Court Opinion

ID: 2705056
Source: CourtListenerOpinion
Date Created: 2014-08-04 22:31:22.881104+00
Date Added: 2024-06-11T12:55:16.602917
License: Public Domain

[Cite as Miller v. Bennett, 2014-Ohio-2460.]

STATE OF OHIO                     )                  IN THE COURT OF APPEALS
                                  )ss:               NINTH JUDICIAL DISTRICT
COUNTY OF LORAIN                  )

JOHN MILLER
                                                     C.A. No.     13CA010336
        Appellant

        v.

ROCHELLE BENNETT
                                                     APPEAL FROM JUDGMENT
        Defendant                                    ENTERED IN THE
                                                     COURT OF COMMON PLEAS
and                                                  COUNTY OF LORAIN, OHIO
                                                     CASE No.   10CV168938
US BANK

        Appellee

                                 DECISION AND JOURNAL ENTRY

Dated: June 9, 2014

        HENSAL, Presiding Judge.

        {¶1}     John Miller appeals a judgment of the Lorain County Court of Common Pleas that

granted U.S. Bank’s motion to dismiss his complaint. For the reasons that follow, this Court

reverses.

                                                I.

        {¶2}     Mr. Miller, doing business as Miller Plumbing, runs a sole-proprietorship

plumbing business out of his home in Lorain, Ohio. In 2006, he hired his niece Rochelle Bennett

to be his bookkeeper and gave her authority to make bank deposits and write checks for him.

According to Mr. Miller, after he hired Ms. Bennett, she opened an account at U.S. Bank in her

own name and indicated that she was doing business as Miller Plumbing. Mr. Miller did not
                                                2

authorize her to open the account and has never been a customer of U.S. Bank. Ms. Bennett

subsequently began depositing checks that Mr. Miller’s customers had written to “Miller

Plumbing” to the U.S. Bank account and drawing the funds for her personal use. By the time

Mr. Miller discovered his niece’s scheme, she had stolen approximately $100,000 from him.

       {¶3}    Mr. Miller sued his niece, alleging fraud, conversion, and theft. He also sued U.S.

Bank, alleging that it negligently allowed Ms. Bennett to open an imposter account and conduct

fraudulent activities from it. After Ms. Bennett failed to file an answer, the trial court entered

default judgment against her. U.S. Bank moved to dismiss Mr. Miller’s claims under Civil Rule

12(B)(6), arguing that he failed to state a claim against it. The trial court twice allowed Mr.

Miller to amend his complaint and eventually referred U.S. Bank’s motion to a magistrate.

Following a hearing, the magistrate recommended that U.S. Bank’s motion be granted. The

magistrate reasoned that, because Mr. Miller was not a customer of U.S. Bank, it did not owe

him a duty. He, therefore, could not establish one of the prongs of a negligence claim. Mr.

Miller timely objected to the magistrate’s decision, but the trial court overruled his objections

and adopted the decision. Mr. Miller has appealed, assigning as error that the trial court

incorrectly granted the bank’s motion to dismiss.

                                               II.

                                  ASSIGNMENT OF ERROR

       THE TRIAL COURT ERRED IN GRANTING A CIVIL RULE 12(B)(6)
       MOTION TO DISMISS APPELLANT’S SECOND AMENDED COMPLAINT,
       WHERE IT MUST APPEAR BEYOND DOUBT THAT THE PLAINTIFF CAN
       PROVE NO SET OF FACTS IN SUPPORT OF THE CLAIM THAT WOULD
       ENTITLE THE APPELLEE TO THE RELIEF SOUGHT, IN REGARD TO
       WHETHER U.S. BANK FAILED TO COMPLY WITH THEIR STATUTORILY
       MANDATED DUTY TO EXERCISE ORDINARY CARE FOR PERSONS
       WHO WILL BEAR A LOSS, SUCH AS THE APPELLANT, IF THEY DO NOT
       ADHERE TO THEIR STATUTORILY IMPOSED DUTY TO ADHERE TO
       REASONABLE BANKING PROCEDURE.
                                                3

       {¶4}    This Court reviews the dismissal of a complaint under Civil Rule 12(B)(6) de

novo. Perrysburg Twp. v. Rossford, 103 Ohio St.3d 79, 2004-Ohio-4362, ¶ 5. When reviewing

whether a motion to dismiss should have been granted, this Court must accept as true all factual

allegations in the complaint and all reasonable inferences must be drawn in favor of the

nonmoving party. Id. For a defendant “[t]o prevail on a Civ.R. 12(B)(6) motion to dismiss, it

must appear on the face of the complaint that the plaintiff cannot prove any set of facts that

would entitle him to recover.” Raub v. Garwood, 9th Dist. Summit No. 22210, 2005-Ohio-1279,

¶ 4.

