from the United States District Court for the Southern
District of Mississippi
HIGGINBOTHAM, PRADO, and HIGGINSON, Circuit Judges.
C. PRADO, CIRCUIT JUDGE.
Midwest Feeders, Inc. ("Midwest") alleges that
Defendant-Appellee The Bank of Franklin ("BOF") is
liable under Mississippi statutory and common law for its
participation in a scheme involving fraudulent checks.
Midwest alleges that BOF customer Robert Rawls, an individual
with whom Midwest had a financing arrangement, orchestrated a
"fictitious payee" scheme. Midwest sued BOF for its
alleged participation and negligence regarding this scheme.
The district court ruled against Midwest on all of its
claims; the court dismissed two claims at the motion to
dismiss stage and granted summary judgment with regard to the
remaining claims. The court also denied as moot Midwest's
motion for discovery sanctions. Midwest appealed. We now
is a Kansas-based cattle feedlot business that also
"offers financing and credit to customers for
procurement of livestock." BOF is a community bank in
The Midwest-Rawls Arrangement
Rawls, individually and doing business as Robert Rawls
Livestock and Rawls Trucking, LLC (collectively,
"Rawls"), entered a contractual financing
relationship with Midwest in 2006. Under the terms of the
arrangement, Midwest "provided Rawls secured financing
through access to Deposit Account No. **4167 at Alva State
Bank & Trust of Alva, Oklahoma." Midwest funded the
arrangement by depositing money into the Alva bank account.
The arrangement obligated Rawls to use the deposited funds to
purchase livestock; Midwest would possess a security interest
in the livestock. To this end, Rawls received authorization
to write checks drawn on the Alva account, which was labeled
"Robert Rawls Livestock." When Rawls drew a check
on the account, Midwest would deposit the corresponding
amount to the account. After purchasing livestock, Rawls was
responsible for reselling the livestock to livestock
purchasers. Midwest required Rawls to "issue invoices to
livestock purchasers and make arrangements for livestock
purchasers to send their payments for the purchase price of
the livestock to the Alva State Bank Account by delivery to a
specified post office box in Alva, Oklahoma."
other words, the parties established an arrangement where
Rawls would purchase livestock, sell the cattle in
inventory-thus creating an account receivable-and the
proceeds would be paid directly to the Alva account. The
proceeds-the deposits from the purchasers-would cover
Rawls's outstanding accounts receivable. For its part in
funding the arrangement, Midwest received compensation
through fees and interest on outstanding funds.
2008, BOF Executive Vice President Charles Magee solicited
Rawls's business. The two had known each other for over
thirty years. Despite the overture, Rawls declined.
2010, Rawls asked Magee whether BOF would refinance his Alva
State Bank & Trust loans. After their initial phone call,
the two met in person to discuss. The bank subsequently
issued loans to Rawls in the fall of 2010. One loan involved
a $750, 000 line of credit, and the other was a $500, 000
amortized loan. Both loans were secured by real property.
September 2010, Rawls opened a checking account at BOF in the
name of Robert Rawls Livestock. Upon opening his account,
Rawls filled out a questionnaire describing the nature of his
business. Rawls noted on the questionnaire that he did not
accept third-party checks as payment for goods and services.
after opening his account, Rawls's account regularly had
uncollected funds. Magee was responsible for overseeing
Rawls's bank accounts; he would also process his loans
and approve wire transfers when necessary. On several
occasions, Magee approved wire transfers of money from the
account, even when the account had a six-figure negative
balance. Magee believed that he had adequate business
justification for approving these transfers: he would approve
these transfers "if there was sufficient funds on the
line of credit. If [he] didn't think there were
sufficient funds on the line of credit, [he] would call
[Rawls's] office" to inquire about any forthcoming
deposits. Bank employees seeking to wire money from
Rawls's overdrawn account would only need Magee's
approval in order to wire funds.
became one of the top customers at BOF's Brookhaven,
Mississippi, branch in terms of the dollar amount of his
deposits. Rawls also helped recruit several customers to BOF.
Midwest alleges that Rawls received "favorable
treatment" during his time as a customer. As an example,
Midwest points to a December 2011 loan extension vote before
the bank's loan committee. BOF's Vice Chairman Edmund
Prestridge voted against extending Rawl's loan because he
worried about Rawls's uncollected funds. Nonetheless, the
loan committee-including Magee-permitted the extension.
and Magee also carried on a social relationship during this
period. Magee would occasionally visit Rawls's livestock
facility, drink beer with him, and watch football games with
him. Magee also hunted on property owned by Rawls's
family. On several occasions, the two traveled together and
attended the same social gatherings. They also exchanged
dozens of text messages over the course of Rawls's time
as a BOF customer. The messages pertained to a variety of
personal and professional matters.
also alleges that during his time as a customer, Rawls began
using his Alva account and BOF account to commit fraud.
Midwest alleges that Rawls raised red flags for "check
kiting." Rawls regularly moved money between banks;
he deposited into his BOF account checks drawn on his Alva
Account. Midwest alleges that several BOF officers and
executives were aware of this. Indeed, in October 2011, Magee
became aware that "Robert Rawls was depositing certain
checks payable to sellers into his checking account."
Magee claims that Rawls, when confronted, explained that this
was a "common practice" in the livestock industry.
Magee accepted Rawls's explanation that "depositing
checks issued to sellers of cattle into his business checking
account" had a legitimate business purpose.
BOF customer, Rawls also "created fictitious cattle
purchases and diverted money from the Alva account for his
personal use." He "made out checks to fictitious
payees drawn on the Alva account and endorsed them and
stamped them as payable to his livestock company for deposit
only. Rawls then deposited the checks into his checking
account at Bank of Franklin, which turned them over to Alva
for payment." Rawls created corresponding fictitious
livestock purchase invoices, as well. Midwest alleges that
Rawls issued nearly 900 fraudulent checks between October
2013 and March 2014.
March 17, 2014, Midwest's President, Jeff Sternberger,
spoke with Rawls over the phone. Rawls told Sternberger that
he planned to shut down his business. The next day,
Sternberger met Rawls at his livestock facility office. Rawls
confessed to the scheme. Magee also showed up at Rawls's
facility on March 18. He did not see Rawls, who had just left
for a medical appointment, but he saw Sternberger;
Sternberger told Magee about the fraudulent checks and
September 5, 2014, Midwest filed suit against BOF. Midwest,
demanding a jury trial, alleged six claims against BOF:
(1) Conversion of Instruments (Miss. Code Ann. §
(2) Failure to Exercise Due Care (Miss. Code Ann. §
(3) Common Law Conversion of Funds;
(4) Common Law Negligence;
(5) Common Law Negligent Hiring and Supervision; and
(6) Common Law Civil Conspiracy.
district court dismissed the two conversion-based claims at
the motion to dismiss stage. Subsequently, the court entered
summary judgment against Midwest on all the remaining claims.
On January 18, 2017, the district court entered final
judgment, dismissing Midwest's claims with prejudice. Two
days later, the district court informed counsel via e-mail
that Midwest's pending motion for sanctions was moot.
Midwest timely filed notice of appeal.
is a Kansas corporation, and BOF is a Mississippi
corporation. Midwest alleges damages in excess of $30
million. Therefore, the district court properly exercised
diversity jurisdiction under 28 U.S.C. § 1332. We have
jurisdiction to ...