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Rezac Livestock Commission Co., Inc. v. Pinnacle Bank

United States District Court, D. Kansas

December 21, 2018

REZAC LIVESTOCK COMMISSION CO., INC., Plaintiff,
v.
PINNACLE BANK, et al., Defendants.

          MEMORANDUM AND ORDER

          Daniel D. Crabtree, United States District Judge

         Plaintiff Rezac Livestock Commission Company, Inc., has alleged that it sold defendant Dinsdale Bros., Inc., (“Dinsdale”) nearly $1 million worth of cattle in September 2015, but that Dinsdale never has paid for them. Plaintiff also contends that defendant Pinnacle Bank (“Pinnacle”) acted as Dinsdale's accomplice and wrongfully seized funds belonging to plaintiff. Attempting to recover its funds, plaintiff asserts three claims against Dinsdale (breach of contract, conversion, and quantum meruit), one claim against Pinnacle (conversion), and two claims against Dinsdale and Pinnacle together (unjust enrichment and civil conspiracy).

         This matter comes before the court on three motions. Defendant Pinnacle has filed a Motion for Summary Judgment (Doc. 104). Defendant Dinsdale also has filed a Motion for Summary Judgment (Doc. 102). And plaintiff has filed its own Motion for Summary Judgment (Doc. 110).

         In its Motion, Pinnacle argues that plaintiff's claims for conversion, civil conspiracy, and unjust enrichment fail as a matter of law, and that plaintiff cannot recover punitive damages. Defendant Dinsdale asserts in its motion that plaintiff's claims against Dinsdale rely on an agency relationship that, Dinsdale argues, is nonexistent as a matter of law. Dinsdale also contends that plaintiff's claims for breach of contract, conversion, unjust enrichment, and civil conspiracy fail as a matter of law. And finally, plaintiff argues in its motion that it is entitled to summary judgment against Dinsdale's counterclaim asserting that Dinsdale has good title to the cattle at issue. Plaintiff also asserts that the court should grant summary judgment in its favor on plaintiff's conversion and civil conspiracy claims against both Dinsdale and Pinnacle.

         For reasons explained below, the court denies defendant Pinnacle Bank's Motion for Summary Judgment (Doc. 104). The court grants defendant Dinsdale's Motion for Summary Judgment (Doc. 102) in part and denies it in part. And the court denies plaintiff's Motion for Summary Judgment (Doc. 110).

         I. Uncontroverted Facts

         The following facts are stipulated by the parties in the Pretrial Order (Doc. 101), or are uncontroverted for purposes of the parties' summary judgment motions. The court divides these summary judgment facts into three sections: (A) the parties involved in this case; (B) Mr. Leonard's relationship with Dinsdale; and (C) Mr. Leonard's relationship with Pinnacle.

         A. Involved Parties

         Plaintiff's business involves selling livestock at auction in St. Marys, Kansas. Defendant Dinsdale's business involves feeding cattle. Dinsdale purchases cattle from sellers, including Charles D. Leonard d/b/a Leonard Cattle Company (“Mr. Leonard”). Chris and John “Sid” Dinsdale, alongside other Dinsdale family members, own Dinsdale. Dinsdale purchases cattle from six or seven dealers, including Mr. Leonard, who are licensed under the Packers & Stockyards Act. And Dinsdale buys about 70, 000 cattle per year.

         Defendant Pinnacle Bank is a banking organization that is organized and operates under Nebraska law, but it conducts business at several locations in Kansas. Some members of the Dinsdale family own interests in both Dinsdale and Pinnacle.[1] Specifically, Chris and Sid Dinsdale are members of the Board of Directors of Pinnacle Bancorp, Pinnacle's holding company. Sid Dinsdale is Chairman of Pinnacle's board, and Roy Dinsdale-Chris and Sid Dinsdale's father-is Vice Chair of the board. Mark Hesser is President of Pinnacle Bancorp and a Director of Pinnacle Bank. Marc Hock is President and a Director of Pinnacle Bank. Spencer Kimball and Steve Zey are Market Presidents. And Todd Roth is a Risk Manager.

         Mr. Leonard operated as a cattle dealer from 1992 to 2015; his business involved buying and reselling cattle to cattle feeders. Mr. Leonard had a longstanding business relationship and friendship with the Dinsdale family. He also had been a long-time customer of Pinnacle.

         B. Mr. Leonard's Relationship with Dinsdale

         Mr. Leonard made “dealer transactions” by purchasing cattle for his own account and reselling them to cattle feeders. These transactions include cattle purchased on commission. Mr. Leonard organized and paid for the trucking and insurance used to transport cattle he had purchased to his buyers. He used the same trucking dispatch service and insurance policy for each cattle transport. When Dinsdale purchased cattle from Mr. Leonard, Mr. Leonard had purchased the cattle from a sale barn, paid the sale barn for the cattle, and issued a separate invoice to Dinsdale. In earlier cattle sales, Dinsdale received good title to the cattle it purchased from Mr. Leonard.[2]

         On September 28, 2015, Dinsdale employee David Wahlert called Mr. Leonard, and the two spoke briefly over the phone. They discussed the cattle market, and Mr. Wahlert asked Mr. Leonard which sale he was attending the next day. Mr. Leonard replied that he planned to attend an auction in St. Marys, Kansas. The two did not discuss cattle prices. Mr. Wahlert told Mr. Leonard that Dinsdale was in the cattle market and agreed to talk to Mr. Leonard again the next day.[3] Before their September 28 conversation, Mr. Wahlert did not know whether Mr. Leonard planned to attend a cattle sale the next day or, if so, which auction he planned to attend. Though Mr. Wahlert knew where Mr. Leonard had attended auctions in the past, Mr. Wahlert did not know Mr. Leonard had attended one of plaintiff's auctions before. Mr. Wahlert never had heard of plaintiff's sale barn in St. Marys, Kansas, and he never had communicated with any representative of plaintiff. Neither Mr. Wahlert nor any Dinsdale representative directed Mr. Leonard to attend the St. Marys auction. Instead, Mr. Leonard attended the auction in St. Marys almost every Tuesday, and he purchased cattle “[a]bout every time” he attended it. Mr. Leonard only attended the later part of the St. Marys auctions, when yearlings-or young calves-were sold. Doc. 103 at 9 (citing Leonard Dep. 172:20-173:1, 185:11-14, 188:16-189:21).

