Opinion issued November 15,=20
2007
In The
Court of =
Appeals
For The
First District =
of=20
Texas
NO. 01-06-00629-CV
SHEKHANI ENTERPRISES, INC.,=20
Appellant
V.
A/W MECHANICAL SERVICES, L.P.,=20
Appellee
On Appeal from the 334th District=20
Court
Harris County, Texas
Trial Court Cause No. =
2005-09215
MEMORANDUM=20
OPINIONThis appeal =
concerns=20
the interpretation of the fraudulent indorsement provisions of =
Uniform=20
Commercial Code section 3.405. See Tex. Bus. & Com. Code =
Ann. =C2=A7=20
3.405 (Vernon 2002); U.C.C. =C2=A7 3-405 (1990). The trial court =
concluded that=20
an employee who cashed company checks for his own benefit was not =
an=20
=E2=80=9Cemployee with responsibility=E2=80=9D under section =
3.405. It also concluded that=20
the party paying the instruments (a check cashing facility) =
=E2=80=9Cfailed to=20
exercise ordinary care regarding the [c]hecks,=E2=80=9D and, =
finding that the=20
employer was not negligent, assessed liability against the check =
cashing=20
facility. We affirm.
Facts
<=
/SPAN>The=20
basic facts are uncontested on appeal. Appellee A/W Mechanical =
Services,=20
L.P. provides commercial heating, ventilation, and air =
conditioning repair=20
services. William Rittenberry was employed by A/W as a sales=20
representative, and among his duties was picking up checks from =
A/W=E2=80=99s=20
clients and delivering the checks to A/W=E2=80=99s office. During =
2004,=20
Rittenberry fraudulently indorsed nine checks totaling $38,130.58 =
from two=20
apartment complexes that were A/W=E2=80=99s clients. Rittenberry =
cashed the checks=20
at a gasoline station owned by appellant Shekhani Enterprises, =
Inc.=20
Although the checks were made payable to A/W, Rittenberry =
presented them=20
to be cashed by signing his own name on the back of the checks. =
A/W later=20
fired Rittenberry and filed criminal theft charges. After =
Rittenberry=20
pleaded guilty to theft, A/W sued Shekhani on claims of conversion =
and=20
liability under the Texas Theft Liability Act. Tex. Bus. & Com. Code =
Ann. =C2=A7=20
3.405(b) (Vernon 2002); Tex. Civ.=20
Prac. & Rem. Code Ann. =C2=A7=C2=A7 =
134.001=E2=80=93.005 (Vernon=20
2005).
<=
/SPAN>After=20
a bench trial, the district court rendered judgment that A/W =
recover=20
$38,130.58 plus attorney=E2=80=99s fees from Shekhani, based on =
Shekhani=E2=80=99s=20
conversion of checks made payable to A/W and the Texas Theft =
Liability=20
Act. Shekhani brings two issues, alleging that (1) the trial =
court=E2=80=99s=20
judgment in favor of A/W under Business and Commerce Code section =
3.405 is=20
against the great weight of the evidence and (2) the Texas Theft =
Liability=20
Act claim was not supported by factually sufficient =
evidence.
DiscussionIn issue 1, Shekhani =
challenges=20
the judgment on the conversion claim, contending the evidence is =
against=20
the great weight of the evidence. Shekhani challenges the trial =
court=E2=80=99s=20
conclusion of law 9, which states, =E2=80=9CRittenberry was not an =
A/W employee=20
with =E2=80=98responsibility,=E2=80=99 as that term is defined by =
Section 3.405(b) of the=20
Texas Business and Commerce Code.=E2=80=9D Thus, Shekhani =
challenges the factual=20
sufficiency of the evidence to support this conclusion of =
law. ![3DFootnote](3D"")
In reviewing Shekhani=E2=80=99s =
challenge to the=20
factual sufficiency of the evidence, this Court must consider and =
weigh=20
all the evidence and should set aside the judgment only if it is =
so=20
contrary to the overwhelming weight of the evidence as to be =
clearly wrong=20
and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); =
see=20
also Pool v. Ford Motor Co., 715 S.W.2d 629, 635 =
(Tex.1986),=20
overruled on other grounds by Crown Life Ins. Co. v.=20
Casteel, 22 S.W.3d 378, 388 (Tex. 2000); In re =
King=E2=80=99s Estate,=20
244 S.W.2d 660, 661 (Tex. 1951).
<=
/SPAN>Business=20
and Commerce Code section 3.405 provides as follows:
=C2=A7 3.405. Employer=E2=80=99s =
Responsibility for Fraudulent=20
Indorsement by Employee
(a) In this section:
(1) =E2=80=9CEmployee=E2=80=9D includes =
an independent contractor=20
and employee of an independent contractor retained by the=20
employer.
