United States District Court, D. Kansas
MEMORANDUM AND ORDER
D. Crabtree, United States District Judge
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).
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).
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.
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.
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.
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
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. 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.
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.
Mr. Leonard's Relationship with Dinsdale
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.
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
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).
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. Mr. Leonard
turned down an offer from another buyer to purchase some of
the cattle Mr. Leonard eventually would buy on September 29,
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.
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. 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; 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. Mr. Leonard instructed Dinsdale to wire
that amount to his account and did not suggest that Dinsdale
should wire those funds anywhere else. 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. 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,
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).
Mr. Leonard's Relationship with Pinnacle
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.
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.
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.
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.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
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
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.
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. 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. Pinnacle readily could identify that
wire transfer as one originated by Dinsdale.
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. 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.
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.
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.
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.
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. 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 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.
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
October 12, 2015, plaintiff demanded possession of the cattle
from D&D Feedlot West.
Parties' Cross-Motions for Summary Judgment (Docs. 102,
104, & 110)
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)).
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.
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)).
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).
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).
Choice of Law
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.
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.
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.
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.
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.
court now turns to each party's summary judgment motion,
beginning with Pinnacle's motion.
Pinnacle's Motion for Summary Judgment (Doc.
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.
Plaintiff's conversion claim against Pinnacle
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.
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.
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)).
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
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.
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.
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).
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
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). 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.
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).
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
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
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
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). 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).
this is not the only admissible evidence on this subject.
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. 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.
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
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 ...