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Capintec, Inc. v. McGimpsey

97-5445 (U.S. Dist. Ct. D. N.J) (Unpublished)

BANKS; FRAUD — Duties owed by a bank to a customer that is a company’s subsidiary do not necessarily inure to that company’s parent company. Accepting wrongfully endorsed checks that were payable to the parent company may give rise to a conversion claim against the bank.

A company and its profit sharing plan were defrauded by a former employee who was one of the plan’s three trustees. The company and plan alleged that the employee opened two “sham” profit sharing plan accounts at a bank that did business with a corporate subsidiary of the company, but not with the company itself. Over a period of years, the employee withdrew moneys from the company’s actual bank account at a different bank and deposited the funds into the sham accounts. He wrote checks to himself from the sham accounts with increasing frequency. Many of the withdrawals from the sham accounts were on counter checks, and in several instances, large checks were cashed on the same day as drawn. Despite these being profit sharing accounts, almost all of the checks were written to the employee, who was also the signatory.

Suit was brought on a variety of theories against the bank where the sham accounts were maintained including fraud and deceit, negligence, breach of contract, conversion, and money had and received. With respect to the fraud and deceit claims, the company and its profit sharing plan alleged two theories—first, that the bank intended to defraud the claimants by representing to them that the sham accounts were legitimate and the transfers in and out of them also were legitimate; and second, that one or more of the bank’s employees must have been cooperating with the defalcating employee. The Court ruled that accounts maintained by the company’s subsidiary did not serve to establish a relationship between the bank and the company (or its profit sharing plan) itself. Consequently, there was no relationship the gave rise to any representation by the bank. The Court then ruled that the claimants could pursue their second fraud theory upon filing a sufficiently specific amended complaint.

The Court’s finding that the existence of a subsidiary’s account did not make the parent company into the bank’s customer proved fatal to the breach of contract claim, because no contract existed. A cause of action for conversion requires the wrongdoer to exercise dominion and control over identifiable property. The debtor-creditor relationship inherent in a checking account, such as the sham accounts, does not create identifiable property. On the other hand, the company’s checks that were wrongfully endorsed and deposited into the sham accounts could form the basis for a conversion claim, and the complainants were permitted to move forward with that count. As to “money had and received,” a depository bank can be held liable where it accepts an improperly endorsed check, whether forged or unauthorized, and collects against a drawee bank, even in the absence of a relationship with the company against whose check is drawn. Here, too, the complainants were permitted to pursue that cause of action.

Lastly, the company and its profit sharing plan were permitted to pursue their negligence claim against the bank, even in the absence of an agreement or other relationship between them. This was because a bank may be liable for negligence to a noncustomer if it can be found to have ignored objective signs of fraud or illicit dealings.


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