Drosos & Assocs., PC v. TD Bank NA

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DROSOS & ASSOCIATES, PC, et al., Plaintiffs, v. TD BANK NA, Defendant.

Civil Action No. 23-1275 (SDW) (LDW)

United States District Court, D. New Jersey

February 29, 2024

OPINION

SUSAN D. WIGENTON, U.S.D.J.

Before this Court is Defendant TD Bank NA's (“TD Bank”) Motion to Dismiss (D.E. 29 (“Motion”)) Plaintiffs Drosos & Associates PC (“D&A”), Drosos Lorenzo & Associates PC (“DLPC”), and Evangelos Drosos's (“Mr Drosos,” together with D&A and DLPC “Plaintiffs”) First Amended Complaint (D.E. 26 (“FAC”)) for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6). Jurisdiction is proper pursuant to 28 U.S.C. §§ 1332 and 1367(a). Venue is proper pursuant to 28 U.S.C. § 1391. For the reasons stated herein, TD Bank's motion to dismiss is GRANTED, and the FAC is DISMISSED WITHOUT PREJUDICE.

I. FACTUAL BACKGROUND^[1]

This action arises from Plaintiffs' failed attempts to recover funds held in accounts at TD Bank. (See generally D.E. 26.) Plaintiffs^[2] are an individual and two accounting firms that offer their clients payroll management and escrow services. (Id.) Plaintiffs contracted with TD Bank to maintain over 30 accounts, one of which contained more than $1,000,000 held in escrow for Plaintiffs' clients. (Id. ¶¶ 2, 13, 15.) D&A also contracted with TD Bank for its eTreasury platform; for a monthly fee of $7,000, TD Bank provided a service that purported to simplify billing, hasten receipt of payments, accelerate revenue, and protect against fraud.^[3](Id. ¶ 19.) The FAC alleges, however, that TD Bank's eTreasury platform improperly linked all of Plaintiffs' accounts, which resulted in a “sweep” of all Plaintiffs' money-including money held in escrow- “into a single main D&A Account.” (Id. ¶¶ 35-37.) This alleged commingling was detrimental to the sanctity of the funds belonging to Plaintiffs and, ultimately, their clients. (Id. ¶ 37.) Despite Plaintiffs' objections, TD Bank did not untangle the accounts, which allegedly exacerbated issues that arose when Plaintiffs' accounts were exposed to fraud.

Throughout 2021, TD Bank identified instances of fraudulent activity in Plaintiffs' accounts. (Id. ¶¶ 21-27, 40-41.) In response, agents from TD Bank assured Plaintiffs that they were investigating the fraudulent activity, but they did not disclose details of their efforts. (Id. ¶¶ 42, 53, 65.) Eventually, on September 1, 2021, TD Bank froze and locked Plaintiffs' accounts, rendering them unviewable and only capable of receiving funds. (Id. ¶ 43, 45, 47.) Over the ensuing days, agents from TD Bank-namely, Ryan Jagrup and Noey Navas-exchanged correspondence with Plaintiffs regarding the accounts. (Id. ¶¶ 48-76.) According to Plaintiffs, however, Jagrup and Navas conducted shoddy investigations into the fraud on the accounts, failed to provide updates, avoided phone calls, denied that TD Bank had an obligation to keep Plaintiffs' funds segregated, and claimed that TD Bank could close the accounts at any time. (Id.) Plaintiffs continued attempting to engage with Jagrup and Navas until they were replaced by Charles Hyacinthe on or about September 27, 2021. (Id. ¶¶ 77-78.) This personnel change, Plaintiffs insist, was motivated by Jagrup's and Navas's misconduct. (Id. ¶¶ 78-79.)

Upon taking over for Jagrup and Navas, Hyacinthe informed Plaintiffs that he would be leading TD Bank's fraud investigation. (Id. ¶ 77.) Hyacinthe further assured Plaintiffs that all of TD Bank's past actions were done in an effort to protect Plaintiffs and their accounts. (Id. ¶ 82.) Shortly after replacing Jagrup and Navas, Hyacinthe sent Plaintiffs an email detailing that TD Bank had closed 29 of their accounts and explaining that only two of the accounts had a positive balance. (Id. ¶¶ 85, 87-88, 91.) In his email, Hyacinthe failed to disclose the account balances but requested that Plaintiffs provide the sources of the funds in the accounts.^[4] (Id. ¶ 91.) Plaintiffs generally allege that they cooperated with TD Bank and its agents throughout all stages of the investigations. (Id. ¶ 81.) Plaintiffs assert, however, that Hyacinthe-like Jagrup and Navas- failed to keep them informed of the investigations and “routinely ignored emails and calls.” (Id. ¶ 84.)