         On September 29, 2015, Mr. Leonard called Mr. Wahlert before the auction, and the two talked again. Mr. Wahlert told Mr. Leonard that Dinsdale was interested in buying heifers under 800 pounds and steers under 900 pounds. The two did not discuss price or quantity during this call.[4] Mr. Leonard turned down an offer from another buyer to purchase some of the cattle Mr. Leonard eventually would buy on September 29, 2015.[5]

         That day, Mr. Leonard attended the auction at plaintiff's sale barn in St. Marys, and plaintiff sold Mr. Leonard some cattle. Mr. Leonard purchased some steers weighing more than 900 pounds, and plaintiff memorialized this purchase in a document called “Buyer Recap” and with invoices that identify “Leonard Cattle Co” as the buyer. Doc. 103-2. Neither plaintiff nor Mr. Leonard provided these invoices to Dinsdale. The Packers & Stockyards Act required Mr. Leonard and plaintiff, who both had licenses and bonds under that statute, to memorialize the sale accurately. Plaintiff did not know that Mr. Leonard had spoken with a Dinsdale representative before the sale on September 29. Plaintiff didn't know where Mr. Leonard planned to deliver the cattle until after the sale. And Mr. Leonard did not inform plaintiff in advance of the sale the weight or type of cattle he sought. After the sale, Mr. Leonard instructed plaintiff to send the cattle to D&D, a feedlot in Colorado. Plaintiff's owner, Dennis Rezac, testified that would have sold the cattle in question to Mr. Leonard notwithstanding Mr. Leonard's communication with a buyer before the auction “because he had been doing it over time.” Doc. 103 at 11 (citing Rezac Dep. 134:13-135:3). Later in the day on September 29, 2015, Mr. Leonard and Mr. Wahlert spoke on the phone yet again; Mr. Wahlert confirmed that Dinsdale would purchase the cattle from Mr. Leonard.

         The morning after the sale, Mr. Leonard's office wrote plaintiff a check for $980, 361 from Mr. Leonard's account with Pinnacle for the cattle purchase. Mr. Leonard's office mailed this check to plaintiff. Dinsdale's name is not on the check, and Mr. Leonard never showed the check to Dinsdale. Mr. Leonard did not tell Dinsdale the amount he had paid plaintiff for the cattle, and Dinsdale did not receive an invoice or other documentation about this cattle purchase.[6] Mr. Leonard's office also prepared invoices for Mr. Leonard's cattle sale to Dinsdale. Plaintiff's name does not appear on the invoices, the invoices do not list commissions or orders, and the invoices state that “100% of sales made by Leonard Cattle Company are on a sold to basis.” Doc. 103-4. Mr. Leonard listed himself as the only seller shown on these invoices, as he had done for earlier transactions with Dinsdale[7]; the Packers & Stockyards Act required Mr. Leonard to identify the seller on the invoice accurately. Also, Mr. Leonard sent just these invoices to Dinsdale; he didn't send any internal worksheets, and he never suggested to Dinsdale that he had prepared internal worksheets. Mr. Leonard instructed Dinsdale to pay the invoices by wire transfer, as he did with most of his larger deals and as he had done in all his earlier transactions with Dinsdale.[8] Mr. Leonard instructed Dinsdale to wire that amount to his account and did not suggest that Dinsdale should wire those funds anywhere else.[9] The wiring instructions appeared on the invoice to Dinsdale. Mr. Leonard used trucking dispatch and insurance policy he usually used when delivering the cattle to Dinsdale, and Mr. Leonard bore the risk of loss until the cattle arrived at their destination. Mr. Leonard arranged for trucks to transport the cattle he planned to buy on the morning of the auction. Mr. Leonard testified that Dinsdale had a right to reject the cattle.[10] Dinsdale received the cattle on September 30, 2015, and it placed these cattle at D&D Feedlot West in Iliff, Colorado, and OTR Feedlot in Proctor, Colorado.[11]

         Mr. Leonard never received: (1) authority to write checks for Dinsdale or a Dinsdale “checkbook”; (2) signatory authority from Dinsdale; (3) vehicles from Dinsdale; (4) Dinsdale letterhead, logos, business cards, or apparel; (5) mileage or fuel reimbursements from Dinsdale; or (6) a 1099 or W-2 form from Dinsdale. Mr. Leonard maintained a separate business from Dinsdale, with his own books and records. Mr. Leonard's business with Dinsdale concluded when he sold cattle to Dinsdale. Mr. Leonard also paid federal income taxes on the September 29, 2015, cattle purchase; it was based on the difference between the price he paid plaintiff for the cattle and the price for which he sold the cattle to Dinsdale. He reported the gain from this transaction as “dealer markup” and not as agent's commission. The Packers & Stockyards Act also required Mr. Leonard to file annual reports with the Packers & Stockyards Administration that included transactions Mr. Leonard undertook as a dealer or agent. Plaintiff reported that Mr. Leonard undertook the September 29, 2015, transaction as a dealer, not a commissioned agent. And Mr. Leonard's 2015 report under the Packers & Stockyards Act listed all his purchases as “Livestock Dealer Purchases” and not as purchases “bought on commission for the account of others.” Doc. 103 at 14-15 (quoting Doc. 103-7 at 2).

