IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

CONTINENTAL FINANCE
COMPANY, LLC,

Plaintiff, C.A. No. Nl7C-()7-O()2 l\/H\/IJ CCLD

V.

TD BANK, N.A.,

Defendant.

Submitted: December 19, 2017
Decided: January 24, 2018

OPINION
Jamie L. Edmonson, Esq., Jessie F. Beeber, Esq., Patrick J. Boyle, Esq. (Argued),
Adam G. Possidente, Esq., Venable LLP Attomeys for Plaintiff Continental Finance
Company, LLC
AleXander D. Bono, Esq. (Argued), Ryan E. Borneman, Esq., Lynne E. Evans, Esq.,
Oderah C. Nwaeze, Esq., Macl<enzie l\/I. Wrobel, Esq., Duane Morris LLP,
Attorneys for Defendant TD Bank, N.A.
JOHNSTON, J.
FACTUAL AND PROCEDURAL CONTEXT

This is a negligence case arising out of an embezzlement scheme perpetrated
by a non-party to this suit. Plaintiff Continental Finance Company, LLC
(“Continental”) opened a business account and subscribed to electronic banking

services With Defendant TD Bank. In order to do so, Continental entered into a

Business Deposit Account Agreement and a number of master agreements With TD

Bank. ln a series of fraudulent transfers from Continental’s TD Bank account,
Continental’s Vice President of Accounting embezzled more than $6 million from
Continental, a crime to Which she pleaded guilty. Continental then brought this
action against TD Bank, alleging that TD Bank negligently failed to detect the
embezzlement scheme.

TD Bank now brings this motion to dismiss Continental’s complaint. TD
Bank argues that the negligence claim is barred by the parties’ contractual
obligations, by the economic loss doctrine, and because the UCC displaces a
common law negligence action under these facts.

MOTION TO DISM_ISS STANDARD

In a Rule l2(b)(6) motion to dismiss, the Court must determine Whether the
claimant “may recover under any reasonably conceivable set of circumstances
susceptible of proof.”l The Court must accept as true all Well-pleaded allegations2
Every reasonable factual inference Will be drawn in the non-moving party’s favor.3
If the claimant may recover under that standard of review, the Court must deny the

motion to dismiss.4

 

l Spence v. Funk, 396 A.2d 967, 968 (Del.l978).

2 Id.

3 Wilml`ngton Sav. Fund. Soc’v, F.S.B. v. Ana’erson, 2009 WL 597268, at *2 (Del. Super.) (citing
Doe v. Cahz'll, 884 A.2d 451, 458 (Del.2005)).

4 Spence, 396 A.2d at 968.

ANALYSIS

Continental argues that the Court cannot consider documents extraneous to
the complaint When considering this motion. It is indeed a “general rule that matters
outside of the pleadings should not be considered in ruling on a Rule 12(b)(6) motion
to dismiss.”5 That general rule does not apply, however, When “the document is
integral to a plaintiffs claim and incorporated into the complaint” or “When the
document is not being relied upon to prove the truth of its contents.”6 Plaintiffs may
not avoid this exception simply by declining to attach an otherwise fatal, integral
document. “[W]hen plaintiff fails to introduce a pertinent document as part of his
pleading, defendant may introduce the exhibit as part of his motion attacking the
pleading . . . .”7

Here, Continental asserts a simple negligence claim against TD Bank.
Though Continental declined to attach the relevant documents to its complaint, the
parties’ relationship is governed by contracts, Which'define the extent of TD Bank’s
liability.

Section 9.2 of the parties’ 2006 Master Agreement states that TD Bank may

 

5 Vanderbz`lt II/zcome and Growth Assocs., L.L.C. v. Arvidc'r/C}MB Managers, Inc., 691 A.2d 609,
612 (Del. 1996) (citing 111 re Santa Fe Pac. Corp. Shareholder Ll`tig., 669 A.2d 59, 68 (Del.
1995)).

6 ld. at 613.

7 Ash-Ramunno Assoc., Inc. v. Branner, 1993 WL 193216, at *2 (Del. Ch.) (quoting Lewis v.
Straetz, 1986 WL 2252, at *3 (Del. Ch.)).

be liable for acts of negligence.8 A later agreement narrows TD Bank’s liability.
Section 15.1 of the parties’ 2011 Cash Management Master Agreement limits TD
Bank’s liability only to “gross negligence, willful misconduct, or bad faith.”9

Even at the motion to dismiss stage, artful pleading cannot alter the undisputed
fact that clear, unambiguous, plain contract language defines the extent of TD
Bank’s liability. Continental cannot simply ignore the parties’ contracts and assert
tort claims to prevent the Court from considering agreements that are central to the
legal relationship of the parties. Where a contract specifically allocates risks
between the parties, the Court may consider the contract for purposes of a motion to
dismiss.

