AUTO SISION, INC. et al v. WELLS FARGO et al, No. 2:2018cv05391 - Document 12 (E.D. Pa. 2019)

Court Description: OPINION. SIGNED BY HONORABLE CHAD F. KENNEY ON 4/25/2019. 4/25/2019 ENTERED AND COPIES E-MAILED.(amas)
Download PDF
AUTO SISION, INC. et al v. WELLS FARGO et al Doc. 12 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA AUTO SISION, INC. et al. CIVIL ACTION NO. 18-5391 v. WELLS FARGO d/b/a WELLS FARGO BANK, N.A. and WELLS FARGO d/b/a WELLS FARGO & COMPANY F;l~D APR 25 2019 KATE BARKMAN, Clerk OPINION I. Oep. Clerk By INTRODUCTION Plaintiffs Auto Sision, Inc. d/b/a Collision Star ("ASI") and George Hudson (together "Plaintiffs") filed this action against Wells Fargo d/b/a Wells Fargo Bank, N.A. ("Wells Fargo") and Wells Fargo d/b/a Wells Fargo & Company (together "Defendants") for violations of 13 Pa C.S.A. § 3420 (Conversion of an Instrument) and 13 Pa. C.S.A. § 3406 (Failure to Use Ordinary Care), or, alternatively, negligence. ECF No. 1. Defendant Wells Fargo moves to dismiss all claims against Wells Fargo & Company because it claims there is no basis for liability of the parent company under these facts; Counts I and II for failure to state a claim; Count III because common law negligence claims are preempted by the Pennsylvania Uniform Commercial Code; and all allegations prior to October 23, 2015 because Defendant argues they are barred by the statute of limitations set forth in 13 Pa. C.S.A. 3118(g). ECF No. 2. Plaintiffs admit in their response that Dockets.Justia.com all claims against Wells Fargo & Company and Count III common iaw negligence against both Defendants must be dismissed. ECF No. 3. Therefore, there remains only Count I, § 3420 Conversion of an Instrument, and Count II, § 3406 Failure to Use Ordinary Care against Wells Fargo. Plaintiffs further admit that the statute of limitations pursuant to 13 Pa. C.S.A. 3 l l 8(g) bars any instruments fraudulently indorsed and cleared by Wells Fargo prior to October 23, 2015. ECF No. 3. Thus, the Court considers Counts I and II only with respect to the allegations of fraudulent indorsement after October 23, 2015. This Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. II. BACKGROUND This matter concerns non-party Barbara Szeliga's alleged misappropriation of Plaintiffs' funds. Plaintiff ASI is a corporation that engages in the business of automotive body repair. ECF No. 1 at ,: 1. Plaintiff George Hudson is the owneroperator of ASL Id. at, 2. Plaintiffs allege that non-party Albert Buccini founded an automotive body repair business, which he owned and operated until 1997 at which time he pled guilty to t".vo counts of federal income tax evasion. Id. at~~ 57. During and after Buccini's time as owner of this cusiness, non-party Barbara Szeliga was allegedly employed as the business's bo0kkeeper. Id. at 19. When this business filed for bankruptcy, Plaintiff George Hudson pw·chased certain assets of the business out of the bankruptcy proceedings and entered into a five (5) 2 year commercial lease ofBuccini's premises for ASI"s operation. Id. at~ 23. Plaintiffs allege that ASI employed Barbara Szeliga as ASl's bookkeeper allegedly based on Buccini's urgin$. Id. at f 25. Plaintiffs allege that Buccini convinced ,. Plaintiffs to hire Szeliga as bookkeeper as part of a scheme to misappropriate Plaintiffs' funds. Id. at, :26. "At all times material hereto, ... Szeliga was solely responsible for the handltng of and accounting for ... ASI's payments from automobile insurers." Id. at~ 30. Plaintiffs allege that shortly after her hiring, Szeliga "began stealing and/or misappropriating ... ASI's assets" with Buccini's knowledge and aid, including stealing ASl's accounts receivable checks from insurers payable to ASL Id. at~ 31. Szeliga then indorsed the stolen checks in ASI 's name and deposited these checks into a Wells Fargo bank account for a company named United Check Cashing ("United"), a check cashing franchise, which was co-owned by Buccini, Buccini's son, and Szeliga. 1 Id. at~ 19, 32-34. In "mid to late'' 2014, United went out of busbess, but Szeliga and Buccini did not dissolve AAB nor close United's bank accounts with 'Nells Fargo. Id.