Chavez v. Mercantil Commercebank, N.A.
Filing
106
ORDER granting 73 Motion for Summary Judgment; denying as moot 78 Sealed Motion to Strike Affirmative Defense upon the entry of judgment for Defendant. Signed by Magistrate Judge Edwin G. Torres on 11/1/2011. (EGT)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 10-23244-CIV-TORRES
ROGER CHAVEZ,
Plaintiff,
v.
MERCANTIL COMMERCEBANK, N.A.,
Defendant.
_______________________________________/
ORDER ON DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Mercantil Commercebank’s, N.A. (“Mercantil”
or “the Bank”), Motion for Summary Judgment [D.E. 73] filed July 7, 2011; Roger
Chavez’s (“Chavez”) Response in Opposition [D.E. 83] filed July 18, 2011; and
Mercantil’s Reply [D.E. 95] filed August 12, 2011. Mercantil’s motion will be granted
because there is no genuine issue of material fact as to whether the Bank complied in
good faith with the commercially reasonable security procedure agreed to by it and
Chavez.
I. BACKGROUND
In September of 2002, Chavez opened a bank account at Mercantil. His account
was subject to a Funds Transfer Agreement (“FTA”) that implemented one of three
security procedures offered to Chavez. In this case, Chavez chose the first option
contained within Annex 1 of the FTA, which requires the Bank only to verify the
signature of written payment orders when delivered in person. [D.E. 74, Exhibit A]
Mercantil states that it also utilized additional security procedures for processing
payment orders by following steps set forth in the Customer Services Manual (the
“CSM”), including a requirement to verify account and balance information, the
existence of an FTA, and identification. [D.E. 79, Exhibit C]
On February 4, 2008, Chavez, a resident of Venezuela, flew to Miami to visit the
Bank’s Doral branch because he had not been receiving his monthly bank statements
and because he wanted to make a large cash deposit into the account. On February 5,
2008, Chavez returned to make another small cash deposit. On February 6, 2008,
Chavez returned his rental car to the rental car facility at the Miami airport at 6:40
AM, and then departed on a flight to Caracas, Venezuela.
On February 7, 2008, the Bank wire transferred $329,500 from Chavez’s account
to the account of a beneficiary in the Dominican Republic. This transfer was made
pursuant to a payment order (“subject payment order”) dated February 6, 2008, that
bore Chavez’s signature and was delivered in person by a man purporting to be
Chavez. No video footage inside or outside of the bank was available because the
security cameras were either broken or their recordings were taped over.
The subject payment order was processed by Mercantil’s employee Rossana
Gutierrez (“Gutierrez”), who was a “greeter” that occasionally assumed the
responsibilities of a Customer Service Representative (“CSR”). In processing the order,
Gutierrez confirmed all the information on the subject payment order; the identity of
the customer by requesting an identification document, e.g. a passport or Cedula; the
sufficiency of funds by checking the account balance; the existence of an FTA; and the
authenticity of the signature. Gutierrez then obtained the written approval from two
officers, Talia Pina and Lolita Peroza, that, in accordance with their habit and practice,
took extra steps to verify the authenticity of the Payment Order and ensure that
Gutierrez had completed her duties. Following this approval, Mercantil completed the
order and transferred funds to a beneficiary in the Dominican Republic.
On or about April 14, 2008, while in Venezuela, Chavez checked his account
information online and claims that this is when he first learned that his balance was
considerably lower than expected. When Chavez contacted Mercantil to inquire about
the missing funds, it informed him that $329,500 was wire transferred from his
account. When Chavez’s demand that the funds be returned by the bank failed, he
filed this suit in order to retrieve the funds.
II. ANALYSIS
A.
Summary Judgment Standard
Summary judgment “shall be rendered forthwith if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). “The moving party
bears the initial burden to show the district court, by reference to materials on file,
that there are no genuine issues of material fact that should be decided at trial. Only
when that burden is met does the burden shift to the non-moving party to demonstrate
that there is indeed a material issue of fact that precludes summary judgment.” Clark
v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). Rule 56(e) “requires the
nonmoving party to go beyond the pleadings and by her own affidavits, or by the
‘depositions, answers to interrogatories, and admissions on file,’ designate ‘specific
facts showing that there is a genuine issue for trial.’” Celotex Corp. v. Catrett, 477 U.S.
