Cagle's Inc. v. Valley Nat. Bank

• Decision Date: 03 August 2001
• Docket Number: No. CIV. A. 00-A-851-E.,CIV. A. 00-A-851-E.
• Citation: 153 F.Supp.2d 1288
• Parties: CAGLE'S INC., Plaintiff, v. VALLEY NATIONAL BANK, Defendant.
• Court: U.S. District Court — Middle District of Alabama

153 F.Supp.2d 1288 CAGLE'S INC., Plaintiff,
v.
VALLEY NATIONAL BANK, Defendant. No. CIV. A. 00-A-851-E. United States District Court, M.D. Alabama, Eastern Division. August 3, 2001.

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Ronald W. Self, Columbus, GA, A.L. Mullins, Jr., Kathy R. Bess, Atlanta, GA, for Plaintiffs.

James A. Byram, Jr., Donald R. Jones, Jr., Montgomery, for Defendants.

MEMORANDUM OPINION

ALBRITTON, Chief Judge.

I. INTRODUCTION

This case is before the court on a Motion for Summary Judgment filed by the Defendant, Valley National Bank, on February 16, 2001 (Doc. # 35).

The Plaintiff, Cagle's Inc. ("Cagle") filed a Complaint in this case on June 30, 2000. This court granted a Motion for More Definite Statement filed by Valley National Bank ("the Defendant")¹ requiring Cagle to file an amendment to the Complaint which identifies the Alabama Uniform Commercial Code ("Alabama UCC") claims which Cagle intended to assert. Cagle asserts claims for violation of the duty of good faith and ordinary care under the Alabama UCC (Count I), simple negligence (Count II), gross negligence (Count III), punitive damages (Count IV), attorneys' fees (Count VII).²

The court issued an Order on July 13, 2001 setting the Motion for Summary Judgment for oral argument and identifying some issues upon which the parties should be prepared to argue. Oral argument was held on July 26, 2001.

For the reasons to be discussed, the Motion for Summary Judgment is due to be GRANTED.

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II. SUMMARY JUDGMENT STANDARD

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The party asking for summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the `pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323, 106 S.Ct. 2548. The movant can meet this burden by presenting evidence showing there is no dispute of material fact, or by showing, or pointing out to, the district court that the nonmoving party has failed to present evidence in support of some element of its case on which it bears the ultimate burden of proof. Id. at 322-324, 106 S.Ct. 2548.

Once the moving party has met its burden, Rule 56(e) "requires the nonmoving party to go beyond the pleadings and by [its] own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Id. at 324, 106 S.Ct. 2548. To avoid summary judgment, the nonmoving party "must do more than show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). On the other hand, the evidence of the nonmovant must be believed and all justifiable inferences must be drawn in its favor. See Anderson v. Liberty Lobby, 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

After the nonmoving party has responded to the motion for summary judgment, the court must grant summary judgment if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

III. FACTS

The submissions of the parties establish the following facts:

At the outset, the court notes that the Defendant has acknowledged that there are disputed facts in this case, but argues that those facts are not legally significant. Cagle, on the other hand, argues that the disputed facts present genuine issues of material fact for trial.

Cagle owns and operates a poultry processing plant in Pine Mountain Valley, Georgia. For ten years prior to her arrest in July of 1998, Kea Martin ("Martin") was employed by Cagle as Accounts Payable Clerk. Danny Bridges ("Bridges") was her immediate supervisor. Martin banked at the Defendant's Valley, Alabama branch. Her landlord, Bill Hayes ("Hayes") lived on the same property that she lived on with her husband and three children. Hayes is the president of the Defendant's Valley, Alabama branch.

Martin had a poor banking history with the Defendant. She had a loan from 1988 which was in default, her checking account often reflected a small monthly balance which consisted almost entirely of her payroll direct deposit from Cagle in the amount of $218.24 per week, and she had large number of non-sufficient fund charges over the years. Around November 1996, when she married her husband, Martin falsely informed her husband that

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she had a large trust fund which had been set up by her biological father. She also told Hayes that she was expecting an inheritance from her biological father and might be depositing money at the Valley, Alabama branch.

