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Empire City Capital Corp. v. Kessler et al.

2011 U.S. Dist. LEXIS 110543 (S.D.N.Y. Sept. 28, 2011).

ZEK’s bank client was successful in a sweeping federal court decision, applying Connecticut law, that dismissed the complaint at the pleading stage and explicitly rejecting what we believe was a wrongfully decided Connecticut lower court decision that had permitted a state court common law conversion claim in such circumstances. Plaintiff alleged that its dishonest employee stole from his employer by forging checks drawn on plaintiff’s account with another bank and depositing them to the credit of an account maintained by ZEK’s client. Plaintiff acknowledged that the UCC precluded its conversion claim but argued that a Connecticut state court decision permitted inclusion of a common law conversion claim in the complaint. ZEK convinced the federal district court that the Connecticut state court case relied on by plaintiff was wrongly decided and that the UCC’s § 3-420(a) conversion cause of action precluded a common law conversion claim, as the UCC “displaced” common law. ZEK also persuaded the district court that plaintiff, as a non-customer of ZEK’s bank client, was owed no duty that could give rise to a negligence cause of action and therefore it dismissed that claim as well. The Uniform Commercial Code, enacted to provide uniform rules for commerce across the United States, is threatened when courts make decisions based on common law concepts such as carelessness or negligence rather than the UCC’s uniform, everywhere applicable rules. The Empire City decision is significant as a positive step in the effort to uphold the uniformity of the UCC in displacing other, non-conforming, law.