Simmons v. Lennon

• Decision Date: 06 June 2001
• Docket Number: No. 2905,2905
• Citation: 773 A.2d 1064,139 Md. App. 15
• Parties: Luiz R.S. SIMMONS v. Michael LENNON.
• Court: Court of Special Appeals of Maryland

773 A.2d 1064

139 Md. App. 15

Luiz R.S. SIMMONS v. Michael LENNON.

No. 2905, Sept. Term, 1999.

Court of Special Appeals of Maryland.

June 6, 2001.

Paul F. Riekhof (Joseph, Greenwald & Laake, P.A., on brief) Greenbelt, for appellant.

Benjamin Wolman and Lynae T. Turner, Marlboro, for appellee.

Argued before DAVIS, SALMON and JAMES R. EYLER, JJ.

SALMON, Judge.

Beginning sometime in 1995 and continuing into early 1998, a secretary and a bookkeeper conspired with one another to defraud their employer, Luiz R.S. Simmons, Esq., of funds he kept in his escrow accounts and in his general office accounts. As a consequence of their scheme, Simmons's signature was forged on numerous checks, and large sums of money were withdrawn from his accounts without his knowledge.

One of the checks forged by Simmons's secretary was in the amount of $13,000 and was made payable to Michael Lennon ("Lennon"), who sold a vehicle to the secretary and received the forged check in partial payment for the vehicle. According to Simmons, Lennon knew, or should have known, that the check was forged when he accepted it.

In this case, we are called upon to decide two issues: (1) whether, under either the Uniform Commercial Code or Maryland common law, the payee of a check bearing the forged signature of the drawer can be successfully sued by the drawer for conversion of the check and (2) whether the payee of a check, who knows or should have known that the check bears the drawer's forged signature, owes a duty, which will support a cause of action sounding in negligence, to warn the drawer that his signature has been forged. Like the trial judge below, we answer both questions in the negative.

I. FACTS¹

In 1993, Luiz Simmons hired Michelle Campbell as a receptionist at his Silver Spring, Maryland, law office. She later became Simmons's secretary. After Ms. Campbell was hired, she formed an acquaintanceship with Simmons's outside bookkeeper, Denise Evans, who kept track of funds in Simmons's office and escrow accounts. Neither Ms. Campbell nor Ms. Evans was authorized to sign checks drawn on any of Simmons's accounts— Simmons alone had check signing authority.

At all times here relevant, Ms. Campbell's responsibility included keeping Simmons's check register accurate and making deposits into his accounts. Ms. Campbell began in 1995 to forge Simmons's name to checks drawn on several of her employer's accounts. Because Ms. Evans was a participant in the scheme and because Simmons trusted his employees, Ms. Campbell's forgeries went undetected by Simmons for over two years.

Appellee, Michael Lennon, is a retired Prince George's County police officer. At one time Ms. Campbell was Lennon's live-in girlfriend. While residing with Lennon, Ms. Campbell forged Lennon's name to several credit card application forms resulting in her receipt of credit cards from four companies. The cards were issued in Lennon's name. Ms. Campbell proceeded to use the credit cards to fraudulently accumulate over $17,000 in credit card debt in Lennon's name. In March 1994, Lennon discovered that Ms. Campbell had forged his name to the credit card applications. He reported the matter to the credit card companies and to the police. In 1994, Ms. Campbell was convicted of fraud based on her forgery of Lennon's name on the credit card applications.

Ms. Campbell introduced Mr. Lennon to Simmons sometime in 1994. Thereafter, Lennon periodically worked as a private process server for Simmons. As a consequence of his work as a private process server, Lennon saw Simmons fairly frequently—and the two enjoyed a cordial relationship.

In October 1996, at a point when Lennon was still friendly with Ms. Campbell but was no longer romantically involved with her, Lennon agreed to sell Ms. Campbell his Chevrolet Blazer for $22,000. Ms. Campbell paid for the vehicle with a $9,000 check, which represented the proceeds of a bank loan, and a separate $13,000 check, payable to Lennon, drawn on an escrow account Simmons held at NationsBank. Simmons's signature on the $13,000 check was forged by Ms. Campbell. Lennon cashed the two checks and transferred title to the Blazer to Ms. Campbell in late October 1996.

In early February 1998, which was more than fifteen months after the sale of the Chevrolet Blazer, Simmons discovered that Ms. Campbell, with the aid of Ms. Evans, had been embezzling funds from his accounts for over two years. In the period after the $13,000 check was forged, scores of checks, totaling $109,362, were cashed by Ms. Campbell after she had forged Simmons's signature as the drawer of those checks.

