Midwest Feeders, Inc. v. Regions Bank ( Inc.

MIDWEST FEEDERS, INC.,a Kansas Corporation, Plaintiff, v. REGIONS BANK (INC.) (ALABAMA),an Alabama Corporation, Defendant.

CASE NO.: 1:15-CV-00013 (LJA)

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF GEORGIA ALBANY DIVISION

September 30, 2016

ORDER

Before the Court is Defendant Regions Bank (Inc.) (Alabama)'s, ("Defendant"), Motion to Dismiss Plaintiff Midwest Feeders, Inc.'s Complaint. (Docs. 1, 9). For the reasons set forth below, Defendant's Motion, (Doc. 9), is GRANTED.

I. PROCEDURAL BACKGROUND

On January 21, 2015, Plaintiff initiated this diversity action by filing a Complaint against Defendant alleging five claims: (1) Conversion of Instruments under Georgia's version of the Uniform Commercial Code, O.C.G.A. § 11-3-420, ("Georgia UCC § 11-3-420" or "§ 11-3-420"); (2) Failure to Exercise Ordinary Care under Georgia UCC § 11-3-404(d); (3) Common Law Conversion of Funds; (4) Common Law Negligence; and (5) Common Law Negligent Hiring and Supervision. (Doc. 1). On March 11, 2015, Defendant filed a Motion to Dismiss all of Plaintiff's claims under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (Doc. 9). On March 20, 2015, Plaintiff filed its Response. (Doc. 10). On April 6, 2015, Defendant filed its Reply. (Doc. 11). Accordingly, Defendant's Motion to Dismiss Plaintiff's Complaint, (Doc. 9), is now ripe for review. See M.D. Ga. L.R. 7.3.1(a).

II. FACTUAL BACKGROUND¹

Plaintiff alleges that in 2010, Moseley Cattle, a non-party limited liability corporation, entered into a loan agreement with Plaintiff in which Plaintiff provided Moseley Cattle with financing for the purchase of livestock in exchange for a security interest in that livestock. (Doc. 1 ¶¶ 5, 9, 10). Pursuant to the agreement, Plaintiff deposited money into an account with the Alva State Bank ("Alva State Bank Account") and Moseley Cattle was permitted to withdraw money from the Alva State Bank Account to purchase livestock. (Id. ¶¶ 9, 10). After purchasing the livestock, Moseley Cattle would contract to resell the livestock through auctions, forward purchase contracts, or on the spot market to livestock purchasers. (Id. ¶ 11). Moseley Cattle was then obligated to issue invoices to the livestock purchasers and make arrangements for them to send their payments to the Alva State Bank Account by delivery to a specified post office box in Alva, Oklahoma (the "Alva State Bank Lockbox"). (Id.) Monies paid by the livestock purchasers and sent to the Alva State Bank Lockbox were required to be used to repay Plaintiff's loan to Moseley Cattle. (Id.)

John F. Moseley, III ("Trip Moseley") is the managing principal of Moseley Cattle. (Id. ¶ 6). Trip Moseley's father, John Moseley, Jr., was employed by and worked at Moseley Cattle. (Id.) Prior to March 12, 2014, John Moseley, Jr. was married to Cheryl Lynn Moseley ("Cheryl Moseley"). (Id.) Trip Moseley had an account with Defendant named "Mosley Cattle Auction LLC," ("Regions Bank Depository Account"), that was used in connection with Moseley Cattle's livestock business. (Id. ¶ 7).

On March 12, 2014, Cheryl Moseley confessed to the following activity that Plaintiff alleges to be fraudulent:

• Cheryl Moseley wrote checks drawn on the Alva State Bank Account payable to purported cattle sellers. (Id. ¶12(a)). Some of the purported cattle sellers did not exist or did not conduct business with Moseley Cattle. (Id. ¶12(a)). In some instances, the purported cattle seller did exist and did conduct business with Moseley Cattle, but did not enter into the transaction which was the subject of the checks. (Id. ¶12(a)).

• Cheryl Moseley, who is not an authorized signatory on the Alva State Bank Account, signed the checks for the fraudulent transactions using the signature of her husband,John Moseley, Jr., or one of her three sons Trip Moseley, Will Moseley, or Joey Moseley. (Id. ¶12(b)).

• Cheryl Moseley endorsed the checks by signing the name of a fictitious third-party payee and then endorse the check in the name of her husband or sons, followed by language "For Deposit Moseley Cattle[.]" (Id. ¶ 12(c)).

• Defendant accepted the checks for deposit by crediting Moseley Cattle's Regions Bank Depository Account. (Id. ¶ 12(d)).

• Defendant presented the checks to Alva State Bank for payment on the Alva State Bank Account that Plaintiff funded. (Id. ¶ 12(e)).

• Alva State Bank paid Defendant for the checks. (Id. ¶ 12(f)).

• Plaintiff deposited money into the Alva State Bank Account to cover all checks written on the Alva State Bank Account by Moseley Cattle. (Id. ¶ 12(g)).