Section 15.1 of the 2011 Cash Management Master Agreement explicitly
allocates the risk between the parties. The 2011 Agreement bars tort claims not
brought under a theory of “gross negligence, willful misconduct, or bad faith.”lo
Continental’s complaint only alleges simple negligence, not “gross negligence,

willful misconduct, or bad faith.”ll Therefore, any claims grounded in simple

negligence arising after the execution of the 2011 Cash Management Master

 

8 Opening Br. Ex. A (“Unless due to Bank’s negligence or willful misconduct, Bank shall have
no liability to Company if the Services are utilized by . . . Company’s employee(s) . . . for a
purpose or in a manner not contemplated or allowed by this Master Agreement or the Rules.”).
9 Opening Br. Ex. B.

10 [a'.

11 Icl.

Agreement are barred.12

The complaint also must be dismissed because Continental has alleged a
common law negligence claim in an area of law governed by the UCC. “Common
law claims as they apply to the duties of a depository bank are displaced only to [t]he
extent that the UCC contains particular provisions regarding those duties.”13 The
policy underlying this rule is the recognition that the UCC promotes certainty in
commercial disputes “by allocating responsibility among the parties according to
whoever is best able to prevent a loss.”14

Sections 4A-201-203 of title 6 of the Delaware Code address the duties of
banks and customers when authorizing the sort of electronic transfers of funds at the
heart of this case. The statute provides a means for determining when such a transfer

is effective,15 lists factors for determining the commercial reasonableness of a bank’s

security procedure,16 and, most significantly, whether a bank is entitled to enforce

 

12 TD Bank also argues that the complaint should be dismissed under the economic loss doctrine.
“The economic loss doctrine provides that ‘where an action is based entirely on a breach of the
terms of a contract between the parties and not on a violation of an independent duty imposed by
law, a plaintiff must sue in contract and not in tort.”’ Ea’elstein v. Gola'stein, 2011 WL 721490, at
*7 (Del. Super.) (quoting Pinkert v. Olivieri, 2001 WL 641737, at *5 (D. Del.)). Because the
parties’ contracts in this case specifically contemplate certain tort claims, the economic loss
doctrine does not apply. See Rushing v. Wells Fargo Bank, N.A., 752 F. Supp. 2d 1254, 1263
(M.D. Fl. 2010) (finding the economic loss doctrine did not apply when the parties “recognized”
in an agreement that the defendant could be held liable for its own negligence).

13 Mahajjj) & Assocs., Inc. v. Long, 2003 WL 22351271, at *6 (Del. Super.).

14 Id. (quoting Amerz`can Airll`nes Employees Fed. Credl`t Union v. Martz`n, 29 S.W.3d 86, 92
(Tex. 2000)).

15 6 Del. C. § 4A-202(b).

16 6 Del. C. § 4A-202(c).

an unauthorized payment caused by a person entrusted by a customer to act on behalf
of the customer.17

Continental’s common law negligence claim is based on TD Bank’s alleged
failure to investigate, monitor the account, and provide Continental with sufficiently
detailed account statements_in other words, the reasonableness of and compliance
with TD Bank’s security procedures, questions that cannot be answered without
reference to the statute. This is a section of the UCC enacted to govern exactly this
type of dispute, crafted according to careful consideration of which party is better
positioned to minimize the risk of loss.18 A claim under a theory of common law
negligence might involve different considerations and could produce a result
contrary to the statute. Sections 4A-201-203 “establish[] the rights of the parties,”
therefore, “competing theories of liability are not permitted.”19

CONCLUSION

Continental’s simple negligence claims are barred by the clear and

unambiguous language of the agreements governing the parties’ relationship and are

preempted by the UCC. Continental’s complaint is hereby DISMISSED

 

17 6 Del. C. § 4A-203(a)(2).

18 See, e.g., 6 Del. C. § 4A-203, cmt. 3 (“The burden of making available commercially reasonable
security procedures is imposed on receiving banks because they . . . are in the best position to
evaluate the efficacy of procedures offered to customers to combat fraud. The burden on the
customer is to supervise its employees to assure compliance with the security procedure and to
safeguard confidential security information and access to transmitting facilities so that the security

procedure cannot be breached.”).
19 Mahajfy, 2003 wL 22351271, ar *6.

WITHOUT PREJUDICE.

Any negligence claims arising prior to 2011 are not barred by contract, but
are displaced by 6 Del. C. §§ 4A-201-203. Claims grounded in “gross negligence,
willful misconduct, or bad faith”ZO supported by particularized factual allegations are
not contractually excluded, but must be asserted pursuant to any relevant UCC

provisions.

IT IS SO ORDERED.

 
 

 

noray€ Mary M. Johnston

 

20 Opening Br. Ex. B.

