Husker News Co. v. South Ottumwa Sav. Bank

• Decision Date: 18 March 1992
• Docket Number: No. 90-1598,90-1598
• Citation: 482 N.W.2d 404
• Parties: 19 UCC Rep.Serv.2d 203 HUSKER NEWS COMPANY, Appellant, v. SOUTH OTTUMWA SAVINGS BANK, Ottumwa, Iowa; Pella National Bank, Pella, Iowa; Mahaska State Bank, Oskaloosa, Iowa; Iowa Trust & Savings Bank, Oskaloosa, Iowa; L & A Food Stores, Inc. d/b/a Pella's Super Valu, Appellees. PELLA NATIONAL BANK, South Ottumwa Savings Bank, Mahaska State Bank, and Iowa Trust and Savings Bank, Appellees, v. IOWA STATE SAVINGS BANK, Appellee/Cross-Appellant, and Walter Hopf, Third-Party Defendant.
• Court: Iowa Supreme Court

Page 404

482 N.W.2d 404

19 UCC Rep.Serv.2d 203

HUSKER NEWS COMPANY, Appellant, v. SOUTH OTTUMWA SAVINGS BANK, Ottumwa, Iowa; Pella National Bank, Pella, Iowa; Mahaska State Bank, Oskaloosa, Iowa; Iowa Trust & Savings Bank, Oskaloosa, Iowa; L & A Food Stores, Inc. d/b/a Pella's Super Valu, Appellees.

PELLA NATIONAL BANK, South Ottumwa Savings Bank, Mahaska State Bank, and Iowa Trust and Savings Bank, Appellees, v. IOWA STATE SAVINGS BANK, Appellee/Cross-Appellant, and Walter Hopf, Third-Party Defendant.

No. 90-1598.

Supreme Court of Iowa.

March 18, 1992.

Richard B. Bauerle and Gregory G. Milani of Keith, Orsborn, Bauerle, Milani & Neary, Ottumwa, for appellant.

Jon P. Sullivan of Dickinson, Throckmorton, Parker, Mannheimer & Raife, Des Moines, for appellee Iowa State Sav. Bank.

Carol A. Wendl of Neiman, Neiman, Stone & Spellman, P.C., Des Moines, for appellee Pella National Bank.

James M. Box of Box & Box, Ottumwa, for appellee South Ottumwa Sav. Bank.

James M. Hansen of Clements, Pabst, Hansen & Maughan, Oskaloosa, for appellee Iowa Trust & Savings Bank.

Paul D. Hietbrink and James H. Gilliam of Brown, Winick, Graves, Donnelly, Baskerville & Schoenebaum, Des Moines, for appellee L & A Foods, Inc. d/b/a Pella Super Valu.

Considered by HARRIS, P.J., and LARSON, LAVORATO, NEUMAN, and ANDREASEN, JJ.

HARRIS, Justice.

This tort suit, asserting a conversion claim under the uniform commercial code and seeking recovery for negligence, is an attempt by an employer to collect for the fraudulent appropriation of funds by one of its own employees. Defendants are plaintiff's customers, the customers' banks, and the employee's bank. Prior appeals, arising from the same litigation, were on an issue not involved here. See Vander Linden Drug Store, Inc. v. Husker News Co., 473 N.W.2d 209 (Iowa 1991) (table); Husker News Co. v. Mahaska State Bank, 460 N.W.2d 476 (Iowa 1990). The trial court dismissed the present claims and we affirm. Because the case was filed and tried as an equity action, our review is de novo. Huston v. Exchange Bank, 376 N.W.2d 624, 626 (Iowa 1985).

Plaintiff Husker News Company (Husker) is a wholesale distributor of magazines and books to retail stores. Its customer stores are serviced by drivers employed by Husker. The drivers' tasks include: delivering magazines to Husker's customers; returning magazines not sold by the customers to Husker for credit on the customers' account; delivering bills to Husker's customers; and collecting payment on those bills.

Walter Hopf was employed by Husker as a driver. His route included the Iowa cities of Bloomfield, Oskaloosa, Pella, Ottumwa, Chariton, Centerville, and Albia. Hopf, unlike Husker's other drivers, was not required to remit the customer payments he received on a daily basis. Instead, because of the remoteness of Hopf's sales territory, it was decided he could deposit cash he received from his customers into his personal bank account in the defendant Iowa State Bank (the Knoxville bank). Hopf was to write checks from this account to reimburse Husker for cash he thus collected. Husker did not authorize Hopf to deposit the checks he received from his customers into his personal account. Checks were to be made out to, and delivered to, Husker.

