Associated Home & RV Sales, Inc. v. Bank of Belen ( 2012 )

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integrity of this document
New Mexico Compilation
Commission, Santa Fe, NM
'00'05- 15:30:36 2013.01.24
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: 2013-NMCA-018Filing Date: October 30, 2012
Docket No. 30,829
ASSOCIATED HOME AND RV SALES, INC.,
a New Mexico corporation, d/b/a ENCHANTMENT
RV and ENCHANTMENT RV SERVICE, a New
Mexico corporation; TEAM EVENTS, INC., a New
Mexico corporation; and MDM COMPANY, INC.,
a New Mexico corporation,
Plaintiffs-Appellants,
v.
BANK OF BELEN,
Defendant-Appellee.
APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Alan M. Malott, District Judge
Crowley & Gribble, PC
Clayton E. Crowley
Albuquerque, NM
for Appellants
Parker & Hay, LLP
Stanley R. Parker
Topeka, KS
Aldridge, Grammer & Hammar, P.A.
David A. Grammer, III
Albuquerque, NM
for Appellee
OPINION
1
CASTILLO, Chief Judge.
{1} In this appeal, we address three issues. We consider for the first time whether NMSA
1978, Section 55-4-406 (1992) of New Mexico’s Uniform Commercial Code (UCC)
precludes common law claims for negligence and breach of contract in transactions
involving forged checks. We also analyze the effects of Section 55-4-406’s one-year statute
of repose on its thirty-day limit for bringing actions involving the same serial forger. Lastly,
we consider the district court’s dismissal without prejudice of the count of fraud for lack of
specificity. We conclude that the UCC does preclude the common law claim alleged in this
case and affirm on that issue. We reverse the entry of summary judgment as to the statute
of repose and consequently need not reach the issue regarding the dismissal of the fraud
claim.
BACKGROUND
{2} Appellants are four corporations involved in the sales of recreational vehicles. The
businesses are run by several family members and organized under the trade name
Enchantment RV (Enchantment). In January 2003, Enchantment hired an employee
(Employee) to assist with bookkeeping and to help balance the accounts of Enchantment’s
combined companies. In February 2003, Employee began forging checks on its accounts
held at Bank of Belen (Bank) and, between February 2003 and October 2004, Employee
forged 211 checks, mostly payable to herself or to “cash,” stealing $283,546.85 from
Enchantment. About a year and a half into the scheme, in late October and early November
2004, Enchantment discovered the forgeries, notified Bank, and submitted affidavits to that
effect. Bank refused to repay Enchantment for any of the losses. According to Bank, it had
provided statements on a monthly basis, including photocopies of canceled checks, to
Enchantment for its various accounts, thus relieving it of its obligation to pay under the
UCC. Enchantment brought this action, alleging common law claims of negligence, fraud,
misrepresentation, breach of contract, and a violation of the New Mexico Unfair Practices
Act (UPA). In its second amended complaint, it also alleged negligence under the UCC.
{3} Bank filed a number of pretrial motions. On a motion to dismiss the first amended
complaint, the district court dismissed all of the claims except for fraud after ruling that the
common law and UPA claims were displaced by the liability scheme of the UCC. After
allowing for a second amended complaint to add the claim under the UCC, the district court
dismissed without prejudice the fraud claim as improperly pleaded under Rules 1-009 and
1-012(B)(6) NMRA. Enchantment did not renew its fraud claim. After a period of
discovery, the court granted Bank’s motion for summary judgment, concluding that
Enchantment failed to raise a genuine issue of material fact on its UCC claim. The case was
dismissed and this appeal followed.
DISCUSSION
I. UCC Section 55-4-406 Precludes Common Law Claims in This Instance
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{4} This case presents an issue of first impression: whether Section 55-4-406 of the UCC
precludes such common law claims as negligence and breach of contract under the set of
circumstances presented here. We apply our de novo review to the question of “whether the
district court applied the correct controlling legal principle to the facts and the court’s
application of that principle to the facts.” Sunnyland Farms, Inc. v. Cent. N.M. Elec. Coop.,
Inc., 2011-NMCA-049, ¶ 17, 149 N.M. 746, 255 P.3d 324, cert. granted, 2011-NMCERT-
005, 150 N.M. 667, 265 P.3d 718.
{5} Enchantment first contends that the district court erred in dismissing its common law
claims, arguing that they are not preempted by Section 55-4-406 of the New Mexico UCC.
Bank argues that the UCC provides a detailed and comprehensive scheme that allocates
liability between a bank and its customers and provides banks with defenses to claims. Bank
says that allowing common law claims to be brought in addition to actions under the UCC
would frustrate the objectives of the Legislature in adopting the uniform law.
