Dean Classic Cars, L.L.C. and Bob G. Dean, Jr. VS Fidelity Bank and Trust Company, State of Louisiana Through the Department of Public Safety, Office of Motor Vehicles and James E. Jordan, Jr.

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STATE OF LOUISIANA COURT OF APPEAL FIRST CIRCUIT NO 2007 CA 0935 DEAN CLASSIC CARS L L C AND BOB G DEAN JR VERSUS FIDELITY BANK AND TRUST COMPANY STATE OF LOUISIANA THROUGH THE DEPARTMENT OF PUBLIC SAFETY OFFICE OF MOTOR VEHICLES AND JAMES E JORDAN JR Judgment On Appeal Rendered December 21 2007 from the 19th Judicial District Comi In and for the Parish of East Baton Rouge State of Louisiana Trial Court No 519 036 Honorable William D Treeby Timothy E Kelley Judge Presiding Attorneys for Plaintiffs Appellees Samantha P Griffin Dean Classic Cars L L C and New Orleans LA Bob G Dean Jr James P DonS Attorneys for Defendant Appellant Fidelity Bank and Trust Company Amy D Borret Baton Rouge Mark L Ross Lafayette LA LA Attorney for Intervenor Appellant Chubb Group of Insurance Coso James E Jordan Jr Baton Rouge Defendant In Proper Person LA BEFORE CARTER C J PETTIGREW AND WELCH JJ 2 CARTER C J Plaintiffs Bob G Dean Jr and Dean Classic Cars L L C losses sustained recover of as a result of a fonner employee s forged instruments for In the account deposit into the employee proceedings below plaintiffs holding that the bank constituted conversion s the trial action of court that the trial comi ened in failing to find that no error we affirm the trial court s presenting personal bank s the forged checks appeal primarily arguing plaintiffs bore responsibility for the losses because of their lack of sufficient internal Finding and found in favor of depositing The bank and its insurer to fraudulent action stealing multiple checks forging plaintiffs indorsements the sought auditing controls judgment FACTUAL AND PROCEDURAL HISTORY Bob Dean Enterprises Inc various owned companies Classic Cars L L C Dean was residence workers s at both various BDE 1997 Louisiana employees a state trooper duties to Jr Dean to company and Dean s antique ordinarily consisted warehouse owned by as an employees but James E Jordan employee of matters for Dean expanded to include the vehicles owned including Dean by s vehicles used of 50 to 1 00 vehicles various s personal Dean instructed and work and activities Jr BDE Jordan former a Initially Jordan handled companies Eventually responsibility for handling bills DCC 3 as well by and exotic vehicle Dean and at Dean employees regarding DCC Dean hired compensation and titles s Dean and hold title DCC did not have any supervised Jordan buy sell provides management services to licensed Louisiana automobile dealer that a The vehicle collection housed In by Bob G DCC various company s collection and to organized was BDE as becoming a of sale licensed salesman to assist Dean in the and buying of the vehicles for Dean selling s private collection Unbeknownst gambling to Dean addiction In 2002 financial statements personal loans from 2003 to cover into his personal checking or Dean account at the forged account at accounts at permitted Jordan Fidelity personal checking without verifying Jordan obtained vehicles by 424 1 checks made Neither Dean deposited deposited nor Jordan for Dee and or Dean the funds into his any of his to without manager companies had the contrary or to Dee officer Jordan and Fidelity or Dean approval and on the checks or represented proceeds for a loan Dean and Dee in December 2003 after the s account embezzlement scheme before Dean encompassed of a 20 000 00 check made 70 check made 424 299 totaling payable 00 check made payable payable to DCC and 70 was even aware far are to DCC 3 to Dean and DCC 4 purchase of several 278 000 00 check and more the three checks that resulted in this trial court The three checks 278 000 and then deposited by Fidelity checking Fidelity deposit In late 2002 and In each instance Fidelity Jordan somehow confiscated the Jordan on and three checks that Jordan respective signatures account secure intercept to validity of the indorsements appearing One of the checks focus debts to authority to deposit the third party checks s it in his scheme senous Fidelity Company deposit the checks made payable into his the a fraudulently prepared use Despite bank policies Fidelity to to gambling a including personally indorsed the checks bank his Jordan also devised to Dee and checking began Bank and Trust Fidelity payable stole the checks Jordan Jordan had employees documents and titles for the Dee vehicles several other banks in order throughout and BDE as 2 deposited that the loan than three checks but judgment rendered follows 1 July 2003 8 December 19 2003 we against June 3 2003 deposit deposit of a of a had been successfully processed and funded When Dean questioned Jordan regarding the whereabouts of the loan proceeds Jordan concocted about title problems maintained the title March 2004 