Case Title: Greenberg, Trager & Herbst, LLP v. HSBC Bank USA, et al.

Citation: 2011 NY Slip Op 07144

Docket Number: 

State: new-york

Court: New York Appellate Court

Date: 2011-10-13T00:00:00Z

Document:
=================================================================
This opinion is uncorrected and subject to revision before
publication in the New York Reports.
-----------------------------------------------------------------
No. 152  
Greenberg, Trager & Herbst, LLP,
            Appellant,
        v.
HSBC Bank USA and Citibank, N.A.,
            Respondents.
(And a Third-Party Action.)
Kalvin Kamien, for appellant.
Preston L. Zarlok, for respondent HSBC Bank USA.
Barry J. Glickman, for respondent Citibank, N.A.
CIPARICK, J.:                                                     
In this dispute between a law firm and two banks, the
issues presented are (1) the scope of the duty a payor bank owes
to a non-customer depositor of a counterfeit check and (2) the
scope of the duty a depository bank owes its customer when it
acts as a collecting bank during the check collection process. 
- 1 -
- 2 -
No. 152
We conclude that neither the depository/collecting bank nor the
payor bank violated any duty owed to the depositor and that
summary judgment dismissing the complaint was properly granted.
I.
Plaintiff Greenberg, Trager and Herbst, LLP (GTH) is a
law firm primarily involved in construction litigation law.  In
September 2007, a partner at GTH received an e-mail from a
representative of Northlink Industrial Limited (Northlink), a
Hong Kong company.  The e-mail stated that Northlink was looking
for legal representation to, among other things, assist it in the
collection of debts owed by its North American customers.  A
series of e-mails followed discussing the nature of Northlink's
desired representation.  At some point, GTH indicated a
willingness to represent Northlink and requested a $10,000
retainer.  The law firm was informed that a Northlink customer
had sent a payment to GTH and that GTH could take its retainer
from those funds.  A Citibank check for $197,500 was received by
GTH and GTH was instructed, via e-mail, to remit the funds to
Northlink while retaining $10,000 as a retainer.  The e-mail also
provided wiring instructions to Citibank in Hong Kong.  On
Friday, September 21, 2007, GTH deposited the check into its
attorney trust account at HSBC.   
The next business day, Monday, September 24th, the HSBC
account reconciliation department processed the check and
pursuant to the federal funds availability law provisionally
- 2 -
- 3 -
No. 152
credited GTH's account for $197,750.   HSBC, like most commercial
banks, presents its checks through the Federal Reserve Bank. 
HSBC determines which Federal Reserve Bank should receive the
check for presentment to the appropriate payor bank by utilizing
the American Banking Association (ABA) routing number located on
the bottom of the check.  The routing number is part of the
microencoding number (MICR) on the bottom of every check.  The
routing number on the bottom of this check read 026009645. 
According to HSBC, this routing number indicated that the check
should be sent to the Federal Reserve Bank of Philadelphia (FRBP)
for presentment to the appropriate payor bank.  Accordingly, HSBC
sent the check to FRBP for processing.  FRBP presented an image
replacement document (IRD)1 of the check to Citibank's Item
Processing North Department in Englewood Cliffs, New Jersey (Item
Processing North) that same day. 
According to Citibank, Item Processing North processes
only checks with the following three routing numbers: 02100089,
021272655 and 221172610.  If a check contains a routing number
other than one of these three routing numbers, the check cannot
be processed by Item Processing North because it only has access
to account information associated with the three routing numbers. 
Because the routing number was not recognized by Item Processing
1  An image replacement document is a digital representation
of the check and maintains the status of a legal check in lieu of
the original check. 
- 3 -
- 4 -
No. 152
North, the automated sorting system directed the IRD to the
reject pocket.  This happens when there is an issue with the MICR
on the check.2  An Image Processing North clerk examined the IRD
and determined that the routing number was not a number that
belonged to Image Processing North.  Image Processing North sent
the IRD back to FRBP, with the notation "sent wrong."  The FRBP
sent the IRD back to HSBC. 
