Banking Law Archives - New York Appellate Digest

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

Banking Law, Conversion, Fraud

COMPLAINT ALLEGED VALID CAUSES OF ACTION FOR AIDING AND ABETTING FRAUD AND AIDING AND ABETTING CONVERSION AGAINST A BANK WHICH PROVIDED A LETTER TO PLAINTIFF STATING DEFENDANT MAINTAINED ENOUGH IN HIS BANK ACCOUNTS TO COVER A POST-DATED CHECK FOR OVER $400,000 (FIRST DEPT).

The First Department, reversing Supreme Court, over a dissent, determined that plaintiff auction house stated causes of action for aiding and abetting fraud and aiding and abetting conversion against defendant bank HSBC. Defendant Stettner bid over $425,000 for antique jewelry and sought to pay with a post-dated check. At plaintiff’s request HSBC provided a letter attesting to Stettner’s good standing at the bank and stating that Stettner maintained a balance of between $1 and $20 million. Stettner’s check bounced. The dissent argued that the complaint did not allege the bank’s knowledge of the fraud and conversion:

“A plaintiff alleging an aiding-and-abetting fraud claim must allege the existence of the underlying fraud, actual knowledge, and substantial assistance” … . In turn, the elements of an underlying fraud are “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” … . …

Aiding and abetting conversion requires the existence of a conversion by the primary tortfeasor, actual knowledge, and substantial assistance… . “A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person’s right of possession” … . William Doyle Galleries, Inc. v Stettner, 2018 NY Slip Op 08743, First Dept 12-20-18

December 20, 2018/by Bruce Freeman

Banking Law, Civil Procedure, Corporation Law, Fiduciary Duty

UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the shareholder derivative action against HSBC (bank) alleging breach of a fiduciary duty to implement money laundering prevention safeguards should not have been dismissed. The nominal defendant, HSBC Holdings, is organized under the laws of the United Kingdom and is headquartered in London. The motion to dismiss alleged the failure to seek permission for the action from the English High Court, as well as the failure to demonstrate the futility of seeking redress from the corporation, and the doctrine of forum non conveniens, required dismissal of the complaint. The Second Department held that the rule requiring permission of the English court was procedural and therefore the law of the forum (New York), not the United Kingdom, applied. The Second Department further held that the complaint demonstrated the futility of first seeking redress from the corporation and New York was the proper forum:

… [T]he Court of Appeals decided Davis v Scottish Re Group Ltd. (30 NY3d 247), which held that a Cayman Islands court rule requiring plaintiffs in shareholder derivative actions to first apply to the Cayman Islands Grand Court for leave to continue the action is a procedural rule of the Cayman Islands, and “therefore does not apply where, as here, a plaintiff seeks to litigate his derivative claims in New York” … . … Based upon the analysis set forth in Davis, we find that the judicial-permission requirement set forth in the UK Companies Act is a procedural rule applicable only in England and Wales, or Northern Ireland. …

As an alternative ground for affirmance … , the nominal defendants contend that the plaintiff lacks standing under New York law pursuant to Business Corporation Law § 626(c) because the amended complaint fails to allege that the plaintiff made efforts to secure initiation of the action by the board itself or set forth the reasons for not making such effort … . * * *

In view of the illegal purpose, magnitude, and duration of the alleged wrongdoing, as well as the identity of beneficiaries to the transactions, the allegations were such that the transactions should have come to the attention of senior management and the board of directors … . * * *

… [G]iven that the allegations of wrongdoing occurred in New York, that only 21 of the 75 individual defendants live and work outside of New York, and that 3 of the nominal defendants are either incorporated or headquartered in New York, the Supreme Court providently exercised its discretion in determining that the nominal defendants were not entitled to dismissal on the ground of forum non conveniens [CPLR 327]. Mason-Mahon v Flint, 2018 NY Slip Op 07716, Second Dept 11-14-18

CORPORATION LAW (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/CIVIL PROCEDURE (CORPORATION LAW, UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/BANKING LAW (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/FIDUCIARY DUTY (CORPORATION LAW, UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/SHAREHOLDER DERIVATIVE ACTION (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/MONEY LAUNDERING (BANKING LAW, UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/CPLR 327 (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/BUSINESS CORPORATION LAW 626 (UK LAW REQUIRING COURT PERMISSION TO BRING A SHAREHOLDER DERIVATIVE ACTION WAS PROCEDURAL AND THEREFORE DID NOT APPLY IN THIS NEW YORK ACTION AGAINST LONDON-BASED HSBC FOR FAILURE TO IMPLEMENT MONEY-LAUNDERING PROTECTIONS, COMPLAINT DEMONSTRATED THE FUTILITY OF FIRST SEEKING REDRESS FROM THE CORPORATION, DOCTRINE OF FORUM NON CONVENIENS DID NOT APPLY, COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))

