United States District Court, N.D. California
February 17, 2004.
BANK ONE, DEARBORN, N.A., Plaintiff
DONALD B. MAISEL, Defendant
The opinion of the court was delivered by: MARILYN PATEL, Chief Judge, District
MEMORANDUM & ORDER RE SUMMARY JUDGMENT
Plaintiff Bank One brings this action against defendant Donald B.
Maisel seeking restitution for monies mistakenly paid by Bank One's
predecessor-in-interest on an unauthorized check. Now before the court is
plaintiff's motion for summary judgment. After having considered the
parties' arguments and submissions, and for the reasons set forth below,
the court rules as follows,
Maisel, an emergency room physician in Santa Clara County, collects
baseball cards as a hobby. At the time of the events central to this
action, Maisel was especially interested in Ken Griffey, Jr. cards.
Weickhardt Dec., Exh. 1 at 4. In September 1999, Maisel won an eBay
auction for a Ken Griffey, Jr. rookie `Upper Deck" card in the amount of
$1737.99. Because Maisel had been defrauded in an earlier eBay
transaction, he was initially wary of sending a check to the seller, John
Collins. Id. at 3. A phone conversation with Collins, who claimed to be
the owner of a successful medical arbitration company called John Charles
& Associates, reassured Maisel that Collins was legitimate, Id. at 4.
Maisel sent Collins the money on September 13, 1999. Knowing of
Maisel's interest in Ken Griffey, Jr. cards, Collins offered to sell
Maisel additional cards. On September 14, Maisel sent Collins a check for
$3476 for two more rookie cards, and three days later, Maisel sent
another check for $958 for 400 Ken Griffey, Jr. 1990 and 1991 "Upper
Through these transactions and many others, Maisel and Collins became
friends. Id. They ultimately agreed to form the "High Grade Card
Company," a business in which Collins would buy cards and Maisel would
sell them, and the two would split the profits. Collins claimed to
purchase several collections for the company, including one for $3000 that
had a 1951 Mickey Mantle "Bowman" rookie card with an estimated value of
$50,000 to $100,000. In early October, Collins told Maisel of an
"incredible deal" an heir to a tobacco. family planned to sell 20,000
packages of tobacco, each one unopened with a baseball card inside.
Collins asked Maisel for half the purchase price, or $88,000.
Maisel, however, had begun to distrust Collins. After a month of
excuses, Maisel still had not received the Ken Griffey, Jr. cards he had
purchased from Collins. Moreover, Maisel had received only two boxes of
the promised collections that did not include the valuable Mickey Mantle
card. On October 14, after calling Collins in the morning to warn him of
his arrival that afternoon, Maisel flew to Indiana to visit Collins at
his home. The visit reassured Maisel. Collins' stories about his life
appeared to be true he lived in a large house with a swimming pool and a
tennis/basketball court and Maisel saw numerous boxes of baseball cards
from Collins' own collection. Before leaving, Maisel wrote Collins two
checks for a total of $115,000, which included payment for Maisel's share
of the collections bought by Collins and $4400 for future expenditures.
In December, Collins called Maisel "almost in tears" and claimed that
the IRS had frozen his bank accounts because John Charles & Associates
owed back taxes. Id. at 10. Collins claimed that a former employee had
stolen the money. Id. On December 13, Maisel sent Collins a $20,000
loan, which Collins promised to repay in six weeks. A month later,
Collins claimed the IRS was still after him and he needed more money. He
offered to sell Maisel and Maisel's brother his entire collection of
one-million baseball cards. Maisel, though increasingly suspicious,
decided to purchase them because he had seen the boxes of cards in
Collins' house. Id. at 13. Collins sent three boxes to
Maisel as a sample. Id. On January 25, 2000, Maisel's brother sent
$50,000 to Collins, and Collins agreed that Maisel's share would come
from the money Maisel had already paid. After a series of excuses,
Collins finally sent seven boxes of the card collection to Maisel in
March; the cards were "essentially worthless" and not representative of
the cards Maisel had seen at Collins' house. Id. at 15.
By this time, Maisel still had not received any of the other cards
promised by Collins. Fearing that he might lose his money, Maisel hired
the Rat Dog Dick Detective Agency to check on Collins. The agency found
several small claims judgments against Collins but no real property
associated with his name, Collins' company, John Charles & Associates,
had been dissolved as of September 1997. The agency's report showed that
Collins had no record of criminal activity but that there were two social
security numbers affiliated with the name: one for a "John E. Collins"
and another for a "John C. Collins." Both names had the same date of
birth and the same address.
