Submitted February 11, 2015
Appeal from United States District Court for the District of Minnesota - Minneapolis.
For Northeast Bank, Plaintiff - Appellee: Mark E. Duea, Geck & Duea, White Bear Lake, MN.
For Wells Fargo Bank, N.A., Defendant Third Party Plaintiff - Appellant: Amy L. Schwartz, Lapp & Libra, Minneapolis, MN; Richard T. Thomson, Lapp & Libra, Minneapolis, MN.
Before GRUENDER, SHEPHERD, and KELLY, Circuit Judges.
SHEPHERD, Circuit Judge.
Hanover Insurance Group (Hanover) issued two checks totaling $350,000 made jointly payable to Grand Rios Investments, LLC (Grand Rios), Northeast Bank, and Alex N. Sill Company. Without Northeast Bank's endorsement, knowledge, or consent, Wells Fargo Bank, N.A. (Wells Fargo), paid the full amount of the checks to Grand Rios. Northeast Bank brought suit against Hanover and Wells Fargo. The district court granted Hanover's motion to dismiss the counts of the complaint pertaining to Hanover. Northeast Bank and Wells Fargo both filed motions for summary judgment. The district court granted summary judgment in favor of Northeast Bank and denied Wells Fargo's motion for summary judgment. Wells Fargo now appeals, arguing that while its payment constituted conversion under the Uniform Commercial Code, see Minn. Stat. § 336.3-420, Northeast Bank has not suffered any damages because it was subsequently paid the full amount of the debt for which the two checks were security. We agree with Wells Fargo, and therefore we reverse the district court's grant of summary judgment to Northeast Bank and remand this matter with instructions to enter judgment in favor of Wells Fargo.
In 2003, Northeast Bank issued an $18 million construction loan to an entity to construct a hotel and waterpark in Brooklyn Park, Minnesota. The hotel and waterpark struggled, and eventually that entity defaulted on its obligations. In 2010, Grand Rios purchased the hotel and waterpark for $5 million. Part of the purchase price included Grand Rios's assumption of $4.61 million of the debt owed to Northeast Bank by the original owner. Grand Rios secured this obligation by, among other things, (1) personal guaranties from Grand Rios's three principals, (2) a mortgage of the hotel and waterpark, and (3) Grand Rios's obligation under the mortgage to maintain certain property insurances for Northeast Bank's benefit. As relevant here, Grand Rios purchased a property, liability, and business-interruption policy from Hanover.
In December 2010, the roof of the hotel and waterpark was damaged by a snowstorm. Grand Rios hired Alex N. Sill Company to prepare, submit, and negotiate any claims submitted to Hanover. On February 15, 2011, Hanover issued a check in the amount of $100,000 made payable to " Alex N. Sill Company and Grand Rios Investment LLC and Northeast Bank" to cover costs associated with mitigating the damage caused by the leaking roof. On February 25, Grand Rios presented this check to Wells Fargo, and although the check did not contain Northeast Bank's endorsement, Wells Fargo accepted the check for deposit into Grand Rios's account.
On March 29, 2011, Hanover issued an additional check, this time for $250,000, to the same joint payees. Again, Grand Rios presented the check to Wells Fargo without Northeast Bank's endorsement, and Wells Fargo again accepted the check for deposit into Grand Rios's account. Grand Rios did not notify Northeast Bank of the issuance of these checks prior to deposit.
By April 2011, Northeast Bank was threatening Grand Rios with foreclosure due to Grand Rios's repeated failure to make mortgage payments. In June 2011, Northeast Bank, Grand Rios, and the three guarantors entered into a Settlement Agreement under which Grand Rios and the three guarantors agreed to a voluntary foreclosure, to assign all insurance proceeds to Northeast Bank, to pay $50,000 to Northeast Bank, and to allow a state court to appoint a receiver for the hotel and waterpark. An escrow account was established to cover operating costs of the hotel and waterpark. Grand Rios paid the $50,000 it agreed to pay under the Settlement Agreement into the escrow account, and Hanover made additional insurance payments of approximately $1.2 million into the escrow account. As of July 31, 2011, Grand Rios owed Northeast Bank $4,993,226.24. On August 1, 2011, Northeast Bank purchased the property in a sheriff's sale for $4,606,157.21, and this sale price was credited against the mortgage indebtedness Grand Rios owed to Northeast Bank. After the receivership was cancelled, Northeast Bank received $596,299.27 from the escrow account. Thus, Northeast Bank received approximately $200,000 more than the debt Grand Rios owed. Northeast Bank later sold the property to CarMax.
Northeast Bank initiated this action against Wells Fargo, seeking to recover $350,000 on the theory of conversion. The parties agreed that Wells Fargo had improperly converted the checks. On cross-motions for summary judgment, the district court rejected Wells Fargo's argument that allowing Northeast Bank to recover the $350,000 would constitute a second recovery on the same claim. The district court granted Northeast ...