Twice a week Husker sent a truck loaded with new merchandise to Hopf. The person delivering the truck would then take back the truck Hopf had been using, which was loaded with books and magazines not sold by Hopf's customers. The trucks, however, were not always large enough to accommodate all of the returns. So some of the returns were stored in Hopf's garage. Husker paid Hopf for the storage.

Hopf developed elaborate plots to appropriate funds from his customers' accounts. Included were: (1) giving his customers less than full credit for their returns; (2) taking magazines stored in his garage and adding them to other customers' returns; (3) buying magazines at garage sales and book sales and adding them to customer returns; and (4) taking magazines from one customer's account and adding them to another's. Hopf also deposited checks made payable to Husker into his account, even though he had no authority to do so. He endorsed these checks by signing "Husker News by Walter Hopf." A teller at the Knoxville bank had asked Hopf if he had authority to endorse the checks. Hopf said that he did, and the bank took his word for it.

The Knoxville bank stamped "P.E.G." onto the checks to indicate prior endorsement guaranteed. The checks were cleared through the federal reserve bank system and then sent to the drawee banks. The drawee banks relied upon the P.E.G. stamp and did not further investigate Hopf's authority to endorse the checks.

As early as 1982, signs of Hopf's wrongdoing began to surface. Keith Burnam, an employee and officer of Keith's Super Valu, a Husker customer, told an employee of Husker that Hopf was not giving his store full credit for its returns. Employees of the store had counted the magazines to be returned before Hopf took them. When their count did not match Hopf's, Keith called Husker to complain. Keith reported that he thought Hopf was intentionally misrepresenting the amount of the returns and that Hopf should be fired. Husker reimbursed the store the amount claimed to be short. No other action was taken. Three years later, in response to a survey, the vice president of the store wrote that he did not appreciate being serviced by a dealer who had been caught stealing from the store. A representative of Husker met with the vice president of the store, but, again, no action was taken.

Other unusual events happened during Hopf's employment. Hopf once returned more magazines from a customer than were delivered to that customer. On another customer's account, which was normally paid by check, Hopf paid over $3000 in cash to "catch-up" the account. Another unusual event occurred when a personal check issued by Hopf "bounced," even though the checks written by Hopf were merely to reimburse Husker for cash already deposited in his account.

Eventually Hopf's deception was discovered. In August of 1988 a manager of Pella Super Valu, another Husker customer, counted its magazines for return before Hopf took them, in much the same way the employees of Keith's Super Valu had done. This manager also compared his count to Hopf's. When the count did not match, the manager examined the canceled checks his store had written to Husker. The manager informed Husker that some of the checks were endorsed by stamp, while others were endorsed by Hopf. Hopf was fired.

From January 1, 1984, to December 31, 1988, Hopf had deposited $124,010 in checks payable to Husker into his personal account. He also deposited $238,095 in cash into the account. Hopf wrote checks to Husker totaling $308,473.

On January 9, 1989, Husker filed a petition in equity against South Ottumwa Savings Bank, Pella National Bank, Mahaska State Bank, and Iowa Trust and Savings Bank ("drawee banks"), alleging conversion. The drawee banks filed cross petitions against the Knoxville bank, the bank in which Hopf had his personal account. Husker later amended its petition to include negligence claims against all of the defendants. Negligence claims were also asserted against some of Husker's customers.

Following a bench trial the court found for the defendants and Husker has appealed.

I. Husker contends there was an abuse of discretion in a trial court ruling regarding separate trials under Iowa rule of civil procedure 186. Husker moved for separate trials, seeking to sever its conversion claims from its negligence claims. The trial court (by a judge other than the one who later tried the case) however separated plaintiff's actions by party, separating plaintiff's claims against the bank defendants from its claims against its customers. Husker attempted to appeal from this order, but by amendment stated it did not wish to appeal from a ruling it then considered favorable.

The attempted appeal was dismissed as interlocutory and the manner in which the trials had been separated was ignored for five months until the very morning of trial. Then Husker first told the trial court it wished to try its negligence claims together, so that a percentage of fault could be determined for all parties involved in the negligence claims.

The order separating trials was discretionary. Meeker v. City of Clinton, 259 N.W.2d 822, 827 (Iowa 1977). The closer to trial, the greater the discretion; rulings denying eleventh-hour requests to sever trials are extremely unlikely candidates for reversal. Briner v. Hyslop, 337 N.W.2d 858, 871 (Iowa 1983). The trial court had almost unfettered discretion on the day of trial to deny this motion. There was clearly no abuse of discretion in denying it.

II. The district court dismissed Husker's negligence claims against Pella Super Valu, reasoning that the customer owed no duty to Husker. In assigning this dismissal as error on appeal, Husker claims the customer had two duties: (1) to count its returns and compare them with Hopf's credit memo; and (2) to examine the back of its canceled checks for unauthorized endorsements.

We do not recognize a good-Samaritan...