Silver v. Wells Fargo Bank, N.A. et al
MEMORANDUM AND ORDER granting in part and denying in part 40 Wells Fargo Bank, N.A.'s Motion to Dismiss Claims Asserted Against It in the Amended Complaint; and granting in part and denying in part 43 PNC Bank, National Association's Motion to Dismiss Plaintiff Jeffrey J. Silver's Amended Complaint. Signed by Judge Marvin J. Garbis on 6/30/2017. (bmhs, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
JEFFREY J. SILVER
WELLS FARGO BANK, N.A., et al.
CIVIL ACTION NO. MJG-16-382
MEMORANDUM AND ORDER RE: AMENDED COMPLAINT
The Court has before it Wells Fargo Bank, N.A.’s Motion to
Dismiss Claims Asserted Against It in the Amended Complaint [ECF
No. 40], PNC Bank, National Association’s Motion to Dismiss
Plaintiff Jeffrey J. Silver’s Amended Complaint [ECF No. 43],
and the materials submitted relating thereto.
The Court finds a
From sometime in 2007 until about November 24, 2012,
Plaintiff Jeffrey J. Silver (“Silver”) was the victim of a check
fraud scheme perpetrated by Katherina Cheek (“Cheek”), one of
Cheek stole, forged, and negotiated checks drawn
on Silver’s checking account at PNC Bank, National Association
(“PNC”) and had the proceeds end up in her own account at Wells
Fargo Bank, National Association (“Wells Fargo”) through a
“double forgery” scheme.
Silver asserts claims against PNC and Wells Fargo
(“Defendants”) pursuant to the Maryland Uniform Commercial Code,
Md. Code Ann., Com. Law § 1-101 et seq.,1 for lack of ordinary
care and good faith, breach of presentment warranties, strict
liability, and conversion.
Silver also asserts common law
claims of negligence, breach of contract, negligent hiring
and/or retention of employees, constructive fraud, and civil
By the instant motions, Defendants seek dismissal of all
claims against them pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure.2
A motion to dismiss filed pursuant to Rule 12(b)(6) tests
the legal sufficiency of a complaint.
A complaint need only
contain “‘a short and plain statement of the claim showing that
the pleader is entitled to relief,’ in order to ‘give the
defendant fair notice of what the . . . claim is and the grounds
upon which it rests.’”
Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007) (alteration in original) (citations omitted).
Hereinafter referred to as “UCC” or “Maryland UCC.” The
Maryland General Assembly adopted Revised UCC articles 3 and 4
and codified it at Titles 3 and 4 of the Commercial Law Article
of the Maryland Code. The Commercial Law Article is referred to
as the “Maryland UCC.” Shepherd v. Burson, 50 A.3d 567, 573
All “Rule” references herein are to the Federal Rules of
When evaluating a 12(b)(6) motion to dismiss, a plaintiff’s
well-pleaded allegations are accepted as true and the complaint
is viewed in the light most favorable to the plaintiff.
However, conclusory statements or “a formulaic recitation of the
elements of a cause of action will not [suffice].”
complaint must allege sufficient facts “to cross ‘the line
between possibility and plausibility of entitlement to relief.’”
Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009)
(quoting Twombly, 550 U.S. at 557).
Inquiry into whether a complaint states a plausible claim
is “‘a context-specific task that requires the reviewing court
to draw on its judicial experience and common sense.’”
(quoting Twombly, 550 U.S. at 557).
Thus, if “the well-pleaded
facts [contained within a complaint] 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.’”
Id. (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 679 (2009) (alteration in original)).
Generally, a motion to dismiss filed under Rule 12(b)(6)
cannot reach the merits of an affirmative defense.
Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007).
possible to evaluate such a motion, however, if all the facts
necessary to the affirmative defense are clearly alleged on the
face of the complaint.
But if the complaint does not
clearly reveal the existence of a meritorious affirmative
defense, it is inappropriate for the court to consider it under
a Rule 12(b)(6) motion.
Richmond, Fredericksburg & Potomac
R.R. Co. v. Forst, 4 F.3d 244, 250 (4th Cir. 1993).
A. Factual Allegations3
At all times relevant hereto, Silver, a Baltimore City
attorney, maintained several accounts (checking and other types)
with PNC and Wells Fargo.4
Silver employed Ms. Katherina Cheek5 [“Cheek” or
“Assistant”] as a legal assistant whose duties included matters
related to Silver’s checking accounts.
Beginning at “some point
in 2007,”6 Cheek began her scheme that continued until November
In the scheme, Cheek stole hundreds of Silver’s blank
checks for one of Silver’s PNC accounts and forged Silver’s
signature as the “drawer”7 on the checks.
In the scheme, Cheek
created and negotiated three categories of forged checks:
The “facts” herein are as alleged by Plaintiff and are not
necessarily agreed upon by Defendants.
Silver had a banking relationship with Wells Fargo’s
predecessors, including Wachovia and First Union National Bank
since the early 1990s. Silver also was a customer of PNC’s
predecessor, Mercantile Safe Deposit and Trust Company, since
f/k/a/ Katherina Young.
