MEMO v. SUN NATIONAL BANK

• Decision Date: 02 February 2005
• Citation: 866 A.2d 189,374 N.J. Super. 556
• Parties: MERCHANTS EXPRESS MONEY ORDER COMPANY, Plaintiff-Respondent/Cross-Appellant, v. SUN NATIONAL BANK, Defendant-Appellant/Cross-Respondent.
• Court: New Jersey Superior Court

866 A.2d 189

374 N.J. Super. 556

MERCHANTS EXPRESS MONEY ORDER COMPANY, Plaintiff-Respondent/Cross-Appellant, v. SUN NATIONAL BANK, Defendant-Appellant/Cross-Respondent.

Superior Court of New Jersey, Appellate Division.

Argued December 1, 2004.

Decided February 2, 2005.

Ronald L. Glick, Cherry Hill, argued the cause for appellant/cross respondent (Steven & Lee, attorneys; Mr. Glick and Christopher G. Barnes, on the brief).

Geoffrey B. Gompers, Mount Laurel, argued the cause for respondent/cross appellant (Geoffrey B. Gompers & Associates, attorneys; Mr. Gompers, on the brief).

Before Judges AXELRAD, HOLSTON, and BILDER.

The opinion of the court was delivered by BILDER, J.A.D. (retired and temporarily assigned on recall).

Plaintiff Merchants Express Money Order Co. is a multi-state money transmitter which is licensed in New Jersey as "MEMO Money Order Company" to sell money orders to the public through retail establishments. MEMO provides its agents with blank money orders as well as equipment necessary to convert the blank money orders to negotiable instruments and to count the number and amount of money orders sold. The agents earn a percentage fee on the money orders sold.

Thurlow Checking, Inc. and Chelsea Check Cashing, L.P., companies with a common ownership, operated a check cashing business from a number of sites in Atlantic City and, among other things, also sold money orders and lottery tickets. Beginning in September 1998 Thurlow/Chelsea acted as money-order sales agents for plaintiff.

In connection with their businesses, Thurlow/Chelsea had banking relationships with defendant Sun National Bank that included operating accounts and separate money order accounts. The former contained, among other things, funds loaned by the bank as part of a line of credit as well as general operating funds; the latter was an account from which money-order-sales proceeds were transmitted on a weekly basis to plaintiff.

In October 2000, Thurlow/Chelsea's line of credit being seriously overdrawn, defendant Sun froze their bank accounts, seizing and applying the monies in those accounts to satisfy Thurlow/Chelsea's debts to Sun. As a result Thurlow/Chelsea was unable to wire transfer to plaintiff money-order-sales proceeds totaling $485,930.23. Contending the seized funds included these money-order-sales proceeds, plaintiff sued defendant Sun for their recovery. Defendant Sun appeals from a summary judgment finding it liable to plaintiff, assessing damages at $458,930.23 and entering judgment for that amount together with costs and interest from October 22, 2000. We affirm.

I.

A proper understanding of this case requires familiarity with the trade practices of Thurlow/Chelsea and the New Jersey Money Transmitters Act, N.J.S.A. 17:15C-1 to -27.

Thurlow/Chelsea's trade practices.

Proceeds from sales at Thurlow/Chelsea were initially deposited in general cash drawers at the sales sites. Moneys received from the sale of money orders were commingled with other receipts and cash received from the sale of money orders became available for use in Thurlow/Chelsea's principal business of check cashing. On a regular basis, the contents of the cash drawers were deposited in the general operating funds accounts at Sun and on a weekly basis the amounts owed to MEMO were transferred into the money order accounts and from there wire transferred to MEMO.

The New Jersey Money Transmitters Act.

The Money Transmitters Act, N.J.S.A. 17:15C-1 to -27 provides for the licensing and regulation of persons engaged in the business of money transmission, a business which is defined as including, among other things, the sale or issuance of payment instruments for a fee. N.J.S.A. 17:15C-2.

Contained within that Act is a provision which makes funds received by agents such as Thurlow/Chelsea trust funds and continues the trust nature of the funds even if commingled until the proceeds are paid to the transmitter such as plaintiff.

N.J.S.A. 17:15C-18f provides as follows:

All funds (less fees) received by an authorized delegate of a licensee from the sale or delivery of a payment instrument issued by a licensee or received by an authorized delegate for transmission shall, from the time the funds are received by an authorized delegate until that time when the funds or an equivalent amount are remitted by the authorized delegate to the licensee, constitute trust funds owned by and belonging to the licensee. If an authorized delegate commingles any trust funds with any other funds or property owned or controlled by the authorized delegate, all commingled proceeds and other property shall be impressed with a trust in favor of the licensee in the amount equal to the amount of the proceeds due the licensee.