HSBC received the IRD with the notation "sent wrong"
the next day, September 25, 2007.3  According to HSBC, when a
check is returned for reasons other than dishonor, such as a
damaged or illegible routing number, it is known in the industry
2  According to Citibank, approximately 2% of scanned checks
are redirected to the reject pocket each day.  The checks are
then manually reviewed to determine why they were rejected.
3 GTH notes that an internal HSBC document states that the
check was returned for "insufficient funds."  HSBC explained that
this internal document is a print out from HSBC's returned
imaging system, which contains a true and accurate copy of the
check.  The image of the check itself has the notation, from
Citibank, "sent wrong."  HSBC further explained that when a check
image is placed into HSBC's returned image system, descriptive
information is associated with it.  The default setting for the
descriptive information is "insufficient funds."  According to
HSBC, an operator did not adjust the default setting and,
therefore, the descriptive information read "insufficient funds." 
However,  Citibank did not indicate that the check had been
returned for insufficient funds, and there is no indication on
the image of the check itself that it was returned for
insufficient funds.  Moreover, there is no evidence that HSBC
treated the check as one that had been returned for insufficient
funds.  
- 4 -
- 5 -
No. 152
as an "administrative return."  HSBC also noted that when a payor
bank dishonors a check, HSBC typically receives an Electronic
Advance Return System (EARNS) notification.  HSBC did not receive
such a notice on September 24 or 25.  Because the check was
marked "sent wrong," HSBC assumed that there was a problem with
the routing number that required repairing.  HSBC then repaired
the routing number by utilizing the partial routing number
located on the top right hand corner of the check.  HSBC, using
the repaired routing number, determined that the check actually
belonged to Citibank, Las Vegas.  HSBC placed the repaired
routing number on the bottom of the check.  On September 26,
2007, HSBC sent the check to the Federal Reserve Bank, San
Francisco (FRBS).  HSBC never informed GTH of the "administrative
return" of the check.  
On September 27, 2007, a GTH partner called a
representative of HSBC inquiring as to whether the check had
"cleared" and if the funds were available for disbursement. 
According to GTH, a five year banking relationship existed
between them.4  GTH was informed that the funds were available. 
Later that day, GTH wired $187,500 from its account to Hong Kong
pursuant to the wiring instructions it received from Northlink. 
GTH claims that, but for the assurance that the check had
4  The contents of this conversation are disputed, with HSBC
having a different recollection of the conversation.  For
purposes of this summary judgment motion we must accept the
version as proffered by GTH.
- 5 -
- 6 -
No. 152
"cleared," it would not have forwarded the funds.  On September
28, 2007, HSBC confirmed to GTH that the wire transfer had been
consummated.
On October 2, 2007, HSBC received an EARNS notice from
Citibank that the check was being dishonored as "RTM [return to
maker] Suspect Counterfeit."  An HSBC Branch Manager later
contacted GTH, informing them that the check had been dishonored
and returned as counterfeit.  HSBC then revoked its provisional
settlement and charged back GTH's account.
On October 17, 2007, GTH commenced this action against
HSBC and Citibank sounding in conversion and conspiracy;5
negligence and negligent misrepresentation by HSBC for failure to
inform GTH that the check had been returned and dishonored on
September 25, and for informing GTH over the phone that the funds
had "cleared" and were available for disbursement; and negligence
by Citibank for failing to detect that the check was counterfeit
when it was originally presented to Image Processing North on
September 24.  Both Citibank and HSBC moved for summary judgment
dismissing the complaint.  Supreme Court ruled from the bench
that HSBC had no duty under the Uniform Commercial Code (UCC) to
inform GTH that the check had been returned "sent wrong" on
September 25th, but rather that the dishonor actually took place
5  GTH does not address its claims for conversion or
conspiracy on this appeal and these claims appear to have been
abandoned.
- 6 -
- 7 -
No. 152
when HSBC discovered the check was "Suspect Counterfeit."  The
court granted both HSBC and Citibank's motions and dismissed the
complaint in its entirety.  