{6} A motion to dismiss is properly granted “only when it appears that the plaintiff
cannot recover or be entitled to relief under any state of facts provable under the claim.”
Valles v. Silverman, 2004-NMCA-019, ¶ 18, 135 N.M. 91, 84 P.3d 1056 (internal quotation
marks and citation omitted). Whether the district court properly dismissed the claims is a
question we review de novo. See id. ¶ 6.
{7} The UCC states that “[u]nless displaced by the particular provisions of the [UCC],
the principles of law and equity, including the law merchant and the law relative to capacity
to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake,
bankruptcy[,] and other validating or invalidating cause, supplement its provisions.” NMSA
1978, § 55-1-103(b) (2005). However, we have previously noted that “comprehensive
legislation, prescribing minutely a course of conduct to be pursued and the parties and things
affected, and specifically describing limitations and exceptions, is indicative of a legislative
intent that the statute should totally supersede and replace the common law dealing with the
subject matter.” Rutherford v. Darwin, 95 N.M. 340, 343, 622 P.2d 245, 248 (Ct. App.
1980) (internal quotation marks and citation omitted), superseded by statute on other
grounds as stated in Wisner Elevator Co. v. Richland State Bank, 862 So. 2d 1112 (La. Ct.
App. 2003). Common law principles are not preserved “in an area which is thoroughly
covered by the UCC simply because they are not expressly excluded.” Id.{8} Article 4 of the UCC sets up a liability scheme and set of defenses to guide the
relationship between a payor bank and its customers. See generally NMSA 1978, §§ 55-4-
401 to -407 (1961, as amended through 2009). A forged or altered check is not properly
payable, and a bank is strictly liable for the resulting loss to a customer. Cf. § 55-4-401(a)
(“A bank may charge against the account of a customer an item that is properly payable . .
. . An item is properly payable if it is authorized by the customer . . . .”).
{9} Section 55-4-406(a), however, sets up a scale of liabilities that shift depending on the
actions of the parties, and a bank may seek “safe harbor” from the above strict liability
3
scheme of Section 55-4-401 if it makes statements of account available to the customer on
a regular basis. Section 55-4-406 cmt. 1. If a bank regularly provides a statement of account
with information sufficient for the customer to identify the forgery, the customer must be
reasonably prompt in notifying the bank of any forgeries; if the customer does so within
thirty days of receiving the statement, the bank remains strictly liable for the loss. See § 55-
4-406(a), (c). After that thirty-day period, however, the bank is liable only if the customer
proves that the bank failed to exercise ordinary care in passing the forged item and that the
bank’s failure substantially contributed to the loss; in such a case, the loss is apportioned
between the customer and the bank based on comparative negligence. See § 55-4-406(d),
(e). Regardless of any lack of ordinary care on the part of the bank, if a year or more has
passed from the customer’s receipt of the statement identifying the forgery, the customer is
precluded from bringing any claim under the UCC and must bear the entire loss. See § 55-4-
406(f). The basis for the system of shifting liabilities triggered by the delivery of regular
statements is explained in the comments to the statute.
One of the most serious consequences of failure of the customer to comply
with the requirements of [S]ubsection (c) is the opportunity presented to the
wrongdoer to repeat the misdeeds. Conversely, one of the best ways to keep
down losses in this type of situation is for the customer to promptly examine
the statement and notify the bank of an unauthorized signature or alteration
so that the bank will be alerted to stop paying further items.
Section 55-4-406 cmt. 2.
{10} In all jurisdictions, the federal counterpart to our Section 55-4-406, U.C.C. § 4-406
[Rev.] (the Code), is intended to further the public policy of requiring customers to be
vigilant in examining bank statements and to carry out the common law duty of reporting
forgeries within a reasonable time. See 7 Lary Lawrence, Lawrence’s Anderson on the
Uniform Commercial Code § 4-406:5 (2007 revision). While no court in New Mexico has
considered the specific issue of whether Section 55-4-406 precludes a common law claim,
other jurisdictions that have dealt with the issue have come down on the side of preemption
by the UCC. See, e.g., Fischer & Mandell LLP v. Citibank, N.A., 632 F.3d 793, 798 (2d Cir.
