Opinion
CIVIL ACTION NO. 3:99-CV-0571-R.
July 26, 2001.
MEMORANDUM OPINION AND ORDER
Now before the Court is Receiver's Motion for Partial Summary Judgment (the "Motion"), initially filed October 17, 2000. Due to developments in the case that occurred after the Motion was filed, the Court granted the parties leave to file supplemental briefs to the Motion, which were completed on March 28, 2001. Thus, the Court has considered these supplemental briefs in its decision in this opinion. For the reasons stated below, the Motion is DENIED.
I. BACKGROUND FACTS
The dispute between the Receiver and Akel of Boca Raton, Inc. ("Akel") centers around a $270,000 check (the "Official Check"), which was purchased by Alliance Investment Corporation ("Alliance") on February 12, 1999 and made payable to Lancer Investments, LP ("Lancer"). Either Benjamin Cook, manager of Cybernet Connections, LLC, the limited partner of Lancer, or his secretary, Diane Grollemond, took delivery of the Official Check sometime after it was issued. On March 16, 1999, this Court entered an "Order Appointing Temporary Receiver" (the "Receivership Order") in which the Receiver was appointed for the purpose of collecting, receiving and taking custody of the assets of the various defendants and relief defendants in this case.
Akel owns mini-mart stores that offer check-cashing services. Kaeser Akel ("Kaeser") is the corporate representative of Akel and is the person responsible for determining whether Akel will cash third-party checks. On or about May 14, 1999, at one of Akel's mini-mart stores, Kaeser accepted the Official Check from Domeneco Abate, with whom he was acquainted through prior business dealings. Apparently, Kaeser had become acquainted with Abate through two other associates, one of whom has been indicted for alleged crimes connected to the La Cosa Nostra crime organization. Prior to presenting the Official Check to Kaeser, Abate had explained to Kaeser that the Official Check belonged to a friend of his who needed to cash it quickly because he was going through a divorce and was worried that someone would try to "grab the money." When Abate did present the Official Check to Kaeser, it had already been indorsed "Lancer Investments, LP." It is not known who indorsed the Official Check on behalf of Lancer. Further, it is not known whether the Official Check was indorsed before or after the Receivership Order was entered on March 16, 1999.
Kaeser is an equal partner in Akel with his brother, Foad Akel.
A Abate has asserted his privilege against self-incrimination under the Fifth Amendment and refused to answer the Receiver's questions about the Official Check.
This was the entire indorsement; it contained no words of limitation and there was no indication of which agent of Lancer, if any, signed on behalf of Lancer.
Kaeser accepted the Official Check from Abate without making any attempt to verify the identity or authority of the indorser. However, Kaeser did allegedly contact BankOne, the maker of the Official Check, to verify that it was valid and fully funded, which he was told it was. He then gave the Official Check to his brother, Foad, who deposited it in Akel's account at Union Planters Bank ("UPB"). On or about May 24, 1999, UPB notified Kaeser that the Official Check had cleared and the $270,000 was available for withdrawal. Kaeser withdrew the money in installments, which he then paid to Abate, save Akel's $4,050 fee for cashing the Official Check.
A total of $280,000 cash was disbursed to Kaeser over the course of a little over two weeks. The dates and the amounts of the withdrawals were: (1) $50,000 on May 24, 1999; (2) $50,000 on June 2, 1999; (3) $80,000 on June 4, 1999; (4) $70,000 on June 9, 1999; and (5) $30,000 on June 10, 1999.
Pursuant to a plea agreement, on October 19, 2000, Kaeser pled guilty to money laundering for alleged members of the South Florida crew of the La Cosa Nostra crime family. Kaeser and his attorney agree that his involvement with the Official Check in this case was covered by his plea agreement with the United States Attorney.
Specifically, Kaeser pled guilty to 18 U.S.C. § 1957, which generally makes it illegal to knowingly engage in a monetary transaction involving criminally derived property worth more than $10,000. See 18 U.S.C.A. § 1957 (1994).
