Nagle v. LaSalle Nat. Bank

• Decision Date: 05 July 1979
• Docket Number: No. 76 C 742.,76 C 742.
• Citation: 472 F. Supp. 1185
• Parties: Robert J. NAGLE, Plaintiff, v. LaSALLE NATIONAL BANK, a National Banking Association, Defendant.
• Court: U.S. District Court — Northern District of Illinois

472 F. Supp. 1185

Robert J. NAGLE, Plaintiff, v. LaSALLE NATIONAL BANK, a National Banking Association, Defendant.

No. 76 C 742.

United States District Court, N. D. Illinois, E. D.

July 5, 1979.

Richard J. Phelan, Roseann Oliver, Phelan & Pope, Chicago, Ill., for plaintiff.

Merrick S. Rayle, Howard B. Prossnitz, Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

CROWLEY, District Judge.

This case is based on a four count complaint. Robert J. Nagle (Nagle) alleges breach of contract, negligence, fraud, and breach of fiduciary duty by LaSalle National Bank (the Bank) for paying out 27 wire transfers totalling $304,622.62 from a two-signature account maintained by G. L. Doyle & Co., Inc. (GLD). The Bank does not deny that the funds were paid without the necessary authorization. This matter is now before the Court on the Bank's motion for summary judgment.

GLD was organized in 1967 by its president and chief operating officer, Garrett Doyle (Doyle). The company was in the business of purchasing and selling beef and lamb. In 1968, GLD experienced severe financial difficulties and Doyle retained an attorney to attempt to reach an agreement with the company's creditors. Eventually, an arrangement was made and incorporated in an Extension Agreement dated December 9, 1968. The creditors agreed not to enforce their claims as long as GLD complied with a deferred installment payment plan.

In addition, several oversight safeguards were established for the creditors. A Creditors' Committee (the Committee), of which plaintiff was chairman, was formed to review the financial condition of GLD. For assistance, the Committee retained an attorney, Henry Rothenberg, to supervise all invoices paid by GLD and to approve all withdrawal of funds from the company. Milton Schachtman, a Certified Public Accountant, was also retained to audit the company's books.

Also, a corporate checking account was opened at the Bank pursuant to a corporate resolution which authorized the payment of checks only upon the signatures of both Rothenberg and Doyle. The Bank approved the resolution and maintained a signature card with both Doyle's and Rothenberg's signature. A final safeguard in the Extension Agreement stated that if GLD ceased business operations, the Committee could "effect a liquidation of the assets and property of the debtor and the distribution of the proceeds to creditors."

From April, 1970 through August, 1970, Doyle orally requested 27 wire transfers totalling over $300,000 from GLD's account to Wilson Lamb Company in Colorado. The Bank transferred these funds and mailed a confirmation of the date and amount of each transaction the following day to GLD. Monthly statements of account reflecting the wire transfers were also sent to the company.

Despite the optimism surrounding the Extension Agreement, GLD continued to experience financial difficulties and in late 1970 a decision was made to cease operation and liquidate. Subsequently, the Committee discovered large quantities of lamb in freezers around the country. The meat was freezer burned and virtually worthless. It was later determined that the lamb was purchased with the funds transferred to Wilson Lamb Company and that the transfers were made on Doyle's request only. The Bank was then notified of the unauthorized transfers and asked to restore the funds. The notification letter was dated September 1, 1971, approximately 16 months from the date of the first transfer and 13 months from the last transfer.

It is not clear on the record now before the Court what transpired from September, 1971 until April 24, 1975. However, on the latter date GLD assigned its claim against the Bank to Nagle for one dollar consideration. Plaintiff then filed this suit in February, 1976.

As previously stated, the complaint alleges breach of contract, negligence, fraud and breach of fiduciary duty. Defendant has moved for summary judgment on five grounds: 1) this Court lacks subject matter jurisdiction under 28 U.S.C. § 1359; 2) Nagle is barred by the doctrines of waiver, estoppel and contributory negligence; 3) Nagle's action is barred by § 4-406 of the Uniform Commercial Code, Ill.Rev.Stat., ch. 26, § 4-406 (1977); 4) Nagle has failed to demonstrate facts supporting his allegations that the Bank participated in a scheme to defraud GLD; and 5) Nagle has not established any damages proximately caused by the Bank.

