good morning ladies and gentlemen my case for argument is first american bank vs federal reserve bank mr wilson thank your honor may please the court good afternoon imaging chocks it's great makes great sense in the modern age it's cheaper for banks to send images for payment compared to the way it worked in the past it was sending the original imaging however presents a risk previously on known to the common lot of commercial paper for hundreds of years the holder and the pe or o before it gets the image stored in some time for payment so if the images back pay or does not have the same opportunity to inspect the instrument for signs of counterfeiting as it used to have in the days of paper instruments suspicious there's nothing about it to suspicious at all well what what we know from the electronic item was nuts give or yes or no answer the answer is no you know there was had the electronic thing but i have my impression was the electronic image whatever it did contain suspicious elements which should have triggered a demand for a substitute check which has to be absolutely perfect if there was if the electronic item is suspicious the payor bank can bounce the check or bounce the electronic item  and the idea of the one hand to compare the checks stock the image of the check stock that we received as compared to the check stock checks that first aid corporation used in for other transactions we're talking about the for ninety six thousand dollars check yes and the problem with that argument is that it assumes the check stock is always the same even for individual customers that's not true especially commercial customers routinely use different check stock for four different accounts for different books of account within their or with even though with one bank account and a law firm we have we have multiple kinds of checks for different things and there is it is not that is not something that a back office personnel and a bank would look for because there no way to evaluate that this particular but if you have the slightest doubt you can request subst well if you have you can rely on it's true you've won one could have requested a substitute check or bounced a check if there was something to the triggered bat in the mind of the personnel as you normal banking practice by the way to destroy the original document i think it's fair to say this is me speaking now but i think it's fair to say that that's very common today i know little or nothing about the breaking vision strikes me as being did you strive to do original documents or destroy the original document well you know that's a choice that the banks make and it's permitted by the federal reserve regulations check twenty want to act and it's a choice and it can make of it can be a very good business choice because it's cheaper after all to send files of images and supposedly written checks but with that choice comes consequences in the federal reserve regulations set up the scheme so that if you make that choice you or you have responsibility for the on where it minutely rare situation where it goes right and that's all we're saying here we're saying that in this case the image was bad if you look at the security box on the back of the actual it is illegible it's just brush and in those security boxes which aren't cheap stock very few cents check you receive it seems to me that if if that is going to be a requirements that's something that it should it should be required by a contract or by regulation or statute they could they have done so sure but in the vast majority of cases there is not a problem check morris but if you scan the check and it looks problematic and it looks screwed up in some way then you think self protection would say well i demand a substitute check which has to be absolutely clean these are sounds like the simplest thing in the world believe it frankly your honor that there are other issues with that as well we have the midnight deadline we have the modified midnight deadline in the in the regulations the bank has to act swiftly that's what right yeah well that's a that's a good idea acting swiftly and so what is this centanni little bank it doesn't have the important point i believe is that the when the check image came in the week we had we had it was it was in a batch file of  all other items being presented that day and if the if all the banks that they had their images compiled into the file and sent off the first american make if all those other banks are the ones that did the image and if they created a bad image that's on land that's not us we don't have a you know there was a citation them in one of the correct me if i'm wrong and didn't your bank pay out the money before th image accurately represents all of the information on the front and the back of the original item that's what it says all of the information on the front of the back we have clearly alleged  image which you know to beat then as still representing an authentic check because look under the regular under the whole scheme your honor it's the the risk falls on the presenting bank it's it's not doesn't fall on us of the regulation is that the presenting bank warrants that the image can we get to the wording accurately captures quote all of the information on the front and the back of the original i know of the information front and back we have alleged that the information on the back what's not accurate if they did there is not an accurate image of the information on the back but you don't propose to do anything about it you would believe noticed a mistake it doesn't occur to you you could speak to the bank that sent it to you and tell them where it is and we'd like you to you know redo it you could have done that or you could to check from them and then that would that would eliminate all of the confusion well it's not it's not a fact that we we saw it as being did you know it was screwed up now you say it in the bank didn't know doesn't look at these things at all when when the back office bank personnel looks that the back of the check they look to see what's there and do what they can with the information that's there if the if the image is bad and they can't do anything with that information because it's bad information that's it's unreadable information then they just have to go on with their work that day and possible the answer that question is that that could certainly happen and this is all the sort of information that would come up in the factual development of the case what you know who who handled this check in the back office of first american what did they do why did they do it who handled the check at citizens bank what did they do and why did they do it that's all information that's going to come out but as a legal matter what the element of our claim is is it's a claim for information on either the front or the back it was a bad image and that the bad imaging paused us some damage him that's what we said what appears on the back of the check you can look at your own check to see if it's in white ink but it's it is legible in