The Receiver argues in the Motion that in accepting and cashing the Official Check, Kaeser has wrongfully converted Receivership Assets as a matter of law and, further, Kaeser cannot claim the defense of good faith to protect himself from such a finding.
II. ANALYSIS
A. Summary Judgment Standard
"Summary judgment is proper when, viewing the evidence in the light most favorable to the non-movant, `there is no genuine issue of material fact and . . . the moving party is entitled to judgment as a matter of law.'" Wilson Industries, Inc., v. Aviva America, Inc., 185 F.3d 492, 494 (5th Cir. 1999) (quotingAmburgey v. Corhart Refactories Corp., 936 F.2d 805, 809 (5th Cir. 1991)); Fed.R.Civ.P. 56(c). However, all reasonable doubts and inferences must be decided in the light most favorable to the party opposing the motion. See Thombrough v. Columbus Greenville R.R. Co., 760 F.2d 633, 640 (5th Cir. 1985). Furthermore, as long as there appears to be some evidentiary support for the disputed allegations, the motion must be denied.See Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248-49 (1986); Coke v. General Adjustments Bureau, 640 F.2d 584, 595 (5th Cir. 1981) (en banc).
The party moving for summary judgment bears the initial burden of identifying those portions of the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, which it believes demonstrates the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the nonmoving party bears the burden of proof on a claim upon which summary judgment is sought, the moving party may discharge its summary judgment burden by showing that "there is an absence of evidence to support the nonmoving party's case." Id. at 325. Once the moving party satisfies this burden, the nonmoving party may then oppose the motion by going "beyond the pleadings and by [its] own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designat[ing] `specific facts showing that there is a genuine issue for trial.'" Id. at 324; Anderson, 477 U.S. at 256. Summary judgment will be granted 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, 477 U.S. at 322.
B. Standing of the Receiver
In its Order Regarding Petition Number 3 (the "Order") entered on August 9, 1999, this Court authorized the Receiver to take "exclusive possession, custody and control of . . . all property owned by, controlled by, or held in the name of" Lancer, among others. Further, under the Order, all such property became Receivership Assets, subject to the orders of this Court. Finally, pursuant to the March 16, 1999 Receivership Order, the Receiver has the authority to institute legal actions to recover Receivership Assets. Thus, the Receiver has standing to pursue this claim, which aims at recovering Receivership Assets; namely, the property of Lancer, the payee of the Official Check.
C. Conversion
Under Texas Uniform Commercial Code ("UCC") section 3.420, an instrument is converted if "it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument . . ." Tex. U.C.C. § 3.420 (1996). Thus, under section 3.420, the taking of an instrument bearing a forged indorsement is an act constituting conversion. See id. at § 3.420, cmt. n. 1. The issuer or acceptor of an instrument is not entitled to bring an action for conversion under this section. Id. at § 3.420. Further, the payee of an instrument may not bring an action for conversion unless he directly or indirectly received delivery of the instrument, either himself or through an agent. Id. Finally, a non-bank defendant "who has in good faith dealt with an instrument or its proceeds on behalf of one who was not the person entitled to enforce the instrument" is only liable in conversion to the extent that the defendant has not paid out all of the proceeds of the instrument. Id.
Under the "most significant relationship test," Texas law applies to this matter. The relevant injury occurred in Texas, and the Receiver is domiciled in this state, for the purposes of this action. Further, this is a complex, consolidated case which is centered, by order of this Court, in Texas. See Access Telecom., Inc. 197 F.3d 694, 705 (5th Cir. 2000);SnyderGeneral Corp. v. Great Am. Ins. Co., 928 F. Supp. 674, 677 (N.D.Tex. 1996), aff'd 133 F.3d 373 (5th Cir. 1998).
