EngineAir, Inc. and JMA Rail Products, Inc., Appellants-Plaintiffs,
Centra Credit Union, Appellee-Defendant.
from the Jackson Superior Court The Honorable Bruce Markel
III, Judge Trial Court Cause No. 36D01-1704-CT-13
ATTORNEYS FOR APPELLANTS Hamish S. Cohen Sean P. Burke
Mattingly Burke Cohen & Biederman LLP Indianapolis,
ATTORNEY FOR APPELLEE Patrick J. Ruberry Litchfield Cavo, LLP
After Angela Kincaid ("Kincaid"), an employee
working for both EngineAir, Inc. ("EngineAir") and
JMA Rail Products, Inc. ("JMA"), was convicted of
having embezzled more than $500, 000 from the companies'
bank accounts, the companies sued Kincaid's depositary
bank,  Centra Credit Union ("Centra
Credit"). Citing to Indiana's version of the Uniform
Commercial Code ("UCC" or "the Act") and
common law negligence, the companies argued that Centra
Credit "failed to act with ordinary care when it cashed
over 105 fraudulent checks written by Kincaid on
EngineAir's, JMA's, and other related entities'
accounts." Appellants' App. Vol. 2
at 10. On Centra Credit's motion, the trial court
dismissed the companies' complaint for failure to state a
claim pursuant to Indiana Trial Rule 12(B)(6).
The companies raise one issue on appeal, which we restate as:
Whether the trial court erred when it dismissed the
companies' complaint for failure to state a claim under
Indiana Trial Rule 12(B)(6) after concluding that (1) Centra
Credit, as the depositary bank, owed the companies, as
drawers, no duty of care as a matter of law for the loss the
companies sustained when Kincaid deposited checks that she
had stolen from the companies, made out to herself as payee,
and, on which she had forged the signature of the
companies' president; (2) the UCC warranties created no
warranty or statutory obligation from Centra Credit to the
companies; and (3) Centra Credit's failure to report
Kincaid's extreme banking activity as suspicious did not
constitute a breach of duty.
and Procedural History
EngineAir and JMA (together, "the Companies"),
acting as "sister" corporations and located in
Jackson County, Indiana, are small, family-owned and-operated
manufacturing and supply businesses, with similar ownership
and management structures. Appellants' Br. at 6.
In their complaint, the Companies pleaded the following
facts. In the first quarter of 2013, the Companies and JMA
Railroad Supply Company ("JMA Supply"), a related
corporation, collectively hired Kincaid as their bookkeeper
and internal accountant. In that position, Kincaid was
responsible for billing, accounts payable, accounts
receivable, handling bank deposits, as well as other
"related financial matters." Appellants'
App. Vol. 2 at 12.
Within one month of being hired, Kincaid began embezzling
money from the Companies and from JMA Supply by
"cut[ting] checks to herself while fraudulently forging
the [Companies'] president's signature."
Id. Kincaid would then deposit those checks into her
personal bank account with Centra Credit. "Kincaid
started her fraudulent scheme slowly to evade
detection." Appellants' Br. at 7. For
example, in September, October, and December 2013, she
fraudulently deposited a total of four checks drawn on JMA
Supply's account, totaling $16, 712. We note that any
claims relating to these checks are time barred, and
therefore, JMA Supply is not a party to this action.
Kincaid's fraudulent activity increased rapidly, and in
May 2014, she deposited into her Centra Credit account seven
checks totaling $13, 950, all of which were written against
JMA's account. Appellants' App. Vol
2 at 12. Beginning in August 2014, Kincaid began
depositing numerous forged checks into her Centra Credit
account on an increasingly frequent basis. For instance, in
August 2014, Kincaid deposited seven checks, dated August 7,
8, 13, 20, 22, 26[, ] and 26, totaling $25, 300. Id.
Thereafter, the rate and amount of fraudulent checks
continued to increase. Id.
By April 2015, the last full month before Kincaid's
illegal activity was discovered, she deposited one or more
checks on April 1, 2, 7, 8, 13, 15, 16, 17, 21, 24, 27, 28,
and 30. Together, these checks totaled $116, 300.
