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Cohen v. First Bank

United States District Court, S.D. Mississippi, Eastern Division

March 14, 2018

CAROL W. COHEN and ELLIOT J. SLUTSKY PLAINTIFFS
v.
FIRST BANK DEFENDANT

          MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S MOTION [6] TO DISMISS AND GRANTING PLAINTIFFS' MOTION [17] FOR LEAVE TO FILE FIRST AMENDED COMPLAINT

          HALIL SULEYMAN OZERDEN UNITED STATES DISTRICT JUDGE

         BEFORE THE COURT is the Motion [6] to Dismiss filed by Defendant First Bank and the Motion [17] for Leave to File First Amended Complaint filed by Plaintiffs Carol W. Cohen and Elliot J. Slutsky. After the Internal Revenue Service (“IRS”) issued Plaintiffs a $70, 084.00 tax refund check, Plaintiffs endorsed the check and mailed it to their bank for deposit. Plaintiffs claim that someone intercepted the check and took it to Defendant First Bank, where First Bank paid the full value of the check in cash to the thief. Plaintiffs reported the check as stolen to the IRS, which issued a replacement check in the same amount. But the IRS subsequently informed Plaintiffs that the second check was sent in error and demanded that Plaintiffs reimburse the $70, 084.00, plus $5, 947.64 in interest.

         Invoking this Court's diversity jurisdiction, Plaintiffs sued First Bank on June 15, 2017, for conversion and negligence/gross negligence. First Bank moves to dismiss Plaintiffs' Complaint on grounds that the Court does not have subject matter jurisdiction because the amount in controversy does not exceed $75, 000.00, Plaintiffs failed to join the IRS and the alleged endorser of the check as necessary parties, failed to timely file their lawsuit, and were contributorily negligent by virtue of their unsafe transfer of the check. Plaintiffs oppose First Bank's Motion [6] to Dismiss and have also brought a Motion [17] for Leave to File First Amended Complaint seeking to add the alleged fraudulent endorser of the check as a defendant. Based upon its review of the record and relevant legal authority, the Court finds that First Bank's Motion [6] should be denied and that Plaintiff's Motion [17] should be granted.

         I. BACKGROUND

         A. Plaintiffs' Factual Allegations

         According to the Complaint and attached exhibits, prior to May 11, 2015, Plaintiffs received a tax refund check (“Original Check”) from the IRS in the amount of $70, 084.00. Compl. [1] at ¶ 5. The Original Check appears to have been issued on October 28, 2014, and states “Void after one year.” Ex. A to Compl. [1-2]. Plaintiffs endorsed the Original Check “for deposit only” and mailed it to their bank. Compl. [1] at ¶ 5. The Complaint alleges that unknown persons intercepted the Original Check while it was in transit, id. at ¶ 6, and that on May 11, 2015, these unknown persons fraudulently endorsed the Original Check and took it to First Bank to be cashed, id. at ¶ 7. Plaintiffs claim that First Bank accepted the Original Check and paid the full face value in cash to these unknown persons. Id. at ¶ 8.

         Plaintiffs reported the Original Check stolen to the IRS, which issued another check (“Replacement Check”). Id. at ¶ 9; Ex. B. to Compl. [1-3]. The IRS later notified Plaintiffs that they were obligated to return the $70, 084.00 for the Replacement Check, plus interest. Compl. [1] at ¶ 9. According to a letter from the IRS dated May 11, 2017, the refund check “dated Dec. 26, 2014, for $70, 084.00” was “sent to [Plaintiffs] in error.” Ex. B to Compl. [1-3] at 3. The IRS apparently claims that Plaintiffs owe $70, 084.00, plus $5, 947.64 in interest to May 11, 2017, for a total of $76, 031.64. Id.

