American Express Travel Related Services Company, Inc. v. Stevens et al

Filing 25

ORDER denying 17 Plaintiff American Express Travel Related Services Company, Inc.s Motion to Dismiss the Counterclaim pursuant to Fed. R. Civ.P. 12(b)(6), by Judge Wiley Y. Daniel on 12/18/2013.(ervsl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior Judge Wiley Y. Daniel

Civil Action No. 13-cv-01159-WYD-BNB
AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.,
Plaintiff,
v.
EARL STEVENS and TWILA STEVENS,
Defendants.

ORDER

THIS MATTER is before the Court on Plaintiff American Express Travel Related
Services Company, Inc.’s Motion to Dismiss the Counterclaim pursuant to Fed. R. Civ.
P. 12(b)(6) [ECF No. 17]. For the reasons stated below, the motion is DENIED.
BACKGROUND
On October 3, 2011, Defendant Earl Stevens informed a representative of
American Express Travel Related Services Company, Inc. (AETRS) that AETRS had
made erroneous deposits into Defendants’ bank account at Wells Fargo Bank, N.A.
(ECF No. 1, ¶ 8). The next day, Mr. Stevens opened up a new account at Wells Fargo
and transferred a portion of the funds from the old account into the new account, leaving
what he believed to be AETRS’s funds in the old account. (ECF No. 1, ¶ 11). Mr.
Stevens and a Wells Fargo employee then requested that AETRS withdraw the
erroneously deposited funds. (ECF No. 1, ¶ 12). AETRS provided an accounting of the

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amount deposited and made a demand upon Earl and Twila Stevens for funds in the
amount of $174,693.15. (ECF No. 1, ¶¶ 17, 18). The Stevens contend that this
accounting is inaccurate and that AETRS’s agent, Mr. James Gebeleil, had previously
confirmed that the proper amount owed to Plaintiff was $171,707.06. (ECF No. 14, ¶¶
16, 21). The Stevens have offered to return this amount. (ECF No. 14, ¶ 20).
On May 2nd, 2013, AETRS filed a complaint [ECF No. 1] against the Stevens for
conversion and unjust enrichment based on its allegation that the Stevens failed to
return funds that AETRS erroneously deposited into their bank account. (ECF No. 1, ¶
22). In their Answer, Counterclaim, and Jury Demand [ECF No. 14], the Stevens assert
a counterclaim for negligence based on the hardship caused by AETRS’s erroneous
deposits. The Stevens claim that the deposits created substantial accounting and legal
difficulties and caused their accounts to be frozen, preventing them from receiving their
Social Security checks. (ECF No. 20 at 5). On July 17, 2013, AETRS filed this Motion
to Dismiss the Counterclaim [ECF No. 17] on the basis that AETRS, a bank, can never
owe a duty of care to a non-customer and therefore cannot be held liable for negligence
here. (ECF No. 17, ¶¶ 13, 14).
STANDARD OF REVIEW
A party may move to dismiss a claim for “failure to state a claim upon which relief
can be granted.” Fed. R. Civ. P. 12(b)(6). “To survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662 (2009) (quoting Twombly, 550
U.S. at 570). When ruling on a motion to dismiss, a court must accept all well-pleaded
factual allegations as true and construe all reasonable allegations in the light most

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favorable to the non-moving party. United States v. Colorado Supreme Court, 87 F.3d
1161, 1164 (10th Cir. 1996). Thus, dismissal under Rule 12(b)(6) is only appropriate
when the non-moving party can allege no set of facts entitling it to relief. Id. Here,
whether the Stevens’ counterclaim warrants dismissal hinges upon whether AETRS
owed the Stevens a duty of care under the facts alleged.
ANALYSIS
Federal courts sitting in diversity must apply the substantive law of the state in
which they sit. Erie R.R. v. Thompkins, 304 U.S. 64, 78 (1938). In Colorado, a
negligence claim must fail unless a legal duty is owed. Hesse v. McClintic, 176 P.3d
759, 762 (Colo. 2008). The existence and scope of a legal duty is a question of law for
the court to determine. Id.
Courts consider many factors when determining whether the law imposes a duty,
including “the risk involved, the foreseeability and likelihood of injury as weighed against
the social utility of the defendant's conduct, the magnitude of the burden of guarding
against injury or harm, and the consequences of placing the burden upon the
defendant.” Taco Bell, Inc. v. Lannon, 744 P.2d 43, 46 (Colo. 1987) (citations omitted).
“Other considerations may also be relevant, depending on the circumstances of each
particular case.” Id. “No one factor is controlling, and the question of whether a duty
should be imposed in a particular case is essentially one of fairness under
contemporary standards—whether reasonable persons would recognize a duty and
agree that it exists.” Id.
One Colorado court has held that, in some circumstances, a bank owes no duty
to non-customers to protect them from the torts of the bank’s customers (“no-duty rule”).

