Court Opinion

ID: 3051811
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:37:38.604747+00
Date Added: 2024-06-11T11:49:26.422045
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

NATIONWIDE TRANSPORT FINANCE, a        
California general partnership,              No. 06-15653
                Plaintiff-Appellant,
                 v.                           D.C. No.
                                           CV-04-00008-BES
CASS INFORMATION SYSTEMS, INC.,               OPINION
               Defendant-Appellee.
                                       
        Appeal from the United States District Court
                 for the District of Nevada
        Brian E. Sandoval, District Judge, Presiding

                   Argued and Submitted
        January 14, 2008—San Francisco, California

                    Filed April 28, 2008

     Before: John T. Noonan, William A. Fletcher, and
              Sandra S. Ikuta, Circuit Judges.

                 Opinion by Judge Ikuta;
                 Dissent by Judge Noonan

                            4499
4502      NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.

                        COUNSEL

Lauriann Wright, Law Offices of Thomas B. McCullough, Jr.,
Marina del Rey, California, for the plaintiff-appellant.

Eric M. Trelz, Polsinelli Shalton Welte Suelthaus PC, St.
Louis, Missouri, for the defendant-appellee.

                         OPINION

IKUTA, Circuit Judge:

  Plaintiff-appellant Nationwide Transport Finance (Nation-
wide) appeals the district court’s judgment following a jury
           NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.         4503
verdict in favor of defendant-appellee Cass Information Sys-
tems, Inc. (Cass) on Nationwide’s claims for intentional inter-
ference with contractual relationship, intentional interference
with prospective economic advantage, breach of implied con-
tract, and account stated. We have jurisdiction pursuant to 28
U.S.C. § 1291, and we affirm.

                                 I

   Prior to trial, the parties agreed to the basic facts underlying
this dispute:

    Nationwide is a finance company which typically
    purchases freight invoices from carriers or truckers
    who assign their payments under those purchased
    invoices directly to Nationwide, a type of account
    receivable financing known as factoring.

    Cass is a freight invoice payment service which is
    typically hired by shippers or manufacturers to han-
    dle the processing and payment of their freight
    invoices.

    A typical transaction in this dispute involves a ship-
    per, usually a manufacturing company, who needs its
    products transported across the country by a trucking
    company, the carrier.

    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 invoice.

    The carrier, on the other hand, engages Nationwide
    to finance its invoices for the transportation services
    rendered to the shipper.
4504      NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
    Once the transportation services are complete, the
    carrier forwards its resulting invoice to Nationwide.

    Nationwide sends the invoice to the shipper or, if the
    shipper uses Cass for its transportation invoice pro-
    cessing, to Cass for payment.

    Nationwide dealt continuously with Cass for over 17
    years, from 1986 until approximately mid summer
    2003.

    During the parties’ 17-year relationship, Nationwide
    received prompt, regular payments from Cass on the
    transportation invoices it purchased from various
    interstate carriers.

    Occasionally, over the parties’ 17-year relationship,
    Cass erroneously sent a payment directly to a carrier
    when it should have gone to Nationwide.

    When Cass erroneously misdirected a payment to a
    carrier, Cass would make efforts to resolve the situa-
    tion and ensure that Nationwide got paid.

    In 2003, the parties discovered that several assigned
    invoices had erroneously been paid directly to a car-
    rier called FWC, Inc. During the resolution of the
    FWC, Inc., situation, Cass asserted its rights under a
    hold harmless agreement signed by Nationwide in
    1986.

    Eventually, Nationwide received payment of the
    $25,000 misdirected to FWC, Inc.

    After Cass asserted its rights under the 1986 hold
    harmless agreement, Nationwide terminated the
    agreement. Nationwide refused to sign a new hold
    harmless agreement.
            NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.              4505
      On June 4th, 2003, Darla Haynes, Cass’s former
      files and documentation supervisor, informed
      Nationwide that any future invoices which Cass
      received from Nationwide would not be paid.

      Cass continues to refuse to make any payments to
      Nationwide. Nationwide continues to refuse to exe-
      cute a hold harmless agreement.

   Nationwide filed an action in the United States District
Court for the District of Nevada alleging various Nevada state
law causes of action against Cass on January 6, 2004. The
complaint included causes of action for (1) intentional inter-
ference with contractual relationship, and (2) intentional inter-
ference with prospective economic advantage,1 both based on
Nationwide’s theory that Cass’s conduct was at least partially
motivated by an intent to get Nationwide’s customers to use
Cass’s expedited payment service, which Nationwide alleges
is a competitor.

