Opinion
CIVIL ACTION NO. 02-T-1331-N
November 20, 2003
Thomas Lawson Selden, J. Scott Dickens, Brian Alan Dodd, Starnes Atchison, Birmingham, AL, for FIDELITY AND DEPOSIT COMPANY OF MARYLAND plaintiff
Robert E. Sasser, Patrick Sefton, Charlanna W. Spencer, Sasser Littleton Stidham PCP, O. Drawer, Montgomery, AL, for THE COLONIAL BANCGROUP, INC. defendant
OPINION
Plaintiff Fidelity and Deposit Company of Maryland brings this suit for "wrongful negotiation," or conversion, against defendant Colonial Bancgroup. Diversity jurisdiction over this state claim is proper under 28 U.S.C.A. § 1332. This matter is currently before the court on Colonial's motion for summary judgment. For the reasons that follow, this motion will be granted.
As Colonial points out, Alabama has not explicitly recognized a tort of "wrongful negotiation," which is how Fidelity characterized its claim in its complaint. However, Fidelity has elsewhere clarified that its claim is for conversion under 1975 Ala. Code § 7-3-420. Memorandum of law in opposition to defendant's motion for summary judgment, filed Sept. 8, 2003 (Doc. No. 20), at 15; Supplemental memorandum in opposition to motion for summary judgment, filed Oct. 6, 2003 (Doc. No. 32), at 8. Further, as Colonial notes, some Alabama cases have referred to "wrongful negotiation," Walker v. Community Bank, 596 So.2d 886, 886 (Ala. 1992), and other cases have characterized conversion claims as allegations of wrongful payment,American Liberty Ins. Co. v. AmSouth Bank, 825 So.2d 786, 789 (Ala. 2002).
I. Summary-Judgment Standard
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Under Rule 56, the party seeking summary judgment must first inform the court of the basis for the motion, and the burden then shifts to the non-moving party to demonstrate why summary judgment would not be proper. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986); see also Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115-17 (11th Cir. 1993) (discussing burden-shifting under Rule 56). The non-moving party must affirmatively set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials in the pleadings. Fed.R.Civ.P. 56(e).
The court's role at the summary-judgment stage is not to weigh the evidence or to determine the truth of the matter, but rather to determine only whether a genuine issue exists for trial.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511 (1986). In doing so, the court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986).
II. Background
Fidelity alleges that Colonial wrongfully allowed Jared Hammons to deposit into his personal account three checks with a total value of $95,639.98 that were payable to his maternal grandmother, Dorothy Jeffers, who is incapacitated. Fidelity was the surety on these and other funds that Hammons misappropriated from Jeffers, and is the assignee of Jeffers's claims against Hammons.
On September 2, 1998, Jeffers signed a power of attorney naming Hammons as her attorney-in-fact. The power of attorney gave Hammons the power to make deposits, withdrawals, and transfers "in and to such banks or other financial institutions as in his discretion may be beneficial to me," and to endorse checks payable to Jeffers for deposit "in a bank or banks where he chooses to conduct business for me." In early 2000, Jeffers suffered a stroke that left her unable to manage her personal affairs or care for herself. On July 31, 2000, the Probate Court of Montgomery County conditionally appointed Hammons as Conservator over Jeffers's estate upon the filing of a $150,000 bond. On August 24, 2000, Hammons obtained a $150,000 surety bond from Fidelity.
Power of attorney, attachment 1 to brief in support of motion for summary judgment, filed July 11, 2003 (Doc. No. 13).
Hammons deposited three checks made out to Jeffers into his personal account at Colonial. Hammons signed all three checks with his name and with Jeffers's name. The combined value of the checks was $95,638.87. This money came from Jeffers's annuity account with SunAmerica Life Insurance Company. In April 2000, Jeffers requested the first check for $56,000 from her SunAmerica account. At this point the power of attorney was in effect, but Hammons had not yet been appointed the conservator of Jeffers's estate. In November and December 2000, after Hammons had been appointed conservator and when the power of attorney was still in effect, Hammons completed two affidavits to affirm his power of attorney to request withdrawals of $4,266.07 and $35,372.80 from the SunAmerica account. He deposited these two checks into his personal account at Colonial in December 2000.
In August 2000 and March 2001, the Alabama Attorney General received information that Hammons was not paying Jeffers's nursing home bills in a timely manner. The Attorney General discovered Hammons had sold some of Jeffers's property and had misappropriated some of the funds. Hammons was indicted for theft, pled guilty, and was sentenced to ten years' imprisonment.
Hammons was removed as guardian and conservator of Jeffers's estate in April 2001. The Probate Court entered two orders, in July 2001 and May 2002, requiring Hammons and Fidelity, as surety, to pay $77,419.79 and $47,339.82 to the successor conservator of Jeffers's estate. Fidelity sued Hammons and obtained a judgment against him for $124,759.61 plus attorneys' fees and costs; it has recovered $17,866 of this amount. The successor conservator of the Jeffers estate assigned all its rights and claims relating to these losses to Fidelity, and Fidelity now brings this suit to recover the value of the three checks that it alleges Colonial wrongfully allowed Hammons to deposit.
