United Milk Prod. Co. v. Michigan Ave. Nat. Bank of Chicago

• Decision Date: 09 October 1968
• Docket Number: No. 16607.,16607.
• Citation: 401 F.2d 14
• Parties: UNITED MILK PRODUCTS COMPANY, a Delaware Corporation, Plaintiff-Appellant, v. MICHIGAN AVENUE NATIONAL BANK OF CHICAGO, a National Banking Association, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

401 F.2d 14 (1968)

UNITED MILK PRODUCTS COMPANY, a Delaware Corporation, Plaintiff-Appellant, v. MICHIGAN AVENUE NATIONAL BANK OF CHICAGO, a National Banking Association, Defendant-Appellee.

No. 16607.

United States Court of Appeals Seventh Circuit.

July 8, 1968.

Rehearing Denied October 9, 1968.

Harold S. Lansing, Bernard M. Kaplan, Nicholas Manos, Donald Manion, Chicago, Ill., for appellant.

Samuel W. Block, John G. Stifler, George G. Kelly, John J. Kelly, Chicago, Ill., Raymond, Mayer, Jenner & Block, Chicago, Ill. of counsel, for appellee.

Before DUFFY, Senior Circuit Judge, SCHNACKENBERG and CUMMINGS, Circuit Judges.

DUFFY, Senior Circuit Judge.

Authority to bring the instant suit was granted by the United States District Court for the Northern District of Illinois, in connection with a certain Plan of Arrangement under Chapter XI of the Bankruptcy Act.

When defendant filed its answer to the complaint, it also filed a motion to strike certain allegations in the complaint on the ground that they were "immaterial to the issues therein." There was no challenge in the motion as to the sufficiency of the complaint to state a cognizable cause of action or claim against the defendant.

On October 3, 1967, the District Court entered a minute order, without a written opinion, concluding that plaintiff's complaint "fails to state a claim upon which relief can be granted" and dismissed the complaint.

Although in the case at bar, defendant did not make a motion to dismiss the complaint for failure to state a claim upon which relief could be granted, yet, it was upon this exact ground that the District Court entered an order dismissing the complaint herein. Therefore, the rule to be applied is the same as though such a motion had been made.

"The general rule in appraising the sufficiency of a complaint for failure to state a claim is that a complaint should not be dismissed `* * * unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" United States v. White County Bridge Commission, et al., 275 F.2d 529, 535 (7 Cir., 1960).

This Court has also stated the rule in the following language: "The core question presented to us on this appeal is whether the complaint does not state a claim upon which relief can be granted. This question must be resolved against the backdrop of the Federal Rules of Civil Procedure, 28 U.S.C.A., which do not require the alleging of facts sufficient to constitute a cause of action but only a short and plain statement of the claim showing that the pleader is entitled to relief, and the well settled rule of pleading thereunder that on a motion to dismiss, a complaint should be construed in the light most favorable to plaintiff with all doubts resolved in his favor; and in view of what is alleged, with all allegations well pleaded being taken as true, if it can reasonably be conceived that the plaintiff can make a case upon trial which would entitle him to some relief the complaint should not be dismissed." Jung et al., v. K. and D. Mining Co., Inc., et al., 260 F.2d 607, 608 (7 Cir., 1958).

In the complaint filed herein, jurisdiction is predicated on diversity of citizenship between the parties, and the application of sections 67(d), 70(e) and 311 of the Bankruptcy Act (11 U.S.C. §§ 107(d), 110(e) and 711).

We must take as established that during the period from January 20, 1964 to March 5, 1965, at Chicago, the Bank's officers or officials engaged in negotiations with Ivan Z. Ezrine (Ezrine), Melvin S. Rosen (Rosen) and Bernard H. LaLone, Jr. (LaLone), all of New York, and all purporting to act in behalf of United (the plaintiff herein), for a $600,000 loan to be made by the Bank to enable Ezrine and Rosen to acquire control of Powr-Pak Industries, Inc., and to effectuate a merger between United and Powr-Pak. Ezrine, Rosen and LaLone proposed that the loan by the Bank be made through the medium of Glendale, Inc., a New York Corporation. The Bank was informed Glendale was a holding company, wholly owned and controlled by Ezrine and his wife and Rosen.

The Bank refused to consider making the $600,000 loan through the medium of Glendale, and instead, insisted that any proposed loan be made directly to United, and then only for the working capital purposes of United. The proposed $600,000 loan was initially rejected on February 27, 1964, and again rejected on or about March 9, 1964.

On March 9, 1964, the Bank approved a $250,000 bank loan to United, the purpose of said loan being for working capital of United.

Two separate checking accounts were opened by the Bank in the name of United Milk Products Company: a) a regular account designated as No. XXX-XXX-X was opened on March 9, 1964 to which account the Bank credited by credit memorandum a sum of $100,000 of the bank loan proceeds; and b) a special account designated as No. XXX-XXX-X opened on March 13, 1964, to which the Bank credited the sum of $150,000 of the bank loan proceeds.

Plaintiff herein claims the defendant Bank breached its fiduciary and contractual duties 1) by carelessly and negligently disbursing $99,500 from United Milk's regular checking account, No. XXX-XXX-X, to Glendale, Inc. in response to Ezrine's telegram of March 9, 1964, in violation of the limitation of authority contained in the bank depository resolution form filed by United which authorized the Bank to honor checks, drafts and orders only when signed by two authorized officers of United; 2) by carelessly and negligently paying out and disbursing solely on Ezrine's oral direction in two long distance telephone calls, the sum of $150,000 out of United Milk's special checking account, No. XXX-XXX-X to Glendale, Inc. and B. H. Lalone Co., Inc. without an existing and duly enacted appropriate corporate bank resolution from United Milk authorizing the disbursements.

The complaint further alleged the Bank owed a fiduciary duty and a contractual duty to United Milk to exercise reasonable care in the disbursement of the bank loan proceeds, and to obey contractual instructions of United Milk and to act only within the scope of the authority granted to it by United Milk.

The complaint also charged negligent conduct because the Bank disbursed substantial sums in the manner it did within slightly more than a week after approving said loan for "working capital" purposes, and that the Bank knew that such purposes were totally unrelated to the "working capital" purposes for which the bank loan was granted.

We shall consider first the allegations of the complaint with reference to United Milk Products Company's regular account designated No. XXX-XXX-X. The sum of $100,000 had been placed in this account. A corporate bank depositary resolution was...