2011) (stating that “Article 4 precludes common law claims that would impose liability
inconsistent with the rights and liabilities expressly created by Article 4” while allowing an
exception for a common law breach of contract claim in that instance); Halla v. Norwest
Bank Minn., N.A., 601 N.W.2d 449, 451 (Minn. Ct. App. 1999) (denying a common law
conversion claim because “parties in commercial transactions must be able to rely on the
remedies provided by the Code” and there is “no reason to sacrifice the certainty and
consistency of the [Code] remedies to preserve common law remedies”); Bank Polska Kasa
Opieki, S.A. v. Pamrapo Sav. Bank, S.L.A., 909 F. Supp. 948, 956-57 (D.N.J. 1995) (stating
that the Code “provides a comprehensive framework for allocating losses when a forged
check enters the negotiation process” and that allowing a negligence claim “would
circumvent the drawee’s . . . 4-406 defenses”); Envtl. Equip. & Serv. Co. v. Wachovia Bank,
N.A., 741 F. Supp. 2d 705, 714 (E.D. Pa. 2010) (holding that Pennsylvania’s UCC “provides
4
a comprehensive remedy for the parties to the transaction—a delicate balance that would be
disrupted by the allowance of common law negligence claims” and rejecting a common law
negligence action); see also 5A Frederick M. Hart, Nathalie Martin & William F. Willier,
Forms and Procedures Under the Uniform Commercial Code § 41.03 (LexisNexis 2012)
(stating that the Code’s “specificity preempts any common law negligence concepts
regarding a bank’s processing of checks”).
{11} Although New Mexico courts have not specifically addressed Section 55-4-406, they
have found that other provisions of the UCC displace common law claims. See Brummund
v. First Nat’l Bank of Clovis, 99 N.M. 221, 224-25, 656 P.2d 884, 887-88 (1983) (NMSA
1978, § 55-9-311 (1961) (repealed, revised, reenacted 2001)); Wilde v. Westland Dev. Co.,
2010-NMCA-085, ¶ 57, 148 N.M. 627, 241 P.3d 628 (NMSA 1978, § 55-8-405 (1996));
White Sands Forest Prods., Inc. v. First Nat’l Bank of Alamogordo, 2002-NMCA-079, ¶¶
1, 14, 132 N.M. 453, 50 P.3d 202 (NMSA 1978, § 55-3-406 (1992)); Rutherford, 95 N.M.
at 343, 622 P.2d at 248 (NMSA 1978, § 55-3-206 (1992)). White Sands Forest Prod., a
similar case involving forged checks, took note of “the carefully crafted scheme of express
statutory liabilities created by Article 3” in determining that common law claims are
precluded. 2002-NMCA-079, ¶ 14.
{12} In the case before us, we agree with the other jurisdictions that Section 55-4-406 sets
out a comprehensive scheme of liability and defenses in commercial practices between banks
and customers, thus supporting the legislative intent, as articulated in Rutherford of
superseding common law causes of action. Section 55-4-406 provides a specific remedy for
a plaintiff seeking redress from a bank after the passage of forged checks, and it sets out
defenses available to a bank. See Wilde, 2010-NMCA-085, ¶ 72. And like the analysis in
White Sands Forest Prod., where a parallel section of the UCC dealt with forged
endorsements of checks, we see in Section 55-4-406 a carefully crafted scheme of express
statutory liabilities that would be disturbed by introducing alternative causes of actions or
a different balancing of liabilities based on common law tort theories.
{13} A look at the goals of the UCC’s legislative scheme informs the question of whether
confining causes of actions involving forged check transactions to the UCC scheme furthers
those objectives. New Mexico’s UCC is to be “liberally construed” to promote the following
purposes and policies: “(1) to simplify, clarify[,] and modernize the law governing
commercial transactions; (2) to permit the continued expansion of commercial practices
through custom, usage[,] and agreement of the parties; and (3) to make uniform the law
among the various jurisdictions.” Section 55-1-103(a). “For the courts to interfere with the
[UCC’s] statutory scheme by superimposing tort rules, there must be sound policy reasons
for finding the statutory scheme to be inadequate.” White Sands Forest Prod.,
2002-NMCA-079, ¶ 14 (alteration in original) (internal quotation marks and citation
omitted); see also Bank Polska Kasa Opieki, 909 F. Supp. at 956 (“Only in very rare
instances should a court upset the legislative scheme of loss allocation and permit a common
law cause of action.”). The policy of the UCC is promoted when we confine claims
involving forged checks against banks to the UCC’s statutory scheme unless a reason exists
5
for the common law to supplement that scheme. See Putnam Rolling Ladder Co. v. Mfrs.
