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Parties Involved:
National Union Fire Insurance Company of Pittsburgh, PA
Appellant
Riggs National Bank of Washington, D.C.
Appellee

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 23, 1996 Decided August 27, 1996

No. 94-7244

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,

APPELLANT

v.

THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 91cv01992)

Edward G. Gallagher argued the cause and filed the briefs for appellant.

Eva P. Esber argued the cause and filed the brief for appellee. Karen L. Peck entered an appearance.

Before: EDWARDS, Chief Judge, GINSBURG and HENDERSON, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge: A check forger (identity unknown) collected $640,712.08 on 14

fraudulent checks drawn against an account of NHP Property Management, Inc. at The Riggs

National Bank, leaving Riggs and NHP's insurer, National Union Fire Insurance Company, at odds

over who must bear the loss. Riggs charged NHP's account, National Union reimbursed NHP in

return for NHP's assignment of its claims arising from the loss, and National Union now wants the

money back from Riggs.

After a bench trial the district court entered judgment in favor of Riggs based upon one ofthe

two affirmative defenses that the Bank raised, to wit, the "superior equities" doctrine, and National

Union appealed. We certified two questions of law to the District of Columbia Court of Appeals, 5

F.3d 554 (1993), which advised that the superior equities doctrine does not operate against an

assignee or a conventionalsubrogee such as NationalUnion, 646 A.2d 966 (D.C. 1994). Based upon

that answer we reversed and remanded the case to the district court with an instruction to rule on

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Riggs' alternative defense, which is that NHP implicitly agreed to bear the risk of the loss that

occurred here.

On remand the district court again entered judgment in favor of Riggs. National Union now

appealsfromthat judgment. We reverse and remand, this time with an instruction to the district court

to enter judgment in favor of National Union.

I. Background

In September 1982 Riggs Bank wrote as follows to E. Thomas Stoddard, an NHP vice

president, confirming Riggs' receipt of signature cards for two NHP accounts:

It is our understanding from your letter that we are authorized to honor all checks ...

bearing or purporting to bear the facsimile signature of E. Thomas Stoddard, R.

Wayne Mosier and Robert K. Taylor.

Further, [Riggs] shall be entitled to honor and charge this company for all

checks ... regardless of by whom or by what means the actual or purported facsimile

signature thereon may have been affixed thereto, ifsuch facsimile signature resembles

the facsimile specimen from time to time filed with [Riggs].

About two weeks earlier NHP, acting through Stoddard, had indeed indicated its acceptance ofthese

terms for one of the two accounts by executing a form ("Resolution for Facsimile Signatures")

supplied by Riggs. In November 1982 and February 1983 NHP executed identical forms, thereby

again accepting these terms for two other accounts at Riggs. In March 1983, NHP executed yet

another such form in order to add a signatory on two NHP accounts.

None of these forms, however, referred to the account (No. 17-033-044) upon which the

fraud in this case was committed. NHP did not open that account until November 1988, more than

five years after last submitting a facsimile signature resolution. Riggs admits that NHP never

executed a facsimile signature resolution for the relevant account and does not claim to have asked

NHP to do so. Nonetheless, each month from December 1988 until May 14, 1990 Riggs honored

more than 10,000 checks written against this account and bearing facsimile signatures, including 14

checks bearing the forged facsimile signature of Connie M. Hagen, NHP's Senior Vice President of

Finance.

II. Analysis

Unless varied by an agreement between them, the relationship between Riggs and NHP is

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governed by the terms of the Uniform Commercial Code (as adopted by the District of Columbia),

which provides that "[n]o person is liable on an instrument unless his signature appears thereon."

D.C. Code § 28:3-404(1). Riggs claims that NHP is liable for the amount the Bank paid on the 14

fraudulent checks, notwithstanding that NHP'ssignature does not appearthereon, because the parties

had implicitly so agreed in their "course of dealing." See D.C. Code §§ 28:1-102(3), 1-201(3), 1-

205(3) & 4-103(1). The district court found that there was such a course of dealing and that NHP

had effectively agreed to accept the risk of loss due to forgeriessuch asthe onesthat occurred in this

case.

