Opinion
IP 01-0086-C-T/K.
September 27, 2002
ENTRY ON MOTIONS TO DISMISS
This Entry is a matter of public record and is being made available to the public on the court's web site, but it is not intended for commercial publication either electronically or in paper form. Although the ruling or rulings in this Entry will govern the case presently before this court, this court does not consider the discussion in this Entry to be sufficiently novel or instructive to justify commercial publication or the subsequent citation of it in other proceedings.
This matter is before the court on Defendant Union Planters Bank, N.A.'s ("UPB") motions to dismiss the claims of Agnes N. Conder, as trustee for the Conder Living Trust, on behalf of herself and all others similarly situated. Plaintiff was an investor who allegedly lost money in a Ponzi scheme orchestrated by persons and entities affiliated with Heartland Financial Services ("Heartland"). Plaintiff sued UPB because it allowed Heartland operatives to deposit several of her checks into an account at UPB, even though the checks were not endorsed with endorsements matching the payee of the checks. UPB filed motions under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), claiming first that Plaintiff has no standing to bring this lawsuit, and second that even if she had standing she failed to state a claim upon which relief could be granted. The parties have fully briefed the issues, and the motion is now ripe for ruling.
I. FACTUAL BACKGROUND A. THE NATURE OF THE ALLEGED PONZI SCHEME
Plaintiff wrote checks payable to persons or entities affiliated with Heartland for the sole intended purpose of effectuating the purchase of securities or other investments, in amounts totaling millions of dollars. (Am. Compl. ¶ 24.) The checks were solicited by persons and entities affiliated with Heartland, who recommended securities and/or other investments to Heartland customers and offered the services of Heartland as a purported means of investing in such securities and other investments. (Id. ¶ 25.) Potential investors were told that the proceeds of the checks they issued to Heartland would be used to purchase securities and other investments. (Id. ¶ 27.) In reality, only a very small portion of investor funds were used by Heartland to purchase securities. Instead, most investor funds were spent on the lavish lifestyles of Heartland's principals, were used to pay off claims of prior investors in the facilitation of a Ponzi scheme, or were wrongfully diverted to other schemes and purposes. (Id. ¶ 28.) Meanwhile, investors in Heartland and related entities were fraudulently told that their "investments" were earning exemplary returns. (Id. ¶ 29.)
According to Conder, "Heartland" includes, but is not limited to, Heartland principals Kenneth R. Payne, Johann M. Smith, Daniel G. Danker, and Constance Brooks-Kiefer, and the following entities affiliated with Heartland: Heartland Financial Services, Inc.; Aero Technologies Ltd.; Atlas Income Fund, L.L.C.; BMC Investment Group, L.L.C.; Carribean Federal Services, Ltd.; Carribean Financial Services; Carribean Investment International, Ltd.; Celtic Centre II, Ltd.; Dolphin International Development, Ltd.; Dolphin Peninsula Partners; First Fidelity Trust, Ltd.; First International Limited; Heartland International Trust Services, Ltd.; Heartland Money Management of Florida, Inc.; JMS Investment Group, L.L.C.; KJL Ltd. of Belize; Lincoln Fidelity Escrow Services; Lincoln Fidelity Escrow; MDS Investment Group, L.L.C.; MMK, Ltd.; Provident Bank; RMP, Ltd.; Terens, Ltd.; 21st Century Banking Group, Ltd.; 21st Century International Bank Trust, Ltd. of Grenada; 21st Century International Advisors, Inc.; 21st Century International Advisors of Bermuda, Inc.; 21st Century International Advisors of Ireland, Ltd.; 21st Century Personnel, LLC; and Universal Financial Services, Ltd. (Id. ¶ 23.)
To facilitate the course of this fraudulent and unlawful conduct, the checks solicited by Heartland were not endorsed with endorsements matching the payee of the checks. Instead, the checks were endorsed with the endorsement of "Lincoln Fidelity Escrow" substantially in one of the following ways:
(a) By writing, "For Deposit Only, UP # 0001266190" [the Lincoln Fidelity Escrow Account]; or
(b) With a stamp reading, "Pay to the Order of Union Planters Bank, For Deposit Only, Lincoln Fidelity Escrow Account, 0740142130001266190." (hereinafter referred to as the "Stamp").
