TD Bank

Philadelphia personal injury firm Levy, Baldante, Finney & Rubenstein has reached the end of the line in its bid to hold TD Bank responsible for failing to detect the theft of more than $300,000 from the firm's checking accounts by former name partner Jack Cohen.

On Aug. 20, the Pennsylvania Supreme Court denied allocatur in the case, rejecting the firm's appeal from a Superior Court ruling earlier this year granting summary judgment to the bank.

In a Feb. 14 unpublished memorandum, a three-judge panel of the Pennsylvania Superior Court agreed with a Philadelphia trial judge's finding that Levy Baldante modified its duties under the Uniform Commercial Code when it signed a deposit agreement obligating it to monitor its bank statements for any problems with checks, including unauthorized endorsements, and to alert TD Bank of any issues within 30 days of receiving the statement.

Wells Fargo—the bank whose ATMs Cohen used to deposit the fraudulently endorsed checks—was also named as a defendant in the case but was granted summary judgment because the law firm did not bring a cause of action against it.

The Superior Court also tackled the first-impression issue of whether a 30-day notification period in a deposit agreement was reasonable, following New Jersey and New York courts' lead in determining that it was.

Senior Judge William H. Platt, writing for the Superior Court panel, said it found persuasive the U.S. District Court for the District of New Jersey's reasoning in the 2016 case Oguguo v. Wells Fargo Bank, in which the federal court held that a 30-day time limit is “'not manifestly unreasonable, reflecting an interest in expeditiously stopping fraudulent acts and minimizing losses from bank fraud.'”

Platt also pointed to the New York state Supreme Court's 2016 ruling in Galasso, Langione & Botter v. Galasso, which said a 14-day notification period was reasonable so long as the bank made the statements available to its customer and exercised ordinary care.

“In the instant matter, appellant has provided no legal support for its contention that the 30-day period is somehow presumptively unreasonable in cases of fraudulent [e]ndorsement,” said Platt, who was joined in the result by Judges Mary Jane Bowes and Anne E. Lazarus. “It has also provided no evidence that TD failed to exercise ordinary care.”

According to Platt's opinion, Cohen stole more than $300,000 from three of the firm's TD Bank checking accounts in Pennsylvania and New Jersey between June 2012 and January 2015 by fraudulently endorsing 29 checks that had been made payable to referral attorneys, expert witnesses, clients and others.

The firm's bookkeeper, Susan Huffington, first discovered the fraudulent endorsements in the fall of 2014, when a referral attorney notified her that he had not received his referral check from the firm. When Huffington looked into the matter, she found that the check had been cashed with what looked like Cohen's signature on the back, according to Platt's opinion. However, while Huffington confronted Cohen about the matter at the time, she did not notify any of the other partners until mid-January 2015, after which additional fraudulently endorsed checks were discovered.

The firm compiled a list of the checks and filed an affidavit of forgery with TD Bank, but the bank refused to issue refunds, leading the firm to file suit, alleging one claim against the bank under the UCC, Pennsylvania Commercial Code and New Jersey law.

In addition to its arguments on appeal that it had no duty under the UCC to search for fraudulent endorsements and that the 30-day notification period was unreasonable, Levy Baldante also contended that the trial court improperly created a “law firm exception” to the UCC, imposing a heightened duty upon it because it was a law firm and the majority of the fraudulently endorsed checks were from two Pennsylvania and New Jersey Interest on Lawyer Trust Accounts.

But Platt said that argument mischaracterized the trial court's ruling.

“In its opinion, the trial court correctly notes that both the Pennsylvania Rules of Professional Conduct and the New Jersey state legislature have imposed heightened requirements designed to ensure that a law firm manages the IOLTA accounts properly,” Platt said. ”The trial court does not attempt to graft these requirements onto the UCC but rather points to them to explain that, because of these requirements, appellant received more information from TD than it ordinarily would and that a more comprehensive review of that paperwork by appellant's bookkeeper would have enabled appellant to discover the fraudulent activity within the agreed-upon 30-day period.”

The Superior Court agreed with the trial court's assessment that, because the law firm had the ability to view, either online or on the paper statements, both of the front and back of each cashed check, it could have discovered the fraudulent endorsements within the 30-day period by exercising “'some diligence.'”

“[TD Bank] provided [Levy Baldante] with the information necessary to detect the fraud and [the law firm] failed to make diligent use of those tools,” Platt said.

The Superior Court also rejected the law firm's argument that granting summary judgment to TD Bank would allow Wells Fargo's negligence to also go unpunished.

“As the trial court correctly notes, while appellant named WFB as a defendant, it did not include any allegations against it in its amended complaint,” Platt said. “Moreover, appellant admits that it cannot file a direct action against WFB under the UCC because it is not in privity with it. Thus, the issue of WFB's alleged negligence is not properly before us and the issue of whether granting summary judgment in favor of TD 'absolves' WFB is irrelevant.”

But in a separate concurring opinion, Bowes did have harsh words for Wells Fargo's policy of not comparing the signature of a check's endorser to the name of the payee for any check under $50,000 deposited in its ATMs.

“Having been required on numerous occasions to produce identification to a teller when cashing or depositing a check, it is disconcerting to this writer to learn that at least one major bank had abandoned any pretense of ensuring that ATM-deposited checks were similarly scrutinized,” Bowes said.

“It is my belief that banks that have failed to implement at least minimal safeguards against all improper or forged endorsements or other alterations at ATMs, not just those involving amounts in excess of $50,000, have failed to exercise ordinary care,” Bowes continued. “Furthermore, a deposit agreement that effectively shifts all responsibility to the customer to detect and report fraud and forgeries, while concomitantly reducing the time in which the customer must do so in order to preserve any remedy, smacks of bad faith. In the proper case, I recommend that we examine whether such banking practices and deposit agreements are contrary to public policy.”

Gilbert Abramson of Gilbert B. Abramson & Associates, who represented Levy Baldante, did not return a call for comment on the allocatur denial.

Counsel for TD Bank and Wells Fargo, Molly Q. Campbell of Reed Smith in Washington, D.C., declined to comment on the allocatur denial.