Mauldin Furniture Galleries, Inc. v. Branch Banking & Trust Co.

• Decision Date: 27 August 2012
• Docket Number: C.A. No. 6:10-240-TMC
• Court: U.S. District Court — District of South Carolina
• Parties: Mauldin Furniture Galleries, Inc., Plaintiff, v. Branch Banking & Trust Company, Defendant.

Mauldin Furniture Galleries, Inc., Plaintiff,

v.Branch Banking & Trust Company, Defendant.

C.A. No. 6:10-240-TMC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF SOUTH CAROLINA GREENVILLE DIVISION

Dated: August 27, 2012

ORDER

In this case, the plaintiff, Mauldin Furniture Galleries (Mauldin Furniture) asserts conversion claims against the defendant Branch Banking and Trust (BB&T) under both South Carolina common law and Article 3 of the Uniform Commercial Code (UCC), codified at S.C. Code Ann. § 36-3-419 (2003). Before the court are cross-motions for summary judgment by Mauldin Furniture (Dkt. No. 86) and BB&T (Dkt. No. 87). The court held a hearing on both motions on May 10, 2012. For the reasons set forth below, the court denies Mauldin Furniture's motion for summary judgment. (Dkt. No. 86.) The court grants in part and denies in part BB&T's motion for summary judgment. (Dkt. No. 87.)

I.

Mauldin Furniture is a furniture retail store located in Mauldin, South Carolina. Incorporated in 1988, Lois Satterfield (Satterfield) and Anthony Hogan (Hogan) each own a 50% interest in the operation. Satterfield, a widow in her 70s, is the president and secretary of Mauldin Furniture, while Hogan is the vice president and treasurer. The two are and always have been the only directors and officers of Mauldin Furniture. In 1992, the company opened up a commercial checking account with BB&T for its banking business under the name "Mauldin Furniture Galleries, Inc." In accordance with their positions as officers, both Satterfield andHogan were added as signatories on this account.

Throughout Mauldin Furniture's existence, Hogan handled the day-to-day activities of the company.¹ As president, Satterfield had no specific duties. Both Satterfield and Hogan acknowledge that she had no day-to-day involvement. From time to time, Satterfield would inquire as to the health of the company's finances and business operations, and Hogan would inform her that business was poor and the store was generating very little profit. Satterfield also inquired of BB&T on occasion as to the company's account balance, and BB&T confirmed to her that the account balance was low.²

In 1998, Hogan incorporated Anthony P. Hogan Company, Inc. (Hogan Company).³ Hogan was the sole owner, director, and officer of Hogan Company, which was likewise engaged in the sale of furniture. According to deposition testimony, Hogan ran Hogan Company out of Mauldin Furniture's building and used both Mauldin Furniture vehicles and employees for its operations. Hogan also opened an account with BB&T on behalf of Hogan Company; the account statements for Hogan Company's BB&T account were delivered to the Mauldin Furniture address or a post office box. Hogan maintains that he opened Hogan Company for the benefit of Mauldin Furniture and to obtain certain lines of furniture unavailable to Mauldin Furniture. At no point did Hogan ever inform Satterfield about the existence of Hogan Company or its operations at Mauldin Furniture's building.

In August of 2000, Mauldin Furniture alleges, Hogan began depositing checks written by customers payable to Mauldin Furniture into the Hogan Company account at BB&T. FromAugust 2000 to August 2008, precisely 531 checks—totaling $527,309.47—written payable to Mauldin Furniture were deposited in Hogan Company's BB&T account.

In August 2008, Satterfield's grandson discovered invoices at the Mauldin Furniture store stamped with "Anthony P. Hogan Company." At that point, Satterfield became aware of Hogan Company's existence—and she suspected fraud. Satterfield notified law enforcement, which confiscated Mauldin Furniture's financial records. In 2009, after an investigation, Satterfield discovered that the disputed checks payable to Mauldin Furniture had been deposited in the Hogan Company account at BB&T. ⁴ To date, Hogan has not been charged with a crime.

On December 31, 2009, Mauldin Furniture filed this action for conversion in the Greenville County Court of Common Pleas. BB&T removed the case to this court on February 1, 2010. (Dkt. No. 1.) In the complaint, Mauldin Furniture asserts claims against BB&T for common law conversion, "conversion under the UCC for failure to pay or apply value consistent with a restrictive endorsement," and for "conversion under the UCC for payment to persons not entitled to receive such payment." Mauldin Furniture seeks both actual and punitive damages. BB&T filed an answer on February 5, 2010, denying liability and asserting various defenses. (Dkt. No. 5.)

