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HomeMy WebLinkAbout03-207 CivilALLFIRST BANK, Plaintiff : IN THE COURT OF COMMON PLEAS : OF CUMBERLAND COUNTY, :PENNSYLVANIA ORRSTOWN BANK Defendant : NO. 03-207 CIVIL TERM IN RE: PLAINTIFF'S PRELIMINARY OBJECTIONS TO DEFENDANT'S NEW MATTER AND COUNTERCLAIM Before HOFFER, P. J., and HESS, J. HOFFER, P.J.: Before the court are the preliminary objections of the plaintiff, AIIfirst Bank, to the New Matter and Counterclaim of the defendant, Orrstown Bank. AIIfirst commenced this suit against Orrstown regarding a $25,000 check that Orrstown gave to its vendor, Teaming Associates. Orrstown Bank answered the Complaint and raised a New Matter and Counterclaim, seeking damages for the alleged misrepresentations that were made to Orrstown. Subsequently, AIIfirst raised Preliminary Objections to Orrstown's New Matter and Counterclaim. AIIfirst contends that Orrstown cannot recover from AIIfirst for an alleged misrepresentation made by a party other than AIIfirst. FACTS In January 2002, Orrstown Bank entered into a contract with a vendor, Teaming Associates. Orrstown contracted Teaming to provide telephone, billing, audit, and management services to meet the telecommunication needs of Orrstown Bank. Under the contract, Teaming would consolidate Orrstown's telecommunications billings into one bill and then pay the individual bills. On October 15, 2002, Orrstown drew and issued a check in the amount of $25,238.22 to Teaming in payment of services rendered. On October 16, 2002, Teaming deposited this check with AIIfirst Bank. The complaint against Orrstown continues with the following allegations: On the same day, AIIfirst credited Teaming's account in the amount of the check and forward-presented the check to Orrstown. The check was presented to Orrstown in a cash letter. The cash letter was processed through the Federal Reserve Bank in Philadelphia (FRB). Orrstown received the check on or about October 17, 2002. However, Orrstown did not return the check nor send written notice of dishonor or nonpayment of the check within its "midnight deadline." As a result, AIIfirst claims Orrstown became accountable under U.C.C. 4- 302. On November 5, 2002, AIIfirst made a claim of late return with the Federal Reserve Bank, in Philadelphia. Upon receipt of the claim, the FRB credited AIIfirst's Reserve Bank in the amount of the check. Orrstown then filed a response on November 16, 2002 to the claim of late return with the Federal Reserve Bank, which then debited AIIfirst's Reserve bank account in the amount 2 of the check. In its response to the claim of late return, Orrstown made the blanket assertion that Teaming had defrauded it, and that Teaming had presented other checks to Orrstown that were returned for insufficient funds. Orrstown answered AIIfirst's Complaint and raised a New Matter and a Counterclaim, claiming that AIIfirst should be held liable for Fraud and Mispresentation based on alleged misrepresentations that were made either by AIIfirst to Teaming or by Teaming to Orrstown. Subsequently, AIIfirst raised Preliminary Objections to Orrstown's New Matter and Counterclaim, which are before the court today. The alleged facts involving the New Matter and Counterclaim of Orrstown are as follows: In the fall of 2002, Orrstown discovered that Teaming had a cash flow problem and had not paid the Sprint bill that it was under contract to pay on behalf of Orrstown. Teaming assured Orrstown that despite its cash flow problem, AIIfirst had set up a line of credit for Teaming. Allegedly, Teaming was told by AIIfirst that the line of credit would cover checks that Teaming wrote. Therefore, Teaming sent a check to Sprint on behalf of Orrstown. However, the check was returned for insufficient funds. Orrstown then agreed to pay Sprint directly and put a stop on the check that it had issued to Teaming. DISCUSSION The plaintiff, AIIfirst, has filed several Preliminary Objections. AIIfirst's main Preliminary Objections are as follows: 1. Orrstown cannot state a claim for fraud or misrepresentation based on alleged statements made by AIIfirst to Teaming. Orrstown, in its counterclaim, seeks damages for an alleged misrepresentation made by AIIfirst to Teaming. Orrstown contends that AIIfirst allegedly misrepresented to Teaming that a line of credit was available to cover the checks written on its business account. Orrstown claims that Teaming relied on this representation when it wrote checks on behalf of Orrstown to Sprint, which ultimately were not honored by AIIfirst. Therefore, Orrstown is attempting to state a claim for fraud which is based on Teaming's reliance on AIIfirst's alleged misrepresentation.~ However, it is well-settled law in Pennsylvania that a "plaintiff cannot state a claim for fraud based on a third party's reliance on a misrepresentation, even when it is made to influence the third party foreseeably to act in a manner detrimental to the plaintiff." Westwood-Booth v. Davey-Lowey, Ltd., 1999 U.S. Dist. LEXIS 4809, '14 (E.D. Pa. 1999) (citing Kurtz v. American Motorists Ins. Co, 1995 U.S. Dist. LEXIS 17417 (E.D. Pa. 1995). ] Teaming's admitted "cash flow problem" may indicate an important reason that Teaming was not joined as an additional defendant in this case. See Defendant's Brief Opposing Plaintiff's Preliminary Objections, page 1. 