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Contour Industries, Inc. v. U.S. Bancorp

July 3, 2008


The opinion of the court was delivered by: Leon Jordan United States District Judge


This civil action is before the court for consideration of the "Motion to Dismiss for Judgment on the Pleadings" filed by defendant [doc. 7]. Plaintiff has filed a response in opposition [doc. 14], and defendant has submitted a reply [doc. 16]. The court has determined that oral argument is unnecessary, and the motion is ripe for the court's determination. For the reasons stated herein, the motion will be granted in part and denied in part.

I. Background

Plaintiff originally filed suit in state court on August 14, 2007. The defendant removed the case to this court on the basis of diversity jurisdiction, 28 U.S.C. § 1332. In the complaint, plaintiff alleges that an employee named Timmy Byrd, who plaintiff states was its agent and fiduciary, obtained checks made payable to plaintiff, and using a modified endorsement stamp, deposited checks into his personal account. Plaintiff alleges that Byrd engaged in this conduct over 37 months with 62 checks having a total value of almost $400,000.00. The complaint also identifies conduct by defendant's employees concerning these deposit transactions.

The complaint identifies four causes of action, two entitled "conversion," one for common law negligence, and one for punitive damages. Defendant through its motion seeks dismissal of the entire complaint.

II. Standard of Review

The pending motion is brought pursuant to Federal Rule of Civil Procedure 12(c). Courts analyze Rule 12(c) motions employing the same standard applied to Rule 12(b)(6) motions to dismiss.*fn1 See Penny/Ohlmann/Niemann, Inc. v. Miami Valley Pension Corp., 399 F.3d 692, 697 (6th Cir. 2005). "Motions to dismiss under Rule 12(b)(6) are designed to test 'whether a cognizable claim has been pleaded in the complaint.'" Fed. Express Corp. v. U.S. Postal Serv., 40 F. Supp. 2d 943, 947 (W.D.Tenn. 1999) (quoting Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988)). When reviewing a motion for failure to state a claim upon which relief can be granted under Rule 12(b)(6), the court must construe the complaint in the light most favorable to the plaintiff and accept the factual allegations in the complaint as true. Grindstaff v. Green, 133 F.3d 416, 421 (6th Cir. 1998) (citing Meador v. Cabinet for Human Res., 902 F.2d 474, 475 (6th Cir. 1990)). The court need not, however, accept legal conclusions presented in the complaint, nor should it make unwarranted factual inferences. See Penny/Ohlmann/Niemann, 399 F.3d at 697 (citing Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir. 1999)). A court may dismiss a complaint pursuant to Rule 12(b)(6) "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

III. Analysis

A. Common Law Negligence and Punitive Damages Claims

Defendant argues that plaintiff's common law negligence and punitive damages claims are preempted by the Uniform Commercial Code ("UCC") as enacted in Tennessee. Defendant supports its contention with specific provisions of the UCC and a recent decision from the Tennessee Court of Appeals, C-Wood Lumber Co., Inc. v. Wayne County Bank, 233 S.W.3d 263 (Tenn. Ct. App. 2007).

The facts in C-Wood were very similar to those alleged in this case. In C-Wood, the company's secretary/treasurer endorsed checks received by the company and deposited them in her personal account and the accounts of her children. One of the issues the court addressed was the exact nature of the claim the plaintiff company could assert against the bank. The court determined that the company could not assert common law claims for negligence or conversion but could assert a claim for conversion under the UCC. The court stated:

Articles 3 and 4 of the UCC embody a delicately balanced statutory scheme governing the endorsement, negotiation, collection, and payment of checks. They provide discrete loss-allocation rules uniquely applicable to banks. . . . The weight of the case law comes down against permitting common-law actions to displace the UCC's provisions regarding transactions governed by Articles 3 and 4. Accordingly, a large number of courts have refused to recognize common-law or non-UCC claims in general, and specifically common-law or non-UCC negligence claims or conversion claims, arising from transactions governed by Articles 3 or 4. The transactions at issue in this case fall squarely within the scope of Articles 3 and 4. Therefore, C-Wood's claims against the bank and the scope of the remedies available to C-Wood are governed solely by the UCC.

Id. at 281-82 (internal citations and footnotes omitted).

Therefore, Contour's claim for common law negligence is preempted by the UCC. To that extent, ...

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