Thursday, April 4, 2013

Practice Pointer: Don't Disburse Until Deposit Check Clears

An attorney who deposited a cashier's check purported drawn on a JP Morgan Chase bank account into his trust account sued the bank when it dishonored the check.

The New York Appellate Division for the Second Judicial Department affirmed the dismissal of the action against the bank.

The facts:

On January 6, 2011, the plaintiff allegedly received a cashier's check from a third party in the amount of $295,500, and deposited that check into its Interest On Lawyer Account Fund (hereinafter IOLA) bank account at Citibank. The cashier's check purportedly was drawn on the defendant JP Morgan Chase Bank, N.A., a subsidiary of the defendant JP Morgan Chase & Co. Relying on the validity of the cashier's check, the plaintiff transferred the sum of $272,250 from its IOLA account to another third party on January 7, 2011. On January 12, 2011, the defendants allegedly dishonored payment on the cashier's check. The plaintiff commenced this action against the defendants to recover damages for negligence and fraudulent concealment, alleging, among other things, that the defendants were negligent in failing to safeguard their cashier's checks, in failing to inform the public that forged or counterfeit checks bearing the defendants' names were being circulated throughout the banking system, and in failing to investigate the matter after receiving the subject cashier's check for deposit.

The law:

...the only duty which the defendants owed to the plaintiff was to pay the check, return the check, or send notice of dishonor (see Greenberg, Trager & Herbst, LLP v HSBC Bank USA, 17 NY3d at 577-578). As the complaint failed to allege that, upon the defendants' failure to pay the check, they breached their duty to either return the check or send notice of dishonor, the Supreme Court properly granted those branches of the defendants' motion which were to dismiss the first three causes of action, all of which sounded in negligence.

(Mike Frisch)

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