Both parties filed cross-motions for summary judgment. In Mauldin Furniture's motion for partial summary judgment⁵ , it alleges that BB&T is liable for conversion on each of the 531 checks under the UCC. (Dkt. No. 86.) Mauldin Furniture also divided the 531 checks at issue into five distinct categories:

Category A: Checks made payable to "Mauldin Furniture" and indorsed with aMauldin Furniture Galleries "For Deposit Only" stamp (and listing the Mauldin Furniture's BB&T account number).

58 checks totaling $43,799.92.

Category B: Checks made payable to "Mauldin Furniture," with no indorsement or indorsed with "AP Hogan," "AP Hogan Co.," or "AP Hogan/Mauldin Furniture Galleries."

184 checks totaling $191,552.46.

Category C: Checks made payable to "Anthony P Hogan Company and Mauldin Furniture" and indorsed with "AP Hogan".

check totaling $1,200.00.

Category D: Checks made payable to "Mauldin Furniture" but allegedly altered and marked through with "AP Hogan" made the payee. These checks contained no endorsement or were indorsed with "AP Hogan Co." or with the Mauldin Furniture "For Deposit Only" stamp.

87 checks totaling $76,620.62.

Category E: Checks made payable to "Mauldin Furniture/AP Hogan," "AP Hogan/Mauldin Furniture," "Mauldin Furniture or Anthony P. Hogan," where the "/AP Hogan", "AP Hogan/," "or Anthony P. Hogan," or the "Anthony P. Hogan or" is in a different handwriting. These checks contained either no indorsement or were indorsed to AP Hogan Co.

201 checks totaling $214,136.47.

In BB&T's motion for summary judgment, it alleges that (1) Hogan had authority to indorse the checks in the manner he did; (2) common law conversion was displaced by the adoption of the UCC's conversion provisions; (3) Mauldin Furniture's claims as to checks written prior to December 31, 2006 violate the statute of limitations; (4) Mauldin Furniture's claims as to Categories F, D, and B fail under the UCC.

The court grants BB&T's motion for summary judgment as to the common law conversion claim. Common law conversion as to negotiable instruments was displaced by the adoption of UCC Article 3. See Flavor-Inn, Inc. v. NCNB Nat'l Bank of S.C., 309 S.C. 508, 511-512, 424 S.E.2d 534, 536 (holdingthat section 36-3-419 displaces common law conversion/negligence claims for deposit of a check with a forged or unauthorized indorsement) (citing Equitable Life Assurance Soc'y of the U.S. v. Okey, 812 F.2d 906, 908 (4th Cir. 1987). As to the remainder, the court will address both motions and the issues raised therein accordingly.

II.

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Rule 56, Fed. R. Civ. P. A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party, of course, bears the initial burden in showing the court that no genuine issue of material fact exists. Celotex, 477 U.S. at 323. Following this initial showing, the nonmoving party must produce "specific facts showing that there is a genuine issue for trial." Id. at 322. To do so, the nonmoving party must present more than a mere scintilla of evidence that a genuine issue of material fact exists. Anderson, 477 U.S. at 252. The court construes all facts and reasonable inferences arising therefrom in a light most favorable to the nonmoving party. EEOC v. Central Wholesalers, Inc., 573 F. 3d 167, 174 (4th Cir. 2009).

III.

Primarily at issue here is the prior UCC conversion statute, which states, in pertinent part,

(1) An instrument is converted when

. . .

(c) it is paid on a forged indorsement.

. . . .

(3) Subject to the provisions of this act concerning restrictive indorsements a representative, including a depositary or collecting bank, who has in good faith and in accordance with the reasonable commercial standards applicable to the business of such representative dealth with an instrument or its proceeds on behalf of one who was not the true owner is not liable in conversion or otherwise to the true owner . . . .

S.C. Code Ann. § 36-3-419 (2003).⁶ The statute of limitations for conversion claims under the UCC is three years. See S.C. Code Ann. § 15-3-530 (2005); Anonymous Taxpayer v. S.C. Dep't of Revenue, 377 S.C. 425, 438, 661 S.E.2d 73, 80 (2008) ("The statute of limitations for actions pursuant to contract or statute is three years.") In light of the statute of limitations, BB&T argues that Mauldin Furniture is barred from recovery as to any checks written three years prior to the commencement of this action, or December 31, 2006. In response, Mauldin Furniture argues that the cause of action did not accrue, by virtue of the discovery rule, until Satterfield discovered Hogan's alleged duplicity in early 2009. BB&T further argues that even if the discovery rule applies, Mauldin Furniture was on notice and the claims are nonetheless barred. The court holds that the discovery rule does apply to the statute of limitations. Furthermore, whether Satterfield had constructive notice as to these claims such that the statute had nonetheless run is a question of fact, the determination of which is inappropriate at the summary judgment stage.

Under...