(Am. Compl. ¶ 30.)
The checks were deposited, usually by Johann Smith or Constance Brooks-Kiefer, into the Lincoln Fidelity Escrow Account ("the Lincoln Account"), which was an ordinary business account rather than a true escrow account. (Id. ¶ 31.) Plaintiff's checks, however, were not made payable to the order of Lincoln Fidelity Escrow or the Lincoln Account. Instead, checks were made payable to numerous persons or entities affiliated with Heartland or to specific accounts other than the Lincoln Account, including but not limited to: "Johann M. Smith," "Johann M. Smith, Escrow Agent," "Johann M. Smith, Escrow Account," "JMS Escrow Agent," "Kenneth Payne," "JMS Investment Group," "BMC Investment Group, LLC," "BMC Investment Group, LLC, c/o Johann Smith, Escrow Agent," "Heartland Group," "JMS," "JMS Escrow Account," "Atlas Income Fund, LLC," or "Heartland Financial," all of which were deposited into a slush fund. (Am. Comp. ¶ 32 (emphasis added).) Despite the fact that the account was entitled "Lincoln Fidelity Escrow Account," and despite the fact that UPB knew or should have known that its customer, Lincoln Fidelity Escrow, was organized to act as an escrow agent for its clients, UPB allowed Lincoln Fidelity Escrow to open and continue to maintain the Lincoln Account as an ordinary business checking account. (Id. ¶ 33.)
UPB further allowed deposit of checks into the Lincoln Account despite the fact that the vast majority of the checks were expressly made payable to the payee as an escrow agent or were made payable to an escrow account. (Id. ¶ 34.) Lincoln Fidelity Escrow conducted no legitimate business and did not actually sell or participate in the sale of securities. (Id. ¶ 35.)
Nearly all of the hundreds or thousands of checks bore writing on the memo line indicating that the drawer intended the check to be used for the purchase of securities. (Id. ¶ 36.) UPB's actions in allowing the deposit of the checks into the ordinary business checking account of Lincoln Fidelity Escrow, rather than requiring their deposit into the designated account of the named payee, facilitated the scheme by Heartland to defraud Plaintiff. (Id. ¶ 38.)
In early 2000, the United States Securities Exchange Commission ("SEC") began investigating Heartland's activities. On August 10, 2000, the SEC filed a complaint against the Heartland principals requesting, among other things, that the court appoint a receiver for Heartland and JMS Investment Group. (Am. Compl. ¶ 39.) James A. Knauer was appointed Receiver for Heartland and JMS Investment Group, and filed a complaint against the Heartland principals and related entities on October 20, 2000. Although the amount of assets potentially recoverable through the receivership proceedings is still uncertain, it is clear that Plaintiff will likely recover through the receivership only a fraction of her "investments." (Id. ¶ 40.)
B. PLAINTIFF'S CLAIMS
Count I alleges that because the checks that were deposited into the Lincoln Account with UPB did not bear the endorsement of the payee of those checks, the checks were not negotiated to Lincoln Fidelity Escrow and UPB never became a "holder" of the checks. (Am. Compl. ¶ 42.) As a result, UPB could not become a "holder in due course" under Indiana Code § 26-1-3.1-302(a). (Id. ¶ 43.) Plaintiff has made claims to the checks or their proceeds against Heartland based in part on an alleged breach of fiduciary duty and fraud, through receivership proceedings. (Id. ¶ 44.) Her claims against Heartland entitle her to a property or possessory right in the checks and/or the proceeds of the checks. (Id. ¶ 45.) Pursuant to Indiana Code § 26-1-3.1-306, UPB is subject to Plaintiff's claims of property and/or possessory rights in the checks and/or the proceeds of the checks arising from Heartland's fraud and breach of fiduciary duty. (Id. ¶ 46.)
