The opinion of the court was delivered by: Sweet, District Judge.
Defendant Chemical Bank, New York Trust Company ("Chemical")
has moved pursuant to Rule 56, Fed.R.Civ.P., for summary
judgment dismissing the diversity action of plaintiffs Simcoe
& Erie General Insurance Company ("Simcoe") and its subrogee,
the Guarantee Insurance Company of North America
("Guarantee"). For the reasons set forth below, the motion is
granted in part and denied in part.
Simcoe is a Canadian corporation with its principal office
in Hamilton, Ontario, Canada. Simcoe is a customer of
Guarantee is a Canadian corporation with its principal
office located in Willowdale, Ontario, Canada. Guarantee is
Chemical is a New York corporation engaged in the business
of banking, with its principal offices located in New York
Simcoe and Guarantee commenced this action on December 14,
1988. On February 10, 1989, Chemical served its answer raising
several affirmative defenses including lack of complete
diversity and the bar of certain of the claims in the
complaint by the statute of limitations. On May 17, 1990,
Chemical moved pursuant to Rules 11 and 37, Fed.R.Civ.P., to
dismiss the complaint for Simcoe's and Guarantee's failure to
obey the pre-trial scheduling orders. On May 21, 1990 the
court dismissed the action sua sponte for failure to comply
with the scheduling orders. In a letter of June 1, 1990, Simcoe
and Guarantee asked the court to vacate the order of May 21.
The court treated the letter as a motion pursuant to Rule 60,
Fed.R.Civ.P., and scheduled oral argument. On June 27, the
court issued an order vacating the default.
On February 8, 1991 Chemical filed the instant summary
judgment motion. By consent of the parties, the return date of
the motion was adjourned until March 29, 1991, when oral
argument was heard. As Simcoe and Guarantee raised a legal
argument that had not been briefed by the parties, counsel for
both sides made additional submissions on that issue.
This action arises from a check forgery scheme perpetrated
by Lily Lee ("Lee"), Simcoe's employee, over the period March
14, 1985 through July 30, 1986.
Between March 1985 and August 1986, Simcoe maintained a
checking account (the "operating account") with Chemical.
Simcoe hired Lee in January 1985. On January 3, 1985, Simcoe
filed a Representative Card with Chemical. The card read, in
pertinent part, as follows:
Please cash any checks bearing my/our signature
(or endorsement) when presented by my/our
representative whose signature appears below.
These instructions remain in effect until written
revocation is received by you.
On June 22, 1982, Simcoe had executed a resolution (the
"Resolution") signed by Morton and Shang C. Lee, Simcoe's
assistant treasurer and Lee's mother, that stated:
that the Secretary or any Assistant Secretary . .
. is hereby authorized and directed to certify, .
. . to the Bank . . . the names of the officers
and other representatives of this Corporation . .
. and specimens of the respective signatures, and
that the Bank may conclusively assume that
persons at anytime certified it to be . . .
representatives of this Corporation continue as
such until receipt by the Bank of written notice
to the contrary.
Of the employees of Simcoe's New York office, Lee alone drew
the checks, made all the entries in Simcoe's books, and
reconciled the checks against the bank statements when they
were returned by Chemical.
At the beginning of the forgery scheme, Lee would present
the checks to the Chemical representative listing herself as
payee and containing Morton's signature forged by Lee. After
the checks were returned by Chemical, Lee would alter the
payee of the check to reflect the names of legitimate
companies with which Simcoe regularly did business. Lee also
altered the voucher copies in Simcoe's ledgers. Later in the
course of the scheme, Lee returned the checks to Simcoe's
files leaving her name as payee.
After the forgery scheme was uncovered, Morton upon
examining the checks was unable to discern which checks
contained his signature and which were forgeries.
In 1985, Simcoe's actual expenses exceeded its budgeted
expenses by $82,392. The amount of forged checks ...