Case Title: Koss Corp. v. Park Bank

Citation: 

Docket Number: 2016AP000636

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2019-01-29T00:00:00Z

Document:
2019 WI 7 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2016AP636 
COMPLETE TITLE: 
Koss Corporation, 
          Plaintiff-Appellant-Petitioner, 
     v. 
Park Bank, 
          Defendant-Third-Party  
          Plaintiff-Respondent-Cross-Appellant, 
     v. 
Michael J. Koss, 
          Third-Party  
          Defendant-Appellant-Cross-Respondent, 
Grant Thornton LLP, 
Third-Party Defendant-Cross-                     
Respondent. 
 
 
 
 
REVIEW OF DECISION OF THE COURT OF APPEALS 
Reported at 379 Wis. 2d 639, 907 N.W.2d 447  
PDC No:  2018 WI App 1 - Published 
 
 
OPINION FILED: 
January 29, 2019 
SUBMITTED ON BRIEFS: 
      
ORAL ARGUMENT: 
September 7, 2018 
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit 
 
COUNTY: 
Milwaukee 
 
JUDGE: 
David L. Borowski 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
A.W. BRADLEY, J. concurs, joined by ABRAHAMSON, 
J., and DALLET, J. (opinion filed). 
 
DISSENTED: 
KELLY, J. dissents joined by R.G. BRADLEY, J. 
(opinion filed). 
 
NOT PARTICIPATING:          
 
 
 
ATTORNEYS: 
 
 
For 
the 
plaintiff-appellant-petitioner 
and 
third-party 
defendant-appellant-cross-respondent, there were briefs filed by 
Michael S. Yellin, Ralph Weber, and Gass Weber Mullins LLC, 
Milwaukee, with whom on the brief were Michael J. Avenatti, 
Ahmed 
Ibrahim, 
and 
Eagen 
Avenatti 
LLP, 
Newport 
Beach, 
California.  There was an oral argument by Ahmed Ibrahaim.  
 
 
2 
 
For 
the 
defendant-third-party-plaintiff-respondent-cross-
appellant, there was a brief filed by Dean P. Laing, Gregory W. 
Lyons, Joseph D. Newbold, and O'Neil, Cannon, Hollman, DeJong & 
Laing S.C., Milwaukee.  There was an oral argument by Dean 
Laing. 
 
For the third-party-defendant-cross-respondent, there was a 
brief filed by Joseph L. Olson and Michael Best & Friedrich LLP, 
Milwaukee.  There was an oral argument by Joseph Olson. 
 
An amicus curiae brief was filed on behalf of Wisconsin 
Bankers Association and the American Bankers Association by John 
E. Knight, James E. Bartzen, Kirsten E. Spira, and Boardman & 
Clark LLP, Madison. 
 
2019 WI 7 
 
 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2016AP636  
(L.C. No. 
2010CV21290) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Koss Corporation, 
 
          Plaintiff-Appellant-Petitioner, 
 
     v. 
 
Park Bank, 
 
          Defendant-Third-Party  
          Plaintiff-Respondent-Cross-Appellant, 
 
     v. 
 
Michael J. Koss, 
 
          Third-Party  
          Defendant-Appellant-Cross-Respondent, 
 
Grant Thornton LLP, 
 
          Third-Party Defendant-Cross- 
          Respondent. 
 
FILED 
 
JAN 29, 2019 
 
Sheila T. Reiff 
Clerk of Supreme Court 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.    
 
¶1 
PATIENCE 
DRAKE 
ROGGENSACK, 
C.J.   We 
review 
a 
published decision of the court of appeals1 that affirmed an 
                                                 
1 Koss Corp. v. Park Bank, 2018 WI App 1, 379 Wis. 2d 629, 
907 N.W.2d 447. 
No. 
2016AP636   
 
2 
 
order of the circuit court2 granting summary judgment dismissing 
Koss Corporation's Uniform Fiduciaries Act (UFA) claim against 
Park Bank.3  
¶2 
Our review centers on two related issues:  First, 
consistent with the UFA, we interpret and apply the terms "good 
faith" as set out in Wis. Stat. § 112.01(1)(c) and "bad faith" 
employed in § 112.01(9); and second, we determine whether 
summary 
judgment 
dismissing 
Koss 
Corporation's 
claim 
was 
properly granted. 
¶3 
We conclude Wis. Stat. § 112.01(1)(c) describes the 
term "good faith" as honest bank acts, even when negligently 
done, and consistent with the majority of jurisdictions' 
interpretations of the UFA, "bad faith" is inconsistent with the 
statutory criteria for "good faith."  Therefore, bad faith 
pursuant to § 112.01(9), which is an intentional tort, may be 
shown by acts evidencing bank dishonesty such as a bank 
willfully failing to further investigate compelling and obvious 
known facts suggesting fiduciary misconduct because of a 
deliberate desire to evade knowledge of fiduciary misconduct.   
                                                 
2 The Honorable David L. Borowski of Milwaukee County 
presided. 
3 Wisconsin Stat. § 112.01 (2015-16) is Wisconsin's version 
of the UFA. 
  All subsequent references to the Wisconsin Statutes are 
to the 2015-16 version unless otherwise indicated. 
No. 
2016AP636   
 
3 
 
¶4 
We further conclude that given the allegations that 
Koss Corporation asserts in regard to its claim that Park Bank 
is liable for the intentional tort of bad faith, no proof has 
been proffered of bank dishonesty wherein Park Bank willfully 
failed to further investigate compelling and obvious known facts 
suggesting fiduciary misconduct because of a deliberate desire 
to evade knowledge of fiduciary misconduct.   
¶5 
Accordingly, 
we 
affirm 
the 
court 
of 
appeals' 
affirmance 
of 
the 
circuit 
court's 
dismissal 
of 
Koss 
Corporation's claim that Park Bank acted in bad faith in 
processing the transactions that Sujata Sachdeva initiated.  
Because we conclude Park Bank is not liable to Koss Corporation, 
we also affirm the dismissal of Park Bank's third-party claims.4 
I.  BACKGROUND 
¶6 
In this lawsuit, Koss Corporation seeks to collect 
millions of dollars from Park Bank that Sachdeva embezzled from 
its accounts at Park Bank.  As Vice President of Finance for 
Koss Corporation, Sachdeva was one of three people authorized to 
conduct transactions from Koss Corporation's Park Bank accounts 
pursuant to bank signature cards.5  As was explained by Park 
                                                 
4 Two justices join in the totality of the decisions 
expressed in this opinion:  Chief Justice Patience Drake 
Roggensack and Justice Annette Kingsland Ziegler.  The opinions 
of other justices in regard to the issues presented for the 
court's review are found in the separate opinions that follow.  
5 Sachdeva also served as Secretary and Principal Accounting 
Officer for Koss Corporation.  
No. 
2016AP636   
 
4 
 
Bank's attorney at oral argument, nothing prohibited Sachdeva 
from exercising her transaction authority for Koss Corporation's 
accounts at Park Bank through another Koss Corporation employee 
so long as Sachdeva made the decision to initiate the 
transaction.   
¶7 
Sachdeva embezzled approximately $34 million from Koss 
Corporation over a period of ten years, from about 1999 until 
she was caught in 2009.  In 2010, she pled guilty to six counts 
of wire fraud in connection with her embezzlement from Park Bank 
and from Koss Corporation's Chicago banks.  She was sentenced to 
eleven years in prison and ordered to pay $34 million in 
restitution. 
¶8 
One method Sachdeva used to embezzle funds from Koss 
Corporation 
was 
to 
order 
cashier's 
checks 
for 
personal 
expenditures.  She admits that she used hundreds of cashier's 
checks drawn on Koss Corporation's Park Bank accounts to pay for 
her purchases from luxury retailers, as well as to pay her 
personal credit card bills.  She sometimes used the payee's 
initials to avoid detection, such as "S.F.A., Inc." for Saks 
Fifth Avenue or "N.M." for Nieman Marcus.  
¶9 
Generally, Sachdeva did not go to the bank herself to 
obtain 
cashier's 
checks. 
 
Instead, 
she 
instructed 
Julie 
Mulvaney, another Koss Corporation employee, to call the bank 
and request a cashier's check on Sachdeva's behalf.  Mulvaney 
was not a signatory on Koss Corporation's Park Bank accounts.  
Despite the existence of the signature cards, Park Bank's 
No. 
2016AP636   
 
5 
 
general practice was to allow non-signatories to call and 
request cashier's checks on a signatory's behalf.  
¶10 After 
receiving 
telephone 
requests 
for 
cashier's 
checks, Park Bank would place the checks in an envelope to 
Sachdeva's attention.  Sachdeva would then send another Park 
Bank employee, usually Betty Caver, to pick up the envelopes. 
Caver was not a signatory on Koss Corporation's account.  The 
employees who picked up the checks were not asked to present 
signed documentation from Sachdeva, and Park Bank did not call 
Sachdeva to verify the transactions.  When the cashier's checks 
reached Sachdeva, she would mail them to her creditors to pay 
personal debts.  
¶11 On one occasion in January of 2004, Betty Caver went 
into the bank and endorsed a $60,598.03 counter check6 against a 
Koss Corporation account, made payable to cash.  Park Bank did 
not call Sachdeva to verify the transaction.  The funds were 
then used to purchase two cashier's checks in the amounts of 
$42,441.61 and $18,156.42, which were used to pay Sachdeva's 
personal credit card bills to American Express and Comerica 
Bank.  Koss Corporation does not dispute that Caver, Mulvaney, 
and any other employees involved were acting at Sachdeva's 
direction. 
¶12 Sachdeva also used "petty cash" requests to embezzle 
funds.  Sachdeva would instruct a non-signatory Koss employee, 
                                                 
6 A counter check is a check available at a bank that can be 
used to make a withdrawal from an account at the bank. 
No. 
2016AP636   
 
6 
 
usually Betty Caver, to go to the bank and endorse a manually 
written check made out to "petty cash."  Sachdeva would call and 
tell the bank the employee was coming.  The employee would pick 
up cash for Sachdeva, sometimes from a drive-through window, 
without being asked for identification.  Sachdeva used the cash 
to pay her "handyman," as well as to buy shoes, purses, and 
dinners.  The petty cash requests were often for thousands of 
dollars at a time.  From 2005 to 2009, there were at least 43 
such "petty cash" checks, totaling $171,985.02. 
¶13 Sachdeva's third method of embezzling funds, and the 
method that eventually led to her downfall, was to request wire 
transfers to an out-of-state bank where Koss Corporation 
maintained accounts.  Between 2004 and 2009, Park Bank made 
seven wire transfers totaling $2 million from Koss Corporation's 
Park Bank accounts to Koss Corporation's accounts in Chicago 
banks.  Either Sachdeva or Mulvaney would call Park Bank and 
initiate the wire transfer over the phone by providing a 
"repetitive code," which was used in lieu of providing account 
numbers when the same client regularly wired money between the 
same two accounts.  Park Bank's policy required a wire transfer 
agreement to initiate wire transfers, which Koss Corporation did 
not have. 
¶14 In December of 2009, an employee from American 
Express's fraud department called Michael Koss7 directly and 
                                                 
7 Michael Koss was Koss Corporation's President, COO, CEO, 
and CFO.  
No. 
2016AP636   
 
7 
 
informed him that Sachdeva had been using wire transfers from 
Koss Corporation's Chicago bank account to pay her credit 
transactions with American Express.  This call led to Sachdeva's 
prosecution and eventual guilty plea. 
¶15 In 2010, Koss Corporation originally sued Park Bank 
for negligence.  It later amended its complaint to add a UFA 
"bad faith" claim, and to add factual information about the 
petty cash and wire transfers.  Park Bank filed a third-party 
complaint against Michael Koss and against Koss Corporation's 
auditors, Grant Thornton LLP, for contribution and equitable 
subrogation.  In 2013, Koss Corporation dismissed its negligence 
claim with prejudice.  Its second and third amended complaints 
both asserted bad faith under the UFA as the sole claim for 
relief.   
¶16 In support of its claims, none of Koss Corporation's 
factual allegations asserted, or even implied, that Park Bank 
acted dishonestly such as being motivated by self-interest with 
regard to the transactions Sachdeva initiated.  Furthermore, 
none of Koss Corporation's allegations assert that Park Bank 
suspected 
that 
Sachdeva 
was 
acting 
improperly. 
 
