Coastal Agric. Supply, Inc. v. JP Morgan Chase Bank, N.A.

• Citation: 759 F.3d 498
• Decision Date: 21 July 2014
• Docket Number: No. 13–20293.,13–20293.
• Parties: COASTAL AGRICULTURAL SUPPLY, INCORPORATED, Plaintiff–Appellant v. JP MORGAN CHASE BANK, N.A., Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

759 F.3d 498

COASTAL AGRICULTURAL SUPPLY, INCORPORATED, Plaintiff–Appellant

v.JP MORGAN CHASE BANK, N.A., Defendant–Appellee.

No. 13–20293.

United States Court of Appeals, Fifth Circuit.

July 21, 2014.

Lawrence S. Fischman, Glast, Phillips & Murray, P.C., Dallas, TX, for Plaintiff–Appellant.

Edward J. Nicholas, Esq., Senior Counsel, Linebarger Goggan Blair & Sampson, Houston, TX, Gordon M. Shapiro, Jackson Walker, L.L.P., Dallas, TX, for Defendant–Appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before HIGGINBOTHAM, DAVIS, and HAYNES, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Coastal Agricultural Supply, Incorporated brings this interlocutory appeal on two questions of law, namely whether § 3.405 of the UCC can serve as an affirmative defense to a common law “money had and received” claim, and whether settlement credits in Texas reduce the nonsettling defendant's liability rather than the plaintiff's total loss. For the reasons stated below, we AFFIRM and REMAND for proceedings consistent with this opinion.

I

Coastal Agricultural Supply, Incorporated (“Coastal”) sells farm and ranch equipment and supplies. For more than 20 years, Jimmy Hollaway worked for Coastal, and, for the time period relevant to this case, he worked for Coastal as a bookkeeper in its Houston office. As bookkeeper, Hollaway's duties included receiving checks made payable to Coastal from customers, indorsing those checks on Coastal's behalf as “for deposit only,” and depositing those checks into Coastal's account at Traditions Bank. He did so for many years.

On June 30, 2000, Hollaway acquired an “Assumed Name Records Certificate of Ownership for Unincorporated Business or Profession” identifying him as the owner of a business called “Coastal Agricultural Limestone Supply.” On July 11, Hollaway opened a checking account with JP Morgan Chase Bank, N.A. (“Chase Bank”).¹ The name on the account was “Jimmy Hollaway DBA Coastal Agricultural Limestone Supply.”

Over the next few years, Hollaway deposited at least 964 checks intended for Coastal into his account at Chase Bank. While most of the checks were deposited in person, 81 checks were deposited through an automated teller machine (“ATM”).² In all, Hollaway is alleged to have stolen more than $2.5 million and used a significant portion of the money to purchase real estate and other assets.

On February 14, 2011, Coastal filed a lawsuit against Hollaway in Texas state court, seeking damages for the money stolen and deposited into his bank account. Coastal asserted claims based on breach of statutory duty, conversion, “money had and received,” and breach of fiduciary duty. Coastal sought actual, statutory, and punitive damages, attorney's fees, the imposition of a constructive trust and equitable lien, a temporary restraining order and injunction, the appointment of a receiver, post-judgment interest and costs, and any other available legal and equitable relief. On March 6, 2012, Coastal and Hollaway entered into a settlement agreement, under which Hollaway conveyed three residential properties, mineral interests, monetary assets, and a portion of his personal property to Coastal. Chase Bank estimates the value of this settlement to be at least $556,100, while Coastal claims that it is at most $313,311.

Meanwhile, on May 24, 2011, Coastal filed the present lawsuit against Chase Bank in the United States District Court for the Southern District of Texas, asserting claims of conversion and negligence under the Texas Uniform Commercial Code (“UCC”) ³ and money had and received under the common law. Coastal sought actual damages, attorney's fees on its money had and received claim, pre-judgment and post-judgment interest, court costs, and any other available legal and equitable relief. The case was referred to the magistrate judge.

On November 15, 2012, Chase Bank filed two motions for partial summary judgment. In its first motion, Chase Bank argued that Coastal's claims as to some of the checks were barred by the statute of limitations, but that in any case, under Texas law it was protected from liability as to all the checks under UCC § 3.405. In its second motion, Chase Bank sought a settlement credit of $556,100 based upon the settlement agreement between Coastal and Hollaway. Coastal filed responses to these motions, and Chase Bank filed a reply in support of its second motion.