317, 324 (1986). Thus, the non-moving party “may not rest upon the mere allegations
or denials of his pleadings, but . . . must set forth specific facts showing that there is
a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
B.
Mercantil’s Security Procedures are “Security Procedures”
as defined by Section 670.201 of the Florida Statutes
Florida law requires that a “security procedure” be established by agreement of
the customer and the bank. Fla. Stat. § 670.201. This requirement was satisfied when
the parties, in their FTA, unambiguously assented to implement the security
procedures in Annex 1 of the FTA, requiring all written payment orders to be signed
and delivered by an authorized representative “in person or by mail, or by facsimile
transmission.” If the payment order was delivered by mail or fax, Mercantil would be
required to complete a follow-up phone call for the purpose of verifying the authorized
representative’s identity.
In addition to these agreed-upon procedures, clause (iii) of the FTA also
permitted the bank to, “at its option,” use other security procedures in addition to those
selected by the client that would permit it to verify any payment order or related
instruction. For instance, this means that, although Annex 1 of the FTA between
Mercantil and Chavez did not explicitly state that a procedure for I.D. verification
would be implemented, the use of this procedure was agreed upon according to clause
(iii) of the FTA. See Braga Filho v. Interaudi Bank, No. 03 Civ. 4795(SAS) 2008 WL
1752693 at *4 (S.D.N.Y. 2008), aff’d, 334 Fed. Appx. 381 (2d Cir. 2009) (finding that
by signing “explicit agreement” as to the security procedures, the plaintiff agreed to the
procedures even if he did not know what they were). Thus, the security procedures at
issue in this case were established by agreement between the customer and the bank
for the purpose of verifying a payment order pursuant to § 670.201.
Plaintiff’s argument that Mercantil’s security procedures do not fit within
§ 670.201's definition of “security procedure” fails. The Advisory Committee Notes of
the statute explain that the requirement of “algorithms or other codes, identifying
words or numbers, encryption, callback procedures, or similar devices” is clearly only
contemplated in instances where the fund transfer is not requested in person. Indeed,
we have not identified, nor has Plaintiff cited, a single case where algorithms or
encryptions were ever required by a customer that stood directly in front of the bank’s
employee and could simply provide identification.
Plaintiff’s main case on this issue, Hedged Investment Partners, LP v. Norwest
Bank Minnesota, N.A., 578 N.W. 2d 765, 774 (Ct. App. Minn. 1998), actually supports
the notion that the illustrations of acceptable security procedures in § 670.201 are
directed to electronic transactions. Yet this case, unlike Hedged Investment Partners,
involves a wire transfer request that was made in person. While plaintiff is correct in
stating that “the proper inquiry is whether the procedure is the same as, or the
functional equivalent of, an algorithm or other code, identifying number, encryption
or a call back procedure,” this Court cannot say that the requirement for a customer
to present identification in-person does not satisfy such an inquiry. Thus, as a matter
of law, both parties have agreed on security procedures that are within the definition
of § 670.201. The inquiry that follows then is whether these security procedures are
commercially reasonable for verifying payment orders delivered in person.
C.
Mercantil’s Security Procedures Were Commercially Reasonable
“The commercial reasonableness of a security procedure is a question of law.”
Fla. Stat. § 670.202(3) (2011). The statute sets out the following factors to be analyzed
when determining whether a security procedure is commercially reasonable:
the wishes of the customer expressed to the bank; the circumstances of
the customer known to the bank, including the size, type, and frequency
of payment orders normally issued by the customer to the bank;
alternative security procedures offered to the customer; and security
procedures in general use by customers and receiving banks similarly
situated.
Id.
There is very little jurisprudence discussing commercially reasonable security
procedures in the context of § 670.202; in fact, there is none to speak of in the Eleventh
Circuit. Additionally, the only cases considering UCC Article § 4A-202 involve wire
transfers initiated via electronic transmissions.
Thus, this case involving the
commercial reasonableness of security procedures used for in person wire transfers is
largely one of first impression.
Guided primarily by the plain language of the statute, we must determine
whether the security procedures implemented by Mercantil were commercially
reasonable.
