Court Opinion

ID: 9485892
Source: CourtListenerOpinion
Date Created: 2023-08-05 11:33:11.677636+00
Date Added: 2024-06-11T17:51:25.634137
License: Public Domain

SILBERMAN, Circuit Judge,
concurring:
I fully agree that we should certify the question raised to the D.C. Court of Appeals. I cannot resist, however, commenting (for which gratuitous remarks I hope I will be forgiven by our colleagues across the street) on the rather peculiar, indeed, primitive, understanding of economics that underlies the rationale a number of jurisdictions have offered to support the Superior Equities Doctrine. Sometimes referred to as the compensated surety defense, that rationale is premised on the notion that since the insurance company has been paid to assume the risk of loss, all other factors being equal, the innocent bank should be preferred to the innocent insurance company.
The palpable flaw in that logic is that the insurance company has been paid by the depositor, not the bank (which may have its own insurance), to assume the depositor’s risk of loss — not the bank’s. If the law imposes on the insurance company a greater risk than an uninsured depositor would bear, that will simply result in increased insurance premiums to depositors. Therefore, a doctrine that may well have its genesis in an unarticulated impulse to prefer ex post a local bank to a distant insurance company will simply raise costs for local depositors when viewed from an ex ante perspective, in accordance with sound legal and economic principles. See Frank H. Easterbrook, The Supreme Court: 1983 Term—Foreword, The Court and the Economic System, 98 Harv.L.Rev. 4, 10-12 (1984).
In any event, as between two faultless parties, liability should rest with the one who is best positioned to avoid the loss. See Guido Calabresi, The Decision for Accidents: An Approach to Nonfault Allocation of Costs, 78 Harv.L.Rev. 713 (1965). Placing liability with the least-cost avoider increases the incentive for that party to adopt preventive measures and ensures that such measures would have the greatest marginal effect on preventing the loss. This efficiency-promoting principle informs the burden-shifting provisions of the UCC, D.C.Code §§ 28:3-406, 28:4-406. See Putnam Rolling Ladder Co., Inc. v. Manufacturers Hanover Trust Co., 74 N.Y.2d 340, 547 N.Y.S.2d 611, 613, 546 N.E.2d 904, 908 (1989) (“By prospectively establishing rules of liability that are generally based not on actual fault but on allocating responsibility to the party best able to prevent the loss by the exercise of care, the UCC not only guides commercial behavior but also increases certainty in the marketplace and efficiency in dispute resolution.”). Where both parties are without ■fault, the bank is better able to avoid the loss, since it occupies the better position to detect the forgery and stop the fraud before it succeeds.
This analysis may suggest a different result when the fraud is perpetrated by á dishonest employee of the depositor (with the insurer acting as a fidelity insurer) as opposed to an unknown third party (and the insurer acts as an indemnity insurer). In the former case, the employer-depositor is arguably better able to avoid the theft by adopt*558ing more stringent personnel screening and security measures, and courts have recognized this difference. See South Carolina Nat’l Bank of Charleston v. Lake City State Bank, 251 S.C. 500, 164 S.E.2d 103, 105-06 (1968); Louisville Trust Co. v. Royal Indem. Co., 230 Ky. 482, 20 S.W.2d 71, 72 (1929). Washington Mechanics’ Savings Bank v. District Title Ins. Co., 65 F.2d 827 (D.C.Cir.1933), Anacostia Bank v. United States Fidelity & Guaranty Co., 119 F.2d 455 (D.C.Cir.1941), and American Security Bank v. American Motorists Ins. Co., 538 A.2d 736 (D.C.App.1988) are all cases involving dishonest employees or fiduciaries.