Court Opinion

ID: 4541925
Source: CourtListenerOpinion
Date Created: 2020-06-17 14:07:58.587504+00
Date Added: 2024-06-11T12:46:57.367804
License: Public Domain

SYLLABUS

This syllabus is not part of the Court’s opinion. It has been prepared by the Office of the
Clerk for the convenience of the reader. It has been neither reviewed nor approved by the
Court. In the interest of brevity, portions of an opinion may not have been summarized.

           Dr. Dominick A. Lembo v. Arlene Marchese (A-92-18) (082930)

Argued January 22, 2020 -- Decided June 17, 2020

ALBIN, J., writing for the Court.

       In this case, the Court considers whether the trial court properly dismissed the
common law claims of conversion and negligence that Dr. Dominick Lembo brought
against TD Bank National Association, as well as whether the Uniform Fiduciaries Law
(UFL) provides an affirmative cause of action against the bank.

       Dr. Lembo employed in his dental practice Arlene Marchese, his office manager,
and Karen Wright, a dental hygienist. Sometime before December 2011, Marchese and
Wright unlawfully took possession of numerous checks totaling several hundred thousand
dollars, forged Lembo’s indorsement on the checks, and deposited the proceeds from the
forged checks into their personal accounts at TD Bank.

        In February 2015, Lembo filed a complaint against TD Bank, alleging that “TD
Bank knew or should have known that Marchese and/or Wright were not permitted to
negotiate checks made payable to [Lembo].” The complaint also alleged that by
permitting them to negotiate checks with forged indorsements, TD Bank “aided and
abetted Marchese and Wright in their fraudulent scheme and conduct.” The complaint
did not assert that Lembo had a banking relationship with TD Bank. And Lembo did not
file an action for conversion under the Uniform Commercial Code (UCC) within the
three-year limitations period. Had Lembo done so, TD Bank would have been strictly
liable for depositing or cashing those checks, subject to the defenses in N.J.S.A. 12A:3-
405 or N.J.S.A. 12A:3-406.

        In lieu of filing an answer, TD Bank moved to dismiss the complaint for failure to
state a claim. The trial court granted the motion. The court reasoned that the UCC
governed Lembo’s remedies against TD Bank and that “common law negligence is not
such a remedy” in the absence of a “special relationship” between Lembo and the bank.
The court also rejected Lembo’s argument that the Uniform Fiduciaries Law provided the
basis for a cause of action.

      The Appellate Division affirmed in part, vacated in part, and remanded for further
proceedings. The Appellate Division first noted that the complaint, on its face, alleges
                                            1
only common law claims and not any express statutory claims against TD Bank. Because
the complaint did not allege facts suggesting a “special relationship” between Lembo and
TD Bank, the Appellate Division found no basis for the negligence claim. Likewise, it
found the common law conversion claim unsustainable because the UCC provided a
remedy for a bank’s payment on a check with a forged indorsement.

       But, while conceding that the complaint neither references the UFL nor alleges
that Marchese or Wright were acting as fiduciaries within the meaning of the UFL, the
Appellate Division nevertheless reasoned that the complaint suggests an affirmative
cause of action against TD Bank based on the UFL. On that basis, the Appellate Division
vacated the order dismissing Lembo’s cause of action against TD Bank and remanded to
allow Lembo to amend the complaint and plead a UFL claim.

       The Court granted TD Bank’s petition for certification. 238 N.J. 482 (2019).

HELD: The UFL does not authorize an affirmative cause of action against a bank but
rather provides a bank with a limited immunity from liability for failing to take notice of
and action on the breach of a fiduciary’s obligation. The UFL does not displace,
subsume, or supplement common law claims. When an action is brought against a bank,
the UFL provides that a bank’s liability depends on whether the bank acted with actual
knowledge or bad faith in the face of a fiduciary’s breach of his obligations. Whether a
UFL claim was adequately pled in this case is therefore a moot issue. And, recognizing
the predominant role the UCC plays in assigning liability for the handling of checks, the
Court also finds that Lembo had no “special relationship” with the bank to sustain the
common law causes of action.

1. When the Legislature adopted the UFL’s predecessor, the Uniform Fiduciaries Act
(UFA), in 1927, various common law causes of action could be brought against a bank
for the breach of its duty to monitor a fiduciary. No gap in the common law required the
remedy of a new statutory cause of action against a bank. Instead, the Legislature, in
enacting the model UFA, addressed the need to protect banks from lawsuits that would
impose on them an unrealistic obligation to oversee fiduciaries. The UFA relieved banks
of the then-prevailing, “impracticable” common law duty of inquiry in connection with a
bank’s dealings with a fiduciary by setting forth an actual knowledge or bad faith
standard for determining notice. By relaxing the common law standard of care banks
owed in dealing with fiduciaries, the UFA was intended to facilitate banking and
financial transactions and place on the principal the burden of employing honest
fiduciaries. The current version of the UFL, N.J.S.A. 3B:14-52 to -61, which was
enacted in 1981, is substantially similar to its UFA predecessor. (pp. 11-14)