         Based on the facts alleged in the Complaint, Plaintiffs bring claims against First Bank for conversion and negligence/gross negligence. Compl. [1] at 2-3. With respect to their negligence-based claims, Plaintiffs assert that First Bank owed them a duty “to observe reasonable and customary banking procedures in accepting and paying the Check.” Id. at ¶ 17. First Bank allegedly breached this duty by “failing to ascertain that the endorsement on the Check was fraudulent and by paying the full value of the Check in cash to the fraudulent endorser despite the clear and unambiguous restriction that the Check was ‘for deposit only.'” Id. at ¶ 18. Plaintiffs seek “actual, compensatory, consequential, and incidental damages for conversion of their personal property, along with interest, punitive damages, attorneys' fees, costs of suit and any further relief this Court may deem proper.” Id. at 4. The Complaint also claims damages for “the interest that Plaintiffs are required to pay the IRS.” Id. at ¶ 14.

         B. First Bank's Motion [6] to Dismiss

         First Bank moves to dismiss on several grounds, asserting that this Court lacks subject matter jurisdiction because Plaintiffs have not satisfied the amount in controversy requirement for diversity jurisdiction. Def.'s Mem. [7] at 2. Specifically, First Bank contends that Plaintiffs' remedies in this action are limited to the face value of the check ($70, 084.00), that the Uniform Commercial Code (“UCC”) forbids consequential and punitive damages, and that 28 U.S.C. § 1332 excludes interest from the calculation of the jurisdictional minimum. Id. at 4-6. First Bank posits that the IRS and a fourth party, Crechale Auction and Sales (“Crechale”), the alleged endorser of the Original Check, are necessary parties to this action, and because Plaintiffs have not joined those parties, the case must be dismissed. Id. at 2-3.

         Though not citing the rule, First Bank also makes several arguments for dismissal under Federal Rule of Civil Procedure 12(b)(6). First Bank contends that the IRS is the real party in interest because Plaintiffs' damages claim of $70, 084.00 is subject to a claim from the IRS, id. at 3, and that Plaintiffs are barred by the doctrine of laches for failing to bring their claim within a reasonable time after they learned of the alleged conversion, id. at 6-7. The Bank next asserts that this action is time-barred because it was brought more than one year after the Original Check was issued, as the check states it is void after one year and claims for replacement checks must be brought within one year after the date of issuance of the check. Id. at 7. First Bank further posits that Plaintiffs may not recover due to their own contributory negligence by virtue of their unsafe transfer of the check. Id. at 8-9. Lastly, First Bank contends that Plaintiffs' claims are barred on grounds of accord and satisfaction due to the IRS' payment to them of the Replacement Check. Id. at 9.

         Plaintiffs respond that recovery of punitive damages and prejudgment interest in a conversion case is allowed in Mississippi, satisfying the amount in controversy requirement for diversity jurisdiction. Pls.' Mem. [10] at 5-7. With respect to First Bank's argument regarding the failure to join necessary parties, Plaintiffs concede that Crechale may be joined as a necessary party. Id. at 15. Plaintiffs maintain, however, that the IRS is not a necessary party because the IRS has a claim against them, not First Bank, id. at 16-18, and because the IRS has no substantive right in this conversion claim, id. at 9-10.

         Plaintiffs further contend that a three-year statute of limitations applies to their conversion claim and that they filed their Complaint within that limitations period, id. at 11-12, that the doctrine of laches is not applicable to their claim, id. at 12, and that contributory negligence would not bar their claim because Mississippi applies the comparative fault doctrine to the UCC, id. at 13-14. Finally, Plaintiffs deny that there has been an accord and satisfaction between Plaintiffs and First Bank. Id. at 14-15.

         In its Reply [12], First Bank argues that Plaintiffs' Complaint does not plead malice, gross negligence, or conduct evincing a willful, wanton, or reckless disregard for Plaintiffs as would be required to establish a claim for punitive damages, Reply [12] at 5, and that the IRS is a necessary party because the IRS could later bring a claim against First Bank for the refund check, id. at 8-9.

         C. Plaintiffs' Motion [17] to Amend Complaint

         On November 14, 2017, Plaintiffs filed a Motion [17] for Leave to File First Amended Complaint, seeking to add Crechale as a defendant. Mot. [17] at 1. Plaintiffs also seek to add a claim for civil conspiracy against Crechale and First Bank. Proposed First Am. Compl. [17-1] at 8-9. Plaintiffs' proposed First Amended Complaint alleges that the unknown persons endorsed the Original Check in the name of Crechale underneath Plaintiffs' written statement “for deposit only” on the back of the check, id. at ¶ 8, and that First Bank accepted the check without question and paid the full value of the check in cash to the unknown persons by allowing the check to be deposited into Crechale's business account with First Bank, id. at ¶ 9. Plaintiffs claim that Crechale and First Bank's Branch Manager had an ongoing relationship during the time the Original Check was deposited into Crechale's account at First Bank, id. at ¶ 14, and that the individuals who stole the check created false Florida drivers' licenses in Plaintiffs' names and used these drivers' licenses to purchase a commercial truck and trailer from Crechale, id. at ¶ 15.