proceeds hours or the vehicles used on Dean speedy resolution pressed Jordan to the title previously loans to cover pled guilty time in used to his an federal a some along that alleging verifying four debt action of allegations of or that was secure numerous Jordan After the confession ultimately sentenced to against Fidelity depositing serve authority damages 10 3 420 for the deposit checks 3 April 7 2004 of corporate checks negligent conversion of the and therefore legal interest and forged corporate on the third party checks without constituted unlawful and to LSA R S of the handling s account award of an to Dean penitentiary the indorsements personal a confessing elaborate embezzlement scheme and Fidelity funds pursuant to problems within twenty with several other checks and that he had Plaintiffs Dee and Dean filed suit into loan titles to Dee vehicles in order to gambling Jordan questioned until was for 2 receipt of the The pressure from Dean resulted in Jordan he had stolen the loan check the loan secure problem storyline each time he At that time a to story a plaintiffs costs relative were to entitled Fidelity s Fidelity answered denying all negligence and asserting that plaintiffs were responsible for 2 According to Dean and BDE s chief financial officer Jordan s story was believable and reasonable because title problems were common for purchases of antique and exotic vehicles 3 The lawsuit brought by plaintiffs also involved multiple claims regarding the loans obtained by Jordan pursuant to fraudulent titles on DCC vehicles including Fidelity a claim against the State of Louisiana through the Depmiment ofPublic Safety Office of Motor Vehicles Fidelity as deposited Fidelity s However the the sole defendant in his only on personal checking insurer Chubb claims left unresolved at the time of trial involved the three checks fraudulently Fidelity ofInsurance Companies Group account at 5 indorsed mld the by Jordan and subrogation claim of the loss because Jordan LSA R S intelnal 10 3 405 auditing scheme controls that allowed Jordan payment During trial employees personal checking checks made s was or no January DCC to Dean 2007 that he did check not accounting staff Dean role in bank was also mail designated BDE employees at However Jordan testified that he distributed directly to to prepare deposit not to indorse a or signatory any of Dean deposits for corporate on any of all of these facts bookkeeping to the bank and return with There signing acknowledged s duties and plaintiffs the 4 It was to businesses deposit slips for testimony that Jordan primary responsibility for the initial receipt different was or accounting of corporate checks into his authority accounting to have check not authority deposits Jordan writing authority for s did have DCC and 5 have any established that Jordan 1 paid checks Dean and several did not have DCC including not to make or funds that it had fraudulently indorsed did 4 simply transport the deposits BDE to recoup 23 24 2 authority account payable accounts emphasizing he had the three in the embezzlement to engage Group of Insurance Companies of BDE testified that Jordan did not have 3 Dean on on for Dean authority slips insurer Chubb s intervened in the lawsuit for Fidelity within the meaning of Fidelity also alleged that plaintiffs had insufficient Finally Fidelity Chubb responsible employee was a never of the mail for BDE had instead different times would handle the occasionally would him and he would open it have DCC mail Testimony from the loan 4 Jordan gave his testimony in a deposition taken at the federal prison where he was incarcerated for his embezzlement crimes The deposition testimony was offered in lieu of live testimony at trial Jordan testified that early on in his employment for BDE he sometimes signed other names to checks at their direction however this statement was not corroborated by any other witness testimony or evidence Additionally the timeframe for which Jordan alleged he had signed other names to checks was not relevant to the checks at issue 6 officer Jordan at authority s checks Fidelity revealed indorsement violation of deposited Further authentic was Fidelity at one indorse checks for Dean to involved no no The loan officer acceptable bank practice into Jordan personal s or Dee deposit the Dean without account that he initially one reputation because Jordan was former a good president fonner sheriff background of his friends of the state trooper officer an his check on It was as well as the including gambling by total to be or as indorse to knowledge s he was a authority Also granted that Jordan ofJordan of Jordan 5 a gambling s Dean testified manager for on a employees had security calls code access to the required was filing preparing as to having documents angements for insurance and an was aware he had not discussed his that he gambling problems 7 was the need for see hands father s The evidence