2. The relevant UFL provisions at issue in this case are N.J.S.A. 3B:14-55 and -58. The
Court reviews those provisions in detail and concludes from their plain language that a
bank is not liable in a common law cause of action unless it has “actual knowledge” or
                                             2
“notice” of a breach of a fiduciary duty -- or acts in “bad faith” in depositing or paying on
a check. That heightened standard provides banks with a limited immunity. Nothing in
the plain language of the UFL suggests that the UFL is itself the basis for an affirmative
cause of action. The UFL does not provide for a recovery through a private action or set
forth remedies or a statute of limitations -- all indicia of a statutory cause of action. In
sum, the UFL’s plain language and its legislative history evidence a legislative intent to
provide a limited immunity to banks from common law causes of action -- not to provide
a new affirmative cause of action against a bank. (pp. 15-18)

3. The Court notes that its holding in this matter of first impression is not inconsistent
with past jurisprudence, including New Jersey Title Insurance Co. v. Caputo, 163 N.J.
143 (2000), on which Lembo relies. In that case, the Court did not indicate that the UFL
gave rise to an affirmative claim but rather confirmed that under the UFL “a bank would
be immune from liability in honoring a fiduciary’s check” unless it is shown that the bank
acted with actual knowledge of the breach of a fiduciary’s obligations or with knowledge
of facts establishing that its actions amounted to bad faith. Id. at 149 (emphasis added).
(pp. 18-20)

4. In rendering this decision, the Court is mindful that interposing an affirmative UFL
cause of action -- particularly in this case -- might undermine the UCC’s comprehensive
framework for allocating and apportioning the risks of handling checks. Generally, a
bank will be strictly liable for accepting a check with a forged indorsement. Lembo’s
complaint alleges that TD Bank accepted checks payable to Lembo with forged
indorsements. In the absence of a defense under either N.J.S.A. 12A:3-405 or N.J.S.A.
12A:3-406, TD Bank would have been strictly liable for conversion of the funds had
Lembo filed a timely UCC claim. “[A]n action for conversion of an instrument . . . must
be commenced within three years after the cause of action accrues,” N.J.S.A. 12A:3-
118(g), and the discovery rule does not extend the limitations period. Lembo did not file
a UCC claim within the requisite three-year statute-of-limitations period. (pp. 21-22)

5. Lembo’s common law conversion claim is preempted by the UCC, and his common
law negligence claim cannot be sustained. Unless the facts establish a special
relationship between the parties created by agreement, undertaking, or contact that gives
rise to a duty, the sole remedies available in cases involving the processing of checks
with forged indorsements are those provided in the UCC. Lembo’s complaint does not
allege that Lembo had a banking or other relationship with TD Bank, much less a special
relationship created by agreement, undertaking, or contact, and the Appellate Division
properly affirmed the dismissal of the common law claims. (pp. 23-24)

       REVERSED. The trial court’s order dismissing this action is REINSTATED.

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, FERNANDEZ-VINA,
SOLOMON, and TIMPONE join in JUSTICE ALBIN’s opinion. JUSTICE
PATTERSON did not participate.
                                             3
       SUPREME COURT OF NEW JERSEY
             A-92 September Term 2018
                        082930

            Dr. Dominick A. Lembo and
            Belmont Dental Associates,

               Plaintiffs-Respondents,

                          v.

          Arlene Marchese, Karen Wright,
         Kreinces, Rollins & Shanker, LLC
            and Maria T. Rollins, CPA,

                      Defendants,

                         and

                    TD Bank, NA,

                Defendant-Appellant.

        On certification to the Superior Court,
                  Appellate Division.

       Argued                         Decided
   January 22, 2020                 June 17, 2020

Caitlin T. Shadek argued the cause for appellant
(Sherman Wells Sylvester & Stamelman, attorneys;
Caitlin T. Shadek and Anthony J. Sylvester, on the
briefs).

Michael P. De Marco argued the cause for respondents
(De Marco & De Marco, attorneys; Michael P. DeMarco,
on the brief).

                          1
             JUSTICE ALBIN delivered the opinion of the Court.

      In this case, two employees of plaintiff Dr. Dominick Lembo, a dentist

and owner of plaintiff Belmont Dental Associates (Lembo), forged

indorsements on checks payable to the dental practice and deposited them into

their personal accounts at defendant TD Bank National Association (TD

Bank). Lembo filed common law causes of action against TD Bank, which

included counts for conversion and negligence. Lembo did not file an action

for conversion under the Uniform Commercial Code (UCC), see N.J.S.A.

12A:3-420, within the three-year limitations period, see N.J.S.A. 12A:3-

118(g). Had Lembo done so, TD Bank would have been strictly liable for

depositing or cashing those checks, subject to the defenses in N.J.S.A. 12A:3-

405 or N.J.S.A. 12A:3-406.

