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Travelers Indemnity Company v. Good

October 04, 1999


Before Judges Muir, Jr., Wallace, Jr., and Cuff.

The opinion of the court was delivered by: Cuff, J.A.D.


Submitted: *fn1 September 14, 1999 - Decided:

On appeal from the Superior Court of New Jersey, Law Division, Essex County.

Plaintiff, The Travelers Indemnity Company as subrogee of Stern, Lavinthal, Norgaard & Daly, appeals from a summary judgment entered in favor of defendant PNC Bank. We reverse and remand for additional discovery regarding PNC's actual conduct as measured by its policy for check verification.

Between October 1996 and December 1996, defendant Sobeyda Herrara Good was employed as a bookkeeper for Stern, Lavinthal, Norgaard & Daly, a law firm. During that time, Good forged the name of an authorized signatory on eight checks totaling $76,975 drawn on the firm's trust account at PNC Bank. The eight checks were made payable to either defendants Daniel Trainor or Glenn Davis and were negotiated by them. PNC paid seven of the checks and charged the attorney trust account. The firm discovered the fraud in December 1996 and notified PNC. Pursuant to the terms of a fidelity insurance policy, Travelers compensated the firm for the loss.

As the subrogee of the firm, Travelers filed a complaint against defendants Good, Trainer, Davis and PNC to recover the loss. The complaint alleged PNC breached its contract of deposit with the law firm and violated applicable provisions of Articles Three and Four of the Uniform Commercial Code (UCC), N.J.S.A. 12A:3-101 to -605, 4-101 to -504, by improperly charging the account with the forged checks. Finally, the complaint alleged PNC failed to exercise ordinary care and failed to act in accordance with the reasonable commercial standards of the banking industry in its handling of the checks.

In due course, summary judgment was entered against defendants Good, Trainor and Davis. Further, on May 4, 1998, partial summary judgment was entered in favor of PNC Bank, and Travelers' claim that the bank had improperly paid three checks presented at the local branch totaling $24,475 was dismissed. Travelers conceded that the branch bank procedures were reasonable concerning those checks. As to the remaining five checks issued between October 28 and November 20, 1996, all of which had been cleared through the bank's central processing unit, Travelers was given additional time to conduct discovery of PNC "related to the operations and procedures utilized by PNC to pay checks cleared at its central processing unit in 1996."

PNC eventually provided this information to Travelers and renewed its motion for summary judgment. The undisputed facts before the motion Judge revealed that PNC's check clearing policy for checks which passed through its central processing unit required verification of the signature on any check in excess of $5000. PNC also provided training to the employees in this department and mentors were assigned to employees to supervise and assist the verification process. In response, Travelers conceded that $5000 was a reasonable threshold to trigger verification of signatures. However, it argued that it required additional discovery to determine whether PNC complied with its procedures.

In granting PNC's motion for summary judgment, the motion Judge found that the law firm had not reviewed its October statement and had it done so would have detected the forgeries and could have taken appropriate action to prevent the issuance of the two December checks. He concluded that the inaction of the firm constituted negligence and precluded recovery against PNC for this loss. As to the remaining checks, the motion Judge identified the controlling issue as whether the bank acted in a commercially reasonable manner. He found that there was nothing in the record to suggest that the bank's procedures were not commercially reasonable and further held that Travelers' request for additional discovery was too late.

On appeal, Travelers argues that PNC was not entitled to summary judgment because there was no evidence that it acted with ordinary care. It also contends that summary judgment was premature because discovery was incomplete. PNC responds that the law firm breached its duty to exercise reasonable care to prevent the forgeries and that further discovery would not enable Travelers to raise a genuine issue of material fact.

Summary judgment is appropriate if "there is no genuine issue as to any material fact challenged and ... the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). According to this rule, "[a]n issue of fact is genuine only if, "considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." Ibid. The Court has explained as follows:

[W]hen deciding a motion for summary judgment under Rule 4:46-2, the determination whether there exists a genuine issue with respect to a material fact challenged requires the motion Judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party in consideration of the applicable evidentiary standard, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party. [Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995).]

The Court explained further, "a non-moving party cannot defeat a motion for summary judgment merely by pointing to any fact in dispute." Id. at 529. Summary judgment is appropriate when the non-moving party only points "to disputed issues of fact that are 'of an insubstantial nature.'" ...

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