Mid-South Metals L L C v. RodriguezMid-South Metals L L C v. Rodriguez
MEMORANDUM RULING
Before the Court is a Motion to Dismiss Pursuant to
BACKGROUND
On July 3, 2023, Mid-South issued check number 45549 from its account with Regions Bank for $171,755.57. See Record Document 1-1 at 4, 6. After it was put in the mail, the check was “physically intercepted, copied, counterfeited, and reprinted on a different check stock.” Id. at ¶¶ 6-7. On July 19, 2023, the counterfeit check was deposited in an account bearing the name Christopher Rodriguez (“Rodriguez“) at Chase. See id. at 8-9. On July 26, 2023, Mid-South detected the counterfeit check and reported it to Regions Bank and to the Shreveport Police Department. See id. at ¶¶ 12, 15.
On July 27, 2023, Regions Bank emailed Chase to notify it of the counterfeit check and requested Chase both block Rodriguez‘s access to the funds and return the funds to Regions Bank. See id. at ¶¶ 13-14. Attached to Regions Bank‘s email was an indemnification agreement signed by Regions Bank, agreeing to indemnify Chase for any losses it sustained in complying with its request (the “Indemnification Agreement“). See id. at ¶ 13; see id. at 30-31. On July 28, 2023, the Shreveport Police Department served Chase with a search warrant for Rodriguez‘s deposit account. See id. at ¶ 28. At no point did Chase take any action to freeze Rodriguez‘s account or otherwise prevent Rodriguez from accessing the funds. See id. at ¶¶ 27-29. Between July 28 and August 3, 2023, Rodriguez withdrew and transferred the funds in his Chase account. See id. at ¶¶ 16-17. On August 4, 2023, Chase denied Regions Bank‘s request “because there were ‘no funds available.‘” Id. at ¶ 18.
On June 11, 2024, Mid-South filed suit against Rodriguez in the 1st Judicial District Court in Caddo Parish, Louisiana for conversion. See id. at 9-11. Shortly thereafter, Mid-South filed an Amended Petition, naming Chase as a defendant for “negligence and for failure to recognize Plaintiff‘s adverse claims to the funds on deposit in Defendant Rodriguez‘s deposit accounts.” Id. at ¶ 25. Chase removed the case to federal court pursuant to diversity jurisdiction. See Record Document 1.
In Chase‘s Motion to Dismiss, Chase argues that the Uniform Commercial Code, as adopted by the state of Louisiana (the “UCC“), displaces any claims brought against it by Mid-South. See Record Document 13. It argues in the alternative that Mid-South fails to state a viable claim of negligence, conversion, or breach of contract, and that it was under no statutory obligation to recognize any adverse claim to Rodriguez‘s funds. See id. Mid-South opposes the motion, arguing that its claims of negligence and under
LAW & ANALYSIS
I. Legal Standard
Additionally, courts must accept all allegations in a complaint as true. See Iqbal, 556 U.S. at 678. However, courts do not have to accept legal conclusions as fact. See id. Courts considering a motion to dismiss under
II. Analysis
Mid-South brings claims for negligence and under Louisiana‘s Adverse Claim Statute. See Record Document 1-1 at ¶ 25. Mid-South argues specifically that Chase was negligent for failing to take action to freeze Rodriguez‘s funds in response to its communications, claims to the fund, and the Indemnification Agreement. See Record Document 17.1 Chase‘s primary argument for dismissal is that the UCC prohibits Mid-South (the drawer of the check) from bringing any claim against Chase (the depository bank). See Record Document 13.
2025). Chase points to two sections of the UCC that may address the transaction at issue: UCC Articles 3 and 4.
A. UCC Article 3
Chase argues that UCC Article 3 displaces Mid-South‘s claims because a negotiable instrument is at issue. See Record Document 13-1 at 10-11. UCC Article 3 applies to “negotiable instruments,” including checks.
Mid-South does not allege that Chase was negligent for its acceptance, payment, or presentment of the forged check; instead, it argues that Chase is liable for negligently failing to freeze Rodriguez‘s funds. See Record Document 17 at 11-12. In other words, Mid-South challenges Chase‘s overall dealings with Rodriguez‘s Chase account, rather than its handling of the specific check at issue. This is particularly significant in the context of UCC Article 3, which is applicable to checks but not money. Indeed, it distinguishes Mid-South‘s claims from those by other plaintiffs claiming a bank was negligent for accepting or cashing a counterfeit check. See, e.g., Innovative Hosp. Sys., L.L.C., 52 So.3d at 315. The Court is unconvinced that Mid-South‘s claims are covered by UCC Article 3.
