Trustmark Ins. Co. v. Bank One, Arizona, NA

• Decision Date: 18 June 2002
• Docket Number: No. 1 CA-CV 01-0021.,1 CA-CV 01-0021.
• Citation: 48 P.3d 485,202 Ariz. 535
• Parties: TRUSTMARK INSURANCE COMPANY, an Illinois corporation, Plaintiff-Appellee, Cross-Appellant, v. BANK ONE, ARIZONA, NA, a national banking association, Defendant-Appellant, Cross-Appellee.
• Court: Arizona Court of Appeals

48 P.3d 485

202 Ariz. 535

TRUSTMARK INSURANCE COMPANY, an Illinois corporation, Plaintiff-Appellee, Cross-Appellant, v. BANK ONE, ARIZONA, NA, a national banking association, Defendant-Appellant, Cross-Appellee.

No. -0021.

Court of Appeals of Arizona, Division 1, Department E.

June 18, 2002.

As Corrected June , 2002.

Atkinson, Hamill & Barrowclough, P.C. By Christopher G. Hamill, Patrick R. Barrowclough, Phoenix, for Plaintiff-Appellee/Cross-Appellant.

Squire, Sanders & Dempsey, L.L.P. By George Brandon Claudia T. Salomon, Phoenix and Bank One Corporation-Law Department By Mary Angela Jenkins, Dallas, TX, for Defendant-Appellant/Cross-Appellee.

OPINION

GEMMILL, Judge.

¶ 1 If a banking customer sends a bank a letter of instructions requesting wire transfers of funds upon future occurrences of a specified balance condition in the customer's account, does the letter of instructions constitute a "payment order" under Article 4A of Arizona's Uniform Commercial Code ("UCC")?¹ We address this question, and others, in this decision.

¶ 2 Bank One, Arizona, NA ("Bank One") appeals from a jury verdict for Trustmark Insurance Company ("Trustmark") on Trustmark's claim under Article 4A of the UCC and from the trial court's award of attorneys' fees to Trustmark. Trustmark cross-appeals from the jury's determination that Trustmark sustained zero damages on its negligence claim and from the trial court's judgment as a matter of law for Bank One on Trustmark's unjust enrichment claim. We reverse the judgment on the UCC claim and affirm the judgment on the unjust enrichment and negligence claims. We also vacate the court's award of attorneys' fees to Trustmark.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 3 This case involves a commercial dispute between Bank One and Trustmark over a wire transfer arrangement. In February 1995, Trustmark set up a deposit account ("Account One") at Bank One governed by Bank One's deposit account rules. At the same time, Trustmark executed a wire transfer agreement with Bank One.

¶ 4 In May 1995, Trustmark sent Bank One a letter (the "Letter of Instructions") regarding a second deposit account ("Account Two"). Account Two was subject to the same deposit account rules and wire transfer agreement as Account One. In the Letter of Instructions, Trustmark instructed Bank One to (1) retain a daily balance of $10,000 in Account Two and (2) transfer funds in Account Two automatically to a Trustmark account at the Harris Bank ("Harris Account") whenever Account Two reached a balance of $110,000 or more. In September 1995, Trustmark's Arizona agent began depositing funds into Account Two. Bank One began transferring funds to the Harris Account whenever the Account Two balance rose above $110,000.

¶ 5 In August 1996, Bank One automated its wire transfer functions and consolidated its local departments into a central wire transfer department. Under the automated process, each account from which wire transfers were anticipated needed a new wire transfer agreement. In preparation, Bank One sent all of its wire transfer customers, including Trustmark, a letter dated July 1, 1996 informing the customers that Bank One required a new funds transfer agreement for each account from which wire transfers were anticipated. The letter stated that if a new funds transfer agreement was not in place by July 19, 1996, Bank One could not ensure uninterrupted wire transfer service from accounts lacking such agreements. Trustmark denies ever receiving this letter and never sent Bank One a new funds transfer agreement for Account Two.

¶ 6 In September 1996, the Account Two balance rose above $110,000 for the first time since the July 19, 1996 deadline. Bank One did not transfer funds from Account Two into the Harris Account. Bank One sent regular account statements to Trustmark showing the balances in Account Two, but received no further instructions from Trustmark. The Account Two balance continued to grow until December 1997, when Bank One brought the balance to the specific attention of Trustmark's Arizona agent, who contacted Trustmark's management. Bank One transferred $19,220,099.80 to the Harris Account, leaving $10,000 in Account Two. In early 1998, Trustmark instructed Bank One to transfer Account Two's remaining funds to the Harris Account and thereafter closed Account Two.