revealed that Jordan testified that s s trooper who had been Dean described Jordan making addiction with Dean but that Dean knowledge the upon Jordan could not transact any business making phone deposition testimony based his fraudulent activities DeC bills of sale and titles and Dean denied any s approval s association and Jordan physical inventory of vehicles In his Jordan retired state Dean and two other BDE clerical type duties such 5 to undisputed that titles for the vehicles owned access s a Dean denied any behalf of plaintiffs without Dean Jordan hired He took for personally supervised Jordan and companies Dean was a authority s Dean trusted Jordan and did not addiction until Jordan confessed that he that for the three corporate checks recommendation of a verify checks testified was to any of the three that it agreed without verification of the indorsements and of Jordan and on Fidelity verified at one took any steps frequented the casinos repairs vehicles on The testimony helped facilitate the buying Additionally and reflected that Jordan also occasionally of vehicles under Dean supervision selling Dean testified that he periodically and bills of sales for the Dee vehicles and he the vehicles and titles every Courville testified that she vehicles owned day BDE personally the titles on chief financial officer s an inventory all of Angela list of the by Dee and she always reconciled the list with the general of Jordan embezzlement scheme s began to reconcile the physical inventory with the titles well to the vehicles as Both Dean and his chief financial officer maintained their belief that the internal accounting sufficient detect fraud with the small number of the checked personally had access to maintained accounting ledger After the discovery she s to companies They controls for Dee and auditing testified that until Jordan any kind of fraud experienced never and or s BDE were employees involved in embezzlement theft of checks they had affecting Dean s businesses Fidelity Scott Ginn s expeli in accounting and testified that Dean endorsements such as for s accountants deposit only Ginn testified that restricted titles good internal perform a reconciliation of the of coming received and to emphasized that a to use incoming access to the vehicles and different only to receipt of the mail ensure segregation of duties 8 that was people s to the should titles in order to way to control the theft of restrictive endorsements follow up checks for Dean physical inventory with the in the mail is to control incoming checks should have used restrictive but in addition He also testified that the prevent fraud checks control of internal controls all on companies was a assessment on deposits to make a record all checks that are made are Ginn essential for internal controls Ginn that acknowledged no one that was involved with Dean knew how the three checks got into Jordan propensity for forging signatures endorsement Dr offered procedure were by plaintiffs testified on rebuttal at DCC then meaningless the financial indorsements inventory that internal controls had in the had Staats focused and its failure to follow approval practice restrictive under that scenario on nothing Fidelity to forge haphazard loan ability s s general banking policies resulting deposit of forged checks into Jordan s Staats testified that account Fidelity properly underwritten the loans by verifying all information provided by Jordan and to because reconciliation would not have limited Jordan the checks on a management and banking expert do with the fraud that occuned with the three checks of titles with a acknowledged that if Jordan processed would have been William Staats possession and Jordan had s Ginn also stole the checks before the checks companies s then followed standard of the banking policies by verifying indorsements and authority for deposits when accepting third party checks Jordan rebuttal that the DCC vehicles sufficient be sold unless there vehicle sales The to BDE was were of the to was access not accounting system which fraud would have been detected segregation was According s s physical inventory to the car ledger installment payments delivery not could be made chief financial officer the money from DCC set up until actual for DCC then reconciled with the accounts receivable and on and the titles for the control fraud because the vehicles could typically received was Staats testifid to were list not inventory attached 9 vehicle tracking of the sales were DCC did typically checks received at DCC accounting ledger and copies a allow for because the vehicles Any delivery of s to the were have an not sold with posted deposit slips to the Bank statements were reconciled with the accounting The chief program financial officer testified that she believed all of the internal controls sufficient detect fraud after the checks to received were by were DCC but Jordan apparently stole the