
USCA1 Opinion

	




                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 94-1670                                   INN FOODS, INC.,                               D/B/A U.S. FOOD SERVICE,                                Plaintiff, Appellant,                                          v.                             EQUITABLE CO-OPERATIVE BANK,                                 Defendant, Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. William G. Young, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                Torruella, Chief Judge,                                           ___________                            Cyr and Stahl, Circuit Judges.                                           ______________                                 ____________________            Peter L.  Koff with  whom Robert  J. Diettrich and  Davis, Malm  &            ______________            ____________________      ______________        D'Agostine, P.C. were on brief for appellant.        ________________            Antoinette D.  Hubbard with  whom Judith  Gail Dein  and Warner  &            ______________________            _________________      _________        Stackpole were on brief for appellees.        _________                                 ____________________                                   February 1, 1995                                 ____________________                      STAHL,  Circuit  Judge.    Plaintiff-appellant  Inn                      STAHL,  Circuit  Judge.                              ______________            Foods,  Inc. ("Inn Foods"), secured a default judgment in the            amount  of   $1,084,524.13  against  Atlantic   Brands,  Inc.            ("Atlantic").  During discovery to determine the availability            of assets  to satisfy  the judgment,  Inn Foods  learned that            Atlantic's president, Paget T.  Hodge ("Hodge"), had indorsed            a  $523,744.18  United   States  Treasury  check   ("Treasury            check"), payable  to Atlantic, for deposit  into his personal            account  at  defendant-appellee  Equitable Co-operative  Bank            ("Equitable").  In the present case, Inn Foods seeks to reach            and  apply a never-asserted cause of action for conversion of            the  Treasury check  that  it contends  Atlantic has  against            Equitable.   Atlantic has never filed such a claim nor has it            ever indicated an  intent to do so.   Following cross-motions            for summary judgment, the district court entered judgment for            Equitable.  We affirm.                                          I.                                          I.                                          __                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS                       ________________________________________                      In  the early  1980's,  Hodge  formed  Atlantic,  a            closely held corporation based in Boston, Massachusetts, with            Hodge serving as Atlantic's  president.  The primary business            of  Atlantic  was  food  distribution.    In  1988,  Atlantic            obtained from  the  Department of  Defense Personnel  Support            Center ("DOD") a contract to supply frozen vegetables to DOD.            Atlantic subcontracted some of  its supply obligations to Inn                                         -2-                                          2            Foods,  a California-based  wholesale  food  supplier,  which            agreed  to provide  a  portion of  the contracted-for  frozen            vegetables  to  DOD,  thus  partially  fulfilling  Atlantic's            contract obligations with DOD.  In November of 1988, Atlantic            breached  its contract with Inn  Foods by failing  to pay Inn            Foods for the vegetables it had delivered  to DOD.  Inn Foods            then sued Atlantic for the amount due and, in March of  1989,            obtained a default judgment.                      In  their  discovery   efforts  seeking  assets  to            satisfy the judgment, Inn Foods learned the following.  Hodge            maintained a personal checking account at Equitable, where he            had  been  a  regular  customer  for  more  than  ten  years.            Equitable  officials   knew  that  Hodge  was   president  of            Atlantic.  On December 8, 1988, Hodge appeared at Equitable's            office in  Lynn, Massachusetts, where he  indorsed to himself            the  Treasury check which was  in partial payment to Atlantic            for  the vegetables actually  supplied to  DOD by  Inn Foods.            Equitable   accepted  the  check  for  deposit  into  Hodge's            personal  account.   Equitable  then issued  to Hodge  a bank            check  payable to the  Bank of New  England in  the amount of            $450,000.   Equitable  debited  Hodge's account  accordingly.            The next  day, Equitable took the Treasury  check directly to            the  Federal   Reserve   Bank  of   Boston,  which   credited            Equitable's  account.   Eventually,  Hodge withdrew  from his                                         -3-                                          3            personal account the balance  of the funds obtained  from the            Treasury check.                      