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Epic Wholesalers v. J.P. Morgan Chase Bank, N.A.

Supreme Court of the State of New York, Kings County
Jun 8, 2011
2011 N.Y. Slip Op. 51025 (N.Y. Sup. Ct. 2011)

Opinion

34331/08.

Decided June 8, 2011.

Ian Hucul, Esq., Hirschel Law Firm, P.C., Garden City, NY, Attorney for Plaintiffs.

Jeffrey Cohen, Esq., Bronx, NY, Attorney for Defendant Banco Popular, N.A.

Anthony DiPaolo, P.C., Esq., Queen Village, NY, Attorney for Defendant HSBC, N.A.


The following papers numbered 1 to10

read on this motion and cross motion:

Papers Numbered

1-35-6 47-9 Memorandum of Law 10

Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits (Affirmations) Annexed Opposing Affidavits (Affirmations) Reply Affidavits (Affirmations) Affidavit (Affirmation) Other Papers

In this action seeking damages for conversion and breach of contract, plaintiffs Epic Wholesalers (Epic) and Star Diamonds Jewelry, Inc. (Star) (collectively, plaintiffs) move, pursuant to CPLR 3025 (b), for leave to amend their complaint: (1) to add Dependable Cashing, Inc. (Dependable) as an additional party defendant and, upon adding it as a defendant, to assert causes of action of conversion, monies had and received, and negligence as against it, and (2) to add causes of action of monies had and received and negligence as against defendant Banco Popular, N.A. (Banco Popular). Banco Popular cross-moves for an order: (1) pursuant to CPLR 3216, dismissing plaintiffs' complaint for unreasonably neglecting to proceed after it served plaintiffs with a demand dated June 11, 2010 to resume prosecution, and to serve and file a note of issue, and (2) pursuant to CPLR 3211 (a) (7), dismissing plaintiffs' complaint with prejudice for failure to state a cause of action.

On July 16, 2008, Epic, as the remitter, purchased a cashier's check from JP Morgan Chase Bank, N.A. (Chase) for $20,000 payable to the order of Prestige Remodeling, Inc. (Prestige), and, on the same date, Nissim Aminov, the president of Star, as the remitter, purchased an official check from HSBC Bank USA, N.A. (HSBC) for $60,000 payable to the order of Prestige. Plaintiffs claim that these checks were lost and never received by Prestige, but, instead, were acquired by an unknown party, who negotiated these checks by presenting them, without any endorsements on them, to Dependable, a licensed check cashier, who paid cash for them. Dependable then deposited these checks into a bank account, which it held with Banco Popular. Banco Popular, as the depositary/collecting bank, then demanded the transfer of funds from HSBC and Chase, the drawee/payor banks, which paid these checks.

On December 24, 2008, plaintiffs filed this action against Banco Popular, HSBC, and Chase. In paragraph 10 of their complaint, plaintiffs allege that Epic did not deliver either check to Prestige, but, rather, shortly after their purchase, Epic lost both checks. Plaintiffs' complaint alleged a first cause of action for conversion against all of these defendants. Plaintiffs, in their claim for conversion, asserted that Banco Popular failed to exercise ordinary care, resulting in the conversion of these checks, by paying these checks, despite the absence of endorsements, to a person not entitled to enforce them, and that Chase and HSBC participated in this conversion by negligently paying Banco Popular and refusing to refund to them the amount paid for the checks. Plaintiffs' complaint also alleged a second cause of action for breach of contract as against Chase and HSBC, wherein plaintiffs asserted that Chase and HSBC breached their promise to them to pay the checks only to Prestige. Due to the commencement of this action, Chase and HSBC demanded that Banco Popular debit Dependable's bank account for $80,000 and then pay this sum to them so that they could remit the funds to plaintiffs. When Banco Popular advised Dependable that it would debit its account for the $80,000, Dependable disputed the legitimacy of plaintiffs' claims, asserting that Prestige had, in fact, negotiated these checks. On February 13, 2009, Dependable, by order to show cause, sought leave to intervene in this action pursuant to CPLR 1013. In support of its assertion that Prestige had negotiated these checks, Dependable submitted the signed and notarized affirmation, dated February 4, 2009, of Yakov Herman, the principal of Prestige. In this affirmation, Yakov Herman attested that in July 2008, Prestige received the two checks at issue, that he negotiated these checks to Dependable, and that it was inadvertent that the endorsement of Prestige was not placed on these checks. This order to show cause was withdrawn by Dependable, and, thus, Dependable was never made a party to this action.

