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SEBASTIAN v. D & S EXP.

August 25, 1999

ALAN SEBASTIAN, AND VIRGINIA SEBASTIAN AS SHAREHOLDERS OF D & S EXPRESS, INC., AND CARGO XPRESS, INC. SUING ON BEHALF OF THEMSELVES AND DERIVATIVELY FOR THE BENEFIT OF D & S EXPRESS, INC., AND CARGO XPRESS, INC., PLAINTIFFS,
v.
D & S EXPRESS, INC. AND CARGO XPRESS., INC., NOMINAL DEFENDANTS, AND ANDREW DEVERY, JR.; EILEEN DEVERY; DEBRA BUCK; GARY BUCK; JAMES ELLIOTT; LOIS ELLIOTT; WAYNE ELLIOTT; AND FIRST UNION NATIONAL BANK, DEFENDANTS.



The opinion of the court was delivered by: Walls, District Judge.

Defendant First Union National Bank brings this motion for judgment on the pleadings. The motion for judgment on the pleadings is granted. The Court dismisses the plaintiffs' claims under common law negligence and conversion as a matter of law and limits the claims brought under 13 Pa.C.S.A. § 3404(d) through application of the statute of limitations found in 13 Pa.C.S.A. § 3118(g) of the Pennsylvania enactment of the Uniform Commercial Code.

Factual Background

Plaintiffs Virginia and Alan Sebastian, mother and son respectively, together own 50% of the stock of two corporations, D & S Express, Inc. ("D & S") and Cargo Xpress, Inc. ("Cargo Xpress"). D & S and Cargo Xpress are New Jersey corporations with their principal place of business located in Greenbrook, New Jersey. Both companies engage in the interstate shipment of goods in an arrangement where Cargo Xpress's employees handle most of the shipments while D & S provides the equipment and billing services.

The plaintiffs have brought this action on their own behalf and derivatively against defendant First Union National Bank and individual defendants as a result of long-standing embezzlement and fraud, alleged to have been perpetrated by the former president of the two companies, defendant Andrew Devery, Jr. ("Devery") and co-defendants Eileen Devery, Debra Buck, Gary Buck, James Elliott, Lois Elliott and Wayne Elliott between 1990 and 1997. Specific to the action against First Union National Bank, the plaintiffs have discovered at least eighty-seven checks made out to fictitious payees between April 12, 1993 and July 22, 1997, which were later cashed at the Chester, Pennsylvania branch of the First Union National Bank and its predecessors, First Fidelity Bank and Merchant's Bank.*fn1 (V.Compl.Ex. B).

Most of these checks were mailed or otherwise transported to Pennsylvania where defendant Debra Buck ("Buck"), Devery's daughter, endorsed and cashed them after they were endorsed in the name of the fictitious payee. The description on the checks indicated that payment was being made for "maintenance" services and some checks had invoice numbers noted. The plaintiffs state that at no time did the fictitious payees render any maintenance services and allege that the invoice numbers are fictitious. (V.Compl. ¶¶ 41-48).

Plaintiffs direct three of the twenty-four counts in their Verified Complaint against First Union. The plaintiffs assert that First Union is legally liable pursuant to the Uniform Commercial Code's "fictitious payee" provision in 13 Pa.C.S.A. § 3404, for failure to exercise ordinary care. (V. Compl. Count XXII). Additionally, the plaintiffs assert claims for common law negligence and common law conversion. (V. Compl. Counts XXIII-XXIV).

Legal Standard

Fed.R.Civ.P. 12(c) provides that "after the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." Fed.R.Civ.P. 12(c). Because the only difference between a Rule 12(c) motion and a Rule 12(b)(6) motion is the timing of the motion (Rule 12(b)(6) motions must be brought before any responsive pleadings are filed), courts apply the same legal standards to decide both types of motions. Turbe v. Gov't of the Virgin Islands, 938 F.2d 427, 428 (3d Cir. 1991); Maggette v. Dalsheim, 709 F.2d 800, 802 (2d Cir. 1983).

On a Rule 12(b)(6) motion, the court is required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, and to view them in the light most favorable to the non-moving party. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir. 1994). The question is whether the plaintiff can prove any set of facts consistent with his/her allegations that will entitle him/her to relief, not whether the person will ultimately prevail. See Hishon v. King and Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984).

While a court will accept well-pleaded allegations as true for the purposes of motion, it will not accept legal or unsupported conclusions, unwarranted inferences, or sweeping legal conclusions cast in the form of factual allegations. See Miree v. DeKalb County, Ga., 433 U.S. 25, 27, 97 S.Ct. 2490, 53 L.Ed.2d 557 (1977); Washington Legal Found. v. Massachusetts Bar Found., 993 F.2d 962, 971 (1st Cir. 1993); Violanti v. Emery Worldwide A-CF Co., 847 F. Supp. 1251, 1255 (M.D.Pa. 1994). Moreover, the claimant must set forth sufficient information to outline the elements of the claims or to permit inferences to be drawn that these elements exist. See Fed. R.Civ.P. 8(a)(2); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

Analysis

I. Claims Under 13 Pa.C.S.A. § 3404 and Applicable Statute of
  Limitations for Checks Presented Earlier than Three Years
  Before the July 31, 1998 Filing of the Verified Complaint.

The complaint charges that the First Union Bank is liable under 13 Pa.C.S.A. § 3404. The plaintiffs maintain that the statute is applicable based on its "fictitious payee" provision. This section, the Pennsylvania codification of the Uniform Commercial Code ("UCC"), contains an outline of rules for the management of instruments made out to a "fictitious person" (§ 3404(b)) and grants a cause of action for failure to exercise ordinary care (§ 3404(d)).

  With respect to an instrument to which subsection (a)
  or (b) 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, the person bearing the loss may recover
  from the person failing to exercise ordinary care ...

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