Court Opinion

ID: 4378444
Source: CourtListenerOpinion
Date Created: 2019-03-19 18:00:24.432449+00
Date Added: 2024-06-11T14:22:20.652732
License: Public Domain

Case: 18-31057      Document: 00514878534         Page: 1    Date Filed: 03/19/2019

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                           United States Court of Appeals
                                                                                    Fifth Circuit

                                                                                  FILED
                                    No. 18-31057                             March 19, 2019
                                  Summary Calendar
                                                                             Lyle W. Cayce
                                                                                  Clerk
GRODNER & ASSOCIATES,

              Plaintiff - Appellant

v.

REGIONS BANK,

              Defendant - Appellee

                   Appeal from the United States District Court
                       for the Middle District of Louisiana
                                USDC 3:17-CV-44

Before KING, SOUTHWICK, and ENGELHARDT, Circuit Judges.
PER CURIAM:*
       The plaintiff appeals from the district court’s grant of summary
judgment to the defendant bank. Because the plaintiff’s claims are untimely
under the parties’ deposit agreement, we AFFIRM.

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 18-31057        Document: 00514878534   Page: 2    Date Filed: 03/19/2019

                                   No. 18-31057
                                  BACKGROUND
      Grodner & Associates is a law firm based in Baton Rouge, Louisiana. It
was defrauded by its bookkeeper, Anna Alford, who wrote checks and initiated
Automated Clearing House transactions to herself from two accounts Grodner
maintained at Regions Bank. The fraud began in March 2015 and remained
undetected until June 2016, when Grodner’s managing member bounced a
personal check. Alford allegedly had concealed her fraud by intercepting and
photoshopping the account statements Regions sent to Grodner.
      Grodner brought claims for conversion and negligence against Regions
for the unauthorized payments initiated by Alford.             The district court
concluded that Grodner’s claims were untimely because Grodner failed to
notify Regions of the fraud until more than one year after first receiving a
statement with an unauthorized payment to Alford. Grodner timely appealed.

                                   DISCUSSION
      “We review de novo the district court’s ruling on a motion for summary
judgment, applying the same legal standard as the district court in the first
instance,” which is that “[s]ummary judgment is appropriate if ‘the pleadings,
the discovery and disclosure materials on file, and any affidavits show that
there is no genuine issue as to any material fact.’” Delta & Pine Land Co. v.
Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398 (5th Cir. 2008) (quoting
FED. R. CIV. P. 56(c)).
      Alford initiated fraudulent payments from two accounts Grodner
maintained with Regions: an “operating” account and a “trust” account. These
account relationships were governed by a deposit agreement 1 which required

      1  The deposit agreement in place when Grodner opened the accounts in 2009 was
superseded in 2015, but the provision relevant to our analysis was the same in both
iterations.
                                         2
     Case: 18-31057      Document: 00514878534         Page: 3    Date Filed: 03/19/2019

                                      No. 18-31057
Grodner to make a prompt examination of its account statements and notify
Regions in writing of any unauthorized payments or other discrepancies. 2
       The deposit agreement also provided that Grodner would “be precluded
from asserting against [Regions] any unauthorized signature or alteration by
the same wrongdoer on any item paid in good faith on or after 10 calendar days
after the first statement describing the first altered or unauthorized items was
sent or made available.” This provision was explicitly “intend[ed] to define a
reasonable time period for the examination of bank statements for the
purposes of the ‘Repeater Rule,’ or the ‘Same Wrongdoer’ rule as provided in
§ 4-406(d) of the UCC.”
       This rule is statutorily codified in Louisiana as LA. STAT. ANN. § 10:4-
406(d) (2018). It “imposes on the customer the risk of loss on all subsequent
forgeries by the same wrongdoer after the customer had a reasonable time to
detect an initial forgery if the bank has honored subsequent forgeries prior to
notice.” Marx v. Whitney Nat’l Bank, 713 So. 2d 1142, 1146 (La. 1998).
       During discovery, Grodner admitted that the first fraudulent transaction
for both accounts occurred in March 2015. Grodner also admitted that in April
2015 Regions sent the account statements that included these unauthorized
transactions. Finally, Grodner admitted that it did not notify Regions about
Alford’s fraud until June 2016, more than a year after Regions first sent
account statements identifying unauthorized transactions initiated by Alford.
       Grodner’s failure to notify Regions of the first unauthorized payments
within ten days of the April 2015 statement means that it is “precluded from

