Full opinion text
OPINION LOUIS H. POLLAK, District Judge. General Accident Insurance Company of America (“General Accident”) brought this action against Fidelity and Deposit Company of Maryland (“Fidelity”) seeking reimbursement under a blanket bond Fidelity had issued to General Accident. General Accident alleges that it lost over $2,000,000 as a result of a fraud perpetrated on it, in part, by some of its employees. The fraud alleged involved the issuance of drafts by General Accident without a proper basis— for example, for nonexistent claims, to nonexistent policyholders, or for excessive amounts. The drafts were negotiated at a number of different banks, passed through the chain of collection and reached First Pennsylvania Bank. Although the drafts were not drawn directly on an account at First Pennsylvania Bank, they were “payable through” that bank. First Pennsylvania Bank then obtained payment on those drafts from the drawee, General Accident. Fidelity filed a third-party complaint against the banks allegedly involved in the collection process. The third-party complaint alleges that if Fidelity is liable to General Accident, Fidelity will be subrogated to General Accident’s rights against these banks. Thus, the third-party complaint purports to assert, against the banks, those claims which General Accident could, itself, pursue against the banks in a direct action. The banks have also filed cross-claims among themselves. In particular, First Pennsylvania Bank has filed cross-claims against the banks below it on the collection ladder. As commonly occurs when a case reaches such substantial proportions — both in terms of number of parties and in terms of amount in dispute — a flurry of motions has been submitted seeking dismissal of these third-party claims. At the present time, the following motions have been fully briefed and await resolution. (1) The motion to dismiss Fidelity’s third-party claims against New Jersey Bank, N.A., Manufacturers Hanover Trust Company, Chase Manhattan Bank, National State Bank of Elizabeth, Fidelity Union Bank, Valley National Bank, Howard Savings Bank, Meadowlands National Bank, Citibank, N.A., First National Bank of New Jersey, Hudson City Savings Bank, Midlantic National Bank, Edgewater National Bank, Commercial Trust Company of New Jersey, The National Bank of North America, and Washington Savings Bank. This motion has since been joined by First Pennsylvania Bank, N.A., First Jersey National Bank, Ramapo Bank, and the Federal Reserve Bank of Philadelphia. (2) The motion to dismiss Fidelity’s third-party claims against First Jersey National Bank. This motion has been joined by The Trust Company of New Jersey, First Pennsylvania Bank, and the Federal Reserve Bank of Philadelphia. (3) The motion to dismiss Fidelity’s third-party claims against Community National Bank and Trust Company which has been joined by The Trust Company of New Jersey and First Jersey National Bank. (4) The motion to dismiss First Pennsylvania Bank’s cross-claims against New Jersey Bank, N.A., Manufacturers Hanover Trust Company, Chase Manhattan Bank, National State Bank of Elizabeth, Fidelity Union Bank, Valley National Bank, and Howard Savings Bank. That motion has been joined by First Jersey National Bank, Ramapo Bank, and The Trust Company of New Jersey. (5) The motion to dismiss First Pennsylvania Bank’s cross-claims against First Jersey National Bank which has been joined by Community National Bank and Trust Company. (6) The motion to dismiss First Pennsylvania Bank’s cross-claims against The Trust Company of New Jersey. (7) The motion to dismiss First Pennsylvania Bank’s cross-claims against Community National Bank and Trust Company. (8) The motion for summary judgment on Fidelity’s claims filed by New Jersey Bank, N.A., Manufacturers Hanover Trust Company, Chase Manhattan Bank, National State Bank of Elizabeth, Fidelity Union Bank, Valley National Bank, Howard Savings Bank, Meadowlands National Bank, Citibank, N.A., First National Bank of New Jersey, Hudson City Savings Bank, Midlantic National Bank, Edgewater National Bank, Commercial Trust Company of New Jersey, The National Bank of North America, and Washington Savings Bank. That motion has been joined by Ramapo Bank. This list of parties and motions is deceptive in its length. The first three motions, although supported by ostensibly distinct briefs, raise identical legal arguments. In fact, the briefs submitted by First Jersey National Bank and Community National Bank and Trust Company are, for the most part, reproductions of the brief submitted by New Jersey Bank, N.A. Furthermore, the motions to dismiss the cross-claims of First Pennsylvania Bank rely wholly upon the arguments presented in support of the motion to dismiss the third-party claims of Fidelity. Consequently, I will address the issues raised by all of these motions only once. Following the resolution of those issues, I will consider the arguments asserted in the motion for summary judgment filed by New Jersey Bank, N.A. I. MOTIONS TO DISMISS Unfortunately, in their rush to move this litigation to prompt resolution, the parties have overlooked the substantial restrictions upon the court’s authority to dismiss claims solely on the basis of the pleadings. As a result, most of the arguments raised in these motions suffer from the same defect — they seek a legal determination that Fidelity’s claims are groundless although such a legal determination is impossible without further factual development. A. Standard for Determination of a Motion to Dismiss Before I address the theories upon which these motions are based, it is appropriate to note the legal standard applicable to a motion to dismiss pursuant to Rule 12(b)(6). [A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). Professors Wright and Miller, in their treatise on federal civil procedure, describe the analysis in similar terms. The question therefore is whether in the light most favorable to plaintiff, and with every doubt resolved in his behalf, the complaint states any valid, claim for relief. 5 C. Wright and A. Miller, Federal Practice and Procedure § 1357 at 601 (1969) (footnotes omitted). Thus, the question before me is not whether Fidelity will prevail against the third-party defendants. That is a matter which is properly resolved upon the basis of proof, not merely upon the pleadings. As a practical matter, a dismissal under Rule 12(b)(6) is likely to be granted in the unusual case in which plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief. In other words, dismissal is justified only when the allegations of the complaint itself clearly demonstrate that plaintiff does not have a claim____ The complaint also is subject to dismissal under Rule 12(b)(6) when its allegations indicate the existence of an affirmative defense, but the defense must clearly appear on the face of the pleading. 