Prestige Imports v. South Weymouth Sav.

• Decision Date: 19 November 2009
• Docket Number: No. 00-P-563.,00-P-563.
• Citation: 75 Mass. App. Ct. 773,916 N.E.2d 1015
• Parties: PRESTIGE IMPORTS, INC., & others<SMALL><SUP>1</SUP></SMALL> v. SOUTH WEYMOUTH SAVINGS BANK.
• Court: Appeals Court of Massachusetts

916 N.E.2d 1015

75 Mass. App. Ct. 773

PRESTIGE IMPORTS, INC., & others¹ v. SOUTH WEYMOUTH SAVINGS BANK.

No. 00-P-563.

Appeals Court of Massachusetts, Norfolk.

Argued April 16, 2008.

Decided November 19, 2009.

George C. Deptula, Boston, for the defendant.

J. William Chamberlain, Jr., South Easton, for the plaintiffs.

Present: McHUGH, KATZMANN, & GRAINGER, JJ.

McHUGH, J.

Prestige Imports, Inc. (Prestige), had a banking relationship with South Shore Bank (SSB). Using Prestige's funds, Wajahat Malick, Prestige's comptroller, fraudulently procured treasurer's checks from SSB and used them to pay personal loans he had obtained from South Weymouth Savings Bank (South Weymouth). After the fraud was discovered and related litigation began, Prestige and Helmut and Renate Schmidt² (collectively, Prestige) impleaded South Weymouth and asserted claims for mishandling the SSB checks. Ultimately, a judge of the Superior Court granted South Weymouth's motion for summary judgment and dismissed the Prestige claims. Prestige appeals, and we affirm.

Background. Viewing the record in the requisite fashion, see, e.g., New Habitat, Inc. v. Tax Collector of Cambridge, 451 Mass. 729, 731, 889 N.E.2d 414 (2008), it appears that Prestige, a Weymouth automobile dealership, financed its purchase of new vehicles with "floor plan" financing from SSB. Under the plan, SSB provided Prestige with a revolving line of credit, advancing funds to pay for, and taking a security interest in, each vehicle the dealership acquired. Prestige paid monthly interest until the vehicle was sold and then paid SSB the balance due.

In 1987, Prestige hired Malick as its comptroller. Malick's duties included depositing checks at SSB pursuant to a depositary agreement that was part of the financing plan. On nine occasions between February and October of 1990, however, Malick exchanged Prestige checks intended as payment on SSB loans for SSB treasurer's checks made payable to South Weymouth, which had no banking relationship with Prestige. All of the Prestige checks Malick used in the scheme were made payable to SSB and all were properly cosigned by Prestige owner Helmut Schmidt. A "remitter" line on the face of each SSB treasurer's check stated that the check had been "purchased by" Prestige. The nine checks totaled $432,895.

Malick presented the nine checks to South Weymouth with instructions to deposit them into his personal account, where the proceeds were used, at least in part, to repay loans he had obtained from South Weymouth. The instructions were part of a fraudulent scheme through which Malick, during a two-year spree lasting from 1988 to 1990, embezzled over $1.5 million from Prestige.

For Prestige, Malick's fraud was financially ruinous. Various lawsuits ensued, one of which was this action, in which Prestige alleged that South Weymouth was negligent in accepting the SSB treasurer's checks and in failing to investigate Malick's transactions.³

On the basis of those facts, and others we shall explore at appropriate points in our discussion, South Weymouth eventually filed a motion for summary judgment, which a Superior Court judge denied. South Weymouth later renewed its summary judgment motion, claiming that (i) it was a holder in due course and its status as such barred Prestige's negligence claim; (ii) as a holder in due course, it could invoke the finality rule, see G.L. c. 106, § 3-418, inserted by St.1957, c. 765, § 1,⁴ to preclude recovery; (iii) it had no duty to review the remitter line because it was the payee of the checks; and (iv) a bank owes a duty only to its customers, not to third parties.

A second Superior Court judge allowed the motion. She concluded that the summary judgment papers left no genuine issue of material fact as to South Weymouth's status as a holder in due course of the SSB checks and, as a consequence, saw no need to address the other grounds for summary judgment South Weymouth had asserted. Because the judge saw in the papers no real dispute as to South Weymouth's status as a holder for value of the relevant checks, she focused chiefly on the question whether South Weymouth had notice of Prestige's claims. In that regard, she found that the papers filed by South Weymouth eliminated any genuine issue of material fact, see Smith v. Massimiano, 414 Mass. 81, 85-86, 605 N.E.2d 292 (1993), and that Prestige had presented "nothing more than conclusory assertions" in an effort to rebut South Weymouth's showing. Further, she concluded that Prestige's name on the remitter line "[did] not, as a matter of law, establish that South Weymouth was thereby placed on notice of a defense or claim."