When Martin's husband urged her to access money from her fictitious trust fund, she used her knowledge of Cagle's system to embezzle funds. Martin engaged in an elaborate system whereby she manipulated the system's client directory and printed checks payable to herself for sums that were supposed to be paid to two of Cagle's vendors. The vendor numbers appeared on the checks. She deposited these checks in an account which she opened at the Defendant's Valley, Alabama branch. The check dates and amounts were as follows:

 October 14, 1997 $ 75,764.70
                 October 14, 1997 $200,913.76
                 November 18, 1997 $194,470.79
                 April 2, 1998 $395.384.55
                 July 1, 1998 $272.077.23
                

Each check was made payable to Martin, was endorsed by her, and was deposited into an account which bore her name at the Defendant's Valley, Alabama branch. No one at the Defendant's Valley, Alabama branch ever confronted Martin about these deposits. According to testimony cited by Cagle, the bank tellers had been directed by Hayes to accept deposits from Martin. Only on one occasion was Martin called by an employee of the Defendant, Gwen Reese, who informed her that a $200,000 check she had made and drawn on one of her accounts was not good. Martin had been giving money away and purchasing real estate, causing her to have insufficient funds in her bank accounts. She then used her accounts at Defendant bank and an account she opened at First Union Bank in Pine Mountain and shuffled checks between those accounts until she could embezzle more funds from Cagle.

The Defendant then presented the checks deposited by Martin to Cagle's bank, SouthTrust, for payment, and SouthTrust paid them in a timely manner without objection. SouthTrust sent the cancelled checks, along with monthly bank statements, to Cagle. Cagle first reported that the checks were unauthorized in July of 1998. Cagle had Martin arrested and has recovered a substantial portion of the embezzled funds.

IV. DISCUSSION

The court will separately address Cagle's UCC and common law negligence and gross negligence claims and the grounds for summary judgment which have been asserted as to those claims.

A. UCC Claims

Cagle has argued that the Defendant breached its duty of good faith and its duty to act in a commercially reasonable manner by failing to inquire of Martin as to the source of funds that she was depositing at the Defendant's Valley, Alabama branch. The Defendant has raised several defenses to these claims including: that Cagle's claims are barred by its failure to report the unauthorized checks in a timely manner, the UCC's same wrongdoer rule bars Cagle's claims, the UCC's final payment rule bars Cagle's claims, and the Defendant is not liable because the loss was due to Cagle's negligence, not the Defendant's negligence.

As to the defense that Cagle's claims are barred by the 180 day rule, the Defendant concedes that even if the 180 day rule operates to bar claims based on some of the checks, it does not bar the claims based on the last two checks deposited by Martin. The 180 day rule is contained in Alabama Code § 7-4-406(f) and provides as follows:

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Without regard to care or lack of care of either the customer or the bank a customer who does not within 180 days after the statement and the items ... are sent to the customer ... discover and report the customer's unauthorized signature on ... the item is precluded from asserting against the bank the unauthorized signature.

Ala.Code § 7-4-406(f). Cagle argues that this provision applies only to claims raised by the drawee bank, in this case, South Trust, and not to the depository bank, because it was SouthTrust, and not the Defendant, which sent account statements and cancelled checks to Cagle. In support of its argument, Cagle points to the Comment following the statute which provides that "[t]he notice requirements in subsection (f) are the periods within which the customer must notify the drawee bank of the fraud or be absolutely barred from recovery." Ala.Code § 7-4-406(f), Comment.

Cagle's interpretation of the Comment following the 180 day rule is that since only the drawee bank must be notified, only claims against the drawee bank are barred. Cagle relies on two cases to support this interpretation. See AmSouth v. Reliable Janitorial Service, Inc., 548 So.2d 1365 (Ala.1989); East Gadsden Bank v. First City National Bank of Gadsden, 50 Ala.App. 576, 281 So.2d 431 (1973). These cases, however, were decided before § 7-4-406(f) was changed in 1995. See Plaintiff's Brief in Opposition, page 14.

The Defendant argues that this court ought not to follow the interpretation of the notice provision in the cases relied on by Cagle because those courts were interpreting a different notice provision, and...