We turn first to National Union's claim that the evidence is insufficient to support the court's

finding and that Riggs' affirmative defense, the sole basis for a judgment in its favor, therefore fails.

Because we agree with National Union that the evidence is not sufficient, we pass over the insurer's

alternative claim that Riggs would be liable even under the terms of the Resolution for Facsimile

Signatures, and proceed instead to National Union's claim for pre-judgment interest.

A. Course of Dealing

The UCC defines a "course of dealing" as

a sequence of previous conduct between the parties to a particular transaction which

is fairly to be regarded as establishing a common basis of understanding for

interpreting their expressions and other conduct.

D.C. Code § 28:1-205(1). The district court found that the course of dealing between Riggs and

NHP prior to May 1990, when Riggs paid on the fraudulent checks, reflects their agreement to shift

from Riggs to NHP the risk of loss caused by forgeries such as occurred here. As the district court

put it, by their course of dealing the parties "establish[ed] a common basis of understanding that NHP

authorized Riggsto honor checks purporting to bear the facsimile signature of an NHP officer." We

see in the record no evidentiary basis for that finding.

Each facsimile signature resolution executed by NHP concerns a specific account, and none

of them concerns the account in which the fraud occurred. Even considered in the aggregate, the

resolutions are too few, and too closely clustered and far removed in time from the events relevant

to this dispute to put NHP on notice that Riggs had a general policy concerning facsimile signatures

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that would govern Account 17-033-044. When the fraudulent checks written against this account

passed through Riggs' signature-verification process, NHP had more than 50 accounts at Riggs

including two of the three accounts for which NHP had executed facsimile signature resolutions in

1982 and 1983. In Account 17-033-044, opened in 1988, Riggs had been quite willing to honor

approximately180,000 checks bearing facsimile signatures without having received or even requested

a facsimile signature resolution. Even if the course of dealing between Riggs and NHP in 1982 and

1983 might have put NHP on notice that it was acquiescing in a modification of its rights under the

UCC when it opened Account 17-033-044 in 1988, Riggs'subsequent course of dealing would have

been compelling evidence that either (1) Riggs' policy to this effect had changed since 1983 or (2) the

policy never had been general.

Either inference would explainNHP'ssubmission inMay1990a few days beforeRiggs paid

the first of the fraudulent checksof a new signature card for Account 17-033-044 which, like the

original, bore only holographic signatures. The district court gave no weight to this submission even

though it is inconsistent with the court's finding that NHP knew that Riggs generally required

execution of a facsimile signature resolution as a pre-requisite to the use of facsimile signatures.

Finally, the district court appearsto have overlooked the testimonyofMaryLou Spottswood,

NHP's Assistant Treasurersince 1984, that she had opened more than one account at Riggs on which

NHP used facsimile signatures and that Riggs had never asked her either for an imprint of a facsimile

or for a facsimile resolution. Riggs argues that the district court could properly have disregarded this

testimony because Spottswood failed to identify those accounts precisely. Riggs does not claim to

have asked her at trial, however, to identify the accounts and it now suggests no reason why the

district court should nonetheless have discounted her testimony. Nor do we see the logic in Riggs'

claimthat Spottswood'stestimony regarding accountsshe opened "wasseriouslyundermined" byher

lack of familiarity with the facsimile signature resolutions that NHP had executed for accounts that

she did not open.

In sum, the evidence does not support the district court'sfinding that NHP effectively agreed

to depart from the terms of the UCC governing the risk of loss from checks bearing a forged drawer

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signature. The UCC therefore controls, and Riggs concedes that under the UCC, it loses.

