S. THOMAS ANDERSON, District Judge.
Before the Court is Defendant Regions Bank's Motion for Judgment on the Pleadings (D.E. # 25) filed on March 12, 2012. Plaintiff Notredan, LLC has filed a response in opposition to Defendant's Motion (D.E. # 30), and Defendant has filed a reply brief (D.E. # 32). For the reasons set forth below, Defendant's Motion for Judgment on the Pleadings is
Plaintiff's Complaint alleges that Plaintiff was the owner of real property located in Tallahatchie County, Mississippi ("the Tallahatchie property"). (Compl. ¶ 5.) Plaintiff was interested in selling its property and at the same time purchasing like-kind property adjacent to other property Plaintiff already owned in Tiptonville, Tennessee. (Id.) Plaintiff sought a property transaction that would allow it to take advantage of Section 1031 of the Internal Revenue Code and the Treasury regulations promulgated under that section. (Id.) As a result, Plaintiff entered into a contract with Old Republic Exchange Facilitator Company ("Old Republic") by which that party would act as a "qualified intermediary" for the 1031 exchange. (Id.)
Upon inspection, the contract recited that Plaintiff had entered into an agreement for the sale of the Tallahatchie property with a third-party. (Contract Recital C.) At the closing on that transaction, Plaintiff would assign its interest in the sales agreement to Old Republic, and Old Republic would complete the transfer of the property to the third-party buyer. (Id. § 2.) A closing agent would then wire the proceeds of the sale to Old Republic to be held in trust. (Id. § 4.) Upon the closing of the Tallahatchie property sale, Plaintiff would have 45 days in which to identify the replacement property for the exchange and then approximately 180 days in which to reach an agreement for the purchase of the replacement property. (Id. at §§ 5.2-5.4.) Once Plaintiff had entered into an agreement for the purchase of the replacement property, Plaintiff would assign its rights in the agreement to Old Republic. (Id. § 6.1.) Old Republic would acquire the property using the proceeds from the sale of the Tallahatchie property and then convey the replacement property to Plaintiff. (Id. § 6.2.) For its role in the qualified exchange, Old Republic was to receive a fee of $900.00 as well as all interest income earned on the funds from the sale of the Tallahatchie property. (Id. § 22.)
The contract appointed David J. Johnson, P.C. to act as the closing agent for the transfer of the Tallahatchie property. (Compl. ¶ 5.) David J. Johnson, P.C. and David J. Johnson (collectively "Johnson") are not named as parties to this suit. The Complaint alleges that the transaction for Plaintiff's Tallahatchie property was initiated whereupon the purchasers of the property wire transferred the sum of $525,000.00 into Johnson's trust account. (Id. ¶ 6.) Ultimately, Plaintiff was unable to complete the section 1031 exchange because Plaintiff could not purchase the replacement property it sought in Tiptonville, Tennessee. (Id.) At that point Plaintiff contacted Johnson about the proceeds from the sale of Plaintiff's Tallahatchie property. (Id.) Johnson gave Plaintiff conflicting and erroneous explanations before finally admitting that a mistake had been made and the proceeds were wired to a bank in Montreal, Canada, or to a bank in New York City or to some third location. (Id.) Plaintiff alleges that neither Johnson nor Old Republic were able to obtain the misdirected funds. (Id.)
The Complaint goes on to allege that the proceeds were wired to Johnson's IOLTA account at Defendant Regions Bank and credited as a deposit to the account in the amount of $525,000.00 on February 15, 2011. (Id. ¶ 7.) On the same day, Johnson deposited $1,400.00 of the proceeds into his business account as a fee and deposited $523,600.00 into a separate trust account at Regions Bank. (Id.) The $523,600.00 deposit at Regions Bank was on a check payable to Notredan, LLC. (Id.) Even though the check was not endorsed by Notredan, LLC, the Complaint alleges that Defendant Regions Bank improperly honored and paid the check to some payee other than Plaintiff. (Id.) According to the Complaint, Defendant Regions Bank had a duty imposed by law to conduct its business pursuant to the Tennessee Uniform Commercial Code ("UCC") as well as sound banking practices. (Id. ¶ 9.) The Complaint alleges that Defendant Regions Bank breached its duty by honoring a check made payable to Notredan, LLC, which was not endorsed by Notredan, LLC. (Id.)
In its Motion for Judgment on the Pleadings, Defendant argues that Plaintiff's claims are subject to dismissal.
Second, even if this suit is not res judicata, Defendant argues that Plaintiff has failed to state a claim against it. Plaintiff's claim sounding in negligence is preempted as it were by the UCC. Plaintiff's conversion claim fails as a matter of law because Plaintiff never received delivery of the check. Defendant cites for support Tenn.Code Ann. § 47-3-420(a), which precludes payees of checks from bringing a conversion claim when the payee did not receive delivery of the check. Finally, Defendant requests in the alternative that the Court stay the case pending the outcome of the declaratory judgment action in Colony Insurance Co. v. David J. Johnson, P.C., no. 2:11-cv-02866-STA-dkv. Defendant argues that Colony Insurance is the malpractice insurer for Johnson and in its suit disclaims any obligation to indemnify Johnson. In the event that Colony Insurance does not prevail, Defendant contends that Colony Insurance will pay Plaintiff the judgment Plaintiff obtained against Johnson in state court. In the interests of justice then, Defendant asks the Court to stay the proceedings in this case.
