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Concord Servicing Corporation v. Jpmorgan Chase Bank, N.A.

United States District Court, D. Arizona

June 24, 2014

Concord Servicing Corporation, Plaintiff,
JPMorgan Chase Bank, N.A., et al., Defendants.


JAMES A. TEILBORG, Senior District Judge.

Pending before the Court are Defendant's Motion for Summary Judgment (Doc. 147), the parties' Stipulated Motion for Leave to File Under Seal (Doc. 149), and Plaintiff's Motion for Partial Summary Judgment (Doc. 145). The Court now rules on the motions.

I. Background

Plaintiff Concord Servicing Corporation ("Concord") is a loan serving provider. (Doc. 146-1 at 2). During January 2009 to February 2011, Concord was the loan servicer for Groupo Costamex, S.A. de C.V.; Holiday Club Management Co., Ltd.; Holiday Clubs Ltd.; Resort Interval, Inc.; Royal Experience, S.A. de C.V.; and Travel Experience, S.A. de C.V. (collectively, "Costamex"). ( Id. ) Costamex is in the business of marketing and selling timeshare memberships. ( Id. at 3). As the loan servicer for Costamex, Concord processed payments and refunds to Costamex's customers. ( Id. )

In 2003, Concord opened a bank account (the "Refund Account") with Defendant JPMorgan Chase Bank, N.A. ("Chase")'s predecessor Bank One. ( Id. ) Concord draws checks on the Refund Account when, upon the instructions of Concord's customers, it issues refunds to its customers' clients. ( Id. ) During January 2009 to February 2011, Victor Aguilar was an employee of Costamex and the primary contact for Concord with respect to its servicing of Costamex's accounts. ( Id. ) Costamex authorized Aguilar to instruct Concord to issue refunds to Costamex's customers. ( Id. at 3; Doc. 157 at 2). Concord never issued a refund check to a customer of Costamex except when Costamex instructed Concord to do so. ( Id. at 3). Concord understood Aguilar to be the Costamex employee with authority to authorize the issuance of Costamex customer refunds. (Doc. 148 ¶ 8; Doc. 158 ¶ 8).

Between January 2009 and February 2011, Aguilar instructed Concord to issue the 221 refund checks at issue (the "Refund Checks") to Costamex customers. (Doc. 146 at 3; Doc. 157 at 3). Aguilar instructed Concord to issue the Refund Checks and send them directly to him instead of the customers because Aguilar needed to attach "additional paperwork" to be provided to the customers. (Doc. 146-1 at 32; Doc. 148-2 at 16). Aguilar supplied the names of the payees and dollar amounts for each of the Refund Checks. (Doc. 148 ¶ 10; Doc. 158 ¶ 10). Upon Aguilar's instruction and keeping in line with its role as a servicer, Concord issued the Refund Checks without determining whether a refund was actually owed to the payees. (Doc. 148 ¶ 11; Doc. 158 ¶ 11). In fact, Concord could not refuse to comply with Costamex's instructions to issue refund checks to Costamex's customers. (Doc. 158-1 at 12).

Concord and Costamex each maintained separate systems to track transactions on Costamex's customer accounts. (Doc. 148 ¶ 14; Doc. 158 ¶ 14). Costamex provided Concord with daily spreadsheets of transactions initiated on Costamex's system and Concord provided Costamex with daily information on transactions Concord processed on behalf of Costamex (including refund check transactions). (Doc. 148 ¶ 15; Doc. 158 ¶ 14). Aguilar had access to Concord's computer system to compare Concord's data with Costamex's and verify that the systems accurately reflected Costamex's transactions. (Doc. 158-1 at 12). Concord does not know if Aguilar manipulated Costamex's system to hide his check fraud. (Doc. 148 ¶ 18; Doc. 158 ¶ 18).

Chase is without knowledge as to whether the Refund Checks were fraudulently indorsed, (Doc. 157 ¶ 14), but according to Concord, the Refund Checks were endorsed by someone other than their named payees and were either cashed or deposited at Mexican banks, (Doc. 146 ¶ 14). Concord offers the testimony of one hundred payees named on the Refund Checks, each of whom testifies that he or she did not request or indorse the corresponding check. See (Doc. 146 at 5-19). It is undisputed that the Refund Checks were accepted at depositary banks for payment and subsequently presented to Chase for payment in the ordinary course of banking. (Doc. 148 ¶ 19). Chase processed the Refund Checks and posted them to Concord's account. ( Id. ¶¶ 20-22). At the time it paid the Refund Checks, Chase had no knowledge that any of the indorsements on the Refund Checks were unauthorized. ( Id. ¶ 23).

During the July 2009 to February 2011 time period when the Refund Checks were drawn, Chase provided monthly account statements to Concord. ( Id. ¶ 29). These statements identified all checks paid against the Refund Account and included images of both sides of every check. ( Id. ¶ 29). This information was also available to Concord through online banking services. ( Id. ¶¶ 30-31). Although Concord reconciled its monthly statements for the Refund Account, it never reviewed copies of its paid checks. ( Id. ¶ 32).

In February 2011, Concord reviewed some of the Refund Checks and discovered that although the checks were payable to different Costamex customers, they had been indorsed and deposited in a single Mexican bank account. ( Id. ¶ 36). In January 2012, Concord filed this lawsuit against Chase and subsequently informed Chase, for the first time, of the particular checks that it alleged Chase had improperly paid. ( Id. ¶¶ 42-43).

II. Motions for Summary Judgment

Chase moves for summary judgment on Concord's claims, asserting that both Uniform Commercial Code ("UCC") section 3-405 as well as the parties' deposit agreement preclude Chase from being liable for the unauthorized checks.[1] (Doc. 147 at 1). Concord moves for partial summary judgment on its claims as to one hundred of the 221 checks, arguing that Chase improperly charged its account for checks that were not properly payable. (Doc. 145 at 1, 7).

A. Summary Judgment Standard

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "A party asserting that a fact cannot be or is genuinely disputed must support that assertion by... citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits, or declarations, stipulations... admissions, interrogatory answers, or other materials, " or by "showing that materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Id. 56(c)(1)(A), (B). Thus, summary judgment is mandated "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

Initially, the movant bears the burden of pointing out to the Court the basis for the motion and the elements of the causes of action upon which the non-movant will be unable to establish a genuine issue of material fact. Id. at 323. The burden then shifts to the non-movant to establish the existence of material fact. Id. The non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts" by "com[ing] forward with specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (quoting Fed.R.Civ.P. 56(e) (1963) (amended 2010)). A dispute about a fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The non-movant's bare assertions, standing alone, are insufficient to create a material issue of fact and defeat a motion for summary judgment. Id. at 247-48. However, in the summary judgment context, the Court construes all disputed facts in the light most favorable to the non-moving party. Ellison v. Robertson, 357 F.3d 1072, 1075 (9th Cir. 2004).

B. UCC § 3-405

1. Legal Standard

Generally, a bank may charge against its customer's account only those items that are properly payable. See A.R.S. § 47-4401(A) & cmt. 1. A check bearing a forged indorsement is not properly payable. Id. cmt. 1. However, UCC § 3-405 provides an exception under which a check bearing a fraudulent indorsement ...

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