DR. DOMINICK A. LEMBO VS. ARLENE MARCHESE (L-0453-15, PASSAIC COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: April 16, 2019
• Docket: A-4048-17T2
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-4048-17T2

DR. DOMINICK A. LEMBO and BELMONT DENTAL ASSOCIATES,

Plaintiffs-Appellants,

v.

ARLENE MARCHESE, KAREN WRIGHT, KREINCES, ROLLINS & SHANKER, LLC and MARIA T. ROLLINS, CPA,

Defendants,

and

TD Bank, NA,

Defendant-Respondent. _______________________________

Submitted March 27, 2019 – Decided April 16, 2019

Before Judges Fuentes and Vernoia.

On appeal from Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-0453-15. De Marco & De Marco, attorneys for appellants (Michael P. De Marco, on the briefs).

Sherman Wells Sylvester & Stamelman, LLP, attorneys for respondent (Anthony J. Sylvester and Caitlin T. Shadek, on the brief).

PER CURIAM

Plaintiffs Dr. Dominick A. Lembo and Belmont Dental Associates appeal

from a Law Division order dismissing with prejudice the single cause of action

asserted in their complaint against defendant TD Bank, N.A. (TD Bank), for

failure to state a claim. R. 4:6-2(e). We affirm in part, vacate in part and remand

for further proceedings.

We accept the facts alleged in the complaint as "true and give [plaintiffs]

the benefit of all inferences that may be drawn in [their] favor" because they

appeal from an order granting TD Bank's motion to dismiss for failure to state a

claim. Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 192 (1988); accord

Banco Popular N. Am. v. Gandi, 184 N.J. 161, 165-66 (2005). Dr. Lembo is a

dentist and owner of Belmont Dental Associates, a dental practice. Plaintiffs

employed Karen Wright as a dental hygienist and Arlene Marchese as an office

manager. Plaintiffs also retained a certified public accountant and her

accounting firm to provide accounting services for the dental practice.

A-4048-17T2 2 According to the complaint, during a period prior to December 21, 2011,

Wright and Marchese took checks issued to plaintiffs that totaled several

hundred thousand dollars, forged Dr. Lembo's endorsement on the checks and

deposited the checks in their personal accounts at TD Bank. The complaint

alleged causes of action against Wright and Marchese for fraud (first count),

unjust enrichment (second count), conversion (third count), and breach of their

duty of honesty and fair dealing (fourth count). The complaint further asserted

a cause of action against the certified public accountant and her accounting firm

for negligently failing to detect the fraud and conversion of plaintiffs' property

(fifth count).

The complaint asserted a single cause of action against TD Bank.

Plaintiffs alleged TD Bank knew or should have known that Wright and

Marchese were not permitted to negotiate checks made payable to plaintiffs and

"aided and abetted Marchese and Wright in their fraudulent scheme and

conduct." TD Bank moved to dismiss the complaint, arguing it failed to state a

claim upon which relief could be granted. See R. 4:6-2(e).

The court granted the motion, finding the complaint asserted a common

law negligence claim against TD Bank that could not be sustained as a matter of

law because the "Uniform Commercial Code" bars "claims of non-customers

A-4048-17T2 3 against banks" absent a showing of a "special relationship." The court found

plaintiffs failed to allege a special relationship between themselves and TD Bank

or allege any facts demonstrating such a relationship. The court also rejected

plaintiffs' argument that the complaint alleged a violation of the Uniform

Fiduciaries Law (UFL), N.J.S.A. 3B:14-52 to -61, because neither Wright nor

Marchese qualified as fiduciaries under the statute. The court entered an order

dismissing the complaint as to TD Bank with prejudice. 1 This appeal followed.

