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### STATE OF MICHIGAN

COURT OF APPEALS

HANTZ FINANCIAL SERVICES, INC.,

Plaintiff/Appellant-Cross Appellee, UNPUBLISHED October 30, 2014

v No. 314923 Midland Circuit Court CHEMICAL BANK, LC No. 09-005872-CZ

Defendant/Appellee-Cross Appellant.

Before: F ITZGERALD , P.J., and G LEICHER and R ONAYNE K RAUSE , JJ.

P ER C URIAM

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This case arises from the embezzlement of approximately $2.6 million from plaintiff’s clients by its former employee, Michael Laursen. Pl aintiff appeals as of ri ght from a trial court order finding that defendant’s failure to exer cise ordinary care when accepting checks from Laursen for deposit into a checki ng account at Chemical Bank cont ributed to plaintiff’s loss to the extent of $98,945.95. Defendant cross-appeals fr om the same order. For the reasons stated below, we reverse.

I. STATEMENT OF FACTS

Plaintiff employed Laursen as an investment representative from 1999 until 2008. In 2003, Laursen launched a scheme to embezzle f unds primarily by having clients write investment checks intended for plaintiff to “H FS,” then taking the checks and depositing them into an account at Chemical Bank opened in the na me of “Henry Firearm Services,” also “HFS,” and withdrawing the funds for personal use. After the embezzlement was discovered, plaintiff filed suit against defendant al leging conversion under the Un iform Commercial Code (UCC), MCL 440.3420, failure to exercise ordinary care, MCL 440.3404, statutory conversion, MCL 600.2919a, common-law conversion, and negligence. A jury found that plaintiff suffered $989,456.50 in damages, that defendant failed to exer cise ordinary care in depositing the checks at issue, and that defendant proximately caused pl aintiff's damages. However, because the court wrongly instructed the jury to allocate fault a ccording to the comparative fault system of Michigan’s Tort Reform Act rather than the U CC scheme specifically related to the conversion of instruments, the jury attributed fault to plai ntiff (30%), to Laursen (30%), to Laursen’s wife (30%), to plaintiff’s investors (3 %), and to defendant (7%). The jury returned a verdict against-2- defendant for $69,262.16. When the legal error wa s discovered, plaintiff moved for entry of judgment for the full amount of its damages.

The trial court denied plaintiff’s motion, v acated the jury’s verdict, and ordered a new trial. The parties stipulated to a bench trial on th e record created during the jury trial. By this point, the initial five charge s had been reduced to two: UCC conversion, MCL 440.3420, and common-law conversion. After the bench trial, the trial court issued an opinion and order finding that defendant had failed to exercise ordinary care in accepting Laursen’s checks for deposit, that defendant’s failure had substantiall y contributed to plaintif f’s loss, and that the extent of defendant’s contributi on to plaintiff’s loss was $98,945.95.

II. ANALYSIS

Plaintiff argues that the trial court erred in denying its motion for entry of judgment, vacating the jury’s verdict, and ordering a new trial. We disagree. Plaintiff’s motion for entry of judgment was essentially a motion for judgment notwithstanding the verdict (JNOV), and we review a trial court’s ruling on a motion for JNOV de novo. Attard v Citizens Ins. Co of America , 237 Mich App 311, 322; 602 NW2d 633. We revi ew a trial court’s d ecision to grant a new trial for an abuse of discretion. Kelly v Builders Square

, Inc , 465 Mich 29, 34; 632 NW2d 912 (2001). A trial court does not abuse its discre tion if its decision falls within the range of principled outcomes. Maldonado v Ford Motor Co , 476 Mich 372, 388; 719 NW2d 809 (2006).

Citing Johnson v Auto Owners Ins Group , 202 Mich App 525; 509 NW2d 538 (1993), plaintiff argues that the remedy for the trial court’s instructional error was to ascertain and achieve the intentions of the jury. Johnson v Auto Owners Ins Group , 202 Mich App 525, 528; 509 NW2d 538 (1993) (explaining that “[ w]here the intention of the jury is ascertainable despite ambiguities in its verdict, the court may amend th e verdict, correcting manifest errors of form, and sometimes matters of substance, to make it conform to the intention of the jury”). Here, plaintiff contends, the jury found that defendant failed to exercise ordinary care and proximately caused plaintiff’s damages. Ther efore, plaintiff asserts, the tr ial court should have disregarded the jury’s inappropriate fault a llocation and entered judgment for plaintiff in the full amount of the damages, plus interest and costs.

