Opinion ID: 3051811
Heading Depth: 1
Heading Rank: 1

Heading: analysis

Text: The standard of review. Cass argues that the standard is abuse of discretion, Nationwide that it is de novo. Nationwide has the better of the argument as to our review of the instructions given the jury. The issues as to the instructions were issues of law, not fact. Review is de novo. Navellier v. Sletten, 262 F.3d 923, 944 (9th Cir. 2001). What is not an issue. Both sides agree that Cass is not an account debtor as defined by the U.C.C. What is at issue. (a) Agency. Cass denies that there was proof that it was a paying agent for the account debtors. Cass 4528 NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS. made this denial in argument to the trial court and again in oral argument to us. The argument is succinctly put in its brief on this appeal: Nationwide presented no evidence showing that Cass was the agent of the account debtor or that Cass somehow “stands in the shoes of the account debt- or.” Nationwide failed to prove that any such agency relationship existed or that Cass agreed to “stand in the shoes of the account debtor” so that Cass was required to pay Nationwide’s factored invoices. Nationwide argues to the contrary. Cass’s self-description is that it is a payment service. It is as a payment service that it describes itself in the hold-harmless agreement. In the course of the trial Cass agreed that it was the agent for payments by shippers. The trial court concluded: The parties agree that Defendant was the account debtor’s agent. Accordingly, this Court finds that Plaintiff may refer to Defendant as an agent of the account debtor because it will simplify the description of Defendant’s role in a typical factoring transaction. The court instructed the jury that the following facts have been “admitted by the parties and require no proof:” Cass is a freight invoice payment service which is typically hired by shippers or manufacturers to handle the processing and payment of their freight invoices. The shipper agrees to pay Cass the funds needed to pay all of the shipper’s verified transportation invoices, and Cass, in return, forwards those funds to the carrier or its designated agent to pay the out- standing invoices. NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS. 4529 It may be said that the contract of agency was not in evidence and that we do not know every term of it. But we do know that Cass was not an agent to receive goods, ship goods, or collect damages for the shipper. As Cass described itself, it provided “payment service.” It provided such service to account debtors that had a statutory duty to pay for goods they received. To pretend that the nature of the agency was unknown is to engage in fantasy. The reason the account debtor made Cass its agent was to discharge its obligation to pay. Cass accepted that obligation as its business. That Cass should, on this appeal, argue that it was not an agent underscores the weakness of its case. (b) The place of the U.C.C. According to Cass, the U.C.C. is “simply irrelevant.” Once it is agreed that Cass is not an account debtor, Cass claims that the U.C.C. disappears from the case. Again, the argument points to the weakness of Cass’s position. Nationwide’s case is comprehensible only if the U.C.C. is understood as relevant. The U.C.C. imposed on the shippers as account debtors an absolute duty to pay the freight invoices of which Nationwide was the assignee. The shippers could not duck the duty by an arrangement for payment that left their paying agent with discretion to pay or not. Accepting agency to pay, Cass accepted the obligation of the account debtors to pay. The logic and force of Nationwide’s argument are compelling. It is not suing in contract but in tort against an agent which improperly refused to fulfill an obligation it had undertaken and thereby interfered with Nationwide’s relationships with its clients. The rulings of the district court. Despite instructing that Cass was “a freight invoice payment service,” the district 4530 NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS. court refused Nationwide’s requested instructions on the law of agency: Ms. Wright (Counsel for Nationwide): First of all, we had proposed some basic agency instructions that have not been included, specifically number ten, which defines what an agent is, and I would state that there has definitely been evidence in this trial that Cass was acting as an agent. And most importantly is our instruction number 12 which makes it clear that an agent is liable in tort just as much as the principal, and I think that’s important because they’re probably going to argue it in closing, we’re just an agent. So I think it’s key and important, and there’s definitely evidence as well as inferences at this trial to support such an instruction. The Court: Counsel? Mr. Trelz: Your Honor, there has been no evi- dence whatsoever of our agency relationship with a shipper client. There has been no proof of the course and scope of that agency relationship. In fact, [Nationwide’s administrator] testified that he had no knowledge of the terms of the agreements between Cass and its shipper. To have an agency instruction under those circum- stances, I think, is just absolutely wrong. There have been references in the hold harmless agreement that we’re a payment agent. That doesn’t specify the course and scope of our agency relationship. NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS. 4531 What are the terms? Under what — under what circumstances are we required to pay? That evidence is not in this case, and that instruction was properly excluded from this case. The Court: Thank you. Your objection is noted, then, Ms. Wright. Next objection? ... Ms. Wright: The next one, of course, is about the UCC, our last one. We had proposed instructions 23 and 24. The rea- son we had done that is, as you know, your Honor, defense had filed several motions in limine that were granted that no one could talk about the UCC in this trial, and we abided by that because we knew we could get a jury instruction in, and how that specifically relates is to your instruction [on the Restatement (Second) of Torts § 767] that we already have. Subpart A of that instruction talks about the nature of the defendant’s conduct, and this goes to justification defense, or sometimes considered the improper prima facie element. And the cases that I cited in our sources for this instruction specifically talked about when a defendant violates a statutory provision, that is evidence of improper nature of the conduct. So it’s important to us that we somehow show to the jury how the UCC would apply to this situation. Yes, Cass is an agent, but in fulfilling the duties given to it by its principal, it should be following the 4532 NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS. UCC, and since we weren’t able to talk about it, it’s my only other way to get it in front of the jury, and I wouldn’t have a problem with limiting