United States District Court, M.D. Pennsylvania
November 22, 2005.
CALEX EXPRESS, INC., Plaintiff
BANK OF AMERICA, US BANK NATIONAL ASSOCIATION, and LUMBERMEN'S MUTUAL INSURANCE CO., Defendants v. OWNER'S EXPRESS GROUP, Third Party Defendant.
The opinion of the court was delivered by: JAMES MUNLEY, District Judge
Presently before the Court for disposition are Defendant U.S.
Bank National Association's ("U.S. Bank") Motion For Summary
Judgment and Defendant Lumbermen's Mutual Insurance Company's
("Lumbermen") Motion for Summary Judgment. The parties have fully
briefed the motions and they are ripe for summary judgment. For
the following reasons, we will grant both motions.
I. Background Facts
The background facts are undisputed. Plaintiff Calex Express,
Inc., ("Calex") provides transportation and carrier services.
(Pl. Stat. Facts in Opp. U.S. Bank Mot. Summ J. Ex. ("Exhibit") A
8). In November 2000, Calex subcontracted with Third Party
Defendant Owners Express, Inc. ("Owners") to ship cargo freight
for Toys `R Us, Inc. (Id. at 16-19). On November 9, 2000, the cargo freight was lost or stolen while
in Owners' possession. (Id. at 16-17). Owners had a policy
covering the loss with Lumbermen. (Def. Ex. B. In Supp. Summ. J.)
Included in this policy was an endorsement, which provided in
part, "In consideration of the premium stated in the policy to
which this endorsement is attached, the Company hereby agrees to
pay, within the limits of liability hereinafter provided, any
shipper of consignee for all loss of or damage to all property
belonging to such shipper or consignee." (Id.)
Pursuant to the policy, on February 20, 2001, Lumbermen issued
a check for $150,000 jointly payable to Owners and Toys `R Us and
drawn from an account with Defendant Bank of America. (Exhibit B,
"the check") On February 22, Owners presented the check endorsed
by Owners and Toys `R Us to Firstar Bank, a subsidiary of U.S.
Bank, and U.S. Bank presented the check to Bank of America the
same day. (Exhibit A 44-46, Exhibit B). The signature of the Toys
`R Us representative had been fraudulently endorsed. ("Ex. D").
Thereafter, Toys `R Us assigned all of its rights to the check
to Calex. (Exhibit F) Calex instituted the instant action against
Bank of America on May 2, 3003 to recover the proceeds. On July
21, 2004, Calex moved to amend the Complaint to add claims
against Lumbermen and U.S. Bank. On July 27, 2004, this Court
granted the Motion to Amend and Calex filed the Amended Complaint
on August 2, 2004. The Amended Complaint advances three Counts.
Counts I and II are conversion claims against U.S. Bank and Bank
of America, alleging that the acceptance of the check without
indorsement of Toys `R Us constituted conversion, negligence, and a breach of warranties of presentment
and transfer. Count III maintains that Lumbermen negligently
issued the check to two corporate payees.
This Court has jurisdiction pursuant to the diversity
jurisdiction statute, 28 U.S.C. § 1332. Calex is a Pennsylvania
corporation with a principal place of business in Pittston,
Pennsylvania. U.S. Bank is a national banking institution with
its registered address in Minneapolis, Minnesota. Bank of America
is a national banking institution with its registered address in
Concord, California. Lumbermen is an Illinois Corporation with
its principle place of business in Long Grove, Illinois. Because
we are sitting in diversity, the substantive law of Pennsylvania
shall apply to the instant case. Chamberlain v. Giampapa,
210 F.3d 154, 158 (3d Cir. 2000) (citing Erie R.R. v. Tompkins,
304 U.S. 64, 78 (1938)).
Granting summary judgment is proper if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law. See Knabe v.
Boury, 114 F.3d 407, 410 n. 4 (3d Cir. 1997) (citing FED. R.
CIV. P. 56(c)). "[T]his standard provides that the mere existence
of some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of
material fact." Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48 (1986) (emphasis in original). In considering a motion for summary judgment, the court must
examine the facts in the light most favorable to the party
opposing the motion. International Raw Materials, Ltd. v.
Stauffer Chemical Co., 898 F.2d 946, 949 (3d Cir. 1990). The
burden is on the moving party to demonstrate that the evidence is
such that a reasonable jury could not return a verdict for the
non-moving party. Anderson, 477 U.S. at 248 (1986). A fact is
material when it might affect the outcome of the suit under the
governing law. Id. Where the non-moving party will bear the
burden of proof at trial, the party moving for summary judgment
may meet its burden by showing that the evidentiary materials of
record, if reduced to admissible evidence, would be insufficient
to carry the non-movant's burden of proof at trial. Celotex v.