         C. Mr. Leonard's Relationship with Pinnacle

         Mr. Leonard maintained a business checking account at Pinnacle for his cattle business, which was how Mr. Leonard made his living; the account was known as Account 161. Spencer Kimball was one of the people at Pinnacle who managed deposit accounts. Mr. Kimball also helped manage Pinnacle's loan relationship with customers such as Mr. Leonard.

         Mr. Leonard and his wife maintained multiple accounts at Pinnacle, and Mr. Leonard took out loans from the bank. They were customers of Pinnacle before the fall of 2015. Mr. Leonard used Account 161, which Pinnacle administered in Gretna, Nebraska, to pay for cattle and other business expenses; he also used the account for personal uses. In 2014 and 2015, Mr. Leonard purchased cattle from 150 different sale barns and had 175 to 200 customers. He ran all his purchases and sales through Account 161. Mr. Leonard filed for bankruptcy in 2015 and is not a party in this case.

         Generally, checks that Pinnacle customers write on their accounts are presented to Pinnacle as debits against those accounts. The Federal Reserve Bank or other clearing facilities typically present these checks for payment, usually in the evening. If an account lacks sufficient funds to cover the amount of a check or checks presented against the account, Pinnacle learns of this insufficiency the next morning. Pinnacle then decides whether it will honor the checks nonetheless. Specifically, Mr. Kimball was charged with making this decision by 10:00 a.m. the day after such checks were presented to Pinnacle. Pinnacle customers may deposit funds in several ways. These include cash deposits, wire transfers, or third-party checks. Mr. Leonard's deposits in September and October 2015 were primarily wire transfers or third-party checks. His online bank statements show credits and debits, and the last balance the statements show on a particular date reflects the balance at the end of the corresponding day. This balance includes all checks or other debits that had hit the account and all deposits made to the account, even if those deposits included uncleared checks.

         Account 161 lacked sufficient funds to cover the presented checks several times in September and early October 2015. Mr. Kimball, once he was notified of the insufficiency in Account 161, contacted Mr. Leonard, let him know about the insufficiency, and asked how he intended to cover the checks presented. Mr. Leonard responded by describing deposits he intended to make that day to cover the amounts of the checks presented. If Mr. Kimball was satisfied with Mr. Leonard's anticipated deposits, he normally would decide to honor the presented checks. For most of September 2015, Mr. Leonard made deposits into Account 161 that exceeded the deficit created by the checks presented the day before. Pinnacle knew about Mr. Leonard's process of writing checks to purchase cattle before receiving deposits to cover these checks. Pinnacle also knew that Mr. Leonard's account was overdrawn in August 2015.[12]In late summer or early fall 2015, Pinnacle president Marc Hock had informed Chris Dinsdale that Mr. Leonard, along with several other Pinnacle clients, were overdrawing their accounts.[13]

         Pinnacle extended “provisional credit” to Mr. Leonard in Account 161 for checks third parties had deposited in this account. Provisional credit represents a credit for third-party checks that had not yet cleared the Federal Reserve (or other clearing agency). Mr. Leonard or his assistant deposited dozens of checks in Account 161, and one did not clear: a check for $221, 818.39 that a third party-Feller Co.-had deposited. This check failed to clear because Feller Co. stopped payment on it. Also, when a Pinnacle customer writes checks on an account exceeding the amount of cleared funds in it, but the account also has uncollected deposited funds, Pinnacle refers to this situation as a “daylight overdraft” or an “intra-day overdraft.” This kind of overdraft typically lasts for just one day, and later-usually the next day-the third-party checks clear and are deposited into the account. Notwithstanding the short duration of the overdraft, Pinnacle notifies customers who experience daylight or intra-day overdrafts.

         Mr. Leonard attended plaintiff's livestock auction and purchased the cattle at issue in this case. Once Mr. Leonard received paperwork from plaintiff for these cattle, he reported this information to his assistant in Nebraska, Ms. Tammy Nichols. Ms. Nichols prepared and sent a check to plaintiff for the purchase amount: $980, 361.45. For simplicity, this order refers to that check as “the Rezac check.” Ms. Nichols mailed the Rezac check to plaintiff on September 30, 2015.

         On the same day Mr. Leonard purchased the cattle from plaintiff-September 29, 2015- he sold the cattle to Dinsdale. Mr. Leonard prepared an invoice, which included the cost of the cattle, additional costs, and a mark-up, and he billed Dinsdale for the cattle.[14] This invoicing process matched the process Mr. Leonard used for his other customers. Mr. Leonard shipped the cattle to Dinsdale. And, as it had done during its past transactions with Mr. Leonard, Dinsdale wired $1, 004, 361.49 to Account 161 at Pinnacle on October 1, 2015.[15] Pinnacle readily could identify that wire transfer as one originated by Dinsdale.

