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FUNDACION v. CBI-TDB UNION BANCAIRE PRIVEE & REPUB

March 4, 1998

FUNDACION MUSEO DE ARTE CONTEMPORANEO DE CARACAS - SOFIA IMBER, Plaintiff, against CBI-TDB UNION BANCAIRE PRIVEE and REPUBLIC NATIONAL BANK OF NEW YORK, Defendants.

Peter K. Leisure, U.S.D.J.


The opinion of the court was delivered by: LEISURE

LEISURE, District Judge :

 A two-week bench trial was held in September, 1997, in this diversity action for paying on an unauthorized signature, money had and received, conversion, and aiding and abetting a theft. Based on the following findings of fact and conclusions of law, the Court holds that neither defendant is liable to plaintiff for the proceeds of the unauthorized check that lies at the heart of this action.

 FINDINGS OF FACT

 Background

 1. Plaintiff Fundacion Museo de Arte Contemporaneo de Caracas - Sofia Imber (the "Museum") is a not-for-profit contemporary art museum, organized under the laws of Venezuela, located in Caracas, Venezuela. Ms. Sofia Imber served as Director of the Museum at all times relevant to this action.

 3. Defendant Republic National Bank of New York ("Republic") is a national banking association organized under the laws of the United States, with its principal place of business in New York City.

 4. This action centers around a check in the amount of $ 825,000 bearing the pre-printed number 177 and dated May 7, 1993 ("Check 177"). Check 177 was drawn on the Museum's account at Republic and was made payable to UBP. UF 4. While Check 177 purports to bear the signature of Sofia Imber, she did not actually sign the check; her signature on the face of Check 177 was forged. UF 56.

 5. On May 10, 1993, Gustavo de los Reyes, a Venezuelan national, sent Check 177 to UBP's New York office for deposit. UF 55. Republic paid on Check 177 on May 14, 1993, and thereupon debited the Museum's account in the amount of $ 825,000. UF 76. On or about May 17, 1993, UBP wire-transferred $ 815,000 of the proceeds of Check 177 in accordance with Reyes's instructions. UF 77. The funds have not been recovered. The Museum has demanded that UBP and Republic repay the proceeds of Check 177, plus interest, but neither defendant has repaid. UF 142, 143.

 The Museum's Republic Account

 6. In 1981, the Museum opened a checking account with Republic. UF 7. This account was closed and the proceeds transferred to an Insured Money Director Account, or money market account, which was opened by Republic on behalf of the Museum in or about April, 1987. UF 16.

 7. In the period between February of 1987 and June of 1993, it was Republic's policy to keep on file signature cards with samples of the signatures of the signatories on money market accounts maintained at Republic. The signature card for the Museum's account at Republic (PX 35) *fn2" was in Republic's files during the period from on or about April 14, 1988, until July of 1994. The card bears an original specimen of Imber's signature and indicates that Imber was the sole signatory on the account. UF 21.

 8. The Museum's account at Republic was managed in New York by Republic's international private banking unit. Mercedes Hess initially served as the account officer for the Museum, and Keith Kindler replaced her following Hess's promotion. In addition, Republic maintained a representative office in Caracas from which Republic employees, including Rosangela Febres, assisted the Museum.

 9. On April 8, 1988, Imber executed an account agreement for the Museum's account at Republic. DX 2, 2-A. The account agreement provided that the Museum accepted and agreed to all the terms and conditions contained therein, including that the Museum

 
will exercise reasonable care and promptness in examining such statement [of accounts] and items to discover any irregularity including, but not limited to, any unauthorized signature or alteration and will notify the Bank promptly in writing of any such discovery, and in no event more than fifteen (15) calendar days subsequent to the time that such statement and items were first mailed or available to the [Museum].

 DX 2 at 5.

 10. Republic issued an updated version of its account agreement in September of 1991, superseding the agreement executed in April of 1988. In addition to extending the response period for notification of any irregularity contained in an account statement to thirty days, the updated account agreement provided:

 a) "Mail addressed and mailed to you at your address of record with the Bank shall be deemed to be properly delivered." DX 4 at 1;

 b) "You shall keep your checks and all records and correspondence relating to your account(s) with us in a safe and secure place. If any of your checks are lost or stolen, you must promptly notify the Bank in writing of such loss or theft." Id. at 6.

