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Sapp v. Flagstar Bank, FSB

Court of Appeals of Indiana

June 26, 2014

JAMES R. SAPP, Appellant-Defendant,
FLAGSTAR BANK, FSB, Appellee-Plaintiff

Page 914

APPEAL FROM THE MARION SUPERIOR COURT. The Honorable Theodore M. Sosin, Judge. Cause No. 49D02-0606-PL-26834.

ATTORNEYS FOR APPELLANT: DONALD G. ORZESKE, STEPHANIE M. PAYNE, Goodin Orzeske & Blackwell, P.C., Indianapolis, Indiana.


FRIEDLANDER, J., and BARNES, J., concur.

Page 915


BAKER, Judge

This case is before us again, following an order on remand regarding appellee-plaintiff Flagstar Bank's (FSB) cause of action against appellant-defendant James R. Sapp for breach of contract. In the original appeal, a different panel of this Court determined that although the trial court erred in entering summary judgment on the breach of contract claim regarding a check in the amount of $125,000 that FSB ultimately lost, it was determined that FSB was entitled to summary judgment on the remaining claims that included theft and unjust enrichment. Sapp v. Flagstar Bank, 956 N.E.2d 660 (Ind.Ct.App. 2011).

After remand and following a bench trial, Sapp now appeals the trial court's judgment, challenging a number of the trial court's findings. Specifically, Sapp alleges that FSB erroneously " charged back" to his account under various provisions of the Uniform Commercial Code and a Deposit Account Disclosure Agreement (Agreement) that he executed with the bank. Alternatively, Sapp asserts that the trial court improperly found that he suffered no loss in light of FSB's purported unreasonable delay in notifying him of the lost check. Thus, Sapp argues that he is entitled to a setoff of the judgment in the amount of the charge back because of FSB's loss of the check and maintains that the trial court erroneously held him personally liable for shortages in the account because he was only acting in a representative capacity as a corporate shareholder. Finally, Sapp challenges the trial court's decision to award FSB its attorney fees and costs.

We conclude that the evidence presented at trial supported Sapp's liability and the " charge back" to the account in accordance with the UCC and the Agreement. We also conclude that Sapp is not entitled to a " set off" in the amount of the charge back to his account. Sapp is personally liable for the loss of the funds and we also find that the trial court properly awarded FSB its attorney fees and costs in this action. However, we remand this cause for further proceedings so that the trial court may decide the proper amount of appellate attorney fees that should be awarded to FSB in accordance with the Agreement.

The judgment of the trial court is affirmed and remanded for further proceedings consistent with this opinion.


Although many of the circumstances in this case are more fully set out in the original Sapp opinion, the evidence at trial following remand established that sometime in 2004, Sapp approached Peter

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Joines, an FSB regional manager in charge of expanding FSB branches in Indiana, about renting some office space that Sapp and his family owned.

FSB eventually opened a branch in Castleton and negotiated lease space directly from Sapp. Joines became an assistant vice president and division manager of FSB. When Joines went to FSB, he frequently spoke with Sapp as FSB's landlord.

In July 2005, Sapp formed an LLC that consisted of various members of his family. That year, Sapp opened an account with FSB that was termed the " SF7 Account," which was also part of the LLC. Appellant's App. p. 5-51. The LLC was formed for the purposes of purchasing real estate in Bloomington and for other investments. Id. The members of the company are Sapp, his wife, and Sapp's mother. Sapp initially deposited $560.53 into that account in August 2005, and he was the sole signor on that account. Sapp held interests in numerous other banks, including several out-of-state institutions.

On August 23, 2005, Sapp deposited a check in the amount of $125,000 into the SF7 Account. Sapp originally claimed that he could not identify the account on which that check was drawn. However, while Sapp was able to " narrow it down," he could still not identify " which account the $125,000 check came from" as of November 2007. Appellant's App. p. 5-53. In January 2008, Sapp ultimately testified that his prior statements had been incorrect, and the check was actually a cashier's check that he obtained from an unidentified bank " with whom he had a banking relationship." Id.

At the time of the transaction, Sapp presented FSB with a deposit slip that identified the $125,000 deposit as a check. In turn, Sapp was given a receipt informing him that " ALL DEPOSITS/PAYMENTS ARE SUBJECT TO PROOF. . . ." Consistent with the terms of the Agreement, Sapp was given provisional credit for the deposit. Appellant's App. p. 5-54. Thus, the SF7 Account reflected a balance of $125,560.53.

