Capitol Indemnity Corp. v. Citizens Nat'l Bank

• Decision Date: 11 January 2000
• Citation: 8 S.W.3d 893
• Parties: (Mo.App. W.D. 2000) . Capitol Indemnity Corporation, Appellant, v. Citizens National Bank of Fort Scott, N.A., Respondent. WD56564 Missouri Court of Appeals Western District Handdown Date: 0
• Court: Missouri Court of Appeals

8 S.W.3d 893 (Mo.App. W.D. 2000)

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.

Capitol Indemnity Corporation, Appellant, v. Citizens National Bank of Fort Scott, N.A., Respondent.

WD56564

Missouri Court of Appeals Western District

Handdown Date: 01/11/2000

Appeal From: Circuit Court of Jackson County, Hon. J.D. Williamson, Jr.

Counsel for Appellant: Gary V. Fulghum

Counsel for Respondent: Stephen M. Ryan

Opinion Summary:

Surety for Missouri construction project appeals the circuit court's decision to grant the defendant Kansas bank's motion to dismiss for lack of personal jurisdiction. Surety argued that the Kansas bank was not entitled to retain progress payments on the construction project paid by the city of Kansas City, Missouri, because the surety became obligated to pay subcontractors' claims when the Kansas contractor on the project defaulted.

AFFIRMED.

Division Three holds: Surety failed to support a claim of personal jurisdiction under the long arm statute by either the commission of a tortious act of conversion in Missouri or by the transaction of business in Missouri. Although a surety is entitled to an equitable lien on sums that are earned, but unpaid under the construction contract, after the surety shows that it became obligated to pay out sums under its surety contract, the surety failed to show that it became entitled to ownership of the payments before they were paid. The transaction of business in Missouri was not established by the act of the defendant Kansas bank forwarding, by facsimile machine, a copy of a letter written by its bank customer, the Kansas contractor for the construction project, to the city of Kansas City, Missouri, in which the contractor requested that the city make payments to it in care of the bank's address. Kansas bank had no other contact with the state of Missouri, and therefore, due process requirements for the establishment of personal jurisdiction were not satisfied.

Opinion Author: Victor C. Howard, Presiding Judge

Opinion Vote: AFFIRMED. Ulrich and Smart, JJ., concur.

Opinion:

Capitol Indemnity Corporation appeals the circuit court's decision to grant a motion to dismiss for lack of personal jurisdiction in favor of Citizens National Bank of Fort Scott, N.A., a Kansas corporation. Capitol Indemnity had filed a petition against Citizens National alleging that the bank had converted or was otherwise unjustly enriched by the retention of progress payments from a Kansas City, Missouri, construction project for which Capitol Indemnity was obligated to advance funds as a surety. Capitol Indemnity contends that the circuit court erred because the jurisdiction of Missouri courts was established under the long arm statute both by Citizens National committing the tortious act of conversion and by its transacting business in the state of Missouri. We affirm.

On December 26, 1995, Engineered Systems, Inc., (ESI), a Kansas corporation, contracted with the city of Kansas City, Missouri, (the city), to construct road and bridge improvements on Wornall Road. Capitol Indemnity issued a performance bond and a payment bond on May 10, 1996, acting as surety for completion of the project.

On August 2, 1996, Citizens National made a loan to ESI.¹ Accounts, equipment and inventory secured the loan. Under the terms of the note's associated security agreement, ESI agreed to the establishment of a special bank account, known as the "Collateral Account," for the receipt of payments on account. The security agreement denoted: "Upon written request of [Citizens National], [ESI] shall immediately and thereafter deposit all checks, drafts, cash and other remittances (Funds) in payment of the Accounts portion and the Inventory portion of the Collateral in a special bank account (Collateral Account) maintained with [Citizens National] as such Funds are received by [ESI]." No condition of default was required for the bank to exercise this right under the agreement.

The maturity date on the loan was August 2, 1997, however, that was apparently extended until November 2, 1997.² In negotiating repayment of the loan, ESI's president told an officer of Citizens National that she had written to the city on November 21, 1997, requesting that any further payments be sent to ESI in care of the bank's address.³ On November 25, 1997, Citizens National wrote a letter to ESI requesting, in accordance with the terms of the security agreement, that "all existing and future checks, drafts, cash and other remittances (Funds) arising from payment of any Accounts for [ESI] be directed to this Bank for deposit to a special bank account," and that all withdrawals from the account by ESI were to be made by written request. The letter also referenced the bank's right under the security agreement to notify ESI's debtors of the bank's security interest, and said that "we faxed the city a copy of your letter directing Kansas City's payments on the Wornall job to the Bank's address." (Emphasis added.)

