Advance Dental Care, Inc. v. SunTrust Bank, Civil Action No. AW–10–01286.

• Decision Date: 07 October 2011
• Docket Number: Civil Action No. AW–10–01286.
• Citation: 816 F.Supp.2d 268,75 UCC Rep.Serv.2d 736
• Parties: ADVANCE DENTAL CARE, INC., Plaintiff, v. SUNTRUST BANK, Defendant.
• Court: U.S. District Court — District of Massachusetts

75 UCC Rep.Serv.2d 736

816 F.Supp.2d 268

ADVANCE DENTAL CARE, INC., Plaintiff,

v.SUNTRUST BANK, Defendant.

Civil Action No. AW–10–01286.

United States District Court, D. Maryland, Southern Division.

Oct. 7, 2011.

Lawrence Roger Holzman, Walter E. Laake, Jr., Joseph Greenwald and Laake PA, Greenbelt, MD, for Plaintiff.

Bradford Scott Bernstein, Miles and Stockbridge PC, Rockville, MD, for Defendant.

MEMORANDUM OPINION

ALEXANDER WILLIAMS, JR., District Judge.

Plaintiff Advance Dental Care, Inc. (“Advance Dental”) brings this action against Defendant SunTrust Bank (“SunTrust”), alleging conversion under section 3–420 of the Commercial Law Article of the Annotated Code of Maryland (“Maryland U.C.C.”) ¹ and common-law negligence. See Compl. Presently pending before the Court is Defendant's Renewed Motion to Dismiss Count III (common-law negligence) under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Doc. No. 11. The Court has reviewed the motion papers and finds that no hearing is necessary. See D. MD. LOC. R. 105.6 (2010). For the reasons stated below, the Court GRANTS Defendant's Renewed Motion to Dismiss.

I. FACTUAL AND PROCEDURAL BACKGROUND

From early 2004 until fall 2007, Advance Dental employed Michelle Rampersad at its dental office in Prince George's County. See Compl. ¶¶ 5–6. During this time, Advance Dental received insurance reimbursement checks via U.S. mail for services rendered. See Compl. ¶ 7. Without authorization, Rampersad took approximately 185 checks totaling $400,954.04. See Compl. ¶ 9. Although the checks were made payable to Advance Dental, Rampersad endorsed them to herself and delivered them to SunTrust for deposit into her personal accounts. See Compl. ¶¶ 9–16. SunTrust deposited the checks into Rampersad's accounts. See Compl. ¶ 17.

Advance Dental filed a Complaint against SunTrust on May 21, 2010. Doc. No. 2. On March 25, 2011, the Court dismissed Count II (U.C.C. negligence) of the Complaint. Doc. No. 9. The Court declined to dismiss Count III (common-law negligence), but invited SunTrust to address the Court's concerns in a Renewed Motion to Dismiss. Id.

On April 14, 2011, SunTrust renewed its motion to dismiss Count III on the grounds that Maryland U.C.C. section 3–420 displaces common-law negligence. See Doc. No. 11.

II. STANDARD OF REVIEW

The purpose of a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure is to test the sufficiency of the plaintiff's complaint. See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.1999). Except in certain specified cases, the complaint need only satisfy the “simplified pleading standard” of Rule 8(a), Swierkiewicz v. Sorema N.A., 534 U.S. 506, 513, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002), which requires a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2).

In two recent cases, the U.S. Supreme Court clarified the standard applicable to Rule 12(b)(6) motions. See Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). These cases explain that Rule 8 “requires a ‘showing,’ rather than a blanket assertion, of entitlement to relief.” Twombly, 550 U.S. at 556 n. 3, 127 S.Ct. 1955 (quoting Fed.R.Civ.P. 8(a)(2)). This showing must include “enough facts to state a claim to relief that is plausible on its face.” Id. at 570, 127 S.Ct. 1955.

In addressing a motion to dismiss, a court should first determine which pleadings in the complaint are entitled to the assumption of truth. See Iqbal, 129 S.Ct. at 1949–50. “When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. at 1950. In making this determination, a court must construe all factual allegations in the light most favorable to the plaintiff. See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir.1999). A court should not, however, accept unsupported legal allegations, Revene v. Charles Cnty. Comm'rs, 882 F.2d 870, 873 (4th Cir.1989), legal conclusions couched as factual allegations, Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986), or conclusory factual allegations devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir.1979). In sum, “factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citations omitted).

III. LEGAL ANALYSIS

In this case of first impression, the Court must determine whether section 3–420 of the Maryland U.C.C. displaces common-law negligence when a payee seeks to recover from a depositary bank that accepted unauthorized and fraudulently endorsed checks. The Court holds that displacement is appropriate in this situation.