       {¶5}    “To establish actionable negligence, one must show in addition to the existence of

a duty, a breach of that duty and injury resulting proximately therefrom.” Mussivand v. David,

45 Ohio St.3d 314, 318 (1989). “The existence of a duty in a negligence action is a question of

law for the court to determine.” Id. “There is no formula for ascertaining whether a duty exists.”

Id. “Typically, a duty may be established by common law, legislative enactment, or by the

particular facts and circumstances of the case.” Chambers v. St. Mary’s School, 82 Ohio St.3d

563, 565 (1998).

       {¶6}    Mr. Miller admits that, because he was not a customer of U.S. Bank, it ordinarily

would not have owed him a duty of care.         He argues that, because of its “commercially

outrageous conduct” in this case, however, it owed him a duty under Revised Code 1303.47(B).

Section 1303.47(B) provides:

       For the purpose of determining the rights and liabilities of a person who, in good
       faith, pays an instrument or takes it for value or for collection, if an employer
       entrusted an employee with responsibility with respect to the instrument and the
       employee or a person acting in concert with the employee makes a fraudulent
       indorsement of the instrument, the indorsement is effective as the indorsement of
       the person to whom the instrument is payable if it is made in the name of that
       person. If the person paying the instrument or taking it for value or for collection
                                                4

       fails to exercise ordinary care in paying or taking the instrument and that failure
       substantially contributes to loss resulting from the fraud, the person bearing the
       loss may recover from the person failing to exercise ordinary care to the extent the
       failure to exercise ordinary care contributed to the loss.

Section 1303.47(B) codifies Section 3-405 of the Uniform Commercial Code. According to the

official comments for Section 3-405:

       1. Section 3-405 is addressed to fraudulent indorsements made by an employee
       with respect to instruments with respect to which the employer has given
       responsibility to the employee.         It covers two categories of fraudulent
       indorsements: [I]ndorsements made in the name of the employer to instruments
       payable to the employer and indorsements made in the name of payees of
       instruments issued by the employer. This section applies to instruments generally
       but normally the instrument will be a check. Section 3-405 adopts the principle
       that the risk of loss for fraudulent indorsements by employees who are entrusted
       with responsibility with respect to checks should fall on the employer rather than
       the bank that takes the check or pays it, if the bank was not negligent in the
       transaction. Section 3-405 is based on the belief that the employer is in a far
       better position to avoid the loss by care in choosing employees, in supervising
       them, and in adopting other measures to prevent forged indorsements on
       instruments payable to the employer or fraud in the issuance of instruments in the
       name of the employer. If the bank failed to exercise ordinary care, subsection (b)
       allows the employer to shift loss to the bank to the extent the bank’s failure to
       exercise ordinary care contributed to the loss.”

In Tricon Roofing, Inc. v. Gabor’s Dunham Fast Check, Inc., 8th Dist. Cuyahoga No. 82192,

2003-Ohio-3027, the Eighth District Court of Appeals explained that, under Section 1303.47(B),

“[t]hird parties may be held liable for an employee’s fraudulent endorsement [of a check] if they

fail to ‘exercise ordinary care’ in paying or taking the instrument and that failure substantially

contributes to loss resulting from the fraud.” Id. at ¶ 20. “Ordinary care” means “observance of

the reasonable commercial standards that are prevailing in the area in which the person is located

with respect to the business in which the person is engaged.” R.C. 1303.01(A)(9). According to

Mr. Miller, U.S. Bank failed to exercise ordinary care when it allowed his niece to open an

imposter account and deposit his customer’s checks into it.
                                                  5

       {¶7}    U.S. Bank argues that Mr. Miller failed to state a claim under Section 1303.47(B)

because he did not specifically cite the section in his complaint. Mr. Miller alleged in his

complaint only that U.S. Bank “had a * * * statutory duty to conduct itself in a commercially

reasonable manner * * * consistent with Ohio law, which it failed to do * * *.” In Vandiver v.

Morgan Adhesive Co., 126 Ohio App.3d 634, 642 (9th. Dist.1998), this Court explained,

however, that “[t]he fact that [a plaintiff] did not provide * * * specific sections in his complaint

is not fatal to his cause, as notice pleading requires only a short, plain statement of the claim.”

We, therefore, reject U.S. Bank’s argument that Mr. Miller was required to state in his complaint

that his claim is under Section 1303.47(B).

