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New York Commercial Division Case Compendium A Searchable Database of Court Decisions Issued by New York’s Commercial Division

Second Department Modifies Order Regarding Application of UCC 4-201(1) to Bank’s “Charge-Back” to Attorney Trust Account for Funds Deposited Via Fraudulent Cashier’s Check

Posted in Banking, Summary Judgment

In a decision dated December 30, 2015, the Appellate Division, Second Department modified an order of Nassau County Commercial Division, Justice Hon. Stephen A. Bucaria, that granted the defendant’s motion for summary judgment dismissing the complaint and denied the plaintiffs’ cross-motion also seeking summary judgment on the complaint. The plaintiff law firm moved for injunctive relief alleging that the defendant bank, at which the plaintiff maintained its attorney trust account, improperly placed a “hold” on the account after attempting to recoup funds that had been deposited into the account by way of cashier’s check (“Check”) for the benefit of a certain client, which was subsequently found to be fraudulent. The plaintiff argued that, because the funds in the account were held for the benefit of others, the defendant was not entitled to a “charge back” of the amount it had credited the account for the Check. The Commercial Division granted the defendant’s motion, holding that the risk of loss arising from the Check rested with the plaintiff.

The Appellate Division modified the Commercial Division’s order such that it denied the defendant’s motion, but affirmed the order to the extent that the Commercial Division denied the plaintiff’s cross-motion. The court explained that while the defendant established prima facie that pursuant to UCC 4-201(1), its settlement of the Check was only provisional and it had met its duty of ordinary care in handling the Check, the plaintiffs raised a triable issue of fact regarding whether the defendant could seek recoupment through funds in the account that were held for the benefit of the plaintiffs’ other clients. The Appellate Division concluded, however, that because the plaintiffs failed to make a prima facie showing that the defendant was seeking recoupment of the funds from clients other than the client who perpetrated the fraud, the Commercial Division properly denied the plaintiffs’ cross-motion.

Law Offs. of Alexander E. Sklavos, PC v First Natl. Bank of Long Is., 2015 NY Slip Op 09654 [2d Dept 2015]