5 C. Wright & A. Miller, Federal Practice and Procedure § 1357 at 604-06 (1969). B. Items Considered on Motion to Dismiss The motions to dismiss assume that the allegations in both the complaint filed by General Accident against Fidelity and the third-party complaint filed by Fidelity against the banks should be considered in determining whether Fidelity’s claims are viable. As a result, many of the arguments presented for dismissal of the third-party complaint rely upon “facts” presented in General Accident’s complaint which, according to the third-party defendants, show that Fidelity’s claims are legally unsupportable or are barred by certain affirmative defenses. General Accident’s complaint against Fidelity is appended to the third-party complaint. But that fact alone is not sufficient to tie Fidelity to the specific allegations made by General Accident. Nor does the fact that Fidelity’s third-party claims are based upon its right to subrogation to General Accident’s claims against the third-party defendants necessarily bind Fidelity to General Accident’s pleadings. The allegations in the General Accident complaint are not proven facts by which all parties would be bound but merely General Accident’s averments of its view of the circumstances surrounding this case. Third-party defendants have cited no authority for the proposition that Fidelity or any other party should necessarily be bound by the pleadings filed by another party over which it has no control. Of course, it is possible for one party to incorporate into its pleadings the pleadings of another party. Federal Rule of Civil Procedure 10(c) states: Statements in a pleading may be adopted by reference in a different part of the same pleading or in another pleading or in any motion. A copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes. This language distinguishes between “pleadings” and “instruments.” Instruments are documents which have some legal effect of their own. Pleadings, on the other hand, are not facts or even evidence of the existence of facts but are merely one party’s allegations of fact. While instruments such as contracts, leases, bonds, and letters, when appended to a pleading become “a part thereof for all purposes” and, thus, may override a pleading if such instruments contradict that pleading, prior pleadings are treated quite differently. For all or part of a prior pleading to be incorporated in a later pleading, the later pleading must specifically identify which portions of the prior pleading are adopted therein. A party may not be deemed to have admitted the allegations of a prior pleading merely by attaching that pleading to his own. The later pleading must adopt specific portions or all of the earlier pleading “with a degree of clarity which enables the responding party to ascertain the nature and extent of the incorporation.” Heintz & Co. v. Provident Tradesmens Bank & Trust Company, 29 F.R.D. 144 (E.D.Pa.1961) (attaching the original complaint to the third-party complaint did not incorporate the original complaint so as to prevent dismissal of the third-party complaint for failure to state a claim). Therefore, in ruling on the present motions to dismiss, I will determine the viability of Fidelity’s claims solely by reference to the allegations of the third-party complaint and those portions of the original complaint which are specifically adopted by Fidelity’s pleading. C. Choice of Law A further issue which is critical to a proper resolution of the motions to dismiss is, with regard to the state law claims asserted, which state’s law should apply. In the present case, the arguments for dismissal of the third-party complaint either assume that, no matter which state’s law applies, the claims at issue must be dismissed, or assume that it is clear what state’s law applies. The record currently before me does not support the latter assumption. Apparently, the fraudulent scheme of which General Accident complains occurred primarily in New Jersey and Pennsylvania. The parties to this action include General Accident, a Pennsylvania corporation; Fidelity, a Maryland corporation; and a number of banks, many of which are incorporated under the federal banking laws but whose principal places of business include New Jersey, New York, Florida and Pennsylvania. Apart from these “facts,” I have been provided with no information from which I can divine which states have a significant relationship to the issues in this dispute warranting the application of their substantive law. Under these circumstances, which state’s law is applicable to a particular legal issue is not beyond dispute. Because, when faced with a motion to dismiss, I must resolve all doubts in favor of the non-moving party, unless it is clear that Fidelity’s allegations could not state a valid claim under the laws of any of the potentially interested states, I cannot grant a motion to dismiss with regard to that claim. D. Federal Rule of Civil Procedure 11 Third-party defendants contend that the entire third-party complaint should be stricken for failure to comply with Federal Rule of Civil Procedure 11. That rule states, in pertinent part: The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal or existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation____ If a pleading, motion or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction ... Third-party defendants suggest that Fidelity has failed to satisfy Rule 11 because Fidelity is unwilling to adopt the allegations in General Accident’s complaint as its own and apparently has no basis outside of General Accident’s complaint for its claim against the third-party defendants. In addition, third-party defendants note that Fidelity appears to suggest in its third-party complaint that it does not intend to be bound by the allegations in that complaint. They contend that such a position clearly violates Rule ll’s requirement that all pleadings be based upon “reasonable inquiry” and that they be “well grounded in fact.” Upon careful review of the third-party complaint, I conclude that Fidelity has satisfied both the letter and spirit of Rule 11. The third-party complaint states that the allegations contained therein are the result of a review of the original complaint and the attachments thereto as well as a series of discussions with officials at General Accident. Third-party complaint at ¶ 4. Thus, Fidelity has made some investigation of the facts supporting its claims against the banks and is not acting solely upon the information in the original complaint. Although it might have been preferable for Fidelity to have conducted a more detailed, first-hand investigation of the facts surrounding the dispute before filing the third-party complaint, Fidelity was constrained both by Rule 11 and the local rules of this court which prescribe that a third-party complaint be filed within ninety days of the filing of the third-party plaintiff’s answer to the original complaint. Rule 11 does not contemplate that a party will conduct such a thorough investigation that discovery will be unnecessary. It is designed to deter the filing of claims and motions for which there is no basis in fact or law. E.g., Schneider v. Austin, 94 F.R.D. 44 (S.D.N.Y.1982). Under all of these circumstances, I cannot conclude that the extent of Fidelity’s investigation of the facts supporting its third-party complaint was insufficient under Rule 11. Furthermore, Fidelity’s partial reliance upon material in the original complaint or in exhibits to that document does not require Fidelity to adopt the allegations of the original complaint in their entirety in order to satisfy the Federal Rules of