Buffets, Inc. v. BMO Harris Bank
2013 U.S. App. LEXIS 21226
| 8th Cir. | 2013Background
- Buffets, Inc. sued U.S. Bank and BMO Harris Bank over Uniform Fiduciaries Act (UFA) claims arising from LGI Energy Solutions’ management of Buffets’ utility payments.
- LGI paid Buffets’ bills through funds in LGI accounts, with Buffets depositing funds into LGI and LGI paying utilities.
- LGI held funds in accounts titled in its own name, commingling Buffets’ funds with other clients’ funds and LGI’s funds.
- Banks monitored LGI’s overdrafts and later restricted or declined further credit when suspicious activity (check kiting) was detected.
- Buffets sought indemnification and asserted related state-law and UFA claims; jurisdiction was asserted in federal court as related to bankruptcy and, alternatively, by diversity; the district court granted summary judgment for banks on UFA claims.
- Buffets appealed the district court’s jurisdictional rulings and the merits of the UFA dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether there is federal jurisdiction under related-to bankruptcy or diversity. | Buffets contends the district court lacked related-to jurisdiction or diversity. | Banks argue related-to jurisdiction exists or, if not, diversity provides jurisdiction. | Jurisdiction proper; Caterpillar rationale supports appellate jurisdiction even if related-to is lacking. |
| Whether the district court should have abstained under § 1334(c)(2). | Buffets argued mandatory abstention due to timely adjudication in state court. | Banks argued abstention not mandatory; evidence timely adjudication not properly presented. | Abstention not required; district court did not abuse discretion in denying abstention. |
| Whether Buffets’ UFA claims against banks survive under Minn. Stat. § 520.09 for bad faith. | Buffets argues banks acted in bad faith by enabling transfers and not closing accounts. | Banks acted honestly and did not knowingly facilitate fiduciary breaches; no bad faith shown. | No genuine dispute on bad faith; UFA does not cover general protection against all transactions; banks not liable. |
| Whether McCartney and related authorities support Buffets’ broad bad-faith theory. | Buffets relies on McCartney to claim commercially unjustifiable bad faith. | McCartney is distinguishable; requires fiduciary-designated or segregated accounts; here funds were commingled in a personal account. | McCartney limited; banks’ actions not equivalent to bad faith under UFA given commingled funds and lack of aware-to-fiduciary knowledge. |
Key Cases Cited
- Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996) (diversity-dismissal issues can cure jurisdictional defects after judgment; finality considerations bar remand)
- Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567 (2004) (finality, efficiency, economy considerations govern jurisdiction after removal defects)
- Williams v. United States, 458 U.S. 279 (1982) (check-kiting concept in banking context)
- Wells Fargo Bank, N.A. v. WMR e-PIN, LLC, 653 F.3d 702 (8th Cir. 2011) (national bank citizenship; main office location controls)
- Wachovia Bank v. Schmidt, 546 U.S. 303 (2006) (national bank citizenship rule)
- Nat’l Union Fire Ins. Co. of Pittsburgh v. Titan Energy, Inc. (In re Titan Energy, Inc.), 837 F.2d 325 (8th Cir. 1988) (related-to bankruptcy jurisdiction coverage)
- Reasonover v. St. Louis Cnty., 447 F.3d 569 (8th Cir. 2006) (district court discretion in applying local rules)