         On September 30, 2015, at 7:30 a.m., Mr. Leonard told Spencer Kimball that he was going to receive wired funds for the cattle purchase “from of all people Dinsdale Bros.” Doc. 111-8 at 15. By 10:00 a.m. on September 30, 2015, Mr. Kimball had spoken with Roy Dinsdale, Chris Dinsdale, Steve Zey, and Marc Hock about Dinsdale's cattle purchase, Mr. Leonard's check to pay for these cattle, Mr. Leonard's account being $1, 000, 000 overdrawn, and Dinsdale's plan to send a $1, 000, 000 wire to pay for these cattle.[16] At 10:37 a.m. on September 30, 2015, Mr. Hock's email informed Chris Dinsdale that Mr. Leonard was $1, 000, 000 overdrawn on his Pinnacle account and that Pinnacle was returning the checks Mr. Leonard had written for insufficient funds. Mr. Hock copied Roy Dinsdale, Sid Dinsdale, and Mark Hesser on this email. In sum, the following individuals knew about the check Mr. Leonard had written to plaintiff for the cattle purchase: Roy Dinsdale, Sid Dinsdale, Chris Dinsdale, Mark Hesser, Marc Hock, Spencer Kimball, Steve Zey, and Todd Roth. Chris Dinsdale considered paying the sale barn directly because he was aware of Mr. Leonard's financial issues and, by sending plaintiff a direct wire, he would know plaintiff had been paid for the cattle. Dinsdale knew that paying a sale barn directly would convey to Dinsdale clear title for the cattle.

         In late September 2015, Pinnacle officers learned of Account 161's activity, including knowledge that Dinsdale planned to pay for the cattle Mr. Leonard had purchased from plaintiff with wired funds. Pinnacle received these wired funds from Dinsdale and credited them to Mr. Leonard's Account 161 on October 1, 2015. At the end of the day on October 1, 2015, Mr. Leonard's account reflected a balance of $762, 139.66. Mr. Leonard deposited about $590, 000 the next day, October 2, 2015, but nearly $3 million in checks written by Mr. Leonard also were presented against the account on October 2. At the end of the day on October 2, 2015, Mr. Leonard's account reflected a negative balance of $1, 755, 365.80.

         On October 5, 2015, Mr. Leonard provided Pinnacle with a list of outstanding checks he had written. They totaled about $5.8 million. Mr. Leonard did not have sufficient funds to cover his outstanding checks.

         On October 6, 2015, the check Mr. Leonard had written to plaintiff was presented against Account 161. The first reported balance on October 6, 2015, in Account 161 was $1, 598, 433.80. That same day, Pinnacle returned the Rezac check for $980, 361.45, reporting that the account held insufficient funds to cover it. Pinnacle also honored other, smaller checks presented against Account 161 that day, and determined payees and amount for each check. The honored checks totaled $1, 344, 253.51. By the time the check Mr. Leonard wrote to plaintiff was presented for payment on Account 161, Mr. Leonard already had consumed the funds deposited by Dinsdale's wire. Those funds were consumed by other checks presented on Account 161. Plaintiff never spoke with anyone from Pinnacle about the check Mr. Leonard had written to plaintiff. Mr. Leonard never directed anyone from Pinnacle to wire funds to plaintiff; and he did not attempt to get Pinnacle to issue a cashier's check or certified check to pay plaintiff.

         Emails from Pinnacle that include Chris Dinsdale show it knew that: (1) the Dinsdale wire was related to Mr. Leonard's purchase of cattle from plaintiff; (2) Pinnacle was expecting the check Mr. Leonard wrote to plaintiff to be presented against Account 161 soon; and (3) Mr. Leonard was having difficulty maintaining a positive balance in his account.[17] Pinnacle expected the check Mr. Leonard wrote to plaintiff on Account 161 to be presented several days before it actually was presented. After talking with Chris Dinsdale on October 1, 2015, Marc Hock also emailed Spencer Kimball, Steve Zey, and Mark Hesser to inform them that “Dinsdale . . . [was] going to wire in approximately $1mm to the Leonard Cattle Co account . . . to cover cattle purchases from the St. Mary's [sic] Livestock auction.” Doc. 111-5 at 27. Two emails[18] sent on September 30, 2015, and October 1, 2015, refer to suggestions from Mr. Hock that Dinsdale pay plaintiff directly. Jeff Whitham, Pinnacle's banking expert, testified that, to him, communications such as those between Dinsdale and Pinnacle were highly unusual. Doc. 111-10 (Whitham Dep. 37:7-21). Some of Pinnacle's representatives also testified that they never before had participated in conversations about the timing of wired funds. Mr. Hock testified that this transaction was unique because a Pinnacle director was involved in wiring funds. And Mr. Kimball testified that he could not ever recall reporting to the Dinsdales.[19]

         Because Mr. Leonard could not maintain sufficient funds to cover checks he had written, and because of the volume of checks Pinnacle returned for insufficient funds, Pinnacle decided to close Account 161. But Pinnacle did not close Mr. Leonard's account until October 15 because checks were presented against it and Mr. Leonard continued to deposit funds, though these funds were insufficient to cover all his debits. When Pinnacle closed Account 161, it had a negative balance of $159, 484.39 because Feller Co. had stopped payment on a check deposited in Account 161. To close that account, Pinnacle wrote off this negative balance to close Account 161; this write-off appears as a credit made to the account on October 13, 2015. Mr. Leonard's lack of funds, and not the account's closing, kept him from paying his creditors. Pinnacle also assessed fees on incoming wire deposits as well as overdraft fees that totaled about $230. Pinnacle charged overdraft interest of $30, 525.30 on September 30, 2015, but most of that interest charge was refunded later.