~~ 38-39. After United went out,, of business, the "only moneys deposited into AAB and/or United's unlawful bank accounts were ... ASI's misappropriated assets." " 1 More specifically, Buccini purchased United in 2005 and created a cc,mpany named AAB, LLC for the purpose of owning United. ECF No. 19. The Complc:.int alleges that Buccini "placed individual ownership of AAB in" l3uccini's son, Anthony, and Szeliga a.nd that AAB st.ands for "the owners' first names - Albert, Anthony, and Barbara." Id. 1 3 Id. at~ 41. The Complaint aUeges that''[ u]pon infor:nation and belief, ' Defendant[] Wells Fargo knew that United has [sic] dosed its operations." Id. at, 43. Plaintiffs allege that in mid-2016, Plaintiff George Hudson began to suspect that Szeliga was stealing ASns assets. Id. at~ 44. Plaintiffs allege that they placed a surveillance camera in ASl's offices and saw Szeliga placing· a check in her blouse. Id. at 45. Plaintiffs terminated Szeliga in July 2015 and reported her and Buccini's actions to the Philadelphia Police Department. Id. at, 46. Plaintiffs allege that Wells Fargo violated 13 Pa C.S.A. § 3420 "by obtaining payment with respect to the aforementioned instruments to a person not entitled to enforce the instrument or receive payment, i.e. Non-Parties, Buccini, Szeliga, I ' ' and/or United." Id. at, 50. Plaintiffs further allege that Wells Fargo violated 13 Pa. C.S.A. § 3406 by failing to use ordinary care wh1:.n it stopped requiring the United account to obtain third-party audits. Id. at 157. Plaintiffs allege that, "[ u]pon information and belief," Wells Fargo "requires all cash checking entities that maintain accounts with it to obtain annual third-party audits to ensure that" ' ' Wells Fargo "is not accepting forged and/or fraudu}t;;:it instruments." Id. at~ 53. Plaintiffs ciaim that "[u]pon information and belief," Wells Fargo required United to obtain these annual third-party audits until "in or [',round 2015." Id. at~ 54. Plaintiff-; allege that Uµited stopped operating its business and relinquished its license to operate to the Comm?nwealth of Pennsylvania in late 2014 but United 4 i;•'" " .. ,-<;_l,I, , .. co1:t1nued to maintain its accounts with Wells Fargo '.ind regularly cashed instruments with significant value. ld. at{ 55.t Plaint.iffs allege that Wells Fargo 0 failed to use ordinary care in allowing United to continue maintaining its accounts despite having stopped operating its business and in deciding to stop requiring United.to obtain annuallhird-party audits in 2015. Id. at~ 57. Plaintiffs allege that • l if Wells Fargo had continued to require third-party a11dits after 2015, it would have revealed the "illegal scheme." Id. at~ 58. Plaintiffs <tllege that Wells Fargo's failure to use ordinary care negatively impacted Plair~tiffs because this "illegal scheme continued until Plaintiffs disccvered the scheme in mid-2016." Id. at 159. III. STAND ARD When reviewing a motion to dismiss, the Court "accept[ s] as true all allegations in plaintiffs complaint as well as all reasonable inferences that can be drawn from them, and {the court] construes them in?, light most favorable to the non-movant.'' Tatis v. Allied Interstate, LLC, 882 F3d 422,426 (3d Cir. 2018) (quoting Sheridan v. NGK Metals Corp., 609 F.3d 239, 262 n.27 (3d Cir. 2010)). "To survive a mction te dismiss, a complaint must cc,ntain st:fficient factual matter, accepted astrue, to 'state a claim to reliefth~,ris plausH:le on its face."' A~hcroft v. zqbal, _556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544,570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)). "A claim has facial plausibili,t.y when the plaintiff pleads 5 ... factual content that allows the court to draw the reas,:nable inference that the , t •' it ....., - defendant is liable for the qiisconduct alleged." Id. ( 1uoting Twombly, 550 U.S. at 557, 127 S. Ct. 1955)). "Tbe plausibility determination is 'a context-specific task that requires the reviewing court to draw on its judicial experience and common t,, I· • . sense."' Connelly v. Lane Const. Corp., 809 F.3d 78p, 786-87 (3d Cir. 2016) (quoting Iqbal, 556 U.S. at 679, 129 S. Ct. 1937). Finally, courts reviewing the sufficiency of a complaint must engage in a three-step process. First, the court "must 'take note of the