   At trial, Nationwide intended to show that Cass was liable
for both interference torts because its actions were “improp-
er,” as explained in the Restatement (Second) of Torts. Under
the Restatement, both interference torts include the element of
the absence of privilege or justification. The Restatement
defines this element as a requirement that a defendant’s con-
duct be “improper.” See Restatement (Second) of Torts § 767
cmt. a (1979) (“In each of these forms there is a requirement
that the interference be both intentional and improper.”); see
also id. cmt. b (discussing the ambiguity in whether the “im-
proper” element is treated as a prima facie element of the torts
or an affirmative defense).
  1
    The complaint also included claims for (1) negligent interference with
contractual relationship; (2) negligent interference with prospective eco-
nomic advantage; (3) breach of implied contract; and (4) account stated.
Both negligent interference claims were dismissed with prejudice prior to
trial.
4506         NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
   Over Cass’s objection, the district court ultimately adopted
Nationwide’s Restatement-based jury instructions for the
interference torts, and required Nationwide to prove that Cass
acted “improperly” or “without justification” for both torts.2
The Restatement uses a multi-factor test in determining
whether a defendant’s conduct is “improper.”3 In its effort to
   2
     With respect to intentional interference with prospective economic
advantage, Nevada law requires a plaintiff to prove the absence of privi-
lege or justification by the defendant, among other elements. Wichinsky v.
Mosa, 847 P.2d 727, 729-730 (Nev. 1993). However, Nevada has not yet
held that a plaintiff alleging intentional interference with contractual rela-
tionship must also prove the absence of privilege or justification. See Suth-
erland v. Gross, 772 P.2d 1287, 1290 (Nev. 1989) (setting forth the
elements of intentional interference with contractual relationship under
Nevada law). Nevertheless, Nationwide argued that this element should be
included in the interference with contract tort because it is part of the
Restatement approach to contractual interference, and Nevada state courts
often follow the Restatement approach to the interference torts. See, e.g.,
Las Vegas-Tonopah-Reno Stage Lines v. Gray Line Tours, 792 P.2d 386,
388 n.1 (Nev. 1990) (“[W]e favor the Restatement view that where the
interference is improper it is not privileged.” (citing Restatement (Second)
of Torts §§ 766B, 767 cmt. b (1979))); Crockett v. Sahara Realty Corp.,
591 P.2d 1135, 1136-37 (Nev. 1979) (citing Restatement of Torts § 768
& cmt. e (1939)). On appeal, neither party challenges the district court’s
decision to adopt Nationwide’s proposed jury instruction, which required
Nationwide to prove that Cass acted “improperly” or “without justifica-
tion” for both torts.
   3
     Restatement (Second) of Torts § 767 states:
      In determining whether an actor’s conduct in intentionally inter-
      fering with a contract or a prospective contractual relation of
      another is improper or not, consideration is given to the following
      factors:
      (a) the nature of the actor’s conduct,
      (b) the actor’s motive,
      (c) the interests of the other with which the actor’s conduct
      interferes,
      (d) the interests sought to be advanced by the actor,
      (e) the social interests in protecting the freedom of action of the
      actor and the contractual interests of the other,
      (f) the proximity or remoteness of the actor’s conduct to the
      interference and
      (g) the relations between the parties.
            NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.              4507
establish that Cass’s conduct was improper for both interfer-
ence torts, Nationwide focused on a factor set forth in
§ 767(a), the “nature of the actor’s conduct.” The official
comment discussing this factor notes that “[c]onduct specifi-
cally in violation of statutory provisions or contrary to estab-
lished public policy may for that reason make an interference
improper.” Id. cmt. c. Relying on this comment, Nationwide’s
theory at trial was that Cass’s conduct was improper because
it violated or was contrary to Uniform Commercial Code
(UCC) § 9-406,4 incorporated without alteration as Nevada
Revised Statute § 104.9406.

   UCC § 9-406 provides that after receipt of a valid notice of
assignment of an invoice, “the account debtor may discharge
its obligation by paying the assignee and may not discharge
the obligation by paying the assignor.” U.C.C. § 9-406. As the
term is used in Article 9 of the Uniform Commercial Code,
an “account debtor” is “a person obligated on an account,
chattel paper, or general intangible.” U.C.C. § 9-102(a)(3). A
shipper is an account debtor because it is obligated to make
good on its invoice for the amount the shipper owes to the
carrier. Under § 9-406(a), once a shipper receives a valid
notice that the carrier has assigned the shipper’s invoice to a
factor, the shipper can discharge its obligation by paying the
factor and may not discharge the obligation by paying the car-
rier. See U.C.C. § 9-406(a). The parties do not dispute that by
its terms, § 9-406 is applicable only to the account debtor.
Nor do the parties dispute that the shippers were the only
account debtors in this case.

   At trial, Nationwide based its claim that Cass’s conduct
was contrary to § 9-406 and thus improper on a legal theory
that Cass, as an agent of the shippers, stood in the shoes of the
shippers and had an unconditional obligation to pay Nation-
  4
   Nationwide states in its opening brief that Cass’s alleged violation of
UCC § 9-406 was also essential to Nationwide’s claims for breach of
implied contract and account stated.
4508       NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
wide once the shippers received a valid notice of assignment.
Therefore, Nationwide contended, Cass’s knowing refusal to
pay Nationwide on its assigned invoices violated § 9-406, and
Nationwide’s refusal to sign a new hold harmless agreement
could not excuse Cass’s refusal.

   To support this theory, Nationwide intended to introduce
the expert report and testimony of Robert Zadek, an expert on
the Uniform Commercial Code and related commercial law,
who would discuss how these laws related to the facts of this
case. Nationwide also intended to put David Carney, Nation-
wide’s credit administrator and co-owner, on the stand to tes-
tify regarding how the UCC is applied in the factoring
industry.

   On June 22, 2005, Cass filed a motion to strike Zadek’s
report and testimony, arguing that the entire report should be
stricken as inadmissible legal opinion, and alternatively, that
those portions that specifically discuss the law and its applica-
tion should be stricken. Relying on Federal Rule of Evidence
702 (establishing the criteria for admissibility of expert testi-
mony that will “assist the trier of fact to understand the evi-
dence or to determine a fact in issue”), the district court struck
“only those portions of the report that discuss the law and its
application.” The court did not excise sections that discussed
“industry conditions, standards, and practices,” or sections
that discussed factoring, so long as those sections did not cite
or apply the relevant law.

   Cass later filed a similar motion in limine on Rule 702
grounds to limit David Carney’s testimony. In granting the
motion, the district court precluded Carney from “discussing
the law or its application,” “referencing the UCC and other
law,” and “directly applying the UCC and other law to the
facts of this case.” The district court held that it would allow
“testimony regarding corporate norms.”

