Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-14-02240/USCOURTS-ca8-14-02240-0/pdf.json

Parties Involved:
Hanover Insurance Group
Not Party
Shreekanth Maripally
Not Party
Northeast Bank
Appellee
Dinaz Pooniwala
Not Party
Percy Pooniwala
Not Party
Ashok Shetty
Not Party
Wells Fargo Bank, N.A.
Appellant

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 14-2240

___________________________

Northeast Bank

lllllllllllllllllllll Plaintiff - Appellee

v.

The Hanover Insurance Group

lllllllllllllllllllll Defendant

Wells Fargo Bank, N.A.

lllllllllllllllllllll DefendantThird Party Plaintiff - Appellant

v.

Percy Pooniwala; Dinaz Pooniwala; Shreekanth Maripally; Ashok Shetty

lllllllllllllllllllllThird Party Defendants

____________

Appeal from United States District Court 

for the District of Minnesota - Minneapolis

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 Submitted: February 11, 2015

 Filed: August 6, 2015

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Before GRUENDER, SHEPHERD, and KELLY, Circuit Judges.

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Appellate Case: 14-2240 Page: 1 Date Filed: 08/06/2015 Entry ID: 4303340 
SHEPHERD, Circuit Judge.

Hanover Insurance Group (Hanover)issued two checks totaling $350,000 made

jointly payable to Grand Rios Investments, LLC (Grand Rios), Northeast Bank, and

Alex N. Sill Company. Without Northeast Bank’s endorsement, knowledge, or

consent, Wells Fargo Bank, N.A. (Wells Fargo), paid the full amount of the checks

to Grand Rios. Northeast Bank brought suit against Hanover and Wells Fargo. The

district court granted Hanover’s motion to dismiss the counts of the complaint

pertaining to Hanover. Northeast Bank and Wells Fargo both filed motions for

summary judgment. The district court granted summary judgment in favor of

Northeast Bank and denied Wells Fargo’s motion for summary judgment. Wells

Fargo now appeals, arguing that while its payment constituted conversion under the

Uniform Commercial Code, see Minn. Stat. § 336.3-420, Northeast Bank has not

suffered any damages because it was subsequently paid the full amount of the debt

for which the two checks were security. We agree with Wells Fargo, and therefore

we reverse the district court’s grant of summary judgment to Northeast Bank and

remand this matter with instructions to enter judgment in favor of Wells Fargo.

I.

In 2003, Northeast Bank issued an $18 million construction loan to an entity

to construct a hotel and waterpark in Brooklyn Park, Minnesota. The hotel and

waterpark struggled, and eventually that entity defaulted on its obligations. In 2010,

Grand Rios purchased the hotel and waterpark for $5 million. Part of the purchase

price included Grand Rios’s assumption of $4.61 million of the debt owed to

Northeast Bank by the original owner. Grand Riossecured this obligation by, among

other things, (1) personal guaranties from Grand Rios’s three principals, (2) a

mortgage of the hotel and waterpark, and (3) Grand Rios’s obligation under the

mortgage to maintain certain property insurances for Northeast Bank’s benefit. As

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relevant here, Grand Rios purchased a property, liability, and business-interruption

policy from Hanover. 

In December 2010, the roof of the hotel and waterpark was damaged by a

snowstorm. Grand Rios hired Alex N. SillCompany to prepare, submit, and negotiate

any claims submitted to Hanover. On February 15, 2011, Hanover issued a check in

the amount of $100,000 made payable to “Alex N. Sill Company and Grand Rios

Investment LLC and Northeast Bank” to cover costs associated with mitigating the

damage caused by the leaking roof. On February 25, Grand Rios presented this check

to Wells Fargo, and although the check did not contain Northeast Bank’s

endorsement, Wells Fargo accepted the check for deposit into Grand Rios’s account. 

On March 29, 2011, Hanover issued an additional check, this time for

$250,000, to the same joint payees. Again, Grand Rios presented the check to Wells

Fargo without Northeast Bank’s endorsement, and Wells Fargo again accepted the

check for deposit into Grand Rios’s account. Grand Rios did not notify Northeast

Bank of the issuance of these checks prior to deposit. 

By April 2011, Northeast Bank was threatening Grand Rios with foreclosure

due to Grand Rios’s repeated failure to make mortgage payments. In June 2011,

Northeast Bank, Grand Rios, and the three guarantors entered into a Settlement

Agreement under which Grand Rios and the three guarantors agreed to a voluntary

foreclosure, to assign all insurance proceeds to Northeast Bank, to pay $50,000 to

Northeast Bank, and to allow a state court to appoint a receiver for the hotel and

waterpark. An escrow account was established to cover operating costs of the hotel

and waterpark. Grand Rios paid the $50,000 it agreed to pay under the Settlement

Agreement into the escrow account, and Hanover made additional insurance

payments of approximately $1.2 million into the escrow account. As of July 31,

2011, Grand Rios owed Northeast Bank $4,993,226.24. On August 1, 2011,

Northeast Bank purchased the property in a sheriff’s sale for $4,606,157.21, and this

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sale price was credited against the mortgage indebtedness Grand Rios owed to

Northeast Bank. After the receivership was cancelled, Northeast Bank received

$596,299.27 fromthe escrow account. Thus, Northeast Bank received approximately

$200,000 more than the debt Grand Rios owed. Northeast Bank later sold the

property to CarMax. 

