United States District Court, S.D. Mississippi, Western Division
MIDWEST FEEDERS, INC. PLAINTIFF
BANK OF FRANKLIN DEFENDANT
MEMORANDUM OPINION AND ORDER
BRAMLETTE UNITED STATES DISTRICT JUDGE.
cause is before the Court on defendant Bank of Franklin's
Motion for Summary Judgment (docket entry 321) and motions to
exclude the opinions and testimony of Edward Cordes (docket
entry 302), Cathy C. Glassman (docket entry 306), and John D.
Barthel (docket entry 316). Having carefully considered the
motions, responses, and applicable law, and being otherwise
fully informed in the premises, the Court finds as follows:
Facts and Procedural History
case arises from the Bank of Franklin's alleged
involvement in a “fictitious payee” scheme
orchestrated against Midwest Feeders, Inc. (“Midwest
Feeders” or “Midwest”) by Robert Rawls, a
Bank of Franklin customer. Midwest Feeders is a commercial
cattle feedlot business based in Gray County, Kansas. Doc. 1,
¶ 1. The Bank of Franklin is a community bank with
branches in Brookhaven and Meadville, Mississippi.
effort to expand its operations, Midwest Feeders entered the
cattle “clearing” business in 2006. See Doc.
383-17. By entering into these arrangements with its
customers, Midwest would provide financing and lines of
credit to customers for the procurement of livestock.
Id. In that same year, Midwest Feeders entered into
a clearing agreement with Robert Rawls, who conducted
business individually and through Robert Rawls Livestock and
Rawls Trucking, LLC (collectively, “Rawls”).
Id. at 13; Doc. 383-73. Midwest entered into this
agreement after obtaining favorable recommendations about
Rawls from other customers. Doc. 383-17, p. 30.
to the clearing arrangement between Rawls and Midwest
Feeders, Midwest would deposit money into an account at Alva
State Bank & Trust of Alva, Oklahoma (“Alva”)
for Rawls to use for the purchase of livestock in exchange
for a security interest in the livestock purchased.
Id.; Doc. 1, ¶ 11. The agreement was structured
so that Rawls could write a check drawn on the Alva account
to purchase cattle, and the cattle would be put into
inventory. The account was styled “Robert Rawls
Livestock.” See Doc. 383-36; Doc. 383-70; Doc. 383-42.
After a check on this account was issued, Midwest would fund
the Alva account to cover the check drawn by Rawls. Doc.
383-17, p. 55. The cattle in inventory would then be sold,
creating an account receivable, with proceeds from the cattle
purchaser being paid directly to the Alva account.
Id. The payment was to be made by purchasers via
deposits to a post office lock box controlled by Alva.
Id. Deposits from the purchaser would then be
credited to Rawls' outstanding accounts receivable.
Id. In exchange for its funding, Midwest received
compensation through fees and interest on outstanding funds.
2010, Rawls became a customer of the Bank of Franklin, a
banking relationship which consisted of two commercial loans
and a checking account in the name of Robert Rawls Livestock.
See Doc. 383-9; Doc 321-21; Doc. 383-32. Rawls came to the
bank after Charles Magee, executive vice president and loan
committee member, solicited his business. Doc. 383-9, p. 22.
Magee and Rawls had known each other for 30 years, and the
two socialized on occasion. See Id. Magee oversaw
Rawls' accounts while he was a customer of the bank,
processing his loans and approving wire transfers when
necessary. See Doc. 383-9. On several occasions, Magee
approved transfers from Rawls' checking account when the
balance was in the negative. Id. According to Magee,
if Rawls' line of credit was sufficient to cover the
transaction or if Rawls indicated that he planned to deposit
funds into his checking account, Magee would approve the
point during Rawls' business dealings with Midwest
Feeders, Rawls created fictitious cattle purchases and
diverted money from the Alva account for his personal use.
