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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 11-15804
________________________
D.C. Docket No. 1:10-cv-23244-EGT
ROGER CHAVEZ,
Plaintiff - Appellant,
versus
MERCANTIL COMMERCEBANK, N.A.,
Defendant - Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(November 27, 2012)
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Before BARKETT and PRYOR, Circuit Judges, and BATTEN, * District Judge.
BATTEN, District Judge:
Roger Chavez is a customer of Mercantil Commercebank, N.A. (“the
bank”). This case involves an allegedly fraudulent payment order that resulted in
the bank’s transfer of $329,500 from his account to someone in the Dominican
Republic. Chavez sued the bank to recover the $329,500. In response to Chavez’s
complaint, the bank asserted, inter alia, an affirmative defense premised upon Fla.
Stat. § 670.202(2), which relieves a bank of liability for fraudulent payment orders
in certain situations. The district court granted the bank’s motion for summary
judgment and denied Chavez’s motion for partial summary judgment on this
defense. Chavez appeals.
Generally speaking, under Florida’s version of the Uniform Commercial
Code (“UCC”), if a bank and its customer agree upon a “security procedure,” as
that phrase is defined by Fla. Stat. § 670.201, and the procedure is commercially
reasonable, a bank is absolved of liability for a fraudulent transfer of the
customer’s funds if the bank, when processing an order to transfer the customer’s
funds, follows the security procedure in good faith. See FLA. STAT. §§ 670.201 &
670.202(2). We conclude that the parties’ agreed-upon security procedure does not
*
Honorable Timothy C. Batten, Sr., United States District Judge for the Northern District
of Georgia, sitting by designation.
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satisfy § 670.201 and consequently § 670.202(2) does not apply. Accordingly, we
reverse.
I. BACKGROUND
In September 2002, Chavez, a resident of Venezuela, opened an account
with the bank, which is located in Miami, Florida. Chavez contends that when he
opened his account, the bank created and maintained an electronic file that had a
copy of his passport and that included his address and phone number.
Chavez’s account was subject to the bank’s funds transfer agreement
(“FTA”). Relevant to the current dispute is § 5 of the FTA, which details the
security procedure for the account. In general, a security procedure is a procedure
that the bank uses when processing payment orders in order to verify the
authenticity of the order and to detect any errors in their transmission or content.
FLA. STAT. § 670.201. Section 5 of the FTA provides in pertinent part:
(i) The parties shall comply with the security procedure selected
on Annex 1 to this Agreement (the “Security Procedure”). . . .
(ii) The use of the Security Procedure is hereby accepted and
authorized by the Client and, unless and until any writing that is
signed by the Bank and made a part of this Agreement, the use
of the Security Procedure in the manner set forth in this
Agreement shall be the sole security procedure required with
respect to any Order, and the Client acknowledges and agrees
that: (a) the Bank offers various procedures affording differing
degrees of security; (b) the Security Procedure is sufficient to
protect the interests of the Client in light of the Client’s needs,
and no special circumstances exist with respect to the Client
that would require any other security procedure; and (c) the
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Security Procedure is a method of providing security against
unauthorized Orders that is commercially reasonable under the
circumstances of the Client and in light of the size, type,
frequency and volume of Transfers the Client contemplates
undertaking.
(iii) The Bank may execute any Payment Order and act on any other
instruction relating to the Payment Order and the Payment
Order or instruction shall be effective as the Client’s Order,
whether or not authorized by the Client and regardless of the
actual transmitter, provided that the Bank accepts the Payment
Order or instruction in good faith and in compliance with the
Security Procedure. At its option, the Bank may use, in
addition to the Security Procedure selected by the Client, any
other means to verify any Payment Order or related instruction.
(iv) The Client shall preserve the security and confidentiality of the
Security Procedure and any related devices or materials, and
shall promptly notify the Bank of any suspected compromise of
the integrity of the Security Procedure.
(v) The Client acknowledges that the sole purpose of the Security
Procedure is to determine the authenticity of Orders, and not to
determine their accuracy. . . .
As indicated above, § 5(i) incorporates by reference a document entitled Annex 1,
which lists three different options for security procedures that the bank will use
when processing a customer’s payment orders. Depending on the option,
customers can select one option and at most two options.