         On October 12, 2015, plaintiff demanded possession of the cattle from D&D Feedlot West.[20]

         II. Parties' Cross-Motions for Summary Judgment (Docs. 102, 104, & 110)

         A. Legal Standard

         Summary judgment is appropriate if the moving party demonstrates that “no genuine dispute” exists about “any material fact” and that it is “entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). When it applies this standard, the court views the evidence and draws inferences in the light most favorable to the non-moving party. Nahno-Lopez v. Houser, 625 F.3d 1279, 1283 (10th Cir. 2010). “An issue of fact is ‘genuine' ‘if the evidence is such that a reasonable jury could return a verdict for the non-moving party' on the issue.” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). “An issue of fact is ‘material' ‘if under the substantive law it is essential to the proper disposition of the claim' or defense.” Id. (quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998)).

         The moving party bears “both the initial burden of production on a motion for summary judgment and the burden of establishing that summary judgment is appropriate as a matter of law.” Kannady v. City of Kiowa, 590 F.3d 1161, 1169 (10th Cir. 2010) (citing Trainor v. Apollo Metal Specialties, Inc., 318 F.3d 976, 979 (10th Cir. 2002)). To meet this burden, the moving party “need not negate the non-movant's claim, but need only point to an absence of evidence to support the non-movant's claim.” Id. (citing Sigmon v. CommunityCare HMO, Inc., 234 F.3d 1121, 1125 (10th Cir. 2000)).

         If the moving party satisfies its initial burden, the non-moving party “may not rest on its pleadings, but must bring forward specific facts showing a genuine issue for trial [on] those dispositive matters for which it carries the burden of proof.” Id. (quoting Jenkins v. Wood, 81 F.3d 988, 990 (10th Cir. 1996)); accord Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986); Anderson, 477 U.S. at 248-49. “To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.” Adler, 144 F.3d at 670 (citing Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir. 1992)).

         The court applies this same standard to cross-motions for summary judgment. Each party bears the burden of establishing that no genuine issue of material fact exists and that it is entitled, as a matter of law, to the judgment sought by its motion. Atl. Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000). Cross-motions for summary judgment “are to be treated separately; the denial of one does not require the grant of another.” Buell Cabinet Co. v. Sudduth, 608 F.2d 431, 433 (10th Cir. 1979). But where the cross-motions overlap, the court may address the legal arguments together. Berges v. Standard Ins. Co., 704 F.Supp.2d 1149, 1155 (D. Kan. 2010) (citation omitted).

         Summary judgment is not a “disfavored procedural shortcut.” Celotex, 477 U.S. at 327. Instead, it is an important procedure “designed ‘to secure the just, speedy and inexpensive determination of every action.'” Id. (quoting Fed.R.Civ.P. 1).

         III. Analysis

         A. Choice of Law

         Because the court exercises diversity subject matter jurisdiction here, the court “appl[ies] the substantive law of the forum state, including its choice of law rules.” Pepsi-Cola Bottling Co. of Pittsburgh, Inc. v. PepsiCo, Inc., 431 F.3d 1241, 1255 (10th Cir. 2005) (first citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 495-97 (1941); then citing New York Life Ins. Co. v. K N Energy, Inc., 80 F.3d 405, 409 (10th Cir. 1996)). Kansas is the forum state, so the court thus applies the substantive law of Kansas to evaluate plaintiff's claims. This includes that state's choice of law rules. In this section, the court discusses which state's law governs the parties' motions.

         Pinnacle raises an argument that particular aspects of Nebraska law should apply to plaintiff's banking-related claims because the claims involve activity at a Nebraska-based bank. Doc. 105 at 13. But Pinnacle contends that Kansas and Nebraska law agree on most aspects of the applicable law, except the law governing punitive damages. Id. Pinnacle's briefing also relies on both Kansas and Nebraska law on all of plaintiff's claims against it, including-in part-plaintiff's punitive damages claim. See Doc. 105 at 13-31. “‘[I]f the law of Kansas [is] not in conflict with any of the other jurisdictions connected to the suit, then there [is] no injury in applying the law of Kansas.'” Brenner v. Oppenheimer & Co., 44 P.3d 364, 372 (Kan. 2002) (quoting Shutts v. Phillips Petroleum Co., 732 P.2d 1286, 1291 (Kan. 1987)). The court thus concludes that it properly can apply Kansas law to each claim Pinnacle raises in its briefing except plaintiff's punitive damages claim because, as Pinnacle concedes, the court's application of Kansas and Nebraska law would not result in conflicting outcomes. The court also provides citations to governing Nebraska law to highlight the alignment between Kansas and Nebraska law on each claim Pinnacle discusses in its motion.

         The court next analyzes the choice of law issue Pinnacle raises about plaintiff's punitive damages claim. Plaintiff's claim for punitive damages rests on its conversion claim-a tort claim. “‘When addressing choice-of-law issues, the Kansas [appellate] courts follow the Restatement (First) of Conflict of Laws.'” Brenner, 44 P.3d at 374 (quoting Layne Christensen Co. v. Zurich Canada, 38 P.3d 757, 766 (Kan.Ct.App. 2002)). And the First Restatement of Conflict of Laws provides that “the law that creates the [tort] right determines what items of loss are to be included in the damages. Since the right is created by the law of the place of wrong, it is measured by that law.” Restatement (First) of Conflict of Laws § 412 (Am. Law Inst. 1934). Put more explicitly, “[t]he right to exemplary damages is determined by the law of the place of wrong.” Id. at § 421.

