Jairett v. First Montauk Securities Corp.

• Decision Date: 14 March 2001
• Docket Number: No. CIV.A. 00-1889.,CIV.A. 00-1889.
• Citation: 153 F.Supp.2d 562
• Parties: WILLIAM JAIRETT, Thomas Sinibaldi, Barry Beakler, Betty Beakler, Richard Bieda, Peter Hoet, Kenneth Sinibaldi, Plaintiffs, v. FIRST MONTAUK SECURITIES CORP., Monument Financial Services Groups, Inc., United Bank of Philadelphia, Hatfield Bailey & Werth, Inc., Hatfield Financial Group, Inc., Hatfield Capital Management, Inc., Ronald V. Hatfield, Eric Keck a/k/a Eric Kack, Hubert Burkat, Derek Bailey, and Mr. Werh, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

Page 562

153 F.Supp.2d 562

WILLIAM JAIRETT, Thomas Sinibaldi, Barry Beakler, Betty Beakler, Richard Bieda, Peter Hoet, Kenneth Sinibaldi, Plaintiffs, v. FIRST MONTAUK SECURITIES CORP., Monument Financial Services Groups, Inc., United Bank of Philadelphia, Hatfield Bailey & Werth, Inc., Hatfield Financial Group, Inc., Hatfield Capital Management, Inc., Ronald V. Hatfield, Eric Keck a/k/a Eric Kack, Hubert Burkat, Derek Bailey, and Mr. Werh, Defendants.

No. CIV.A. 00-1889.

United States District Court, E.D. Pennsylvania.

March 14, 2001.

Order Denying Reconsideration May 14, 2001.

COPYRIGHT MATERIAL OMITTED

Frank R. Emmerich, Jr., Conrad, O'Brien, Gellman & Rohn, Philadelphia, PA, for plaintiffs.

Denis C. Dice, Philadelphia, Pa, Peter B. Andrews, Marshall, Dennehey, Warner, Coleman & Goggin, Philadelphia, PA, for First Montauk Securities Corp. defendant.

Hatty R. Blackburn, Derek B. Eddy, Albert N. Peterlin, Harry R. Blackburn & Associates, Philadelphia, PA, for Monument Financial Services Group, Inc., Hatfieald Financial Group, Inc., Hatfield Capital Management, Inc., Ronald V. Hatfield, defendants.

Robert J. Sugarman, Sugarman & Associates, Philadelphia, PA, for United Bank of Philadelphia, defendant

Joel W. Todd, Dolchin, Slotkin & Todd, P.C., Philadephia, PA, Albert N. Peterlin, Harry R. Blackburn & Assoc., Philadelphia, PA, for Hatfield Bailey & Werth, Inc., defendant.

Hubert Burkat, Philadelphia, PA, pro se.

Joel W. Todd, Dolchin, Slotkin & Todd, P.C., Philadephia, PA, for Derek Bailey, defendant.

Anthony P. Tabasso, Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, Philadelphia, PA, for respondent.

MEMORANDUM

LOWELL A. REED, JR., Senior District Judge.

Plaintiffs brought this law suit after losing money in an allegedly fraudulent investment scheme.¹ Defendant United Bank of Philadelphia ("United Bank") filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) (Document No. 12). Defendant First Montauk Securities Corporation ("First Montauk") filed a motion to dismiss or for summary judgment to dismiss claims brought by non-customer plaintiffs pursuant to Federal Rules of Civil Procedure 12(b)(6) and 56 and a motion to compel arbitration and for stay of judicial proceedings pursuant to Title 9 of the United States Code § 4 (Document No. 14). Upon consideration of the motion of defendant United Bank, and the response and reply thereto, defendant's motion will be denied. Upon consideration of the motion of defendant First Montauk, and the response and reply thereto, defendant's motion will be denied in part and granted in part.

I. Background²

Plaintiffs are a group of investors, most of whom had made certain investments through defendant Ronald V. Hatfield ("Hatfield") through his association with defendant Hatfield Bailey & Werth, Inc., defendant Hatfield Financial Group, Inc., defendant Hatfield Capital Management, and defendant First Montauk before investing in the fraudulent investment scheme which resulted in this law suit. Plaintiffs were looking for an opportunity to invest for their retirement and in the fall of 1998 it was represented to them that defendant Hatfield had entered into an exclusive relationship with First Montauk for the sale of securities. Hatfield also represented to plaintiffs that he was a partner in a licensed consumer discount company called Monument Financial Services Group, Inc. ("Monument Financial" or "Monument"), also a defendant in this case. Plaintiffs invested with Monument Financial because they were told the entity purchased collateralized mortgage rollover and offered a full array or mortgage services, including servicing, financing and refinancing of mortgages, automobile financing and leasing, and business equipment leasing. Plaintiffs were told that securities in Monument were offered through First Montauk. It was further represented that the securities would yield at least a 7% return every 60 days with a 42% annual percentage rate.