Hanover Trust Co., 546 N.E.2d 904, 908 (N.Y. 1989) (“By prospectively establishing rules
of liability . . . , the [Code] not only guides commercial behavior but also increases certainty
in the marketplace and efficiency in dispute resolution.”); Sw. Bank v. Info. Support
Concepts, Inc., 149 S.W.3d 104, 109 (Tex. 2004) (“Unlike tort law, the [Code] has the
objective of promoting certainty and predictability in commercial transactions.” (internal
quotation marks and citation omitted)). The liability scheme of New Mexico’s Section 55-4-
406 simplifies and clarifies the law of commercial dealings between banks and customers,
and it promotes consistency and certainty in such transactions. In the case before us, we
conclude that Section 55-4-406 adequately provides a scheme of liabilities and defenses and
thus precludes common law claims brought by Enchantment.
{14} As to the other claims disposed of on this motion to dismiss, Enchantment abandoned
its argument for the claim of breach of contract and acknowledges that no evidence of a
contract exists. Also, on appeal, Enchantment folded its UPA claim into its allegations of
fraud, which is addressed in Section III below. First, we turn to the main issue of whether
the district court erred in granting summary judgment for Bank.
II. Summary Judgment Was Improperly Granted
{15} Bank’s motion for summary judgment argued that because it was undisputed that
Enchantment did not report any forged checks until about eighteen months after it received
the first account statement with forged checks, Enchantment is prohibited by Section 55-4-
406 from making any claims against Bank. Enchantment responded that its claim was not
time-barred by Section 55-4-406 because there were genuine issues of material fact as to
whether Bank properly sent it a statement of account, whether Bank exercised ordinary care
in paying the forged items, and whether Bank acted in bad faith. We analyze the parties’
positions in light of the law regarding summary judgments.
A. The Claim Is Not Fully Time-Barred
{16} As a preliminary matter, the parties disagree over whether Section 55-4-406 places
a time bar on Enchantment’s action. The section states that a bank’s customer is precluded
from asserting a claim against a bank when a series of forgeries is committed by the same
wrongdoer and the customer fails to notify the bank within thirty days of receiving the first
statement that includes a record of the initial forgery in the series. See § 55-4-406(d)(2).
Despite that restriction, a customer may still bring a claim after the initial thirty-day period
if “the customer proves that the bank failed to exercise ordinary care in paying the item and
that the failure substantially contributed to [the] loss[.]” Section 55-4-406(e). However, if
the customer waits one year or more after receiving a statement, the customer is absolutely
precluded from bringing a claim, regardless of the bank’s culpability. Section 55-4-406(f).
{17} Bank contends that reading Section 55-4-406(d)(2) together with Subsection (f) leads
to the conclusion that, because the forgeries at issue were the serial actions of the same
6
wrongdoer, no action is allowed outside of Section 55-4-406(d)(2)’s thirty-day window
following the first statement sent to Enchantment after the first instance of forgery in early
2003. Bank further argues that even if evidence exists of a lack of ordinary care on the part
of Bank, extending the window to one year would still result in a bar to bringing a claim.
Bank’s position is that the first statement after the initial forgery was sent in April 2003, and
Enchantment did not notify Bank of the forgeries until November 2004 and that, because the
forgeries were the work of the same employee, the one-year window closed in April 2004.
Enchantment counters by reading Section 55-4-406(f) separately from Subsection (d)(2) and
arguing that the one-year window to bring a claim begins anew when each statement in a
series is sent to the customer, regardless of whether the same wrongdoer is responsible for
the forgeries.
{18} We note that recognized authority sides with Enchantment. In Neo-Tech Sys., Inc.
v. Provident Bank, 335 N.E.2d 395, 401 (Ohio Com. Pl. 1974), the court concluded that “the
one[-]year limitation attaches to each separate check bearing an unauthorized signature and
a new one[-]year period begins to run with each subsequent check when it is made available
to the customer.” See also 6A William D. Hawkland and Lary Lawrence, Uniform
Commercial Code Series § 4-406:8 (Thomson Reuters/West 2012) (“The period is calculated
separately as to each new statement.”).
{19} Other jurisdictions agree. Responding to an argument similar to the one brought here
by Bank and under an identically worded statute, the Missouri Court of Appeals rejected the
link between Subsections (d)(2) and (f), positing that such logic “interprets the statute as if
it contains language that is not there.” Johnson Dev. Co. v. First Nat’l Bank of St. Louis, 999
S.W.2d 314, 317 (Mo. Ct. App. 1999). The court stated:
If the logic of First National’s reading of the statute were followed, a victim
of a series of forged checks happening over a term more than one year in
duration would be without recourse for the checks forged after one year from
“any statement of account” from which it could have been determined that
it made one unauthorized payment. That is not what the statute says.