         The court previously concluded-and Pinnacle Bank acknowledges-that Nebraska and Kansas conversion law contain “little or no” difference in the law of conversion. Docs. 20 at 2, 105 at 13. But more narrowly, the court concludes that Kansas law controls the punitive damages analysis because, “[i]n Kansas, tort actions are governed by the law of the state in which . . . the wrong was felt, ” and in cases alleging financial harm, the court looks to “the state in which . . . [plaintiff] felt that financial injury.” Doll v. Chicago Title Ins. Co., 246 F.R.D. 683, 690 (D. Kan. 2007) (first citing Ling v. Jan's Liquors, 703 P.2d 731, 735 (Kan. 1985); then citing Fusion, Inc. v. Neb. Aluminum Castings, Inc., No. 95-2366-JWL, 1997 WL 51227, at *24 (D. Kan. Jan. 23, 1997)). Here, Kansas law is the appropriate law to apply because plaintiff is in the business of selling livestock in Kansas, and sold cattle to Mr. Leonard in Kansas. And plaintiff thus “felt” its alleged financial injury in Kansas. Kansas law thus determines whether plaintiff's claim for punitive damages will survive for trial. See infra Section B.4.

         The court next turns to the law that governs plaintiff's claims against Dinsdale. The Pretrial Order reports that Dinsdale reserves the right to assert that Colorado's agency law applies. Doc. 101 at 2. But Dinsdale's briefing never cites Colorado law, and instead, it relies almost exclusively on Kansas law. Also, Dinsdale makes no argument that Colorado law should apply to any of plaintiff's claims against it. And in its Memorandum in Opposition to Dinsdale's summary judgment motion, plaintiff agrees that Kansas law should apply. Because the parties have made the deliberate choice to rely on Kansas law, the court thus applies Kansas law to the claims Dinsdale discusses in its motion. See Dr Pepper Co. v. Adams Inv. Co., No. 90-6078, 1991 WL 148876, at *1 (10th Cir. Aug. 5, 1991) (finding that parties had waived a choice-of-law argument when both relied on Texas law in their briefs); McCammond v. Schwan's Home Serv., Inc., 791 F.Supp.2d 1010, 1012 n.1 (D. Colo. 2011) (“The Court notes that the Motion was briefed pursuant to Colorado law and, at the hearing on the Motion, neither party argued that Minnesota law applies to this issue. Accordingly, any right to assert Minnesota law was arguably waived by the parties.” (citing Air Liquide Am. Corp. v. Cont'l Cas. Co., 217 F.3d 1272, 1275 n.2 (10th Cir. 2000))).

         The court now turns to each party's summary judgment motion, beginning with Pinnacle's motion.

         B. Pinnacle's Motion for Summary Judgment (Doc. 104)

         Pinnacle asserts the court should grant summary judgment in its favor on each of the three claims plaintiff asserts against it-conversion, unjust enrichment, and civil conspiracy. For each claim, the court first discusses the governing Kansas law and then evaluates the parties' arguments.

         1. Plaintiff's conversion claim against Pinnacle

         a. Governing law

         The court begins with plaintiff's conversion claim and provides a framework for analysis of the parties' arguments. As the court recognized in its Memorandum and Order granting Pinnacle's Motion to Dismiss plaintiff's original conversion claim (Doc. 30), conversion is “the unauthorized assumption or exercise of the right of ownership over goods or personal chattels belonging to another.” Moore v. State Bank of Burden, 729 P.2d 1205, 1210 (Kan. 1986) (citing Carmichael v. Halstead Nursing Ctr., Ltd., 701 P.2d 934, 938 (Kan. 1985)). When money is deposited with a bank, those funds typically become the bank's property. Id. And “[i]t is well recognized that the relationship between a general depositor and [the depositor's] bank is that of creditor and debtor, and money deposited, unless segregated into a special account and designated to be kept separate, becomes the property of the bank.” Id. (citing Chilson v. Capital Bank of Miami, 701 P.2d 903 (Kan. 1985)). In other words, when a bank customer deposits funds with a bank, the customer becomes a creditor and the bank becomes the debtor. The Kansas Supreme Court has described the general duty banks owe their depositors in this fashion:

Generally it is the duty of a bank to honor checks drawn on it by a depositor if the drawer has on deposit sufficient funds when the check is presented which are not subject to some lien or claim, and for an improper refusal to honor the check the depositor has an action against the bank for any damage which may have been sustained by reason of such refusal. However, the same liability does not inure to the benefit of a holder or payee of a check and the bank is generally not liable to the [check's] holder unless and until it accepts or certifies the check.

Torkelson v. Bank of Horton, 491 P.2d 954, 957 (Kan. 1971).

         But the Kansas Supreme Court has explained that a check's payee may nonetheless hold a bank liable for refusing to pay on the check if “the defendant bank was . . . informed” about the purpose of certain funds “before it devoted that money to the payment of [a customer's] overdrafts or otherwise disposed of it.” Scoby v. Bird City State Bank, 211 P. 110, 113 (Kan. 1922). “[I]t must be kept in mind that if, by virtue of special circumstances in addition to the mere issuance of the check, the check is deemed to be an assignment pro tanto of the funds called for, the holder may sue the drawee bank for its payment if there are sufficient funds to meet the check, even though it was not accepted or certified.” Torkelson, 491 P.2d at 957-58.[21]

         The general rule against liability to a check's holder also does not apply where funds have been “segregated into a special account and designated to be kept separate.” Moore, 729 P.2d at 1210 (first citing Chilson, 701 P.2d at 906; then citing Baker v. Brial, 341 P.2d 987 (Kan. 1959)); see also Bloomheart v. Foster, 221 P. 279, 280 (Kan. 1923) (recognizing that “[a] special deposit of money in a bank is made where moneys, such as bills in packages or specie in boxes, are intrusted to the bank, not to be used, but to be kept safely, and specifically returned” (internal quotations omitted)).

