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PLAINTIFF, UNDER NEW JERSEY LAW, SUFFICIENTLY PLED A SPECIAL RELATIONSHIP WITH DEFENDANT BANK GIVING RISE TO A DUTY TO ENFORCE ITS ANTI-FRAUD PROCEDURES; PLAINTIFF WIRED $300,000 TO AN ACCOUNT WHICH HAD BEEN SET UP TO DEFRAUD PLAINTIFF (FIRST DEPT).

The First Department, over a comprehensive dissent, determined defendant JPMorgan Chase Bank owed a duty to plaintiff based upon its anti-fraud polices advertised on the bank’s website. Defendant David Tate opened an account at a New Jersey Chase bank in the name of his business, Alchemy. Tate did not provide any personal identification or any corporate documentation to the bank. Plaintiff, thinking she was investing in Alchemy, wired $300,000 to the Alchemy account which was appropriated by Tate:

Under New Jersey law, a bank and its depositor have an arm’s-length, debtor-creditor relationship … . Banks do not have a duty to protect depositors from the wrongful conduct of third parties with whom the bank has done business .. .

Nonetheless, a bank may have a duty of care “where a special relationship has been established from which a duty can be deemed to flow” … . A special relationship may be formed “by agreement, undertaking or contact” … . As pertinent here, an “undertaking” is “the willing assumption of an obligation by one party with respect to another or a pledge to take or refrain from taking particular action” … .

Crediting plaintiff’s factual allegations, construing the complaint liberally, and according it the benefit of every possible favorable inference …, we find that the complaint adequately pleaded that Chase assumed a duty to abide by the anti-fraud procedures that it publicized.

… [P]laintiff has adequately pleaded the existence of a special relationship with Chase, giving rise to a duty to plaintiff to enforce its anti-fraud procedures … . Plaintiff has likewise stated a claim against Chase in negligence, based on its alleged failure to abide by these safeguards when Tate opened Alchemy’s account with Chase … . Ben-Dor v Alchemy Consultant LLC, 2024 NY Slip Op 03797, Second Dept 7-11-24

Practice Point: In New Jersey, to sue a bank for the wrongful conduct of a third party, here the use of a bank account to defraud plaintiff, the bank must owe plaintiff a special duty. The majority held the anti-fraud policies on the bank’s website may be the basis for such a special duty. There was an extensive and comprehensive dissent.

 

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DENYING A MOTION TO DISMISS ON FORUM NON CONVENIENS GROUNDS WAS NOT AN ABUSE OF DISCRETION DESPITE THE PRIOR GRANTING OF AN IDENTICAL MOTION BY ANOTHER DEFENDANT; HOWEVER PLAINTIFF BANK DID NOT DEMONSTRATE NEW YORK’S PERSONAL JURISDICTION OVER SEVERAL DEFENDANTS IN THIS INTERNATIONAL BANK-FRAUD AND MONEY-LAUNDERING CASE (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Pitt-Burke, determined the denial of a defendant’s motion to dismiss on forum-non-conveniens grounds was a proper exercise of discretion, despite the fact that the identical motion by another defendant had already been granted. The case stems from an elaborate international fraud and money-laundering scheme which allegedly resulted in the theft by hackers of $81 million from plaintiff bank. The opinion addresses forum non conveniens, long-arm “conspiracy” jurisdiction and conversion but is too complex and detailed to fairly summarize here. With respect to forum non conveniens, the court wrote:

Forum non conveniens is a common-law doctrine that presumes jurisdiction … . … [T]the initial question before this Court is whether Supreme Court had the discretion to deny the … defendants’ motion to dismiss the complaint on forum non conveniens grounds when it had already granted another defendant’s motion to dismiss under the same doctrine. We answer this question in the affirmative and find that the … defendants have not demonstrated that Supreme Court’s denial was an improvident use of discretion. * * *

… [W]e find Supreme Court’s determination to deny each defendant’s motion to dismiss on forum non conveniens grounds was not an abuse of discretion. However, this determination only represents half of our inquiry, as a finding that it was proper for Supreme Court to deny defendants’ motions to dismiss on forum non conveniens grounds does not equate to a finding that Supreme Court had personal jurisdiction over all … defendants. Indeed … , plaintiff has failed to establish personal jurisdiction over Reyes, Pineda, Capina, and Agarrado. Bangladesh Bank v Rizal Commercial Banking Corp. 2024 NY Slip Op 01112, 2-29-24

Practice Point: Whether to grant a motion to dismiss on forum non conveniens grounds is discretionary. Here the denial of the motion was not an abuse of discretion despite the prior granting of an identical motion brought by another defendant.

