Opinion
Case No. 2:12-cv-1035
12-09-2014
THE HUNTINGTON NATIONAL BANK, Plaintiff, v. GUISHARD, WILBURN & SHORTS, LLC, et al. Defendants.
Magistrate Judge Mark R. Abel OPINION & ORDER
I. INTRODUCTION
This matter is before the Court on Plaintiff's Re-Filed Motion for Judgment on the Pleadings Against Defendant Joseph Gray (Doc. 54), pursuant to Federal Rule of Civil Procedure 12(c) ("Rule 12(c)"). In its Motion, Plaintiff asserts that it is entitled to judgment as a matter law, based on Defendant Joseph Gray's Answer and supporting documentation. (Doc. 16). For the reasons set forth herein, Plaintiff's Motion is GRANTED.
II. BACKGROUND
Defendant Guishard, Wilburn & Shorts, LLC ("GWS"), a Delaware company with its principal place of business in Georgia, opened an account with Plaintiff Huntington National Bank ("Huntington") in 2003, and began depositing federal checks in February 2012. (Doc. 54 at 2.) Defendant Joseph Gray worked with the President of GWS, Allen Pendergrass, in depositing the checks into the GWS account. (Doc. 16-2 at 1-2). Pendergrass was the authorized signatory on the account. (Doc. 16 at 7). A total of fifty-one (51) checks, each allegedly endorsed by the intended payee, were deposited into the GWS account. (Doc. 54 at 2.) The checks totaled $806,358.51, and over a period of seven months, more than $460,000 was withdrawn from the account. (Id. at 2-3).
The United States Treasury Department began issuing reclamation claims on the checks several months after the initial deposit into the GWS account. (Id. at 3.) In each reclamation claim, the original payee alleged that he or she never received or endorsed the check. (Id.) Further, each payee alleged he or she did not authorize any other person to deposit the check, and received no benefit from the check. (Id.) At the time of Plaintiff's Re-Filed Motion (Doc. 54), Plaintiff had paid thirty-eight (38) reclamation requests, totaling $584,879.92. (Id.)
"Reclamation" is a process by which the federal government requests a bank to return funds received from the federal government. An individual who has not received a federal check submits a reclamation form to the IRS, and the government forwards the reclamation claim and a copy of the cancelled check to the bank at which the federal check was deposited.
Plaintiff notified Defendants GWS and Gray of the reclamation requests, and on November 26, 2012 this Court granted a Preliminary Injunction (Doc. 27), enjoining Defendants from "spending, using, dissipating, or otherwise transferring" any funds related to the fraud. (Id. at 4.) Further, Defendants were ordered to deposit immediately withdrawals from the GWS account with the Clerk of Courts. (Id.)
Defendant Gray asserts that he had no knowledge of or intent to commit theft or fraud. (Doc. 16 at 2.) Defendant Gray worked for Pendergrass from 1999 to 2001 at National Unclaimed Funds, an asset recovery business. (Id.) National Unclaimed Funds is now known as GWS. (Id. at 6.) Pendergrass asked Defendant Gray to deposit endorsed federal checks into the GWS account sometime in late April or early May of 2012. (Doc. 16-2 at 1.) Gray, based on his previous experience at National Unclaimed Funds, believed that the transactions "were legal and within the bounds of legitimate asset recovery," and that GWS had the requisite documents and contracts necessary to obtain and deposit the checks. (Doc. 16 at 4-5.) Defendant Gray and Pendergrass agreed that Defendant Gray would deposit the checks into the GWS account, and in exchange he would receive 3% of the proceeds from the checks. (Doc. 16-2 at 2). Based on the agreement, Defendant Gray made numerous deposits, and received $16,500 from the GWS account as payment for his work. (Doc. 16 at 7). Defendant Gray received the checks in envelopes, and took the checks directly to Huntington to deposit. (Id. at 8). In his pleadings, Gray contends that he would be willing to return any portion of funds he received that is subject to a reclamation claim. (Id. at 2-3, 8.)
In his Answer, Defendant states that he worked full-time at National Unclaimed Funds from 1999 to 2001. (Doc. 16 at 6). In his response to the Plaintiff's Motion for Judgment on the Pleadings, however, Defendant asserts that he worked for National Unclaimed Funds on and off, for approximately four to five years total. (Doc. 56 at 2.)
