National Union Fire Insurance v. Manufacturers & Traders Trust Co.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 03-2276
NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, INCORPORATED,
Plaintiff - Appellant,
versus
MANUFACTURERS AND TRADERS TRUST COMPANY,
formerly known as Allfirst Bank; SUNTRUST
BANKS, INCORPORATED,
Defendants - Appellees.
----------------------------------------------
AMERICAN BANKERS ASSOCIATION; MARYLAND BANKERS
ASSOCIATION,
Amici Supporting Appellees.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. William M. Nickerson, Senior District
Judge. (CA-01-1591-WNM-1)
Argued: February 1, 2005 Decided: March 23, 2005
Before LUTTIG, KING, and SHEDD, Circuit Judges.
Affirmed by unpublished per curiam opinion. Judge Shedd wrote a
concurring opinion.
ARGUED: Robert William Ludwig, Jr., LUDWIG & ROBINSON, P.L.L.C.,
Washington, D.C., for Appellant. Matthew Scott Sturtz, MILES &
STOCKBRIDGE, P.C., Towson, Maryland; Brian L. Moffet, GORDON,
FEINBLATT, ROTHMAN, HOFFBERGER & HOLLANDER, Baltimore, Maryland, for
Appellees. ON BRIEF: Dennis P. McGlone, GORDON, FEINBLATT,
ROTHMAN, HOFFBERGER & HOLLANDER, Baltimore, Maryland, for Appellee
SunTrust Bank. C. Dawn Causey, John J. Gill, AMERICAN BANKERS
ASSOCIATION, Washington, D.C., for Amici Supporting Appellees.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
-2-
PER CURIAM:
Plaintiff-appellant National Union Fire Insurance Co.
(“National Union”) filed this diversity suit against defendants-
appellees Allfirst Bank and SunTrust Bank,* alleging state-law
claims arising from the banks’ acceptance for deposit of checks
issued by National Union’s subrogor. The district court granted
summary judgment in favor of the defendants on all claims, and we
affirm.
I.
This action arises from a fraudulent scheme perpetrated by a
former employee of the accounts payable department of Kaiser
Foundation Health Plan of the Mid-Atlantic States (“Kaiser”). By
submitting fraudulent invoices for services never rendered, the
employee induced Kaiser to pay out fifteen checks for large sums to
three payees -- “Not Just Computers,” “Yates Technology, Inc.,” and
“Moffat Sales Corp.” J.A. 323-24. The defendant banks accepted
these checks for deposit into accounts in the names of the three
payees. J.A. 323-24. Upon discovery of the fraudulent scheme in
August 2000, Kaiser brought two Maryland state court actions against
the three payees and obtained judgments against them in the full
amount of the issued checks. J.A. 325, 342. Kaiser also filed a
*
Two other defendant banks were dismissed for lack of subject
matter jurisdiction.
-3-
claim with its insurer, National Union, which fully compensated
Kaiser for its losses from the fraudulent scheme. National Union
subsequently filed this subrogation action in the district court,
bringing claims against the banks for statutory negligence in
violation of sections 3-404, 3-405, and 3-406 of the Maryland
Commercial Code; for “money had and received” under Maryland common
law; for conversion; and for breach of restrictive indorsement.
J.A. 292-303. The district court granted summary judgment for the
defendants on all claims.
II.
In granting summary judgment for the defendants, the district
court held inter alia that National Union was judicially estopped
from alleging that the three payees were “fictitious entities” under
section 3-404(b) of the Maryland Commercial Code. Because judicial
estoppel is an equitable doctrine that falls within the district
court’s discretion, we review the district court’s decision to apply
judicial estoppel for abuse of discretion. King v. Herbert J.
Thomas Mem. Hosp., 159 F.3d 192, 196, 198 (4th Cir. 1998) (“As an
equitable doctrine, judicial estoppel is invoked in the discretion
of the district court . . . . [W]e conclude that the district court
was well within its discretion in applying judicial estoppel . . .
.”).
-4-
In support of its statutory negligence claims under section 3-
404(b), National Union contends that the three payees of the Kaiser
checks were “fictitious persons.” See Md. Code, Com. Law I, § 3-
404(b)(ii) (allowing for recovery in cases where “the person
identified as payee of an instrument is a fictitious person”). The
district court held that National Union is judicially estopped from
asserting this theory, because its subrogor Kaiser affirmatively
pled in the two state court actions that the three payees were real
entities and secured judgments against them thereby. J.A. 340-46.
We hold that the district court did not abuse its discretion
in applying judicial estoppel to prevent National Union from arguing
that the three payees were fictitious persons. The doctrine of
judicial estoppel has three necessary elements:
(1) The party to be estopped must be asserting a position
that is factually incompatible with a position taken in
a prior judicial or administrative proceeding; (2) the
prior inconsistent position must have been accepted by
the tribunal; and (3) the party to be estopped must have
taken inconsistent positions intentionally for the
purpose of gaining unfair advantage.