 

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A “HIGH COST LOAN” AS DEFINED BY THE BANKING LAW IS A DEFENSE TO A FORECLOSURE ACTION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined there was a question of fact whether the loan in this foreclosure action violated the Banking Law such that there is a defense to foreclosure pursuant to RPAPL 1302(2):

RPAPL 1302(2) provides, in pertinent part, that “[i]t shall be a defense to an action to foreclose a mortgage [for a high-cost home loan] that the terms of the home loan or the actions of the lender violate any provision of,” among other things, Banking Law § 6-l … . “A home loan is a ‘high-cost home loan’ if, among other things, the total points and fees charged exceed five percent of the total loan amount” … . Here, the defendants demonstrated potential merit to their defense that their loan constituted a “high-cost home loan,” because the lender allegedly financed certain closing costs, thereby receiving indirect compensation related thereto … , and that the terms of the loan or actions of the lender violated provisions of Banking Law § 6-l. Wilmington Trust, N.A. v Newman, 2023 NY Slip Op 06557, Second Dept 12-20-23

Practice Point: Pursuant to RPAPL 1302(2), a “high cost loan” within the meaning of the Banking Law is a defense to a foreclosure action.

 

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PLAINTIFF-RELATOR BROUGHT A QUI TAM ACTION (ON BEHALF OF THE GOVERNMENT) AGAINST A BANK ALLEGING VIOLATION OF THE STATE FINANCE LAW; THE QUI TAM ACTION WAS DISMISSED FOR FAILURE TO STATE A CLAIM; EVEN THOUGH THE CITY SETTLED WITH THE BANK IN A RELATED ACTION, PLAINTIFF-RELATOR WAS NOT ENTITLED TO A PERCENTAGE OF THE SETTLEMENT (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Singh, determined the plaintiff-relator, who brought a qui tam action against a bank alleging the bank violated the State Finance Law (re: foreign currency exchanges), was not entitled to a percentage of the related settlement reached by the bank and the city. The plaintiff-relator’s qui tam action had been dismissed for failure to state a claim which, pursuant to the terms of the relevant statute, precluded sharing in the settlement:

… [T]he City reached a $30 million settlement with defendants. The City made an offer of payment to relator. Relator rejected the offer, asserting that under the NYFCA, it was entitled to no less than 15% of the monies received. …

The NYFCA [New York False Claims Act] tracks the federal False Claims Act (31 USC § 3729 et seq.) (the Federal FCA). Accordingly, it is appropriate to look to federal law to interpret the NYFCA … . Federal authority holds that a relator who fails to state a viable claim under the Federal FCA is not entitled to recovery in an action brought by the government, even where that recovery stems from claims that overlap with the dismissed qui tam claims … . We are persuaded by this precedent and find that relator may not receive compensation under the NYFCA when its claims have been dismissed for failure to state a cause of action. Comptroller of the City of N.Y. v Bank of N.Y. Mellon Corp., 2021 NY Slip Op 06033, First Dept 11-4-21

 

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QUESTIONS OF FACT PRECLUDED SURROGATE’S FINDING THAT THREE JOINT BANK ACCOUNTS WERE PART OF THE ESTATE AS OPPOSED TO JOINT ACCOUNTS WITH RIGHT OF SURVIVORSHIP (FOURTH DEPT).

The Fourth Department, reversing (modifying) Surrogate’s Court, determined there were questions of fact about whether three joint bank accounts passed to respondent outside the estate or were part of the estate. The was no evidence of a signature card which included “right of survivorship” language. Respondent argued decedent intended the bank accounts to be gifts to the respondent, but the language of the will raised questions of fact about decedent’s intent:

Absent the necessary survivorship language, the statutory presumption contained in Banking Law § 675 does not apply, even if the documents creating the account provide that it is a “joint” account … . Here, on her motion, respondent failed to establish that the statutory presumption created under Banking Law § 675 is applicable because she failed to submit signature cards or ledgers of the accounts that included the required survivorship language. …

Respondent averred in an affidavit that decedent placed her name on the accounts with the stated intention of gifting them to her. Respondent also submitted related account documents, including bank documents for all four accounts that reference both respondent and decedent’s names and include survivorship or joint tenancy language. Thus, respondent submitted evidence establishing that the four accounts were joint accounts with right of survivorship, and the burden then shifted to petitioners. …

