LLC v. Webster Bank (2014)

MEMORANDUM OF DECISION RE MOTION TO STRIKE # 131

FACTS

The present case comes before the court by way of a substitute revised amended complaint filed by the plaintiff, Red Law Firm, LLC (Red Law Firm), against the defendants, Webster Bank and Kent Miller d/b/a Miller Law Firm, on July 16, 2013.¹  In its complaint, the plaintiff alleges the following facts.

On or about August 29, 2011, the defendant was presented with a check written in the amount of $15,000 and bearing the names of three joint payees, one of which was the plaintiff, a Connecticut law firm.   The check contained forged and unauthorized endorsements, and the individual presenting the check was an improper payee who was not entitled to enforce the check or receive payment.   Nevertheless, Webster Bank negotiated the check and wrongfully paid proceeds in the amount of $15,000 to this improper payee.   As a result, Red Law Firm sustained damages of $15,000.

In counts one and two, the plaintiff brings claims against Webster Bank of conversion of an instrument under General Statutes § 42a–3–420 ² and common-law negligence, respectively.   In count three, the plaintiff brings a claim of conversion against Kent Miller d/b/a Miller Law Firm.

The defendant moved to strike counts one and two of the plaintiff's substitute revised amended complaint on July 30, 2013, on the grounds that, as to count one, the defendant has failed to allege a necessary element for a claim of conversion of an instrument under § 42a–3–420, and, as to count two, the defendant owed no duty of care to the plaintiff.   A memorandum of law accompanied the defendant's motion to strike.   The plaintiff objected to the defendant's motion on August 23, 2013, and filed a memorandum of law in support of its objection.   The defendant filed a reply memorandum on October 28, 2013.   The matter was argued at the short calendar on November 4, 2013.

DISCUSSION

“The purpose of a motion to strike is to contest ․ the legal sufficiency of the allegations of any complaint ․ to state a claim upon which relief can be granted.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).  “A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court.”  (Internal quotation marks omitted.)   Simms v. Seaman, 308 Conn. 523, 529, 69 A.3d 880 (2012).   A motion to strike “admits all facts well pleaded;  it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings.”  (Internal quotation marks omitted.)  Faulkner v. United Technologies Corp., 240 Conn. 576, 588, 693 A.2d 293 (1997).

“It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted ․ The role of the trial court in ruling on a motion to strike is to examine the [complaint], construed in favor of the [plaintiff], to determine whether the [pleading party has] stated a legally sufficient cause of action.”  (Citation omitted;  internal quotation marks omitted.)  Coe v. Board of Education, 301 Conn. 112, 116–17, 19 A.3d 640 (2011).  “Moreover [the court notes] that [w]hat is necessarily implied [in an allegation] need not be expressly alleged.”   (Internal quotation marks omitted.)   Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252, 990 A.2d 206 (2010).   “[P]leadings are to be construed broadly and realistically, rather than narrowly and technically ․” (Internal quotation marks omitted.)  Downs v. Trias, 306 Conn. 81, 92, 49 A.3d 180 (2012).

I

The defendant first argues that count one of the plaintiff's complaint, which alleges conversion of an instrument under § 42a–3–420, is legally insufficient because the plaintiff has failed to allege a necessary element under the statute, specifically, that the plaintiff received delivery of the check at issue.   The plaintiff argues in response that by failing to challenge count one on this ground in its previous motion to strike, the defendant has waived the right to challenge it now.

“[A]lthough the appellate courts have not ruled on the issue, in numerous cases, the judges of the Superior Court have concluded that the rules of practice preclude a party from filing successive motions to strike when the grounds raised in a later motion could have been raised in the initial motion ․ [A] second motion to strike may be appropriate in limited circumstances.   For example, when a plaintiff, pursuant to Practice Book § 10–44, files a subsequent pleading alleging new facts ․ Additional motions to strike, however, are not allowed when the grounds asserted therein could have been raised in an earlier motion.”  (Internal quotation marks omitted.)   Kaithamattam v. Walnut Hill, Inc., Superior Court, judicial district of Hartford, Docket No. CV–11–6022262–S (September 11, 2013, Peck, J.) (56 Conn. L. Rptr. 821, 822).  “[Because] [t]he Practice Book provides for pleading multiple grounds in a single motion to strike and, further, provides that pleadings are to advance after the adjudication of each enumerated pleading, a defendant may not impede the progress of the suit by dividing his grounds and pleading them in consecutive motions to strike.”  (Internal quotation marks omitted.)   Grazioli v. Nichols, Superior Court, judicial district of New Haven, Docket No. CV–06–5001604 (October 2, 2007, Lopez, J.) (44 Conn. L. Rptr. 273, 275).