These procedures impose a responsibility upon a customer service
representative to verify that: (i) all of the necessary information in the payment order,
i.e. account numbers, was provided; (ii) the customer’s identity through the request of
a form of identification; (iii) the customer’s signature compared favorably with one on
file; (iv) the customer had an FTA on file; (v) the account balance was sufficient to
cover the payment order. The sixth (vi) security procedure required that, for transfers
over a threshold amount, the customer service representative processing the transfer
obtain approval from two other officers.
It is clear from the Uniform Commercial Code Comment to the statute that the
primary purpose of the security procedures is to “authenticate” payment orders, i.e. to
verify that the identity of the anonymous person on the other side of an electronic
transmission is in fact the person who is authorized to make transfers to and from the
account. Fla. Stat. § 670.201 Cmt. 1 (2011). A secondary purpose is to protect against
erroneous or mistaken transfers, e.g. transfers that overdraft an account or multiple
transmissions of the same payment order. For purposes of deciding the case at hand,
this court should look only at the security procedures that go to establishing the
authenticity of a payment order because this order was not a mistake; rather it was
fraudulently filed by either Chavez or some other party purporting to be Chavez.
Therefore, we should not consider the procedures verifying (i) that the payment
order had all the necessary information, (iv) that the customer had an FTA on file, or
(v) that the account balance was sufficient to cover the payment order. These “security
procedures” are essentially safeguards against mistaken or erroneous transfers and not
measures that truly authenticate payment orders by verifying a customer’s identity.
Similarly, we will not consider the (vi) security procedure that requires two officers to
verify that procedures (i-v) were taken by the customer service representative because,
if the steps taken by the customer service representative were not commercially
reasonable in the first place, the officers would simply be “rubber-stamping”
unsatisfactory procedures. Indeed, the officers sitting behind closed doors had no way
of verifying the identity of the person purporting to be Chavez that day by simply
reviewing the paperwork completed and submitted by their customer service
representative.
The security procedures implemented by Mercantil that are meant to protect
against the type of fraudulent transfers that Fla. Stat. § 670.202 is designed to prevent
include (ii) an identification (“I.D.”) check and (iii) a signature comparison. Therefore,
these are the two security procedures that this Court must find to be commercially
reasonable.
Both procedures protect against fraudulent transfers as opposed to
mistaken or erroneous transfers. It is clear that signature comparison is an approved
security procedure under § 670.202 because the statute states “[c]omparison of a
signature on a payment order or communication with an authorized specimen
signature of the customer is not by itself a security procedure.” (emphasis added). If
signature comparison was not an approved procedure, the statute would have plainly
said so and would not have bothered to make this distinction.
Therefore, the final and most difficult question is whether a request for a form
of identification for the purpose of verifying the customer’s identity is a commercially
reasonable security procedure that, when combined with a signature comparison,
satisfies the requirements § 670.202(2). Logically, it would seem that there can be no
better safeguard against the fraudulent submission of payment orders than by
requiring the customer to present an I.D. that has the customer’s picture on it and a
name that matches both the name entered on the payment order and the name on the
customer’s account.
In today’s technological world, however, the creation of false identification might
be too easy. For example, it is absolutely reasonable to believe that an impersonator
could have copied plaintiff’s form of identification while superimposing or replacing a
picture of the impersonator over the picture of the plaintiff. If a recording or copy of
the plaintiff’s I.D. was kept within the bank’s computer system, the customer sales
representative would easily be able to detect this type of fraud because the picture that
was superimposed onto the legitimate form of identification could be checked against
the picture on file instead, for example, of having the customer service representative
ensure that the names match up in all three places.
But because the statute does not require banks to keep a copy of a customer’s
I.D. on file, and because verifying a customer’s identity by checking the customer’s I.D.
is commercially reasonable, outside of the single example discussed above, a reasonable
juror could not find that a signature comparison combined with a request for a form of
I.D. is not a commercially reasonable way of protecting the customer from fraudulent
transfers, when the customer submits the payment order in person. This finding is
further supported by the unrebutted opinion of Ms. McGuire, Mercantil’s expert, who
states that Mercantil’s security procedures are the prevailing standards in banking and
that they provide a “reliable and secure means of processing funds transfers for its
customers.” See § 670.202(3) (commercial reasonableness is to be determined by
considering, inter alia, the “security procedures in general use by customers and
receiving banks similarly situated”).