… [P]etitioners submitted decedent’s will, which left the estate to the three children. Thus, the intent of decedent, as evidenced by her will, is inconsistent with respondent’s contention that the three bank accounts were gifts to respondent or joint tenancies with survivorship rights … . … [P]etitioners submitted respondent’s deposition testimony that those three accounts were funded solely by decedent, that one of the … accounts was used as decedent’s primary checking account, and that payments out of that account were for only decedent’s benefit. … [R]espondent, who became joint owner of those three accounts when decedent was in her mid to late eighties, testified that she helped decedent with her banking. Matter of Najjar (Sanzone), 2021 NY Slip Op 03777, Fourth Dept 6-11-21

 

QUESTION OF FACT WHETHER THE PRESUMPTION A CERTIFICATE OF DEPOSIT (CD) HAS BEEN PAID OUT WITHIN 20 YEARS OF WHEN IT CAME DUE APPLIED TO CD’S IN PLAINTIFF’S DECEASED HUSBAND’S IRA WHICH WERE RENEWED AUTOMATICALLY (FIRST DEPT).

The First Department, reversing Supreme Court, determined the defendant bank’s motion for summary judgment in this action seeking the payment of certificates of deposit (CD’s) held in an independent retirement account (IRA) should not have been granted. The presumption that a CD has been paid out within 20 years of when it came due may not apply to these CD’s which were in plaintiff’s deceased husband’s IRA and were renewed automatically:

Defendant [bank] relied upon the common law rebuttable presumption of payment to establish its prima facie case. It presumes that payment on a CD has occurred within 20 years after the time it came due … . In opposition, plaintiff has raised issues of fact with respect to whether the presumption applies because the CD, held by an IRA, renewed automatically each year. Plaintiff has also provided an affidavit stating that she never presented the CD to defendant for payment and explaining the delay. Plaintiff’s affidavit was sufficient to warrant denial of summary judgment … . Friedfeld v Citibank, N.A., 2020 NY Slip Op 05575, First Dept 10-8-20

 

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BANK WHICH ISSUED AN “OFFICIAL CHECK” DRAWN ON A DIFFERENT BANK, AFTER THE CUSTOMER’S FUNDS WERE WIRED TO THAT OTHER BANK (PURSUANT TO AN AGREED ARRANGEMENT), WAS NOT LIABLE UNDER THE UNIFORM COMMERCIAL CODE OR UNDER A MONEY HAD AND RECEIVED THEORY FOR THE SUBSEQUENT MISAPPROPRIATION OF THE CHECK (FIRST DEPT).

The First Department, reversing Supreme Court, in a full-fledged opinion by Justice Friedman, determined the defendant Signature Bank was not liable under the Uniform Commercial Code or under a money had and received theory for the misappropriation of an “official check” for $292,000:

According to the affidavit of Patrick Manzi, Signature’s senior vice president and director of bank operations, “[a]t the time in question, Signature did not issue its own official checks.” … [U]nder an agreement between Signature and Integrated Payment Systems Inc. (IPS), Signature customers were provided by IPS with computer software and check forms that gave them the capability, upon Signature’s approval, to print out a Signature “Official Check” at their own offices. Although such a check bore Signature’s logo and the signatures of Signature officers, and designated Signature as the “Drawer,” the check also indicated in the lower left corner that it was “Issued by Integrated Payment Systems Inc., Englewood, Colorado” through “JPMorgan Chase Bank, N.A., Denver, Colorado.” In addition, the check bore Chase’s ABA routing number.

In sum, when a Signature customer requested the issuance of an official check, Signature would debit the customer’s account in the requested amount, wire the same amount to the IPS account at Chase, and notify the customer that it had permission to print out the check. In essence, official checks of this kind were drawn by Signature, not on its own account, but on the IPS account at Chase.

Using the above-described procedure, R & L [the Signature customer] procured the issuance of a Signature “Official Check” in the amount of $292,000, payable to … settlement agent, Steven J. Baum P.C.. The check identified R & L as the “Remitter.”… According to a principal of R & L, R & L “forwarded the $292,000 bank check to Kim Saunders, the title closer, who undertook on behalf of the title company . . . to forward this check to Steven J. Baum, P.C. to pay off the seller’s [sic] mortgage.”

