DECISION AND ORDER UPON DUE DELIBERATION AND CONSIDERATION BY THE COURT of the foregoing papers, including e-filed documents/exhibits numbered 18 through and including 60, the instant motion is decided as follows: The Defendant BETHPAGE FEDERAL CREDIT UNION (“Bethpage”) moves the Court by Notice of Motion pursuant to CPLR §3212 for an Order that seeks dismissal of the Complaint with prejudice. In the matter at bar, the Plaintiffs NICHOLAS J. VENTRESCA and MICHELLE R. VENTRESCA (“the Ventrescas”) opened two accounts with Bethpage, a checking account in 2012 and a Retirement Account in 2019 (“Retirement Account”). The Retirement Account was intended to be a separate and secure place for the Ventrescas to accumulate retirement savings. The Ventrescas contend that Bethpage assured that their Retirement Account “would (1) undertake continuous efforts to make sure the account was protected from fraud by using technologies and processes that BFCU kept updated at all times, and (2) constantly monitor the account for fraud and anomalous activity.” (NYSCEF Doc. No 42, Aff. of Michele R. Ventresca, para 7). On July 25,2022, while attempting to transfer the funds in the Retirement Account to another account that would potentially earn more interest, the Ventrescas discovered that virtually all of their savings were gone. The missing funds were stolen from the Ventrescas by way of four (4) counterfeit checks that Bethpage cleared in the combined amount of $127,000. Bethpage does not dispute that the checks issued from the Ventrescas’ Retirement Account were fraudulent. On or about May 5, 2023, the Ventrescas filed their Summons and Complaint with the Court, and issue was joined with the filing of an Answer by Bethpage on June 30, 2023. The Complaint contained four causes of action. In the first and second causes of action, the Ventrescas assert claims sounding in breach of contract and strict liability pursuant to the New York Uniform Commercial Code (“UCC”). In the third and fourth causes of action, the Ventrescas allege that Bethpage violated Sections 349 and 350 of the New York General Business Law, which prohibits certain deceptive business practices and false advertising, respectfully. The parties entered into a Preliminary Conference Order on September 5, 2023, which set forth a discovery schedule. On October 17, 2023, Bethpage filed a motion for summary judgment after the joinder of issue and before the filing of a Note of Issue, as is permissible under CPLR 3212[a]. However, this motion for summary judgment motion was filed without the benefit of conducting mutually agreed upon and court ordered depositions, or otherwise completing the discovery process. It is well settled that in a motion for summary judgment the moving party bears the burden of making a prima facie showing that he or she is entitled to summary judgment as a matter of law, submitting sufficient evidence to demonstrate the absence of a material issue of fact (see Sillman v. Twentieth Century Fox Film Corp., 3 NY2d 395 [1957]; Friends of Animals, Inc. v. Associates Fur Mfrs., 46 NY2d 1065 [1979]; Zuckerman v. City of New York, 49 NY2d 5557 [1980]; Alvarez v. Prospect Hospital, 68 NY2d 320 [1986]). The failure to make such a showing requires denial of the motion, regardless of the sufficiency of the opposing papers (see Winegrad v. New York University Medical Center, 64 NY2d 851 [1985]). Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action (see Zuckerman v. City of New York, 49 NY2d 5557 [1980]). The primary purpose of a summary judgment motion is issue finding not issue determination (Garcia v. J.C. Duggan, Inc., 180 AD2d 570 [1st Dept. 1992]), and it should only be granted when there are no triable issues of fact (see also Andre v. Pomeroy, 35 N2d 361 [1974]). Bethpage contends that the Ventrescas’ claims are barred because the issuance of the fraudulent checks were not reported with the sixty day reporting period required by the Account Agreement, and that bank customers “must exercise reasonable care and promptness to examine the statement and items to discover an unauthorized signature or any alteration of an item and must notify the bank promptly after discovery thereof.”(UCC §4-406[1]). Ultimately, Bethpage argues that the Ventrescas violated the express terms of their account agreement by failing to timely report the negotiation of the forged checks in a timely manner, and that such failure bars the Ventrescas’ contractual and UCC based claims.1 In its Memorandum of Law, Bethpage describes its check clearing process as “automated, electronic, and based entirely on two check features: the routing and account numbers contained on the bottom of the checks, and the amount of the checks.” Further, “[t]he in clearing process does not involve a review for ‘negotiability’ issues, such as the validity (or even presence) of signatures. If the routing/account numbers and check amount are valid and visible, the check will in almost all cases automatically clear the account against which it