After 
considerable discovery was completed, Park Bank moved for 
summary judgment on the UFA bad faith claim. 
¶17 On March 11, 2016, the Milwaukee County Circuit Court 
granted Park Bank's motion for summary judgment, thereby 
dismissing all claims against Park Bank.  It also dismissed the 
third-party complaint against Grant Thornton LLP and Michael J. 
Koss.  In regard to the claims against Park Bank, the circuit 
No. 
2016AP636   
 
8 
 
court first held that Park Bank, as the moving party, had met 
its initial burden and that Koss Corporation had failed to 
establish the existence of a material factual dispute.  The 
circuit court concluded that to show bad faith under the UFA, 
Koss Corporation would have had to have provided evidence that 
Park Bank intentionally ignored evidence of Sachdeva's breach of 
her fiduciary obligations, which Koss Corporation had failed to 
do. 
¶18 The court of appeals affirmed the circuit court's 
decision dismissing Koss Corporation's UFA claim.  Koss Corp. v. 
Park Bank, 2018 WI App 1, ¶2, 379 Wis. 2d 629, 907 N.W.2d 447.  
The court of appeals first acknowledged that Wisconsin's version 
of the UFA must be interpreted to make Wisconsin law uniform 
with the law of other states that have enacted the UFA.  Id., 
¶23; Wis. Stat. § 112.01(14).  After reviewing case law from 
other UFA jurisdictions, the court of appeals created a two-
element test for bad faith that required a showing of: 
1) circumstances that are suspicious enough to place a 
bank on notice of improper conduct by the fiduciary; 
and 
2) a 
deliberate 
failure 
to 
investigate 
the 
suspicious circumstances because of a belief or fear 
that such inquiry would disclose a defect in the 
transaction at issue. 
Koss Corp., 379 Wis. 2d 629, ¶27. 
¶19 The court of appeals agreed with the circuit court's 
determination that Park Bank had established prima facie 
eligibility for summary judgment, id., ¶29, and that Koss 
Corporation failed to controvert that eligibility with a genuine 
issue of material fact as to whether Park Bank acted with bad 
No. 
2016AP636   
 
9 
 
faith regarding Sachdeva's embezzlement, id., ¶50.  Because the 
court of appeals concluded that Park Bank was not liable to Koss 
Corporation, the court of appeals did not address Park Bank's 
third-party complaints.  Id., ¶2 n.3. 
¶20 We granted Koss Corporation's petition for review and 
now affirm. 
II.  DISCUSSION 
A.  Standard of Review 
¶21 This case requires us to interpret and apply statutes, 
and to review a grant of summary judgment.  "Statutory 
interpretation and the application of a statute to a given set 
of facts are questions of law that we review independently, but 
benefiting from the analyses of the court of appeals and the 
circuit court."  Marder v. Bd. of Regents, 2005 WI 59, ¶19, 286 
Wis. 2d 252, 706 N.W.2d 110. 
¶22 We 
also 
independently 
review 
grants 
of 
summary 
judgment, applying the same methodology as the circuit court and 
the court of appeals, while once again benefitting from their 
analyses.  Dufour v. Progressive Classic Ins. Co., 2016 WI 59, 
¶12, 370 Wis. 2d 313, 881 N.W.2d 678.  "The standards set forth 
in Wis. Stat. § 802.08 are our guides."  Id.   
B.  The Uniform Fiduciaries Act 
1.  History of UFA 
¶23 The UFA was approved by the National Conference of 
Commissioners on Uniform State Laws in 1922.  It was adopted by 
Wisconsin in 1925, and is set out in Wis. Stat. § 112.01(1)-
No. 
2016AP636   
 
10 
 
(16).  Bolger v. Merrill Lynch Ready Assets Tr., 143 Wis. 2d 
766, 774, 423 N.W.2d 173 (Ct. App. 1988).   
¶24 Prior to the development of the UFA, a bank could be 
found liable to a principal in common law negligence if the bank 
"negligently assisted a fiduciary in misappropriating [the] 
principal's funds."  Maryland Cas. Co. v. Bank of Charlotte, 340 
F.2d 550, 553 (4th Cir. 1965).  Some courts "went so far as to 
charge depository banks with constructive notice of fiduciary 
misconduct."  Bolger, 143 Wis. 2d at 774.  The result burdened 
banks with the duty of "seeing that fiduciary funds are properly 
applied to the account of the principal."  Sugarhouse Fin. Co. 
v. Zions First Nat'l Bank, 440 P.2d 869, 870 (Utah 1968).  
¶25 As banking grew as a business and "[a]s banks began to 
process more and more transactions," policymakers questioned 
"whether it was wise policy to place the duty of monitoring 
fiduciary accounts for wrongdoing on the bank's shoulders."  
Attorneys Title Guar. Fund v. Goodman, 179 F. Supp. 2d 1268, 
1274 (D. Utah 2001).  This led several states, including 
Wisconsin in 1925, to adopt the newly drafted UFA.  Id.; Bolger, 
143 Wis. 2d at 774.  
¶26 The UFA's purpose was to "facilitate banking and 
financial transactions" by "provid[ing] relief from the dire 
consequences of the common law rule," as well as to "place on 
the principal the burden of employing honest fiduciaries." 
Bolger, 143 Wis. 2d at 774-75; Johnson v. Citizens Nat'l Bank, 
334 N.E.2d 295, 300 (Ill. App. 1975).  Adoption of the UFA 
evinced a recognition of the economic importance of allowing 
No. 
2016AP636   
 
11 
 
banks to efficiently process a high volume of transactions.  For 
this reason, courts have long recognized that a return to the 
common law rule of liability based on negligence by a bank 
"would practically put an end to the banking business," Am. Sur. 
Co. of N.Y. v. First Nat'l Bank in W. Union, 50 F. Supp. 180, 
185-86 (N.D. W. Va. 1943), and that "[t]he present banking 
system under which an enormous number of checks are processed 
daily could not function effectively if banks were not required 
to make prompt and effective decisions on whether to pay or 
dishonor checks."  Chazen v. Centennial Bank, 71 Cal. Rptr. 2d 
462, 466 (Ct. App. 1998). 
2.  Koss Corporation's Claim8 
¶27 Koss Corporation grounds its claim in Wis. Stat. 
§ 112.01(9), which states in relevant part: 
If a check is drawn upon the account of a fiduciary's 
principal in a bank by a fiduciary, who is empowered 
to draw checks upon his or her principal's account, 
the bank is authorized to pay such check without being 
liable to the principal, unless the bank pays the 
check with actual knowledge that the fiduciary is 
committing a breach of the fiduciary's obligation as 
fiduciary in drawing such check, or with knowledge of 
such facts that its action in paying the check amounts 
to bad faith.  If, however, such a check is payable to 
the drawee bank and is delivered to it in payment of 
                                                 
8 In the case before us, Wis. Stat. § 112.01(9) is argued as 
a claim against Park Bank, rather than as a defense to a claim 
that 
Park 
Bank 
assisted 
Sachdeva's 
unlawful 
conduct.  
Accordingly, we shall discuss it as a claim.  However, Compare 
Appley v. West, 832 F.2d 1021, 1031 (7th Cir. 1987) (explaining 
that the "UFA did not create the cause of action. Rather, the 
UFA is a defense."); Manfredi v. Dauphin Deposit Bank, 697 A.2d 
1025, 1029-30 (1997) (same).  
No. 
2016AP636   
 
12 
 
or as security for a personal debt of the fiduciary to 
it, the bank is liable to the principal if the 
fiduciary in fact commits a breach of the fiduciary's 
obligation as fiduciary in drawing or delivering the 
check. 
¶28 Wisconsin Stat. § 112.01(9), quoted above, provides 
three entirely different standards whereby a bank could be 
liable:  (1) when a bank had actual knowledge of the unlawful 
conduct of a fiduciary; (2) when a bank had knowledge of 
sufficient facts to show that it acted in bad faith by honoring 
a fiduciary's withdrawals from the principal's account; or 
(3) when a drawee bank accepts its own check in payment of or as 
security for a personal debt of the fiduciary at the drawee 
bank, contrary to the interest of the principal.9   
¶29 Koss Corporation sued Park Bank alleging that the 
bank's transactions with Sachdeva were done in bad faith.  Koss 
Corporation did not allege, nor has any proof been shown, that 
Park Bank had knowledge of Sachdeva's unlawful conduct or that 
it paid, or used Koss's funds as security for, personal debts of 
Sachdeva at Park Bank.  Accordingly, we focus on defining bad 
faith.   
3.  Defining "Bad Faith" 
¶30 The UFA does not define bad faith.  It does, however, 
define good faith.  Under the UFA, "[a] thing is done 'in good 
                                                 
9 Maryland Cas. Co. v. Bank of Charlotte, 340 F.2d 550, 554-
55 (4th Cir. 1965) is often cited.  There, the Bank of Charlotte 
had a monetary interest in the transactions where it received 
checks drafted on the corporation's account at the bank and 
applied those checks to the employee's private debt at the bank.      
No. 
2016AP636   
 