Before addressing each of the issues raised, it is important to note that defendant has the burden of demonstrating that there are no triable issues of material fact. All "inferences must be drawn in the light most favorable to the party against whom the motion is directed and it is the duty of the court to resolve all doubts as to the existence of genuine issues of material facts against the party moving for summary judgment." International Assoc. of M. & A. W. Dist. No. 8 v. J. L. Clark Co., 471 F.2d 694, 697 (7th Cir., 1972).

I

The first ground of defendant's motion for summary judgment involves a jurisdictional question, and thus, requires special consideration. Since a court cannot render a judgment if it lacks jurisdiction over the subject matter, the claim based on 28 U.S.C. § 1359 will be considered a motion to dismiss. See Thompson v. United States, 291 F.2d 67 (10th Cir., 1961). In addition, the burden of proving proper jurisdiction always rests upon the party asserting it. O'Hare Int'l Bank v. Hampton, 437 F.2d 1173 (7th Cir., 1971).

On the face of the complaint the jurisdiction of this Court has been properly invoked. Nagle has alleged that he is a citizen of Iowa and that defendant is a citizen of Illinois since its principal place of business is located in Chicago. In addition, the jurisdictional amount requirement is met. However, defendant claims that this Court does not have jurisdiction of this matter under 28 U.S.C. § 1359. That statute provides:

A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.

It is clear from the record before the Court that this action could not have been brought in a federal court if GLD had not transferred its claim against the Bank. However, the assignment alone is not proof of collusion. See Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 825-26, 828 n. 9, 89 S.Ct. 1487, 23 L.Ed.2d 9 (1969) and 28 U.S.C. § 1359 Reviser's Notes. A court must be convinced that the assignment was collusively made to create jurisdiction.

The leading case on collusive jurisdiction is Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 89 S.Ct. 1487, 23 L.Ed.2d 9 (1969). In that case a Panamanian corporation had assigned a claim against a Haitian corporation to Kramer, a Texas resident. Simultaneously, Kramer agreed to pay back to the Panamanian company 95% of any judgment recovery. Kramer then filed suit in a federal district court.

The Supreme Court concluded that the assignment was collusively made, citing several factors. First, Kramer had no prior connection with the subject matter of the claim. Second, the assignment was made for consideration of only one dollar. Third, the Panamanian corporation would receive 95% of the judgment. Finally, plaintiff admitted that the assignment was substantially motivated by a desire to create diversity jurisdiction.

The Bank alleges that this case is indistinguishable from Kramer. First, defendant argues that plaintiff is not a proper party because he is a stranger to the disputed transactions, he has no personal stake in the matter and he must turn over any proceeds to the creditors of GLD. Second, defendant alleges that the suit is for the benefit of GLD and that there are no legitimate commercial reasons for assigning the claim to Nagle. Third, defendant claims that the one dollar consideration for the assignment and the fact that plaintiff will not bear the costs of litigation make the assignment colorable. Finally, it is claimed the assignment is collusive because plaintiff is in a position as chairman of the Committee to assign the claim from GLD to himself to manufacture diversity jurisdiction.

Plaintiff replies that the Kramer Court also stated that its decision did not affect any prior decisions involving an absolute transfer of a claim. In that situation, the assignment is not improper because the transferor retains no interest in the subject matter. 394 U.S. at 828 n. 9, 89 S.Ct. 1487. Nagle urges that Bullard v. City of Cisco, 290 U.S. 179, 54 S.Ct. 177, 78 L.Ed. 254 (1933), is one of the earlier cases unaffected by Kramer.

In Bullard, the Supreme Court found proper diversity jurisdiction even though several assignments had resulted in Bullard and others becoming the plaintiffs. The case involved a bondholders' committee suing the City of Cisco, Texas to recover on bonds and coupons. The committee was formed pursuant to a protective agreement which provided for bondholders to assign their title in the bonds to the committee for the duration of the agreement. The original owners were all citizens of states other than Texas, but only three had claims which could meet the jurisdictional amount. In contrast, the bondholders' committee, which was also composed of citizens of states other than Texas, had an aggregate claim far in excess of the jurisdictional amount.

The defendant challenged the jurisdiction of the court and claimed the committee was not the actual owner of the bonds, but only a collection agency acting for the benefit of others who could not invoke federal jurisdiction individually. The Court rejected this argument, stating:

We are of the opinion that the purpose of the agreement of January 3, 1930, was not to create a mere collection agency, nor to set up a merely colorable device for circumventing restrictions on federal jurisdiction, but to put the bonds and coupons—the owners of

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