On February 17, 2009, Banco Popular filed an answer to plaintiffs' complaint, and on March 10, 2009, Chase filed an answer and cross claim. After a dispute arose between plaintiffs and Andrew Citron, Esq., the attorney who had been representing them, the Hirschel Law Firm, P.C. became plaintiffs' new counsel, and, on April 3, 2009, Daniel Hirschel, Esq., P.C. filed a notice of appearance, stating that his law firm was appearing in this action as counsel on behalf of plaintiffs. On May 12, 2009, a stipulation of discontinuance was filed, which voluntarily discontinued plaintiffs' action as against Chase with prejudice.

In light of the revelation of Yakov Herman's February 4, 2009 affirmation, on April 7, 2009, by their attorney, Daniel Hirschel, Esq., P.C., plaintiffs filed a separate action against Prestige and Yakov Herman to recover the $80,000 from them ( Epic Wholesalers, Inc. v Prestige Remodeling Inc., Sup Ct, Kings County, index No. 8421/09) (the 2009 action). Plaintiffs, in their complaint in the 2009 action (the 2009 complaint), alleged that prior to July 16, 2008, they and Prestige and Yakov Herman entered into an agreement, wherein they agreed to loan Prestige $80,000. Rather than asserting that Epic lost the checks at issue, as alleged in the complaint in this action, in the 2009 complaint, plaintiffs alleged that Epic tendered to Prestige one check in the amount of $60,000 and another check in the amount of $20,000, and that Yakov Herman had acknowledged receipt of this $80,000. The 2009 complaint further alleged, upon information and belief, that Yakov Herman negotiated the checks with a check cashing company (presumably, Dependable), and that Yakov Herman took plaintiffs' funds that were made payable to Prestige for his personal use and did not deposit them in an account held by Prestige. The 2009 complaint also alleged that plaintiffs had demanded that Prestige and Yakov Herman make payments of principal and interest pursuant to the loan agreement between them, but that they failed to make these demanded payments. In the 2009 complaint, plaintiffs alleged a claim against Prestige for breach of contract for failure to make payment under the loan agreement. In addition, in the 2009 complaint, plaintiffs alleged a claim against Prestige and Yakov Herman for unjust enrichment based upon plaintiffs' tender of checks made payable to Prestige in the total amount of $80,000 and Yakov Herman's alleged receipt of $80,000 in cash in exchange for negotiating the checks, which they claim, upon information and belief, was used by Yakov Herman for his own personal use.

On June 16, 2009, Prestige and Yakov Herman filed an answer to the 2009 complaint, in which they denied receiving the funds. Plaintiffs' present counsel, Ian Davis Hucul, Esq., an associate of the Hirschel Law Firm, P.C., in his affirmation, also asserts that Yakov Herman's counsel, Krencies and Rosenberg, P.C., alleged that the affirmation produced by Dependable in its motion to intervene was forged by Dependable. Plaintiffs assert that they therefore, on January 7, 2010, filed a motion to amend the 2009 complaint to add Dependable as a defendant in the 2009 action. By order dated February 3, 2010, that motion was granted, and the court directed that service upon Dependable be made by personal service within 20 days.