Defendant Gray attached examples of the requisite documents, including: a client letter, an unsigned service agreement for National Unclaimed Funds, and power of attorney documents from 2001. These documents are merely examples and do not prove that GWS actually had any of the required documents for any of the 51 checks deposited in the GWS account.
III. STANDARD OF REVIEW
A motion for judgment on the pleadings may be made "[a]fter the pleadings are closed but within such time as not to delay the trial." Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings under Rule 12(c) attacks the sufficiency of the pleadings and is reviewed under the same standard applicable to a Rule 12(b)(6) motion to dismiss. Ziegler v. IBP Hog Mkt., 249 F.3d 509, 511-12 (6th Cir. 2001).
When deciding a motion for judgment on the pleadings, all well-pled material allegations of the pleadings of the opposing party must be accepted as true. Tucker v. Middleburg-Legacy Place, 539 F.3d 545, 549 (6th Cir. 2008) (citing JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581 (6th Cir. 2007)). Further, the Court must construe the complaint in the light most favorable to the non-moving party, and make reasonable inferences in favor of the non-moving party. Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008); Murphy v. Sofamor Danek Gp., Inc., 123 F.3d 394, 400 (6th Cir.1997). The Court is not required, however, to accept as true mere legal conclusions unsupported by factual allegations, or unwarranted factual inferences of the non-moving party's pleadings. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)); Allard v. Weitzman, 991 F.2d 1236, 1240 (6th Cir.1993) (citation omitted).
The motion is granted where the moving party establishes that no material issues of fact exist and the movant is entitled to judgment as a matter of law. Winget, 510 F.3d at 582. In addition, a pro se pleading such as Defendant's answer, "however inartfully pleaded, must be held to less stringent standards than formal pleadings drafted by lawyers." Estelle v. Gamble, 429 U.S. 97, 106 (1976).
IV. ANALYSIS
Plaintiff moves for judgment on the pleadings against Defendant Joseph Gray, alleging Defendant's answer and supporting documents establish that Gray violated O.R.C. § 1303.56. (Doc. 54 at 1). Specifically, Plaintiff argues that Defendant Gray admitted to receiving $16,500 from stolen federal checks, does not contest that he deposited the checks, and does not contest that the checks contained a forged endorsement. Therefore, Plaintiff alleges Defendant Gray is liable to Plaintiff under O.R.C. § 1303.56, which provides that a depositor makes transfer warranties to a payor, and that the payor is entitled to seek recovery from a depositor that negotiates a check with a forged endorsement. Plaintiff seeks recovery of the amount Defendant Gray received from the stolen checks, $16,500, in addition to interest and expenses of recovery, including attorneys' fees.
The Ohio Revised Code, § 1303.56(A), provides that a person who obtains payment from a check warrants to the payor that: (1) he is entitled to enforce the check; (2) all signatures, including endorsements, are authentic and authorized; (3) the instrument has not been altered; and (4) the check is not subject to any other defense or claim by any other party. Section 1303.56(B) provides that an entity that takes a check in good faith may recover damages for a breach of these warranties "an amount equal to the loss suffered as a result of the breach," including the amount of the check, expenses, and lost interest.
A party who negotiates checks with forged endorsements breaches a transfer warranty under O.R.C. 1303.56(A)(2). A party that negotiates checks with forged endorsements is liable for the loss, irrespective of knowledge of the forgery. See Perez v. Charter One Bank, 298 A.D.2d 447, 448 (N.Y. Ct. App. 2002); see also ABC Money Exchange v. PERS of Ohio, 70 Ohio App. 3d 732, 733-36 (Ohio Ct. App. 1990).
In Perez v. Charter One Bank, a New York court interpreted an identical provision to O.R.C. §1303.56(A), both provisions having been modeled after UCC 3-417, and held that "breach of warranty of prior endorsements is based on strict contractual liability as to which the negligence of the beneficiary is no defense." Perez, 298 A.D.2d at 448. The court stated that "the depository bank is entitled to recover from its customer the amount it was required to pay . . . for accepting the customer's deposit of a check bearing a prior forged endorsement." Id.