Chavez selected only the first option, “Written Payment Orders.” It
provides:
Written Payment Orders shall be delivered by an Authorized
Representative (as defined below) to the Bank either in original form,
in person or by mail, or by facsimile transmission. Each written
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Payment Order must be signed by at least one Authorized
Representative or, if the terms of the account to which the Payment
Order relates (the “Affected Account”) require signature by more than
one Authorized Representative, by the number of Authorized
Representatives so required. Each written Payment Order not
delivered to the Bank in person by an Authorized Representative must
be confirmed by the Bank by telephone callback to any person who
identifies himself or herself to the Bank’s satisfaction as one of the
Authorized Representatives, (irrespective of whether the terms of the
Affected Account require more than one Authorized Representative to
sign Payment Orders)….
For Chavez’s account, he was the only authorized representative. Thus, for written
payment orders delivered in person, Chavez had to sign the payment order.
On February 4, 2008, Chavez flew to Miami and visited the bank’s Doral
branch. He inquired about why he had not been receiving monthly statements, and
he made a large cash deposit. The next day, he returned and made a smaller cash
deposit. On February 6, he returned his rental car to the Miami airport around 6:40
a.m. and flew back to Venezuela.
On February 6, someone purporting to be Chavez went to the Doral branch
with a written payment order for $329,500. Chavez contends that he had already
departed for Venezuela at the time the payment order was delivered to the bank.
The order was processed by bank employee Rossana Gutierrez, who was a greeter
at the bank, but she occasionally performed the responsibilities of a customer
service representative, the type of employee who would typically process a
payment order.
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According to the district court, Gutierrez confirmed (1) the information on
the payment order, (2) the customer’s identity via an identification document
provided by the customer, (3) the sufficiency of funds in the account, (4) the
existence of an FTA for the account, and (5) the authenticity of the signature on the
payment order. She then obtained written approval from two branch officers, Talia
Pina and Lolita Peroza, who then performed additional steps to verify the
authenticity of the payment order. After Pina and Peroza signed off on the order,
Gutierrez submitted the payment order for completion, and on February 7 the funds
were transferred from Chavez’s account to a beneficiary in the Dominican
Republic.
The bank’s security cameras were not working on the day the payment order
was delivered, and Gutierrez did not make a copy of the ID she was shown. As a
result, the identity of the person allegedly impersonating Chavez cannot be
determined. The bank does not concede that the person presenting the payment
order was not in fact Chavez or someone acting on his behalf.
On April 14, 2008, over two months after the payment order was processed,
Chavez checked his account online from Venezuela. He claims that this is when
he first learned that his balance was considerably lower than expected. He called
the bank and allegedly learned for the first time of the February 7 payment order
and transfer of the $329,500.
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On August 6, 2010, Chavez filed this action against the bank in state court,
seeking to recover the $329,500 transferred from his account. The bank timely
removed the action to the U.S. District Court for the Southern District of Florida.
The bank filed a motion for summary judgment in which it argued that its
third affirmative defense, premised upon the safe-harbor provision in § 202, shifted
the risk of loss to Chavez. Chavez filed a motion for partial summary judgment in
which he contended that the bank’s safe-harbor defense failed as a matter of law.
The district court entered an order granting the bank’s motion and denying
Chavez’s. The district court ruled that the safe-harbor provision in § 202(2) shifted
the risk of loss from the bank to Chavez because the parties’ agreed-upon security
procedure satisfied the statutory definition of a “security procedure” contained in
§ 201, the bank’s security procedure was commercially reasonable, and the bank
complied with its security procedure in good faith.
II. STANDARD OF REVIEW
We review de novo a district court’s rulings on cross-motions for summary
judgment, Owen v. I.C. Sys., Inc., 629 F.3d 1263, 1270 (11th Cir. 2011), and the
facts are viewed in the light most favorable to the non-moving party on each
motion, Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328, 1331 (11th Cir.
2005). Summary judgment is appropriate when “there is no genuine dispute as to
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any material fact and the movant is entitled to judgment as a matter of law.” FED.
R. CIV. P. 56(a).
III. DISCUSSION
We divide our discussion into three parts. We begin with a brief overview
of Article 4A of the UCC, which has been adopted in Florida. We then address the
safe-harbor defense and what the bank must show to shift the risk of loss from the
bank to Chavez. Lastly, we address what the parties’ agreed-upon security
procedure actually was and whether that procedure satisfied § 201.
