ALLENTOWN – A federal judge has dismissed litigation brought by a legal group and two law firms against TD Bank, which claimed that the bank was negligent and should have detected that the plaintiff’s employee had embezzled funds and deposited those funds at the bank.
H.G. Litigation Group, LLC of Philadelphia, Kane & Silverman, P.C. of Philadelphia and Marlton, N.J. and Haggerty & Silverman, P.C. of Lancaster filed suit in the Philadelphia County Court of Common Pleas on Jan. 4 versus TD Bank, N.A and TD Group US Holdings, LLC of Cherry Hill, N.J., plus TD Bank US Holding Company, of Portland, Maine.
The case was removed to the U.S. District Court for the Eastern District of Pennsylvania on Jan. 24, into the Court of Judge John M. Gallagher.
“From 2018 to 2020, plaintiffs employed a person named Molly Moore. During her employment, Moore embezzled money from plaintiffs. Moore accomplished her embezzlement by making entries into plaintiffs’ accounting system, stating that certain payments were being made to plaintiffs’ vendors. Moore would then issue physical checks that were payable to ‘Bounds Contracting/M.L. Bounds.’ As it turns out, Bounds Contracting was the name of Moore’s husband’s unlicensed contracting business. Moore and her husband would take these checks, endorse them and remotely deposit them in Moore’s personal bank account at defendants’ bank. Through this scheme, Moore allegedly embezzled $130,725.39 from plaintiffs between Feb. 15, 2018, and March 19, 2020,” Gallagher said.
“Plaintiffs have brought this suit against defendants, claiming that defendants acted negligently in allowing Moore to deposit these checks and should, therefore, be liable for the losses plaintiffs have suffered. Specifically, plaintiffs allege two claims against defendants – the first under the Pennsylvania Commercial Code’s ‘fictitious payee’ provision, and the second under the common law of negligence. Defendants have moved to dismiss both claims under Federal Rule of Civil Procedure 12(b)(6) on the basis that plaintiffs have failed to state a claim upon which relief can be granted.”
Gallagher explained that the Court concurred that the plaintiffs failed to plead facts that could plausibly breach the standard of care imposed by the ‘fictitious payee’ provision and that the Pennsylvania Commercial Code displaces such a common law negligence claim as was brought in this case.
“Plaintiffs have not plead any facts to support an inference that defendants’ had a procedure for reviewing remote deposits or that defendants’ procedures or lack thereof were inconsistent with industry custom and practice. The closest plaintiffs come to alleging such a fact is in their allegation that defendants failed to ‘have systems in place to confirm the authenticity of the remote deposit.’ But even if the Court construes this allegation to mean that defendants did not maintain a procedure for reviewing remote deposits, this allegation still does not suggest that defendants’ lack of procedure was inconsistent with industry custom and practice,” the suit states.
“The existence of an internal procedure or an industry custom and practice that is inconsistent with the defendant bank’s conduct is a necessary fact in a claim under the Pennsylvania Commercial Code because such a fact defines the standard of care the defendant bank owed. Because plaintiffs have not pled such a fact, plaintiffs have failed to state a claim under the fictitious payee provision.”
Gallagher continued that the Pennsylvania Commercial Code displaces common law claims when two circumstances are satisfied: (1) The Code supplies a comprehensive remedy to the claim, and (2) Reliance on the common law rather than the Code would thwart the Code’s purposes.
“The Pennsylvania Commercial Code expressly provides a remedy for plaintiffs who are harmed by a bank’s negligence in transactions involving fraudulent checks. The Code’s remedial scheme is comprehensive because the Code addresses each possible form of check fraud and tailors a different remedy to each situation. Allowing the common law to disturb this intricate and delicately crafted remedial scheme would thwart the Code’s purpose of placing the risk of loss in these transactions on the party best situated to prevent the loss. Accordingly, plaintiffs’ common law negligence claim is displaced. Plaintiffs cannot plausibly state a claim for relief under that cause of action,” Gallagher stated.
U.S. District Court for the Eastern District of Pennsylvania case 5:22-cv-00305
Philadelphia County Court of Common Pleas case 210300345
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com