         First Bank takes the position that the Court lacks jurisdiction to grant Plaintiffs' Motion to Amend because the amount in controversy in a diversity action is determined as of the date of filing of the lawsuit, and the amount claimed in the original Complaint did not meet the amount in controversy requirement. Def.'s Mem. [22] at 1. First Bank further contends that civil conspiracy must be pled with particularity, but that Plaintiffs' proposed First Amended Complaint fails to do so. Id. at 4.

         II. DISCUSSION

         A. Legal Standard

         1. Federal Rule of Civil Procedure 12(b)(1)

         Federal Rule of Civil Procedure 12(b)(1) permits a party to challenge the subject matter jurisdiction of the district court to hear a case. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). “A case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case.” Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998) (citation omitted). Subject matter jurisdiction may be determined on the basis of: “(1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Ramming, 281 F.3d at 161. The burden of proof on a Rule 12(b)(1) motion rests with the party seeking to invoke the Court's jurisdiction. Id. “When a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule (12)(b)(1) jurisdictional attack before addressing any attack on the merits.” Id. (citation omitted).

         2. Federal Rule of Civil Procedure 12(b)(7)

         Rule 12(b)(7) of the Federal Rules of Civil Procedure provides that a party may assert, by motion, the defense of “failure to join a party under Rule 19.” Rule 19 provides for the joinder of all parties whose presence in a lawsuit is required for the fair and complete resolution of the dispute and for the dismissal of litigation that should not proceed in the absence of parties that cannot be joined. Fed.R.Civ.P. 19(b). “Determining whether an entity is an indispensable party is a highly-practical, fact-based endeavor[.]” Hood ex rel. Mississippi v. City of Memphis, 570 F.3d 625, 628 (5th Cir. 2009). “While the party advocating joinder has the initial burden of demonstrating that a missing party is necessary, after ‘an initial appraisal of the facts indicates that a possibly necessary party is absent, the burden of disputing this initial appraisal falls on the party who opposes joinder.'” Id. (quoting Pulitzer-Polster v. Pulitzer, 784 F.2d 1305, 1309 (5th Cir. 2006)).

         3. Federal Rule of Civil Procedure 12(b)(6)

         When presented with a motion to dismiss pursuant to Rule 12(b)(6), a court “must assess whether the complaint contains sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face[.]” Spitzberg v. Houston Am. Energy Corp., 758 F.3d 676, 683 (5th Cir. 2014) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court must accept all well-pleaded facts as true and view those facts in the light most favorable to the plaintiff. Varela v. Gonzales, 773 F.3d 704, 707 (5th Cir. 2014) (citation omitted). This tenet, however, is inapplicable to legal conclusions. Id. (citation omitted). “A statute of limitations may support dismissal under Rule 12(b)(6) where it is evident from the plaintiff's pleadings that the action is barred and the pleadings fail to raise some basis for tolling or the like.” Jones v. Alcoa, Inc., 339 F.3d 359, 366 (5th Cir. 2003).

         4. Motions to Amend under Federal Rule of Civil Procedure 15

         The Federal Rules of Civil Procedure provide that “a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.” Fed.R.Civ.P. 15(a)(2). “Rule 15(a) evinces a bias in favor of granting leave to amend.” Chitimacha Tribe ofLa. v. Harry L. Laws Co., Inc., 690 F.2d 1157, 1162 (5th Cir. 1983). Consequently, “there is a strong presumption in favor of granting leave to amend[.]” Ackerson v. Bean Dredging LLC, 589 F.3d 196, 208 (5th Cir. 2009). As this strong presumption exists, “[t]he district court must have a ‘substantial ...


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