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Continental Finance Company, LLC v. TD Bank, N.A.

Superior Court of Delaware

December 10, 2018

CONTINENTAL FINANCE COMPANY, LLC, Plaintiff,
v.
TD BANK, N.A., Defendant.

          Submitted: November 14, 2018

         Upon Defendant's Motion to Dismiss Amended Complaint GRANTED.

          Jamie L. Edmonson, Esq., Daniel A. O'Brien, Esq., Jessie F. Beeber, Esq., Patrick J. Boyle, Esq. (Argued), Adam G. Possidente, Esq., Venable LLP, Attorneys for Plaintiff Continental Finance Company, LLC

          Alexander D. Bono, Esq., Ryan E. Borneman, Esq. (Argued), Lynne E. Evans, Esq., Oderah C. Nwaeze, Esq., Mackenzie M. Wrobel, Esq., Duane Morris LLP, Attorneys for Defendant TD Bank, N.A.

          OPINION

          HONORABLE MARY M. JOHNSTON, J.

         FACTUAL AND PROCEDURAL CONTEXT

         This case arises out of Roberta Czap's conduct in her role as Vice President of Accounting at Continental Finance Company ("Continental"). Czap embezzled money from Continental. Czap repeatedly diverted money from Continental's business account, held with Defendant TD Bank. Czap utilized automated clearing house ("ACH") services to place the funds in her personal bank account, also with TD Bank. Czap plead guilty in federal court. Continental brought this action against TD Bank, seeking damages for TD Bank's alleged failure to detect the embezzlement scheme.

         Continental and TD Bank had entered into a Cash Management Master Agreement ("Master Agreement") in 2011. The Master Agreement established certain security procedures. An "additional security feature" allowed one Authorized User to "create, edit, cancel, delete and restore ACH batches or wire transfer orders under his/her unique User ID, password and Token." Czap was the Authorized User and followed this security procedure by using a User ID, password, and Token.

         The Master Agreement states: that the "Customer agrees that all security procedures described in this Agreement and applicable Appendix are commercially reasonable..."; that the "Customer agrees that it shall be solely responsible for ensuring compliance with any security procedures established by Bank..."; and that "Bank shall have no liability for any losses sustained by Customer as a result of a breach of security procedures if Bank has substantially complied with the security procedures."

         The Master Agreement excludes TD Bank's liability for simple negligence, but contemplates the possibility of TD Bank's liability for "gross negligence, willful misconduct, or bad faith."

         TD Bank argues that Continental has not shown that TD Bank owed any duty separate from those created by the parties' agreements and that the duties are expressly and unambiguously established in those agreements. The agreements place the burden on Continental for preventing, monitoring, investigating, and reporting any fraudulent conduct. TD Bank contends that Continental owed: a duty to maintain procedures to safeguard against unauthorized transactions and to ensure that all ACH transactions incorporated dual control; a duty to monitor account activity; and a duty to be solely responsible for unauthorized ACH transactions.

         By Opinion dated January 24, 2018, [1] the Court dismissed Continental's Complaint without prejudice. The Court held that Continental's simple negligence claims were barred by the clear and unambiguous language of the agreements governing the parties' relationship and were preempted by the UCC.[2] The Court also held that any negligence claims arising prior to 2011 are not barred by contract, but are displaced by 6 Del. C. §§ 4A-201-203.[3] Claims grounded in gross negligence, willful misconduct, or bad faith supported by particularized factual allegations are not contractually excluded, but must be asserted pursuant to any relevant UCC provisions.[4]

         Continental filed an amended complaint on April 30, 2018. In addition to the original negligence claim, Continental alleges:

II. Gross negligence against TD Bank - failure to monitor ACH transactions.
III. Gross negligence against TD Bank - failure to provide adequate account statements.
IV. Gross negligence against TD Bank - failure to monitor the Continental account.
V. Gross negligence against TD Bank - failure to monitor the Czap account.
VI. Breach of the U.C.C. against TD Bank - failure to employ commercially reasonable ...

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