   Cass also filed a motion in limine to preclude Nationwide
from introducing any evidence that Cass is an “account debt-
           NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.        4509
or” under § 9-406 of the Uniform Commercial Code. Because
the parties did not dispute that Cass was not itself an “account
debtor,” the district court held that “any evidence that charac-
terizes [Cass] as an account debtor is irrelevant and inadmissi-
ble.” Also, because it was uncontested that Cass was an agent
of the account debtors (the shippers), the district court held
that Nationwide “may refer to [Cass] as an agent of the
account debtor because it will simplify the description of
[Cass’s] role in a typical financing transaction.” However, the
district court rejected Nationwide’s legal theory that § 9-406
imposed legal obligations on the payment agent of a shipper.
Therefore, the district court strictly limited the extent to which
Nationwide could describe Cass’s payment obligations:

    [Nationwide] may not refer to [Cass] as standing in
    the shoes of the account debtor. This is because
    [Cass] is merely an agent of the account debtor, and,
    although [Cass] does carry out some duties on behalf
    of the account debtor, [Cass’s] obligations do not
    parallel those of the account debtor. Thus, any refer-
    ence to [Cass] as standing in the shoes of the account
    debtor would create the impression that [Cass] has
    the same obligations as the account debtor. This
    impression would mislead the jury and create confu-
    sion regarding the true extent of [Cass’s] obligations
    in a typical factoring transaction. See Fed. R. Evid.
    403.

   Because it rejected Nationwide’s legal theory, the district
court also refused to give four of Nationwide’s proposed jury
instructions, namely: (1) a definition of “agent” and “princi-
pal”; (2) an instruction that “[a]n agent who does an act other-
wise a tort is not relieved from liability” because it acted on
the principal’s behalf; (3) definitions of various terms under
the UCC; and (4) an instruction on § 9-406, Nev. Rev. Stat.
§ 104.9406. The district court held that because § 9-406 did
not impose any obligations on Cass as a matter of law, the
4510          NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
instructions regarding agency, the UCC, and § 9-406 were not
applicable.

  After a six-day trial, a jury returned a verdict in favor of
Cass on every claim.

   Nationwide timely appealed, challenging the district court’s
orders excluding Zadek and Carney’s testimony, the order
precluding any reference to a payment agent “standing in the
shoes of an account debtor,” and the refusal to give its
requested jury instructions on the UCC and agency principles.
Nationwide also argues that the district court erred in its for-
mulation of Nationwide’s proposed instruction on § 767 of
the Restatement.

                                      II

   We first consider whether the district court erred in grant-
ing Cass’s motion to strike the expert report and testimony of
Robert Zadek and Cass’s motion in limine to limit David Car-
ney’s testimony under Rule 702 of the Federal Rules of Evi-
dence.5 “The district court’s decision to exclude expert
testimony is reviewed for an abuse of discretion.” United
States v. Alisal Water Corp., 431 F.3d 643, 660 (9th Cir.
2005). We also consider the admissibility of Carney’s testi-
mony as lay opinion. “The admissibility of lay opinion testi-
mony under Rule 701 is committed to the sound discretion of
the trial judge and his decision will be overturned only if it
constitutes a clear abuse of discretion.” United States v. Yaz-
  5
   Rule 702 states:
      If scientific, technical, or other specialized knowledge will assist
      the trier of fact to understand the evidence or to determine a fact
      in issue, a witness qualified as an expert by knowledge, skill,
      experience, training, or education, may testify thereto in the form
      of an opinion or otherwise, if (1) the testimony is based upon suf-
      ficient facts or data, (2) the testimony is the product of reliable
      principles and methods, and (3) the witness has applied the prin-
      ciples and methods reliably to the facts of the case.
          NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.       4511
zie, 976 F.2d 1252, 1255 (9th Cir. 1992) (internal quotation
marks omitted).

                               A

   Nationwide challenges the district court’s exclusion of por-
tions of Zadek’s report and testimony.

   [1] As a general rule, “testimony in the form of an opinion
or inference otherwise admissible is not objectionable because
it embraces an ultimate issue to be decided by the trier of
fact.” Fed. R. Evid. 704(a). “That said, an expert witness can-
not give an opinion as to her legal conclusion, i.e., an opinion
on an ultimate issue of law. Similarly, instructing the jury as
to the applicable law is the distinct and exclusive province of
the court.” Hangarter v. Provident Life & Accident Ins. Co.,
373 F.3d 998, 1016 (9th Cir. 2004) (internal citations and
quotation marks omitted); see also Fed. R. Evid. 702 (requir-
ing that expert opinion evidence “assist the trier of fact to
understand the evidence or to determine a fact in issue”).

   [2] Zadek’s original report contained numerous legal con-
clusions, most of which pertained to Nationwide’s theory that
Cass was obligated to follow § 9-406. For example, the report
stated:

    In acting as a Consignor’s [shipper’s] agent, Cass
    has no greater rights than the Consignor would have,
    except as may be modified by contract between Cass
    and Nationwide.

      . . . [A] primary duty of the Consignor, as the
    Account Debtor, and therefore of Cass as the agent
    of the Consignor, is to pay Nationwide, as assignee
    of the Accounts in which it has a security interest,
    and concerning which it has received a Notification.
    Neither the Cass-Consignor, nor Cass, may condition
4512       NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
    that payment obligation upon Nationwide entering
    into any other agreement. . . .

       Once a Cass-Consignor has received a Notifica-
    tion from Nationwide, its duties, and that of Cass, as
    its agent, are clear. It, and Cass, must pay Nation-
    wide.

The report repeatedly described Cass’s conduct as “wrong-
ful.”

   With respect to Zadek’s report and testimony, the district
court excluded the following legal explanations and conclu-
sions:

    (1) sections that discuss the UCC and/or apply the
    UCC to the facts of this case; (2) sections that dis-
    cuss non-UCC law and/or apply non-UCC law to the
    facts of this case; (3) sections that discuss agency
    law and/or apply agency law to the facts of this case;
    (4) sections that discuss the parties’ legal rights,
    duties, and obligations under the law; (5) sections
    that label the parties’ actions as ‘wrongful’ or ‘inten-
    tional’ under the law; and (6) sections that discuss
    the appropriate formula to calculate damages under
    the law.