Silver is not sure of the exact time that the scheme began,
but believes it began in 2007. ¶ 49.
“‘Drawer’ means a person who signs or is identified in a
draft as a person ordering payment.” UCC § 3-103(a)(3).
(1) checks made payable to Cheek herself, which were
negotiated using her genuine indorsement;
(2) checks made payable to local businesses as “fictitious
payees,” upon which Cheek forged the businesses’ indorsements
with scribbled signatures, not commercial stamps; and
(3) checks made payable to persons who were Cheek’s friends
and creditors, upon which Cheek forged the indorsements. ¶8 10.
The last two categories of checks can be described as
“double forgeries” because they contained forged drawee
signatures and forged payee indorsements.
Cheek often presented the checks to Wells Fargo two or
three at a time and cashed or deposited the proceeds of the
fraudulent checks into her personal bank account — not an
account belonging to the fictitious payee — at Wells Fargo (the
“depositary bank” or “collecting bank”9).
¶¶ 10, 17, 49.
of these can be referred to as “third-party” checks, i.e.,
checks drawn to a person other than the holder of the account
into which the proceeds are to be deposited.
party” checks generally are considered high-risk by banks and
require manager approval before depositing.
Complaint alleges that the tellers at Wells Fargo violated Wells
Fargo requirements by accepting the stolen checks without
All ¶ references herein refer to paragraphs of the Amended
Complaint [ECF No. 35].
“‘Depositary bank’ means the first bank to take an item
even though it is also the payor bank unless the item is
presented for immediate payment over the counter.”
“‘Collecting bank’ means a bank handling an item for
collection except the payor bank.” UCC § 4-105.
manager approval and without verifying Silver’s purported
signature against his signature cards on file at Wells Fargo.
Wells Fargo presented the forged checks for payment to PNC
(the “drawee” or “payor bank”10).
PNC accepted and paid the
forged checks without verifying Silver’s signature.
Cheek wrongfully negotiated at least 215 of the forged
checks between January 1, 2011, and November of 2012,11 obtaining
at least $111,302.15. ¶ 49. Silver did not owe money to any of
the payees on these checks, and at no time did Silver authorize
Cheek to sign Silver’s name, draw, or indorse any of these
Silver first discovered Cheek’s check fraud scheme on
November 24, 2012, several years after the scheme had started in
Silver immediately met with a PNC branch manager12 (“the
Manager”), who reviewed Silver’s accounts and the alleged
unauthorized checks for the three to four months prior.
Manager was “surprised and shocked that the instruments were
honored” by PNC and accepted by Wells Fargo. ¶ 33. The Manager
called his wife, who currently worked, or had just left her
“‘Drawee/ means a person ordered in a draft to make
payment.” § 3-103(a)(2).
“‘Payor bank’ means a bank that is the drawee of a draft.
At this time, Silver is unable to identify specific forged
checks before 2011.
“[B]elieved to have been Michael Stein.” ¶ 33.
employment, for Wells Fargo, and the Manager determined that
“the fraudulent check deposits had been
made in violation of
several of Wells Fargo’s banking procedures.” Id.
The Manager referred the matter to Robert Smetzer (“Mr.
Smetzer”), Assistant Vice President/Senior Fraud Investigator
The Manager told Silver that PNC would do as much as
it could to help Silver recoup his losses.
However, on January
11, 2013, Mr. Smetzer sent Silver a letter indicating that PNC
was not going to take action on the alleged fraudulent activity
or try to recoup any money from Wells Fargo.
Neither PNC nor Wells Fargo have paid or credited Silver
the amounts charged against his account due to the check fraud
B. Procedural Posture
Silver filed this lawsuit in the Circuit Court for
Baltimore County, Maryland on November 23, 2015.
A Notice of
Removal was filed properly on February 10, 2016. [ECF No. 1].
On November 29, 2016, this Court dismissed the Complaint by
the November Order [ECF No. 34].
However, in its Memorandum and
Order the Court stated that “Plaintiff may, by January 15, 2017
file an Amended Complaint. Id. at 23. Plaintiff filed the
Amended Complaint [ECF No. 35] on January 17, 2017.13
In the Amended Complaint, Silver asserts claims against the
Defendants in ten Counts:
Lack of Ordinary Care and Good
Faith – Violation of Md. Code
Ann., Com. Law §§ 3-404, 3-405,
Breach of Presentment Warranties
– Violation of Md. Code Ann.,
Com. Law §§ 3-417, 4-208
Breach of Contract
Negligence as to PNC
Negligence as to Wells Fargo
Strict Liability - Violation of
Md. Code Ann., Com. Law
§§ 3-403, 4-401
Negligent Hiring and/or
Retention of Employees
Count VIII: Constructive Fraud
Conversion - Violation of
Md. Code Ann., Com. Law
[ECF No. 35].
Maryland Uniform Commercial Code Claims
The Amended Complaint presents statutory (UCC) claims14 for
On March 9, 2017, the Court entered a Judgment Order [ECF
No. 45] against Plaintiff for failure to file a timely response
to the instant Motions to Dismiss the Amended Complaint. [ECF
No. 44]. However, on March 14, 2017, the Court granted
Plaintiff’s Motion for Relief from the [Judgment] Order [ECF No.
