Travelers Casualty and Surety Company of America v. Associated Bank, N.A.

Filing 16

OPINION and ORDER denying 7 Motion to Dismiss. Accordingly, the stay of discovery is lifted, and the deadline for filing dispositive motions is pushed back to July 17, 2016, with trial to proceed on November 14, 2016, if necessary. Signed by District Judge William M. Conley on 6/3/2016. (kwf)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

TRAVELERS CASUALTY AND SURETY
COMPANY OF AMERICA, as subrogee and
assignee of The Alexander Company, Inc.,
Plaintiff,

OPINION AND ORDER

v.
15-cv-499-wmc
ASSOCIATED BANK, N.A.,
Defendant.

Defendant Associated Bank, N.A. (“Associated Bank”) accepted for deposit a
number of checks written on the account of The Alexander Company, Inc., and payable
to an allegedly fictitious entity. Having reimbursed its insured, Alexander, for the losses
arising out of those deposits, plaintiff Travelers Casualty and Surety Company of
America (“Travelers”) brought this diversity action against Associated Bank for violating
Wis. Stat. § 403.404(4) by failing to exercise ordinary care. Pending before the court is
defendant’s motion to dismiss (dkt. #7), which will be denied because plaintiff Travelers
has alleged enough facts to support a reasonable inference that defendant Associated
Bank failed to adhere to the applicable standard of care by accepting checks payable to a
fictitious entity.
ALLEGATIONS OF FACT
Plaintiff alleges that Travelers is a Connecticut corporation with its principal place
of business in Connecticut. Plaintiff further alleges that Associated Bank is a citizen of
Wisconsin under 28 U.S.C. § 1348 because it is a national banking association with its

main office in Wisconsin.

Accepting these facts as true, the court has diversity

jurisdiction under 28 U.S.C. § 1332 because the amount in controversy exceeds
$75,000.1
As for the merits, plaintiff alleges that an employee of The Alexander Company,
Gregory Hunt, perhaps working with his daughter, Tiffany Hunt, carried out a scheme to
steal money from his employer by causing The Alexander Company to issue checks
payable to the order of “Floor-Tek.”

Plaintiff alleges on information and belief that

Floor-Tek is a fictitious company with no business operations, employees, records or
physical presence.
Despite being a fictitious company, plaintiff claims, Associated Bank accepted the
checks made payable to Floor-Tek, which it then deposited into accounts at Associated
Bank opened for Gregory and/or Tiffany Hunt.

Ultimately, plaintiff Travelers paid

Alexander’s insurance claim for losses amounting to $503,382.77, the total amount
withdrawn from its account to cover Floor-Tek’s checks.
OPINION
In resolving a motion to dismiss under Rule 12(b)(6), the court takes all well-pled
facts in the complaint as true and draws all reasonable inferences in favor of the
non-moving party.

Reger Dev., LLC v. Nat’l City Bank, 592 F.3d 759, 763 (7th Cir.

Plaintiff does not include facts in the complaint supporting its assertion that this court has
proper venue because “a substantial part of the events or omissions giving rise to the claim
occurred in this judicial district,” but defendant does not contest venue, and so the court will not
raise it. See Auto. Mechs. Local 701 Welfare and Pension Funds v. Vanguard Car Rental USA, Inc., 502
F.3d 740, 746 (7th Cir. 2007) (noting that a district court should not generally raise an issue of
venue sua sponte).
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2010).

A complaint survives a motion to dismiss if it “contain[s] 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, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.’”

Id.

“The plausibility standard is not akin to a ‘probability

requirement,’ but it asks for more than a sheer possibility that a defendant has acted
unlawfully.” Id. While far from a compelling narrative, plaintiff’s pleading meets this
admittedly low bar, leaving defendant to move for summary judgment if the record is in
fact as one-sided as its motion represents.
Defendant moves to dismiss the complaint on the basis that plaintiff has failed to
plead enough facts from which the court could reasonably infer that it is liable under
Wis. Stat. § 403.404(4), which underlies plaintiff’s statutory negligence claim. Adopted
from § 3-404 of the Uniform Commercial Code, the Wisconsin statutes state generally
that:
(1) If an imposter, by use of the mails or otherwise, induces
the issuer of an instrument to issue the instrument to the
imposter, or to a person acting in concert with the impostor,
by impersonating the payee of the instrument or a person
authorized to act for the payee, an endorsement of the
instrument by any person in the name of the payee is
effective as the endorsement of the payee in favor of a person
who, in good faith, pays the instrument or takes it for value
or for collection.
(2) If a person whose intent determines to whom an
instrument is payable under s. 403.110(1) or (2) does not
intend the person identified as payee to have any interest in
the instrument or if the person identified as payee of an instrument
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is a fictitious person, the following rules apply until the
instrument is negotiated by special endorsement:
(a) Any person in possession of the instrument is its holder.
(b) An endorsement by any person in the name of the payee
stated in the instrument is effective as the endorsement of the
payee in favor of a person who, in good faith, pays the
instrument or takes it for value or for collection.
(3) Under sub. (1) or (2), an endorsement is made in the
name of a payee if it is made in a name substantially similar
to that of the payee.
(4) With respect to an instrument in which sub. (1) or (2) applies,
if a person paying the instrument or taking it for value or for
collection fails to exercise ordinary care in paying or taking the
instrument and that failure substantially contributes to loss resulting
from payment of the instrument, the person bearing the loss may
recover from the person failing to exercise ordinary care to the extent
that the failure to exercise ordinary care contributed to the loss.
Wis. Stat. § 403.404 (emphasis added).
Defendant principally moves to dismiss the complaint on the basis that plaintiff
“does not offer any facts to substantiate that Floor[-]Tek is indeed a fictitious entity”
because all of its “allegations regarding Floor[-]Tek are based upon ‘information and
belief.’” (Def.’s Opening Br. (dkt. #8) at 7.) In support of that argument, defendant
cites a lone, out-of-circuit case, In re Darvocet, Darvon, and Propoxyphene Products Liability,
756 F.3d 917 (6th Cir. 2014), for the proposition that “[t]he mere fact that someone
believes something to be true does not create a plausible inference that it is true.” Id. at
931 (citing Twombly, 550 U.S. at 551).
Fair enough, but defendant cites no case holding that allegations on information
and belief are necessarily insufficient to meet the pleading standard of Federal Rule of
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Civil Procedure 8, and a number of district courts have expressly rejected that very
holding, even after Twombly. See, e.g., Trs. of the Auto. Mechs.’ Indus. Welfare and Pension
Funds Local 701 v. Elmhurst Lincoln Mercury, 677 F. Supp. 2d 1053, 1054-55 (N.D. Ill.
2010) (collecting cases). While admittedly just notice pleading, there is no reason to
reject on face value that Floor-Tek is a fictitious entity. On the contrary, this seems a
perfectly logical inference given the size of the claimed loss here.
Defendant also argues that plaintiff fails to adequately plead how it fell short of the
applicable “ordinary care” standard under § 403.404(4).