Civil Procedure. Obviously, the allegations in the third-party complaint must state valid claims to withstand the present motions. However, Fidelity has not asserted that it is in some manner exempted from the general principle that all litigants are bound by their pleadings. Fidelity has merely averred that many of the allegations of the third-party complaint are based upon its “information and belief.” Pleading on the basis of information and belief is generally permitted under the Federal Rules of Civil Procedure and is a practical necessity. How else can a pleader avoid the appearance of perjury when he is without direct personal knowledge regarding one or more of the allegations necessary to his claim and therefore must plead on less certain footing? Pleading on information and belief is a desirable and necessary expedient when matters that are necessary to complete the statement of a claim are not within the knowledge of plaintiff but he has sufficient data to justify interposing an allegation on the subject____ The same is true whenever the pleader must rely on information furnished him by others. 5 C. Wright & A. Miller, Federal Practice and Procedure § 1225 at 156 (1969). Thus, Fidelity’s statement that it is pleading on the basis of information and belief is consistent with its previous statement that the knowledge which forms the basis for the third-party complaint is derived primarily from discussions with personnel at General Accident. Consequently, there is no basis for the imposition of sanctions under Rule 11. E. Fraud Certain third-party defendants named in the fraud and conspiracy counts of the third-party complaint — Counts V and VI— argue that the third-party complaint fails to plead the factual basis for these claims with the specificity called for by Federal Rule of Civil Procedure 9(b). Those counts of the third-party complaint allege that the so-called “Knowledgeable Banks” — First Jersey National Bank, Community National Bank and Trust, and The Trust Company of New Jersey — are liable to Fidelity (as the subrogee of General Accident) for fraud, deceit, conversion and bad faith and that these banks were parties to a conspiracy to defraud General Accident. In particular, the third-party complaint states that authorized agents of these banks accepted the fraudulently obtained drafts, paid those drafts and presented the drafts to banks along the chain of collection for ultimate payment by General Accident. Fidelity alleges that those agents of the Knowledgeable Banks knew, at the time they received these drafts, that the drafts had been obtained by fraudulent means, or that the drafts were presented over fraudulent indorsements, or that the person presenting the drafts for payment did not have good title to the drafts. The drafts in question are identified in the third-party complaint as those listed in the Amended Proof of Loss which was attached as an exhibit to General Accident’s complaint. Fidelity further alleges that the conspiracy and/or fraudulent scheme began in 1979 and the existence of this conspiracy is evidenced by the fact that many of the drafts presented to these banks for payment were presented by the same individual and that many drafts were approved for payment by the same bank officer. Rule 9(b) of the Federal Rules of Civil Procedure states: [i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally. To prove fraud, a party must establish the following: (1) that defendant made representations to him with regard to material facts; (2) that those representations were false; (3) that the defendant knew that the representations were false at the time they were made; (4) that the representations were made with the intent that they would be acted upon; (5) that the person to whom the representations were made reasonably believed that the representations were true; (6) that that person relied upon those representations to his detriment. In order to plead fraud with specificity, it is usually necessary to allege the time, place and content of the misrepresentations and damages. However, it is not necessary to plead, detailed evidentiary matter to make out a valid fraud claim. 2A Moore’s Federal Practice II 9.03 (1984). See also id. at II 8.17[6] (notice pleading is all that is necessary for conspiracy claims). “All that is required is that the circumstances constituting the alleged fraud be pleaded with sufficient definiteness so as to advise the adversary of the claim which he must meet.” Cottman Transmission Systems, Inc. v. Dubinsky, 95 F.R.D. 351, 352 (E.D.Pa.1982). The specificity requirements of Rule 9(b) must be balanced against pleadings standard established in Rule 8 which directs that the pleadings present “a short and plain statement of the claim.” Therefore, if the fraud allegedly involved a course of conduct over an extended period of time or a series of transactions, it is not necessary to recite, in detail, the facts of each transaction of the fraudulent scheme. E.g., Kimmel v. Peterson, 565 F.Supp. 476 (E.D.Pa.1983). Fidelity’s third-party complaint fully satisfies these requirements. Although the allegations are based upon “information and belief,” which is not generally specific enough to satisfy Rule 9(b), such allegations are acceptable if the allegations are accompanied by a statement of the facts upon which the belief is founded. Id. at 482. The third-party complaint does this and presents quite detailed allegations of the circumstances surrounding the alleged fraud and conspiracy. Consequently, I will deny the third-party defendants’ motion to dismiss to the extent that it relies upon Rule 9(b). F. Statute of Limitations Third-party defendants also contend that many of Fidelity’s claims are barred by the applicable statutes of limitations. They note that this court must apply the choice of law principles of the state in which it sits when considering state law claims. Pennsylvania has adopted a borrowing statute which states: The period of limitation applicable to a claim accruing outside this Commonwealth shall be either that provided or prescribed by the law of the place where the claim accrued or by the law of this Commonwealth, whichever first bars the claim. 42 Pa.Cons.Stat.Ann. § 5521(b). Under this statute, third-party defendants argue, whether the negligence or conversion claims arose in Pennsylvania or New Jersey, those claims would be barred if outside of the shorter Pennsylvania statute of limitations of two years. 