Id. The court concluded: “Implicit in the language of Missouri case law is that a new
one-year limitation in [S]ection 400.4-406 begins to run on each separate check containing
a forged signature or alteration, regardless of whether the same wrongdoer forged many
checks over a term of years.” Id. Similarly, the Supreme Court of California read
California’s versions of Subsections (d)(2) and (f) separately, distinguishing the latter
because it “declares only one rule using terms that suggest later items in a series are to be
treated no differently from the first item or single items.” Sun ’n Sand, Inc. v. United Cal.
Bank, 582 P.2d 920, 935 (Cal. 1978). The court concluded that Subsection (f)’s “failure to
explicitly differentiate between one-time and repetitive forgeries and alterations . . . leads
us . . . to conclude that a new one-year period begins to run with each successive check.”
Id.; accord Monreal v. Fleet Bank, 735 N.E.2d 880, 882-83 (N.Y. 2000) (reaching the same
conclusion though relying on the language of the New York statute that differs slightly from
7
New Mexico’s).
{20} We agree with those analyses. While we see interplay between Subsections 55-4-
406(d) and (e), we see no natural connection between Section 55-4-406(d)(2)’s “same
wrongdoer” rule and the more general wording in Section 55-4-406(f). We conclude that
Enchantment was entitled to try to prove a lack of ordinary care by Bank for the forgeries
that occurred within one year of Enchantment alerting Bank of the forgeries.
{21} The question now becomes whether Enchantment brought forth evidence of a lack
of ordinary care on the part of Bank that sufficiently raises a genuine issue of material fact
to survive Bank’s motion for summary judgment.
B. There are Genuine Issues of Material Fact
{22} “Summary judgment is appropriate where there are no genuine issues of material fact
and the movant is entitled to judgment as a matter of law.” Tafoya v. Rael, 2008-NMSC-
057, ¶ 11, 145 N.M. 4, 193 P.3d 551 (internal quotation marks and citation omitted). “We
resolve all reasonable inferences in favor of the party opposing summary judgment, and we
view the pleadings, affidavits, depositions, answers to interrogatories, and admissions in the
light most favorable to a trial on the merits.” Weise v. Washington Tru Solutions, L.L.C.,
2008-NMCA-121, ¶ 2, 144 N.M. 867, 192 P.3d 1244. “Once the movant makes a prima
facie case for summary judgment, the burden shifts to the party opposing the motion to
demonstrate the existence of specific evidentiary facts [that] would require trial on the
merits.” Id. (internal quotation marks and citation omitted). “Where the evidence is
susceptible to reasonable conflicting inferences bearing upon material facts, entry of
summary judgment is improper.” Ellingwood v. N.N. Investors Life Ins. Co., 111 N.M. 301,
305, 805 P.2d 70, 74 (1991). “We are mindful that summary judgment is a drastic remedial
tool which demands the exercise of caution in its application[.]” Woodhull v. Meinel, 2009-
NMCA-015, ¶ 7, 145 N.M. 533, 202 P.3d 126 (internal quotation marks and citation
omitted). We review an order granting summary judgment de novo. See Beggs v. City of
Portales, 2009-NMSC-023, ¶ 10, 146 N.M. 372, 210 P.3d 798.
{23} “In determining which issues of fact are material facts for purposes of Rule 1-056(C)
[NMRA], we look to the substantive law governing the dispute.” Farmington Police
Officers Ass’n v. City of Farmington, 2006-NMCA-077, ¶ 17, 139 N.M. 750, 137 P.3d 1204.
An issue of fact is “genuine” if the evidence before the court considering a
motion for summary judgment would allow a hypothetical fair-minded
factfinder to return a verdict favorable to the non-movant on that particular
issue of fact. An issue of fact is “material” if the existence (or non-existence)
of the fact is of consequence under the substantive rules of law governing the
parties’ dispute.
Romero v. Philip Morris, Inc. (Romero I), 2009-NMCA-022, ¶ 12, 145 N.M. 658, 203 P.3d
8
873 (citation omitted), rev’d on other grounds by Romero v. Philip Morris, Inc. (Romero II),
2010-NMSC-035, 148 N.M. 713, 242 P.3d 280.
{24} We now look to whether Enchantment raised a genuine issue of material fact
regarding a lack of ordinary care on the part of Bank.
C. Statements Were Made Available As a Matter of Law
{25} Initially, Enchantment appears to conflate the issue of whether the account statements
were made available to the customer as set forth in Section 55-4-406(a) and the issue of
whether the manner in which the statements were provided demonstrated a lack of ordinary
care by Bank. Accordingly, we will address each in turn.