The defendant's motion to strike fails as to count one because it relies on grounds that the defendant could have raised in its previous motion to strike of January 22, 2013.   In that motion, the defendant moved to strike counts two, three, and four of the plaintiff's second revised amended complaint of December 17, 2012, but did not move to strike count one.   Because count one appears in the operative complaint in essentially the same form as it appeared in the complaint to which the defendant directed its earlier motion to strike, the defendant's failure to challenge it with its earlier motion precludes it from challenging it now.   Accordingly, the motion to strike is denied insofar as it is directed to count one of the plaintiff's substitute revised amended complaint.

II

The defendant next argues that count two of the plaintiff's substitute revised amended complaint is legally insufficient because the facts alleged therein do not give rise to a duty to the plaintiff.   Specifically, the defendant argues that because the check in question was neither drawn on the plaintiff's account nor deposited to it, any duty imposed on the defendant would be limitless and, thus, violate public policy.   The plaintiff responds that Connecticut courts have held that banks generally owe a duty of care to their customers, and that the plaintiff, having alleged that it was a customer of the defendant, was thus owed such a duty.

“The essential elements of a cause of action sounding in negligence are duty, breach of that duty, causation, and actual injury ․ A duty of care is a prerequisite to a finding of negligence ․ The existence of a duty is a question of law and only if such a duty is found to exist does the trier of fact then determine whether the defendant [breached] that duty in the particular situation at hand ․ If a court determines, as a matter of law, that a defendant owes no duty to a plaintiff, the plaintiff cannot recover in negligence from the defendant ․

“Duty is a legal conclusion about relationships between individuals, made after the fact ․ [T]he test for the existence of a legal duty of care entails (1) a determination of whether an ordinary person in the defendant's position, knowing what the defendant knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result, and (2) a determination, on the basis of a public policy analysis, of whether the defendant's responsibility for its negligent conduct should extend to the particular consequences or particular plaintiff in the case ․ A duty to use care may arise from a contract, from a statute, or from circumstances under which a reasonable person, knowing what he knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result from his act or failure to act.”  (Citations omitted;  internal quotation marks omitted.)  Roe # 1 v. Boy Scouts of America Corp., 147 Conn.App. 622, 641–42, (2014).

Although our appellate courts have not yet ruled on this issue, judges of the Superior Court “have ․ recognized that banks generally owe a duty of care to their customers, regardless of whether a plaintiff asserts common law or statutory claims against a bank.”   Lester Construction, LLC v. People's United Bank, Superior Court, judicial district of Fairfield, Docket No. CV–09–5024042–S (December 18, 2009, Gilardi, J.T.R.) (49 Conn. L. Rptr. 110, 111).  “A bank's basic duty of care—to act with reasonable care in its transactions with its customers—arises out of the bank's contract with its customer.”  (Emphasis in original.)  Id., 112 quoting Rodriguez v. Bank of the West, 162 Cal.App.4th 454, 460, 75 Cal.Rptr.3d 543 (2008).

As noted by the court in Lester Construction, a bank's duty of care applies to its transactions with its customers and arises out of its contractual relationships therewith.   The plaintiff, however, has not alleged that any of its agents presented the check at issue for payment, nor has it alleged that any funds were deposited to or drawn from its account.   Consequently, it is difficult to identify a transaction between the plaintiff and the defendant under which a duty of care would arise.

