Valente v. TD Bank, N.A. ( 2017 )


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    16-P-1119                                              Appeals Court
    GERALD VALENTE, executor,1 and trustee,2      vs.   TD BANK, N.A.3
    No. 16-P-1119.
    Worcester.        March 3, 2017. - August 30, 2017.
    Present:   Agnes, Kinder, & Shin, JJ.
    Bank.  Negligence, Bank. Notice, Timeliness. Uniform
    Commercial Code, Bank, Notice, Payment on negotiable
    instrument. Negotiable Instruments, Payment.
    Civil action commenced in the Superior Court Department on
    October 25, 2011.
    The case was heard by Daniel M. Wrenn, J., on a motion for
    summary judgment.
    Barry A. Bachrach for the plaintiff.
    Catherine R. Connors for the defendant.
    AGNES, J.    Before a bank customer may sue his bank for
    honoring a check drawn on his account that bears an
    1
    Of the estate of Mauro Valente.
    2
    Of the Valente Family Trust.
    3
    Formerly known as TD Banknorth.
    2
    "unauthorized signature or alteration," Massachusetts law
    requires that the customer notify the bank of the matter within
    one year after a statement of the account showing the item that
    was paid is made available to him.    G. L. c. 106, § 4-406(f), as
    appearing in St. 1998, c. 24, § 8.4   In the present case, the
    plaintiff, Gerald Valente, in his capacity as the executor of
    the estate of Mauro Valente (decedent or Mauro) and as trustee
    of the Valente Family Trust, brought suit against the decedent's
    widow, Donna Valente,5 and her daughter, Lillianna Saari,
    alleging that they wrongfully misappropriated substantial sums
    of money from the decedent's estate and a family trust that were
    on deposit in TD Bank, N.A. (bank).    In the same action, in the
    only count in the complaint against the bank, the plaintiff
    alleged that the bank was negligent and thereby liable for
    4
    General Laws c. 106, § 4-406(f), as appearing in St. 1998,
    c. 24, § 8 is part of the Uniform Commercial Code, as adopted
    and codified by Massachusetts, and provides as follows:
    "Without regard to care or lack of care of either the
    customer or the bank, a customer who does not within one
    year after the statement or items are made available to the
    customer (subsection [a]) discover and report the
    customer's unauthorized signature on or any alteration on
    the item is precluded from asserting against the bank the
    unauthorized signature or alteration. If there is a
    preclusion under this subsection, the payor bank may not
    recover for breach of warranty under section 4-208 with
    respect to the unauthorized signature or alteration to
    which the preclusion applies."
    5
    As the decedent and Donna share a last name, we refer to
    each by his or her first name.
    3
    damages because it was aware of the wrongful conduct by the
    decedent's widow.   For substantially the same reasons given by
    the Superior Court judge below, who allowed the bank's motion
    for summary judgment in a thoughtful and comprehensive
    memorandum of decision, we hold that the one-year notice
    requirement set forth in G. L. c. 106, § 4-406(f), bars a
    customer's lawsuit against his bank for honoring a check with a
    forgery of the customer's signature despite an allegation that
    the bank had actual knowledge of the forgery.6
    Background.    The essential facts material to the outcome in
    this case are not in dispute.     The following account is drawn
    from the materials submitted by the plaintiff and the bank in
    connection with the bank's motion for summary judgment.     Mauro
    and Donna were married in 2000.    They remained married until
    Mauro's death in March, 2011.     Mauro maintained five accounts
    with the bank:   two accounts in his name alone, two accounts in
    the name of the Valente Family Trust, and one account in the
    name of his business, Valente Construction, Inc.     In addition,
    in November, 2007, Mauro and Donna went to the bank and opened a
    6
    On November 5, 2014, following a jury-waived trial before
    a different judge, the plaintiff obtained a judgment against
    Donna and Saari. The plaintiff then filed a notice of appeal
    limited to challenging the summary judgment as to the one count
    against the bank. Although Donna and Saari appealed the
    judgment, their appeals were dismissed for noncompliance with
    Mass.R.A.P. 9(c)(2), as amended, 
    437 Mass. 1602
     (2002). The
    plaintiff's appeal is therefore what is before this court.