checks before they could be processed and Jordan able to funds before replace After trial Jordan easily s questions plaintiffs was 70 plus interest Fidelity thereby denying Fidelity for the loss the trial court erred in Jordan s frauds Both failing by instituting permitting plaintiffs controls Additionally judgment does not not s that would have been something The trial and Chubb awarded court claims that s and Chubb to find that more that plaintiffs holding and costs for the amount converted Fidelity argues that the trial court elTed in and in missing deposits by different intelnal controls 424 299 responsible about the trial court found in favor of embezzlement scheme detected arose was intelnal were appealed contending that plaintiffs could have prevented controls auditing excluding portions banking expert to Fidelity of Jordan also deposition s testify regarding internal Fidelity complains that the trial compOli with its assigned plaintiffs by court written s reasons STANDARD OF REVIEW Whether Dean failed and whether more internal Data Service Bureau La App 1 Cir accounting L L C findings v 12 30 04 is to determine whether there is factual ordinary care plaintiffs could have prevented Jordan by instituting 2754 to exercise controls are supervising Jordan embezzlement scheme questions of fact Bank of Louisiana in New Orleans 898 So 2d 482 a s in 491 reasonable basis and whether the trial court 10 s to This court s findings 03 function suppOli the trial factual Med are court s clearly manifestly or wrong and Transp An factual own Salvant are two them s State v 882 La 1993 weigh the evidence re La 7 6 06 935 2d So 646 finding is based on witnesses that or more clearly clearly erroneous or its decision finding to credit virtually can never differently case Where there choice between s Id wrong the substitute its or 650 permissible views of the evidence the fact finder manifestly of through Dept because it would have decided the 05 2126 State v Stobart 617 So 2d 880 court must not findings cannot be finder or Development appellate Id erroneous testimony of one be a fact or two Where manifestly erroneous Id wrong LA W AND ANALYSIS The when a checks bank pays on a Magazine 1 4 99 So 2d 31 10 3 405 employer 97 3213 A La and employee employee which to This to the to takes the check with the n 98 0676 99 1257 to respect employer has made in by employees who checks should fall or on the pays it if the bank provision is based on are App the instruments 1 745 in LSA R S name of an payable to the given responsibility to the of loss for entrusted with responsibility employer rather than the bank that was not the belief that the 11 La v 1145 La 6 18 99 general rule is provided are Marx So 2d 1142 713 exception adopts the principle that the risk fraudulent indorsements respect judicial demand 7 8 98 when fraudulent indorsements an of 1166 writ denied statutory exception is that it is liable for the amount of the Premier Bank Nat Ass v 729 So 2d 1165 employer by This forged check National Bank Cable Cast with by long standing jurisprudence plus legal interest from the date Whitney Cir lule established general negligent in the transaction employer is in a far better position to supervIsmg avoid the loss them instruments in the and in name by other adopting of the care usmg employer choosing employees m to measures Cable Cast person is exception is precluded from asserting faith when conduct substantially before funds contributed to in LSA R S provided the loss a claim the instrument The by depositing plaintiffs account when Jordan Fidelity does not was not contest third bank officer such a a provides as Jordan s entitled or that Fidelity authorized instrument an enforce the checks trial Warren L Kron himself should have payment personal checking s to made that it converted the checks in authority for the indorsements s on question The candidly admitted approved all three one any of the checks representation that he agreed without hesitation that the deposits acceptable bank practice in his and that he dealing with Jordan who very likable person Any Jordan himself and authority good of the check was Kron also testified that he had not verified the indorsements simply accepted Jordan judgment in acting was were employee It is well established that the 12 Dean a s partner total Kron violation personally exercised was a very smooth talker of s authority came Fidelity questioned mere fact than an or Instead he had appearance of Jordan no a person not entitled to enforce facts establish that at where a forged inshument a party checks presented for deposit by Jordan but only approved from on bank corporate checks into Jordan Fidelity employee that testified that out iii a by transfer from undisputed 10 3 406 10 3 405 See Marx 713 So 2d at 1145 1146 Louisiana Revised Statute 10 3 420 is converted when it is taken LSA R S against the paid are prevent forged 729 So 2d at 1167 See also 2003 Uniform