Wells Fargo Bank, N.A., v. Willoughby, et al
Filing
29
ORDER: Plaintiff's motion for summary judgment 18 is granted. Plaintiff is to prepare a proposed judgment within fourteen days of this order. See formal ORDER. Signed on 9/22/2015 by Chief Judge Ann L. Aiken. (rh)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
MEDFORD DIVISION
WELLS FARGO BANK, N.A.,
Plaintiff,
Case 1:15-cv-129-AA
vs.
ORDER
LEROY WILLOUGHBY, et al.,
Defendants.
AIKEN, Chief Judge:
Plaintiff Wells Fargo Bank brings this action against
Defendant LeRoy Willoughby to recover money lost because of
a check-cashing scam.
Defendant accepted an offer to work
part-time as a "payment officer" for a business in Japan,
but the job offer was actually a check-cashing scam, "in
which the victim is asked to accept what appears to be a
legitimate check on behalf of a foreign corporation, deposit
the funds, then wire some or all of the proceeds to a
1 - ORDER
foreign account before the victim's bank realizes that the
check is, in fact, counterfeit."
Branch Banking & Trust Co.
v. Witmeyer, 2011 WL 3297682, at *1 (E.D. Va. 2011)
(footnote omitted).
The scam here followed the pattern:
Defendant deposited a $150,000 check to open an account with
Plaintiff.
When Plaintiff made the funds available,
Defendant wired more than $95,000 to a bank in Japan.
A few
days later the $150,000 check was dishonored as counterfeit,
and the wired funds could not be recovered.
Those
responsible for the scam have not been identified.
Plaintiff now moves for summary judgment on its claims
for breach of contract, breach of warranty, conversion,
account stated, and statutory violations.
Defendant
responds that he was a victim of the scam and had no intent
to defraud Plaintiff.
The most culpable party is not before the court, so the
issue is whether Plaintiff or Defendant should bear
responsibility for the loss.
Because Defendant was the
party best able to prevent the loss, the Uniform Commercial
Code, which governs the transaction here, holds Defendant
responsible.
See Ed Stinn Chevrolet, Inc. v. Nat'l City
Bank, 28 Ohio St.3d 221, 226, 503 N.E.2d 524, 530
1986)
(Ohio
(per curiam), modified on other grounds, 31 Ohio St.
3d 150, 509 N.E.2d 945 (1987).
2 - ORDER
I grant Plaintiff's motion
for summary judgment.
I.
Defendant Has Not Submitted Sworn Statements
Because Defendant is representing himself, I issued a
notice explaining summary judgment procedures.
ECF No. 21.
The notice instructed Defendant to "set out specific facts
in declarations, depositions, answers to interrogatories, or
authenticated documents, as provided in Rule 56(e), that
contradict the facts stated in Plaintiff's declaration and
documents and show a genuine issue of material fact for
trial."
ECF No. 21 at 2 (original emphasis).
The notice
explained that Defendant could "submit a declaration
stating, under penalty of perjury, any relevant facts that
you have personal knowledge of, that is, something you
personally saw, heard, did, or wrote
(or did not do, see, or
hear, if you are denying that an incident occurred)."
ECF
No. 21 at 2 (emphasis added).
Defendant states that his factual allegations are "true
and correct to the best of my knowledge."
ECF No. 26.
Def.'s Mem. at 1,
But Defendant does not make his factual
allegations under penalty of perjury, as required by this
court's order.
Cf. LeBoeuf, Lamb, Greene & MacRae, L.L.P.
v. Worsham, 185 F.3d 61, 65-66 (2d Cir. 1999)
(when ruling
on a summary judgment motion, the court may consider a
letter made "under penalty of perjury" even though the
3 - ORDER
letter did not state that its contents were "true and
correct") .
I agree with Plaintiff that Defendant's allegations are
not properly sworn.
I will consider them here only to
resolve Plaintiff's motion for summary judgment.
I will
also consider, for this motion only, Defendant's copies of
his email correspondence with the person or persons behind
the check-cashing scam.
II.
Factual Background
In 2008, Defendant, then living in Colorado, searched
the internet for part-time work he could perform at home.
After receiving job offers by email, Defendant states he
"found out from the FBI that the part time work at home jobs
were scams and most of the scams were originating from
Nigeria as well as South Africa."
26.
Def.'s Mem. 2, ECF No.
Defendant "became very suspicious of any emails for
part time jobs."
Id.
On January 7, 2009, Defendant received an email
ostensibly from Itochu Corp., a large multinational business
based in Japan, offering part-time work depositing checks
and wiring funds in exchange for a 5% commission.