is drawn. Such an automatic and electronic in clearing process is standard in the modern banking industry. If the clearing process were not highly automated and electronic, modern day checking would not operate as quickly and efficiently as it does.” (NYSCEF Doc. No. 19, p 8.). In contrast, the Ventrescas contend it is well settled that claims against a bank for losses stemming from fraudulent checks are not precluded “if the customer establishes lack of ordinary care on the part of the bank in paying the item(s).” (UCC 4-406[3]). The underlying relationship between a bank and its depositor is the contractual one of debtor and creditor implicit in which is the understanding that the bank will pay out its customer’s funds only in accordance with the latter’s instruction. (Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Chem. Bank, 57 NY2d 439, 444 [1982]) Ordinarily, a drawee bank may not debit its customer’s account when it pays a check over a forged endorsement. In most cases, the forgery is not effective to transfer the instrument and the drawee is liable because it is in a position to detect the forgery before payment. Thus, in such cases it is the drawee, as between two innocent parties, who is accountable for the loss. Accordingly, payments made on forged or unauthorized endorsements are at the peril of the bank unless it can claim protection upon some principle of estoppel (Fireman’s Fund Ins. Co. v. Bank of NY, 146 AD2d 95, 96 [1st Dept 1989]) A failure to follow the mandates of due care and commercially reasonable behavior may shift ultimate liability from the drawer to the depository bank. (Five Towns College v. Citibank, N.A., 108 AD2d 420, 432 [2d Dept 1985]). UCC 4-406[3] shifts the loss of even repeated forgeries back to the bank when the customer, although in breach of its own duty to inspect its canceled checks and statements, is able to establish that the bank lacked ordinary care in paying the forged checks (Putnam Rolling Ladder Co. v. Manufacturers Hanover Trust Co., 74 NY2d 340, 343 [1989]) With respect to forged checks, the Uniform Commercial Code initially places risk of forgeries on a bank, in that a forged signature is wholly inoperative as that of person whose name is signed (CLS UCC §3-404). The forged check is not considered to be properly payable, and bank cannot debit depositor’s account (CLS UCC §4-401). Although the UCC imposes on the bank customer a duty to inspect its statement and cancelled checks with reasonable care and promptness (CLS UCC §4-406), the loss of repeated forgeries is shifted back to bank when the customer, although in breach of its duty of inspection, is able to establish that the bank lacked ordinary care in paying forged checks (UCC §4-401 [Consol., Lexis Advance through 2024 released Chapters 1-49, 61-105]). Reading the UCC in a way that would permit a credit union to avoid a duty to protect elderly and vulnerable depositors against fraud premised upon an apparent policy of “electronic efficiency” runs contrary to the tradition of trust embodied by law and regulation which ultimately binds fiduciaries to an unwavering loyalty to their principals. In a landmark decision, Judge Cardozo described the obligations of a fiduciary to be one not guided by merely honestly alone, but “by the punctilio of an honor the most sensitive” and that courts are to be guided by “a tradition that is unbending and inveterate.” (Meinhard v. Salmon, 249 NY 458, 464 [1928][Cardozo, J.]) Indeed, “[u]ncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the “disintegrating erosion” of particular exceptions [citation omitted]. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.” (Meinhard 249 NY at 464 [1928]) The Vetrescas — an elderly couple — essentially trusted and relied upon Bethpage to safeguard their retirement savings against fraudulent and financially predatory acts. New York law and public policy is dedicated to combating the financial exploitation of vulnerable adults, “defining financial exploitation as the ‘improper use of an adult’s funds, property, and/or resources by another individual’ and authorizing adult protective services for vulnerable adults over the age of 18 who are ‘unable to protect themselves from abuse, neglect, financial exploitation, or other harm.’” (New York State Cost of Financial Exploitation Study, June 15, 2015, New York State Office of Children and Family Services, http://ocfs.ny.gov/reports/aps/Cost-of-Financial-Exploitation-Study-2016May.pdf; citing to Social Services Law §473 [6] [g]) Ultimately, the case at bar differs substantially from the cases in which banks were not held liable for the fraudulent acts of third parties against account holders, in particular the line of cases in which an employee — over the course of years — had embezzled an employer’s funds. (Weiser v. Citigroup, Inc., 175 AD3d 1125, 1125 [1st Dept 2019]; Josephs v. Bank of N.Y., 302 Ad2d 318 [1st Dept. 2003]; see also Bernstein v. Bank of America., 173 AD3d 819 [2d Dept 2019] which addressed allegations