42 Pa.Cons.Stat.Ann. § 5524. See 2A N.J.Stat.Ann. 14-1 (six year statute of limitations). They also contend that the claims for breach of warranty are barred by 4-406 of the Uniform Commercial Code which has been adopted by both Pennsylvania and New Jersey. That provision reads, in pertinent part: (a) When a bank sends to its customer a statement of account accompanied by items paid in good faith in support of the debit entries or holds the statement and items pursuant to a request or instructions of its customer or otherwise in a reasonable manner makes the statement and items available to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or any alteration of any item and must notify the bank promptly after discovery thereof. (d) Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer (subsection (a)) discover and report his unauthorized signature or any alteration on the face or back of the item or does not within three years from that time discover and report any unauthorized indorsement is precluded from asserting against the bank such unauthorized signature or indorsement or such alteration. Third-party defendants assert that it is apparent from the face of the third-party complaint that any negligence or conversion occurred before 1981 — two years before the 1983 filing of the third-party complaint. They also argue that it is obvious from the dates in the third-party complaint and the original complaint that the three-year time in which a customer must report unauthorized indorsements has elapsed with regard to all of the drafts in this case. Fidelity responds that the third-party complaint presents no allegations from which such a legal conclusion can be drawn. In addition, Fidelity contends that the running of the statute of limitations in this action may be affected by the ongoing nature of the alleged torts, e.g., Biglioli v. Durotest Corp., 44 N.J.Super. 93, 129 A.2d 727 (1957), aff'd, 26 N.J. 33, 138 A.2d 529 (1958); Stuebig v. Hammel, 446 F.Supp. 31 (M.D.Pa.1977), or the fraudulent concealment of the wrongs. Swietlowich v. County of Bucks, 610 F.2d 1157 (3d Cir.1979); Hauptmann v. Wilentz, 570 F.Supp. 351 (D.N.J.1983). With regard to Fidelity's negligence and conversion claims, at this stage of the litigation, I can only dismiss these claims if it appears on the face of the complaint that these causes of action accrued outside of the applicable limitations period and that there is no basis on which Fidelity could suggest that the statute of limitations should have been tolled for a sufficient time to protect their claims. Thus, it is necessary to review the third-party complaint to decide whether it presents allegations from which I can determine the date on which the alleged negligence on the part of the various banks occurred. For 4-406 to bar Fidelity’s breach of warranty claims, I would need to determine that “statements” or “items” as defined by the Uniform Commercial Code covering the relevant drafts had been provided to General Accident more than three years prior to the filing of the third-party complaint. I would also have to find that all of the third-party breach of warranty claims involved the payment of drafts over forged indorsements. The third-party complaint states that the alleged conspiracy began in 1979. It also incorporates the list of drafts from the Amended Proof of Loss which was attached to the original complaint. That list contains the date on which each of the drafts was issued. No other dates are discussed in the third-party complaint. There is no information in the complaint from which I can determine with certainty the time period in which the various drafts were presented to the third-party defendant banks for payment or the dates on which General Accident paid out on these drafts. Therefore, I have no basis for concluding that the alleged negligence or acts of conversion clearly occurred outside of the limitations period. Furthermore, not only is there no mention in the pleadings of the dates on which General Accident received “statements” or “items” relating to the drafts at issue, there is nothing from which I can conclude that General Accident ever received such materials. Thus, I cannot reach the 4-406 argument raised by the third-party defendants. Third-party defendants appear to argue that the relevant dates for the statutes of limitations can be inferred from the dates which are presented in the third-party complaint. However, it is my obligation to resolve all doubts in favor of the non-moving party when addressing a motion to dismiss. Accordingly, I cannot apply the assumptions or inferences which third-party defendants suggest and I must deny third-party defendants’ motion to the extent that it rests upon this argument. G. Commercial Law Claims 1. Standing Third-party defendants assert that Fidelity lacks standing to bring claims against them for breach of warranty under Uniform Commercial Code 4-207. The warranties created by that provision of the Code run from a “customer or collecting bank who obtains payment or acceptance of an item and each prior customer and collecting bank” to “the payor bank or other payor who in good faith pays or accepts the item.” 4-207(1). Third-party defendants claim that this language bars a breach of warranty claim by anyone other than a payor bank, thus, precluding a claim by Fidelity or General Accident. However, that provision expressly states that the warranties protect both a payor bank and any “other payor” (“who in good faith pays or accepts the items.”). Thus, the question is whether General Accident, in whose shoes Fidelity purports to stand, qualifies as an “other payor” under 4-207. The third-party complaint alleges that the drafts at issue were payable “by or through” First Pennsylvania Bank. Third-party complaint at ¶ 43. If the drafts at issue were “payable by” First Pennsylvania Bank only, then it would be the payor bank to which the warranties established by 4-207 would run. But if the drafts were merely “payable through” First Pennsylvania Bank and were ultimately payable by General Accident only, then First Pennsylvania Bank would be a “collecting bank” with regard to those drafts and would owe General Accident the same warranties as the other collecting banks. U.C.C. 3-120. Under the latter circumstances, the drawee of the draft, General Accident, would also be the “other payor” to which the warranties of 4-207 would run. Kg., Home Indemnity Co. v. First National Bank of Waukegan, 659 F.2d 796, 798 n. 1 (7th Cir.1981); Aetna Casualty & Surety Co. v. Traders National Bank & Trust Co., 514 S.W.2d 860 (Mo.App.1974). Because, on a motion to dismiss, I must view the allegations in the third-party complaint in the light most favorable to the pleader, I cannot conclude that Fidelity lacks standing to assert warranty claims against the third-party defendants under 4-207. Extending their argument to face this possible basis for standing, the third-party defendants suggest that even if General Accident is an “other payor” for purposes of 4-207, public policy supports the dismissal of the conversion claims asserted in the third-party complaint. In support of this position, the third-party defendants cite Brighton, Inc. v. Colonial First National Bank, 176 N.J.Super. 101, 422 A.2d 433 (App.Div.1980), aff'd, 86 N.J. 259, 430 A.2d 902 (1981). See Western Union Telegraph Co. v. Peoples National Bank in Lakewood, 169 N.J.Super. 