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Shane Smith Enterprises, Inc. v. Bank of America

June 29, 2007

SHANE SMITH ENTERPRISES, INC. PLAINTIFF
v.
BANK OF AMERICA, N.A. DEFENDANT



The opinion of the court was delivered by: J. Leon Holmes United States District Judge

OPINION AND ORDER

Shane Smith Enterprises, Inc., brought this suit in the Circuit Court of Pulaski County against Bank of America, N.A., alleging negligence, common-law conversion, and conversion under the Uniform Commercial Code. It alleged that Bank of America was negligent and converted Shane Smith Enterprises' funds when it accepted checks for deposit from Melvin Lewis Walker that were stolen from Shane Smith Enterprises by its secretary, Jessica Hopson. Bank of America removed the action to federal court and has moved to dismiss Shane Smith Enterprises' amended complaint or, in the alternative, for summary judgment. Shane Smith Enterprises has moved for partial summary judgment on its claims for conversion. For the following reasons, Shane Smith Enterprises' motion for partial summary judgment is denied. Bank of America's motion for summary judgment is granted in part and denied in part.

I.

Because the parties have submitted and the Court reviewed matters outside of the pleadings, Bank of America's motion will be treated as a motion for summary judgment. FED. R. CIV. P. 12(b)(6); BJC Health Sys. v. Columbia Cas. Co., 348 F.3d 685, 687-88 (8th Cir. 2003). A court should enter summary judgment if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed. 2d 202 (1986); Cheshewalla v. Rand & Son Constr. Co., 415 F.3d 847, 850 (8th Cir. 2005). A genuine issue of material fact exists only if there is sufficient evidence to allow a jury to return a verdict for the nonmoving party. Anderson, 477 U.S. at 249, 106 S.Ct. at 2511.

II.

Shane Smith Enterprises, Inc., is an Arkansas corporation that owns and operates tobacco and liquor stores. Shane Smith is the sole officer and owner of Shane Smith Enterprises. Jessica Hopson was an employee of Shane Smith Enterprises. She was in charge of handling all of the bookkeeping for Shane Smith Enterprises as well as picking up the mail, opening the mail, and paying bills. Hopson also completed all the bank deposit tickets and deposit slips for Shane Smith Enterprises and was in charge of depositing all checks and payments received by Shane Smith Enterprises into its Regions Bank account. Shane Smith Enterprises was not a customer of Bank of America.

In May 2005, Hopson began stealing checks from the mail of Shane Smith Enterprises. Hopson's boyfriend, Melvin Lewis Walker, moved to Nevada and set up a bank account there with Bank of America under the name "Melvin Lewis Walker DBA S. Smith Enterprises." When Walker arrived in Las Vegas, he called a branch of the Bank of America and was informed as to the documents that he would need to open a business account. The information included the address of the government office from which he could obtain needed documents. Then, when he opened the account, Walker provided Bank of America his Arkansas driver's license and a file-marked Nevada Certificate of Business: Fictitious Firm Name with an Arkansas address and a Nevada address on the certificate. He also provided his Social Security number. Walker and Hopson then deposited six of the checks stolen by Hopson into that account. All of the checks were made payable to either "Shane Smith Enterpri" or "Shane Smith Enterprises." The bank statements were mailed to a Little Rock address.

Walker returned to Arkansas in August 2005. He opened a new account at the Bank of America branch in North Little Rock and deposited a seventh stolen check in the new account. Bank of America discovered that this check was stolen and contacted Smith. It then closed Walker's Little Rock account. Smith confronted Hopson who admitted to stealing that check. Hopson later admitted that she stole all the checks and accepted the sole responsibility for Shane Smith Enterprises' loss.

III.

Bank of America argues that it is entitled to summary judgment on Shane Smith Enterprises' common-law negligence claim because, as a matter of law, Bank of America did not owe a duty of reasonable care to Shane Smith Enterprises, a noncustomer. Although the alleged tortious conduct occurred in Nevada, the parties have briefed the issue of the Bank of America's duty under the assumption that Arkansas law applies.*fn1 Neither party has asked the Court to apply Nevada law, nor has either party suggested that following Nevada law would yield a different outcome. Accordingly, the Court will apply Arkansas law to the question of whether Bank of America owed a duty to Shane Smith Enterprises.

