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Katz v. Belmont National Bank





Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Harold A. Siegan, Judge, presiding.


Arthur Katz, doing business as Montrose Municipal Market, brought this class action suit against defendant, Belmont National Bank. The class action was filed by Katz to recover funds that were deposited in the bank by Controls For Industry, Inc. (CFI). CFI provided payroll services to small businesses like Katz' by receiving and depositing checks from each business into its account at the bank and then issuing paychecks to each of the business' employees. CFI charged a fee for this payroll service. Approximately 136 businesses are alleged to have used CFI's payroll services.

In May of 1982, Katz forwarded a check to CFI, which in turn issued paychecks to Katz' employees. When the employees presented the checks for payment, they were dishonored by the bank for insufficient funds. It is alleged that the other members of the class and their employees were treated similarly. CFI filed for bankruptcy, and thereafter the plaintiff brought this suit.

In his complaint, Katz alleged: (1) that CFI held money belonging to him and other members of the class in trust; (2) that the bank "did in fact know, or should have known, the nature of C.F.I.'s business and the specific purpose of the deposits made into C.F.I.'s trust account, and the fiduciary relationship existing between C.F.I., the Plaintiff and other members of the class"; and (3) that the bank "unlawfully converted and disposed of the trust funds rightfully belonging to Plaintiff and other class members for its own use and purpose."

The bank filed a motion to dismiss the complaint for failure to state a cause of action in the circuit court of Cook County. At the hearing on the motion to dismiss, Katz' counsel stated that CFI had not withdrawn any money from or drawn any checks on its account other than the dishonored payroll checks but that over $1 million was missing from CFI's account; and since CFI and the bank were the only two parties with access to the account, the bank must have taken the money. The circuit court initially granted Katz' request for discovery of the bank's records, but when the bank strongly objected on the basis that the request was onerous, the circuit court granted the motion to dismiss for failure to state a cause of action. The court also denied plaintiff's request for leave to amend the complaint.

Plaintiff appealed to the appellate court. The appellate court reversed, with one justice dissenting. (130 Ill. App.3d 1094.) The majority of the appellate court held that the "[plaintiff's] complaint alleged a valid cause of action for conversion against defendant." (130 Ill. App.3d 1094, 1097.) We now reverse.

As the appellate court correctly noted, since we are dealing with the dismissal of a complaint for failure to state a cause of action, we must necessarily determine the legal sufficiency of the complaint. The complaint must "contain a plain and concise statement of the pleader's cause of action" (Ill. Rev. Stat. 1981, ch. 110, par. 2-603), and "such information as reasonably informs the opposite party of the nature of the claim or defense which he or she is called upon to meet." Ill. Rev. Stat. 1981, ch. 110, par. 2-612(b).

In Cook v. Askew (1975), 34 Ill. App.3d 1055, the court stated:

"It is well settled in Illinois that in determining whether a motion to dismiss was properly allowed, allegations of fact contained in the complaint must be taken as true (Edgar County Bank & Trust Co. v. Paris Hospital, Inc., 57 Ill.2d 298, 305, 312 N.E.2d 259, 262; Kuch & Watson Inc. v. Woodman, 29 Ill. App.3d 638, 641, 331 N.E.2d 350, 353), and all reasonable inferences therefrom should be construed in the plaintiff's favor. (See, e.g., Johnson v. North American Life & Casualty Co., 100 Ill. App.2d 212, 217, 241 N.E.2d 332, 335; Bishop v. Ellsworth, 91 Ill. App.2d 386, 391, 234 N.E.2d 49, 52.)" (Emphasis added.) 34 Ill. App.3d 1055, 1057.

In the instant case, even if we take all of the allegations of fact asserted by plaintiffs as being true, the plaintiffs have not stated a cause of action for conversion against the bank.

The appellate court stated:

"A complaint for conversion must allege plaintiff's right in the property and to immediate possession; a demand by plaintiff for possession; and unauthorized assumption of control or ownership by defendant over the property of plaintiff. (Farns Associates Inc. v. Sternback (1979), 77 Ill. App.3d 249, 395 N.E.2d 1103.) Plaintiff's complaint sufficiently alleged his right of ownership in the property when he stated that he gave the money to CFI solely for disbursement to plaintiff's employees. The pleadings indicate that plaintiff was not giving up his ownership rights but merely was entrusting his funds to CFI. * * *

We do not believe the fact that defendant's relationship with CFI was that of creditor and debtor and that defendant had no relationship with plaintiff and the other class members is dispositive of the present action." (Emphasis added.) 130 Ill. App.3d 1094, 1096-97.

We cannot agree with the appellate court that the absence of a relationship between the plaintiffs and the bank is ...

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