The payor bank’s customer (the “customer”) made a check payable to another bank (the “intended bank”). However, the intended bank never received the check because someone fraudulently deposited it into a corporation’s account at a third-party bank (the “recipient bank”). The payor bank paid the check and credited the funds to the corporation’s account, which were subsequently withdrawn. The payor bank sued the recipient bank and the corporation, alleging that these two parties had violated the UCC’s transfer and presentment warranties by accepting the altered or fraudulent check and asserted various common law claims, including negligence, unjust enrichment, breach of contract, money had and received, and conversion. The recipient bank removed the case to federal court and moved for partial judgment on the pleadings and summary judgment, arguing that the payor bank lacked standing and that the UCC preempted its common law claims. The payor bank moved for summary judgment as well. In addition, the court had before it a number of motions regarding briefing and evidence. The district court referred this case to a magistrate judge who issued his recommendation.
In Cadence Bank v. JPMorgan Chase Bank, N.A., No. 4:23-CV-02678, 2024 WL 5358446, 2024 U.S. Dist. LEXIS 238581 (S.D. Tex. Dec. 5, 2024) (opinion not yet released for publication), the magistrate judge recommended that the district court grant the recipient bank’s motion for partial judgment on the pleadings, grant in part and deny in part its motion for summary judgment, and deny the payor bank’s motion for summary judgment. First, the magistrate judge found that the payor bank had standing because it had “presented evidence that it has suffered damages, and that it had a reasonable apprehension at the time it filed this lawsuit that it would be sued by its customer.” In fact, at the time of the magistrate’s decision, an action was pending in another state and the magistrate indicated that he could not predict the outcome of that action. Second, the magistrate judge concluded that UCC § 4.302 preempted the payor bank’s common law claims because they would conflict with, rather than supplement, the strict liability scheme of the statute, as well as allow defenses “outside those to which the statute is limited.” Next, the court examined the payor bank’s claims that the recipient bank was liable under the UCC’s transfer warranty and presentment warranties statutes. UCC §§ 4.207, 4.208. The court looked at the text of UCC § 4.207 and determined that this remedy explicitly excluded a “payor bank.” UCC § 4.208 required the presenter to warrant “that the draft has not been altered, and that the warrantor has no knowledge” that the signature of the purported drawer is unauthorized. There, the court found no evidence that the recipient bank “had actual knowledge that the signature of the drawer of the check was unauthorized.” It did find, however, there was a factual issue regarding whether the check was altered rather than counterfeit, as the recipient bank had claimed, because of competing expert testimony. Thus, the magistrate judge recommended that the district court deny the payor bank’s motion for summary judgment. Further, the magistrate judge recommended that the district court grant the recipient bank’s motion for summary judgment regarding the common law claims but not regarding the presentment claim. Other motions regarding evidence and related matters were denied without prejudice on the ground that they were moot.
By Audrey Spotts [email protected]
Edited By Jace Brown [email protected]
Edited By Ashley Boyce [email protected]
Edited By Hayden Mariott [email protected]