      The trial court granted TD Bank’s motion to dismiss the complaint for

failure to state a claim, finding that Lembo had no banking or “special

relationship” with TD Bank to sustain the common law causes of action. The

court also rejected Lembo’s argument that the Uniform Fiduciaries Law

(UFL), N.J.S.A. 3B:14-52 to -61, provided an affirmative cause of action

against the bank.

                                       2
      The Appellate Division reversed, reading into the complaint the basis for

an affirmative UFL claim, and remanded to allow Lembo to amend the

complaint to assert such a claim.

      We conclude that the Appellate Division misconstrued the purpose of the

UFL. The Legislature enacted the UFL not to create an affirmative cause of

action against a bank but to provide a defense when the bank is sued for failing

to take notice of and action on the breach of a fiduciary’s obligation. The UFL

confers a limited immunity on a bank, unless the bank acts in bad faith or has

actual knowledge of a fiduciary breach. We hold that no affirmative cause of

action arises under the statute. Whether a UFL claim was adequately pled is

therefore a moot issue. Recognizing the predominant role the UCC plays in

assigning liability for the handling of checks, we also find that Lembo had no

“special relationship” with the bank to sustain the common law causes of

action.

      Accordingly, we reverse the judgment of the Appellate Division and

dismiss the complaint for failure to state a claim.

                                        I.

                                        A.

      This appeal comes to us from a motion to dismiss for failure to state a

claim upon which relief can be granted. See R. 4:6-2(e). At this procedural

                                        3
juncture, we must assume that the facts asserted in the complaint are true. See

Banco Popular N. Am. v. Gandi, 184 N.J. 161, 166 (2005). Our recitation of

the facts is derived from the complaint filed by Lembo against TD Bank, the

only remaining defendant in this case.

      Dr. Lembo employed in his dental practice Arlene Marchese, his office

manager, and Karen Wright, a dental hygienist. Sometime before December

2011, Marchese and Wright unlawfully took possession of numerous checks

issued by insurance companies to Lembo for dental services rendered to

patients. Without Dr. Lembo’s knowledge or authorization, Marchese and

Wright forged his indorsement on the checks, which totaled several hundred

thousand dollars. Marchese and Wright “negotiated [the] forged checks” with

TD Bank, where each had a personal bank account. They then deposited the

proceeds from the forged checks into their personal accounts at the bank.

      In February 2015, Lembo filed a complaint against TD Bank, alleging

that “TD Bank knew or should have known that Marchese and/or Wright were

not permitted to negotiate checks made payable to [Lembo].”1 The complaint

1
   The complaint also asserted claims against Marchese and Wright for fraud,
unjust enrichment, conversion, and breach of their duties of honesty and fair
dealing, as well as against Lembo’s certified public accountant and accounting
firm for negligently failing to detect the fraud. Lembo secured a judgment
against Marchese in the amount of $198,584.06 for compensatory damages and
$75,000 in punitive damages and a judgment against Wright in the amount of

                                         4
also alleged that by permitting Marchese and Wright to negotiate checks with

forged indorsements, TD Bank “aided and abetted Marchese and Wright in

their fraudulent scheme and conduct.” The complaint did not assert that

Lembo had an account or banking relationship with TD Bank.

      In lieu of filing an answer, TD Bank moved to dismiss the complaint for

failure to state a claim. See R. 4:6-2(e). The trial court granted the motion

and dismissed the complaint with prejudice. The court reasoned that the UCC

governed Lembo’s remedies against TD Bank and that “common law

negligence is not such a remedy” in the absence of a “special relationship”

between Lembo and the bank. The court determined that Lembo failed to

demonstrate the existence of a special relationship with TD Bank. The court

also rejected Lembo’s argument that the Uniform Fiduciaries Law provided the

basis for a cause of action. In dismissing that argument, the court concluded

that Marchese and Wright were acting as errant employees, not fiduciaries, and

that TD Bank had no fiduciary relationship with Dr. Lembo or his dental

practice, who were not bank customers.

$200,000 in compensatory damages and $25,000 in punitive damages.
Ultimately, Lembo dismissed the claim against the accountant and accounting
firm.
                                     5
                                       B.

      In an unpublished per curiam opinion, the Appellate Division affirmed in

part, vacated in part, and remanded for further proceedings. The Appellate

Division first noted that the complaint, on its face, alleges only common law

claims, such as negligence and conversion, and not any express statutory

claims against TD Bank. The Appellate Division acknowledged both the

predominant role of the UCC in “allocating and apportioning the risks of

handling checks” and our jurisprudence, which holds that a common law cause

of action against a bank is permitted only in rare instances, such as when the

bank and aggrieved party have a “special relationship,” quoting City Check

Cashing, Inc. v. Manufacturers Hanover Trust Co., 166 N.J. 49, 57, 59-60

(2001). Because the complaint did not allege facts suggesting a “special

relationship” between Lembo and TD Bank, the Appellate Division found no

basis for the negligence claim. Likewise, it found the common law conversion

claim unsustainable because the UCC provided a remedy for a bank’s payment

on a check with a forged indorsement, citing N.J.S.A. 12A:3-420(a). Even if

the complaint intimated a claim under the UCC, the court asserted that such a

claim would be time-barred, citing N.J.S.A. 12A:3-118(g).