Moreover, in contrast to Lester Construction, in which the plaintiff had “allege[d] that the defendant bank was negligent in that it failed to follow policies and procedures it had in place to verify that accounts were properly authorized before opening them”;  Lester Construction, LLC v. People's United Bank, supra, 49 Conn. L. Rptr. 112;  the plaintiff in the present case has pleaded no facts from which the court can fairly conclude that the defendant's contractual duties to its customers included ascertaining the identities of third parties presenting checks for payment.   In the absence of such facts, the plaintiff's allegation that it was a customer of the defendant is, by itself, insufficient to establish the existence of a duty of care.

Nevertheless, the plaintiff's failure to plead facts sufficient to establish the existence of a contractual duty does not end the court's inquiry.   As previously discussed, a duty of care may also arise from “circumstances under which a reasonable person, knowing what he knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result from his act or failure to act.”  (Internal quotation marks omitted.)   Roe # 1 v. Boy Scouts of America Corp., supra, 147 Conn.App. 642.   If such circumstances are present, the court then determines, “on the basis of a public policy analysis ․ whether the defendant's responsibility for its negligent conduct should extend to the particular consequences or particular plaintiff in the case.”  (Internal quotation marks omitted.)  Id., 641.

With respect to the first of these questions, the harm alleged by the plaintiff was foreseeable.   Reasonable bank agents should anticipate that they may improperly disburse funds to unauthorized individuals if they fail to take basic steps to identify persons presenting negotiable instruments for payment.   These improper disbursements may then, in turn, ultimately deprive the intended “true” payees of those funds.   Consequently, the plaintiff's allegations satisfy the court's threshold inquiry,³ and the court must now consider whether imposing a duty on the bank would be consistent with public policy.

Our Supreme Court has set forth four factors that a court must consider in determining whether public policy supports the imposition of a duty of care:  (1) the normal expectations of the participants in the activity under review;  (2) the public policy of encouraging participation in the activity, while weighing the safety of the participants;  (3) the avoidance of increased litigation;  and (4) the decisions of other jurisdictions.  Monk v. Temple George Associates, LLC, 273 Conn. 108, 118, 869 A.2d 179 (2005).   Each of these factors will be discussed in turn.

As to the first factor, it is reasonable for the parties to expect that banks will take at least some basic steps to ensure that negotiable instruments, such as checks, are endorsed and presented for payment only by parties authorized to enforce them.   Large sums of money can be transferred via check—in this case, $15,000—and it is therefore unlikely that a bank would make payment without first making some attempt to ensure that the individual receiving the funds is, in fact, the payee listed on the instrument.   Consequently, the first factor weighs in favor of imposing a duty of care on the defendant.

With respect to the second factor, encouraging banks to take basic steps to ensure that negotiable instruments are presented for payment by authorized persons would have the positive effect of deterring and preventing fraud.   Moreover, it is difficult to discern how this simple requirement will substantially burden the relationships between banks and their customers.   Accordingly, the second factor weighs in favor of imposing a duty of care on the defendant.

As to the third factor—the avoidance of increased litigation—the defendant argues that because the check at issue was neither drawn on nor deposited to the plaintiff's account, any duty imposed on the defendant would be limitless and, thus, violate public policy.   This contention is unpersuasive.   The duty at issue is narrow and not particularly burdensome.   It merely requires a bank to take some steps to assure that an instrument is endorsed and that the individual presenting it for payment is the named payee.   In most circumstances, this will require little more than viewing the endorsements on the instrument and asking the presenting individual to show some form of credible identification.   Compliance with such a simple obligation is unlikely to be onerous and, thus, the risk of increased litigation is minimal.

