Redsands Energy, LLC v. Regions Bank

Citation442 F.Supp.3d 945
Decision Date05 March 2020
Docket NumberCIVIL ACTION NO. 5:18-cv-37-JCG
Parties REDSANDS ENERGY, LLC and James Sidney Roberts, Plaintiffs v. REGIONS BANK, Defendant
CourtUnited States District Courts. 5th Circuit. Southern District of Mississippi

John H. Ott, Ott Law Firm, McComb, MS, for Plaintiffs.

John H. Dollarhide, Caroline B. Smith, Butler Snow LLP, Ridgeland, MS, for Defendant.

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

JOHN C. GARGIULO, UNITED STATES MAGISTRATE JUDGE

BEFORE THE COURT is a Motion for Summary Judgment [33], filed by Defendant Regions Bank ("Regions'). The Motion has been fully briefed. Having considered the submissions of the parties, the record, and relevant law, the Court finds that Regions' Motion for Summary Judgment should be granted. No genuine issue of material fact prevents the Court from concluding that the claims of Plaintiffs Redsands Energy, LLC (Redsands) and James Sidney Roberts are contractually precluded by the terms of a deposit agreement.

I. BACKGROUND

In 2012, Roberts opened two checking accounts with Regions and signed signature cards. A provision on the signature cards provided that "[b]y signing, I acknowledge receiving and agree to each and every term, condition, and provision of the Deposit Agreement...." [33-2] at 4-7. One of the accounts was opened in Roberts' name. The other was opened in the name of Roberts' company, Redsands. Roberts submits that, "[l]ike everyone else, [he] neither requested a copy of the deposit agreement nor did he read it. If he wanted to open [an] account, he actually had no choice but to sign the signature card without knowing or understanding the 48-page agreement, its terms and conditions." [37] at 1.

In February 2017, Redsands' office manager, Amanda Wallace, began forging checks.1 The first check was paid February 16, 2017. [34] at 11. The account statement containing this transaction was dated March 15, 2017. Id. Regions mailed account statements to Plaintiffs "on a monthly basis ..., with statements being generated and mailed shortly after the statement closing date." [33-2] at 3. Transactional data was available to Plaintiffs through internet banking, and statements were available to Plaintiffs upon request at a Regions' branch or by contacting customer service. Id.

On July 7, 2017, months after the initial forgery by Wallace, Roberts visited Regions and notified Todd Thompson, a Regions' senior financial consultant, that he suspected unauthorized transactions on his accounts. Thompson and Roberts met on several occasions. Thompson provided account statements and check images that Roberts reviewed. Thompson prepared forms and affidavits for Roberts to sign, and these were formally submitted to Regions on July 21, 2017. In the affidavits, Roberts specifically identified approximately 55 checks as forgeries by Wallace.

Roberts alleges that Thompson assured him that Regions would reimburse Plaintiffs. Thompson testified at his deposition that he made no such assurances because he had no authority to determine whether a claim was paid or denied. [1-1] at 6; [37-2] at 12-14. Ultimately, Regions denied roughly $70,000 in claims as untimely because the account statement reflecting the first forgery transaction was dated March 15, 2017, but Plaintiffs did not report the first forgery by Wallace to Regions until July 2017. [37] at 8.

Redsands and Roberts filed a Complaint against Regions in the Circuit Court of Pike County, Mississippi, seeking $74,000, punitive damages, "plus incidental and consequential damages, as well and [sic] mental and emotional distress." [1-1] at 6. The Complaint alleges that Regions failed to exercise reasonable and ordinary care in debiting Plaintiffs' checking accounts, failed to exercise good faith before debiting Plaintiffs' checking accounts, and breached its contract with Plaintiffs by honoring checks without Plaintiffs' authorization. Regions removed the suit to this Court on the basis of diversity jurisdiction.

Regions has now moved for summary judgment, relying on the terms of the deposit agreement and Article 4 of the Uniform Commercial Code. Regions submits that this case is resolved by a straightforward application of Mississippi Code Annotated § 75-4-406 as modified by the deposit agreement. Regions argues that Plaintiffs' claims are precluded as untimely by two provisions in the deposit agreement. The first provision references UCC § 4-406(f) and provides that "[w]ithout regard to the care or lack of care of either of you or us, if you fail within 30 calendar days after the statement or item is sent or made available to discover and report" a forged item, "you shall be precluded from asserting against us" a claim on that item. [37-1] at 9, ¶ 10.

