Justia Commercial Law Opinion Summaries

Over seven days in 2009, Ocean Bank authorized six apparently fraudulent withdrawals, totaling $588,851.26, from an account held by Patco, after the perpetrators correctly supplied Patco's customized answers to security questions. Although the bank's security system flagged each transaction as unusually "high-risk" because they were inconsistent with the timing, value, and geographic location of Patco's regular orders, the system did not notify commercial customers of such information and allowed the payments to go through. Ocean Bank was able to block or recover $243,406.83. Patco sued, alleging that the bank should bear the loss because its security system was not commercially reasonable under Article 4A of the Uniform Commercial Code (Me. Rev. Stat. tit. 11, 4-1101) and that Patco had not consented to the procedures. The district court held that the bank's security system was commercially reasonable and entered judgment in favor of the bank. The First Circuit reversed the grant of summary judgment on commercial reasonableness and remanded for determination of what, if any, obligations or responsibilities Article 4A imposes on Patco. View "Patco Constr. Co., Inc. v. People's United Bank" on Justia Law

After the company began to fail, plaintiffs, co-founders and shareholders of Environamics, which designed, manufactured, and sold pumps and sealing devices, sought investors to satisfy its debt. SKF learned that Environamics had developed and patented a "universal power frame" that SKF had been trying to develop for some time, and repeatedly expressed interest in acquiring Environamics. Environamics began to share confidential business information with SKF, stopped seeking out new distribution channels and ceased looking for other opportunities to pay its debt. They gave SKF an irrevocable option to purchase all outstanding Environamics stock and made SKF exclusive marketer and reseller of Environamics products. SKF paid Environamics $2 million. The relationship deteriorated as Environamics required additional financing. Because of SKF’s rights and requirements, plaintiffs made personal guarantees to obtain financing from Wells Fargo. Eventually Environamics filed for bankruptcy. Plaintiffs, responsible for roughly $5 million in personal guarantees on the Wells Fargo loan, sued under an estoppel theory. The district court granted SKF summary judgment. The First Circuit affirmed, finding no specific, competent evidence of any promise made by SKF to buy Environamics on terms other than those of the Option on which plaintiffs could reasonably have relied View "Rockwood v. SKF, USA, Inc." on Justia Law

Plaintiff, a former assistant branch manager at Enterprise, filed a nationwide class action, claiming that Enterprise violated the Fair Labor Standards Act, 29 U.S.C. 207(a)(1), by failing to pay required overtime wages. The district court held that the parent company, which is the sole stockholder of 38 domestic subsidiaries, was not a “joint employer,” and granted summary judgment in favor of the parent company. The Third Circuit affirmed after examining a number of factors concerning the relationship between the parent company and the direct employer. View "In Re: Enter. Rent-A-Car Wage & Hour Emp't Practices Litig." on Justia Law

Platte Valley Bank (PVB), a banking corporation, claimed a perfected security interest in certain equipment owned by Heggem Construction, Inc. In 2008, Heggem sold the equipment in a sale and leaseback transaction to Tetra Financial Group, LLC. Tetra later transferred the equipment to Republic Bank, Inc. (with Tetra, Appellees). PVB sued Appellees, claiming Appellees converted the equipment and the collateral proceeds of the sale. The district court granted summary judgment in favor of Appellees, finding the undisputed facts in the record did not support PVB's conversion claims. The Eighth Circuit affirmed, holding (1) the district court did not err in concluding any interference by Appellees with PVB's right in the equipment was not so serious or important as to constitute conversion; and (2) because PVB failed to articulate any significant harm it suffered as a result of Appellees' action with respect to its deposit account, the district court did not err in concluding no conversion occurred. View "Platte Valley Bank v. Tetra Fin. Group, LLC" on Justia Law

Griffin, a futures commission merchant, went bankrupt in 1998 after one of its customers, Park, sustained trading losses of several million dollars and neither Park nor Griffin had enough capital to cover the obligations. The Bankruptcy Court first relied on admissions by the controlling Griffin partners that they failed to block a wire transfer, allowing segregated customer funds to be used to help cover Park’s (and thus Griffin’s) losses. On remand, the court reversed itself and held that the trustee failed to establish that the partners actually caused the loss of customer funds and failed to establish damages. The district court affirmed, applying the Illinois version of the Uniform Commercial Code to a series of transactions that was initiated by the margin call that caused Griffin’s downfall. The Seventh Circuit affirmed, stating that there is no reason why the transactions at issue (which involved banks in England, Canada, France, and Germany, but not Illinois) would be governed by Illinois law. The Bankruptcy Court’s first decision appropriately relied on the partners’ admission that they failed in their obligation to protect customer funds, which was enough to hold them liable for the entire value of the wire transfer. View "Inskeep v. Griffin" on Justia Law

Principals of Cybercos defrauded lending institutions out of more than $100 million in loan. In 2002, Huntington granted Cyberco a multi-million-dollar line of credit, and Cyberco granted Huntington a continuing security interest and lien in all of Cyberco's personal property, including deposit accounts. After discovering the fraud, the government seized approximately $4 million in Cyberco assets, including $705,168.60 from a Huntington Bank Account. Cyberco principals were charged in a criminal indictment with conspiring to violate federal laws relating to bank fraud, mail fraud, and money laundering. Count 10 issued forfeiture allegations against individuals regarding Cyberco assets, including the Account. In their plea agreements, defendants agreed to forfeit any interest they possessed in the assets or funds. The district court entered a preliminary order of forfeiture with regard to the assets, including the Account. Huntington filed a claim, asserting ownership interest in the forfeited Account. The district court found that Huntington did not have a legal claim. On remand, the district court again denied the claim. The Sixth Circuit reversed. A party who takes a security interest in property, tangible or intangible, in exchange for value, can be a bona fide purchaser for value of that property interest under 21 U.S.C. 853(n)(6)(B). View "United States v. Huntington Nat'l Bank" on Justia Law