Plaintiffs' amended complaint in the 2009 action, dated January 5, 2010, again alleged that Epic tendered the two checks to Prestige on July 16, 2008 and that Yakov Herman had acknowledged receipt of the $80,000 in the February 4, 2009 affirmation executed by him, submitted by Dependable in its motion to intervene in the instant action. Plaintiffs' amended complaint in the 2009 action also alleged that Yakov Herman delivered the two checks to Dependable for negotiation, and asserted a third cause of action against Dependable, alleging that Dependable wrongfully negotiated the checks. Plaintiffs' amended complaint in the 2009 action also asserted a fourth cause of action in tort, alleging that in reliance upon the Yakov Herman's February 4, 2009 affirmation, plaintiffs discontinued the present action as against Chase, which sought recovery from Chase based on the $20,000 check issued by it. Plaintiffs' amended complaint in the 2009 action further alleged, that alternatively, if Yakov Herman denies executing such affirmation, or questions the veracity of the assertions contained in it, Dependable is liable for damages of $20,000 for submitting a false affirmation within its motion for intervention.

While plaintiffs claim that service upon Dependable was effectuated upon Dependable on or about February 13, 2010 in accordance with the court's February 3, 2010 order, Dependable denied such service, and, on February 13, 2010, Dependable filed a motion to dismiss plaintiffs' 2009 complaint as against it, pursuant to CPLR 3211 (a) (8), for lack of personal jurisdiction over it due to plaintiffs' failure to effectuate service upon it.

On March 18, 2010, while that motion was pending, Yakov Herman and his wife, Maureen Herman, filed a voluntary Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of New York (the bankruptcy court action). Schedule F-Creditors Holding Unsecured Nonpriority Claims lists Epic as a creditor, the amount of Epic's claim as $80,000, and the 2009 action. Schedule F states that this is a business debt, and that the debtor disputes that he owes anything.

The meeting of creditors pursuant to Bankruptcy Code § 341 (a) was held on or about May 6, 2010. Ian David Hucul, Esq., who, as noted above, is an associate of the Hirschel Law Firm, P.C., states, in an affirmation by him, that he attended this meeting of creditors on May 6, 2010, and that, at this meeting, Yakov Herman denied ever having received the $80,000 or executing the February 4, 2009 affirmation which was submitted with Dependable's motion for intervention.

Banco Popular asserts that this action languished for over one year after its February 17, 2009 joinder of issue with the only activity being the May 12, 2009 stipulation of discontinuance of this action as against Chase. By letter dated June 11, 2010, Jeffrey F. Cohen, Esq., the attorney for Banco Popular, advised Andrew Citron, Esq. (who, as noted above, was plaintiffs' original attorney that commenced this action) that on June 1, 2010, he received a telephone call from Jacob Silver, Esq., the attorney for Yakov Herman in the bankruptcy court action, who informed him of the 2009 action, and suggested that the allegations in the 2009 action are diametrically opposed to the allegations in this action against Banco Popular. Defendant Banco Popular's attorney, Jeffrey F. Cohen, Esq., asserted that since, in the 2009 action, plaintiffs alleged that the funds had reached their intended recipient, Banco Popular has no liability to plaintiffs and that this action should be discontinued as against Banco Popular. Mr. Cohen, alternatively, included a demand pursuant to CPLR 3216 (b), that plaintiffs resume prosecution of this action as against Banco Popular, and that they serve and file a note of issue within 90 days after receiving this demand. This demand, which was served by first class and certified mail upon Andrew Citron, Esq., as the attorney for plaintiffs, further provided that if plaintiffs failed to comply with this demand within this 90-day period, such default would serve as a basis for a motion to dismiss for unreasonably neglecting to proceed with this action.

By letter dated August 5, 2010, Ian Davis Hucul, Esq. of the Hirschel Law Firm, P.C. responded to Cohen's letter and CPLR 3126 demand by attaching a copy of a notice of discovery and inspection. By letter dated August 20, 2010, this notice for discovery and inspection was rejected on the ground that the Hirschel Law Firm, P.C. had not been properly substituted as counsel for plaintiffs pursuant to CPLR 321, which provides that "an attorney of record may be changed by filing with the clerk a consent to the change signed by the retiring attorney and signed and acknowledged by the party," and that "[n]otice of such change of attorney shall be given to the attorneys for all parties in the action" ( see Aiello v Adar, 193 Misc 2d 649, 654). It is undisputed that no such consent was ever signed by Andrew Citron, Esq., and no notice of a change of attorneys was ever given to Jeffrey F. Cohen, Esq. Mr. Cohen further rejected plaintiffs' notice for discovery and inspection on the ground that, pursuant to CPLR 3216, plaintiffs, having received a 90-day notice, were "required either to serve and file a timely note of issue or move, before the default date, for an extension of time pursuant to CPLR 2004" ( Dominguez v Jamaica Med. Ctr. , 72 AD3d 876 , 876).