FSB lost the check, and its representatives contacted Sapp asking for his assistance in identifying the maker of the check. While the parties disagree as to when FSB first notified Sapp that the check was missing, the evidence pointed to the conclusion that Sapp was notified about the check sometime in September or early October of 2005 at the latest. It was also established that Sapp wanted to move the money to a " safer" bank, and that occurred within two weeks of a conversation that Sapp had with one of the bank representatives.

Almost all of the money in the SF7 account was withdrawn from that account on September 9, 2005, which was only sixteen days after Sapp deposited the $125,000 check. On that same day, Sapp wrote a $100,000 check from the SF7 account and moved those funds to an A.G. Edwards account. Thus, it is apparent that Sapp transferred the funds shortly after the deposit was made. Sapp claims that when he was first notified of the missing check, the SF7 account contained only about $8,600.[2]

At trial, and for the first time since this case has been pending, Sapp asserted that FSB failed to prove that the check was actually lost. Sapp did not provide contrary evidence or engage in any discovery; he never deposed any agent or employee of FSB. Rather, Sapp listed several documents--that he stated were never received

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from FSB--including a balance sheet, forensic audit, and " bad check loss sheet." Appellee's Br. p. 6. Although FSB's financial records were available for review, Sapp never sought them. Sapp seemed to indicate that his asserted failure to receive documentation from FSB should stand as proof that the check was never actually lost. Put another way, Sapp's assertions seemingly indicated that FSB never actually lost the check.

On the other hand, Joines testified via deposition solely in his capacity as a prior employee and fact witness. He continued to press Sapp through the fall of 2005 for information regarding the missing check by inquiring about the status of the investigation into the identification of the maker and the possibility of obtaining a replacement check.

Sapp insisted that he was " working on it," but on November 9, 2005, Sapp told Joines that he could still not find a copy of the missing check but stated that he was looking into it and " there are several possibilities, I made several calls out of town [to] check on it." Id. at 5-57. However, Sapp could not identify who he had contacted. Sapp only stated that he called two banks but never actually spoke to anyone at those institutions.

On November 11, 2005, FSB debited $125,000 from Sapp's SF7 account. By that time, Sapp had withdrawn almost all of the funds. In addition to the $100,000 A.G. Edwards check, Sapp also made payments to a golf resort, various telephone service providers, Capital One, and a Mastercard account. Thus, FSB was only able to recover $1,965.37 from the SF7 Account.

Sapp repeatedly testified, both in an affidavit and at trial, that he " personally never received any of the funds from the $125,000 deposit." Id. at 5-56-57. At the same time, however, Sapp admitted that the $100,000 check that was drawn on the account was made to A.G. Edwards. When the transaction occurred, the only A.G. Edwards accounts that Sapp identified were in his name.

On November 17, 2005, Amy Martin from FSB spoke with Sapp. Sapp emailed Martin and stated that the check should have been drawn on one of three different accounts. Sapp did not identify the accounts to FSB; however, at a later point in the litigation, Sapp testified that each of those accounts were " possibly" FSB accounts. Id. Although Sapp had access to those account records, he did not review the documents in response to FSB's repeated requests for information. Rather, Sapp testified that he reviewed his account statements only when he originally received them and again the week prior to his deposition in January 2008.

Joines again asked Sapp about his efforts to identify the maker and obtain a replacement check. Sapp informed Joines that he had done some " research in Bloomington," indicated that " the maker is out of town," and that " they will place a stop payment and re-issue." According to Sapp, he concluded that the $125,000 check had been written on one of the LM Sapp Trust accounts. Sapp admitted that if the check had been written on the LM Sapp Trust account, he, as signor on the Trust account, could have placed a stop payment on the missing check and reissued the check at any time.

On December 7, 2005, Joines again emailed Sapp and asked about the status of Sapp's efforts to obtain a replacement check. Sapp simply responded, " Out of state, Will check later." Id. Sapp testified during a deposition that he thought about it more and realized that the check was, in actuality, a cashier's check comprised of monies from a variety of sources including a check from Security National Bank of Omaha for over $80,000; a check from a

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First Bank of Omaha for an amount " in the high 20s or low 30s," and various other checks paid to either " Sapp Leasing Company," another company entitled " eSapp," or to a company called " Chancellor Financial," plus some unidentified amount of cash. Id.

