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GREAT LAKES HIGHER EDUC. CORP. v. AUSTIN BANK OF C

October 28, 1993

Great Lakes Higher Education Corporation and Firstar Bank, Milwaukee, National Association, formerly known as First Wisconsin National Bank of Milwaukee, Plaintiffs,
v.
Austin Bank of Chicago, Defendant.


MAROVICH


The opinion of the court was delivered by: GEORGE M. MAROVICH

 FACTUAL BACKGROUND

 For the purposes of this motion to dismiss, the Court accepts as true the following factual allegations taken from Plaintiffs' complaint. Great Lakes is a Wisconsin not-for-profit corporation with its principal place of business in Madison, Wisconsin. First Wisconsin is a national bank with its principal place of business in Milwaukee, Wisconsin. Great Lakes was a customer of First Wisconsin and maintained a bank account there. Austin is a state bank with its principal place of business in Chicago, Illinois.

 Between October 1990 and January 1992, Great Lakes, as servicer, issued 224 checks (the "checks") drawn against lender's funds in the account of Great Lakes at First Wisconsin, payable to the order of various payees. The checks were issued to the payees as loan proceeds pursuant to a student loan application submitted by each payee who was certified by the InterAmerican Business Institute ("IBI") located in Chicago, Illinois. Shortly after the issuance of each check, it was presented for payment to Austin Bank without the endorsement of the named payee. Austin Bank accepted each check for purposes of collection and forwarded each check to First Wisconsin for that purpose. Austin received payment from First Wisconsin in the face amount of each check even though the endorsement signature of the payee was not on any of the checks.

 On February 27, 1992, First Wisconsin gave notice to Austin of its claim for breach of warranty by indicating that the checks lacked proper endorsement. First Wisconsin demanded that Austin refund to First Wisconsin the amount of the checks, a total of $ 273,152.88 plus interest. Austin failed to respond to this request for a refund, and Plaintiffs filed this suit.

 DISCUSSION

 When considering a motion to dismiss, we assume as true all factual allegations contained in the complaint and make all possible inferences in favor of the plaintiff. Gorski v. Troy, 929 F.2d 1183, 1186 (7th Cir. 1991). A motion to dismiss will not be granted unless "it appears beyond all doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). With these principles in mind, we proceed to analyze Austin's motion to dismiss. *fn1"

 Sufficiency of the Pleadings

 Austin argues that Plaintiffs failed to adequately plead damages because none of the counts in Plaintiffs' complaint specifies which one of the two Plaintiffs was damaged. Federal Rule of Civil Procedure 8(e)(2) allows a party to plead inconsistent statements either alternatively or hypothetically within a single count or defense, or in separate claims or defenses. However, Rule 8(e)(2) specifically states that "all statements shall be made subject to the obligations set forth in Rule 11." Id. Rule 11 requires that the signer of a pleading certify that "to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact." Fed. R. Civ. P. 11. Thus, a pleader may only assert contradictory statements of fact when the pleader legitimately is in doubt about the fact in question. Id.

 In the instant case, First Wisconsin charged the checks to Great Lakes' account. Thus, there are two mutually exclusive possibilities which may exist: either (1) First Wisconsin was not required to recredit Great Lakes for its loss of funds, so that Great Lakes is the proper plaintiff, or (2) First Wisconsin did recredit Great Lakes' account for its loss so that First Wisconsin has suffered the loss, and is the appropriate plaintiff here. Plaintiffs may not plead alternative arguments involving both the drawer and drawee as plaintiffs when it is clearly within their own knowledge which of them has suffered the loss of $ 273,152.88 to Austin. It is a violation of Rule 11 to withhold relevant factual evidence within the knowledge of the pleading party in order to gain the advantage of being able to plead more causes of action than are appropriate. Fed. R. Civ. P. 11. *fn2" This is also an inappropriate application of the alternative pleadings rule. Fed. R. Civ. P. 8(e)(2). Thus, with the exception of the counts dismissed with prejudice below, the remaining counts must be replead with greater specificity as to which party suffered the loss and to bring appropriate causes of action as to that party alone. *fn3"

 Count II: Negligence in the Presentment

 In its second count, Great Lakes alleges that Austin was negligent and breached its duty to exercise ordinary care under 810 ILCS 5/4-202 by accepting the checks without proper endorsement and sending them for presentment to First Wisconsin. Austin contends that because the harm to Plaintiffs occurred in the acceptance of the checks by Austin without proper authorization, rather than in the presentment process, § 5/4-202 does not apply here.

 Under the UCC, presentment means "a demand made by or on behalf of a person entitled to enforce an instrument (i) to pay the instrument made to the drawee or a party obliged to pay the instrument or, in the case of a note or accepted draft payable at a bank, to the bank or (ii) to accept a draft made to the drawee." 810 ILCS 5/3-501. Section 4-202 provides that: "A collecting bank must exercise ordinary care in . . . presenting an item or sending it for presentment." 810 ILCS 5/4-202(a)(1). Official Code Comment Two to this section states: "If the bank makes presentment itself, subsection (a)(1) requires ordinary care with respect both to the time and manner of presentment. If it forwards the item ...


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