a good image and what analysts describe it has a description of the security features of that check the depository bank when it gets a check over the counter can read see what's supposed to be on the check and see if it is there and then if those security features that are described in the box survive the imaging process then the person of the para bank can do the same thing but we were unable to even we didn't even know what was supposed to come do they come from manufacturers just as a small number of manufacturers or i don't believe it's a small number there are lots of manufacturers and there's no requirement at least in our bank that a customer use our check stock or anything like that you can go to cosco on by check stock if you want and you know the important point here is for this regulation the checked right what are they looking for what's required they look at so that by and large comes down to each bank can develop their own policies and procedures they have a certain general regulatory requirements they have safe and sound procedures  system and they should be looked at and whatever information we receive in the image we're going to use that information to go through a process to see whether it's a check that should be paid or a the arguments on the other side about regulation today i think are will are run completely contrary to the purpose of the world the purpose of the world all of the reggae warranty set forth by the federal reserve board is to facilitate and encourage electronic check processing but if this is if this rule from the just record is to stand then you're going to encourage banks just as judge posner was why do you think they created this concept of a of a substitute check must have been because they thought that this electronic stuff you know you get messed up images and what have you and therefore to protect the recipient of a garbled check you would empower it to request a substitute check which would have to be as a matter of law would joke you wouldn't care about that right well might you know i mean you have this image of someone dumbbell tracker offers were just you know it doesn't read any of this stuff or if he or she doesn't read it doesn't think it has any significance well and that could happen but the issue under the warranty provisions of reg j r r about the image that's what this is about oh it's none of my business you're in or a b may please the court my name is victoria kaleido and i represent dependent citizens bank and federal reserve bank of atlanta the district court's dismissal of the second minute complaint should be affirmed and the result here is consistent with the ruling price  and banking on for over two hundred years where there's two innocent victims a fry the depository bank takes the risk of an altered check so citizens took the risk for the eighty six thousand dollars check but the drawee bank takes the risk of an but i wanted to talk about and be happy to you so first the first american has failed to allege any breach of the regulation j warranty yes the warranty requires an adequate representation of all the information on the front and the back of the check but the federal reserve board has confirmed what exactly that information is and that's in the reg c c interpretation for the check twenty one act and it confirms that all of the information that's required to be on the fro back of the check if the information that's necessary to process a negotiator and like the amount of the check the payee the draw are signature of the three printed information and that other features do not need to be included other features such as security features decorative items don't need to be included on the image of the check so here they allege that the micro pending didn't appear on the check and that the watermarks didn't appear on the check those are security features that are designed to not appear on a copy micro printing will not appear on a copy watermarks will not appear on a copy those are security features that are in order for the banks to determine whether they're looking at an original or a check so course they're not going to appear on a copy of the check so plaintiff's claims that these security features weren't on the check does not state a breach of regulation j and second the district court can be affirmed because they didn't plead it's not it's a counterfeit check that's what plaintiff alleges it was an unauthorized signature and we paid it based on the signature that appeared on the check like oh if we had gotten it it was fuzzy on the back so if it was clear on the bank you wouldn't have paid it doesn't make any sense they have an alleged facts to push their claim across the line from conceivable to plausible yes they claim that they wouldn't have paid and the original was sure if goodson had walked into the bank and said give me four hundred eighty six thousand dollars i would imagine that the teller would have looked at the signature car would have checked to make sure that he was the intended pay  photograph it's a photograph and image file that's transferred through the federal reserve banks for through the depository bank to the collecting bank to the presenting bank would you say things are not on the riginal check the don't dangerous well there's generally banks had a policy to retain it for a while and then will destroy it for example sixty days and if no one's demanded the original or no one's demanded a better copy than the stacks and stacks of originals get disposed and here there's no allegation the first american ever asked citizens for a copy of the original check to your question judge posner about whether you could have asked for a substitute check the answer is no they wouldn't ask for a substitute check because they agreed they have agreements with the federal reserve system to send and receive checks electronically they're there with the twenty first century everyone's going for the efficiencies of electronic processing cuts down your time cuts down transportation costs that's that's what they're doing so no they've they've agreed to accept items electronically they can't cry foul because they accept an electronic item i don't understand if  has operating circulars that say you can request the original or you can request a better copy you don't pay that's not what you do you reject the item and you requested a copy the substitute check is for the outliers and it's actually an interesting story after september eleventh when the planes were grounded all of the check collection system froze in the united states because in the olden days you had to fly your tech from new york to san francisco to get speed speed might not be a good thing but that decision has been made so what congress did was say if you pay your bank refused to accept an electronic item we're going to kind of make you because we're going to say that  as a substitute check which is a piece of paper that contains an electronic copy is the legal equivalent of an original check therefore you must accept the substitute check ok fine you don't want