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IN RE LOU LEVY & SONS FASHIONS

March 5, 1992

In re LOU LEVY & SONS FASHIONS, INC., Litigation. LOU LEVY & SONS FASHIONS, INC., 90 Civ. 0238 (TPG); MOD-MAID IMPORTS, INC., DONNYBROOK FASHIONS, LTD. and KARIZMA and BRAEFAIR, Divisions : of BRAETAN, INC., Plaintiffs, against MICHELINA J. ROMANO, LAWRENCE MELTZER and FIRST FIDELITY BANK, N.A. NEW JERSEY, Defendants.


The opinion of the court was delivered by: THOMAS P. GRIESA

On November 15, 1991 the court granted summary judgment in favor of plaintiffs on their conversion claim against defendant First Fidelity Bank. First Fidelity has moved for reconsideration. Plaintiffs have moved for sanctions against First Fidelity for making this motion.

 First Fidelity has shown good grounds for asking the court to reconsider the summary judgment ruling. There are certain issues which need to be explored more fully than was done in the November 15, 1991 opinion. However, after reconsideration the court is of the view that plaintiffs are entitled to summary judgment on their conversion claim against First Fidelity.

 Plaintiffs' motion for sanctions is denied.

 Issues Presented

 It is undisputed that two employees of plaintiffs engaged in a 5 1/2 year scheme to place unauthorized endorsements on a large number of checks payable to the Levy corporations and that First Fidelity accepted these checks for deposit into the personal accounts of one of these employees. This gives rise to the conversion claim by plaintiffs against First Fidelity.

 First Fidelity has asserted as a defense under U.C.C. § 3-404(1) that plaintiffs' conduct amounted to ratification of the unauthorized endorsements. The bank has also asserted the defenses of estoppel, laches, and negligence, contending that these three defenses are allowed under § 3-404(1) and that the defense of negligence is also allowed under U.C.C. § 3-406.

 In response, plaintiffs contend that there is no factual basis for at least some of these defenses. Citing U.C.C. § 3-406, plaintiffs also contend that the defenses are barred because First Fidelity acted in a commercially unreasonable manner.

 FACTS

 For the sake of completeness, the facts set forth in the November 15, 1991 opinion are repeated here, together with certain additional facts taken from the submissions presented on an earlier summary judgment motion against the individual defendants, Michelina J. Romano and Lawrence Meltzer. The parties have consented to have the court refer to the record on the earlier motion.

 Plaintiffs Lou Levy and Sons Fashions, Inc., Mod-Maid Imports, Inc., Donnybrook Fashions, Ltd. and Braetan, Inc. are affiliated New York corporations engaged in the business of manufacturing and selling women's clothing.

 Defendant First Fidelity Bank, N.A. New Jersey, is a national banking association organized under the laws of the United States and located in the state of New Jersey.

 Plaintiffs commenced suit in this district on January 16, 1990 against First Fidelity and the individual perpetrators of the scheme, Romano and Meltzer. In its answer, First Fidelity raised the affirmative defense of lack of personal jurisdiction. Plaintiffs then filed an action in the federal court in New Jersey. By order dated August 14, 1990, the Judicial Panel on Multidistrict Litigation transferred the New Jersey action to this court. There is no claim that this court lacks jurisdiction to decide the present motion.

 The following facts are undisputed. Michelina Romano, the accounts receivable bookkeeper for the Levy corporations, and Lawrence Meltzer, the sales manager, forged the Levy companies' corporate endorsements on 193 checks over a 5 1/2 year period between late 1984 and January 1990. Meltzer or Romano endorsed 188 of these checks by writing or typing the name of the particular corporate payee and the account number of one of Meltzer's personal accounts. Five of the checks were endorsed with the name of Meltzer or his wife without any corporate name. Meltzer deposited the checks in his personal checking and savings accounts at First Fidelity. Plaintiffs' exhibits include copies of the deposited checks, the deposit slips for the checks, and the bank statements for the personal bank accounts into which the checks were deposited.

 With regard to Meltzer's dealings with First Fidelity, plaintiffs have submitted written statements from six of First Fidelity's tellers who accepted the checks for deposit into Meltzer's accounts. In these statements, taken on January 19, 1990, the tellers were asked why a check payable to a business was allowed to be deposited to a personal account. ...


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