However, the district court allowed Zadek to “discuss indus-
try conditions, standards, and practices,” as well as “factual
corporate norms.”

   [3] Nationwide argues that excluding this testimony “crip-
pled Nationwide’s ability to prove its case.” However, under
Rule 702, as interpreted by our cases, the district court did not
err in excluding Zadek’s legal conclusions, even if Zadek’s
statement of the law had been correct. “Resolving doubtful
questions of law is the distinct and exclusive province of the
trial judge.” United States v. Weitzenhoff, 35 F.3d 1275, 1287
          NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.      4513
(9th Cir. 1993) (internal quotation marks omitted)); see also
United States v. Brodie, 858 F.2d 492, 496-97 (9th Cir. 1988),
overruled on other grounds by United States v. Morales, 108
F.3d 1031, 1033 (9th Cir. 1997) (en banc). Nationwide cites
a number of cases from this court and other circuits where an
appellate court has affirmed the district court’s decisions to
allow experts to refer to terminology from applicable law in
expressing their opinions. See Hangarter, 373 F.3d at 1017
(“[A] witness may properly be called upon to aid the jury in
understanding the facts in evidence even though reference to
those facts is couched in legal terms.”); Peckham v. Cont’l
Cas. Co., 895 F.2d 830, 837 (1st Cir. 1990); First Nat’l State
Bank of N.J. v. Reliance Elec. Co., 668 F.2d 725, 731 (3d Cir.
1981). Although Nationwide is correct in noting that a district
court does not abuse its discretion in allowing experts to use
legal terminology, this does not prove Nationwide’s argu-
ment, i.e., that a district court per se abuses its discretion
when it excludes testimony instructing the jury on legal
issues. See Hangarter, 373 F.3d at 1017 n.13 (rejecting a sim-
ilar argument). Moreover, as explained below, Zadek’s legal
conclusions not only invaded the province of the trial judge,
but constituted erroneous statements of law. In such a case,
“[e]xpert testimony . . . would have been not only superfluous
but mischievous.” Brodie, 858 F.2d at 497. Accordingly, the
district court did not abuse its discretion in its ruling on
Zadek’s testimony and report.

                              B

   We next turn to Nationwide’s challenge to the district
court’s order precluding Carney “from directly applying the
UCC and other law to the facts of this case.” Nationwide
argues that Carney “was improperly prohibited from discuss-
ing or mentioning the UCC.” Nationwide offered Carney’s
legal opinions on the UCC and their applicability to Cass’s
actions “as specialized knowledge of the business of factoring
that will be very valuable to the jury, to determine a fact in
issue.” According to Nationwide, this “ultimate fact in issue”
4514       NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
was whether Cass acted improperly, and “CARNEY’s discus-
sion of the UCC [would be] provided to illuminate the normal
relationships and transactions of the factoring business, as
governed by the UCC.” Nationwide claims it also offered
Carney’s legal opinions on the UCC not as legal conclusions,
but to show Carney’s state of mind and reasoning when he
rescinded the hold harmless agreement. According to Nation-
wide, “[t]he fact that Carney rescinded the [hold harmless
agreement] because he believed it violated applicable com-
mercial law would have shown to the jury that Carney’s
rescission was a reasonable business decision to make under
the circumstances.”

   We reject this argument. Whether we consider Carney’s
testimony as expert or lay opinion testimony, the district court
did not abuse its discretion in excluding Carney’s legal con-
clusions. If Nationwide offered Carney’s testimony on the
UCC’s applicability to Cass’s conduct as expert testimony,
the district court could exclude it for the reasons discussed
above. See supra, at 4513 (affirming the district court’s exclu-
sion of Zadek’s report and testimony); see also Weitzenhoff,
35 F.3d at 1287. If Nationwide offered Carney’s testimony as
lay opinion, the district court could exclude it because the tes-
timony was not “helpful to a clear understanding of the testi-
mony or a fact in issue.” Fireman’s Fund Ins. Cos. v. Alaskan
Pride P’ship, 106 F.3d 1465, 1468 (9th Cir. 1997) (citing Fed.
R. Evid. 701). Carney intended to testify how UCC § 9-406
applied to the facts of the case and explain that Cass’s con-
duct violated UCC § 9-406. Such testimony would, in effect,
instruct the jury regarding how it should decide the key ques-
tion whether Cass violated a statute and thus acted improperly
for purposes of the interference torts.

   [4] In general, “[t]estimony that simply tells the jury how
to decide is not considered ‘helpful’ as lay opinion.” Fire-
man’s Fund Ins. Cos., 106 F.3d at 1468 n.3 (citing Fed. R.
Evid. 701); see also Kostelecky v. NL Acme Tool/NL Indus.,
Inc., 837 F.2d 828, 830 (8th Cir. 1988) (“Under either [Rule
           NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.         4515
701 or Rule 702], evidence that merely tells the jury what
result to reach is not sufficiently helpful to the trier of fact to
be admissible.”). Although a district court does not abuse its
discretion in allowing lay opinion testimony “when a witness
cannot explain through factual testimony the combination of
circumstances that led him to formulate that opinion,” Fire-
man’s Fund Ins. Cos., 106 F.3d at 1468, here the court
allowed Carney to provide testimony regarding why he
believed Cass acted improperly and why he believed it was
reasonable to rescind the hold harmless agreement. The dis-
trict court precluded Carney only from framing his testimony
as a legal opinion that Cass violated the UCC. Because Car-
ney’s legal conclusions would have served “to do nothing
more than tell the jury what result it should reach,” Koste-
lecky, 837 F.2d at 830, and because Carney was able to testify
regarding the circumstances that led him to formulate his
opinion, see Fireman’s Fund Ins. Cos., 106 F.3d at 1468, the
district court did not err in excluding Carney’s testimony.