We review de novo a trial court's dismissal of a complaint under Rule 4:6-

2(e), Selective Ins. Co. of Am. v. Hudson E. Pain Mgmt. Osteopathic Med., 210

N.J. 597, 604 (2012), owing "no deference to the trial court's conclusions,"

Rezem Family Assocs., LP v. Borough of Millstone, 423 N.J. Super. 103, 114

(App. Div. 2011). "We approach our review of the judgment below mindful of

the test for determining the adequacy of a pleading: whether a cause of action is

'suggested' by the facts." Printing Mart-Morristown v. Sharp Elecs. Corp., 116

N.J. 739, 746 (1989) (quoting Velantzas, 109 N.J. at 192). "[A] reviewing court

'searches the complaint in depth and with liberality to ascertain whether the

fundament of a cause of action may be gleaned even from an obscure statement

1 Plaintiffs obtained judgments against Wright and Marchese and dismissed the complaint against the certified public accountant and her accounting firm. A-4048-17T2 4 of claim, opportunity being given to amend if necessary.'" Ibid. (quoting Di

Cristofaro v. Laurel Grove Mem'l Park, 43 N.J. Super. 244, 252 (App. Div.

1957)). Plaintiffs are "entitled to every reasonable inference of fact," ibid., but

a "dismissal is mandated where the factual allegations are palpably insufficient

to support a claim upon which relief can be granted," Rieder v. State, 221 N.J.

Super. 547, 552 (App. Div. 1987).

On its face, the complaint alleges only common law claims against TD

Bank. The complaint does not expressly assert any statutory bases for plaintiffs'

claims against the bank. A liberal reading of the complaint suggests it alleges

that TD Bank either negligently allowed Wright and Marchese to deposit checks

with forged endorsements into their accounts or aided and abetted in the

conversion of plaintiffs' property.

The Uniform Commercial Code (UCC), N.J.S.A. 12A:1-101 to 12-26,

"provides a comprehensive framework for allocating and apportioning the risks

of handling checks." City Check Cashing, Inc. v. Mfrs. Hanover Tr. Co., 166

N.J. 49, 57 (2001). However, "[u]nless displaced by the particular provisions of

the [UCC], the principles of law and equity, including the law merchant and the

law relative to capacity to contract, principal and agent, estoppel, fraud,

misrepresentation, duress, coercion, mistake, bankruptcy, and other validating

A-4048-17T2 5 or invalidating cause supplement its provisions." N.J.S.A. 12A:1-103(b). Thus,

"[a]s a general rule, courts have read" section 103(b) of the UCC "to mean that

the [UCC] does not displace the common law of tort as it affects parties in their

commercial dealings except insofar as reliance on the common law would thwart

the purposes of the UCC." ADS Assocs. Grp. v. Oritani Sav. Bank, 219 N.J.

496, 516 (2014) (quoting N.J. Bank NA v. Bradford Sec. Operations, Inc., 690

F.2d 339, 345-46 (3d Cir. 1982)).

"It is against that backdrop, and mindful of the balance of interests

reflected in the Legislature['s] enactment of the [UCC's] provisions, that most

courts have been reluctant to sanction common law negligence claims [against

banks]." City Check Cashing, Inc., 166 N.J. at 58. "[I]n the check collection

arena, unless the facts establish a special relationship between the parties created

by agreement, undertaking or contact, that gives rise to a duty, the sole remedies

available are those provided in the [UCC]." Id. at 62. It is "[o]nly in very rare

instances," such as where claimant and the bank have a special relationship, that

a court should "permit a common law cause of action." Id. at 58 (quoting Bank

Polska Kasa Opieki v. Pamrapo Sav. Bank, 909 F. Supp. 948, 956 (D.N.J.

1995)).

A-4048-17T2 6 Plaintiffs' asserted common law claim of negligence fails as a matter of

law because it is untethered to any factual allegation that plaintiffs and TD Bank

had a special relationship. See Brunson v. Affinity Fed. Credit Union, 199 N.J.

381, 400 (2009). The complaint does not allege plaintiffs had any relationship,

contract or undertaking with TD Bank or assert plaintiffs had any contacts with

TD Bank establishing the special relationship required to support a legally viable

common law cause of action. See City Check Cashing, Inc., 166 N.J. at 62;

Brunson, 199 N.J. at 400; see also Psak, Graziano, Piasecki & Whitelaw v. Fleet

Nat'l Bank, 390 N.J. Super. 199, 205-06 (App. Div. 2007) (finding that where

plaintiff did not establish a special relationship between plaintiff and defendant

mortgage servicer, plaintiff's claim of common law negligence was displaced by

the UCC).