The Appellate Division affirmed, holding that because
the check had not been dishonored pursuant to UCC 4-212,6 HSBC
had no duty to inform GTH of the administrative return of the
check.  The court further held that, even if an HSBC employee
misrepresented that the check had cleared, GTH's reliance on such
a misrepresentation does not give rise to an action for negligent
misrepresentation barring a fiduciary relationship, which, it
said, does not exist between a bank and its customer.  The court
additionally found that if the principle of estoppel governs the
case, GTH was in the best position to guard against the risk of a
counterfeit check by knowing its client.  The court finally
stated that the personnel at Citibank were not in a position to
discern whether the check was counterfeit and had no duty to
inform HSBC at that time (see Greenberg, Trager & Herbst, LLP v
HSBC Bank USA, 73 AD3d 571, 572 [1st Dept 2010]).  We granted GTH
leave to appeal (15 NY3d 707 [2010]) and now affirm.
II.
6  UCC 4-212 (1) states that a collecting bank retains its
right to charge back to a customer's account any provisional
credit it has given if, upon an item's dishonor, the bank
"returns the item or sends notification of the facts" by the
midnight deadline.  The midnight deadline "is midnight on [a
bank's] next banking day following the banking day on which it
receives the relevant item" (see UCC 4-104 [1] [h]). 
- 7 -
- 8 -
No. 152
The manner in which checks are processed by banks is
governed by the Uniform Commercial Code.  The UCC defines a
"Depository Bank" as "the first bank to which an item is
transferred for collection" (UCC 4-105 [a]).  A "Collecting Bank"
is defined as "any bank handling the item for collection except
the payor bank" (UCC 4-105 [d]).  A "Payor Bank" is defined as "a
bank by which an item is payable as drawn or accepted" (UCC 4-105
[b]).  An "Intermediary Bank" is defined as "any bank to which an
item is transferred in course of collection except the depository
or payor bank" ([UCC 4-105 [c]).   
In a typical check presentation scenario, a bank
customer deposits a check at its bank, the depository bank. 
After deposit by the customer, the depository bank either
presents the check to the payor bank, or as is more commonplace,
the depository bank sends the check to a clearing house, which
acts as an intermediary bank.  Once the depository bank sends the
check to the intermediary bank, the depository bank becomes a
collecting bank.  The intermediary bank then presents the check
to the payor bank (at which time the intermediary bank is also a
collecting bank).  When the check is received by the payor bank,
it either pays the check, returns the check or dishonors the
check.
The UCC prescribes the duties the various banks owe to
a depositor.  A collecting bank must use ordinary care in
presenting a check or sending a check for presentment, sending
- 8 -
- 9 -
No. 152
notice of dishonor or non-payment or returning a check, and
settling the check when the collecting bank receives final
settlement from the payor bank (see UCC 4-202 [1]).  A collecting
bank has until midnight of the next banking day (its "midnight
deadline" (UCC 4-104 [h]) to take the above actions when
receiving a check, notice of dishonor or final settlement of the
check (see UCC 4-202 [2]).  In other words, whenever a collecting
bank receives a check from a depositor or notice or settlement
from the payor bank it must act on it by midnight the next
banking day. 
A payor bank must, by its "midnight deadline" (UCC 4-
104 (h)]), pay the item (see UCC 4-302), return the item or send
written notice of dishonor or nonpayment (see UCC 4-301).  Final
settlement of a check occurs when the payor bank has paid the
item or fails to return the check, or sends written notice of
dishonor or non-payment of the check by its midnight deadline
(see UCC 4-301 [1], 4-302 [a]). 
Pursuant to the Expedited Funds Availability Act (12
USC § 4001), banks are required to make funds from a deposited
check available for the depositor's withdrawal within certain
short time periods (see 12 USC § 4002 [b] [1]).  The purpose of
the "[a]ct is to provide faster availability of deposited funds"
(Haas v Commerce Bank, 497 F Supp 2d 563, 565 [SD NY 2007]). 
This availability is provisional and the collecting bank has the
right to charge back the amount if the check is dishonored or the
- 9 -
- 10 -
No. 152
bank fails to receive a settlement for the check (see UCC 4-212).