Count II alleges that Heartland acted as a "fiduciary" as defined by I.C. § 26-1-3.1-307(a)(1) with respect to those checks issued to it by Plaintiff and made payable to a fiduciary or to a fiduciary account. Heartland owed a fiduciary duty to Plaintiff to deposit the checks into an escrow account and use the proceeds solely to purchase the securities for which the checks were issued. (Am. Compl. ¶ 48.) Plaintiff was a "represented person" as defined by Indiana Code § 26-1-3.1-307(a)(2), as she was a person to whom Heartland owed a fiduciary duty. (Id. ¶ 49.) A subset of Plaintiff's checks were made payable to Heartland and related persons and entities as fiduciaries, or to a fiduciary account. A substantial majority of the checks specifically indicated that they were payable to Johann Smith as Escrow Agent. (Id. ¶ 50.) The checks were taken by UPB from Heartland for payment, collection, or value. (Id. ¶ 51.) UPB had knowledge of Heartland's and Johann Smith's fiduciary status. (Id. ¶ 52.) By depositing the checks into the Lincoln Account, Heartland and Johann Smith deposited the checks into an account other than an account of the named payee of those checks, as fiduciaries, or an account of the represented persons. UPB, by allowing the deposit of checks into an ordinary business checking account of a different entity, rather than requiring deposit of the checks into a fiduciary account of Johann Smith or Heartland, despite the fact that the checks were made to Johann Smith or Heartland as escrow agents, did not comply with the customs and standards of the banking industry and demonstrated a lack of observance of reasonable commercial standards of fair dealing. (Am. Compl. ¶ 55.) UPB's actions in receiving the deposits constitute bad faith. (Id. ¶ 56.) Under Indiana Code § 26-1-3.1-307, UPB had notice of Heartland's and Johann Smith's breach of fiduciary duty and thus notice of Plaintiff's claim of breach of that duty. (Id. ¶ 57.) Because the checks were not endorsed by the intended payee of those checks, namely Heartland and Johann Smith, UPB was not a holder of the checks and, therefore, could not be a holder in due course. UPB's notice of Plaintiff's claim of breach of fiduciary duty prevents it from becoming a holder in due course pursuant to Indiana Code § 26-1-3.1-307. (Id. ¶ 58.) Under Indiana Code § 26-1-3.1-306, UPB is subject to Plaintiff's claims of property and/or possessory rights in the checks and/or proceeds of the checks arising from Heartland's and Johann Smith's breach of fiduciary duty related to those instruments. (Id. ¶ 60.)
Count III alleges that UPB owed a duty to Plaintiff to recognize the danger signals related to Heartland's deposit of the checks, namely:
(a) The amounts of the individual checks deposited in the Lincoln Account were significant, generally ranging anywhere from $1,000 to $150,000;
(b) The aggregate amount of the checks deposited into the Lincoln Account was in excess of $25,000,000;
(c) The checks were deposited into an ordinary business checking account of Lincoln Fidelity despite the fact that most of the checks were payable to Johann Smith or Heartland entities specifically as fiduciaries;
(d) The endorsements on the checks did not match the payee of those checks;
(e) UPB allowed Lincoln Fidelity Escrow to open and maintain the Lincoln Account as an ordinary business checking account despite the fact that it knew or should have known that Lincoln Fidelity Escrow was organized to act as an escrow agent for its clients;
(f) UPB allowed Lincoln Fidelity Escrow to open and maintain the account as an ordinary business checking account despite the fact that the name of the account indicated that it was an "Escrow Account;"
(g) The checks bore on their memo lines designations that the checks were for the purchase of particular securities; and
(h) Some of the checks were payable to specific escrow accounts, namely "JMS Escrow Account" and "Johann M. Smith Escrow Account," yet those checks were deposited into the Lincoln Account with the stamped endorsement described above.
(Am. Compl. ¶ 62.)
According to Plaintiff, the potential harm to her resulting from Heartland's improper deposit of her checks was sufficiently foreseeable to UPB to impose a duty to act with reasonable care with respect to the proper deposit and collection of those checks. (Id. ¶ 63.) By allowing Lincoln Fidelity Escrow to open and continue to maintain the Lincoln Account as an ordinary business checking account and by allowing the deposit of the checks into the Lincoln Account, UPB failed to act with reasonable care and breached its duty to Plaintiff. (Id. ¶ 64.) Plaintiff claims that UPB's negligence facilitated Heartland's massive Ponzi scheme and caused her damages. (Id. ¶ 65.)
