PENALOSA CO-OP. EXCHANGE v. AS Polonyi Co.
| Decision Date | 02 January 1991 |
| Docket Number | No. 88-0006-CV-W-9.,88-0006-CV-W-9. |
| Citation | 754 F. Supp. 722 |
| Parties | PENALOSA COOPERATIVE EXCHANGE, Plaintiff, v. A.S. POLONYI COMPANY, Defendant. |
| Court | U.S. District Court — Western District of Missouri |
COPYRIGHT MATERIAL OMITTED
Bruce B. Waugh, Gilliland & Hayes, P.A., Kansas City, Mo., Gerald L. Green, Gilliland, Hayes, Schmidt, Dillon & Green, P.A., Hutchinson, Kan., for Penalosa Co-op.
James F. Duncan, Brian D. Williams, Watson, Ess, Marshall & Enggas, Kansas City, Mo., Douglas C. McKenna, Watson, Ess, Marshall & Enggas, Olathe, Kan., for A.S. Polonyi Co.
ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Plaintiff Penalosa Cooperative Exchange (Co-op) alleges that from September 1983, through December 1985, Wayne Winter (Winter), its general manager, embezzled funds from plaintiff and used the money to speculate in the commodities market for his own account. During that time, Winter employed A.S. Polonyi Company (Polonyi) as his commodities broker. According to plaintiff, Winter's trades from 1983 through 1985 involved approximately $1,276,500 of plaintiff's money and ultimately resulted in losses to plaintiff of $810,500.
Plaintiff has filed a Motion for Partial Summary Judgment seeking the determination that defendant is not a holder in due course and thus is not insulated from liability under § 400.3-305 of the Uniform Commercial Code.
Polonyi has filed a Motion for Summary Judgment arguing that plaintiff's tort claims are barred by the statute of limitations. For the reasons stated in the Order Granting in Part and Denying in Part Defendant's Motion to Dismiss, plaintiff's remaining common law tort claims are for conversion and money had and received.
Defendant also argues that all of plaintiff's claims are barred under various sections of the UCC.
Penalosa is and was at all relevant times a Kansas cooperative with its principal place of business in Penalosa, Kansas. Polonyi is a Missouri corporation with its offices in Missouri. Polonyi is a member of the Kansas City Board of Trade and the Minneapolis Grain Exchange. Primarily, Polonyi trades commodity futures for customer accounts. Polonyi charges its customers a fee for services.
In September 1982, the Co-op's Board of Directors (Board) passed a resolution authorizing Winter "to hedge corn futures, for grain sorghum, and soybean futures with a ten contract limit on corn, and a four contract limit on soybeans." This authorization was an extension of an earlier resolution passed by the Board in the spring of 1982 whereby Winter had been restricted to trading only in wheat futures. However, Winter was not authorized to speculate for the Co-op. The Board resolutions, passed in the spring of 1982 and in September 1982, restricted Winter to conducting transactions through the Farmers Commodities Corporation (FCC). The FCC furnished the Board president with monthly statements summarizing the trades.
On September 19, 1983, Winter opened a personal trading account with Polonyi by filling out a form entitled "New Accounts— Business and Other Organizations" and by signing a "General Customers Agreement" and "Customers Margin Agreement" on the second page of the new accounts form. Exhibit C attached to plaintiff's Motion for Partial Summary Judgment. Polonyi concedes that the new accounts form was filled out by Winter. On the form, Winter stated that the type of organization for which the account was established was a sole proprietorship. The name of the organization was "Wayne L. Winter." The mailing address for the organization was "Penalosa Co-op Exchg, Penalosa, Ks." Winter stated on the form that he was the proprietor of the sole proprietorship and that the account was to be "speculative." Winter provided "Durham State Bank" as the banking connection. Winter was the only individual authorized to transmit orders and instructions relating to this account.
Polonyi considered Winter its customer. Polonyi did not consider the Co-op to be its customer and did not have an account for the Co-op.