In its response in opposition, Plaintiff argues that the pleadings in this case demonstrate that disputed facts exist, making judgment on the pleadings improper. With respect to Defendant's first argument that Plaintiff's claim is barred as res judicata, Plaintiff points out that Defendant failed to plead res judicata as an affirmative defense in its answer. Even if Defendant had pleaded the defense, Plaintiff argues that res judicata does not apply. According to Plaintiff, Regions Bank has never been a party to any previous litigation involving the same parties or the same issues presented in this case. Plaintiff contends that Defendant is not in privity with Johnson and that Defendant has denied in its answer any vicarious liability for Johnson's acts. Regarding the merits of its pleadings, Plaintiff argues that Defendant had duties under several sections of the UCC and breached those duties by honoring the check made payable to Plaintiff. In sum, Plaintiff argues that "in the absence of undisputed facts, and in the presence of pleadings which dispute[ ] every allegation," the Court should deny Defendant's Motion.
Defendant has filed a reply. Defendant points out that Plaintiff's response fails to address several arguments raised in the Motion, including Defendant's assertions that (1) under the UCC Plaintiff cannot state a claim for conversion; (2) the UCC precludes a claim for negligence; and (3) the Court should at the very least stay the proceedings. On the issue of res judicata, Defendant argues that res judicata applies even though Defendant was not a party to the Johnson suit. Defendant and Johnson share an identity of interests and therefore are in privity with each other for purposes
On April 20, 2012, and subsequent to the filing of Plaintiff's response brief, Defendant filed a motion to amend its answer (D.E. # 33) for the purpose of pleading res judicata as an affirmative defense. Plaintiff never filed a response in opposition to Defendant's motion within the time permitted by the Local Rules. On May 8, 2012, the Court granted Defendant's motion to amend its answer (D.E. # 34), and on the same day, Defendant filed an Amended Answer (D.E. # 35).
Federal Rule of Civil Procedure 12(c) states, "After the pleadings are closed — but early enough not to delay trial — a party may move for judgment on the pleadings."
The Court holds that Defendant is entitled to judgment on the pleadings as to all of Plaintiff's claims against it. The Court will consider each of the issues presented in turn.
Defendant's primary argument for dismissal is that Plaintiff's claims against it are barred as res judicata.
The Court holds that Defendant has not shown that the doctrine of claim preclusion applies to Plaintiff's claims in this case. The prior action in this instance was Plaintiff's suit in state court against Johnson. However, Defendant has not established that the case at bar involves the same parties or their privies, specifically how Regions Bank stands in privity with Johnson. "The concept of privity relates to the subject matter of the litigation."
The Court holds that other than the obvious fact that both Johnson and Regions wish to avoid liability to Plaintiff for the deposit of the check at issue, Defendant has not shown how it has a mutual or successive interest to the same rights as Johnson.
Defendant also argues that the Court should dismiss Plaintiff's claims sounding in negligence because they are preempted by the Tennessee UCC. In a case involving a claim of negligence against a bank for its handling of a check, the Tennessee Court of Appeals explained that
Here the Complaint alleges that Defendant had a duty to conduct business in a certain manner and that the duty existed by virtue of the UCC (but without specifying which UCC sections gave rise to the duty) and "sound banking practices." The Complaint further alleges that Defendant breached its duty by honoring the check Johnson improperly deposited but does not allege in any way which sections of the UCC Defendant breached. To the extent that Plaintiff's claim can be construed as a cause of action for common law negligence, that claim is not available under Tennessee law. Therefore, Defendant is entitled to judgment as a matter of law on a common law negligence claim.
Insofar as Plaintiff pleads a negligence claim under the UCC, Plaintiff has not shown which UCC provision Defendant's conduct breached. In its response brief (and not in its Complaint), Plaintiff cites three different sections of the Tennessee UCC. However, the Court finds that none of the sections cited are relevant to the claims alleged in this case. For example, Plaintiff cites for support Tenn. Code Ann. § 47-1-203 for the proposition that the UCC imposes on Defendant a duty to conduct its business in good faith.
For similar reasons, Plaintiff's citation to Tenn.Code Ann. § 47-1-205 is unavailing. The current version of that section addresses the reasonable time for taking action.
Plaintiff has also cited in its brief Tenn.Code Ann. § 47-3-406 in support of a claim that Defendant negligently contributed to a forged endorsement. Just as with the other code sections Plaintiff cites for support, the Court holds that Plaintiff has failed to state a negligence claim under this UCC provision. Section 47-3-406 provides
The statute bars a party from recovering for a bank's payment on a forged instrument under certain circumstances.
Finally, Defendant argues that the Complaint fails to state a claim for conversion. Defendant asserts that "[t]he mainstay of Plaintiff's Complaint is that Plaintiff never received delivery of the Notredan Check."
Nevertheless, the UCC goes on to limit the parties who may bring claims for conversion and specifically denies a cause of action to the issuer or acceptor of the instrument as well as a payee or endorsee who did not receive delivery of the instrument.
The Court holds that Defendant has not established that Plaintiff's suit against Defendant is barred under the doctrine of claim preclusion. Regardless, the Complaint fails to state a claim for negligence or conversion under Tennessee law or the UCC. Therefore, Defendant's Motion for Judgment on the Pleadings is