13 
 
faith' . . . when it is in fact done honestly, whether it be 
done negligently or not."  Wis. Stat. § 112.01(1)(c).  A bank 
does not violate its obligations to its depositor if its 
transactions with the depositor's fiduciary are honestly done.  
Buffets, Inc. v. Leischow, 732 F.3d 889, 899, (8th Cir. 2013); 
Rheinberger v. First Nat. Bank of St. Paul, 150 N.W.2d 37, 41 
(Minn. 1967) (concluding that "[b]ad faith does not exist if the 
bank was acting honestly.").   
¶31 Accordingly, the definition of good faith under Wis. 
Stat. § 112.01(1)(c) implies that bad faith under § 112.01(9) 
must involve something more than negligent bank conduct and must 
involve conduct during which the bank did not act honestly.  
Because § 112.01 is a uniform law, we consider decisions from 
other jurisdictions that have defined bad faith.  § 112.01(14).  
As we do so, we note that variations in facts from which claims 
of bad faith arose have resulted in different expressions of the 
definition of bad faith, with bank dishonesty expressed in most 
decisions.  See Attorneys Title Guar. Fund, 179 F. Supp. 2d at 
1277 (concluding that "bad faith is the subjective deliberate 
desire to evade knowledge because of a belief or fear that 
inquiry 
would 
disclose 
a 
vice 
or 
defect 
in 
the 
transaction . . . [and] 
bad 
faith 
requires 
dishonesty 
and 
implies wrongdoing or some motive of self-interest" when 
considering repetitive nonsufficient fund activities); N.J. 
Title Ins. Co. v. Caputo, 748 A.2d 507, 514 (N.J. 2000) 
(concluding that when "facts suggesting fiduciary misconduct are 
compelling and obvious, it is bad faith to remain passive and 
No. 
2016AP636   
 
14 
 
not 
inquire 
further 
because 
such 
inaction 
amounts 
to 
a 
deliberate desire to evade knowledge" of improper trust account 
transactions); Rheinberger, 150 N.W.2d at 41 (concluding that 
bad faith in making transfers between accounts by a son who had 
power of attorney for his mother "does not exist if the bank was 
acting honestly").    
¶32 As a preliminary matter, we do not apply Wisconsin 
common law from other contexts to define "bad faith" under Wis. 
Stat. § 112.01(9) because bad faith under the UFA requires 
interpretation of a term in a specific statute.  Under Wisconsin 
common law, the definitions of bad faith and good faith can vary 
depending on the context in which they arise.  For example, in 
contract law, bad faith does not simply mean the absence of good 
faith because good faith can be defined in a number of ways by 
contract.  Amoco Oil Co. v. Capitol Indem. Corp., 95 Wis. 2d 
530, 542, 291 N.W.2d 883 (Ct. App. 1980).  In an insurance 
context, bad faith and good faith have developed definitions 
relative to an insurer's obligations.  Roehl Trans., Inc. v. 
Liberty Mut. Ins. Co., 2010 WI 49, ¶49, 325 Wis. 2d 56, 784 
N.W.2d 542.   
¶33 That said, our task is to define bad faith as it is 
used in Wis. Stat. § 112.01(9).  We are required to interpret 
and apply the provisions of § 112.01 "to effectuate its general 
purpose to make uniform the law of those states which enact it."  
§ 112.01(14).  Given that legislative directive, as we define 
No. 
2016AP636   
 
15 
 
bad 
faith, 
we 
consider 
judicial 
decisions 
from 
other 
jurisdictions that have adopted the UFA.10   
a.  Bad faith principles and criteria 
¶34 There are a number of general principles and specific 
criteria 
that 
appear 
repeatedly 
in 
decisions 
from 
other 
jurisdictions as courts have considered how to analyze and to 
define bad faith.  We will not address all of them, but rather, 
we will discuss those general principles and specific criteria 
that appear most frequently and have been central to the 
reasoning of many courts as they sought to analyze and define 
bad faith.  
¶35 We begin by noting that under the UFA when presented 
with the issue of bad faith, generally courts consider the 
circumstances 
surrounding 
each 
fiduciary 
transaction, 
individually.  They do not aggregate circumstances as though 
each transaction were a part of preceding transactions.  We 
agree that aggregation of transactions is inapposite, relying on 
the structure of Wis. Stat. § 112.01(9) and prior UFA decisions.  
¶36 Wisconsin Stat. § 112.01(9) states that "[i]f a check 
is drawn upon the account of a fiduciary's principal in a bank 
by a fiduciary, who is empowered to draw checks upon his or her 
                                                 
10 All states that have adopted the UFA have not adopted the 
same version as has Wisconsin, e.g., Peoples Nat. Bank v. Guier, 
145 S.W.2d 1042, 1047 (Ky. 1940) (explaining that the Kentucky 
version of the UFA does not contain the same provisions as 
Wisconsin has in Wis. Stat. § 112.01(9)).  Sometimes the 
differences in state law matter in regard to the usefulness of a 
decision from such a state and sometimes they do not.   
No. 
2016AP636   
 
16 
 
principal's account," the bank is liable to the principal if 
"its action in paying the check amounts to bad faith."11  Section 
112.01(9) does not envision aggregation of general protections 
from fiduciary misconduct.12  As the Eighth Circuit recently 
explained, "[t]he UFA is drawn in terms of specific transactions 
made in violation of certain fiduciary obligations."  Buffets, 
Inc., 732 F.3d at 899.  It does not provide "general protection" 
to 
principals, 
but 
rather, 
"provides 
principals 
limited 
protection against a bank's knowing or bad-faith processing of a 
specific transaction that breaches a fiduciary obligation."  Id. 
at 900; see also Rosemann v. St. Louis Bank, No. 14-CV-983-LLR, 
slip op. at *14 (E.D. Mo. Nov. 17, 2015).  Furthermore, a bank 
has no obligation to piece together various transactions by a 
fiduciary, but rather it is permitted to engage in the 
presumption that the fiduciary is acting in accord with the 
fiduciary's lawful authority for each transaction.  Gen. Ins. 
Co. of Am. v. Commerce Bank of St. Charles, 505 S.W.2d 454, 457 
(Mo. Ct. App. 1974).   
                                                 
11 Wisconsin Stat. § 112.01(9) also provides that if "a 
check is payable to the drawee bank and is delivered to it in 
payment of or as security for a personal debt of the fiduciary 
to it, the bank is liable to the principal if the fiduciary in 
fact 
commits 
a 
breach 
of 
the 
fiduciary's 
obligation 
as 
fiduciary."  This appears to assign a bank greater potential for 
liability.  However, those circumstances are not present in the 
matter before us. 
12 We also note that the text of Wis. Stat. § 112.01(9) 
employs singular forms of nouns and verbs.  
No. 
2016AP636   
 
17 
 
¶37 This is not to say that when examining an individual 
transaction about which the bank has become suspicious, previous 
transactions by the fiduciary cannot be examined as the bank 
considers whether the fiduciary has breached a fiduciary 
obligation in the current transaction.  The focus, however, is 
on whether the bank exhibited bad faith with regard to the 
individual transaction in question at the time the transaction 
occurred.  Mikrut v. First Bank of Oak Park, 832 N.E.2d 376, 387 
(Ill. App. 2005). 
¶38 In their decisions, courts often have opined on 
whether the standard for bad faith is subjective or objective, 
with the majority concluding that the test is subjective.  See, 
e.g., Caputo, 748 A.2d at 514.  The conclusion that bad faith is 
determined by a subjective standard contrasts with the due care 
or objective reasonableness standard applicable to negligence 
determinations because the UFA directs that negligence is 
insufficient to support liability for a fiduciary's conduct.  
See id.  And finally, the vast majority of UFA decisions hold, 
and Koss Corporation has repeatedly conceded, that bad faith 
under the UFA is an intentional tort.  See Lawyers Title Ins. 
Corp. v. Dearborn Title Corp., 904 F. Supp. 818, 820 (N.D. Ill. 
1995).  It would be unusual to conclude that an intentional tort 
does not require subjective intent.   
¶39 In regard to particular factors that are indicative of 
bad faith, most courts have concluded that dishonesty is a 
necessary component in the assessment of whether a bank has 
acted in bad faith.  See, e.g., Caputo, 748 A.2d at 514 
No. 
2016AP636   
 
18 
 
(explaining that the dishonesty standard "has been a static 
epithet in our bad faith jurisprudence"); Research-Planning, 
Inc. v. Bank of Utah, 690 P.2d 1130, 1132 (Utah 1984) (reasoning 
that bad faith requires a dishonest purpose and implies some 
motive of self-interest by the bank); Bd. of Cty. Comm'rs of Hot 
Springs Cty. v. First Nat'l Bank of Thermopolis, 368 P.2d 132, 
139 (Wyo. 1962) (concluding that bad faith "is not simply bad 
judgment" but "imports a dishonest purpose"); Nat'l Cas. Co. v. 
Caswell & Co., 45 N.E.2d 698, 699 (Ill. App. Ct. 1942) (holding 
that "bad faith imports a dishonest purpose"); Edwards v. 
Northwestern Bank, 250 S.E.2d 651, 657 (N.C. 1979) (adopting the 
dishonesty standard for bad faith and concluding that dishonesty 
"is, unlike negligence, wilful"); C-Wood Lumber Co. v. Wayne 
Cty. Bank, 233 S.W.3d 263, 284 (Tenn. Ct. App. 2007) (requiring 
a UFA plaintiff to prove that "the bank was acting dishonestly 
or that the bank actually knew [the fiduciary] was breaching her 
fiduciary obligations"). 
¶40 When 
the 
bank 
permits 
a 
fiduciary 
to 
use 
the 
principal's funds to pay his or her personal debt to the same 
bank where the principal's account is located, dishonesty of a 
type involved in bad faith is shown.  Maryland Cas. Co., 340 
F.2d at 554 (affirming that "where a bank had both reason to 
suspect a misappropriation by the fiduciary and a monetary 
interest in the continuance of such activity" dishonesty under 
the UFA is evidenced) (citing Union Bank and Trust Co. v. Girard 
Trust Co., 161 A. 865 (Pa. 1932)).       
No. 
2016AP636   
 
19 
 
¶41 In contrast to negligence, dishonesty is viewed as 
requiring purposeful bank conduct.  See, e.g., Caputo, 748 A.2d 
at 513 (concluding that dishonesty is "a way of differentiating 
bad faith from negligence in terms of purpose."); Guild v. First 
Nat'l Bank of Nev., 553 P.2d 955, 958 (Nev. 1976) (concluding 
that a showing of "conscious purposeful misconduct" is required 
for bad faith).  
¶42 In Davis v. Pa. Co. for Ins. on Lives & Granting 
Annuities, 12 A.2d 66 (Pa. 1940), the Pennsylvania Supreme Court 
articulated a test for distinguishing bad faith from mere 
negligence that has since been repeated in numerous UFA cases 
across the country: 
At what point does negligence cease and bad faith 
begin?  The distinction between them is that bad 
faith, or dishonesty, is, unlike negligence, willful.  
The mere failure to make inquiry, even though there be 
suspicious circumstances, does not constitute bad 
faith unless such failure is due to the deliberate 
desire to evade knowledge because of a belief or fear 
that inquiry would disclose a vice or defect in the 
transaction,——that is to say, where there is an 
intentional closing of the eyes or stopping of the 
ears. 
Id. at 69 (internal citations omitted).  The court's reasoning 
supports 
the 
conclusion 
that 
"a 
thing 
is 
done 
in 
bad 
faith . . . only when it is done dishonestly and not merely 
negligently."  Id. at 68.  Many states use this "dishonesty 
standard" to define bad faith.  See, e.g., Smith v. Halverson, 
273 N.W.2d 146, 151-52 (S.D. 1978); Sugarhouse Fin. Co., 440 
P.2d at 870. 
No. 
2016AP636   
 