"The question of what duty is owed is always a question of law and never one for the jury." Keck v. Am. Employment Agency, Inc., 279 Ark. 294, 298, 652 S.W.2d 2, 4 (1983). If no duty is owed, the negligence count must be dismissed as a matter of law. Mans v. Peoples Bank of Imboden, 340 Ark. 518, 524, 10 S.W.3d 885, 888 (2000). In cases where a noncustomer asserted a negligence claim against a bank for failing to prevent a customer of the bank from depositing stolen checks, the overwhelming majority of courts have ruled that the bank did not owe a duty of reasonable care to the noncustomer. See Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220, 227 (4th Cir. 2002); Software Design & Application, Ltd. v. Hoefer & Arnett, Inc., 49 Cal. App. 4th 472, 478-83, 56 Cal. Rptr. 2d 756, 760-63 (1996); Weil v. First Nat'l Bank of Castle Rock, 983 P.2d 812 (Colo. Ct. App. 1999); Portage Aluminum Co. v. Kentwood Nat'l Bank, 106 Mich. App. 290, 297-99, 307 N.W.2d 761, 765-66 (1981); City Check Cashing, Inc. v. Mfrs. Hanover Trust Co., 166 N.J. 49, 60-62, 764 A.2d 411, 417-18 (2001); Gesell v. First Nat'l City Bank of N.Y., 24 A.D.2d 424, 425, 260 N.Y.S.2d 581, 581-82 (1965); Sterner v. Penn, 159 N.C. App. 626, 631, 583 S.E.2d 670, 674 (2003); Schleicher v. W. State Bank of Devils Lake, 314 N.W.2d 293, 297 (N.D. 1982); Volpe v. Fleet Nat'l Bank, 710 A.2d 661, 664 (R.I. 1998); Miller-Rogaska, Inc. v. Bank One, Tex., N.A., 931 S.W.2d 655, 663-64 (Tex. Ct. App. 1996); Ramsey v. Hancock, 79 P.3d 423, 427 (Utah Ct. App. 2003); Zabka v. Bank of Am. Corp., 131 Wash. App. 167, 172-73, 127 P.3d 722, 724-25 (Wash. 2005).

One case that found such a duty is Patrick v. Union State Bank, where the Alabama Supreme Court held that a bank had a duty to protect a noncustomer from the criminal acts of a customer of the bank. 681 So. 2d 1364 (Ala. 1996). Patrick was separated from her six-month old baby and forced to spend 10 consecutive days in jail because of the check-kiting of a woman who posed as Patrick and used Patrick's stolen temporary driver's license to open an account in Patrick's name.

Id. at 1366. In a later case, the Alabama Supreme Court criticized and distinguished Patrick. Smith v. Amsouth Bank, Inc., 892 So. 2d 905 (Ala. 2004). In Smith, an employee of Specialty Motor Cars stole checks from the business and deposited them in an account named "JCU, Inc. d/b/a Specialty Motor Cars." Id. at 907. The court held that the depository bank owed no duty to protect the noncustomer owner of Specialty Motor Cars from the employee's wrongful acts. Id. at 909. Smith v. Amsouth Bank is more apposite to this case than Patrick. For additional comment on Patrick, see Zabka, 131 Wash. App. at 172-73, 127 P.3d at 724-25. In a footnote in the Smith opinion, the Alabama Supreme Court commented, "Every court that has examined the issue has answered that banks owe no duty of care to noncustomers." 893 So. 2d at 909 n.2. Although the Alabama Supreme Court was not asked to overrule Patrick and did not do so, the opinion in Smith suggests that Alabama would, if asked, join the courts that have ruled that banks owe no duty of care to noncustomers.

Although the Supreme Court of Arkansas has not addressed this precise issue, it is unlikely that the court would depart from the mainstream of American jurisprudence on this point. It would be an uncommon occurrence for the Supreme Court of Arkansas, when deciding an issue of first impression in that State, to adopt a rule rejected with near unanimity in other states. Moreover, the Arkansas General Assembly has prescribed in great detail the duties of banks in negotiating instruments. Although the Supreme Court of Arkansas could impose a common-law duty in addition to the duties prescribed in the Arkansas commercial code, it seems more likely that the court would leave the decision of whether to impose a new duty of care on banks in Arkansas to the Arkansas General Assembly, ...


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