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C & K Petroleum Products Inc. v. Equibank

filed: February 18, 1988.

C & K PETROLEUM PRODUCTS, INC., APPELLANT
v.
EQUIBANK



On Appeal from the United States District Court for the Western District of Pennsylvania, D.C. Civil No. 86-2626.

Sloviter and Cowen, Circuit Judges and Debevoise,*fn* District Judge.

Author: Cowen

Opinion OF THE COURT

COWEN, Circuit Judge.

This appeal arises from an order of the district court dismissing C & K Petroleum Product's ("C & K") complaint pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. C & K's amended complaint alleged fraud, detrimental reliance, and breach of a duty of good faith against the defendant, Equibank, related to certain checks issued by one of Equibank's customers, Ropet, Inc. ("Ropet"), to C & K during a two week period in December, 1984. In its appeal to this Court, C & K also argues that Equibank failed to dishonor checks written by Ropet to C & K in the manner required by the Pennsylvania Uniform Commercial Code ("UCC"), 13 Pa. Cons. Stat. Ann. ยงยง 1101 et seq. (Purdon 1984).

Because factual allegations in a complaint must be presumed to be true when considering a motion to dismiss, we will reverse the district court's dismissal of C & K's fraud claim concerning an alleged intentional misrepresentation by Equibank, and remand for proceedings consistent with this opinion. We also hold that C & K does not have standing under the UCC to assert a claim for wrongful dishonor against Equibank. Finally, we will affirm the dismissal of C & K's claims based on detrimental reliance and breach of a duty of good faith under the UCC.

I.

Appellant C & K Petroleum Products, Inc., an Ohio corporation, is a supplier of petroleum products. C & K supplied petroleum products and acted as a trade creditor to Ropet, Inc., a wholesaler and retailer of petroleum products. Appellee, Equibank, is a Pennsylvania bank where Ropet maintained a checking account. Ropet is not a party to this action. No contractual relationship exists between C & K and Equibank.

Ropet maintained a checking account with Equibank for the purpose of paying its trade creditors, such as C & K, for products delivered. C & K alleges that prior to December, 1984, Equibank routinely honored checks written by Ropet to trade creditors when funds necessary to pay these checks were deposited, but not yet collected. On or about December 4, 1984, apparently in response to the deteriorating financial condition of Ropet, Equibank allegedly changed its policy and refused to honor checks written by Ropet to C & K or other payees on deposited but uncollected funds. C & K alleges that Equibank failed to notify Ropet or any of Ropet's other trade creditors of this change of the bank's policy. Instead, Equibank returned the checks with the explanation that "funds were uncollected." For two weeks, C & K continued to supply over $10,000 worth of products to Ropet in exchange for checks that continued to be dishonored on the ground that funds were uncollected.

During this two week period, Ropet steadily made deposits to its checking account, in part based on sales of products that continued to be supplied by its trade creditors. However, Equibank allegedly used these funds to "setoff" existing debts owed the bank by Ropet, rather than to honor checks written by Ropet to its trade creditors, such as C & K. On December 18, 1984, Ropet filed for reorganization under Chapter 11 of the Bankruptcy Code. Pursuant to insolvency law, Equibank, as a secured creditor of Ropet, benefited substantially from the fact that unsecured creditors like C & K continued to supply products to Ropet during this two week period. In contrast, C & K and other unsecured trade creditors of Ropet suffered substantial losses with less hope of recourse in a bankruptcy proceeding.

C & K alleges that Equibank's actions were part of an intentional scheme to defraud C & K and Ropet's other trade creditors in a calculated attempt to minimize Equibank's own losses. C & K alleges that on or about December 4, 1984, Equibank decided to close Ropet's checking account, but failed to notify Ropet that its account was closed and lied about its reasons for dishonoring Ropet's checks. By allegedly concealing its decision to close Ropet's account and misrepresenting that checks were dishonored because of uncollected funds, Equibank allegedly deceived C & K into continuing to transfer assets to Ropet, thereby increasing the value of Equibank's security interest.

Following an initial exchange of pleadings,*fn1 C & K filed an amended complaint in the district court alleging fraud, detrimental reliance, and breach of a duty of good faith. Equibank filed a motion to dismiss the amended complaint pursuant to Rule 12(b)(6) on May 14, 1987. C & K's amended complaint was dismissed by the district court on July 16, 1987, by memorandum opinion and order.*fn2

II.

This Court's review of the district court's order is plenary since appellate consideration of a district court order dismissing a complaint pursuant to Rule 12(b)(6) solely involves a question of law. D.P. Enterprises, Inc. v. Bucks ...


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