Opinion
No. C9-01-1940
Filed June 19, 2002.
Appeal from the District Court, Kandiyohi County, File No. CX98001060.
Ronald L. Snelling, Jill N. Brown, (for appellant)
Michael T. Milligan, James P. Peters, (for respondent)
Considered and decided by Kalitowski, Presiding Judge, Klaphake, Judge, and Willis, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
A group of investors sued respondent bank for breach of contract, negligence, and conversion, contending that the bank improperly changed signatories on an account that held investment funds. On remand from this court, the district court granted summary judgment for the bank on the ground that the investors' claims were barred by a provision in the account agreement that requires a customer to promptly examine each account statement and to report account problems to the bank within 30 days. Appellant, one of the investors, challenges the judgment, arguing that the provision does not apply to him and that he is entitled to additional equities and defenses. We affirm.
FACTS
Appellant Allan Steffes is one of a number of investors who provided financing to 4E Corporation, a Nevada corporation, in anticipation of a public offering of 4E Corporation's stock. The company's president, sole director, and sole shareholder was Edmond X. Ramirez Sr. 4E Corporation planned to produce an electric car, which was demonstrated at a Roseville motel in May 1993 to attract prospective investors who might want to acquire an equity interest in the project.
In July 1993, 4E Corporation, by corporate resolution, authorized Steffes and another investor, Roger Bonnema, to open an account with respondent Heritage Bank NA-Willmar in 4E Corporation's name, "as described in the 4E Corporation Escrow Account document." That document, attached to the resolution, purported to establish an escrow account and to condition the release of any funds to 4E Corporation upon a total of $1,300,000 being deposited in the account within 90 days. If and when that occurred, Steffes and Bonnema were to release $800,000 to 4E Corporation, with the remainder to be held in the account for future use; if at least $1,300,000 was not deposited in the account within 90 days, all funds were to be returned to their sources. The corporate resolution required the signatures of both Steffes and Bonnema on all checks written on the account.
Steffes and Bonnema signed a signature card to open the account. The signature card provides that, by signing, Steffes and Bonnema agreed that the account would be governed by the terms of the "Account Agreement and Disclosure" (account agreement) between 4E Corporation and Heritage. Over the next several weeks, the account balance reached $1,050,000, including a $500,000 investment by Steffes. Several other investors also deposited funds in the account.
On August 23, 1993, 4E Corporation faxed to Heritage a corporate resolution, signed by Ramirez, removing Steffes and Bonnema as signatories on the account and naming Ramirez as the "primary signatory." The resolution also authorized Ramirez to "transfer funds, in any manner." Two days later, 4E Corporation deposited $250,000 in the account, which brought the balance to $1,300,000, and Ramirez called Heritage and requested it to transfer $800,000 to a 4E Corporation account in Las Vegas. After reviewing the resolution, a Heritage employee wired the funds to the Las Vegas account.
Five days later, on August 30, 1993, some of the investors met with Ramirez in Willmar. Handouts distributed at that meeting included a copy of the corporate resolution that removed Steffes and Bonnema as signatories. On October 5, 1993, Heritage wired an additional $500,000 from the account to 4E Corporation's Las Vegas account, apparently at Ramirez's direction.
In December 1993, Ramirez provided to the investors, including Steffes, a corporate financial report that showed that funds had been transferred from 4E Corporation's account at Heritage and that substantial funds had been spent on car development and personnel, legal, and travel expenses. Two weeks later, Steffes wrote a letter to Ramirez criticizing his use of funds and encouraging him to focus on completing 4E Corporation's initial public offering. The letter did not mention any transfer of funds.
Ramirez converted to his personal use the funds that he had transferred from 4E Corporation's account at Heritage, and he was subsequently convicted of wire fraud in federal court. In August 1998, nearly five years after the first wire transfer, Steffes and several other investors sued Heritage for breach of contract, negligence, and conversion. The district court granted summary judgment to Heritage on the ground of laches, and Steffes and several other plaintiffs appealed. In an order opinion, this court remanded for the district court to first "consider which statute of limitations, if any, applies to [the] claims."
