Jones v. Wells Fargo Bank, N.A.

• Decision Date: 09 January 2012
• Docket Number: No. 11–10320.,11–10320.
• Parties: Vernon T. JONES, Jr., as Receiver for W Financial Group, L.L.C., Plaintiff–Appellee, v. WELLS FARGO BANK, N.A., Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

666 F.3d 955

Vernon T. JONES, Jr., as Receiver for W Financial Group, L.L.C., Plaintiff–Appellee,

v.WELLS FARGO BANK, N.A., Defendant–Appellant.

No. 11–10320.

United States Court of Appeals, Fifth Circuit.

Jan. 9, 2012.

Suzanne Reddell Chauvin (argued), Stacey K. Van Camp, Strong, Pipkin, Bissell & Ledyard, L.L.P., Houston, TX, for Plaintiff–Appellee.

Shayne Daniel Moses (argued), David A. Palmer, Moses, Palmer & Howell, L.L.P., Forth Worth, TX, for Defendant–Appellant.

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

Before KING, JOLLY, and WIENER, Circuit Judges.

PER CURIAM:

Court-appointed receiver Vernon T. Jones, Jr. brought suit against Wells Fargo Bank, N.A., for conversion and breach of contract with respect to a cashier's check purchased by W Financial Group that Wells Fargo reaccepted for deposit into an account other than that of the named payee, without the proper endorsement. The district court found Wells Fargo liable for conversion. On appeal, Wells Fargo argues that the court erred in finding that Wells Fargo converted the check, and in rejecting certain defenses. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In September 2006, Adley Abdulwahab (“Wahab”) opened a business cash management account on behalf of W Financial Group, L.L.C. (“W Financial”) with Defendant–Appellant Wells Fargo Bank, N.A. (“Wells Fargo”). Wahab, along with Michael K. Wallens and Michael K. Wallens, Jr., was an authorized signer on the account. W Financial received a Business Account Agreement, which described the terms governing its account.

On January 29, 2007, Wahab withdrew $1,701,250 from W Financial's account at Wells Fargo's Post Oak branch in Houston. Wahab used the funds to buy a cashier's check payable to Lubna Lateef, Misba Lateef, Shahed Lateef, and Zahed Lateef (the “Lateefs”). Later that same day, Wahab returned to a different Wells Fargo branch in Spring, Texas. Wahab deposited the check into the Wells Fargo account of a separate entity, CA Houston Investment Center, L.L.C. (“CA Houston”). Wahab was CA Houston's managing member, and the only authorized signer on its account. The Lateefs never received or endorsed the cashier's check. Rather, Wells Fargo stamped the following on the back of the check: “CREDITED TO THE ACCOUNT OF WITHIN NAMED PAYEE LACK OF ENDORSEMENT GUARANTEED WELLS FARGO BANK, N.A.”

In March 2008, the Securities and Exchange Commission (“SEC”) brought an enforcement action against W Financial, SEC v. W Financial Group, LLC, et al., No. 3:08–CV–0499–N, alleging that it had engaged in the fraudulent sale of securities.¹ The United States District Court for the Northern District of Texas, where that action was filed, entered an order appointing Vernon T. Jones, Jr. (“Receiver” or “Jones”) as receiver for W Financial for the purpose of recovering the company's assets for the benefit of its investors. The order further authorized Jones to institute all actions or proceedings necessary to recover W Financial's assets, and to file such actions in the United States District Court for the Northern District of Texas.

Pursuant to his responsibilities as receiver, Jones filed this action against Wells Fargo in 2009, asserting causes of action for conversion and breach of contract based upon the January 29, 2007 transaction. The parties filed cross motions for summary judgment, acknowledging that the case hinged solely on questions of law. The district court granted the Receiver's motion for summary judgment and denied Wells Fargo's cross motion, finding Wells Fargo liable for conversion and responsible for $1,701,250 in damages, plus interest. The court found the breach of contract claim moot, and rejected Wells Fargo's affirmative defenses. Wells Fargo timely appealed.

II. STANDARD OF REVIEW

We review a district court's grant of summary judgment de novo, applying the same standard as the district court. Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir.2007). Summary judgment is proper only 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.” Fed.R.Civ.P. 56(a). When reviewing a summary judgment motion, we draw all reasonable inferences in favor of the nonmoving party. Turner, 476 F.3d at 343; see also Ford Motor Co. v. Tex. Dep't of Transp., 264 F.3d 493, 498 (5th Cir.2001) (“On cross-motions for summary judgment, we review each party's motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party.”).