On April 5, Maisel sent Collins five separate letters demanding a
refund of $214,172: $5,214 for the three Ken Griffey, Jr. rookie cards,
$958 for the four hundred 1990 and 1991 Ken Griffey Jr. cards, $100,000
for Collins' collection, $88,000 for Maisel's share of the tobacco.
cards, and $20,000 for the loan.*fn2 Maisel also filed a complaint with
the joint FBI-Santa Clara Police Internet Task Force, which ultimately
transferred the file to the FBI office in Concord after deciding that the
case did not have a sufficient connection to the internet. In his
complaint, Maisel identified Collins as a "clever con man." Id at 18. At
the same time, Maisel began to "play the FBI card" with Collins. He led
Collins to believe that the FBI's investigation would result in criminal
prosecution, unless Collins returned $200,000 to Maisel. The tactic
worked. Collins told Maisel he would reimburse him from the sale of his
card collection to a friend named Johnnie Thomas, who lived in Decatur,
Georgia. Thomas would send $200,000 to Maisel directly, and the rest of
the proceeds would go to Collins.
On June 12, Collins faxed Maisel a copy of an unsigned check made
payable to Don Maisel, on the account of the Birmingham-Bloomfield Land
Title Company ("BBLT") at the National Bank of Detroit, Dearborn. Maisel
called BBLT that day to ask if the check was "good." BBLT referred
him to the National Bank of Detroit, Bank One's predecessor-in-interest,
which told him that the account had sufficient funds to pay the check.
The next day, Maisel received a check on the same account, purportedly
sent by Thomas. Although Collins had said "H. Angel" would sign the
check, the signature on the check was "V. Dantez." Moreover, the number
on the check was different than the one on the faxed copy. Maisel's wife
endorsed the check and deposited it in Maisel's account at Bank of
America. Bank of America placed a hold on the funds, but released them a
few days later. Using an automated system, Bank One processed the check
and posted it to the BBLT account.
Maisel sent his brother $50,000 and returned the rest of the money to
his savings and investment accounts. On June 22, Maisel sent Collins an
agreement concluding their business activities and stating that the
$200,000 was a "full refund" for monies owed. Weickhardt Dec., Exh. 2 at
72-73. Maisel reserved his rights to half of two collections and promised
to return the cards Collins sent as a sample of his collection.*fn3 Id.
at 73. In addition, Maisel purported to withdraw "any and all previous
legal claims." Id at 72. On August 9, Maisel sent Collins a final
agreement that transferred ownership of the card company to Maisel.
Collins signed both agreements.
In October, BBLT sent Bank One a forgery questionnaire affirming that
the check made payable to Maisel did not have an authorized signature.
Hartley Dec., Exh. 1 at 2. According to the questionnaire, BBLT first
discovered that the check was forged on June 21, 2000.*fn4 Id Bank One
credited BBLT's account, incurring a loss of $200,000. In November, Bank
One contacted Maisel to inform him that the check was counterfeit. Maisel
then contacted Collins, who denied any knowledge of forgery. On June 25,
2001, Bank One sent Maisel a letter demanding repayment of the $200,000
Summary judgment is proper when the pleadings, discovery and affidavits
show that there is "no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law." Fed.R.Civ.P.
56(c). Material facts are those which may affect the outcome of the
case. Anderson v. Liberty Lobby. Inc. 477 U.S. 242, 248 (1986). A dispute
as to a material fact is genuine if there is sufficient evidence for a
reasonable jury to return a verdict for the nonmoving
party. Id. The moving party for summary judgment bears the burden of
identifying those portions of the pleadings, discovery and affidavits
that demonstrate the absence of a genuine issue of material fact Celotex
Corp. v. Cattrett, 477 U.S. 317, 323 (1986V On an issue for which the
opposing party will have the burden of proof at trial, the moving party
need only point out "that there is an absence of evidence to support the
nonmoving party's case." Id
Once the moving party meets its initial burden, the nonmoving party
must go beyond the pleadings and, by its own affidavits or discovery,
"set forth specific facts showing that there is a genuine issue for
trial." Fed.R.Civ.P. 56(e), Mere allegations or denials do not defeat a
moving party's allegations, Id; see also Gasaway v. Northwestern Mut. Life
Ins. Co. 26 F.3d 957, 960 (9th Cir. 1994). Inferences to be drawn from
the facts must be viewed in the light most favorable to the party
opposing the motion. Masson v. New Yorker Magazine, 501 U.S. 496, 520
The court applies California substantive law to this diversity action.