III. Discussion
Colonial moves for summary judgment on a number of grounds, but it is not necessary to discuss all of them. Summary judgment is appropriate because Jeffers authorized Hammons to indorse checks made out to her and to deposit them into accounts of his choosing.
Fidelity brings this claim as the assignee and subrogee of the Jeffers estate's claims against Hammons. Under Alabama law, a surety who pays the debt of his principal "stands in the shoes" of the payee and "may enforce the payee's rights in order to seek reimbursement." American Liberty Ins. Co. v. AmSouth Bank, 825 So.2d 786, 790 (Ala. 2002) (citations omitted).
As subrogee of Jeffers's claims, Fidelity argues that Colonial converted the three checks made out to Jeffers when it allowed Hammons to deposit them in his personal accounts. Under Alabama's Commercial Code, an instrument is converted if "a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment." 1975 Ala. Code § 7-3-420. A "[p]erson entitled to enforce" an instrument includes a holder of the instrument or a nonholder in possession of the instrument who has the rights of a holder. 1975 Ala. Code § 7-3-301. Hammons was not the "holder" of the checks he deposited, but he was in possession, so the question is whether he had the rights of a holder.
Section 7-3-420 was enacted in 1995 and has not been interpreted by Alabama courts. Compare American Liberty Ins. Co. v. AmSouth Bank, 825 So.2d 786, 789 (Ala. 2002) (construing previous § 7-3-419).
A person in possession of an instrument is not a "holder" unless the instrument is "drawn, issued, or indorsed" to him (or to his order, or to bearer, or in blank). 1975 Ala. Code § 7-1-201(20). The checks at issue here were made out to Jeffers.
Hammons had the rights of a holder of the checks, and was entitled to enforce the checks, because Jeffers authorized him to do so as her agent. A person who is the actual agent of another and is specifically given the authority to sign and to deposit checks for the other is "entitled to enforce" such checks. American Parkinson Disease Association, Inc. v. First National Bank of Northfield, 584 N.W.2d 437, 440 (Minn.App. 1998) (construing parallel Minnesota statute and holding that an agent of an organization was entitled to deposit instruments made out to the organization).
The parties agree that Jeffers executed a valid power of attorney appointing Hammons her attorney-in-fact. The power of attorney created an express, actual agency relationship between Jeffers and Hammons.See Fisher v. Comer Plantation, Inc., 772 So.2d 455, 465 (Ala. 2000) ("An express agency is an actual agency created as a result of the oral or written agreement of the parties."). It gave Hammons the right to "make deposits . . . of funds in and to such banks or other financial institutions as in [Hammons's] discretion may be beneficial to [Jeffers]," and to "endorse checks payable to [Jeffers] for deposit in a bank or banks where [Hammons] chooses to conduct business for [Jeffers]." This clearly gave Hammons the authority to sign checks made out to Jeffers and to deposit them into banks of his choosing. In addition, at the time Hammons deposited the two checks in December 2001, he was the conservator of Jeffers's estate and her guardian; this gave him "all the powers and duties conferred [to guardians] under the law". This gave him additional authority to sign her name and to deposit the checks made out to her.
Attachment 7 to brief in support of motion for summary judgment, filed July 11, 2003 (Doc. No. 13).
Fidelity argues that Hammons acted outside the scope of the authority granted to him by the power of attorney because "the negotiation and subsequent deposit of these checks into Hammons personal accounts did not, and could not, confer any benefit to Jeffers." Fidelity cites Alabama cases for the proposition that "powers of attorney are to be strictly construed, limiting the grant of authority of the agent to powers expressly granted, and those which are impliedly granted to effectuate the purpose of the express powers." Stillwell v. Columbus Bank Trust Co., 675 So.2d 433, 434 (Ala.Civ.App. 1995) (quoting Thompson v. Evans, 54 So.2d 775, 776 (Ala. 1951)). However, the rule explained in these cases is not enough to render the deposits at issue here outside the scope of Hammons's authority.
Memorandum of law in opposition to defendant's motion for summary judgment, filed Sept. 8, 2003 (Doc. No. 20), at 14.
In Stillwell, the plaintiff had signed a power of attorney giving his mother the authority to "demand, have, receive, collect and hold" money deposited at C.B. T. Bank in a money market account with a specific account number and a specific principal amount. The bank allowed the plaintiff's mother to close a C.D. with a different account number and a different principal amount. The court held that this was outside the authority granted by the power of attorney. 675 So.2d at 434. Similarly, in Thompson, Evans and Geary signed powers of attorney giving Green the authority to sign their names to "all appearance bonds and appeal bonds" in three courts. Green then signed their names to a bond for discharge from arrest under a writ of ne exeat. The court held that this was outside the powers granted to him by the power of attorney. 54 So.2d at 776. See also Sevigny v. New South Federal Savings and Loan Assoc., 586 So.2d 884 (Ala. 1991) (holding that a power of attorney executed by a decedent granting his niece extensive powers to handle his affairs did not give her an ownership interest in certificates of deposit that she and another niece had opened in the decedent's name).