In the Response to the Receiver's Motion, Akel argues that the there are several disputed material facts, which make a finding of summary judgment in favor of the Receiver improper. First, Akel alleges that there are material issues of fact regarding whether the indorsement was, in fact, forged. Second, Akel alleges that there is a material question of fact regarding whether the instrument was ever actually delivered to Lancer, which is required under section 3.420 for the Receiver, acting on behalf of Lancer, to be entitled to pursue an action for conversion. Finally, Akel alleges that there are facts in support of its defense that Kaeser acted in good faith in accepting the check.
1. Evidence of a Forged Indorsement
Section 3.403 of the Texas UCC provides that an unauthorized signature is "wholly inoperative as the that of the person whose name is signed." Tex. U.C.C. § 3.403(a) cmt. n. 1 (1996). An unauthorized signature is one made "without actual, implied, or apparent authority and includes a forgery." Id. at § 1.201(43). Thus, if an agent of Lancer did not indorse the check, or if such agent indorsed the Official Check after his authority to do so was dissolved by an order of this Court making the proceeds of such check Receivership Assets, then the indorsement was unauthorized and invalid.
In the present case, it is not known who indorsed the check, nor is it known when the check was indorsed. Thus, it appears at the outset that there is a material question of fact regarding whether Kaeser paid the check over a forged indorsement. If the indorsement was not forged, then section 3.420 does not apply in a way that makes Kaeser's taking of the Official Check a conversion of the instrument.
The Receiver argues that it is irrelevant whether the check was signed by an authorized agent or signed prior to the Receivership Order. Instead, the Receiver presents case law that allegedly holds that because Kaeser paid Abate while knowing he was not the authorized agent of Lancer, he was converting the check. However, this case law is not persuasive. First, Humble National Bank v. DCV, Inc., 933 S.W.2d 224 (Tex.App.-Houston 1996), is distinguishable because that case did not involve a forged indorsement, and the court there was not applying the same statute that the Receiver relies upon to claim that Akel is liable in conversion. 933 S.W.2d at 236-37. In the present case, the Receiver argues that Akel committed conversion when it paid out proceeds of the Official Check over a forged indorsement, thereby invoking section 3.420. Thus, it follows that if it is possible that the indorsement was not forged, then there is a material question of fact which must be resolved before judgment can be granted. Another case presented by the Receiver makes this very point. In Continental State Bank v. Miles General Contractors Inc., 661 S.W.2d 770 (Tex.App.-Fort Worth 1983), the court held that the defendant was liable for cashing checks that the undisputed facts showed contained forged indorsements. See id. at 773-74 (stating, "The evidence shows Price was not in fact authorized to endorse checks in the name of Miles Contractors . . ." Id.).
The Receiver argues in its Supplemental Brief in Support of the Motion that Abate "did not have authority to endorse the Official Check and was not entitled to its proceeds." Supp. Brief at 7. However, if the indorsement was not forged, which is possible, this reasoning does not apply. See discussioninfra p. 8.
Further, the Court agrees with Akel, that if the indorsement were not forged, and this is a fact which is in dispute, then the Official Check would have become a bearer instrument. "If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a `blank indorsement.' When indorsed in blank, an instrument becomes payable to the bearer and may be negotiated by transfer of possession alone until specially indorsed." Tex. U.C.C. § 3.205(b). Thus, if the Official Check were indorsed by an authorized agent of Lancer prior to this Court's Receivership Order, the effect of the blank indorsement on the Official Check is "analogous to that of a check in which the name of the payee is left blank by the drawer." Id. at cmt. n. 2. Thus, in such a case, Kaeser's payment of the proceeds to Abate, the bearer, would not have been an act of conversion, since all that is necessary to negotiate a bearer instrument is delivery. See Palmer Ray Dental Supply of Abilene, Inc. v. First National Bank of Abilene, 477 S.W.2d 954 (Tex.App.-Eastland 1972) (holding that a bank was not guilty of conversion where it paid out cash to an employee of the plaintiff who presented checks that had been written to the order of the plaintiff, but that all contained blank indorsements); La Junta State Bank v. Travis, 727 P.2d 48 (Colo. 1986) (holding under same statutory language that when the payee indorsed her check in blank and gave it to her attorney, the check became a bearer instrument that the attorney could negotiate through delivery alone). Thus, because the check was indorsed in blank and it is not known whether such indorsement was forged, the issue of Akel's liability for accepting the Official Check is not a matter that can properly decided on summary judgment.