¶ 7 Trustmark then filed this action against Bank One, alleging a claim under Article 4A of the UCC, as well as claims for unjust enrichment and negligence. Trustmark alleged that Bank One failed to complete wire transfers from Trustmark's non-interest bearing account at Bank One (Account Two) to Trustmark's investment account at Harris Bank (Harris Account), contrary to the Letter of Instructions. Trustmark asserted a loss of more than $500,000 in interest on its funds as a result of Bank One's inaction, and that Bank One reaped a corresponding windfall profit through interest Bank One earned on Trustmark's money. Trustmark did not assert a breach of contract claim. According to Bank One, the contractual documents eliminated recovery or significantly limited the amount recoverable for breach of contract. However, Article 4A—if applicable— restricts the right of a bank to limit its liability regarding funds transfers. See A.R.S. § 47-4A305(F) (1997).²

¶ 8 Bank One filed motions to dismiss and for summary judgment on the UCC claim, arguing that the wire transfers at issue were not subject to Article 4A because the Letter of Instructions was not a "payment order" under Article 4A. The trial court denied Bank One's motions, and the case proceeded to a jury trial. At the close of evidence, the court granted Bank One's motion for judgment as a matter of law on the unjust enrichment claim, but continued to reject Bank One's argument that Article 4A of the UCC was not applicable. The court submitted Trustmark's UCC claim and its negligence claim to the jury.

¶ 9 The jury returned a verdict for Trustmark on the UCC claim and found damages of $573,197.02. On the negligence claim, the jury chose the verdict form that recited a finding in favor of Trustmark, but the jury's verdict form indicated that the parties were each 50% at fault and the damages were $0. The trial court entered judgment for Trustmark with damages of $573,197.02, as well as pre-judgment interest, attorneys' fees, and taxable costs.

ISSUES ON APPEAL AND CROSS APPEAL

¶ 10 Bank One argues on appeal that Trustmark's judgment should be reversed as a matter of law because Article 4A of the UCC is not applicable. According to Bank One, the Letter of Instructions was not a "payment order" under Article 4A, and the trial court should not have sent this UCC claim to the jury.

¶ 11 Trustmark argues on cross-appeal that if the judgment on its UCC claim is reversed or remanded, then its unjust enrichment claim should be reinstated. Trustmark also seeks a new trial on its negligence claim, arguing that the jury's finding of $0 damages proves that the jury was confused and failed to enter a verdict in conformity with the jury instructions and Arizona law.

BANK ONE'S APPEAL

¶ 12 Bank One challenges the trial court's submission of the UCC claim to the jury on the basis that the Letter of Instructions is not a "payment order" under Article 4A; therefore the UCC is not applicable, and this claim should have been dismissed as a matter of law. Whether the Letter of Instructions is a "payment order" is initially a question of law that we independently review. Phoenix Newspapers, Inc. v. Ariz. Dep't of Econ. Sec., 186 Ariz. 446, 448, 924 P.2d 450, 452 (1996).

As a Matter of Law, the UCC Does Not Apply Because the Letter of Instructions Was Not a "Payment Order" Under Article 4A

¶ 13 We begin our analysis of the applicability of Article 4A by noting its recent origin and its purpose. In 1989 the National Conference of Commissioners on Uniform State Laws and the American Law Institute promulgated Article 4A of the UCC, addressing funds transfers. Over the next several years, all fifty states and the District of Columbia enacted Article 4A as part of their existing UCC statutes. Arizona enacted Article 4A in 1991.

¶ 14 Technological developments in recent decades have enabled banks to transfer funds electronically, without physical delivery of paper instruments. Before Article 4A, no comprehensive body of law had defined the rights and obligations that arise from wire transfers. Article 4A was intended to provide a new and controlling body of law for those wire transfers within its scope. "The drafters' aim was to achieve national uniformity, speed, efficiency, certainty, and finality in the funds transfer system." Grabowski v. Bank of Boston, 997 F.Supp. 111, 121 (D.Mass.1997) (citing Banque Worms v. BankAmerica Int'l, 77 N.Y.2d 362, 568 N.Y.S.2d 541, 570 N.E.2d 189, 195 (1991)).

¶ 15 Because there are very few reported decisions—and none from Arizona—interpreting and applying the provisions of Article 4A defining its scope, we have considered primarily the language of the pertinent statutes, the purpose of Article 4A, and the comments of its drafters. In the Prefatory Note to Article 4A, the drafters discussed the funds transfers intended to be covered and several factors considered in the drafting process:

There are a number of characteristics of funds transfers covered by Article 4A that have influenced the drafting of the statute. The typical funds transfer involves a large amount of money. Multimillion dollar transactions are commonplace. The originator of the transfer and the beneficiary are typically sophisticated business or financial organizations.³ High speed is another predominant characteristic. Most funds transfers are completed on the same day, even in complex transactions in which there are several intermediary banks in the transmission chain. A funds transfer is a highly efficient substitute for payments made by the delivery of paper instruments. Another characteristic is

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