In Stillwell and Thompson, the power of attorney granted the attorney-in-fact certain specifically limited powers, and the attorney-in-fact attempted to perform acts clearly outside those limits. In Sevigny, the agent tried to argue that the general power of attorney gave her an ownership interest in the issuer's accounts rather than simply the power to act as an agent. By contrast, here the power of attorney is very broad, and the actions at issue — Hammons's signing of his grandmother's name and depositing her checks into accounts of his choosing — are exactly those the power of attorney grants. Fidelity's argument is that, since Hammons deposited the checks into his personal accounts where he did not actually conduct business for Jeffers, the deposits exceeded his authority. However, the power of attorney did not specify the particular accounts or the kind of accounts into which Hammons could make deposits. While it may have been Hammons's intention not to conduct business for Jeffers when he deposited the checks, that was not apparent from his act of depositing them. Undoubtedly it is true that Hammons was exceeding his authority when he misappropriated the funds. However, it is the deposits, not the misappropriation, that are challenged here, and those deposits were authorized by the power of attorney.
Fidelity also argues that Colonial cannot rely on the power of attorney because Colonial cannot show that it knew of the document's existence at the time Hammons made the deposits. There is a factual dispute as to whether Colonial knew that the power of attorney existed or not. Construing the facts in favor of the non-moving party and assuming that Colonial did not know Jeffers had executed a power of attorney, though, this still does not make Hammons's authorized deposits unauthorized.
In their depositions, the cashiers who performed the deposits were both unclear about whether they actually knew about the power of attorney, whether they had generally heard one existed, or whether they simply assumed that they must have checked to make sure the deposits were permitted before performing them. Deposition of Kimberly McNeal at 37-38, Exhibit D to memorandum of law in opposition to defendant's motion for summary judgment, filed Sept. 8, 2003 (Doc. No. 20); Deposition of Kristy Houston f/k/a Kristy Seale at 40-41, Exhibit A to id.
Fidelity argues that a "person dealing with a known agent . . . must not act negligently, but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his powers."Johnson v. Shook Fletcher Supply Co., 16 So.2d 406, 412 (Ala. 1944). However, as the Alabama Supreme Court said in a later case,
"While a third party dealing with an agent is held to be subject to the burden of ascertaining the extent of the powers of the agent, it seems that where the agent is, in fact, acting within the scope of the authority granted to him, the principal ought to be bound for the acts of the agent, whether the third party made any inquiry as to the extent of the agent's authority or not."Loper Lumber Co. v. Windham, 282 So.2d 256, 260 (Ala. 1973). Fidelity does not cite, and this court does not find, any authority holding that a third party can be held liable for allowing an agent to do things he was authorized to do, simply because the party did not know the agent was an agent.
However, if Colonial did not know that Hammons was Jeffers's agent, this would mean Colonial could not take advantage of the protections of the Uniform Fiduciaries Act, which can shield banks from liability for a fiduciary's misuse of funds. The Uniform Fiduciaries Act applies only when "one person honestly deals with another knowing him to be a fiduciary." Boutros v. Riggs National Bank, 655 F.2d 1257, 1259 (D.D.C. 1981) (emphasis added); see also Hosselton v. First American Bank N.A., 608 N.E.2d 630, 633-34 (Ill.App. 1993); Zions First National Bank v. Clark Clinic Corp., 762 P.2d 1090, 1101 and n. 63 (Utah 1988) (citing prefatory note to Uniform Fiduciaries Act, 7A U.L.A. 391 (1985)).
IV. Conclusion
For the reasons explained above, Colonial's motion for summary judgment is due to be granted.An appropriate judgment will be entered.
JUDGMENT
In accordance with the memorandum opinion entered this date, it is the ORDER, JUDGMENT, and DECREE of the court as follows:(1) The motion for summary judgment, filed by defendant Colonial Bancgroup, Inc., on July 11, 2003 (Doc. No. 12), is granted.
(2) Judgment is entered in favor of defendant Colonial Bancgroup, Inc., and against plaintiff Fidelity Deposit Company of Maryland, with plaintiff Fidelity Deposit Company of Maryland taking nothing by its complaint.
It is further ORDERED that costs are taxed against plaintiff Fidelity Deposit Company of Maryland, for which execution may issue.
The clerk of the court is DIRECTED to enter this document on the civil docket as a final judgment pursuant to Rule 58 of the Federal Rules of Civil Procedure.