All but one of the claims at issue in this motion concern Uniform
Commercial Code ("U.C.C.") provisions, codified in the California
Commercial Code. The court first looks to California decisions
interpreting these provisions. If there are no applicable decisions, the
court looks to other state courts that have interpreted Identical
provisions. California courts generally "afford great deference to the
decisions of sister jurisdictions interpreting . . . [U.C.C.]
provisions." Oswald Mach. & Equip, v. Yip, 10 Cal.App.4th 1238, 1247
(Cal. Ct. App. 1992).
Bank One alleges that Maisel is required to pay restitution under four
U.C.C. provisions as codified in the California Commercial Code: (1) for
acting in bad faith after a bank mistakenly pays an unauthorized check
under section 3418; (2) for unjust enrichment when a payor bank brings an
action as subrogee to the maker under section 4407; (3) for breach of
warranty under section 3417; and (4) for conversion under section 3420.
Cal. Com. Code §§ 3418, 4407, 3417, 3420. In addition, Bank One argues
that Maisel should pay restitution under common law theories of unjust
I. Mistaken Payment under Section 3418
Section 3418 describes the very situation at issue here a bank
mistakenly pays an unauthorized check and suffers a loss and offers a
remedy even if the bank acted negligently in its duties.*fn5 The
remedy, however, cannot be asserted against a recipient of a check who
(1) acted in good faith, and (2) either took the check for value or
changed position in reliance on the payment.*fn6 Section 3418 codifies
the common law rule of Price v. Neal, 3 Burr. 1354, 97 Eng, Rep. 871
(Eng. 1762). The rule places ultimate liability for a drawer's forged
signature on the drawee bank, except when the recipient of the check knew
about the forgery, because "the drawee bank, possessing the signature
card of the drawer, is in the best position to ascertain the forgery."
Fireman's Fund Ins. Co. v. Sec. Pacific Nat'l Bank, 85 Cal.App.3d 797,
821-22 (Cal, Ct. App. 1978) (describing the Price rationale). Commentary
to the code clearly contemplates the consequences of this rule: "The
result . . . is that the drawee in most cases will not have a remedy
against the person paid because there is usually a person who took the
check in good faith and for value or who in good faith changed position
in reliance on the payment. . . ." Cal, Com. Code cmt. 1.
A. Good Faith
Bank One claims that it should not have to bear liability for its
mistake because Maisel failed to act in good faith. "Good faith," Bank
One argues, is determined by an objective standard that takes into
account all the circumstances and facts that Maisel should reasonably
have known. Maisel argues, however, that the code requires only a
subjective standard of actual knowledge. Maisel acted in good faith
because, he claims, he did not know the check was counterfeit. The court
agrees that the standard is one of actual knowledge, and Maisel's
knowledge is an issue of triable fact.
The code defines good faith as "honesty in fact in the conduct or
transaction concerned." Cal. Com. Code § 1201(19). Under the commercial
code, good faith is a subjective standard of actual knowledge. Louis &
Diederich, Inc. v. Cambridge European Imports, Inc., 189 Cal. App, 3d
1574, 1587 (Cal. Ct, App. 1987). California courts have long held that
"mere knowledge of facts sufficient to put a prudent man on inquiry" does
not destroy good faith "unless the circumstances or suspicions are so
cogent and obvious that to remain passive would amount to bad faith."*fn7
Popp v. Exchange Bank, 189 Cal. 296, 303 (Cal. 1922). Bank One, however,
tries to import an objective
standard by arguing that Maisel did not act in good faith because
he had "notice" of the forgery from surrounding facts and circumstances.
Bank One argues that these circumstances mandated an inquiry about the
check, and Maisel's failure to inquire shows a lack of good faith.
Bank One relies on Fireman's Fund for the proposition that "notice" of
facts indicating fraud negates good faith. Bank One's reliance is
misplaced.*fn8 Fireman's Fund construes an earlier version of section
3418, which denied recovery if a payee was a "holder in due course." In
addition to the requirements of good faith and taking a check for value,
a "holder in due course" must not have notice of any defenses to the
check, including an unauthorized signature. Cal. Com. Code § 3302(a)(2).