By  deposition,  Equitable's senior  vice president            and  treasurer,  Arthur  E.  Horgan, testified  that  he  was            "uncomfortable" about the Hodge  transaction in light of both            the  sum involved and the  fact that Hodge  had deposited the            Treasury  check  into his  personal  account.   As  a result,            Horgan  "contacted  counsel   and  they   suggested  we   get            something, a certificate of  vote from the company indicating            that  .  .  .  Hodge  has authority  to  transact  business."            Equitable's  president, James  G. Perkins, then  called Hodge            and  requested that  Atlantic  provide  a  written  corporate            resolution stating  that Hodge  had authority to  indorse the            Treasury  check and  that he  was authorized  to deposit  the            check  into  his  personal  account.     Thereafter,  Perkins            received  a resolution  ("resolution"),  dated  December  17,            1988,  and  signed by  Wallace    Johnson, the  corporation's            secretary,  which  stated  that  the Board  of  Directors  of            Atlantic had unanimously:                           VOTED:     That,  Paget  Hodge,                           _____                           President  of  Atlantic Brands,                           Inc.  is  hereby authorized  to                           endorse   on   behalf  of   the                           Corporation  any checks  to his                           order, said  checks being drawn                           or  endorsed  payable  to  said                           Corporation,  and  deposit said                           checks to his personal account.                                         -4-                                          4                      After  Atlantic  defaulted, Inn  Foods  brought the            present action  against Equitable and others1  to satisfy its            judgment.    As  alluded  to above,  Inn  Foods's  theory  of            recovery   against  Equitable  has  two  principal  elements.            First, Inn Foods argues  that Atlantic has a cause  of action            for conversion against Equitable under Mass. Gen. L. ch. 106,               3-419(1)(c).2  Second, as a judgment creditor, it seeks to            reach  and apply  Atlantic's unfiled  conversion claim.3   As            noted, Atlantic has never filed such a claim, nor has it ever            indicated  an intent to do  so.4  The  parties entered cross-            motions  for summary judgment.  After a hearing, the district            court  denied  Inn  Foods's motion  and  granted Equitable's.            From the  bench, the court ruled that  "the [i]ndorsement was            not a forgery  and [Hodge] had apparent  authority and indeed            [Atlantic] ratified his authority."  Alternatively, the court                                            ____________________            1.  Equitable is the only  defendant that is a party  to this            appeal.            2.  This is  a diversity-based action and  both parties agree            that  Massachusetts law  applies.   This  case  is, in  part,            governed  by  the Uniform  Commercial  Code  ("the Code")  as            adopted  by Massachusetts and appearing at  Mass. Gen. L. ch.            106.   References to this  statute will be  by section number            only.            3.  Mass. Gen. L.  ch. 214,    3(6) authorizes  an action  by            creditors to reach and apply an unsatisfied debt.            4.  From  the  record, it  appears  that  Atlantic ceased  to            function as an ongoing enterprise before the default judgment            occurred.  As for Hodge, he was a named defendant  below, but            failed  to answer.  Service  of process on  Hodge was made at            the Wormwood Scrubs prison in London, England.                                         -5-                                          5            ruled that Inn  Foods could  not reach  and apply  Atlantic's            putative cause of action.  This appeal followed.                                         II.                                         II.                                         ___                                      DISCUSSION                                      DISCUSSION                                      __________                      Inn  Foods now  argues that:   (1)  Atlantic has  a            cause of action for  conversion against Equitable because (a)            Hodge had  neither actual  nor apparent authority  to indorse            the Treasury check and deposit it into  his personal account,            and (b) Atlantic did  not ratify Hodge's actions; and  (2) it            may assert an  action to reach  and apply Atlantic's  unfiled            cause of action for conversion.  Although the appeal raises a            number  of   interesting  issues,   some  of  which   involve            apparently  unsettled  questions  of  Massachusetts  law,  we            resolve  the appeal by concluding  that, as a  matter of law,            Atlantic  ratified Hodge's  indorsement.   Before  discussing            ratification, we recite the standard of review.             A.  