In this case, GTH deposited the check into its account
at HSBC on Friday, September 21, 2007.  The next business day,
Monday, September 24, 2007, HSBC, within its midnight deadline,
sent the check to FRBP for presentation, as well as provisionally
making the funds available to GTH.  FRBP presented the check to
Citibank on that same day.  Citibank returned the check as "sent
wrong," within its midnight deadline, on September 25, 2007.  On
September 26, 2007, within its midnight deadline, HSBC repaired
the routing number of the check and sent it to the FRBS, which
ultimately dishonored it as counterfeit on October 2, 2007.
III.
GTH claims that Citibank was negligent in breaching its
obligation to implement effective procedures for detecting
counterfeit checks in that it failed to detect that the item was
fraudulent when Citibank processed the check at Item Processing
North.  GTH notes the uncontroverted fact that on September 24,
2007, the day Citibank returned the check in question to the
FRBP, Citibank returned at least six other checks, each in the
identical amount of $197,750, which should have put Citibank on
notice that something was amiss.  Additionally, Citibank admits
that the personnel who reviewed checks after being sent to the
reject packet were not trained to determine if they were
counterfeit.  In short, it is clear that Citibank did nothing to
determine if the check was counterfeit prior to returning it to
- 10 -
- 11 -
No. 152
FRBP.
To establish a cause of action sounding in negligence,
a plaintiff must establish the existence of a duty on defendant's
part to plaintiff, breach of the duty and damages (see Akins v
Glens Falls City School Dist., 53 NY2d 325, 333 [1981]). 
Plaintiff alleges that Citibank owed it a duty to have procedures
in place to detect counterfeit checks.  For this proposition
plaintiff cites Putnam Rolling Ladder Co. v Manufacturers Hanover
Trust Co. (74 NY2d 340 [1989]) and Monreal v Fleet Bank (95 NY2d
204 [2000]). 
The duty of a payor bank (in this case Citibank) to a
non-customer depositor of a check is derived solely from UCC 4-
301 and 4-302.  UCC 4-301 provides in pertinent part:
"(1) Where an authorized settlement for a
demand item . . . received by a payor bank .
. . has been made before midnight of the
banking day of receipt the payor bank may
revoke the settlement and recover any payment
if before it has made final payment . . . 
and before its midnight deadline it
 
(a) returns the item; or 
(b) sends written notice of dishonor or
nonpayment if the item is held for protest or
is otherwise unavailable for return."
UCC 4-302 (a) provides that a payor bank is liable for an item
received by the payor bank if it "does not pay or return the item
or send notice of dishonor until after its midnight deadline"
(emphasis added).  In this case, it is uncontroverted that
Citibank returned the check to FRBP within its midnight deadline. 
- 11 -
- 12 -
No. 152
GTH's reliance on Putnam and Monreal is unavailing. 
Those cases dealt with claims by a customer of a payor bank for
that payor bank's failure to exercise ordinary care with regards
to forged checks drawn on the customer's account and examined the
duties owed by a payor bank to its customers (see Putnam, 74 NY2d
at 343-346; Monreal, 95 NY2d at 206-207).  These duties are
codified in article 4, part 4 of the UCC.  Specifically, the duty
of a payor bank to exercise ordinary care in paying a customer's
item is found in UCC 4-406 (3).7 
In this case, GTH is not a customer of Citibank and the
duties codified in UCC 4-406 (3) are not applicable here. 
Moreover, there was never any payment made by Citibank on the
check.  In short, the only duty Citibank owed GTH was to pay the
check, return the check or send notice of dishonor of the check
by midnight of the next banking day after receiving the check. 
It is uncontroverted that Citibank returned the check within its
midnight deadline.  Because GTH cannot establish any duty owing
from Citibank that was breached, GTH's claims against Citibank
7  UCC 4-406 (1) requires that a customer examine its bank
statement to determine if there are any unauthorized signatures
or alterations on any item and notify its bank promptly.  UCC 4-
406 (2) states that if the bank establishes that the customer
failed to comply with subsection (1) with respect to an item, the
customer is precluded from asserting against the bank its
unauthorized signature or any alteration of the item.  UCC 4-403
(3) provides: "The preclusion under subsection (2) does not apply
if the customer establishes lack of ordinary care on the part of
the bank in paying the item" (emphasis added). 
