National's holding company, Pinnacle, reviewed the bank's records to determine why there were large balance fluctuations in Shelly's First National account. Pl. 12(M) P 19. Spiewak began to suspect that a kite might be operating. Pl. 12(M) P 19. He did not know whether Colonial had enough funds to cover the Colonial checks that had been deposited on Monday, February 10, and forwarded to Colonial for payment. Pl. 12(M) P 19. Later that day, First National froze the Shelly account to prevent any further activity in it. Pl. 12(M) P 19.
On the morning of Wednesday, February 12, Spiewak met with First National president Dennis Irvin and Pinnacle's chief lending officer Mike Braun to discuss the Shelly account. Pl. 12(M) P 22. Spiewak informed the others of what he knew, and the three agreed that there was a possible kite. Pl. 12(M) P 22. They concluded that further investigation was needed. Pl. 12(M) P 22. The First National officers decided to return the First National checks to Colonial. First National says that the decision was made at this meeting, but Colonial says the decision was actually made the day before. Pl. 12(M) P 22; Def. 12(N) P 22.
On Wednesday, First National returned the First National checks to Colonial. Under Regulation CC, a bank that is returning checks in excess of $ 2,500.00 must provide notice to the depositary bank either by telephone, actual return of the check, or Fed Wire before 4:00 p.m. on the second business day following presentment. Pl. 12(M) P 23. First National notified Colonial by Fed Wire that it was returning the seventeen First National checks. Pl. 12(M) PP 24, 31. Initially, the large item return form indicated that the reason for the return was "uncollected funds," but Spiewak changed that reason to "refer to maker." Pl. 12(M) P 27.
Colonial received the Fed Wire notices at approximately 2:45 p.m. on Wednesday and routed them to its cashier, Joanne Topham. Pl. 12(M) P 32. Randall Soderman, a Colonial loan officer, was informed of the large return, and immediately began an investigation. Pl. 12(M) P 32. He realized that if the Colonial checks were not returned by midnight that same day, Colonial would be out the money. Pl. 12(M) P 33. Returning the Colonial checks before midnight would protect Colonial from liability, but it would risk disappointing the customer. Pl. 12(M) P 34. Anthony Schiller, the loan officer in charge of the World Commodities account, called World Commodities comptroller Charles Patterson and its attorney Jay Goldstein. Def. Add'l Facts PP 11, 12. Both assured Schiller that the First National checks were good and should be redeposited. Def. Add'l Facts PP 11, 12. Ultimately, Richard Vucich, Colonial's president, and Joanne Topham, Colonial's cashier, decided not to return the Colonial checks on Wednesday. They decided instead to meet on Thursday morning with Schiller to discuss the matter. Pl. 12(M) P 47.
Schiller, Topham, and Vucich met on the morning of Thursday, February 13. Pl. 12(M) P 48. At the conclusion of the meeting, they decided to return the thirteen Colonial checks to First National. Pl. 12(M) P 48. At about 10:45 a.m., Colonial telephoned First National to say that it intended to return the Colonial checks. Pl. 12(M) P 50. Colonial sent the Colonial checks back through the Reserve Bank as a return in a return cash letter. Pl. 12(M) P 51. The Reserve Bank debited First National's Reserve Bank account in the amount of the Colonial checks. Pl. 12(M) P 51. First National received the returned Colonial checks on Friday, February 14. Pl. 12(M) P 52.
First National then resorted to the Fed's "challenge procedure" to contest the return of the Colonial checks after the midnight deadline. First National prepared and submitted to the Reserve Bank a "Sender's Claim of Late Return" form for each of the Colonial checks. Pl. 12(M) P 55. The Reserve Bank processed the claim forms and credited the Reserve Bank account of First National $ 1,523,892.49 and debited the Reserve Bank account of Colonial in the same amount. Pl. 12(M) P 56. On February 24, Colonial prepared and filed a "Paying Bank's Response to Claim of Late Return" form for each of the thirteen Colonial checks. Pl. 12(M) P 57. As a consequence of the processing of the response forms, the Reserve Bank reversed the credit given to First National and the debit made to Colonial. Pl. 12(M) P 67; Def. 12(N) P 67.