By complaint dated July 25, 2010, filed by Andrew Citron, Esq., as the attorney for plaintiffs (the original attorney for plaintiffs in this action), plaintiffs commenced an adversary proceeding in the bankruptcy court action against Yakov Herman and Maureen Herman. In the adversary proceeding, plaintiffs alleged that Yakov Herman and Maureen Herman proffered false testimony both at the Bankruptcy Code § 341 (a) meeting of creditors, as well as in their petition and schedules. Plaintiffs further alleged that Yakov Herman made false statements in the bankruptcy court action concerning his lack of income, which, they stated, Yakov Herman "knew were false and which related materially to the bankruptcy case." Specifically, plaintiffs, in paragraph 18 of the complaint in the adversary proceeding, alleged that Yakov Herman "executed an affidavit averring that he received $80,000 in cash for negotiating checks from plaintiffs at a check cashing company, none of which was acknowledged as income in this [bankruptcy] case." Plaintiffs, in paragraph 19 of the complaint in the adversary proceeding, further alleged that at the Bankruptcy Code § 341 meeting of creditors and on Schedule B7, Yakov Herman "acknowledged that the signature . . . [on the] affidavit [wa]s in fact his own signature, but falsely testified that he was forced to sign some affidavit not resembling the instant affidavit, at night in the back of a truck." Plaintiffs also alleged, in paragraph 32 of the complaint in the adversary proceeding, that the timing of the filing of the bankruptcy petition was calculated to frustrate them, as the creditors of Yakov Herman.

Ian David Hucul, Esq. states that his law office decided to abandon the 2009 action because it was subject to the automatic stay in bankruptcy due to Yakov Herman's bankruptcy court action. However, this matter had already been sent to the JHO Part for a traverse hearing on the issue of service upon Dependable. By order dated February 17, 2011, Referee Nina Kurtz dismissed the 2009 action because plaintiffs did not produce a witness to prove proper service upon Dependable.

On March 17, 2011, plaintiff filed the instant motion in this action, and on March 28, 2011, Banco Popular filed the cross motion. By order dated April 6, 2011, the court granted a cross motion by HSBC, pursuant to CPLR 3211 (a) (8) and (e), to dismiss plaintiffs' complaint as against it, without prejudice, for lack of personal jurisdiction. In addressing Banco Popular's cross motion, it is initially noted that CPLR 3216 (a) provides that "[w]here a party unreasonably neglects to proceed generally in an action or otherwise delays in the prosecution thereof against any party who may be liable to a separate judgment, or unreasonably fails to serve and file a note of issue, the court, on its own initiative or upon motion, may dismiss the party's pleading on terms," and that "[u]nless the order specifies otherwise, the dismissal is not on the merits." Plaintiffs admit receipt of Banco Popular's demand pursuant to CPLR 3216 (b), and do not dispute that the conditions precedent to dismissal set forth in CPLR 3216 (b) have been met. Pursuant to CPLR 3216 (e), in the event that following service of the CPLR 3216 (b) (3) demand, the plaintiff fails to serve and file a note of issue within the 90-day period, the court may grant a motion to dismiss for failure to prosecute unless the plaintiff shows a "justifiable excuse for the delay and a good and meritorious cause of action" ( see Dominguez, 72 AD3d at 877).

