Opinion
CIVIL ACTION NO. 3:01CV117-B-A
April 29, 2002
MEMORANDUM OPINION
This cause comes before the court on the motion for summary judgment filed by Federal Deposit Insurance Corporation [FDIC] and the separate motion for summary judgment filed by First Tennessee Bank National Association [First Tennessee]. The court has duly considered the defendants' memoranda of authority and exhibits in support of their motion. The plaintiff did not respond to either of the defendants' motions.
First Tennessee Bank National Association is incorrectly referred to as First Tennessee Bank, Inc. in the style.
I. FACTS
The following facts are undisputed. On September 12, 1997, Jimmy Davis, a customer of Bank of Falkner, wrote two checks payable to the plaintiff for the purchase of cattle. The checks, in the amounts of $33,602.10 and $33,862.69 were deposited in the plaintiff's depositary account at First National Bank of Pontotoc [Bank of Pontotoc]. Bank of Pontotoc, thereafter, attempted to collect on the checks twice and was unsuccessful on both occasions. During the course of the first presentment, the checks were transmitted, consecutively, through The National Bank of Commerce and The Federal Reserve Bank in Memphis [Federal Reserve], which forwarded them to Bank of Falkner for payment. Due to insufficient funds in Davis' account, Bank of Falkner dishonored the checks and transmitted them to First Tennessee, its correspondent bank. First Tennessee routed the checks to Federal Reserve, which transmitted them back to Bank of Pontotoc. Upon receiving the returned checks, Bank of Pontotoc tried to collect on them again, using the same channel of banks as in the first presentment. When the checks arrived at Bank of Falkner for a second time, they were dishonored again due to insufficient funds and were sent to First Tennessee which transmitted them to Federal Reserve.
At issue are the length of time the checks were retained by Bank of Falkner after presentment and the timing of their return. The defendants allege that the checks were first presented to Bank of Falkner on September 16, 1997 and transmitted to First Tennessee on September 17, 1997 which sent them to Federal Reserve on the same day. Federal Reserve, according to the defendants, received the checks on September 18, 1997 and returned them back to Bank of Pontotoc on the same day. The defendants further allege that during the second presentment, the checks arrived on September 22 at Bank of Falkner which transmitted them to First Tennessee on September 23. First Tennessee, after receiving the checks on September 23, sent them to Federal Reserve on the same day for eventual return to Bank of Pontotoc. The amended complaint alleges that the checks remained in Bank of Falkner's possession until October 3, 1997 and were charged back to the plaintiff's account at Bank of Pontotoc on October 6, 1997.
Also at issue is whether Bank of Falkner provided notice with respect to the returned checks. The amended complaint alleges that neither Bank of Falkner nor First Tennessee provided any notice to Bank of Pontotoc or Federal Reserve of the returned checks. The defendants maintain that Bank of Falkner provided notice by telephone to Bank of Pontotoc on the same day as the checks were presented on both occasions.
The plaintiff initially filed suit against Bank of Falkner in state court, alleging fraud, conspiracy to commit fraud, conversion and violation of Mississippi's banking laws. The complaint was amended to add First Tennessee as a co-defendant and alleges against First Tennessee the same claims filed against Bank of Falkner. While the case was pending in state court, Bank of Falkner became insolvent and was forced to close its business. FDIC was named as receiver and substituted as a defendant in the state action in place of Bank of Falkner. Thereafter, FDIC removed this matter to this court pursuant to 12 U.S.C. § 1819(b)(A) in a timely manner.
The plaintiff also filed suit against Davis as a co-defendant. Davis subsequently reached a settlement agreement with the plaintiff and was thereafter dismissed by the state court.
FDIC, as receiver, succeeds to all rights, title, powers, and privileges of the insured depositary institution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution. 12 U.S.C. § 1821(d)(2)(A). The FDIC may "perform all functions of the institution in the name of the institution which are consistent with the appointment as . . . receiver." 12 U.S.C. § 1821(d)(2)(B)(iii).