 The Museum's Care of the Relevant Checkbooks

 11. Republic ordered four new checkbooks for the Museum, each containing ten checks, in early April of 1993. These checks were numbered 141-180. The blank check numbered 177 was located in the last of these checkbooks. UF 35. Republic verified that Check 177 was in the checkbook prior to its being sealed and delivered to the Museum. EX K. A Museum employee retrieved the checkbooks from Republic's Caracas office in or about April, 1993, and delivered them to Eglee Guilarte Machado ("Guilarte"), the secretary of the Museum's administration department. Guilarte placed the checks in a safe in the office of Virginia Da Silva Frade ("Da Silva"), an accountant in the Museum's administration department. UF 37, 38. Neither Guilarte nor Da Silva counted the checks before placing them in the safe, though Guilarte understood that she was supposed to do so. Guilarte 45:23-46:06. Based on the foregoing, the Court concludes that Check 177 was stolen after the Museum had taken possession of it from Republic.

 12. Guilarte stated that as a matter of Museum policy, all newly-arrived checks were turned over to her. She admitted that "if I am not at my desk for any reason when these checkbooks come in, they are left there (on the desk) just the same." DX 67-T.

 13. Prior to mid-May of 1993, the Museum had no written procedures concerning the receipt, safekeeping, and custody of its blank checks. Prior to May 10, 1993, the Museum kept its blank checks in the safe in Da Silva's office. The safe had two locks; one opened with a key and the other was a combination lock. The combination lock often was kept unlocked during the day. The key to the other lock was kept in a metal closet in Da Silva's office. The key to that closet was kept in Da Silva's desk drawer, which was not kept locked. UF 39. There was no restriction of access to Da Silva's office during the period when Check 177 likely was stolen. The Museum did not conduct an inventory of its blank checks between August of 1991 and May of 1993, and did not maintain a list of its blank checks. EX G.

 14. Based on the foregoing, the Court concludes that the Museum's procedures concerning the receipt and storage of its blank checks during the period in which Check 177 was stolen from the Museum allowed many opportunities for unauthorized access to the checks. It is likely that these deficiencies substantially contributed to the theft of Check 177.

 The First Banco Latino Check

 15. On May 5, 1993, the Museum learned that an unauthorized check in the amount of nine million bolivars (valued at approximately $ 104,167 at that time) had been presented on its Banco Latino account in Venezuela. UF 40. The Banco Latino check did not cause a loss to the Museum because Banco Latino identified the check as unauthorized and did not pay on it, despite the fact that it purported to bear the signatures of the two authorized signatories on the Museum's Banco Latino Account. UF 41, 42.

 16. The Banco Latino check had been kept in the same safe as were the checks on the Museum's account at Republic. UF 43. Despite this, the Museum did not notify Republic of the attempt to pass the forged Banco Latino check. UF 44.

 18. As a result of the Banco Latino check, Adolfo Javier Pacheco Mercado ("Pacheco"), then the Museum's controller, conducted an inventory of the Museum's blank checks on Friday, May 7, 1993. This inventory was not verified by any other Museum employee. UF 47. The inventory discovered no other missing checks. However, the surrounding circumstances indicate that the inventory was unreliable. As an initial matter, Da Silva signed the inventory under duress; when she expressed to Pacheco a reluctance to sign without first having counted the blank checks herself, he threatened that if she did not sign immediately, he would tell her superiors that she had tried to prevent the making of the inventory. Da Silva 34:7-20. Moreover, a second check was missing on May 7 from the same Banco Latino checkbook, but was not discovered as missing until the second check was presented for payment (unsuccessfully) three months later. UF 103. Finally, Check 177 was in route to New York on Monday, May 10, 1993 (UF 55); it is highly unlikely that Check 177 actually was in the Museum's safe at the time of the inventory late on Friday afternoon, May 7. A thorough inventory, then, likely would have alerted the Museum that Check 177 had been stolen prior to its being presented to Republic for payment. The Museum then could have notified Republic about the theft, and Republic would not have paid on Check 177.

