4. Mellon's Motion for Summary Judgment against Heritage.
In support of this motion, Mellon asserts that in the event that O'Mara prevails against Mellon on its Complaint, and if Equibank and Peoples prevail against Mellon on their Crossclaim, then Heritage is liable to Mellon for all these claims. More specifically, Mellon claims that Heritage, as the first bank in the collection chain and by virtue of its indorsement "Pay Any Bank, P.E.G. Heritage Bank" on each check, warranted to Mellon when it presented the checks for collection that all prior endorsements were proper. Mellon further asserts that by virtue of this indorsement Heritage gave warranties to Mellon and if it is determined that any prior endorsements were improper, Heritage must be determined to have breached those warranties. Mellon also contends that, as between banks, the ultimate liability should be placed on the bank first honoring the check, i.e., Heritage, as it is in the best position to ascertain whether the endorsements are proper, and Mellon, as the second bank in the collecting chain, is entitled to rely on Heritage's warranties.
In opposition, Heritage initially asserts that it is premature for the Court to determine if Heritage is liable to Mellon, as there exist factual disputes with regard to O'Mara's claim against Mellon [which liability is not before the Court presently]. With respect to the Third-Party claim, Heritage asserts that factual issues raised by its affirmative defenses are in dispute i.e., the claimed lack of good faith by Mellon, whether Mellon should be estopped from claiming breach of warranty and whether Mellon failed to assert its breach of warranty claim against Mellon in a reasonable period of time. Heritage further contends that it is entitled to develop factually its "fictitious payee" defense along with its "holder in due course" defense.
In reply, Mellon asserts that the viability of these purported defenses has not been supported by the proffering of any factual assertions, and under FED.R.CIV.P. 56(e) the party opposing the motion may not simply "rest upon the mere allegations or denials of his pleadings, but . . . must set forth specific facts."
The O'Mara Brothers' Motion to Dismiss The Fourth-Party Complaint
In addition to the applications set forth above, also before this Court is the O'Mara brothers' Motion to Dismiss Heritage's Fourth-Party Complaint. The motion asserts that this Court lacks in personam jurisdiction over Timothy J. O'Mara, a resident of Ohio, and Vincent M. O'Mara and James P. O'Mara, residents of West Virginia, under both the Pennsylvania long-arm statute and the due process clause of the Constitution. Movants admit that as corporate officers of O'Mara they have contacts with this state, but assert that they do not have these contacts as individuals. Movants have also supplied affidavits regarding the nature of their contacts in Pennsylvania which, apart from occasional social activities in this state, are related to the business of O'Mara.
Alternatively, the O'Mara brothers have moved to dismiss the action for failure to state a cause of action for indemnity under Ohio law, which they claim applies.
In opposition, Heritage asserts that since the O'Mara brothers' out-of-state actions caused harm in Pennsylvania, this Court may invoke its jurisdiction in conformity with the current long-arm statute and with the constitutional requirements of due process. Additionally, Heritage asserts that Pennsylvania law regarding indemnity and contribution should apply to the fourth-party action, and under its application, the Fourth-Party Complaint states a cause of action.
The Cross-Motions For Summary Judgment
In accordance with FED.R.CIV.P. 56(c), the district court, in order to grant a motion for summary judgment, must determine that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." See also, e.g., Sames v. Gable, 732 F.2d 49, 51 (3d Cir. 1984). Moreover, the district court must "'resolve any doubts as to the existence of genuine issues of fact against the moving parties'" and "'inferences to be drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion. '" Continental Insurance Co. v. Bodie, 682 F.2d 436, 438 (3d Cir. 1982) (citations omitted). However, under FED.R.CIV.P. 56(e), a party opposing a motion for summary judgment may not simply rest upon the allegations or denials contained in the pleadings. See also, e.g., Ness v. Marshall, 660 F.2d 517, 519 (3d Cir. 1981). Rather, in resisting the motion, the party "must set forth specific facts showing that there is genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him." FED. R. CIV. P. 56(e). See also, e.g., Ness v. Marshall, 660 F.2d at 519.
While keeping cognizant of the above-noted standards, the Court will decide which, if any, of the moving parties are entitled to summary judgment.
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13 PA. CONS. STAT. ("Uniform Commercial Code") § 3201(c) (Purdon 1980) provides, inter alia, that "negotiation takes effect only when the indorsement is made and until that time there is no presumption that the transferee is the owner." Further, negotiation is defined in § 3201(a) of the Uniform Commercial Code as "the transfer of an instrument in such form that the transferee becomes a holder." A holder, as defined by § 1201 of the Uniform Commercial Code is a "person who is in possession of an . . . instrument . . . issued or indorsed to him or to his order or to bearer or in blank." Moreover, "the holder of an instrument whether or not he is the owner may transfer or negotiate it . . ." § 3301 of the Uniform Commercial Code.
In the case at bar, although the checks at issue were payable to the order of Heritage, prior to the time Heritage gained possession and placed its indorsement on these checks, GSD placed the restrictive indorsement -- "FOR DEPOSIT ONLY GAIL SMITH DEVELOPMENT" -- on these same checks.
GSD did this notwithstanding that it was not a holder since the checks were not "issued or indorsed to [it] or to [its] order or to bearer or in blank," in conformity with § 1201 of the Uniform Commercial Code.
Since GSD was not a holder, it could not transfer or negotiate the checks pursuant to § 3301. Moreover, by placing its indorsement on the checks, it destroyed the negotiability of the checks, even vis-a-vis Heritage, the named payee. Therefore, because of GSD's indorsement, Heritage did not become a holder, notwithstanding that the checks were originally payable to Heritage's order. Additionally, Heritage could not become a holder pursuant to § 3201 of the Uniform Commercial Code as "transfer of an instrument vests in the transferee such rights as the transferor has therein. . . ." Therefore, because GSD was not a holder, Heritage, its immediate transferee, was not a holder.
As noted above, after Heritage had possession of the checks at issue, the checks were indorsed by it and then sent to Mellon, the collecting bank. With respect to checks other than its own, Mellon forwarded the respective checks to Equitable or Peoples after Mellon indorsed the checks. (Each drawee bank then paid these checks by debiting the respective O'Mara account.)
Section 3417(@) of the Uniform Commercial Code provides that the transferor of an instrument warrants to his transferee (and to any subsequent holder acting in good faith if the transfer is by indorsement) the following:
(1) he has a good title to the instrument or is authorized to obtain payment or acceptance on behalf of one who has a good title and the transfer is otherwise rightful;