46] and granted Plaintiff additional time to respond to the
dismissal motions. See Order Reopening Case [ECF No. 47].
lack of ordinary care (Count I), breach of presentment
warranties (Count II), strict liability for wrongful payment
(Count VI), and conversion (Count X) under Titles 3 and 4 of the
In the Motions to Dismiss, Defendants contend that (1)
Silver’s allegations fail to plead plausible claims, (2) no
cause of action exists against one or both banks for breach of
presentment warranty, conversion, violation of UCC § 4-401, and
common law negligence, and (3) the UCC statute of limitations,
the § 3-406 “twelve-month rule,” and/or the PNC Account
Agreement bar recovery on Silver’s UCC claims that accrued prior
to November 24, 2015.
1. Lack of Ordinary Care and Good Faith – §§ 3-404 to
3-406 (Count I)
In Count I, the Amended Complaint presents claims under UCC
§§ 3-404, 3-405, and 3-406. Sections 3-404 and 3-405 provide
that a victim of check fraud caused by an “impostor” or an
employee may recover from a bank that failed to exercise
“ordinary care” when paying or taking the fraudulent check. §15
3-404 (“[T]he person bearing the loss may recover from the
The UCC governs negotiable instruments and the relationship
between banks and customers. Cf. Lema v. Bank of Am., N.A., 826
A.2d 504, 508–09 (Md. 2003).
All § references herein are to the Maryland Commercial Law
Article/ Maryland UCC.
person failing to exercise ordinary care to the extent the
failure to exercise ordinary care contributed to the loss.”).
Section 3-405 contains almost identical language.
a. The Impostors Provision — § 3-404
The “impostors” provision, § 3-404, applies when “an
instrument is payable to a fictitious or nonexisting person and
to cases in which the payee is a real person but the drawer or
maker does not intend the payee to have any interest in the
Official Comment 2 to Md. Code Ann., Com. Law § 3-
This provision is relevant to checks made out by Cheek to
payees other than herself because neither Cheek nor Silver
intended the payees to have an interest in the check.
b. Employee Fraud Provision — § 3-405
Section 3-405, the “employee fraud” provision, states:
responsibility with respect to the instrument and the
employee . . . makes a fraudulent indorsement of the
instrument, the indorsement is effective as the
indorsement of the person to whom the instrument is
payable if it is made in the name of that person.
Id. § 3-405(b).
Section 3-405 covers cases where an account owner’s
employee makes a fraudulent indorsement, either in the
employer’s name, if the employer is the payee, or “in the name
of payees of instruments issued by the employer.”
Comment 1 to Md. Code Ann., Com. Law § 3-405.
Here, § 3-405 could apply if Cheek had “responsibility”16
with regard to Silver’s checks.
The Amended Complaint does not
present factual allegations adequate to support a plausible
claim of the requisite “responsibility.”
c. Loss Allocation Provision — § 3-406
Section 3-406 establishes a comparative negligence scheme
allocating loss between the bank and the customer if both
parties failed to exercise ordinary care that contributed to a
Using these three provisions,17 Silver claims that the
Defendants failed to exercise ordinary care and good faith when
accepting and paying the forged checks. Defendants assert that
Silver does not adequately plead facts in the Amended Complaint
to present plausible claims and that his allegations are
In this context, the term “responsibility” refers to
authority defined in § 3-405(a) and “does not include authority
that merely allows an employee to have access to instruments or
blank or incomplete instrument forms that are being stored or
transported or are part of incoming or outgoing mail, or similar
access.” § 3-405.
It is not necessary for this Court to determine if § 3-406
provides an affirmative cause of action on its own because §§ 3404 and 3-405 do provide a cause of action for lack of ordinary
Under the UCC, “ordinary care” means “observance of
reasonable commercial standards.”
exercise ordinary care is to be determined in the context of all
the facts relating to the bank’s conduct with respect to the
bank’s collection of the check,” including the names on the
account, amount of check, circumstances of account opening, and
actions of account holder.
Official Comment 4 to § 3-405.
The Amended Complaint includes factual allegations that
adequately present a plausible claim that the banks did not
exercise ordinary care in regard to the checks at issue.
example, the Amended Complaint alleges that:
Silver had been a victim of bank fraud before, most
recently in 2011, and his accounts at PNC were marked as
being “victims of fraud” to notify employees to be
vigilant for fraudulent activity. ¶ 29.
The check fraud scheme lasted for approximately five
years and involved at least 215 checks presented for
unauthorized payment from 2011-2012. ¶ 49.
The checks bore a forged drawer signature (Silver’s) and
forged or missing payee indorsements. ¶ 10.
“Most” of the checks were indorsed with a “scribbled
signature without a commercial stamp even though the
majority of these checks were written to local
commercial businesses (as fictitious payees).” ¶ 10.
The checks were “on their face exceedingly suspicious,”
“known to be high-risk, third-party checks payable to a
person other than the accountholder,” and “required
manager approval prior to final payment.” ¶ 65.