Commercial Code Comments Another statutory in of poor and a directly Jordan employee s has managerial office or status as presents himself partner of a that the assume or See Confederate checks has Welding Mid South 458 So 2d 1370 So 2d 1264 1362 La employee La 1985 3 App 1375 Pargas and Inc The submits that LSA R S recovery in this had case with respect responsibility argues that 10 3 406 because Jordan plaintiffs because substantially are of to was a the s v Bank of the writ denied 462 416 So 2d 1358 in the a 3 s banking industry precludes plaintiffs instruments recovery lack s actions fell below responsible employee forged negligent contributed to Jordan care 10 3 405 precluded from their Inc Estate finding that Fidelity a to expert testimony and Fidelity reasonable cOlmnercial standards of ordinary Fidelity s s company indorse corporate or 2 Cir 1984 Taylor v a entitle third persons not to execute App of charge Safety Supply La 1982 Cir testimony support s authority in being corporation does a employee as pursuant of internal in that he Fidelity to also LSA R S controls ability to forge the indorsements on that the corporate checks From apply in this a a review of the record case That provision we find LSA R S states in 10 3 405 does not pertinent pari In this Section 2 Fraudulent indorsement i in the case of an instrument payable to the employer a forged indorsement purpOliing to be that of the employer 3 Responsibility with respect to instruments means authority i to sign or indorse instruments on behalf of the employer ii to process instruments received by the employer for bookkeeping purposes for deposit to an account or for other disposition iii 13 means to prepare name process instruments for issue in the or of the iv employer detennining the names instruments to be employer v instruments to employer the issued to act in instruments information or control be vi supply addresses of payees of issued in the name of the to or to in disposition the of of the name otherwise with respect to responsible capacity Responsibility authority that merely allows an employee to have access to instruments or blank or incomplete instrument forms that are being stored or transported or are part of incoming or outgoing mail or similar access Emphasis supplied a does not include The testimony DCC rather he under Dean at trial established that Jordan employee of was an Jordan made fraudulent indorsements representing his signature revealed that Jordan was LSA R S 10 3 405 3 checks behalf of on Jordan s or be that of Dean He did not have Jordan did bookkeeping any of Dean only duty with respect deposit slips to s not have or to mere access to was not a as sign or authority to prepare defined by indorse any to process any or process any The evidence established that Other to was employees responsible employee by transpOli the of BDE prepared the deposit slips and processed the checks that Therefore Jordan plaintiffs DCC the evidence also corporate checks and from the bank employee of to payable responsibility businesses to or authority purposes an established that clearly checks made not entrusted with plaintiffs received checks for checks for Dean to on not performed work for Dce While the evidence supervision s BDE and was were always received definition Jordan s corporate checks when he occasionally directly handled mail for DCC and when he transported deposits 14 to the bank for plaintiffs did not make him have for the checks responsibility factually distinguishable from to process employer checks received for we are failure to on not and procedures ordinary Fidelity s were care own by failing checks with multiple indorsements Fidelity from trying to Cable Cast 729 So 2d 1376 placed find forge a to indorsements was was to into deposits personal a admission of his of account for the loss to at 1168 Confederate Welding banking corporate precludes plaintiffs See 458 So 2d at 1375 LSA R S 10 3 406 enor practices did were regard follow standard for policies s responsibility supports the trial position that We note that which that in manifest no business 6 Kron shift full We find the record not case See also 2003 Uniform Commercial Code Comments 10 3 405 and LSA R S by her physical inventory and restrictive received internal be vested with have better internal controls with all checks that exercise case was in this to upon which into the account used authority the reconciliation of vehicle titles with endorsements case persuaded by the argument that plaintiffs not negligent because they did in that deposit Jordan did not have any such Moreover We find this decision in Cable Cast our Fidelity heavily relies because the employee authority 6 was authorized in the trial court s court to the checks and finding handle that Jordan plaintiffs implicit finding not contribute to Jordan on s s ability checks that was We plaintiffs to steal the checks present them for deposit into his carefully