Plaintiffs claim that they have an excuse for their delay since they were attempting to ascertain whether Yakov Herman's February 4, 2009 affirmation was a forgery. Plaintiffs also attempt to assert a meritorious cause of action by submitting a proposed amended complaint verified by their president and sole shareholder, Nissim Aminov, in which he alleges, upon information and belief, that the checks were never received by Prestige, but, instead, were acquired by parties unknown. The court, however, finds, for the reasons discussed below, that plaintiffs have failed to demonstrate that they have a meritorious cause of action as against Banco Popular. Moreover, since Banco Popular, in its cross motion, has also moved to dismiss plaintiffs' complaint as against it on the merits, pursuant to CPLR 3211 (a) (7), it is unnecessary to dismiss plaintiffs' complaint solely on the procedural ground of failure to prosecute.

CPLR 3211 (a) (7) provides for the dismissal of a complaint where the pleading fails to state a cause of action. On a motion to dismiss pursuant to CPLR 3211 (a), a court must ordinarily presume the factual allegations of the complaint, as pleaded, to be true and accord the plaintiff the benefit of every possible favorable inference ( see 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 152; Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414; Leon v Martinez, 84 NY2d 83, 87-88). However, factual allegations consisting of bare legal conclusions or that are inherently incredible or that are flatly contradicted by the documentary evidence are not entitled to such consideration ( see Pincus v Wells , 35 AD3d 569 , 570; Syracuse Orthopedic Specialists, P.C. v Hootnick , 16 AD3d 1019 , 1020; Tectrade Intl. v Fertilizer Dev. Inv., 258 AD2d 349, 349; Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76, 81; Wilson v Hochberg, 245 AD2d 116, 116; Kliebert v McKoan, 228 AD2d 232, 232; SRW Assoc. v Bellport Beach Prop. Owners, 129 AD2d 328, 331). Furthermore, although Banco Popular has not labeled its cross motion as one for summary judgment, it is noted that this cross motion to dismiss has been brought following Banco Popular's February 17, 2009 joinder of issue over two years ago, and that the parties have submitted documentary evidence (i.e., the pleadings in the 2009 action and the bankruptcy court action) ( see generally Rich v Lefkovits, 56 NY2d 276, 282; Schultz v Estate of Sloan , 20 AD3d 520 , 520; Lewis v DiDonna, 294 AD2d 799, 800; Singer v Boychuk, 194 AD2d 1049, 1050-1051).

In support of its cross motion, Banco Popular relies upon the admissions made by plaintiffs in the 2009 action and the bankruptcy court action that the checks for $80,000 were received by Prestige. Plaintiffs, in response, argue that despite the allegations in their pleadings in these other actions, they were entitled to plead in the alternative, and they should, therefore, be able to maintain their claims as against Banco Popular in the present action. However, as discussed above, in the 2009 action, plaintiffs specifically admitted that they tendered the checks to Prestige, and that Yakov Herman acknowledged receipt of the funds. In addition, in plaintiffs' complaint in the adversary proceeding in the bankruptcy court, in which plaintiffs sought relief from that court, plaintiffs relied upon Yakov Herman's acknowledgment that the signature on the February 4, 2009 affidavit in which he admitted receiving the funds was his own signature, and asserted that Herman's testimony that he was forced to sign some affidavit not resembling that affidavit was false. Significantly, plaintiffs do not presently deny that the checks were delivered by them to Prestige or its principal, Yakov Herman. Notably, Prestige, as the payee on the checks, has never made a claim against any of the banks that the checks were stolen or lost.

Formal judicial admissions in other actions constitute admissions in the evidentiary sense in another action, and are classified as informal judicial admissions in such action ( see Matter of Union Indem. Ins. Co. of NY, 89 NY2d 94, 103; Niazi v JP Morgan Chase Bank , 66 AD3d 438 , 439-440; Kaisman v Hernandez , 61 AD3d 565 , 566; Festinger v Edrich , 32 AD3d 412 , 414; Morgenthow Latham v Bank of NY Co., 305 AD2d 74, 79; Jack C. Hirsch, Inc. v Town of N. Hempstead, 177 AD2d 683, 684). Informal judicial admissions, although generally not conclusive, are evidence of the facts admitted ( see Ocampo v Pagan , 68 AD3d 1077 , 1078-1079). Where informal judicial admissions are unrebutted and refute an essential element of a plaintiff's claim, they can be a basis for dismissal of the plaintiff's claim ( see Kaisman, 61 AD3d at 566; Silverman v Clark, 35AD3d 1, 17 [2006]; Festinger, 32 AD3d at 414; Morgenthow Latham, 305 AD2d at 82; Jack C. Hirsch, Inc., 122 AD2d at 684-685). Here, the admissions made by plaintiffs in the 2009 action and the bankruptcy court action refute an essential element of their claim in the present action, that the named and intended payee, Prestige, did not receive the funds. Plaintiffs cannot avoid the ramifications of their admissions in these other actions, which unambiguously contradict the allegations of plaintiffs' present complaint, and are unrebutted by plaintiffs.

