Provident Sav. Bank, F.S.B. v. Focus Bank
| Decision Date | 12 July 2021 |
| Docket Number | No. 1:19-CV-151 RLW,1:19-CV-151 RLW |
| Citation | 548 F.Supp.3d 862 |
| Parties | PROVIDENT SAVINGS BANK, F.S.B., Plaintiff, v. FOCUS BANK, Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
Abigail Leigh Twenter, Eric M. Trelz, Armstrong Teasdale LLP, St. Louis, MO, for Plaintiff.
David M. Mangian, Steven Andrew Shredl, Thompson Coburn LLP, St. Louis, MO, Lukas Sosnicki, Thompson Coburn LLP, Los Angeles, CA, for Defendant.
This diversity suit concerns which of two banks is liable for a forged or altered check. The case is before the Court on Plaintiff Provident Savings Bank, F.S.B.’s ("Provident Bank") Motion for Summary Judgment on Count I of it First Amended Complaint (ECF No. 25). Defendant Focus Bank opposes the motion and it is fully briefed. For the following reasons, the Court will grant the Motion in part and deny it in part.
For purposes of summary judgment, the Court finds the following facts:
On April 29, 2019, a customer of Provident Bank named Charlene Baillie deposited in her account a check dated April 24, 2019, in the amount of $150,520.00 (the "Check"), made payable to the Baillie Client Trust Account. The Check shows that the drawer is "Medlin Equipment Company" located in Charleston, Missouri, and that the payor bank is Focus Bank. The next day, Provident Bank presented the Check to Focus Bank for payment through the Federal Reserve Bank ("FRB"). Focus Bank honored the Check and paid it.
Sometime thereafter, Medlin Equipment Company ("Medlin"), Focus Bank's customer, alerted Focus Bank that the Check was fraudulent. On May 14, 2019, Focus Bank submitted a return through the FRB, resulting in a credit to Focus Bank's account and a debit to Provident Bank's account with the FRB. Three days later, Provident Bank submitted a Claim of Late Return through the FRB, resulting in a credit to Provident Bank's account and a debit to Focus Bank's account. Focus Bank then submitted a response through the FRB on May 23. In the response, Focus Bank stated, "The item presented was altered or fictitious because the security features stated on the face of the check don't appear to have been present" and that it "took all action necessary to entitle us to recover our payment within the deadlines in Regulation J and CC." Focus Bank also submitted an "Affidavit of Alteration" claiming that the Check was a "fraudulent item" and contained a "forged signature."
The FRB credited Focus Bank's account and debited Provident Bank's account for the amount of the Check. On June 10, 2019, counsel for Provident Bank sent Focus Bank a demand letter requesting the $150,520.00. Focus Bank responded in a letter to Provident Bank's counsel,
Provident Bank filed this action on November 3, 2019. Its Amended Complaint (ECF No. 25) asserts claims against Focus Bank for strict liability under § 400.4-302 of the Missouri Uniform Commercial Code (Count I); breach of warranty under 12 C.F.R. § 229.34(d)(1) (Regulation CC) (Count II); and common law negligence (Count III). Provident moves for summary judgment on the strict liability claim in Count I, which is based on Focus Bank's failure to timely return the Check within the midnight deadline established by § 400.4-302.1
The Court may grant a motion for summary judgment if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c) ; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). The substantive law determines which facts are critical and which are irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Only disputes over facts that might affect the outcome will properly preclude summary judgment. Id. Summary judgment is not proper if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.
A moving party always bears the burden of informing the Court of the basis of its motion. Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548. Once the moving party discharges this burden, the nonmoving party must set forth specific facts demonstrating there is a dispute as to a genuine issue of material fact, not the "mere existence of some alleged factual dispute." Fed. R. Civ. P. 56(e) ; Anderson, 477 U.S. at 248, 106 S.Ct. 2505. "The nonmoving party may not rely on allegations or denials" but rather "must substantiate [its] allegations with sufficient probative evidence that would permit a finding in her favor on more than mere speculation or conjecture." Carter v. Pulaski Cnty. Special Sch. Dist., 956 F.3d 1055, 1059 (8th Cir. 2020) ().
In passing on a motion for summary judgment, the Court must view the facts in the light most favorable to the nonmoving party, and all justifiable inferences are to be drawn in its favor. Celotex Corp., 477 U.S. at 331, 106 S.Ct. 2548. The Court's function is not to weigh the evidence but to determine whether there is a genuine issue for trial. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. " ‘Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge.’ " Torgerson, 643 F.3d at 1042 (quoting Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000) ).
Provident Bank moves for summary judgment on Count I, stating that Section 400.4-302 imposes strict liability on payor banks such as Focus Bank that fail to return checks within the midnight deadline required by statute. Provident Bank asserts that because Focus Bank admits it returned the Check well after the midnight deadline, it is strictly liable for the amount of the Check.
The statute provides as follows:
Provident Bank contends it is entitled to summary judgment on its strict liability claim under § 400.4-302(a)(1) because it is undisputed that Focus Bank, the payor bank, paid the Check and did not return it or send notice of dishonor until long after the midnight deadline, and instead returned the Check through the Federal Reserve at a later date, stamped as Altered/Fictitious.
Missouri has adopted the Uniform Commercial Code. Under the UCC, a payor bank is strictly liable if it fails to meet its midnight deadline under § 400.4-302. See Central Bank & Trust Co. v. First Northwest Bank, 332 F. Supp. 1166, 1169 (E.D. Mo. 1971) (), aff'd, 458 F.2d 511 (8th Cir. 1972) ; see also Whalen & Sons Grain Co. v. Mo. Delta Bank, 496 F. Supp. 211, 214 (E.D. Mo. 1980) (); Morgan Guar. Trust Co. of New York v. Am. Savings & Loan Ass'n, 804 F.2d 1487, 1499 (9th Cir. 1986) () (citations omitted). As a result, a payor bank's "failure to give notice of dishonor within the statutory period nails down the liability irrespective of whether or not it would otherwise had been properly payable." Central Bank, 332 F. Supp. at 1169 (citation omitted).
"A plaintiff establishes a prima facie case for liability of a payor bank when it shows that a check which is the basis for the suit has been untimely dishonored, and the payor bank then has the burden to prove an excuse or defense for the untimely dishonor." Citizens Fid. Bank & Trust v. Southwest Bank & Trust, 238 Neb. 677, 472 N.W.2d 198, 201 (1991). Thus, Focus Bank will be liable to Provident Bank for the amount of the Check unless it can establish a defense.
As quoted above, the Missouri statute provides only two exceptions to the rule of strict liability. These are defenses based on breach of a presentment warranty ( § 400.4-208 ), or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose of defrauding the payor bank.
Provident Bank states there is no contention it presented the Check for...
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