The current version of section 3418 requires only that a payee take the
check in good faith and for value, a "substantive change in the law"
resulting in "an easier burden to meet." Gentner and Co. v. Wells Fargo
Bank, 76 Cal.App.4th 1165, 1176 (Cal. Ct. App. 1999). Courts have found a
duty to inquire only when the payee is wilfully ignoring the truth.*fn9
Thus, a person does not act in good faith "Where the circumstances are
such as to justify the conclusion that the failure to make inquiry arose
from a suspicion that inquiry would disclose a vice or defect in the
instrument or transaction." Christian v. California Bank, 30 Cal.2d 421,
424 (Cal. 1947).*fn10
The parties dispute whether Maisel had actual knowledge of the forgery
and whether he refrained from inquiring in greater detail about the check
because he suspected that the check was counterfeit. The evidence
presented on this motion does not compel one conclusion. It is clear that
Maisel knew Collins was a "con man" and that Collins feared arrest and
prosecution. This fear, however, could cut both ways, since fear may
caution against unlawful behavior. Moreover, Maisel claims that he did
not know the check was counterfeit. Maisel's knowledge hinges on his
credibility, and thus is an issue of fact best suited for trial. In sum,
the court finds that the plaintiff has not proffered sufficient facts to
place this matter beyond the reach of a reasonable juror.
B. For Value
A person takes a check for value if, among other possibilities, "[t]he
instrument is issued or transferred as payment of, or as security for, an
antecedent claim against any person, whether or not the claim is due."
Cal. Com. Code § 3303(a)(3). In this action, the counterfeit check
by Johnnie Thomas to Maisel as payment for Maisel's claim against
Collins. Bank One argues that Maisel could not have taken the check for
value because BBLT did not know about the claim.
Section 3303 conclusively rebuts Bank One's position. That section
provides that an instrument is transferred for value if it is made as
payment of "an antecedent claim against any person," not merely an
antecedent claim against the transferor. Id. (emphasis added). As the
comment itself explains, "[s]ubsection (a)(3) applies to any claim
against any person. . . . In particular the provision is intended to
apply to an instrument given in payment of or as security for the debt of
a third person, even though no concession is made in return." Id. at
cmt. 4 (emphasis added). This section of the code thus expressly
contemplates the type of situation that has arisen here, where Maisel
took the check as payment for the debt of a third party (Collins) and did
not provide either Johnnie Thomas or BBLT with any "concession" in
return.*fn11 Based upon the facts as represented by the parties, the
court cannot grant summary judgment for plaintiff on the question of
whether Maisel took the checks for value.
C. Change of Position in Reliance on Payment
Bank One concedes that Maisel did halt his attempts at recovery when he
received the check but argues that Maisel could not have changed his
position. Collins, Bank One claims, was judgment proof then and remains
judgment proof now. Bank One relies on the private detective's report,
which found no property associated with Collins. Yet this report does not
provide a sufficient basis for this court to grant summary judgment to
Bank One on this issue. By its terms, the report states only that the
search could not find any property, not that Collins owned no property.
Weickhardt Dec., Exh. 2 at 44. Maisel could have assumed that Collins
owned at least one asset the collection of baseball cards Maisel had
seen and on that basis continued his collection efforts if he had not
received the check. Furthermore, after receiving the check Maisel sent
Collins a signed agreement stating that he had received a "full refund"
for monies owed and withdrawing "any and all previous legal claims." Id.
at 72-73. While it may be possible for Maisel to rescind this offer and
unwind the transaction with Collins if he is eventually forced to return
the check to Bank One, this agreement stands as a further indication that
Maisel injured his own cause in reliance upon the
veracity of the check he received. There exists a triable issue of
fact on this question, and the court denies plaintiff's request for
summary judgment on its section 3418 cause of action.
II. Subrogation under Section 4407 and Unjust Enrichment
Bank One next argues that it should recover against Maisel because it
is subrogated to the rights of the drawer, BBLT, against Maisel under
section 4407. Section 4407 provides:
If a payor bank has paid an item . . . under
circumstances giving a basis for objection by the
drawer or maker, to prevent unjust enrichment and only
to the extent necessary to prevent loss to the bank by
reason of its payment of the item, the payor bank is
subrogated to the rights of . . . the drawer or maker
against the payee . . . with respect to the
transaction out of which the item arose.