In ABC Money Exchange v. PERS of Ohio, the Court held that a money exchange company, which unknowingly attempted to collect on a check that had been fraudulently endorsed by the transferee, breached a transfer warranty by requesting reimbursement on a fraudulent check, and could not recover lost funds. ABC Money Exchange, 70 Ohio App. 3d at 734-36. In that case, a woman received monthly retirement checks from PERS, which were endorsed and cashed by her fiduciary via a power of attorney. Id. at 734. After the woman's death, the fiduciary continued to cash the checks fraudulently at ABC Money Exchange ("ABC"), who forwarded to the fiduciary money in exchange for the check itself and a fee. Id. at 734-36. ABC later attempted to present the checks to PERS for reimbursement, but PERS refused to honor the checks which were fraudulently endorsed, and ABC brought suit to recover the lost funds. Id. at 734-35. It was undisputed that ABC was unaware of the fiduciary's fraud; however, the court found that ABC must bear the loss. Id. at 736-37. The court found that ABC breached a transfer warranty under the predecessor to O.R.C. § 1303.56—modeled after what is currently UCC §3-417, Warranties on Presentment and Transfer—by submitting the fraudulently endorsed checks to PERS for payment, because in doing so, it warranted that it was authorized to act on behalf of a person who has good title, when, in fact, it was not. Id. at 737-38. The Court held that because ABC violated the transfer warranty, it was barred from recovery against PERS. Id.
This Court acknowledges that while the facts of this case are not identical to the case sub judice, they are similar; the case stands for the proposition that whenever a party presents or transfers checks with a forged endorsement, irrespective of knowledge of the forgery, that party bears the loss under UCC 3-417 and statutes modeled after it, such as O.R.C. §1303.56(A).
In the case sub judice, Gray admits to depositing checks personally into the GWS account. He asserts, however, that he had no knowledge of or intent to commit theft or fraud, and that he was unaware the federal checks were stolen or had forged endorsements. Gray also argues that GWS should be held responsible, as its name is on the deposit slip received by the bank. Section 1303.56(A) states that any "person who transfers an instrument," makes the transfer warranties. It does not require that the depositor be listed on the deposit slip in order to be held liable, as Gray asserts. Further, when Defendant Gray personally deposited the checks, he made all the warranties described in O.R.C. § 1303.56(A). Defendant Gray deposited at least $550,000 in the GWS account, which Huntington accepted in good faith. The fact that Gray had no knowledge of the forged endorsements is irrelevant. At the time of Plaintiff's Motion, Plaintiff had paid thirty-eight (38) reclamation requests, and the federal government has since indicted Allen Pendergrass, identifying the fifty-one (51) federal checks as stolen and containing forged endorsements. (Doc. 57-1). Thus, because the checks contained fraudulent endorsements, Gray breached the transfer warranty and is strictly liable under O.R.C. § 1303.56.
Gray's agreement with Pendergrass entitled him to receive 3% of the checks he deposited. Gray received a total of $16,500. The total amount deposited is determined from the following calculation: $550,000 x 3.0% = $16,500.
--------
Defendant Gray also argues that the $16,500 he received as payment from Pendergrass may not have been derived from the stolen federal checks, and that his 3% commission must be traced to the federal checks subject to a reclamation claim. Gray, however, has not disputed that the federal checks were stolen and contained forged endorsements, and his 3% commission came directly from the checks he deposited. Moreover, it is not necessary that the 3% commission be traced to checks with a reclamation claim, as Defendant Gray is liable for the entire amount of damages breached in the transfer warranties under O.R.C. § 1303.56(B). All fifty-one (51) checks now have been identified as stolen with forged endorsements. Thus, all the checks Gray deposited into the GWS account breached the transfer warranties under O.R.C. § 1303.56.
Finally, although Defendant Gray claims that repayment of the $16,500 would be a burden, Huntington is entitled to recover the amounts of the stolen checks, expenses, and lost interest. Pursuant to O.R.C. § 1303.56(B) Huntington is permitted to recover the "amount equal to the loss suffered" up to the "amount of the instrument plus expenses and loss of interest," regardless of how much he received personally. Thus, liability in the amount of $16,500 is appropriate in this instance.
V. CONCLUSION
For the above reasons, this Court finds that Defendant Gray is liable to Plaintiff under O.R.C. § 1303.56. Accordingly, Defendants' Motion for Judgment on the Pleadings is GRANTED.
IT IS SO ORDERED.
s/ Algenon L. Marbley
ALGENON L. MARBLEY
UNITED STATES DISTRICT JUDGE