First Am. Title Ins. Co. v. Westbury Bank

Decision Date17 April 2013
Docket NumberCase No. 12-CV-1210
PartiesFIRST AMERICAN TITLE INSURANCE COMPANY, Plaintiff, v. WESTBURY BANK, Defendant.
CourtU.S. District Court — Eastern District of Wisconsin
ORDER ON THE DEFENDANT'S MOTION TO DISMISS
I. FACTS AND PROCEDURAL HISTORY

During its tenure as an agent for First American Title Insurance Company ("First American"), New Horizon Title, LLC ("New Horizon") misappropriated more than $3.5 million in escrow funds, forcing First American to cover these losses. (Docket No. 1, ¶¶5-6, 31, 189.) But the present action does not involve New Horizon; First American already obtained a judgment against New Horizon and its members. (Docket No. 1, ¶190; see also Waukesha County Circuit Court Case No. 2011CV001381.) Rather, in the present action, which comes before this court based upon the diversity of the parties, First American alleges that Westbury Bank ("Westbury"), the institution where New Horizon maintained its bank accounts, bears some responsibility for First American's losses.

First American sets forth six causes of action against Westbury. (Docket No. 1.) In response to the complaint, Westbury filed a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). (Docket No. 10.) First American has responded to the motion, (Docket No. 13), and Westbury has replied,(Docket No. 15). The pleadings on this motion are closed and the matter is ready for resolution. All parties have consented to the full jurisdiction of a magistrate judge. (Docket Nos. 6, 8.)

New Horizon maintained three accounts with Westbury, respectively titled "Escrow Account," "Operating Account," and "Recording Account." (Docket No. 1, ¶¶11, 14.) In less than three-and-a-half years, New Horizon overdrew the escrow account more than a thousand times. (Docket No. 1, ¶36.) It bounced 348 checks for a total of nearly $60 million. (Docket No. 1, ¶39.) For all these overdrafts and bounced checks, Westbury charged New Horizon nearly $40,000.00 in fees, along with an additional $1,526.00 in stop payment fees and $196.00 in fees for having the account overdrawn on consecutive days. (Docket No. 1, ¶¶38-44.)

First American alleges that Westbury knew or should have known that New Horizon was misappropriating escrow funds but did nothing to stop New Horizon because New Horizon's fraud was very lucrative for Westbury. In total, Westbury collected $40,943.00 in fees related to malfeasance in the escrow account, all of which Westbury collected by deducting funds from the escrow account. (Docket No. 1, ¶¶44-45.) Thus, First American alleges that Westbury aided and abetted New Horizon's conversion, theft, and breach of fiduciary duty, (second, third, and fourth causes of action), and directly breached its duty of good faith under Wisconsin's Uniform Fiduciaries Act, (fifth cause of action). With respect to Westbury collecting the fees incurred by New Horizon by deducting these fees from the escrow account, First American contends that this was improper because Westbury knew or reasonably should have known that the funds in the escrow account did not belong to New Horizon (first cause of action). First American also presents a claim for "quantum meruit / unjust enrichment." (sixth cause of action).

Westbury argues that it cannot be responsible for New Horizon's actions because, although entitled "Escrow Account," this was merely an ordinary deposit account rather than a formal escrow account with the additional obligations such an account imposes upon an institution. (Docket No. 15at 3-7.) Moreover, as a non-customer with no relationship with Westbury, it owed no duty to First American. (Docket No. 11 at 7-11.) Rather, it contends that it was obligated to execute the transactions that New Horizon initiated, and based upon its agreement with New Horizon, it was entitled to deduct fees from the escrow account, (Docket No. 11 at 11-13). Because Westbury was entitled to the fees it deducted from New Horizon's escrow account, it contends that First American's unjust enrichment claim fails. (Docket No. 11 at 18-19.) Finally, Westbury argues that First American's other claims fail because the complaint fails to allege facts from which a fact-finder could conclude that Westbury knew of New Horizon's misappropriation. (Docket No. 11 at 13-18.)

In response, First American contends that all of Westbury's arguments with respect to the absence of any duty owed First American are inapposite because duty is relevant only within a negligence claim and First American alleges Westbury acted intentionally. (Docket No. 13 at 4-5.) It contends that Westbury knew or should have known that the funds in the escrow account did not belong to New Horizon and thus should not have collected from the escrow account the bank fees New Horizon incurred. (Docket No. 13 at 6-12.) As for the other causes of action, it contends that the repeated overdrafts from the escrow account did or should have alerted Westbury that New Horizon was misappropriating these funds but yet Westbury decided to allow New Horizon's fraud to continue so it could continue collecting fees.

II. MOTION TO DISMISS STANDARD

A civil complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "The Rule reflects a liberal notice pleading regime, which is intended to 'focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)); see also Swanson v. Citibank, N.A., 614F.3d 400, 404 (7th Cir. 2010) (quoting 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1215 at 165-173 (3d ed. 2004) ("[A]ll that is necessary is that the claim for relief be stated with brevity, conciseness, and clarity.").

In recent years, the Supreme Court addressed the question of just how short and plain that statement may be. See Ashcroft v. Iqbal, 556 U.S. 662 (2009); Erickson v. Pardus, 551 U.S. 89 (2007) (per curiam); Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). The Court of Appeals for the Seventh Circuit synthesized the recent holdings of the Court regarding the pleading standard set forth in Rule 8(a)(2) and stated:

First, a plaintiff must provide notice to defendants of her claims. Second, courts must accept a plaintiff's factual allegations as true, but some factual allegations will be so sketchy or implausible that they fail to provide sufficient notice to defendants of the plaintiff's claim. Third, in considering the plaintiff's factual allegations, courts should not accept as adequate abstract recitations of the elements of a cause of action or conclusory legal statements.

Brooks, 578 F.3d at 581.

This trio of Supreme Court cases did not somehow reinstate the old fact-pleading requirements and it remains true that specific facts are not necessary. Swanson, 614 F.3d at 404. Although detailed factual allegations are not required, Rule 8 "demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. 662, 678 (citing Twombly, 550 U.S. at 555).

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.

Id. at 678 (quoting Twombly, 550 U.S. at 556, 557, 570) (internal citations and quotation marks omitted).

Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it has not shown -- that the pleader is entitled to relief.

Id. at 679 (internal citations, brackets, and quotation marks omitted). A complaint is not insufficient merely because "it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely." Twombly, 550 U.S. at 556 (internal quotation marks omitted).

As this court has said before,

The amount of facts that must be alleged in a complaint to present a plausible claim will vary based upon the nature of the claim. Certain claims may require a relatively minimal factual recitation to present a plausible claim (e.g. a claim to recover on a contract for nonpayment) whereas others might require substantially more detailed factual allegations to demonstrate plausibility (e.g. an antitrust claim). In Twombly, the plaintiffs attempted to allege a violation of § 1 of the Sherman Act, 15 U.S.C. § 1. In Iqbal, the plaintiff attempted to defeat a claim of qualified immunity and demonstrate that high-ranking government officials violated the First and Fifth Amendments by approving a policy that allegedly harmed the plaintiff. The natures of the claims in both these cases were such that they would necessarily require substantially more factually intensive pleadings than many more routine cases. Thus, courts must be cautious so as to not interpret Twombly and Iqbal as requiring detailed factual recitations for all complaints simply because more detailed factual allegations were required in those cases due to the nature of the claims alleged.

EEOC v. Universal Brixius, 264 F.R.D. 514, 517 (E.D. Wis. 2009). "[I]n many straightforward cases, it will not be any more difficult today for a plaintiff to meet...

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