UCC Conversion Claim Displaced as Common-Law Negligence
(October 2011) By Gregory L. Arbogast, Associate
For more information, contact Paul
Farquharson.
Advance Dental Care, Inc. v. SunTrust Bank,
Case No. AW-10-01286 | View pdf
In Advance Dental Care, Inc. v. SunTrust Bank, the United
States District Court for the District of Maryland held that conversion claims
under the UCC displace common-law negligence claims. As this is a case of first
impression, the United States District Court looked to legal authority from
other jurisdictions as well as Maryland law regarding payees who file suit
against depository banks. Based upon that law, the United States District Court
for the District of Maryland concluded that the Maryland Court of Appeals would
find that conversion claims under the UCC displace common-law negligence claims.
Advance Dental Care, Inc. arose out of its employee’s
fraud, whereby the employee stole approximately $400,954.04 from Advance Dental
Care, Inc. (“Advance Dental”). The employee, Michelle Rampersad, took insurance
reimbursement checks made out to Advance Dental and endorsed them to herself.
Ms. Rampersad then deposited those checks in her SunTrust Bank (“SunTrust”)
checking account. Advance Dental Care filed a Complaint against SunTrust on May
21, 2010, which alleged conversion under the UCC, negligence under the UCC, and
common-law negligence. SunTrust filed a motion to dismiss the common-law
negligence claim.
In SunTrust’s motion to dismiss, SunTrust argued that
the UCC conversion claim displaced the common-law negligence claim.
Therefore, SunTrust argued that Plaintiff was not entitled to make both a
UCC conversion claim and a common-law negligence claim.
The Court recognized that this was a case of first
impression. Maryland had not yet decided whether or not UCC conversion
claims displaced common-law negligence claims. Therefore, the Court looked
to other jurisdictions as to whether those jurisdictions have held that UCC
conversion claims displace common-law negligence claims. A review of case
law from other jurisdictions reveals that most other jurisdictions have
found that UCC conversion claims displace common-law negligence claims.
Additionally, the Court analyzed Maryland law when
drawers bring suit against depository banks. In Maryland, the UCC has not
displaced common-negligence claims made by drawers against depository banks.
The Court, however, noted that all of the cases upholding a drawer’s
common-law negligence rights against a depository bank noted the lack of an
adequate remedy under the UCC for such a situation. In this case, the UCC
provides the remedy for conversion. Therefore, the Court held that since the
payee has an inadequate remedy under the UCC, that statutory remedy
displaces the payee’s common-law remedy.
In holding that the UCC conversion claim displaces the
common-law negligence claim, the Court granted Defendant’s motion to dismiss
the common-law negligence claim. Therefore, the case against SunTrust is
only proceeding on the UCC conversion claim.
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