## I L L I N O I S 

## O F F I C I A L 

## RE P O R T S Appellate Court

Dixon, Laukitis & Down ing, P.C. v. Bu sey Bank , 2013 IL App (3d) 120832

Appellate Court Caption DIXON, LAUKI TI S AND DOWNI NG, P.C., Plaintiff-Appellant, v. BU SEY BAN K, Def

endant- Appellee

.

District & N o. Third District Docke t No. 3-12-0832

Filed J uly 31, 2013

Held (Note : Thi s syl lab us

con s t it ute s no par t of the opi nio n of the cour t but has bee n pre

par ed b y the Repo rt er of D e c i s i o n s f

o r t h e

c o n v e n i e n c e o

f t h e

rea der

. ) Plaintiff’s complaint alleg ing that defe ndant bank brea ched its duty of ordinary car e in connec tion with a fra udulent check plaintiff deposited and dre w ag ainst that was later found not to be collec tible was prope rly dismiss ed for failure to state a cause of action, since the bank had no duty to inve stigate the chec k’s g enuinene ss or to tell plaintiff that it could be
counter feit, the acc ount a gree ment was satisfied, the agree ment was not

unrea sonab l e, and the complaint was barr ed by the Moorman doctrine
t h at no rec overy could be had for a solely economic loss under a tort theory

.

Dec ision Under Review Ap p eal from the Circuit Court of Peoria County
, No. 12-L -8; the Ho n

. David J. Dubicki, J udg e, pre siding.

J udg ment Affir med.Counsel on

Appea l Wil liam R. Kohlhase (a rgued) a nd J oshua Her

man, both of Miller, Hall & T rig g s, of Peoria, f

or appe llant.

J oseph B. VanF leet (ar gu ed ) an d Emily H. Wil burn, both of VanF leet L aw Of fice s, of Peoria, f

or appe llee.

Panel J USTI CE O’B RI EN deliver ed the judgment of the c ourt, with opinion.
J ustices Carter

and McD ade c oncurr ed in the judg ment and opinion.

OP INION

¶ 1 Plaintiff D ix on, L aukitis, & Downing , P.C. (DL D), filed this neg lige nce a ction ag ainst defe ndant Busey Ban k
, al l eging t hat Busey brea ched a dut y of ordinary car e it owed DL D
reg arding a fra

udulent chec k DL D deposited and drew ag ainst, which was later deter mined
t o b e uncollectible. The trial court dismiss ed the complaint on Buse y ’s motion and DLD
appea led. We aff

irm.

¶ 2 FACTS ¶ 3 Plaintiff D ix on, L aukitis & Downing
, P.C., is a law firm that maintained its c lient trust

acc ount at defendant Busey Ba nk. On M ay 25, 2011, DL D d eposi ted i nto its trust acc ount

a chec k from one of its clients in the amount of $350, 0 0 0

. T he chec k was drawn on the

acc ount of Intact Insuranc e Company at Roy al Ba nk of Canada i n T o ro n to, Ontario. The chec k was marke d, “US Funds” and “This Cheque contains a true secur ity water mark–hold
at an a ng le to view.” O n J une 6, 2011, DL D t ransf err ed $210,000 from it s trust acc ount to the client who provided the $350,000 chec k. On J une 8, 2011, DL D transfe rre d $60,000 from the trust acc ount to the client. On J une 10, 2011, the chec k was retu rned to Buse y uncollecte d, and Buse y notified DL D and char g ed back $350,000 to DL D’s acc ount the same day

. ¶ 4 DL D filed a complaint sounding in neg lige nce in J anuar y 2012. After the complaint was dismiss ed wi t h o u t p rejudice for failure to state a claim (735 I L CS 5/2-615 (West 2010)), DL D filed an amende d complaint in April 2012. In its amende d complaint, DL D alleg ed that Buse y owed it “a duty to act with ordinary car e by o b s er v i n g s uch reasonable commerc ial standards as preva il in the are a wher e t h e Ba n k conducts business” and that the Ba nk brea ched its duty by faili ng to inquire as to the circ umstances of how DL D acquir ed the chec k; to rec og nize the chec k as counter feit and inform DL D; to advise DL D that funds should not be withdrawn until final pay ment g iven the nature of the chec k and the acc ount; and to notify DL D at the “ea rliest time it knew or should have known that the Check would

