Douglas v. Trustmark Nat'l Bank

• Court: U.S. District Court — Southern District of Mississippi
• Writing for the Court: F. Keith Ball, UNITED STATES MAGISTRATE JUDGE
• Citation: Douglas v. Trustmark Nat'l Bank, 201 F.Supp.3d 800 (S.D. Miss. 2016)
• Decision Date: 17 August 2016
• Docket Number: CIVIL ACTION NO. 3:12-cv-523-FKB
• Parties: Shirley DOUGLAS, Successor in Interest of Schwartz & Associates, P.A., and Interstate Fire and Casualty Co., Plaintiff v. TRUSTMARK NATIONAL BANK and Regions Bank, Defendants

201 F.Supp.3d 800

Shirley DOUGLAS, Successor in Interest of Schwartz & Associates, P.A., and Interstate Fire and Casualty Co., Plaintiff

v.TRUSTMARK NATIONAL BANK and Regions Bank, Defendants

CIVIL ACTION NO. 3:12-cv-523-FKB

United States District Court, S.D. Mississippi, Northern Division.

Signed August 17, 2016

Filed August 18, 2016

Philip Williams Thomas, Philip W. Thomas, PA, Jackson, MS, for Plaintiff.

William Trey E. Jones, III, Joseph Anthony Sclafani, Brunini, Grantham, Grower & Hewes, PLLC, Benjamin McRae Watson, Butler Snow LLP, Jackson, MS, Emerson Barney Robinson, III, Butler Snow LLP, Ridgeland, MS, for Defendants.

MEMORANDUM OPINION AND ORDER

F. Keith Ball, UNITED STATES MAGISTRATE JUDGE

This cause is before the Court on several motions: Motion for Summary Judgment [37] filed by Defendant Regions Bank; Motion for Judgment on the Pleadings [39] filed by Defendant Trustmark National Bank; Motion to Strike Affidavit of Jason Sweatt [43] filed by Plaintiff; and Motion for Discovery [45] filed by Plaintiff. Having considered the motions and related submissions of the parties, the Court finds that Defendants' motions should be granted and Plaintiff's motions should be denied.

I. Facts and Procedural History

In June 2007, after being injured in an automobile accident, Shirley Douglas hired a law firm, Schwartz & Associates, P.A. (Schwartz), to pursue her claims arising from the accident. [1-1] at 3. On July 31, 2009, Douglas filed a Chapter 13 bankruptcy petition in the United States District Court for the Northern District of Mississippi. Id. On or about March 13, 2010, Schwartz negotiated and Douglas agreed to a $500,000.00 settlement of her claims. Id. at 3-4. Thereafter, Schwartz retained attorney Vann Leonard to obtain bankruptcy court approval of the settlement and payment of Schwartz's attorney's fees and expenses totaling $172,414.68. Id. at 4-5.

On April 6, 2010, Schwartz tendered the $500,000.00 settlement proceeds to Leonard, after Leonard advised that the bankruptcy trustee had instructed him to hold the settlement proceeds in order to pay Douglas's outstanding medical bills. Id. at 4-5. Leonard deposited the funds into an account at Trustmark National Bank (Trustmark). Id. at 5. Leonard obtained bankruptcy court approval to pay Schwartz's attorney's fees and expenses and to tender the remaining funds to the bankruptcy trustee. Id. After tendering $172,414.68 to Schwartz, Leonard embezzled the remaining $327,585.32. Id.¹

Following the embezzlement, Douglas sued Schwartz for negligence, legal malpractice, vicarious liability, and disgorgement of fee. [37-2]. In her suit against Schwartz, she claimed that Schwartz was "negligent in handling ... [her] affairs that were entrusted to" Schwartz, and asserting that Schwartz was "grossly negligent," she sought punitive damages to "deter other[s] similarly situated ... from committing similar acts in the future." Id. at 4-5.

Schwartz and its malpractice carrier, Interstate Fire and Casualty Company (Interstate), settled Douglas's lawsuit. See [37-4]. As part of the settlement, Douglas and the bankruptcy trustee assigned to Schwartz and Interstate their rights to restitution from Leonard, and Schwartz and Interstate assigned to Douglas any claim or civil action they may have against any financial institution arising out of the embezzlement. [37-4] at 2.

Douglas filed the instant action as "successor in interest of" Schwartz and Interstate. [1-1]. Douglas asserts no claims in her own personal capacity. Instead, as assignee, Douglas asserts only the claims of Schwartz and Interstate.

In her Complaint filed in this case, Douglas alleges that Leonard maintained trust accounts at Trustmark and at Regions Bank (Regions), and during the months before the embezzlement, these accounts ran negative balances and were overdrawn. Id. at 5-7. The Complaint states that Mississippi lawyers "must hold clients' money in an interest or dividend-bearing trust account (IOLTA Account)" and that financial institutions maintaining such accounts have certain responsibilities, including reporting the balances on these accounts to the Mississippi Bar Foundation, Inc. Id. at 4-5. The Complaint also refers to a requirement under federal law that financial institutions file a suspicious activity report (SAR) with the Financial Crimes Enforcement Network (FinCEN) of the United States Treasury Department within thirty (30) calendar days of detecting the facts warranting such a report. Id. at 8.