Moreover, "[t]he doctrine of judicial estoppel or estoppel against inconsistent positions precludes a party from taking a position in one legal proceeding which is contrary to that which he or she took in a prior proceeding, simply because his or her interests have changed" ( Festinger, 32 AD3d at 413; see also Ford Motor Credit Co. v Colonial Funding Corp., 215 AD2d 435, 436; Kimco of NY v Devon, 163 AD2d 573, 574; Environmental Concern v Larchwood Constr. Corp., 101 AD2d 591, 594). In this case, plaintiffs' present claim that Prestige did not receive the proceeds of the checks is manifestly at odds with their representations in both the 2009 action and the bankruptcy court action, in which they attested that they tendered the checks to Prestige. While it has not been shown that plaintiffs secured a judgment in their favor in the 2009 action or whether plaintiffs were successful in obtaining relief in the bankruptcy court action based upon their representations in these actions, plaintiffs relied upon these representations in seeking relief from these courts, and the application of this doctrine in this action is thus essential to avoid a fraud upon the court and a mockery of the truth-seeking function ( see Festinger, 32 AD3d at 413; Mantia v Squire, 289 AD2d 304, 305; Perkins v Perkins, 226 AD2d 610, 610; Karasik v Bird, 104 AD2d 758, 758-759; Houghton v Thomas, 220 App Div 415, 423, affd 248 NY 523). The court cannot tolerate plaintiffs' attempt "to play fast and loose" with the court by adopting contrary positions in different proceedings ( Perkins, 226 AD2d at 610; see also Prudential Home Mtge. Co. v Neildan Constr. Corp., 209 AD2d 394, 395; Environmental Concern, 101 AD2d at 594). Plaintiffs cannot simply change their position merely because their interests in this action differ from their interests in the 2009 action and the bankruptcy court action.

While it is undisputed that the checks were cashed without any endorsements on them and checks paid without endorsements on them would be improperly paid, "a drawer is precluded from recovering from the drawee bank for paying [its] check on a forged or unauthorized indorsement where the proceeds of the check actually reach the person whom the drawer intended to receive them" ( Gotham — Vladimir Adv. v First Natl. City Bank, 27 AD2d 190, 192-193; see also Mouradian v Astoria Fed. Sav. Loan, 91 NY2d 124, 129; Norman Goldstein Assoc. v Bank of NY, 204 AD2d 288, 288-289; New Year's Nation, LLC v JP Morgan Chase Bank, N.A., 2008 NY Slip Op 52100[U], *3-4 [Sup Ct, NY County 2008]). This legal principle serves " to prevent the depositor from being unjustly enriched by collecting from [its] creditor-bank the sum which has, in fact, reached the payee to whom the depositor intended the fund to go'" ( Gotham — Vladimir Adv., 27 AD2d at 193, quoting Sweeney v National City Bank of Troy, 263 App Div 418, affd 290 NY 624; see also Kosic v Marine Midland Bank, 76 AD2d 89, 92, affd 55 NY2d 621). Thus, plaintiffs would be barred from recovery from Chase or HSBC, as the payor/drawee banks, since plaintiffs have admitted in their pleadings in the other actions that the proceeds of the checks actually reached the intended party, namely, Prestige, or its principal, Yakov Herman. Similarly, there could be no basis for a claim by plaintiffs as against Banco Popular, who was the depositary bank, since the proceeds reached their intended payee ( see Gotham-Vladimir Adv., 27 AD2d at 193).

