Forex Israel, VP Ltd. v. Cedar Rapids Bank and Trust Company

IN THE COURT OF APPEALS OF IOWA
No. 19-0080
Filed January 23, 2020
FOREX ISRAEL, VP LTD.,
Plaintiff-Appellant,
vs.
CEDAR RAPIDS BANK and TRUST COMPANY,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Mitchell E. Turner,
Judge.
The plaintiff appeals from the ruling granting the defendant’s motion for
summary judgment, challenging the district court’s decisions to deny in part the
plaintiff’s motion for a continuance and to deny plaintiff’s request to amend its
petition a third time. AFFIRMED.
Rockne O. Cole of Cole Law Firm, PC, Iowa City, for appellant.
Joseph E. Schmall, Laura M. Hyer, and Matthew G. Barnd of Bradley &
Riley PC, Cedar Rapids, for appellee.
Considered by Doyle, P.J., and Tabor and Schumacher, JJ.
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SCHUMACHER, Judge.
This case arises from the business relationship between Forex Israel, VP
LTD. (Forex) and 9X Data Services LLC (9X Data). Forex operates a check-
cashing business in Israel. It had an unsigned contract with 9X Data, whereby 9X
Data would process checks for which Forex had advanced funds. From 2015 to
2017, 9X Data held several accounts with Cedar Rapids Bank and Trust Company
(the Bank).
According to Forex’s allegations, 9X Data breached their contract by failing
to remit $332,001.09 to Forex. Based on the alleged breach, Forex brought suit
against 9X Data in June 2017. In the same suit, Forex also brought claims against
the Bank. Forex alleged the Bank was “negligent in its investigation of 9X Data
prior to agreeing to serve as financial institution.” Forex also sought the
establishment of a constructive trust over funds assumed to be in 9X Data’s
accounts at the Bank.
The district court entered default judgment on June 29, 2018, against 9X
Data in the amount of $332,000 for failure to appear or file a response.
Shortly thereafter, in August 2018, the Bank moved for summary judgment.
The Bank maintained Forex’s constructive-trust claim failed because the Bank did
not have the funds Forex sought and because Forex failed to comply with the
requirements of Iowa Code section 524.808 (2017). The Bank contended Forex’s
negligence claim failed as a matter of law, both because the loss alleged by Forex
was “only economic” and because the Bank did not owe a duty to Forex. In support
of its motion, the Bank filed a statement of undisputed facts, which included the
following:
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5. Forex is not, and has never been, a customer of the Bank
or in any contractual relationship with the Bank.
6. Forex had an unsigned contract with 9X [Data] whereby 9X
would process checks for which Forex had advanced funds.
7. 9X [Data] breached this contract by not remitting funds 9X
owed Forex according to the terms of their contract.
8. Forex knew of 9X [Data]’s breach by “late August 2016.”
9. From 2015 to 2017, 9X [Data] held multiple accounts with
[the Bank].
10. [Three of those] accounts . . . were closed in 2016.
11. [One] account . . . remained open with less than $500
until it was closed in May 2017.
12. On the date Forex filed this action, there were no funds in
any 9X [Data] accounts at [the Bank].
13. No 9X [Data] account at the Bank was or is in Forex’s
name.
14. Forex is not authorized to draw on or control any 9X [Data]
account at [the Bank].
15. Forex did not serve [the Bank] with any order restraining
the withdrawal of any funds in any 9X [Data] account or bond.
(Citations omitted.)
According to an order filed by the court, Forex’s resistance to the Bank’s
motion for summary judgment was due by August 27, 2018. Forex did not file a
resistance. Instead, on August 31, it filed a motion to continue the deadline for its
resistance. Forex noted the pretrial stipulated discovery plan allowed until
December 15 for depositions to be conducted and November 14 for written
discovery to be served while the summary judgment deadline was October 15. It
asked the court to continue the deadline for its resistance until December 15 so it
could complete discovery. In its attached affidavit, Forex indicated it had just
served the Bank with a request for production and that it would like to depose and
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submit interrogatories to an employee of the Bank.1 The Bank resisted the granting
of a continuance until December 15 but did not resist a shorter continuance.
On September 4, the court granted the motion in part—giving Forex until
September 25 to file a resistance.
On September 24, Forex moved the court for an additional one day to file
its resistance, which the Bank did not resist. The court granted the motion, and
Forex filed its resistance to summary judgment on September 26.
On October 17, Forex moved to submit a third amended petition, seeking
to relabel its constructive-trust claim as a “breach of fiduciary duty and negligence
arising from the Bank’s duty as constructive trustee on behalf of Forex” and add
an additional claim—conversion—against the Bank. The Bank resisted.