4 In Westwood-Booth, the plaintiff and the defendant entered into an agreement under which the defendant would aid in the acquisition and refurbishment of a plant owned by the plaintiff. Westwood-Booth, 1999 WL 219897 at '1. The defendant agreed to provide the recourse guarantee for 10 percent of the costs to acquire and refurbish, so long as the plaintiff obtained the 90 percent subject to guarantee of the United States Economic Development Administration (EDA). The plaintiff received a repayment guarantee from the EDA for $55 million, which was subject to the defendant's final agreement. Id. at *2. However, before finalizing the plaintiff's application to the EDA, the defendant's finance manager announced that the defendant was withdrawing from its commitment to acquire and refurbish. The reason given by the defendant's finance manager for withdrawing was an underhanded scheme to withdraw from the project so that the defendant could acquire a different company. However, as a result of this scheme, the EDA then also withdrew from the plaintiff's project. In its complaint, the plaintiff suggested that it could state a claim for fraud based on the reliance of the EDA on the misrepresentation. However, the court held that the plaintiff failed to state a cognizable claim for fraud. Id~ at *4. In its reasoning, the court in Westwood-Booth cited Kurtz v. American Motorists Insurance Co., 1995 WL 695111 (E.D. Pa.). In Kurtz v. American Motorists Insurance Co., 1995 WL 695111 at '1 (E.D. Pa.), the plaintiff bought an insurance policy from AMI, which falsely told AMI that it had issued a formal non-renewal notice to the plaintiff and the reason for non- renewal was a result of the plaintiff's accident record. As a result of AMI's representations, the plaintiff filed a complaint with the Pennsylvania Insurance Department, but it was dismissed because the AMI falsely represented to the Insurance Department that it had sent the plaintiff a non-renewal notice. However, the Insurance Commissioner found that AMI had not sent the plaintiff the notice and that, in not doing so, violated Pennsylvania law. Id~ The court held that the plaintiff had not stated a cause of action upon which relief may be granted for AMI's representation to the Insurance Department. Id~ at *4. One of the cases the court relied upon was Elia v. Erie Insurance Exchange, 581 A.2d 209 (Pa. Super 1990). In Elia, 581 A.2d 209, 211 (Pa. Super 1990), the plaintiff sued a physician who had been hired by an insurance company to examine the plaintiff. The plaintiff argued that physician's report submitted to the insurance company contained fraudulent statements. Consequently, the plaintiff claimed the insurance company terminated his benefit payments as a result of the report. Elia, 581 A.2d at 211. The court in Elia found that the plaintiff did not state a cause of action against the physician for fraud because the physician's examination was only done to enable the insurance company to better evaluate the plaintiff, and was not performed to treat the plaintiff, nor was it performed to induce the plaintiff to act. Id~ at 212. Similarly, in the present case, AIIfirst's alleged misrepresentation was only given to Teaming in providing Teaming a line of credit, and was not made by AIIfirst to induce Orrstown to act. It may have been passed onto Orrstown by Teaming, but the claim is not against Teaming. It is against AIIfirst, who cannot be legally responsible for an alleged misrepresentation made to a third party. These cases are analogous to the present case. In each case, a misrepresentation was made to a third party with the intent to influence the third party, or with the foreseeable consequence that the third party's action would be detrimental to the plaintiff. In each similar case, the court found that the plaintiff had not stated a cause of action for fraudulent misrepresentation. Therefore Orrstown has not stated a cause of action upon which relief may be granted. 2. Orrstown has not suffered any damages. In order to allege a cause of action in fraud, a plaintiff must prove damages. Scaife Co. v. Rockwell-Standard Corp., 285 A.2d 451,454 (Pa. 1971). However, Orrstown has not suffered damages as a result of AIIfirst's alleged misrepresentations because Orrstown alleges that it put a stop on the check that it had paid to Teaming. Subsequently, Orrstown paid Sprint the amounts that it already owned Sprint. As a result, Orrstown has not sustained any damages by issuing a check to Teaming which it ultimately dishonored. Having no damages, '7 Orrstown is either right or wrong in its actions, but there is no more to the case than that. ALLFIRST BANK, Plaintiff vi. ORRSTOWN BANK Defendant : IN THE COURT OF COMMON PLEAS : OF CUMBERLAND COUNTY, :PENNSYLVANIA : NO. 03-207 CIVIL TERM IN RE: PLAINTIFF'S PRELIMINARY OBJECTIONS TO DEFENDANT'S NEW MATTER AND COUNTERCLAIM Before HOFFER, P. J., and HESS, J. ORDER AND NOW, this day of ,2003, upon careful consideration of the plaintiff's Preliminary Objections to the defendant's New Matter and Counterclaim, IT IS ORDERED that the plaintiff's Preliminary Objections are sustained. By the Court, George E. Hoffer, P.J. Ramsay M. Whitworth, Esquire Gebhardt & Smith, LLP The World Trade Center 401 East Pratt Street, 9th Floor Baltimore, Md 21202 For AIIfirst Bank Ron Turo, Esquire 28 South Pitt Street Carlisle, PA 17013 For Orrstown Bank