B. UCC Article 4
Chase also argues that UCC Article 4 governs because it provides Mid-South with a remedy against its own bank. See Record Document 13-1 at 11. UCC Article 4 generally governs “[t]he liability of a bank for action or non-action with respect to an item handled by it for purposes of presentment, payment, or collection.”
The Fifth Circuit has previously explained how liability is allocated under UCC Article 4 in the case of forged and counterfeit checks3:
In general, the drawee bank is strictly liable to its customer drawer for payment of either a forged check or a check containing a forged indorsement. In the case of a forged indorsement, the drawee generally may pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself if available. . . .
A check bearing a forged indorsement . . . is not “properly payable“. . .. Regardless of the care exercised, a drawee bank is with few exceptions
liable to its drawer customer for payment of such a check. See [UCC §] 4-401.
Upon recrediting the drawer‘s account after payment over a forged indorsement, the drawee will seek redress against prior parties in the collection chain through an action for breach of the statutory warranty of good title. Each person who obtains payment of a check from the drawee and each prior
transferor warrants to the party who in good faith pays the check that he has good title to the instrument. [UCC §§] 3-417(1)(a), 4-207(1)(a). . . .The drawee may therefore bring a breach of warranty action against a person who presented a check bearing a forged indorsement. These warranty actions will continue up the collection chain to the party who took from the forger or to the forger himself. Additionally, payment of a check bearing a forged indorsement constitutes conversion under [§] 3-419(1)(c). This conversion action at least provides the check‘s “true owner,” the payee or indorsee from whom it was stolen and whose name was falsely indorsed, direct relief from the drawee. . . Without the conversion action the true owner would have to seek payment from the drawer, who might be overcautious and unaware of his right to force the drawee to recredit his account for any payment over a forged indorsement.
The danger created by forged indorsements is that the party designated by the instrument as entitled to its proceeds will appear with a claim to those proceeds after payment has been made to the malefactor. The statutory actions for improper payment, conversion, and breach of warranty of good title combine, however inartfully, to safeguard the drawer against double liability and to assure the payee of payment. The loss falls on the party who took the check from the forger, or on the forger himself.
Perini Corp. v. First Nat. Bank of Habersham Cnty., 553 F.2d 398, 403-04 (5th Cir. 1977).
Chase argues that UCC Article 4 “provides Mid-South with a remedy under
This UCC remedy displaces Mid-South‘s claims of negligence and under the Adverse Claim Statute. See Ducote, 212 So. 3d at 736 (“Because the UCC provides a remedy to plaintiffs for [defendant]‘s alleged failure to exercise ordinary care, plaintiffs’ claims against [defendant] . . . are barred.“). Common law negligence claims are preempted where the UCC offers a remedy. See id. So too are any other claims that would be contrary to the purposes and policies of the UCC—here, any claim by Mid-South
UCC‘s remedial scheme for this type of transaction, so too is any claim under the Adverse Claim Statute.
This is not to say that the Adverse Claim Statute is superfluous or otherwise inapplicable to situations such as this. It is to say that, because of the UCC‘s remedial scheme, Mid-South is not the proper party to bring any such claim. The Adverse Claim Statute would apply to a claim brought by a proper party against a defendant that did not properly recognize the adverse claim. This analysis is supported by the Indemnity Agreement sent to Chase. The Indemnity Agreement requests the funds be returned to Regions Bank and releases Chase from liability to Regions Bank. See Record Document 1-1 at 30-31. The Indemnity Agreement does not mention Mid-South except for its assertion that the funds at issue originated from its customer and the customer‘s account number. This suggests that the actual party in interest in retrieving the funds was Regions Bank, not Mid-South.
In short, Mid-South‘s claims are displaced by UCC Article 4 and Mid-South thus fails to state a claim on which relief can be granted.
CONCLUSION
Based on the reasons explained above,
IT IS ORDERED that Chase‘s Motion to Dismiss Pursuant to
An order consistent with this ruling shall issue herewith.
THUS DONE AND SIGNED, in Shreveport, Louisiana, this 3rd day of April, 2025.
JUDGE S. MAURICE HICKS, JR.
UNITED STATES DISTRICT COURT
Notes
Notice to any bank of an adverse claim, including an adverse claim of ownership of, right to control, or access to funds, to a deposit standing on the books of the bank to the credit of any person does not require the bank to recognize the adverse claimant unless the notice is given pursuant to either a restraining order, injunction, or other appropriate process against the bank in an action instituted by the adverse claimant wherein the person to whose credit the deposit stands is made a party and served with summons, or the adverse claimant has executed to the bank, in form and with sureties acceptable to it, a bond indemnifying the bank against any liability, loss, damage, costs, and expenses on account of payment or of dishonor of the check or other order of the person to whose credit the deposit stands.