On November 7, the district court denied Forex’s motion to submit a third
amended petition, concluding the requested amendments were legally ineffectual
on their face and therefore it would be futile to allow the amendments. Additionally,
the court granted the Bank’s motion for summary judgment, finding Forex’s
constructive-trust claim failed as a matter of law:
The Bank argues that Forex cannot identify any asset in the
Bank’s possession upon which a constructive trust could be based.
The record shows that 9X Data’s bank accounts with the Bank held
no funds at the time Forex filed this action. Forex does not dispute
this fact. Instead, Forex argues that a constructive trust was
established no later than October 15, 2016, when the Bank was
made aware of Forex’s claim that it was owed $332,001.00 by 9X
Data.
However, as the Bank points out in its reply, this argument is
predicated on a misunderstanding of the nature of constructive
trusts. Constructive trusts exist by virtue of court action. The court
1Forex served a request for production of documents on August 31, 2018, fourteen
months after initiation of this action. Forex served interrogatories on October 17,
2018.
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is not aware of any authority for the notion that a constructive trust
may simply materialize and the subsequent trustee duties self-
impose, absent a court’s fashioning such a remedy or finding, based
on evidence presented, that a constructive trust exists. Forex does
not cite to any such authority. Here, the record does not reflect any
prior court order or finding which would have established a
constructive trust nor does it reflect any pre-existing quasi-trust
relationship between the Bank and Forex.
Further, the facts before the court do not now permit it to find,
establish, or impose the constructive trust sought by Forex. One who
seeks to establish a constructive trust “must actually identify his
property which is the subject of the trust, or other property into which
it has passed and that it is actually in the possession of the party
sought to be charged.” As stated earlier, the parties do not dispute
that, at the time of filing, the Bank did not possess the $332,001.00
upon which Forex seeks to base the trust; 9X Data’s accounts were
empty. To establish a constructive trust based on funds currently
possessed by the Bank (the Court notes the Bank’s general holdings
are not established by the record) would be to do so retroactively.
(Citations omitted.)
The court concluded Forex’s negligence claim failed as a matter of law
because “a bank has no duty to recognize adverse claims to deposit accounts by
persons not otherwise authorized to control those accounts,” citing Iowa Code
section 524.808(1).
Forex appeals.
Here, Forex maintains the district court abused its discretion when it denied
in part Forex’s motion to continue the deadline for its resistance to the Bank’s
motion for summary judgment until December 15. Forex also contends the district
court abused its discretion when it denied Forex’s motion to amend its petition to
include a claim of conversion against the Bank. We consider each in turn.
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I. Discussion.
A. Motion to Continue.
Forex maintains the district court abused its discretion in giving Forex an
additional few weeks—instead of the requested months—to resist the Bank’s
motion for summary judgment. See Bitner v. Ottumwa Comm. Sch. Dist., 549
N.W.2d 295, 302 (Iowa 1996) (“When a party opposing summary judgment files a
motion requesting continuance to permit discovery, our review is for abuse of
discretion.”). “[G]enerally a nonmoving party should have the opportunity to make
discovery prior to hearing and ruling on a motion for summary judgment.” Id.“However, there is no requirement in [Iowa Rule of Civil Procedure 1.981] that
summary judgment not be entered until all discovery is completed.” Id.Pursuant to Iowa Rule of Civil Procedure 1.981(6),
Should it appear from the affidavits of a party opposing the motion
that the party for reasons stated cannot present by affidavit facts
essential to justify the opposition, the court may refuse the
application for judgment or may order a continuance to permit
affidavits to be obtained or depositions to be taken or discovery to be
had or may make such other order as is just.
The party seeking a continuance under this rule “must ‘state reasons why
facts essential to justify a resistance cannot be presented.’” Good v. Tyson Foods,
Inc., 756 N.W.2d 42, 46 (Iowa Ct. App. 2008) (citation omitted). “The party must
‘set forth by affidavit the reasons why it cannot proffer evidentiary affidavits and
what additional factual information is needed to resist the motion.’” Id. (citation
omitted).
We cannot say the district court abused its discretion. The Bank moved for
summary judgment contending that Forex’s claims failed as a matter of law.
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Forex’s request for more time with an affidavit outlining the company’s need to
develop more facts does not explain why Forex could not respond to the legal
claims. See Kulish v. Ellsworth, 566 N.W.2d 885, 890 (Iowa 1997) (concluding the
plaintiffs’ request for a continuance to gather affidavits from experts rang hollow
where the controversy at issue raised legal, rather than factual, questions).
“Where a controversy raises legal, not factual, issues, there is little need for further
discovery.” Good, 756 N.W.2d at 47. In cases where “[n]o amount of discovery
could remedy the legal defects,” it is proper to deny a rule 1.981(6) motion to
continue. See Estate of Stoutenber v. United Anesthesia & Pain Control, P.C., No.
16-1679, 2017 WL 4049503, at *2 (Iowa Ct. App. Sept. 13, 2017). The district
court granted the Bank’s motion for summary judgment, determining Forex’s
constructive-trust and negligence claims failed as a matter of law; Forex does not
challenge those legal conclusions on appeal.