On or about January 7, 1998, the city sent a payment in the amount of $15,895.35 made payable to ESI in care of Citizens National at the bank's address in Lenexa, Kansas.⁴ On February 4, 1998, the city sent another payment in the amount of $53,008.05 made payable to ESI in care of Citizens National.

On February 9, 1998, Capitol Indemnity sent a letter to the city, which said:

Capitol Indemnity Corporation, as surety on [the Wornall Road Improvement project] bond, has recently been required to make payment to subs and suppliers on [this] project. To ensure that future contract funds are appropriately applied to obligations on this project alone, I ask that no further disbursements be made solely to Engineered Systems, Inc.

For reasons unknown to me, Engineered Systems has found itself unable to make timely payment to vendors which are involved in this project. As a result, Capitol Indemnity has been notified by these vendors of various non-payment issues. Thus far, we have made $36,058.27 in payments to vendors on this project.

A representative from Engineered Systems has assured us that the contract balance will be sufficient to pay the financial obligations which remain. Regardless, I would like to request that Capitol Indemnity Corporation be listed as joint payee on any remaining disbursements made to Engineered Systems. Please make all future drafts payable to "Engineered Systems, Inc. and its surety, Capitol Indemnity Corporation."

On April 2, 1998, Capitol Indemnity sent a letter demanding that Citizens National "tender back" the two progress payments made by the city to ESI on January 7 and February 4, 1998. Citizens National refused.

On May 22, 1998, Capitol Indemnity filed a petition in Jackson County, Missouri, alleging in Count I that it was entitled under the doctrine of equitable subrogation to possession of certain progress payments made by the city and that Citizens National "unlawfully acquired ESI's Progress Payments, took possession of the Progress Payments, and unlawfully converted the Progress Payments to its own use." In Count II of the petition, Capitol Indemnity alleged that Citizens National was "unjustly enriched by its wrongful seizure and continued possession of the Progress Payments."

In response, Citizens National filed a motion to dismiss for lack of personal jurisdiction. It argued that it had not performed any act within the state of Missouri to bring it under the long arm jurisdictional statute, nor did it have sufficient minimum contacts with Missouri in consideration of due process concerns that justify it being haled into court in Missouri.

Specifically, Citizens National stated in its motion, that it was a national bank doing business in Kansas, but that it does not maintain an office in Missouri. It also said that it does not have a certificate of authority to do business in Missouri, does not maintain a registered agent for service of process in Missouri, and owns no property in Missouri. Citizens National further stated that it has never transacted any business with Capitol Indemnity, and has no relationship, contractual or otherwise, with it. It also said that ESI is a Kansas corporation, and that its loan agreements were signed in Kansas, that the loan was not made in connection with the Wornall construction contract, and that any payments on the loan were received in Kansas.

With regard to the faxed letter, in an affidavit accompanying the motion to dismiss, an assistant vice president of Citizens National said:

In connection with [Citizens National's] request that ESI pay over its accounts receivable, . . . ESI's president, told me that she had written to the City of Kansas City, Missouri (the "City") directing that the City's future payments to ESI be sent to ESI at the Bank's branch office in Lenexa, Kansas.

[ESI's president] sent [Citizens National] a copy of the letter that she said she had sent to the City . . . . I faxed a copy [of that letter] to the City to ensure that the letter was received. Apart from this telefax, I never called or wrote anyone at the City requesting the City to make payment to the Bank for or on behalf of ESI.

This affidavit further stated that the city of Kansas City did not make any payments to Citizens National of money owed to ESI under the contract, and that no one from Citizens National ever met with any officials from the city or "called, wrote or made demand on the City that the Bank be paid progress payments due to ESI."

The circuit court granted the motion to dismiss without discussion. Capitol Indemnity appeals.

The Missouri Supreme Court has delineated the standard of review of a dismissal for lack of jurisdiction:

When a motion to dismiss for lack of personal jurisdiction is made on a matter not appearing on the record, the trial court may hear it on affidavits presented by the parties, or the court may direct that the matter be heard wholly or...