Security State Bank v. Firstar Bank Milwaukee

Decision Date23 May 1997
Docket NumberNo. C 96-4052-MWB.,C 96-4052-MWB.
Citation965 F.Supp. 1237
PartiesSECURITY STATE BANK, SHELDON, IOWA, Plaintiff, v. FIRSTAR BANK MILWAUKEE, N.A., Defendant.
CourtU.S. District Court — Northern District of Iowa

Thomas J. Whorley, Keith G. Thompson, Wolff, Whorley, DeHooge & Thompson, Sheldon, IA, for Plaintiff.

Thomas L. Shriner, Jr., James M. Caragher, G. Michael Halfenger, Andrew J. Wronski, Foley & Lardner, Milwaukee, WI, Jeffrey L. Poulson, Corbett, Anderson, Corbett, Poulson, Flom & Vellinga, Sioux City, IA, for Defendant.

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

BENNETT, District Judge.

                                            TABLE OF CONTENTS
                  I. INTRODUCTION ........................................................ 1238
                
                 II. STANDARDS FOR SUMMARY JUDGMENT ...................................... 1239
                III. FACTUAL BACKGROUND .................................................. 1240
                     A. Undisputed Facts ................................................. 1240
                     B. Disputed Facts ................................................... 1242
                IV. LEGAL ANALYSIS ....................................................... 1243
                    A. Arguments Of The Parties........................................... 1243
                    B. The Lowest Intermediate Balance Rule .............................. 1244
                       1. Applicability and terms of the LIBR ............................ 1244
                       2. Application of the rule ........................................ 1246
                V. CONCLUSION ............................................................ 1248
                

When John Morken's Adventure Cattle investment scheme collapsed, it left virtually no one associated with it without some sort of grievance, spawning litigation in numerous federal and state courts. In this lawsuit, one of Morken's creditors, a bank, has brought claims against another bank, the one that provided account services to Morken and a corporation he controlled, for alleged conversion, wrongful setoff, unjust enrichment, and establishment of a constructive trust. At issue are the proceeds from the sale of some of Morken's cattle in which the creditor bank claims a security interest. After those proceeds passed into one of the accounts of the corporation Morken controlled, the servicing bank dishonored checks on a related disbursement account. The creditor bank alleges that, by dishonoring those checks, the servicing bank converted and setoff funds in which the creditor bank had a superior interest. The servicing bank asserts that it is entitled to summary judgment, because the funds in question had been dissipated from the account in question by Morken before any checks were dishonored. Therefore, the court is called upon to probe the mysterious workings of the "lowest intermediate balance rule" to see if the creditor bank can generate a jury question that proceeds in which it had a security interest can be traced into, but not out of, the account in question, and if so, whether the servicing bank's conduct in dishonoring checks resulted in a conversion or wrongful setoff of those proceeds.

I. INTRODUCTION

Plaintiff Security State Bank of Sheldon, Iowa (SSB), filed the original complaint in this matter on May 31, 1996, against Firstar Corporation, Firstar Bank Wausau, N.A., and Firstar Bank Milwaukee, N.A. SSB filed an amended complaint on February 14, 1997, naming only Firstar Bank Milwaukee, N.A. (Firstar Milwaukee), as a defendant. Count I of the amended complaint alleges "Wrongful Dishonor, Set-Off and Conversation [sic]." Amended Complaint, Count I. Count II alleges "Unjust Enrichment and Constructive Trust." Id., Count II. The essence of the claims is that Firstar Milwaukee, in concert with an affiliate bank, received a deposit of proceeds from the sale of cattle in which SSB had a security interest, but then dishonored checks representing those proceeds, which SSB had applied to John Morken's promissory note with SSB. Dishonoring the checks, SSB alleges, was a wrongful conversion of the funds and wrongful setoff of the funds against debts of Morken and his corporation, Spring Grove Livestock Exchange, Inc. (SGLE), even though SSB had a superior interest in the funds.

Firstar Milwaukee answered the amended complaint on February 18, 1997. That same day, Firstar Milwaukee also moved for summary judgment. Firstar Milwaukee asserts that it is entitled to summary judgment, because SSB lost its security interest in the cattle at the time of their sale to a third party, and lost its security interest in any proceeds of the cattle when those proceeds were dissipated by Morken and SGLE from SGLE's account with Firstar Milwaukee before Firstar Milwaukee ever dishonored the checks SSB had applied to Morken's debt. SSB eventually resisted the motion for summary judgment on March 24, 1997. Firstar Milwaukee filed a reply brief on April 4 1997. Neither party requested oral arguments on the dispositive motion. Consequently, Firstar Milwaukee's motion for summary judgment is ready for disposition.

