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115 Spring Street Company v. Jpmorgan Chase Bank

New York Supreme and/or Appellate Courts Appellate Division, First Department


November 29, 2012

115 SPRING STREET COMPANY, PLAINTIFF-APPELLANT,
v.
JPMORGAN CHASE BANK, N.A.,
DEFENDANT-RESPONDENT,
CHIN & HO, P.C.,
DEFENDANT.

115 Spring St. Co. v JPMorgan Chase Bank, N.A.

Decided on November 29, 2012

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Andrias, J.P., Friedman, DeGrasse, Roman, Gische, JJ.

Order, Supreme Court, New York County (O. Peter Sherwood, J.), entered on or about March 6, 2012, which, insofar as appealed from, granted defendant JPMorgan Chase Bank's motion for summary judgment dismissing the complaint as against it, unanimously affirmed, without costs.

Plaintiff argues that UCC 3-405(1)(c), the "fictitious payee" or "padded payroll" rule (see Prudential-Bache Sec. v Citibank, 73 NY2d 263, 271 [1989]), is inapplicable to this case because Chase's negligence was not in the payment of checks written on certain disputed accounts but in allowing the accounts to be opened in the first place. However, UCC 3-405(1)(c) "is not limited to forged endorsements; it plainly covers situations . . . where an employee starts the wheels of normal business procedure in motion to produce a check for a non-authorized transaction" (Prudential-Bache, 73 NY2d at 271 [quotation marks omitted]). Plaintiff's disloyal management agent employed normal business procedure to produce checks for transactions that were not authorized, and it is the production of those checks -- not the mere opening of the disputed accounts -- that resulted in plaintiff's losses. Plaintiff, as the record demonstrates, "was in a position to prevent the massive losses in issue here, by supervising its [management agent] . . . and examining records relating to a fraud that had been in progress" since the agent opened the first disputed account in the fall of 2007 (see Prudential-Bache, 73 NY2d at 271). Thus, the losses should fall to plaintiff, not Chase.

We have considered plaintiff's remaining arguments and find them unavailing.

THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: NOVEMBER 29, 2012

CLERK

20121129

© 1992-2012 VersusLaw Inc.



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