We do not think the trial court could have ascertained the jury’s intention simply by disregarding the inappropriate fa ult allocation. It is true th e jury found that defendant had proximately caused plaintiff’s damages, and that plaintiff’s damages amounted to $989,459.50. However, it is equally true that the jury’s verdict clearly shows it did not intend to hold defendant liable in conversion for $989,459.50. The jury’s answers to que stions seven through ten of the jury verdict form indicate that the ju ry believed defendant had proved its defenses by a preponderance of the evidence, a finding that contradicts plaintiff’s insi stence that the jury considered and rejected defendant's affirmativ e defenses. Under the circumstances, it is impossible to conclude without speculation that a properly instructed jury would have rendered a $989,459.50 verdict against defendant. Under MCR 2.610(B)(1), the court’ s options were to allow the verdict to stand, enter the verdict plaintiff requested, or order a new trial. Because an error of law occurred in the proceedings, MCR 2.611(A)(1)(g), which may have resulted in plaintiff being significantly undercompensated, we do not find that the trial court abused its discretion by orderi ng a new trial.-3- Plaintiff next argues that the trial court erred by applying the UCC defenses of MCL 440.3404 and MCL 440.3405 to reduce the amount of th e judgment against defendant. Because we find MCL 440.3405 applicable to the facts of this case, we disagree. We review questions of statutory interpretation and the applicability of a statute de novo. Adams Outdoor Adver

, Inc v City of Holland , 463 Mich 675, 681; 625 NW2d 377 (2001). We review a trial court's findings of fact in a bench trial for clear error and its conc lusions of law de novo. Alan Custom Homes

, Inc v Krol , 256 Mich App 505, 512; 667 NW2d 379 (2003). A finding is clearly erroneous where, after reviewing the entire record, we are left with a defi nite and firm conviction that a mistake has been made. Id

. MCL 440.3404, the so-called “imposter” defens e to UCC conversion, applies where an imposter induces a payor to issue a check to the imposter by impersonating the payee of the check or someone authorized to act on behalf of the payee, and stipulates that an endorsement made in the name of the payee is effective as that of the payee. MCL 440.3404(1). Because Michael Laursen was in fact wh at he purported to be—an i nvestment planner with Hantz Financial Services—we find that the trial court cl early erred when it found this defense applicable. However, the trial cour t did not err in applying MCL 440.3405.

MCL 440.3405, also known as the “responsible employee” defense to UCC conversion, provides that where an employee with responsibilities as specifi ed by the statute fraudulently endorses a check in the name of the payee, the e ndorsement is effective as that of the payee. MCL 440.3405(2). Among the specified responsibilities are those fo r processing “instruments received by the employer for bookkeeping purposes, for deposit to an account, or for other disposition.” MCL 440.3405(1)(c). A check is considered endorsed in the name of the payee if the check, whether or not actuall y signed, “is deposited in a depos itary bank to an account in a name substantially similar to the name of that person.” MCL 440.3405(3)( ii ).

Plaintiff argues that the responsible employ ee defense is inapplicable because Laursen was not an officer, did not serv e in a managerial capacity, and had no authority to process or endorse checks on plaintiff's behalf . Plaintiff contends that the only authority Laursen had with respect to client checks was to re ceive them. We find, however, that the trial court did not err in its determination that Laursen was a re sponsible employee under MCL 440.3405. Laursen advised investors regarding whether to write their checks to plaintiff for deposit into a client trust account or to the product companies for other disposition. Once clients drafted their investment checks, Laursen was responsible fo r initiating the proce ss that would end in their recordation in plaintiff's ledger and their dispatch to the appropriate account. The trial testimony of plaintiff's clients revealed the pivotal ro le Laursen had in determining when clients wrote checks, how many they wrote, to whom they wrote their checks, and what they did with third-party redemption checks. All of this establishes that Laursen did more than just “receive” checks.

The trial court heard conflicting expert testimony regarding whether “HFS” was “substantially similar” to Henry Firearm Services. Plaintiff’s expert insisted that checks made out to acronyms generally fell outside the “substa ntially similar” concep t, whereas defendant’s experts testified that it was a reasonable commerc ial standard in the banking industry to accept checks payable to acronyms if the bank knew the customer well enough to determine that the check was acceptable. Because record evidence s upports the trial court’s finding that the checks-4- payable to “HFS” and deposited by Laursen into the account for Henry Firearm Services were deposited into an account with a substantially similar name , we find no clear error.