Regarding the final factor, the decisions of other jurisdictions are not particularly instructive.   Although some courts have held that their jurisdiction's common law once imposed a duty of care on banks to make payment on a check only to the intended payee, these courts have likewise noted that their common-law rules have largely been superseded by the Uniform Commercial Code. See, e.g., Gil v. Bank of America, National Ass'n, 138 Cal.App.4th 1371, 1378, 42 Cal.Rptr.3d 310 (2006) (“[p]rior to the enactment of the [Uniform Commercial] Code, the true owner of an instrument collected on a forged indorsement could recover in a direct suit against a collecting bank even though the bank had acted in good faith and with the highest degree of care” [citations omitted;  internal quotation marks omitted] );  Knesz v. Central Jersey Bank & Trust Co. of Freehold, 97 N.J. 1, 14, 477 A.2d 806 (1984) (“Prior to the adoption of the UCC, New Jersey followed the prevailing common-law rule ․ The common-law rule of liability was imposed strictly, even when the depositary bank was unaware of the unauthorized indorsement and not in privity with the rightful payee;  a bank paying on such a check did so at its peril and became liable to the payee ․ for the proceeds.”  [Citations omitted;  internal quotation marks omitted.] ).   In contrast, our case law consists of a “substantial body of Connecticut Superior Court authority that permits a plaintiff to bring both a common-law claim for negligence and a separate claim under the UCC.” Counihan v. Webster Bank, N.A., Superior Court, judicial district of Litchfield, Docket No. CV–11–6004554–S (March 20, 2013, Danaher, J.) [55 Conn. L. Rptr. 658].   Thus, to the extent that other jurisdictions have addressed this issue, their decisions are distinguishable and neither weigh in favor of nor against imposing a duty of care on a bank.

On balance, the four public policy factors discussed above support imposing a duty on a bank to take reasonable steps to determine that an instrument presented for payment is endorsed and that the individual presenting it is the named payee.   The plaintiff has pleaded facts sufficient to support a breach of this duty and, therefore, has satisfied the court's two-prong duty inquiry set forth previously.   Consequently, the defendant's motion to strike count two of the plaintiff's complaint is denied.

CONCLUSION

For the foregoing reasons, the defendant's motion to strike counts one and two of the plaintiff's complaint is denied.

Brian T. Fischer, Judge

FOOTNOTES

FN1. The plaintiff initially named Webster Bank, American Security Insurance Company, EMC Mortgage Corporation, Frederick Acker, and Kent Miller d/b/a Miller Law Firm as defendants.   On August 10, 2012, December 17, 2012, and June 26, 2013, the plaintiff withdrew all claims against Acker, American Security Insurance Company, and EMC Mortgage Company, respectively.   The only party to the motion pending before the court is Webster Bank, which shall hereafter be referred to as the defendant..  FN1. The plaintiff initially named Webster Bank, American Security Insurance Company, EMC Mortgage Corporation, Frederick Acker, and Kent Miller d/b/a Miller Law Firm as defendants.   On August 10, 2012, December 17, 2012, and June 26, 2013, the plaintiff withdrew all claims against Acker, American Security Insurance Company, and EMC Mortgage Company, respectively.   The only party to the motion pending before the court is Webster Bank, which shall hereafter be referred to as the defendant.

FN2. General Statutes § 42a–3–420 provides in relevant part:  “(a) The law applicable to conversion of personal property applies to instruments.   An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.   An action for conversion of an instrument may not be brought by (i) the issuer or acceptor of the instrument or (ii) a payee or endorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a copayee.”.  FN2. General Statutes § 42a–3–420 provides in relevant part:  “(a) The law applicable to conversion of personal property applies to instruments.   An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.   An action for conversion of an instrument may not be brought by (i) the issuer or acceptor of the instrument or (ii) a payee or endorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a copayee.”

FN3. See Sic v. Nunan, 307 Conn. 399, 407, 54 A.3d 553 (2012) ( “Although it has been said that no universal test for [duty] ever has been formulated ․ our threshold inquiry has always been whether the specific harm alleged by the plaintiff was foreseeable to the defendant.   The ultimate test of the existence of the duty to use care is found in the foreseeability that harm may result if it is not exercised.”  [Internal quotation marks omitted.] ).  FN3. See Sic v. Nunan, 307 Conn. 399, 407, 54 A.3d 553 (2012) ( “Although it has been said that no universal test for [duty] ever has been formulated ․ our threshold inquiry has always been whether the specific harm alleged by the plaintiff was foreseeable to the defendant.   The ultimate test of the existence of the duty to use care is found in the foreseeability that harm may result if it is not exercised.”  [Internal quotation marks omitted.] )

Fischer, Brian T., J.