Catrett, 477 U.S. 317, 322 (1986). Once the moving party
satisfies its burden, the burden shifts to the nonmoving party,
who must go beyond its pleadings, and designate specific facts by
the use of affidavits, depositions, admissions, or answers to
interrogatories showing that there is a genuine issue for trial.
Id. at 324.
U.S. Bank and Lumbermen each argue that it is entitled to
summary judgment. We will consider each motion seperately.
A.U.S. Bank Motion
U.S. Bank argues that we should enter summary judgment because
Calex's claim is barred by the statute of limitations. It asserts
that Calex's claim accrued on February 22, 2001, when the check
was negotiated, and the three year statute of limitations expired
on February 22, 2004, five months before Calex joined U.S. Bank as a
defendant in this case. Pennsylvania law applies a three year
statute of limitations to Calex's claim for conversion and breach
of warranty. 13 PA. CONS. STAT. ANN. § 3118(g).
(g) Conversion, breach of warranty, and other
Division 3 actions. Unless governed by other law
regarding claims for indemnity or contribution, an
(1) for conversion of an instrument, for money had
and received or like action based on conversion; (2)
for breach of warranty; or
(3) to enforce an obligation, duty or right arising
under this division and not governed by this section;
must be commenced within three years after the cause
of action accrues.
13 PA. CONS. STAT. ANN. § 3118(g).
Calex urges that we apply the discovery rule and toll the
statute of limitations until June 7, 2002, when it became aware
that the check had been fraudulently endorsed. We find the
discovery rule inapplicable to this case. "[T]he discovery rule
does not apply to toll the statute of limitations for claims for
conversion of negotiable instruments. In the absence of
fraudulent concealment, such claims accrue and the statute begins
to run when the instrument is negotiated." Hollywood v. First
Nat'l Bank of Palmerton, 859 A.2d 472, 482 (Pa.Super.Ct. 2004)
In Menichini v. Grant, 995 F.2d 1224 (3d Cir. 1993), the
court predicted that, if faced with the issue, the Pennsylvania
Supreme Court would mechanically apply the statute of limitations
to claims for conversion of negotiable instruments and would
refuse to apply the discovery rule. There, the plaintiff was the
sole owner of Best Legal Services, which employed the defendant
as a bookkeeper and office manager. Id. at 1227. The defendant abused her position to forge the plaintiff's signature on company
checks, deposit the checks in her personal accounts, and alter
the company books to conceal the defalcation. Id. The defendant
brought suit after the expiration of the statute of limitations,
arguing that the plaintiff should not have the benefit of the
statute of limitations because her fraudulent behavior prevented
the discovery of her forgery. Id. at 1228-29. The court
rejected this argument, and held that the discovery rule did not
apply because the rule is "inimical to UCC [Uniform Commercial
Code] policies of finality and negotiability." Id. at 1230.
The utility of negotiable instruments lies in their
ability to be readily accepted by creditors as
payment for indebtedness. Checks must be
transferrable. Consequently, "in structuring the law
of checks we . . . seek to enhance the negotiability
of the commercial paper so that it may play its role
as a money substitute."
Id. at 1230-31
The Pennsylvania Superior Court has since joined the Third
Circuit in declining to apply the discovery rule to claims for
conversion of negotiable instruments. Hollywood,
859 A.2d at 482 (citations omitted). In Hollywood, the estate of Cletus J.
Hollywood sought to recover financial losses sustained when
Hollywood's daughter, Mary Ann Anderson, converted his assets
while he was under her care and suffering from dementia and
Alzheimer's disease. Id. at 473-74. Anderson depleted
Hollywood's assets by fraudulently signing checks drawn from his
accounts with the defendant banks. Id. Five years after the
last of the subject checks had been paid, Hollywood's estate
filed suit against the banks claiming negligent conversion under
UCC § 3-420 and unauthorized payment under UCC § 4-406. Id. at 474. The court found the claims barred by the
statute of limitations and declined to apply the discovery rule
even though Hollywood was mentally incapacitated and unable to
discover the fraud. Id. It noted that the majority of courts
mechanically apply the statute of limitations in the commercial
arena, and found Menicheni persuasive. Id. at 480-82. The
court considered the equities in favor of applying the discovery
rule, but found "the discovery rule `inimical to UCC policies of
[uniformity], finality, and negotiability.'" Id. (quoting
Menichini, 995 F.2d at 1231). When a negotiable instrument is
converted, the tort is complete "when the instrument is
negotiated, regardless of the plaintiff's ignorance of the
conversion." Hollywood, 859 A.2d at 482. Thus, the discovery
rule is inapplicable because the "need for expedition in
commercial transactions is best achieved by safeguarding
negotiability and finality of negotiable instruments and assuring
uniformity of applicable laws across state boundary lines." Id.