The Manager at PNC expressed shock that the checks were
ever accepted and honored because of their suspicious
character. ¶ 33.
The Manager at PNC, after speaking with a Wells Fargo
employee, determined that the checks violated PNC’s and
Wells Fargo’s anti-fraud standards and referred Silver
to Mr. Smetzer. Id.
Thus, the Amended Complaint presents factual allegations
presenting a plausible claim that Defendants did not exercise
ordinary care when they accepted hundreds of checks made payable
to local businesses (and others) that were endorsed and
deposited by the Assistant into her account, even though she was
not affiliated with those payees’ businesses.
that Wells Fargo employees were required to get manager approval
to accept the third-party checks, which they failed to do.
suspicious character of the checks was confirmed, allegedly, by
employees of both Defendants.
Additionally, PNC was already
aware that Silver had been a victim of fraud.
Viewed in a light most favorable to Silver, the foregoing
allegations present facts adequate to plead a plausible claim
based on Defendants’ alleged failure to exercise ordinary care
and present viable claims, at least pursuant to § 3-404, in
2. Breach of Presentment Warranties — § 3-417 and § 4208 (Count II)
In Count II, the Amended Complaint asserts that Wells Fargo
breached UCC presentment warranties and that PNC breached its
obligation to present warranty claims to Wells Fargo on behalf
As explained in the November Order [ECF No. 35], no breach
of presentment cause of action runs to Silver, the drawer. See
Bank Polska Kasa Opieki, S.A. v. Pamrapo Sav. Bank, S.L.A., 909
F. Supp. 948, 955 (D.N.J. 1995)(holding that presentment
warranties under UCC § 3-417 do not run to the drawer); Great
Lakes Higher Educ. Corp. v. Austin Bank of Chicago, 837 F. Supp.
892, 897 (N.D. Ill. 1993)(holding the same).
“Warranty to the
drawer is governed by subsection (d) and that applies only when
presentment for payment is made to the drawer with respect to a
Law § 3-417.
Official Comment 2 to Md. Code Ann., Com.
The drafts in this case were not dishonored, and
thus no warranties were made to Silver as drawer.
Furthermore, Silver has failed to identify any legal
authority that requires PNC to assert a warranty claim on his
Accordingly, the claims in Count II shall be dismissed.
3. Payment of Unauthorized Items — § 4-401 (Count VI)
The Amended Complaint in Count VI asserts that both
Defendants are strictly liable18 under UCC § 4-401 for honoring
checks that were not properly payable under § 3-403.
By its terms, § 4-401 does not apply to Wells Fargo because
it was the depositary bank, not the drawee bank, and did not
charge anything against Silver’s account.
Although Silver has pled a plausible claim under § 4-401
against PNC, he failed to bring his claim within the three-year
limitations period as discussed below.
All claims in Count VI
shall be dismissed.
4. Conversion — §3-420 (Count X)
The Amended Complaint adds a claim against both Defendants
for conversion pursuant to § 3-420.
“An action for conversion of an instrument may not be
brought by (i) the issuer or acceptor of the instrument.” Id.
Silver is an “issuer”20 and may not sue PNC, the
Although Silver uses the term “strict liability,” the
Maryland Court of Appeals has stated that “banks are not to be
held strictly liable for every wrongful disbursement.” Schultz
v. Bank of Am., N.A., 990 A.2d 1078, 1086 (Md. 2010). Instead,
a duty of ordinary care applies. Id.
Section 3-403 designates that “an unauthorized signature is
ineffective except as the signature of the unauthorized signer
in favor of a person who in good faith pays the instrument or
takes it for value.”
An “issuer” is “a maker or drawer of an instrument.” Id. §
drawee bank, or Wells Fargo, the depositary bank, for
conversion. See Chicago Title Ins. Co. v. Allfirst Bank, 905
A.2d 366, 376 n.12 (Md. 2006); Simmons v. Lennon, 773 A.2d 1064,
n.6 (Md. Ct. Spec. App. 2001).
Comment 1 to § 3-420
There is no reason why a drawer should have an action
in conversion. The check represents an obligation of
the drawer rather than property of the drawer. The
drawer has an adequate remedy against the payor bank
for recredit of the drawer’s account for unauthorized
payment of the check.
Official Comment 1 to Md. Code Ann., Com. Law § 3-420.
Additionally, as addressed below, Silver’s conversion
claims are untimely.
Accordingly, Count X shall be dismissed.
Defendants assert a timeliness defense against Silver’s UCC
Title 3 of the Maryland UCC provides that:
an action (i) for conversion of an instrument,
for money had and received, or like action based on
conversion, (ii) for breach of warranty, or (iii) to
enforce an obligation, duty, or right arising under
this article and not governed by this section must be
commenced within 3 years after the cause of action
Md. Code Ann., Com. Law § 3-118(g)(2013 Repl. Vol.).
Similarly, Section 4-111 states, “[a]n action to enforce an
obligation, duty, or right arising under this title must be
commenced within 3 years after the cause of action accrues.” Id.
