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UCC Conversion Claim Displaced as Common-Law Negligence

Advance Dental Care, Inc. v. SunTrust Bank
Case No. AW-10-01286

by Gregory L. Arbogast, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In Advance Dental Care, Inc. v. SunTrust Bank, the United States District Court for the District of Maryland held that conversion claims under the UCC displace common-law negligence claims. As this is a case of first impression, the United States District Court looked to legal authority from other jurisdictions as well as Maryland law regarding payees who file suit against depository banks. Based upon that law, the United States District Court for the District of Maryland concluded that the Maryland Court of Appeals would find that conversion claims under the UCC displace common-law negligence claims.

Advance Dental Care, Inc. arose out of its employee’s fraud, whereby the employee stole approximately $400,954.04 from Advance Dental Care, Inc. (“Advance Dental”). The employee, Michelle Rampersad, took insurance reimbursement checks made out to Advance Dental and endorsed them to herself. Ms. Rampersad then deposited those checks in her SunTrust Bank (“SunTrust”) checking account. Advance Dental Care filed a Complaint against SunTrust on May 21, 2010, which alleged conversion under the UCC, negligence under the UCC, and common-law negligence. SunTrust filed a motion to dismiss the common-law negligence claim.

In SunTrust’s motion to dismiss, SunTrust argued that the UCC conversion claim displaced the common-law negligence claim. Therefore, SunTrust argued that Plaintiff was not entitled to make both a UCC conversion claim and a common-law negligence claim.

The Court recognized that this was a case of first impression. Maryland had not yet decided whether or not UCC conversion claims displaced common-law negligence claims. Therefore, the Court looked to other jurisdictions as to whether those jurisdictions have held that UCC conversion claims displace common-law negligence claims. A review of case law from other jurisdictions reveals that most other jurisdictions have found that UCC conversion claims displace common-law negligence claims.

Additionally, the Court analyzed Maryland law when drawers bring suit against depository banks. In Maryland, the UCC has not displaced common-negligence claims made by drawers against depository banks. The Court, however, noted that all of the cases upholding a drawer’s common-law negligence rights against a depository bank noted the lack of an adequate remedy under the UCC for such a situation. In this case, the UCC provides the remedy for conversion. Therefore, the Court held that since the payee has an inadequate remedy under the UCC, that statutory remedy displaces the payee’s common-law remedy.

In holding that the UCC conversion claim displaces the common-law negligence claim, the Court granted Defendant’s motion to dismiss the common-law negligence claim. Therefore, the case against SunTrust is only proceeding on the UCC conversion claim.


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