  [5] Accordingly, we hold that the district court did not
abuse its discretion in granting Cass’s motion to limit David
Carney’s testimony.

                                III

   We next consider Nationwide’s argument that the district
court abused its discretion in excluding its introduction of tes-
timony or other evidence that Cass stood in the shoes of the
account debtor for purposes of UCC § 9-406. The district
court excluded this evidence on the ground that § 9-406 did
not impose legal obligations on Cass and was not relevant to
proving that Cass had engaged in improper conduct, a neces-
sary element of Nationwide’s claims. Because a district court
does not abuse its discretion by excluding evidence that may
confuse or mislead the jury, United States v. Lillard, 354 F.3d
850, 854-55 (9th Cir. 2003), a district court may exclude evi-
dence relating to erroneous or inapplicable legal theories. See
Wall Data Inc. v. Los Angeles County Sheriff’s Dep’t, 447
4516         NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
F.3d 769, 782-83 (9th Cir. 2006). Therefore, we first consider
de novo whether the district court’s legal analysis was correct.
See, e.g., Fireman’s Fund Ins. Cos., 106 F.3d at 1471.

                                     A

  Nationwide argues that § 9-406 is applicable to Cass under
general principles of agency law, and also as a matter of
industry conditions, standards, and practices. We address both
arguments in turn.

   [6] We first note that nothing in the plain language of UCC
§ 9-406, Nev. Rev. Stat. § 104.9406, nor any judicial decision
interpreting that section of which we are aware, supports
Nationwide’s theory that a payment agent of the account
debtor has the same obligations to make payments as the
account debtor. By contrast, other provisions of the UCC, as
adopted by Nevada, do reference the role of agents.6 More-
over, the UCC expressly imposes the duties of a principal on
the agent in at least one section. Article 8, which requires
issuers of securities to register transfers of those securities,
see U.C.C. § 8-401, imposes the same duty on agents of the
  6
    See Nev. Rev. Stat. §§ 104.1201(2)(gg) (“ ‘Representative’ means a
person empowered to act for another, including an agent . . . .”);
104.2201(1) (“[A] contract for the sale of goods for the price of $500 or
more is not enforceable . . . unless there is some writing . . . signed by the
party against whom enforcement is sought or by his authorized agent or
broker.”); 104.2707(1) (“A ‘person in the position of a seller’ includes as
against a principal an agent who has paid or become responsible for the
price of goods on behalf of his principal or anyone who otherwise holds
a security interest or other right in goods similar to that of a seller.”);
104.3307(1)(a) (“ ‘Fiduciary’ means an agent, trustee, partner, corporate
officer or director, or other representative owing a fiduciary duty with
respect to an instrument.”); 104.3311(4) (“A claim is discharged if the per-
son against whom the claim is asserted proves that within a reasonable
time before collection of the instrument was initiated, the claimant, or an
agent of the claimant having direct responsibility with respect to the dis-
puted obligation, knew that the instrument was tendered in full satisfaction
of the claim.”).
           NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.        4517
issuers, i.e., any “person acting as authenticating trustee,
transfer agent, registrar, or other agent for an issuer.” U.C.C.
§ 8-407. The absence of any reference to the role of an agent
in § 9-406, when the drafters of the UCC expressly delineated
the role of agents in other sections, supports Cass’s argument
that the UCC drafters did not intend to extend the duties of the
account debtor to the account debtor’s agents. Coast Hotels &
Casinos, Inc. v. Nev. State Labor Comm’n, 34 P.3d 546, 550
(Nev. 2001) (“[W]hen the legislature has employed a term or
phrase in one place and excluded it in another, it should not
be implied where excluded.”).

   Although nothing in § 9-406 imposes the account debtor’s
obligations on its agents, Nationwide claims that Cass is sub-
ject to the obligations of § 9-406 under general principles of
agency law. First, Nationwide relies on the general rule that
“[a]n agent is subject to liability to a third party harmed by the
agent’s tortious conduct. Unless an applicable statute provides
otherwise, an actor remains subject to liability although the
actor acts as an agent or an employee, with actual or apparent
authority, or within the scope of employment.” Restatement
(Third) of Agency § 7.01. One of Nationwide’s proposed (and
rejected) jury instructions articulated this same principle: “An
agent who does an act otherwise a tort is not relieved from lia-
bility by the fact that it acted at the command of the principal
or on account of the principal . . . .”

   [7] This principle of agency law does not prove Nation-
wide’s point, however. Although the Restatement indicates
that an agent can be held liable for its own torts where the
agent’s conduct is independently wrongful, improper, or tor-
tious, this principle would help Nationwide only if Nation-
wide can show that Cass’s conduct was wrongful. If Cass
conducted itself improperly, then Cass could not defend itself
on the ground that it was acting within the scope of its
employment as a payment agent. However, the wrongfulness
of Cass’s conduct is the very issue that Nationwide is trying
to establish. Because Nationwide has not shown that Cass
4518       NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
engaged in wrongful conduct, it is irrelevant that Cass would
be independently liable if it had done so. The Restatement
(Third) of Agency does not set forth the rule that a principal’s
duties are imputed to its agent, such that an agent can be held
liable if its acts violate a statute that only a principal is obli-
gated to follow. Because the Restatement (Third) of Agency
does not set forth such a rule, it does not help Nationwide
establish Cass’s responsibility under § 9-406 as a matter of
agency law. Nor have we identified any other support for the
principle that “an agent for paying the debt of its principal is
bound to pay it if the principal is bound to pay it.” Dissent at
4532.