However, § 3-118 and § 4-111 do not specify when it is that
a cause of action accrues.
Generally, in Maryland, the
discovery rule applies to torts. Hecht v. Resolution Trust
Corp., 635 A.2d 394, 399 (Md. 1994).
Silver contends that the
discovery rule should toll the three-year limitations period
until he discovered the check fraud scheme on November 24, 2012.
The Defendants contend that Silver’s UCC causes of action
accrued as to each check on the date such check was honored, and
are thus untimely.
In Advance Dental Care, Inc. v. Suntrust Bank, 906 F. Supp.
2d 442 (D.Md. 2012), Judge Williams, writing for this Court,
decided that the Maryland Court of Appeals would hold that the
discovery rule does not apply to UCC conversion claims. Id. at
445, 447 (“[A]pplying the discovery rule to § 3–118(g) of the
Maryland UCC would thwart the intent of the Maryland legislature
and contravene public policy.”).
This holding aligns with the
majority approach that the Court finds persuasive.21
to the United States Court of Appeals for the Seventh Circuit:
See, e.g., Travelers Cas. & Sur. Co. of Am. v. Nw. Mut.
Life Ins. Co., 480 F.3d 499, 504 (7th Cir. 2007); John Hancock
Fin. Servs., Inc. v. Old Kent Bank, 346 F.3d 727, 734 (6th Cir.
2003); Menichini v. Grant, 995 F.2d 1224, 1229–32 (3d Cir.
1993); Kuwait Airways Corp. v. American Sec. Bank, N.A., 890
F.2d 456, 460–63, 466 (D.C. Cir. 1989).
[A]pplication of the discovery rule would be inimical
to the underlying purposes of the UCC, including the
commercial transactions. In keeping with those goals,
efficiently, and liability on those instruments is not
meant to be open-ended.
Rodrigue v. Olin Employees Credit Union, 406 F.3d 434, 445–46
(7th Cir. 2005).
Furthermore, the Maryland UCC expressly designates that
certain causes of action22 are subject to the discovery rule,
which indicates that the General Assembly did not intend for the
discovery rule to apply to other provisions that do not contain
that directive. Advance Dental Care, Inc., 906 F. Supp. 2d at
Additionally, in conversion cases, the injured party is
often the one in the best position to prevent and discover the
injury caused by conversion.
[T]he public would be poorly served by a rule that
effectively shifts the responsibility for careful
bookkeeping away from those in the best position to
monitor accounts and employees. Strict application of
the limitation period, while predictably harsh in some
cases, best serves the twin goals of swift resolution
of controversies and “certainty of liability” advanced
by the U.C.C.
Menichini v. Grant, 995 F.2d 1224, 1230 (3d Cir. 1993).
See, e.g., Md. Code, Com. Law §§ 3–417(f), 4–207(e),
4-208(f)(2013 Repl. Vol.) (“A cause of action for breach of
warranty under this section accrues when the claimant has reason
to know of the breach.”).
Maryland courts have not expressly determined whether the
discovery rule applies to other causes of action brought under
UCC Article 3 (§§ 3-404 and 3-405), or to claims under UCC
Article 4 (§ 4-401), although courts in other jurisdictions
The Court finds persuasive the reasoning in Advance Dental
Care, and concludes that the Maryland Court of Appeals would
hold that the discovery rule does not apply to §§ 3-404, 3-405,
and 4-401 claims.
The policies underlying the UCC — uniformity,
finality, predictability, and ease of negotiability — apply in
the contexts of §§ 3-404, 3-405, and 4-401 as they do in the UCC
See Bandy v. Fifth Third Bank, No. 1:08 CV 1064, 2011 WL
4463415, at *7 (N.D. Ohio Sept. 27, 2011), aff’d, 519 F. App'x
900 (6th Cir. 2013)(discovery rule does not apply to UCC § 4-401
claims); United States v. Zarra, No. CIV.A. 10-811, 2011 WL
3667313, at *2 (W.D. Pa. Aug. 22, 2011)(determining that under
UCC § 411, a cause of action accrues at time of negotiation and
discovery rule is inapplicable); Vedos v. King, 115 Wash. App.
1030, *2 (2003)(cause of action pursuant to UCC § 4-401 accrues
at time check is wrongfully paid); Willier, Inc. v. Hurt, No.
CIV.A. 5:06-CV-00547, 2007 WL 4613033, at *5-*6 (S.D.W. Va. Dec.
31, 2007) (determining that the discovery rule does not apply in
UCC cases, including claims under UCC § 3-405); Sebastian v. D &
S Exp., Inc., 61 F. Supp. 2d 386, 389 (D.N.J. 1999)(holding that
the discovery rule does not apply to claims under UCC § 3-404
and a cause of action accrues at time the check is negotiated).
But see Newell v. Newell, 942 N.E.2d 776, 782 (2011)(holding
discovery rule applies to breach of contract claim brought
pursuant to UCC Article 4); Borchers v. Vanguard Grp. Inc., No.
2:08-CV-02138-REJ, 2011 WL 2690424 (D. Ariz. July 11,
2011)(suggesting without deciding that discovery rule would
apply to UCC Article 4 claims).