{26} Enchantment contends that rather than mail monthly statements to Enchantment at
its place of business, Bank provided the statements directly to Employee who was
committing the forgeries. Enchantment seems to be arguing that delivery to an employee
is not sufficient under the statute. We disagree. Delivery of statements to the customer does
not require the mailing of statements but merely that the bank make them available “in a
reasonable manner,” such as allowing them to be picked up by an employee of the customer.
Siecinski v. First State Bank of E. Detroit, 531 N.W.2d 768, 770 (Mich. Ct. App. 1995)
(internal quotation marks and citation omitted). In the case before us, documents supporting
Bank’s motion for summary judgment show that Bank made the statements available to
Enchantment, and Enchantment acknowledged receiving the statements each month. While
the statements were often picked up at Bank by Employee, Bank’s supporting documents
further show that Enchantment’s senior officers reviewed the statements after Employee did
and thus had ample opportunity to detect the forgeries. When an employer entrusts the tasks
of both handling checks and reconciling statements to the same employee, information
contained in the statement is imputed to the employer. See 7 Lawrence, supra, § 4-406:14,
at 493 (“Because the customer chose the agent to act on its behalf in examining the
statement, the customer will be charged with whatever knowledge a reasonable examination
by a loyal agent would have discovered.”); see also Menichini v. Grant, 995 F.2d 1224, 1235
(3d Cir. 1993); Kiernan v. Union Bank, 127 Cal. Rptr. 441, 445 (Ct. App. 1976). Here, Bank
made a prima facie case that it adequately provided monthly statements to Enchantment.
Enchantment did not rebut the case.
{27} Enchantment also relies on its position that statements of accounts were not properly
provided as one basis for its argument that Bank failed to exercise ordinary care in paying
the items. As we have explained, Enchantment has failed to rebut Bank’s case that the
statements were made available, so this argument can go no further.
D. There is a Question of Fact About the Exercise of Ordinary Care
{28} Enchantment’s other evidence of negligence stems from an affidavit by its CEO
alleging that (1) Bank promised not to accept checks made out to cash unless an officer
9
presented the check; (2) signatures on the checks differed from those on signature cards kept
on file by Bank; and (3) check amounts exceeded teller limits but were cashed without
supervisor approval that had been promised by Bank.
{29} To survive a motion for summary judgment, the non-moving party may not rely upon
mere allegations, but rather “must set forth specific facts showing that there is a genuine
issue for trial.” Rule 1-056(E). “When disputed facts do not support reasonable inferences,
they cannot serve as a basis for denying summary judgment. Only when the inferences are
reasonable is summary judgment inappropriate.” Romero II, 2010-NMSC-035, ¶ 10. “A
party opposing a motion for summary judgment must make an affirmative showing by
affidavit or other admissible evidence that there is a genuine issue of material fact once a
prima facie showing is made by the movant.” Schwartzman v. Schwartzman Packing Co.,
99 N.M. 436, 441, 659 P.2d 888, 893 (1983).
{30} Enchantment’s task in opposing the motion for summary judgment was to put forth
a genuine issue of material fact as to any lack of ordinary care on the part of Bank. The term
“ordinary care” is defined in New Mexico’s UCC. The term “means observance of
reasonable commercial standards, prevailing in the area in which the person is located, with
respect to the business in which the person is engaged.” NMSA 1978, § 55-3-103(a)(9)
(2005) (amended 2009).
{31} The customer bears the burden of showing that a bank failed to exercise ordinary care
and that issue is generally one for the factfinder to decide. 6A Hawkland, supra, § 4-406:7.
“The bank’s lack of ordinary care may be demonstrated by proof that the bank’s procedures
were below the standard or that the bank’s employees failed to exercise due care in
processing the items.” Hanover Ins. Cos. v. Brotherhood State Bank, 482 F. Supp. 501, 505
(D. Kan. 1979). “A lack of ordinary care on the part of the bank paying items under this
provision of the [Code] may be established by proof either that the bank’s procedures were
below standard or that the bank’s employees failed to exercise care in processing the items.”
New Jersey Steel Corp. v. Warburton, 655 A.2d 1382, 1387 (N.J. 1995) (internal quotation
marks and citation omitted). “A bank must maintain reasonable supervision over its
employees and procedures to guard against paying forged and altered checks.” 6C Ronald
A. Anderson & Lary Lawrence, Anderson on the Uniform Commercial Code § 4-406:75, at
475 (2000). “It would appear . . . that a customer could prove a bank lacked ordinary care
by presenting any type of proof that the bank failed to act reasonably.” Putnam Rolling
Ladder Co., 546 N.E.2d at 906.