20 
 
¶43 However, the dishonesty involved in bad faith does not 
require "a high degree of moral guilt."  Maryland Cas. Co., 340 
F.2d at 554; see also Caputo, 748 A.2d at 514 (dishonesty 
"should not be interpreted as having sinister implications").  
"Neither criminal fraud nor downright corruption is an essential 
ingredient of legal 'bad faith.'"  Maryland Cas. Co., 340 F.2d 
at 554.  Rather, "wrongdoing or some motive of self-interest" by 
the bank is required for bad faith.  Sugarhouse Fin. Co., 440 
P.2d at 870. 
¶44 In addressing dishonesty, none of these opinions 
eliminated the subjective purpose requirement that has been a 
necessary component of bad faith under the UFA.  In Caputo, for 
example, the New Jersey Supreme Court explained that the 
dishonesty standard is "a way of differentiating bad faith from 
negligence in terms of purpose."  Caputo, 748 A.2d at 514.  In 
Maryland Cas. Co., where the Bank of Charlotte permitted a 
fiduciary to credit checks written on the principal's account to 
her personal debt at the bank, the Fourth Circuit asked whether 
it was commercially unjustifiable for the payee to "disregard 
and refuse to learn facts readily available."  Maryland Cas. 
Co., 340 F.2d at 554.  The Eighth Circuit has recently 
reaffirmed that a bank cannot be liable for failing to 
investigate suspicious circumstances unless that failure to 
investigate is due to "the deliberate desire to evade knowledge 
because of a belief or fear that inquiry would disclose a vice 
or defect in the transaction."  Buffets, Inc., 732 F.3d at 901 
(citations omitted); see also Nations Title Ins. of N.Y., Inc. 
No. 
2016AP636   
 
21 
 
v. Bertram, 746 N.E.2d 1145, 1151 (Ohio App. 3d 2000) 
(concluding that "failure to make inquiry, even though there be 
suspicious 
circumstances, 
does 
not 
constitute 
bad 
faith . . . unless such failure is due to the deliberate desire 
to evade knowledge because of a belief or fear that inquiry 
would 
disclose 
a 
vice 
or 
defect 
in 
the 
transaction").  
Subjective intent grounded in dishonest purpose has been 
required in the majority of UFA decisions. 
¶45 Koss Corporation points to language from a few 
opinions that it contends evidences an objective test for bad 
faith, citing Caputo, Master Chem. Corp. v. Inkrott and UNR-
Rohn, Inv. v. Summit Bank of Clinton Cty.   
¶46 In Caputo, the court reasoned that "where facts 
suggesting fiduciary misconduct are compelling and obvious, it 
is bad faith to remain passive and not inquire further because 
such 
inaction 
amounts 
to 
a 
deliberate 
desire 
to 
evade 
knowledge."  Caputo, 748 A.2d at 514.   
¶47 Master Chem. Corp. v. Inkrott, 563 N.E.2d 26, 31 (Ohio 
1990), employs similar language in explaining that a bank acts 
in bad faith when "facts and circumstances" are "so cogent and 
obvious that to remain passive would amount to a deliberate 
desire to evade knowledge because of a belief or fear that 
inquiry would disclose a defect in the transaction."  According 
to Koss Corporation, the words "would amount to a deliberate 
desire" taken from Inkrott and Caputo suggest that an actual, 
subjective desire to evade knowledge need not exist.  Koss 
Corporation also asserts that because courts deciding summary 
No. 
2016AP636   
 
22 
 
judgment motions under the UFA have asked whether "a trier of 
fact could conclude that it was commercially unjustifiable for 
[the bank] to disregard and refuse to learn facts readily 
available," as occurred in UNR-Rohn, Inc. v. Summit Bank of 
Clinton Cty., 687 N.E.2d 235, 239 (Ind. App. 1997) an objective 
standard is inferred.  
¶48 Koss Corporation's arguments are interesting, but when 
the quoted language is read in context, they do not support the 
use of an objective standard to define bad faith.  For example, 
in Caputo, the court clarified the phrase, "amounts to a 
deliberate desire to evade knowledge."  The court explained that 
it was "differentiating bad faith from negligence in terms of 
purpose."  Caputo, 748 A.2d at 514.  The court further clarified 
that the required determination was "whether the bank recklessly 
disregarded or was purposefully oblivious to facts suggesting 
impropriety by Caputo."  Id.  Caputo explained that "bad faith 
denotes a reckless disregard or purposeful obliviousness of the 
known facts suggesting impropriety by the fiduciary."  Id.  The 
court's reasoning is based on a subjective test.  Stated 
otherwise, negligence, for which an objective standard is 
employed, is insufficient to support bad faith under Wis. Stat. 
§ 112.01(9). 
¶49 The existence of facts suggesting fiduciary misconduct 
can, of course, serve as strong evidence of bank dishonesty, 
such as when facts are so "compelling and obvious" that the 
factfinder may be able to infer dishonesty on the part of a bank 
employee.  The focus, however, must be on the employee's state 
No. 
2016AP636   
 
23 
 
of mind, not on the circumstances alone.  This is what the 
Caputo decision meant by describing fiduciary misconduct as 
"compelling and obvious" to the bank's employee; otherwise, it 
would not have held that "the test for good faith or bad faith 
is a subjective one."  Caputo, 748 A.2d at 514.  To focus 
exclusively on facts suggesting fiduciary misconduct, without 
considering their effect on the employee's state of mind, would 
be to transform the test for "bad faith" into an objective one, 
and would thereby cause Wisconsin's interpretation of the UFA to 
be inconsistent with the majority of other jurisdictions that 
have adopted the UFA.   
¶50 Similarly, the "commercially unjustifiable" language 
from cases similar to Inkrott, 563 N.E.2d at 31, and UNR-Rohn, 
Inc., 687 N.E.2d at 239, does not support Koss Corporation's 
contention when read in context.  As a starting point, Koss 
Corporation focuses exclusively on the words "commercially 
unjustifiable" without considering the context in which the term 
"commercially unjustifiable" is employed.  Courts ask whether it 
was commercially unjustifiable to "disregard and refuse to learn 
facts readily available."  Id.  To "refuse" to learn facts is to 
deliberately choose not to learn them.  This necessarily implies 
a subjective suspicion that such facts may exist.   
¶51 Koss Corporation asserts that if we conclude that bad 
faith requires a deliberate failure to investigate suspicious 
circumstances, such a conclusion would swallow the "actual 
knowledge" prong of the UFA.  We disagree.  The actual knowledge 
phrase in Wis. Stat. § 112.01(9) requires the bank to have 
No. 
2016AP636   
 
24 
 
"actual knowledge that the fiduciary is committing a breach of 
the fiduciary's obligation as fiduciary."  § 112.01(9).  Bad 
faith, on the other hand, requires a bank to have knowledge of 
compelling and obvious facts that raise a subjective suspicion 
that a fiduciary has breached its fiduciary obligations.  
Furthermore, with knowledge of such compelling and obvious 
facts, the willful failure to further investigate those facts 
must be due to the bank's desire to avoid potentially obtaining 
actual knowledge of a fiduciary's misconduct.  Buffets, Inc., 
732 F.3d at 901; see also Mikrut, 832 N.E.2d at 385 (explaining 
that to establish bad faith, evidence must be presented that the 
bank 
suspected 
the 
fiduciary 
was 
acting 
improperly 
and 
deliberately refrained from investigating so that the bank could 
avoid knowledge that the improper fiduciary conduct). 
b.  The test for bad faith13 
¶52 From the foregoing discussion, we recognize several 
UFA 
foundational 
principles 
that 
form 
the 
framework 
for 
analyzing a bank's conduct when bad faith is alleged.  First, 
bad faith is reviewed on a transaction by transaction basis, 
such that the facts known to each individual bank employee are 
not aggregated to form collective knowledge of the bank.  Colby 
v. Riggs Nat'l Bank, 92 F.2d 183, 195 (D.C. Cir. 1937) 
(concluding that "[i]t must be remembered also that practically 
                                                 
13 We do not adopt the court of appeals test because, as we 
explain below, we set out a test that is more consistent with 
the majority of jurisdictions that have defined bad faith under 
the UFA than is the test chosen by the court of appeals. 
No. 
2016AP636   
 
25 
 
all the clues are not known to any one employee of the bank, and 
that the facts known to any one employee are not sufficient to 
arouse suspicion.").  Second, whether a bank acted in bad faith 
is determined at the time of the breach of fiduciary duty, not 
by looking back at transactions that occurred many months 
earlier.  Bolger, 143 Wis. 2d at 777-78 n.5.   
¶53 Third, bad faith is an intentional tort; negligence by 
a bank is insufficient to show bad faith.  Lawyers Title Ins. 
Corp., 904 F. Supp. at 820 (citing Restatement (Second) of Torts 
§ 8A 
cmt.b 
(1965)); 
Wis. 
Stat. 
§ 112.01(1)(c). 
 