   [8] Second, Nationwide relies on the general principle of
agency law that a principal may be bound by the actions of
its agent towards a third party, and the agent’s scope of
authority for binding the principal will “depend largely upon
the circumstances in each case, and upon what is necessary or
reasonable to enable him to effect the purpose of his agency.”
Robertson v. C.O.D. Garage Co., 199 P. 356, 358 (Nev.
1921). This principle of agency law is also unhelpful to
Nationwide, because Cass is the agent, rather than the princi-
pal. The shippers may be bound by Cass’s actions when Cass
acts within its scope of authority as the shippers’ agent. How-
ever, Robertson does not hold that Cass is bound by the ship-
pers’ actions, or that because Cass has authority as the
shippers’ agent, Cass has the statutory obligations of the ship-
pers.

   [9] Because both of the agency principles identified by
Nationwide are inapplicable in the context of this case, we
reject Nationwide’s argument that § 9-406 is applicable to
Cass under general principles of agency law.

   In addition to arguing that principles of agency law oblige
Cass to comply with § 9-406, Nationwide argues that Cass’s
failure to comply with § 9-406 violated industry conditions,
standards, and practices. According to Nationwide, Article 9
            NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.                4519
establishes “the rules of the game for secured transactions,”
and “[t]he conduct of carriers and their factors as well as ship-
pers and their payment agents should all be held to the rules
of the game.” Nationwide contends that Cass’s insistence on
obtaining a hold harmless agreement as a condition of paying
its factors was improper conduct because it violates “the rules
of the game.”7

   [10] Nationwide cites no legal authority for the principle
that Article 9 imposes binding obligations on all participants
in secured transactions, regardless of the actual terms of a par-
ticular UCC section. Nor did Nationwide introduce any evi-
dence supporting its theory that industry conditions,
standards, and practices preclude payment agents from requir-
ing a hold harmless agreement as a precondition for making
payments on behalf of their clients. Nationwide’s expert, Rob-
ert Zadek, failed to discuss hold harmless agreements in his
expert report, and therefore the district court did not abuse its
discretion in precluding him from testifying on this issue. See
Fed. R. Civ. P. 26(a)(2)(B). Carney testified that his “under-
standing of this business” was that payment agents were obli-
gated to pay factors (as opposed to carriers) after receiving a
valid notice of assignment, but he did not testify that a pay-
ment agent would violate industry conditions, standards, and
practices if it required a hold harmless agreement in doing so.
While Carney testified that he had never been asked by any
payment agent other than Cass to sign a hold harmless agree-
ment, he conceded that he was aware of many other factors
having hold harmless agreements with Cass. Moreover, one of
Cass’s witnesses offered uncontradicted testimony that up
until the time she left Cass in 2004, no factor other than
Nationwide had rescinded Cass’s hold harmless agreement. In
  7
   Nationwide does not argue that Cass’s conduct breached any contrac-
tual obligation with its shipper clients by requiring a hold harmless agree-
ment. Nor could it, because Nationwide failed to introduce any evidence
that Cass’s agreements with its shippers required Cass to assume the ship-
pers’ unconditional payment obligations under UCC § 9-406.
4520         NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
the absence of any substantial evidence that a payment agent
would violate industry conditions, standards, and practices if
it required hold harmless agreements, this basis for proving
that Cass’s conduct was improper also fails.

   [11] In sum, Nationwide has not identified any legal
authority extending the obligations of § 9-406 to the agent of
an account debtor.8 Nationwide offered no evidence that
industry customs, standards, or practices precluded a payment
agent from requiring a hold harmless agreement. Accordingly,
we agree with the district court that Nationwide failed to
establish that Cass engaged in improper conduct by requiring
factors to enter into a hold harmless agreement as a condition
of payment.

   The dissent argues that this conclusion will allow shippers
to evade their legal responsibilities to pay the debts they owe
the factors. Dissent at 4529. This contention misconstrues the
nature of the commercial relationships between the parties to
this transaction. As noted by the dissent, after receiving a
valid notice of assignment from a factor, the shipper can dis-
charge its obligation on the underlying debt only by paying
the factor. See U.C.C. § 9-406. The factor’s remedy, should
it fail to get such payment, is to bring a legal action against
the shipper on this obligation.9 Nationwide has also pursued
this pathway to recovery, and sued a shipper in state court for
the same errant payments at issue in its account stated claim
against Cass. If the payment agent’s failure to pay the factor
violated the payment agent’s contract with the shipper, the
shipper could bring a legal action against the payment agent
  8
     We further note that because Nationwide’s legal theory was erroneous,
any error by the district court in excluding testimony by Zadek and Carney
regarding Cass’s obligations under UCC § 9-406 was harmless. Han-
garter, 373 F.3d at 1015.
   9
     If the shipper erroneously paid the carrier instead of the factor, the fac-
tor could also seek recovery from the carrier to whom the errant payment
was made.
          NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.       4521
for breach of contract. Even though § 9-406 does not itself
impose any obligations on a payment agent, neither the factor
nor shipper is without recourse if a payment agent fails in its
duties.

                               B

   [12] Because there is no basis for Nationwide’s theory that
Cass acted improperly by failing to comply with § 9-406, the
district court did not abuse its discretion in excluding evi-
dence that Cass stood in the shoes of the account debtor. As
we have previously noted, a party is not entitled to present
evidence on an erroneous or inapplicable legal theory to the
jury, even if the evidence might have been relevant in some
conceivable manner. See Wall Data, 447 F.3d at 782-83.
“[E]ven relevant evidence ‘may be excluded if its probative
value is substantially outweighed by the danger of unfair prej-
udice, confusion of the issues, or misleading the jury.’ ” Lil-
lard, 354 F.3d at 854-55 (quoting Fed. R. Evid. 403). We
agree with the district court’s conclusion that the probative
value of any reference to the erroneous legal principle that
Cass stands in the shoes of the account debtor was substan-
tially outweighed by the risk of misleading or confusing the
jury on the extent of Cass’s obligations as an agent of the
account debtor. Fed. R. Evid. 403.