Count IV alleges that based on the danger signals known to UPB it was aware of circumstances sufficient to give it reason to know that a fraudulent scheme was being perpetrated on Plaintiff. (Id. ¶ 67.) Plaintiff has made claims to the checks or their proceeds through the receivership. (Id. ¶ 68.) Because the checks were not endorsed by the payee of those checks, UPB was not a holder of the checks and, therefore, could not be a holder in due course. UPB's notice of Plaintiff's claims of fraud also prevents it from becoming a holder in due course. (Am. Compl. ¶ 69.) Plaintiff's claims against Heartland entitle them to a property or possessory right in the checks and/or the proceeds of the checks. (Id. ¶ 70.) UPB is subject to Plaintiff's claims to the checks and/or their proceeds pursuant to Indiana Code § 26-1-3.1-306.
II. STANDARDS A. MOTION TO DISMISS UNDER RULE 12(b)(1)
UPB contends that Plaintiff's claims should be dismissed for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). In ruling on a Rule 12(b)(1) motion to dismiss, the court must accept the complaint's allegations as true and draw all reasonable inferences in favor of the plaintiff. Capitol Leasing Co. v. FDIC, 999 F.2d 188, 191 (7th Cir. 1993). The court, however, "may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Id.
UPB contends there is no subject matter jurisdiction because Plaintiff has no standing to sue. Standing is "the threshold question in every federal case, determining the power of the court to entertain the suit." Freedom From Religion Found., Inc. v. Bugher, 249 F.3d 606, 609 (7th Cir. 2001) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). Under Article III of the United States Constitution, only a plaintiff with a personal stake in a case or controversy has standing. Id. (citing Gonzales v. N. Township, 4 F.3d 1412, 1415 (7th Cir. 1993)). "Article III standing requires that a plaintiff demonstrate three elements: (1) an 'injury in fact' — an invasion of a legally recognized interest which is concrete and particularized, actual or imminent, and not conjectural or hypothetical; (2) a causal link between that injury and the defendant's action, such that the injury is fairly traceable to the action complained of; and (3) that a favorable decision will likely redress the injury." Sierakowski v. Ryan, 223 F.3d 440, 442-443 (7th Cir. 2000) (citing Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 180-181(2000); Wisconsin v. FERC, 192 F.3d 642, 646 (7th Cir. 1999)).
B. MOTION TO DISMISS UNDER RULE 12(b)(6)
The standard of review for a Rule 12(b)(6) motion to dismiss for failure to state a claim is stringent. Under federal notice pleading, a complaint need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief[.]" Fed.R.Civ.P. 8(a)(2). As the Supreme Court directed lower courts long ago, "[a] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). When ruling on a 12(b)(6) motion, the court must view the complaint in the light most favorable to the plaintiff and take the allegations of the complaint as true. Doherty v. City of Chicago, 75 F.3d 318, 322 (7th Cir. 1996).
III. DISCUSSION A. DOES PLAINTIFF HAVE STANDING TO BRING HER CLAIMS?
All three of Plaintiff's UCC claims are founded upon the allegation that UPB was not a "holder in due course," which is a term of art under the UCC. Indiana Code § 26-1-3.1-306 provides as follows:
Claims to an instrument
A person taking an instrument, other than a person having rights as a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.
Under this provision, Plaintiff could assert two types of claims against a person who is not a holder in due course: (1) a claim of a property or possessory right in the instrument or its proceeds, or (2) a claim to rescind a negotiation and to recover the instrument or its proceeds. Plaintiff's three UCC claims fall under the former category, as her Amended Complaint clearly states that, through the receivership proceedings, they have asserted claims against Heartland for breach of fiduciary duty and fraud. (Am. Compl. ¶¶ 44, 53, 68.) According to Plaintiff, those claims against Heartland entitle them to a property or possessory right in the proceeds of the checks they wrote to Heartland. (Id. ¶¶ 45, 59, 70.) Because UPB is not a holder in due course, under Section 3-306, it took the checks subject to Plaintiff's claims to their proceeds. The relief Plaintiff seeks for her UCC claims is a judgment against UPB and a return of those proceeds. (See Am. Compl., Counts I, II, and IV.)