Finally, it is important to note that Chavez was offered two alternative security
procedures, which options would have offered a higher level of security. These other
options were rejected by Chavez, who ultimately selected the security procedures
discussed in this case. The fact that the transfer at issue here today was much larger
than the only other two transfers Chavez had ever authorized cannot alone create a
genuine issue as to the commercial reasonableness of the procedures. Indeed, the Bank
had two officers review Ms. Gutierrez’s work before they signed off on it, showing that
they recognized the peculiarity of the transfer. However, if someone wants to transfer
a large sum of money although the person typically does not, the bank cannot stand in
that person’s way if it is presented with the required information, signature, and
identification.
In sum, there is no genuine issue of fact in this record to support the contention
that the procedures utilized here were not commercially reasonable. And under the
statute this analysis is an issue of law for the Court to determine. Therefore, the Court
must find on this record that Mercantil’s procedures were commercially reasonable
under Fla. Stat. § 670.202.
D.
Mercantil Complied with its Security Procedure in Good Faith
The final issue is whether Mercantil acted in good faith in accepting the subject
payment order. “‘Good faith’ means honesty in fact and the observance of reasonable
commercial standards of fair dealing.” Fl. St. § 670.105(1)(f). In order to prove that
there was a lack of “good faith,” a party must show that the person was either
dishonest or unfair; proof of negligence is not dispositive of a lack of “good faith.” See
Wachovia bank, N.A. v. Federal Reserve Bank of Richmond, 338 F.3d 318 (4th Cir.
2003) (rejecting claim that bank acted in bad faith in handling item; expert affidavit
that bank did not observe commercial standards in handling item did not prove bad
faith, which requires proof of dishonesty); Wooten v. Altamaha Bank and Trust, 2005
WL 1330775 *3 (S.D. Ga. 2005) (bank’s alleged failure to follow procedures in handling
checks failed to show a lack of “honesty in fact”).
As a matter of law, Mercantil acted in good faith in accepting and processing the
subject payment order. The record evidence here shows that Gutierrez followed each
procedure required by the Bank when processing transfer orders. We cannot accept
the notion that Gutierrez is a “serial rule offender” based upon just two violations, and
accepts that she requested an identification document pursuant to her training and
habit. Additionally, two of the Bank’s officers reviewed Gutierrez’s work and signed
off on it.
Most convincingly, the plaintiff has not offered any evidence that would lead a
reasonable juror to find that the Bank should have had any reason whatsoever to
suspect that the I.D., which was presented by the person purporting to be Chavez, was
false. Of course, if Mercantil processed an order despite being presented with an I.D.
that had a picture of the person purporting to be Chavez scotch-taped over Chavez’s
picture on an otherwise legitimate form of I.D., then the bank would have been
expected to question the authenticity of the I.D. and would have acted dishonestly or
recklessly in accepting it as true. But where Chavez considered multiple security
options, chose one offering less security, and suffered a security breach even though the
Bank followed his instructions, it is difficult to see how the Bank can be required to
bear the loss under the law that governs this case. And as tragic as it is for Chavez to
have suffered this loss, if indeed he had no complicity in carrying out the scheme,
under Florida law he has no remedy against the Bank under these circumstances.
And while the plaintiff does conclusorily state that this transfer was the product
of an “inside job” where someone impersonated Chavez and filed the payment order,
the evidence supporting this contention is one coincidental encounter between a
Mercantil employee and Chavez at a La Carreta restaurant in Miami and a broken
video camera on the day of the transaction. Such speculative evidence is not enough
to create any issue of fact as to the good faith implementation of commercially
reasonable security procedures that indisputably were used in this case.
For these reasons, this Court finds that there is no genuine issue of fact in this
record to rebut a finding that Mercantil complied in good faith with the commercially
reasonable security procedures it implemented upon instruction by Chavez. Chavez
is, of course, not without a remedy against the alleged perpetrator of the fraud who
may be identified by tracking the funds at issue. But, as a matter of law, Chavez has
no legal recourse against the Bank.
***
III. CONCLUSION
For the foregoing reasons, this Court finds that there is no genuine issue of fact
or law that the Mercantil’s security procedures were within § 670.201's definition of
“security procedure,” commercially reasonable, and complied with in “good faith.”
Therefore, the Court has no choice but to grant Mercantil’s Motion for Summary
Judgment in full.
DONE AND ORDERED in Chambers at Miami, Florida, this 1st day of
November, 2011.
______________________________
EDWIN G. TORRES
United States Magistrate Judge
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