As defined by Wisconsin

statutes,
“Ordinary care” in the case of a person engaged in business
means observance of reasonable commercial standards,
prevailing in the area in which the person is located, with
respect to the business in which the person is engaged. In the
case of a bank that takes an instrument for processing for collection or
payment by automated means, reasonable commercial standards do
not require the bank to examine the instrument if the failure to
examine does not violate the bank’s prescribed procedures and the
bank’s procedures do not vary unreasonably from general banking
usage not disapproved by this chapter or ch. 404.
Wis. Stat. § 403.103(1)(g) (emphasis added).
As defendant correctly points out, plaintiff does not allege that Associated Bank
had actual knowledge that Floor-Tek was a fictitious entity, but then § 403.404(4) as
italicized above applies an ordinary care standard sounding in negligence, not proof that
the defendant acted knowingly. In Wisconsin, a plaintiff bringing a negligence claim
need only plead facts that, if proven true, would establish: (1) a breach of (2) a duty
owed (3) that results in (4) injury or injuries, or damages. See Brandenburg v. Briarwood
Forestry Servs., LLC, 2014 WI 37 ¶6, 354 Wis. 2d 413, 847 N.W.2d 395.
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Under the facts alleged by plaintiff here, defendant had a duty of ordinary care
regarding accepting checks payable to fictitious payees, which it breached by failing to
investigate or discover that Floor-Tek was not a legitimate business entity, causing
plaintiff (as the subrogee of the payor) injury.

In fairness to defendant, plaintiff’s

complaint lacks specificity found in some other cases involving similar claims. See, e.g.,
YF Trust v. JP Morgan Chase Bank, N.A., No. CV 07-567-PHX-MEM, 2008 WL 821856,
at *4 (D. Ariz. Mar. 26, 2008) (allegations regarding what small-town bank knew about
owner and sole signatory to fictitious vendor accounts); Nat’l Accident Ins. Underwriters,
Inc. v. Citibank, F.S.B., 243 F. Supp. 2d 763, 764 (N.D. Ill. 2002) (allegations regarding
appearance of checks). Even so, plaintiff pleads enough as to the lack of typical indicia
that would have made Floor-Tek appear to be a legitimate business entity to meet the
minimum standard of specificity required by Rule 8 for plaintiff’s claim that defendant
failed to exercise ordinary care.2
Determining whether a claim is plausible is a “context-specific task that requires
the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556
U.S. at 679. Although the complaint admittedly lacks a significant degree of factual
specificity, the facts alleged are enough, in the court’s view, to “present a story that holds
together,” including the considerable total dollar amount of the checks involved. Swanson
v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010); see also McCauley v. City of Chi., 671
F.3d 611, 616-18 (7th Cir. 2011) (determining that the plaintiff’s Monell claim was

In reaching this determination, the court disregards the arguments concerning defendant’s
compliance with the USA Patriot Act, which plaintiff only raises in its reply brief. (See Pl.’s Resp.
Br. (dkt. #11) at 5-6.)
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complex, more like a malicious prosecution claim than a housing discrimination claim,
requiring facts to be pled with a higher level of specificity). Defendant’s demand for
greater specificity will have to await the “put up or shut up” stage of this lawsuit,
otherwise known as summary judgment. Accordingly, the court will deny defendant’s
motion to dismiss.3

ORDER
IT IS ORDERED that defendant’s motion to dismiss (dkt. #7) is DENIED.
Accordingly, the stay of discovery is lifted, and the deadline for filing dispositive motions
is pushed back to July 17, 2016, with trial to proceed on November 14, 2016, if
necessary.
Entered this 3rd day of June, 2016.
BY THE COURT:
/s/
WILLIAM M. CONLEY
District Judge

Although defendant does not appear to seek dismissal on the basis that plaintiff “does not plead
any time period in its Complaint” (Def.’s Opening Br. (dkt. #8) at 9), that outcome would be
premature at this stage, since it is not clear that plaintiff’s claim is time-barred on the face of the
complaint. See Barry Aviation, Inc. v. Land O’Lakes Mun. Airport Comm’n, 377 F.3d 682, 688 (7th
Cir. 2004).
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