Court Opinion

ID: 1015749
Source: CourtListenerOpinion
Date Created: 2013-07-04 21:38:03.890204+00
Date Added: 2024-06-11T15:12:44.262919
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 03-2276

NATIONAL UNION FIRE INSURANCE       COMPANY    OF
PITTSBURGH, INCORPORATED,

                                               Plaintiff - Appellant,

           versus

MANUFACTURERS AND TRADERS TRUST        COMPANY,
formerly known as Allfirst Bank;       SUNTRUST
BANKS, INCORPORATED,

                                              Defendants - Appellees.

----------------------------------------------

AMERICAN BANKERS ASSOCIATION; MARYLAND BANKERS
ASSOCIATION,

                                           Amici Supporting Appellees.

Appeal from the United States District Court for the District of
Maryland, at Baltimore.   William M. Nickerson, Senior District
Judge. (CA-01-1591-WNM-1)

Argued:   February 1, 2005                    Decided:   March 23, 2005

Before LUTTIG, KING, and SHEDD, Circuit Judges.

Affirmed by unpublished per curiam opinion.         Judge Shedd wrote a
concurring opinion.

ARGUED: Robert William Ludwig, Jr., LUDWIG & ROBINSON, P.L.L.C.,
Washington, D.C., for Appellant.   Matthew Scott Sturtz, MILES &
STOCKBRIDGE, P.C., Towson, Maryland; Brian L. Moffet, GORDON,
FEINBLATT, ROTHMAN, HOFFBERGER & HOLLANDER, Baltimore, Maryland, for
Appellees.    ON BRIEF:    Dennis P. McGlone, GORDON, FEINBLATT,
ROTHMAN, HOFFBERGER & HOLLANDER, Baltimore, Maryland, for Appellee
SunTrust Bank.   C. Dawn Causey, John J. Gill, AMERICAN BANKERS
ASSOCIATION, Washington, D.C., for Amici Supporting Appellees.

Unpublished opinions are not binding precedent in this circuit.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

                                -2-
PER CURIAM:

     Plaintiff-appellant        National    Union    Fire   Insurance     Co.

(“National Union”) filed this diversity suit against defendants-

appellees Allfirst Bank and SunTrust Bank,* alleging state-law

claims arising from the banks’ acceptance for deposit of checks

issued by National Union’s subrogor.          The district court granted

summary judgment in favor of the defendants on all claims, and we

affirm.

                                      I.

     This action arises from a fraudulent scheme perpetrated by a

former    employee   of   the   accounts   payable   department   of   Kaiser

Foundation Health Plan of the Mid-Atlantic States (“Kaiser”).             By

submitting fraudulent invoices for services never rendered, the

employee induced Kaiser to pay out fifteen checks for large sums to

three payees -- “Not Just Computers,” “Yates Technology, Inc.,” and

“Moffat Sales Corp.”       J.A. 323-24.     The defendant banks accepted

these checks for deposit into accounts in the names of the three

payees.    J.A. 323-24.     Upon discovery of the fraudulent scheme in

August 2000, Kaiser brought two Maryland state court actions against

the three payees and obtained judgments against them in the full

amount of the issued checks.        J.A. 325, 342.     Kaiser also filed a

     *
      Two other defendant banks were dismissed for lack of subject
matter jurisdiction.

                                     -3-
claim with its insurer, National Union, which fully compensated

Kaiser for its losses from the fraudulent scheme.    National Union

subsequently filed this subrogation action in the district court,

bringing claims against the banks for statutory negligence in

violation of sections 3-404, 3-405, and 3-406 of the Maryland

Commercial Code; for “money had and received” under Maryland common

law; for conversion; and for breach of restrictive indorsement.

J.A. 292-303.   The district court granted summary judgment for the

defendants on all claims.

                                 II.

       In granting summary judgment for the defendants, the district

court held inter alia that National Union was judicially estopped

from alleging that the three payees were “fictitious entities” under

section 3-404(b) of the Maryland Commercial Code.   Because judicial

estoppel is an equitable doctrine that falls within the district

court’s discretion, we review the district court’s decision to apply

judicial estoppel for abuse of discretion.      King v. Herbert J.

Thomas Mem. Hosp., 159 F.3d 192, 196, 198 (4th Cir. 1998) (“As an

equitable doctrine, judicial estoppel is invoked in the discretion

of the district court . . . . [W]e conclude that the district court

was well within its discretion in applying judicial estoppel . . .

.”).

                                 -4-
     In support of its statutory negligence claims under section 3-

404(b), National Union contends that the three payees of the Kaiser

checks were “fictitious persons.”         See Md. Code, Com. Law I, § 3-

404(b)(ii)   (allowing   for   recovery    in   cases   where   “the   person

identified as payee of an instrument is a fictitious person”).            The

district court held that National Union is judicially estopped from

asserting this theory, because its subrogor Kaiser affirmatively

pled in the two state court actions that the three payees were real

entities and secured judgments against them thereby.            J.A. 340-46.

     We hold that the district court did not abuse its discretion

in applying judicial estoppel to prevent National Union from arguing

that the three payees were fictitious persons.            The doctrine of

judicial estoppel has three necessary elements:

     (1) The party to be estopped must be asserting a position
     that is factually incompatible with a position taken in
     a prior judicial or administrative proceeding; (2) the
     prior inconsistent position must have been accepted by
     the tribunal; and (3) the party to be estopped must have
     taken inconsistent positions intentionally for the
     purpose of gaining unfair advantage.