2. Delivery to the Payee
A payee or his agent must receive delivery of an instrument to be entitled to bring an a action for conversion. Tex. U.C.C. § 3.420. This is because, until delivery, the payee had no interest in the check and, thus, does not have the rights associated with a holder. Id. at cmt. n. 1. Delivery is defined as "voluntary transfer of possession." Tex. U.C.C. § 1.201(14) (2001). The Receiver has presented undisputed evidence that the Official Check was picked up from Bank One on February 1, 1999, by Ben Cook or his secretary, Diane Grollemond. The taking of possession of the Official Check by either of these two constitutes delivery, as they were both agents of Lancer on February 1, 1999. Thus, there is no material question of fact regarding delivery of the Official Check, as it was delivered to an agent of Lancer.
3. Good Faith of Kaeser Akel
If it were determined that the Official Check bore a forged indorsement, Akel's only defense to accepting it would be to show that Kaeser acted in good faith in dealing with the instrument. Tex. U.C.C. § 3.420(c) (2001). The Texas UCC defines "good faith" as "honesty in fact in the conduct or transaction concerned." Tex. U.C.C. § 1.201(19).
The Receiver argues that Akel is precluded from arguing a defense of good faith because Kaeser has pled guilty to using his mini-markets to launder money for the mafia, and because Kaeser agrees that pursuant to his plea agreement he could not be criminally charged for his actions regarding the Official Check. The Receiver asserts that Kaeser's guilty plea "nullifies Akel's good faith defense as a matter of law." Receiver's Reply at 2. Curiously, the Receiver cites no law for such a broad statement. Nor could the Court find such case law in its own research. Surely, the Receiver does not suggest that by virtue of the fact that Kaeser did business with the mafia, he must be presumed to have been acting in bad faith in each and every situation in which he accepted a check. The Court agrees with the Receiver that as a result of his admission that he was in cahoots with the mob, Kaeser's assertions about whether or not he acted in good faith should be viewed with skepticism. However, it is not the Court's role on a motion for summary judgment to weigh the evidence or consider credibility of witnesses. That responsibility rests with the trier of fact. Further, under the general rule, "what constitutes good faith under the circumstances of a particular case is a question of fact to be resolved by the fact finder." See Kiser v. Lemco Industries, Inc., 536 S.W.2d 585, 589 (Tex.App.-Amarillo 1976) (citation omitted); see also Bennett v. Computer Assoc. Int'l. Inc., 932 S.W.2d 197, 204 (Tex.App.-Amarillo 1996) (holding that a determination of good faith in that case was not one that could be made on summary judgment); see also Vela v. Pennzoil Producing Co., 723 S.W.2d 199, 205 (Tex.App. — San Antonio 1986) (stating the general rule that what constitutes good faith or bad faith is a determination of fact and holding that on the summary judgment evidence presented, it could not rule that the defendant acted in good faith as a matter of law).
The Court agrees with Akel that the fact that Kaeser's plea agreement covers any wrongdoing that may ultimately be associated with his dealings with the Official Check does not mean that he has admitted to wrongdoing with regard to the check.
The Court finds that the Receiver has not presented indisputable evidence of bad faith on the part of Kaeser. Further, Akel has raised facts which could lead a reasonable fact finder to determine, with regard to the Official Check specifically, that Kaeser acted in good faith. Thus, Akel is entitled to present such a defense at trial.
III. CONCLUSION
For the foregoing reasons, the Receiver's Motion is DENIED
It is so ORDERED.