AXH Air-Coolers, LLC v. Pioneer Bancorp, Inc.

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AXH AIR-COOLERS, LLC, Plaintiff, v. PIONEER BANCORP, INC.; PIONEER BANK; and JOHN DOES 1 THROUGH 10, Defendants.

No. 1:20-CV-1022 (FJS/CFH)

United States District Court, N.D. New York

November 22, 2021

APPEARANCES

SCHILLER, KNAPP, LEFKOWITZ & HERTZEL, LLP, Attorneys for Plaintiff.

KIVELL, RAYMENT & FRANCIS, P.C., Attorneys for Plaintiff.

DLA PIPER LLP (US), Attorneys for Defendants Pioneer Bank and Pioneer Bancorp, Inc.

JOHN DOES 1 THROUGH 10.

OF COUNSEL

GARY A. LEFKOWITZ, ESQ.

BRIAN J. RAYMENT, ESQ.

ROBERT J. ALESSI, ESQ.

JEFFREY D. KUHN, ESQ.

NO APPEARANCES.

MEMORANDUM-DECISION AND ORDER

Frederick J. Scullin, Jr., Senior United States District Judge.

I. BACKGROUND

Plaintiff, an Oklahoma-based company that manufactures pressure vessels used in the gas compression industry, alleges that it used the services of Southwestern Payroll Service, Inc. ("Southwestern Payroll") to pay its employees' payroll and the associated federal and state taxes. See Dkt. No. 1, Compl., at ¶ 8. Among other things, Plaintiff claims that it directed Southwestern Payroll to withdraw funds from Plaintiff's account, equal to the amounts owing for federal and state payroll taxes, and to deposit such funds in an account that Southwestern Payroll maintained until the funds would be used to pay those taxes. See Id. at ¶ 9. Plaintiff alleges that, upon information and belief, Southwestern Payroll transferred funds from its account to a tax account at Defendant Pioneer Bank (hereinafter collectively referred to with Defendant Pioneer Bancorp, Inc. as "Defendants"). See Id. at ¶ 10. Plaintiff further contends that, in August or September 2019, Defendants, acting through John Does 1 through 10^[1], removed funds from Southwestern Payroll's tax account, including $336, 126.26 that allegedly accounted for Plaintiff's payroll tax trust funds, and retained those funds for Defendants' own use and benefit instead of remitting them to the appropriate taxing authorities. See id.

Plaintiff commenced this action on August 31, 2020, alleging the following causes of action: (1) conversion, (2) unjust enrichment, (3) gross negligence, and (4) accounting. See Id. at ¶¶ 12-23. Plaintiff seeks to recover $336, 126.26 "plus penalties and interest already assessed and which may be assessed, interest, costs, attorney's fees[, and] punitive damages[.]" See Id. at Wherefore Clause. Pending before the Court is Defendants' motion to dismiss Plaintiff's complaint in its entirety pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. See Dkt. No. 7. Plaintiff opposes the motion and requests, in its response, that the Court grant it leave to amend its complaint. See Dkt. No. 13-1, Pl's Memorandum in Opposition, at 17.

II. DISCUSSION

A. Plaintiff's first cause of action for conversion

"New York law defines conversion as 'the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights.'" Ultra Dairy LLC v. Kondrat, 514 F.Supp.3d 452, 459 (N.D.N.Y. 2021) (quoting Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 403-04 (2d Cir. 2006) (quoting Vigilant Ins. Co. of Am. v. Hous. Auth., 87 N.Y.2d 36, 637 N.Y.S.2d 342, 660 N.E.2d 1121, 1126 (1995))). "To prove that claim out, a plaintiff must allege: '(1) the property subject to conversion is a specific identifiable thing; (2) plaintiff had ownership, possession or control over the property before its conversion; and (3) defendant exercised an unauthorized dominion over the [property], to the alteration of its condition or to the exclusion of the plaintiff's rights.'" Id. (quoting Moses v. Martin, 360 F.Supp.2d 533, 541 (S.D.N.Y. 2004) (citation and internal quotation marks omitted)).

"'Money deposited in a general account at a bank does not remain the property of the depositor. Upon deposit . . . the money deposited becomes the property of the depositary bank; the property of the depositor is the indebtedness of the bank to it. . . .'" In re HSBC Bank, USA, N.A., 1 F.Supp.3d 34, 53 (E.D.N.Y. 2014) (quoting Law Offices of K.C. Okoli, P.C. v. BNB Bank, N.A., 481 Fed.Appx. 622, 627 (2d Cir. 2012) (applying New York law) (citations and quotation marks omitted)). "As a general matter, a strong presumption exists under New York law that a deposit account is a general account and not a special purpose account." In re Lehman Bros. Holdings, Inc., 439 B.R. 811, 824 (Bankr. S.D.N.Y. 2010) (citing Swan [Brewery Co. Ltd. v. United States Trust Co. of N.Y.], 832 F.Supp. [714, ] 718-19 [(S.D.N.Y. 1993)] (collecting cases)).

