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Sterling Fire Restoration, Ltd., An Illinois v. Wachovia Bank N.A. N/K/A Wells Fargo Bank N.A.

October 16, 2012

STERLING FIRE RESTORATION, LTD., AN ILLINOIS CORPORATION, PLAINTIFF,
v.
WACHOVIA BANK N.A. N/K/A WELLS FARGO BANK N.A., JPMORGAN CHASE BANK N.A., CHUBB & SON, A DIVISION OF FEDERAL INSURANCE COMPANY, AND YORK RISK SERVICES GROUP, INC., DEFENDANTS.
YORK RISK SERVICES GROUP, INC., AND CHUBB & SON, A DIVISION OF FEDERAL INSURANCE COMPANY, COUNTER-PLAINTIFFS/ THIRD-PARTY PLAINTIFFS,
v.
STERLING FIRE RESTORATION, LTD., KNV INVESTMENT CORPORATION D/B/A EXECUTIVE PLAZA HOTEL AND BEST GARDENS RESTAURANT, AND MIDWEST RESTORATION SERVICES, COUNTER-DEFENDANT/THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Judge Feinerman

MEMORANDUM OPINION AND ORDER

Plaintiff Sterling Fire Restoration, Ltd., brought this suit under state law against Defendants Wells Fargo Bank N.A., JPMorgan Chase Bank N.A., Chubb & Son, and York Risk Services Group, Inc. Doc. 1. Sterling alleges that Chubb and York ("the Insurers") acted negligently by paying insurance proceeds to the insured party rather than to Sterling, to which the insured owed money, and also that Chubb tortiously interfered with Sterling's contract with the insured. Sterling further alleges that Wells Fargo and Chase ("the Banks") were negligent and violated § 3-110(d) of Uniform Commercial Code ("UCC"), 810 ILCS 5/3-110(d), by accepting and paying out on two checks that had been endorsed by only one of the checks' named payees. The Insurers filed a counterclaim against Sterling and a third-party claim against KNV Investment Corporation and Midwest Restoration Services. The Insurers and the Banks have separately moved to dismiss Sterling's claims under Federal Rule of Civil Procedure 12(b)(6). Docs. 12, 24.

The Insurers' motion is granted, and the Banks' motion is granted in part and denied in part. The negligence claims against the Insurers fail because the Insurers did not owe Sterling any relevant duty, and the tortious interference claim against Chubb fails because the complaint does not allege that Chubb intended to induce or otherwise cause the insured party to breach that party's contract with Sterling. Sterling may not proceed on its UCC claims against the Banks as to the first check because Sterling was not a named payee on that check, but it may proceed as to the second check, on which it was a named payee. Sterling's negligence claims against the Banks, which track its UCC claims, fail because the common law cause of action for negligence is displaced by the UCC under the circumstances of this case.

Background

The complaint's well-pleaded factual allegations, though not its legal conclusions, are assumed to be true on a Rule 12(b)(6) motion. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012); Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 763 (7th Cir. 2010). The facts are construed in the light most favorable to Sterling, the non-moving party. See Gomez v. Randle, 680 F.3d 859, 864 (7th Cir. 2012). In evaluating a Rule 12(b)(6) motion, the court must consider "the complaint itself, 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 Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). The court also must consider additional facts set forth in Sterling's opposition brief or supported by attachments to the brief, so long as those facts "are consistent with the pleadings." Ibid. The following sets forth the facts as favorably to Sterling as permitted by the complaint and other materials that may be considered on a Rule 12(b)(6) motion.

Sterling's business is the repair and restoration of buildings that have been damaged by fire or water. Doc. 1-1 at ¶ 1. In 2011, Sterling contracted with Violet Shim to provide these services for Shim's property, which had been damaged by a fire. Id. at ¶ 2. Sterling completed the work and fulfilled its obligations under its contract with Shim. Id. at ¶ 3.

