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Peoples Bank SB v. Reliable Fast Cash LLC

United States District Court, N.D. Indiana

July 31, 2018

RELIABLE FAST CASE LLC, d/b/a/ KCG, Defendant.



         Plaintiff Peoples Bank SB filed a Complaint [ECF No. 1] against Defendant Reliable Fast Cash asserting claims of conversion, implied bailment, and unjust enrichment. On November 1, 2017, the Defendant filed a Motion to Dismiss [ECF No. 21] for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Plaintiff responded [ECF No. 22] on November 15, 2017, and the Defendant replied [ECF No. 25] on November 22, 2017. This Motion is now fully briefed and ripe for review.


         The Plaintiff is an Indiana State Savings Bank and an Indiana corporation with its principal place of business in Munster, Indiana. The Defendant is a New York limited liability company. Non-party Portage Electric Supply Corporation (“Portage Electric”) is an Indiana corporation with its principal place of business in Portage, Indiana. Between 2012 and 2016, the Plaintiff extended credit to Portage Electric in excess of $490, 000 via various business loan agreements and promissory notes. Portage Electric executed a series of security agreements that granted the Plaintiff a security interest in “all inventory, chattel paper, accounts, equipment and general intangibles and accounts receivables” of Portage Electric. (Compl. ¶ 8, ECF No. 1.) The Plaintiff filed a UCC-1 Financing Statement, notifying the public that it held a properly perfected security interest in the following collateral:

All of debtor's assets now owned and hereinafter acquired including, without limitation, all accounts, inventory, equipment, general intangibles, documents, investment property, instruments, chattel paper and accounts receivable (as those terms are defined in the Indiana Uniform Commercial Code in effect on the date of this filing, or as amended or revised from time to time).

(Compl. ¶ 10.)

         The Plaintiff maintained a properly perfected, first-priority lien upon all of Portage Electric's accounts, assets, and accounts receivable. Unbeknownst to the Plaintiff, Portage Electric sold a percentage of its accounts receivable to the Defendant through a “Purchase and Sale of Future Receivables Agreement” in June 2015 (“Purchase Agreement”). Before entering into the Agreement, the Defendant allegedly performed an Indiana Uniform Commercial Code lien search, and the Plaintiff's lien was reported on that search. In October 2015, the Defendant began to debit Portage Electric's checking account on a regular basis as a means of collecting Portage Electric's accounts receivable and other collateral belonging to the Plaintiff.[1] The Plaintiff therefore asserts that the Defendant had actual knowledge of the Plaintiff's lien prior to entering into the Purchase Agreement. In the alternative, the Plaintiff asserts that the Defendant was grossly negligent in failing to perform a UCC lien search.

         Portage Electric defaulted on its obligations to the Plaintiff. The Defendant collected $99, 297.50 of Portage Electric's accounts receivable and assets in 2015, and $48, 546.00 of Portage Electric's accounts receivable and assets in 2016. According to the Plaintiff, the Defendant “acted willfully and/or with such gross negligence to indicate a wanton disregard” of the Plaintiff's rights to Portage Electric's accounts receivable and funds collected therefrom. The Plaintiff therefore brought this case, asserting three tort claims against the Defendant in its Complaint: conversion, breach of implied bailment, and unjust enrichment.


         Federal Rule of Civil Procedure 12(b)(6) allows a complaint to be dismissed if it fails to “state a claim upon which relief can be granted.” To survive a Rule 12(b)(6) motion, the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)). A plaintiff “must plead some facts that suggest a right to relief that is beyond the ‘speculative level.'” Atkins v. City of Chi., 631 F.3d 823, 832 (7th Cir. 2011) (citation omitted). “This means that the complaint must contain allegations plausibly suggesting (not merely consistent with) an entitlement to relief.” Lavalais v. Village of Melrose Park, 734 F.3d 629, 632-33 (7th Cir. 2013) (internal quotation marks and citations omitted). All well-pleaded facts must be accepted as true, and all reasonable inferences from those facts must be resolved in the plaintiff's favor. Pugh v. Tribune Co., 521 F.3d 686, 692 (7th Cir. 2008). However, pleadings consisting of no more than mere conclusions are not entitled to the assumption of truth. Iqbal, 556 U.S. at 678-79. This includes legal conclusions couched as factual allegations, as well as “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” Id. at 678 (citing Twombly, 550 U.S. at 555).

         When reviewing a motion to dismiss, a court normally considers only the factual allegations of the complaint and any reasonable inferences that can be drawn from those allegations. See Gessert v. United States, 703 F.3d 1028, 1033 (7th Cir. 2013). A court may also examine “documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice.” Geinosky v. City of Chi., 675 F.3d 743, 745 n.1 (7th Cir. 2012) (collecting cases); see also Adams v. City of Indianapolis, 742 F.3d 720, 729 (7th Cir. 2014) (“[D]ocuments attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim.”). In ruling on a Rule 12(b)(6) motion, if “matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56.” Fed.R.Civ.P. 12(d). In such a circumstance, “[a]ll parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.” Id. The court has discretion to either consider matters outside the pleadings and construe a defendant's motion as a motion for summary judgment, or exclude those matters from consideration and proceed pursuant to Rule 12. See Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir. 1998) (district court was within its discretion in choosing to handle the case as a motion to dismiss, rather than converting it to a motion for summary judgment).


         In support of its Motion to Dismiss, the Defendant attaches an Affidavit [ECF No. 21-1] executed by Mendy Chanin and the Purchase Agreement [ECF No. 21-2]. The Plaintiff, in support of its Response, attaches an Affidavit [ECF No. 22-1] executed by Daniel W. Moser. The Agreement is specifically referenced in the Complaint, and thus, the Court can consider it without converting the Motion to one for summary judgment. However, the parties' Affidavits were not attached or referred to in the Complaint, and neither party has argued that the Court should convert this Motion to Dismiss into one for summary judgment. The Court finds little to be gained by converting the Defendant's Motion to a motion for summary judgment, and, as such, the Court will exclude the parties' Affidavits and proceed to consider the Motion pursuant to Rule 12(b)(6). Cf. Rutherford v. Judge & Dolph Ltd., 707 F.3d 710, 713 (7th Cir. 2013) (holding that the district court erred by considering affidavit because it was “not part of the pleadings” and “not ‘referred to in the plaintiff[s'] complaint'” (quoting 188 LLC v. Trinity Indus. Inc., 300 F.3d 730, 735 (7th Cir. 2002))).

         While the Plaintiff's claims are common law cause of action, they are all based upon the theory that the Uniform Commercial Code (“UCC”), codified under Title 26 of the Indiana Code, barred the transfer of funds to the Defendant. The Defendant argues that the Plaintiff's theories of recovery fail as a matter of law because the UCC provides that a party ...

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