RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 11a0240p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiffs-Appellants, -
EA MANAGEMENT; WILLIAM ELIAS,
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No. 09-2464
v.
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Defendant-Appellee. -
JP MORGAN CHASE BANK, N.A.,
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Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 07-11629—Avern Cohn, District Judge.
Argued: December 3, 2010
Decided and Filed: August 26, 2011
Before: MARTIN, GIBBONS, and KETHLEDGE, Circuit Judges.
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COUNSEL
ARGUED: Jamie K. Warrow, NEUMAN ANDERSON, P.C., Southfield, Michigan,
for Appellants. Jason P. Klingensmith, DICKINSON WRIGHT PLLC, Detroit,
Michigan, for Appellee. ON BRIEF: Jamie K. Warrow, Leif K. Anderson, Kenneth
F. Neuman, NEUMAN ANDERSON, P.C., Southfield, Michigan, for Appellants. Jason
P. Klingensmith, Toby A. White, DICKINSON WRIGHT PLLC, Detroit, Michigan, for
Appellee.
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OPINION
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KETHLEDGE, Circuit Judge. William Elias sued JP Morgan Chase Bank after
Chase refused to honor three cashier’s checks that Chase thought Elias had obtained by
fraud. The district court granted summary judgment to Chase as to all of Elias’s claims,
finding among other things that Chase had reason to believe that Elias actually did
commit fraud. Elias argues before us that the question whether he committed fraud is
1
No. 09-2464 EA Management et al. v. JP Morgan Chase Bank NA Page 2
“disputed.” We conclude that, under the Uniform Commercial Code as enacted in
Michigan, Chase’s actions were lawful even absent any finding of fraud. So we affirm.
I.
In 2005, Elias worked with Direct Lending, a Michigan lender and broker in the
subprime-mortgage business. In that capacity, he had signatory authority for Direct
Lending’s bank accounts at Chase. Direct Lending revoked that authority in September
2006, which is when Elias left the company. Elias alleges that he was part owner of
Direct Lending and that the company agreed to buy out his interest for $600,000. Direct
Lending responds that it agreed to pay Elias an unspecified amount in severance, but that
he owned no interest in the company. Either way, in October 2005 Direct Lending
issued Check No. 2253 for $100,000 to EA Management, an assumed name used by
Elias. He deposited the check into his account at LaSalle Bank, but the check bounced
on October 4, 2006. LaSalle debited Elias’s account $100,000 for the dishonored check
and $5 as a returned-check fee, for a total of $100,005.
On October 9, 2006, Direct Lending issued Check No. 2275 in the amount of
$100,005 to EA Management. The parties dispute whether this check was issued as a
replacement for No. 2253; the check’s amount strongly suggests it was, but Elias insists
it was not—making this the first of several remarkable coincidences under his view of
the facts of this case. For the most part we are constrained to accept his view for
purposes of this appeal. After receiving Check No. 2275, Elias opened a new account
at Chase, deposited the check into it, and immediately withdrew $88,000.
Almost three months later—on December 26, 2006, at 5:53 p.m.—Elias visited
a Chase branch in Canton, Michigan. There he deposited two instruments. The first was
Check No. 2253—the same check that had bounced more than two months before. The
second was a starter check (No. 99993), which Elias had signed and made out to himself
in the amount of $80,000. That check was dated five months earlier, i.e., July 26,
2006—which, again coincidentally, was back when Elias had signing authority for
Direct Lending’s accounts. Elias says he forgot about the check for five months after
he wrote it. Another explanation—the one advanced by Chase—is that Elias made out
No. 09-2464 EA Management et al. v. JP Morgan Chase Bank NA Page 3
the check on or around December 26 and backdated it to the same date in July. That
explanation gains traction from the undisputed fact that the preceding check in the starter
registry—No. 99992—was dated August 11, 2006, which is more than two weeks after
Check No. 99993 was dated. But again we are constrained to accept Elias’s story on this
point.
Prior to these deposits, Elias’s balance with Chase was $12,005. With
them—assuming the checks cleared—his balance would rise to $192,005. Elias sought
to withdraw $190,000 from his account on the spot, but the bank refused.
Later that night, someone shifted funds between several of Direct Lending’s
accounts with Chase. The apparent result of those transfers was that the accounts on
which Check No. 2253 and the starter check were drawn, respectively, had sufficient
funds to cover them. Although the fact of the transfers is not disputed, the identity of
the person who shifted the funds is. Direct Lending says that person was Elias. Elias
himself says nothing about the subject—making this, at best, the Mount Everest of
coincidences in this case.