-2-not be paid by the dra wee bank.” ¶ 5 Buse y filed a motion to dismiss under section 2-619.1 of the Code of Civil P rocedure (Civil Code) (735 I L CS 5/2-619.1 (West 2010)), ar gu i n g that dismiss al was proper under section 2-615 (735 I L CS 5/2-615 (West 2010)) based on the insufficienc y of fac ts to support

a neg lige nce claim and und er s ection 2-619 (735 I L CS 5/2-619 (West 2010)) on the basis that the Moorman doctrine prec lude d r e c o v e r y

. Se e M o o r m a n Manufacturing Co. v. National Tank Co.
, 91 I ll. 2d 69 (1982). Attache d to its motion to dismiss was the acc ount ag ree ment DL D executed with Buse y when the law firm established the client trust acc ount. The
ag ree ment provided that it was subject to all applicable state and fede ral laws, except wher e varie d in the ag ree ment, and that the acco u n t h o l d ers “agree to be jointly and sever ally (individually) liable for any acc ount s h o rt age resulting from char g es or overdr afts.” The
ag re ement further stated, in pertinent part: “DEPOSI TS–W e will g ive only provisional cre dit until collection is final for any items, other than cash, we acc ept for deposit (including items drawn ‘on us’).” Als o attache d to Buse y ’s motion to dismiss was the aff idavit of Daniel Daly
, executive vice president/mar ket president of Bu s ey Ba nk. He attested “[t] here was nothing on the fac e of this Check that g ave any indication that it may not be g enuine or that it may be dishonored”; the chec k complied with the require ments for a neg otiable instrument under section 3-104 of t he Uniform Commercial Code (UCC) (810 I L CS 5/3-104 (West 2010)); the Ba

nk provided written and oral notice to DL D on J une 10, 2011, the same day the Bank was informed the chec k was u ncollectible; and the Bank charg ed back $350,000
ag ainst DL D’s ac count per the ac count agree ment. ¶ 6 A hear ing took place on the Ba nk’s motion to dismiss and the trial court issued a ver bal ruling g ranting the motion. There afte r, the trial cou rt issued a written order granting the section 2-615 motion to dismiss and declining to addre ss the section 2-61 9 m o t i o n to dismiss . The trial c ourt stated the motion to dismiss was g rante d “for all the re asons stated by the Court in its verba l Ruling from the Be nch.” The rec ord on appea l doe s not c ontain a transcr ipt from the hearing. The trial court also issued a supplemental order in which it found that Buse y did not owe DL D a duty under the commo n l aw beca use the UCC provides a compre hensive re medy

for c heck pr ocessingwhich places t he risk of loss on t he depositor until final collection. In a supplemental order
, the trial court also held that DL D’s complaint was ba rre d under the Moorman doctrine. D L D appe aled.

¶ 7 ANALYSI S ¶ 8 The issue on appea l is whether the trial court err ed when it g rante d Buse y ’s motion t o dismiss DL D’s n egl i g ence complaint. DL D argues that it alleg ed fac ts satisfy ing eac h element of a neg lige nce action and dismiss al of its complaint should be reve rsed. Acc ording
to DL D, Buse y owed it a duty of ordi n ary ca re under the common law and the UCC, brea ched its duty
, and caused DL D damage s. DL D arg ues t hat i ssues of fact as to whether Buse y acte d consist en t with rea sonable commerc ial standards in the local are a exis t and
prec lude j udg ment on the pl eading s. L astly
, DL D s ubmits that the UC C does not supplant Buse y ’s common law duty of ordinary car e and that the Moorman doctrine does not prec lude its neg lige nce a ction ag ainst Buse y

.