       2 “You are responsible for exercising reasonable promptness in examining your
account statement each statement period . . . to determine whether any payment or debit was
not authorized because of an alteration of an item or because a signature or [e]ndorsement
on the item was unauthorized, or for any other discrepancy or reason for which you believe
that the debit is not correct. If you discover an unauthorized payment or other discrepancy,
you must promptly notify us in writing of the relevant facts.”
                                             3
    Case: 18-31057    Document: 00514878534     Page: 4   Date Filed: 03/19/2019

                                 No. 18-31057
asserting against the bank all subsequent forgeries by the same unauthorized
signatory.” Id. at 1147. Grodner’s allegation that Alford tampered with the
statements is irrelevant because the “same wrongdoer rule” only requires that
Regions sent or made available the statements, not that Grodner received them
intact. LA. STAT. ANN. § 10:4-406(c) (2018); see, e.g., Groue v. Capital One, 47
So. 3d. 1038, 1042-43 (La. Ct. App. 2010).
      There is a caveat in LA. STAT. ANN. § 10:4-406. Claims against the bank
are precluded only “when the bank itself has acted reasonably in honoring the
instrument in dispute.” Marx, 713 So. 2d at 1147 n.6. Grodner, though, “failed
to offer competent proof that the Bank’s practices failed to comport with
ordinary care, or the ‘observance of reasonable commercial standards,
prevailing in the area in which the person is located, with respect to the
business in which the person is engaged.’” ASP Enters., Inc. v. Guillory, 22 So.
3d 964, 977 (La. Ct. App. 2009) (quoting LA. STAT. ANN. § 10:3-103(a)(7)).
      “The mere fact that a forgery of a signature on a check is not detected
does not prove that a bank’s signature verification procedures are not in
accordance with reasonable commercial standards of the banking industry.”
Id. Grodner insists that Regions should have detected the fraud by comparing
the unauthorized checks to the signature cards on file, but Louisiana law “does
not impose a duty upon a paying bank to inspect every check to verify
signatures appearing thereon prior to processing the check for payment.”
Groue, 47 So. 3d at 1044. In fact, Louisiana law explicitly provides “that sight
examination by a payor bank is not required if its procedure is reasonable and
is commonly followed by other comparable banks in the area.” LA. STAT. ANN.
§ 10:4-406 cmt. 4.
      There are realities to modern banking that make signature verification
impractical.   Checks are processed through automation, meaning that
“signature verification is a dinosaur.” 2 LAW OF BANK DEPOSITS, COLLECTIONS,
                                       4
     Case: 18-31057       Document: 00514878534         Page: 5    Date Filed: 03/19/2019

                                      No. 18-31057
& CREDIT CARDS § 10.06 (2018). Signature cards are “a quaint historical relic
with little practical force in modern banking law.” A. Brooke Overby, Check
Fraud in the Courts After the Revisions to U.C.C. Articles 3 and 4, 57 ALA. L.
REV. 351, 359-61 (2005) (describing in detail the modern-day life cycle of a
check). Reflecting these facts, the Regions deposit agreement explained the
bank’s “automated check processing precludes [it] from identifying items that
require multiple signatures,” authorized Regions to “honor items signed in a
different form from that set forth on the signature card,” and disclaimed
Regions’ liability for any unauthorized use of a facsimile signature. 3
       Nothing in the record “demonstrate[s] a deviation from either the Bank’s
own procedures or local banking standards and practices” or from the terms of
the parties’ deposit agreement. ASP Enters., 22 So.3d at 977.
       AFFIRMED.

       3 The district court observed that 64 of the 69 unauthorized checks employed facsimile
signatures and thus could not have been detected by outdated signature card protocols even
if they had been in place.
                                             5