediately thereafter rested and moved for a directed verdict. Again, its motion was denied. On November 10, the jury found in favor of the plaintiffs and awarded $168,481.74 in damages. Post trial motions, including a motion for a judgment notwithstanding the verdict and new trial, were filed and subsequently denied on January 9, 1989.
The district court had jurisdiction pursuant to 28 U.S.C. Sec. 1332. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291.
We review a challenge to a jury verdict to determine whether the verdict is supported by substantial evidence. In making such a determination, we evaluate whether the verdict is supported by admissible evidence that is adequate to support the jury's conclusion. Oltz v. St. Peter's Comm. Hosp., 861 F.2d 1440, 1450 (9th Cir.1988).
Statewide has essentially conceded, as it must, that in order to assert a valid claim against VNB it must do so as a subrogee of either Hopkins or the suppliers. As such, it may only recover if either the suppliers or Hopkins had a valid claim against VNB. See Employers Mutual Liability Ins. Co. v. Robert E. McKee General Contractors, Inc., 16 Ariz.App. 77, 491 P.2d 27 (1971).
Statewide claims that VNB breached a special deposit agreement with Hopkins and that Statewide as the subrogee is entitled to compensation for the damages that resulted from that breach.
VNB contends that there was no special deposit agreement. It argues that it had a right to apply the excess monies from the progress payments against the loan balances for the other projects. It claims that those projects were collateral in which it had a first security interest, and that the integration clauses in the security agreements cross-collateralized the loans.
The record reveals evidence that VNB and Hopkins expressly orally agreed that progress payments were to be deposited into the Hopkins account and that VNB was entitled to the progress payments for the amount of payroll debt that Hopkins had incurred for the time period covered...
To continue reading
Request your trial