Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-04038/USCOURTS-ca10-90-04038-0/pdf.json

Nature of Suit Code: 150
Nature of Suit: Overpayments &amp; Enforcement of Judgments
Cause of Action: 

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FILED 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

lJoi«:d StlU8 Court of Appeals 

Tenth Cirruit 

p UG 11991 

MERRILL LYNCH, PIERCE, 

FENNER & SMITH, INC., 

a corporation, and 

BROADCORT CAPITAL CORP., 

a corporation, 

Plaintiffs-Appellants, 

v. 

MORAD COMPANY, HENRY D. 

MOYLE, JR., HENRY D. MOYLE, 

III, and WINFRED M. RAHDE, 

Defendants-Appellees. 

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ROBERT L. HOECKER 

Clerk 

Nos. 90-4038 and 90-4061 

(D.C. No. 88-C-650S) 

(D. Utah) 

ORDER AND JUDGMENT* 

Before TACHA and SETH, Circuit Judges, and BRATTON, District 

Judge**· 

Appellant Merrill Lynch, Pierce, Fenner & Smith, Inc. 

(Merrill Lynch) mistakenly made two $76,887.00 transfers from the 

personal securities account of Henry D. Moyle, Jr. (Hank) into the 

brokerage account of appellee Morad Company (Morad). Only one 

*This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

**Honorable Howard C. Bratton, United States District Judge for 

the District of New Mexico, sitting by designation. 

Appellate Case: 90-4038 Document: 010110130201 Date Filed: 08/01/1991 Page: 1 
such transfer was authorized. Morad, a corporation being formed 

by Hank, his son Henry D. Moyle, III (Henry) and Hank's son-in-law 

Winfred M. Rahde (Rahde) (all named defendants), spent the 

$76,887.00 before appellant learned of its mistake. 

Merrill Lynch, and its wholly-owned subsidiary Broadcort 

Capital Corp., brought this diversity suit in district court to 

recover $76,887.00. Merrill Lynch alleged that the money was 

unlawfully converted by appellees, or in the alternative that 

appellees were unjustly enriched, and that appellees were jointly 

and severally liable for the resulting loss. The case was 

referred to a magistrate judge who recommended that the court 

grant summary judgment to Merrill Lynch. The district court 

rejected the magistrate judge's recommendation and granted summary 

judgment for appellees. The court found the conversion doctrine 

inapplicable and held that application of the unjust enrichment 

doctrine would not restore the parties to the status quo. For the 

reasons that follow, we reverse. 

The facts are undisputed. Hank, Henry and Rahde created 

Morad to invest in stock and to buy and sell Saab automobiles. 

The three founders attempted to create Morad as a corporation. 

Articles of Incorporation were signed at an organizational meeting 

on February 24, 1988. The Articles, however, were not filed with 

the Utah Department of Business Regulation until August 9, 1988--

well after the events pertinent to the present lawsuit. 

On February 16, 1988, prior to Morad's organizational 

meeting, Hank opened a stock brokerage account at Paulson & 

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Appellate Case: 90-4038 Document: 010110130201 Date Filed: 08/01/1991 Page: 2 
Company under Morad's name. Sheldon Jones, a broker at Paulson, 

set up the account. On February 23, 1988, Rahde ordered the 

purchase of 8,000 shares of Research Industries, Inc. stock for 

the Morad account. Sometime in March 1988, an additional 10,000 

shares of Research Industries stock. were ordered .for the Morad 

account. The total cost of the 18,000 shares was $76,887.00. 

Rahde wrote two checks to pay for the original 8,000 share 

stock order. Both checks were dishonored. Jones contacted Hank, 

vacationing in Hawaii, and informed Hank that Morad would have to 

cover the loss for the purchase of the stock if the stock was not 

paid for. Hank agreed to pay for the stock out of his personal 

funds. 

Hank telephoned Merrill Lynch from Hawaii and had it 

immediately wire transfer $76,887.00 from his personal account to 

Morad's Paulson account. Merrill Lynch asked Hank to write a 

letter authorizing the transfer when he returned to Salt Lake 

City. 