A. Article 4A of the Uniform Commercial Code
As this case involves a payment order, Article 4A of the UCC applies.
Given the oftentimes confusing nature of UCC provisions and case law applying
them, we give a brief overview of the article.
Article 4A, as adopted in Florida, “governs a specialized method of payment
referred to in the Article as a funds transfer but also commonly referred to in the
commercial community as a wholesale wire transfer.” FLA. STAT. § 670.102
cmt. The article is meant to govern the rights, duties and liabilities of banks and
their customers with respect to funds transfers, which may be initiated by a written
payment order. Id. § 670.103.
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The statutes at issue here are Fla. Stat. §§ 670.201 & 670.202. Section 201
defines “security procedure.” Section 202 addresses when a bank can shift the risk
of loss to the customer, i.e., the safe-harbor provision.
Ordinarily, the bank receiving a payment order bears the risk of loss of any
unauthorized funds transfer. FLA. STAT. § 670.204. However, pursuant to § 202
the bank may shift the risk of loss to the customer by showing one of two things:
(1) the “payment order received . . . is the authorized order of the person identified
as sender if that person authorized the order or is otherwise bound by it under the
law of agency,” id. § 670.202(1), or (2) the parties agreed to a security procedure
that is commercially reasonable and that the bank followed in good faith, id.
§ 670.202(2).
Section 202(1) is not before us, as the bank did not rely upon it when filing
its motion for summary judgment. The bank moved for summary judgment
pursuant to only § 202(2), which provides in pertinent part,
If a bank and its customer have agreed that the authenticity of
payment orders issued to the bank in the name of the customer as
sender will be verified pursuant to a security procedure, a payment
order received by the receiving bank is effective as the order of the
customer, whether or not authorized, if the security procedure is a
commercially reasonable method of providing security against
unauthorized payment orders and the bank proves that it accepted the
payment order in good faith and in compliance with the security
procedure and any written agreement or instruction of the customer
restricting acceptance of payment orders issued in the name of the
customer. . . .
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Thus, § 202(2) imposes three requirements: (1) the bank and the customer must
have agreed on a security procedure for verifying payment orders; (2) the agreed-
upon security procedure must be a “commercially reasonable method of providing
security against unauthorized payment orders”; and (3) the bank must have
accepted the payment order in good faith and in compliance with the security
procedure and any relevant written agreement or customer instruction. With
respect to the first requirement, the agreed-upon security procedure must satisfy
the definition of that term in § 201. With respect to the second requirement, the
commercial reasonableness of a security procedure is a question of law for the
court. Id. § 670.202(3).
B. Safe Harbor
The bank based its third affirmative defense on § 202(2), asserting that the
parties’ agreed-upon security procedure was commercially reasonable, it accepted
the payment order in good faith, and consequently the safe-harbor provision shifted
the risk of loss to Chavez. The district court agreed and granted the bank summary
judgment based on this defense.
As stated above, the first element of § 202(2) requires the bank to show that
it and Chavez agreed upon a security procedure and that the procedure satisfies the
definition of that term in § 201. Consequently, this is where we begin our analysis.
It is undisputed that the parties agreed to a security procedure for verifying
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payment orders. However, the parties disagree as to the scope of the agreed-upon
security procedure. Thus, we first identify the security procedure to which the
parties agreed. We then assess whether the agreed-upon procedure satisfies the
definition of “security procedure” contained in § 201.
1. The Agreed-Upon Security Procedure
Chavez contends that the district court misinterpreted the FTA and the
security procedure identified therein. He asserts that § 5 of the FTA “expressly
provides that the sole agreed security procedure is set forth in Annex 1 and shall
remain exclusively so unless and until amended by a writing signed by the bank
and made a part of the contract.” Chavez argues that no such writing exists, and as
a result the security procedure is limited to the annex option selected by Chavez,
i.e., a written payment order signed and delivered by an authorized representative.
The bank responds that Chavez misconstrues the FTA by ignoring § 5(iii),
which provides in part, “At its option, the Bank may use, in addition to the
Security Procedure selected by the Client, any other means to verify any Payment
Order or related instruction.” The bank contends that this language allows it to add
additional procedures—which it actually used—and which, when coupled with the
security procedure set forth in the annex, combine to provide for a security
procedure that satisfies §§ 201 & 202. In other words, the bank asserts that the
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agreed-upon security procedure included both the procedure in the annex and the
“other means” referenced in § 5(iii).