       {¶8}    U.S. Bank also argues that Section 1303.47(B) does not create a duty, citing

Promissor, Inc. v. Branch Bank & Trust Co., N.D.Ga. No. 1:08-CV-1704-BBM, 2008 WL

5549451 (Oct. 31, 2008). Although the court in Promissor analyzed a Georgia statute that

adopted Section 3-405 of the Uniform Commercial Code, we do not find its analysis persuasive.

The federal district court based its decision largely on the fact that a Georgia state appellate court

had determined that the Georgia statute placed the risk of loss upon employers instead of banks.

Id. at *6, citing Northbrook Prop. & Cas. Ins. Co. v. Citizens & S. Nat’l Bank, 184 Ga.App. 326,

327 (1987). At the time that the state appellate court rendered its decision, however, the Georgia

statute did not contain language providing that a “person bearing the loss may recover from the

person failing to exercise ordinary care * * *.” Ga.Code Ann. § 11-3-405(b). That language

from Section 3-405 of the Uniform Commercial Code was not added to the Georgia statute until

1996. In Promissor, the federal district court did not explain why the state court decision

continued to control even though the language of the statute had been amended. For similar
                                                6

reason, we do not find persuasive the other cases that U.S. Bank has cited in which the courts did

not apply the current version of the Uniform Commercial Code.

       {¶9}    U.S. Bank also argues that Mr. Miller has incorrectly relied on the Eighth District

Court of Appeals’ decision in Tricon Roofing, noting that it did not involve an allegation by an

employer that an employee opened an imposter account at a third party bank. Opening an

imposter account, however, is not the focus of Section 1303.47(B). In fact, it is debatable

whether the mere opening of an imposter account is actionable under the section. See Auto-

Owners Ins. Co. v. Bank One, 879 N.E.2d 1086, 1089-1090 (Ind.2008) (“[Section] 405(b) makes

no mention of a bank’s responsibilities when opening an account for a new customer. Rather,

subsection (b) requires ordinary care from a bank in the ‘paying’ or ‘taking’ of an instrument. * *

* This is not to say that the circumstances of opening an account could never play a role in

whether a bank has used ordinary care in paying or taking a check.”). In Tricon Roofing, Tricon

attempted to recover from Gabor’s Fast Check for nine checks that Quintillo Alonzo cashed that

were not authorized by Tricon.        The Eighth District determined that, although Section

1303.47(B) allows an employer to recover from a bank in some instances, Gabor was entitled to

summary judgment because Tricon failed to present evidence that Gabor did not exercise

ordinary care. Tricon Roofing, 2003-Ohio-3027, at ¶ 20, 23. In his complaint, Mr. Miller alleges

that U.S. Bank allowed Ms. Bennett to wrongfully deposit and withdraw money from her

imposter account, “which is not consistent with reasonable commercial banking practices.” We,

therefore, conclude that his reliance on Tricon Roofing is appropriate, recognizing that that case

was disposed on summary judgment while this case is only at the pleading stage.

       {¶10} Upon review of Revised Code Section 1303.47(B), including the official

comments to Section 3-405 of the Uniform Commercial Code, we conclude that Section
                                                 7

1303.47(B) imposes a duty on banks to exercise ordinary care regarding fraudulently-endorsed

financial instruments. Viewing the allegations Mr. Miller made in his complaint in a light most

favorable to him, he has sufficiently alleged that U.S. Bank breached its duty to him under

Section 1303.47(B). His assignment of error is sustained.

                                                III.

       {¶11} The trial court incorrectly granted U.S. Bank’s motion to dismiss as to Mr.

Miller’s claim under Section 1303.47(B). The judgment of the Lorain County Court of Common

Pleas is reversed, and this matter is remanded for further proceedings consistent with this

decision.

                                                                             Judgment reversed,
                                                                            and cause remanded.

       There were reasonable grounds for this appeal.

       We order that a special mandate issue out of this Court, directing the Court of Common

Pleas, County of Lorain, State of Ohio, to carry this judgment into execution. A certified copy of

this journal entry shall constitute the mandate, pursuant to App.R. 27.

       Immediately upon the filing hereof, this document shall constitute the journal entry of

judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the

period for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is

instructed to mail a notice of entry of this judgment to the parties and to make a notation of the

mailing in the docket, pursuant to App.R. 30.

       Costs taxed to Appellee.

                                                       JENNIFER HENSAL
                                                       FOR THE COURT
                                           8

CARR, J.
WHITMORE, J.
CONCUR.

APPEARANCES:

MICHAEL J. DUFF, Attorney at Law, for Appellant.

SEAMUS J. MCMAHON, Attorney at Law, for Appellee.