Forex Israel, VP Ltd. v. Cedar Rapids Bank and Trust Company

Citation: Not availableDocket: 19-0080

Court: Court of Appeals of Iowa; January 22, 2020; Iowa; State Appellate Court

Original Court Document: View Document

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Forex Israel, VP LTD. (Forex) appeals a summary judgment ruling in favor of Cedar Rapids Bank and Trust Company (the Bank) related to a contract dispute with 9X Data Services LLC (9X Data). Forex claims 9X Data failed to remit $332,001.09 as per their unsigned contract. Forex initially sued 9X Data in June 2017 and later included the Bank, alleging negligence in the Bank's investigation of 9X Data and seeking a constructive trust over funds in 9X Data's accounts at the Bank. The district court granted a default judgment against 9X Data for the claimed amount in June 2018. 

The Bank moved for summary judgment, arguing that Forex's constructive-trust claim was invalid since the Bank did not possess the funds Forex sought, and that Forex's negligence claim was legally unsustainable because Forex was neither a customer nor had a contractual relationship with the Bank. The Bank supported its motion with undisputed facts, including Forex's lack of direct dealings with the Bank and the absence of funds in 9X Data's accounts at the Bank by the time Forex filed its action.

Forex failed to respond to the Bank's motion by the required deadline but sought a continuance to allow for further discovery, citing the pretrial stipulated discovery plan. The Bank opposed the extended continuance but was open to a shorter one. The district court ultimately affirmed the summary judgment in favor of the Bank.

On September 4, the court partially granted Forex's motion, allowing until September 25 for Forex to file a resistance. Forex requested an additional day on September 24, which the Bank did not oppose, and filed its resistance on September 26. On October 17, Forex sought to submit a third amended petition to reclassify its constructive-trust claim as a breach of fiduciary duty and negligence related to the Bank’s role as a constructive trustee, and to add a conversion claim. The Bank resisted this motion. On November 7, the district court denied Forex's motion to amend, ruling the proposed changes were legally ineffective and futile. The court also granted the Bank's summary judgment motion, stating that Forex's constructive-trust claim failed as Forex could not identify any asset held by the Bank to support such a claim, particularly since 9X Data’s accounts held no funds at the time Forex filed the action. Forex contended that a constructive trust was established when the Bank was informed of a $332,001.00 claim. However, the Bank argued that constructive trusts require a court order and cannot arise simply from a claim. The court found no evidence of a prior court order or relationship that would support Forex's claim. Forex's negligence claim also failed, as the court noted a bank has no duty to recognize claims by unauthorized parties regarding deposit accounts, referencing Iowa Code section 524.808(1). Forex appealed, arguing the district court abused its discretion in denying an extension for its resistance to the summary judgment motion and in rejecting the proposed amendments. The court reviews such denials for abuse of discretion but noted that there is no requirement for all discovery to be completed before ruling on a summary judgment motion under Iowa Rule of Civil Procedure 1.981.

Iowa Rule of Civil Procedure 1.981(6) allows the court to refuse a motion for judgment or grant a continuance if the opposing party cannot present essential facts via affidavit. The party requesting a continuance must explain the inability to provide evidentiary affidavits and specify the additional factual information needed. In Good v. Tyson Foods, Inc., the court noted that a request for more time was insufficient if it did not address why the party could not respond to legal claims. The court confirmed that where the issues are legal rather than factual, further discovery may be unnecessary, and a motion to continue can be denied if discovery cannot resolve legal defects.

In this case, the district court granted the Bank's summary judgment motion, concluding Forex’s constructive-trust and negligence claims were legally insufficient, and Forex did not contest these conclusions on appeal. Additionally, Forex claimed that the district court abused its discretion by denying its motion to file a third amended petition to include a conversion claim against the Bank. The court has broad discretion regarding such motions, and amendments are typically allowed unless they are legally ineffective. The court determined that Forex's proposed conversion claim failed because it could not demonstrate a possessory interest in the funds, referencing Iowa Code section 524.808(2), which requires a court order or a bond for a state bank to recognize an adverse claim to a deposit account.

Forex's motion to amend its claim against the Bank was denied by the district court, which also granted the Bank's motion for summary judgment. Following this, Forex sought to enlarge and reconsider the ruling but was denied again. The court evaluated Forex's proposed definition of conversion and found that even under that definition, Forex's claim was legally futile. Forex did not challenge the court's finding regarding its inability to demonstrate a possessory interest in the funds, instead focusing on a statutory interpretation which argued the Bank was not obligated to allow 9X Data to withdraw funds. The court clarified that even if Forex's interpretation of section 524.808 were correct, it would not substantiate a conversion claim, as it implied the Bank had a choice regarding fund release rather than a duty. Furthermore, section 524.808 aims to prevent banks from having to choose between conflicting claims, requiring judicial resolution of disputes over account proceeds. Without a court order or indemnifying bond, the Bank was justified in refusing to comply with Forex's demands. The district court acted within its discretion by denying Forex's motions, and the ruling is affirmed.