- 12 -
- 13 -
No. 152
were properly dismissed.  
IV.
As against HSBC, GTH alleges two causes of action. 
First, it alleges negligent misrepresentation as a result of HSBC
informing GTH that the check had "cleared"8 and the funds were
available for transfer and second, it alleges negligence for
failing to inform GTH and charge back the check on September
26th, when it was originally returned on September 25th by
Citibank via FRBS.
As for the claim of negligent misrepresentation,
"liability for negligent misrepresentation has been imposed only
on those persons who possess unique or specialized expertise, or
who are in a special position of confidence and trust with the
injured party such that reliance on the negligent
misrepresentation is justified" (Kimmell v Shaefer, 89 NY2d 257,
263 [1996]).  "[T]he relationship between a bank and its
depositor is one of debtor and creditor" (Brigham v McCabe, 20
NY2d 525, 530 [1967]; see also Solicitor for Affairs of His
Majesty's Treasury v Bankers Trust Co., 304 NY 282, 291 [1952])
and "an arms length borrower-lender relationship . . . does not
8  We note that GTH, in its own words, asked HSBC if the
check had "cleared."  "The term 'cleared' is not employed in the
UCC and, as commonly used, is not the equivalent of 'final
settlement'" (Call v Ellenville Natl. Bank, 5 AD3d 521, 524 [2d
Dept 2004]).
- 13 -
- 14 -
No. 152
support a cause of action for negligent misrepresentation"
(Dobroshi v Bank of Am., N.A., 65 AD3d 882, 884 [1st Dept 2009];
see also Aaron Ferer & Sons Ltd. v Chase Manhattan Bank, Natl.
Assn., 731 F2d 112, 123 [2d Cir 1984]; Korea First Bank of N.Y. v
Noah Enters., Ltd., 12 AD3d 321, 323 [1st Dept 2004], lv denied 4
NY3d 710 [2005]; River Glen Assoc. v Merrill Lynch Credit Corp,
295 AD2d 274, 275 [1st Dept 2002]; FAB Indus. v BNY Fin. Corp.,
252 AD2d 367, 367 [1st Dept 1998]).  This is true even if there
is a long standing relationship between the customer and a
particular bank employee (see Manufacturers Hanover Trust Co. v
Yanakas, 7 F3d 310, 318 [2d Cir 1993]; Bennice v Lakeshore Sav. &
Loan Assn. 254 AD2d 731, 732 [4th Dept 1998]) or "if the parties
are familiar or friendly" (Call, 5 AD3d at 523).  
GTH argues that, pursuant to UCC 4-201, HSBC was an
agent of GTH during the period that HSBC was acting as a
collecting bank for plaintiff.  UCC 4-201 (1) provides, in
pertinent part, that "prior to the time that a settlement given
by a collecting bank for an item is or becomes final . . . the
bank is an agent or sub-agent of the owner of the item and any
settlement given for the item is provisional."  GTH thus claims
that pursuant to this agency relationship, HSBC owed a fiduciary
duty to GTH.  HSBC claims that it owed no fiduciary duty, and
also relies on a waiver contained in the contract between GTH and
HSBC.  That contract contained the following provision:
"BALANCE INFORMATION
- 14 -
- 15 -
No. 152
Balances change frequently throughout a
business day.  You hereby waive any claim
against the Bank based on representations
made by the Bank, either orally or in writing
to you or your authorized person, or to any
other party regarding balance information" 
Although an agent owes a duty to its principal to
disclose all material facts that come to its knowledge regarding
the scope of the agency (see Kirschner v KPMG LLP, 15 NY3d 446,
480 [2010]), the purpose of UCC 4-201 is not to impose a
fiduciary duty on a collecting bank.  We have interpreted the
statute such that the use of the term "agent" means that the item
and any inherent risk in that item remains with the depositor and
not the collecting bank  (see Hanna v First Natl. Bank of
Rochester, 87 NY2d 107, 119 [1995] ["[a] collecting bank acts as
the agent of its customer, and until such time as the collecting
bank receives final payment, the risk of loss continues in the
customer, the owner of the item"]; Long Is. Natl. Bank v Zawada,
34 AD2d 1016, 1017 [2d Dept 1970] ["(Section 4-201) operates to
keep the risk of loss upon the owner of the item rather than the
bank and gives to the depositary bank a right to reimbursement
superior to the owner's rights to the proceeds and superior to
the rights of the owner's creditors"]).