elements [the] plaintiff must plead to state a claim.'" Id. at 787 (alterations ;_n original) (quoting Iqbal, 556 U.S. at 675, 129 S. Ct. 1937). "Second, [the com1] should identify allegations that, 'because they are no more ~an conclusions, are not entitled to the assumption of truth.''' Id. (quoting Iqbal, 556 U.S. at 679, 129 ~,. Ct. 1937). Third, "'[w]hen there are well-pleaded factual allegations, [the] court should assur.ie their veracity and then determine whether they plausibly give rise ~D an entitlement to relief."' Id. (alterations in original) (quoting Iqbal, 556 U.S. ~t 679, 129 S. Ct. 1937). !. IV. DISCUSSION Defendant argues that Counts I and II must be dismissed for failure to state a . claim because 13 Pa. C.S.A. § 3405 "places the risk of embezzlement on the employer because it is in the beiI position to prevent such losses" and thus Wells ·, 6 Fargo cannot be liable for Plaintiffs' employee's conduct under either§ 3420 or§ ~t ~:i19 . ,,-'~ 3406. ECF No. 2-1 at 12. Title 13 Pa. C.S.A. § 340: states: (b) Rights and liabilities. For the purpose of determining the rights and liabilities of a person who, in good faith, pays an instrument or takes it for value or for collection, if an employer entrusted an employee with responsibility with respect to the inst1ument and the employee or a person acting in concert with the employee makes a fraudulent indorsement of the instrument, the indors·ement is effective as the indorsement of the person to whom the instrument is payable if it is made in the name of that person. If the person paying the instrument or taking H for value or for collection fails to exercise ordinary care in paying or ttiking the instrument and that failure substantially contributes to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failPre to exercise ordinary care contributed. to the loss. 13 Pa. C.S.A. § 3405(b) ( emphasis added) , Defendant claims that because the Complaint .:,.lleges that Plaintiffs entrusted Szeliga with the responsibility for the handling of and accounting for instruments t received by Plaintiffs for bookkeeping purposes and then fraudulently indorsed the instruments, as required by § 3405, then such an indorsement was effective as if made in the name of Plaintiffs. ECF No. 2-1 at 12.1 befendant cites the Third Circuit Court of Appeals in Menichini v. Grant to emphasize that the Pennsylvania Uniform Commercial Code "recognizes principals' b'oility to··minimize agency ,I- .~ costs and resolves the agency problem by assigning check fraud losses to the payee-employer." 99~ F .2d 1224, 1230 (3d Cir. 1993 ); ECF No. 2-1 at 13. The .t ...... " Third Circuit further held that § 3405 "genera11y denies an employer the ability to 7 externalize the costs of employee embezzlement, ':vi~~ually creat[ing] a bright line making fraudulent indorsements ef~ctive\igg'inst the; employer when employees who have 'responsibility with respect to instruments~ forged indorsements."' Menichin.i, 995 F.2d at 1232; ECF No. 2-1 at 14. Thus, Defendants argue that the Complaint is clear that Szeliga's indorsements of Pi?.intiffs' checks were effective as if made by Plaintiffs, and thus \Vells Fargo cannot .be liable under § 3420 and § 3406. ECF No. 2-1 at 14. In their response, Plaintiffs argued that Szeliga was. not provided with the ' . I I responsibility required by§ 3405 to exempt the ba:nk from liability. ECF No. 3. I . At oral ~rgument. however, P!ah1tiffs admitted that Szeliga, as bookkeeper, was a responsible party as defined in 3405(b) but claimed that § 3405(b) did not act as a total bar to liability for Defendant. Transcript of1March 7, 2019 Oral Argument, ' ' 6:21-24, 6:24-7: 1. Plaintiffs argued that, even if ~zeliga's indorsement was f '' ' effective as Plaintiffs' indorsement, the last sentence of§ 3405(b) required Wells Fargo to exercise ordinary care in taking that instrurr ~nt: If the person paying the instrument or taking h for value or for coHection faHs to exercis~ ordinary care in paying or iaking the instrument and that failure subs.tantially contrihutes to loss re~·,1lting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss. 13. Pa. C.S.A. § 3405(b) (emphasis added) 8 '' ., • Therefore, Plaintiffs argue that even if Szelig~ was a responsible party with ] , f~~ct.,. 