Defendant
states that he worked more than twenty-five years in Japan
and "was very familiar with the companies and practices over
there."
4 - ORDER
Id.
Furthermore, Defendant was "familiar with
[Itochu Corp.] because he had taught English to some of
their managers and executives."
Id.
Even though the job
offer resembled a typical check-cashing scam, Defendant
states that he was "more trusting of emails from this
company and their needing a part time employee to help them
with their overseas business."
Id.
The initial email 1 to Defendant explained that because
most of Itochu Corp.'s board members did not understand
English, the company sought a "noble and trusted
representative client from CANADA AND USA."
of email).
Id. at 5 (copy
The email stated, "Most of our customers pay out
in check and we do not have an account in your country that
will clear this money.
language."
Again, this is the problem of
Id.
The email described the work required:
"Your tasks are
Receive payment from Customers Cash Payments at your Bank.
Deduct 5% which will be your percentage/pay on Payment
processed.
Forward balance after deduction of
percentage/pay to any of the offices you will be contacted
to send payment to."
Id.
Defendant responded with an email expressing his
1
As Plaintiff notes, applicants were told to send information
to a Yahoo.com webmail address based in Hong Kong, not a corporate
email address based in Japan. See Pl.'s Reply 6 & n.2, ECF No. 28.
5 - ORDER
interest in the work.
Defendant stated that he "used to
teach English to your staff in Japan and am familiar with
Itochu Corp."
Def.'s Mem. 4, ECF No. 26.
On January 8, 2009, the false Itochu Corp. sent
Defendant an email accepting him as a "payment officer."
The email instructed Defendant to deposit checks and to
notify the company when his bank made the funds available.
Defendant would then be told where to transfer the funds.
On January 13, 2009, Defendant responded by email,
stating "the percentage for my participation has usually
been 10-15%.
Therefore, unless there is the 10-15%, I am
not interested in continuing further with our venture."
Def.'s Mem. 7 (copy of email).
As shown by the email correspondence submitted by
Defendant, the scam's success depended on Defendant
believing that (1) a multinational corporation based in
Japan would forfeit 5% of payments received from North
American customers because its board members did not
understand English;
(2) the multinational corporation had no
access to banks in North America, so it used blind email
solicitations to hire payment officers whose only
qualifications were access to a bank account and the ability
to understand English; and (4) the corporation had no
mechanism, other than "trust," to prevent a payment officer
6 - ORDER
from keeping the entire amount of the payment rather than
only the 5% commission.
On January 27, 2009, Defendant received the $150,000
check that gave rise to this action.
1, ECF No. 1 at 9 (copy of check).
See Compl., Ex. A, at
On its face, the check
appeared legitimate, payable to Defendant, issued by a
business called MDS in Ontario, Canada, and drawn on an
account at the Canadian Imperial Bank of Commerce (CIBC) .
After Defendant received the check, he was apparently
instructed by email that he was working for CNOOC Oil Base
Group Ltd. China, rather than Itochu Corp.
Responding to
this new development, Defendant stated that he did
~not
want
to process [the check] until I know what this is all about.
I didn't know I was working as a rep for CNOOC Oil."
Memo. 9 (copy of email).
Def.'s
Despite this discrepancy, and the
other red flags, on January 28, 2009, Defendant endorsed and
deposited the check in a newly opened account at a Wachovia
Bank (Plaintiff's predecessor in interest)
in Pueblo,
Colorado.
Defendant states that when he opened the account, he
told bank employees that he
~was
suspicious of the check and
with [Plaintiff's] advice proceeded with the deposit."
Def.'s Am. Memo.
~
9, ECF No. 27.
Plaintiff's employees told him
7 - ORDER
~if
Defendant alleges that
the check clears, the
funds were okay."
Def.'s Memo. !
7, ECF No. 26.
Defendant
does not allege that he told anyone why he thought the check
was suspicious.
On January 28, 2009, Defendant notified
"boydbarrett@consultant.com," apparently another contact
with his employer, that Plaintiff would make funds from the
$150,000 check available to Defendant on February 5, 2009.
Defendant stated, "I am still waiting for an answer to prior
email for more details of my involvement."
Def.'s Mem. 10.
On February 5, 2009, Plaintiff credited $150,000 to
Defendant's account.
Defendant withdrew $5,500, depositing
$5,000 in a new account and taking $500 in cash.
That day, Defendant emailed "Boyd Barrett" again,
stating that the check had cleared.
He wrote, "I await
further direction from you or CNOOC Oil Base Group Ltd
China.
