Nationwide Transp. Fin. v. Cass Info. Sys.

• Decision Date: 28 April 2008
• Docket Number: No. 06-15653.,06-15653.
• Citation: 523 F.3d 1051
• Parties: NATIONWIDE TRANSPORT FINANCE, a California general partnership, Plaintiff-Appellant, v. CASS INFORMATION SYSTEMS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

523 F.3d 1051

NATIONWIDE TRANSPORT FINANCE, a California general partnership, Plaintiff-Appellant, v. CASS INFORMATION SYSTEMS, INC., Defendant-Appellee.

No. 06-15653.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 14, 2008.

Filed April 28, 2008.

Lauriann Wright, Law Offices of Thomas B. McCullough, Jr., Marina del Rey, CA, for the plaintiff-appellant.

Eric M. Trelz, Polsinelli Shalton Welte Suelthaus PC, St. Louis, MO, for the defendant-appellee.

Appeal from the United States District Court for the District of Nevada; Brian E. Sandoval, District Judge, Presiding. D.C. No. CV-04-00008-BES.

Before: JOHN T. NOONAN, WILLIAM A. FLETCHER, and SANDRA S. IKUTA, Circuit Judges.

Opinion by Judge IKUTA; Dissent by Judge NOONAN.

IKUTA, Circuit Judge:

Plaintiff-appellant Nationwide Transport Finance (Nationwide) appeals the district court's judgment following a jury verdict in favor of defendant-appellee Cass Information Systems, Inc. (Cass) on Nationwide's claims for intentional interference with contractual relationship, intentional interference with prospective economic advantage, breach of implied contract, and account stated. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

I.

Prior to trial, the parties agreed to the basic facts underlying this dispute:

Nationwide is a finance company which typically purchases freight invoices from carriers or truckers who assign their payments under those purchased invoices directly to Nationwide, a type of account receivable financing known as factoring.

Cass is a freight invoice payment service which is typically hired by shippers or manufacturers to handle the processing and payment of their freight invoices. A typical transaction in this dispute involves a shipper, usually a manufacturing company, who needs its products transported across the country by a trucking company, the carrier.

The shipper agrees to pay Cass the funds needed to pay all of the shipper's verified transportation invoices, and Cass, in return, forwards those funds to the carrier or its designated agent to pay the outstanding invoice.

The carrier, on the other hand, engages Nationwide to finance its invoices for the transportation services rendered to the shipper.

Once the transportation services are complete, the carrier forwards its resulting invoice to Nationwide.

Nationwide sends the invoice to the shipper or, if the shipper uses Cass for its transportation invoice processing, to Cass for payment.

Nationwide dealt continuously with Cass for over 17 years, from 1986 until approximately mid summer 2003.

During the parties' 17-year relationship, Nationwide received prompt, regular payments from Cass on the transportation invoices it purchased from various interstate carriers.

Occasionally, over the parties' 17-year relationship, Cass erroneously sent a payment directly to a carrier when it should have gone to Nationwide.

When Cass erroneously misdirected a payment to a carrier, Cass would make efforts to resolve the situation and ensure that Nationwide got paid.

In 2003, the parties discovered that several assigned invoices had erroneously been paid directly to a carrier called FWC, Inc. During the resolution of the FWC, Inc., situation, Cass asserted its rights under a hold harmless agreement signed by Nationwide in 1986.

Eventually, Nationwide received payment of the $25,000 misdirected to FWC, Inc.

After Cass asserted its rights under the 1986 hold harmless agreement, Nationwide terminated the agreement. Nationwide refused to sign a new hold harmless agreement.

On June 4th, 2003, Darla Haynes, Cass's former files and documentation supervisor, informed Nationwide that any future invoices which Cass received from Nationwide would not be paid.

Cass continues to refuse to make any payments to Nationwide. Nationwide continues to refuse to execute a hold harmless agreement.

Nationwide filed an action in the United States District Court for the District of Nevada alleging various Nevada state law causes of action against Cass on January 6, 2004. The complaint included causes of action for (1) intentional interference with contractual relationship, and (2) intentional interference with prospective economic advantage,¹ both based on Nationwide's theory that Cass's conduct was at least partially motivated by an intent to get Nationwide's customers to use Cass's expedited payment service, which Nationwide alleges is a competitor.