                               C

   [13] Nor did the district court err in refusing to give
Nationwide’s proposed jury instructions on agency and § 9-
406. See Wall Data, 447 F.3d at 786; Bird v. Lewis & Clark
College, 303 F.3d 1015, 1022 (9th Cir. 2002) (holding that
plaintiff’s proposed jury instructions “based in part on federal
regulations” were properly omitted because “the proposed
instructions overall misstate the law”). While Nationwide’s
proposed jury instructions on agency and the UCC may have
been correct statements of the law, they related to Nation-
wide’s erroneous theory that Cass had legal obligations under
4522           NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
§ 9-406. The district court correctly held that because Nation-
wide’s legal theory was erroneous, the proposed jury instruc-
tions were irrelevant. Bird, 303 F.3d at 1022; Jones v.
Williams, 297 F.3d 930, 934 (9th Cir. 2002) (“A party is enti-
tled to an instruction about his or her theory of the case if it
is supported by law . . . .”).

                                       IV

   [14] Finally, Nationwide argues that the district court made
two mistakes in its formulation of Nationwide’s proposed
instruction based on Restatement (Second) of Torts § 767.10
First, the district court directed the jury to consider “[t]he
nature of the Defendant’s conduct,” in determining whether
Cass’s conduct is “justified, privileged or excused.” Nation-
wide argues the district court should have adopted Nation-
wide’s proposed instructions, and directed the jury to consider
“[t]he nature of the defendant’s conduct, including whether
the defendant’s conduct violated any statutory provision.”
(emphasis added). The district court did not err in excluding
this additional language because it was not supported by the
record. The district court had correctly precluded Nationwide
from arguing that Cass’s conduct violated § 9-406, and
Nationwide did not present any evidence that Cass’s conduct
violated any other statutory provision. A party is not entitled
to an instruction unsupported by the record. Jones, 297 F.3d
10
    In relevant part, the court instructed the jury as follows:
       If you have found from the facts that the Defendant did interfere
       with a prospective economic advantage of Plaintiff, you may con-
       sider the following factors to determine whether such interference
       is justified, privileged or excused: (a) The nature of the Defen-
       dant’s conduct; (b) The Defendant’s motive; (c) The interests of
       the Plaintiff with which the Defendant’s conduct interfered; (d)
       The interests sought to be advanced by the Defendant; (e) The
       social interests in protecting the freedom of action of the Defen-
       dant and the contractual interests of the Plaintiff; (f) The proxim-
       ity or remoteness of the Defendant’s conduct to the interference;
       and (g) The relations between the parties.
           NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.        4523
at 934 (“A party is entitled to an instruction about his or her
theory of the case if it is supported by law and has foundation
in the evidence.”).

   Second, Nationwide argues the district court erred in
instructing the jury on how to determine whether Cass’s con-
duct was improper under § 767. The district court had previ-
ously accepted Nationwide’s proposed jury instruction, which
explained that improper conduct was an element of both the
interference with prospective economic advantage tort and the
interference with contractual relationship tort. However, the
district court left out the reference to the contractual interfer-
ence tort, apparently inadvertently, when it actually instructed
the jury. Specifically, the district court explained to the jury:
“[i]f you have found from the facts that the Defendant did
interfere with a prospective economic advantage of Plaintiff,
you may consider the following factors to determine whether
such interference is justified, privileged or excused . . . .”
(emphasis added).

   [15] Because none of the district court’s remaining jury
instructions explained what might constitute improper con-
duct for purposes of the contractual interference tort, we agree
with Nationwide that the district court erred in this § 767
instruction. Los Angeles Mem’l Coliseum Comm’n v. Nat’l
Football League, 726 F.2d 1381, 1398 (9th Cir. 1984) (“The
question . . . is whether, viewing the jury instructions as a
whole, the trial judge gave adequate instructions on each ele-
ment of the case to insure that the jury fully understood the
issues.”). Nevertheless, this error in the formulation of the
§ 767 instruction was harmless. Nationwide based its theory
that Cass acted improperly on an erroneous interpretation of
§ 9-406, and therefore the district court correctly precluded
Nationwide from introducing evidence supporting this theory.
The record establishes that Nationwide did not introduce
material evidence of other improper conduct on Cass’s part.
Because there was little or no evidence establishing a neces-
sary element of Nationwide’s interference claims, the district
4524       NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
court’s instructional error was harmless. Even if the district
court had used Nationwide’s proposed formulation it is more
probable than not that the jury would have reached the same
result. See Wall Data, 447 F.3d at 786; Swinton v. Potomac
Corp., 270 F.3d 794, 805-06 (9th Cir. 2001).

                               V

   We hold that the district court did not err in restricting
Zadek’s report and testimony, and Carney’s testimony, on the
basis that each constituted impermissible legal opinion evi-
dence. We also hold that Cass, as an agent of an account
debtor, does not have the same obligations as an account
debtor under § 9-406 of the UCC or principles of agency law.
Nationwide failed to establish that industry conditions, stan-
dards, and practices required Cass to comply with § 9-406.
Accordingly, the district court did not err in any of its eviden-
tiary rulings. Because UCC § 9-406 was inapplicable, the dis-
trict court did not err in refusing to give jury instructions on
§ 9-406 and agency. Nationwide’s proposed revision to the
district court’s Restatement § 767 instruction was unsup-
ported by the record, and any remaining error in the district
court’s formulation of the Restatement § 767 instruction was
harmless.

  AFFIRMED.