      While conceding that the complaint neither references the UFL nor

alleges that Marchese or Wright were acting as fiduciaries within the meaning

                                       6
of the UFL, the Appellate Division nevertheless reasoned that the complaint

suggests an affirmative cause of action against TD Bank based on the UFL.

The Appellate Division determined that the UFL authorizes an affirmative

cause of action when a fiduciary breaches its obligation to a principal by

forging a check and the bank “takes the instrument with actual knowledge of

the breach or with knowledge of facts that [its] action in taking the instrument

amounts to bad faith,” quoting N.J.S.A. 3B:14-55. It then gleaned from a

liberal reading of the complaint a viable allegation that, under the UFL,

Marchese and Wright were acting in a fiduciary capacity as “constructive

trustees,” see N.J.S.A. 3B:14-53(b), and that TD Bank knowingly “accepted

the checks with forged [i]ndorsements and deposited them in” Marchese’s and

Wright’s personal accounts. Those allegations, in the Appellate Division’s

view, sufficiently satisfied the bad faith elements for a UFL cause of action

under N.J.S.A. 3B:14-55 and -58(b).

      On that basis, the Appellate Division vacated the order dismissing

Lembo’s cause of action against TD Bank and remanded to allow Lembo to

amend the complaint and plead a UFL claim.

      We granted TD Bank’s petition for certification. 238 N.J. 482 (2019).

                                        7
                                       II.

                                       A.

      TD Bank’s primary argument is that the UFL did not create an

affirmative cause of action against a depository bank and, on that basis alone,

the Appellate Division’s decision must be reversed. TD Bank contends that

the UFL was enacted “to protect banks from the undue burden of monitoring

fiduciary accounts” and to make “defenses available to a bank for alleged theft

by a fiduciary.” It submits that the UFL does not supersede the UCC.

According to the bank, the Appellate Division has taken a time-barred UCC

claim on a forged indorsement and breathed life into it through the UFL, thus

undermining the UCC’s statutory framework for allocating the risk of loss on a

forged instrument.

      In addition, TD Bank asserts that, as described in the complaint,

Marchese and Wright were employees -- not fiduciaries -- who wrongfully

took possession of checks payable to their employer and forged indorsements .

In the bank’s view, “forgers cannot be fiduciaries.” The bank also rejects the

notion that Marchese and Wright, who took the checks without any lawful

authority, could be considered “constructive trustees” under the UFL.

                                       8
                                         B.

      Lembo submits that the complaint clearly alleges that TD Bank, by

permitting Marchese and Wright to negotiate checks with forged indorsements,

“aided and abetted [them] in their fraudulent scheme and conduct.” Asserting

that the UFL establishes an independent cause of action separate from claims

available under the UCC, Lembo argues that, viewing the complaint with

“liberality,” “a cause of action is suggested by the facts . . . [that] may be

articulated” by an amendment to the complaint.

      Lembo further claims that, for purposes of the UFL, Marchese and

Wright fit the definition of fiduciary in N.J.S.A. 3B:14-53(b) by acting as

“constructive trustees” -- taking unlawful possession of dental-practice checks,

forging indorsements, depositing the ill-gotten funds into their personal

accounts, and unjustly enriching themselves. According to Lembo, whether

TD Bank acted in bad faith under the UFL -- that is, whether the “[b]ank

recklessly disregarded or was purposefully oblivious to facts suggesting

impropriety by Marchese and Wright” -- is for a jury to determine.

      Lembo asks this Court to affirm the Appellate Division’s remand.

                                        III.

      The core issue in this appeal is whether the Uniform Fiduciaries Law is

the source of an affirmative cause of action against a bank. That is the only

                                         9
basis for relief that the Appellate Division gleaned from a liberal review of the

complaint. Without a UFL cause of action, therefore, the complaint cannot b e

sustained. Only if a direct cause of action can arise from the UFL must we

address whether a UFL claim has been sufficiently pled in the complaint, even

under our generous standard of review for a Rule 4:6-2(e) motion.

                                        A.

      Whether the UFL gives rise to an affirmative cause of action against a

bank is a matter of statutory interpretation. To discern the meaning of a

statute, we begin with its plain language. DiProspero v. Penn, 183 N.J. 477,

492 (2005). If the statutory language clearly reveals the Legislature’s intent,

then our interpretive mission comes to an end. Nicholas v. Mynster, 213 N.J.

463, 480 (2013). Only when the wording of the statute leaves in doubt the

Legislature’s intent do we turn to extrinsic aids, such as “legislative history,

committee reports, and contemporaneous construction.” DiProspero, 183 N.J.

at 492-93 (quoting Cherry Hill Manor Assocs. v. Faugno, 182 N.J. 64, 75

(2004)).

      We cannot find in the plain language or history of the UFL a legislative

intent to create an affirmative cause of action against a bank for the breach of a

duty to monitor a fiduciary’s activities. Because, as Justice Holmes has

written, “a page of history is worth a volume of logic,” N.Y. Tr. Co. v. Eisner,

                                        10
256 U.S. 345, 349 (1921), the backdrop to the current version of the UFL

sheds meaning and light on its language. We therefore begin with the UFL’s

predecessor, the Uniform Fiduciaries Act (UFA), N.J.S.A. 3A:41-1 to -14

(repealed 1981).

                                        B.

      In 1927, New Jersey adopted in full the model Uniform Fiduciaries Act

drafted by the National Conference of Commissioners on Uniform State Laws.

See Sponsor’s Statement to S. 71 5 (L. 1927, c. 30). At the time of the UFA’s

passage, various common law causes of action could be brought against a bank

for the breach of its duty to monitor a fiduciary. See, e.g., Md. Cas. Co. v.

Bank of Charlotte, 340 F.2d 550, 553 (4th Cir. 1965) (“At common law a

[bank] was often held liable to the principal if it negligently assisted a

fiduciary in misappropriating the principal’s funds.”). No gap in the common

law required the remedy of a new statutory cause of action against a bank.

Instead, the Legislature, in enacting the model UFA, addressed the need to

protect banks from lawsuits that would impose on them an unrealistic

obligation to oversee fiduciaries.

      The purpose of the UFA was “to relieve banks of their common-law duty

of inquiring into the propriety of each transaction conducted by a fiduciary and

to prevent banks and others who typically deal with fiduciaries from being

                                        11
held liable for a fiduciary’s breach of duty.” See 9 C.J.S. Banks and Banking

§ 362 (2020) (citing DeLaRosa v. Farmers State Bank S/B, 474 S.W.3d 240,

244 (Mo. Ct. App. 2015)); see also Sugarhouse Fin. Co. v. Zions First Nat’l

Bank, 440 P.2d 869, 870 (Utah 1968). The Legislature evidently decided that

a bank could not feasibly shadow the activities of fiduciaries to ensure they

were acting in good faith on behalf of their principals. See Colby v. Riggs

Nat’l Bank, 92 F.2d 183, 198 (D.C. Cir. 1937); New Amsterdam Cas. Co. v.

Nat’l Newark & Essex Banking Co., 117 N.J. Eq. 264, 283 (Ch. 1934), aff’d

o.b., 119 N.J. Eq. 540 (E. & A. 1936). To address that concern, the UFA

conferred on banks limited immunity from lawsuits alleging liability for a

fiduciary’s breach of duty.

      The Legislature made clear its purpose in the Sponsor’s Statement to the

bill that became the UFA. The Sponsor’s Statement explained that banks, for

many years, had “been suffering from the uncertainty of the law created by

conflicting decisions, many of which have imposed an impracticable duty of

inquiry in connection with the handling and payment of checks drawn or

endorsed by officers of corporations or other fiduciaries to their personal

order.” Sponsor’s Statement to S. 71 5 (L. 1927, c. 30). The Statement further

explained that

            [t]he general purpose of the act is to establish uniform
            and definite rules in place of the diverse and indefinite
                                       12
            rules now prevailing as to “constructive notice” of
            breaches of fiduciary obligations. In some cases there
            should be no liability in the absence of actual
            knowledge or bad faith; in others there should be action
            at peril. In none of the situations here treated is the
            standard of due care or negligence made the test.

            [Ibid. (emphasis added).]

      The Legislature intended the UFA to cover situations involving a bank’s

transactions with a person it “knows to be a fiduciary” when there are

“questions relating to notice of the breach of fiduciary obligations.” Ibid. The

UFA relieved banks of the then-prevailing, “impracticable” common law duty

of inquiry in connection with a bank’s dealings with a fiduciary by setting

forth an actual knowledge or bad faith standard for determining notice. See

Md. Cas. Co., 340 F.2d at 553 (“The Uniform Fiduciaries Act did away with

the [banks]’s liability for negligence and substituted a new test. For the [bank]

to become liable under this Act it must be found either that it had actual

knowledge of the misappropriation or that it acted in bad faith.”). Thus, under

the UFA, the standard was not whether a reasonable person acting with due

care would have been on notice of a breach of a fiduciary obligation. See New

Amsterdam Cas. Co., 117 N.J. Eq. at 271 (“The standard of due care or

negligence and the doctrine of constructive notice in respect of bank deposits

                                        13
of fiduciary funds find no recognition in the Fiduciaries Act. It definitely

declares bad faith to be the test of liability.”).

       By relaxing the common law standard of care banks owed in dealing

with fiduciaries, the UFA was intended “to facilitate banking and financial

transactions and place on the principal the burden of employing honest

fiduciaries, by relieving the bank of the responsibility of seeing that the

fiduciary uses the entrusted funds for proper purposes.” 9 C.J.S. Banks and

Banking § 362 (footnote omitted); see also Springfield Township v. Mellon

PSFS Bank, 889 A.2d 1184, 1187 (Pa. 2005); Sugarhouse Fin. Co., 440 P.2d at

870.

       Although the enactment of New Jersey’s UCC in 1961 repealed certain

portions of the UFA that are not relevant to this case, the remaining parts of

the UFA served as a model for the UFL. See N.J. Title Ins. Co. v. Caputo, 163

N.J. 143, 149 (2000). The current version of the UFL is substantially similar

to its UFA predecessor. Compare N.J.S.A. 3B:14-55, with N.J.S.A. 3A:41-6

(repealed 1981); compare N.J.S.A. 3B:14-58, with N.J.S.A. 3A:41-7 (repealed

1981). With that history in mind, we turn to the UFL, N.J.S.A. 3B:14-52

to -61, which was enacted in 1981, L. 1981, c. 405, replacing the UFA.

                                          14
                                        C.

      The relevant UFL provisions at issue in this case are N.J.S.A. 3B:14-55

and -58. We first look at N.J.S.A. 3B:14-55, which states:

            If a check or other bill of exchange is drawn by a
            fiduciary as such or in the name of his principal by a
            fiduciary empowered to draw the instrument in the
            name of his principal, payable to the fiduciary
            personally, or payable to a third person and by him
            transferred to the fiduciary, and is thereafter transferred
            by the fiduciary, whether in payment of a personal debt
            of the fiduciary or otherwise, the transferee is not bound
            to inquire whether the fiduciary is committing a breach
            of his obligation as fiduciary in transferring the
            instrument, and is not chargeable with notice that the
            fiduciary is committing a breach of his obligation as
            fiduciary unless he takes the instrument with actual
            knowledge of the breach or with knowledge of facts
            that his action in taking the instrument amounts to bad
            faith.

      That provision simply provides, for example, that when, from all

appearances, a fiduciary draws a check from the principal’s account to pay a

debt of the principal, the bank is not on notice of a breach of a fiduciary

obligation unless the bank takes the check “with actual knowledge of the

breach or with knowledge of facts that . . . amounts to bad faith.” See N.J.S.A.

3B:14-55. Thus, the UFL immunizes the bank from a negligence-type action

premised on the common law duty to exercise due care.

                                        15
      We turn next to N.J.S.A. 3B:14-58, which provides:

            a. If a fiduciary makes a deposit in a bank to his
            personal credit of checks drawn by him upon an account
            in his own name as fiduciary, or of checks drawn by
            him upon an account in the name of his principal, if he
            is empowered to draw thereon, or, except as provided
            in subsection b. of this section, if he otherwise makes a
            deposit of funds held by him as fiduciary, the bank
            receiving the deposit is not bound to inquire whether
            the fiduciary is committing thereby a breach of his
            obligation as fiduciary. The bank is authorized to pay
            the amount of the deposit of any part thereof upon the
            personal check of the fiduciary without being liable to
            the principal, unless the bank receives the deposit or
            pays the check with actual knowledge that the fiduciary
            is committing a breach of his obligation as fiduciary in
            making the deposit or in drawing the check, or with
            knowledge of facts that its action in receiving the
            deposit of paying the check amounts to bad faith.

            b. In the case of an instrument payable to the principal
            or the fiduciary as fiduciary, the bank has notice of the
            breach of fiduciary duty if the instrument is deposited
            to an account other than an account of the fiduciary, as
            fiduciary, or an account of the principal.

      Subsection (a) of that provision provides, for example, that when a

fiduciary draws a check from the fiduciary’s account or the principal’s account

and deposits that check “in a bank to his personal credit,” the bank has no duty

to inquire whether the fiduciary is in breach of his fiduciary obligation -- with

two exceptions. See N.J.S.A. 3B:14-58(a). If the bank deposits or pays on a

check “with actual knowledge that the fiduciary is committing a breach of his
                                       16
obligation . . . or with knowledge of facts that its action in receiving the

deposit of paying the check amounts to bad faith,” then the bank faces legal

liability. Ibid. (emphases added). Subsection (b) makes clear that when a

check is made payable to the fiduciary or the principal and the check is not

deposited in the fiduciary’s or principal’s account, “the bank has notice of the

breach of fiduciary duty.” See N.J.S.A. 3B:14-58(b).

      Thus, a bank is not liable in a common law cause of action unless it has

“actual knowledge” or “notice” of a breach of a fiduciary duty -- or acts in

“bad faith” in depositing or paying on a check. That heightened standard

provides banks with a limited immunity.

      Nothing in the plain language of the UFL suggests that the UFL is itself

the basis for an affirmative cause of action. The UFL does not provide for a

recovery through a private action or set forth remedies or a statute of

limitations -- all indicia of a statutory cause of action. Indeed, the Legislature

knows how to craft a statutory scheme that provides for a cause of action to

complement or supplant the common law. For example, the New Jersey

Consumer Fraud Act, N.J.S.A. 56:8-1 to -224, specifically “provides a private

cause of action to consumers who are victimized by fraudulent practices in the

marketplace.” Steinberg v. Sahara Sam’s Oasis, LLC, 226 N.J. 344, 360-61

(2016) (quoting Gonzalez v. Wilshire Credit Corp., 207 N.J. 557, 576 (2011));

                                        17
see also D’Annunzio v. Prudential Ins. Co. of Am., 192 N.J. 110, 120 (2007)

(holding that the Conscientious Employee Protection Act, N.J.S.A. 34:19-1

to -8, “authorizes an aggrieved employee to bring a civil suit against an

employer who retaliates in violation of the statute” (citing N.J.S.A. 34:19-5));

Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124,

130 (2001) (explaining that New Jersey’s Law Against Discrimination,

N.J.S.A. 10:5-1 to -49, “provides a mechanism by which victims of

discrimination may seek redress for their injuries” (citing N.J.S.A. 10:5 -13)).

        In sum, the UFL’s plain language and its legislative history evidence a

legislative intent to provide a limited immunity to banks from common law

causes of action -- not to provide a new affirmative cause of action against a

bank.

                                        D.

        Few jurisdictions have squarely addressed the issue before us. The

United States Court of Appeals for the Seventh Circuit, for instance, found that

the Illinois “UFA did not create the cause of action. Rather, the UFA is a

defense to such an action unless the bank has actual knowledge that the

fiduciary is breaching his fiduciary obligations or the bank acts with bad

faith.” See Appley v. West, 832 F.2d 1021, 1031 (7th Cir. 1987); cf. Master

Chem. Corp. v. Inkrott, 563 N.E.2d 26, 29 (Ohio 1990) (“The Uniform

                                        18
Fiduciaries Act provides a defense, when asserted under Civ. R. 8(C), for those

who knowingly deal in good faith with an authorized fiduciary.”).

      Although this is the first time this Court has directly addressed this

issue, nothing in our jurisprudence is inconsistent with the position we take

today. In New Amsterdam Casualty Co., the plaintiffs brought suit “purely in

tort for damages,” alleging that the defendant banks were “participants” in a

receiver’s embezzlement of funds from an insolvent company. 117 N.J. Eq. at

269. The plaintiffs claimed that the banks from “which the checks were drawn

and the banks receiving them, respectively, paid and received them with actual

knowledge that [the receiver] was committing breaches of his obligations as

receiver, or with knowledge of such facts as amounted to bad faith.” Ibid. The

chancery court stated that the UFA “renders a bank immune from liability in

honoring a fiduciary’s check, ‘unless the bank pays the check with the actual

knowledge that the fiduciary is committing a breach of his obligation as

fiduciary.’” Id. at 270 (emphasis added) (quoting N.J.S.A. 3A:41-7 (repealed

1981)).

      Contrary to Lembo’s assertion, New Jersey Title Insurance Co. did not

sanction an affirmative cause of action under the UFL. In that case, an

attorney embezzled real-estate-closing funds from his attorney trust account at

National State Bank, issuing dozens of checks to himself and cashing them

                                       19
either at the bank or at Atlantic City casinos, instead of paying off mortgages.

163 N.J. at 145-46. New Jersey Title Insurance Company satisfied the

outstanding mortgages and then filed an action against the bank, alleging that

the bank “had ‘actual knowledge that . . . [the attorney’s] intended use of the

trust funds would breach fiduciary duties,’ and that the [b]ank was negligent

and acted in bad faith in violation of N.J.S.A. 3B:14-55.” Id. at 146.

      In New Jersey Title Insurance Co., neither the Supreme Court nor the

Appellate Division, see 319 N.J. Super 311 (App. Div. 1999), identified the

precise causes of action set forth in the complaint filed against the bank.

Neither court stated that the cause of action was a statutory claim based on the

UFL. Our Court was presented with two issues -- defining the “bad faith”

standard under the UFL and determining whether the bank lost its UFL

immunity because it acted in “bad faith.” 163 N.J. at 145, 150. The Court did

not indicate that the UFL gave rise to an affirmative claim but rather

confirmed that under the UFL “a bank would be immune from liability in

honoring a fiduciary’s check” unless it is shown that the bank acted with actual

knowledge of the breach of a fiduciary’s obligations or with knowledge of

facts establishing that its actions amounted to bad faith. Id. at 149 (emphasis

added).

                                       20
      Because we hold that the UFL does not provide an affirmative cause of

action, the Appellate Division erred in remanding to allow Lembo to amend

the complaint to assert such a claim. 2

                                          IV.

      In rendering this decision, we are mindful that interposing an affirmative

UFL cause of action -- particularly in this case -- might undermine the UCC’s

“comprehensive framework for allocating and apportioning the risks of

handling checks.” City Check Cashing, Inc., 166 N.J. at 57. Lembo is simply

attempting to outflank that comprehensive scheme by bringing back to life a

time-barred UCC conversion claim.