Chubb is an insurance provider, and Shim's property was covered by a Chubb policy. Id. at ¶¶ 4-5. Chubb knew that Sterling had agreed to perform the repairs, and Chubb also knew that Sterling and Shim had contracted for Sterling to receive the full insurance proceeds paid by Chubb to Shim. Id. at ¶¶ 5, 7. The contract between Sterling and Shim stated that "Owner [Shim] hereby authorizes its insurance company [Chubb] to include Sterling as a payee on all checks issued under the insurance policy"; the contract did not require Chubb to include Sterling as a payee, and indeed the Insurers were not parties to the contract. Id. at p. 16. York's role was to act as Chubb's agent by issuing checks on Chubb's behalf to cover insured losses. Id. at ¶ 6. Like Chubb, York was aware of Sterling's contract with Shim, including Sterling's contractual entitlement to receive the insurance proceeds paid to Shim by Chubb. Ibid.

Sterling sent Chubb and York a letter directing them to include Sterling as a payee on any checks issued to Shim. Id. at ¶ 8. Chubb (acting through York) did not abide by that direction on the first check, for $118,259.46, which was made payable to "KNV Investment Corp d/b/a Executive Plaza Hotel & Best Gardens Restaurant & Foster Bank" and sent to Shim. Id. at ¶ 9 & p. 20. Shim endorsed the first check on KNV's behalf and presented it to Chase for payment; Chase accepted the check and sent it to Wells Fargo, which paid the full amount to Shim or KNV. Id. at ¶¶ 9-10. The other payee named on the first check, Foster Bank, did not endorse the check and was unaware that it had been presented for payment. Id. at ¶ 10. Sterling, which was not a named payee on the check, was unaware that the check had been issued. Ibid.

After Shim deposited the first check, Sterling informed Chubb and York that Shim had negotiated the check without Foster Bank's knowledge or consent and advised Chubb and York not to issue further checks to Shim or KNV because it appeared to Sterling that Shim did not intend to pay Sterling for the services Sterling had performed under its contract with Shim. Id. at ¶¶ 11-12. Despite Sterling's warning, Chubb (again through York) issued a second check, this one for $104,724.08, payable to "KNV Investment Corp dba Executive Plaza Hotel & Best Gardens Restaurant and Sterling Fire Restoration Ltd. and Midwest Restoration Services," and sent it to Shim. Id. at ¶¶ 13, 15; see also id. at p. 23. Sterling was a named payee on this check. The third named payee, Midwest Restoration Services, was one of Sterling's subcontractors; like Sterling, Midwest has not been paid for its work on Shim's property. Id. at ¶ 16. Shim endorsed the check in KNV's name and presented it to Chase, and it was paid by Wells Fargo. Id. at ¶ 14. At the time, Sterling and Midwest were unaware that the check had been issued; neither endorsed the check or consented to have it paid to Shim and KNV. Id. at ¶ 17.

The two checks, which total $222,983.54, are the entire insurance proceeds for the property damage repaired by Sterling, and Sterling's contract with Shim entitled Sterling to that money. Id. at ¶ 18. Shim has not complied with Sterling's numerous demands for payment. Id. at ¶ 20. Having struck out with Shim, Sterling brought this suit in state court against the Banks and the Insurers, id. at pp. 4-15, and Defendants removed the suit to this court, Doc. 1. The removal was proper. This court has diversity jurisdiction because the parties are completely diverse and the amount in controversy exceeds $75,000, see 28 U.S.C. § 1332(a), and no defendant is a citizen of Illinois, where the state court action was filed, see id. § 1441(b)(2).

Discussion

The parties do not explicitly address choice of law, but their briefs focus on Illinois law, so that is the law the court will apply. See McFarland v. Gen. Am. Life Ins. Co., 149 F.3d 583, 586 (7th Cir. 1998). The court will address Sterling's claims in turn.

I. Claims Against the Insurers

A. Negligence

Sterling alleges that the Insurers acted negligently by sending the checks to Shim, by making them payable to Shim's company, KNV, and by not naming Sterling as a payee on the first check. Sterling demanded that the Insurers include Sterling as a payee on all checks for the insurance proceeds, and after Shim deposited the first check, Sterling told the Insurers not to issue any further checks to Shim or KNV. Sterling believes that had the Insurers followed its instructions, Shim would not have been able to keep for herself the money that she owes to Sterling. Sterling also believes that the Insurers failed to use reasonable care when they disregarded its instructions.

"To establish a claim for negligence under Illinois law, a plaintiff must prove the existence of a duty of care owed by the defendant to the plaintiff, a breach of that duty, and an injury proximately caused by that breach." Swearingen v. Momentive Specialty Chems., Inc., 662 F.3d 969, 972 ...


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