UPB contends that Plaintiff lacks standing to pursue the proceeds of those checks because this court has already assigned that task to the Receiver. When the court appointed James Knauer as Receiver over Heartland, it stayed all investors, creditors, and other persons from "[c]ommencing, prosecuting, continuing or enforcing any suit or proceeding against Heartland property. . . ." (See Def.'s Br. Supp. Mot. Dismiss Lack Standing, Ex. B at 5.) The court also prohibited investors and other persons from "[d]oing any act to interfere with the taking control, possession, or management, by the Receiver, of Heartland property and assets and assets owned, controlled, or in the possession of the Receiver. . . ." (Id.) If the right to the proceeds of Plaintiff's checks belongs to Heartland, then Plaintiff is precluded from bringing a suit against UPB to recover them.
It is clear that the proceeds of Plaintiff's checks are an asset of Heartland. Although its principals used it and other entities as the tools of their fraudulent scheme, Heartland nonetheless is in the eyes of the law a separate entity with rights and duties. See Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995). Heartland received checks from investors, and the proceeds should have been used for investments. Instead, various Heartland principals allegedly diverted the funds for improper purposes. In Scholes, an individual (Douglas) used three corporations to help him orchestrate a similar Ponzi scheme. The Seventh Circuit recognized, however, that once a receiver was appointed for the corporations they were entitled to attempt to recover the wrongfully diverted funds:
The appointment of the receiver removed the wrongdoer from the scene. The corporations were no longer Douglas's evil zombies. Freed from his spell they became entitled to a return of the moneys — for the benefit not of Douglas but of innocent investors — that Douglas had made the corporations divert to unauthorized purposes.
Id. Similarly, when Plaintiff wrote checks to Heartland, the proceeds of those checks became assets or "property" of Heartland. Because this court has stayed all investors from doing anything that would interfere with the Receiver's control of Heartland assets, Plaintiff has no standing to bring her UCC claims. The court therefore will GRANT UPB's Motion to Dismiss for Lack of Standing with respect to Plaintiff's UCC claims, which are Counts I, II, and IV of the Amended Complaint.
Plaintiff does have standing, however, to bring a negligence claim against UPB. In that claim, she is not seeking a return of the proceeds of their checks, nor is her action otherwise interfering with the Receiver's control over Heartland's property or assets. Instead, Plaintiff seeks damages from UPB for its alleged negligence in allowing certain checks to be improperly deposited into the Lincoln Account. Accordingly, the court DENIES UPB's Motion to Dismiss for Lack of Standing with respect to Plaintiff's negligence claim.
B. HAS PLAINTIFF STATED A CLAIM FOR NEGLIGENCE?
UPB contends that Plaintiff has failed to state a claim for negligence because: (1) it was not the proximate cause of her harm, (2) Indiana's "Intended Payee" Rule defeats such a claim, and (3) the Amended Complaint identifies no duty owed by it to Plaintiff.
Proximate cause is an essential element of a negligence claim. Franklin v. Benock, 722 N.E.2d 874, 880 (Ind.Ct.App. 2000). "A negligent act or omission is the proximate cause of an injury if the injury is a natural and probable consequence which, in light of the circumstances, should reasonably have been foreseen or anticipated." Id. But, "[w]here harmful consequences are brought about by intervening and independent forces which were not reasonably foreseeable at the time of the defendant's conduct, the chain of causation is broken and the intervening cause may serve to cut off the defendant's liability." Id.
In moving for dismissal, UPB offers only one case applying Indiana law to support its argument that as a matter of law it was not the proximate cause of Plaintiff's harm, namely Franklin. In that case, a little girl was bitten by a dog and suffered severe facial injuries. Her attorneys filed suit and recovered $90,000 from an insurance company. Her parents then hired an attorney, Bradley Catt ("Catt"), to obtain a guardianship for her and to secure court approval of the settlement. The funds were deposited into the Knox County Clerk's trust account. The Knox County Circuit Court later approved the settlement, and the clerk issued a check made payable to Citizens Bank ("Citizens") for over $57,000. The little girl was listed as the sole obligee on the check's detachable stub. The clerk gave the check to Catt, who presented the check to Citizens and deposited it into his own trust account. Catt later stole the money from the account, and was eventually prosecuted for theft. Id. at 876-877.