NOONAN, Circuit Judge, dissenting as to Part III:

   This case involves the interaction of common law princi-
ples of agency and tort with the Uniform Commercial Code.
It is of uncommon interest in its potential impact on credit in
the large area in which factors furnish credit. Because the case
may be seen as merely “a commercial dispute” to be decided
under state law, its broader significance needs to be
addressed.
           NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.        4525
   This case consists in a paying agent’s refusal to pay its
principal’s creditor unless the agent obtained a benefit from
the creditor that the agent was supposed to pay. To understand
the case the jury needed to know that the principal had an
absolute obligation to make the payment under U.C.C. § 9-
406; that its agent had undertaken to make the payment; and
that to advance its own interest the agent held up payment.
The majority says that there is no principle of agency that
required the paying agent to pay. The principle is that an
agent to make a payment is bound by its acceptance of the
agency. If the obligation of the principal to pay is absolute
under an applicable statute, as it was here, the agent has an
absolute duty to make the payment. For the agent to hold up
payment in order to obtain a benefit for itself is improper and,
when it results in injury to the payee, is an actionable interfer-
ence with a business relationship between the payee and its
clients.

   The economy of the United States runs on credit. A critical
section of the vast area is occupied by factoring — in this
instance, the advance of cash to clients that are undercapital-
ized and not candidates for bank loans and possessed of few
assets save their accounts receivable, which they assign the
factors in return for their cash. Probably at least 2,500 factors
do business in the United States. Factored sales in 2006
totaled more than $127.6 billion. Tina Szejkowski, Asset-
Based Lending Continues its Evolution as Mainstream Bor-
rowing Option, Commercial Finance Association, (July 23,
2007), available at http://www.cfa.com/Statistics/statistics_
news_release.asp. New law affecting such an industry is not
to be lightly made or buried in a memorandum disposition.
The present case requires an understanding in the case of the
role of the Uniform Commercial Code, incorporated into the
Nevada law that governs here by Nevada Revised Statute
§ 104.9406.

  Nationwide is a factor, advancing cash to carriers, typically
small trucking companies, in exchange for their assignment of
4526      NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.
the freight invoices sent by the carriers to shippers. The ship-
pers are obligated on these invoices and are, therefore, under
U.C.C. § 9-406 “account debtors.” Shippers, however, typi-
cally do not pay the invoices directly but hire Cass as a paying
agent to process and pay them. Cass processes and pays over
100,000 freight invoices per day, more than 25,000,000 per
year. In relative strength, Cass is a Goliath, Nationwide a
comparative David. For seventeen years these two middlemen
enjoyed a profitable relationship.

   In 2003, a dispute broke out between them as to Cass’s
payment of one invoice. Cass drew attention to a hold-
harmless agreement by which Nationwide absolved Cass from
errors in payment. A new administrator of credit at Nation-
wide cancelled the agreement. Cass refused to do business
without it. A substantial number of shippers used Cass as their
paying agent. When Cass would not act for them in paying
invoices assigned to Nationwide, Nationwide was impacted.
In the words of Nationwide’s expert, “The effect on Nation-
wide was profound.”

   Nationwide had also discovered that Cass appeared to com-
pete with it in a program it called Cass Expedite. The program
is described by Nationwide’s expert:

       The Expedite Service Agreement (entered into
    between a Carrier and Cass) relates to Accounts cre-
    ated by the carriage of freight by Carriers for Cass-
    Consignors. The Accounts would have whatever
    payment terms are agreed to between the Carrier and
    the Cass-Consignor (thirty days, for example). In
    consideration of the payment of a fee by the Carrier
    to Cass, Cass agrees to accelerate payment of the
    Account to two business days following its process-
    ing of it. The effect on the Carrier is clear:

      1. Its liquidity is improved, since it does not
    have to wait thirty days for payment.
           NATIONWIDE TRANSP. FIN. v. CASS INFO. SYS.         4527
       2. It pays a fee for this “prepayment,” which is
    the functional equivalent of the fees which it would
    have to pay to a factor.

       It is clear that, insofar as a Carrier is concerned,
    this is an alternative to factoring, at least to the
    extent that a Carrier is serving Cass-Consignors.
    Such a Carrier would enjoy the benefits of prompt
    payment of Accounts owning by Cass-Consignors
    (albeit upon payment of a fee to Cass) and would not
    need factoring services. Thus, through its Expedite
    program, Cass is now a competitor of Nationwide.
    Notably, the marketing material used by Cass to pro-
    mote its Expedite program makes direct comparisons
    to traditional factoring. Both Cass, through its Expe-
    dite program, and Nationwide are seeking business
    from the same customer base — Carriers.

   The accuracy of this analysis of Cass’s position was dis-
puted. But believing that Cass had improperly refused to
accept the invoices held by Nationwide and that Cass was
attempting in this way to squash a small competitor, Nation-
wide brought this suit.

                          ANALYSIS

   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 instruc-
tions 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 pay-
ments 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 descrip-
    tion of Defendant’s role in a typical factoring trans-
    action.

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 han-
    dle 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 evi-
dence 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 compel-
ling. 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 relation-
ships 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 defi-
    nitely 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 relation-
    ship.
      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 specifi-
cally relates is to your instruction [on the Restate-
ment (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 justifica-
tion 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 defen-
dant 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 consider-
ation is given to concepts of fair play and whether the defen-
dant’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 pay-
    ment 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 ser-
    vices 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 hold-
harmless 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 prin-
cipal’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 harm-
less if it should mistakenly pay the wrong employee, or if a
bank would not pay a bill unless the payee deposited the pay-
ment with it, they would act without justification. Obviously,
a payroll service could not demand a hold-harmless agree-
ment 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 pay-
ment on a hold-harmless agreement — could not be under-
stood 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.