Pa. Superior Court Decides Check Fraud Case

Michael J. Betts LLC

On February 14, 2018, a panel of the Pennsylvania Superior Court affirmed the entry of summary judgment against a law firm in connection with its claim against TD Bank, arising out of the bank’s alleged failure to detect the theft of more than $300,000 by a former partner of the law firm.  Levy Baldante Finney & Rubenstein, P.C. v. Wells Fargo Bank, N.A., et al., No. 3241 EDA 2016  (unpublished opinion).  The basis of the decision was the deposit agreement between the firm and TD Bank that related to the account, and in particular a provision that required the law firm to advise the bank, within thirty days of the receipt of its monthly statements, of any issues with checks drawn on the account.  The former partner allegedly had stolen the funds by endorsing twenty-nine checks that had been made payable to referral attorneys, expert witnesses and others

In a case of first impression in Pennsylvania, the Superior Court held that the thirty-day period was reasonable and enforceable, relying on case law from New York and New Jersey.  As the Court explained, although Article 4 of the Uniform Commercial Code generally provides that a drawer does not have a duty to review checks for unauthorized endorsements and that a customer normally has three years to seek an account improperly charged due to an unauthorized endorsement (Sections 4-406 and 4-111), the UCC allows parties to alter these provisions by agreement.  The Court stated that risk-shifting agreements such as the deposit agreement between the law firm and TD Bank are common and enforceable in the absence of evidence that the bank failed to exercise reasonable care.

An interesting aspect to the decision was the concurring opinion of Judge Bowes, which addressed the potential liability of Wells Fargo.  Wells Fargo was the bank with which the former partner deposited the fraudulently endorsed checks and the trial court had granted summary judgment in its favor because no claims were asserted against it by the law firm in its amended complaint.  Although the panel affirmed the grant of summary judgment in favor of Wells Fargo, Judge Bowes’ concurrence was critical of Wells Fargo’s policy of not comparing the signature of the check’s endorser to the name of the payee of the check for checks under $50,000:  “Having been required on numerous occasions to produce identification to a teller when cashing or depositing a check, it is disconcerting to this writer to learn that at least one major bank had abandoned any pretense of ensuring that ATM-deposited checks were similarly scrutinized.  It is my belief that banks have failed to implement at least minimal safeguards against all improper or forged endorsements or other alterations at ATMs, not just those involving amounts in excess of $50,000, have failed to exercise ordinary care.”

Judge Bowes’ concurring opinion also questioned the reasonableness of the thirty-day period for customers of TD Bank to report check fraud:  “Furthermore, a deposit agreement that effectively shifts all responsibility to the customer to detect and report fraud and forgeries, while concomitantly reducing the time in which the customer must do so in order to preserve any remedy, smacks of bad faith.  In the proper case, I recommend that we examine whether such banking practices and deposit agreements are contrary to public policy.”

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