Cal Com. Code § 4407(c). The purpose of the section is "to give a
bank remedies to get its money back when it has improperly paid an item."
Cal. Com. Code § 4407, cmt. 1. If section 4407 were to apply, Bank
One would acquire any causes of action BBLT might hold against Maisel.
Bank One treats section 4407 as if it confers upon Bank One an
independent cause of action that it has not elsewhere alleged. See Def.
Mot., at 11 ("Third Claim For Relief: Bank One's Claim As A Subrogee Of
BBLT"). However, Bank One does not clearly identify the nature of that
cause of action; rather, it simply refers frequently to the fact that BBLT
owed Maisel nothing and thus should be able to recoup its losses. Perhaps
drawing upon the language of the statute itself, Bank One does appear at
one point to identify "unjust enrichment" as the cause of action it has
acquired under section 4407: "In such a case, it can not be disputed that
Dr. Maisel would be unjustly enriched at the expense of BBLT because BBLT
was not indebted to Dr. Maisel and Dr. Maisel knew that." Pl. Mot., at
12. This claim obviously coalesces with Bank One's separate claim for
restitution, and thus the court need not determine at this juncture
whether section 4407 applies. The court will simply consider plaintiff's
claim for restitution on its own merits.
The commercial code allows common law actions at "law or equity" if its
provisions do not specifically displace such actions, Cal. Com. Code §
1103. Neither the text of section 3418 nor 4407 specifically displaces a
common law action for restitution.*fn12 In fact, a comment to section
4407 reserves actions at common law. Cal, Com. Code § 4407 cmt. 5 ("The
spelling out of affirmative rights of the bank in this section does not
destroy other existing rights (Section 1-103).") Courts in
Missouri and Texas have held that a common law action for mistaken
payment exists, but that it cannot conflict with U.C.C. provisions.
Bryan, 628 S.W.2d at 764; Guaranty Bank & Trust, 952 S.W.2d at 790.
Thus, a bank must plead its subrogor's defenses under section 4407 even
in an action for unjust enrichment at common law. Bryan, 628 S.W.2d at
764; Guaranty Bank & Trust, 952 S.W.2d at 790.
The common law rule of unjust enrichment in California is substantially
similar to section 3418, California follows the Restatement on
Restitution. See California Federal Bank v. Matreyek, 8 Cal.App.4th 125,
131 (Cal. Ct. App. 1992); City of Hope Nat'l Med. Ctr. v. Superior Court,
8 Cal.App.4th 633, 636-37 (Cal. Ct. App. 1992); First Nationwide Savings
v. Perry, 11 Cal, App, 4th 1657, 1662 (Cal. Ct. App. 1992). When a
payment is based on mistake of fact, a payor is entitled to restitution
unless the payee has materially changed position in reliance on payment.
Restatement of Restitution § 1, Thus, "restitution is commonly denied
against an innocent transferee or beneficiary, if he has changed his
position after the transaction and it is impossible or impractical to
restore him to his original position." City of Hope, 8 Cal.App.4th at
637, The transferee's knowledge is central to any inquiry. Thus, a party
who does not know about another's mistake is not required to pay
restitution if the party detrimentally relied on the benefit. Compare
California Federal Bank, 8 Cal.App.4th at 132-34 (holding that borrowers
who were advised by bank that they could pay off loan without penalty did
not owe restitution to bank when bank discovered its advice was in
error), with First Nationwide Savings, 11 Cal.App.4th at 1664 (holding
that beneficiary could sustain an action for unjust enrichment against a
nonassuming grantee of a purchase money deed of trust who profited from a
trustee's mistake if the grantee knew there was a mistake). "In other
words, innocent recipients may be treated differently than those persons
who acquire a benefit with knowledge." First Nationwide Savings, 11 Cal.