         The Kansas Supreme Court discussed agreements between banks and their customers more extensively in Drumm-Standish Commission Co. v. Farmers' State Bank of Neosho Falls, 297 P. 725, 725-26 (Kan. 1931). There, the Supreme Court affirmed as a matter of law a judgment for plaintiff in a case where a cattle dealer had opened a special account to manage business funds. A dealer had purchased cattle from plaintiff and sold those cattle to a third party in exchange, plaintiff alleged, for “something less than the cost” of the cattle. Id. at 725. Plaintiff introduced uncontroverted testimony during trial demonstrating that the cattle dealer had

inform[ed] [a bank] cashier that the money represented by [the funds from the cattle dealer's sale of the cattle] did not belong to him but to the plaintiff after the cashier has asked him why he had not deposited the [funds], and that the cashier said to him: “Well, you put that money in here so we will get the use of it. . . . You take and deposit that money here, and I will give you my word of honor that it will never be molested.”

Id. at 726-27. The Kansas court upheld the judgment for plaintiff because the bank had presented no evidence controverting plaintiff's evidence of the customer's agreement with the bank. The Supreme Court thus concluded that, because the bank had applied the customer's funds to “pay[] . . . claims against [the] depositor, ” the trial court correctly had concluded that the bank had converted the funds. Id. at 725, 728.

         Kansas common law also recognizes a second exception: that banks have a “legal right . . . to appropriate the deposit of its customer upon the customer's default and apply those funds against the customer's debts to the institution.” Four Circle Co-op v. Kan. State Bank & Tr. Co., 771 F.Supp. 1144, 1149 (D. Kan. 1991) (citing Tuloka Affiliates, Inc. v. Sec. State Bank, 627 P.2d 816 (1981)). A Kansas statute also establishes this right. Kan. Stat. Ann. § 9-1206 (“Any bank shall have the right to set off any obligation or claim which it has, when the same is matured against any depositor.”). Kansas courts also have outlined several prerequisites that a bank must satisfy before exercising its right to set off funds. Four Circle Co-op, 771 F.Supp. at 1149. But Kansas courts have carved out an exception to a bank's set off rights. This exception applies when a bank has taken funds from a customer account to pay a debt owed to the bank if the bank knows-or should know-that those funds belong to a third party. Iola State Bank v. Bolan, 679 P.2d 720, 732 (Kan. 1984); see also generally Ballard v. Home Nat. Bank of Ark. City, 136 P. 935 (Kan. 1913). Finally, the Kansas Court of Appeals has adopted reasoning used by the Eighth Circuit when it decided whether a bank's “allowance of withdrawal of uncollected funds is a loan”-a loan that would constitute a debt to the bank. Exch. State Bank v. Kan. Bankers Sur. Co., 177 P.3d 1284, 1288 (Kan.Ct.App. 2008) (citing Laws v. United Mo. Bank of Kan. City N.A., 98 F.3d 1047, 1050-51 (8th Cir. 1996)). The Kansas Court of Appeals concluded that categorically classifying “any [such] allowance” as a loan “would seem unwise as a matter of public policy.” Id.

         b. Parties' arguments

         Here, Pinnacle asserts that deposits in Mr. Leonard's account at Pinnacle Bank became Pinnacle's property once deposited. Thus, Pinnacle asserts, it cannot be held liable for converting those funds because it owns them. Pinnacle characterizes Mr. Leonard's deposit as an “ordinary” one that did not create a duty for Pinnacle to “watch over the funds.” Doc. 105 at 15. And-Pinnacle contends-unless deposits are “segregated into a special account and designated to be kept separate, ” the bank owns the funds in the account. Doc. 105 at 15 (citing Chilson, 701 P.2d at 903). Broadly, Pinnacle argues, a depositor may bring an action against a bank for the bank's refusal to honor a check-but the check's payee cannot bring an action “unless and until [the bank] accepts or certifies the check.” Id. at 16 (citing Torkelson, 491 P.2d at 954).

         First, Pinnacle contends, as relevant here, that: (1) it assessed wire transfer fees and insufficient funds fees totaling $231 during the first week of October 2015; and (2) it assessed interest on Mr. Leonard's account at the end of September 2015. Pinnacle argues that it collected the interest before the Dinsdale wire transfer arrived and was deposited into Mr. Leonard's account. And Pinnacle argues that it made no other withdrawals in its own favor, “except for ordinary wire and NSF fees.” Doc. 105 at 18-19. Pinnacle also asserts that it followed its policy of honoring checks arriving on the same day, by starting with the check with the smallest amount and moving upward to the check with the largest amount. After following this policy on the day Mr. Leonard's check to plaintiff was presented for payment, Pinnacle contends, Mr. Leonard's account contained insufficient funds to pay plaintiff. In short, Pinnacle categorically distinguishes the facts of this case from those of Four Circle Co-op and Iola State Bank, where our court and the Kansas Supreme Court characterized certain bank activity as setting off funds in a customer's account.

         Next, Pinnacle asserts that the funds in Mr. Leonard's account were not special funds or otherwise designated for separate keeping. Pinnacle directs the court to the fact that the funds plaintiff alleges belong to it were “commingled with Leonard deposits from many different sources.” Doc. 105 at 21. Pinnacle contends that Mr. Leonard used the account at issue for personal purposes, among others. And, it argues, “Leonard never told [Pinnacle] which of the many outstanding checks he had written that he wanted paid when the Dinsdale funds came into the Bank.” Id. at 22 (citing Leonard Dep. 135:22-136:19).[22] Pinnacle recognizes that some of its bankers expected the Dinsdale wire and knew that those funds would pay for Mr. Leonard's cattle purchase from plaintiff, but their knowledge created no affirmative duty to direct the funds transferred by Dinsdale to pay plaintiff.