Application of the discovery rule “is appropriate where
‘stealth, subterfuge, or other difficulties of detection leave a
plaintiff blamelessly ignorant of the facts and circumstances
legally entitling him or her to relief.’” Advance Dental Care,
Inc., 906 F. Supp. 2d at 447 (quoting Murphy v. Merzbacher, 697
A.2d 861, 865 (Md. 1997)).
These “difficulties of detection”
are generally not present in an “information-rich environment,
[such as the case at bar in which] the weapon that inflicted an
injury was the victim’s own check.” Travelers Cas. & Sur. Co. of
Am. v. Nw. Mut. Life Ins. Co., 480 F.3d 499, 504 (7th Cir.
Silver stood in the best place to discover Cheek’s
lucrative and lengthy fraud scheme and the Defendants’
collection and payment of the forged checks.
Much of Silver’s
loss could have been prevented through better management.
Management responsibility is contemplated by UCC § 4-406, which
imposes a duty on customers to inspect their bank records and
promptly notify banks of discrepancies.
It is also notable that
there is no evidence of concealment or fraud on the part of the
Defendants, or other exigent circumstances, that would implicate
doctrines of equitable tolling or estoppel.
Silver relies on PSI Resources, LLC v. MB Financial Bank,
National Association, 55 N.E.3d 186 (Ill. App. 1 Dist. 2016),
wherein the Illinois court held that the discovery rule applied
to a common law breach of contract claim that was governed by
the UCC’s statute of limitations. PSI Resources is
distinguishable because it involved a common law cause of action
— not a violation of the UCC — thus, statutory-specific policies
were not implicated. Cf. Advance Dental Care, Inc., 906 F. Supp.
2d at 448 (“[T]he fact that the discovery rule is applied to
other civil actions pursuant to § 5–101 does not automatically
warrant its application to § 3–118(g) of the UCC.”).
Therefore, the Court concludes that the discovery rule did
not toll the UCC’s three-year limitations period and Silver’s
UCC causes of action accrued at the time when each check was
negotiated. Accordingly, it is unnecessary for the Court to
discuss here the applicability of the time restrictions of the §
4-406(f) “twelve month rule” or the PNC Account Agreement.
suffices to state that the allegations in the Amended Complaint
plainly reveal that the claims regarding all checks paid prior
to November 23, 2012 are time barred by virtue of the generally
applicable three-year limitations period.
Because Silver filed suit on November 23, 2015, his UCC
claims in Counts I (violations of §§ 3-404 and 3-405), VI
(violations of § 4-401), and X (conversion) are untimely as to
any check paid before November 23, 2012.24
D. Common Law Claims
1. Breach of Contract (Count III)
Silver asserts a breach of contract claim against both
Defendants for failing to verify the signatures on the
fraudulent checks, and against PNC for failing to credit Silver
for his losses and make warranty claims against Wells Fargo.
To succeed on a breach of contract claim, a plaintiff must
allege that the defendant owed a contractual obligation and that
this obligation was materially breached.
RRC Ne., LLC v. BAA
Maryland, Inc., 994 A.2d 430, 440 (Md. 2010).
Defendants contend that Silver failed to allege the
existence of a specific contractual obligation.
The Amended Complaint adequately pleads the existence of a
plausible contractual duty and breach of that duty by PNC.
Amended Complaint alleges that PNC agreed in the Rules and
Regulations for Deposit Accounts that it would only honor checks
signed by an Authorized Signer listed on the Signature Card, and
would rely on the Signature Card to verify a check signature. ¶¶
Attached to the Amended Complaint as Exhibit A, is a
reproduced “sampling” of the alleged fraudulent checks. All of
the included checks were deposited before November 23, 2012. If,
however, any check was paid after November 23, 2012, Silver may
have a valid cause of action.
73-74. The Amended Complaint also asserts that PNC failed to do
this. These allegations are adequate to present a breach of
contract action against PNC. See G&D Furniture Holdings, Inc. v.
SunTrust Bank, No. CV TDC-16-2020, 2016 WL 7441607, at *4 (D.
Md. Dec. 22, 2016)(finding similar allegations of breach of
contract adequate to survive dismissal).
Furthermore, the Amended Complaint adequately alleges that
both Defendants breached the banks’ contractual duties of
ordinary care. See Schultz v. Bank of Am., N.A., 990 A.2d 1078,
1093 (Md. 2010) (“There was therefore no need for Petitioner to
establish all the terms of the alleged contract between Schultz
and the Bank because the Commercial Code provided the relevant
term: the duty of ordinary care.”).
A bank has an implied in fact contractual relationship
with its customer. Id. at 1092 n. 20.
Under this implied
contract, as codified in the UCC, a bank owes a duty of ordinary
care to its customer. Id.; see also Taylor v. Equitable Trust
Co., 304 A.2d 838, 842–43 (Md. 1973)(“[T]he UCC codifies the
underlying contract implied between the bank and its customer
that the bank will charge any item which is ‘otherwise properly
payable’ against the depositor’s account only on the order of
A customer may enforce this duty through an
action for breach of contract. Schultz, 990 A.2d at 1092.