-3-¶ 9 A s ec t i o n 2-619.1 (735 I L CS 5/2-619.1 (West 2010)) motion to dismiss is a hy bri d motion combining g rounds for dismiss al under sections 2-615 and 2-619 (735 I L CS 5/2-615, 2-619 (West 2010)). A section 2-615 motion admits all well-plea ded fac t s and attacks the leg al suffic iency

of t he complaint. Seip v. Rogers Raw Materials Fund, L.P. , 408 I ll. App. 3 d 4 3 4, 438 (2011). A section 2-615 dismiss al is proper wher e it is appar ent the plaint i ff

ca n not prove any set of fac ts entitling him to relief

. Seip, 408 I ll. App. 3d at 438. Under section 2-615, the test is “ ‘whe ther the alleg ations of the complaint, when viewed in a light
most favor able to the plaintiff, are sufficie nt to state a cause of action upon which relief can be g rante d.’ ” Seip
, 408 I ll. App. 3d at 438 (quoting Canel v. Topinka , 212 I ll. 2d 311, 317 (2004))

. A section 2-619 motion admits the leg al sufficie ncy of the complaint and asser ts aff irmative matters defe ating the claims. Seip
, 408 I ll. App. 3d at 438. The test on revie w of

a dismiss al under secti o n 2 -6 1 9 i s “whe ther a g enuine issue of materia l fac t exis ts and whether the defe ndant is entitled to a judgme nt as a matter of law.” Seip
, 408 I ll. App. 3d at 4 3 8

. When considering a dismiss al under either section 2-615 or section 2-619, the revie wing
court must acc ept as true all well-plea ded facts as well as a ll reasona ble i nfer ence s arising from the fac ts. Zahl v. Krupa
, 365 I ll. App. 3d 653, 658 (2006). Our revie w is de novo

. Zahl
, 365 I ll. App. 3d at 658. ¶ 10 To sustain a neg lige nce a ction, the plaintiff must establish that the defenda nt owed it a duty
, the defe ndant brea ched its duty
, and the plaintiff was damag ed as a result of the brea ch. W ard v. K mart Corp.
, 136 I ll. 2d 132, 140 (1990). The exis tence of a duty is a question of law to be deter

mined b y t h e t ri al court. W ard
, 136 I ll. 2d at 140. The UCC g overns the relationship betwe en a bank and its c ustomer. Napleton v. Great Lakes Bank, N.A.
, 408 I ll. App. 3d 448, 451 (2011). The principles of law and equity supplement the UCC unless they

are displaced by a particula r provision in the UC C. 810 I L CS 5/1-103(b) (West 2010). Article 4 of the UCC g overns bank deposits and collections. 810 I L CS 5/4-101 et seq. (West 2010). I t sets forth a bank’s g ener al duty to exercise ordinary car e and states that “ac tion or

non-ac tion a

pproved by this Ar

ticle *** is the exercise of ordinary car e and, in the absenc e of specia l instructions, action or non-ac tion consistent *** with a g ener al banking usag e not disapproved by this Article, is prima fac ie the exercise of ordinary car e.” 810 I L CS 5/4- 103(c) (West 2010). ¶ 11 A bank that takes an item is a “De po s i t o ry Bank” and a bank that handles an item for collection and is not a draw ee of the draf t is a “Collecting Ba

nk.” 810 I L CS 5/4-105 (West 2010). A collecting bank acts as an ag ent of an item’s owner until final settlement of the item and “any settlement g iven for the item is provisional.” 810 I L CS 5/4-201(a) (West 2010). In addition, a collecting bank has a superior rig ht over the item’s owner to a setoff if an it em does not settle. 810 I L CS 5/ 4-201(a ) (West 2010). ¶ 12 The UCC does not enumer ate duties for a depository bank but section 4-202 sets forth the re sponsibili ties for a

collectingbank as f

ollows: “(a ) A c ollectingbank must exercise ordina ry car e in: (1) pr esentingan item or sendingit for pre sentment; (2) se nding notice of dishonor or nonpa y ment or returning an it em ot her than a documentar

y draf t to the bank’s transfe ror a fter le arning that the i tem has not been

-4-paid or a cce pted, as the c ase ma y be; (3) se ttling for a

n item when the ba

nk rec eives fina l settlement; and (4) notifying its transfe ror of any loss or delay in transit within a rea sonable time afte r discover

y there of. (b) A collecting bank exercises ordinary car e under subsection (a ) by

takingproper action befor e its midnig ht de adline following rec eipt of an item, notice
, or settlement.” 810 I L CS 5/ 4-202(a ), (b) (West 2010).
Section 4-214(a ) provides that a collecting bank may char g e back a customer’ s acc ount when the bank makes provisional settlement but does not rec eive final pay ment on an item if the collecting bank g ives notice to its customer by midnight of the next banking day