{32} New Mexico courts have equated a bank’s lack of ordinary care with a traditional
negligence standard: “It is certainly not the intention of [Section] 55-4-406 to allow the
bank to be insulated from the effect of its own negligence[.]” Rutherford, 95 N.M. at 344,
622 P.2d at 249. Generally, negligence is a mixed question of law and fact. See Herrera v.
Quality Pontiac, 2003-NMSC-018, ¶ 6, 134 N.M. 43, 73 P.3d 181 (“Negligence is generally
a question of fact for the jury.” (internal quotation marks and citation omitted)); Candelaria
v. Atchison, T. & S. F. R. Co., 6 N.M. 266, 286-87, 27 P. 497, 504 (1891) (“Negligence is
10
a mixed question of law and fact, but in case the material facts are undisputed it may become
a question of law, and in such case the court may properly direct the verdict as the law
requires.”); Bassett v. Sheehan, 2008-NMCA-072, ¶ 9, 144 N.M. 178, 184 P.3d 1072(“Breach of duty is generally a question to be decided by the fact[]finder.”); Lessard v.
Coronado Paint & Decorating Ctr., Inc., 2007-NMCA-122, ¶ 27, 142 N.M. 583, 168 P.3d
155 (“Determining the existence of a duty is a question of law for the court, whereas breach
of duty and proximate cause are questions of fact for the jury.” (citation omitted)).
{33} In the case before us, Enchantment alleges generally negligent acts on the part of
Bank. As evidence it offers the affidavit of its CEO, who stated:
Initially we were told that . . . [B]ank would not accept corporate checks
made out to “cash” unless an officer of the corporation presented the check.
. . . [Employee] present[ed] checks well over $1,000.00 made out to “cash[,]”
and it was well known that [Employee] was not a corporate officer. . . . The
signatures were different between the signature cards and the checks and/or
the endorsement. The checks were brought into . . . [B]ank signed, even
though they were made out to cash. The check amounts exceeded teller
limits and were often cashed without supervisor approval. Idamay Romero’s
name is spelled out on the signature that is on the signature card, yet the
signature on the forgery only shows a straight line for the name “Romero.”
{34} New Mexico has not set a high threshold for a party to meet in order to survive a
motion for summary judgment. See Bartlett v. Mirabal, 2000-NMCA-036, ¶¶ 35-38, 128
N.M. 830, 999 P.2d 1062 (rejecting the higher burden of proof created by the United States
Supreme Court in Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986), and declaring that
“we are at a loss in ascertaining what substantive benefits, if any, the case would have on the
law of summary judgment in New Mexico”); Romero II, 2010-NMSC-035, ¶¶ 8-9 (similarly
rejecting the analysis in Celotex Corp. v. Catrett, 477 U.S. 317 (1986), and declaring the
Court’s “refusal to align our state’s approach with that of the federal courts”). Thus, our
Supreme Court has refused to follow the path of federal courts in liberalizing the standards
of summary judgment, preferring instead to continue making summary judgement a rarity.
“New Mexico courts, unlike federal courts, view summary judgment with disfavor,
preferring a trial on the merits.” Romero II, 2010-NMSC-035, ¶ 8. “We continue to refuse
to loosen the reins of summary judgment, as doing so would ‘turn what is a summary
proceeding into a full-blown paper trial on the merits.’ ” Id. ¶ 9 (quoting Bartlett, 2000-
NMCA-036, ¶ 32).
{35} In the case before us, Enchantment, the party opposing summary judgment, brought
forth some evidence of a lack of ordinary care on the part of Bank. The CEO’s affidavit
alleges that Bank broke its promise to not accept checks made out to cash unless an officer
presented the check; that signatures on the forged checks differed from those on signature
cards kept on file by Bank; and that check amounts exceeded teller limits but were cashed
without supervisor approval. The statements in the affidavit suggest that Bank acted
11
unreasonably and may have violated its own procedures and perhaps industry standards. The
CEO’s allegations sufficiently raise a genuine issue of material fact such that, if proved, the
jury might find that Bank breached a duty of ordinary care. See Romero I,
2009-NMCA-022, ¶ 12. And a fact is material to the extent that it is “of consequence under
the substantive rules of law governing the parties’ dispute.” Id. In sum, Enchantment did the
bare minimum necessary to oppose the motion for summary judgment and raised genuine
issues of material fact sufficient to survive Bank’s motion, and it was error for the district
court to grant the motion for summary judgment. We therefore do not need to reach the
question of whether Bank acted in bad faith.