4' ""t, ' l"" respect t0 the instrument and s~e made a fraudulent indorsement of that instrument, ' Wells Fargo did not f'exercise ordinary care in ... taking the instrument and that failure sul;,st~ptially contribute[d] to loss resulting frqm the fraud." Id. Pl~intiffs . . f. primarily argue that, in failing to require United to cqnduct third party audits and ·- allowing United's, accounts to continue operating after United went out of business, Wells Fargo failed to "exercise ordinary care" as required by § 3405. Ordinary care is defined in 13 Pa. C.S.A. 3103 as follows: In the case of a person engaged in business, [ordinary care] means obsei'Vance of reasonable commercial standar<is, prevailing in the area in which the person is located, with respect to the business in which_ the person is engaged. In the case of a bank that takes an instrument for processing for collection or payment by automated means, r~asonabie commercial st~ndards do not require the bank to examine the instrument if the failure to examine does not violate the bank's presc.ribed pr!lcedures and the bank's procedures do not vary unreasonabt:y from general banking usage not disapproved by this division or Div!sion 4 (relating to bank deposits and collections). 13 Pa. C.S.A. 3103(a) (emphasis added) Although§ 3405 does require V/ells Fargo to exercise ordinary care in taking instruments, the facts as alleged in the Compl~int do not support a finding against Wells Fargo here. Plaintiffs' argument that ·Ivells Fargo failed to exercise ordinary care centers around Wells Fargo's purporte~ third-party audit requirement ... I '• 9 •• t for check cashing businesses and the fact that it allowed United to continue to maintain operating accounts after Uniteq wen!J>Ut of business. ECF No. 3 at 10-11. However, Plaintiffs' argument challenges the lrdinary care of Wells Fargo's auditing policies rather than its policies related to taking the instrument and that is the focus of§ 3405 and the bright line rule established in Menichini v. Grant, 995 F.2d 1224 (30 Cir. 1993). Plaintiffs plead no fa~ts showing any reasonable '\ commercial standards that Wells Fargo violated, nor{any policy that Wells Fargo I ' contravened in taking the checks and examining them. The prccedures regarding auditing check cashing businesses or accounts of no:- -operating businesses established by WeHs Fargo are not the procedures cc;ntrolling "cxamin[ing] the J, instrument" and are irrelevant to the procedures for ti1e ordinary care of "paying," ,, ~.. , "taking," and "examin[ing]" the instrument at the time of presentation. The instrument presented was, in fact, presented by a responsible party and deposited -I ' by a responsible party. Plaintiffs' responsibility for Szeliga's actions are therefore I established under 13 Pa. C.S.A. § 3405 and the Third Circuit's bright line rule stated in l'vfenichini. Plaintiffs would have us c~oss this bright line and expand the ' . concept of "ordinary C<1re" in § 3405, defined at § 3103( a), to include an analysis of Wells Fargo's general banking procedures, beyori/! those procedures relating to I the "person" taking or examining the instrument, an,; the law does not allow for the crossing of this line. Indeed, the statute was established to address this very 10 ' • circumstance, so as to "den[y] an employei· the ability to externalize the costs of ' employee embezzlement," since the ."payee-employer is normally in a better position to prevent fraudulent indorsements by its ovm employees-through ' reasonable ~at'e in the selectioh or supervision 9f employees--than a collecting l bank." Menichini, 995 F.2d at 1233. \Vithout shoiing that Wells Fargo failed to . ( .. exercise ordinary care in taking or paying the instn1rµent, Plaintiffs cannot impose ' I its losses based on Szeliga's fraud to \.Yells Fargo. J The Complaint, therefore, does not allege suficient factual matter to state a claim for relief that is plausible on its face. Thereforf, Defendant's Motion to j Dismiss is granted. V. I CONCLUSION l I For the reasons stated above, Defendant Welli Fargo's Motion to Dismiss is hereby granted. The Complain is dismissed without prejudice. , ! t CHAD F. 11 BY THE COURT: