Court Opinion

ID: 220952
Source: CourtListenerOpinion
Date Created: 2011-07-15 00:00:32+00
Date Added: 2024-06-11T17:28:47.989328
License: Public Domain

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

                           ________

                            10-4302
                           ________

            MACKIN ENGINEERING COMPANY,
                                 Appellant

                                v.

   AMERICAN EXPRESS COMPANY; AMERICAN EXPRESS
     TRAVEL RELATED SERVICES COMPANY, INC.;
           AMERICAN EXPRESS BANK, FSB

                           ________

         On Appeal from the United States District Court
            for the Western District of Pennsylvania
                 (D.C. Civil No. 2-10-cv-01041)
             District Judge: Hon. Arthur J. Schwab
                            ________

           Submitted Under Third Circuit LAR 34.1(a)
                        July 11, 2011

  Before: SLOVITER, FUENTES, and VANASKIE, Circuit Judges

                      (Filed: July 14, 2011)
                            ________

                           OPINION
SLOVITER, Circuit Judge.
       Mackin Engineering Co. appeals from the order of the District Court granting the

motion to dismiss filed by American Express Co., American Express Travel Related

Services Co., Inc., and American Express Bank, FSB (collectively, “American Express”)

for failure to state a claim. In granting the motion, the District Court concluded that the

Uniform Commercial Code (“U.C.C.” or “Code”) displaced Mackin’s common law claim

that American Express breached implied duties in its corporate credit card contract with

Mackin. Viewing the U.C.C. as controlling, the Court held that Mackin’s claim was

time-barred under the Code’s three year statute of limitations. We will affirm.1

                                             I.

       Mackin, a Pennsylvania corporation, long maintained an American Express

Business Credit Card Account, subject to a written Cardmember Agreement. On or about

July 21, 2006, Mackin discovered that one of its employees had been embezzling

Mackin’s funds by “sign[ing] and issu[ing]” Mackin’s checks to pay for charges to the

employee’s personal American Express credit card. App. at 28. Mackin uncovered

evidence of the embezzlement on August 18, 2006, when one of its checks, dated June

14, 2006, was misapplied to the employee’s personal account instead to Mackin’s

business account. Upon request, American Express credited $28,160.07 to Mackin’s

credit card account, the amount of the misappropriated check. Further investigation by
1
 The District Court had jurisdiction by virtue of the diversity of the parties under 28
U.S.C. § 1332. This court has jurisdiction under 28 U.S.C. § 1291.

                                              2
Mackin revealed that the employee’s embezzlement spanned the previous three years and

totaled $843,958.84, excluding the $28,160.07 credit. Mackin immediately fired the

employee.

       Approximately four years later, on August 6, 2010, Mackin filed a Complaint

against American Express, alleging that the written Cardmember Agreement for the

Mackin business account imposed duties on American Express to act in good faith and

engage in fair dealing in its performance relating to that account, and also imposed a duty

under the doctrine of implied necessity not to use Mackin’s funds to pay for the

employee’s personal charges. The Complaint further alleged that under the U.C.C.,

American Express had a duty to use ordinary care with respect to negotiating Mackin’s

checks and crediting them to the employee’s personal account, and that American

Express was “unjustly enriched by its conversion as payee” of the checks. App. at 32.

The Complaint states that American Express breached the contract and violated its

implied duties, essentially by neglecting to “investigate” and “detect” the employee’s

spending habits and use of Mackin’s funds for her personal credit card and by failing to

“report” the employee’s conduct to Mackin. App. at 33. Mackin requested judgment

against American Express in the amount of $843,958.84, the unrecovered amount of the

employee’s embezzlement.

       After removing the case to federal court, American Express filed a motion to

dismiss pursuant to Rule 12(b)(6). In granting that motion, the District Court observed

that Mackin’s breach of contract claim was “based entirely on allegedly misappropriated
                                             3
company checks that were transmitted to and received by [American Express] in

discharge of the debt owed by [Mackin]’s former [employee].” Mackin Eng’g Co. v. Am.

Express Co., No. 10-cv-1041, 2010 U.S. Dist. LEXIS 108395, at *9 (W.D. Pa. Oct. 12,

2010). The Court reasoned that Mackin’s common law claim was preempted by the

U.C.C. because the Code provided Mackin “the remedy [Mackin] seeks for the action it

is bringing against American Express – reimbursement of the negotiated sums.” Id. at

*16. Moreover, enforcing the U.C.C.’s statute of limitations furthered the Code’s goals

by recognizing that “the victim of the conversion is in the best position to detect the loss

and take appropriate action.” Id.

       Viewing the U.C.C. as having displaced Mackin’s claim, the District Court

explained that Mackin’s Complaint, filed August 6, 2010, was not brought within the

Code’s applicable three year statute of limitations, which began to run when American

Express accepted Mackin’s June 14, 2006 check and credited it to the employee’s

personal credit card account. The Court thus dismissed the Complaint as time-barred.

Mackin appeals.2

                                             II.

2
  We conduct a plenary review over a district court’s grant of a motion to dismiss for
failure to state a claim. Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d
Cir. 2009). Although a statute of limitations defense generally cannot be raised in the
context of a Rule 12(b)(6) motion to dismiss, an exception is made “where the complaint
facially shows noncompliance with the limitations period and the affirmative defense
clearly appears on the face of the pleading.” Oshiver v. Levin, Fishbein, Sedran &
Berman, 38 F.3d 1380, 1384 n.1 (3d Cir. 1994).

                                              4
       In assessing whether the U.C.C. displaces a common law claim, this court begins

with two basic principles. New Jersey Bank v. Bradford Sec. Operations, Inc., 690 F.2d
339, 345 (3d Cir. 1982). First, the U.C.C. “must be liberally construed and applied to

promote its underlying purposes and policies.” 13 Pa. Cons. Stat. Ann. § 1103(a); see

Utah Code Ann. § 70A-1a-103(1).3 Second, “[u]nless displaced by the particular

provisions of [the U.C.C.], the principles of law and equity . . . supplement its

provisions.” 13 Pa. Cons. Stat. Ann. § 1103(b); see Utah Code Ann. § 70A-1a-103(2).

Thus, the U.C.C. does not displace the common law “except insofar as reliance on the

common law would thwart the purposes of the Code.”4 New Jersey Bank, 690 F.2d at

346. Where the U.C.C. “provide[s] a comprehensive remedy for parties to a transaction,

a common-law action will be barred.” Id.

       A fair reading of the Complaint reveals that Mackin’s claim is based entirely on

American Express’s allegedly improper negotiation of Mackin’s unauthorized checks.

The U.C.C. contains comprehensive provisions regulating negotiable instruments. 13 Pa.

Cons. Stat. Ann. § 3102; Utah Code Ann. § 70A-3-102. Those U.C.C. provisions contain

3
 Although Mackin argues that Pennsylvania law governs this action, and the position of
American Express is that Utah law applies pursuant to a choice of law provision in the
Cardmember Agreement (which is not in the record), both parties agree that their
difference on that issue is irrelevant for the purposes of this appeal because both
Pennsylvania and Utah have adopted the U.C.C.
4
  The purposes and policies of the U.C.C. are “to simplify, clarify and modernize the law
governing commercial transactions;” “to permit the continued expansion of commercial
practices through custom, usage and agreement of the parties;” and “to make uniform the
law among the various jurisdictions.” 13 Pa. Cons. Stat. Ann. § 1103(a); see Utah Code
Ann. § 70A-1a-103(1).
                                            5
a loss-allocation scheme that limits an employer’s ability to externalize the costs of

employee embezzlement, reflecting the view that the employer is in the best position to

detect the loss and take appropriate action. Menichini v. Grant, 995 F.2d 1224, 1231 (3d

Cir. 1993) (“Article 3 of the UCC furnishes us with the applicable loss-allocation rules

for the check payments. These rules, premised on the responsibility to exercise ordinary

care, proceed from the principle that liability rests with the party best able to prevent the

loss.”); see 13 Pa. Cons. Stat. Ann. §§ 3307, 3417, 3418, 3420, 4406; Utah Code Ann. §§

70A-3-307; 70A-3-417, 70A-3-418, 70A-3-420, 70A-4-406.

       Contrary to the policy underlying the U.C.C.’s loss-allocation scheme, Mackin’s

common law breach of contract claim attempts to burden American Express, as payee,

with an implied duty to investigate the conduct of Mackin’s employee. Because this

would thwart the policy reflected in the Code, the District Court correctly concluded that

the U.C.C. displaced Mackin’s claim, rendering it subject to the Code’s applicable three

year statute of limitations. See 13 Pa. Cons. Stat. Ann. § 3118(g); Utah Code Ann. §

70A-3-118(7). As the District Court observed, Mackin “was clearly in a better position

to detect its employee’s fraud more easily and quickly than American Express” and “had

the opportunity to initiate this lawsuit within the statute of limitations after it discovered

the entirety of its employee’s conversion in 2006, but chose not to do so.” Mackin Eng’g

Co., 2010 U.S. Dist. LEXIS 108395, at *16. Mackin does not dispute that under the

applicable limitation period, the face of its Complaint reveals that its claim is time-

barred.
                                               6
                                    III.

For the foregoing reasons, we will affirm the judgment of the District Court.

                                     7