In any event, it is well established that "a drawer does not have a direct cause of action against a depositary bank for collecting an improperly indorsed check" ( Horovitz v Roadworks of Great Neck, 76 NY2d 975, 976; see also Prudential-Bache Sec. v Citibank, 73 NY2d 263, 272; Spielman v Manufacturers Hanover Trust Co., 60 NY2d 221, 224; Underpinning Found. Constructors v Chase Manhattan Bank, N. A., 46 NY2d 459, 464-466). "[T]he rationale underlying this rule is not limited to situations where the payee's name is forged, but instead applies whenever a check is ineffectively indorsed" ( Horovitz, 76 NY2d at 976; see also Underpinning Found. Constructors, 46 NY2d at 464-466), such as where, as here, there were no endorsements on the checks. Consequently, plaintiffs' action as against Banco Popular is precluded by this "general rule in New York that a drawer has no cause of action against a depositary bank but can only seek recovery against a drawee bank" ( Insurance Co. of State of Pa. v Citibank [Del],145 AD2d 218, 220 [1989]; see also Underpinning Found. Constructors, 46 NY2d at 463; Maldonado v Aetna Cas. Sur. Co., 184 AD2d 553, 554-555). While there is an exception to this general rule, which is set forth in Underpinning Found. Constructors ( 46 NY2d at 466), whereby the drawer may recover from the depositary bank, this narrow exception is implicated "only in those comparatively rare instances in which the depositary bank has acted wrongfully and yet the drawee has acted properly" ( see also Parker v Flores, 202 AD2d 561, 562). Here, in view of the lack of endorsements, it cannot be said that the drawee banks acted properly in paying the checks and debiting the drawer's account.

It is true that Banco Popular, as the depository bank, owed transfer warranties to Chase and HSBC, as the drawee/payor banks, pursuant to UCC 4-207 , and that a drawee/payor bank may be awarded indemnification against a depositary bank for breach of transfer warranties ( see UCC 4-207 ; 35 City Is., LLC v Banco Popular , 51 AD3d 504 , 505; Leonard Smith, Inc. v Merrill Lynch, Pierce, Fenner Smith, 129 AD2d 397, 399). However, Banco Popular cannot be held liable to plaintiffs under UCC 4-207 (1) for breach of its transfer and presentment warranties since plaintiffs, as drawers, do not constitute "other payors" within the intendment of that statute, and, therefore, they cannot claim the benefit of its warranties ( see Horovitz, 76 NY2d at 977; Leonard Smith, Inc. v Merrill Lynch, Pierce, Fenner Smith, 113 AD2d 387, 391-392).

As noted above, Chase and HSBC are no longer parties to this action, and, therefore, no cross claim for indemnification is involved in this case.

Moreover, plaintiffs' claims against Banco Popular must also be dismissed on the additional ground that plaintiffs, as the drawers of the checks, lacked title or rights with respect to the checks once they were delivered to Prestige, who then became the holder of the checks ( see New Year's Nation, LLC, 2008 NY Slip Op 52100[U], *7). "[S]ince the drawer is not a holder, and could not present the check for payment, the drawer is normally considered as having no interest in the check" ( Underpinning Found. Constructors, 46 NY2d at 465). Under UCC 1 — 201 (20), a "[h]older" is "a person who is in possession of . . . an instrument . . . drawn, issued or indorsed to [it] or to [its] order or to bearer or in blank." While plaintiffs assert that Yakov Herman improperly used the funds intended for Prestige for his own use, it is undisputed that Yakov Herman was a principal of Prestige, and, thus, as the holder of the checks, he was free to negotiate the instrument as he saw fit since, pursuant to UCC 3 — 301, "[t]he holder of an instrument whether or not he is the owner may transfer or negotiate it and . . . discharge it or enforce payment in his own name." It is not disputed that the checks were transferred to Dependable which endorsed them for deposit in its account with Banco Popular.

In view of the above, plaintiffs have failed to state a legally viable claim as against Banco Popular. Consequently, Banco Popular's cross motion to dismiss plaintiffs' complaint as against it must be granted ( see CPLR 3211 [a] [7]).