272, 404 A.2d 1178 (App.Div.1979). In that opinion, Judge Morgan of the Appellate Division of the New Jersey Superior Court concluded that a drawer of certain checks could not bring an action directly against banks in the chain of collection when the drawer was barred as a matter of law from suing the drawee — the payor bank. He noted that it would be inequitable to relieve from liability the drawee bank which dealt directly with the drawer and not the banks which had only an indirect relationship with the drawer of the cheeks. However, no such inequity exists in the present case. First Pennsylvania Bank, which presented the drafts to General Accident for payment, remains a party to this action. To date, no claims against that bank have been dismissed and the other third-party defendants do not suggest that there is any obvious legal basis for dismissing the claims against First Pennsylvania Bank which would not also result in dismissal of the claims against them. Thus, the potential inequity which concerned Judge Morgan is not present here. Furthermore, to allow the claims against First Pennsylvania Bank to proceed at the same time as the claims against the banks lower on the collection ladder would vindicate the policy of avoiding circuity of actions reflected in the liberal joinder provisions of the Federal Rules of Civil Procedure. Although there may be little practical value to Fidelity’s assertion of conversion as well as breach of warranty claims in this case, no strong policy arguments have been presented to support dismissal of the conversion claims at this early stage and I will allow them to remain. Third-party defendants argue, in their reply brief, that public policy favors division of the claims in this case into two separate suits — one involving General Accident and/or Fidelity against First Pennsylvania Bank and a later, separate, action by either First Pennsylvania Bank, General Accident, and/or Fidelity against the other banks. But to require such separation of the claims would cause significant duplication of effort between the two suits. In addition, many claims might be barred or the ability to present them severely prejudiced by the passage of time before the first action is concluded and a claim could be presented against the collecting banks. In light of the fact that the third-party defendants have failed to suggest any distinctions between themselves and First Pennsylvania Bank which would warrant such an unusual procedure, I will not dismiss Fidelity’s breach of warranty or conversion claims on this basis. 2. Fictitious payee defense The motions to dismiss also attack the viability of the Uniform Commercial Code claims on the ground that the facts alleged show that all warranty claims are barred by the “fictitious payee defense.” That defense is established in 3-405(1) of the Code. An indorsement by a person in the name of a named payee is effective if: (a) an imposter by use of the mails or otherwise has induced the maker or drawer to issue the instrument to him or his confederate in the name of the payee; (b) a person signing as or on behalf of a maker or drawer intends the payee to have no interest in the instrument; or (c) an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no such interest. This provision shifts the loss from certain types of forgeries to the party who issued the draft because, under the circumstances described in the three subsections of 3-405(1), the party issuing the draft is in a better position to recognize and avoid the forgery. J.J. White & R.S. Summers, Uniform Commercial Code § 16-8 (2d ed. 1980). In support of this contention, third-party defendants point to the Amended Proof of Loss attached to the original complaint. That document recites General Accident’s perception of how the fraudulent scheme which resulted in this action operated. It presents the following scenarios of the methods used: legitimate claim files were assigned to a cooperative independent appraisal firm who would intentionally overstate the estimated cost of repairing the automobiles involved. Personnel within the company would not question the excessive payments. (The excess amounts presumably would be divided between the automobile body shops involved and the conspirators.) information concerning fictitious events of loss would be provided by persons outside the company. This information could relate to policies on previously damaged, salvage or non-existent (other than legal title) vehicles, which policies were originated solely for the purpose of defrauding the company. The fictitious information could also relate to legitimate policyholders whose “involvement” was without their knowledge. In some cases policyholders who knowingly involved themselves submitted fictitious and legitimate claims, utilization of legitimate claim files on which no payments had ever been made (so-called “closed without-payment” or CWP files). Such files are commonplace in an automobile damage claim unit and usually result from a policyholder’s involvement in an accident which is not his fault. The insurance company of the at-fault person settles directly with our policyholder and no payment is made by us. Such files may contain many of the documents necessary to support a legitimate claim. Payments were issued to parties in such claims who never received the payments from GA. instruction of a draft-typist to prepare and sign drafts without preparation of any file documents, supporting entries, reports, etc. Amended Proof of Loss at 3. Third-party defendants argue, first, that the drafts which were issued for amounts greater than the actual loss or for nonexistent claims would not create breach of warranty liability on the part of the banks. They contend that because all of these drafts presumably would have been presented to the banks without material alterations, and with valid indorsements and signatures, there can be no basis for breach of warranty liability on the part of these banks. Second, third-party defendants assert, those drafts which were presented to them with forged indorsements are the result of the type of conduct described in 3-405. In other words, those drafts were issued because an impostor induced General Accident to issue the draft to a nonexistent payee or because a General Accident employee provided General Accident with names of real policyholders but intended those drafts to come into the possession of himself and his co-conspirators. In either case, third-party defendants contend, the indorsements of the named payees on the drafts would be effective under 3-405 and the banks could not be held liable for the fact that the indorsements were not those of the actual payees. Although it is possible that, when the facts surrounding this litigation are fully developed, third-party defendants will be able to establish that 3-405 precludes liability, I cannot so conclude on the basis of a motion to dismiss. The Amended Proof of Loss, like the original complaint, does not bind Fidelity for purposes of a motion to dismiss. These documents are only considered part of the allegations in the third-party complaint to the extent that they are incorporated by reference in that pleading. The third-party complaint does refer to the Amended Proof of Loss but solely in order to identify the particular drafts which were allegedly issued as part of the scheme. Fidelity’s complaint also mentions General Accident’s view of how the fraudulent scheme operated. But the counts of the third-party complaint which allege conversion and breach of warranty base those claims solely upon the alleged acceptance of drafts by third-party defendants over forged indorsements. Drafts issued in amounts in excess of the actual claims or for nonexistent claims are not at issue in this case except to the extent that those drafts were also presented and paid over forged indorsements. Therefore, there is no need to dismiss claims for breach of warranty