It is undisputed that Steven J. Baum P.C., the payee of the check, never received it. The check was, through some unknown chain of events, misappropriated, improperly endorsed, and deposited into the joint account that the sellers of the underlying real property (defendants Richards and Massias) maintained at defendant TD Bank, N.A. The check was subsequently presented for payment to Chase, the drawee bank, which paid it … . OneWest Bank, FSB v Deutsche Bank Natl. Trust Co., 2020 NY Slip Op 03483, First Dept 6-18-20

 

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ALTHOUGH MOVING MONEY THROUGH A NEW YORK BANK IS ENOUGH TO CONFER PERSONAL JURISDICTION ON OUT-OF-STATE PARTIES, SUPREME COURT CORRECTLY HELD IT WAS NOT ENOUGH TO MAKE NEW YORK A CONVENIENT FORUM (FIRST DEPT).

The First Department determined that, although using a New York bank for an allegedly fraudulent transaction is sufficient to acquire personal jurisdiction over out-of-state parties, it does not necessarily follow that New York is a convenient forum. Supreme Court properly found New York was not a convenient forum in these actions involving individuals and corporations in Saudi Arabia and the United Arab Emirates, as well as a Swiss bank:

… [T]he court properly considered the following matters, among others: (1) none of the parties to either action is a New York citizen or resident or (if an entity) is formed under New York law or has its principal place of business in New York; … (2) the alleged conduct at issue primarily occurred in the UAE, Saudi Arabia and Switzerland, with the sole New York connection being the fleeting presence of the bribery funds at a nonparty New York correspondent bank while en route from the UAE to Switzerland; (3) the bulk of the relevant documentary evidence is located in the UAE, Saudi Arabia, Switzerland and BVI, and most witnesses are located outside New York and beyond New York’s subpoena power; (4) there is a likelihood that foreign substantive law will govern; (5) there are alternative fora available (Switzerland and the UAE) with greater connection to the subject matter; and (6) in the Pictet [bank] action, Switzerland has an interest in regulating the conduct of a bank operating within its borders … . …

As Supreme Court correctly recognized … “[o]ur state’s interest in the integrity of its banks . . . is not significantly threatened every time one foreign national, effecting what is alleged to be a fraudulent transaction, moves dollars through a bank in New York. . . . New York’s interest in its banking system is not a trump to be played whenever a party to such a transaction seeks to use our courts for a lawsuit with little or no apparent contact with New York” (Mashreqbank PSC v Ahmed Hamad Al Gosaibi & Bros. Co., 23 NY3d 129, 137 [2014] … ).

In accordance with Mashreqbank, this Court has declined to disturb the motion court’s discretionary determination that New York is not a convenient forum in cases where the sole connection to New York was the passage of wired funds through a correspondent bank in the state … . Al Rushaid Parker Drilling Ltd. v Byrne Modular Bldgs. L.L.C., 2020 NY Slip Op 01277, First Dept 2-25-20

 

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THE DISCHARGE IN BANKRUPTCY DID NOT ACCELERATE THE DEBT AND THEREFORE DID NOT START THE STATUTE OF LIMITATIONS RUNNING; THE IN REM FORECLOSURE ACTION REMAINS VIABLE (FOURTH DEPT).

The Fourth Department, in a full-fledged opinion by Justice Carni, determined that the mortgage debt was not accelerated by a discharge in bankruptcy, therefore the statute of limitations was not triggered and an in rem foreclosure action remains viable:

… [O]nce a mortgage debt is accelerated, the entire amount is due and the Statute of Limitations begins to run on the entire debt” … . “Where the acceleration . . . is made optional with the holder of the note and mortgage, some affirmative action must be taken evidencing the holder’s election to take advantage of the accelerating provision, and until such action has been taken the provision has no operation” … . Here, the mortgage provided plaintiff the option to accelerate the debt under certain circumstances, but did not state that the debt would be automatically accelerated if defendant obtained a discharge in bankruptcy.

We reject defendant’s contention that the discharge in bankruptcy automatically accelerated the debt and thus triggered the statute of limitations with respect to the entire debt … .

“[E]ven after the debtor’s personal obligations have been extinguished [by chapter 7 discharge], the mortgage holder still retains a right to payment in the form of its right to the proceeds from the sale of the debtor’s property,” and a bankruptcy proceeding does not “impair [the mortgage holder’s] right to commence an action against [the debtor] in rem to seek payment from the proceeds of a foreclosure sale” … . … [C]hapter 7 discharge removes the “mode of enforc[ement]” against the debtor in personam, but the obligation otherwise remains intact and does not impact an action in rem … . Wilmington Sav. Fund Socy., FSB v Fernandez, 2019 NY Slip Op 08290, Fourth Dept 11-15-19

 

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