On remand, Heritage moved for summary judgment. The district court granted summary judgment for Heritage, concluding that the 30-day limitation period for reporting account problems to Heritage, as provided for in the account agreement, barred the investors' claims and that the investors were not entitled to additional equities and defenses. Steffes appeals.
DECISION
On appeal from summary judgment, this court determines whether there are any genuine issues of material fact and whether the district court erred in its application of the law. Cummings v. Koehnen, 568 N.W.2d 418, 420 (Minn. 1997). This court views the evidence in the light most favorable to the party against whom summary judgment was granted. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).
I.
As a preliminary issue, this court questioned whether Steffes is the sole appellant here. Although the notice of appeal filed with this court states that only "Plaintiff Allan Steffes appeals" from the summary judgment, Steffes's brief inconsistently refers to Steffes both as one of an indeterminate number of appellants and as the sole appellant. At oral argument, in response to a question regarding this issue, Steffes's counsel stated that Steffes is the sole appellant and that this court should disregard any reference to multiple appellants. We therefore consider Steffes to be the sole appellant here.
II.
Steffes argues that the district court erred by granting summary judgment to Heritage because genuine issues of material fact exist regarding whether the 30-day limitation period for reporting account problems, as set forth in the account agreement, applies to him. Steffes contends that the district court erred as a matter of law by determining that (1) the investors were third-party beneficiaries of both the escrow agreement and the account agreement, (2) the investors were not entitled to additional equities and defenses, and (3) the 4E Corporation account at Heritage was not an escrow account, and therefore Heritage was not liable to the investors for conversion for "improperly disbursing" money from the account.
Account Agreement's 30-Day Limitation Period
The account agreement states:
You are responsible for promptly examining each account statement and reporting any problems to us. Each statement will be considered correct and we will not be responsible for any payment made and charged to your Account unless you notify us in writing within certain time limits after the statement and checks are made available to you. We will not be liable for any altered check or any check with a forged signature unless you notify us within thirty (30) calendar days after the statement and the altered or forged item(s) are made available. * * * You must also report any other account problem within thirty (30) calendar days. If you do not do this, you lose your right to assert the problem against us.
(Emphasis added.)
Steffes contends that the 30-day limitation period in the account agreement does not apply to him because "there is no evidence that any of the Investors saw the [account agreement] or, if they did, understood that Heritage Bank's position was that their money was being deposited in the Escrow Account subject to the terms of the [account agreement]." He also complains that, although he and other investors questioned Heritage's president about the transfers, the president never informed them about the account agreement's 30-day limitation period.
But Steffes does not dispute that he and Bonnema signed a signature card when they opened 4E Corporation's account. That signature card provided that, by signing, Steffes and Bonnema agreed that the account would be governed by "the terms set forth in the Account Agreement and Disclosure" between 4E Corporation and Heritage. The district court did not err by concluding that the terms of both the escrow agreement and account agreement governed 4E Corporation's account at Heritage.
Steffes contends that the investors were third-party beneficiaries of the escrow agreement but not the account agreement, and therefore Heritage cannot assert the 30-day limitation in the account agreement to bar his claims. The rights of a third-party beneficiary "depend upon, and are measured by, the terms of the contract." Haas v. DaimlerChrysler Corp., 611 N.W.2d 382, 385 (Minn.App. 2000) (quoting Brix v. General Accident Assurance Corp., 254 Minn. 21, 24, 93 N.W.2d 542, 544 (1958)) (citations omitted), review denied (Minn. Aug. 22, 2000). Because both the escrow agreement and the account agreement govern the account and because Steffes's rights were measured by the terms of those contracts, the 30-day limitation period in the account agreement applies to his claims.
Additional Equities and Defenses
Steffes argues that he is entitled to additional equities and defenses beyond those afforded to 4E Corporation because he deposited money in 4E Corporation's account at Heritage in reliance on the escrow agreement. In a suit against a promisor, a third-party beneficiary to a contract is generally subject to the same defenses as the parties to the contract itself. See Hansen v. Proctor, 246 Minn. 67, 71-72, 74 N.W.2d 281, 284 (1955). But a third-party beneficiary may be entitled to additional equities and defenses if he has been induced to alter his position in reliance on the promise. Id.
