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Wells Fargo Bank NA v. Ferruggio Insurance Services of LA Inc.

United States District Court, D. Arizona

January 14, 2019

Wells Fargo Bank NA, Plaintiff,
Ferruggio Insurance Services of LA Incorporated, et al., Defendants.



         Pursuant to Fed.R.Civ.P. 56, Plaintiff Wells Fargo Bank, N.A. (“Wells Fargo”) filed a Motion For Summary Judgment as to Defendant Ferruggio Insurance Services of L.A. doing business as PenbenLA (“Ferruggio”) as to Count One only. Oral argument was held on January 11, 2019. The Court has now considered the Motion (Doc. 54, Mot.), Response (Doc. 60, Resp.), and Reply (Doc. 65, Reply) along with arguments of counsel and relevant case law.

         I. BACKGROUND

         A. Factual Background

         The following undisputed facts providing relevant background are drawn from the parties' statements of fact and other parts of the record.

         Defendant Equa Gaming, an Arizona general partnership, opened a business account ending in 4583 at Wells Fargo (the “Account”) on or about August 28, 2009. Defendants Victor Carillo and Dana M. Brannan signed the application for the Account. On March 12, 2016, Defendant Ferruggio, under the name PenbenLA, issued a check drawn upon Pacific Western Bank made payable to Equa Gaming in the Amount of $100, 000 (the “Check”). An employee of Ferruggio deposited the Check directly into the Account at a Wells Fargo branch on March 12, 2016, a Saturday. The Check bore no apparent evidence of forgery or alteration. On March 14, 2016, the Check was posted to the Account and the funds became available for withdrawal. Between March 14 and 16, various debits and withdrawals were made from the Account. After the Check was deposited, Ferruggio directed Pacific Western Bank to stop payment on the Check, and the Check was returned unpaid to Wells Fargo on March 16, 2016. Wells Fargo reversed the $100, 000 credit, which caused the Account to become overdrawn.

         In addition to the undisputed facts above, Ferruggio asserts the following facts. During the period of March 11-12, 2016, Michael Hand, President of Ferruggio, communicated with Carrillo regarding the payment of $100, 000 to be made to Equa Gaming, and that the payment was initially to be made by check. After arranging for the deposit of the Check to the Account, Carillo informed Hand that the funds would not be available immediately, and because time was of the essence, Hand agreed to wire the funds to the Account, which he subsequently did. Ferruggio further contends that during the discussions, Carillo and Hand agreed that a stop payment would be put on the Check.

         B. Procedural Background

         Wells Fargo initiated this action on July 26, 2017 (Doc. 1), filed a first amended complaint on August 14, 2017 (Doc. 17), and a second amended complaint on September 17, 2018 (Doc. 68, SAC), bringing claims against Ferruggio Insurance Services of L.A., Inc. doing business as PenbenLA (“Ferruggio”), Equa Gaming, Victor Carillo, Dana M. Brannan, and Does I-X. Of the various claims brought by Wells Fargo, one was brought against Ferruggio for enforcement of the Check (“Count One”) pursuant to A.R.S. Title 47 (codifying the Uniform Commercial Code).[1] Ferruggio filed an answer on November 2, 2018 (Doc. 75, Ans.), and Wells Fargo now moves for summary judgment against Ferruggio on Count One.


         Summary judgment is appropriate when “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 material fact is any factual issue that might affect the outcome of the case under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute about a fact is “genuine” if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.

         “A party asserting that a fact cannot be or is genuinely disputed must support the assertion by . . . citing to particular parts of materials in the record” 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.” Fed.R.Civ.P. 56(c)(1)(A), (B). The court need only consider the cited materials, but it may also consider any other materials in the record. Id. 56(c)(3). Summary judgment may also be entered “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 demonstrating to the Court the basis for the motion and “identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Id. at 323. If the movant fails to carry its initial burden, the nonmovant need not produce anything. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102-03 (9th Cir. 2000). If the movant meets its initial responsibility, the burden then shifts to the nonmovant to establish the existence of a genuine issue of material fact. Id. at 1103. The nonmovant need not establish a material issue of fact conclusively in its favor, but it “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The nonmovant's bare assertions, standing alone, are insufficient to create a material issue of fact and defeat a motion for summary judgment. Liberty Lobby, 477 U.S. at 247-48. “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Id. at 249-50 (citations omitted). However, in the summary judgment context, the Court believes the nonmovant's evidence, id. at 255, and 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). If “the evidence yields conflicting inferences [regarding material facts], summary judgment is improper, and the action must proceed to trial.” O'Connor v. Boeing N. Am., Inc., 311 F.3d 1139, 1150 (9th Cir. 2002).

         III. ANALYSIS

         Wells Fargo asserts that it has proved a prima facie case against Ferruggio, needing “only to prove that the signatures on the Check were authorized and that it is a holder in possession of the instrument.” (Mot. at 3). In support of this, Wells Fargo further asserts that Ferruggio “admits that the signatures are authorized.” (Mot. at 4) (citing Ans. at ¶¶ 14, 15, 35, 39, 42, 43).

         Ferruggio does not argue that the signatures were not authorized or that Wells Fargo is not a holder in possession of the instrument. Rather, Ferruggio argues that it is not liable to make payment on the check because of a defense-an agreement between Ferruggio and Carillo that the check “was not to be deposited and another method of payment would be pursued.”[2] (Resp. at 3-4).

         Wells Fargo also asserts that even if Ferruggio has a valid defense, Wells Fargo is a holder in due course who took the Check without notice of any defenses or claims, which would limit any defenses proved by Ferruggio. (Mot. at 5-8). Ferruggio contends that Wells Fargo “is not a holder in due course” because Wells Fargo “did not exercise reasonable commercial standards of fair dealing.” (Resp. at 4).

         Ferruggio also argues that “[a]ny existing security interest claimed by [Wells Fargo] is limited to the amount of Check, less any rightful set-offs and deductions, ” and that Wells Fargo's security interest cannot exceed $75, 278.39, the amount that the account was overdrawn. (Reply at 5-6).

         A. Legal Standard

         When “an unaccepted draft is dishonored, the drawer is obliged to pay the draft . . . according to its terms at the time it was issued . . . to a person entitled to enforce the draft [].” U.C.C. § 3-414(b). A “person entitled to enforce” an instrument includes “the holder of an instrument.” U.C.C. § 3-301. “If a customer delivers an item to a depositary bank for collection . . . the depositary bank becomes a holder of the item . . . if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item [].” U.C.C. § 4-205. “Depositary banks can be holders in due course of unendorsed checks if the payee is its customer.” Conder v. Union Planters Bank, N.A., 384 F.3d 397, 400 (7th Cir. 2004).

         In an action brought with respect to an instrument where the validity of signatures is admitted or proved, “a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under Section 3-301, unless the defendant proves a defense or claim in recoupment.” U.C.C. § 3-308. One such defense a party may raise is that their obligation to pay the instrument was “modified, supplemented, or nullified by a separate agreement of the obligor and a person entitled to enforce the instrument, if the instrument is issued or the obligation is incurred in reliance on the agreement or as part of the same transaction giving rise to the agreement.” U.C.C. § 3-117; see also § 3-305(a)(2) (“[T]he right to enforce the obligation of a party to pay an instrument is subject to . . . a defense of the obligor stated in another section of this Article[.]”).

         However, “[t]he right of a holder in due course to enforce the obligation of a party to pay the instrument” is subject only to a limited list of defenses. U.C.C. § 3-305(b) (emphasis added). The rights of a holder in ...

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