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Empire City Capital Corp., Richard Kessler and Deborah C. Kessler v. Citibank

September 28, 2011


The opinion of the court was delivered by: Kenneth M. Karas, District Judge:


Plaintiffs Empire City Capital Corp. ("Empire City"), Richard Kessler, and Deborah C. Kessler ("the Kesslers"), initiated this action, alleging that Defendant Citibank, N.A. ("Citibank") is liable to the Plaintiffs on theories of common law conversion (Compl. ¶ 21), and breach of its duty of care, (id. ¶ 25). On August 12, 2010, Defendant filed a motion to dismiss the Complaint pursuant to Federal Rule of Civil Procedure. 12(b)(6). For the reasons stated herein, the motion is granted.

I. Background

Plaintiffs are a Connecticut corporation and two individuals, both Connecticut citizens and residents. (Compl. ¶ 1-3.) Plaintiffs allege that Anthony Willsea (now deceased), an employee of Plaintiffs and a Citibank account holder, stole approximately $1,000,000.00 from Plaintiffs by forging Plaintiff Richard Kessler's signature on a number of checks. (Id. ¶¶ 11-16; Mem. of Law of Pls. in Opp'n to the Mot. to Dismiss the Compl. ("Pls.' Mem.") 4.) Most of these forged checks were made payable to American Express or Citibank. (Compl. ¶¶ 12, 14.) The Complaint alleges that "[s]ome of the checks . . . made payable to Citibank were deposited in an account [that] Anthony Willsea maintained at Citibank." (Id. ¶ 15.)

Plaintiffs claim Citibank is liable to them on two theories. First, Plaintiffs contend that Citibank is liable for common law conversion because it accepted these forged checks and credited Willsea's account, presenting the checks to Plaintiffs' bank (Bank of New York Mellon or "BNY") and causing Plaintiffs' bank to debit Plaintiffs' account. (Id. ¶¶ 9-10, 17-21.) Second, according to Plaintiffs, Citibank was negligent because it "owed [P]laintiffs a duty to properly review, analyze and process checks given to it to deposit," and breached this duty presumably by accepting the forgeries. (Id. ¶ 23.)

Plaintiffs filed their Complaint on March 23, 2010. (Dkt. No. 1.) Defendant's motion to dismiss was filed September 29, 2010. (Dkt. No. 11.) The Court held oral argument on August 3, 2011.

II. Discussion

A. Standard of Review

1. Rule 12(b)(6) "On a Rule 12(b)(6) motion to dismiss a complaint, the court must accept a plaintiff's factual allegations as true and draw all reasonable inferences in [the plaintiff's] favor." Gonzalez v. Caballero, 572 F. Supp. 2d 463, 466 (S.D.N.Y. 2008); see also Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010) ("We review the district court's grant of a Rule 12(b)(6) motion to dismiss de novo, accepting all factual claims in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor.").

Generally, "[i]n adjudicating a Rule 12(b)(6) motion, a district court must confine its consideration to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken." Leonard F. v. Isr. Disc. Bank of N.Y., 199 F.3d 99, 107 (2d Cir. 1999) (internal quotation marks omitted); see also Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 424-25 (2d Cir. 2008) (holding that district court properly took judicial notice of and considered media reports, state court complaints, and regulatory filings on a motion to dismiss); Munno v. Town of Orangetown, 391 F. Supp. 2d 263, 268 (S.D.N.Y. 2005) ("The court may also consider matters of which judicial notice may be taken, even if the corresponding documents are not attached to or incorporated by reference in the complaint," including "public records."). In the motion to dismiss context, however, the court should generally take judicial notice "to determine what statements [the documents] contain[] . . . not for the truth of the matters asserted." Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991).

The Supreme Court has held that "[w]hile a complaint attacked by a Rule 12(b)(6)

motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration, citations, and internal quotation marks omitted). Instead, the Supreme Court has emphasized that "[f]actual allegations must be enough to raise a right to relief above the speculative level," id., and that "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint," id. at 563. A plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Id. at 570. If a plaintiff "ha[s] not nudged [his] claims across the line from conceivable to plausible, [his] complaint must be dismissed." Id.; see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009) ("Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 'show[n]' - 'that the pleader is entitled to relief.'" (second alteration in original) (citation omitted) (quoting Fed. R. Civ. P. 8(a)(2))).

2. State Law Claims In the absence of a definitive ruling from the State's highest court, this Court's task in deciding issues of State law is to "predict how the state's highest court would resolve" those issues. Runner v. N.Y. Stock Exch., Inc., 568 F.3d 383, 386 (2d Cir. 2009) (quoting Travelers Ins. Co. v. Carpenter, 411 F.3d 323, 329 (2d Cir. 2005)). The Court "construe[s] and appl[ies] state law as it believes the state's highest court would," and will not "adopt innovative theories that may distort established state law." Liddle & Robinson, LLP v. Garrett, 720 F. Supp. 2d 417, 424 (S.D.N.Y. 2010) (alterations and internal quotation marks omitted).

The Court will make its prediction based on a number of factors, first giving "proper regard to relevant rulings of the state's lower courts." Runner, 568 F.3d at 386 (quoting Carpenter, 411 F.3d at 329). These lower State court decisions may be "helpful indicators of how the [state's highest court] would decide" an issue, but this Court is "not strictly bound" by them if there is "persuasive data" in decisions of the State's highest court that would suggest that court would "decide otherwise." Reddington v. Staten Island Univ. Hosp., 511 F.3d 126, 133 (2d Cir. 2007) (internal quotation marks omitted); see also New York v. Nat'l Serv. Indus., Inc., 460 F.3d 201, 210 (2d Cir. 2006) ("[T]he judgment of an intermediate appellate state court 'is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.'" (quoting Comm'r v. Estate of Bosch, 387 U.S. 456, 465 (1967))). The Court will also consider the "decisions of federal courts construing state law, in particular the circuit court within whose jurisdiction the state at issue is located." In re West Pan, Inc., 372 B.R. 112, 121 (S.D.N.Y. 2007). Finally, the Court may consider "[o]ther persuasive data[,] includ[ing] the state's supreme court dicta, restatements of law, law review commentaries, and the majority rule among other states." Kline v. E.I. DuPont de Nemours & Co., 15 F. Supp. 2d 299, 303 (W.D.N.Y. 1998) (quoting Kurczi v. Eli Lilly & Co., 113 F.3d 1426, 1429 (6th Cir. 1997)); see also Coll v. First Am. Title Ins. Co., 642 F.3d 876, 886 (10th Cir. 2011) (noting that, in predicting how a State's highest court would decide an open question, it is permissible to "seek guidance" from, among other things, "appellate decisions in other states with similar legal principles" and "the general weight and trend of authority in the relevant area of law." (quoting Wade v. EMCASCO Ins. Co., 483 F.3d 657, 666 (10th Cir. 2007)).

B. Analysis

Citibank's principal argument is that under the Uniform Commercial Code ("U.C.C."), Plaintiffs have no cause of action against a depositary bank for conversion, and that the U.C.C.'s scheme of loss allocation displaces any common ...

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