on the ground that some of the claims presented involve no forgery of indorsements. Third-party defendants’ assertions that they cannot be liable for accepting any of the drafts over forged indorsements because all of the drafts fall within the categories established in 3-405(1) fare no better. First, although our Court of Appeals has noted that the protections from liability embodied by 3-405(1) should be read relatively broadly to effect the purposes of that section, New Amsterdam Casualty Company v. First Pennsylvania Banking & Trust Company, 451 F.2d 892 (3d Cir.1971), the particular facts surrounding the issuance and presentation of the drafts determine whether the transaction falls within the terms of 3-405(1) or not. For example, subsection (c) of 3-405(1) only makes a forged indorsement effective if the employee of the drawer of the draft “supplied” the name of the payee and “intend[ed] the latter to have no ... interest” in the draft. Also under subsection (a), it is necessary to determine whether the drawer of the draft was “induced” by an impostor to issue the draft. At the present stage of this action, the facts are not sufficiently developed to allow a definitive conclusion that the banks can bear no liability for acceptance of drafts over forged indorsements because all drafts necessarily fall within one of the categories of 3-405(1). Second, the third-party complaint states that some of the drafts in question had more than one indorsement. Thus, even if the indorsement of the payee is rendered effective under 3-405(1), abrogating liability on the part of the banks for breach of warranty with regard to that signature, I have no evidence that warranties regarding the other indorsements were not breached. Third, the Uniform Commercial Code contains a general requirement of good faith on the part of all subject to it. Consequently, those courts addressing the issue consistently note that bad faith on the part of a bank precludes the imposition of the “fictitious payee defense” or creates liability notwithstanding the applicability of the “fictitious payee defense.” E.g., Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Chemical Bank, 57 N.Y.2d 439, 456 N.Y.S.2d 742, 442 N.E.2d 1253 (1982). Thus, at least with regard to those third-party defendants who allegedly defrauded General Accident, an unresolved issue of fact exists as to their good faith which precludes dismissal of the claims against them under the “fictitious payee defense.” In addition, some courts have held that negligence alone on the part of a bank will not defeat the protection provided by 3-405(1). E.g., Western Casualty & Surety Co. v. Citizens Bank of Las Cruces, 676 F.2d 1344 (10th Cir.1982); Prudential Insurance Company v. Marine National Exchange Bank, 371 F.Supp. 1002 (E.D.Wis.1974); General Accident Fire & Life Assurance Co. v. Citizens Fidelity Bank & Trust Co., 519 S.W.2d 817 (Ky.1975); Brighton, Inc. v. Colonial First National Bank, 176 N.J.Super. 101, 422 A.2d 433 (1980), aff'd 86 N.J. 259, 430 A.2d 902 (1981); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Chemical Bank, 57 N.Y.2d 439, 456 N.Y.S.2d 742, 442 N.E.2d 1253 (1982) ; New York City Board of Higher Education v. Bankers Trust Company, 86 Misc.2d 560, 383 N.Y.S.2d 508 (1976). However, some commentators have argued that a failure to observe reasonable commercial standards should, alone, preclude the assertion of the “fictitious payee defense.” J.J. White & R.S. Summers, Uniform Commercial Code § 16-8 (2d ed.1980). Because the issues noted above make it impossible to determine whether the “fictitious payee defense” bars Fidelity’s breach of warranty claims. I need not address the question whether negligence alone on the part of any of the third-party defendants would bar the “fictitious payee defense” in this case. The motions to dismiss also suggest that if the Uniform Commercial Code claims against third-party defendants cannot be dismissed at this time, the negligence claims in Count III should, in any event, be dismissed because the negligence of the banks could not override the “fictitious payee defense.” But, as just discussed, the effect of the banks’ negligence upon the “fictitious payee defense” is not a settled question in the courts of all of the states whose law is potentially applicable. Also, the negligence of a bank is relevant to the availability of other defenses to the breach of warranty claims under the Code. For example, the defenses in 3-406 and 4-406 are only available to banks which act in good faith and “in accordance with reasonable commercial standards.” Furthermore, 1-103 of the Code specifically preserves common law rights in addition to the rights created by the Uniform Commercial Code except to the extent that such common law claims are directly displaced by the Code. Whether a negligence claim is directly displaced by the Code in this case will turn, in part, upon the likely applicability of the “fictitious payee defense” and a future determination of the effect of negligence upon the availability of that defense. See Western Casualty & Surety Company v. Citizens Bank of Las Cruces, 676 F.2d 1344 (10th Cir.1982). See also Girard Bank v. Mount Holly State Bank, 474 F.Supp. 1225 (D.N.J.1979) (the availability of a common law negligence claim depends upon the relationship between such a claim and the Code provisions applicable to the facts of the case). Thus, I will allow the negligence count to remain in the third-party complaint at this time. 3. Other statutory arguments Mixed within the other, potentially more substantial, legal arguments for dismissal of the Uniform Commercial Code claims against them, third-party defendants suggest that 3-406 of the Uniform Commercial Code bars Fidelity’s claims. 3-406 states: Any person who by his negligence substantially contributed to a material alteration of the instrument or to the making of an unauthorized signature is precluded from asserting the alteration or lack of authority against a holder in due course or against a drawee or other pay- or who pays the instrument in good faith and in accordance with the reasonable commercial standards of the business of the drawee or payor. Apart from the legal questions presented by this argument, such as whether a forged indorsement is equivalent to the making of an “unauthorized signature” under 3-406, there are clearly substantial open issues of fact which preclude me from resolving the motion on this ground. For example, although the third-party complaint indicates that some of General Accident’s employees may have been a part of the fraudulent scheme which resulted in this litigation, I cannot make the quantum leap from that fact to the conclusion that General Accident was “negligent” and that such negligence “substantially contributed” to any alteration, false indorsement or other tampering with the proper negotiation of the drafts. In addition, this provision requires that the party asserting this defense have paid the instrument “in good faith” and “in accordance with the reasonable commercial standards of the business of the drawee or payor.” The pleadings in this action do not provide any basis for determining whether such factors can be established in this case. Similarly, I cannot conclude on the basis of