      Generally, a bank will be strictly liable for accepting a check with a

forged indorsement. See N.J.S.A. 12A:3-420 and cmt. 1 (stating that this

section “covers cases in which a depositary or payor bank takes an instrument

bearing a forged indorsement”); see also Leeds v. Chase Manhattan Bank,

N.A., 331 N.J. Super. 416, 422 (2000) (“As a depository bank under the

Uniform Commercial Code, [the defendant bank] is strictly liable for

conversion on a forged or stolen instrument.” (citation omitted)). Lembo’s

complaint alleges that TD Bank accepted checks payable to Lembo with forged

2
  Given our resolution of this issue, we do not address Lembo’s claims that
Marchese and Wright were acting in the role of “constructive trustees” to
qualify as fiduciaries under the UFL.
                                       21
indorsements. In the absence of a defense under either N.J.S.A. 12A:3-405 or

N.J.S.A. 12A:3-406,3 TD Bank would have been strictly liable for conversion

of the funds had Lembo filed a timely UCC claim.

      “[A]n action for conversion of an instrument . . . must be commenced

within three years after the cause of action accrues,” N.J.S.A. 12A:3-118(g),

and the discovery rule does not extend the limitations period, N.J. Lawyers’

Fund for Client Prot. v. Pace, 186 N.J. 123, 125-26 (2006). Lembo did not file

a UCC claim within the requisite three-year statute-of-limitations period. 4

3
  N.J.S.A. 12A:3-405 provides a limited defense to a bank when the bank has
acted in good faith and an employer -- to whom a check is payable -- entrusts
“responsibility” for the check to an employee, who then forges an indorsement.
Additionally, N.J.S.A. 12A:3-406(a) provides a limited defense when the
person to whom a check is made payable fails “to exercise ordinary care.”
However, if the bank also fails to exercise ordinary care that substantially
contributes to the loss, then the loss is allocated between the person and the
bank. See N.J.S.A. 12A:3-406(b).
4
   In recognizing the primacy of the UCC in assigning responsibility for checks
with forged indorsements, the Appellate Division held in Leeds that the actual
knowledge or bad faith defense of the UFL could not be invoked by a bank as
a defense to a UCC strict-liability claim based on a bank’s “accepting a
forged/altered check for deposit.” 331 N.J. Super. at 424-28. In that case, an
attorney altered a client’s settlement check and made it payable to himself, and
then deposited the check in his attorney trust account at the defendant bank.
Id. at 419. The Appellate Division rejected “the argument that the shield of
the UFL super[s]edes the liability imposed by § 3-420,” reasoning that a bank
is not insulated from liability because “a dishonest fiduciary, indeed a forger”
converts funds entrusted to him “for which the bank would otherwise be
strictly liable” by depositing the forged check. Id. at 427.
                                        22
      We concur with the Appellate Division that Lembo’s common law

conversion claim is preempted by the UCC. We also agree with its conclusion

that the common law negligence claim cannot be sustained.

      In light of the UCC’s well-delineated scheme assigning and allocating

liability in the processing of checks with forged indorsements, “[a]bsent a

special relationship, courts will typically bar claims of non-customers against

banks.” See City Check Cashing, Inc., 166 N.J. at 60. Accordingly, “unless

the facts establish a special relationship between the parties created by

agreement, undertaking or contact, that gives rise to a duty, the sole remedies

available are those provided in the Code.” See id. at 62.

      Lembo’s complaint does not allege that Lembo had a banking or other

relationship with TD Bank, much less a special relationship “created by

agreement, undertaking or contact.” See ibid. That Marchese and Wright had

personal accounts at TD Bank where the forged checks were cashed and

deposited did not establish a “special relationship” between TD Bank and

Lembo. The Appellate Division therefore properly affirmed the dismissal of

the common law claims.

      Because we hold that the UFL does not give rise to an affirmative cause

of action, we need not address whether such a claim has been sufficiently pled

in the complaint, even under the permissive standard of Rule 4:6-2(e). See

                                       23
Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989)

(stating that a complaint should be searched “with liberality to ascertain

whether the fundament of a cause of action may be gleaned even from an

obscure statement of claim, opportunity being given to amend if necessary”

(quoting Di Cristofaro v. Laurel Grove Mem’l Park, 43 N.J. Super. 244, 252

(App. Div. 1957))).

                                         V.

      In summary, we hold that the UFL does not authorize an affirmative

cause of action against a bank but rather provides a bank with a limited

immunity from liability for failing to take notice of and action on the breach of

a fiduciary’s obligation. The UFL does not displace, subsume, or supplement

common law claims. When an action is brought against a bank, the UFL

provides that a bank’s liability depends on whether the bank acted with actual

knowledge or bad faith in the face of a fiduciary’s breach of his obligations.

      We thus reverse the judgment of the Appellate Division remanding the

matter to allow Lembo to amend the complaint to state a claim under the UFL

and reinstate the trial court’s dismissal of this action.

     CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, FERNANDEZ-
VINA, SOLOMON, and TIMPONE join in JUSTICE ALBIN’s opinion.
JUSTICE PATTERSON did not participate.

                                         24