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Ads Associates Group, Inc., and Brendan Allen v. Oritani Savings Bank

December 29, 2011


On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-3648-06.

Per curiam.


Argued November 30, 2010

Before Judges Graves, Messano and Waugh.

In October 2003, Brendan Allen and Asnel Diaz Sanchez opened a business checking account in the name of Sanchez's corporation, ADS Associates Group, Inc. (ADS), at Oritani Savings Bank (Oritani or the Bank), where ADS had existing accounts. Shortly thereafter, without Allen's knowledge, Sanchez began transferring funds electronically from the new account to the other ADS accounts over which Allen had no control. After Allen learned of the transfers, he filed a lawsuit against Oritani and Sanchez.

Early in the proceedings, the court determined that ADS was the Bank's "customer" under the Uniform Commercial Code (UCC), and the court dismissed Allen's individual claims against the Bank. However, the court allowed Allen to file an amended complaint with ADS as the plaintiff, and the court authorized Allen to prosecute the matter on behalf of ADS. The amended complaint alleged breach of contract, conversion, UCC violations, negligence, breach of fiduciary duty, misrepresentations and omissions in violation of the Consumer Fraud Act, and general fraud against the Bank.*fn1 The Bank denied any wrongdoing and sought attorneys' fees and costs under the frivolous litigation statute, N.J.S.A. 2A:15-59.1.

The trial took place in September and October 2008. At the close of evidence, the trial court dismissed all claims against Oritani except for count three, which alleged the unauthorized internet transfers from the ADS account violated the UCC.

The jury returned a verdict for ADS in the amount of $295,500. ADS then moved for additur, interest, and counsel fees; and Oritani cross-moved for judgment notwithstanding the verdict (JNOV). The court denied ADS's motion, and it granted Oritani's motion for JNOV based on indemnity agreements between ADS and the Bank. ADS filed a motion for reconsideration, which the court denied. The court also found the amended complaint was not frivolous and Oritani's post-judgment motion for counsel fees and costs was denied.

Among other things, Allen contends on appeal that the trial court erred in dismissing his individual claims against Oritani. In addition, Oritani cross-appeals from the order that permitted Allen to proceed on behalf of ADS and from various other orders entered by the court. For the reasons that follow, we conclude that Allen should have been allowed to pursue his common law non-customer claims against the Bank. We therefore reverse and remand for a new trial.

The facts adduced at trial are relatively straightforward. Allen and his family were involved in the construction industry for many years, and in 2003 he was "presented with an opportunity" to haul material from the Hudson-Bergen Light Rail Project (the Project). Allen's business was not incorporated, but he had worked with Sanchez and knew that Sanchez, the president and sole shareholder of ADS, had an established business with "minority status."*fn2 Therefore, Allen proposed "a joint venture for the project," and Sanchez "thought it was a good idea."

According to Allen, he was responsible for contributing the initial capital, for getting the work and for negotiating terms with the Project representatives, and Sanchez was to "fill out all the truck manifests, handout the paperwork, collect the paperwork, [and] do the billing." Allen said they planned to review "the invoices from the subcontractors" together to "determine how much they were going to get paid," and they further agreed the profits would be split seventy/thirty with seventy percent going to Allen, and thirty percent going to ADS. Allen explained the agreement was not reduced to writing because they initially thought the work would only last "a few weeks."

After a contract was awarded to ADS in September 2003, Allen and Sanchez decided to open a business checking account in ADS's name at Oritani because the checks "were going to come in under the contract" in ADS's name, Sanchez "had business there already," and Allen "had no other banking relationships." Although the parties planned to use a single business account, Allen testified they agreed that both of their signatures would be required to remove any money from the account.

On October 2, 2003, Allen and Sanchez opened Account No. XXXXXX3604 (3604) in ADS's name at Oritani, where ADS already had two existing accounts (Account No. XXXXXX1520 (1520) and Account No. XXXXXX3869 (3869)). According to Allen, they explained to the Oritani representative that they wanted the account set up so that neither one of them could "take money out without the other person knowing." On a form entitled "New Business Account Interview," Sanchez was listed as ADS's president, Allen was listed as treasurer, and the form stated: "Number of Signatures Required: 2."