. 810 I L CS 5/4-214(a) (West 2010). ¶ 13 Provisions s u c h a s s e c ti o n 4

- 2 0 2 o f the UCC displace common law neg lige nce pr inciples; UCC compliance is nonneg lige nt as a matter of law. Merrill Lynch, Pierce

, Fenne r & Smith, Inc. v. Dev on Bank
, 702 F. Supp. 652, 665 (N.D. I ll. 1988). The standards set forth in section 4-202 are “a restate ment” of the common law neg lige nce sta n d ar d i n t h at they define the applicable standard of car e. Merrill Lynch
, 702 F. Supp. at 660. The UCC’s provisions may also be varie d b y an agre ement of the parties but a bank’s responsibility for its failure to exercise ordinary car e cannot be disclaimed. 810 I L CS 5/4-103(a) (W es t 2 0 1 0); Scott Stainless Steel, Inc. v. NBD Chicago Bank
, 253 I ll. App. 3d 256, 2 60-61 (1993). An
ag ree m en t b et ween the parties may set forth the standards to measure the bank’s responsibility so long as the standards are not manifestly unrea sonable. 810 I L CS 5/4-103(a) (West 2010). The relationship betwee n a bank and its acc ount holders is contra ctual in nature and one of cre ditor and debtor. Continental Casualty Co. v. American National Bank & Trust Co. of Chicago
, 329 I ll. App. 3d 686, 69 2 (2 0 0 2). An acc ount holder agree ment executed betwee n a bank and its c ustomer cre ates a binding contra ct. Continental Casualty Co.
, 329 I ll. App. 3d at 692. Under the common law, a collect i n g b an k d o es not owe a duty to its
customer to inspect a chec k later determined to b e counterfeit. Sibley v. Central Trust Co. of Illinois , 226 I ll. App. 180, 186 (1922). ¶ 14 We first deter mine whether Buse y owed DL D a duty and whether the complaint states

a cause of action for neg lige nce. In its first amende d co m p laint, DL D alleg es that Buse y owed it a duty to act with ordi n ary car e by observing preva iling rea sonable commerc ial standards, a duty DL D maintains arises from the common law as direc ted by the UCC. I t looks to the definition of ordinary car e set forth in the g ener al definitions of article 4 of the UCC as support for i t s claim. Acc ording to DL D, since neither the UCC nor the acc ount ag ree ment provides specific standards g overning Buse y ’s conduct conce rning proce ssing a fore ign chec k suspected to be counter feit, the common law standards, like the g ener al UCC provisions, provide that the duty of ordinary car e owed by Buse y to DL D is the observa nce of re asonable commerc ial standards. ¶ 15 We disag ree with DL D’s co n cl u s i o n t h at Bu s ey o we d it a common law duty of

rea sonable c are . Under

the fa cts as set forth in D L D’s amende d complaint and ava ilable in the rec ord, the duty owed to DL D by Buse y was define d under the parties’ acc ount ag ree ment and the UCC. The a ccount a g ree ment place d the risk of loss on DL D until fina l settlement

-5-of the $350,000 chec k. This provision applied whether Buse y acte d as a depository bank or

a collecting bank. The languag e in the ag ree ment trac ks the risk of loss languag e of the UCC. DL D opted to write chec ks based on the $350,000 deposit befor e final settlement. The terms of the acc ount ag ree ment did not require Buse y to inve stigate the g enuinene ss of the chec k

or specia lly war

n DL D not to rely on the funds until the deposited chec k settled. Be cause DL D bore the risk of loss under the ag ree ment, it cannot sta t e a claim for the Ba nk’s
neg lige n ce b as ed on its own withdrawa l of funds befor e the chec k was finally settled. Moreove r, as stated under the acc ount agree ment, applicable UCC provisions also g overne d the responsibilities betwee n the parties. As a col l ec ting bank, Buse y ’s duties wer e

enumer ated in section 4-202 of the UCC. In its amende d complaint, DL D did not alleg e that Buse y brea ched an y duties under section 4-202 in collecting or proce ssing the counter feit chec k. Rather, DL D alleg ed that Buse y failed t o ex er ci s e o rdinary car e in that it did not follow preva iling rea sonable commerc ial banking standards, which it asse rts includes investigating the circ umstances reg arding the chec k, rec og nizi ng it a s counter feit, advising DL D not to withdraw funds until final settlement, and notifying DL D at the ear liest time that it was dishonored. ¶ 16 DL D m ai n t ai n s t h at t h e s ec t i o n 4 -2 0 2 ordinary car e standard only applies to the timeliness of the actions and not to whether they wer e per fo rm ed i n accorda nce with the ordinary car e. We disa g ree