of fraud that were brought to the bank’s attention for the first time, in litigation, five years after the fraud allegedly occurred). A heightened level of vigilance — indeed “the punctilio of an honor the most sensitive” — is required of banking institutions to protect retirement accounts held by vulnerable adults. In contrast to situations where employees are embezzling funds over a long period of time — and where the bank was essentially a passive third party and had no obligation to police the internal functions of a business customer — in a regulatory environment in which banking institutions are required to adopt best practices to spot and report “red flags” indicating the financial exploitation of New York senior citizens. (DFS Issues Regulatory Guidance to Financial Institutions on Identifying and Stopping Elder Financial Abuse, New York State Department of Financial Service, February 14, 2019, http//www.dfs.ny.gov/reports_publications/press_releases/pr1502271). The failure of Bethpage to protect the Ventrescas against the predatory acts of fraudsters — along with the size of the checks negotiated against a modestly funded Retirement Account — raises serious questions of both fact and law as to whether or not Bethpage failed to recognize glaring “red flags” of financial exploitation, particularly since the parties agree that except for the fraudulent withdrawals the Retirement Account’s checking writing features of the Retirement Account were not utilized by the Ventrescas. However, the undisputed facts of forgery and fraud combined with the fact of a non-conspicuous, essentially non-noticed, anti-public policy, self serving time limited “requirement” that impermissibly shifts the burden from the credit union to the customer, warrants partial disposition herein. Indeed, acknowledgment by Bethpage that the negotiated checks were forgeries resolves some aspects of the Complaint in a dispositive manner, while other questions presented in the Complaint must be referred to the trier of fact. CPLR 3212[F] provides that “should it appear from affidavits submitted in opposition to the motion that facts essential to justify opposition may exist but cannot then be stated, the court may deny the motion or may order a continuance to permit affidavits to be obtained or disclosure to be had and may make such other order as may be just.” In the matter at bar, the completion of the discovery process is required to evaluate the Ventrescas’ General Business Law and breach of contract claims, particularly with respect to whether the anti-fraud marketing materials published by Bethpage online and elsewhere may have created a false assurance of accountability to Bethpage depositors and was in such sharp contrast to the “fine print” of its Account Agreement as to establish potential claims for false and deceptive advertising. Upon a careful review of the papers submitted in support and in opposition to the motion for summary judgment herein, along with their respective annexed exhibits, and given certain factual differences between the accounts of the parties, the application for summary judgment initiated by Bethpage is DENIED with respect to the first, third, and fourth causes of action in the Complaint. Additionally, the Court is mindful that the contemporary banking environment is driven by automation and volume based electronic processing of checks. However, in the case at bar, the parties acknowledge that four large checks were fraudulently drawn against a modestly funded retirement account. Banking institutions are also required inter alia to be aware of suspicious transactions, be it patterns of suspicious cash deposits which may trigger money laundering concerns or the “red flag” transactions presented in cases of senior citizen financial exploitation. The CPLR provides that if it shall appear that any party other than the moving party is entitled to a summary judgment, the court may grant such judgment without the necessity of a cross-motion. (CPLR 3212[b]). Thus, on a party’s summary judgment motion, the court is permitted to “search the record” and grant summary judgment to a non-moving part (CPLR §3212 [Consol., Lexis Advance through 2023 released Chapters 1-191]). Accordingly, it is hereby ORDERED, based upon the parties agreement that the checks at issue herein were forged, and in light of the apparent failure of Bethpage to exercise ordinary care in the safeguarding of the Plaintiff’s retirement account and the payment of the forged checks at issue herein, the application by Bethpage for summary judgment with respect to the Second Cause of Action in the Complaint is DENIED, and upon a diligent search of the record, partial summary judgment on the question of strict liability under the UCC is GRANTED in favor of the Ventrescas and against Bethpage with respect to the second cause of action, and the issue of damages on the second cause of action is referred to the trier of fact. This constitutes the Decision and Order of the Court. Dated: April 10, 2024