In any event, at 9:30 the next morning, Elias went to a different Chase
branch—in Livonia—and asked for three cashier’s checks totaling $191,251.31. This
time he received them, likely because of the account transfers the night before. At
Elias’s request, two of the cashier’s checks were made payable to third parties, Green
Tree and Mortgage Service Center, to pay off mortgages on Elias’s home. Those two
checks totaled $121,251.31. The remaining $70,000 cashier’s check was payable to
Elias himself.
Hours later, Direct Lending’s treasurer, Tina Shukeireh, discovered that “there
had been several transfers done [between Direct Lending’s accounts], early in the
morning[.]” She testified that she “had not done” those transfers. Shukeireh also
noticed that Elias had deposited Check No. 2253 and the starter check for payment. She
immediately notified Chase that Elias was not authorized to sign or cash either check,
and that the overnight transfers between Direct Lending’s accounts were fraudulent.
No. 09-2464 EA Management et al. v. JP Morgan Chase Bank NA Page 4
Shukeireh also ordered Chase to stop payment on both checks. Chase complied with that
order.
Chase then unwound its transactions with Elias. First, it debited $180,000 (the
total for both of the checks he had deposited) from Elias’s account and credited that
same amount to Direct Lending’s account. That left Elias’s account with an negative
balance of $179,298.31. Second, Chase dishonored all three cashier’s checks.
Elias’s own bank statement shows that on February 28, 2007, Chase credited
Elias’s account in the amount of $191,251.31. (More on that below.) That same date,
Elias withdrew the remaining funds and closed his account at Chase.
On March 6, 2007, Elias sued Chase in Wayne County, Michigan, alleging that
Chase had wrongfully dishonored the three cashier’s checks, causing him damages
exceeding $191,251.31. Chase removed the action to federal court and thereafter moved
to dismiss Elias’s claims. The district court granted the motion. This appeal followed.
II.
We review the district court’s dismissal of Elias’s claims de novo. See Max
Arnold & Sons, LLC v. W.L. Hailey & Co., 452 F.3d 494, 503-04 (6th Cir. 2006). For
the most part, Elias argues that the district court decided a genuine issue of material
fact—namely, whether Elias obtained the cashier’s checks by fraud—when it dismissed
his claims. But we can affirm on any basis supported by the record. See Angel v.
Kentucky, 314 F.3d 262, 264 (6th Cir. 2002). We choose to determine first whether
there is a basis here for affirmance independent of fraud.
A.
Elias’s complaint included a claim under the Uniform Commercial Code (UCC
or Code) as enacted in Michigan. Elias has cited the wrong sections of the Code
throughout this litigation, but his argument essentially is that Chase lacked authority to
dishonor the three cashier’s checks that it issued at Elias’s request on December 27,
2006. So we proceed to analyze whether Chase’s actions were lawful under the Code.
No. 09-2464 EA Management et al. v. JP Morgan Chase Bank NA Page 5
First, Chase was entirely within its rights—and indeed its obligations—when it
complied with Direct Lending’s order to stop payment on Check No. 2253 and the
$80,000 starter check (the “deposited checks”). Chase was both the payor bank and the
depository bank for these checks. See M.C.L. § 440.4105(b), (c). Direct Lending issued
the stop-payment order to Chase (in its capacity as payor bank) on the morning after
Elias had deposited the checks with Chase. Elias does not allege in his complaint that
any of the events recited in M.C.L. § 440.4303(1) had occurred by that time, which for
our purposes means that the stop-payment order was timely. Chase was therefore correct
to comply with the order, and indeed could have been liable to Direct Lending if it had
not. See id. § 440.4403(1), (3).
That Chase stopped payment on the deposited checks in its capacity as the payor
bank means that it did not get paid for those checks in its capacity as the depository
bank. And that in turn knocks the bottom out of Elias’s claim that Chase was required
to honor the cashier’s checks. A cashier’s check is a negotiable instrument. See id.
§ 440.3104(3), (6). Article 3 of the Code applies to negotiable instruments. Id.
§ 440.3102(1). Section 440.3305—which is part of Article 3 as enacted in
Michigan—provides that “the right to enforce the obligation of a party to pay an
instrument is subject to[,]” among other things, “[a] defense of the obligor stated in
another section of this article or a defense of the obligor that would be available if the
person entitled to enforce the instrument were enforcing a right to payment under a
simple contract.” Id. § 440.3305(1)(b). (Some holders in due course are not subject to
those defenses, see id. § 440.3305(2); but Elias does even not allege that he is a holder
in due course with respect to the cashier’s checks.)