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See Weil v. First Nat. Bank of Castle Rock, 983 P.2d 812, 814 (Colo. Ct. App. 1999);
accord Sigler v. Doe, No. 10-CV-01794-LTB-BNB, 2011 WL 4829659 (D. Colo. Sept.
22, 2011). In Weil, the plaintiff’s office manager and assistant opened an account at the
defendant bank in their own names d/b/a plaintiff’s business. Id. at 813. The pair
embezzled $150,000 from the plaintiff by depositing checks payable to plaintiff’s
business into their account at the defendant bank. Id. The Weil court looked to the
Taco Bell factors, supra, and reasoned that the bank owed no duty to the plaintiff
because “it would be unreasonable to require banks to make an independent
investigation of their customers' authority to use any particular unregistered trade
name.” Id.
While not unanimous, other jurisdictions have mostly embraced this no-duty rule
in some form. See, e.g., Lerner v. Fleet Bank, N.A., 459 F.3d 273, 286 (2d Cir. 2006)
(“Banks do not owe non-customers a duty to protect them from the intentional torts of
their customers.”); In re Terrorist Attacks on Sept. 11, 2001, 349 F. Supp. 2d 765, 830
(S.D.N.Y. 2005) (same); Gil v. Bank of Am., Nat. Ass'n, 138 Cal. App. 4th 1371, 1379,
42 Cal. Rptr. 3d 310, 315 (2006) (“[A] bank owes no duty to nondepositors to investigate
or disclose suspicious activities on the part of an accountholder.”); Volpe v. Fleet Nat.
Bank, 710 A.2d 661, 664 (R.I. 1998) (“[A]bsent extraordinary circumstances a bank is
not liable in negligence to a noncustomer payee for having failed to ascertain whether a
check paid by it bears the payee's genuine indorsement.”); McCallum v. Rizzo, 942878,
1995 WL 1146812 (Mass. Super. Oct. 13, 1995) (“[A] bank's failure to investigate a
customer's suspicious activity, or failure to disclose suspicious activity to a third party,
does not give rise to liability to the third party who is injured by the customer's fraud.”);

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City Check Cashing, Inc. v. Manufacturers Hanover Trust Co., 166 N.J. 49, 64, 764
A.2d 411, 419 (2001) (bank owed no duty to non-customer check cashing service to
warn about fraudulent certified check). Courts justify the no-duty rule with the concern
that imposing a duty on banks to protect non-customers from the torts of others “would
expose banks to unlimited liability for unforeseeable frauds.” Eisenberg v. Wachovia
Bank, N.A., 301 F.3d 220, 226 (4th Cir. 2002).
AETRS relies on Weil to contend that a financial institution can never, under any
circumstances, owe a duty to a non-customer. However, this no-duty rule is rooted in
the widely-acknowledged principle that “in actions based on nonfeasance . . . it is
necessary to find some definite relation between the parties, of such a character that
social policy justifies the imposition of a duty to act.” City Check Cashing, 166 N.J. at
59 (quoting W. Page Keeton et. al., Prosser & Keeton on Torts § 56 at 374 (5th
ed.1984)) (emphasis added). See also 57A Am. Jur. 2d Negligence § 13 (“Liability for
nonfeasance is largely limited to those circumstances in which some special
relationship can be established.”). Nonfeasance describes a “fail[ure] to aid . . . through
beneficial intervention.” Id.
Misfeasance, by contrast, “occurs when . . . affirmative actions create a risk of
harm.” Id. The nonfeasance rationale underpinning the no-duty rule does not apply to a
bank’s misfeasance. Indeed, application of the no-duty rule to banks’ misfeasance
would lead to absurd results. For example, a bank could negligently hit a non-customer
with one of its armored cars and escape liability simply because the armored car
belonged to a bank. Accordingly, no courts have applied the no-duty rule so broadly as