some of the definitions in 23, our instruction 23. I tried to include just those words that would have come up in trial because certain words have specific meanings in this type of freight bill transaction, bill of lading, defines what it is, but — we can limit some of those. But, obviously, what’s really important to us is our instruction 24 which is UCC 9-406 which says after notice, you pay the assignee, and that’s the key to this whole case. Now, I really think we would be substantially prejudiced if we could not discuss the UCC in front of the jury. The Court: The Court did not include the UCC instructions because of its prior finding that the UCC is not applicable because the defendant is not an account debtor, and therefore it will not include an instruction on the UCC. Your objection is noted. The errors of the majority opinion. The majority states: “Nationwide has not identified any legal authority extending the obligations of § 9-406 to the agent of an account debtor.” The principle of agency at the heart of Nationwide’s case is that an agent for paying the debt of its principal is bound to pay it if the principal is bound to pay it and acts improperly in holding up payment to obtain its own advantage. Both sides acknowledge, and the Restatement counsels, that to determine whether Cass acted improperly, “the real NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS. 4533 question is whether [its] conduct was fair and reasonable under the circumstances.” Restatement (Second) of Torts § 767, comment (g), subsection j. The Restatement further explains that “[r]ecognized standards of business ethics and business customs and practices are pertinent, and consideration is given to concepts of fair play and whether the defendant’s interference is not ‘sanctioned by the rules of the game.’ ” Id. “The jury determines whether [Cass’s] interference with [Nationwide’s] advantageous relation was intentional or not.” Id. at subsection l. Nationwide argues that U.C.C. § 9-406 constitutes the “rules of the game” for the factoring industry. Properly instructed, the jury could have found that the shipper clients of Cass had an absolute duty under the U.C.C. to pay the carriers which shipped their goods; that Nationwide had been assigned all the rights of such carriers; that Cass had no right to demand a payment or any agreement as a condition for discharging a debt it was being paid to discharge and had agreed to discharge; and that Cass had acted unjustifiably to injure Nationwide as its competitor. The importance of the issue. Cass contends strenuously that Nationwide’s position would destroy its business: Under Nationwide’s outrageous view of UCC § 9- 406, the liability of payment agents would increase astronomically. Nationwide’s position would require every payment service to guarantee the obligation of the account debtor. Accordingly, if the account debtor were unable to fulfill its obligation, the payment service or agent would have to step in and make good on the debt. This result likely would cause the end of the payment service industry because account debtors’ agents could not afford to assume the debt or would have to increase their fees beyond ability of the account debtor to afford the payment service. 4534 NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS. Neither result is acceptable. Payroll payment services would be deemed to “stand in the shoes” of the employer, thereby making the payment service the obligor of the employees’ wages in the event the employer cannot pay. Likewise, banks that offer bill paying services would also be deemed to “stand in the shoes” of the customer so that if the customer cannot pay the bills, the bank would have to make good on the debt. These two simple examples dem- onstrate the absurdity of Nationwide’s position and the reckless nature with which it urges this court to adopt it. To the contrary, Cass’s position, upheld, would put a severe crimp in the credit functioning of factors. Cass’s position is that the paying agent of an account debtor may hold up the factor, may get something for nothing, and without offering any consideration in exchange may walk away with a holdharmless agreement. The account debtor itself could not get such an agreement as a condition for payment; the account debtor, making a mistake as to the entity it pays, has to pay twice. U.C.C. § 9-406. The account debtor’s agent is not in a better position. Of course, the agent does not step into its principal’s shoes in the sense that it must make payment if its principal defaults. The agent is in the principal’s shoes in the sense that it cannot insert conditions of its own before making payment. Cass’s two “simple examples” limp. If the payroll service would not pay an employee unless he deposited his check in a particular bank or agreed to hold the payroll service harmless if it should mistakenly pay the wrong employee, or if a bank would not pay a bill unless the payee deposited the payment with it, they would act without justification. Obviously, a payroll service could not demand a hold-harmless agreement be signed by every employee it paid. Obviously, a bank paying a customer’s bills could not require each recipient of a check to agree to hold the bank harmless if the bank erred. NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS. 4535 An illustration contrary to Cass’s position comes from FRED H. MILLER & ALVIN C. HARRELL, THE LAW OF MODERN PAY- MENT SYSTEM AND NOTES (West Group 2002): “[I]f a payor bank refuses to pay and (dishonors) an item that is properly payable, it may be liable for wrongful dishonor under [U.C.C.] § 4-402, unless it has some additional defense or excuse.” Id. at 406. “In other words, the bank cannot simply refuse to pay at its own discretion, without a further reason.” Id. at 418. Cass and Nationwide’s relationship is analogous to that of a bank and the presenter of the check for payment. Of course, the freight invoice assigned to Nationwide is not a negotiable instrument. There may be defenses to payment. But if there were defenses, it was incumbent on Cass to plead and prove them. Cass has a way of protecting itself from ruin: obtain a hold-harmless agreement from the shipper for whom it acts. Whether the district court’s errors were prejudicial. “An error in instructing the jury in a civil case requires reversal unless the error is more probably than not harmless.” Swinton v. Potomac Corp., 270 F.3d 794, 805 (9th Cir. 2001). It is unclear that this jury would have reached the same verdict. A crucial element of the torts at issue requires Nationwide to show that Cass intentionally and improperly interfered with Nationwide’s business relationships. Nationwide’s theory of the case — that Cass acted improperly by conditioning payment on a hold-harmless agreement — could not be understood without evidence of the shippers’ payment obligations under the U.C.C. Nationwide was fatally prejudiced by the court’s failure to grasp the correctness of its objections.