I await the next transfer as well."
Def.'s Mem. 11.
Defendant then received an email supposedly from Eizo
Kobayishi, the president of Itochu Corp., instructing
Defendant to wire $96,905 to Resona Bank, in Hiroshima,
Japan, to the account of Asako Tradings.
Defendant wired
the funds as instructed, and notified "Kobayishi-san."
As of February 6, 2009, Plaintiff had not received
payment for the $150,000 check from CIBC, the "payor" bank.
On February 9, 2009, CIBC returned the check as dishonored.
8 - ORDER
Plaintiff promptly notified Defendant that the check had
been dishonored.
The next day, one of Plaintiff's employees
told Defendant that his accounts were on hold and that
Plaintiff suspected fraud.
Defendant states that Plaintiff's employees told him
"not to worry about anything, since it had been turned over
to their fraud department."
Def.'s Mem.
~
14.
On February
10, 2009, Plaintiff's investigator spoke to Defendant about
the fraudulent check.
Defendant told the investigator he
had been suspicious about the check.
On February 26, 2009, the Japanese bank that had
received the wired funds notified Plaintiff that the
transfer could not be reversed and the funds would not be
returned.
Asako Tradings was a fictional entity.
The money
was never recovered.
In April 2009, Plaintiff sent Defendant an account
statement showing a negative balance of $97,448.99.
That is
the amount Plaintiff now seeks as damages.
STANDARDS
The court must grant summary judgment if there are no
genuine issues of material fact and the moving party is
entitled to judgment as a matter of law.
56.
Fed. R. Civ. P.
If the moving party shows that there are no genuine
issues of material fact,
9 - ORDER
then the nonmoving party must go
beyond the pleadings and designate facts showing an issue
for trial.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
( 1986) .
DISCUSSION
I.
Claims Under the Uniform Commercial Code
Because this action arose in Colorado, Plaintiff brings
its claims under the Colorado law.
Like other states,
Colorado has adopted the Uniform Commercial Code (UCC) , 2
whose provisions govern here.
See Bank of Am. Nat'l Trust &
Sav. Ass'n v. United States, 552 F.2d 302, 303 n.1
(9th Cir.
1977).
A.
Indorser Liability
"[I]f an instrument is dishonored, an indorser is
obliged to pay the amount due on the instrument
(I)
according to the terms of the instrument at the time it was
indorsed."
indorser").
Colo. Stat.
§
4-3-415 (a)
("Obligation of
Here, Defendant endorsed and deposited the
counterfeit check, and the check was later dishonored.
Although the wired funds were lost, Plaintiff was able to
prevent further losses after learning the check was
dishonored.
2
Defendant is not liable for the entire amount
Because the UCC provisions at issue have been adopted
nationwide in substantially identical form, decisions from other
jurisdictions are instructive here. See Duke Enerqv Roval, LLC v.
Pillowtex Corp. (In re Pillowtex, Inc.), 349 F.3d 711, 718 n.8 (3d
Cir. 2003).
10 - ORDER
of check but for $97,448.99, the amount lost.
Defendant argues that he never intended to defraud
Plaintiff.
But intent to defraud is not relevant to
Plaintiff's claims under the UCC.
See Vadde v. Bank of
America, 687 S.E. 2d 880, 886 (Ga. App. 2009)
(rejecting
argument that "ignorance of a fraud or counterfeit is a
defense to a collecting bank's claim for recoupment");
SunTrust Bank v. Bennett (In re Bennett), 517 B.R. 95, 104
(Bankr. M.D. Tenn. 2014)
(bankruptcy court noted that debtor
would have been liable for endorsing and presenting bad
checks "regardless of any fraudulent intent") .
Defendant argues he is also a victim of the scam.
But
when the true culprit behind a scam is not before the court,
the Uniform Commercial Code assigns responsibility to the
party who was best able to prevent the loss:
In resolving the unfortunate dilemma presented by
this case, we remain cognizant that the Uniform
Commercial Code is a delicately balanced statutory
scheme designed, in principle, to ultimately shift
the loss occasioned by negotiation of a forged
instrument to the party bearing the responsibility
for the loss.
Ideally, the thief is held
accountable.
The unfortunate reality is that the
loss is often shifted to the innocent party whose
conduct or relationship with the forger most
facilitated the risk of loss.
Ed Stinn Chevrolet v. Nat'l City Bank, 28 Ohio St.3d 221,
226, 503 N.E.2d 524, 530
(Ohio 1986)
(per curiam), modified
on other grounds, 31 Ohio St. 3d 150, 509 N.E.2d 945 (1987).