Winter opened his account with Polonyi with a check signed by him in the amount of $5,000 dated September 27, 1983, payable to "A.S. Polonyi Co." and drawn on the account of the Penalosa Cooperative Exchange at the State Bank of Kingman. From September 1983, through May 1984, Polonyi accepted nine checks from Winter in payment of trades placed by Winter:
September 27, 1983 $ 5,000
October 14, 1983 10,000
December 27, 1983 10,000
January 16, 1984 8,000
February 2, 1984 5,000
February 13, 1984 3,500
March 17, 1984 4,000
May 16, 1984 8,000
June 20, 1984 10,500
_______
$64,000
The checks were all made payable to A.S. Polonyi Company and were drawn on the Co-op's account at the State Bank of Kingman.
From July 1984, through December 1985, Polonyi accepted 26 wire transfers authorized by Winter and deposited into Winter's account.
July 19, 1984 $ 6,500
August 28, 1984 12,000
October 12, 1984 8,000
January 18, 1985 16,000
February 6, 1985 21,000
March 5, 1985 12,000
March 11, 1985 10,000
March 12, 1985 20,000
March 15, 1985 22,000
March 18, 1985 24,000
March 19, 1985 30,000
May 28, 1985 30,000
May 31, 1985 15,000
June 7, 1985 90,000
June 14, 1985 10,000
July 1, 1985 120,000
July 5, 1985 150,000
July 24, 1985 50,000
August 7, 1985 60,000
August 13, 1985 34,000
August 15, 1985 150,000
September 3, 1985 80,000
September 18, 1985 35,000
October 17, 1985 60,000
December 17, 1985 100,000
__________
$1,192,500
Each wire transfer was from the Co-op's account at the State Bank of Kingman.
Money from Winter's account with Polonyi was used to pay for trades ordered by Winter. Also, Winter directed Polonyi on a number of occasions to wire transfer money from his account to the Co-op's account at the State Bank of Kingman:
September 5, 1984 $ 12,000
November 23, 1984 8,000
February 12, 1985 16,000
March 28, 1985 21,000
June 28, 1985 100,000
July 21, 1985 190,000
August 1, 1985 69,000
________
$466,000
Winter paid Polonyi commissions totaling $6,085.30 in 1983; $20,935.10 in 1984; and $340,252.70 in 1985. In 1985, 19.7 percent of Polonyi's total revenue was from Winter's business.
Polonyi employees Shearman, Richardson and Hanke were aware that Winter worked for the Co-op. Polonyi's floor manager, Judith Shearman, saw each check and wire transfer to Winter's account. However, none of Polonyi's employees had any contact with Winter other than to effectuate the commodity trades that he ordered.
Every check and wire transfer sent to Polonyi was paid; no check was returned for lack of funds or lack of authority on the signature.
During the time Winter was trading with Polonyi, Polonyi did not receive any communication from the Co-op suggesting that Winter was unauthorized to trade in the manner in which he was trading or that any check or wire transfer that he sent was unauthorized.
Article IV of the Co-op's bylaws in effect from 1982 through 1985, under subheading "Manager—Powers and Duties," provides in pertinent part:
Manager shall ... maintain his records and accounts in such a manner that the true and correct condition of the business may be ascertained therefrom at any time; furnish the Board a current statement of the business and affairs of the association at each monthly meeting of the Board, and at the end of each fiscal year, and at other such times, and in such form, as the Board may direct....
The Board required and received monthly financial information consisting of comparative operating statements and statements of gross margins.
During a period of time in 1982 and 1983, after the Co-op had borrowed money from the Wichita Bank for Cooperatives (WBC) to build an elevator and an office building, WBC required that the Co-op furnish quarterly balance sheets. During this time, Winter prepared the balance sheets and submitted them to the Board. These balance sheets "weren't produced monthly." Woodson deposition at 49, 51. The last balance sheet submitted to the Board was in September 1983. From September 1983, through December 1985, the Board received neither monthly nor quarterly balance sheets from Winter.
In his affidavit, Conrad Woodson, President of Co-op's Board, described the financial information furnished to the Board:
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