Fourth, 
considerations of bad faith require analyses of a bank's actions 
to determine its subjective intent.  Caputo, 748 A.2d at 514; 
Attorneys Title Guar. Fund, 179 F. Supp. 2d at 1277 (concluding 
that bad faith "is the subjective deliberate desire to evade 
knowledge").   
¶54 In regard to specific evidence necessary to support an 
allegation that a bank acted in bad faith, a claimant who shows 
bank dishonesty will be successful.  A majority of courts have 
held that "[b]ad faith does not exist if the bank was acting 
honestly."  Rheinberger, 150 N.W.2d at 41; Official Comm. of 
Unsecured Creditors of Allegheny Health, Educ. & Research Found. 
v. Pricewaterhouse Coopers, LLP, 2:0001684, slip op. at *12 
(W.D. Penn. July 19, 2011); Guild, 553 P.2d at 958.   
¶55 Bad faith requires some evidence of bank dishonesty 
such as a bank willfully failing to further investigate 
compelling and obvious known facts that suggest fiduciary 
misconduct because of a deliberate desire to evade knowledge of 
No. 
2016AP636   
 
26 
 
fiduciary misconduct.  Caputo, 748 A.2d at 514; see also Trenton 
Trust Co. v. W. Sur. Co., 599 S.W.2d 481, 492 (Mo. 1980) 
(concluding that the failure to further investigate suspicious 
circumstances is not bad faith "unless such failure is due to 
the deliberate desire to evade knowledge because of a belief or 
fear that inquiry would disclose a vice or defect in the 
transaction").  Bank inaction under those circumstances is an 
intentional tort.  Id.; see also Davis, 12 A.2d at 69 
(explaining that the distinction between negligence and bad 
faith "is that bad faith, or dishonesty, is, unlike negligence, 
wilful").  
C.  Application 
¶56 The evidence presented by Koss Corporation does not 
raise a genuine issue of material fact as to whether Park Bank 
acted in bad faith during any transaction related to Sachdeva's 
embezzlement.14  We first address Koss Corporation's arguments 
that Park Bank's policies and general practices constitute bad 
faith; then we address the three types of transactions Sachdeva 
employed:  cashier's checks, petty cash requests, and wire 
transfers. 
1.  Policies and General Practices 
¶57 Many of Koss Corporation's allegations in regard to 
bad faith are driven by Koss Corporation's assertion that Park 
                                                 
14 Generally, the determination of bad faith is for the 
trier of fact unless only one finding can be made as a matter of 
law.  N.J. Title Ins. Co. v. Caputo, 748 A.2d 507, 514 (N.J. 
2000).    
No. 
2016AP636   
 
27 
 
Bank's 
general 
practice 
of 
not 
enforcing 
bank 
policies 
contributed to Koss Corporation's loss.  For example, Koss 
Corporation asserts that Park Bank had a "practice of giving out 
cashier's 
checks . . . to 
persons 
not 
authorized 
on 
the 
signature card," had "inadequate policies to detect suspicious 
activity," and "routinely violated" its stated wire transfer 
policy.  These allegations could go toward proving negligence.  
However, negligence is not at issue; Koss Corporation has 
voluntarily dismissed its negligence claim.  Park Bank's general 
practices do not suggest that any employee of Park Bank 
deliberately failed to investigate compelling and obvious known 
facts that suggested impropriety by Sachdeva because of the 
belief or fear that such inquiry would disclose fiduciary 
misconduct. 
¶58 Koss Corporation cites to Inkrott, 563 N.E.2d 26, in 
which the Supreme Court of Ohio found bad faith under the UFA 
when a bank had "established a procedure where a transfer from 
one corporate account to another would be presumed correct and 
would not be questioned."  Id. at 31.  Koss Corporation contends 
this suggests that a bank's policy, itself, is sufficient to 
support a finding of bad faith.  However, assuming without 
deciding that the Inkrott decision is not an outlier, Inkrott is 
distinguishable from the case now before us. 
¶59 In Inkrott, the court determined that the policies 
enacted by the bank were "more than negligent," they were 
"designed 
to 
promote 
[the 
bank's] 
own 
self-interest 
in 
derogation of the Uniform Commercial Code and beyond the 
No. 
2016AP636   
 
28 
 
protections provided by the Uniform Fiduciaries Act."  Id. at 
31.  In other words, the Inkrott decision concluded that in 
establishing 
bank 
policies, 
the 
bank 
enacted 
deficient 
procedures for the purpose of allowing the bank to avoid 
discovering evidence of misconduct by fiduciaries.  Here, there 
has been no offer of proof that Park Bank established deficient 
bank 
policies 
in 
order 
to 
avoid 
discovering 
fiduciary 
misconduct.   
¶60 Koss Corporation's allegation is quite the opposite.  
Koss Corporation alleges that Park Bank's general practice of 
carelessly failing to follow its own policies facilitated 
Sachdeva's embezzlement.  However, carelessness is a negligence 
standard, Zastrow v. Journal Commc'ns, Inc., 2006 WI 72, ¶30, 
291 Wis. 2d 426, 718 N.W.2d 51, and negligence is insufficient 
to support a claim for bad faith under the UFA.  O'Neal v. Sw. 
Mo. Bank of Carthage, 118 F.3d 1246, 1251 (8th Cir. 1997).   
2.  Cashier's Checks 
¶61 Koss Corporation alleges that Park Bank's processing 
Sachdeva's requests for cashier's checks constituted bad faith. 
Koss Corporation points to Park Bank's method of readying 
cashier's checks for non-signatories, as well as Holly Pape's 
testimony, years after cashier's checks were issued, that the 
number of cashier's checks Mulvaney ordered was "strange."15  
                                                 
15 Holly Pape was the Park Bank employee assigned to work 
with Koss Corporation.   
No. 
2016AP636   
 
29 
 
¶62 Over the ten years of Sachdeva's embezzlement, 49 bank 
employees issued the 359 cashier's checks to Koss Corporation 
employees at Sachdeva's request.16  Koss Corporation has provided 
no evidence that any of those 49 employees was dishonest in 
processing Sachdeva's requests because the employee believed the 
transaction in which he or she engaged was improper for Sachdeva 
to have initiated.  Stated otherwise, there is no evidence that 
any Park Bank employee had knowledge of compelling and obvious 
facts that suggested impropriety by Sachdeva that the employee 
willfully failed to further investigate because of a deliberate 
desire to evade knowledge of Sachdeva's misconduct or that such 
an employee shared his or her suspicions with another employee.17   
¶63 Another problem for Koss Corporation is the relevance 
of the evidence it did present.  That a non-signatory made 
requests for cashier's checks and later picked them up is not 
relevant to the issue of bad faith.  Koss Corporation does not 
dispute that its employees were acting at Sachdeva's direction, 
or argue that any of its other employees stole money.  Koss 
Corporation does not explain how Mulvaney's being a non-
signatory amounted to an obvious and compelling fact that 
                                                 
16 Park Bank issued more than 60,000 cashier's checks during 
that same period of time.   
17 Although we do not examine transactions collectively when 
reviewing a claim of bad faith, we note that Park Bank provided 
monthly 
statements 
to 
Koss 
Corporation. 
 
Those 
monthly 
statements included a complete listing of every transaction 
Sachdeva initiated, including the date and the amount of each 
transaction. 
No. 
2016AP636   
 
30 
 
Sachdeva was breaching her fiduciary obligations to Koss 
Corporation.     
¶64 With respect to the $60,568.03 counter check that a 
non-signatory drafted, cashed and used to purchase two cashier's 
checks, 
Koss 
Corporation 
has 
never 
asserted 
that 
this 
transaction was not personally initiated by Sachdeva or honestly 
completed by Park Bank.  Koss Corporation appears to argue that 
Park Bank was negligent in permitting a non-signatory this much 
latitude, but negligent conduct is not sufficient to support bad 
faith, which is grounded in intentional conduct.  It is 
undisputed that Sachdeva, a signatory and Vice President of 
Finance for Koss Corporation, carried out each cashier's check 
transaction personally or through an agent.  There is no genuine 
issue of material fact as to whether Park Bank acted in bad 
faith regarding any of the cashier's checks. 
3.  The Petty Cash Requests 
¶65 Koss Corporation's argument surrounding petty cash 
requests fails for reasons similar to those applied above to 
cashier's checks.  It is true that on 43 occasions, Sachdeva 
drafted checks for petty cash at Koss Corporation's offices and 
that Park Bank allowed non-signatories to retrieve the cash at 
Sachdeva's request.18   
¶66 Furthermore, Koss Corporation provides no proof that 
Park Bank did not cash Koss Corporation checks in the honest 
                                                 
18 During that same period of time, Park Bank cashed more 
than 7.6 million checks for its customers. 
No. 
2016AP636   
 
31 
 
belief that Sachdeva had authority to draft them and to 
authorize a Koss Corporation employee to cash them.  And 
finally, no evidence has been proffered that any Park Bank 
employee knew compelling and obvious facts that suggested 
impropriety by Sachdeva and then willfully failed to further 
investigate those facts because of a deliberate desire to evade 
knowledge of misconduct by Sachdeva.  Accordingly, there is no 
genuine issue of material fact as to whether Park Bank acted in 
bad faith under the UFA with regard to Sachdeva's petty cash 
requests. 
4.  Wire Transfers 
¶67 Koss Corporation's final argument is that Park Bank's 
violation of its own wire transfer policy by conducting wire 
transfers without a wire transfer agreement in place constituted 
bad faith.  Between 2004 and 2009, Park Bank made seven wire 
transfers totaling $2 million from Koss Corporation's Park Bank 
accounts to Koss Corporation's accounts with Chicago banks.19   
¶68 Koss Corporation requested wire transfers over the 
phone, sometimes by a non-signatory, in violation of Park Bank's 
wire transfer policy.  Sachdeva later used wire transfers from 
Koss Corporation's Chicago banks to pay more than $16 million in 
credit card bills.  However, Sachdeva's misconduct with regard 
to Koss Corporation's Chicago banks does not give rise to a 
triable issue of fact in the matter before us. 
                                                 
19 During that same period of time, Park Bank made more than 
40,000 wire transfers on behalf of its customers.   
No. 
2016AP636   
 
32 
 
¶69 No evidence has been proffered that Park Bank did not 
honestly complete the wire transfers or that any Park Bank 
employee who participated in them was suspicious that Sachdeva 
was violating her fiduciary obligation to Koss Corporation in 
commencing the transfers.  Additionally, Koss Corporation does 
not dispute that each wire transfer was to another Koss 
Corporation bank account.  Koss Corporation retained possession 
of the funds after each wire transfer.  Koss Corporation also 
does not explain why wire transfers that were admittedly sent to 
other 
Koss 
Corporation 
bank 
accounts 
would 
have 
raised 
suspicions on the part of any Park Bank employee.  Accordingly, 
there is no genuine issue of material fact as to whether Park 
Bank acted in bad faith with regard to any of the seven wire 
transfers.   
D.  Summary Judgment 
¶70 Summary judgment is granted when "the pleadings, 
depositions, answers to interrogatories, and admissions on file, 
together with the affidavits, if any, show that there is no 
genuine issue as to any material fact and that the moving party 
is entitled to a judgment as a matter of law."  Dufour, 370 
Wis. 2d 313, ¶12; Wis. Stat. § 802.08(2).   
¶71 While discovery was extensive and conducted for years, 
no proof has been proffered from which a factfinder could find 
that any Park Bank transaction was not honestly done.  There is 
much here from which a claim of negligence could be made.  
However, 
negligence 
is 
not 
sufficient 
to 
establish 
bank 
liability 
for 
transactions 
that 
were 
honestly 
done.  
No. 
2016AP636   
 