Standard of Review            ______________________                      Summary  judgment is  appropriate  when the  record            reflects "no genuine issue as to any material fact and  . . .            the moving party is entitled to judgment as a matter of law."            Fed. R.  Civ. P.  56(c).   Our  review of  an order  granting            summary  judgment  is  de  novo.    See,  e.g.,  Vasapolli v.                                   __  ____     ___   ____   _________            Rostoff,  39 F.3d  27,  32 (1st  Cir. 1994).   We  review the            _______            record in  the light most  favorable to the  nonmoving party,                                         -6-                                          6            and  we indulge  all  reasonable inferences  in that  party's            favor.  Id.                    ___            B.  Ratification            ________________                      Inn  Foods's conversion theory rests on the premise            that Hodge was  not authorized to indorse  the Treasury check            to  himself for deposit into his personal account.  Under the            Code, conversion takes place when an instrument "is paid on a            forged  indorsement."       3-419(c)(1).   This  section  has            generally  been interpreted to  permit actions for conversion            where  a  negotiable instrument  has been  paid on  either an            "unauthorized"  or a "forged" indorsement.   D &  G Equip. v.                                                         _____________            First Nat'l Bank of  Greencastle, 764 F.2d 950, 955  (3d Cir.            ________________________________            1985)  (collecting   cases).      Signatures   on  commercial            instruments are "presumed to be genuine or authorized."    3-            307(1)(b).5  Under  the Code,  "[a]ny unauthorized  signature            may be ratified"  by the principal.     3-404(2).   We assume            but do not  decide that Inn Foods  met its initial burden  of            establishing that Hodge's signature on the Treasury check was            unauthorized when  presented.   Thus, we proceed  directly to            the question of whether Atlantic ratified Hodge's signature.                                    Unless   they   are  displaced   by   a  particular            provision, general common law principles, including  those of                                            ____________________            5.  The  presumption remains  "unless and  until evidence  is            introduced  which  would  support   a  finding  of  its  non-            existence."    1-201(31).                                         -7-                                          7            agency,  supplement the  Code.     1-103;  see also  Terry v.                                                       ___ ____  _____            Kemper  Ins. Co., 456 N.E.2d 465, 467 (Mass. 1983) (Code does            ________________            not  displace  settled  principles  of agency  law).    Under            Massachusetts  law, ratification  of an  agent's acts  may be            express  or  implied  and,  as  a  general  proposition,  the            principal  must have  full knowledge  of all  material facts.            See, e.g., Puritan  Medical Ctr. v. Cashman, 596 N.E.2d 1004,            ___  ____  _____________________    _______            1008 (Mass.  1992);  Perkins v.  Rich,  415 N.E.2d  895,  898                                 _______     ____            (Mass. App. Ct. 1981),  aff'd, 429 N.E.2d 1135 (Mass.  1982).                                    _____            Massachusetts courts, however, do not always require that the            principal have  actual knowledge.  There  may be ratification            when the  principal "purposely shut[s]  his eyes to  means of            information within  his own possession and  control."  Torpey                                                                   ______            v. Interstate  Equip. Leasing Corp.,  760 F.2d 364,  365 (1st               ________________________________            Cir. 1985) (quotation omitted);  see also Puritan, 596 N.E.2d                                             ___ ____ _______            at  1008  (ratification  may  be  implied  where  corporation            directors have  "knowledge of such facts  or circumstances as            would put a reasonable person on inquiry and which would lead            to full discovery") (quotation omitted).                        Inn Foods argues that  because the record is devoid            of any  indication that  Atlantic had  full knowledge  of the            facts, no ratification occurred.  We  do not agree.  We think            the only reasonable conclusion to be drawn from the record is            that  Atlantic ratified  the  transaction with  knowledge  at            least   sufficient  to  satisfy  the  "deliberate  ignorance"                                         -8-                                          8            standard  recited  above.   The  language  of the  resolution            itself  speaks directly to  the two critical  elements of the            Treasury check transaction.  The resolution authorizes  Hodge            to both indorse checks  on behalf of the corporation,  and to            deposit those  checks into  his personal account.   