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Regions Bank v. Wieder & Mastroianni

November 26, 2007

REGIONS BANK D/B/A REGIONS FUNDING, PLAINTIFF,
v.
WIEDER & MASTROIANNI, P.C. AND PETER MASTROIANNI, DEFENDANTS.
WIEDER & MASTROIANNI, P.C. AND PETER MASTROIANNI, THIRD-PARTY PLAINTIFFS,
v.
MORNING STAR MORTGAGE BANKERS, INC., ANGELA DAIDONE, AND THE PROVIDENT BANK, INC. D/B/A PROVIDENT CONSUMER FINANCIAL SERVICES, INC., THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Conner, Sr. D.J.

OPINION AND ORDER

Plaintiff Regions Bank d/b/a Regions Funding ("Regions") brought suit against defendants Wieder & Mastroianni, P.C. ("W&M") and Peter Mastroianni for conversion, breach of fiduciary duty and other claims. W&M in turn brought a Third-Party Complaint against The Provident Bank, Inc. d/b/a Provident Consumer Financial Services, Inc. ("Provident"), Morning Star Mortgage Bankers, Inc. ("Morning Star"), and Angela Daidone ("Daidone"). In an earlier Opinion and Order, this Court granted defendants' motion for summary judgment as to plaintiff's claims and dismissed the action. See Regions Bank v. Wieder & Mastroianni, P.C., 423 F. Supp. 2d 265 (S.D.N.Y. 2006) (Conner, J.) (Regions Bank II). Plaintiff then appealed to the Second Circuit, which remanded the case for clarification as to whether we applied New York law to plaintiff's conversion claim in our earlier decision and, if not, whether we reach the same result applying New York law. Although we cited the Eleventh Circuit's interpretation of Ohio law in our previous Opinion, we reach the same result under New York law, which the parties agree applies to this dispute.

BACKGROUND

The facts of this case are set out at length in our two previous opinions, familiarity with which is presumed. See id.; Regions Bank v. Wieder & Mastroianni, P.C., 170 F. Supp. 2d 436 (S.D.N.Y. 2001) (Conner, J.) (Regions Bank I). The following is a summary of those facts relevant to the issues at hand, as well as those that are helpful in providing context.

Morning Star was in the business of originating residential mortgage loans. Regions Bank I, 170 F. Supp. 2d at 437. To fund those loans, Morning Star maintained lines of credit with financial institutions known as "warehouse lenders." Id. After arranging a mortgage, Morning Star would typically sell the note to another financial institution and use the proceeds of that sale to repay the warehouse lender. Id.

Regions is a warehouse lender. Id. On April 4, 2000, Regions and Morning Star entered into a Warehouse Security Agreement and warehouse line of credit, pursuant to which Regions would fund mortgage loans originated by Morning Star. Id. According to the agreement, Regions would transfer the money for the loans into the escrow account of Morning Star's settlement agent, W&M. Id. The funds transferred into W&M's account by Regions were to be used to fund previously specified underlying loans. Id.

This dispute arises out of a series of fraudulent banking transactions initiated by Morning Star. Between April 10 and 12, 2000, Regions transferred a total of $798,720 into W&M's escrow account, allegedly for the purpose of funding three separate mortgage loans. Id. Between April 10 and 12, 2001, Daidone, Morning Star's president and chief executive officer, contacted W&M and told the firm that there had been a mistake with each of those three loans. Id. at 438.Daidone falsely told W&M that Provident was the warehouse lender for the three loans, and instructed W&M to return the money by transferring it to a certain Provident account, which W&M did. Id. In fact, and allegedly unbeknownst to W&M, the Provident account that Morning Star instructed W&M to transfer the funds to was Morning Star's private account, not a Provident warehouse account. Id. Shortly after W&M transferred the funds to Morning Star's account, Regions informed W&M that Regions was the source of the funds. Id. W&M then asked Provident to wire the funds back to the escrow account, but Provident refused to do so. Id.

DISCUSSION

I. Regions Bank II

Regions Bank II involved claims by plaintiff against defendants for conversion and breach of fiduciary duty. In our previous Opinion, we observed that W&M's mortgage-banking clients, such as Morning Star, would regularly have funds wire-transferred into W&M's escrow account, and that there would often be multiple transfers per day into the account on behalf of Morning Star and other clients. Regions Bank II, 423 F. Supp. 2d at 270. In evaluating plaintiff's conversion claim, we stated:

As the Eleventh Circuit ruled in Regions Bank, 345 F.3d at 1277, there is no conversion unless the depositary knew or should have known that the deposited funds were being taken or withheld from their owner. Here W & M had no reason to know that the funds had come from Regions. When Morning Star instructed it to transfer them to its account at Provident, it was duty bound to comply. It did not knowingly convert funds belonging to Regions.

Id. at 269 (citing Regions Bank v. Provident Bank, Inc., 345 F.3d 1267, 1277 (11th Cir. 2003)). Our citation was to a case involving the same transactions and some of the same parties.*fn1 In that case, however, the Eleventh Circuit applied Ohio law in dismissing Region's conversion claim against Provident. The Second Circuit has now instructed us to explain whether we applied Ohio law in Regions Bank II and, if so, whether we reach the same result under New York law, which the parties agree governs this dispute. Although we took the Eleventh Circuit's reasoning into account in our previous Opinion, for the reasons discussed below, defendants are entitled to summary judgment as to Region's conversion claim against W&M and Mastroianni under New York law.

II. Analysis

"'Conversion is any unauthorized exercise of dominion or control over property by one who is not the owner of the property which interferes with and is in defiance of a superior possessory right of another in the property.'" Schwartz v. Capital Liquidators, Inc., 984 F.2d 53, 53-54 (2d Cir. 1993) (quoting Meese v. Miller, 436 N.Y.S.2d 496, 500 (App. Div. 1981)). To maintain a claim for conversion, a plaintiff must show "legal ownership of a specific identifiable piece of property and the defendant's exercise of dominion over or interference with the property in defiance of the plaintiff's rights." Ahles v. Aztec Enters., Inc., 502 N.Y.S.2d 821, 822 (App. Div. 1986). Wrongful intent on the part of the defendant, however, is not an element of conversion. See Filner v. Shapiro, 633 F.2d 139, 141-42 (2d Cir. 1980) (citing Brown v. Garey, 267 N.Y. 167, 170 (1935)); Aeroglide Corp. v. Zeh, 301 F.2d 420, 422 (2d Cir. 1962); Boyce v. Brockway, 31 N.Y. 490 (1865); Leve v. ...


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