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to allow banks to negligently cause harm through their own affirmative acts to anyone
who is not a customer.
The Colorado Supreme Court has embraced this nonfeasance/misfeasance
distinction in the context of an analogous no-duty rule. See Greenberg v. Perkins, 845
P.2d 530, 536-37 (Colo. 1993). The Greenberg court addressed the scope of the rule
that physicians performing independent medical examinations for insurance companies
owe no duty to examinees because they lack a physician-patient relationship. Id. at
533. The court was faced with the issue of whether the no-duty rule also applied to the
physician’s affirmative conduct in imposing a harmful test upon the examinee. Id. The
court reasoned that the no-duty rule applied only to a physician’s nonfeasance and not
any misfeasance, stating:
In the absence of special circumstances, the law does not generally
impose upon a person a duty to take action for the benefit of another,
even if it is reasonably apparent that such action is necessary to protect
the other person from injury. However, we have recognized that people
owe a duty to use reasonable care with regard to their affirmative conduct
and that such a duty extends to all who may foreseeably be injured if that
conduct is negligently carried out.
Id. at 537 (emphasis added). Accordingly, the court held that in the absence of a
physician-patient relationship a physician “will not be liable for a failure to detect
conditions” but will owe a duty of care to the examinee with regard to the physician’s
affirmative conduct in imposing tests. Id. at 538. Thus, no-duty rules do not grant broad
immunity to all negligence claims made by those with whom no relationship has been
established; they merely preclude duties to aid them through beneficial intervention.
See Id.

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Here, the Stevens have claimed injuries caused by AETRS’s misfeasance rather
than nonfeasance, and have therefore averred sufficient facts to state a plausible claim
to relief. Accepting the Stevens’ factual allegations as true, application of the Taco Bell
factors to AETRS’s erroneous deposits warrants the imposition of a duty on AETRS to
act with reasonable care when exercising control over its property.
First, it is foreseeable that repeated erroneous deposits could cause hardship to
the unwilling recipient. The commingling of the account holder’s funds with those of the
responsible depositor is likely to cause logistical and legal difficulties for the account
holder, as demonstrated by the case at bar. Even if the parties had agreed upon the
amount AETRS deposited, the Stevens would still have needed to freeze their account
and open a new one, and thus would still have suffered aggravation and disruption of
their Social Security payments.
Furthermore, neither the magnitude of the burden of guarding against erroneous
deposits nor the consequences of placing this burden on banks is so considerable as to
preclude imposition of a duty here. Even absent a duty in tort, banks have a compelling
interest in preventing the processing of erroneous deposits due to the obvious risk of
loss to themselves. Thus, the net cost to banks in imposing a responsibility upon them
to not mistakenly force their money upon unwilling recipients must necessarily be low.
“[W]here cost of precautions is relatively low, social utility of not taking precautions is
usually outweighed by the risk involved.” Taco Bell, 744 P.2d at 50 (citation omitted).
Finally, loss-allocation principles dictate that the party in the best position to
prevent a particular injury should bear the burden of doing so. See, e.g., Patrick v.
Union State Bank, 681 So. 2d 1364, 1369 (Ala. 1996) (holding bank liable for identity

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theft that injured plaintiff because bank was in the best position to prevent the fraud).
When innocent individuals are injured by erroneous deposits they can neither predict
nor protect against, and financial institutions can, by taking reasonable measures,
prevent the erroneous deposits, the financial institution is in a far better position to
prevent a loss to both itself and the individual victim.
Thus, “[w]here a bank's burden in shouldering a duty is minimal to avoid
reasonably foreseeable losses, such a duty is proper. This is especially true where the
bank is the party best in position to avoid the loss.” In re McMullen Oil Co., 251 B.R.
558, 572 (Bankr. C.D. Cal. 2000). Under the facts alleged, it is fair to impose upon
AETRS a duty to exercise reasonable care when depositing money. Accordingly, the
motion to dismiss is denied.
CONCLUSION
Based on the foregoing, it is
ORDERED that Plaintiff’s Motion to Dismiss the Counterclaim [ECF No. 17] is
DENIED.
Dated: December 18, 2013

BY THE COURT:

s/ Wiley Y. Daniel
WILEY Y. DANIEL,
SENIOR UNITED STATES DISTRICT JUDGE

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