Schepis v. JPMorgan Chase Bank, N.A.

Background

The plaintiffs were Anthony Schepis, Frank Canelas, Jr., and Pursuit Opportunity Fund I, L.P. The defendants were Peter S. Cane and CaneLaw LLP, who had represented Schepis, Canelas, and Pursuit-related entities in Connecticut litigation. JPMorgan Chase Bank, N.A., was originally named as a defendant but was dismissed by stipulation on August 7, 2020.

The dispute concerned funds deposited into an attorney trust account to satisfy a prejudgment remedy in a Connecticut action. The account held $5,421,582, including $549,891 belonging to Pursuit Opportunity Fund I, L.P. and $962,562 belonging to Schepis and Canelas. A Connecticut appellate decision reversed the judgment against Pursuit Opportunity Fund I, L.P. and held that Schepis and Canelas were not individually liable under the theories presented there. The related Connecticut proceedings also included an order restricting transfers of funds identified as belonging to Schepis and Canelas.

The plaintiffs alleged that, after an appellate stay ended on January 23, 2020, the attorneys had no legal basis to continue holding the funds. They sought damages for conversion and statutory civil theft under Connecticut law. During this federal case, the Connecticut courts clarified that the $549,891 belonging to Pursuit Opportunity Fund I, L.P. was not restricted by the relevant order, and that money was returned to the fund in early July 2020. The $962,562 belonging to Schepis and Canelas remained in the trust account along with other funds.

Judgment on the Pleadings

The defendants moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The court applied the same standard used for a motion to dismiss for failure to state a claim, accepting the complaint's factual allegations as true and asking whether they plausibly stated a claim.

Conversion. Under Connecticut law, conversion includes an unauthorized exercise of ownership over property belonging to someone else. The court held that the plaintiffs plausibly alleged conversion. They did not claim that the attorneys wrongfully received the funds initially; instead, they claimed that the attorneys' initially lawful possession later became wrongful when they continued to retain specific, identifiable funds after the purpose for holding them ended. The court rejected the arguments that voluntary deposit of the money and the attorney-client relationship barred a conversion claim. The court also concluded that the relevant Connecticut stipulation was plausibly limited to funds identified as belonging to Schepis and Canelas, rather than all funds in the account. The conversion claim therefore remained pending.

Statutory civil theft. Connecticut statutory civil theft requires proof of conversion plus an intent to permanently deprive the owner of property. The court held that the complaint adequately alleged conversion but did not include sufficient factual allegations showing that the defendants intended permanently to deprive the plaintiffs of their property. The court noted that the money was held in a segregated attorney trust account and that the allegations did not plausibly show that the defendants acted in bad faith rather than out of caution about complying with the Connecticut court orders. The statutory-theft claim was dismissed.

Interpleader

The defendants sought statutory interpleader, a procedure allowing a stakeholder facing competing claims to deposit disputed property with a court and seek protection from multiple liability. The plaintiffs did not oppose depositing the money but opposed releasing the defendants from further liability. The intervening defendants—Claridge Associates, LLC, Jamiscott, LLC, Leslie Schneider, and Lillian Schneider—opposed interpleader.

The court declined to exercise interpleader jurisdiction. It concluded that the Connecticut Superior Court presiding over the Claridge Associates Action still controlled the $962,562 and had expressly restricted its transfer. That court could resolve the state-law issues concerning the money, and allowing the Connecticut case to proceed would adequately address any risk of double liability. The intervening defendants' motion was granted, and the defendants' motion for interpleader was denied.

Sanctions and Disposition

The defendants sought sanctions under Rule 11 on the ground that the complaint was frivolous. Because the court found that the complaint stated a conversion claim, it denied the sanctions motion.

The court's final disposition was as follows: the motion for judgment on the pleadings was granted in part as to the statutory-theft claim and otherwise denied; the motion for interpleader was denied; and the motion for sanctions was denied. The parties were directed to meet and discuss whether the federal case should be dismissed or stayed while the Connecticut Superior Court decided the related issues. The court closed the motions listed at Docket Nos. 48, 49, and 57.