App, 4th at 1664.*fn13
As discussed in Section I. above, there exists a triable issue of fact
regarding Maisel's subjective understanding of the reliability of the
BBLT check. Bank One's summary judgment motion on this claim is thus
III. Breach of Warranty under Section 3417
Bank One claims that Maisel breached a presentment warranty under
section 3417 by offering a check of which BBLT held a defense to
payment,*fn14 Bank One claims that Maisel breached the warranty because
he was not "a person entitled to enforce the draft or authorized to
obtain payment or acceptance of the draft on behalf of the person
entitled to enforce the draft." Cal. Com. Code § 3417(a)(1). As a
comment to the section makes clear, this "in effect is a warranty that
there are no unauthorized or missing indorsements." Cal. Com. Code §
3417 cmt 2. The action at bar, however, concerns a forged maker's
signature, not a check that lacks the endorsement of the person to whom
it was made out. Bank One has cited no cases that support its novel
interpretation of this warranty.
Rather, the relevant section of the code requires that "[t]he warrantor
has no knowledge that the signature of the drawer of the draft is
unauthorized." Cal. Com. Code § 3417(a)(3). This warranty "retains
the rule . . . that the drawee takes the risk that the drawer's signature
is unauthorized unless the person presenting the draft has knowledge that
the drawer's signature is unauthorized." Cal. Com. Code § 3417 cmt.
2. This section thus demands another inquiry into Maisel subjective state
of mind. As discussed above, there is an issue of material fact as to
whether Maisel knew that the signature was fraudulent. The court
therefore denies summary judgment on this claim.
IV. Conversion under Section 3420
A. Terms of the Cause of Action
Bank One alleges finally that Maisel converted the check. According to
section 3420, "[a]n instrument is also converted if it is taken by
transfer, other than a negotiation, from a person not entitled to enforce
the instrument." Cal. Com. Code § 3420. The California Commercial
Code contains specific definitions of several of the terms contained
within this cause of action that are crucial to the resolution of this
legal question. Transfer is defined as delivery*fn15 "by a person other
than its issuer for the purpose of giving to the person receiving
delivery the right to enforce the instrument." Cal. Com. Code § 3203.
Negotiation is a "transfer of possession . . . of an instrument
by a person other than the issuer to a person who thereby becomes its
holder." Cal. Com. Code § 3201(a). "If an instrument is payable to an
identified person, negotiation requires transfer of possession of the
instrument and its indorsement by the holder If an instrument is payable
to bearer, it may be negotiated by transfer of possession alone." Cal.
Com. Code § 3201(b). A "person entitled to enforce the instrument" is
"the holder of the instrument" or "a non-holder in possession of the
instrument who has the rights of the holder," Cal. Com. Code § 3301. A
"holder" is a "person in possession if the instrument is payable to
bearer or, in the case of an instrument payable to an identified person,
if the identified person is in possession." Cal. Com. Code § 1201(20).
Bank One appears to be correct in alleging that the stipulated facts
fulfill the necessary elements of the cause of action under this
provision. A transfer from Johnnie Thomas to Maisel did take place, and
that transfer cannot be considered a negotiation because it did not
involve "indorsement by the holder" (viz., Maisel). Cal. Com. Code §
3201(b). In addition, Johnnie Thomas was not a "person entitled to
enforce" the check at issue here. Cal. Com. Code § 3240(a).
B. Maisel's Defenses
Maisel alleges that Bank One cannot bring this claim because an
"acceptor" of the instrument does not have the right to sue for
conversion under section 3420. Cal. Com. Code § 3420(a)(1) ("An action
for conversion of an instrument may not be brought by the . . . acceptor
of the instrument."). As Bank One notes, a payor*fn16 is not the same as
an acceptor. To have accepted the check, Bank One's
predecessor-in-interest must have signed an agreement, written on the
draft, to pay the draft as presented, Cal. Com. Code § 3409(a). Maisel
has offered no evidence to indicate that Bank One's
predecessor-in-interest accepted the check. In fact, the copy of the check
does not indicate any written acceptance; while the back of the check has
been stamped by Bank One's predecessor-in-interest, it has not been
signed as section 3409 requires. Bowman Dec., Exh. A, at 2; Cal Com. Code
C. Bank One as Proper Plaintiff
The present action does not conform to the typical set of facts that
give rise to a claim for conversion. Generally, an action for conversion
arises when a thief steals or falsely endorses a check and attempts to
deposit it directly into a bank; the action for conversion thus runs from
the person on
whose account the checks were drawn against the (often well-intentioned)
bank. See, e.g. Lee Newman. M.D. Inc. v. Wells Fargo Bank,
87 Cal.App.4th 73 (Cal Ct. App. 2001). Here, the thief (Collins or
Johnnie Thomas) sent the check to Maisel, rather than to a bank; Maisel
thus stands in the place of the bank in a typical conversion action,
since he is the "depository" at which the thieves "cashed" their check.