A. Availability of an Adequate U.C.C. Remedy

When sitting in diversity, the Court is obliged to apply the substantive law of the state in which it sits. See Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Maryland courts have not addressed U.C.C. displacement of common-law actions in suits brought by a payee against a depositary bank. In the absence of a pertinent decision, the Court must apply the rule of decision it believes the Maryland Court of Appeals would apply. See id.

In making this determination, the Court finds Maryland case law concerning a drawer's claims against a depositary bank instructive. See Chicago Title Ins. Co. v. Allfirst Bank, 394 Md. 270, 905 A.2d 366 (2006) (holding that the U.C.C. does not bar a drawer's common-law negligence action); Hartford Fire Ins. Co. v. Md. Nat'l Bank, 341 Md. 408, 671 A.2d 22 (1996) (holding that allowing a drawer to sue a depositary bank is consistent with the U.C.C.). Although each court allowed a common-law action to proceed, the drawer's lack of adequate remedy under the U.C.C. was fundamental to each ruling. See Chicago Title, A.2d at 376 (“The facts of the instance case are distinguishable [from cases where the common-law claim was displaced] in that the drawer in the instance case does not have an adequate remedy under the UCC ....”); see also Hartford Fire, 671 A.2d at 31 (finding it unnecessary to address the drawer's common-law negligence claim since the depositary bank may be liable under common-law conversion).

Additionally, other courts have held that common-law negligence claims can proceed only in the absence of an adequate U.C.C. remedy. See, e.g., Equitable Life Assurance Society of the U.S. v. Okey, 812 F.2d 906, 909 (4th Cir.1987) (“[W]hen the Code and common law both provide a means of recovery, the Code should displace the common law ....”) (citing Robert Hillman, Construction of the Uniform Commercial Code: UCC Section 1–103 and “Code” Methodology, 18 B.C. Indus. & Comm.L.Rev. 655, 662–63 (1977)); Willier v. Hurt, No. 5:06–547, 2007 WL 4613033, at *6 (S.D.W.Va. Dec. 31, 2007) (holding that since a U.C.C. provision was directly on point, it displaced common-law negligence claims); Donovan v. Bank of America, 574 F.Supp.2d 192 (D.Maine 2008) (holding that the U.C.C. displaced a common-law negligence claim); Metz v. Unizan Bank, 416 F.Supp.2d 568 (N.D.Ohio 2006) (holding that the U.C.C. displaced common-law negligence claims since the U.C.C. establishes the standard of care for a bank's handling of negotiable instruments); Cagle's Inc. v. Valley Nat'l Bank, 153 F.Supp.2d 1288 (M.D.Ala.2001) (holding that the U.C.C. displaced a common-law negligence claim); Lee Newman, M.D., Inc. v. Wells Fargo Bank, N.A., 87 Cal.App.4th 73, 104 Cal.Rptr.2d 310 (2001) (holding that a common-law negligence claim is displaced by the U.C.C. since the U.C.C. provides a comprehensive framework for loss allocation).

In the present case, it is indisputable that Advance Dental has an adequate U.C.C. remedy—conversion—for which Advance Dental has already filed a claim. See Compl. Therefore, in light of the overwhelming case law, the Court reasonably infers that the Maryland Court of Appeals would hold that section 3–420 displaces common-law negligence because Advance Dental has an adequate U.C.C. remedy.

B. Indistinct Causes of Action with Conflicting Defenses

Statutory authority also emphasizes the necessity of displacing common-law negligence in this case. Section 1–103(b) of the Maryland U.C.C. establishes the U.C.C.'s position regarding the survival of common-law actions alongside the U.C.C.: “[u]nless displaced by the particular provisions of Titles 1–10 of this article, the principles of law and equity ... shall supplement its provisions....” Since the U.C.C. has no express “displacement” provision, the Court must determine whether section 3–420 is a “particular provision” that displaces the common law. See, e.g., Okey, 812 F.2d at 909.

The Court finds significant overlap between section 3–420 and common-law negligence. Section 3–420(a) defines conversion as “payment with respect to [an] instrument for a person not entitled to enforce the instrument or receive payment.” Here, Advance Dental alleges that SunTrust is liable in negligence for allowing Rampersad to fraudulently endorse and deposit checks made payable to Advance Dental into her personal account. See Compl. ¶¶ 43–46. Therefore, as highlighted in Equitable Life Assurance Society of the United States v. Okey, 812 F.2d 906, 909 (4th Cir.1987), both negligence and conversion require a consideration of whether there was payment over a wrongful endorsement. Contrary to Advance Dental's contention, see Doc. No. 11, revisions to the U.C.C.'s conversion statute do not change the plaintiff's burden of production. Thus, the Okey court's rationale is still applicable. See Willier v. Hurt, No. 5:06–547, 2007 WL 4613033, at *7 n. 13 (S.D.W.Va. Dec....