 
To resolve this case, we do not need to decide whether
the relationship between GTH and HSBC would preclude all possible
claims for negligent misrepresentation, but it is clear that the
claim GTH asserts here cannot succeed, even accepting as true, as
we must at this stage of the litigation, GTH's version of the
- 15 -
- 16 -
No. 152
conversation with the representative at HSBC.  GTH's claim is
based on the alleged oral statement by the HSBC representative
that the check had "cleared" -- an ambiguous remark that may have
been intended to mean only that the amount of the check was
available (as indeed it was) in GTH's account.  Reliance on this
statement as assurance that final settlement had occurred was,
under the circumstances here, unreasonable as a matter of law.
GTH's claim of negligence against HSBC alleges that
HSBC owed a duty to GTH to inform it and charge its account back
pursuant to UCC 4-212 (1) when the check was first returned
marked "sent wrong" to HSBC on September 25th.  GTH argues that
the return of the check was a dishonor of the check, thereby
triggering HSBC's duty to inform GTH and charge back its account
by the midnight deadline (i.e., September 26th, the day before
GTH wired the funds).  UCC 4-212 (1) provides:
"If a collecting bank has made provisional
settlement with its customer for an item and
itself fails by reason of dishonor,
suspension of payments by a bank or otherwise
to receive a settlement for the item which is
or becomes final, the bank may revoke the
settlement given by it, charge back the
amount of any credit given for the item to
its customer's account or obtain refund from
its customer whether or not it is able to
return the items if by its midnight deadline
or within a longer reasonable time after it
learns the facts it returns the item or sends
notification of the facts. These rights to
revoke, charge-back and obtain refund
terminate if and when a settlement for the
item received by the bank is or becomes
final[.]"
However, the duty a collecting bank owes to a depositor
- 16 -
- 17 -
No. 152
is that of ordinary care in handling the item (see UCC 4-202). 
The UCC does not define "ordinary care," but it should be read as
to have its normal tort meaning (see Putnam, 74 NY2d at 346). 
Other courts have determined that while "ordinary care [should]
be [understood to have] its normal tort meaning, the realities of
the modern banking system cannot be ignored in evaluating a
bank's negligence" (United States Fid. and Guar. Co. v Federal
Reserve Bank of New York, 590 F Supp 486, 499 [SD NY 1984]
[internal quotation marks omitted]).   HSBC argues that when the
check was returned "sent wrong," it was, what is known in the
banking industry, an "administrative return."  An "administrative
return" occurs when the routing number on the check is damaged or
unreadable.  When such a return occurs, the bank will do more
research, repair the routing number and resubmit the check, which
is what happened here.  According to HSBC, this type of return is
not a dishonor of the check.  The check was, in HSBC's view,
still being processed.
GTH argues that the UCC does not provide for an
"administrative return" of a check and, therefore, the return of
the check was a dishonor of the check.  HSBC responds that it
acted with "ordinary care" because treating a check returned in
this manner as an "administrative return," repairing the routing
number and representing the check is the custom and practice of
the banking industry (see Trimarco v Klein, 56 NY2d 98, 105-106
[1982]).  HSBC proffered the affidavit of its Assistant Vice
- 17 -
- 18 -
No. 152
President and First Shift Manager in the Exceptions Processing
Department of HSBC as evidence that "administrative returns"
occur periodically in the banking industry and are dealt with by
repairing the routing number and representing the check.  The
record demonstrates that HSBC acted with ordinary care (see
Putnam, 74 NY2d at 347 ["by showing that it acted in accordance
with general banking rules or practices, a bank can ensure that
its conduct at least prima facie meets an ordinary care
standard"]).  GTH, by contrast, offered no evidence in support of
its claim that the bank acted unreasonably (see id. at 346 ["a
customer could prove a bank lacked ordinary care by presenting
any type of proof that the bank failed to act reasonably"]).  GTH
relies on HSBC's internal document that noted that the check was
returned for insufficient funds as evidence the check was
dishonored on September 25th.  However, the courts below properly
accepted HSBC's explanation that the document stating the check
was returned for insufficient funds was a clerical error.  In
sum, because GTH offered no proof that HSBC failed in its duty to
exercise ordinary care in the handling of the check, and no
issues of fact remain, the claim for negligence against HSBC
likewise fails.