33 
 
Rheinberger, 150 N.W.2d at 41; Pricewaterhouse Coopers, LLP, 
2:0001684, slip op. at *12; Guild, 553 P.2d at 958; Wis. Stat. 
§ 112.01(1)(c).  Furthermore, there was no proffer of proof from 
which a factfinder could infer dishonesty by finding that Park 
Bank willfully failed to further investigate compelling and 
obvious known facts suggesting Sachdeva's embezzlement because 
of Park Bank's desire to evade further knowledge out of fear 
that it would find her misconduct.  We conclude that the court 
of appeals did not err in affirming the circuit court's summary 
judgment that dismissed Koss Corporation's complaint against 
Park Bank.    
E.  Third Party Claims 
¶72 Park Bank brought third-party claims against Grant 
Thornton LLP and Michael Koss for contribution and equitable 
subrogation, contingent on Park Bank's having liability to Koss 
Corporation.  Because we conclude that Park Bank is not liable 
to Koss Corporation, we affirm the circuit court's dismissal of 
Park Bank's third-party claims without further comment. 
III.  CONCLUSION 
¶73 We conclude Wis. Stat. § 112.01(1)(c) describes the 
term "good faith" as honest bank acts, even when negligently 
done, and consistent with the majority of jurisdictions' 
interpretations of the UFA, "bad faith" is inconsistent with the 
statutory criteria for "good faith."  Therefore, bad faith 
pursuant to § 112.01(9), which is an intentional tort, may be 
shown by acts evidencing bank dishonesty such as a bank 
willfully failing to further investigate compelling and obvious 
No. 
2016AP636   
 
34 
 
known facts suggesting fiduciary misconduct because of a 
deliberate desire to evade knowledge of fiduciary misconduct.     
¶74 We further conclude that given the allegations that 
Koss Corporation asserts in regard to its claim that Park Bank 
is liable for the intentional tort of bad faith, no proof has 
been proffered of bank dishonesty wherein Park Bank willfully 
failed to further investigate compelling and obvious known facts 
suggesting fiduciary misconduct because of a deliberate desire 
to evade knowledge of fiduciary misconduct.    
¶75 Accordingly, 
we 
affirm 
the 
court 
of 
appeals' 
affirmance 
of 
the 
circuit 
court's 
dismissal 
of 
Koss 
Corporation's claim that Park Bank acted in bad faith in 
processing Sachdeva's transactions.  Because we conclude Park 
Bank is not liable to Koss Corporation, we also affirm the 
dismissal of Park Bank's third-party claims. 
By The Court.—The decision of the court of appeals is 
affirmed. 
 
 
No.  2016AP636.awb 
 
1 
 
¶76 ANN WALSH BRADLEY, J.   (concurring).  I agree with 
the lead opinion1 that summary judgment was properly granted to 
                                                 
1 I use the term "lead" opinion because I am concerned that 
without this cue, the reader may mistakenly believe that the 
lead opinion has precedential authority.  Although five justices 
join in the mandate of the opinion to affirm the court of 
appeals, it represents the reasoning of only two justices 
(Roggensack, C.J., joined by Ziegler, J.).  I, along with 
Justices Abrahamson and Dallet, join in the mandate, but would 
rely on contrary reasoning.  Justice Kelly, joined by Justice 
Rebecca Grassl Bradley, does not join in the mandate of the 
court, and would adopt a legal standard for bad faith that is 
also contrary to the lead opinion's formulation.  Thus, although 
set forth in two separate opinions (this concurrence and Justice 
Kelly's dissent), five justices would not adopt the legal 
standard for bad faith set forth by the lead opinion. 
In order to alert the public, litigants and courts, I urge 
the court to adopt a procedure requiring the author of a lead 
opinion to include an admonition that it is a lead opinion.  The 
rationale for such a procedure is simple:  lest there be 
confusion that the first appearing opinion be regarded as the 
majority opinion. 
Recently such confusion arose in news reports referring to 
this court's opinion in State v. Mitchell, 2018 WI 84, 383 
Wis. 2d 192, 914 N.W.2d 151, cert. granted, 2019 WL 166881 (U.S. 
Jan. 11, 2019) (No. 18-6210), announcing that the United States 
Supreme Court granted certiorari in that case.  The first 
appearing opinion gave no alert that it was anything other than 
a majority opinion.  Some media reports apparently assumed that 
the first appearing opinion garnered sufficient votes and 
referred to it as a majority opinion.  See Kevin Lessmiller and 
Barbara Leonard, Unconscious Driver DUI Case Taken Up by Supreme 
Court, 
Courthouse 
News 
Service 
(Jan. 
11, 
2019), 
https://www.courthousenews.com/justices-take-up-unconscious-
drivers-dui-case/.  Litigants and courts may inadvertently make 
the same erroneous assumption. 
(continued) 
No.  2016AP636.awb 
 
2 
 
Park Bank.  See lead op., ¶71.  I write separately, however, 
because in interpreting a uniform law, the lead opinion unearths 
a heretofore unknown standard for bad faith. 
¶77 The lead opinion errs in its creative exercise in two 
ways.  First, this new standard for bad faith runs afoul of the 
legislative directive that uniform laws are to be interpreted 
uniformly with other jurisdictions.  Second, the legal standard 
                                                                                                                                                             
The only reference to "lead opinions" in our Internal 
Operating Procedures (IOPs) states that if during the process of 
circulating and revising opinions, "the opinion originally 
circulated as the majority opinion does not garner the vote of a 
majority of the court, it shall be referred to in separate 
writings as the 'lead opinion.'"  Wis. S. Ct. IOP III(G)(4) 
(Feb. 22, 2018).  The potential confusion that arises from 
mislabeling 
a 
lead 
opinion 
is 
exacerbated 
because 
the 
precedential effect (or lack thereof) of a lead opinion is 
uncertain.  This remains an uncertainty even though two prior 
certifications from the court of appeals have asked us to 
resolve the issue.  State v. Dowe, 120 Wis. 2d 192, 192–93, 352 
N.W.2d 660 
(1984); 
State 
v. 
Hawley, 
No. 
2015AP1113-CR, 
unpublished certification, 2-3 (Nov. 21, 2018); see also State 
v. Lynch, 2016 WI 66, ¶145, 371 Wis. 2d 1, 885 N.W.2d 89 
(Abrahamson and Ann Walsh Bradley, JJ., concurring in part, 
dissenting in part). 
In the midst of the potential confusion and uncertainty, 
the very least we can do is to alert the reader to beware that 
no part of the rationale in the first appearing opinion has 
garnered  a majority vote.  Unlike the first appearing opinion 
in Mitchell, 383 Wis. 2d 192, which completely failed to advise, 
the lead opinion here takes a first step.  It announces that 
only two justices join the opinion in totality.  But that leaves 
unanswered the question of whether any of the separate writings 
join in part. 
When the opinion originally circulated as the majority 
fails to garner sufficient votes during the process of revising 
and circulating opinions, it should as clearly as possible 
advise the reader of its status.  It is not something that 
should be hidden or left for the reader to figure out. 
No.  2016AP636.awb 
 
3 
 
for bad faith that the lead opinion embraces is too exacting on 
bank customers with Uniform Fiduciaries Act (UFA) claims. 
¶78 Because I determine that Wisconsin should adopt a bad 
faith standard that promotes uniformity among the states, 
vindicates the purpose of the UFA, and provides bank patrons 
with a meaningful check on bank behavior, I respectfully concur. 
I 
¶79 The Uniform Law Commission, which has a diverse 
representation from all fifty states, promulgates uniform laws 
for consideration by state legislatures.  "The purpose of 
uniform laws is to establish both uniformity of statutory law 
and uniformity of case law construing the statutes, ensuring 
certainty and guidance to litigants who rely on the courts to 
interpret uniform statutes in a predictable and consistent 
manner."  Estate of Matteson v. Matteson, 2008 WI 48, ¶42, 309 
Wis. 2d 311, 749 N.W.2d 557 (citing M.J. Wallrich Land & Lumber 
Co. v. Ebenreiter, 216 Wis. 140, 143, 256 N.W. 773 (1934)).  In 
this 
context, 
the 
goal 
is 
to 
provide 
uniformity 
and 
predictability for both banks and those who use them, regardless 
of the state in which the banking transaction occurs. 
¶80 At issue here is the bad faith provision set forth in 
Wisconsin's enactment of the UFA.  Wis. Stat. § 112.01(9).  It 
is substantially identical to other state enactments throughout 
No.  2016AP636.awb 
 
4 
 
the country.2  Pursuant to this provision, a bank that wrongfully 
cashes a check can be liable to a defrauded principal if one of 
two possibilities is fulfilled:  (1) the bank has actual 
knowledge that the fiduciary is committing a breach of his or 
her 
obligations 
or 
(2) 
the 
bank 
acts 
in 
"bad 
faith."  
§ 112.01(9).3  The question before us is the standard that must 
be fulfilled for a plaintiff to prove "bad faith" in this 
context. 
¶81 The 
lead 
opinion 
observes 
that 
"bad 
faith" 
is 
inconsistent with "good faith," a defined term in the statute.  
Lead op., ¶3; see Wis. Stat. § 112.01(1)(c).  Using the 
definition of "good faith" as a springboard, it concludes that 
"bad faith pursuant to § 112.01(9), which is an intentional 
tort, may be shown by acts evidencing bank dishonesty such as a 
bank willfully failing to further investigate compelling and 
obvious known facts suggesting fiduciary misconduct because of a 
                                                 
2 See, e.g., Ariz. Rev. Stat. Ann. § 14-7507; 760 Ill. Comp. 
Stat. 65/8; Ind. Code § 30-2-4-8; Md. Code Ann., Est. & Trusts 
§ 15-207; Minn. Stat. § 520.08; N.J. Stat. Ann. § 3B:14-55; N.C. 
Gen. Stat. § 32-9; Ohio Rev. Code Ann. § 5815.07; 7 Pa. Cons. 
Stat. § 6392. 
3 Wis. Stat. § 112.01(9) provides: 
If a check is drawn upon the account of a fiduciary's 
principal in a bank by a fiduciary, who is empowered 
to draw checks upon his or her principal's account, 
the bank is authorized to pay such check without being 
liable to the principal, unless the bank pays the 
check with actual knowledge that the fiduciary is 
committing a breach of the fiduciary's obligation as 
fiduciary in drawing such check, or with knowledge of 
such facts that its action in paying the check amounts 
to bad faith. 
No.  2016AP636.awb 
 
5 
 
deliberate desire to evade knowledge of fiduciary misconduct."  
Lead op., ¶3. 
¶82 Wisconsin Stat. § 112.01 does not define "bad faith."  
However it does provide some guidance to our endeavor, dictating 
that our state's UFA "shall be so interpreted and construed as 
to effectuate its general purpose to make uniform the law of 
those states which enact it."  § 112.01(14).  Thus, we look to 
the case law of other states to guide our analysis. 
¶83 The 
lead 
opinion 
correctly 
observes 
that 
other 
jurisdictions have been inconsistent in defining bad faith when 
it states, "variations in facts from which claims of bad faith 
arose have resulted in different expressions of the definition 
of bad faith, with bank dishonesty expressed in most decisions."  
Lead op., ¶31 (citations omitted).  However, it errs when it 
deviates from the legislative directive that the interpretation 
of our uniform laws be consistent with the interpretations 
adopted by our sister states. 
¶84 Contrary to the directive, the lead opinion adopts a 
standard for bad faith that is inconsistent with the majority of 
our sister states that have interpreted the uniform act.  It is 
not even consistent with a minority of states' interpretations.  
The standard for bad faith that the lead opinion embraces does 
not closely track the case law in any other jurisdictions.  
Wisconsin stands alone. 
II 
¶85 Although 
there 
has 
been 
some 
inconsistency 
in 
interpretation among the various states, not all expressions of 
No.  2016AP636.awb 
 