Each plaintiff invested either $50,000 or $100,000 with Monument Financial and received a security equal to the amount of their respective investment. The total amount invested was $450,000. Each plaintiff received certificates from Monument Financial indicating a mortgage collateral in the amount of their investment. Each plaintiff also entered into a security agreement with Monument Financial. The plaintiffs were told that the securities were to be processed by Monument Financial's banking institute, United Bank. Two of the security agreements entered into with Monument Financial listed United Bank as the depository bank. After tendering the investment checks, plaintiffs received canceled checks indicating that their money was deposited in United Bank.

The Monument Financial account at United Bank was opened on January 11, 1999. The Bank was directed to disburse funds only upon the dual authorization of Hatfield and defendant Eric Kack ("Kack").³ Contrary to those instructions, five checks with only the signature⁴ of Kack, totaling approximately $132,000, were honored by the bank in February, 1999. Plaintiffs believe that additional disbursements were made without proper authorizations. United Bank eventually froze the account.

Plaintiffs aver that funds were diverted to non-investment entities without their knowledge, that their money was not invested in collateralized mortgage rollover, and that their security interests were not perfected.⁵ Plaintiffs bring six claims against United Bank for negligence (Count III), constructive fraud (Count X), breach of fiduciary duty (Count XV), breach of contract (Count XX), and two claims arising under the Pennsylvania Commercial Code (Counts XXVI & XXVII). Plaintiffs also bring six claims against First Montauk for negligence (Count I), breach of fiduciary duty (Count XIV), two claims arising under federal securities law (Counts XXI & XXII), and two claims arising under Pennsylvania securities law (Counts XXIII & XXV).

II Analysis

1. Standard for Motion to Dismiss

Rule 12(b) of the Federal Rules of Civil Procedure provides that "the following defenses may at the option of the pleader be made by motion: ... (6) failure to state a claim upon which relief can be granted." In deciding a motion to dismiss under Rule 12(b)(6), a court must take all well pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. See Jenkins v. McKeithen, 395 U.S. 411, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969). Because the Federal Rules of Civil Procedure require only notice pleading, the complaint need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R.Civ.P. 8(a). A motion to dismiss should be granted if "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). In considering a motion to dismiss, the proper inquiry is not whether a plaintiff will ultimately prevail, but rather whether a plaintiff is permitted to offer evidence to support its claims. See Children's Seashore House v. Waldman, 197 F.3d 654, 658 (3d Cir.1999), cert. denied, 530 U.S. 1275, 120 S.Ct. 2742, 147 L.Ed.2d 1006 (2000) (quoting Nami v. Fauver, 82 F.3d 63, 65 (3d Cir.1996)). The court may consider the allegations in the complaint, as well as any exhibits attached thereto. See Pension Benefit Guar. Corp. v. White Consol. Indus. Inc., 998 F.2d 1192, 1196 (3d Cir.1993), cert. denied, 510 U.S. 1042, 114 S.Ct. 687, 126 L.Ed.2d 655 (1994). The defendant bears the burden of showing that plaintiffs have failed to state a claim for which relief can be granted. See Gould Elec. Inc. v. United States, 220 F.3d 169, 178 (3d Cir.2000).

Although defendant First Montauk calls its filing a motion to dismiss or in the alternative, for summary judgment, I will address it only as a motion to dismiss. The language of First Montauk's brief is overwhelmingly that of a 12(b)(6) motion, and plaintiff has responded as if it were solely a motion to dismiss. See Vorhees v. Time Warner Cable Nat'l. Div., 109 F.Supp.2d 384, 386 (E.D.Pa.2000). Furthermore, neither party has provided this Court with evidence from which the court might determine the presence or absence of a genuine issue of material fact, as it must on a motion for summary judgment.⁶ See id.

2. United Banks' Motion to Dismiss

Plaintiffs bring six counts against United Bank arising out of the Bank's allegedly improper disbursements. United Bank moves to dismiss the action on the grounds that plaintiffs are creditors of Monument Financial and had no dealings with United Bank, the depository bank of Monument. From this argument, United Bank asserts that the Bank owed plaintiffs no fiduciary duty, no tort duty, no contract duty, and no duty giving rise to a constructive fraud claims or claims arising under Pennsylvania's Commercial Code because the Bank only owed a duty to Monument. Plaintiffs respond that a duty was created because the account was a "custodial account" rather than a "general account." In the alternative, plaintiffs assert that they are third party beneficiaries; a relationship was thus formed between plaintiffs and United Bank which gives rise to the claims brought. United Bank counters that the complaint fails to allege adequate facts to support those contentions.

Pennsylvania law recognizes two distinct bank accounts: custodial accounts, also known as special accounts, and general accounts. See United States v. Carlow, 323 F.Supp. 1310, 1315 (W.D.Pa.1971) (citing R.M. Bourne & Co. v. Peoples Union Bank and Trust Co., 404 Pa. 519, 172 A.2d 814 (1961); Franklin Savings & Trust Co. v. Clark, 283 Pa. 212, 129 A. 56 (1925)). Where a special account exists, the bank is generally serving as a bailee or a trustee. See Royal Bank of Pennsylvania. v. Selig, 434 Pa.Super. 537, 546, 644 A.2d 741, 745 (1994), appeal...