Moreover,            the resolution was dated nine days after Hodge  presented the            Treasury check to Equitable.  At a minimum, the terms of  the            resolution as well  as the  surrounding circumstances  should            have alerted Atlantic's directors that "something was afoot,"            Perkins, 415 N.E.2d at 898 (quotation omitted), especially in            _______            light of the  directors' duty to keep themselves  informed of            the corporation's affairs.  See, e.g., Puritan, 596 N.E.2d at                                        ___  ____  _______            1008;6 Perkins, 415 N.E.2d at 898.                    _______                      Inn Foods  makes the  additional argument  that the            resolution  does  not ratify  the Treasury  check transaction            because its language is cast in prospective terms only.  Even            if we  were  to agree,  Massachusetts  law makes  clear  that            ratification can  be implied when a  principal with knowledge                                            ____________________            6.  The Puritan court  noted that the failure of directors to                    _______            discharge their duty  of supervision does not  always lead to            ratification.   Puritan, 596 N.E.2d  at 1008.   In Puritan, a                            _______                            _______            corporation's  director sought to interpose ratification as a            defense  to  self-dealing.    The present  case  involves  an            entirely  different set  of circumstances  as a  third party,            Equitable,   sought  assurances  from   Atlantic  as  to  the            authority of Hodge, an Atlantic agent.  Under these facts, we            think   Atlantic  would   be   estopped  from   denying   the            applicability of the duty to supervise.                                          -9-                                          9            makes no effort to repudiate a  transaction.7  Irving Tanning                                                           ______________            Co.  v.  Shir,  3 N.E.2d  841,  842  (Mass.  1936); see  also            ___      ____                                       ___  ____            Restatement  of  Agency  2d      94  ("An  affirmance  of  an            unauthorized transaction  can be  inferred from a  failure to            repudiate it.").  The rationale for this rule is plain.  When            a  principal fails to disavow  promptly an act  of his agent,            such  a failure both thwarts  a damaged third party's ability            to  mitigate   the  effects   of  an  unauthorized   act  and            perpetuates an inference of authority reposed in the would-be            agent.   See Boice-Perrine Co.  v. Kelley, 137  N.E. 731, 733                     ___ _________________     ______            (Mass. 1923).  Again, we do not think there can be reasonable            dispute   that   Atlantic   had  sufficient   knowledge   for            ratification and,  there is no indication in  the record that            Atlantic ever sought to repudiate this transaction.                      In  short,  Atlantic  had sufficient  knowledge  to            ratify  by  either  acting (as  it  purported  to  do in  the            resolution)  or  not  acting  (thereby  acquiescing  in   the            Treasury check  transaction).  Either route leads to the same            conclusion:     Atlantic  ratified  Hodge's  indorsement  and            deposit.  Because Hodge's  signature was authorized, Atlantic                                            ____________________            7.  On this  point, we  disagree with Inn  Foods's contention            that Puritan, 596 N.E.2d at 1008, should be read as requiring                 _______            that a  benefit accrue  to  the principal  from the  disputed            transaction  before  an implied  ratification  can  be found.            While benefits  received are  certainly strong evidence  that            the  principal acquiesced in  the agent's  transaction, other            Massachusetts  cases make  clear that  ratification can  take            place  in the absence of  such a benefit.   See, e.g., Boice-                                                        ___  ____  ______            Perrine Co. v. Kelley, 137 N.E. 731 (Mass. 1923).              ___________    ______                                         -10-                                          10            has  no conversion  cause  of action  against Equitable  and,            thus, Inn Foods's claim must fail.                                           III.                                         III.                                         ____                                      CONCLUSION                                      CONCLUSION                                      __________                      For the  reasons discussed  above, the decision  of            the district court is                      Affirmed.  Costs to appellee.                      Affirmed   Costs to appellee                      ________   _________________                                         -11-                                          11