. Under section 4-202, a

collectingbank exercises ordinary car e when it prese nts an item, sends notice of dishonor, finally settles an item, or timely notifies the transfe ror of any delay by perf orming such actions befor e m i d n i gh t following rec eipt, notice or settlement of an item. DL D seeks to add an additional duty of ordinary car e under the common law to supplement these specific standards. Contrary to DL D’s claims, the UCC displaces common law duties for a collecting bank

. As t h e trial court noted, the UCC provides a compre hensive plan for the proce ssing of chec ks. Where, like here
, its specific provisions set forth standards reg arding particula r banking prac tices, they disp lace the ordinary car e standard under the commo n law. In the amende d complaint, DL D does not

asser t that Buse y failed to timely perf orm any section 4-202 duties of a collecting bank, including notify

ing D L D bef

ore the midnight dea dline that the che ck wa s dishonored. ¶ 17 The case s offe red by DL D do not compel a differ ent deter mination. In Mutual Service s Casualty Insurance Co. v. Elizabeth State Bank
, 265 F.3d 6 0 1
, 6 1 4 (7th Cir. 2001), a customer’ s brea ch of contra ct claim ag ainst a bank that allowed the customer’ s employ ee to cash chec ks on an acc ount on which he was not authorized was based on the bank’s common law duty to its customer. In Mutual Servic es , neither the acc ount agree ment nor any specific provisions of the UCC g overne d the duty of the bank conce rning the circ umstances at issue. Mutual Servic es , 265 F.3d at 613-14. Her e, in contra st, the acc ount ag ree ment and the UCC spelled out the standards constituting ordinary car e. In Gree nberg, Trager & Herbst, LLP v. HSBC Bank USA
, 958 N.E.2d 77 (N.Y. 2011), a case on which Buse y also relies, the plaintiff law firm fell victim to an international chec k scam simil ar to that in the instant case

. The law firm filed a

n action alleg ing neg lige nce, in pa rt, ag ainst the depository

/collecting bank and the pay or. Gree nberg
, 958 N. E

. 2 d at 80-81. As in Mutual Servic es , there wer e no specific provisions under the parties’ acc ount ag ree ment or the UCC g overning the circ umstances at issue and the bank prese nted evidenc e that its action complied with the duty of ordinary car e

-6-as def ined throug h custom and pra ctice of the banking industry

. Gree nberg
, 958 N.E.2d at 85-86. ¶ 18 In our view, Gree nberg supports Buse y ’s position. The Gree nburg court rec og nized that pursuant to section 2-214(a ) of the UCC, the risk of loss rema ined with the law firm until the chec k was finally settled with the bank. Gree nberg
, 958 N.E.2d at 87. Both the UCC and the

acc ount ag ree ment in the instant case place the risk of l oss on DL D unt il the check finally settled. The Daly aff

idavit establishes that the chec k on its fac e did not i n d i ca t e i t was counter fe it and that the chec k satisfied the require ments nece ssary for a neg otiable instrument. D aly also attested that DL D was notified the c heck w as uncollec tible the same day Buse y lear

ned it was dishonored. DL D did not offe r any fac ts in its amende d complaint

or in response to Buse y ’s motion to dismiss that dispute Daly ’s statements or that Buse y did not timely

satisfy the responsibilities of a collecting bank under the UCC, including notice befor e the midnig ht deadline that the c heck w as dishonored. ¶ 19 We consider that DL D’s common law neg lige nce claim cannot be sustained. Buse y owed DL D no other duties aside from those set forth in the acc ount ag ree ment and the UCC. The amende d complaint fails to alleg e that Buse y brea ch ed an y duties under the acc ount ag ree ment or the UCC. On these fac ts, DL D cannot prese nt alleg ations sufficie nt to establish
any common law duty