The little girl's parents then sued Citizens, alleging that it owed a duty to ascertain the true intent of the clerk and to pay the money to the intended payee, and that it violated its duty to exercise ordinary care and to act in a commercially reasonable manner. Franklin, 722 N.E.2d at 877. Citizens moved for summary judgment, the trial court denied the motion, and the court of appeals reversed. The court of appeals found that Citizens' actions were not the proximate cause of the little girl's injuries:
The undisputed facts lead but to one inescapable conclusion: 'that the reason why [the little girl] does not have her $57,833.29 is because her attorney, Bradley Catt, stole the money intended for her.' Even assuming, arguendo, that Citizens failed to exercise reasonable care in depositing the clerk's check into Catt's trust account, it could not have reasonably foreseen that he would callously and contemptibly breach numerous legal, ethical, and moral obligations to his client by stealing and ultimately squandering the proceeds that were intended to pay for [the little girl's] reconstructive surgeries.
Id. at 881.
Franklin does not dictate the result that UPB urges. There are several reasons for this conclusion. First, Franklin did not involve a motion to dismiss but rather a motion for summary judgment, and the federal notice pleading standard is very liberal and quite different from the standard applied on summary judgment. It should be noted that the Franklin court acknowledged that ordinarily proximate cause is not properly resolved on summary judgment. The court also said that "foreseeability . . . accounts for the circumstances that actually occurred." Franklin, 722 N.E.2d at 881. Because UPB raises the issue of proximate cause in a motion to dismiss, the court has no benefit of evidence as to what circumstances actually occurred. And, when reviewing UPB's motion, the court is confined to determine whether there is any set of facts consistent with the allegations of the Amended Complaint which would entitle Plaintiff to relief. The court cannot rule out that possibility.
This difference also distinguishes E.F. Hutton Mortgage Corp. v. Equitable Bank, N.A., 678 F. Supp. 567 (D.Md. 1988), and Swiss Baco Skyline Logging, Inc. v. Haliewicz, 567 P.2d 1141 (Wash.Ct.App. 1977), upon which UPB relies. FDIC v. Imperial Bank, 859 F.2d 101 (9th Cir. 1988), Guidry v. Bank of LaPlace, 740 F. Supp. 1208 (E.D.La. 1990), and Roy Supply, Inc. v. Wells Fargo Bank, N.A., 39 Cal.App.4th 1051 (Cal.Ct.App. 1995), also relied on by UPB, are distinguishable because the plaintiff was not the drawer of a check which was allegedly improperly deposited with the defendant bank.
Furthermore, the Franklin court concluded that the attorney's theft of the settlement proceeds was not reasonably foreseeable, finding the lack of a foreseeable harm and a foreseeable plaintiff based on the facts of the case. Id. at 881 n. 11. The Franklin plaintiff was not the drawer of the check at issue, a circumstance the court specifically noted when concluding that she was not a reasonably foreseeable plaintiff. Id. at 879. In contrast, here, the Amended Complaint alleges that the Plaintiff was the drawer of the checks at issue. And, in concluding that the attorney's theft of his client's settlement proceeds was not reasonably foreseeable, the Franklin court cited the bank's inability to foresee the attorney's breach of his legal, ethical and moral obligations to his client. Id. at 881. These same obligations are not alleged to be present in the instant case. Thus, Franklin is inapposite.
Moreover, the Amended Complaint alleges that the potential harm to Plaintiff "resulting from Heartland's improper deposit of [her] checks was sufficiently foreseeable to [UPB]. . . ." (Am. Compl. ¶ 63.) It does not appear beyond all doubt that the Plaintiff can prove no set of facts consistent with her allegations to show that the harm to her was reasonably foreseeable. The determination of foreseeability is more properly addressed at the summary judgment stage once the parties have had the benefit of discovery and the court has the benefit of an evidentiary record upon which to decide the issue. The evidence may ultimately bear out UPB's argument that Heartland's conduct and not UPB's breach of any duty proximately caused Plaintiff's damages, but at this stage of the proceedings it cannot be said that the matter is beyond all peradventure.