    4
    joint account with both of their names on the account.       Mauro
    was the only authorized signatory on all accounts except for the
    joint account, on which Donna was also a signatory.     When Mauro
    opened those accounts, he acknowledged receipt of the rules and
    regulations issued by the bank that specifically require
    customers to review their account statements and to notify the
    bank as soon as possible "if [they] believe there is an error,
    forgery or other problem with the information shown on [their]
    Account statement."    The bank sent monthly statements for all of
    Mauro's accounts and for the joint account to his home address
    in Worcester.   There is no dispute that Mauro did not notify the
    bank within one year after the monthly account statements were
    mailed to him regarding specific items that contained
    unauthorized or forged signatures.    At the earliest, the
    plaintiff gave notice to the bank of the allegedly unauthorized
    transactions in October, 2011, when the complaint in this case
    was filed.
    There is evidence in the record that Mauro suffered
    progressive memory loss from late 2006 through early 2008.       In
    December, 2007, due to his failing health, Mauro executed a
    durable power of attorney (POA) that appointed Donna as his
    attorney-in-fact.7    The POA granted Donna "full power to act for
    7
    We note that the durable power of attorney given to Donna
    was done pursuant to G. L. c. 201B, § 2, which subsequently was
    5
    [Mauro] in all matters affecting [his] business, property,
    rights and interests."   It also allowed Donna to "draw checks or
    drafts upon, or otherwise withdraw funds from, any checking,
    savings or other bank accounts belonging to [Mauro]."   Donna
    contends that she provided a copy of the POA to the bank in or
    about June, 2009, after Mauro had suffered a stroke.
    The core of the plaintiff's allegations of negligence on
    the part of the bank relates to events that occurred between
    November, 2007, when Mauro and Donna opened a joint account at
    the bank, and March, 2011, by which time Donna had transferred
    nearly $2 million from Mauro's individual accounts into their
    joint account, and then further transferred that money (and
    more) from the joint account into her individual account.     It
    was not until after Mauro's death in March, 2011, that the
    plaintiff discovered evidence of those transactions.
    On October 25, 2011, the plaintiff filed the complaint.        In
    the sole count against the bank, the plaintiff alleges that the
    bank knew or should have known of Donna's misappropriation of
    repealed, see St. 2008, c. 521, § 22, and replaced by G. L.
    c. 190B, § 5-502. See St. 2008, c. 521, § 9. A durable power
    of attorney can authorize an agent to make a wide range of
    decisions affecting the principal's business, estate, finances,
    and legal relationships. See G. L. c. 190B, § 5–502, as
    appearing in St. 2008, c. 521, § 9 ("All acts done by an
    attorney in fact pursuant to a durable power of attorney during
    any period of disability or incapacity of the principal have the
    same effect and inure to the benefit of and bind the principal
    and his successors in interest as if the principal were
    competent and not disabled").
    6
    Mauro's funds, and that by failing to act or otherwise prevent
    Donna from withdrawing the funds, the bank breached the duty of
    care it owed to Mauro.   The record contains canceled checks
    drawn on Mauro's accounts for substantial amounts during the
    relevant period, which were made out to "Cash" and deposited in
    Donna's personal account.8   The record also contains canceled
    checks from Mauro's and Donna's joint account that Donna signed
    and then deposited into her personal account at the bank.      Two
    of the checks from the joint account, numbered 204 and 205,
    which are attached to the plaintiff's complaint, are dated less
    than one year before the filing of the complaint.     No checks
    that are alleged to be unauthorized and that are from the other
    accounts are attached to the complaint.
    The plaintiff also presented evidence regarding the bank's
    fraud detection policies.    During the period in dispute, the
    bank's fraud detection software generated thirty-seven
    individual alerts of possible fraud in connection with the joint
    account and Donna's personal account.     Pursuant to the bank's
    policies, each time an alert is generated, it is required to be
    investigated by a bank analyst.    After investigating one such
    alert in October, 2010, a bank manager contacted Worcester elder
    services to report potential elder abuse of Mauro, but no
    8
    Some of those checks bear the signature "Mauro Valente"
    and one bears Donna's name with "POA" written after the
    signature.