At trial, Nationwide intended to show that Cass was liable for both interference torts because its actions were "improper," as explained in the Restatement (Second) of Torts. Under the Restatement, both interference torts include the element of the absence of privilege or justification. The Restatement defines this element as a requirement that a defendant's conduct be "improper." See Restatement (Second) of Torts § 767 cmt. a (1979) ("In each of these forms there is a requirement that the interference be both intentional and improper."); see also id. cmt. b (discussing the ambiguity in whether the "improper" element is treated as a prima facie element of the torts or an affirmative defense).

Over Cass's objection, the district court ultimately adopted Nationwide's Restatement-based jury instructions for the interference torts, and required Nationwide to prove that Cass acted "improperly" or "without justification" for both torts.² The Restatement uses a multi-factor test in determining whether a defendant's conduct is "improper."³ In its effort to establish that Cass's conduct was improper for both interference torts, Nationwide focused on a factor set forth in § 767(a), the "nature of the actor's conduct." The official comment discussing this factor notes that "[c]onduct specifically in violation of statutory provisions or contrary to established public policy may for that reason make an interference improper." Id. cmt. c. Relying on this comment, Nationwide's theory at trial was that Cass's conduct was improper because it violated or was contrary to Uniform Commercial Code (UCC) § 9-406,⁴ incorporated without alteration as Nevada Revised Statute § 104.9406.

UCC § 9-406 provides that after receipt of a valid notice of assignment of an invoice, "the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor." U.C.C. § 9-406. As the term is used in Article 9 of the Uniform Commercial Code, an "account debtor" is "a person obligated on an account, chattel paper, or general intangible." U.C.C. § 9-102(a)(3). A shipper is an account debtor because it is obligated to make good on its invoice for the amount the shipper owes to the carrier. Under § 9-406(a), once a shipper receives a valid notice that the carrier has assigned the shipper's invoice to a factor, the shipper can discharge its obligation by paying the factor and may not discharge the obligation by paying the carrier. See U.C.C. § 9-406(a). The parties do not dispute that by its terms, § 9-406 is applicable only to the account debtor. Nor do the parties dispute that the shippers were the only account debtors in this case.

At trial, Nationwide based its claim that Cass's conduct was contrary to § 9-406 and thus improper on a legal theory that Cass, as an agent of the shippers, stood in the shoes of the shippers and had an unconditional obligation to pay Nationwide once the shippers received a valid notice of assignment. Therefore, Nationwide contended, Cass's knowing refusal to pay Nationwide on its assigned invoices violated § 9-406, and Nationwide's refusal to sign a new hold harmless agreement could not excuse Cass's refusal.

To support this theory, Nationwide intended to introduce the expert report and testimony of Robert Zadek, an expert on the Uniform Commercial Code and related commercial law, who would discuss how these laws related to the facts of this case. Nationwide also intended to put David Carney, Nationwide's credit administrator and co-owner, on the stand to testify regarding how the UCC is applied in the factoring industry.

On June 22, 2005, Cass filed a motion to strike Zadek's report and testimony, arguing that the entire report should be stricken as inadmissible legal opinion, and alternatively, that those portions that specifically discuss the law and its application should be stricken. Relying on Federal Rule of Evidence 702 (establishing the criteria for admissibility of expert testimony that will "assist the trier of fact to understand the evidence or to determine a fact in issue"), the district court struck "only those portions of the report that discuss the law and its application." The court did not excise sections that discussed "industry conditions, standards, and practices," or sections that discussed factoring, so long as those sections did not cite or apply the relevant law.

Cass later filed a similar motion in limine on Rule 702 grounds to limit David Carney's testimony. In granting the motion, the district court precluded Carney from "discussing the law or its application," "referencing the UCC and other law," and "directly applying the UCC and other law to the facts of this case." The district court held that it would allow "testimony regarding corporate norms."

Cass also filed a motion in limine to preclude Nationwide from introducing any evidence that Cass is an "account debtor" under § 9-406 of the Uniform Commercial Code. Because the parties did not dispute that Cass was not itself an "account debtor," the district court held that "any evidence that characterizes [Cass] as an account debtor is irrelevant and inadmissible." Also, because it was uncontested that Cass was an agent of the account debtors (the shippers), the district court held that Nationwide "may refer to [Cass] as an agent of the account debtor because it will simplify the description of [Cass's] role in a typical financing transaction." However, the district court rejected...