         Finally, Pinnacle asserts that its practice allowing “daylight overdrafts”-that is, allowing a Pinnacle customer to write checks on an account exceeding the amount of cleared funds in it when the account also has uncollected deposited funds -did not constitute a loan to Mr. Leonard. Id. at 23 (citing Laws, 98 F.3d at 1051). Rather, Pinnacle contends, this practice was a “‘service decision, driven by laws such as the [federal] Expedited Funds Availability Act, and by the financial demands of bank customers.'” Doc. 105 at 24 (citing Laws, 98 F.3d at 1051).

         Conversely, plaintiff asserts that Pinnacle knew the Dinsdale wire was intended to pay for the cattle Mr. Leonard had purchased from plaintiff, and Pinnacle thus knew that the wired funds belonged to plaintiff. And because Pinnacle knew about plaintiff's rights to the wired funds, plaintiff argues, this knowledge rebutted “[t]he presumption of a debtor-creditor relationship between a depositor and a bank.” Doc. 116 at 7 (citing Four Circle Co-op, 771 F.Supp. at 1149); see also Id. at 6 (first citing Iola State Bank, 679 P.2d at 732; then citing Scoby, 211 P. at 113); id. at 10 (citing Torkelson, 491 P.2d at 958). Essentially, plaintiff contends, “[w]hen a deposit and a check are complementary, and the bank knows it, the check is deemed to be an assignment pro tanto of the funds called for.” Id. at 10 (citing Torkelson, 491 P.2d at 958).

         Plaintiff argues that it may prevail on its conversion claim against Pinnacle in more than one way-i.e., Pinnacle's liability for conversion does not rest solely on its decision to set off funds, which, Pinnacle contends, it did not do. To hold Pinnacle liable for conversion, plaintiff asserts, plaintiff must prove only that Pinnacle knew about plaintiff's interest in the funds. Plaintiff argues that, to prevail, it need not demonstrate that Pinnacle itself benefited from using the Dinsdale wired funds for purposes other than paying plaintiff. Plaintiff also rebuts Pinnacle's argument that, because the funds transferred by Dinsdale's wire were not segregated into a separate account, these funds were not special deposits. Plaintiff contends it has shown enough by showing that Pinnacle knew the Dinsdale wire “was coming for this specific cattle purchase” to argue that this knowledge was sufficient to categorize the funds as a special deposit. Id. at 14.

         c. Analysis

         The court concludes that it cannot grant Pinnacle summary judgment on plaintiff's conversion claim. The parties controvert a material fact that is central to that claim, i.e., did Pinnacle and Mr. Leonard reach an agreement about the use of the funds transferred by Dinsdale's wire to Pinnacle for Mr. Leonard's Account 161?

         On one hand, plaintiff cites testimony by Pinnacle President Marc Hock. Plaintiff contends that Mr. Hock's testimony establishes that the funds Dinsdale wired were intended to pay the check issued by Mr. Leonard to plaintiff. See Doc. 116 at 3-4 (citing Hock Dep. 59:16- 60:10, 68:2-69:14, 130:3-15).[23] Plaintiff also invokes Mr. Leonard's testimony to the effect that he intended for Dinsdale's wired funds to cover the check he had written to plaintiff on Account 161. Doc. 116 at 4 (citing Leonard Dep. at 104:24-106:20, 133:9-134:7).[24]

         But this is not the only admissible evidence on this subject.

         Pinnacle has adduced evidence that it received no special instructions about how to use the funds deposited in Account 161. It cites Mr. Leonard's testimony that he never instructed Pinnacle how to pay the many checks issued on that account on September 30, 2015.[25] The evidence also shows that Pinnacle-lacking any special instructions about which checks to pay-followed bank policy. That is, Pinnacle paid the smallest check first, then moved to the next smallest check, and so on until the checks presented had consumed the available funds. Following this policy, the funds in Account 161 were consumed before Pinnacle reached the check written by Mr. Leonard presented for payment by plaintiff.

         Under Kansas law, Pinnacle is liable to plaintiff for conversion if the factfinder determines that the bank knew the purpose of the funds transferred by Dinsdale. This is the rule that Torkelson and Scoby established. The court concludes that a reasonable jury could reach either outcome. Namely, based on the evidence summarized above, the factfinder reasonably could find that Pinnacle knew Mr. Leonard had issued “special instructions” governing the use of the Dinsdale wire. Conversely, it could answer that decisive question in the opposite fashion: that Pinnacle properly defaulted to its standard policy because it hadn't received “special instructions.” The summary judgment standards do not permit the court to decide this seminal factual question, and this conclusion precludes summary judgment against the conversion claim. See Fed. R. Civ. P. 56(c) (Summary judgment is appropriate if the moving party demonstrates that “no genuine dispute” exists about “any material fact” and that it is “entitled to a judgment as a matter of law.”).

         Finally, the court concludes that this case does not fall within the exception Kansas courts recognize allowing banks to set off funds to pay debts their customers owe them. Here, under the summary judgment facts, the only debts Mr. Leonard owed Pinnacle were fees and charges based on Mr. Leonard's overdrafts and wire transfers. Plaintiff does not controvert Pinnacle's assessment of “ordinary course wire transfer fees and insufficient funds fees . . . amounting to about $231 in the first week of October of 2015.” Doc. 105 at 18. Nor does plaintiff argue that these fees constituted a set off. Plaintiff also does not argue that Pinnacle's practice of allowing customers to use “provisional credit”-or expected deposits that had not yet cleared-can place this case within the set off exception. The court thus limits its discussion to the crux of the parties' arguments: their dispute over Pinnacle's knowledge about the Dinsdale ...


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