Plaintiff-Appellant Flying Phoenix Corporation appealed a district court’s dismissal of its claims against Defendants North Park Transportation Company and R&L Carriers Shared Services (the carriers), with prejudice, for lack of subject matter jurisdiction. Flying Phoenix purchased a machine designed to package fireworks for sale to end users from Defendant Creative Packaging Machinery, Inc. The machine arrived severely damaged. Creative Packaging was responsible for shipping the machine to Flying Phoenix. Creative Packaging used R&L Carriers Shared Services to ship from North Carolina to Wyoming. The bill of lading limited the period for filing claims with a carrier to nine months, and limited the time for filing civil suit to two years and one day following denial of a claim. At some point during the delivery, R&L Carriers transferred the machine to North Park Transportation Company to complete delivery to Flying Phoenix. Three days after the machine was delivered, Flying Phoenix filed a claim with North Park based on damage to the machine. Roughly two weeks later, North Park inspected the machine and confirmed that it was damaged. A little less than a month later, North Park and R&L Carriers notified Flying Phoenix that its claim was denied, citing evidence that the shipment was issued with insufficient packaging or protection. Flying Phoenix renewed its claim approximately six months later, in November 2007, and the carriers again denied the claim, asserting that the machine was "used" and inadequately packaged. On appeal, Flying Phoenix argued that the district court erred by holding that (1) its claims were based on the bill of lading, and (2) it was bound by the terms of the bill of lading even though it was not a party and did not consent. Upon review, the Tenth Circuit affirmed the dismissal of Flying Phoenix's claims: "Flying Phoenix claim[ed] that, although it was listed as consignee on the bill of lading, it never saw the bill of lading until after the limitations period lapsed. It argue[d] that, since it did not know the terms of the carriage, it should not be bound. [The Court found] no precedent for Flying Phoenix’s position, and Flying Phoenix [did] not direct [the Court] to any. There is no suggestion in the record that Flying Phoenix ever sought a copy of the bill of lading but was denied access, and it is well-established that a party may not sit idly by, making no effort to obtain obviously necessary documents, and then claim ignorance. Lack of diligence precludes equitable intervention." View "Flying Phoenix Corp. v. Creative Packaging Machinery" on Justia Law

Plaintiff contracted to sell a furniture business to Mendoza in 2004. Westernbank provided partial funding and obtained a first mortgage. To secure a deferred payment of $750,000, Mendoza signed a mortgage in favor of plaintiff and a contract under which plaintiff consigned goods with expected sales value of more than $6,000,000. An account was opened at Westernbank for deposit of sales proceeds. Plaintiff alleges that Westernbank kept funds to which plaintiff was entitled for satisfaction of Mendoza’s debts to Westernbank. Mendoza filed for bankruptcy and transferred its real estate to Westernbank in exchange for release of debt to the bank. Plaintiff agreed to forgive unpaid debts in order to obtain relief from the stay and foreclose its mortgage, then sued Westernbank, employees, and insurers, alleging violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961-68, and Puerto Rico law causes of action. After BPPR became successor to Westernbank, plaintiff agreed to dismiss the civil law fraud and breach of fiduciary duty claims and the RICO claim. The district court later dismissed remaining claims for lack of subject matter jurisdiction, declining to exercise supplemental jurisdiction over non-federal claims. The First Circuit affirmed. View "Fabrica de Muebles J.J. Alvare v. Inversiones Mendoza, Inc." on Justia Law

In 2007, Debtor purchased a manufactured home, borrowing the funds from Creditor and granting a security interest. Creditor filed an application for first title and a title lien statement in Whitley County, Kentucky. The seller of the manufactured home is located in Whitley County. Debtor resided at the time in Laurel County, Kentucky. Later, the Kentucky Transportation Cabinet issued a Certificate of Title for the Manufactured Home showing the lien as being filed in Whitley County. In 2010, Debtor filed his voluntary Chapter 7 bankruptcy petition. The Chapter 7 Trustee initiated an adversary proceeding. The Bankruptcy Court avoided the lien, 11 U.S.C. 544. The Sixth Circuit affirmed. The statute requires that title lien statements be filed in the county of the debtor’s residence even if the initial application for certificate of title or registration is filed in another county under KRS 186A.120(2)(a). View "In re: Pierce" on Justia Law

Trostel was founded in 1858. By 2007 the founder's relations still owned about 11 percent of its stock. Smith, which owned the rest, decided to acquire remaining shares by freezeout merger. Trostel became Smith's wholly owned subsidiary. Notz, one of the Trostel great-grandchildren, who owned 5.5 percent of the stock, rejected proffered compensation of $11,900 per share (about $7.7 million). The rest of the outside investors accepted. In an appraisal action (Wis. Stat. 180.1330(1)), the district court denied Nost's motion to dismiss for lack of subject matter jurisdiction and concluded that fair value of the stock on the merger date was $11,900 per share. The Seventh Circuit affirmed. Wisconsin's corporate is legislative, not contractual and does not block corporations from availing themselves of diversity jurisdiction. View "Albert Trostel & Sons Co. v. Notz" on Justia Law