The district court accepted the bank’s position, citing Filho v. Interaudi
Bank, No. 03 Civ. 4795(SAS), 2008 WL 1752693, at *4 (S.D.N.Y. Apr. 16, 2008),
and held that the agreed-upon security procedure was (1) the procedure in the
annex and (2) certain procedures (but not all) the bank, at its option, used when it
processed a payment order.
Section 201 defines a security procedure as a “procedure established by
agreement of a customer and a receiving bank for the purpose of: (1) Verifying that
a payment order or communication amending or canceling a payment order is that
of the customer; or (2) Detecting error in the transmission or the content of the
payment order or communication.” Thus, the security procedure must be one
established by agreement of the parties. To determine what Chavez and the bank
agreed to, we turn to the FTA and the annex.
Section 5(i) of the FTA provides, “The parties shall comply with the security
procedure selected on Annex 1 to the Agreement (the ‘Security Procedure’).”
Thus, the FTA makes the phrase “Security Procedure” a defined term, and through
Chavez’s selection of option one on the annex, limits its meaning to a written
payment order delivered and signed by an authorized representative. The
remainder of § 5 refers solely to “the Security Procedure,” which further shows
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that the parties consistently used the limited term in its defined sense. In addition,
§ 5(ii) states that “the use of the Security Procedure in the manner set forth in this
Agreement shall be the sole security procedure required with respect to any
Order.” (Emphasis added.) This unambiguous language shows that the parties
agreed upon only the security procedure selected by Chavez in the annex.
The district court’s holding that the parties agreed in § 5(iii) that the bank
could use other procedures, in addition to the one selected by Chavez, to satisfy
§ 201 was error. Section 5(iii) provides that the bank “may use . . . any other
means to verify any Payment Order or related instruction.” (Emphasis added.)
Relying on Filho, 2008 WL 1752693, at *4, the district court interpreted § 5(iii) as
broadening the parties’ agreed-upon security procedure to include an identification
verification before execution of payment orders. However, the language of § 5
does not support the district court’s holding.
As discussed above, §§ 5(i) & (ii) of the FTA explicitly limit the agreed-
upon security procedure to the procedure selected by Chavez. Section 5(iii) does
not change that. It provides that the bank “may use, in addition to the Security
Procedure selected by the Client, any other means” to verify payment orders. This
language does not show that the “any other means” is a security procedure. In fact,
it shows just the opposite, as § 5(iii) intentionally sets “any other means” apart
from the defined “Security Procedure.” In addition, the bank—which drafted the
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FTA and therefore will have any ambiguities construed against it—defined “the
Security Procedure” in § 5(i) and chose not to include within that definition the
language in § 5(iii). Consequently, “any other means” is not synonymous with
“additional security procedures agreed upon by the parties,” as the district court
held.
Filho, upon which the district court relied, is inapposite. There, the plaintiffs
signed an agreement that explicitly provided that their bank would “select security
procedures for accepting instructions that are commercially reasonable,” 2008 WL
1752693, at *4, and the court understandably held that in so doing the plaintiffs
had agreed that they would be bound by whatever commercially reasonable
security procedure the bank selected. The court reasoned that as long as the
selected procedure was commercially reasonable, the plaintiffs could not complain
about what the bank selected. What was important was that the agreement, signed
by the plaintiffs, explicitly granted to the bank the right to select the security
procedure.
Section 5(iii) does not do this. Its language that the bank may use “any other
means to verify any Payment Order” does not constitute an agreement by Chavez
that the bank had the power, at its sole discretion, to select any security procedure
as long as the procedure was commercially reasonable. It appears that the bank
drafted § 5(iii) to enable but not require it to use other means when processing
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payment orders, and Chavez could not be heard to complain if the bank failed to
employ those additional security procedures—because the parties never agreed that
the bank would use such additional security procedures. 1 As a result, in § 5(ii)(c)
the parties agreed that only “the Security Procedure [from the annex] is a method
of providing security against unauthorized Orders that is commercially
reasonable.” Conspicuously absent from this provision is incorporation of the “any
other means” provided for in § 5(iii).