There are rare examples of conversion actions that are brought against
non-banks. See, e.g., Stockton v. Gristedes Supermarkets. Inc.,
576 N.Y.S.2d 267, 268 (N.Y.App. Div. 1991) (conversion action upheld
against supermarket that offered "check cashing privileges" and cashed
However, this court has been unable to locate any authority
establishing that a drawee bank may sue for conversion, and Bank One has
cited no such authority to the court here. Indeed, Collins and Thomas
could not have stolen the check from Bank One because the check was never
Bank One's property; Bank One cannot properly bring an action for
conversion of something that it never possessed. Cf. Cal. Com, Code §
3420 cmt 1 ("A is the owner of the check. B never obtained rights in the
check. . . . Thief stole A's property not B's,"). The proper plaintiff in
a conversion action against Maisel is thus BBLT, the party from whom the
check was originally taken.
Bank One has not argued to this court that it may sue for conversion as
a subrogee to BBLT's rights under Cal. Com. Code section 4407. See
Section II, supra. Regardless, such an argument would be fufile. In order
to evaluate the possibility of Bank One bringing a claim under Section
4407, the court must now decide the question explicitly left open in
Section 11, viz., whether Bank One may be properly subrogated to the
rights of BBLT under section 4407,
Section 4407 states that a payor bank is subrogated to the rights of a
drawer or maker against the payee only "to prevent unjust enrichment."
Cal, Com. Code § 4407. Although the case law on this issue is hardly a
model of clarity, courts have generally directed their inquiry regarding
"unjust enrichment" to the question of whether a drawer or maker who
maintained her own cause of action would be capable of recovering twice
and thus unjustly enriching herself. See, e.g., Danning v. Bank of Am.
Nat'l Trust and Savings Ass'n, 151 Cal.App.3d 961, 976 (Cal.App. Ct.
1984) ("Section 4407 was applicable in that instance to prevent the
depositor from acquiring and retaining the double benefit of having the
bank's premature payment discharge the depositor's legal obligation while
allowing the depositor to recover from the bank that same debt already
paid.") (citation omitted). Bank One appears to have taken a contrary
view, arguing that the "unjust enrichment" at issue refers to the payee
(Maisel) instead. See Pl. Mot., at 12 ("[I]t can not be disputed that
Dr. Maisel would be unjustly enriched at the expense of BBLT. . .").
Plaintiff cannot maintain an action for conversion via section 4407
under either understanding of "unjust enrichment." First (according to
the drawer-based theory of unjust enrichment), no avenue exists by which
BBLT might unjustly enrich itself were it to attempt to bring its own
conversion claim. Since BBLT was compensated for its loss it can allege
no damages (and has acquired no ancillary benefit through this series of
transactions), and thus BBLT could not possibly collect twice were it to
litigate the matter further. By contrast, cases that have allowed
subrogation under section 4407 have involved the threat of actual dual
benefit to the wronged party. See, e.g., Siegel v. New England Merch.
Nat'l Bank 386 Mass. 672, 675 (1982) ("As the bank points out, the
depositor's realization of this claim may produce unjust enrichment. Even
when an item is not properly payable, due to prematurity or a stop
payment order, the bank's payment may discharge a legal obligation of the
depositor, or create a right in the depositor's favor against the
payee.") (cited by Danning. 151 Cal.App.3d at 976). The court therefore
finds that there is no risk of unjust enrichment of BBLT.
Second (according to Bank One's payee-based theory of unjust
enrichment), as described above, Bank One is not entitled to summary
judgment on its claim for unjust enrichment against Maisel. See Section
II, supra. "Unjust enrichment" is a term of art that carries specific
legal significance under California law. If Bank One cannot demonstrate
for the purposes of this motion that Maisel has been unjustly enriched,
it correspondingly may not employ statutory tools reserved solely "to
avoid unjust enrichment" of payees such as Maisel, Lacking specific case
authority permitting Bank One to bring an action for conversion against
Maisel, the court holds that Bank One is not a proper plaintiff in such
an action. Plaintiff's motion for summary judgment as to this claim is
For the foregoing reasons, the court DENIES plaintiff's motion for
summary judgment. IT IS SO ORDERED.