    7
    further action was taken by the bank.   In addition, in an
    affidavit, a financial consultant engaged by the plaintiff
    opined that had the bank followed bank policies and industry
    standards, the matter would have been referred to the bank's
    corporate security department, which would have prevented
    further misappropriations.   The consultant further stated that
    by not doing so, the bank's employees "actively facilitated"
    Donna's misappropriations of Mauro's funds.
    Discussion.    On appeal, our review of a summary judgment is
    de novo.   See Federal Natl. Mort. Assn. v. Hendricks, 
    463 Mass. 635
    , 637 (2012).   Summary judgment is appropriate where there
    are no genuine issues of material fact and the moving party is
    entitled to judgment as a matter of law.   See Mass.R.Civ.P.
    56(c), as amended, 
    436 Mass. 1404
     (2002); Kourouvacilis v.
    General Motors Corp., 
    410 Mass. 706
    , 715-716 (1991).   A party
    seeking summary judgment may satisfy his burden of demonstrating
    the absence of triable issues by submitting affirmative evidence
    demonstrating the opposing party's lack of entitlement to
    relief, or by demonstrating that the opposing party has no
    reasonable expectation of proving an essential element of his
    case.   See 
    id. at 716
    ; Flesner v. Technical Communications
    Corp., 
    410 Mass. 805
    , 809 (1991).   An opposing party cannot
    defeat a motion for summary judgment by resting on his pleadings
    and making mere assertions of disputed facts.   LaLonde v.
    8
    Eissner, 
    405 Mass. 207
    , 209 (1989).   If the moving party
    establishes the absence of a triable issue, the opposing party
    must set forth specific facts showing that there is a genuine
    issue for trial.   Kourouvacilis, 
    supra.
    When the Uniform Commercial Code (UCC) was adopted in
    Massachusetts in 1957, G. L. c. 106, § 4-406(4), inserted by
    St. 1957, c. 765, § 1, provided that "[w]ithout regard to care
    or lack of care of either the customer or the bank a customer
    who does not within one year from the time the statement and
    items are made available to the customer . . . discover and
    report his unauthorized signature or any alteration on the face
    or back of the item or does not within three years from that
    time discover and report any unauthorized indorsement is
    precluded from asserting against the bank such unauthorized
    signature or indorsement or such alteration."9    See Stone &
    Webster Engr. Corp. v. First Natl. Bank & Trust Co. of
    Greenfield, 
    345 Mass. 1
    , 9 n.2 (1962).     In Jensen v. Essexbank,
    
    396 Mass. 65
    , 65-66 (1985), the court considered the
    applicability of § 4-406(4) in the context of a dispute between
    a bank customer and his bank over the bank's payment of checks
    drawn on the customer's account, made payable to the customer's
    9
    In 1998, § 4-406(4) was restyled as § 4-406(f). See
    St. 1998, c. 24, § 8. Other than removing the three-year
    reporting period for unauthorized indorsements, the language of
    § 4-406(f) relevant to this opinion is identical to that of § 4-
    406(4).
    9
    attorney, and bearing the attorney's forgery of the customer's
    signature.   The facts indicated that prior to the forgeries, the
    customer made arrangements with his bank for the account
    statements to be delivered to his attorney.    Ibid.   Because the
    bank was not notified of the forgeries within one year of the
    account statements being made available to the customer, the
    court held that the customer could not proceed against his bank
    for negligence.   Id. at 66-67.   The court explained that "[t]he
    one-year period in § 4-406(4) is not a statute of limitations
    which might not start to run until the plaintiff knew or should
    have known of his attorney's treachery, as the plaintiff argues.
    It is a statutory prerequisite of notice."    Jensen, 
    supra at 66
    .