Plaintiffs, by their motion, seek to amend their complaint to add causes of action for monies had and received and negligence as against Banco Popular. Although pursuant to CPLR 3025 (b), leave to amend a pleading should generally be freely granted absent prejudice to the opposing party ( see CPLR 3025 [b]; Edenwald Contr. Co. v City of New York, 60 NY2d 957, 959; Charleson v City of Long Beach, 297 AD2d 777, 778), such leave should be denied where the proposed amendment is palpably insufficient as a matter of law or is totally devoid of merit ( see Lucido v Mancuso , 49 AD3d 220 , 229; Buckholz v Maple Garden Apts., LLC , 38 AD3d 584 , 585; Ruddock v Boland Rentals , 5 AD3d 368 , 370; AYW Networks v Teleport Communications Group, 309 AD2d 724, 725; Leszczynski v Kelly McGlynn, 281 AD2d 519, 420; McKiernan v McKiernan, 207 AD2d 825, 825). Since these proposed causes of action as against Banco Popular are palpably insufficient as a matter of law and patently lacking in merit for the reasons discussed above, plaintiffs' motion, insofar as it seeks leave to amend their complaint to add these claims as against Banco Popular, must be denied.

Although plaintiffs had not previously sought to join Dependable in this action following Dependable's withdrawal of its motion to intervene over two years ago, plaintiffs, by their instant motion, also now seek to amend their complaint to add Dependable as an additional defendant in this action, and to assert claims of conversion, monies had and received, and negligence as against it. In support of their motion, plaintiffs have submitted Nissim Aminov's affidavit, in which he states that prior to the filing of the initial complaint, it came to his attention that Dependable had either wrongfully or negligently negotiated the checks, and that he now seeks to pursue Dependable for wrongfully withholding his $80,000 in funds. As previously noted, Dependable is a check cashing company, which allegedly paid good value for the checks by giving cash as consideration for them. Plaintiffs have not shown the existence of any duty owed by Dependable to them ( see generally Horovitz, 76 NY2d at 976; Insurance Co. of State of Pa., 145 AD2d at 220; Kings Premium Serv. Corp. v Manufacturers Hanover Trust Co., 115 AD2d 707, 709). As discussed above, plaintiffs no longer had title to the checks after transferring them to Prestige, and Dependable had no relationship with plaintiffs ( see UCC 1-201 ). Thus, plaintiffs' proposed claims as against Dependable are palpably insufficient as a matter of law and patently lacking in merit, and plaintiffs' motion to amend their complaint to add Dependable as a defendant must be denied ( see Lucido, 49 AD3d at 229; Buckholz, 38 AD3d at 585; Ruddock, 5 AD3d at 370; AYW, 309 AD2d at 725; Leszczynski, 281 AD2d at 420; McKiernan, 207 AD2d at 825).

It is noted that plaintiffs' suit against Prestige is still pending and, although plaintiffs were previously unable to establish service upon Dependable at the traverse hearing, if they or Prestige have viable claims against Dependable, the 2009 action may yet provide an appropriate vehicle for relief.

Accordingly, plaintiffs' motion to amend their complaint is denied, and Banco Popular's cross motion to dismiss plaintiffs' complaint as against it is granted on the merits, with prejudice.

This constitutes the decision, order, and judgment of the court.


Summaries of

Epic Wholesalers v. J.P. Morgan Chase Bank, N.A.

Supreme Court of the State of New York, Kings County
Jun 8, 2011
2011 N.Y. Slip Op. 51025 (N.Y. Sup. Ct. 2011)
Case details for

Epic Wholesalers v. J.P. Morgan Chase Bank, N.A.

Case Details

Full title:EPIC WHOLESALERS and STAR DIAMONDS JEWELRY, INC., Plaintiffs, v. J.P…

Court:Supreme Court of the State of New York, Kings County

Date published: Jun 8, 2011

Citations

2011 N.Y. Slip Op. 51025 (N.Y. Sup. Ct. 2011)