Shekhani Enterprises, Inc. v. A/W Mechanical Services, L.P.--Appeal from 334th District Court of Harris County

Opinion issued November 15, 2007

In The

Court of Appeals

For The

First District of Texas

NO. 01-06-00629-CV

SHEKHANI ENTERPRISES, INC., Appellant

V.

A/W MECHANICAL SERVICES, L.P., Appellee

On Appeal from the 334th District Court

Harris County, Texas

Trial Court Cause No. 2005-09215

MEMORANDUM OPINIONThis appeal concerns the interpretation of the fraudulent indorsement provisions of Uniform Commercial Code section 3.405. See Tex. Bus. & Com. Code Ann. 3.405 (Vernon 2002); U.C.C. 3-405 (1990). The trial court concluded that an employee who cashed company checks for his own benefit was not an employee with responsibility under section 3.405. It also concluded that the party paying the instruments (a check cashing facility) failed to exercise ordinary care regarding the [c]hecks, and, finding that the employer was not negligent, assessed liability against the check cashing facility. We affirm.

Facts

The basic facts are uncontested on appeal. Appellee A/W Mechanical Services, L.P. provides commercial heating, ventilation, and air conditioning repair services. William Rittenberry was employed by A/W as a sales representative, and among his duties was picking up checks from A/W s clients and delivering the checks to A/W s office. During 2004, Rittenberry fraudulently indorsed nine checks totaling $38,130.58 from two apartment complexes that were A/W s clients. Rittenberry cashed the checks at a gasoline station owned by appellant Shekhani Enterprises, Inc. Although the checks were made payable to A/W, Rittenberry presented them to be cashed by signing his own name on the back of the checks. A/W later fired Rittenberry and filed criminal theft charges. After Rittenberry pleaded guilty to theft, A/W sued Shekhani on claims of conversion and liability under the Texas Theft Liability Act. Tex. Bus. & Com. Code Ann. 3.405(b) (Vernon 2002); Tex. Civ. Prac. & Rem. Code Ann. 134.001 .005 (Vernon 2005).

After a bench trial, the district court rendered judgment that A/W recover $38,130.58 plus attorney s fees from Shekhani, based on Shekhani s conversion of checks made payable to A/W and the Texas Theft Liability Act. Shekhani brings two issues, alleging that (1) the trial court s judgment in favor of A/W under Business and Commerce Code section 3.405 is against the great weight of the evidence and (2) the Texas Theft Liability Act claim was not supported by factually sufficient evidence.

DiscussionIn issue 1, Shekhani challenges the judgment on the conversion claim, contending the evidence is against the great weight of the evidence. Shekhani challenges the trial court s conclusion of law 9, which states, Rittenberry was not an A/W employee with responsibility, as that term is defined by Section 3.405(b) of the Texas Business and Commerce Code. Thus, Shekhani challenges the factual sufficiency of the evidence to support this conclusion of law. // In reviewing Shekhani s challenge to the factual sufficiency of the evidence, this Court must consider and weigh all the evidence and should set aside the judgment only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); see also Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex.1986), overruled on other grounds by Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 388 (Tex. 2000); In re King s Estate, 244 S.W.2d 660, 661 (Tex. 1951).

Business and Commerce Code section 3.405 provides as follows:

3.405. Employer s Responsibility for Fraudulent Indorsement by Employee

(a) In this section:

(1) Employee includes an independent contractor and employee of an independent contractor retained by the employer.

(2) Fraudulent indorsement means:

(A) in the case of an instrument payable to the employer, a forged indorsement purporting to be that of the employer; or

(B) in the case of an instrument with respect to which the employer is the issuer, a forged indorsement purporting to be that of the person identified as payee.

(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) to prepare or process instruments for issue in the name of the employer, (iv) to supply information determining the names or addresses of payees of instruments to be issued in the name of the employer, (v) to control the disposition of instruments to be issued in the name of the employer, or (vi) to act otherwise with respect to instruments in a responsible capacity. Responsibility does not include 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.