Plaintiff argues that Hollywood does not control our present
inquiry because Hollywood relied on Menichini, which addressed
a claim for violation of 13 PA. CONS. STAT. ANN. § 3419, whereas
Calex's claim is grounded in 13 PA. CONS. STAT. ANN. § 3420. We
find the difference immaterial. Hollywood addressed claims
pursuant to 13 PA. CONS. STAT. ANN. § 3420, the precise section
on which Calex grounds its claims, and found that the discovery
rule does not apply. Furthermore, to the extent that Calex's
count includes claims other than the conversion claim, we find
that the policies of uniformity, finality, and negotiability are
implicated, the Hollywood reasoning applies, and we will
mechanically apply the statute of limitations.
Calex also argues that we should decline to rely on the
Menichini court's prediction that the Pennsylvania Supreme
Court will mechanically apply the statute of limitations because
Menichini is a Third Circuit opinion, and Pennsylvania law
controls. Instead, Calex argues that we should rely on the
reasoning of Peaceman v. PNC Bank, 32 Pa. D. & C. 4th 369
(1996), and apply the discovery rule because the delay was the
result of "blameless ignorance." We will not apply the Peaceman
rule because Hollywood explicitly rejected reliance on
Peaceman in this context. Hollywood, 859 A.2d at 484.
Therefore, we find that the discovery rule does not toll the
statute of limitations on Count I, and we will therefore grant
summary judgment for U.S. Bank on this claim.*fn1
B. Lumbermen's Motion
Lumbermen argues that we should grant summary judgment on
Calex's negligence claim because Calex cannot establish a duty or
causation. In order to impose liability, Calex must establish:
the existence of a duty or obligation recognized by
law; a failure on the part of the defendant to
conform to that duty, or a breach thereof; a causal
connection between the defendant's breach and the
resulting injury; and actual loss or damage suffered
by the complainant.
T.A. v. Allen, 669 A.2d 360, 362 (Pa.Super.Ct. 1995) (quoting
Orner v. Mallick, 527 A.2d 521, 523 (Pa. 1987)). Calex argues that Lumbermen owed a duty to pay Toys `R Us that
it breached by issuing the check payable to both Toys `R Us and
Owners, and this breach caused the harm. We find that Lumbermen
owed no common law duty to Toys `R Us, and therefore we will
grant summary judgment. Furthermore, even if Lumbermen breached a
duty, the forgery was the superseding cause of the harm alleged.
Calex argues that Lumbermen owed a duty because Toys `R Us was
a payee under the endorsement to Owners' insurance policy. We
find that this duty sounds in contract, and cannot serve as the
basis for Calex's negligence cause of action.
In Pennsylvania, tort claims and breach of contract claims are
conceptually distinct. Etoll, Inc., v. Elias/Savion Advertising,
Inc., 811 A.2d 10, 14 (Pa.Super.Ct. 2002) (citing Bash v.
Bell Tel. Co., 601 A.2d 825 (Pa.Super.Ct. 1992)). "[A] claim
should be limited to a contract claim when `the parties'
obligations are defined by the terms of the contracts, and not by
the larger social policies embodied by the law of torts.'" Id.
(quoting Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc.,
247 F.3d 79, 104 (3d Cir. 2001)).
Where a party claims that an insurance company improperly paid
insurance proceeds, the action lies in contract, not tort. Ins.
Adjustment Bureau v. Allstate Ins. Co., 860 A.2d 1038, 1044
(Pa.Super.Ct. 2004). In Ins. Adjustment Bureau, after the
insureds' residence was damaged, they hired the plaintiff, a
public adjuster, to assist in handling the loss. Id. at 1040.
The insureds assigned to the plaintiff their monies due from the
insurance company. Id. The insurer issued a settlement check to the insured, but
did not include the plaintiff as a payee on the check. Id.
