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Northeast Bank v. The Hanover Insurance Group

United States District Court, Eighth Circuit

January 16, 2014

Northeast Bank, Plaintiff,
v.
The Hanover Insurance Group, Defendant, and Wells Fargo Bank, N.A., Defendant and Third-Party Plaintiff,
v.
Percy Pooniwala, Dinaz Pooniwala, Shreekanth Maripally, and Ashok Shetty, Third-Party Defendants.

Mark E. Duea, Geck, Duea & Olson, PLLC, appeared for Northeast Bank.

Amy L. Schwartz, Lapp, Libra, Thomson, Stoebner & Pusch, Chartered, appeared for Wells Fargo Bank, N.A.

ORDER

JOHN N. ERICKSEN, District Judge.

In response to a claim on an insurance policy, the Hanover Insurance Group (Hanover) issued two checks made payable to Grand Rios Investments, LLC (Grand Rios), Northeast Bank, and Alex N. Sill Company, the insured, the loss payee, and the public adjuster, respectively.[1] Without Northeast Bank's endorsement, knowledge, or consent, Wells Fargo Bank, N.A., paid the full amount of the checks to Grand Rios. After Wells Fargo Bank had refused its payment demands, Northeast Bank brought this action. In its Second Amended Complaint, Northeast Bank asserted a claim against Wells Fargo Bank for conversion under the Uniform Commercial Code, Minn. Stat. ยง 336.3-420 (2012).[2] The case is before the Court on Northeast Bank's and Wells Fargo Bank's motions for summary judgment. For the reasons set forth below, the Court grants Northeast Bank's motion and denies Wells Fargo Bank's motion.

I. BACKGROUND

Grand Rios purchased an insurance policy from Hanover. The policy covered real property located in Brooklyn Park, Minnesota. Northeast Bank, as mortgagee, was named as a loss payee in the policy. After a loss at the property, Grand Rios submitted a claim to Hanover, which responded by issuing two checks. The first, a check for $100, 000, was dated February 15, 2011, and made payable to "Alex N. Sill Company and Grand Rios Investment LLC and Northeast Bank." Without Northeast Bank's endorsement, knowledge, or consent, the check was tendered at Wells Fargo Bank for payment to Grand Rios. Wells Fargo Bank paid $100, 000 to Grand Rios. Having received no benefit from the check, Northeast Bank demanded $100, 000 from Wells Fargo Bank. The demand was refused.

The second check was made out in the amount of $250, 000. It was dated March 16, 2011, and made payable to "Grand Rios Investment LLC and Northeast Bank and Alex N. Sill Company." Again, without Northeast Bank's endorsement (forged or otherwise), knowledge, or consent, the check was tendered at Wells Fargo Bank for payment to Grand Rios. And again, Wells Fargo Bank paid the full amount of the check, $250, 000, to Grand Rios. Having received no benefit from the check, Northeast Bank demanded $250, 000 from Wells Fargo Bank. The demand was refused.

Grand Rios failed to make mortgage payments to Northeast Bank in February, March, and April 2011. In April 2011, Northeast Bank sent a notice of default to Grand Rios. Subsequent negotiations yielded a Settlement and Release Agreement dated June 16, 2011. Northeast Bank and Grand Rios, as well as individuals who had guaranteed Grand Rios's payment to Northeast, were parties to the agreement. It contemplated a voluntary mortgage foreclosure, the appointment of a receiver, the assignment of insurance to Northeast Bank, and a $50, 000 payment by the individuals to Northeast Bank. The payment was made by the end of June 2011. The agreement also included a release of the individuals from claims related to the property, but the release excluded "any claims against any third parties, including any claims related to insurance, deposited items and proceeds of insurance or collateral."

On June 16, 2011, Grand Rios and Northeast Bank also executed an Assignment of Insurance. Grand Rios assigned "all claims, proceeds, privileges and other rights and interest in and to" its insurance policies to Northeast Bank.

The next day, the Minnesota District Court, Fourth Judicial District, appointed a receiver for the property pursuant to a stipulation that Grand Rios and Northeast Bank had executed. The receiver maintained an escrow account into which insurance proceeds were deposited.

On June 23, 2011, Grand Rios and Northeast Bank executed a Voluntary Mortgage Foreclosure Agreement. The mortgage foreclosure sale took place on August 1, 2011. Northeast Bank bought the property by bidding approximately $4.6 million of Grand Rios's outstanding indebtedness of almost $5 million. No redemption took place during the two-month redemption period. Upon the redemption period's expiration, Northeast Bank took ownership of approximately $700, 000 in the escrow account.

In September 2012, Hanover paid approximately $450, 000 to Northeast Bank on a claim for roof damage to the property. Hanover also paid $32, 000 to Northeast Bank on a claim for business interruption.

In December 2012, Northeast Bank received more than $61, 000 from Xcel Energy as a refund of ...


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