 Rangel's Responsibilities at the Museum

 19. Ana Teresa Rangel Acosta ("Rangel") served as the Museum's Chief Administrator (her title, in Spanish, was "Gerente"). Rangel 8:10-22. In this position, her responsibilities "were of a rather large scope. Everything that had to do with expenses, expenditures in general. To review and to make sure that there was, that all the expenditures made were correct . . . ." Rangel 14:2-6. She also executed the Museum's budget. T 59:2-18. While Imber served as the Museum's Director, and therefore bore ultimate responsibility for the Museum's finances, it is the Court's impression based on Rangel's deposition testimony and the Court's observation of the whole of Imber's trial testimony that Imber delegated broad authority to Rangel to handle fiscal matters. It became obvious that Imber is a very important participant in all aspects of the cultural world of Venezuela and elsewhere. Imber engaged in a myriad of activities, including acquiring art for the Museum, hosting television and radio programs in Venezuela, editing and writing cultural articles for a major Venezuelan newspaper, and serving on the "consulting boards" of museums across Latin America and the world. T 274:13-16; 275:5-277:1. Thus, Imber decided to delegate control of the day-to-day handling of the Museum's finances to Rangel. As Imber noted, "I don't know in which way or how Ana Teresa Rangel works or goes about her work. I know the results of her work." Imber 165:21-24.

 20. Imber admitted that Rangel was responsible for communicating with the banks at which the Museum maintained accounts. T 299:2-15. Republic's dealings with the Museum confirmed that Rangel was the person whom Republic's employees should contact with any questions concerning the Museum's account at Republic. For instance:

 a) Hess testified that she tried to speak with Imber via telephone on a number of occasions, but always was transferred to Rangel. T 707:23-708:8. Hess also spoke with Rangel on those occasions when Imber's signature on a check or payment order on the Museum's Republic account had been questioned by a verifier. T 708:15-709:5. Finally, when Hess tried to meet with Imber during a 1992 trip to Venezuela, Imber directed Hess to meet with Rangel instead. T 702:24-704:12. Hess met with Rangel at the Museum on June 18, 1992. UF 30; T 704:13-705:7; DX 43.

 b) Kindler, who succeeded Hess as the account officer assigned to the Museum's account at Republic, never spoke about the account with anyone at the Museum other than Rangel. T 589:22-25; 554:9-10. He listed Rangel as his contact at the Museum. EX B; T 590:1-592:14. On March 2, 1993, Kindler also visited the Museum on a business trip to Venezuela. UF 32, DX 44. While he made an appointment to meet with Imber, Kindler was directed to meet with Rangel upon his arrival at the Museum. T 556:14-557:21.

 c) Febres, who worked in Republic's Caracas office as a liaison between the New York office and Venezuelan clients, also stated that Rangel "was the person with whom I had to get in touch at the Museum regarding any information about the account." T 501:25-502:2. In explaining why she called Rangel rather than Imber in order to confirm the signature on Check 177, Febres stated, "Mrs. Rangel was the person with whom we dealt at the Museum. We never had any contact with Mrs. Imber with regard to the account with us." T 545:24-546:1.

 21. Based on the foregoing, the Court concludes that it was reasonable for Republic to assume that while Imber was the sole authorized signatory on the Museum's account, Rangel was the proper person to contact concerning the confirmation of Imber's signature on a check. The Museum held Rangel out as the contact person for the Republic account and shielded Imber from contact with Republic at every turn. Rangel had access to all of the Museum's financial information, and had confirmed checks or payment orders on previous occasions.

 Republic's Payment of Check 177

 22. In 1993, checks presented to Republic through the clearing system arrived at Republic during the night. Early the next morning, signatures on checks that were drawn on accounts within the international private banking group were examined by a verifier in Republic's operations area. Two verifiers examined checks in excess of $ 10,000. If either verifier questioned the signature, the instrument was given to the account officer along with a copy of the signature card. The account officer could contact the account holder and determine whether the item should be paid. Republic's procedures permitted an account officer to approve payment of a check based on the oral verification of the account holder. UF 69. Republic has presented uncontradicted expert testimony, which the Court finds credible, that these procedures were consistent with those utilized by other banks, and in some respects more stringent than other banks' procedures. T 803:20-22.

 23. Republic received Check 177 through the clearing system on May 13, 1993. UF 70. Natividad Alvaro, a Republic verifier, questioned the signature on Check 177 during the morning of May 14, 1993. UF 71. This was not the first instance that Imber's signature had been questioned by a Republic verifier. T 656:12-18; 728:1-6.

 24. Republic's telephone records show that a call lasting four minutes and thirty-one seconds was placed from Kindler's extension at Republic to the Museum on May 14, 1993, at 11:50 AM. PX 7, UF 72. Imber was not present at the Museum on May 14, because she was traveling abroad; Rangel was present at the Museum that day. UF 73, 75. There is no evidence indicating that anyone from Republic attempted to contact Imber on May 14.