11 - ORDER
"The provisions of article 3 of the Uniform Commercial Code
ensure the ready negotiability of commercial paper.
In
addition, the provisions relating to check fraud further a
policy of assigning loss based upon the relative
responsibility of the parties 'by establishing commercially
sound rules designed to place the risk of loss attributable
to fraud such as forged indorsements with the party best
able to prevent them.'"
Guardian Life Ins. Co. of Am. v.
Chern. Bank, 94 N.Y.2d 418, 421, 727 N.E.2d 111, 114
2000)
(N.Y.
(quoting Getty Petroleum Corp. v. Am. Express Travel
Related Servs. Co., 90 N.Y.2d 322, 326, 683 N.E.2d 311, 324
(N.Y. 1997)).
Here, I agree with Plaintiff that between Plaintiff and
Defendant, Defendant is responsible for the loss.
Defendant
chose to endorse and deposit the counterfeit check despite
the red flags indicating it was part of a check-cashing
scam.
He then chose to wire the funds to an unknown party
despite discrepancies in the instructions to him.
Defendant alleges that Plaintiff's employees assured
him that if Plaintiff credited his account, that would show
that the check was valid.
Defendant does not identify the
employees who made these alleged statements, and there is no
evidence other than Defendant's own unsworn allegation of
any such statements.
12 - ORDER
Even accepting Defendant's allegations
as true, oral statements by Plaintiff's employees cannot
modify Defendant's obligations under his agreement with
Plaintiff.
See Sheffield Decl., Ex. 1 at 14-15 (agreement
provides that it may not be "changed orally").
Plaintiff was required by the Expedited Funds
Availability Act (EFAA) to give its customers prompt access
to deposited funds.
See Essex Constr. Corp. v. Indus. Bank
of Wash., Inc., 913 F. Supp. 416, 418
(D. Md. 1995)
(construing EFAA, 12 U.S.C.
When Plaintiff made
§
4006).
funds available to Defendant, Plaintiff was not vouching for
the check's validity.
See id., 913 F. Supp. at 419 ("The
EFAA requires that banks provide prompt access to valid
deposits, not that banks assume liability for bad checks
given to depositors.").
Under the EFAA and the UCC, banks
may make a "provisional settlement" on a deposit, crediting
the customer's account with the amount of a deposited check
even though the bank (called the "depositary bank") has not
yet received payment from the "payor bank" on which the
check was drawn.
214(a).
See id., 913 F. Supp. at 418; UCC
§
4-
If, as here, the payor bank dishonors the check,
the depositary bank (also called the "collecting bank" when
it seeks payment) "retains the right to revoke or charge
back funds that are provisionally credited to a customer
until the collecting bank's settlement with the payor bank
13 - ORDER
becomes final."
B.
913 F. Supp. at 418.
Breach of Warranty
Defendant is also liable for breach of warranty.
UCC § 3-417.
See
By presenting the check to Plaintiff for
payment, Defendant represented that he was entitled to
receive payment.
Because the check was counterfeit,
Defendant is liable for breach of warranty up to the amount
actually lost plus expenses and interest.
4-3-417 (d) (2)
See Colo. Stat. §
("The person making payment may recover from
any warrantor for breach of warranty an amount equal to the
amount paid plus expenses and loss of interest resulting
from the breach.").
II.
Breach of Contract
When Defendant opened the account with Plaintiff, he
agreed to repay Plaintiff promptly for overdrafts caused by
the return or dishonor of any check he deposited in the
account.
Sheffield Decl., Ex. 1, at 9 (copy of agreement),
ECF No. 20.
The agreement allowed Plaintiff to debit
Defendant's account for the amount of a returned check, and
to "overdraw" Defendant's account if he had "insufficient
funds in [the] account to cover a returned item."
Id.
The
agreement also required that Defendant reimburse Plaintiff
for its costs and expenses incurred while pursuing the
claim.
14 - ORDER
The undisputed facts are that Defendant submitted a
check that was later returned, and that he did not have
enough funds to cover the resulting overdraft.
There is no
evidence that the agreement is invalid, or that Defendant
was not competent to enter into it.
I conclude as a matter
of law that Defendant is liable for breach of contract.
I need not address Plaintiff's other claims.
CONCLUSION
Plaintiff's motion for summary judgment (#18) is
granted.
Plaintiff is to prepare a proposed judgment within
fourteen days of this order.
IT IS SO ORDEREQn
DATED this
~)~~
day of September 2015.
Ann Aiken
United States District Judge
15 - ORDER
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