reviewed Jordan s full deposition testimony proffered by Fidelity and compared it to the version of Jordan s deposition we have admitted into evidence discretion in controlling We do not find that the trial court abused its great Most of what deposition testimony the admission of this Jordan testified to in his deposition was covered by other witness live testimony at trial Therefore find no merit to Fidelity s assignment of en or regarding the trial comi s exclusion of celiain portions of the deposition that primarily consisted of attorney colloquy We also note that the proffered deposition had missing pages throughout as we well 15 personal checking establish that of Dee Fidelity did not compare any R S IO 3 103 processing of checks segregated establish that a to access 8 7 a had controls in place with regard and to that theft in Dean titles and to mail exercised ordinary In this admitting 847 a in practice on Fidelity place to was The lack of evidence of any Likewise below previous the conclusion reasonably supports sufficient were failed to reconcile the basis regular a of vehicles considering the titles and inventory we find that duties plaintiffs care also find that the trial comi did not abuse its great discretion in the rebuttal evidence offered by plaintiffs expeli Staats Rebuttal evidence is case we matters adduced new Capel writs denied Hartford Ins Co 1989 by designated employees physical inventory businesses also accounting regard to be confined to plaintiffs as private vehicle collection and the segregation of s peliaining of mail physical inventory intelnal controls plaintiffs small size of Dean 7 s that prevailed standards to general accounting ledger for sales reasonable commercial standards or to The evidence revealed that plaintiffs receipt failure to have plaintiffs vehicle titles with the fraud Fidelity failed other relevant businesses show what reasonable commercial to provided by LSA the We also find that Fidelity plaintiffs internal controls fell below the standard of ordinary In fact care account at v the defense and is not to be 98 1517 Langford 99 2080 by 99 2086 La 544 So 2d 583 588 La La App 10 29 99 App 3 Cir 749 1 Cir State ex reI Guste La v Nicholls App 1 Cir 1991 writ denied Accordingly Fidelity s assignment of 593 enor 734 638 550 2d So of the 835 Combs 2d So v 630 La within the discretion of the largely College Foundation 2d So repetition 99 637 writ denied The matter ofadmission of rebuttal evidence is trial court Id 28 4 2d So a 651 regarding La 1992 Staats 592 2d So 419 422 LSA C E rebuttal 611E testimony is without merit 8 handling of titles accounts inventory general public but not Louisiana Revised Statutes 1 0 3 406 c places the any private car collection businesses burden of proving that plaintiffs failed to exercise ordinary care on Fidelity Ordinary care means observance of reasonable commercial standards prevailing in the area in Fidelity receivable and s expeli made for general references to large car dealerships that the sell to the which the company is located with respect to the business in which the company is 2d So at 490 491 engaged LSA R S 10 3 103 a 7 Med Data 898 16 Finally employed shift we conclude that rigorous internal auditing controls Fidelity simply more this responsibility for ordinary care Jordan s and its own regardless of whether plaintiffs could have loss by accepting the Fidelity completely internal the indorsements policies The following reasonable banking of verifying the primary obligation forged indorsement is rightly placed is banking for Fidelity checks without to plaintiffs assume reasons plaintiffs Bob G Chubb to to we that Jordan was Dean affinn the trial we believe it honest than it to indorse court s judgment J1and Dean Classic Cars L L C equally against appellants Fidelity Group case authority a whose business Fidelity In this that Jordan had the of authority detennine whether there is case on assume standards corporate requiring verification of that authority For these assessed in this of and authenticity 416 So 2d at 1362 1363 Pargas reasonable for was more was See failed to exercise forged corporate checks for deposit into account without personal cannot of Insurance 9 in favor of Appeal Bank and Trust costs are Company and Companies AFFIRMED 9 Lastly that the trial written we note that court s reasons for written we judgment form judgment and Burnside Terminal judgment We no judgment conflict between the Cir 1990 find no the written Greater Baton disagree with Rouge Fidelity denied allY relief for merit to Fidelity Fidelity s assignment of en or alleging did not compOli with its reasons A trial comi pali of the judgment itself alld where there is s reasons the Port Com n judgment 577 90 98 La asseliion that there is and its 17 reasons Babin controls a 2d So App conflict The trial court accurately reflect that decision s a v 1 s

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