(b) For the purpose of determining the rights and liabilities of a person who, in good faith, pays an instrument or takes it for value or for collection, if an employer entrusted an employee with responsibility with respect to the instrument and the employee or a person acting in concert with the employee makes a fraudulent indorsement of the instrument, the indorsement is effective as the indorsement of the person to whom the instrument is payable if it is made in the name of that person. If the person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure contributes to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.

(c) Under Subsection (b), an indorsement is made in the name of the person to whom an instrument is payable if:

(1) it is made in a name substantially similar to the name of that person; or

(2) the instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to the name of that person.

Tex. Bus. & Com. Code Ann. 3.405 (Vernon 2002). If Rittenberry was an employee with responsibility, then A/W may be barred from recovery unless A/W demonstrates to a factfinder that Shekhani did not exercise ordinary care in paying the checks. Id. 3.405(b); see generally Sw. Bank v. Info. Support Concepts, Inc., 149 S.W.3d 104 (Tex. 2004) (discussing U.C.C. revised article 3). If Shekhani did not exercise ordinary care in paying the checks, then section 3.405(b) provides for the factfinder to allocate the loss based on how each party s failure to exercise ordinary care contributed to the loss.

Shekhani challenges the finding that Rittenberry was not a person with responsibility under section 3.405. Shekhani also challenges the trial court s additional findings that Shekhani was negligent and A/W was not. In its conclusion of law 7, the trial court stated, A/W did not fail to exercise ordinary care in connection with the Checks. This conclusion was based on findings of fact 1 through 17, which Shekhani does not specifically attack. Instead, Shekhani attacks the factual sufficiency of conclusion of law 7, as well as conclusions 8, 9, 14, and 15:

8.No act or omission on the part of A/W substantially contributed to Rittenberry s forgery of the Checks.

9.Rittenberry was not an A/W employee with responsibility, as that term is defined by Section 3.04(b) of the Texas Business and Commerce Code.

. . . .

14.A/W did not fail to exercise ordinary care in connection with the procedure for handling the Checks or in any other regard pertinent to the loss at issue here.

15.A/W s conduct in no way contributed to the forged signature on the Checks.

In its brief, Shekhani claims the following to support its claim that the judgment is based on factually insufficient evidence: (1) Rittenberry picked up checks from A/W s clients as part of his job and at his discretion; (2) A/W had no internal controls in place which allowed it to monitor when or if Rittenberry picked up a check; and (3) A/W knew Rittenberry was unable to meet his day-to-day expenses, and A/W had give Rittenberry advances on his salary. However, there was also testimony that (1) Rittenberry had a good work history before he began fraudulently indorsing checks, (2) he had no authority to sign, indorse, dispose of, or otherwise process incoming checks payable to A/W, (3) he also had no authority over outgoing checks, (4) he endorsed the checks in his own name, and (5) Shekhani never attempted to verify whether Rittenberry was authorized to endorse A/W checks.

After reviewing the record, we hold that the portion of the judgment based on findings of fact 1 through 17 is not against the great weight and preponderance of the evidence. Because the trial court s conclusion that A/W did not fail to exercise ordinary care is not based on factually insufficient evidence, and Shekhani did not challenge that conclusion on appeal, we need not reach the factual sufficiency challenge to the trial court s conclusion of law 9, which states, Rittenberry was not an A/W employee with responsibility, because it would not change the trial court s judgment, which is independently supported by the trial court s conclusions that Shekhani was negligent and acted with conscious indifference and that A/W was not negligent. The trial court, thus, has already allocated the loss based on how each party s failure to exercise ordinary care contributed to the loss under section 3.405(b) and concluded that all of the loss is attributable to Shekhani s conduct. See Tex. Bus. & Com. Code Ann. 3.405(b) (Vernon 2002) (noting that even if employee is employee with responsibility, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss ). We therefore overrule issue 1.

In issue 2, Shekhani claims the judgment based on the Texas Theft Liability Act claim was not supported by factually sufficient evidence. See Tex. Civ. Prac. & Rem. Code Ann. 134.001 .005 (Vernon 2005). This is an alternative ground to support the trial court s judgment. We need not reach issue 2 because we have already overruled Shekhani s challenge to the judgment based on conversion.

ConclusionWe affirm the trial court s judgment.

Sam Nuchia

Justice

Panel consists of Justices Nuchia, Hanks, and Bland.