V.
 Finally, GTH argues that it should prevail against
both defendants under the theory of equitable estoppel.  This
argument is unavailing.  Under the doctrine of equitable
- 18 -
- 19 -
No. 152
estoppel, when innocent parties suffer from the acts of a third
person, the party that enabled the third person must bear the
loss (see Bunge Corp. v Manufacturers Hanover Trust Co., 31 NY2d
223, 228 [1972]).  Here, neither Citibank nor HSBC breached any
duty owed to GTH.  
GTH argues that the banks were in the best position to
determine that the check was counterfeit.  However, the Appellate
Division held, and we agree, that "[GTH] was in the best position
to guard against the risk of a counterfeit check by knowing its
'client'" (Greenberg, 73 AD3d at 572).  Additionally,
"the UCC has the objective of promoting
certainty and predictability in commercial
transactions.  By prospectively establishing
rules of liability that are generally based
not on actual fault but on allocating
responsibility to the party best able to
prevent the loss by the exercise of care, the
UCC not only guides commercial behavior but
also increases certainty in the marketplace
and efficiency in dispute resolution"
(Putnam, 74 NY2d at 349).
The UCC is clear that, until there is final settlement of the
check, the risk of loss lies with the depositor (see Hanna, 87
NY2d at 119).  Final settlement of a check occurs when the payor
bank has:
"(a) paid the item in cash; or
(b) settled for the item without reserving a
right to revoke the settlement and without
having such right under statute, clearing
house rule or agreement; or
(c) completed the process of posting the item
to the indicated account of the drawer, maker
or other person to be charged therewith; or
- 19 -
- 20 -
No. 152
(d) made a provisional settlement for the
item and failed to revoke the settlement in
the time and manner permitted by statute,
clearing house rule or agreement" (UCC 4-213
[1]).
It is uncontroverted that since none of the above actions
occurred in this case prior to October of 2007, the risk remained
with GTH and HSBC retained the right to charge back plaintiff's
account pursuant to UCC 4-212.  Since GTH cannot establish that
defendants breached any duty owed, the courts below have
correctly determined that no triable issues of fact exist and
properly awarded summary judgment in favor of the defendant
banks.
Accordingly, the order of the Appellate Division should
be affirmed, with costs.  
- 20 -
Greenberg, Trager & Herbst, LLP v HSBC Bank USA and Citibank,
N.A.
No. 152 
PIGOTT, J. (dissenting in part):
I believe that HSBC is not entitled to summary judgment
on GTH's negligent misrepresentation claim. 
Under New York's Uniform Commercial Code, "[i]f a
collecting bank has made provisional settlement with its customer
for an item and itself fails by reason of dishonor, suspension of
payments by a bank or otherwise to receive a settlement for the
item which is or becomes final," the bank may revoke the
settlement and charge back the amount of any credit given for the
item to the customer's account (UCC § 4-212 [1]).  "The right to
charge-back is not affected by . . . failure by any bank to
exercise ordinary care with respect to the [check] but any bank
so failing remains liable" (id. at § [4] [b] [emphasis
supplied]).  Thus, a bank has a duty to exercise ordinary care
when dealing with its customers (Aiken Constr. of Rome v Simons,
284 AD2d 946, 947 [4th Dept 2001]).  The term "ordinary care" is
used with its normal tort meaning and not in any special sense
relating to bank collections.  A customer may prove a bank
"lacked ordinary care by presenting any type of proof that the
bank failed to act reasonably" (Putnam Rolling Ladder Co. v
Manufacturers Hanover Trust Co., 74 NY2d 340, 346 [1989]). 
