United States District Court, D. Maryland
JEFFREY J. SILVER Plaintiff
WELLS FARGO BANK, N.A., Defendants
MEMORANDUM AND ORDER RE: AMENDED COMPLAINT
J. Garbis, United States District Judge
Court has before it Wells Fargo Bank, N.A.'s Motion to
Dismiss Claims Asserted Against It in the Amended Complaint
[ECF No. 40], PNC Bank, National Association's Motion to
Dismiss Plaintiff Jeffrey J. Silver's Amended Complaint
[ECF No. 43], and the materials submitted relating thereto.
The Court finds a hearing unnecessary.
sometime in 2007 until about November 24, 2012, Plaintiff
Jeffrey J. Silver (“Silver”) was the victim of a
check fraud scheme perpetrated by Katherina Cheek
(“Cheek”), one of his employees. Cheek stole,
forged, and negotiated checks drawn on Silver's checking
account at PNC Bank, National Association (“PNC”)
and had the proceeds end up in her own account at Wells Fargo
Bank, National Association (“Wells Fargo”)
through a “double forgery” scheme.
asserts claims against PNC and Wells Fargo
(“Defendants”) pursuant to the Maryland Uniform
Commercial Code, Md. Code Ann., Com. Law § 1-101 et
seq.,  for lack of ordinary care and good faith,
breach of presentment warranties, strict liability, and
conversion. Silver also asserts common law claims of
negligence, breach of contract, negligent hiring and/or
retention of employees, constructive fraud, and civil
instant motions, Defendants seek dismissal of all claims
against them pursuant to Rule 12(b)(6) of the Federal Rules
of Civil Procedure.
motion to dismiss filed pursuant to Rule 12(b)(6) tests the
legal sufficiency of a complaint. A complaint need only
contain “‘a short and plain statement of the
claim showing that the pleader is entitled to relief, '
in order to ‘give the defendant fair notice of what the
. . . claim is and the grounds upon which it
rests.'” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007) (alteration in original) (citations
omitted). When evaluating a 12(b)(6) motion to dismiss, a
plaintiff's well-pleaded allegations are accepted as true
and the complaint is viewed in the light most favorable to
the plaintiff. However, conclusory statements or “a
formulaic recitation of the elements of a cause of action
will not [suffice].” Id. A complaint must
allege sufficient facts “to cross ‘the line
between possibility and plausibility of entitlement to
relief.'” Francis v. Giacomelli, 588 F.3d
186, 193 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 557).
into whether a complaint states a plausible claim is
“‘a context-specific task that requires the
reviewing court to draw on its judicial experience and common
sense.'” Id. (quoting Twombly, 550 U.S. at
557). Thus, if “the well-pleaded facts [contained
within a complaint] do not permit the court to infer more
than the mere possibility of misconduct, the complaint has
alleged - but it has not ‘show[n]' - ‘that
the pleader is entitled to relief.'” Id.
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)
(alteration in original)).
a motion to dismiss filed under Rule 12(b)(6) cannot reach
the merits of an affirmative defense. Goodman v. Praxair,
Inc., 494 F.3d 458, 464 (4th Cir. 2007). It is possible
to evaluate such a motion, however, if all the facts
necessary to the affirmative defense are clearly alleged on
the face of the complaint. Id. But if the complaint
does not clearly reveal the existence of a meritorious
affirmative defense, it is inappropriate for the court to
consider it under a Rule 12(b)(6) motion. Richmond,
Fredericksburg & Potomac R.R. Co. v. Forst, 4 F.3d
244, 250 (4th Cir. 1993).
times relevant hereto, Silver, a Baltimore City attorney,
maintained several accounts (checking and other types) with
PNC and Wells Fargo.
employed Ms. Katherina Cheek [“Cheek” or
“Assistant”] as a legal assistant whose duties
included matters related to Silver's checking accounts.
Beginning at “some point in 2007, ” Cheek began her
scheme that continued until November 2012. In the scheme,
Cheek stole hundreds of Silver's blank checks for one of
Silver's PNC accounts and forged Silver's signature
as the “drawer” on the checks. In the scheme,
Cheek created and negotiated three categories of forged
(1) checks made payable to Cheek herself, which were
negotiated using her genuine indorsement;
(2) checks made payable to local businesses as
“fictitious payees, ” upon which Cheek forged the
businesses' indorsements with scribbled signatures, not
commercial stamps; and
(3) checks made payable to persons who were Cheek's
friends and creditors, upon which Cheek forged the
indorsements. ¶ 10.
last two categories of checks can be described as
“double forgeries” because they contained forged
drawee signatures and forged payee indorsements.
often presented the checks to Wells Fargo two or three at a
time and cashed or deposited the proceeds of the fraudulent
checks into her personal bank account - not an account
belonging to the fictitious payee - at Wells Fargo (the
“depositary bank” or “collecting
bank”). ¶¶ 10, 17, 49. Some of these
can be referred to as “third-party” checks, i.e.,
checks drawn to a person other than the holder of the account
into which the proceeds are to be deposited. These
“third-party” checks generally are considered
high-risk by banks and require manager approval before
depositing. ¶ 47. The Amended Complaint alleges that the
tellers at Wells Fargo violated Wells Fargo requirements by
accepting the stolen checks without manager approval and
without verifying Silver's purported signature against
his signature cards on file at Wells Fargo. ¶ 17.