Douglas asserts claims of conversion and negligence in her Complaint. She claims that due to the negative balances in the subject Trustmark and Regions accounts, these banks "had actual notice" and "knowledge" that Leonard was misappropriating clients' funds and, therefore, "had a duty to make reasonable inquiry and to take actions necessary to prevent further diversions, including notifying appropriate authorities." Id. at 8-10. She claims that the banks' negligence "proximately caused the loss suffered by" Schwartz and Interstate. Id. at 10. As damages, the Complaint seeks the amount Schwartz and Interstate "incurred in defending and resolving Shirley Douglas' lawsuit against Schwartz & Associates P.A.," as well as punitive damages. Id. at 11.

As grounds for summary judgment, Regions argues inter alia that: (1) the funds were never held at Regions, and thus, Douglas's conversion claim fails; (2) the Bank Secrecy Act creates no private right of action relating to the filing or non-filing of an SAR; (3) Regions owed no duty to prevent its customer from committing a tort against non-customers Schwartz and Interstate; (4) the remoteness doctrine bars Douglas's negligence claim; and (5) Mississippi law prohibits double recovery, precluding Douglas (who recovered in her settlement with Schwartz) from recovering on her claims in this case. See [38].

In support of its motion, Trustmark argues that: (1) Trustmark had no duty to monitor and/or report Leonard's account balance, as it was a free business checking account and not an IOLTA trust account; (2) Trustmark owed no duty to prevent its customer from committing a tort against non-customers Schwartz and Interstate; and (3) since neither Schwartz nor Interstate owned the converted funds, neither has standing to assert a conversion claim. See [40].

Douglas filed a response to Defendants' motions. [41, 42]. In addition to her response, Plaintiff filed a motion to strike [43] an affidavit attached to Regions' summary judgment motion. Plaintiff also filed a motion [45] pursuant to Rule 56(d) of the Federal Rules of Civil Procedure, seeking additional discovery.

II. Standard of Review

Regions filed a summary judgment motion pursuant to Federal Rule of Civil Procedure 56, and Trustmark filed a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). See [37, 39]. Although both Regions and Trustmark submitted evidence outside of the pleadings, the Court finds that the standard of review for Rule 12(c) motions should be applied. In reaching the decision below, the Court relies only on the facts set forth in Douglas's Complaint and does not base any portion of the decision on the evidence submitted by Defendants.

Rule 12(c) motions are subject to the same standard of review as motions under Rule 12(b)(6) for failure to state a claim. In re Katrina Canal Breaches Litigation , 495 F.3d 191, 205 (5th Cir.2007). In deciding Rule 12(c) motions, the "court accepts ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.’ " Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit , 369 F.3d 464, 467 (5th Cir.2004) (quoting Jones v. Greninger , 188 F.3d 322, 324 (5th Cir.1999) ). "[T]he central issue is whether, in the light most favorable to plaintiff, the complaint states a valid claim for relief." St. Paul Mercury Ins. Co. v. Williamson , 224 F.3d 425, 440 n. 8 (5th Cir.2000). To withstand a Rule 12(c) motion, the "[p]laintiff must plead ‘enough facts to state a claim to relief that is plausible on its face.’ " Ballard v. Jackson State Univ. , 62 F.Supp.3d 549, 551 (S.D.Miss.2014) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "To be plausible, the complaint's ‘[f]actual allegations must be enough to raise a right to relief above the speculative level.’ " In re Great Lakes Dredge & Dock Co., LLC , 624 F.3d 201, 210 (5th Cir.2010) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (2007) ).

III. Discussion

A. Conversion

As this Court has previously stated:

To establish the tort of conversion in Mississippi, "there must be proof of a wrongful possession, or the exercise of a dominion in exclusion or defiance of the owner's right, or of an unauthorized and injurious use, or a wrongful detention after demand." Cmty. Bank, Ellisville, Miss. v. Courtney , 884 So.2d 767, 772–73 (¶ 10) (Miss.2004) (citation omitted) (emphasis in original). A plaintiff alleging conversion must carry the burden to show that he owned or had a right to possess property that was the subject of an unauthorized taking or the unauthorized exercise of control by the defendant. Lyons v. Misskelly , 759 F.Supp. 324, 327 (S.D.Miss.1990) (citing LeBarre v. Gold , 520 So.2d 1327, 1330 (Miss.1987) ; Masonite Corp. v. Williamson , 404 So.2d 565, 567 (Miss.1981).

The Mississippi Supreme Court has held that "[i]t is elementary that ownership is an essential element of conversion." Courtney , 884 So.2d at 772 (¶ 10). Federal and state courts in Mississippi have enforced the requirement that the plaintiff must show that he owns the funds or property at issue. SeeEvans v. Miss. Dep't of Human Servs. , 36 So.3d 463, 477 (Miss.Ct.App.2010) ("To succeed on a conversion claim, [the plaintiff] must show he owned the funds at issue."); Estate of Martin Luther King Jr., Inc. v. Ballou , 856 F.Supp.2d 860, 866 (S.D.Miss.2012), aff'dsub nom . Estate of King v. Ballou , 544 Fed.Appx. 280 (5th Cir.2013) (same).

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