B. Pre-judgment Interest

Because the district court held Riggs not liable, that court had no occasion to rule upon

National Union's claim for pre-judgment interest. National Union nevertheless asks us to determine

whether it is entitled to pre-judgment interest as a matter of law. The law in question is D.C. Code

§ 15-108, which provides that

In an action in the United States District Court for the District of Columbia ... to

recover a liquidated debt on which interest is payable by contract or by law or usage

the judgment for the plaintiffshall include interest on the principal debt from the time

when it was due and payable, at the rate fixed by the contract, if any, until paid.

Riggs does not dispute that its debt to NHP is a liquidated debt. See Hartford Accident and

Indemnity Co v. District of Columbia, 441 A.2d 969, 974 (D.C. 1982) ("A debt is liquidated if "at

the time it arose it was an easily ascertainable sum certain' "), quoting Kiser v. Huge, 517 F.2d 1237,

1251 (D.C. Cir. 1974).

Riggs asserts, however, that this court ought not to consider National's claim for

pre-judgment interest because it depends upon factualissuesleft unresolved bythe district court. The

Bank, however, fails to identify a single disputed issue of material fact.

Riggs argues that National's claim to pre-judgment interest is precluded by the UCC which

(at § 28:4-103(5)) provides that

The measure of damagesfor failure to exercise ordinary care in handling an itemisthe

amount of the item reduced by an amount that could not have been realized by the

exercise of ordinary care. If there is also bad faith it includes any other damages the

party suffered as a proximate consequence.

Riggs argues that this provision limits its liability to the face value of the fraudulent checks, i.e.,

without interest thereon, because the district court made no finding that the Bank acted in bad faith

and the evidence of record does not support such a finding.

Riggs' argument is wide of the mark. National Union's claim for damages arises not from

Riggs' failure to exercise ordinary care in honoring the fraudulent checks but from the Bank's breach

of its contract of deposit (supplied by the UCC) in charging NHP's account for the amount that the

Bank paid on those checks. The charges were not improper because Riggs was negligentthe

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district court found that Riggs was notbut because the UCC assigns to the Bank the risk of loss

due to a forged drawer signature regardless of the care that the Bank exercised in handling the

fraudulent item.

Finally, Riggs does not dispute that, if NHP had prosecuted this action and prevailed in its

own right, then the appropriate rate for pre-judgment interest would be that specified in the "Sweep

and Repurchase" agreement under which Riggs paid interest on the funds in Account 17-033-044.

Nonetheless, Riggs arguesthat National Union, the depositor'ssubrogee, cannot recover this rate of

interest for the entire pre-judgment period. Here is the Bank's reasoning: When National re-imbursed

NHP for all but $10,000 of the amount that Riggs charged against the account, NHP deposited that

sum back into the account on January 31, 1991, and Riggs has been paying interest on it ever since.

Reminded of a shell game? We are. Having paid the fraudulent checks, Riggs should have

been out $640,712.08. Instead Riggs made itself whole by helping itself to $640,712.08 from NHP's

account and Riggs has had the use of those funds ever since. National Union made NHP whole in

exchange for NHP's assignment of its claim against Riggs. After Riggs recovered $32,732.38 from

the forger's bank account, the score was: Riggs, ahead more than $600,000; NHP, out the $10,000

deductible; National Union, out more than $600,000. Then NHP deposited at Riggs the proceeds

ofitsinsurance claim, in return for which Riggs paid NHP interest at the agreed rate. In other words,

Riggs had the use of over $1.2 million but was paying NHP interest on only half that amountnot

on the half that Riggs had improperly taken from the account and to which National Union now lays

claim as NHP's subrogee.

National Union is entitled to interest on that sum at the rate that Riggs was contractually

obliged to payNHP. Riggs has stipulated that if National Union's entire claim for interest is sustained

(asit is) then the correct figure for pre-judgment interest throughNovember 30, 1994 is $100,196.17.

Consistent with thisstipulation, it remainsfor the district court onlyto calculate pre-judgment interest

that has accrued since that date.

III. Conclusion

For the reasons set out above, we vacate the judgment of the district court and remand this

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case to the district court with instructionsto enter judgment in favor of NationalUnion in the amount

of $607,980 plus pre-judgment interest thereon.

So ordered.

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