The procedure for adding or changing “the Security Procedure” further
supports the conclusion that Chavez did not agree in § 5(iii) that the bank could
choose whatever security procedures it wanted. Section 5(ii) provides that “unless
and until any additional or different procedures are specified in a writing that is
signed by [the bank] and made a part of” the FTA, the only required security
procedure was the one Chavez selected. It is undisputed that there was no writing
modifying the security procedure he selected.
1
As Filho suggests, the bank could edit the FTA to permit it to use commercially
reasonable security procedures without providing additional detail about what those procedures
are; then it would be free to choose whatever procedures it wanted to verify payment orders, of
course mindful that “a bank that chooses unreasonable procedures does so at its own peril.”
Filho, 2008 WL 1756293, at *4. See also Patco Constr. Co. v. People’s United Bank, No. 2:09-
cv-503-DBH, 2011 WL 2174507, at *24 (D. Me. May 27, 2011) (addressing commercial
reasonableness first and not addressing customer’s argument that it did not agree to security
procedures bank used because customer failed to respond to bank’s argument that it had in fact
agreed “expressly and/or implicitly, to the full panoply of security measures implemented by the
Bank.”), rev’d on other grounds, Patco Constr. Co. v. People’s United Bank, 684 F.3d 197 (1st
Cir. 2012).
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The bank contends that § 5(ii) applies only to changes to the annex, not to
the additional security procedures it could add through § 5(iii). However, even
assuming that § 5(iii) actually allows the bank to add additional security
procedures, § 5(ii) does not contain any language that supports the limitation the
bank proposes. Quite plainly, § 5(ii) provides that it applies to additional and
different procedures, and there is nothing therein to suggest that this language
excludes the procedures in § 5(iii). In fact, there is nothing in the FTA that
exempts § 5(iii) from the amendment process; consequently, if we were to accept
the bank’s contention that Chavez agreed that the bank could add additional
security procedures through § 5(iii) without having to comply with § 5(ii), we
would have to negate the amendment process entirely. This is contrary to the basic
rules of contract construction.
The official comment to § 201 also shows that the parties did not agree in
§ 5(iii) that the bank could at its sole discretion use additional security procedures.
The comment explains that the “definition of security procedure limits the term to
a procedure ‘established by agreement of a customer and a receiving bank.’ The
term does not apply to procedures that the receiving bank may follow unilaterally
in processing payment orders.” Section 5(iii)’s language that the bank may use
“any other means to verify any Payment Order” is akin to the procedures a bank
follows in processing payment orders, not procedures established by agreement, as
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required by § 201. And, adopting this interpretation gives effect to both the
amendment process in § 5(ii) and the language in § 5(iii).
In sum, the parties did not agree in § 5(iii) that the bank could add additional
procedures at its discretion; consequently, the only agreed-upon security procedure
is the one Chavez selected in the annex. The district court erroneously concluded
that the security procedure agreed to by the parties included the procedure selected
by Chavez in the annex and the other procedures the bank purportedly added
through § 5(iii). However, this conclusion does not end our analysis of whether
the bank has satisfied the first element of § 202(2). We must next determine
whether the agreed-upon procedure satisfies the definition of “security procedure”
in § 201.
2. “Security Procedure” as Defined in § 201
The security procedure selected by Chavez requires only that payment
orders delivered in person be in writing and delivered and signed by Chavez.
Chavez asserts that this procedure does not satisfy § 201’s definition of a security
procedure because § 201 explicitly disavows the adequacy of the parties’ agreed-
upon security procedure. We agree.
Section 201 states that “[c]omparison of a signature on a payment order or
communication with an authorized specimen signature of the customer is not by
itself a security procedure.” Consequently, the parties’ agreed-upon procedure
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must have at least this and one other step in order to qualify as a § 201 “security
procedure.”
Here, the agreed-upon security procedure does not even require a signature
comparison. In fact, the security procedure is silent as to how the bank would
verify a payment order delivered in person. For example, there is no requirement
that the bank check the identification of the person presenting the payment order to
ensure that Chavez was the one presenting the order. Nor does the FTA (or the
annex) require a signature comparison or verification that the account even allows
payment orders delivered in person. Rather, the agreed-upon procedure imposes
requirements only upon Chavez before he can present a payment order to the bank.