"'It is well settled that an action will lie for the conversion of money where there is a specific, identifiable fund and an obligation to return or otherwise treat in a particular manner the specific fund in question.'" Tevdorachvili v. Chase Manhattan Bank, 103 F.Supp.2d 632, 643 (E.D.N.Y. 2000) (quoting Manufacturers Hanover Trust Co. v. Chemical Bank, 160 A.D.2d 113, 124, 559 N.Y.S.2d 704, 712 (1st Dep't 1990), appeal denied, 77 N.Y.2d 803, 568 N.Y.S.2d 15 (1991)); see Krys v. Sugrue (In re Refco Inc. Sec. Litig.), Nos. 07-md-1902 (JSR); 08-cv-3065 (JSR); 08-cv-3086 (JSR); 08-cv-7416 (JSR); 08-cv-8267 (JSR), 2010 U.S. Dist. LEXIS 33642, *121 (S.D.N.Y. Mar. 1, 2010) (stating that "[f]unds in a segregated account are sufficiently identifiable to be the subject of conversion" (citations omitted)). "By its terms, this principle does not apply to the bank-depositor relationship, because funds deposited with a bank do not constitute a specific and identifiable fund." Tevdorachvili, 103 F.Supp.2d at 643; see also Kirschner v. Bennett, 648 F.Supp.2d 525, 542 (S.D.N.Y. 2009) (stating that "the fact that funds are deposited for a specific purpose is not conclusive as to whether the funds were sufficiently specific and identifiable to support a claim for conversion" (citation omitted)). "Whether an account is general or specific depends upon the mutual intent of the parties." Swan Brewery Co. Ltd. v. United States Trust Co. of N.Y., 832 F.Supp. 714, 718 (S.D.N.Y. 1993) (collecting cases).

Defendants contend that Plaintiff's claim for conversion fails because deposits in a general account cannot be converted as a matter of law, and Plaintiff has not pled any facts to rebut the "strong presumption" that the Southwestern General Deposit Account - the account in which Southwestern Payroll maintained Plaintiff's funds - is a general deposit account. See Dkt. No. 7-1, Defs' Memorandum in Support, at 11-16. Plaintiff responds that it has properly pled that it permitted Southwestern Payroll to deposit "tax payments (trust funds)" into a special purpose account that Southwestern Payroll held with Defendants. See Dkt. No. 13-1 at 11-12 (citing Dkt. No. 1 at ¶¶ 8-10). Accordingly, the Court must determine whether Plaintiff has sufficiently alleged that the Southwestern General Deposit Account was a segregated, specific purpose account; and it must do so by looking at evidence of the parties' intent.

In its cause of action for conversion, Plaintiff alleges that Defendants deliberately and intentionally seized Plaintiff's funds and "have wrongfully converted $336, 126.26 of Plaintiff's monies, plus those additional amounts which may or will be identified during the course of this proceeding." See Dkt. No. 1 at ¶ 13. Plaintiff further alleges that Defendants knew or should have known that the funds were not Defendants' property and could not be used for any purpose other than remittal to the appropriate taxing authorities. See Id. at ¶ 14. More specifically with respect to the account, Plaintiff alleges that the funds were held in an account "maintained by [Southwestern] Payroll at a bank or financial institution," the account was a "tax account" with Defendants, and those funds constituted "payroll tax trust funds." See Id. at ¶¶ 9-10.

Plaintiff does not allege that Defendants maintained the funds in a separate, segregated account or that Defendants and Southwestern Payroll had anything other than a bank-depositor relationship.^[2] Plaintiff also fails to allege that it was Defendants' customer, let alone that Plaintiff and Defendants had an arrangement in which the tax funds would be separated from Defendants' general funds. Without any such allegations, Plaintiff cannot overcome the "strong presumption" that the funds were located in a general account with Defendants. Furthermore, since the Court must presume that the funds were in a general account, and money deposited in a general account becomes the property of the bank, the Court finds that Defendants owned the funds; and, therefore, Defendants could not convert the disputed $336, 126.26. Therefore, the Court grants Defendants' motion to dismiss Plaintiff's first cause of action for conversion.

B. Plaintiff's second cause of action for unjust enrichment

Unjust enrichment is "a New York common law quasi-contract cause of action requiring the plaintiff to establish '(1) that the defendant benefitted; (2) at the plaintiff's expense; and (3) that equity and good conscience require restitution.'" Myun-Uk Choi v. Tower Research Capital LLC, 890 F.3d 60, 69 (2d Cir. 2018) (quoting Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2016)) (footnote omitted); see Grasso v. Donnelly-Schoffstall, No. 1:20-CV-521 (LEK/DJS), 2021 U.S. Dist. LEXIS 61549, *13 (N.D.N.Y. Mar. 31, 2021). "[A] New York unjust enrichment claim requires no 'direct relationship' between plaintiff and defendant." Myun-Uk Choi, 890 F.3d at 69. "Rather, the requirement of a connection between plaintiff and defendant is a modest one[.]" Id. "'The essential inquiry in any action for unjust enrichment . . . is whether it is against equity and good conscience to permit the defendant to retain what is sought to be...