Fargo presented the forged checks for payment to PNC (the
“drawee” or “payor
bank”). PNC accepted and paid the forged
checks without verifying Silver's signature.
wrongfully negotiated at least 215 of the forged checks
between January 1, 2011, and November of 2012,  obtaining at
least $111, 302.15. ¶ 49. Silver did not owe money to
any of the payees on these checks, and at no time did Silver
authorize Cheek to sign Silver's name, draw, or indorse
any of these checks.
first discovered Cheek's check fraud scheme on November
24, 2012, several years after the scheme had started in 2007.
Silver immediately met with a PNC branch
manager (“the Manager”), who
reviewed Silver's accounts and the alleged unauthorized
checks for the three to four months prior. The Manager was
“surprised and shocked that the instruments were
honored” by PNC and accepted by Wells Fargo. ¶ 33.
The Manager called his wife, who currently worked, or had
just left her employment, for Wells Fargo, and the Manager
determined that “the fraudulent check deposits had been
made in violation of several of Wells Fargo's banking
Manager referred the matter to Robert Smetzer (“Mr.
Smetzer”), Assistant Vice President/Senior Fraud
Investigator for PNC. The Manager told Silver that PNC would
do as much as it could to help Silver recoup his losses.
However, on January 11, 2013, Mr. Smetzer sent Silver a
letter indicating that PNC was not going to take action on
the alleged fraudulent activity or try to recoup any money
from Wells Fargo.
PNC nor Wells Fargo have paid or credited Silver the amounts
charged against his account due to the check fraud scheme.
filed this lawsuit in the Circuit Court for Baltimore County,
Maryland on November 23, 2015. A Notice of Removal was filed
properly on February 10, 2016. [ECF No. 1].
November 29, 2016, this Court dismissed the Complaint by the
November Order [ECF No. 34]. However, in its Memorandum and
Order the Court stated that “Plaintiff may, by January
15, 2017 file an Amended Complaint. Id. at 23.
Plaintiff filed the Amended Complaint [ECF No. 35] on January
Amended Complaint, Silver asserts claims against the
Defendants in ten Counts:
Count I: Lack of Ordinary Care and Good Faith - Violation of
Md. Code Ann., Com. Law §§ 3-404, 3-405, 3-406
Count II: Breach of Presentment Warranties - Violation of Md.
Code Ann., Com. Law §§ 3-417, 4-208
Count III: Breach of Contract
Count IV: Negligence as to PNC
Count V: Negligence as to Wells Fargo
Count VI: Strict Liability - Violation of Md. Code Ann., Com.
Law §§ 3-403, 4-401
Count VII: Negligent Hiring and/or Retention of Employees
Count VIII: Constructive Fraud
Count IX: Civil Conspiracy
Count X: Conversion - Violation of Md. Code Ann., Com. Law
[ECF No. 35].
Maryland Uniform Commercial Code Claims
Amended Complaint presents statutory (UCC)
claims for lack of ordinary care (Count I),
breach of presentment warranties (Count II), strict liability
for wrongful payment (Count VI), and conversion (Count X)
under Titles 3 and 4 of the Maryland UCC.
Motions to Dismiss, Defendants contend that (1) Silver's
allegations fail to plead plausible claims, (2) no cause of
action exists against one or both banks for breach of
presentment warranty, conversion, violation of UCC §
4-401, and common law negligence, and (3) the UCC statute of
limitations, the § 3-406 “twelve-month rule,
” and/or the PNC Account Agreement bar recovery on
Silver's UCC claims that accrued prior to November 24,
of Ordinary Care and Good Faith - §§ 3-404 to 3-406
Count I, the Amended Complaint presents claims under UCC
§§ 3-404, 3-405, and 3-406. Sections 3-404 and
3-405 provide that a victim of check fraud caused by an
“impostor” or an employee may recover from a bank
that failed to exercise “ordinary care” when
paying or taking the fraudulent check. § 3-404
(“[T]he 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 3-405 contains almost identical
Impostors Provision - § 3-404
“impostors” provision, § 3-404, applies when
“an instrument is payable to a fictitious or
nonexisting person and to cases in which the payee is a real
person but the drawer or maker does not intend the payee to
have any interest in the instrument.” Official Comment
2 to Md. Code Ann., Com. Law § 3-404.
provision is relevant to checks made out by Cheek to payees
other than herself because neither Cheek nor Silver intended
the payees to have an interest in the check.
Employee Fraud Provision - § 3-405
3-405, the “employee fraud” provision, states:
if an employer entrusted an employee with responsibility with
respect to the instrument and 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
Id. § 3-405(b).
3-405 covers cases where an account owner's employee
makes a fraudulent indorsement, either in the employer's
name, if the employer is the payee, or “in the name of
payees of instruments issued by the employer.” Official
Comment 1 to Md. Code Ann., Com. Law § 3-405.
§ 3-405 could apply if Cheek had
“responsibility”with regard to Silver's
checks. The Amended Complaint does not present factual
allegations adequate to support a plausible claim of the
Allocation Provision - § 3-406
3-406 establishes a comparative negligence scheme allocating
loss between the bank and the customer if both parties failed
to exercise ordinary care that contributed to a fraudulent
these three provisions,  Silver claims that the Defendants
failed to exercise ordinary care and good faith when
accepting and paying the forged checks. Defendants assert
that Silver does not adequately plead facts in the Amended
Complaint to present plausible claims and that his
allegations are conclusory.
the UCC, “ordinary care” means “observance
of reasonable commercial standards.” § 3-103.
“Failure to exercise ordinary care is to be determined
in the context of all the facts relating to the bank's
conduct with respect to the bank's collection of the
check, ” including the names on the account, amount of