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Peterboro Tool Co., Inc. Profit v. People's United Bank

January 31, 2012

PETERBORO TOOL CO., INC. PROFIT SHARING PLAN & TRUST
v.
PEOPLE'S UNITED BANK, SUCCESSOR IN INTEREST TO FLAGSHIP BANK & TRUST



The opinion of the court was delivered by: Paul Barbadoro United States District Judge

Opinion No. 2012 DNH 026

MEMORANDUM AND ORDER

Between 2007 and 2009, the fiduciary for the Peterboro Tool Co, Inc. Profit Sharing Plan and Trust ("the Plan") stole nearly $250,000 from the Plan's money market account at People's United Bank, successor in interest to Flagship Bank and Trust (collectively "the Bank"). The Plan brings suit against the Bank, asserting that the Bank should have detected its fiduciary's suspicious withdrawals and protected its funds from misappropriation. The Plan argues that the Bank is liable for (1) negligence; (2) breach of fiduciary duty; and (3) breach of a bailment agreement. The Bank moves to dismiss all claims, and for the reasons provided below, I grant the Bank's motion.

I.BACKGROUND

A. Facts

In 1970, Peterboro Tool Company, Inc. ("the Company") established the Plan as a non-contributory profit-sharing plan for the benefit of its employees. Since 1996, the Plan has held assets in a money market account and several certificates of deposit at the Bank. For the relevant time period, Bernard R. Mullan was the Plan's fiduciary as well as the accountant for the Company and the Plan. In his capacity as fiduciary, Mullan had access to and signatory power over Plan assets, including bank accounts.

In a series of thefts dating as far back as 1992, Mullan misappropriated the Plan's funds for his personal use. The Plan estimates that it has lost $634,467 in total. At issue in this case is Mullan's theft of approximately $249,900 from the Plan's money market account with the Bank.

Between October 15, 2007 and November 2, 2009, Mullan made 23 separate withdrawals from the money market account, ranging in size from $1,000 to $40,000. He made one withdrawal in late 2007, four withdrawals in late 2008,*fn1 and the remaining 18 withdrawals between June 29 and November 2, 2009. As with his prior thefts, Mullan concealed these 23 illicit withdrawals from the Company and the Plan by entering fraudulent information on the Plan's books.*fn2 He recorded the withdrawals as transfers to a non-existent account at another financial institution. Mullan buttressed the illusion by making annual entries listing the additional interest that had accrued on the fictitious account, and he would list the account's value as having increased accordingly. The Plan finally discovered that Mullan had looted its funds in November 2009, when it replaced Mullan as fiduciary and investigated its assets.

The Plan asserts that the Bank knew that Mullan was the Plan's fiduciary. It also draws attention to the particular manner in which two of Mullan's withdrawals were made. On July 10, 2009, Mullan withdrew $40,000 from the Plan's account, taking $8,000 in cash and placing $32,000 into his own personal account at the Bank. Ten days later, Mullan withdrew $10,000 from the Plan's account, taking half in cash and placing the other half into the same personal account. The Plan indicates that other transactions were conducted in a similar manner, asserting that it is prepared to amend its pleading to "include elaborate details . . . regarding how much of each withdrawal was cash and how much was deposited into Mr. Mullan's account at the Bank." Obj. to Mot. to Dismiss at 12 n.6, Doc. No. 7-1.

B. Procedural History

On November 12, 2009, the Company (acting on behalf of the Plan) brought suit against Mullan, and obtained an attachment in the amount of $225,000. Subsequently, Mullan filed for bankruptcy.

On August 2, 2011, the Plan filed suit against the Bank in New Hampshire Superior Court. Invoking this court's diversity jurisdiction, the Bank removed the case to federal court on September 15, 2011.

II.STANDARD OF REVIEW

In considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), I "accept as true the well-pleaded factual allegations of the complaint, draw all reasonable inferences therefrom in the plaintiff's favor and determine whether the complaint, so read, sets forth facts sufficient to justify recovery on any cognizable theory." Martin v. Applied Cellular Tech., 284 F.3d 1, 6 (1st Cir. 2002). To survive a motion to dismiss for failure to state a claim, the general standard under Rule 8 of the Federal Rules of Civil Procedure is that the complaint must "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it pleads "factual content that allows the court to draw the reasonable inference that the ...


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