United States District Court, D. Idaho
THE TRUSTEES OF THE EIGHTH DISTRICT ELECTRICAL PENSION AND BENEFITS FUNDS, Plaintiff,
JP MORGAN CHASE BANK, a Delaware Corporation, Defendant.
MEMORANDUM DECISION AND ORDER
CANDY W. DALE, Magistrate Judge.
Pending before the Court are Plaintiff's ("Funds") motion for summary judgment (Dkt. 17), Defendant's ("Chase") motion to dismiss, (Dkt. 25), and proposed intervenor The Bank of Commerce's ("Bank") motion to intervene (Dkt. 23). The lawsuit arises from the alleged conversion of a check presented for deposit at Chase. The Funds seek damages for conversion of a check meant for indorsement of the Funds.
The matters have been fully briefed and the Court has determined oral argument would not assist the decision-making process. Dist. Idaho L. Rule 7.1. The Court will therefore decide the motions without a hearing. For the reasons explained, the Court will grant the Funds' motion for summary judgment, deny Chase's motion to dismiss, and deny the Bank's motion to intervene.
Portneuf Electric Inc. ("Portneuf"), an electrical contractor,  entered into a Collective Bargaining Agreement with the International Brotherhood of Electrical Workers Local Union 449. As a result, Portneuf agreed to the terms and conditions of the Trust Agreements of the Plaintiff Benefit Trust Funds. The Agreement required Portneuf to contribute to the Funds for the benefit of its workers.
In 2010, Portneuf became delinquent on its obligations to the Funds, and later filed for bankruptcy under Chapter 11 of the Bankruptcy Code on September 9, 2011. Schedule B identified accounts receivables of $1, 205, 490.00, and personal property and equipment with an aggregate value of $481, 012.63. The bankruptcy schedules indicated the Bank held a secured claim in Portneuf's accounts receivables, vehicles, and equipment, while the Funds held a $525, 000.00 unsecured nonpriority claim. The Bank filed a proof of claim on September 26, 2011, in the amount of $2, 343, 907.17, claiming a secured claim in Portneuf's inventory, equipment, and accounts receivables. On October 18, 2011, Portneuf moved to dismiss its Chapter 11 case. The reason Portneuf provided in support of its motion was that it would be unable to formulate a Chapter 11 Plan, and it could no longer operate given its accounts receivables were owed to materialmen and suppliers who had filed claims and liens on its projects. Further, Portneuf could not liquidate given the Bank's secured claim in all of its equipment, thus leaving nothing for unsecured creditors. The bankruptcy court granted the motion on December 1, 2011, and Portneuf's bankruptcy case was closed on December 29, 2011.
In June of 2012, the Funds negotiated the issuance of a check from Battelle Energy payable jointly to Porneuf and the Funds for maintenance work performed by Portneuf for the Idaho National Laboratories. In exchange for the check, the Funds waived any right to pursue liens on Battelle Energy's real property.
On June 29, 2012, Battelle Energy issued Check No. 0864149 in the amount of $75, 636.74 drawn on its account with U.S. Bank and made payable to "PORTNEUF ELEC & EIGHTH DISTRICT ELECT PENSION AND BENEFITS F". Hall Decl. ¶ 10 Ex. 2 (Dkt. 17-5.) The check was mailed to Portneuf. Battelle Energy intended that the Check was payable jointly to Portneuf Electric, Inc. and the Eighth District Electrical Pension and Benefits Fund. The parties to the agreement-Battelle Energy, the Funds, and Portneuf-intended for the amount to be paid to the Funds as payment for Portneuf's delinquent employee pension contributions.
On or before July 15, 2012, Portneuf tendered the Check at Chase and the proceeds of the Check were deposited into Portneuf's account at Chase. The rubber stamp indorsement on the back of the check noted "FOR DEPOSIT ONLY PORTNEUF ELECTRICAL INC., " and designated an account number. The Funds did not indorse the check, and did not receive any benefit from the Check.
The Funds filed a one count complaint for damages against Chase for conversion under Article 3 of the Uniform Commercial Code, Idaho Code § 28-3-420, in the amount of the check plus interest. The Funds argue that summary judgment is appropriate, because it was clear from the ampersand sign that the check was payable to two joint payees, and Chase wrongfully negotiated the check without the required two party indorsement. By accepting the check for deposit into Portneuf's account without the required indorsements from both payees, the Funds argue Chase is liable for damages.
Chase first asserts that the payee name on the face of the Check was ambiguous, because a bank employee reviewing the Check would not know that Battelle Energy intended the Check to be jointly negotiated by Portneuf and the Funds. Chase argues that the Check appears to name one payee with a compound name. Accordingly, Chase argues it is not liable to the Funds for paying the Check to Portneuf, because the ambiguity in the name could have been avoided had Battelle provided the full names of the alleged payees.
Second, Chase contends that its deposit agreement with Portneuf insulates it from liability. Chase argues its deposit agreement with Portneuf contains a disclaimer that it has no duty to prevent a check from being deposited that may have missing or erroneous information. Chase accepted the Check via remote online deposit, which it explains is highly automated, and that it pays millions of checks every day. Accordingly, Chase argues that reasonable commercial standards do not require Chase or other deposit institutions to verify the accuracy of any particular check at the time of deposit. See Aff. of Stenquist Ex. 1 (Dkt. 20.) Chase's procedures for processing checks, including those remotely deposited, is to inspect some, but not all, of the checks.
Finally, Chase contends that Portneuf and the Bank are necessary parties to the proceeding and that joinder is required because they may claim the proceeds of the Check. The Bank has moved to intervene, and alternatively, Chase has moved to dismiss for failing to join indispensable parties.
1. Summary Judgment Motion
A. Summary Judgment Standard
Summary judgment is properly granted when no genuine and disputed issues of material fact remain, and when, viewing the evidence in a light most favorable to the non-moving party, the movant is clearly entitled to prevail as a matter of law. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A key purpose of summary judgment is to "isolate and dispose of factually unsupported claims...." Celotex Corp., 477 U.S. at 323-24. It is "not a disfavored procedural shortcut, " but is instead the "principal tool by which factually insufficient claims or defenses [can] be isolated and prevented from going to trial with the attendant unwarranted consumption of public and private resources." Id. at 327. "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001). To carry this burden, the moving party need not introduce any affirmative evidence (such as affidavits or deposition excerpts) but may simply point out the absence of evidence to support the ...