Defendant argues on cross-appeal that the trial court erred in admitting evidence of check transactions for which recovery was barred by the applicable statut e of limitations, and in using those transactions as the basis for its finding that defendant had not exercised ordinary care with transactions occurring within the limitations period.

We review a trial court's evidentiary decisions for abuse of discretion. Taylor v Kent Radiology , 286 Mich App 490, 519; 780 NW2d 900 (2009). A trial court has not abused its discretion if its decision falls within the range of principled outcomes. Maldonado

, 476 Mich at 388. We review the trial court’s findings of fact for clear error, MCR 2.618(C), and its conclusions of law de novo. Alan Custom Homes

, 256 Mich App at 512.

All relevant evidence is admissible unless constitutionally barred, barred by the Rules of Evidence or other rules adopted by the Michigan Supreme Court, or unless its probative value is substantially outweighed by the da nger of unfair prejud ice. MRE 402, 403. In the instant case, the trial court did not abuse its discretion by admitting evidence of check transactions outside the limitations period as background information to Laursen’s scheme. Campbell v Human Services Dep ’ t , 286 Mich App 230, 238; 780 NW2d 586 (2009). Of the approximately 125 checks Laursen deposited into his account with defendant , he deposited roughly 60 of these outside of the limitations period. Of these 60, the trial co urt admitted 14 with defined characteristics in order to provide background information regardi ng the extent and development of Laursen’s scheme and defendant’s oppor tunities to stop it.

Although the checks were relevant and admitte d for a proper purpose, and the trial court sought to minimize prejudice to defendant by adm itting just 14 of the 60 checks, we agree with defendant that the trial court improperly relied on those 14 checks from outside the limitations period to support its finding that defendant fa iled to exercise ordinary care within the limitations period.

With respect to the liability of the person paying or taking an instrument fraudulently endorsed by a “responsible employee,” MCL 440.3405(2) stipulates the following:

If the person paying the instrument or taki ng it for value or for collection fails to exercise ordinary care in paying or ta king the instrument and that failure substantially contributes to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary car e to the extent the failure to exercise ordinary care contributed to the loss.

According to the statute, tw o conditions must be met before a plaintiff may recover losses from the conversion of an instru ment: (1) the defendant must ha ve failed “to exercise ordinary care in paying or taking the instrument,” and (2) that failure must have substantially contributed to the plaintiff’s loss from the fraud. MCL 440.3405(2). Once these two conditions are met, the plaintiff may recover from the defe ndant to the extent defendant’s failure to exercise ordinary care contributed to plainti ff’s loss. MCL 440.3405(2).-5- In the instant case, the trial court found that defendant had failed to exercise ordinary care, but only with regard to accepting those 14 checks for which recovery was barred by the statute of limitations. With respect to the ch ecks falling within the limitations period and for which plaintiff was seeking recovery , the court specifically stated th at defendant had not failed to exercise ordinary care. In othe r words, defendant exercised ordina ry care in its transactions of those checks for which plaintiff was seeking rec overy. Therefore, under the plain language of MCL 440.3405(2), plaintiff is not en titled to recover for any of the checks defendant accepted during the statutory period because defendant exerci sed ordinary care in accepting those checks.

Plaintiff relies on Campbell to argue that the 14 checks from outside the limitations period can support the court’s finding that defendant failed to exercise ordinary care within the limitations period. However, although we concluded in Campbell that acts occurring outside the limitations period may be admitted as background evidence subject to Michigan’s rules of evidence and the trial court’s discretion, we specifically stated that “a plaintiff cannot recover for an injury suffered as a result of a prior act occurring outside the limitations period.” Campbell

, 286 Mich App at 238. According to the trial court’s find ings, plaintiff suffered no injury during the limitations period because defendant exercised ordinary care in accepting the checks presented by Laursen for deposit.

III. CONCLUSION

For these reasons, we find that the trial cour t did not err in denying plaintiff’s motion for entry of judgment and in a pplying MCL 440.3405. Nor did it a buse its discretion by admitting into evidence 14 checks that fell outside the lim itation period. However, given the trial court’s specific finding that defendant exercised ordinary care in accepting the checks Laursen deposited during the limitation period, under the plain language of MCL 440.3405, defendant is not liable to plaintiff for losses suffered because of Laur sen’s embezzlement, and we reverse the trial court’s $98,945.95 judgment in favor of plaintiff.

/s/ E. Thomas Fitzgerald /s/ Elizabeth L. Gleicher /s/ Amy Ronayne Krause