to and you're worried about you don't have the original you can have an indemnity if there's you suffer a loss because you got a substitute check instead of the original check you can have an indemnity now regulation jay does not have that indemnity because both the first american and citizens and most banks have agreements with the federal reserve system to send and receive checks electronically so you can't complain that you've got the electronic image instead of the original you have to prove a breach of warranty you have to say that there was a breach regulation j warranty and then that breach cause you damage and that's where plaintiff's claim fails there is a regulation j warranty it's our indemnity but it's only for substitute checks that are later created from electronic images this missile was entirely appropriate because first american failed to allege any lack of good faith on behalf of the federal reserve board which they admit so that dismissal should be affirmed and on behalf of citizens because the only allegation that they made is that citizens upon information and belief failed to follow its own policies and accepting the check and wiring the funds to japan now even if the first american could prove this it doesn't establish a lack of good faith because good faith is not reasonable care good faith is not do care do good faith is not ordinary care it's the observance of reasonable standards of good faith and fair dealing and this court has said that that means unfairness that advantage taking so the fact that citizens deposited the check and wired the funds to japan is not unfair to first american they paid the check they have a midnight deadline they paid the check it was whether citizens wired the funds the day before they paid the check or the same day they paid the check or the day after they paid the check how did that had any impact whatsoever on first americans decision to pay the check it didn't they fail to allege any unfairness or advantage taking its citizens and then filing around on the negligence billy ation claim that one can easily be dismissed because there are no facts suggesting any duty he c thanks routinely destroyed checks there's no duty to retain the original check he doesn't allege that person merican doesn't allege that they asked citizens to retain the check and therefore the dismissal and spoliation claim to allegation of good fit bad faith against him and he took the check for value the use the c code which is the only remaining claim against mr goodson permit to drive me on this case the first american who mistakenly paid an instrument to recover from the person who the instrument was paid to but only in the circumstances that that person took they took that payment and in bad faith or did not rely on that payment changed positions in the land that here mr good things that arose out of the divorce decree right that's the allegation in the complaint is that the the judgment was a divorce proceed and that the collection the money was for a collection under judgment and divorce proceeding and the person who got the divorce was associated some way with this first aid that is that's actually not clear from the complaint the and the allegation is that now we've got to check it anyway he got a check from first aid  whether you know they worked the person worked there had assets there but that that the person that paid paid it without presented it as payment for this divorce requirement for the for the alleged that's correct your honor to the allegations of the complaint is that he that citizens bank when he went to citizens they looked at it under its blue light fraud detection he did everything that a person could do to see if this truck was fraudulent he deposited the the who was owed the money the allegations the complaint that were that the funds were wired out to japan so the he received a check deposited it as i old account instructed the bank to wire the funds to the clients in japan and that's when the fight with the funds were wired out funds disappeared what was his fee the allegations in the complaint don't state what if he actually the actual amount of his fees to that isn't in the record your honor but the complaint does say that he retains that he retained some of the fees for legal services and i can tell you did he do anything but it wasn't one of these cases where the collection agent puts pressure on someone knowledge he just of these mechanical things right i'm sorry i don't think can you  lawyer in the sense he was not doing legal analysis filing legal claims and i would state it's not an accident that he was a lawyer because as a lawyer you just being a lawyer and receiving information from a lawyer you know hiring a lawyer can be enough to collect on a judgment people don't want to be involved in litigation and they don't want to go back to court because that's from so and so mr good so for the reasons i stated mr goodson did not act in bad faith he had no knowledge there's no allegation that he had any knowledge that the check was bad there's no allegation that he was involved in the fraudulent scheme there's no allegation that he knew that the collateral stated in her brief and we joined that brief those arguments are waived because they were not presented before the trial court but it dition only in the instance that first american is attempting to step into the shoes of first aid they do not have any claims against mr goodson the claims that first aid to me have against mr goodson or conversion claims in in banking cases like this the conversion claim is not appropriate claim the appropriate claim is true collect from your bank and then have your bank take additional action against the payee bank and the depository bank so that's it for those reasons those two four zero seven and three zero six are not  this point that well we knew that the check was was suspicious and we paid it anyway that is a causation argument it is not an argument she wants to say this this obviously bit of jibberish obvious bit of jibberish on the back of the check didn't cause our last well that's something she can argue to the jury but i should have the right to put on my bankers and say that's not what happened banker say sorry what would your banker say our banker would say that we would we would have read the security well security features were supposed to be on this chap from the good image there are lots of others present and warranties for that a check is does not have any alterations imagine an extreme example to illustrate the point imagine a check gets presented and it has a bunch of globs of white out on the pale line and now it says payable to the order of joe smith and and it's obvious that there is a white out arm the check now you know it's a original cause the loss but there is a breach of warranty claim you state a claim for that the other the other depository bank can defend by saying you what you paid it you are and so negligent you shouldn't have paid but this is a quintessential question of fact morty claims like this always present