At the end of his vacation, Hank wrote the letter Merrill 

Lynch requested. A Merrill Lynch employee, however, mistook the 

writing as a request to wire an additional $76,887.00 from Hank's 

personal account to Morad. The second wire was sent on April 6, 

1988. As a result, Morad's account had a credit of $76,887.00. 

Jones discovered the credit sometime prior to May 9, 1988. 

Jones contacted Hank and told him about the credit, although Jones 

stated that he did not know where it came from. Jones told Hank 

that one possible explanation for the extra money in the account 

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Appellate Case: 90-4038 Document: 010110130201 Date Filed: 08/01/1991 Page: 3 
was that Rahde's checks, written to purchase the stock, had 

cleared. 

Hank then contacted Rahde and informed him of the credit. 

Rahde arranged with Jones to have the money transferred to a 

different Morad account at Zions First National Bank. That same 

day, Rahde wrote a check to "cash" for $76,000.00, co-signed by 

Henry. Two signatures were required to withdraw funds from the 

Morad account. The bank then issued three cashiers checks 

totalling $76,000.00 which Rahde used to satisfy personal debts. 

There was no evidence in the record that the second $76,887.00 was 

used by Hank or Henry. 

Around May 18, 1988, Merrill Lynch mailed a monthly statement 

to Hank which reflected the two $76,887.00 transfers from his 

personal account. Hank notified Merrill Lynch of its mistake and 

received a $76,887.00 credit--money debited from the Morad account 

at Paulson without permission from Paulson. Paulson protested and 

subsequently agreed to assign its claim for recovery to Merrill 

Lynch and Broadcort. Broadcort was a Merrill Lynch subsidiary 

with whom Paulson associated. 

On June 16, 1988, Rahde declared bankruptcy. His bankruptcy 

filing resulted in a stay of this action against him. 

Accordingly, Merrill Lynch seeks to recover from Morad, Hank and 

Henry. 

In reviewing the district court's grant of summary judgment 

to Morad, we review the record and any possible inferences from 

the record in the light most favorable to the party opposing the 

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Appellate Case: 90-4038 Document: 010110130201 Date Filed: 08/01/1991 Page: 4 
motion. Boren v. Southwestern Bell Telephone Co., 933 F.2d 891, 

892 (10th Cir.). Civil Procedure Rule 56(c) states that summary 

judgment is appropriate when "there is no genuine issue as to any 

material fact and •.. the moving party is entitled to a judgment 

as a matter of law.!' To avoid summary judgment . there must be 

sufficient evidence from which a jury could find for the 

plaintiff. Reazin v. Blue Cross and Blue Shield of Kansas, 899 

F.2d 951, 979 (10th Cir.) (citing Anderson v. Liberty Lobby, Inc., 

477 U.S. 242, 249). We review all legal questions de novo. 

Sierra Club v. Lujan, 931 F.2d 1421, 1423 (10th Cir.). 

Because this is a diversity case, our de novo review is based 

on the substantive law of Utah. Shute v. Moon Lake Elec. Ass'n, 

Inc., 899 F.2d 999, 1001 (10th Cir.) (citing Erie R.R. Co. v. 

Tompkins, 304 U.S. 64). We begin with appellant's argument that 

Morad, Hank and Henry were unjustly enriched. 

Under Utah law, a successful action for unjust enrichment 

requires three elements: 

"(1) a benefit conferred on one person by 

another; (2) an appreciation or knowledge by 

the conferee of the benefit; (3) the 

acceptance or retention by the conferee of the 

benefit under such circumstances as to make it 

inequitable for the conferee to retain the 

benefit without payment of its value." 

Berrett v. Stevens, 690 P.2d 553, 557 (Utah). Assuming these 

elements are met, the remedy is restitution, an equitable relief. 

See Knight v. Post, 748 P.2d 1097, 1101 (Utah App.). 