- 1 -
- 2 -
No. 152
Further, section 4-103 (1) states that: 
"The effect of the provisions of this Article
may be varied by agreement except that no
agreement can disclaim a bank's
responsibility for its own lack of good faith
or failure to exercise ordinary care or can
limit the measure of damages for such lack or
failure . . ."
In this case, GTH alleges that on September 27, 2007,
David A. Trager, a partner at GTH, telephoned his contact at
HSBC, Frances Scott, to inquire about the status of the Citibank
check.  Trager and Scott had a five-year banking relationship,
whereby Trager would call Scott to confirm that checks deposited
into GTH's trust account had cleared and were available for
disbursement.  Scott informed Trager that the Citibank check had
"cleared" and that the funds were available to be wired to
another account.  Relying in good faith on that statement, Trager
asked Scott to wire proceeds of the check, which she did. 
HSBC makes much of the fact that the word "cleared" is
not found in the UCC and the majority finds it to be ambiguous.
However, UCC § 1-205 defines "course of dealing and usage of
trade" as encompassing "any practice or method of dealing having
such regularity of observance in a place, vocation or trade as to
justify an expectation that it will be observed with respect to
the transaction in question" (UCC § 1-205 [2]). The term
"cleared" is used liberally in the banking business.  Indeed, the
Federal Trade Commission in a bulletin addressed to consumers
states that "it's best not to rely on money from any type of
- 2 -
- 3 -
No. 152
check . . . unless you know and trust the person you're dealing
with or, better yet -- until the bank confirms that the check has
cleared" (Federal Trade Commission Facts for Consumers, Giving
the Bounce for to Counterfeit Check Scams,
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre40.pdf
[January 2007]).  Therefore, I disagree with the majority's
position that relying on this statement was unreasonable as a
matter of law (see majority op at 16).1  I suspect many business
professionals would have done the same thing as Trager. 
Viewing the facts in the light most favorable to GTH,
which we are required to do on this motion for summary judgment,
GTH raises questions of fact as to whether HSBC failed to
exercise ordinary care when Scott misrepresented the status of
the check to Trager (see JP Morgan Chase Bank v Pinzler, 28 Misc
3d 1214 [A] [Sup Ct, New York County 2010]; JP Morgan Chase Bank,
N.A. v. Cohen (26 Misc 3d 1215 [A] [Sup Ct, Albany County 2009]).
Counterfeit check scams are pervasive.  That Citibank
could not recognize one of its own checks as counterfeit is
testament to the seriousness of this problem within the banking
industry.  It is no answer that Citibank and HSBC seemed to
1 If the term “cleared” means anything in common banking
usage, it is that final settlement has occurred (see Black's Law
Dictionary [9th ed 2009] [defining the term as it relates to a
bank as "to pay (a check or draft) out of funds held on behalf of
the maker "] [defining the
term as it relates to "a check or draft" as "to be paid by the
drawee bank out of funds held on behalf of the maker "]). 
- 3 -
- 4 -
No. 152
stumble along over a period of ten days resulting in one of their
customers being bilked out of $187,500.  This problem has long
been known to the banks and a mere recitation of their normal
practices does not, in my view, establish the appropriate
standard of care in this day and age and certainly not their
entitlement to summary judgment. 
Equally unavailing is HSBC's claim that the negligent
misrepresentation claim must fail because GTH waived all claims
concerning GTH's balance information.  Even if GTH waived such
claims, this is not a debate about who said what to whom about an
account balance.  Rather, the issue is whether HSBC told GTH that
the check had cleared and whether GTH could have relied on HSBC's
representations to that effect. 
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
Order affirmed, with costs.  Opinion by Judge Ciparick.  Chief
Judge Lippman and Judges Graffeo, Read, Smith and Jones concur.
Judge Pigott dissents in part in an opinion.
Decided October 13, 2011
- 4 -