Plaintiffs allege that, to date, they have not received any further documentation, explanation, or access to their accounts or funds; their accounts remain frozen; and their accounts-which contained approximately $1.5 million prior to September 1, 2021-now hold only approximately $200,000. (Id. ¶¶ 93-94, 99-101, 112, 132-133.) Plaintiffs contend that, despite the accounts being frozen since September 1, 2021, fraudulent transfers continued to occur thereafter, including throughout September and October 2021.^[5]At bottom, Plaintiffs allege that TD Bank failed to adequately investigate the fraud on the accounts, impermissibly froze and locked the accounts, and generally mishandled the funds located in the accounts. (D.E. 26 ¶¶ 28, 31-37.) This misconduct, Plaintiffs insist, prevented them from transacting business and fulfilling financial obligations, subjected them to multiple lawsuits, and deprived them of funding their defense in various other suits. (Id. ¶¶ 33, 107, 116-117.)

II. PROCEDURAL HISTORY

On March 7, 2023, Plaintiffs filed a nine-count complaint, and moved for a preliminary injunction, against TD Bank. (D.E. 1 (“Complaint”); D.E. 2.) While the motion for a preliminary injunction was pending, TD Bank filed a motion to dismiss the Complaint pursuant to Rule 12(b)(6). (D.E. 15.) Plaintiffs opposed the motion to dismiss and cross moved to amend the Complaint. (D.E. 18-19.) On June 23, 2023, this Court denied Plaintiffs' motion for injunctive relief, and that same day, Magistrate Judge Leda D. Wettre granted Plaintiffs' request to amend the Complaint. (D.E. 23-25.) Five days later, Plaintiffs filed the FAC, alleging nine claims against TD Bank, including claims for negligence, breach of fiduciary duty, conversion, violation of the New Jersey Consumer Fraud Act (“NJCFA”), and various violations of New Jersey's Uniform Commercial Code (“UCC”). (D.E. 26.)

III. LEGAL STANDARD

An adequate complaint must be “a short and plain statement of the claim showing that the pleader is entitled to relief.” Rule 8(a)(2). This Rule “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level ....” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted); see also Phillips v. Cnty. of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008) (stating that Rule 8 “requires a ‘showing,' rather than a blanket assertion, of an entitlement to relief”). In addition, a plaintiff alleging fraud by a defendant must meet the “stringent pleading restrictions of Rule 9(b)” by pleading with particularity “the circumstances constituting fraud or mistake.” Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (quoting Fed.R.Civ.P. 9(b)). To satisfy Rule 9(b)'s heightened pleading standard, “the plaintiff must plead or allege the date, time and place of the alleged fraud or otherwise inject precision or some measure of substantiation into a fraud allegation.” Id. (citing Lum v. Bank of Am., 361 F.3d 2817, 224 (3d Cir. 2004)).

In considering a motion to dismiss pursuant to Rule 12(b)(6), a district court must conduct a three-step analysis. First, it must “tak[e] note of the elements a plaintiff must plead to state a claim.” Oakwood Lab'ys LLC v. Thanoo, 999 F.3d 892, 904 (3d Cir. 2021) (alteration in original) (quoting Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010)). Second, the court “disregard[s] threadbare recitals of the elements of a cause of action, legal conclusions, and conclusory statements.” Id. (quoting James v. City of Wilkes-Barre, 700 F.3d 675, 681 (3d Cir. 2012)). Third, the court assumes the veracity of all well-pleaded factual allegations, “constru[es] them in the light most favorable to the plaintiff, and draw[s] all reasonable inferences in the plaintiff's favor.” Lutz v. Portfolio Recovery Assocs., LLC, 49 F.4th 323, 328 (3d Cir. 2022). “If, after completing this process, the complaint alleges ‘enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of' the necessary elements of a claim, then it plausibly pleads a claim.” Id. (alteration in original) (quoting Twombly, 550 U.S. at 556).

Determining whether the allegations in a complaint are “plausible” is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). If the “well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct,” the complaint should be dismissed for failing to “show[] that the pleader is entitled to relief” as required by Rule 8(a)(2). Id.

IV. DISCUSSION

A. Common Law Claims (Counts One, Three, and Eight)

Plaintiffs assert three common law claims: negligence (Count One), breach of fiduciary duty (Count Three), and conversion (Count Eight). (See generally D.E. 26.) These claims will be dismissed because they are displaced by the UCC, and in any event, they are inadequately pleaded.

1. The Common Law Claims are Largely Displaced by the UCC

Much of Plaintiffs' claims arise out of TD Bank's alleged mishandling and improper funds transfers into and out of Plaintiffs' accounts. As such, they are displaced by Articles 4 and 4A of the UCC. New Jersey's Legislature enacted the UCC, N.J. Stat. Ann. 12A:1-101, et seq. in an effort “to simplify, clarify, and modernize the law governing commercial transactions; to permit the...