    In Arkwright Mut. Ins. Co. v. State St. Bank & Trust Co.,
    
    428 Mass. 600
     (1998) (Arkwright), the court reaffirmed its
    reasoning in Jensen.    In Arkwright, supra at 601, a secretary
    charged by her employer with processing expense reports for two
    other employees and depositing the reimbursement checks in the
    employees' bank accounts, diverted the reimbursement funds into
    her own personal account by forging the payees' signatures,
    among other things.    The employer regularly received account
    statements from its bank, but did not discover the illegal
    scheme until years later after almost $125,000 had been diverted
    by the secretary into her personal bank account.    Ibid.
    10
    In Arkwright, the court specifically stated that the
    prerequisite of notice under § 4-406(4) was not limited to
    claims that arise under the UCC, but applied to common-law
    negligence claims, like the one before us.   Arkwright, supra at
    604-605, discussing Wetherill v. Putnam Invs., 
    122 F.3d 554
    , 558
    (8th Cir. 1997) (because § 4-406[4] does not contain language
    limiting its preclusion to actions under the UCC, in the absence
    of the notice required by that section, a bank customer is
    precluded from asserting an unauthorized signature against his
    bank regardless of whether the claim is based on the UCC or
    common law).10   The court buttressed its interpretation of the
    statute by quoting from the official comment accompanying § 4-
    406(4):   "In the case of alteration or the unauthorized
    10
    On appeal, the plaintiff makes an oblique reference to
    evidence that the bank acted in bad faith during the time period
    in question, and that this circumstance creates an exception to
    § 4-406(f). Neither the official comments to the UCC nor
    Massachusetts law makes any reference to a duty of good faith on
    the part of a bank that asserts § 4-406 as a defense to an
    action by a bank depositor. See Halifax Corp. v. First Union
    Natl. Bank, 
    262 Va. 91
    , 102 (2001) (in interpreting that State's
    counterpart to § 4-406[f], the court notes that it would not be
    appropriate to import a requirement that a bank must act in
    "good faith" in order to invoke that section). See also Pinigis
    v. Regions Bank, 
    977 So.2d 446
    , 453-454 (Ala. 2007) (same).
    Contrast G. L. c. 106, § 4-406(d)(2) (good faith requirement);
    G. L. c. 106, § 4-406(e) (same). In this case, the plaintiff's
    count against the bank is based on a theory of negligence; there
    was no motion to amend the complaint. Thus, we do not address
    whether § 4-406(f) applies in claims of torts other than
    negligence. See Grassi Design Group, Inc. v. Bank of America,
    N.A., 
    74 Mass. App. Ct. 456
    , 463-465 (2009) (declining to
    address the question whether common-law contract claims are
    precluded by the UCC).
    11
    signature of the customer himself the absolute time limit is one
    year. . . .    This recognizes that there is little excuse for a
    customer not detecting an alteration of his own check or a
    forgery of his own signature."    Arkwright, supra at 603-604.11
    The drafters of the UCC were not unmindful that there could be
    exceptional cases in which the time limits set forth in § 4-
    406(4) were not sufficient to enable a bank customer to detect a
    forgery of his signature, but nonetheless opted for an absolute
    time limit of one year after the bank statement was sent to the
    customer in order to achieve "finality in check fraud
    litigation."   Arkwright, supra at 603.   The position taken by
    the court in both Jensen and Arkwright is that taken by most
    jurisdictions that have considered the question.12
    11
    The official comment reads as follows: "[S]ubsection (4)
    places an absolute time limit on the right of a customer to make
    claim for payment of altered or forged paper without regard to
    care or lack of care of either the customer or the bank. In the
    case of alteration or the unauthorized signature of the customer
    himself the absolute time limit is one year. In the case of
    unauthorized indorsements it is three years. This recognizes
    that there is little excuse for a customer not detecting an
    alteration of his own check or a forgery of his own signature."
    Arkwright, supra, quoting from Official Comment to U.C.C. § 4-
    406(4), 2B U.L.A. 400-401 (Master ed. 1991).
    12
    See, e.g., Absolute Drug Detection Servs., Inc. v.