. Even if the account agr eeme nt and the UCC did not apply , there is

no duty under the common law to inspect a chec k for ge nuineness or t o remind customers that they bear the risk of loss befor e a deposited chec k is finally settled. We find that the trial court’s dismiss al of the complaint for fail u re t o state a claim was not in err or. Timely compliance with the section 4-202 responsibilities constitutes ordinary car e per the UCC and is not neg lige nt as a matter of law. The fac ts establish that Buse y proce ssed the chec k per its standard methods, rec eived notice the chec k was uncollectible on J une 10, and informed DL D the same day

. In addition to comply ing with the terms of the ag ree ment, Buse y also timely complied with the UCC provisions conce rning the responsibilit i es o f a collecting bank. Contrary to DL D’s asser tions, Buse y had no duty under the ag ree ment or the UCC to investigate the g enuinene ss of the chec k or t o inform DL D that it could be counter feit. Be cause DL D cannot alleg e that Buse y failed to comply with the acc ount ag ree ment, it must establish that its terms are manifestly unrea sonably
, a claim it did not alleg e in its complaint and which the se fa cts ca

nnot sustain. ¶ 20 The trial court also dismissed DL D’s complaint under section 2-619 of the Civil Code, finding that the complaint was prec luded by th e Moorman doctrine. Under the Moorman doctrine, a plaintiff cannot rec over for solely economic loss under a tort theory of neg lige nce. Moorman Manufacturing Co. v. National Tank Co.
, 91 I ll. 2d 69, 91-92 (1982). The doctrine

was e x tended to ser

vices, a nd claims ag ainst a ser

vice pr ovider a

re ba rre d wher e the “ duty of the party perf

orming the service is define d by the contra ct that he executes with his client.” Congregation of the Pass ion, Holy C ross Province v. T

ouche Ross & Co. , 159 I ll. 2d 137, 162 (1994). The rea soning behind the rule is that tort law provides a reme dy for losses from
persona l injuries or proper ty damag es, and contra ct law and the UCC pr ovide reme dies for economic losses resulting from diminis hed commerc ial expectations w ithout persona l injury

or proper ty damag e. In r e Illinois Bell Switching Station Liti gation
, 161 I ll. 2d 233, 241 (1994). An e x ception applies to ser vice pr oviders, such a s attorney s or ac countants, whe re

-7-their duty arises outside of the contra ct; under those circ umstances the Moorman d o ctrine

does not prec lude a claim based solely on economic loss. Congregation of the Passion
, 159 I ll. 2d at 161. ¶ 21 As d iscussed above, the acc ount holder ag ree ment betwee n DL D and Buse y fo rm ed a contra ct, which i n co rporated the applicable UCC provisions and define d the parties’ responsib i l i ties. DL D relies on Mutual Servic e Casualty Insurance Co. v. Elizabeth State Bank, 265 F.3d 601, 618 (7th Cir. 2001) as support for its claim t hat Busey owed it a duty outside the contra ct that was amena ble to a tort action. In Mutual Servic e , the revie wing court declined to de cide the issue but sug g ested that the implied duty of ordinary car e implicit in

ever y contra ct under common law “may well support an exception from Moorman .” Mutual Servic e Casualty Insurance Co.
, 265 F.3d at 619. I t looked to the extracontrac tual duty owed by an attorney or acc ountant that prec ludes app lication of the Moorman doctrine to malprac tice claims and rea soned that banks owe a simil ar common law duty of ca re t o i ts customer s

. Mu t u a l Servic e C asualty Insurance Co.
, 265 F.3d at 618. We consider Mutual Servic e is distinguished in that it relied on a provision of the UCC that did not deli neate Buse y ’s responsibilities or standard of car e. Mu t u a l Servic e Casualty Insurance Co.
, 265 F.3d at 616-17. Where, as here
, the acc ount ag ree ment and UCC set forth Buse y ’s duties and define ordinary ca re , there is no extracontrac tual relationship. Be cause DL D is claiming solely economic loss, it cannot pursue a tort action under the Moorman doctrine. We find that the trial cour

t properly dismiss ed the c omplaint under sec tion 2-619. ¶ 22 For the fore g oing rea sons, the judgme nt of the circ uit court of Peoria County is affirme d.

¶ 23 Affir

med.

-8-