B. Motion to File Amended Petition.
Forex maintains the district court abused its discretion in denying its motion
to file a third amended petition, which would have added a claim of conversion
against the Bank. See Porter v. Good Eavespouting, 505 N.W.2d 178, 180 (Iowa
1993) (“The trial court has considerable discretion in granting or denying a motion
for leave to amend; we will reverse only when a clear abuse of discretion is
shown.”).
“[A] party may amend a pleading only by leave of court or by written consent
of the adverse party. Leave to amend, including leave to amend to conform to the
proof, shall be freely given when justice so requires.” Iowa R. Civ. P. 1.402(4).
While “[a]mendments are the rule and denials the exception,” Ackerman v. Lauver,
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242 N.W.2d 342, 345 (Iowa 1976), “where a proposed amendment to a petition
appears on its face to be legally ineffectual, it is properly denied.” Midthun v.
Pasternak, 420 N.W.2d 465, 468 (Iowa 1988).
“Conversion is ‘the wrongful control or dominion over another’s property
contrary to that person’s possessory right to the property. The wrongful control
must amount to a serious interference with the other person’s right to control the
property.’” Lewis v. Jaeger, 818 N.W.2d 165, 188 (Iowa 2012) (citation omitted).
The district court concluded Forex’s claim would fail as a matter of law
because it could not show a possessory interest or right to the funds at issue. 2 In
making this determination, the court relied upon Iowa Code section 524.808(2),
which provides:
To require a state bank to recognize an adverse claim to, or adverse
claim of authority to control, a deposit account, whoever makes the
claim must either:
a. Obtain and serve on the state bank an appropriate court
order or judicial process directed to the state bank, restraining any
action with respect to the account until further order of such court or
instructing the state bank to pay the balance of the account, in whole
or in part, as provided in the order or process; or
b. Deliver to the state bank a bond, in form and amount and
with sureties satisfactory to the state bank, indemnifying the state
bank against any liability, loss or expense which it might incur
because of its recognition of the adverse claim or because of its
refusal by reason of such claim to honor any check or other order of
anyone described in paragraphs “a” and “b” of subsection 1 of this
section.
2
After the district court denied Forex’s motion to amend and granted the Bank’s
motion for summary judgment, Forex filed a motion to enlarge and reconsider. The
district court ultimately denied the motion but first it considered Forex’s proposed
definition of conversion and concluded that even using Forex’s definition, Forex’s
claim against the Bank would still be legally futile. We consider both the court’s
ruling denying the motion to amend and the ruling denying the motion to enlarge
and to reconsider.
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It is undisputed that Forex took neither step.
While Forex maintains it is challenging the court’s ruling that its claim of
conversion fails as a matter of law, Forex has done nothing to challenge the court’s
conclusion it could not show a possessory interest in the funds. Instead, Forex
sidesteps the issue, maintaining nothing in the statute required the Bank to allow
9X Data to remove its funds in late 2016.3 Even if Forex was correct in its
interpretation of section 524.808, this argument does not support its claim for
conversion, as it merely suggests the Bank had a choice of whom to release the
funds to—not a duty to release to a certain company nor a duty to bestow a
possessory interest on a party claiming a right to the funds.
Moreover, the dilemma for which Forex advocates—the Bank having to
choose which of two parties to release the funds—is the exact dilemma section
524.808 is meant to prevent. See Domain Indus., Inc. v. First Sec. Bank & Trust
Co., 230 N.W.2d 165, 169 (Iowa 1975) (“The statute was designed to save a bank
from deciding at its peril which contesting claimant is entitled to the proceeds of an
account it holds for one of them.”). “Subsection 2 [of section 524.808] is intended
to require litigants to have such claims determined judicially without involving the
state bank in the dispute except to the extent that it must obey a specific court
order or judicial process directed to the state bank.” Id. (citing a comment
accompanying the statute in the Iowa Code Annotated). In instances where the
demand for another party’s bank account is “not accompanied by either a court
3 At least we believe that is Forex’s argument. In its appellate brief, Forex states:
“When Forex presented its demand to [the Bank] for its funds on October 15, 2016,
Section 524.808 allowed it to property [sic] refuse to immediately return those
funds to Forex.”
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order or an indemnifying bond, under the statute, [the Bank is] justified in refusing
to honor the request.” Id. at 168 (altered for readability).
As the district court concluded, “Justice does not require parties to be
permitted to make futile amendments.” Forex has not shown the district court
abused its discretion in denying Forex’s motion to amend.
II. Conclusion.
The district court did not abuse its discretion in partially denying Forex’s
motion to continue the deadline to file its resistance to summary judgment or in
denying Forex’s third motion to amend its petition. We affirm.
AFFIRMED.