 25. The Court concludes that during the course of his phone call to Rangel on May 14, Kindler conveyed all material information concerning Check 177 to Rangel, including that the signature on the check had been questioned. While Rangel denies speaking with Kindler at all, the Court concludes that she mistakenly confirmed Check 177 as a legitimate expenditure for the purchase of art. The Court's conclusion is based on:

 a) Kindler's testimony, which the Court finds credible. T 578:22-579:15; 644:2-645:25; 686:14-687:12;

 b) a note in Kindler's handwriting on the face of Check 177 stating "sig ok" and "kk", denoting Kindler's initials. PX 1;

 d) an unease with Rangel's credibility, engendered by some of her statements at her deposition. These include her failure to acknowledge having spoken with Kindler at all on May 14, 1993, and her failure to admit to having met with Kindler at the Museum a few months earlier, despite conclusive evidence contradicting her version of both these occurrences.

 26. Because Kindler initially had difficulty getting through to the Museum via telephone from New York, he requested that Febres contact Rangel from Caracas to confirm the signature on Check 177. T 507:21-508:20; 577:4-578:21. Febres also spoke with Rangel via telephone on May 14. The Court finds that Rangel again mistakenly confirmed Check 177 to Febres as an expenditure for the purchase of art. T 508:6-509:16.

 The Museum's Discovery that Check 177 was Unauthorized

 27. On or before June 10, 1993, Republic mailed to the Museum a statement of account for the month of May 1993, reflecting the May 1993 closing balance in the Museum's account, including the debit entry relating to Check 177. UF 95. On or before July 16, 1993, Republic mailed to the Museum a statement of account for the month of June 1993, reflecting the May 1993 closing balance less debts incurred during June of 1993. UF 96.

 28. Account statements for the Republic account were mailed by Republic to the Museum via ordinary surface mail, in envelopes bearing the return address: "P.O. Box 321, Grand Central Station, New York, New York 10018." Republic's name did not appear on the outside of the envelope. UF 98.

 29. Republic was aware that the Venezuelan mail system sometimes is slow and that Republic's account statements sometimes were delayed. The Museum never requested, and Republic never suggested, that its statements routinely be sent by any means other than ordinary mail. Prior to May 1993, the Museum occasionally wrote to Republic, at times by facsimile, requesting copies of the Museum's account statements when they were late. UF 99.

 30. Documents produced by the Museum indicate that on a number of occasions, the Museum's employees reconciled on the same day Republic account statements for different months. For instance, the statements from January and February of 1991 were reconciled on March 31, 1991; the statements from January and March of 1992 were reconciled on May 21, 1992; and the statements from January, February, and March of 1993 were reconciled on May 21, 1993. UF 124.

 31. The Museum reconciled its Republic account statements for May and June of 1993 on August 16, 1993. UF 124.

 32. Various Museum employees testified to a backlog in the Museum's accounting department in the summer of 1993. For instance, Castillo Ramirez Tibisay Thais, a Museum employee who served as Assistant to the Accountant, stated that the May account statement was not reconciled until August "because I had a lot of work." EX I-T at 12th. Da Silva added that the reconciliation of the May statement was not performed until August "because there was a change in the accounting system and a staff change, and this delayed the work, which caused a backlog." EX F-T at 15th. Pacheco confirmed that the delay in reconciliation was caused by a backlog in accounting. EX G-T at 25th.

 33. In early August of 1993, the Museum learned that a second unauthorized check had been presented on its Banco Latino account. UF 101, DX 109. This second forged Banco Latino check prompted the Museum to conduct an inventory of its blank checks on August 13, 1993. This inventory was conducted by Urbano Emilio Ramos Trujillo, who had replaced Pacheco as the Museum's controller. As a result of the inventory on August 13, the Museum discovered that Check 177 was missing. UF 105.

 34. The Museum examined its May 1993 Republic account statement for the first time on August 13, 1993, following the completion of the inventory. UF 106. The Museum then requested from Republic a copy of Check 177. UF 107.

 36. After the discovery that Check 177 had been forged and paid on, an employee in the Museum's accounting department stamped dates of receipt on the Museum's copies of its account statements from Republic for January through May of 1993. The employee stamped a date three days prior to the date the account statement in question was reconciled, based on the belief that the Museum normally reconciled a statement within three days of its receipt. Thus, as it was reconciled on August 16, the May 1993 statement bears a received stamp of August 13, 1993. The employee who performed this date-stamping did not have personal knowledge of the date the statements were received, and the Museum does not maintain records that show ...


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