UPB also contends that Plaintiff's negligence claim is defeated by Indiana's "Intended Payee" Rule. Application of this rule, as UPB acknowledges, turns in part on whether the proceeds of the check reached the person intended by the drawer to receive them. Ambassador Fin. Servs., Inc. v. Ind. Nat'l Bank, 605 N.E.2d 746, 754 (Ind.Ct.App. 1993). UPB urges that this rule applies because the checks' proceeds reached Heartland, the intended payee. UPB submits that the Amended Complaint alleges that Lincoln Fidelity Escrow is included within the term "Heartland" as used throughout the Amended Complaint, and UPB is correct. (Am. Compl. ¶ 23.) UPB then argues that since it is alleged that the Plaintiff wrote checks payable to persons or entities affiliated with Heartland and such checks were solicited by persons and entities affiliated with Heartland, the checks were deposited as intended by the Plaintiff. This argument ignores the specific allegation that the checks at issue "were not made payable to the order of Lincoln Fidelity Escrow or the Lincoln Fidelity Escrow Account." (Id. ¶ 32.) These various allegations at the least create ambiguity as to whether the proceeds of the checks reached the person or entity intended by the Plaintiff to receive them, and any ambiguity must be resolved in favor of the Plaintiff, see Early v. Bankers Life Cas. Co., 959 F.2d 75, 79 (7th Cir. 1992).
Finally, UPB contends that the Amended Complaint does not state a negligence claim because it owed no duty to the Plaintiff. UPB correctly maintains that whether a defendant owes a duty to a plaintiff is generally a question of law, see Franklin v. Benock, 722 N.E.2d 874, 878 (Ind.Ct.App. 2000). However, resolution of that legal question depends on several factors. See id. (stating that courts consider and balance three factors in determining whether a defendant owed a duty to a plaintiff: the relationship between the parties, the reasonable foreseeability of harm, and public policy concerns). In concluding that the bank owed no duty to the plaintiff, the Franklin court relied on "the relevant facts" provided with the summary judgment motion. Id. at 879-80. Thus, Franklin does not stand for the proposition that the Plaintiff in this case must plead facts which establish a legal duty before she may state an actionable claim.
This court, in contrast with the Franklin court, has no factual evidence before it, and the Amended Complaint must be viewed in the light most favorable to the Plaintiff, with all reasonable inferences drawn in her favor. When viewed in this light and given the allegations that the Plaintiff was the drawer of the checks at issue and UPB allowed their deposit without proper endorsements, Plaintiff may be able to prove facts consistent with her allegations to establish the reasonable foreseeability of the harm to her and that she was a reasonably foreseeable victim. As the Franklin court cautioned: "Our decision in this case, based strictly on the absence of a foreseeable harm to a foreseeable plaintiff, should not be construed as a license . . . for the careless handling of negotiable instruments by financial institutions." Franklin, 722 N.E.2d at 881 n. 11. The court added that "banks may not be able to avoid liability for conducting similar transactions under different factual circumstances." Id. The factual allegations of the Amended Complaint are quite different from the facts presented in Franklin.
Plaintiff's negligence claim against UPB may ultimately fail before getting to trial, but summary judgment rather than a Rule 12(b)(6) motion is the proper vehicle with which to dispose of factually unsupported claims. Because the court finds that Plaintiff's Amended Complaint sufficiently pleads a negligence claim against UPB, the Rule 12(b)(6) motion is DENIED with respect to that claim.
As the other three claims of the Amended Complaint will be dismissed under Rule 12(b)(1), the court need not consider them under the Rule 12(b)(6) motion.
IV. CONCLUSION
For the foregoing reasons, UPB's motion to dismiss for lack of standing will be GRANTED as to the UCC claims in Counts I, II, and IV but DENIED as to the negligence claim in Count III, and UPB's motion to dismiss for failure to state a claim is DENIED as to the negligence claim in Count III.A final judgment or order will not be issued until disposition is reached on the remaining count. A conference will be held to determine a schedule for this case.
ALL OF WHICH IS ORDERED this 27th day of September 2002.