III. DISCUSSION

A. Conversion

Under Texas law, which has adopted most provisions of the Uniform Commercial Code (“UCC”) verbatim, a bank may be liable for conversion of a cashier's check if “a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.” Tex. Bus. & Com.Code § 3.420(a).

In this case, CA Houston (through Wahab as its agent),² and not W Financial, is the entity that sought to enforce the instrument. As Wells Fargo states, “W Financial did not enforce the Cashier's Check as it is not the party that received payment. CA Houston was; thus, CA Houston enforced the Cashier's Check.” The resolution of the Receiver's conversion claim thus depends upon whether CA Houston was “entitled to enforce” the cashier's check.

The UCC lists the following persons who are “entitled to enforce” an instrument: “(i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to 3.309 or 3.418(d).” Tex. Bus. & Com.Code § 3.301. CA Houston was neither a holder of the instrument nor “a person not in possession of the instrument who is entitled to enforce the instrument.” A “holder” is defined as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” Id. § 1.201(b)(21)(A). CA Houston was not a holder under the UCC, because the check was payable to the Lateefs, not to Wahab, CA Houston, or to “bearer.”³ Id. Furthermore, the parties agree that Wahab was in physical possession of the check, precluding him or CA Houston from qualifying as “a person not in possession of the instrument who is entitled to enforce the instrument.” Id.

Thus, CA Houston was entitled to enforce the check only if it qualified as “a nonholder in possession of the instrument who has the rights of a holder.” Id. § 3.301(ii). To determine CA Houston's rights, we must consider the rights of the other entities in this transaction. Here, W Financial would be classified as the check's “remitter.” A “remitter” is “a person who purchases an instrument from its issuer if the instrument is payable to an identified person other than the purchaser.” Id. § 3.103(a)(15). “The remitter, although not a party to the check, is the owner of the check until ownership is transferred to Seller by delivery. This transfer is a negotiation because Seller becomes the holder of the check when Seller obtains possession.” Id. § 3.201 cmt. 2.⁴ The November 2002 official comments to Section 3.301 now make clear that a remitter falls within the definition of a “nonholder in possession,” and is thus entitled to enforce a check. ⁵ The comments state:

A nonholder in possession of an instrument includes a person that acquired rights of a holder by subrogation or under Section 3–203(a). It also includes both a remitter that has received an instrument from the issuer but has not yet transferred or negotiated the instrument to another person and also any other person who under applicable law is a successor to the holder or otherwise acquires the holder's rights.Id. § 3.301 cmt. (emphasis added).

The only conceivable manner in which CA Houston could have acquired W Financial's enforcement rights in this case is through a transfer of the cashier's check from W Financial to CA Houston. Tex. Bus. & Com.Code § 3.203(b) (“Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course.”). There is, however, no evidence of a transfer. A transfer occurs only “when [an instrument] is delivered by a person other than its issuer for the purpose of giving the person receiving the delivery the right to enforce the instrument.” Id. § 3.203(a). No such purpose is evident here. Indeed, Wells Fargo's initial brief in fact states that a transfer “never occurred,” and that W Financial “retained possession of the Cashier's Check.” Although Wells Fargo's later briefing suggests that a transfer did occur, it provides no support for such an assertion. In any event, Wells Fargo's failure to argue transfer in its initial brief waives the argument for our purposes. Cinel v. Connick, 15 F.3d 1338, 1345 (5th Cir.1994) (“An appellant abandons all issues not raised and argued in its initial brief on appeal.”) (citations omitted). As such, CA Houston never obtained W Financial's right to enforce the instrument. Because Wells Fargo made payment on the cashier's check to CA Houston, an entity that was not entitled to enforce the instrument, Wells Fargo is liable for conversion under Section 3.420.

The district court also concluded that Wells Fargo is liable for conversion because it “deposited the cashier's check without the necessary indorsement.” We agree. As noted above, Wells Fargo accepted and processed the cashier's check even though it had not been endorsed by the Lateefs. Instead, it affixed the following stamp to the cashier's check before depositing it into the account of CA Houston: “CREDITED TO THE ACCOUNT OF WITHIN NAMED PAYEE LACK OF ENDORSEMENT GUARANTEED WELLS FARGO BANK, N.A.” The account number for CA Houston was handwritten below this stamp. As ...