[A]ll suits of a civil nature at common law or in equity to which [the FDIC], in any capacity, is a party shall be deemed to arise under the laws of the United States. 12 U.S.C. § 1819(b)(2)(A).
[FDIC] may . . . remove any action, suit, or proceeding from a State court to the appropriate United States district court before the end of the 90-day period beginning on the date . . . [the FDIC] is substituted as a party. 12 U.S.C. § 1819(b)(2)(B)
II. LAW/DISCUSSION
A. Summary Judgment StandardOn a motion for summary judgment, the movant has the initial burden of showing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 91 L.Ed.2d 265, 275 (1986) ("the burden on the moving party may be discharged by `showing' . . . that there is an absence of evidence to support the non-moving party's case"). Under Rule 56(e) of the Federal Rules of Civil Procedure, the burden shifts to the non-movant 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.'" Celotex Corp., 477 U.S. at 324, 91 L.Ed.2d at 274. That burden is not discharged by "mere allegations or denials." Fed.R.Civ.P. 56(e). All legitimate factual inferences must be made in favor of the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 91 L.Ed.2d 202, 216 (1986). Rule 56(c) mandates the entry of summary judgment "against a party who fails to make a showing sufficient 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., 477 U.S. at 322, 91 L.Ed.2d at 273. Before finding that no genuine issue for trial exists, the court must first be satisfied that no reasonable trier of fact could find for the non-movant. Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L.Ed.2d 538, 552 (1986).
B. Fraud, Conspiracy to Commit Fraud, Conversion
The amended complaint provides in pertinent part:
The BANK OF FALKNER and FIRST TENNESSEE BANK, INC., through a a fraud and/or a conspiracy to commit a fraud, have converted to their own use, the funds belonging to PONTOTOC STOCKYARDS, INC., and/or the cattle purchased by Jimmy Davis on or about September 12, 1997, by failing to honor written by Jimmy Davis for the purchase of cattle in which the BANK OF FALKNER held a security.
The amended complaint further alleges that the defendants are "guilty of conversion of the cattle purchased by Jimmy Davis." Attached to the defendants' summary judgment motions are the affidavits of Gwen Stewart and Jane Gray, two Bank of Falkner employees, establishing that the checks were reviewed and dishonored on both occasions on the same day as they were presented for payment. The plaintiff fails to adduce any evidence of Bank of Falkner's security interest in any cattle purchased by Davis. The plaintiff also fails to present any evidence that either of the defendants converted the cattle purchased by Davis or any funds which would have caused the checks at issue to be dishonored. Moreover, the plaintiff's allegation of fraud or conspiracy to commit fraud has no support in the record. Accordingly, the court finds that there are no disputed issues of material fact as to the claims of fraud, conspiracy to commit fraud and conversion. Summary judgment, therefore, should be granted as to these claims.
C. Violation of Banking Laws
The complaint provides in pertinent part the following with respect to the defendants' alleged violation of banking laws:
[T]he BANK OF FALKNER and FIRST TENNESSEE BANK, INC. are guilty of violating the banking laws of the State of Mississippi, more particularly but not exclusively, by failing to notify the Federal Reserve clearing bank and/or the payee bank of the insufficient amounts of funds available to pay the checks, within a reasonable amount of time as required by law, in violation of the Mississippi Code Annotated § 75-4-1 et seq.
The court examines hereinafter in separate sections Bank of Falkner and First Tennessee's respective obligations under applicable banking laws.
1. Bank of Falkner
The Uniform Commercial Code contains a conflict-of-law provision which provides that claims against banks arising from check transactions are governed by the law of the state in which the bank is located. See U.C.C. § 4-102(B); Miss. Code Ann. § 75-4-102(b). It is undisputed that Bank of Falkner is located in the State of Mississippi. Therefore, Mississippi law governs the issue of Bank of Falkner's liability for the alleged violation of banking laws.
