Null v. Bank Of America Corporation

Background

Gary Null, Ph.D., Gary Null’s Uptown Whole Foods, Inc., Gary’s Healthy Choices, Inc., and Health and Nutrition in Texas, Inc. sued Bank of America, N.A. over company checks allegedly written by employee and bookkeeper Mohamed Sankoh between April 10, 2020, and June 7, 2021. The plaintiffs alleged that checks totaling $525,276.55 were not delivered to vendors but were instead misappropriated after being deposited into Bank of America accounts.

The plaintiffs asserted negligence, conversion, and breach of warranty under New York’s Uniform Commercial Code. They alleged that Bank of America, as the depositary bank, warranted that the checks were authentic and free of alterations. Bank of America moved to dismiss the amended complaint for insufficient service of process under Federal Rule of Civil Procedure 12(b)(5) and for failure to state a legally sufficient claim under Rule 12(b)(6).

Service of Process

Bank of America argued that the plaintiffs had served the original complaint on Bank of America Corporation, the initially named defendant, but had not served Bank of America, N.A. with the amended complaint. The plaintiffs argued that Bank of America was barred from challenging service because its counsel had stated in a letter to the court that Bank of America was prepared to waive service of the amended complaint.

The court agreed with the plaintiffs. It held that a reasonable attorney would have understood the statement to constitute a waiver of service. The court therefore denied Bank of America’s Rule 12(b)(5) motion.

Failure to State a Claim

The court held that New York’s common-law rule barred the plaintiffs’ claims against Bank of America. Under that rule, a check drawer generally does not have a direct claim against a depositary bank for collecting a check with an improper endorsement. The drawer’s remedy is generally against the drawee bank—the bank that pays the check.

The court also explained that New York Uniform Commercial Code section 4-207(2)(b) provides a warranty that signatures are genuine or authorized to the next transferee and later collecting banks, not directly to a check drawer such as the plaintiffs. New York recognizes a narrow exception when the depositary bank acted wrongfully and the drawee bank properly honored the check because the forgery was effective. The court stated that the plaintiffs did not argue that this exception applied.

The plaintiffs attempted to pursue negligence and conversion theories in addition to their Uniform Commercial Code theory. The court held that they could not avoid the Uniform Commercial Code’s limits by restating an unsuccessful Uniform Commercial Code claim as a common-law claim. It also found that the plaintiffs’ cited conversion cases involved payees of incoming checks or claims by a drawee bank against a depositary bank, rather than claims by a drawer against a depositary bank.

The court further rejected the plaintiffs’ argument that Bank of America’s motion was untimely, finding that the motion complied with deadlines set by the court.

Disposition

Judge J. Paul Oetken denied Bank of America’s Rule 12(b)(5) motion and granted its Rule 12(b)(6) motion. The court denied as moot Bank of America Corporation’s earlier motion directed at the original complaint because the plaintiffs had filed an amended complaint. The Clerk was directed to enter judgment dismissing the complaint and close the case.