Silver adequately alleges that he is a customer25 in a
contractual relationship with both Defendants.
by their maintaining his accounts and signature cards, PNC and
Wells Fargo owed Silver a duty of ordinary care.
As previously discussed herein, the Amended Complaint’s
allegations adequately plead failure to exercise ordinary care.
Therefore, the claims in Count III shall not be dismissed.26
2. Negligence (Counts IV - V)
Silver asserts common law negligence claims against both
Defendants, but, at least in this instance, the UCC replaces a
common law negligence claim. Advance Dental Care, Inc. v.
SunTrust Bank, 816 F.Supp. 2d 268, 270–71 (D. Md.
2011)(“[C]ommon-law negligence claims can proceed only in the
absence of an adequate U.C.C. remedy.”).
A “customer” is “a person having an account with a bank or
for whom a bank has agreed to collect items.” Md. Code Ann.,
Com. Law § 4-104(a)(5).
As explained by the Court in Schultz,
There is no contradiction in allowing a party to enforce
the duty of ordinary care through a contract claim, a tort
claim, or both. We noted in Jacques v. First Nat'l Bank,
307 Md. 527, 545, 515 A.2d 756, 765 (1986), that
“[a]lthough the proof required and the measure of
compensatory damages allowable may be essentially the same
under either cause of action, there are other
considerations ... that make it desirable to provide a
choice of actions.”
Schultz, 990 A.2d at 1092 n.21.
As stated in the November Order [ECF No. 34], the UCC
provides an adequate remedy against both Defendants in §§ 3-404,
3-405, and/or 4-401. See 6C Anderson U.C.C. § 4-401:10 (3d. ed.)
(“UCC § 4-401 displaces any common-law action for negligence
against a bank paying a check on which the drawer’s signature is
forged”); see also Gina Chin & Assocs., Inc. v. First Union
Bank, 500 S.E.2d 516, 518 (Va. 1998)(holding that a victim of
double forgery can bring a causes of action against a depositary
bank pursuant to UCC § 3-404 and § 3-405).
Unlike other cases where Maryland courts have allowed
negligence suits for violation of the UCC’s duty of care,27
Silver’s common law negligence claim has no independent
significance apart from his UCC claims.
The instant case
involves forged checks that were not properly payable under the
UCC, and thus the claims fall under the UCC’s purview.
contrast, in Chicago Title Ins. Co. v. Allfirst Bank, 905 A.2d
366, 376-77 (Md. 2006), the Maryland Court of Appeals determined
that a common law negligence cause of action was appropriate
because the check at issue contained no forgery or improper
indorsement and was thus properly payable under the UCC.
See, e.g., Schultz, 990 A.2d at 1086 (allowing negligence
suit in case arising from addition of a third party’s name on
bank customer’s checking account); Novara v. Manufacturers &
Traders Trust Co., No. CIV.A. ELH-11-736, 2011 WL 3841538, at *9
(D. Md. Aug. 26, 2011)(involving collection of payments in
satisfaction of notes).
Silver implicitly recognizes the adequacy of the UCC
remedies by bringing claims under those provisions. See Great
Lakes Higher Educ. Corp. v. Austin Bank of Chicago, 837 F. Supp.
892, 896 (N.D. Ill. 1993)(“[Plaintiffs] have other remedies
under the UCC which they have alternatively plead in their
complaint, thus showing that a common law action for negligence
is unnecessary and may not be alleged here.”).
Furthermore, a common law negligence claim would be
essentially duplicative of a breach of contract claim.
Accordingly, all claims in Counts IV and V shall be
3. Negligent Hiring and/or Retention of Employees
In Count VII, the Amended Complaint claims that the
Defendants breached their duty to use reasonable care to select
and retain employees who could competently perform banking
transactions, which resulted in bank employees accepting
In a negligent hiring case, a plaintiff must establish the
following five elements:
(1) the existence of an employment relationship;
(2) the employee’s incompetence;
(3) the employer’s actual or constructive knowledge of such
(4) the employee’s act or omission causing the plaintiff’s
(5) the employer’s negligence in hiring[, supervising] or
retaining the employee as the proximate cause of
Latty v. St. Joseph’s Soc. of Sacred Heart, Inc., 17 A.3d 155,
165 (Md. Ct. Spec. App. 2011)(internal citations omitted).
“[T]he employer must make some reasonable inquiry before hiring
or retaining the employee to ascertain his fitness, or the
employer must otherwise have some basis for believing that he
can rely on the employee.” Jones v. State, 38 A.3d 333, 343 (Md.
2012) (quoting Horridge v. St. Mary’s County Dep’t of Soc.
Servs., 854 A.2d 1232, 1237–38 (Md. 2004)).
“Under Maryland law, an employer’s liability in this regard
is not to be reckoned simply by the happening of the injurious
Rather, there must be a showing that the employer failed
to use reasonable care in making inquiries about the potential
employee, or in supervising or training the employee.”