When a payor bank is presented for payment with checks on a depositary account with insufficient funds, the so-called "midnight deadline" rule requires the bank to settle, pay, return or send notice of dishonor before midnight of the business day following the day of presentment. Miss. Code. Ann. § 75-4-302(a)(1); see also § 75-4-104(a)(10). FDIC contends that Bank of Falkner, the payor bank, fully complied with the "midnight deadline" rule each time the checks at issue were presented by dishonoring them on the same day as the day of presentment and transmitting them on the following business day to its correspondent bank, First Tennessee. Supporting this chronology are the affidavits of Gwen Stewart and Jane Gray and the deposition of Janet Honeycutt, Vice President and Manager of Operations Control of Bank of Falkner. The plaintiff does not provide any evidence showing that Bank of Falkner failed to meet the "midnight deadline" pursuant to Miss. Code. § 75-4-302(a)(1), and the record is devoid of such evidence.
"Payor bank" is defined by Mississippi's Uniform Commercial Code as, inter alia, "a bank that is the drawee of a draft." Miss. Code. Ann. § 75-4-105(3).
Federal Reserve regulations impose additional obligations on payor banks in processing checks drawn on accounts with insufficient funds. Under 12 C.F.R. § 229.30(a), payor banks must return dishonored checks in an "expeditious manner." A payor bank located in the same check processing region as the depositary bank fulfills this requirement if it returns the check in a manner such that the check would normally be received by the depositary bank by 4:00 p.m. of the second business day following the day the checks were presented to the payor bank. 12 C.F.R. § 229.30(a)(1)(i). FDIC contends that Bank of Falkner returned the checks in an "expeditious manner" pursuant to 12 C.F.R. § 229.30(a)(1)(i) by placing them in "normal and customary banking channels" and transmitting them to First Tennessee on the day following each presentment, maintaining implicitly that this method of return normally results in the checks being received by the depositary bank by 4:00 p.m. of the second day following presentment. Supporting FDIC's position is the undisputed fact that after the initial presentment and dishonor on September 16, 1997, the checks were received by Bank of Pontotoc on September 18, 1997 in time to be presented on a second occasion. The affidavits of Gwen Stewart and Jane Gray both state that the checks were returned through "usual and customary channels." The plaintiff does not present any evidence that Bank of Falkner failed to return the checks in an "expeditious manner" after each presentment, and the record does not contain such evidence.
Miss. Code Ann. § 75-4-103 provides in pertinent part:
(a) The effects of the provisions of this chapter may be varied by agreements . . .
(b) Federal Reserve regulations . . . have the effects of agreements under subsection (a), whether or not specifically assented to by all parties interested in the items handled.
The C.F.R. refers to payor banks as "paying" banks, which is defined as "[t]he bank by which a check is payable and to which it is sent for payment or collection." 12 C.F.R. § 229.2(z)(2).
Neither defendant explicitly states that Bank of Falkner and Bank of Pontotoc are located in the same check processing region. The court presumes, based on FDIC's invocation of the two-day deadline under 12 C.F.R. § 229.30(a)(1)(i) applicable to banks located in the same check processing region, as opposed to the four-day deadline under 12 C.F.R. § 229.30(a)(1)(ii) applicable to banks located in different regions, that the banks are located in the same check processing region.
Additionally, 12 C.F.R. § 229.33(a) provides that if a check in the amount of $2,500 or more is dishonored, the payor bank must provide notice to the depositary institution attempting to collect on the item by 4:00 p.m. on the second business day following the day of presentment. Such notice may be communicated by any reasonable means, including a writing, telephone, Fedwire, telex or the check itself. Id. As aforementioned in the factual summary, FDIC contends that Bank of Falkner notified Bank of Pontotoc by telephone of Davis's returned checks on the same day they were presented for payment; therefore, Bank of Falkner fulfilled its obligation to provide timely notice pursuant to C.F.R. § 229.33(a). FDIC's version of the facts with respect to the issue of notice is supported by the affidavits of Gwen Stewart and Jane Gray. The plaintiff does not present any evidence of Bank of Falkner's failure to provide a timely notice of dishonor to Bank of Pontotoc, and the record does not show otherwise.