6 
 
the definition of bad faith are created equal.  The standard 
this court adopts should promote uniformity and vindicate the 
purpose of the UFA, while at the same time avoid placing an 
inordinate and nearly impossible burden on bank patrons. 
¶86 Several courts have adopted such a standard.  They 
interpret the UFA bad faith standard to attach liability to a 
bank in the event the bank does not affirmatively act but simply 
"remains passive" in the face of compelling and obvious facts 
suggesting fiduciary misconduct.  See; In re Broadview Lumber 
Co., 118 F.3d 1246, 1251 (8th Cir. 1997); Maryland Cas. Co. v. 
Bank of Charlotte, 340 F.2d 550, 554 (4th Cir. 1965); Time 
Savers, Inc. v. LaSalle Bank, N.A., 863 N.E.2d 1156, 1165 (Ill. 
App. Ct. 2007);; New Jersey Title Ins. Co. v. Caputo, 748 
A.2d 507, 514 (N.J. 2000).  As the New Jersey supreme court 
stated the standard in Caputo: 
[B]ad faith denotes a reckless disregard or purposeful 
obliviousness 
of 
the 
known 
facts 
suggesting 
impropriety by the fiduciary.  It is not established 
by 
negligent 
or 
careless 
conduct 
or 
by 
vague 
suspicion. 
 
Likewise, 
actual 
knowledge 
of 
and 
complicity 
in 
the 
fiduciary's 
misdeeds 
is 
not 
required.  However, where facts suggesting fiduciary 
misconduct are compelling and obvious, it is bad faith 
to remain passive and not inquire further because such 
inaction amounts to a deliberate desire to evade 
knowledge. 
Caputo, 748 A.2d at 514. 
¶87 I would adopt the Caputo standard in Wisconsin.  This 
standard is preferable to that proffered by the lead opinion 
because it promotes uniformity and emphasizes that no "high 
degree of moral guilt" is required on the part of the bank.  See 
Wis. Stat. § 112.01(14); Maryland Cas. Co., 340 F.2d at 554.  
No.  2016AP636.awb 
 
7 
 
"Neither criminal fraud nor downright corruption is an essential 
ingredient of legal 'bad faith.'"  Maryland Cas. Co., 340 F.2d 
at 554.  The Caputo standard would permit bank patrons with 
legitimate claims a better chance at relief.  Otherwise, it is 
the rare customer indeed that will be able to demonstrate 
"willful" and "deliberate" actions on the part of a bank. 
¶88 Importantly, such a standard also remains consistent 
with the purpose of the UFA.  The UFA was instituted to provide 
banks with relief from the dire consequences of the previous 
common law rule that entities dealing with fiduciaries had the 
duty to assure that fiduciary funds were properly applied to the 
account of the principal.  Bolger v. Merrill Lynch Ready Assets 
Tr., 143 Wis. 2d 766, 774, 423 N.W.2d 173 (Ct. App. 1988); see 
Master Chem. Corp. v. Inkrott, 563 N.E.2d 26, 29 (Ohio 1990) 
("By altering the common law, the Act relaxes some of the 
harsher rules which require of a bank and of individuals the 
highest degree of vigilance in the detection of a fiduciary's 
wrongdoing.") (internal quotations and citations omitted).  It 
was meant to "facilitate banking and financial transactions and 
place 
on 
the 
principal 
the 
burden 
of 
employing 
honest 
fiduciaries[,]" thereby relieving banks of their previously 
onerous duty.  Bolger, 143 Wis. 2d at 775 (citing Johnson v. 
Citizens Nat'l Bank of Decatur, 334 N.E.2d 295, 300 (Ill. App. 
Ct. 1975)). 
¶89 Although the UFA was certainly enacted to provide 
relief to banks, it should not make proving a bank's liability a 
mountain that is nearly impossible for a bank customer to scale.  
No.  2016AP636.awb 
 
8 
 
The Caputo standard strikes the right balance by furthering the 
purpose of the UFA while at the same time allowing bank patrons 
a more significant check on bank behavior. 
III 
¶90 I conclude that even under the less exacting Caputo 
standard, summary judgment for Park Bank is appropriate.  Koss 
has not put forth evidence sufficient to create a genuine issue 
of material fact that Park Bank remained passive in the face of 
"compelling and obvious" facts suggesting fiduciary misconduct. 
¶91 The sheer number of transactions and number of Park 
Bank employees involved in cashing Koss checks belie Koss's 
assertion that a nefarious pattern was apparent.  Over the ten 
years of Sachdeva's embezzlement, a period during which Park 
Bank issued greater than 60,000 cashier's checks, forty-nine 
bank employees issued the 359 cashier's checks requested by 
Sachdeva.  Lead op., ¶62, n.16.  Neither "the amount and number 
of transactions carried out on an account containing fiduciary 
funds, nor the mere names of payees on checks drawn on that 
account, are sufficient to create bad faith liability based on 
the bank's action in paying such checks."  Heffner v. Cahaba 
Bank & Tr. Co., 523 So. 2d 113, 115 (Ala. 1988). 
¶92 Indeed, Koss itself did not notice the fraud for 
years.  Even viewed in the light most favorable to Koss, the 
facts of this case do not present the "compelling and obvious" 
suggestion of fiduciary misconduct so as to foist liability onto 
Park Bank. 
¶93 For the above stated reasons, I respectfully concur. 
No.  2016AP636.awb 
 
9 
 
¶94 I am authorized to state that Justice SHIRLEY S. 
ABRAHAMSON 
and 
Justice 
REBECCA 
FRANK 
DALLET 
join 
this 
concurrence. 
 
 
No.  2016AP636.dk 
 
1 
 
¶95 DANIEL KELLY, J.   (dissenting).  There is no bad 
faith, Park Bank says, when it disburses funds from fiduciary 
accounts while intentionally remaining ignorant of whether the 
individuals making the requests have authority to transact 
business on those accounts.  The court agreed——not as a matter 
of fact, but of law.  Because the law does not require that 
conclusion, I respectfully dissent. 
* 
¶96 Bad faith does not exist in a vacuum——it occurs in the 
context of a specific relationship.  Here, Koss Corporation 
tells us the bad faith took place within a relationship created 
by statute as well as the documentation requested and maintained 
by Park Bank.  With respect to the latter, Park Bank provided a 
copy of its Depository Declaration form to Koss Corporation to 
complete and return.  The form's purpose is to identify the Koss 
Corporation employees who have authority to transact business on 
the company's accounts: 
The persons and the number thereof designated by name 
or title on the reverse side opposite the accounts 
("authorized person") are authorized, for and on 
behalf of the Depositor, (a) to sign checks, drafts 
notes, bills, certificates of deposit and other orders 
for payment or withdrawal of money from the accounts 
and to issue instructions regarding them, (b) to 
endorse for cash, deposit, negotiation, collection or 
discount by the Bank any and all checks, drafts, 
notes, 
bills, 
certificates 
of 
deposit 
or 
other 
instruments or orders for the payment of money owned 
or held by the Depositor. 
No.  2016AP636.dk 
 
2 
 
Koss Corporation identified its President & CEO,1 Vice-President 
of Finance,2 Vice-President of Sales,3 and Vice-President of MIS 
as the only "authorized persons" to transact business on its 
general account. 
¶97 Koss Corporation subsequently submitted a Corporate 
Authorization Resolution to Park Bank, which (as with the 
Depository Declaration) identified the employees authorized to 
transact business on its accounts.  It provided that "[a]ny 
agent listed below, subject to any written limitations, is 
authorized 
to 
exercise 
the 
powers 
granted 
as 
indicated 
below:  . . . (3) Endorse checks and orders for the payment of 
money or otherwise withdraw or transfer funds on deposit with 
this Financial Institution."  The resolution identified only 
three people:  Michael J. Koss, John C. Koss Jr., and Sujata 
Sachdeva.  Together, the resolution and Depository Declaration 
serve as the "signature card," and so I will refer to them as 
such. 
¶98 Park Bank had Koss Corporation's completed signature 
card on file before Ms. Sachdeva embarked on her embezzlement 
spree, and it remained on file all during her criminal behavior.  
So that is the documentary aspect of Koss's relationship with 
Park Bank. 
                                                 
1 Michael Koss 
2 Koss Corporation's Vice-President of Finance was Sujata 
Sachdeva. 
3 John C. Koss Jr. 
No.  2016AP636.dk 
 
3 
 
¶99 The statutory aspect of the Park Bank/Koss Corporation 
relationship arises from Wis. Stat. § 112.01(9), a provision 
that received such intense, but narrow, inspection that its 
significance seems to have become a little warped.  The court's 
analysis, with a heavy assist from the parties, gives the 
impression that § 112.01(9) created a bank-specific tort of "bad 
faith."  It didn't.  Customers were free to bring bad faith 
actions against banks before adoption of § 112.01(9), and they 
can, right now, bring those claims without ever mentioning this 
statute.  And that is true because § 112.01(9) does nothing but 
give 
banks 
limited 
immunity 
from 
liability 
for 
improper 
transactions on fiduciary accounts. 
¶100 The statute starts with a grant of immunity, followed 
by two potentially relevant exceptions.4  The immunity provision 
says:  "If a check is drawn upon the account of a fiduciary's 
principal in a bank by a fiduciary, who is empowered to draw 
checks upon his or her principal's account, the bank is 
authorized to pay such check without being liable to the 
principal . . . ."  Wis. Stat. § 112.01(9).  The relevant 
exception clauses say the immunity applies "unless the bank pays 
the check [1] with actual knowledge that the fiduciary is 
committing a breach of the fiduciary's obligation as fiduciary 
in drawing such check, or [2] with knowledge of such facts that 
its action in paying the check amounts to bad faith."  Id. 
                                                 
4 The lead opinion lists all three potential exceptions to 
immunity.  See lead op., ¶¶27-28.  However, because the facts of 
this case do not implicate the third exception, I will confine 
my attention to the first two. 
No.  2016AP636.dk 
 