Economides v. Gay, 155 F. Supp. 2d 485, 489 (D.Md. 2001)(quoting
Gay v. United States, 739 F.Supp. 275, 276 (D.Md. 1990))
(internal citations omitted).
The Amended Complaint does not adequately allege facts
presenting a plausible claim that the Defendants had knowledge
of employee incompetence or otherwise failed to use reasonable
care in hiring, training, or supervising the employees.
Amended Complaint, Silver names Mr. Smetzer and the bank tellers
as the negligent employees and states that the tellers never
questioned 215 checks is “extreme evidence of the incompetence
of both banks’ employees and proof that they were inadequately
trained and retained.” ¶ 49.
This allegation is conclusory and
points only to the “injurious event” as evidence of negligent
This is not adequate to plead a cause of action
for negligent supervision and/or retention.
All claims in Count VII shall be dismissed.
4. Constructive Fraud (Count VIII)
The tort of constructive fraud requires a breach of a legal
or equitable duty, which “the law declares fraudulent because of
its tendency to deceive others, to violate public or private
confidence, or to injure public interests.”
Ellerin v. Fairfax,
Sav., F.S.B., 652 A.2d 1117, 1126 n.11 (Md. 1995)(quoting Scheve
v. McPherson, 408 A.2d 1071, 1076 (Md. Ct. Spec. App. 1979)).
Silver claims that the Defendants owed him a fiduciary duty
to properly manage his banking affairs and that they breached
that duty by acting carelessly, ignoring suspicious facts, and
not preventing Cheek from cashing fraudulent checks.
“At common law, the relationship of a bank to its customer
was not considered to be fiduciary in nature, but rather as that
of a debtor and his creditor.” Suburban Trust Co. v. Waller, 408
A.2d 758, 762 (Md. Ct. Spec. App. 1979).
In its November Order,
the Court notified Silver of the need to comply with the
particularity requirement of Rule 9(b) and to plead the
existence of an agreement or other special circumstances
establishing a fiduciary duty between him and either Defendant.28
The Amended Complaint does not do so.
Instead, the Amended Complaint alleges that PNC failed to
take action because the Defendants, and other national banks,
“collude with each other in a scheme whereby their own banking
customers are treated poorly . . . when banking customers fall
victim to fraud . . . [in order to] absolve themselves of
numerous administrative details.” ¶ 37.
These allegations are
conclusory and do not adequately present a claim of constructive
fraud. See Tech. Partners, Inc. v. Regions Bank, 245 S.W.3d 687,
694 (Ark. App. 2006)(finding that bank’s failure to verify
embezzling employee’s authority before depositing a check in his
personal account did not have a “fraudulent tendency to
Moreover, Silver provides no opposition to
See Legore v. OneWest Bank, FSB, 898 F. Supp. 2d 912, 919
(D.Md. 2012) (quoting Parker v. Columbia Bank, 604 A.2d 521, 532
(Md. Ct. App. 1992))(“Absent ‘special circumstances,’ the court
is reluctant to ‘transform an ordinary contractual relationship
between a bank and its customer into a fiduciary relationship .
. . .’”); Taylor v. Equitable Trust, 304 A.2d 838, 842 (Md.
1973))(“[T]he relation between a bank and its depositor is . . .
broadly defined as being that of debtor and creditor, the rights
of the depositor and the liability of the bank being
contractual.” (internal citations omitted)).
Defendants’ motions to dismiss Count VIII.
Accordingly, all claims in Count VIII shall be dismissed.
5. Civil Conspiracy (Count IX)
In Maryland, “‘conspiracy’ is not a separate tort capable
of independently sustaining an award of damages in the absence
of other tortious injury to the plaintiff.”
Alleco Inc. v.
Harry & Jeanette Weinberg Found., Inc., 665 A.2d 1038, 1044–45
(1995)(quoting Alexander v. Evander, 650 A.2d 260, 265 n. 8
Accordingly, all claims in Count IX shall be dismissed but
Silver is not prohibited from asserting against any Defendant
liability on any viable claim as a conspirator.
For the foregoing reasons:
Wells Fargo Bank, N.A.’s Motion to Dismiss Claims
Asserted Against It in the Amended Complaint [ECF No.
40] is GRANTED IN PART and DENIED IN PART.
PNC Bank, National Association’s Motion to Dismiss
Plaintiff Jeffrey J. Silver’s Amended Complaint [ECF
No. 43] is GRANTED IN PART and DENIED IN PART.
All claims in the following Counts are hereby
a. Count II (Presentment Warranties);
b. Counts IV and V (common law negligence);
c. Count VI (violation of § 4-401);
d. Count VII (negligent hiring/supervision);
e. Count VIII (constructive fraud);
f. Count IX (civil conspiracy); and
g. Count X (conversion).
There remain pending, all claims in the following
a. Count I (Lack of Ordinary Care);29 and
b. Count III (Breach of Contract).
Plaintiff shall arrange a case planning telephone
conference to be held by July 10, 2017.
SO ORDERED, this Friday, June 30, 2017.
Marvin J. Garbis
United States District Judge
Only as to any claims that accrued on or after November 23,
2012, as explained herein.
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