643 F.Supp.3d 421
S.D.N.Y.2022Background
- Plaintiffs Curry Management Corp. and Curry Corporation allege Employee Benefit Solutions LLC (EBS), their plan third‑party administrator (TPA), endorsed and deposited 23 stop‑loss reimbursement checks payable to Curry Corporation into EBS’s JPMorgan Chase account between Sept. 2018 and Mar. 2019, misappropriating $1,069,400.12.
- The written TPA agreement authorized EBS to manage Plan checking accounts and "forward" checks but did not expressly authorize EBS to endorse, negotiate, or deposit checks payable to Plaintiffs.
- Plaintiffs sued JPMorgan Chase alleging violation of N.Y. UCC § 3‑419(1)(c) (conversion for payment on a forged endorsement) and common‑law claims (money had and received, unjust enrichment, negligence, conversion). Complaint filed May 13, 2022; removed to federal court.
- Chase moved to dismiss: arguing Curry Management lacks standing, Curry Corporation never had (actual or constructive) possession of the checks, the bank did not benefit from the deposits, some claims are time‑barred, and the common‑law counts improperly attempt to circumvent the UCC.
- Court dismissed Management’s claims for lack of standing (it was not the payee). The court denied dismissal of Curry Corporation’s UCC § 3‑419 claim as plausibly pleaded on an agency/constructive possession theory for checks deposited after Sept. 27, 2018, but dismissed all common‑law claims and held UCC claims for checks deposited before Sept. 27, 2018 time‑barred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing of Curry Management | Management is an injured party because its business interests were harmed by the misappropriation | Management was not the payee on the checks and never had an interest in them | Dismissed: Management lacks standing (not payee/no property interest) |
| Corporation's § 3‑419 UCC claim (constructive possession/agency) | EBS was Curry’s TPA and routinely received checks on Curry’s behalf; that establishes constructive possession/agency, so Chase’s payment over forged/unauthorized indorsement can be § 3‑419 conversion | Corporation never had actual or constructive possession; EBS acted outside any agency when it deposited the checks | Denied as to surviving UCC claim: plausible that EBS acted as agent/constructive possessor; ambiguity in contract precludes dismissal |
| Common‑law claims (negligence, money had and received, unjust enrichment, conversion) | Plaintiffs can plead common‑law causes of action in addition to UCC remedies | Common‑law claims are duplicative or fail because Chase did not benefit and no duty to payee exists | Granted: all common‑law claims dismissed (no duty for negligence; bank did not benefit so money had and unjust enrichment fail; conversion duplicative/legally defective) |
| Statute of limitations for UCC conversion | All checks at issue are recoverable | UCC conversion has 3‑year SOL; Cuomo EO tolled limitations until Nov. 3, 2020; thus checks deposited before Sept. 27, 2018 are time‑barred | Granted in part: UCC claim only survives for checks deposited after Sept. 27, 2018; earlier checks dismissed as time‑barred |
Key Cases Cited
- Wachovia Bank v. Schmidt, 546 U.S. 303 (2006) (national bank citizenship determined by location of main office in articles of association)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must nudge claims across the line from conceivable to plausible)
- Lesser v. TD Bank, N.A., 463 F. Supp. 3d 438 (S.D.N.Y. 2020) (discussing constructive possession and interplay of § 3‑419 and common‑law claims)
- State v. Barclays Bank of N.Y., N.A., 563 N.E.2d 11 (N.Y. 1990) (plaintiff without actual or constructive possession cannot recover for conversion of checks)
- Underpinning & Foundation Constructors, Inc. v. Chase Manhattan Bank, N.A., 414 N.Y.S.2d 298 (N.Y. App. Div. 1979) (restrictive indorsements create obligations on transferees; discussed in context of drawer claims)
- Fundacion Museo de Arte Contemporaneo de Caracas v. CBI‑TDB Union Bancaire Privee, 160 F.3d 146 (2d Cir. 1998) (funds deposited into bank account are not sufficiently identifiable for common‑law conversion against the bank)
- Bank of Am. Nat. Tr. & Sav. Ass'n v. Gillaizeau, 766 F.2d 709 (2d Cir. 1985) (ambiguity in contract language presents triable issue of fact)