Proactive Dealer Services, Inc. v. TD Bank

Duffy, J.,

dissents, and votes to reverse the order and grant the plaintiff’s motion for summary judgment on the complaint, with the following memorandum: I disagree with the majority’s conclusion that, in opposition to the plaintiff’s prima facie showing of its entitlement to judgment as a matter of law, the defendants raised a triable issue of fact. Therefore, I would reverse the order of the Supreme Court and grant the plaintiff’s motion for summary judgment on the complaint.

Pursuant to the theories of law argued by the parties under articles 3 and 4 of the UCC (see Misicki v Caradonna, 12 NY3d 511 [2009]), the plaintiff is entitled to summary judgment. In an action pursuant to UCC article 3, a bank opposing a customer’s motion for summary judgment as to its liability for payment of a forged instrument must submit evidence of the bank’s procedures that it used to detect forged signatures (see UCC 3-406; Mouradian v Astoria Fed. Sav. & Loan, 91 NY2d 124, 131 [1997]). Similarly, a bank opposing a customer’s mo*1220tion for summary judgment as to its liability for a breach of its duty of care to its customer under article 4 must submit evidence of “action or non-action consistent with clearing house rules ... or with a general banking usage not disapproved by this Article” (UCC 4-103 [3]; see UCC 4-406 [3]; see also J. Sussman, Inc. v Manufacturers Hanover Trust Co., 140 AD2d 668, 669 [1988]; Five Towns Coll. v Citibank, 108 AD2d 420, 427 [1985]). In essence, the evidence necessary for a bank to rebut a prima facie showing of entitlement to judgment as a matter of law is comparable under articles 3 or 4 of the UCC (see Putnam Rolling Ladder Co. v Manufacturers Hanover Trust Co., 74 NY2d 340, 347 [1989] [article 4]; Kersner v First Fed. Sav. & Loan Assn. of Rochester, 264 AD2d 711, 714 [1999] [article 3]; Five Towns Coll. v Citibank, 108 AD2d 420, 427 [1985] [articles 3 and 4]), and is akin to the commercial reasonableness requirement of article 4-A. Pursuant to UCC 4-A-202, a bank is liable to its customer for the unauthorized transfer of funds from a customer’s account unless the bank can demonstrate that “a commercially reasonable security procedure is in place (or has been offered to the customer)” (Regatos v North Fork Bank, 5 NY3d 395, 402 [2005], citing UCC 4-A-202 [2005]; see Banque Worms v BankAmerica Intl., 77 NY2d 362, 375 [1991]).

As the majority notes, a bank can avoid liability if it demonstrates that the customer’s negligence substantially contributed to a material alteration of the instrument at issue or to the making of an unauthorized signature and that the bank acted in good faith and in accordance with reasonable commercial standards (see UCC 3-406; R.A. Contr. Co. v JP Morgan Chase Bank, N.A., 109 AD3d 600, 601 [2013]; Kersner v First Fed. Sav. & Loan Assn. of Rochester, 264 AD2d 711, 714 [1999]). However, I disagree with the majority’s conclusion that the facts asserted by TD Bank raise a triable issue of fact in this regard.

Notably, in R.A. Contr. Co. v JP Morgan Chase Bank, N.A. (109 AD3d 600 [2013]), a case relied upon by the majority, this Court reversed a grant of summary judgment to the defendant bank in an action by the plaintiff to recover monies drawn from the plaintiff’s business checking account at the defendant bank. In that case, this Court reinstated the complaint, which alleged that the defendant bank paid out on four allegedly forged checks, finding that the bank in that case had failed to show that it acted in a commercially reasonable manner, as it did not submit evidence of the procedures used to detect forged signatures (109 AD3d at 601). Similarly, in Kersner v First Fed. *1221Sav. & Loan Assn. of Rochester (264 AD2d 711, 714 [1999]), this Court expressly rejected the defendant bank’s contention that UCC 3-406 precluded the plaintiff, who had made a check payable to himself, from recovering against the bank for the proceeds of that check. There, this Court held that the record in that case did not establish that the bank acted in good faith and in accordance with reasonable commercial standards in paying out the subject check (see id. at 714).

Likewise, here, although the affidavit of a then-assistant branch manager of TD Bank averring that he received the verbal authorization of Pappas, a person unknown to him, by telephone and that he had “confirmed [Pappas’s] identity by asking him for information, including information about his account that only the account owner would know,” may raise an issue as to whether Pappas’s actions constituted negligence that substantially contributed to the funds being withdrawn from the account, such facts are insufficient to raise a triable issue of fact, as TD Bank has made no showing whatsoever that it acted in accordance with reasonable commercial standards. The affidavit, which omits any specifics as to what was asked of Pappas, whether the questions that were purportedly asked comported with TD Bank’s security procedures, or even what TD Bank’s security procedures are, fail to establish that TD Bank had any security procedures, let alone commercially reasonable procedures, in place to verify that the plaintiff had in fact authorized the transfer (see e.g. Howard v Stanger, 122 AD3d 1121, 1125 [2014]; Eastern Sav. Bank, FSB v Brown, 112 AD3d 668, 670 [2013]; John Deere Ins. Co. v GBE / Alasia Corp., 57 AD3d 620 [2008]). As TD Bank proffered no evidence whatsoever of its security procedures, nor did it detail the specifics of how it purportedly verified the authorization at issue, it failed to raise a triable issue of fact as to whether it acted in accordance with reasonable commercial standards, and cannot rely on UCC 3-406 to shield itself from strict liability.

Accordingly, TD Bank’s failure to raise a triable issue of fact as to whether it comported with the commercially reasonable security procedure requirements of the relevant provisions of the UCC warrants the grant of summary judgment to the plaintiff (see Mouradian v Astoria Fed. Sav. & Loan, 91 NY2d at 131; National Union Fire Ins. Co. of Pittsburgh, Pa v Castellano, 102 AD3d 662, 663 [2013]).