King, 159 F.3d at 196.    But “judicial estoppel will not be applied

where the party’s inconsistent positions resulted from inadvertence

or mistake.”   Id.   Here, it is evident that the position taken by

Kaiser in the two state court actions -- namely that the three

payees were real entities amenable to judicial process and judgment

-- is “factually incompatible” with National Union’s current claim

that the three payees were “fictitious persons.”            And the state

                                  -5-
courts accepted the prior inconsistent position, because they

rendered judgments against all three payees.          See J.A. 305, 441.

     Moreover, the district court did not abuse its discretion in

determining   that   National   Union   is    now   taking   the   subsequent

inconsistent position “intentionally for the purpose of gaining

unfair advantage,” rather than as a result of “inadvertence or

mistake.”   As the district court noted, Kaiser consistently alleged

that the payees were real entities in the state court, after

significant investigation and across multiple amendments to the

complaints.   See J.A. 343-35 (“[N]one of these judgments were . .

. the inadvertent result of Kaiser’s hasty assumptions formed only

days after discovering the fraud.            They came as a result of a

deliberate and lengthy course of conduct in litigation.”).                In

addition, the record shows that Kaiser’s investigation uncovered

evidence of the real existence of all three payees.            See J.A. 343

(Kaiser’s investigation concluded that Not Just Computers was a real

computer business owned and operated in the District of Columbia);

J.A. 339 (National Union acknowledged that Yates Technology, Inc.

is an entity validly incorporated in the Bahamas); J.A. 389 (Kaiser

alleged that “Moffat Sales is doing business at 1207 Nova Avenue,

Suite 1, Capitol Heights, Maryland”).           Moreover, as subrogee of

Kaiser, National Union holds enforceable judgments against all three

payees in the full amount of the Kaiser checks, raising the

possibility of double recovery on inconsistent factual theories,

                                  -6-
which renders judicial estoppel particularly appropriate. See King,

159 F.3d at 198 (“To allow King to obtain benefits from two sources

based on two incompatible positions, simply because the positions

aid her claims for remuneration, would reduce truth to a mere

financial convenience and would undermine the integrity of the

judicial process.”).

                               III.

     In regard to National Union’s other arguments in favor of its

claims under sections 3-404 and 3-405, as well as its other claims

based on section 3-406, on “money had and received,” on common law

conversion, and on breach of restrictive indorsement, we have

reviewed the record thoroughly and found no reversible error.   As

to these claims, we affirm on the reasoning of the district court.

                            CONCLUSION

     For the reasons stated herein, the judgment of the district

court is affirmed.

                                                          AFFIRMED

                               -7-
SHEDD, Circuit Judge, concurring:

      Although I agree with the majority that summary judgment was

proper on all of National Union’s claims, I follow a different

rationale on the fictitious payee claim under MD. CODE ANN, COM. LAW

§ 3-404.      While the majority bases its affirmance as to this claim

on judicial estoppel, I would affirm because National Union has

failed to present any evidence that the three corporations at issue

were fictitious.

      Judicial estoppel is an equitable doctrine that must be applied

with caution, John S. Clark Co. v. Faggert & Frieden, P.C., 65 F.3d

26, 29 (4th Cir. 1995), and should be reserved for those cases where

it is necessary to “protect the essential integrity of the judicial

process,”      Allen v. Zurich Ins. Co., 667 F.2d 1162, 1166 (4th Cir.

1982).    Although the state court entered default judgments against

the three corporations (and others), that court did not necessarily

accept the allegations by National Union’s predecessor concerning

the   named    defendants’   corporate   status   (or   lack   of   status).1

Whether the alleged corporations actually existed was not litigated

or essential to the state court’s judgment.              See id. at 1167

      1
      It is apparent from the state court records that it was
immaterial to that court whether the named defendants actually
existed. For example, National Union’s predecessor alleged that
Just Computers is “not a corporation, and may be a trade name or
alter ego for Not Just Computers.” J.A. 400. Even though Just
Computers was not alleged to have any recognizable status, the
state court nevertheless entered default judgment against the
nonentity Just Computers.

                                   -8-
(stating that “the earlier assertion of a legally irrelevant, albeit

inconsistent,   position   should    seldom,   if   ever,   lead   to   the

application of judicial estoppel”). Accordingly, I am not convinced

that the district court acted within its discretion in applying the

equitable doctrine in this case.

     I agree, however, that summary judgment should be affirmed,

because National Union has failed to present evidence that the three

corporations were fictitious, i.e., that the corporations did not

actually exist.   Although there is substantial evidence that the

corporations were used as part of an intricate plot to defraud,

there is no evidence in our record showing that the corporations did

not exist.2

     2
      Of the three corporations, whether there is evidence that
Moffat Sales Corp. (“MSC”) was a fictitious payee requires the
closest review of the record. The Articles of Incorporation for
MSC indicate that it is a District of Columbia corporation. In its
brief, National Union represents that the District of Columbia has
no record of MSC’s existence.        Although this representation
suggests that the Articles of Incorporation are not legitimate and
that MSC does not exist, National Union has failed to present any
evidence to support its representation, even though it appears that
the District of Columbia would provide such verification if
requested. See J.A. 353 (D.C. Certification dated Feb. 12, 2003,
verifying that D.C. received and accepted the Articles of
Incorporation for Not Just Computers, Inc. in 1998).

                                    -9-