(2) =E2=80=9CFraudulent =
indorsement=E2=80=9D means:
(A) in the case of an instrument payable =
to the=20
employer, a forged indorsement purporting to be that of the =
employer;=20
or
&=
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bsp; &nb=
sp; (B)=20
in the case of an instrument with respect to which the employer is =
the=20
issuer, a forged indorsement purporting to be that of the person=20
identified as payee.
(3) =E2=80=9CResponsibility=E2=80=9D =
with respect to instruments=20
means authority (i) to sign or indorse instruments on behalf of =
the=20
employer, (ii) to process instruments received by the employer for =
bookkeeping purposes, for deposit to an account, or for other =
disposition,=20
(iii) to prepare or process instruments for issue in the name of =
the=20
employer, (iv) to supply information determining the names or =
addresses of=20
payees of instruments to be issued in the name of the employer, =
(v) to=20
control the disposition of instruments to be issued in the name of =
the=20
employer, or (vi) to act otherwise with respect to instruments in =
a=20
responsible capacity. =E2=80=9CResponsibility=E2=80=9D does not =
include authority that=20
merely allows an employee to have access to instruments or blank =
or=20
incomplete instrument forms that are being stored or transported =
or are=20
part of incoming or outgoing mail, or similar access.
(b) For the purpose of determining the =
rights and=20
liabilities of a person who, in good faith, pays an instrument or =
takes it=20
for value or for collection, if an employer entrusted an employee =
with=20
responsibility with respect to the instrument and the employee or =
a person=20
acting in concert with the employee makes a fraudulent indorsement =
of the=20
instrument, the indorsement is effective as the indorsement of the =
person=20
to whom the instrument is payable if it is made in the name of =
that=20
person. If the person paying the instrument or taking it for value =
or for=20
collection fails to exercise ordinary care in paying or taking the =
instrument and that failure contributes to loss resulting from the =
fraud,=20
the person bearing the loss may recover from the person failing to =
exercise ordinary care to the extent the failure to exercise =
ordinary care=20
contributed to the loss.
(c) Under Subsection (b), an indorsement =
is made=20
in the name of the person to whom an instrument is payable =
if:
(1) it is made in a name substantially =
similar to=20
the name of that person; or
(2) the instrument, whether or not =
indorsed, is=20
deposited in a depositary bank to an account in a name =
substantially=20
similar to the name of that person.
Tex. Bus.=20
& Com. Code Ann. =C2=A7 3.405 (Vernon 2002). If =
Rittenberry was an=20
employee with responsibility, then A/W may be barred from recovery =
unless=20
A/W demonstrates to a factfinder that Shekhani did not exercise =
ordinary=20
care in paying the checks. Id. =C2=A7 3.405(b); see =
generally=20
Sw. Bank v. Info. Support Concepts, Inc., 149 S.W.3d 104 =
(Tex.=20
2004) (discussing U.C.C. revised article 3). If Shekhani did not =
exercise=20
ordinary care in paying the checks, then section 3.405(b) provides =
for the=20
factfinder to allocate the loss based on how each party=E2=80=99s =
failure to=20
exercise ordinary care contributed to the loss.
<=
/SPAN>Shekhani=20
challenges the finding that Rittenberry was not a =E2=80=9Cperson =
with=20
responsibility=E2=80=9D under section 3.405. Shekhani also =
challenges the trial=20
court=E2=80=99s additional findings that Shekhani was negligent =
and A/W was not.=20
In its conclusion of law 7, the trial court stated, =E2=80=9CA/W =
did not fail to=20
exercise ordinary care in connection with the Checks.=E2=80=9D =
This conclusion was=20
based on findings of fact 1 through 17, which Shekhani does not=20
specifically attack. Instead, Shekhani attacks the factual =
sufficiency of=20
conclusion of law 7, as well as conclusions 8, 9, 14, and =
15:
8.No act or omission on the part of A/W=20
substantially contributed to Rittenberry=E2=80=99s forgery of the=20
Checks.