• Defendant credited the funds from the checks to the Regions Bank Depository Account. (Id. ¶ 12(h)).

• Cheryl Moseley and Moseley Cattle withdrew funds from the "Regions Bank Depository Account" for reasons other than purchasing cattle. (Id. ¶ 12(i)).

In March 2014, Plaintiff began noticing irregularities in the invoices and checks purportedly generated by Moseley Cattle. (Id. ¶ 13). During the week of March 10, 2014, Mr. Jeffrey Sternberger, Plaintiff's employee, made various phone calls to Trip Moseley in order to discuss these irregularities. (See id.) On March 12, 2014, Mr. Sternberger received a call from Cheryl Moseley in which she confessed to obtaining credit from Plaintiff through false pretenses. (Id. ¶ 14). Specifically, Cheryl Moseley confessed to drafting the checks and submitting invoices to cover the scheme. (Id.) On March 12, 2014, Cheryl Moseley confessed her role in the check scheme to her husband. (Id. ¶ 15). Later that day, Cheryl Moseley took her own life and passed away at her family's home in Blakely, Georgia. (Id.) In meetings and telephone conversations subsequent to March 12, 2014, Trip Moseley and his brothers reviewed with Plaintiff the subject checks and confirmed that none was related to legitimate cattle purchases. (Id. ¶ 16).

The bank statements provided to Plaintiff from Alva State Bank did not include copies of the reverse side of checks that were drawn on the Alva State Bank Account by Moseley Cattle. (Id. ¶ 17). After March 12, 2014, in light of CherylMoseley's confession, Plaintiff requested copies of the front and back of the checks from Alva State Bank. (Id.) When Alva State Bank provided copies of both sides of the checks in March, 2014, Plaintiff confirmed Cheryl Moseley's scheme for the first time. (Id. ¶ 18). Cheryl Moseley issued at least 153 fraudulent checks and deposited them for credit to the Regions Bank Depository Account totaling more than $23 million between January, 2012 and March, 2014. (Id. ¶¶ 20-22).

Prior to March, 2014, Defendant made no inquiry to Moseley Cattle as to why more than $23 million of checks, handwritten by Moseley and payable to third-party payees, were purportedly endorsed by the third-party payees but were being deposited by Cheryl Moseley into the Regions Bank Depository Account. (See id. ¶ 24). The subject checks deposited by Cheryl Moseley represented a significant percentage of all deposits for all customers accepted by Defendant at its Fort Gaines branch on a month to month basis since at least January, 2013. (Id. ¶ 25).

III. LEGAL STANDARD

Defendant moves to dismiss all of Plaintiff's claims for lack of standing and lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), and for failure to state a claim under Rule 12(b)(6).

"Because standing is jurisdictional, a dismissal for lack of standing has the same effect as a dismissal for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1)." Stalley v. Orlando Reg'l Healthcare Sys., Inc., 524 F.3d 1229, 1232 (11th Cir. 2008) (per curiam). A Rule 12(b)(1) standing challenge "come[s] in two forms[:]" facial or factual. Lawrence v. Dunbar, 919 F.2d 1525, 1528-29 (11th Cir. 1990) (per curiam). "A facial attack on the complaint requires the court merely to look and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in [its] complaint are taken as true for the purposes of the motion." Stalley, 524 F.3d at 1232-33 (internal quotations marks omitted) (citing McElmurray v. Consol. Gov't of Augusta-Richmond Cty., 501 F.3d 1244, 1250 (11th Cir. 2007)). "By contrast, a factual attack . . . challenges the existence of subject matter jurisdiction using material extrinsic from the pleadings, such as affidavits or testimony." Stalley, 524 F.3d at 1233 (citing McElmurray, 501 F.3d at 1251). Here, Defendant has not introduced any material extrinsic from the pleadings, therefore the Court construes Defendant's motion as a facial challenge tostanding under Rule 12(b)(1). "On a facial attack, a plaintiff is afforded safeguards similar to those provided in opposing a Rule 12(b)(6) motion—the court must consider the allegations of the complaint to be true." Lawrence, 919 F.2d at 1529 (citing Williamson v. Tucker, 645 F.2d 404, 412 (5th Cir. 1981), cert. denied, 454 U.S. 897 (1981)).

To survive a dismissal under Rule 12(b)(6), "a complaint must contain specific factual matter, accepted as true to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible on its face if the complaint alleges enough facts to "allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. A complaint must plead "enough fact[s] to raise a reasonable expectation that discovery will reveal evidence" of the defendant's liability. Twombly, 550 U.S. at 556. While "all well pleaded facts are accepted as true, and the reasonable inferences therefrom are construed in the light most favorable to the plaintiff," Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1273 n.1 (11th Cir. 1999), the same liberal reading does not apply to legal conclusions. Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1260 (11th Cir. 2009), abrogated on other grounds by Mohamad v....