On a separate business account signature card, Allen and Sanchez confirmed their respective titles, and they authorized the Bank to recognize "2 of the 2 signatures" for the "payment of funds or in the transaction of any business for this account." Based on the documents that Allen and Sanchez signed and their discussion with the Bank's representative, Allen believed they "both had to sign to get money out of the account."

Allen and Sanchez also signed a business checking form, which contained the following indemnity provision: "You are liable for any losses or expenses caused by your employees, owners, principals or agents who forge or alter any instrument or endorsement or make any unauthorized charge to your account." The document also provided as follows under the heading "Statements":

You will receive a monthly statement reflecting all account activity, all charges assessed therewith and the balance of your account, together with canceled checks for the period. In order to preserve your rights, you must examine the statement and report any problem or error with an account statement within 60 days after the statement is sent to you or the Bank is not liable for such problem or error. This includes a forged, unauthorized or missing signature or endorsement, a material alteration, a missing or diverted deposit, or any other error or discrepancy. You must promptly notify the Bank in writing of any changes in your address.

Allen testified the Bank required the checking account statements to be sent to ADS's address. According to Allen, he offered to pay for a duplicate set of statements, but he was told: "[We] don't do that. We can't do that. It's through a computer." Therefore, the account statements were sent to Sanchez and Sanchez kept the checkbook.

Allen and Sanchez also signed a corporation resolution. But none of the documents they signed authorized internet banking. Moreover, Allen testified there was no mention of internet withdrawals or transfers from the account:

Q. Now during your meeting at the bank did anybody discuss internet transfers?

A. No.

Q. Was there any discussion at all about the ability to take out this money without two signatures on the check?

A. Yes.

Q. There was?

A. Yes.

Q. What discussion was there?

A. That the only way money was going to come out of the account was if we both signed the checks.

Q. Okay. And who said that?

A. The woman at the bank.

Q. How many times?

A. About five.

Q. Did the woman at the bank say anything in any of your discussions about internet transfers?

A. No.

Q. Did the lady at the bank during the hour that you were there say anything about the ability to have access to the account from the internet?

A. No.

Q. Did [Sanchez] say anything at that meeting regarding anything to do with the internet?

A. No.

Q. Did you sign any paperwork at that meeting that authorized anything to be done through the internet?

A. No.

Q. Did you ever sign any paperwork, anything talking about the ability of anything to be done through the internet?

A. No.

Sanchez, however, had already authorized "online internet banking" for the two other ADS accounts at Oritani.

Allen deposited $750 to open the account, and he subsequently deposited $28,000 into the account "to pay the vendors while [ADS was] waiting to get paid." On cross-examination, Allen acknowledged that he did not make any additional deposits to the account and that all other deposits were "joint venture proceeds."

While working on the Project, Allen and Sanchez met about "every two weeks" to determine which vendors "had to get paid" and to "sign the checks." Because the check register maintained by Sanchez did not show the account's current balance, Allen sometimes asked to see the bank statements, but Sanchez told him the statements were not available for various reasons. Allen testified it was not "a big deal" because Sanchez was his friend, and Allen believed that two signatures were required to remove money from the ADS account.

On June 8, 2004, Allen and Sanchez wrote a check in the amount of $70,000 from ADS to Gallen Contracting, Inc., a company owned by Allen and his wife. The check was returned for insufficient funds, however. Allen spoke with Sanchez on June 15, 2005, and Sanchez said there was "no more money" because he "used it for expenses."

After speaking with Sanchez, Allen went straight to the Bank, and he learned there were numerous internet transfers from ADS's Account 3604 to other ADS accounts at Oritani. Shortly thereafter, Allen received copies of the account statements, which showed the transfers began on October 15, 2003.*fn3

When Allen was asked why he didn't file a criminal complaint against Sanchez, he said, "I didn't want to put him in jail. I wanted my money back." Allen did not cancel the Project contract, because he still had money coming in, more work to do, and bills that needed to be paid. According to Allen, Sanchez promised to pay him back, and from that point forward when a check came in, Sanchez would give it to Allen and he "would get the money." For the next year or so, they followed that procedure, but from time to time Allen gave Sanchez money he needed "to continue the business."

Allen testified that Sanchez "walked off the job" in approximately April 2005 because "[n]obody wanted to deal with him anymore." Allen continued working on the Project under the ADS name, until he "finished the job." ...

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