9.Rittenberry was not an A/W employee =
with=20
=E2=80=9Cresponsibility,=E2=80=9D as that term is defined by =
Section 3.04(b) of the Texas=20
Business and Commerce Code.
. . . .
14.A/W did not fail to exercise ordinary =
care in=20
connection with the procedure for handling the Checks or in any =
other=20
regard pertinent to the loss at issue here.
15.A/W=E2=80=99s conduct in no way =
contributed to the=20
forged signature on the Checks.
<=
/SPAN>In=20
its brief, Shekhani claims the following to support its claim that =
the=20
judgment is based on factually insufficient evidence: (1) =
Rittenberry=20
picked up checks from A/W=E2=80=99s clients as part of his job and =
at his=20
discretion; (2) A/W had no internal controls in place which =
allowed it to=20
monitor when or if Rittenberry picked up a check; and (3) A/W knew =
Rittenberry was unable to meet his day-to-day expenses, and A/W =
had give=20
Rittenberry advances on his salary. However, there was also =
testimony that=20
(1) Rittenberry had a good work history before he began =
fraudulently=20
indorsing checks, (2) he had no authority to sign, indorse, =
dispose of, or=20
otherwise process incoming checks payable to A/W, (3) he also had =
no=20
authority over outgoing checks, (4) he endorsed the checks in his =
own=20
name, and (5) Shekhani never attempted to verify whether =
Rittenberry was=20
authorized to endorse A/W checks.
<=
/SPAN>After=20
reviewing the record, we hold that the portion of the judgment =
based on=20
findings of fact 1 through 17 is not against the great weight and=20
preponderance of the evidence. Because the trial court=E2=80=99s =
conclusion that=20
A/W did not fail to exercise ordinary care is not based on =
factually=20
insufficient evidence, and Shekhani did not challenge that =
conclusion on=20
appeal, we need not reach the factual sufficiency challenge to the =
trial=20
court=E2=80=99s conclusion of law 9, which states, =
=E2=80=9CRittenberry was not an A/W=20
employee with =E2=80=98responsibility,=E2=80=99=E2=80=9D because =
it would not change the trial=20
court=E2=80=99s judgment, which is independently supported by the =
trial court=E2=80=99s=20
conclusions that Shekhani was negligent and acted with conscious=20
indifference and that A/W was not negligent. The trial court, =
thus, has=20
already allocated the loss based on how each party=E2=80=99s =
failure to exercise=20
ordinary care contributed to the loss under section 3.405(b) and =
concluded=20
that all of the loss is attributable to Shekhani=E2=80=99s =
conduct. See=20
Tex. Bus. & Com. Code =
Ann. =C2=A7 3.405(b) (Vernon 2002) (noting that even if =
employee is=20
=E2=80=9Cemployee with responsibility,=E2=80=9D =E2=80=9Cthe =
person bearing the loss may recover=20
from the person failing to exercise ordinary care to the extent =
the=20
failure to exercise ordinary care contributed to the =
loss=E2=80=9D). We therefore=20
overrule issue 1.
<=
/SPAN>In=20
issue 2, Shekhani claims the judgment based on the Texas Theft =
Liability=20
Act claim was not supported by factually sufficient evidence. =
See=20
Tex. Civ. Prac. & =
Rem. Code=20
Ann. =C2=A7=C2=A7 134.001=E2=80=93.005 (Vernon 2005). This =
is an alternative ground=20
to support the trial court=E2=80=99s judgment. We need not reach =
issue 2 because=20
we have already overruled Shekhani=E2=80=99s challenge to the =
judgment based on=20
conversion.
ConclusionWe affirm the trial =
court=E2=80=99s=20
judgment.
&=
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p; =
; Sam=20
Nuchia
&=
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sp; &nbs=
p; =
; Justice
Panel consists of Justices Nuchia, =
Hanks, and=20
Bland. |