Plaintiffs' putative common law claim for conversion similarly fails

because the UCC provides a remedy for conversion of a check by paying on a

forged endorsement. N.J.S.A. 12A:3-420(a); see also N.J. Lawyers' Fund for

Client Prot. v. Pace, 374 N.J. Super. 57, 62 (App. Div. 2005) (noting that

"[c]onversion occurs" under N.J.S.A. 12A:3-420(a) "when [a] bank pays on [a]

forged endorsement"); Leeds v. Chase Manhattan Bank, NA, 331 N.J. Super.

416, 422 (App. Div. 2000) (finding "a depository bank" is "strictly liable [under

A-4048-17T2 7 the UCC] for conversion on a forged or stolen instrument"). Thus, allowing

plaintiffs to pursue a common law conversion claim against TD Bank for its

alleged aiding and abetting of Wright's and Marchese's conversion of the checks

by paying on the alleged forged endorsements would "thwart the purposes of the

UCC." ADS Assocs., 219 N.J. at 516 (quoting N.J. Bank, 690 F.2d at 345-46).

The complaint does not expressly assert a claim founded on the UCC.

But even if the requisite liberal reading of the complaint, Printing Mart, 116 N.J.

at 746, permitted an extrapolation of a cause of action based on the UCC, the

claim must be dismissed because it is time-barred. N.J.S.A. 12A:3-118(g)

provides that "an action for conversion of an instrument . . . or like action based

on conversion . . . arising under this chapter . . . must be commenced within

three years after the cause of action accrues." An action for conversion accrues

"with respect to negotiable instruments . . . at the time of conversion, and . . . the

time of discovery rule does not apply." N.J. Lawyers' Fund for Client Prot. v.

Pace, 186 N.J. 123, 125 (2006) (quoting Pace, 374 N.J. Super. at 67).

Plaintiffs' complaint alleges they learned of Wright's and Marchese's

actions in "late December of 2011," but did not file their complaint until

February 2015, more than three years after TD Bank's putative conversion of the

funds by paying on the allegedly forged endorsements. Thus, to the extent the

A-4048-17T2 8 complaint might be liberally read to assert a claim for conversion under the

UCC, it is time-barred under N.J.S.A. 12A:3-118(g). Plaintiffs do not argue to

the contrary.

Although the complaint makes no reference to the UFL, plaintiffs also

argued before the motion court, and reprise the argument on appeal, that the

complaint asserts a cause of action under the UFL against TD Bank. The court

rejected the argument finding that, based on the facts alleged in the complaint,

the statute did not apply because Wright and Marchese were not fiduciaries

under the UFL. We therefore consider whether the complaint's allegations

suggest the fundament of a cause of action against TD Bank under the UFL.

Printing Mart, 116 N.J. at 746. We find that it does.

The UFL provides that a bank is liable where it takes a check from a

fiduciary under certain circumstances, the fiduciary breaches his or her fiduciary

obligations to the principal and the bank "takes the instrument with actual

knowledge of the breach or with knowledge of facts that [its] action in taking

the instrument amounts to bad faith." N.J.S.A. 3B:14-55; see also N.J. Title Ins.

Co. v. Caputo, 163 N.J. 143, 149-57 (2000) (explaining standard for establishing

bad faith under N.J.S.A. 3B:14-55). Similarly, N.J.S.A. 3B:14-58(a) provides

that a bank is liable under certain defined circumstances where a fiduciary

A-4048-17T2 9 deposits a check in his or her personal account and the bank "receives the deposit

or pays the check with actual knowledge that the fiduciary is committing a

breach of [her] obligation as fiduciary in making the deposit o r drawing the

check, or with knowledge . . . that . . . receiving the deposit of paying the check

amounts to bad faith." N.J.S.A. 3B:14-58(b) provides that where an instrument

is "payable to the principal . . . the bank has notice of the breach of fiduciary

duty if the instrument is deposited to an account other than an account of the

fiduciary, as fiduciary, or an account of the principal."