Id. at 12-13. All of those checks were drawn on
EngineAir's account and deposited into Kincaid's
personal account at Centra Credit. In the ten months leading
up to May 2015, Kincaid deposited more than 100 fraudulent
EngineAir checks. Id. at 13. In total, Kincaid stole
more than $540, 450 from the Companies, all of which was in
the form of checks that Kincaid deposited into her personal
account with Centra Credit and then withdrew as cash
immediately after each check had cleared. Id. at 10,
On May 18, 2015, in the routine course of transferring funds
to pay a vendor, EngineAir's president learned that
EngineAir's checking account had a balance of only $2,
000; the financial records prepared by Kincaid reflected a
balance of $178, 000. Id. at 14. EngineAir evaluated
the account and discovered that Kincaid had been embezzling
money from the Companies' accounts. Kincaid was charged,
pleaded guilty, and was sentenced to forty-one months in
On April 11, 2017, the Companies filed their complaint
seeking damages from Centra Credit for the bank's
negligence in having accepted and deposited dozens of
fraudulent checks and allowing Kincaid to withdraw those
funds from her Centra Credit account. Appellants'
App. Vol. 2 at 11. The Companies sought damages
under the UCC and common law negligence. Id. at
On June 2, 2017, Centra Credit filed a Trial Rule 12(B)(6)
motion to dismiss for failure to state a claim. Centra Credit
argued that: (1) the Companies could not proceed, since under
the general rule, a bank does not owe a non-customer a duty
of care; (2) negligence cases, generally, are preempted by
the UCC; (3) under the UCC, Centra Credit owes no duty to the
Companies, and (4) recovery of monetary damages by the
Companies was precluded by the economic loss
doctrine. Id. at 23-32.
The Companies responded, arguing that Centra Credit owed the
Companies a duty of care pursuant to the UCC, particularly,
Indiana Code section 26-1-3.1- 405, the UCC's warranty
provisions, and Indiana negligence law generally.
Id. at 63-77. The Companies argued that, even if
Indiana were to adopt the general rule that banks do not owe
a non-customer a duty of care, "an award of damages, is
appropriate under the 'exceptional circumstances' of
this case as pled in the complaint because [Centra Credit]
accepted numerous checks totaling a large amount while not
following its own internal policies or federal
regulations." Id. at 64. The trial court heard
argument on August 7, 2017, and on August 23, 2017, it
entered an Order (the "Order") granting Centra
Credit's motion to dismiss. The Companies now appeal.
We review de novo a trial court's grant or denial of a
motion to dismiss for failure to state a claim, pursuant to
Trial Rule 12(B)(6), giving no deference to the trial
court's decision. Babes Showclub v. Lair, 918
N.E.2d 308, 310 (Ind. 2009). Such a motion tests the legal
sufficiency of the plaintiff's claim, not the facts
supporting it. Thornton v. State, 43 N.E.3d 585, 587
(Ind. 2015); Alford v. Johnson Cnty. Comm'rs, 92
N.E.3d 653, 659 (Ind.Ct.App. 2017).
Inasmuch as motions to dismiss are not favored by the law,
they are properly granted only "when the allegations
present no possible set of facts upon which the complainant
can recover." Mart v. Hess, 703 N.E.2d 190, 193
(Ind.Ct.App. 1998). Put another way, a dismissal under Rule
12(B)(6) will not be affirmed "unless it is apparent
that the facts alleged in the challenged pleading are
incapable of supporting relief under any set of
circumstances." Couch v. Hamilton Cnty., 609
N.E.2d 39, 41 (Ind.Ct.App. 1993).
Magic Circle Corp. v. Crowe Horwath, LLP, 72 N.E.3d
919, 922-23 (Ind.Ct.App. 2017) (quoting City of E.
Chicago, Ind. v. E. Chicago Second Century, Inc., 908
N.E.2d 611, 617 (Ind. 2009)). "In reviewing the
complaint, we take the alleged facts to be true and consider
the allegations in the light most favorable to the nonmoving
party, drawing every reasonable inference in that party's
favor." Hoosier Ins. Co. v. Riggs, 92 N.E.3d
685, 687 (Ind.Ct.App. 2018).
The Companies filed their complaint seeking damages from
Centra Credit "for Centra's negligence in accepting,
cashing[, ] and providing funds to [the Companies']
employee and Centra's customer[, ] Angela Kincaid. [The
Companies] sought damages pursuant to common law negligence
and [UCC] provisions." Appellants' Br. at
5. The trial court, having heard the arguments of counsel and
having reviewed the law, dismissed the Companies'
complaint pursuant to Trial Rule 12(B)(6) concluding:
1. Indiana has not established a duty of care between a mere
collecting bank and the customer of a payor bank;
2. There is no statutory law in Indiana that creates a
warranty or other statutory obligation from the Defendant
collecting bank to the Plaintiffs, individually or as
customers of their bank, the payor bank; and
3. Any failure of the Defendant bank to act in a commercially
reasonable manner or to report "Suspicious
Activity" to federal authorities is not a breach of any
established duty to the Plaintiffs.
Appellants' App. Vol. 2 at 8.
The Companies first contend that the trial court erred in
dismissing their complaint because, contrary to the trial
court's conclusion, a duty of care can exist between a
depositary bank and a non-customer drawer. The Companies
argue that "the question of whether a bank may owe a
non-customer a duty has been established," and each
court having addressed that issue "has found or presumed
that such a duty may exist." Appellants'
Br. at 13 (citing Auto-Owners Ins. Co. v. Bank
One, 879 N.E.2d 1086 (Ind. 2008)). While a
depositary bank may, under certain circumstances, owe a duty