The amended complaint can be reasonably construed to allege violation of banking laws on the ground of Bank of Falkner's failure to notify Federal Reserve in addition to Bank of Pontotoc with regard to the returned checks. The plaintiff does not cite any law imposing on Bank of Falkner a duty to provide notice of dishonor to Federal Reserve in addition to Bank of Pontotoc, and the court is unaware of any such law.
In any event, Federal Reserve knew about the checks as it received and returned them to Bank of Pontotoc on both occasions.
The only conclusion warranted by the record evidence is that Bank of Falkner complied with its obligations under applicable banking laws in handling the checks at issue in this cause. Accordingly, the court finds that summary judgment should be granted as to the plaintiff's claim against Bank of Falkner of violating banking laws.
2. First Tennessee
As aforementioned, the Uniform Commercial Code contains a conflict-of-law provision which provides that claims against banks arising from check transactions are governed by the law of the state in which the bank is located. See U.C.C. § 4-102(B); Tenn. Code Ann. § 47-4-102(b). It is undisputed that First Tennessee is located in the State of Tennessee. Therefore, Tennessee law governs the issue of whether First Tennessee violated any banking laws.
First Tennessee contends that it is an "intermediary bank," not a payor bank, and that it therefore did not owe any of the obligations of payor banks in handling the checks at issue. Additionally, First Tennessee maintains, without citing any law, that it fulfilled all of its legal obligations by transmitting the returned checks to Federal Reserve on the same day they were received on both occasions.
"Intermediary bank" is defined as "a bank to which an item is transferred in course of collection except the depositary or payor bank." Tenn. Code. Ann. § 47-4-105(4).
12 C.F.R. § 229.2(cc) defines a "returning bank" as a "bank (other than the paying or depositary bank) handling a returned check . . ." First Tennessee clearly fits within this definition. As a returning bank, First Tennessee has the same obligation as payor banks to return checks in an "expeditious manner." See C.F.R. § 229.31(a). Additionally, under 12 C.F.R. § 229.2(cc), a returning bank is also a "collecting bank" for purposes of U.C.C. 4-202(b), which imposes on such banks a duty to exercise ordinary care in returning checks. See Tenn. Code Ann. § 47-4-202(a)(2). First Tennessee's allegation that it transmitted the checks at issue on the same day as they were received on both occasions is supported by the deposition of Janet Honeycutt. The plaintiff does not present any evidence which shows otherwise. Accordingly, the court finds that First Tennessee met its obligation to return the checks at issue in an "expeditious manner" pursuant to 12 C.F.R. § 229.31(a) and that it exercised ordinary care in handling the checks in satisfaction of Tenn. Code Ann. § 47-4-202(a)(2).
"Uniform Commercial Code, Code, or U.C.C. means the Uniform Commercial Code as adopted in a state." 12 C.F.R. § 229.2(ii).
The amended complaint can be reasonably construed to allege violation of banking laws on the ground of First Tennessee's failure to notify Federal Reserve of the dishonored checks after they were received from Bank of Falkner. The plaintiff does not cite any law establishing First Tennessee's duty to notify Federal Reserve with respect to the checks, and the court is unaware of any law imposing such a duty.
See n. 10.
Based on the evidence in the record, the court finds that First Tennessee complied with its obligations under applicable banking laws. The claim of First Tennessee's alleged violation of banking laws should, therefore, be dismissed.
III. CONCLUSION
For the foregoing reasons, the court finds that there are no genuine issues of material fact and that the defendants are entitled to summary judgment. An order will issue accordingly.