Northeast Bank initiated this action against Wells Fargo, seeking to recover

$350,000 on the theory of conversion. The parties agreed that Wells Fargo had

improperly converted the checks. On cross-motions for summary judgment, the

district court rejected Wells Fargo’s argument that allowing Northeast Bank to

recover the $350,000 would constitute a second recovery on the same claim. The

district court granted Northeast Bank’s motion for summary judgment and denied

Wells Fargo’s motion for summary judgment. Wells Fargo appeals. 

II.

We review a district court’s decision on cross-motions for summary judgment

de novo. See J.E. Jones Constr. Co. v. Chubb & Sons, Inc., 486 F.3d 337, 340 (8th

Cir. 2007). “Summary judgment is appropriate when, viewing the facts in the light

most favorable to the non-movant, there are no genuine issues of material fact and the

movant is entitled to judgment as a matter of law.” Id. We apply the substantive law

of Minnesota to this action. See Chew v. Am. Greetings Corp., 754 F.3d 632, 635

(8th Cir. 2014) (“Because we are a federal court sitting in diversity, we apply the

substantive law of the forum state.”). 

The parties agree that the relevant statute is Minnesota Statutes section 336.3-

420 (adopting the Uniform Commercial Code section 3-420), which states that “the

measure of liability [for conversion] is presumed to be the amount payable on the

instrument, but recovery may not exceed the amount of the plaintiff’s interest in the

instrument.” They disagree about what is necessary to rebut the presumption as to

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damages. Wells Fargo argues that Northeast Bank’s recovery must be limited to its

actual damages and because Northeast Bank did not suffer actual damages, it is not

entitled to recover from Wells Fargo for the conversion. Northeast Bank responds

that to rebut the presumption, there must be evidence that the proceeds from the

converted funds reached the intended recipients. In other words, absent evidence that

Grand Rios paid $350,000 to Northeast Bank towards the loan debt, the presumption

is not rebutted and the district court’s grant of summary judgment must be affirmed. 

In American State Bank, we explained “the [UCC] and its Commentary give

no guidance as to how the presumption should be applied to [the] issue [of the

measure of liability]” and thus “courts applying the UCC have determined when and

how the presumption may be rebutted in accordance with more general state law

damage principles.” Am. State Bank v. Union Planters Bank, N.A., 332 F.3d 533,

536-37 (8th Cir. 2003). We then applied Arkansas law to determine “whether the

conversion plaintiff may recover as damages the face amount of the instrument even

if that amount exceeds the actual loss.” Id. at 536. Ultimately, we remanded the case

to the district court to determine whether payments made to the conversion plaintiff

from a third party fell within Arkansas’s collateral source rule as a payment “wholly

independent of the tortfeasor” or would instead reduce the tortfeasor’s liability. Id.

at 538. 

As in Arkansas, Minnesota applies the same Restatement (Second) ofTorts that

was at issue in American State Bank. Under that Restatement:

A payment made by a tortfeasor or by a person acting for him to a

person whom he has injured is credited against his tort liability, as are

payments made by another who is, or believes he is, subject to the same

tort liability.

Restatement (Second) of Torts § 920A(1); see VanLandschoot v. Walsh, 660 N.W.2d

152, 155 (Minn. Ct. App. 2003) (adopting section 920A(1) and holding that payments

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from tortfeasor’s insurer are credited to the tortfeasor); see also Leamington Co. v.

Nonprofits’ Ins. Assn., 661 N.W.2d 674, 679 (Minn. Ct. App. 2003) (recognizing

VanLandschoot’s adoption of section 920A(1) and holding that funds received from

a tortfeasor be applied against any recovery from the tortfeasor’s insurer). 

We agree with Wells Fargo’s argument that the settlement Northeast Bank

received from Grand Rios, who is a joint tortfeasor in this conversion action, must be

credited against Wells Fargo’s liability. As we held in American State Bank, “[i]n

general, ‘payments made by another who is, or believes he is, subject to the same tort

liability’ are credited against a tortfeasor’s liability.” 332 F.3d at 538 (quoting

Restatement (Second) of Torts § 920A(1)). No one disagrees that Grand Rios was

also liable for conversion of the two checks. Northeast Bank attempts to distinguish

American State Bank on the basis that Grand Rios never made a mortgage payment

after the conversion, and thus the converted funds never reached Northeast Bank. 

This difference does not take this matter outside of the reasoning of American State

Bank and the Minnesota cases adopting the Restatement (Second) of Torts. As of

July 31, 2011, Grand Rios had paid $50,000 in a guarantor’s payment and still owed

Northeast Bank $4,993,226.24. Northeast Bank cannot show that it suffered actual

loss in this conversion because it received a full payment of its debt through a

combination of the foreclosure sale amount of $4,606,157.21 and the assignment of

the insurance proceeds,which resulted in Northeast Bank receiving $596,299.27 from

the escrow account. Thus, Wells Fargo has successfully rebutted the section 336.3-

420 presumption as to the measure of liability in this conversion and to allow the

district court’s decision to stand would result in a double recovery to Northeast Bank. 

III.

Accordingly, we reverse the district court’s grant of summary judgment to

Northeast Bank and its denial of summary judgment to Wells Fargo. We remand this

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matter to the district court with directions to enter judgment in favor of Wells Fargo.

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