Banking Law – New York Appellate Digest

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

November 4, 2021/by Bruce Freeman

Banking Law, Trusts and Estates

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

June 11, 2021/by Bruce Freeman

Account Stated, Banking Law, Contract Law, Evidence

THE BANK DID NOT PRESENT EVIDENCE THE CREDIT CARD BILLING STATEMENTS AND THE AMENDMENTS TO THE CREDIT CARD AGREEMENT WERE MAILED TO THE DEFENDANT; THE BANK’S MOTION FOR SUMMARY JUDGMENT ON THE BREACH OF CONTRACT AND ACCOUNT STATED CAUSES OF ACTION SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff bank’s motion for summary judgment on the breach of contract and account stated causes of action should not have been granted. The bank alleged plaintiff had not paid sums due on her credit card account. But the bank failed to demonstrate the billings statements and the amendments to the credit care agreement were mailed to the defendant:

… [T]he Stephenson affidavit laid a proper foundation for admission as business records of the amendments to the credit card agreement and the monthly billing statements (see CPLR 4518[a] …). However, no evidence that those documents were mailed to the defendant was provided. Stephenson did not attest to [*2]personal knowledge of the mailings or of a standard office practice and procedure designed to ensure that items were properly addressed and mailed, and the business records did not evince the mailing of the account documents … .

Absent evidence that the billing statements were mailed to the defendant, the plaintiff failed to establish its prima facie entitlement to judgment as a matter of law on the cause of action to recover on an account stated … . Similarly, absent evidence that the amendments to the credit card agreement were mailed to the defendant, the plaintiff failed to establish its prima facie entitlement to judgment as a matter of law on the breach of contract cause of action … . Bank of Am., N.A. v Ball, 2020 NY Slip Op 06740, Second Dept 11-18-20

November 18, 2020/by Bruce Freeman

Banking Law

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

October 8, 2020/by Bruce Freeman

Banking Law, Uniform Commercial Code

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

June 18, 2020/by Bruce Freeman

Banking Law, Civil Procedure, Fraud

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

February 25, 2020/by Bruce Freeman

Banking Law, Civil Procedure, Foreclosure

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

November 15, 2019/by Bruce Freeman

Banking Law, Fraud, Uniform Commercial Code

BANK NOT LIABLE FOR PAYMENT RE: FRAUDULENT CHECKS SIGNED BY PLAINTIFF BUT ALTERED BY PLAINTIFF’S BOOKKEEPER TO PAY OFF HER CREDIT CARD BILLS (FIRST DEPT).

The First Department determined defendant bank (Citibank) and Citi Credit were not liable for cashing checks which were signed by plaintiff but which were altered by plaintiff’s bookkeeper to pay off her credit card bills. Plaintiff was notified of the fraud by Citibank:

Citibank’s actual knowledge of the fraud in February 2016 is, at this pleading stage, enough to sustain the claim of commercial bad faith that would render Citibank ineligible for the protection of UCC 3-405(1)(c) … , i.e., the “fictitious payee” or “padded payroll” defense … .

… UCC 3-405(1)(c) bars plaintiffs’ claims against Citi Credit. Nowhere in any of their papers — either the complaint or Dr. Weiser’s opposition affidavit — do plaintiffs allege other than conclusorily that Citi Credit, like Citibank a subsidiary of defendant Citigroup, Inc., had actual knowledge of the fraud. …

Although plaintiffs’ claims against Citibank are not barred by UCC 3-405(1)(c), they are barred by plaintiffs’ failure to satisfy a condition precedent to suit created by UCC 4-406(4) and Citibank’s checking account rules and regulations as set forth in its CitiBusiness Client Manual … . Plaintiffs failed, as required by the manual, to “notify us [Citibank] in writing within 30 days after we send or make available to you [plaintiffs] your account statement and accompanying items of any errors, discrepancies, or unauthorized transactions.” Weiser v Citigroup, Inc., 2019 NY Slip Op 06440, First Dept 9-3-19

September 3, 2019/by Bruce Freeman

Banking Law, Civil Procedure, Debtor-Creditor

THE CONTENTS OF A SAFE DEPOSIT BOX CONSTITUTED THE PROPERTY OF JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP, THEREFORE THE CONTENTS ARE AVAILABLE TO SATISFY A JUDGMENT AGAINST ONLY ONE OF THE JOINT TENANTS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Gische, in a matter of first impression, determined the presumption of joint tenancy with rights of survivorship applied to the contents of a safe deposit box. The judgment debtor NYCB was owed $11 million by one of two persons (Rachel and Ari) who signed rental agreements for a safe deposit box. The First Department held that Supreme Court properly ordered the safe deposit box opened and the contents turned over to satisfy the judgment against Ari:

CPLR 5225(b) provides for an expedited special proceeding by which a judgment creditor can recover “money or other personal property” belonging to a judgment debtor “against a person in possession or custody of money or other personal property in which the judgment debtor has an interest” in order to satisfy a judgment … . When two or more persons open a bank account, making a deposit of cash, securities, or other property, a presumption of joint tenancy with right of survivorship arises (Banking Law § 675[b] …). If the presumption is applied, each named tenant “is possessed of the whole of the account so as to make the account vulnerable to the levy of a money judgment by the judgment creditor of one of the joint tenants” … .

By relying on the terms of the rental agreement, NYCB met its burden of establishing Ari and Rachel as joint tenants with rights of survivorship of the safe deposit box account. The safe deposit box is controlled by each of them, each of them has access to the box at all times, and each of them can deposit property into the box or remove property from it without each other’s permission. Should either one of them die, the survivor would have access to the box and could remove all its contents … . Matter of New York Community Bank v Bank of Am., N.A., 2019 NY Slip Op 00544, First Dept 1-24-19

January 24, 2019/by Bruce Freeman

Banking Law, Lien Law, Real Property Actions and Proceedings Law (RPAPL)

BANK WAS ENTITLED TO A LIEN ON THE SUBJECT PROPERTY PURSUANT TO THE DOCTRINE OF EQUITABLE SUBROGATION (SECOND DEPT).

The Second Department, reversing Supreme Court, in this action to quiet title, determined that HSBC Bank was entitled to summary judgment on its counterclaim to impose an equitable lien on the subject property:

Under the doctrine of equitable subrogation, where the “premises of one person is used in discharging an obligation owed by another or a lien upon the premises of another, under such circumstances that the other would be unjustly enriched by the retention of the benefit thus conferred, the former is entitled to be subrogated to the position of the obligee or lien-holder” … . …

[The] submissions established that HSBC, as assignee of the FA mortgage, which secured the loan proceeds used to satisfy the Berkshire mortgage, which secured the loan proceeds used to satisfy the plaintiff’s mortgage obligation to Ocwen, was entitled to be put in the place of Ocwen as holder of the mortgage lien in the sum of $207,566.25 … . Lombard v Yacoob, 2019 NY Slip Op 00427, Second Dept 1-23-19

January 23, 2019/by Bruce Freeman