The opinion of the court was delivered by: KNAPP
WHITMAN KNAPP, SENIOR DISTRICT JUDGE
Plaintiffs Federal Insurance Company and Great American Insurance Company, as Assignees of Keyfood Stores Cooperative, Inc. (hereinafter collectively "plaintiffs" and/or "Keyfood"), have brought an action against defendant Charles Schwab & Company, Inc. ("defendant" and/or "Charles Schwab") for accepting and depositing two checks with the unauthorized and/or fraudulent signature of Keyfood. Defendant has made a motion to dismiss the Complaint, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, on the ground that under New York common-law and New York's version of the Uniform Commercial Code ("U.C.C.") Keyfood cannot state a claim against it.
For the reasons that follow, defendant's motion to dismiss is granted.
The instant action arises from the theft by an unknown individual (or individuals) of two checks from Keyfood Stores Cooperative ("Keyfood"). Using a facsimile stamp signature of Keyfood, this individual (or individuals) fraudulently signed these stolen checks and used them to open up two brokerage accounts with defendant Charles Schwab.
The first check, in the amount of $ 253,084.98, was made payable to a company known as Kazman Imports and Exports, Inc. ("Kazman"), a non-party in this action, and deposited in a brokerage account defendant opened in the name of Kazman. The second check, in the amount of $ 60,000, was made payable to defendant Charles Schwab, but used to open an account in the name of an unidentified third-party. Both checks were drawn on Keyfood's account at Chase Manhattan Bank ("Chase"). At no time did defendant inquire from Keyfood -- the drawer -- as to whether or not either check was authorized. With respect to the first check, however, at oral argument it was revealed that an employee of defendant did contact Chase before opening the brokerage account on behalf of Kazman.
In the Complaint, Keyfood asserts claims of conversion, money had and received and commercial bad faith based on defendant Charles Schwab's acceptance and deposit of the two checks. As above noted, defendant has made a motion pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the claims. For purposes of deciding this motion we accept as true the facts alleged in the Complaint. See, e.g., Jackson National Life Ins. Co. v. Merrill Lynch & Co. (2d Cir. 1994) 32 F.3d 697, 699.
Defendant argues that plaintiffs may not bring any claims against it arising from its acceptance and deposit of the two fraudulently signed checks because, under New York common-law, "a drawer generally has no direct action against a depository bank, but rather must seek recovery from the drawee bank." See, e.g., Avila v. Bank of America National Trust & Sav. Assn. (S.D.N.Y. 1993) 826 F. Supp. 92, 97. Moreover, under New York's version of the U.C.C. there are "added defenses that make it even more difficult for a drawer to recover against a depository bank." See, e.g., Prudential-Bache Securities, Inc. v. Citibank, N.A. (1989) 73 N.Y.2d 263, 272, 539 N.Y.S.2d 699, 703-04, 536 N.E.2d 1118.
This principle is based on the rule that ( Prudential-Bache Securities, 73 N.Y.2d at 269, 539 N.Y.S.2d at 702):
ordinarily, an unauthorized indorsement -- that is, either a forged indorsement or one made by an agent exceeding authority (U.C.C. 1-201 -- is ineffective to pass title or authorize the drawee bank to pay. The check is not properly payable because an unauthorized signature is inoperative as that of the person whose name is signed. (U.C.C. 3-404, other citations omitted)
"Consequently, the drawee bank generally may not debit the drawer's account when it pays such a check." Thus, "the drawer has no claim against the depository bank for honoring a forged [signature] because the depositary bank is deemed not to have dealt with the drawer's property." See, e.g., Avila, 826 F. Supp. at 97.
Accordingly, Keyfood would only be able to bring an action against Charles Schwab if the funds used to honor the checks belonged to it and not the drawee Chase. However, the fraudulent signatures on the checks rendered them ineffective as defined by U.C.C. 3-404. Thus, because Chase was not authorized to pay ...