The magistrate judge issued a memorandum and recommendation on the two motions for partial summary judgment. Addressing the first motion, the magistrate judge found that the statute of limitations defense was waived by Chase Bank. For the UCC conversion and negligence claims, the magistrate judge found that UCC § 3.405 provided a defense for Chase Bank, and that, based on this defense, Chase Bank was entitled to summary judgment for all but 82 checks—the 81 checks deposited via an ATM, worth $116,454.75, and the one check marked as a cash deposit, worth $1,980, for a grand total of $118,434.75. For the money had and received claim, the magistrate judge found that Chase Bank had presented no argument for summary judgment and therefore denied summary judgment on this claim. Addressing the second motion, the magistrate judge found that under the Texas “one satisfaction rule” a settlement credit should be applied against whatever liability Chase Bank might eventually have, but did not address the valuation of the settlement between Coastal and Hollaway.

Both Coastal and Chase Bank filed objections to the magistrate judge's memorandum and recommendation. In an April 3, 2013 order, the district court conducted a de novo review of the magistrate judge's recommendations to which objections were raised, and decided to adopt the memorandum and recommendation in part. For the UCC conversion and negligence claims, the district court agreed with the magistrate judge and granted summary judgment on the 882 checks that were deposited in person at the bank, leaving for trial the 81 checks deposited via ATM and the one check deposited as a cash deposit. For the money had and received claim, the district court disagreed with the magistrate judge, and held that Chase Bank had moved for summary judgment on this claim as well. Finding that § 3.405 was applicable to the money had and received claim, the district court granted Chase Bank summary judgment on this claim as to the 882 checks deposited in person. The district court denied summary judgment on the money had and received claim as to the 81 checks deposited via ATM and the one check deposited as a cash deposit.

For the settlement credit issue, the district court adopted the magistrate judge's recommendation that Chase Bank was entitled to the value of the settlement. The district court found that there was still an issue about the value of the settlement, but held that whatever that value, it should be applied against Chase Bank's liability rather than to lessen Coastal's total loss. The district court noted that based on its grant of summary judgment on the 882 checks on the conversion, negligence, and money had and received claims, Chase Bank's potential liability was only $118,434.75. The district court opined that the application of the settlement credit would likely extinguish Coastal's claims against Chase Bank.

Coastal then made an oral motion for an interlocutory appeal under 28 U.S.C. § 1292(b), and the district court granted the motion because its ruling involved controlling questions of law as to which there were substantial grounds for difference of opinion. Thereafter, while Coastal was petitioning this Court for leave to appeal, there was a dispute between Coastal and Chase Bank on the scope of the interlocutory appeal. The district court entered a clarification order on May 1, 2013 stating that only two issues were certified for appeal:

(1) the [district court's] determination that the defendant could oppose a common law claim for money had and received by asserting the affirmative defenses supplied in section 3.405 of the UCC and (2) the [district court's] determination that Texas requires that settlement credits be applied such that the credit reduces the non-settling defendant's liability rather than reducing the amount of Plaintiff's total loss.

We then granted Coastal leave to appeal from the April 3rd interlocutory order, but specified that leave was granted only as to those issues articulated in the May 1st clarification order and denied as to all other issues. We now turn to those two issues.

II

We review a district court's order granting summary judgment de novo applying “the same legal standards that the district court applied to determine whether summary judgment was appropriate.” ⁴ A party is entitled to summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” ⁵ “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” ⁶

The movant bears the initial burden and must identify “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.” ⁷ But the movant “need not negate the elements of the nonmovant's case.” ⁸ “If the moving party fails to meet this initial burden, the motion must be denied, regardless of the nonmovant's response.” ⁹

The burden then shifts to the nonmovant to demonstrate a genuine issue of material fact, but the nonmovant cannot rely on the allegations in the pleadings alone.¹⁰ Instead, the nonmovant “must go beyond the pleadings and designate specific facts showing that there is a genuine issue for trial.” ¹¹ “The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” ¹²

Finally, w...