Serengeti Express, LLC v. Chase Bank, N.A.

Background

Serengeti Express, LLC operated the Serengeti Kitchen restaurant and held a deposit account with JP Morgan Chase Bank, N.A. Kevin Platt and Hamilton Caranda Martin initially opened the account and were its only authorized signatories. Chris Chea later invested in the restaurant but did not become a member of Serengeti or an authorized signatory.

The Second Amended Complaint alleged that, with the assistance of Chase branch manager Robert Elderman, Chea was added as an authorized signatory and Platt was removed, even though Chase did not receive the forms or current-signatory consent required by the deposit account agreement. Chea allegedly transferred $13,822.08 to accounts he controlled. After Platt and Martin complained, Chase allegedly did not remove Chea’s access, restrict his transfers, or refund the money. Serengeti alleged that the withdrawals caused the restaurant to lack money for supplies and payroll and ultimately prevented it from continuing to operate.

Serengeti asserted breach-of-contract and gross-negligence claims and sought $300,000, consisting of the unauthorized withdrawals and alleged lost profits. Chase moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, to dismiss the gross-negligence claim and the request for consequential damages on the contract claim.

Governing Law and Contract

The parties agreed that New York law governed. The court also noted that the deposit account agreement contained a choice-of-law provision selecting the law of the state where the account was opened, and the account was opened in New York.

The court considered the deposit account agreement because it was incorporated into the complaint or was a document on which Serengeti relied in bringing the action. The agreement stated that Chase would not be liable for indirect, special, or consequential damages and limited any liability for certain unauthorized-signature or related items to the item’s face amount.

Gross-Negligence Claim

The court dismissed the gross-negligence claim. Under New York law, negligence requires a duty of care, a breach, and resulting damages. Gross negligence additionally requires conduct showing reckless disregard for others’ rights or intentional wrongdoing.

The court held that the required duty must be independent of any contract. The relationship between a bank and its depositor is contractual, and the alleged obligation to pay out funds only according to the customer’s instructions arose from the deposit account agreement and the related banking relationship. Because Serengeti’s allegations concerned Chase’s performance of those contractual obligations, Serengeti did not establish an independent duty of care. The court therefore dismissed the gross-negligence claim.

Consequential Damages

The court also dismissed Serengeti’s request for consequential damages on the breach-of-contract claim. It found that the agreement’s prominent, clearly worded limitation was valid and enforceable under New York law. Serengeti did not dispute that the provision covered its contract claim or that it barred consequential damages.

The court rejected Serengeti’s argument that alleged gross negligence made the limitation unenforceable. Because the court had dismissed the gross-negligence claim for lack of an independent duty, Serengeti could not use the same alleged conduct to invalidate the contractual limitation. The court further stated that, even if gross negligence had been established, the alleged conduct did not meet the level of intentional wrongdoing or reckless indifference required under New York law to overcome the limitation in this case.

Disposition

Judge P. Kevin Castel granted Chase’s partial motion to dismiss the Second Amended Complaint. The court dismissed Serengeti’s gross-negligence claim and its request for consequential damages on the breach-of-contract claim. The opinion describes the breach-of-contract claim as remaining, subject to the dismissal of consequential damages. The order does not state that either dismissal was with or without prejudice.