The plaintiff filed a conversion claim against the insurer to
recover the monies owed under the assignment. Id. The court
sustained a demurrer to the claim, noting, "Pennsylvania law 
has not allowed conversion claims to be based on a refusal to pay
insurance policy proceeds." Id. at 1040. The court reasoned,
"the essence of [the plaintiff's] claim is a breach of contract
action. . . . The contract claim is not collateral to the alleged
wrongdoing; rather, it lies at the center of [the plaintiff's]
Similarly, Calex argues that the endorsement was the sole
source of Lumbermen's duty, and thus its claim lies in contract.
The Complaint, as well as Calex's brief, clearly set forth a
negligence claim. Calex has identified no duty imposed by tort
law, and therefore we will grant summary judgment because Calex
cannot establish a genuine issue of material fact that Lumbermen
owed a duty.*fn2 2. Superseding Cause
Furthermore, we find that even assuming that Lumbermen owed a
duty, the forgery was the superseding cause of the harm.
Pennsylvania courts have adopted Restatement (Second) of Torts §
448 to address superseding causes. Ford v. Jeffries,
379 A.2d 111, 115 (Pa. 1977); Bryant v. Girard Bank, 57 A.2d 968, 974
The act of a third person in committing an
intentional tort of crime is a superseding cause of
harm to another resulting therefrom, although the
actor's negligent conduct created a situation which
afforded an opportunity to the third person to commit
such a tort or a crime, unless the actor at the time
of his negligent conduct realized or should have
realized that likelihood that such a situation might
be created, and that a third person might avail
himself of the opportunity to commit such a tort or
RESTATEMENT (SECOND) OF TORTS § 448.
Calex has presented no evidence that Lumbermen realized or
should have realized that its actions created the likelihood of
forgery or that a third party would avail itself of the
opportunity. In Bryant v. Girard Bank, 317 A.2d 968
(Pa.Super.Ct. 1986), the court analyzed a situation where forgery was
foreseeable for the purposes of Restatement § 448. Bradley and
Callie Bryant were a married couple who jointly insured their
home. Id. at 971. After their home was destroyed by a fire,
they entered into a contract with Young, a public adjustment
company. Id. The insurance company issued a check for the loss
payable to the Bryants jointly and to Young. Id. Thereafter, Mrs. Bryant's
attorney contacted the vice president of Young to inform him that
the Bryants had a domestic dispute. Id. The attorney instructed
Young that he and Mrs. Bryant were to be present when she signed
her name to the check, and that Young was not to release the
drafts unless Mrs. Bryant or her attorney was present. Id.
Following this warning, a representative of Mr. Bryant arrived at
Young's office with two of the drafts, which the vice president
signed. Id. at 971-72. Thereafter, Mr. Bryant forged Mrs.
Bryant's name on the back of each draft, and disappeared with the
proceeds. Id. at 972. Mrs. Bryant filed suit against Young,
alleging that it breached a fiduciary duty by endorsing and
forwarding the drafts despite advance notice that Mr. Bryant
might act adversely to her. Id. Young argued that Mr. Bryant's
behavior was a superseding cause of the harm to Mrs. Bryant.
Id. at 973. The court rejected this argument, reasoning that
the evidence of the warning to Young created a jury question as
to whether Young should have realized that Bryant would avail
himself of the opportunity to commit a tort or a crime. Id. at
In contrast, Calex has presented no evidence that Lumbermen had
any indication that a third party would avail itself of the
opportunity to commit forgery. Thus, under Restatement (Second) §
448, the forgery was a superseding cause of the harm. Therefore,
we find that even if Lumbermen owed a duty, Calex failed to
create a genuine issue of material fact that Lumbermen's actions
caused the alleged harm, and we will grant summary judgment. IV. Conclusion
For the reasons expressed above, we will grant summary judgment
for U.S. Bank on Calex's claim because it is barred by the
statute of limitations. We will grant summary judgment for
Lumbermen on Calex's negligence claim because it sounds in
contract, Lumbermen owed no duty imposed by tort law, and even if
Lumbermen did owe a duty, the forgery was the superseding cause
of the alleged harm. Calex's sole remaining claim is Count II
against Bank of America. Even though Calex has no remaining
claims against them, Lumbermen and US Bank will remain in this
case as defendants of pending cross claims. An appropriate order
AND NOW, to wit, this 22nd day of November 2005, it is hereby
ORDERED that Defendant U.S. Bank National Association's Motion
for Summary Judgment (Doc. 54) and Defendant Lumbermen's Mutual
Insurance Company's Motion for Summary Judgment (Doc. 57) are
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