4 
 
¶101 The first exception to immunity depends on the nature 
of the fiduciary's actions.  That is, the analysis focuses on 
the fiduciary's culpable conduct in relation to his company.  If 
the fiduciary is "committing a breach of the fiduciary's 
obligation," and the bank knows it, there is no immunity from 
liability.  Id.  I'll refer to this exception as a "Fiduciary 
Breach Exception."  The second exception, however, depends on 
the bank's conduct in relation to the company.  If the bank's 
knowledge of relevant facts makes the transaction an act of bad 
faith, there is no immunity.  That is to say, Wis. Stat. 
§ 112.01(9) provides no defense against a common-law claim of 
bad faith.  I'll refer to this exception as a "Bad Faith 
Exception." 
¶102 The difference between the Fiduciary Breach Exception 
and 
the 
Bad 
Faith 
Exception 
is 
important 
because 
Koss 
Corporation's complaint described two conceptually distinct 
categories of transactions.  The first comprises those in which 
Ms. Sachdeva personally contacted Park Bank to initiate the 
process.  The second encompasses those initiated by Koss 
Corporation employees who were not listed on the signature card 
maintained by Park Bank.  The court collapsed the two, and 
applied an analysis to the resulting mélange that was suitable 
for only one of the categories.  In doing so, it missed Park 
Bank's potential bad faith with respect to many of the 
transactions described by Koss Corporation. 
¶103 A proper assessment of Park Bank's potential liability 
requires us to test the two categories of suspect transactions 
No.  2016AP636.dk 
 
5 
 
against the two exceptions to the immunity provided by Wis. 
Stat. § 112.01(9).  The four possible permutations are as 
follows: 
1.  Did the transactions initiated by Ms. Sachdeva 
create a Fiduciary Breach Exception to immunity 
(Combination 1)? 
2.  Did the transactions initiated by Ms. Sachdeva 
create a Bad Faith Exception to immunity (Combination 
2)? 
3.  Did the transactions initiated by unauthorized 
Koss employees create a Fiduciary Breach Exception to 
immunity (Combination 3)? 
4.  Did the transactions initiated by unauthorized 
Koss employees create a Bad Faith Exception to 
immunity (Combination 4)? 
Because my purpose in this dissent is simply to demonstrate that 
Koss Corporation identified matters that should have gone to the 
jury for its consideration, I will not assess each of the 
combinations; addressing only the fourth should be sufficient to 
make the point. 
* 
¶104 With respect to Combination 4, the task is to 
determine whether Park Bank acted in bad faith when it processed 
a transaction on a fiduciary account without first checking the 
fiduciary's name against the signature card.  And so we arrive 
at the heart of the lead opinion, to wit, the definition of "bad 
faith."  It said that, for purposes of Wis. Stat. § 112.01(9), 
"bad faith" means "acts evidencing bank dishonesty such as a 
bank willfully failing to further investigate compelling and 
obvious known facts suggesting fiduciary misconduct because of a 
deliberate desire to evade knowledge of fiduciary misconduct."  
No.  2016AP636.dk 
 
6 
 
Lead op., ¶¶3, 73.  I disagree with this formulation because it 
improperly mixes elements of the Fiduciary Breach Exception with 
elements of the Bad Faith Exception. 
¶105 As I mentioned above, the Fiduciary Breach Exception 
inquires into the fiduciary's fidelity to his company.  The Bad 
Faith Exception does not.  With respect to this exception, the 
terms of Wis. Stat. § 112.01(9) require only that the bank know 
of facts sufficient to demonstrate it——the bank——had acted in 
bad faith in conducting the transaction.  And although bad faith 
may arise out of knowledge of a fiduciary's misconduct, the 
statute's terms do not limit the tort to such a situation.  Nor 
does the statute's context or structure suggest such a reading 
is necessary, or even reasonable.  So when the court borrowed 
"fiduciary misconduct" from the Fiduciary Breach Exception and 
imported it into the Bad Faith Exception, it gratuitously and 
atextually limited the type of facts that could establish a 
bank's bad faith. 
¶106 I agree with Justice Ann Walsh Bradley that we should 
adopt a definition of "bad faith" that comports with our sister 
states.  However, I would not adopt (as she does) the Caputo 
standard because it, too, conflates the Fiduciary Breach 
Exception with the Bad Faith Exception.  The New Jersey Supreme 
Court said: 
[B]ad faith denotes a reckless disregard or purposeful 
obliviousness 
of 
the 
known 
facts 
suggesting 
impropriety by the fiduciary.  It is not established 
by 
negligent 
or 
careless 
conduct 
or 
by 
vague 
suspicion. 
 
Likewise, 
actual 
knowledge 
of 
and 
complicity 
in 
the 
fiduciary's 
misdeeds 
is 
not 
required.  However, where facts suggesting fiduciary 
No.  2016AP636.dk 
 
7 
 
misconduct are compelling and obvious, it is bad faith 
to remain passive and not inquire further because such 
inaction amounts to a deliberate desire to evade 
knowledge. 
N.J. Title Ins. Co. v. Caputo, 748 A.2d 507, 514 (N.J. 2000).  
The references to the fiduciary's "impropriety," "misdeeds," or 
"misconduct" (if we adopted this test) would read into the Bad 
Faith Exception limiting factors that simply do not exist in the 
statute's language. 
¶107 I think the United States Court of Appeals for the 
Fourth Circuit more accurately assesses bad faith in this 
context: 
Neither criminal fraud nor downright corruption is an 
essential ingredient of legal 'bad faith.'  The 'bad 
faith' test was borrowed from the Uniform Negotiable 
Instruments Act.  The standard used in construing the 
term under that Act has not been evil motive.  Instead 
courts have asked whether it was 
'commercially' 
unjustifiable for the payee to disregard and refuse to 
learn facts readily available.  At some point, obvious 
circumstances become so cogent that it is 'bad faith' 
to remain passive. 
Maryland Cas. Co. v. Bank of Charlotte, 340 F.2d 550, 554 (4th 
Cir. 1965) (citations and footnote omitted).  This standard is 
compatible with the language of Wis. Stat. § 112.01(9) because 
it does not limit the tort to instances of fiduciary misconduct.  
Instead, it accurately reflects the statutory structure in that 
it allows a plaintiff to address the bank's 
bad faith 
independently from that of the fiduciary. 
* 
¶108 Applying those principles to this case inevitably 
leads to the conclusion that the circuit court should have 
allowed 
Koss 
Corporation 
to 
submit 
the 
Combination 
4 
No.  2016AP636.dk 
 
8 
 
transactions to the jury.  Everyone acknowledges that Park Bank 
allowed Koss Corporation employees who were not listed on the 
signature card to request and pick up cashier's checks.  See 
lead op., ¶63.5  They also agree that Park Bank allowed one such 
employee to draft a counter check against Koss Corporation's 
account, cash it, and use the proceeds to purchase two cashier 
checks.  Id., ¶64.  The facts of record demonstrate that a jury 
could find Park Bank acted in bad faith when it remained 
intentionally ignorant of whether the individuals transacting 
business on Koss Corporation's accounts had the authority to do 
so. 
¶109 In summarily dismissing the significance of this 
conduct, the court illustrated the defect in its analytical 
structure.  It said that "Koss Corporation does not explain how 
Mulvaney's being a non-signatory amounted to an obvious and 
compelling fact that Sachdeva was breaching her fiduciary 
obligations to Koss Corporation."  Id., ¶63.  That misses the 
point.  If we were analyzing this case under the Fiduciary 
Breach Exception to immunity, we would be interested in Ms. 
Sachdeva's conduct toward Koss Corporation.  But we aren't doing 
that analysis, and so we aren't particularly interested in Ms. 
Sachdeva's 
behavior. 
 
We 
are 
instead 
assessing 
Koss 
                                                 
5 Although these employees were not listed as individuals 
authorized to transact business on Koss Corporation's accounts, 
they were, nonetheless, fiduciaries.  According to Wis. Stat. 
§ 112.01(1)(b), 
a 
"fiduciary" 
includes 
an 
"agent" 
of 
a 
corporation.  It is fair to say that the Koss Corporation 
employees were holding themselves out as agents of the company 
when they transacted business on Koss Corporation's accounts. 
No.  2016AP636.dk 
 
9 
 
Corporation's claims under the Bad Faith Exception to immunity, 
which means the proper focus is on Park Bank's conduct toward 
Koss Corporation. 
¶110 Properly re-oriented, the undisputed facts reveal a 
pattern of conduct that should cause any corporate officer's 
heart to fearfully skip a beat, or several.  Park Bank said, 
unapologetically(!), that its policy is to remain intentionally 
and steadfastly ignorant of whether an individual has the 
authority to transact business on a fiduciary account.  Avoiding 
that knowledge takes some effort because the information resides 
in the bank's own records.  It's in the signature card, the 
specific purpose of which is to tell the bank which of Koss 
Corporation's employees may access the company's accounts.  Yet 
the bank deliberately and consistently refused to consult the 
signature 
card 
to 
determine 
whether 
it 
was 
helping 
an 
unauthorized person gain access to a fiduciary account. 
¶111 This is not evidence of negligence, as the court would 
have it.  Id., ¶57.  Negligence would be a bank employee 
forgetting to check the signature card, or checking so cursorily 
that the names failed to register in his mind, or a training 
regimen that failed to teach employees to check the signature 
cards, or an inconstant enforcement of a policy to check the 
signature cards.  None of that is at issue here.  What Park Bank 
did was intentional.  It chose to ignore its depositors' 
signature cards.  It chose not to know whether the Koss 
Corporation employees with whom it was dealing had the authority 
to access the company's accounts.  It chose to have a policy of 
No.  2016AP636.dk 
 
10 
 
ignorance with respect to its customers' instructions.  The 
consequence of those intentional choices was that it disbursed 
enormous sums of money to people who were not authorized to 
access Koss Corporation's accounts. 
¶112 This does not mean, however, that Park Bank is 
necessarily liable to Koss Corporation.  It is possible that a 
jury would find no bad faith in Park Bank's conduct.  Further, 
Koss Corporation must still prove that Park Bank's actions were 
the proximate cause of its damages.  If Park Bank had called 
Koss Corporation when an unauthorized employee tried to access 
its accounts, perhaps Ms. Sachdeva's embezzlement attempt would 
have been revealed.  We know this is possible, because her 
scheme came to light when American Express observed suspicious 
activity 
on 
Koss 
Corporation's 
account 
and 
called 
to 
investigate.  Or perhaps Park Bank's call would have gone to Ms. 
Sachdeva, who would have been in a position to ratify what the 
unauthorized employee was doing. 
¶113 These "perhaps" are within the jury's province, and a 
jury should have been allowed to consider them.  Caputo, 748 
A.2d at 514 ("The test for good or bad faith is a subjective one 
to be determined by the trier of fact unless only one inference 
from the evidence is possible.").  By concluding, as a matter of 
law, that Park Bank's intentional ignorance of its own records 
could not amount to bad faith, we erred. 
¶114 For the foregoing reasons, I respectfully dissent. 
¶115 I am authorized to state that Justice REBECCA GRASSL 
BRADLEY joins this dissent. 
No.  2016AP636.dk 
 
1