    Regions Bank, 
    116 So.3d 1162
    , 1166-1168 (Ala. 2012) (similar to
    Jensen, agreeing that § 4-406[f] bars suit by a customer against
    his bank for an unauthorized transaction more than one year
    after the item appeared on a statement of account sent to the
    customer); Peters v. Riggs Natl. Bank, N.A., 
    942 A.2d 1163
    , 1167
    (D.C. 2008) (agreeing with Jensen that § 4-406[f] is not a
    statute of limitations but, rather is a "statute of repose");
    12
    The bank relies on § 4-406(f), and contends that it did not
    receive "clear notice" of the alleged misappropriations until it
    received the plaintiff's answers to interrogatories, which
    provided specific check numbers.    At that point, more than one
    year had elapsed since the bank issued statements containing all
    of the alleged misappropriations.    However, as noted above, the
    plaintiff's complaint contains two canceled checks for alleged
    misappropriations that occurred less than one year before the
    plaintiff filed his complaint.   The plaintiff attached to the
    complaint checks numbered 204 and 205 from Mauro's and Donna's
    joint account.   That alone was sufficient to notify the bank
    Siecinski v. First State Bank of E. Detroit, 
    209 Mich. App. 459
    , 464 (1995) (same); First Place Computers, Inc. v. Security
    Natl. Bank of Omaha, 
    251 Neb. 485
    , 488-489 (1997) (same); Woods
    v. MONY Legacy Life Ins. Co., 
    84 N.Y. 2d 280
    , 284 (1994) (same);
    Union v. Branch Banking & Trust Co., 
    176 N.C. App. 711
    , 717
    (2006) (same); Silvia v. Industrial Natl. Bank of R.I., 
    121 R.I. 810
    , 816-817 (1979) (same); American Airlines Employees Fed.
    Credit Union v. Martin, 
    29 S.W.3d 86
    , 91-92 (Tex. 2000) (same);
    Borowski v. Firstar Bank Milwaukee, N.A., 
    217 Wis. 2d 565
    , 573-
    574 (Wis. App. 1998) (same). See also Wetherill v. Putnam
    Invs., 
    122 F.3d at 558
     (describing the Massachusetts
    interpretation as the view adopted by a "majority of
    jurisdictions"); American Fedn. of Teachers, AFL-CIO v. Bullock,
    
    605 F. Supp. 2d 251
    , 262 (2009) (explaining that the one-year
    statutory notice requirement of § 4-406[f] applies to all claims
    regardless of whether they are based on a theory of contract).
    California has permitted a bank customer to recover from his
    bank for paying a check bearing a forgery of the customer's
    signature beyond the one year notice provision in § 4-406. See
    Sun 'n Sand, Inc. v. United Cal. Bank, 
    21 Cal. 3d 671
    , 697-700
    (1978). In Arkwright, the court noted that "commentators have
    soundly criticized this approach," and declined to follow it.
    Arkwright, 428 Mass. at 605.
    13
    that those two transactions were in dispute.13    However, because
    those checks were drawn on Mauro's and Donna's joint account, on
    which Donna was a signatory, they are not unauthorized
    transactions.   See G. L. c. 106, § 4-401(a), as appearing in
    St. 1998, c. 24, § 8 ("An item is properly payable if it is
    authorized by the customer and is in accordance with any
    agreement between the customer and bank").     As to the checks
    that the plaintiff alleges that Donna, lacking authorization,
    drew on the accounts in Mauro's name only, all such checks
    attached to the complaint were drawn on those accounts more than
    one year prior to the filing of the complaint.     Thus, the bank
    was not put on notice as to those alleged unauthorized
    transactions within one year.
    In response to the bank's reliance on § 4-406(f), and the
    reasoning underlying Jensen and Arkwright, the plaintiff
    maintains that the notice requirement of § 4-406(f) is
    inapplicable due to the holding in Go-Best Assets Ltd. v.