Here, the complaint in part alleges TD Bank had actual knowledge Wright

and Marchese forged checks made payable to plaintiffs and, with that

knowledge, accepted the checks with forged endorsements and deposited them

in Wright's and Marchese's personal accounts. In our view, those assertions

sufficiently allege the bad faith elements of causes of action under N.J.S.A.

3B:14-55 and -58(b). Moreover, the allegations concerning their possession of

the checks, fraudulent endorsement of the checks and deposits of the checks

sufficiently suggest that they engaged in conduct encompassed by the statutes

supporting a claim against TD Bank under the UFL. For example, and not by

way of limitation, the complaint alleges Wright and Marchese deposited the

checks into their personal accounts which, giving plaintiffs the benefit of all

A-4048-17T2 10 reasonable inferences, supports a claim TD Bank had notice of their alleged

breach of fiduciary duty. See N.J.S.A. 3B:14-58(b).

TD Bank correctly argues the complaint does not expressly allege that

either Wright or Marchese was a fiduciary within the meaning of the UFL.

N.J.S.A. 3B:14-53(b) defines "fiduciary" under the UFL as follows:

[A] trustee under any trust, expressed, implied, resulting or constructive, executor, administrator, guardian, conservator, curator, receiver, trustee in bankruptcy, assignee for the benefit of creditors, partner, agent, officer of a corporation, public or private, public officer, or any other person acting in a fiduciary capacity for any person, trust or estate.

[N.J.S.A. 3B:14-53(b).]

Here, the complaint describes Marchese as the dental practice's office

manager and Wright and Marchese as plaintiffs' employees. It also suggests that

in their respective capacities they had access to the checks at issue. Plaintiffs

further argue that by virtue of Wright's and Marchese's taking of the checks,

they should be considered "constructive trustees" of the checks and, as such, are

fiduciaries under N.J.S.A. 3B:14-53(b).2

2 We acknowledge plaintiffs did not argue before the motion court that Wright and Marchese are "constructive trustees" of the checks and are therefore fiduciaries under N.J.S.A. 3B:4-53(b). While we generally do not consider arguments raised for the first time on appeal unless they go to our jurisdiction

A-4048-17T2 11 It is not our role to determine whether plaintiffs are correct in their

assertions, or whether evidence will ultimately support their UFL claim.

Printing Mart, 116 N.J. at 746. We determine only whether a cause of action is

suggested by the facts, ibid., and if "a cause of action may be gleaned even from

an obscure statement of claim, opportunity being given to amend if necessary,"

ibid. (quoting Di Cristofaro, 43 N.J. Super. at 252). For the reasons noted, we

are convinced the complaint suggests a cause of action against TD Bank under

the UFL and the court erred by dismissing the complaint as to that claim with

prejudice.3 See id. at 772 (noting that dismissals granted pursuant to Rule 4:6-

2(e) should ordinarily be without prejudice so as to allow plaintiffs to better

articulate their claims in an amended complaint). We therefore vacate the court's

order dismissing the complaint with prejudice as to plaintiffs' UFL claim against

or involve matters of public concern, Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973), we consider plaintiffs' belated argument here because our analysis under Rule 4:6-2(e) requires that we conduct a "painstaking" review of the complaint "with a generous and hospitable approach" to discern whether it suggests a fundament of a cause of action, Printing Mart, 116 N.J. at 746. 3 We offer no opinion as to the merits of any UFL claim plaintiffs may assert in an amended complaint. For example, we do not suggest or decide that either Wright or Marchese is a fiduciary under N.J.S.A. 3B:14-53(b), that they engaged in conduct which would otherwise make TD Bank liable under the UFL or that TD Bank acted in bad faith or in any other manner making it liable under the UFL. We decide only that plaintiffs may file an amended complaint alleging facts supporting their UFL claims. A-4048-17T2 12 TD Bank and remand to allow plaintiffs to amend their complaint to allege a

claim under the UFL.

We affirm the court's dismissal with prejudice of plaintiffs' common law

claims for negligence and conversion and claims under the UCC against TD

Bank.

Affirmed in part, vacated in part and remanded for further proceedings in

accordance with this opinion. We do not retain jurisdiction.

A-4048-17T2 13