Doc. 1, ¶ 14. Rawls made out checks to fictitious payees
drawn on the Alva account and endorsed them and stamped them
as payable to his livestock company for deposit only. Rawls
then deposited the checks into his checking account at Bank
of Franklin, which turned them over to Alva for payment. See
Doc. 383-77. In an effort to disguise these transactions as
legitimate, Rawls also created fictitious invoices to
accompany the checks. See Doc. 383-17, p. 215. In March of
2014, Rawls confessed his scheme to Midwest president, Jeff
Sternberger, who then notified Charles Magee. Id.
2011, prior to Rawls' confession, executives at the Bank
of Franklin made an inquiry concerning Rawls' account and
deposit transactions, specifically his uncollected funds
balance and the checks being deposited into his checking
account. See Doc. 383-1; Doc. 383-2; Doc. 383-8. The type of
checks deposited by Rawls were uncommon at the bank,
Magee was instructed to speak with Rawls about the nature of
these deposits. Doc. 383-3, p. 129; Doc. 383-9, p. 72. When
asked about the checks, Rawls explained that these
transactions were common practice in the cattle industry.
Doc. 838-9, p. 73. Being satisfied with this explanation, the
Bank conducted no further investigation into Rawls'
account activity. See Doc. 838-9; Doc. 383-8.
September 5, 2014, Midwest Feeders filed suit against Bank of
Franklin, alleging six claims against the bank in connection
with Rawls' fraudulent scheme. The Court dismissed two
claims at the motion to dismiss stage, and four claims remain
pending: failure to exercise ordinary care under Mississippi
Code Section 75-3-404(d), negligence, negligent hiring and
supervision, and civil conspiracy. Bank of Franklin filed its
Motion for Summary Judgment, along with motions to exclude
the opinions and testimony of three expert witnesses
designated by Midwest Feeders.
Motion for Summary Judgment
Standard of Review
judgment shall be granted “if the movant shows that
there is no genuine dispute as to any material fact and that
the movant is entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56(a). A “material fact” is one that
might affect the outcome of the suit under the governing law.
Spansel v. State Farm, 683 F.Supp.2d 444, 447
(S.D.Miss. 2010). A genuine dispute exists when the evidence
is such that a reasonable jury could return a verdict for the
nonmoving party. Id. In determining whether there is
a genuine dispute as to any material fact, the Court
considers all of the evidence in the record but refrains from
making credibility determinations or weighing the evidence.
Flock v. Scripto-Tokai, 319 F.3d 231, 236 (5th Cir.
moving for summary judgment “bears the initial
responsibility of informing the district court of the basis
for its motion, and identifying those portions of [the
record] which it believes demonstrate the absence of a
genuine issue of material fact.” Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). Once the moving party
makes such a demonstration, the burden shifts to the
nonmovant to “go beyond the pleadings” and
“designate specific facts showing that there is a
genuine issue for trial.” Estate of Sanders v.
U.S., 900 F.Supp.2d 730, 733 (S.D.Miss. 2012).
Court views the evidence and draws reasonable inferences in
the light most favorable to the nonmovant. Maddox v.
Townsend and Sons, Inc., 639 F.3d 214, 215 (5th Cir.
2011). But in the absence of any proof, the Court will not
assume that the nonmoving party could or would prove the
necessary facts. Little v. Liquid Air Corp., 37 F.3d
1069, 1075 (5th Cir. 1994).
Failure to Exercise Ordinary Care
Feeders brings its first claim against Bank of Franklin for
failure to exercise ordinary care under the Uniform
Commercial Code (“UCC”), as codified by
Mississippi Code Annotated Section 75-3-404(d). The statute
With respect to an instrument to which subsection (a) or (b)
applies, if a person paying the instrument or taking it for
value or for collection fails to exercise ordinary care in
paying or taking the instrument and that failure
substantially contributes to loss resulting from payment of
the instrument, the person bearing loss may recover from the
person failing to exercise ordinary care to the extent the
failure to exercise ordinary care contributed to the loss.
Miss. Code Ann. § 75-3-404(d) (emphasis added). Bank of
Franklin argues that Midwest lacks standing to recover under
Section 75-3- 404 because Midwest was not a party to any of
the checks deposited into Rawls' Bank of Franklin
account. In response, Midwest maintains that
Mississippi's fictitious payee statute provides a right
of recovery for any person who suffers ...