First National then filed this suit against Colonial and the Reserve Bank, alleging that Colonial wrongfully returned the Colonial checks after the midnight deadline and the Reserve Bank wrongfully accepted the late return.
Count I of First National's amended complaint against Colonial alleges breach of warranty under Regulation CC for the late return of the checks. 12 C.F.R. § 229.34. Count II against the Reserve Bank alleges breach of warranty under Regulations CC and J for accepting the late return. 12 C.F.R. § 210.6. Count III against Colonial alleges breach of a duty of ordinary care in Colonial's return of the Colonial checks. Count IV against the Reserve Bank alleges breach of a duty of ordinary care in processing the late return. Count V against Colonial alleges breach of UCC § 4-302 for Colonial's failure to return the checks by the midnight deadline. Count VI against the Reserve Bank and Count VII against Colonial allege breach of contract for each party's failure to comply with the terms of the Reserve Bank's Operating Circular No. 4 ("OC-4").
First National moved for partial summary judgment as to Count V. On August 27, 1993, this court denied the plaintiff's motion. First Nat'l Bank in Harvey v. Colonial Bank, 831 F. Supp. 637 (N.D. Ill. 1993). The parties now have each moved for summary judgment on all counts. Along with deciding the remaining counts, today's opinion reconsiders portions of our earlier ruling on Count V. Avitia v. Metropolitan Club, 49 F.3d 1219, 1227 (7th Cir. 1995).
Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show 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." Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). A "genuine issue of material fact exists only where 'there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.'" Wallace v. Tilley, 41 F.3d 296, 299 (7th Cir. 1994) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986)). In considering such a motion, the court must view all inferences in the light most favorable to the nonmoving party. Tolentino v. Friedman, 46 F.3d 645, 649 (7th Cir.), cert. denied, 115 S. Ct. 2613, 132 L. Ed. 2d 856, 63 U.S.L.W. 3906 (U.S. June 26, 1995) (No. 94-1812-CFX). The court will enter summary judgment against a party who does not come forward with evidence that would reasonably permit a finder of fact to find in his or her favor on a material question. McGrath v. Gillis, 44 F.3d 567, 569 (7th Cir. 1995).
I. Count V: Breach of UCC § 4-302 Against Colonial
Article 4 of the Uniform Commercial Code adopts a policy of "final payment"; that is, a check is considered to be finally paid at some specific and identifiable point in time. § 4-215 Comment 1. Final payment is the "end of the line" in the check collection process. Id. Section 4-301 sets up the "midnight deadline" in the process: a payor bank which intends to return a check presented to it must do so before midnight of the next banking day following receipt of the check. §§ 4-301(a), 4-104(a)(10). If a payor bank fails to return a check before the midnight deadline, final payment occurs. Los Angeles Nat'l Bank v. Bank of Canton, 229 Cal. App. 3d 1267, 280 Cal. Rptr. 831, 836 (Ct. App. 1991); see Rock Island Auction Sales, Inc. v. Empire Packing Co., 32 Ill. 2d 269, 204 N.E.2d 721, 722-23 (Ill. 1965); Templeton v. First Nat'l Bank, 47 Ill. App. 3d 443, 362 N.E.2d 33, 37, 5 Ill. Dec. 720 (Ill. App. Ct. 1977).
Section 4-302 spells out the payor bank's liability for its late return of an item, that is, return after the midnight deadline:
(a) If an item is presented to and received by a payor bank, the bank is accountable for the amount of:
(1) a demand item, other than a documentary draft, whether properly payable or not, if the bank . . . does not pay or return the item or send notice of dishonor until after its midnight deadline . . . .