    Citizens Bank of Mass., 
    463 Mass. 50
     (2012).     In that case, the
    court held that the defendant bank did not owe a duty of care to
    13
    To satisfy the notice requirement of § 4-406, a bank
    customer must give "clear notice" of unauthorized signatures,
    which generally requires that he identify specific checks he
    believes to be forged or unauthorized. See 2 White, Summers, &
    Hillman, Uniform Commercial Code § 19:38, at 431 (6th ed. 2013);
    Hatcher Cleaning Co. v. Comerica Bank-Tex., 
    995 S.W.2d 933
    , 938
    (Tex. App. 1999) ("both the check and the account should be
    specifically identified").
    14
    protect a client of an attorney customer from the
    misappropriation by the attorney of the client's funds from the
    attorney's trust fund account, because there was no evidence
    that the bank had "actual knowledge" of the misappropriation.
    Id. at 62.   The court reiterated the longstanding Massachusetts
    rule that generally a bank has no duty to investigate authorized
    transactions for misappropriation, unless the bank has "actual
    knowledge of an intended or apparent misappropriation of funds
    and its failure to act would constitute participation or
    acquiescence in the misappropriation."   Id. at 54.
    Here, the plaintiff contends that there is evidence in the
    record which, if believed, would demonstrate that the bank had
    actual knowledge that Donna was misappropriating funds from
    Mauro.   For example, the plaintiff refers to evidence concerning
    the bank's fraud detection software and policies and Donna's
    interactions with one of the bank's assistant managers as
    creating a genuine issue of material fact whether the bank had
    actual knowledge of the alleged misappropriations.    However, we
    think the plaintiff places too much weight on the decision in
    Go-Best Assets Ltd., which does not discuss or even cite Jensen
    or Arkwright.   This is understandable because Go-Best Assets
    Ltd. deals with a plaintiff who was not a customer of the bank.
    In the present case, the relationship between Mauro, the bank's
    customer, and the bank is governed by the UCC.   See Lemelman,
    15
    Manual on Uniform Commercial Code § 4:52 (rev. 3d ed. 2012)
    (explaining the various loss allocation formulas between a
    customer and his bank that are governed by G. L. c. 106, § 4-
    406).     Go-Best Assets Ltd., on the other hand, addresses a
    bank's duty to a third party in a situation where the UCC does
    not apply.14
    Conclusion.     The question before us is not whether the bank
    owes a duty of care to its customers, for it most certainly
    does.     Rather, the question is whether the Legislature, in
    allocating losses between a customer and his bank that result
    from the payment of a check bearing an unauthorized signature or
    alteration, established an absolute time limit of one year
    within which the customer must give notice to the bank of the
    unauthorized payment.    We think that the Supreme Judicial Court
    answered the question in the affirmative in Jensen and
    Arkwright, and did not alter its position in Go-Best Assets Ltd.
    For the above reasons, the judge ruled correctly that in the
    14
    The plaintiff maintains that Go-Best Assets Ltd. allows
    his negligence claim to go forward, pointing out that the cases
    cited by the court all involve plaintiff-customers. However,
    those cases either involved circumstances that were not governed
    by the UCC, see Schlichte v. Granite Sav. Bank, 
    40 Mass. App. Ct. 179
    , 179-180 (1996) (claim that defendant bank was negligent
    in supervising its employee who, after being added to a
    relative's joint accounts, misappropriated the funds), or were
    decided prior to Massachusetts adopting the UCC in 1957. See
    Newburyport v. First Natl. Bank of Boston, 
    216 Mass. 304
     (1914);
    Eastern Mut. Ins. Co. v. Atlantic Natl. Bank of Boston, 
    260 Mass. 485
     (1927).
    16
    absence of notice to the bank within one year of the bank
    sending to Mauro statements showing the items that were paid,
    the plaintiff was barred by G. L. c. 106, § 4-406(f), from
    bringing a civil action for negligence against the bank for
    honoring checks based on an unauthorized signature or
    alteration.15
    We therefore affirm so much of the November 5, 2014,
    judgment as dismisses the count against TD Bank, N.A.
    So ordered.
    15
    As our disposition in this case turns on the application
    of § 4-406(f), we need not address the bank's argument that the
    plaintiff's claim is barred by the economic loss doctrine.