The second provision Regions relies on references UCC § 4-406(d) and provides:

[I]f your claim involves a series of items containing unauthorized signatures or alterations by the same wrongdoer, you shall be precluded from asserting against us any unauthorized signature or alteration by the same wrongdoer on any item paid in good faith on or after 10 calendar days after the first statement describing the first altered or unauthorized item was sent or made available to you.

Id.

In their response in opposition, Plaintiffs contend that the deposit agreement is unenforceable because it is unconscionable, both procedurally and substantively. [37] at 1. Plaintiffs assert that Regions cannot rely on a defense of untimeliness because Regions failed to act with ordinary care and in good faith when it paid the items forged by Wallace. Id. at 4. Plaintiffs submit that the deposit agreement is not clear regarding when and how a customer must submit a claim and when the reporting period starts. Id. at 2-7. Plaintiffs contend that Regions' drastically shortened reporting periods are unlawful attempts by Regions to disclaim Regions' responsibility to exercise ordinary care and act in good faith. Id. at 11. Plaintiffs allege that a 10-day-reporting period is "manifestly unreasonable." Id. at 14.

Roberts stresses that he did not see his statements for several months because they were intercepted by Wallace. He asserts that he "was not able to identify persons who made fraudulent transactions by simply looking at the statement" because Regions did not provide check images with his statements. Id. at 6. Roberts submits that he "is an elderly gentleman who does not bank online," and Regions cannot avoid liability "by pleading the self-serving defense of ‘electronic banking’ in not sufficiently protecting its customers from fraudulent instruments." Id. at 11.

II. DISCUSSION
A. Summary Judgment Standard

Federal Rule of Civil Procedure 56 provides that summary judgment "shall be rendered forthwith 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). The United States Supreme Court has held that this language "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a sufficient showing to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; see also Moore v. Miss. Valley State Univ. , 871 F.2d 545, 549 (5th Cir. 1989) ; Washington v. Armstrong World Indus. , 839 F.2d 1121, 1122 (5th Cir. 1988).

The party moving for summary judgment bears the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact. Celotex , 477 U.S. at 323, 106 S.Ct. 2548. The movant need not, however, support the motion with materials that negate the opponent's claim. Id. As to issues on which the non-moving party has the burden of proof at trial, the moving party need only point to portions of the record that demonstrate an absence of evidence to support the non-moving party's claim. Id. at 323-24, 106 S.Ct. 2548. The non-moving party must then go beyond the pleadings and designate "specific facts showing that there is a genuine issue for trial." Id. at 324, 106 S.Ct. 2548.

Summary judgment can be granted only if everything in the record demonstrates that no genuine issue of material fact exists. It is improper for the district court to "resolve factual disputes by weighing conflicting evidence, ... since it is the province of the jury to assess the probative value of the evidence."

Kennett-Murray Corp. v. Bone , 622 F.2d 887, 892 (5th Cir. 1980). Summary judgment is also improper where the court merely believes it unlikely that the non-moving party will be able to prevail at trial. Nat'l Screen Serv. Corp. v. Poster Exchange, Inc. , 305 F.2d 647, 651 (5th Cir. 1962).

B. UCC § 4 -406/ Miss. Code Ann. § 75-4-406

Because this case arises under the Court's diversity jurisdiction, it is governed by the substantive law of the forum state, Mississippi. See State Farm Mut. Auto. Ins. Co. v. LogistiCare Sols., LLC , 751 F.3d 684, 688 (5th Cir. 2014) (citing Erie R.R. Co. v. Tompkins , 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ). Mississippi has adopted Article 4 of the Uniform Commercial Code, which is codified in Mississippi Code Annotated sections 75-4-101 through 504. Article 4 governs bank deposits and collections, and specific to this action, sets forth the duties and liabilities of banks and their customers regarding the discovery and reporting of forged checks. See Union Planters Bank, Nat. Ass'n v. Rogers , 912 So.2d 116, 117 (Miss. 2005).

UCC § 4-406, as codified in Miss. Code Ann. § 75-4-406, governs this dispute and reflects an underlying policy that furthers the UCC's "objective of promoting certainty...

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