Kaplan v. JPMorgan Chase Bank, NA (2015 WL 2358240 (N.D.Ill. 2015)), starkly illustrates the challenges a bank customer faces when trying to pin liability on a bank that pays out on a fraudulent transaction involving the customer’s account. There, the plaintiff bank customer sued JPMorgan Chase for breach of contract and negligence after the plaintiff’s estranged husband was able to siphon about $1M from two of plaintiff’s accounts over an 18-month period starting in 2009. Plaintiff filed suit in 2014.
The plaintiff claimed the bank breached its contractual obligations and its duty of care by allowing the husband to forge plaintiff’s name on two account signature cards which enabled him to transfer the money from the accounts behind plaintiff’s back.
The Northern District granted summary judgment for the bank and in doing so, provides a good primer on a bank customer’s duties to monitor account statements and the reach of a bank’s liability for unauthorized withdrawals from a customer’s account.
Summary judgment Standards
To defeat summary judgment, a plaintiff must show there is a genuine disputed material fact that can only be resolved after a full trial on the merits
A disputed fact is “material” if it might affect the outcome of the case. A dispute is “genuine” where the evidence is such that a reasonable jury could return a verdict for the nonmoving party.
The moving party has the initial burden of showing that it is entitled to judgment as a matter of law and can make this showing by establishing that the other party has no evidence on an issue that it has the burden of proof.
Once the moving party meets this burden, the nonmovant must come forward with specific facts that demonstrate there is a genuine issue for trial and may not rely on conclusions, allegations or a “scintilla” (a trace or spark http://www.merriam-webster.com/dictionary/scintilla) of evidence to show that facts exist that will defeat summary judgment.
The Bank-Customer Contractual Relationship
The signature card defines the relationship between plaintiff and the bank defendant. A contract between a bank and its depositor is created by signature cards and a deposit agreement.
The signature card here incorporated Account Rules and Regulations (“Account Rules”) by reference. These Rules, in turn, required the Plaintiff to notify the bank of any errors or unauthorized items within 30 days of the date on which the error or unauthorized item was made available to the plaintiff. If the plaintiff failed to do so within that 30-day window, the error or item would be enforceable against her.
The unauthorized transfers occurred over an 18 month time span starting in 2009 and ending in 2011. But the plaintiff didn’t notify the bank until nearly a year later in April 2012. As a result, the plaintiff missed the Account Rules’ 30-day time limit.
The UCC – Article 4
Plaintiff’s claims were also too late under the Uniform Commercial Code (UCC). Section 4-406 of the UCC provides that where a bank makes a statement available to a customer, the customer must exercise “reasonable promptness” in notifying the bank of any errors. This section also immunizes a bank from liability where it pays in good faith on an unauthorized signature or alteration and the customer doesn’t notify the bank within a reasonable time, “not exceeding 30 days.” 4-406(c)-(d)
The UCC contains a one-year repose period, too. Section 4-406(f) provides that regardless of whether a bank exhibits a lack of care in paying an item, if a customer fails to notify the bank of an unauthorized signature or alteration within one year of a statement being made available, the customer’s claim is barred.
The court held that since the bank filed affidavits stating that plaintiff had free on-line access to her accounts on a monthly basis, the bank “made available” the account information under the UCC. The court held making account information available under 4-406(c) did not require a customer’s physical receipt of the statements.
Turning to whether the bank exhibited good faith in allowing the plaintiff’s husband to withdraw nearly $1M from the accounts, the court noted that good faith is defined by the UCC as “honesty in fact and the observance of reasonable commercial standards of fair dealing.” UCC 3-103(a)(4). Since the plaintiff came forth with no evidence that the bank knew either that the signature cards were forged by the husband or that he lacked authority to add himself as an account signer, there was no showing that the bank lacked good faith.
UCC Article 3
Another UCC section that barred the plaintiff’s claims was 3-118(g). This section provides a 3 year limitations period for claims involving conversion of an instrument, breach of warranty or to enforce any other UCC rights not covered by another section.
The discovery rule – a judge-made rule that delays the start of a statute of limitations until an injured plaintiff knows or reasonably should know she has been injured – doesn’t apply to claims that fall within 3-118(g). This is because applying a discovery rule to an unauthorized monetary transaction would undermine the UCC’s stated goals of finality, predictability, uniformity and efficiency in commercial transactions.
1/ A bank defendant has an arsenal of statutory defenses under the UCC to actions brought by customers;
2/ The UCC’s goals of fostering fluidity in commercial transactions trumps any opposing claims of individual customers;
3/ Harmed bank customers will at least have a chance to defraying her economic damages by vigilantly reviewing account statements and promptly notifying her bank within 30 days of any statement discrepancies.