On appeal, Prestige claims that there is a genuine issue of material fact as to whether South Weymouth was a holder in due course and whether it negligently allowed Malick to deposit the treasurer's checks into his own account. It also claims that the second Superior Court judge abused her discretion in revisiting the first judge's denial of South Weymouth's summary judgment motion.

Discussion. 1. Abuse of discretion. The second Superior Court judge did not abuse her discretion by hearing and deciding South Weymouth's renewed motion for summary judgment. "Although a judge should not lightly undo the work of another judge," a summary judgment decision is interlocutory, and a judge has the power to modify the decision until a final judgment enters. Riley v. Presnell, 409 Mass. 239, 242, 565 N.E.2d 780 (1991). Accord King v. Globe Newspaper Co., 400 Mass. 705, 707-708, 512 N.E.2d 241 (1987), cert. denied, 485 U.S. 940, 108 S.Ct. 1121, 99 L.Ed.2d 281 and 485 U.S. 962, 108 S.Ct. 1227, 99 L.Ed.2d 427 (1988).

Proceeding to trial on a case that, as a matter of law, cannot possibly succeed expends public and private resources in a manner that cannot be justified either by considerations of collegial deference or by a desire to prevent "shopping" for a judge more favorably inclined to the shopper's position. That is not to say that a judge is required to revisit another judge's denial of a summary judgment or any other motion. It is to say that, absent unusual circumstances of a type that this case does not present, revisiting another judge's interlocutory order does not amount to an abuse of discretion.

2. Holder in due course. Substantively, if South Weymouth is a "holder in due course" of the SSB checks, it is entitled to judgment on the claims Prestige has asserted, for the status of holder in due course not only cuts off defenses on the checks themselves but cuts off other remedies as well. See G.L. c. 106 §§ 3-207(2) and 3-306(a); Official Comment 2 to Uniform Commercial Code § 3-306, 2A part 1 U.L.A. 504 (Master ed. 2004) (prior art. 3) (claims with respect to which holder in due course is immune include "not only claims of legal title [to the check], but all liens, equities, or other claims of right against the instrument or its proceeds. [The immunity extends to] claims to rescind a prior negotiation and to recover the instrument or its proceeds").

Although it is somewhat unusual, a payee like South Weymouth may be a holder in due course. See G.L. c. 106, § 3-302(2); Official Comment 2 to Uniform Commercial Code § 3-302, 2A part 1 U.L.A. 343, supra. See also Boston Steel & Iron Co. v. Steuer, 183 Mass. 140, 143, 66 N.E. 646 (1903); New Bedford Inst. for Sav. v. Gildroy, 36 Mass.App.Ct. 647, 651, 634 N.E.2d 920 (1994).⁵ The question whether a payee or any other person takes a check as a holder in due course turns on four subsidiary questions, i.e., whether the person is (a) a "holder" who takes the check (b) "for value" and (c) "in good faith" and (d) "without notice ... of any defense against or claim to it on the part of any person." G.L. c. 106, § 3-302(1).

a. Preliminaries. There is little dispute as to three of the four subsidiary questions. First, the Uniform Commercial Code (Code) defines a "holder" as "a person who is in possession of ... an instrument⁶ ... drawn ... to him or his order." G.L. c. 106, § 1-201(20).⁷ "It is inherent in the character of negotiable paper that any person in possession of an instrument which by its terms runs to him is a holder, and that anyone may deal with him as a holder." Official Comment 2 to Uniform Commercial Code § 3-207, 2A part 1 U.L.A. 317 (Master ed. 2004) (prior art. 3). See New Bedford Inst. for Sav. v. Gildroy, supra at 652, 634 N.E.2d 920 ("The payee of an instrument in its possession is always a holder"). South Weymouth therefore became the holder of the SSB checks when Malick delivered them for deposit to his account.⁸

Second, a holder takes an instrument for "value" when it takes "the instrument in payment of or as security for an antecedent claim against any person whether or not the claim is due." G.L. c. 106, § 3-303(b). A holder also takes the instrument for value "to the extent that ... he acquires a security interest in or a lien on the instrument otherwise than by legal process." G.L. c. 106, § 3-303(a). A bank acquires a security interest in an instrument "deposited in an account" when credit the bank has given for the instrument has been "withdrawn or applied." G.L. c. 106, § 4-208(1)(a).⁹ Therefore, to the extent that South Weymouth took the checks in payment of loans it had made to Malick, it gave value for them. To the extent that it did not, it gave value when Malick actually withdrew the proceeds. In either event, Prestige does not argue that South Weymouth failed to give value for the checks.

Third, although Prestige claims that South Weymouth negligently handled the checks, it does not claim here, nor did it claim in the Superior Court, that South Weymouth dealt with the checks other than in "good faith," a subjective standard requiring "honesty in fact." See G.L. c. 106, § 1-201(19); Industrial Natl. Bank of R.I. v. Leo's Used Car Exch., Inc., 362 Mass. 797, 801, 291 N.E.2d 603 (1973) ("Nothing in the definition [of good faith] suggests that in...