The court will review the standards for summary judgment as well as the undisputed and disputed facts identified by the parties, then turn to a legal analysis of such of the issues raised by the parties as the court finds are determinative of the motion for summary judgment.

II. STANDARDS FOR SUMMARY JUDGMENT

The Eighth Circuit Court of Appeals recognizes "that summary judgment is a drastic remedy and must be exercised with extreme care to prevent taking genuine issues of fact away from juries." Wabun-Inini v. Sessions, 900 F.2d 1234, 1238 (8th Cir.1990). On the other hand, the Federal Rules of Civil Procedure have authorized for nearly 60 years "motions for summary judgment upon proper showings of the lack of a genuine, triable issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986). Thus, "summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Wabun-Inini, 900 F.2d at 1238 (quoting Celotex, 477 U.S. at 327, 106 S.Ct. at 2555); Hartnagel v. Norman, 953 F.2d 394, 396 (8th Cir.1992).

The standard for granting summary judgment is well established. Rule 56 of the Federal Rules of Civil Procedure states in pertinent part:

Rule 56. Summary Judgment

(b) For Defending Party. A party against whom a claim, counterclaim, or cross-claim is asserted or a declaratory judgment is sought may, at any time, move with or without supporting affidavits for a summary judgment in the party's favor as to all or any part thereof.

(c) Motions and Proceedings Thereon. ... The judgment sought 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(b)-(c) (emphasis added); see also Celotex, 477 U.S. at 322-23, 106 S.Ct. at 2552-53; Reliance Ins. Co. v. Shenandoah S., Inc., 81 F.3d 789, 791 (8th Cir.1996); Beyerbach v. Sears, 49 F.3d 1324, 1325 (8th Cir.1995); Munz v. Michael, 28 F.3d 795, 798 (8th Cir.1994); Roth v. U.S. S. Great Lakes Fleet, Inc., 25 F.3d 707, 708 (8th Cir.1994); Cole v. Bone, 993 F.2d 1328, 1331 (8th Cir. 1993); Woodsmith Publ'g Co. v. Meredith Corp., 904 F.2d 1244, 1247 (8th Cir.1990); Wabun-Inini, 900 F.2d at 1238 (citing Fed. R.Civ.P. 56(c)).1 A court considering a motion for summary judgment must view all the facts in the light most favorable to the non-moving party, here SSB, and give SSB the benefit of all reasonable inferences that can be drawn from the facts. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962)); Quick v. Donaldson Co., 90 F.3d 1372, 1377 (8th Cir.1996); Rifkin v. McDonnell Douglas Corp., 78 F.3d 1277, 1280 (8th Cir.1996); Marts v. Xerox, Inc., 77 F.3d 1109, 1112 (8th Cir.1996); Munz, 28 F.3d at 796; Allison v. Flexway Trucking, Inc., 28 F.3d 64, 66 (8th Cir.1994); Johnson v. Group Health Plan, Inc., 994 F.2d 543, 545 (8th Cir.1993); Burk v. Beene, 948 F.2d 489, 492 (8th Cir.1991); Coday v. City of Springfield, 939 F.2d 666, 667 (8th Cir.1991), cert. denied, 502 U.S. 1094, 112 S.Ct. 1170, 117 L.Ed.2d 416 (1992).

Procedurally, the moving party, here Firstar Milwaukee, bears "the initial responsibility of informing the district court of the basis for [its] motion and identifying those portions of the record which show lack of a genuine issue." Hartnagel, 953 F.2d at 395 (citing Celotex, 477 U.S. at 323, 106 S.Ct. at 2552-53); see also Reed v. Woodruff County, Ark., 7 F.3d 808, 810 (8th Cir.1993). Firstar Milwaukee is not required by Rule 56 to support its motion with affidavits or other similar materials negating the opponent's claim. Id.

"When a moving party has carried its burden under Rule 56(c), its opponent must do more than simply show there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356. SSB is required under Rule 56(e) to go beyond the pleadings, and by affidavits, or by the "depositions, answers to interrogatories, and admissions on file," designate "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 324, 106 S.Ct. at 2553; McLaughlin v. Esselte Pendaflex Corp., 50 F.3d 507, 511 (8th Cir.1995); Beyerbach, 49 F.3d at 1325. Although "direct proof is not required to create a jury question, ... to avoid summary judgment, `the facts and circumstances relied upon must attain the dignity of substantial evidence and must not be such as merely to create a suspicion.'" Metge v. Baehler, 762 F.2d 621, 625 (8th...

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