III. The Adequacy of the Court for Fraud Need Not Be Addressed
{36} Finally, Enchantment contends that the district court improperly dismissed its fraud
claim for failing to state a claim upon which relief could be granted. The fraud claim was
dismissed without prejudice for lack of requisite specificity in July 2007, nearly three years
before the motion for summary judgment was granted.
{37} We have previously noted the limitations on the right to appeal from the dismissal
of a claim without prejudice. “Generally, an order of dismissal without prejudice is not
appealable because it typically requires further proceedings.” Vescio v. Wolf,
2009-NMCA-129, ¶ 7, 147 N.M. 374, 223 P.3d 371; see also Bankers Trust Co. of Cal., N.S.
v. Baca, 2007-NMCA-019, ¶ 11, 141 N.M. 127, 151 P.3d 88 (noting that “dismissal without
prejudice under Rule 1-041(E)(2) [NMRA] simply left the action as though it was never
filed”); Bralley v. City of Albuquerque, 102 N.M. 715, 718, 699 P.2d 646, 649 (Ct. App.
1985) (stating that a dismissal without prejudice “ordinarily imports further proceedings”
(internal quotation marks and citation omitted)). “The words ‘without prejudice’ when used
in an order or decree generally indicate that there has been no resolution of the controversy
on its merits and leave the issues in litigation open to another suit as if no action had ever
been brought.” Bralley, 102 N.M. at 719, 699 P.2d at 650.
{38} As we have noted, here the district court dismissed the claim of fraud without
prejudice. Three years later, the entire complaint was dismissed with prejudice. We rely on
law related to the dismissal of a complaint but apply this law to the facts before us. An order
dismissing a complaint without prejudice “should be given a practical rather than a technical
construction” when considering the appropriateness of an appeal. Id. at 718, 699 P.2d at
649. “Dismissal of a complaint without prejudice is only final and appealable if the order
disposes of the case to the fullest extent possible in the court in which it was filed.” Vescio,
2009-NMCA-129, ¶ 7; see Vill. of Los Ranchos de Albuquerque v. Shiveley, 110 N.M. 15,
17, 791 P.2d 466, 468 (Ct. App. 1989) (“A decision which terminates the suit, or puts the
case out of court without an adjudication on the merits, is a final judgment.”). In Sunwest
Bank of Albuquerque v. Nelson, 1998-NMSC-012, ¶ 9, 125 N.M. 170, 958 P.2d 740, our
Supreme Court considered an appeal from a district court’s dismissal without prejudice of
a case for improper venue. The court reasoned:
12
While the district court’s order did not decide the merits of the claim or
preclude filing in an alternate venue, it disposed of the matter to the fullest
extent possible in the court in which the action was filed. Unlike the
dismissal of a complaint with leave to file an amendment, this order did not
provide a specified time or manner for refiling.
Id.{39} In the case before us, the district court’s dismissal without prejudice of the claim for
fraud in July 2007 did not dispose of the case to the fullest extent possible. In fact, discovery
continued until the court’s May 2010 order granting summary judgment in favor of Bank.
Up until that time, Enchantment had been given leave to amend its complaint on the fraud
count. Because we reverse entry of the summary judgment, the matter is remanded to the
district court for further proceedings which would include any motions related to the fraud
claim. Accordingly, we need not reach the merits of the appeal of the district court’s
dismissal of the fraud count for lack of specificity.
CONCLUSION
{40} For the foregoing reasons, we affirm the district court’s granting of the motion to
dismiss on common law preclusion, and we the reverse the motion for summary judgment
in favor of Bank. We remand for further proceedings consistent with this Opinion.
{41} IT IS SO ORDERED.
____________________________________
CELIA FOY CASTILLO, Chief Judge
WE CONCUR:
____________________________________
MICHAEL D. BUSTAMANTE, Judge
____________________________________
JONATHAN B. SUTIN, Judge
Topic Index for Assoc. Home & RV Sales, Inc. v. Bank of Belen, No. 30,829
APPEAL AND ERROR
Standard of Review
CIVIL PROCEDURE
Summary Judgment
Time Limitations
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COMMERCIAL LAW
Financial Institutions
Fraud
Negotiable Instrument
Uniform Commercial Code
CONTRACTS
Breach
CRIMINAL LAW
Forgery
MISCELLANEOUS STATUTES
Unfair Practices Act
NEGLIGENCE
Negligence, General
Standard of Care
14