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Menichini v. Grant

argued: January 11, 1993.

GERARD C. MENICHINI, T/A BEST LEGAL SERVICES
v.
LISSA L. GRANT; MELLON BANK (EAST) MELLON BANK (EAST) NATIONAL ASSOCIATION, APPELLANT



On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil Action No. 90-08033).

Before: Hutchinson, Scirica and Rosenn, Circuit Judges.

Author: Scirica

Opinion OF THE COURT

SCIRICA, Circuit Judge.

In this diversity suit, Gerard C. Menichini t/a Best Legal Services alleges Mellon Bank converted his property by accepting checks embezzled by Menichini's employee Lissa Grant. Two issues are presented on appeal: (1) whether the Pennsylvania Supreme Court would apply the tolling principle known as the "discovery rule" where an innocent party, i.e. a party not engaged in fraudulent concealment, invokes the statute of limitations as a defense to a check fraud action; and (2) whether Menichini negligently facilitated Grant's forgeries.

The district court applied the discovery rule, concluded Menichini was not negligent, and granted judgment in Menichini's favor. Because we believe the Pennsylvania Supreme Court would refuse to apply the discovery rule in these circumstances, and because we believe Menichini negligently facilitated his employee's forgeries, we will reverse and remand.

I.

Menichini founded Best Legal Services in 1981 as a sole proprietorship*fn1 providing various nonprofessional support services to attorneys and law firms. In 1986 Menichini hired his first full-time employee, law student Lissa Grant, as receptionist. In time, Menichini entrusted Grant with greater responsibilities, such as opening and receiving mail, sending invoices to clients, overseeing billing, recording checks, helping acquire new business, and assisting in client relations. Grant eventually became Best's bookkeeper and office manager. After Best installed a computer accounting system, Grant became exclusively responsible for recording invoices and payments.

Although Grant prepared deposit slips for Best's accounts, Menichini made all bank deposits, indorsing checks with a rubber stamp which bore Best's name, account number, and the designation "FOR DEPOSIT ONLY -- JEFFERSON BANK." The rubber stamp was kept locked in his desk drawer. Although

Grant occasionally used the stamp under Menichini's supervision, he never authorized her to sign his name or to indorse checks made out to Best.

Grant proved an unfaithful guardian. From April 4, 1988 to December 22, 1989, Grant intercepted 150 checks made out to Best, depositing them in her personal account at Mellon Bank after printing "Pay to the Order of Lissa Grant" or "Pay to Lissa Grant" on the reverse side of the check, under which she forged Menichini's signature. After signing her name and personal account number under the forged signature, Grant deposited the checks into her personal account at Mellon Bank through "remote" automatic teller machines, i.e., ATMs not physically connected to a Mellon branch office. Mellon Bank accepted the instruments for deposit, presented them to the various drawee banks, accepted payment for the checks from those banks, and credited payment to Grant's account.

Grant's bookkeeping responsibilities gave her access to Best's mail and billing process, enabling her to conceal her embezzlement for twenty months. Under her scheme, Grant invoiced certain customers without recording the invoice in the company's accounts receivable. Then she intercepted the incoming checks and deposited them in her personal account at Mellon Bank. Although Menichini and his accountants periodically reviewed Best's financial records, Grant's deceit kept them from discovering her actions. When Grant prepared the business records for the accountants, she expunged any inculpatory information.

Grant's deceitful practices came to light on December 22, 1988,

when another employee observed her entering a check payable to Best on a deposit slip to her personal account at Mellon Bank. After being apprised, Menichini spoke to Mellon Bank's branch manager the next business day. When the branch manager told him bank policy shielded Grant's account, Menichini contacted clients in order to obtain copies of canceled checks paid to Best.

On January 8, 1990, Menichini and his attorney confronted Grant. Grant confessed and acknowledged that she had not kept records of the invoices to or payments from clients whose checks she had misappropriated. Working together, Menichini and Mellon Bank calculated Grant had stolen 150 checks totalling $61,431.98.

On December 21, 1990, Menichini t/a Best Legal Services filed this diversity action, alleging defendants Grant and Mellon Bank converted Best's property. Default judgment was entered against Grant. After a bench trial, the district court granted judgment in favor of Menichini against Mellon Bank in the amount of $61,431.98. Mellon Bank appeals.

II.

The district court had jurisdiction under 28 U.S.C. § 1332 (1988) and we have jurisdiction under 28 U.S.C. § 1291. The parties agree Pennsylvania law controls the resolution of this dispute.*fn2

The district court's findings of fact are subject to the clearly erroneous standard, and its Conclusions of law are subject to plenary review. Martin v. Selker ...


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