Lakewood Condominium Association, Inc. v. Fifth Third Bank

Full title: LAKEWOOD CONDOMINIUM ASSOCIATION, INC., Plaintiff, v. FIFTH THIRD BANK…

Court: Court of Common Pleas of Ohio

Date published: Mar 25, 2013

A1200597 (Ohio Com. Pleas Mar. 25, 2013)

Opinion

A1200597

03-25-2013

LAKEWOOD CONDOMINIUM ASSOCIATION, INC., Plaintiff, v. FIFTH THIRD BANK, Defendant

Beth A. Myers Judge.

DECISION

Beth A. Myers Judge.

This case is before the Court on the parties' cross motions for summary judgment. For the reasons discussed below, Fifth Third's motion is granted and Lakewood's is denied.

STANDARD

Summary judgment is appropriate when there are no genuine issues of material fact that remain to be litigated and the moving party is entitled to judgment as a matter of law. Civ. R. 56(C); Celotex Corp. v. Catrett , 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment should be granted if the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence in the pending case, if any, timely filed in the action and construed most strongly in favor of the non-moving party, show that there is no genuine issue as to any material fact. Civ. R. 56(C). The burden of establishing that the material facts are not in dispute, and that no genuine issue of fact exists, is on the party moving for summary judgment. Vahila v. Hall , 77 Ohio St.3d 421, 1997 Ohio 259, 674 N.E.2d 1164 (1997). If the moving party asserts that there is an absence of evidence to establish an essential element of the nonmoving party's claim, the moving party cannot discharge this burden with a conclusory allegation, but must specifically point to some part of the record which affirmatively demonstrates this absence of evidence. Dresher v. Burt , 75 Ohio St.3d 280, 1996 Ohio 107, 662 N.E.2d 264 (1996).

The Ohio Supreme Court has established three factors to be considered upon a motion for summary judgment. These three factors are:

(1) That there is no genuine issue as to any material fact; (2) that the moving party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that the conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in his favor.

Bostic v. Connor , 37 Ohio St.3d 144, 524 N.E.2d 881 (1988) (quoting Harless v. Willis Day Warehousing Co ., 54 Ohio St.2d 64, 375 N.E.2d 46 (1978)).

Once a motion for summary judgment has been made and supported as provided in Civ. R. 56(C), the nonmoving party then has a reciprocal burden to set forth specific evidentiary facts showing the existence of a genuine issue for trial and cannot rest on the allegations or denials in the pleadings. Wing v. Anchor Media, Ltd. of Texas , 59 Ohio St.3d 108, 111, 570 N.E.2d 1095 (1991).

DISCUSSION

This case arises as a result of the fraud of ORP, Lakewood's agent. ORP was empowered to receive checks on behalf of Lakewood, deposit those checks in Lakewood's account, and write checks out of it.

Plaintiff alleges that with respect to checks 1-14, Fifth Third improperly paid these in violation of a restrictive endorsement, thus converting the funds of Lakewood. Fifth Third argues that as a matter of law, Lakewood has no claim under R.C. § 1303.60.

The undisputed facts establish that ORP was the agent of Lakewood and has authority to endorse checks and deposit them in Lakewood's accounts. Checks #1-14 and 16 are in dispute in this case.

Lakewood was the payee in checks 1-14. These checks were drawn on an account held by ORP as agent of Lakewood. All had restrictive endorsements " for deposit only" in Fifth Third accounts. Rather than depositing the checks in Lakewood's Fifth Third accounts, ORP deposited them in its own Fifth Third account. Fifth Third was both the drawee bank and the depository bank.

Check 16 also contained a restrictive endorsement. This check, however, was actually deposited in a Lakewood account. Thus, Lakewood received the funds. Shortly thereafter, ORP withdrew the funds and deposited them in another client's account.

With respect to restrictive endorsements, R.C. § 1303.26 provides:

(C) If an instrument bears an indorsement as described in division (B) of section 1304.11 of the Revised Code, in blank, or to a particular bank, using the words " for deposit, " " for collection, " or other words indicating a purpose of having the instrument collected by a bank for the indorser or for a particular account, the following rules apply:

(2) A depository bank that purchases the instrument or takes it for collection when so indorsed converts the instrument unless the amount paid by the bank with respect to the instrument is received by the indorser or applied consistently with the indorsement.