Because the agreed-upon procedure does not specify what the bank would do to
verify a payment order, it cannot satisfy § 201. Consequently, the parties’ agreed-
upon procedure is not in fact a security procedure as defined by § 201, and the
bank failed to shift the risk of loss to Chavez pursuant to § 202(2).
IV. Conclusion
For the foregoing reasons, we hold that the bank and Chavez did not have an
agreed-upon security procedure as that term is defined in § 201. Consequently,
§ 202(2) does not apply to this case, and the bank was not entitled to summary
judgment on its affirmative defense premised thereon. The district court’s order
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granting the bank summary judgment and denying Chavez summary judgment is
REVERSED.
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PRYOR, Circuit Judge, dissenting:
I respectfully dissent. The majority opinion concludes that Chavez and
Mercantil Commercebank agreed only to the security procedure defined in section
5(i) of the Funds Transfer Agreement and that section 5(iii) of the Agreement,
which permits the Bank also to use “any other means” to verify payment orders, is
not part of the parties’ agreed upon security procedure. Majority Opinion at 13–
14. But that conclusion reflects a strained reading of the Agreement and related
provisions of Florida law. Because the Agreement encompassed both the required
and discretionary security procedures, which together here were commercially
reasonable, and the Bank acted in good faith when it accepted the payment order, I
would affirm the judgment in favor of the Bank.
A. The Agreement to Additional Means for Verification of Payment Orders Is Part
of the Agreed Security Procedures.
Under Florida law, Chavez bears the risk of loss for the allegedly fraudulent
payment order if he agreed to a commercially reasonable security procedure, and
the Bank relied on that procedure in good faith when it accepted the payment
order. Florida law defines a “security procedure” in relevant part as “a procedure
established by agreement of a customer and a receiving bank for the purpose of . . .
[v]erifying that a payment order or communication amending or canceling a
payment order is that of the customer.” Fla. Stat. § 670.201. The “security
procedure” under Florida law is not limited to what the parties expressly define as
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the “security procedure,” but incorporates all procedures agreed upon by the
parties to serve that purpose.
These parties agreed to two procedures for verifying the authenticity of
payment orders. Section 5(i) provides that “[t]he parties shall comply with the
security procedure selected on Annex 1 to this Agreement.” And Section 5(iii)
provides that “[a]t its option, the Bank may use, in addition to the Security
Procedure selected by the Client, any other means to verify any Payment Order or
related instruction.” These provisions, when read together, establish that Chavez
agreed to the use of both the required procedure he selected in Annex 1 and any
other security procedures adopted by the Bank, in its discretion, to verify the
payment order.
The majority contends that “any other means” is not synonymous with
“additional security procedures agreed upon by the parties” because the Agreement
had already defined “Security Procedure” in a more limited manner, Majority
Opinion at 13–14, but that argument both misreads the Agreement and Florida law.
Section 5(iii) provides that, “[a]t its option, the Bank may use, in addition to the
Security Procedure selected by the Client, any other means to verify any Payment
Order or related instruction.” Section 5(iii) reflects that the Bank must use the
security procedure selected by the customer in Annex 1 and that the Bank, at its
option, may also employ additional security procedures. The use of the words “in
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addition” and “any other means” clarify that the additional means envisioned are
additional security procedures, as does the location of this provision in section 5,
which is titled “Security Procedure.” And Florida law defines “Security
Procedure” in section 670.201 in language that tracks the text of section 5(iii) of
the Agreement. Section 670.201 defines a security procedure as “a procedure
established by agreement . . . for the purpose of . . . [v]erifying . . . a payment
order,” Fla. Stat. § 670.201, and section 5(iii) permits the Bank to use “any other
means to verify any Payment Order.”
The majority also misreads section 5(ii) of the Agreement. Section 5(ii)
provides, in relevant part, that “unless and until any additional or different
procedures are specified in a writing that is signed by the Bank and made a part of
this Agreement, the use of the Security Procedure in the manner set forth in this
Agreement shall be the sole security procedure required with respect to any
Order.” According to the majority, this language “shows that the parties agreed
upon only the security procedure selected by Chavez in the annex.” Majority
Opinion at 13. But the majority reaches this conclusion by relying on the word
“sole” at the expense of the rest of the provision. See id. The text clarifies that the
security procedure selected in Annex 1 was the “sole security procedure required
with respect to any Order.” But that provision does not undermine the
discretionary authority granted to the Bank in section 5(iii) to adopt additional
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security procedures to verify payment orders. When section 5(ii) is read in the
light of section 5(iii), the meaning of the Agreement is evident. Chavez could not
require the Bank to adopt “any other means” under the Agreement, but he could
also not object to the adoption by the Bank of any other means because he had
agreed to that exercise of discretion by the Bank. Contrary to the majority’s
suggestion, see id. at 16, the amendment process is still meaningful under this
reading because Chavez could not gain greater rights to security under the
Agreement without the consent of the Bank.