Steffes contends that investors relied on the corporate resolution, which stated that the account at Heritage was an escrow account and that the account required the signature of two of the investors to remove the funds. The district court found that 4E Corporation had opened a savings account, not an escrow account, and Steffes does not dispute that his attorney told him, in writing, that Heritage "is fairly small, has no trust department and cannot open an escrow account." Further, a corporate resolution authorized Steffes and Bonnema as signatories and a second corporate resolution later removed them as signatories. If Steffes means to argue that Heritage promised to abide by the terms of a corporate resolution, Heritage has kept that promise. The district court did not err by concluding that Steffes is entitled to no additional equities or defenses.
Conversion from Escrow Account
Steffes claims that Heritage is liable to him for conversion because it improperly disbursed funds from 4E Corporation's escrow account. The district court held that the 30-day limitation period in the account agreement barred the investors' conversion claim. The district court concluded that, regardless, the 4E Corporation account at Heritage Bank was not an escrow account and therefore Heritage Bank could not be liable to the investors for conversion based on improper disbursements from that account.
Minnesota law provides a six-year statute of limitations, except as otherwise provided by the Uniform Commercial Code (UCC), for claims based on breach of contract, negligence involving personal property, and conversion. Minn. Stat. § 541.05, subd. 1 (2000). The district court applied the provisions of Article 4 of the UCC, which permits parties to vary its statute of limitations by agreement, to the investors' claims to determine the applicable statute of limitations and concluded that the 30-day limitation period in the account agreement barred those claims. See Minn. Stat. §§ 336.4-103 (2000) (providing that "[t]he effect of the provisions of this article may be varied by agreement"); 336.4-111 (2000) (providing that "[a]n action to enforce an obligation, duty, or right arising under this article must be commenced within three years after the cause of action accrues").
But the conversion claim was based on allegedly improper disbursements from 4E Corporation's account by funds transfers. Article 4A of the UCC applies to funds transfers. Minn. Stat. § 336.4A-102 (2000). Article 4A bars a customer from asserting that a receiving bank is not entitled to retain funds received pursuant to a payment order if the customer fails to notify the receiving bank of its objection to the payment order within one year of the date that the customer received notice of the order. Minn. Stat. § 336.4A-505 (2000); see Hedged Inv. Partners, L.P. v. Norwest Bank Minn., N.A., 578 N.W.2d 765, 769 n. 1 (Minn.App. 1998) (noting that Article 4A "precludes a customer from claiming that a bank is not entitled to retain payment unless the claim is made within one year of notification); see also Minn. Stat. §§ 336.4A-103 (2000) (defining "payment order" to include oral or written instruction by sender for bank to pay money to beneficiary); 336.4A-104 (2000) (defining "funds transfers" to mean series of transactions beginning with payment order).
Like Article 4, Article 4A also provides that the parties may vary by agreement "the rights and obligations of a party to a funds transfer." Minn. Stat. § 336.4A-501 (2000). The 30-day limitation period in the account agreement therefore time-barred Steffes's conversion claim. And even if Steffes had successfully argued that the terms of the account agreement did not apply to the investors, he admits that he found out about the funds transfers in December 1993, when Ramirez provided a report to the investors. He apparently never notified the Las Vegas bank, the receiving bank of his objection to Ramirez's payment order, and there is no evidence that Heritage attempted to fraudulently conceal either the removal of signatories or the funds transfers. See Larson v. Dunn, 460 N.W.2d 39, 43 (Minn. 1990) (noting that fraudulent concealment prevents statute of limitations from running). Because either the 30-day account limitation or the UCC statute of limitations regarding funds transfers barred Steffes's conversion claim, we do not reach his argument that the district erroneously determined that the 4E Corporation account at Heritage was not an escrow account.