Thus, a depository bank that has paid a check inconsistently with a restrictive endorsement, such as for deposit only, is liable to the payee for conversion in the absence of a valid defense. Society National Bank v. Security Federal Savings & Loan , 71 Ohio St.3d 321, 1994 Ohio 152, 643 N.E.2d 1090 (1994). A bank acts inconsistently if it credits an account other than that of the payee. Id. In other words:

The phrase " for deposit only" in an endorsement requires a bank to deposit the money into an account in the name of the person or entity listed immediately below those words.

Continental Casualty Company v. Fifth Third Bank , 418 F.Supp.2d 964 (N.D. Ohio 2006).

Here, the Court finds that the undisputed facts show that Fifth Third paid inconsistently with the restrictive endorsement-- it was required to deposit the funds in an account of the payee Lakewood, not ORP. Thus, under R.C. § 1303.26 it is liable for conversion.

This, however, does not end the inquiry. R.C. § 1303.60 governs actions for conversion and provides:

(A) The law applicable to conversion of personal property applies to instruments. An instrument also is converted if it is taken by transfer, other than negotiation, from a person entitled to enforce the instrument or if a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by the issuer or acceptor of the instrument or a payee or indorsee who did not receive delivery of the instrument either directly or through delivery to an agent or co-payee.

(B) In an action under division (A) of this section, the measure of liability is presumed to be the amount payable on the instrument, but recovery may not exceed the amount of the plaintiff's interest in the instrument.

Fifth Third argues that Lakewood never received delivery of checks 1-14, and therefore has no conversion claim. As stated in Olympic Title Insurance Company v. Fifth Third Bank , 2002 Ohio 5826 (2nd Dist. 2002):

It is clear from a reading of this statute, and the comments thereto, that a payee of an instrument has a cause of action for a conversion only if the instrument has actually been delivered to the payee or its agent.

Lakewood argues that it did receive delivery through its agent ORP. The Court agrees. Thus, Lakewood's claim does not fail because it never received the check.

Fifth Third also argues that the conversion claim fails because Lakewood was the issuer. As stated by the Court in Western Ohio Colt Racing Association v. Fast , 2009 Ohio 1303 (3rd Dist. 2009):

According the statute and case law, a drawer may not bring an action for conversion. Pursuant to R.C. 1303.60(A), " an action for conversion of an instrument may not be brought by the issuer" and " issuer" is defined as a maker or drawer of an issued or unissued instrument. R.C. 1303.01(A)(6).

The Court in Peters Family Farm v. The Savings Bank , 2011 Ohio 665 (4th Dist. 2011) reached a similar conclusion:

R.C. 1303.60(A) unambiguously states that an issuer of an instrument cannot bring an action for conversion of the instrument. Under R.C. 1303.01(A)(6), an " issuer" includes a drawer of drafts. Here, it is undisputed that Peters was the drawer of the drafts in question. And because Ohio's UCC statute does not allow the drawer of a draft to bring an action in conversion, Peters' claim against TSB fails as a matter of law.

Lakewood argues, among other things, that these cases do not apply because in all those cases the payee and the issuer were not the same party, as here. While true, the statute unambiguously states that an issuer cannot bring a claim for conversion.

The Court finds that Lakewood cannot have it both ways. If ORP was its agent for purposes of the payee analysis (which the Court agrees it is), then it is also Lakewood's agent as the issuer of the check. Because the Court finds Lakewood is the issuer, it cannot bring a claim for conversion.

Finally, while the Court need not decide any issue of damages for the conversion claim, the Court notes that R.C. § 1301.305 in general precludes recovery of consequential, special or penal damages. And R.C. § 1303.60(B) limits the recovery to Plaintiff's interest in the check.

As for check 16, because Lakewood actually received these funds, there is no claim for conversion as a matter of law.

CONCLUSION

Because Lakewood is the issuer of checks 1-14, it is precluded from bringing a conversion claim. And because it actually received the funds from check 16, this claim fails. Fifth Third's motion for summary judgment is granted and Lakewood's is denied. The parties are referred to Local Rule 17 for preparation of an entry.