II. COMPLAINT AND PROCEEDINGS

Simmons filed a complaint against Lennon in the Circuit Court for Prince George's County on June 8, 1998. He asked for a jury trial. One count in his complaint was for conversion and related solely to the $13,000 check. Another count was for negligence.²

On the morning of trial, Simmons, representing himself, made an opening statement, as did counsel for Lennon. Simmons then began his testimony, but shortly after his testimony commenced, Judge Stephen I. Platt told Simmons, out of the presence of the jury, that he had grave doubts as to whether he could prevail even if everything he had said in his testimony and in his opening statement were believed by the jury. Specifically, in regard to the negligence count, the trial court said he doubted that Lennon had breached any duty owed to Simmons. He invited Simmons to try to convince him otherwise.

Simmons argued that Lennon, on the date he received the $13,000 check, had a duty to notify him that Campbell had forged his name to the escrow account check. According to Simmons, if Lennon had not breached that duty, he would have fired Campbell immediately, and her forgeries would have stopped. And, if the forgery scheme had been terminated at that point, the loss of $109,362 would have been avoided. In addition, the $13,000 check would not have been paid by NationsBank. Simmons based his allegation that Lennon "knew or should have known" that the check he received was forged upon the following facts:

1. The words "escrow account" were printed on the NationsBank check that Lennon received;

2. Lennon, who obtained a Florida real estate license in 1985, knew or should have known that it was impermissible for an attorney to pay for an employee's motor vehicle out of an escrow account;³

3. Lennon, due to the fact that he served private process for Simmons, was familiar with Simmons's signature;

4. The signature on the $13,000 check did not look like Simmons's signature; and

5. Based on the fact that Campbell had been convicted of fraud due to her forgery of Lennon's name on forged credit card applications, Lennon knew that Campbell was a person likely to forge checks.

At the trial judge's invitation, and with Simmons's acquiescence, Lennon's counsel then moved for summary judgment as to both counts. The parties agreed that Judge Platt should decide the motion based on the assumption that all statements of facts in the complaint, together with all statements of facts set forth in either Simmons's opening statement or in his trial testimony, were truthful.

Judge Platt ruled that the facts relied upon by Simmons were insufficient to support a cause of action for conversion. He also ruled that Simmons could not recover against Lennon on the negligence count because Lennon owed Simmons no duty to warn him that Campbell had forged an escrow check.

III. ANALYSIS

A. The Conversion Count

Simmons argues:

Granting summary judgment on the conversion count was improper because the [d]efendant's acceptance for value of the stolen and forged checks [sic] and subsequent receipt of the underlying proceeds wrongfully deprived the [p]laintiff of the proceeds [in] his Attorney Escrow Account.

1. The Uniform Commercial Code (1996 Version)

Because the $13,000 check received by Lennon was a negotiable instrument, we must first look to the Uniform Commercial Code to determine whether Lennon's actions concerning the $13,000 check constituted a conversion of it. In October 1996, when Lennon cashed the check, the Maryland legislature had recently revised the Uniform Commercial Code in several significant respects, but the effective date of the revision was January 1, 1997. 1996 M. Laws, Chap. 91 § 2. As of October 1996, Simmons's rights and Lennon's liability were governed by the Uniform Commercial Code (U.C.C.) codified at section 3-101 et seq. of the Commercial Law article of the Maryland Code (1975, 1992 Repl.Vol.).⁴

Section 3-301 et seq. of the U.C.C. provides for loss allocation in cases of forged drawers' signatures. Bank of Glen Burnie v. Loyola Fed. Sav. Bank, 336 Md. 331, 336, 648 A.2d 453 (1994). NationsBank, the drawee, which held the monies in Simmons's escrow account, ordinarily would have had no right to deduct the amount of the check from the drawer's (Simmons's) account because the drawer's signature was forged. NationsBank nevertheless paid the $13,000 check. The payee's signature (Lennon's) was not forged. Under such circumstances, usually the drawee bank would be liable to the drawer and would be required to re-credit the drawer's account.⁵ Under the U.C.C., as it read prior to January 1, 1997, a drawer could not successfully sue a payee, such as Lennon, for the conversion of a check paid on the drawer's forged signature. See U.C.C. § 3-419(1), which read:

Conversion of instrument; innocent representative.

(1) An instrument is converted when

(a) A drawee to whom it is delivered for acceptance refuses to return it on demand; or

(b) Any person to whom it is delivered for payment refuses on demand either to pay or to return it; or

(c) It is paid on a forged indorsement.

As can be seen, section 3-419(1)(a) and (b) have no application to this case. Section 3-419(1)(c) is likewise inapplicable because the $13,000 check that Lennon cashed was not paid on a forged indorsement—it was paid on a...