the pleadings that the warranties created by 4-207 do not protect General Accident in this case. Third-party defendants suggest that the involvement of General Accident’s employees in the fraud upon General Accident establishes that General Accident was, itself, not acting “in good faith.” Thus, they conclude, since the warranties in 4-207 only run to a party who pays the draft “in good faith,” General Accident may not state a claim under that provision. Obviously, the question whether the involvement of General Accident employees in the alleged scheme, if any, warrants the conclusion that General Accident, as an entity, did not pay the drafts “in good faith” is one which can only be resolved upon a substantial factual record and not merely on the basis of pleadings. H. Equitable Considerations Third-party defendants challenge all of Fidelity’s claims on the ground that Fidelity’s rights of subrogation to any claim which General Accident could have asserted are equitable rights. They note that a number of state courts require a party asserting rights of subrogation in cases such as this to justify his right to subrogation by establishing a “superior equity” as against the third-party defendant. E. g., United States Fidelity & Guaranty Co. v. First National Bank in Dallas, Texas, 172 F.2d 258 (5th Cir.1949); American Surety Co. v. Bank of California, 133 F.2d 160 (9th Cir.1943); Meyers v. Bank of America, N.T. & S.A., 11 Cal.2d 92, 77 P.2d 1084 (1938). Third-party defendants then argue that it is obvious from the face of the pleadings that the equities favor them over Fidelity, a surety for the company suffering the loss, and request that the third-party complaint be dismissed on that basis. Fidelity responds to this argument by noting that none of the cases cited by third-party defendants was decided by courts of any state whose law is arguably applicable to this action. Although no Pennsylvania decisions are cited by either party, Fidelity cites to decisions in New Jersey and New York which state that a surety stands in the shoes of the party to whose rights it is subrogated unless it would be unconscionable to allow subrogation under the facts of that case. E.g., Standard Accident Insurance Co. v. Pellecchia, 15 N.J. 162, 104 A.2d 288 (1954); National Surety Co. v. National City Bank, 184 App.Div. 771, 172 N.Y.S. 413 (1918). Under the latter standard, there is nothing in the pleadings which suggests that it would be unconscionable to allow Fidelity to claim subrogation rights against the third-party defendants. Moreover, assuming arguendo that the “superior equities” analysis relied upon by the third-party defendants is applicable to the present litigation, I cannot resolve such, a fact-specific balancing question on the basis of the pleadings. In particular, the third-party defendant raising this argument in its brief in support of its motion to dismiss was First Jersey National Bank; one of the Knowledgeable Banks allegedly party to the fraud. If such involvement in the conspiracy can be established, a substantial argument could certainly be advanced that the equities favor the subrogee even under the “superior equity” analysis. Furthermore, the briefs on both sides of this motion recognize that 3-405 of the Uniform Commercial Code may replace the “superior equity” analysis applied in the cases cited by third-party defendants. Many of those decisions involved situations in which the rights being asserted by the subrogated party were those of a corporation whose employees were responsible for the loss for which recovery was being sought. E.g., United States Fidelity & Guaranty Co. v. First National Bank in Dallas, Texas, 172 F.2d 258 (5th Cir.1949); Meyers v. Bank of America, N.T. & S.A., 11 Cal.2d 92, 77 P.2d 1084 (1938); New York Casualty Co. v. Sazenski, 240 Minn. 202, 60 N.W.2d 368 (1953). But since these cases were decided, most states have enacted the Uniform Commercial Code or portions thereof. Thus, these courts did not have the advantage of a specific statutory provision allocating the responsibility for losses caused by faithless employees. Now that the legislatures have considered and adopted a rule to apply to the faithless employee situation, the “superior equity” analysis of the past may be obsolete. However, I need not now decide whether this statutory provision has replaced the “superior equity” analysis, since it is not possible on the basis of the current record to resolve the issue under either analysis. I. Rico Claims Count VII of the third-party complaint alleges that the Knowledgeable Banks— First Jersey National Bank, Community National Bank and Trust Company, and The Trust Company of New Jersey — acting through their employees, violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 to 1968 (“RICO"). RICO was enacted in 1970 as a tool for combatting the infiltration of organized criminals into legitimate businesses: RICO created an entirely new category of offenses. The statute makes collective, ongoing activity, of the sort commonly engaged in by “organized crime,” an offense separate from the underlying violation. In re Catanella and E.F. Hutton and Co., Inc. Securities Litigation, 583 F.Supp. 1388, 1423 (E.D.Pa.1984). [RICO] makes it unlawful, inter alia, for any person to acquire or maintain any interest in or control of an “enterprise” through a “pattern of racketeering activity.” 18 U.S.C. § 1962(b) (1982). RICO also makes it unlawful for any person employed by or associated with any enterprise to conduct the affairs of the enterprise through a pattern of racketeering activity. 18 U.S.C. § 1962(c) (1982). An “enterprise” is defined to include “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact though not a legal entity.” 18 U.S.C. § 1961(4) (1982). “Racketeering activity” is defined to include state law crimes such as murder, bribery, and extortion, and a specified list of federal crimes that includes mail fraud, 18 U.S.C. § 1341 (1982), wire fraud, id. § 1343 (1982), and interstate transportation and sale of stolen and fraudulently obtained goods, id. §§ 2314-2315 (1982). 18 U.S.C. § 1961(1) (1982). A “pattern of racketeering activity” requires at least two acts of racketeering activity within a ten year period. 18 U.S.C. § 1961(5) (1982). In brief, RICO makes it unlawful to acquire or maintain control of an enterprise — broadly defined to include virtually any de facto or de jure association— through a pattern of criminal activity, or to use such an enterprise to engage in a pattern of criminal activity. 18 U.S.C. § 1962(b), (c) (1982). It is also unlawful to conspire to perform these acts. 18 U.S.C. § 1962(d) (1982). While RICO is primarily a criminal statute, it also provides for civil remedies, including a cause of action for treble damages, available to “[a]ny person injured in his business or property by reason of a violation of section 1962....” 18 U.S.C. § 1964(d) (1982). Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786 at 788-789 (3d Cir.1984) (footnotes omitted). The third-party complaint alleges that the Knowledgeable Banks were part of an enterprise which included organized criminals. General Accident contends that certain of its employees were part of a scheme, enterprise and conspiracy involving elements of organized crime. The conspirators include, among others, certain independent automobile adjusting companies, banks, check-cashing services, other individuals and entities and the agents and employees of each of the foregoing. According to General Accident, the object of this scheme, enterprise and conspiracy was to siphon and convert General Accident’s assets by among other things submitting false and/or fraudulent automobile accident claims to General Accident for payment. Third-party complaint at ¶ 5. Later in the third-party complaint, the alleged enterprise is further described. According to General Accident, the members of the criminal enterprise who allegedly conspired to, and did, defraud General Accident were part of an even larger enterprise and conspiracy that defrauded other insurance companies in New York and New Jersey, as well as General Accident, by use of a similar scheme. Members of the organization, enterprise and conspiracy which allegedly conspired to, and did, defraud General Accident, had numerous ongoing familial and business relations. Third-party complaint at 119. Fidelity alleges that, acting through and with this enterprise, the Knowledgeable Banks engaged in acts of mail fraud. Those acts were allegedly part of the scheme to defraud General Accident through the submission of false claims, inflated claims, etc. The success of the described scheme was, so it is alleged, made possible, in part, by the participation of such legitimate enterprises as the Knowledgeable Banks whose employees cashed the drafts fraudulently obtained and failed to inform General Accident of the existence of forged indorsements on those drafts. In addition to these allegations of the existence and purposes of an “enterprise,” Fidelity alleges a pattern of racketeering activity in which the Knowledgeable Banks allegedly participated. Individual acts of mail fraud during the time periods of the issuance of the drafts by General Accident are alleged to constitute the necessary two racketeering activities required to state a claim under RICO. Such criminal racketeering activities are also referred to as “predicate acts.” Fidelity alleges that the Knowledgeable Banks participated directly in the alleged enterprise. It also alleges that the Knowledgeable Banks “associated with” an enterprise in the conduct of the racketeering activity, thus violating subsection (c) of § 1962 of RICO. Finally, the third-party complaint alleges that the Knowledgeable Banks “conspire[d] to violate” RICO in violation of subsection (d) of § 1962. Third-party defendants challenge Count VII on three grounds. First, they contend that Fidelity failed to allege that the “enterprise” was distinct from the “pattern of racketeering activity.” United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). Second, they argue that corporations such as banks cannot be members of an enterprise comprised of “individuals associated in fact.” Third, third-party defendants claim that the third-party complaint is defective in that it fails to allege an injury to third-party plaintiff distinct from the injury caused by the predicate acts of racketeering activity. I will consider each of these arguments in order. 1. Enterprise distinct from pattern of racketeering activity In United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981), the Court, speaking through Justice White, held that RICO was not solely designed to combat infiltration of legitimate enterprises by organized crime but could also be used to penalize wholly illegitimate enterprises. However, the Court concluded that it would be necessary for the Government to prove three elements to establish the existence of a criminal enterprise. Those elements are: (1) that there is an ongoing organization, formal or informal, (2) that the various associates making up the enterprise function as a continuing unit, and (3) that the enterprise exists separate and apart from the pattern of racketeering activity in which it engages. 452 U.S. at 583, 101 S.Ct. at 2528; United States v. Riccobene, 709 F.2d 214, 221 (3d Cir.1983), cert. denied sub nom Ciancaglini v. United States, — U.S. —, 104 S.Ct. 157, 78 L.Ed.2d 145 (1983). Third-party defendants’ first argument in support of the motion to dismiss the RICO count is that this third element has not been properly alleged in the third-party complaint. However, a review of the third-party complaint discloses that Fidelity has alleged that the enterprise is separate from the pattern of racketeering activity in which it allegedly engaged. The third-party complaint states that the enterprise is comprised of “certain independent automobile adjusting companies, banks, check-cashing services, other individuals and entities, and the agents and employees of each of the foregoing.” Third-party complaint at ¶ 5. It also states that the enterprise involved elements of organized crime. Id. In addition, paragraph 9 of the third-party complaint alleges the members of the criminal enterprise who allegedly conspired to, and did, defraud General Accident were part of an even larger enterprise and conspiracy which formed an ongoing organization, enterprise and conspiracy that defrauded other insurance companies in New York and New Jersey, as well as General Accident, by use of a similar scheme. Members of the organization, enterprise and conspiracy which allegedly conspired to, and did, defraud General Accident, had numerous ongoing familial and business relations. Thus, the third-party complaint satisfactorily alleges the existence of an enterprise which is distinct from the pattern of racketeering activity alleged. Moreover, our Court of Appeals has recently stated that the Riccobene and Turkette decisions speak only to what must be proven in a RICO action. Those decisions do not discuss what must be pleaded in order to state a cause of action under the civil liability sections of that statute. Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786 (1984). Consequently, the court found that it was erroneous to apply the Riccobene analysis to the sufficiency of the allegations in a civil complaint. All that is necessary is identification of the alleged enterprise sufficient to put the defendants on notice of the claims against them. Id. at 790. The third-party complaint in the present case clearly satisfies this requirement and therefore is not subject to dismissal. 2. Corporation as part of enterprise The next argument in support of the motion to dismiss the RICO claim is that a corporation, such as a bank, may not be a “member” of an “individuals associated in fact” enterprise. RICO defines an enterprise as either a legal entity such as an association or corporation or a “union or group of individuals associated in fact although not a legal entity.” § 1961(4). Third-party defendants contend that the use of the term “individuals,” rather than the term “person,” which is defined as “any individual or entity capable of holding a legal or beneficial interest in property,” § 1961(3), reflects an intention to limit the “individuals associated in fact” enterprise to groups of living persons. United States v. Computer Sciences Corp., 511 F.Supp. 1125, 1131 (E.D.Va.1981), rev’d on other grounds, 689 F.2d 1181 (4th Cir.1982), cert. denied, 459 U.S. 1105, 103 S.Ct. 72