The district court held that equity would not be served if 

Hank and Henry were required to pay back the $76,887.00 to Merrill 

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Lynch. The court did not directly apply the Berrett test, opting 

instead to analyze the facts of the case under the "changed 

circumstances" defense defined in Restatement, Restitution§ 142. 

It states: 

"The right of a person to restitution- from 

another because of a benefit received is 

terminated or diminished if, after the receipt 

of the benefit, circumstances have so changed 

that it would be inequitable to require the 

other to make full restitution." 

The court reasoned that Hank and Henry Moyle in effect never 

received a benefit from the accidental transfer of the money. The 

court refused to equate the benefit Rahde received by paying his 

debts as a benefit to Morad or the Moyles. Essentially, the court 

viewed Hank and Henry's transfer of the money to Rahde as an 

innocent transaction. Requiring Hank and Henry to pay back the 

money would not return the parties to the status quo. 

The district court's analysis, while equitable on its face, 

ignores the relationship of the parties in the present suit. The 

court erred by effectively eliminating Morad from its analysis and 

focusing on Hank, Henry and Rahde as individual actors. The 

benefit Morad, and therefore Hank, Henry and Rahde, received when 

Merrill Lynch mistakenly transferred the funds into the Morad 

account was the right to control $76,887.00 which was not theirs. 

Hank actively participated because he called Rahde and alerted him 

to the extra money in the account. Henry co-signed the $76,000.00 

check releasing the money. These were decisions made by Hank and 

Henry acting in their capacity as members of Morad, not as 

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individuals. Without Hank and Henry's affirmative actions 

resulting in the release to Rahde, the money would still be in the 

Morad account. 

Once a benefit is found, however, the question remains 

whether .the "change of position" defense used by the district 

court is applicable. The district court relied heavily on Bank 

Saderat Iran v. Amin Beydoun, Inc., 555 F. Supp. 770 (S.D.N.Y.), 

to support its finding of no unjust enrichment. 

In Bank Saderat Iran, a bank was denied recovery for money it 

accidentally transferred into the account of one of its customers. 

The recipient of the money acted on the assumption that the money 

was for a textile shipment, and sent a textile shipment to a third 

party. The third party after receiving the textile shipment, 

declared bankruptcy. The court held that because recovery against 

the third party was impossible, it would be unjust to require 

recovery from the customer who initially received the money. Id. 

at 774. 

The district court stated that "[t]he case at bar bears a 

striking resemblance to Bank Saderat Iran and fits squarely within 

the parameters of the§ 142 changed circumstances defense." The 

court apparently equated the bank customer in Bank Saderat Iran 

with Hank and Henry and the third party with Rahde. Several key 

differences between the facts here and the facts in Bank Saderat 

Iran make such a comparison incorrect. 

First, Rahde was not a "third party" on whom Hank and Henry 

innocently conferred a benefit. He was their business partner and 

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one of the three members of Morad. Second, Hank and Henry were 

not "innocent parties" in the scheme. Both took affirmative 

actions which allowed Rahde to withdraw $76,000.00 from the Morad 

account to spend as he pleased. While they most likely never 

imagined .that. their business partner and relative would use money 

which was not his to satisfy personal debts, this ignorance cannot 

be equated with innocence for purposes of the changed 

circumstances defense. 

Hank and Henry made a conscious decision to enter into a 

business relationship with Rahde and they must live with the 

consequences of that decision. Had Morad decided to keep the 

money in its account or use the money to purchase additional Saab 

cars there is no question that Morad would be required to pay the 

money back. Morad's decision to "blindly" give $76,000.00 to 

Rahde to do whatever he wanted with it is no different. Under 

these circumstances, equity will not permit Morad, and therefore 

Hank and Henry, to escape the consequences of the company's 

decision to release the money to Rahde. 

We have studied the issues raised in the remaining arguments, 

but conclude that we need not comment on them in light of our 

finding that Morad was unjustly enriched. 

The judgment of the United States District Court for the 

Central District of Utah is REVERSED and REMANDED for further 

proceedings consistent herewith. 

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Entered for the Court 

Oliver Seth 

Circuit Judge 

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