King, 159 F.3d at 196. But “judicial estoppel will not be applied
where the party’s inconsistent positions resulted from inadvertence
or mistake.” Id. Here, it is evident that the position taken by
Kaiser in the two state court actions -- namely that the three
payees were real entities amenable to judicial process and judgment
-- is “factually incompatible” with National Union’s current claim
that the three payees were “fictitious persons.” And the state
-5-
courts accepted the prior inconsistent position, because they
rendered judgments against all three payees. See J.A. 305, 441.
Moreover, the district court did not abuse its discretion in
determining that National Union is now taking the subsequent
inconsistent position “intentionally for the purpose of gaining
unfair advantage,” rather than as a result of “inadvertence or
mistake.” As the district court noted, Kaiser consistently alleged
that the payees were real entities in the state court, after
significant investigation and across multiple amendments to the
complaints. See J.A. 343-35 (“[N]one of these judgments were . .
. the inadvertent result of Kaiser’s hasty assumptions formed only
days after discovering the fraud. They came as a result of a
deliberate and lengthy course of conduct in litigation.”). In
addition, the record shows that Kaiser’s investigation uncovered
evidence of the real existence of all three payees. See J.A. 343
(Kaiser’s investigation concluded that Not Just Computers was a real
computer business owned and operated in the District of Columbia);
J.A. 339 (National Union acknowledged that Yates Technology, Inc.
is an entity validly incorporated in the Bahamas); J.A. 389 (Kaiser
alleged that “Moffat Sales is doing business at 1207 Nova Avenue,
Suite 1, Capitol Heights, Maryland”). Moreover, as subrogee of
Kaiser, National Union holds enforceable judgments against all three
payees in the full amount of the Kaiser checks, raising the
possibility of double recovery on inconsistent factual theories,
-6-
which renders judicial estoppel particularly appropriate. See King,
159 F.3d at 198 (“To allow King to obtain benefits from two sources
based on two incompatible positions, simply because the positions
aid her claims for remuneration, would reduce truth to a mere
financial convenience and would undermine the integrity of the
judicial process.”).
III.
In regard to National Union’s other arguments in favor of its
claims under sections 3-404 and 3-405, as well as its other claims
based on section 3-406, on “money had and received,” on common law
conversion, and on breach of restrictive indorsement, we have
reviewed the record thoroughly and found no reversible error. As
to these claims, we affirm on the reasoning of the district court.
CONCLUSION
For the reasons stated herein, the judgment of the district
court is affirmed.
AFFIRMED
-7-
SHEDD, Circuit Judge, concurring:
Although I agree with the majority that summary judgment was
proper on all of National Union’s claims, I follow a different
rationale on the fictitious payee claim under MD. CODE ANN, COM. LAW
§ 3-404. While the majority bases its affirmance as to this claim
on judicial estoppel, I would affirm because National Union has
failed to present any evidence that the three corporations at issue
were fictitious.
Judicial estoppel is an equitable doctrine that must be applied
with caution, John S. Clark Co. v. Faggert & Frieden, P.C., 65 F.3d
26, 29 (4th Cir. 1995), and should be reserved for those cases where
it is necessary to “protect the essential integrity of the judicial
process,” Allen v. Zurich Ins. Co., 667 F.2d 1162, 1166 (4th Cir.
1982). Although the state court entered default judgments against
the three corporations (and others), that court did not necessarily
accept the allegations by National Union’s predecessor concerning
the named defendants’ corporate status (or lack of status).1
Whether the alleged corporations actually existed was not litigated
or essential to the state court’s judgment. See id. at 1167
1
It is apparent from the state court records that it was
immaterial to that court whether the named defendants actually
existed. For example, National Union’s predecessor alleged that
Just Computers is “not a corporation, and may be a trade name or
alter ego for Not Just Computers.” J.A. 400. Even though Just
Computers was not alleged to have any recognizable status, the
state court nevertheless entered default judgment against the
nonentity Just Computers.
-8-
(stating that “the earlier assertion of a legally irrelevant, albeit
inconsistent, position should seldom, if ever, lead to the
application of judicial estoppel”). Accordingly, I am not convinced
that the district court acted within its discretion in applying the
equitable doctrine in this case.
I agree, however, that summary judgment should be affirmed,
because National Union has failed to present evidence that the three
corporations were fictitious, i.e., that the corporations did not
actually exist. Although there is substantial evidence that the
corporations were used as part of an intricate plot to defraud,
there is no evidence in our record showing that the corporations did
not exist.2
2
Of the three corporations, whether there is evidence that
Moffat Sales Corp. (“MSC”) was a fictitious payee requires the
closest review of the record. The Articles of Incorporation for
MSC indicate that it is a District of Columbia corporation. In its
brief, National Union represents that the District of Columbia has
no record of MSC’s existence. Although this representation
suggests that the Articles of Incorporation are not legitimate and
that MSC does not exist, National Union has failed to present any
evidence to support its representation, even though it appears that
the District of Columbia would provide such verification if
requested. See J.A. 353 (D.C. Certification dated Feb. 12, 2003,
verifying that D.C. received and accepted the Articles of
Incorporation for Not Just Computers, Inc. in 1998).
-9-