Sapp still could not identify the bank that issued the cashier's check or recall whether that particular bank had required him to deposit any of these out of state checks payable to various entities or whether the bank that he used had simply exchanged the checks that he provided for a cashier's check. Moreover, Sapp could not identify the remitter of the check. Sapp further testified that he called someone at a bank but was not able to remember with whom he spoke. Appellant's App. p. 5-58.

Sapp testified that he made inquiry with a few banks that held some of his accounts. Sapp stated that he asked the Bank of Indianapolis, National City and NBD if they had any records of a cashier's check provided to " [S]app or some of the entities, in the summer of '05." Id. at 5-58-59. All three banks stated that they had no records of providing Sapp with a cashier's check. Sapp did nothing further to identify the bank that issued the cashier's check or the possible remitter. Moreover, Sapp did not identify any efforts that he made to review deposit records from any of the banks.

The Agreement that Sapp executed with FSB provided in part that

AGREEMENT--This document, along with any other documents we give you pertaining to your account(s), is a contract that establishes rules which control our account(s) with us. Please read this carefully. If you sign the signature card or open or continue to have our account with us, you agree to these rules.

Appellant's App. p. 5-60.

Sapp executed signature cards for the ten accounts that he opened at FSB. The Agreement also stated that the account holder " agreed to be jointly and severally liable for any account shortage resulting from charges or overdrafts, whether caused by you or another with access to this account." Id. at 5-60-61. The Agreement went on to note that " DEPOSITS--We will give only provisional credit until collection is final for any items, other than cash, we accept for deposit." Id. Another section of the Agreement stated

LIABILITY--You agree, for yourself (and the person or entity you represent if you sign as a representative of another) to the terms of this account and the schedule of charges. You authorize us to deduct these charges directly from the account balance as accrued. You will pay any additional reasonable charges for services you request which are not covered by this agreement.
Each of you also agrees to be jointly and severally (individually) liable for any account shortage resulting from charges or overdrafts, whether caused by you or another with access to this account. This liability is due immediately, and can be deducted directly from the account balance whenever sufficient funds are available. You have no right to defer payment of this liability, and you are liable regardless of whether you signed the item or benefited from the charge or overdraft. This includes liability for our costs to collect the deficit including, to the extent permitted by law, our reasonable attorneys' fees.

Id. at 5-61 (emphasis added).

UNCOLLECTED AND NON-SUFFICIENT FUNDS--Your account will be overdrawn if a check or an item is charged against, or a

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withdrawal or transfer is made from your account for more money than you have in your account. At the Bank's discretion, we may return any such transaction if there are uncollected funds or an insufficient balance in your Account to pay this transaction. . . .
The charges for each check or item returned or paid on an Account that has uncollected funds, non-sufficient funds or is overdrawn are listed in our Service Charge Schedule. Additionally, you agree to reimburse the Bank immediately, upon demand, for the dollar amount your Account is overdrawn and related costs, expenses and reasonable attorney's fees (including the cost of any attorney employed by us).


. . .
Our policy is to delay the availability of funds from your cash and check deposits. During the delay, you may not withdraw the funds in cash and we will not use the funds to pay checks that you have written. Please remember that even after we have made funds available to you, and you have withdrawn the funds, you are still responsible for checks you deposit that are returned to us unpaid and or any other problems involving your deposit.


Funds you deposit by check may be delayed for a longer period under the following circumstances:
We believe a check you deposit will not be paid.
You deposit checks totaling more than $5,000 on any one day. . . .
We will notify you if we delay your ability to withdraw funds for any of these reasons, and we will tell you when the funds will be available. They will generally be available no later than the eleventh business day after the day of your deposit.

On May 30, 2007, FSB filed a complaint against Sapp for breach of contract, theft, conversion and unjust enrichment. As noted above, we reversed the trial court's grant of summary judgment in FSB's favor on the contract claim and remanded the matter for trial on that issue. We affirmed the trial court's grant of summary judgment as to the remaining claims.

The parties agreed to bifurcate the trial that related to the issue of attorney fees, pending a determination of liability for the purposes of the trial. Following a bench trial on February 27, 2013, the trial court found for FSB on the breach of contract claim. In addition to the facts set forth above, the trial ...

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