November 14, 2018/by Bruce Freeman

Banking Law, Foreclosure

PLAINTIFF BANK DID NOT MEET FACE TO FACE WITH DEFENDANT BEFORE THREE MONTHLY MORTGAGE PAYMENTS WERE MISSED, PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined plaintiff’s motion for summary judgment in this foreclosure action should not have been denied. Plaintiff bank did not seek a face to face meeting with defendant before three mortgage payments were missed:

In her pro se answer to the amended complaint, defendant alleged that the loan was subject to Federal Housing Administration guidelines and that plaintiff failed to comply with the regulations of the Department of Housing and Urban Development requiring the mortgagee to undertake certain pre-foreclosure measures, including a face-to-face meeting with the mortgagor, with respect to such loans. Although defendant did not specifically cite 24 CFR 203.604, the regulation establishing the face-to-face meeting requirement, in her answer, we afford the pro se answer a liberal reading … , and conclude that defendant “sufficiently apprise[d] plaintiff” that she was challenging plaintiff’s compliance with the requirements of that regulation … .

Plaintiff failed to establish that it complied with the requirements of 24 CFR 203.604 and thus failed to establish that it was entitled to judgment as a matter of law on the amended complaint… . More specifically, plaintiff did not arrange or attempt to arrange a face-to-face interview with defendant at any time “before three full monthly installments . . . [were] unpaid” (§ 203.604 [b]). Instead, the first attempt was made in June 2011, i.e., more than six months after the first installment went unpaid. Moreover, plaintiff did not establish that it sent notices to defendant by certified mail, as required by section 203.604 (d). Bank of Am., N.A. v Spencer, 2018 NY Slip Op 07573, Fourth Dept 11-9-18

FORECLOSURE (PLAINTIFF BANK DID NOT MEET FACE TO FACE WITH DEFENDANT BEFORE THREE MONTHLY MORTGAGE PAYMENTS WERE MISSED, PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (FOURTH DEPT))/BANKING LAW (FORECLOSURE, PLAINTIFF BANK DID NOT MEET FACE TO FACE WITH DEFENDANT BEFORE THREE MONTHLY MORTGAGE PAYMENTS WERE MISSED, PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (FOURTH DEPT))

November 9, 2018/by Bruce Freeman

Banking Law, Evidence, Negligence, Uniform Commercial Code

BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT),

The Second Department determined defendant bank’s (Capital One’s) motion for summary judgment in this forged-check negligence action was properly denied (without the need to consider the opposing papers). One of plaintiff corporation’s employees forged company checks made out to herself amounting to over $84,000. Plaintiff sued the bank for negligence pursuant to Uniform Commercial Code (UCC) article 4:

Under article 4 of the UCC, with regard to repeated forgeries by the same wrongdoer, the customer’s failure to exercise reasonable care and promptness in examining its bank statements and to timely notify the bank of the forgeries in accordance with UCC 4-406(2)(b) generally will result in the customer being precluded from asserting claims against the bank in connection with the loss associated with any such forgeries … . However, the loss of repeated forgeries may be shifted back to the bank in the circumstance where the bank failed to use ordinary care in paying the forged checks … . With regard to the issue of ordinary care, UCC 4-103(3) provides that “in the absence of special instructions, action or non-action consistent with clearing house rules and the like or with a general banking usage not disapproved by this Article, prima facie constitutes the exercise of ordinary care.” Thus, under this “safe harbor” provision, a bank can ensure that its conduct at least prima facie meets an ordinary care standard, by showing that it acted in accordance with general banking rules or practices … . However, it is the bank, as the party that benefits from the “safe harbor” provision, that bears the burden of proving general clearing house rules or general banking usage in order to establish ordinary care … . …

Capital One did not meet its burden of showing that it acted in accordance with general banking rules or general clearing house rules, and therefore, it failed to demonstrate prima facie that it exercised ordinary care in paying the forged checks … .Capital One’s submissions failed to provide any evidentiary basis that its processing of the forged checks comported with general banking usage. Redgrave Elec. Maintenance, Inc. v Capital One, N.A., 2018 NY Slip Op 0316, Second Dept 5-2-18

BANKING LAW (BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/UNIFORM COMMERCIAL CODE (FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/EVIDENCE (BANKING LAW, UNIFORM COMMERCIAL CODE, FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/NEGLIGENCE (BANKING LAW, FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/CHECKS (BANKING LAW, UNIFORM COMMERCIAL CODE, FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/FORGED CHECKS (BANKING LAW, UNIFORM COMMERCIAL CODE, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))

May 2, 2018/by Bruce Freeman