Lack of consideration is a defense available to “[t]he drawer or maker of an
instrument” under M.C.L. § 440.3303(2). Chase was the drawer of the cashier’s checks,
see M.C.L. § 440.3104(7); and § 440.3303(2) is part of the same “article” as
§ 440.3305(1)(b), which means the defense is available to Chase in this action, so long
as Chase can prove it. Lack of consideration is also a defense to a contract claim under
Michigan law. See M.C.R. 2.111(F)(3)(a); Sherman v. DeMaria Bldg. Co., 513 N.W.2d
No. 09-2464 EA Management et al. v. JP Morgan Chase Bank NA Page 6
187, 191 (Mich. Ct. App. 1994). And that defense would be available to Chase if Elias
were seeking to enforce a simple contract here. When Elias deposited Check No. 2252
and the $80,000 starter check, Chase credited his account $180,000. Elias used that
credit to purchase the cashier’s checks on December 27, 2007. But Chase reversed the
$180,000 credit after it stopped payment on the deposited checks. Elias does not argue
that Chase’s reversal of that credit was itself unlawful under the Code. And the fact of
that reversal means that—as a matter of law—Chase was not paid for the $191,251.31
of cashier’s checks that it issued at Elias’s request. That in turn means that Chase’s
obligation to pay the cashier’s checks was not supported by consideration, which finally
means that Elias cannot enforce that obligation here. See M.C.L. § 440.3305(1)(b).
Two other points bear mention. The first is that Elias is not entitled to enforce
two of the cashier’s checks in the first place. A bank is liable for a cashier’s check only
to “a person entitled to enforce” the instrument. M.C.L. §§ 440.3412, .3411(2). A
person is entitled to enforce an instrument if he is the holder of the instrument, a
nonholder in possession of the instrument with the rights of a holder, or a person
otherwise entitled to enforce the instrument under UCC sections 3-309 or 3-418. M.C.L.
§ 440.3301. Elias is none of these things with respect to the cashier’s checks made out
to Green Tree and Mortgage Service Center, respectively. That is another ground for
affirming the district court’s judgment with respect to those checks.
The second point is that Elias has not suffered any damages as a result of Chase’s
refusal to pay the cashier’s checks. As noted above, on February 28, 2007—two months
after it refused to pay the cashier’s checks—Chase credited $191,251.31 to Elias’s
account, which is the same amount, to the penny, of the sum of the cashier’s checks.
That credit restored Elias to the same position he was in when he walked through the
doors of Chase’s Livonia branch office on December 27. And that means Elias has no
damages as a result of Chase’s refusal to pay the cashier’s checks, at least as measured
by his December 27 transactions with Chase as a whole. What Elias seeks in this
litigation, in short, is a windfall in the amount of $191,251.31, for which he has not
provided Chase a penny of consideration. His claims are frivolous.
No. 09-2464 EA Management et al. v. JP Morgan Chase Bank NA Page 7
B.
Elias’s lack of any damages also scythes down his common law claims. And we
offer some additional reasons why those claims are meritless. Regarding his breach of
contract claim, Elias contends that Chase breached his account agreement with him “by
allowing Direct Lending to stop payment on the Cashier’s Checks and by failing to hold
the disputed funds in [Elias’s] account.” Elias Br. at 42. But Direct Lending did not
stop payment on the cashier’s checks; rather, it stopped payment on the deposited
checks, on which Direct Lending was the putative drawer (putative, because Direct
Lending says it was only a drawer by means of Elias’s fraud). Suffice it to say that
nothing in Elias’s account agreement forbade Chase from complying with a timely stop-
payment order from another customer with respect to checks drawn on that customer’s
account. Nor is there anything in Elias’s agreement that obligated Chase to pay him
$180,000 on the spot when he deposited Check No. 2253 and the starter
check—particularly under the circumstances present here.
Finally, Elias argues that he has a viable negligence claim because Chase
breached its “duty to conduct itself reasonably in banking transactions.” Elias Br. at 43.
That claim is very likely “displaced by the UCC[,]” since it “relate[s] to the Bank’s
handling of the [cashier’s] checks.” Donovan v. Bank of Am., 574 F. Supp. 2d 192, 200
(D. Me. 2008). And relatedly—for the reasons explained above—there is not a shred
of evidence that Chase acted unreasonably with respect to its actions here. All of the
relevant evidence, instead, is to the contrary.
The district court’s judgment is affirmed.