An individual used mobile deposit to deposit a check with a depositary bank (“bank 1”). Bank 1 accepted the mobile deposit and, in turn, sent the cash deposit to the individual’s account. A few days later, the individual took the same check and physically deposited it with a currency exchange company (CEC). The CEC took the physical check and gave the individual cash in exchange. The CEC cashed the check with its bank, the second depositary bank (“bank 2”). Bank 2 informed the CEC that the check had been dishonored, and the CEC paid back the check amount to the bank. The CEC brought suit against bank 1 to recover the lost funds under the Check Clearing for the 21st Century Act, 12 U.S.C. §§ 5001-5018 (the “Check 21 Act”). The goal of the Check 21 Act is to protect depositary institutions that accept a physical check that another bank has already deposited. Bank 1 moved to dismiss the CEC’s complaint for five reasons: (1) the CEC had no standing to bring suit because it is not a depositary institution; (2) CEC was not subrogated to the rights of bank 2; (3) bank 1 had made no warranties to the CEC; (4) any breach of warranty claims did not apply; and (5) even if the CEC was able to be subrogated to the rights of bank 2, that bank did not suffer any harm.
In 63rd & Morgan Currency Exchange, Inc. v. Citibank, National Ass’n., No. 23 C 5048, 2024 WL 245189, 2024 U.S. Dist. LEXIS 12035 (N.D. Ill. Jan. 23, 2024) (opinion not designated for publication), the court granted bank 1’s motion to dismiss, holding that the CEC did not qualify (or otherwise allege anything that would establish its qualification) for the indemnity provided for in the Check 21 Act. The court examined each of the CEC’s five complaints in turn, combining the first two. First, the court reasoned that the statute did not apply to the CEC because it was not a depositary institution. Furthermore, the court determined that the CEC did not properly allege a subrogation right to any claim that bank 2 could have brought under the statute as a depositary institution. When analyzing the subrogation argument, the court found that the CEC and bank 2 had no contractual subrogation agreement. Additionally, the court did not find any reason to enforce an equitable subrogation between the two because it found that bank 2 would not have qualified for indemnification under the statute anyway, because it never received the physical check from the individual, which is a requirement under the statute. Next, the court determined that the third and fourth points were moot because the CEC admitted it had not received any warranties from bank 1. Finally, the court explained that even if the CEC were able to be bank 2’s subrogee, it would still fail because bank 2 did not experience any harm. The CEC repaid the money to bank 2, so bank 2 had nothing to recover. For these reasons, bank 1’s motion to dismiss was granted.
By Maycee Redfearn [email protected]
Edited By Nura Elhentaty [email protected]
Edited By Ashley Boyce [email protected]
Edited By Hayden Mariott [email protected]