Court Opinion

ID: 993180
Source: CourtListenerOpinion
Date Created: 2013-07-04 00:03:43.350722+00
Date Added: 2024-06-11T11:20:46.523808
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

NORTHWESTERN NATIONAL LIFE
INSURANCE COMPANY,
Plaintiff-Appellant,

v.

LAUREL FEDERAL SAVINGS BANK,
Defendant-Appellee,
                                                No. 96-2130

and

FIRST SHORE FEDERAL SAVINGS AND
LOAN ASSOCIATIONS; ROBERT PAUL
MULLER,
Defendants.

NORTHWESTERN NATIONAL LIFE
INSURANCE COMPANY,
Plaintiff-Appellee,

v.

LAUREL FEDERAL SAVINGS BANK,
Defendant-Appellant,
                                                No. 96-2131

and

FIRST SHORE FEDERAL SAVINGS AND
LOAN ASSOCIATIONS; ROBERT PAUL
MULLER,
Defendants.

Appeals from the United States District Court
for the District of Maryland, at Baltimore.
Frederic N. Smalkin, District Judge.
(CA-94-3548-S)
Argued: May 8, 1997

Decided: September 29, 1997

Before HALL, WILKINS, and WILLIAMS, Circuit Judges.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: Robert Whelen Biddle, OBER, KALER, GRIMES &
SHRIVER, P.C., Baltimore, Maryland, for Appellant. Ward Baldwin
Coe, III, WHITEFORD, TAYLOR & PRESTON, L.L.P., Baltimore,
Maryland, for Appellee. ON BRIEF: Pamela J. White, J. Kirby Fow-
ler, OBER, KALER, GRIMES & SHRIVER, P.C., Baltimore, Mary-
land, for Appellant. Elise R. Davison, Pamela M. Conover,
WHITEFORD, TAYLOR & PRESTON, L.L.P., Baltimore, Mary-
land, for Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Northwestern National Life Insurance Company appeals an order
of the district court denying summary judgment on Northwestern's
claim that Laurel Federal Savings Bank converted 34 checks by pay-
ing them on forged indorsements. See Md. Code Ann., Com. Law I
§ 3-419(1)(c) (1992). Laurel cross appeals the ruling of the district
court granting summary judgment to Northwestern with respect to
two other checks and awarding compensatory damages equal to the

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face amount of those checks plus prejudgment interest. Finding no
error, we affirm.

I.

This litigation arises from actions taken by Robert Muller, a former
insurance agent for Northwestern. In 1988, Muller became a "pro-
ducer agent" for Northwestern and was assigned identification num-
ber 1867-43616. Under the terms of his agency contract with
Northwestern, Muller was authorized to sell insurance products and
to collect initial premium payments, but the agreement required him
to remit such payments promptly to Northwestern. Muller expressly
agreed to refrain from diverting funds collected on behalf of North-
western to personal uses.

Shortly after becoming a producer agent, Muller opened a checking
account at Laurel in the name of the sole proprietorship "N.W.
Agency #1867." Muller identified Northwestern as his employer on
documents related to the account and informed Laurel employees that
the account was intended for use in his insurance business. From
October 1988 until March 1994, Muller deposited into the account
proceeds of a scheme to defraud eight clients of over $500,000 by
persuading them to purchase nonexistent annuities. Muller's victims
paid the premiums for these bogus annuities with 36 checks, 34 of
which designated the payee as "NWNL #1867,""Northwestern
#1867," or some variant thereof. The remaining two checks were
made out to "Northwestern Natl. Life Ins. Co." and "Northwestern
National Life Casualty Company." All of the checks were indorsed
with a rubber stamp reading "FOR DEPOSIT ONLY N.W. AGENCY
#1867" and providing the account number. Laurel accepted the
checks for deposit into Muller's account.

Northwestern discovered Muller's fraudulent activities in 1994 and
reimbursed the victims for their losses. Northwestern then instituted
this diversity action in district court alleging, inter alia, that Laurel
had converted Northwestern's property by paying the 36 checks on
forged indorsements.* See Md. Code Ann., Com. Law I § 3-
_________________________________________________________________
*Northwestern also named First Shore Federal Savings and Loan
Association and Muller as defendants. Neither First Shore nor Muller
participated in this appeal.

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419(1)(c). Laurel disputed its liability, arguing that because all of the
checks were written to Muller's agency account the indorsements
were not forged and it had not acted improperly in accepting the
checks for deposit. Alternatively, Laurel maintained that it had acted
in good faith and in a commercially reasonable manner in paying the
checks and, therefore, that its liability should be limited to the amount
of money remaining in the account, which was zero. See Md. Code
Ann., Com. Law I § 3-419(3) (1992).

Ruling on cross-motions for summary judgment, the district court
concluded that the checks written to "Northwestern Natl. Life Ins.
Co." and "Northwestern National Life Casualty Company" had been
paid on forged indorsements because Muller lacked the actual,
implied, or apparent authority to indorse checks on which Northwest-
ern was the payee. See Citizens Bank of Md. v. Maryland Indus. Fin-
ishing Co., 659 A.2d 313, 317-18 (Md. 1995) (holding that a
depositary bank is liable for conversion when it pays a check over a
forged indorsement and explaining that an unauthorized indorsement
is considered a forgery for purposes of such a conversion action). The
court further held that Laurel's payment of these checks was commer-
cially unreasonable as a matter of law. See id. at 315 (noting that a
bank may limit its liability in a conversion action to proceeds remain-
ing in its possession by establishing that it acted in good faith and in
a commercially reasonable manner in paying a check over a disputed
indorsement). With respect to the remaining checks, the court deter-
mined that the indorsements were not forged because the items had
been made payable to the agency account. After further briefing, the
district court ordered damages to Northwestern in the amount of
$18,566.97--the face value of the two checks converted by Laurel--
plus prejudgment interest.

II.

After carefully considering the parties' briefs and the applicable
law, and having had the benefit of oral argument, we conclude that
the district court correctly decided the issues before it. See
Northwestern Nat'l Life Ins. Co. v. Laurel Fed. Sav. Bank, No. S-94-
3548 (D. Md. Apr. 2, 1996). Accordingly, we affirm.

AFFIRMED

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