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UNITED STATES v. FIRST NATL. CITY BANK

August 16, 1978

UNITED STATES of America, Plaintiff,
v.
FIRST NATIONAL CITY BANK, Defendant



The opinion of the court was delivered by: SAND

Plaintiff, the United States, seeks in this action to recoup monies it paid to reimburse defendant, Citibank, N.A. (sued herein and formerly known as First National City Bank) ("Citibank"), for funds Citibank disbursed when it cashed postal money orders that had been stolen and forged. The principal issue is the validity of the postal regulations that authorize such recoupment. The Government has moved for summary judgment.

I. BACKGROUND

A. FACTS

 Certain facts are not in dispute. In the course of three burglaries of post offices at Buckfield, Maine on March 27, 1970, at Big Indian, New York, on December 30, 1970, and at Coxsackie, New York, on October 15-16, 1971 postal money order blanks were stolen, along with various stamps and equipment necessary for their validation. Thirty-nine money orders were cashed at various branches of Citibank. Defendant in turn presented them through the Federal Reserve Bank, which credited defendant's account and debited the Postal Service's account for the amount shown on the face of the money orders.

 Pursuant to the usual United States Postal Service ("USPS") procedure for processing stolen money orders, *fn1" the Inspection Service of the Postal Service notified the Money Order Division of the fact of each theft at the time it occurred; the Money Order Division prepared a computer print-out listing the stolen money orders; the Money Order Division then compared this list with a weekly print-out from the Treasury of all money orders it received from the Federal Reserve Bank, identified those stolen money orders which had been paid, retrieved the actual stolen money orders from the Treasury, made copies of them and sent reclamation letters to defendant. There are thus four significant events in this case: first, the initial theft of money order blanks from the post offices; second, the cashing of the forged money orders at Citibank; third, the presentment by Citibank of the cashed money order for reimbursement, and fourth, the demand for reclamation by the Postal Service.

 On the average, a time period of approximately 15 days elapsed between the dates on which Citibank presented the stolen money orders to the Federal Reserve Bank and the dates on which the Postal Service notified it that they were stolen and demanded a refund pursuant to Postal Regulation 171.95, promulgated in 1970. *fn2" The regulation reads in pertinent part as follows:

 
"The Postmaster General shall have the right to demand refund from the presenting bank of the amount of a paid money order, if, after payment, the money order is found to have been stolen, or to bear a forged or unauthorized endorsement, or to contain any material defect or alteration which was not discovered upon examination . . . Such right shall be exercised within a reasonable time after the Postmaster General discovers that the money order has been stolen, or bears a forged or unauthorized endorsement, or is otherwise defective. If refund is not made by the presenting bank within 60 days after demand, the Postmaster General shall take such action as may be necessary to protect the interests of the United States."

 Defendant has refused to refund payment of these stolen money orders, challenging the regulation both on its face and as applied.

 B. THE LAW PRIOR TO REGULATION 171.95.

 Prior to 1951, the system for payment of postal money orders was as follows: money order payees or endorsees could cash their money orders at a post office, or could cash them or deposit them for collection with a bank. If cashed or deposited with a bank, the bank would receive final payment at a post office. The few cases involving theft and forgery of money orders cashed at banks held that money orders were not negotiable instruments, but rather instruments which the Post Office Department issued in its sovereign capacity, as a public convenience, and that the Government therefore would not be held to the commercial standards governing the finality of payment of ordinary checks. Specifically, the Government was held to have the right, under federal common law, to reclaim payment of money orders found to have been stolen. Bolognesi v. United States, 189 F. 335 (2d Cir. 1911), Cert. denied, 223 U.S. 726, 32 S. Ct. 525, 56 L. Ed. 632; United States v. Northwestern National Bank, 35 F. Supp. 484 (D.Minn.1940). This rule was incorporated in the Post Office Regulations in 1932. 39 C.F.R. § 72-27(g)(1939). *fn3"

 Since 1951, however, banks which cash money orders receive final payment from the Treasury, through the Federal Reserve System, rather than at post offices. *fn4" In 1967, the District Court of Massachusetts (in United States v. First National Bank of Boston, 263 F. Supp. 298 (D.Mass.1967)) held that, given this new statutory scheme, money orders now sufficiently resemble other negotiable instruments so as to require the Government to abide by the "final payment rule" of the Uniform Commercial Code. *fn5"

 The 1967 decision was not appealed and "in an effort to preclude further court decisions along the lines of U.S. v. First National Bank of Boston", *fn6" the Post Office issued Regulation 171.9 governing the payment of money orders.

 II. VALIDITY OF THE REGULATION ON ITS FACE

 Defendant argues, first, that USPS lacks congressionally-delegated authority to enact Regulation 171.9, in that Congress has not expressly authorized the USPS to establish procedures for the revocation of postal money orders; second, that even if the Postal Service has such delegated authority, the decision of the Massachusetts District Court in United States v. First National Bank of Boston, Supra, precluded the Service from promulgating a contrary rule; and third, that even if the former Post Office Department had the authority to promulgate such a regulation subsequent to the First National Bank Decision, the restructuring of the Postal Service evidenced a congressional intent to treat the Postal Service as a business enterprise rather than a sovereign governmental entity, and that as a consequence, prevailing principles of commercial law, rather than federal law, should apply.

 A. DELEGATED AUTHORITY

 Under the former Post Office Department statute, Congress provided that "In addition to his other duties, the Postmaster General shall (1) prescribe rules and regulations that he deems necessary to accomplish the objectives of this title.". 39 U.S.C. § 501 (1970). More specifically, the Postmaster General was directed to "provide for the payment of money orders . . .". 39 U.S.C. § 5103(a)(1970). Defendant argues that this language does not allow for the revocation of payment once made, and that the regulation at issue "can only be read as an attempt by the Postal Service to thwart the Congressional intent". This argument proceeds from the comment of the District Court in First National Bank of Boston, Supra, that (as a matter of policy) ...


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