It is undisputed that plaintiff was an authorized licensee and Thurlow/Chelsea was an authorized delegate.

II.

In a well reasoned oral decision of January 9, 2004 Judge Curio found that the evidence as to Thurlow/Chelsea's routine and habitual business practices, see N.J.R.E. 406, was unrebutted; examined N.J.S.A. 17:15C-18f and found the language clear and unambiguous; and finding there was no genuine dispute as to the material facts, i.e. the habit of commingling the receipts in the cash drawer and regularly depositing the cash drawer receipts into the operating accounts at Sun, Brill v. Guardian Life Ins. Co. of America, 142 N.J. 520, 539-540, 666 A.2d 146 (1995); Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 73-75, 110 A.2d 24 (1954), applied the provisions of the Act to conclude that the funds seized by Sun from the Thurlow/Chelsea operating accounts containing funds into which money order receipts had been commingled were impressed with a trust in favor of plaintiff to the extent of the amounts owed to it from money order sales.

So all of the funds co-mingled and deposited by [Thurlow/Chelsea] into the Sun accounts are impressed with a trust in favor of MEMO to the tune of what's owed to MEMO. Only if there is a question as to whether those funds in the account were actually the result of the proceeds of the money order sales transaction does the Summary Judgment Motion get defeated. And the reality of the motion record is that there are suggestions and speculation that there may not be an ability of the plaintiff to prove that the funds came from the sale of money orders and were deposited into the accounts.

But I have to say that when one looks at the motion record in its entirety, it's difficult to come to the conclusion that there is a genuine issue of material fact on that issue. I say that because clearly it is not disputed that the usual course of conduct between [Thurlow/Chelsea] and Sun was as it [has] previously been described. The monies for the business go into the operating account, come out of the operating account into the money order account, and go the wire transfer to MEMO, all monies from all transactions being co-mingled into the operating account.

III.

On appeal Sun makes two contentions. First, that genuine issues exist as to whether and to what extent the funds it seized in the Thurlow/Chelsea operating accounts contained the proceeds of money order sales and second, that the trial court applied the Money Transmitters Act without consideration of the effect of the Uniform Fiduciaries Law, N.J.S.A. 3B:14-52 to -61, which, in reliance on N.J.S.A. 3B:14-58(a), it alleges immunizes it from liability in this case.

The existence of genuine issues as to material facts.

There is no dispute that Thurlow/Chelsea conducted their check cashing business at their several Atlantic City locations in the manner we have previously described — that moneys received from money order sales as well as other receipts were placed in a single cash drawer and commingled. Sun concedes this in its brief. Its contention is that there came a time in October 2000 when Thurlow/Chelsea's principals' health prevented them from personally managing the operation, and that there is no evidence the normal practice continued after the principals ceased being present and Thurlow/Chelsea got into financial difficulty. It was the contention of the principals that large sums of money inexplicably vanished, perhaps by employee theft. Sun suggests the money might have been embezzled by the principals. Sun contends the alleged disappearance of money makes the continuation of the normal business practices at the Thurlow/Chelsea locations a matter which plaintiff must prove.

Sun's contentions are without merit. Thurlow/Chelsea's routine and habitual practices are fully established by the direct proofs of their usual course of conducting business, as well as corroborating evidence in the form of the business records of plaintiff with respect to Thurlow/Chelsea and of Sun with respect to Thurlow/Chelsea's deposits and wire transfers. The continuation of these practices until Sun's seizure of Thurlow/Chelsea's accounts is derived not only from habit and custom, N.J.R.E. 406, but also from common sense. The continued deposits in the Sun accounts and plaintiff's records of the Thurlow/Chelsea money order account clearly demonstrate the continuation of the operation. Indeed Sun does not contest this. There is no way the operation could have continued without the use of its cash drawers, whether cashing checks or selling money orders. As the trial judge noted, in rebuttal Sun has furnished no proofs to support its theories, merely speculative, hypothetical argument.

But there's really been no evidence that would refute the consistent description by Lieberman [one of Thurlow/Chelsea's principals] as to how the monies were received, how they were deposited, and what happened now. Obviously the position, and the point is well made, that Mr. Lieberman, because of a variety of circumstances, may not be of sterling character and,

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