The majority attempts to distinguish Filho v. Interaudi Bank, No. 03 Civ.
4795(SAS), 2008 WL 1752693 (S.D.N.Y. Apr. 16, 2008), on the ground that the
agreement in that case “explicitly granted to the bank the right to select the security
procedure,” Majority Opinion at 14, but the Agreement in this appeal too explicitly
granted the bank the right to select an additional security procedure. The only
difference between this case and Filho is that the Agreement in this case also
established a minimum level of security selected by Chavez that the Bank had to
provide to him. The creation of that minimum baseline of security does not
override the additional grant of authority to the Bank to use additional means to
verify the authenticity of payment orders. To the extent that the Bank adopted
additional procedures in this case and those procedures were commercially
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Case: 11-15804 Date Filed: 11/27/2012 Page: 24 of 26
reasonable, the Bank may rely on them under section 202. See Fla. Stat.
§ 670.202(2).
B. The Bank Adopted Commercially Reasonable Procedures.
Although section 5(iii) of the Agreement allowed the Bank to adopt
additional security procedures, those procedures had to be commercially
reasonable for Chavez to bear the risk of loss under section 202. The Bank
performed several security procedures to determine the authenticity of the
allegedly fraudulent order: the Bank employee checked the presenter’s
identification, compared the signature on the written order to the signature on file,
verified the accuracy of the account number provided on the order, reviewed the
availability of sufficient funds to process the requested order, and confirmed that
Chavez had a funds transfer agreement in place for the account.
The security procedures adopted by the Bank for payment orders on
Chavez’s account were commercially reasonable. The Florida statute instructs us
to consider several factors to determine commercial reasonableness:
The commercial reasonableness of a security procedure is a question
of law to be determined by considering the wishes of the customer
expressed to the bank; the circumstances of the customer known to the
bank, including the size, type, and frequency of payment orders
normally issued by the customer to the bank; alternative security
procedures offered to the customer; and security procedures in general
use by customers and receiving banks similarly situated.
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Fla. Stat. § 670.202(3). All of these factors weigh in favor of a finding of
commercial reasonableness. The Bank complied with Chavez’s requested security
procedure and adopted additional procedures for Chavez’s protection. Chavez had
certified in the Agreement that “the Security Procedure is sufficient to protect the
interests of the Client in light of the Client’s needs, and no special circumstances
exist with respect to the Client that would require any other security procedure.”
The Bank offered, and Chavez rejected, two different security procedures that
would have utilized individual passcodes and test keys. And an expert for the
Bank presented undisputed testimony that the security procedures used by the
Bank satisfied the prevailing standards in the banking industry.
C. The Bank Complied with Its Security Procedure in Good Faith When It
Accepted the Payment Order.
The final requirement for the application of the safe harbor provision of
section 202 is that the Bank acted in good faith and in compliance with the agreed-
upon security procedures when it accepted the payment order. See Fla. Stat.
§ 670.202(2). The district court held that “Mercantil acted in good faith in
accepting and processing the subject payment order.” Chavez did not challenge
this holding on appeal. Chavez waived any argument that the Bank did not act in
good faith and in compliance with its security procedures when it accepted the
order. See United States v. Nealy, 232 F.3d 825, 830 (11th Cir. 2000).
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D. Conclusion.
For the foregoing reasons, I respectfully dissent. I would affirm the
judgment in favor of the Bank.
26
Roger Chavez v. Mercantil Commercebank, N.A.
Court: Court of Appeals for the Eleventh Circuit
Date filed: 2012-11-27
Citations: 701 F.3d 896, 79 U.C.C. Rep. Serv. 2d (West) 152, 2012 U.S. App. LEXIS 24358, 2012 WL 5907151
Copy CitationsCombined Opinion