ILNews

High court affirms summary judgment for bank

Jennifer Nelson
January 1, 2008
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A bank that opened an account for a man who used it to fraudulently deposit checks wasn't required under Indiana Code to exercise ordinary care when opening the account, ruled the Indiana Supreme Court.

At issue in Auto-Owners Insurance Company v. Bank One, et al., No. 49S04-0701-CV-27 is whether Bank One violated Section 405 of the Indiana Uniform Commercial Code by not exercising ordinary care when it allowed Kenneth B. Wulf to open a fraudulent account.

Wulf was a resident adjustor for Auto-Owners and worked for the company for 10 years. He handled files for each case of subrogation and salvage claims and it was his responsibility to forward any checks the company received for those claims to the clerical staff to send to the company's headquarters.

In 1991, Wulf opened an account at Bank One in the name of "Auto-Owners, Kenneth B. Wulf" and the bank did not request any documents to confirm he was allowed to open and use an account in Auto-Owners' name. Over the course of eight years, he deposited more than half a million dollars into that account. While he was on vacation, Auto-Owners discovered what he had been up to.

Auto-Owners brought a suit against Bank One, arguing the bank failed to exercise ordinary care when it opened the account and that failure substantially contributed to the company's losses. It also argued Bank One was liable for losses up to the moment of discovery, regardless of any statute of limitations.

The trial court granted Bank One's motion for summary judgment and denied Auto-Owners' motion for partial summary judgment on the statute of limitations issue only. The Court of Appeals affirmed.

In today's ruling authored by Justice Frank Sullivan, the majority affirmed the Court of Appeals decision. The case and the court's decision rested upon Indiana's Uniform Commercial Code, which allows a person bearing a loss because of fraudulent activity to recover from the person failing to exercise ordinary care to prevent the loss.

Section 405 does not mention a bank's responsibilities when opening an account and only requires ordinary care from a bank in the "paying" or "taking" of an instrument, wrote Justice Sullivan. In fact, in the absence of the bank's negligence, the section shifts the responsibility of monitoring employees' activities onto the employer. The employer is in a better position to supervise its employees than the bank, he wrote.

As to the second issue raised on appeal, even if Bank One didn't demonstrate ordinary care by accepting the checks, Auto-Owners still has to show that lack of ordinary care substantially contributed to its losses. To determine whether the conduct has substantially contributed to a loss, the high court looked to I.C. 26-1-3.1-406, to view Bank One's conduct in its entirety. Other than the lack of procedure used in opening the account in 1991, Bank One followed required protocol in depositing Wulf's checks. Even if opening the account was a contributing factor to Auto-Owners' loss, the Supreme Court agrees with the lower courts that the bank's conduct in its entirety does not meet the "substantially contributed" test (Thompson Maple Products v. Citizens National Bank of Corry, 234 A.2d 32 (Pa.Super.Ct.1967)).

Justice Theodore Boehm, in a separate opinion in which Justice Brent Dickson concurred, agreed that the statute of limitations barred much of Auto-Owners' claims but did not agree Bank One is entitled to summary judgment because he believes there are issues of fact not resolvable on summary judgment.
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  1. Major social engineering imposed by judicial order well in advance of democratic change, has been the story of the whole post ww2 period. Contraception, desegregation, abortion, gay marriage: all rammed down the throats of Americans who didn't vote to change existing laws on any such thing, by the unelected lifetime tenure Supreme court heirarchs. Maybe people came to accept those things once imposed upon them, but, that's accommodation not acceptance; and surely not democracy. So let's quit lying to the kids telling them this is a democracy. Some sort of oligarchy, but no democracy that's for sure, and it never was. A bourgeois republic from day one.

  2. JD Massur, yes, brings to mind a similar stand at a Texas Mission in 1836. Or Vladivostok in 1918. As you seemingly gloat, to the victors go the spoils ... let the looting begin, right?

  3. I always wondered why high fence deer hunting was frowned upon? I guess you need to keep the population steady. If you don't, no one can enjoy hunting! Thanks for the post! Fence

  4. Whether you support "gay marriage" or not is not the issue. The issue is whether the SCOTUS can extract from an unmentionable somewhere the notion that the Constitution forbids government "interference" in the "right" to marry. Just imagine time-traveling to Philadelphia in 1787. Ask James Madison if the document he and his fellows just wrote allowed him- or forbade government to "interfere" with- his "right" to marry George Washington? He would have immediately- and justly- summoned the Sergeant-at-Arms to throw your sorry self out into the street. Far from being a day of liberation, this is a day of capitulation by the Rule of Law to the Rule of What's Happening Now.

  5. With today's ruling, AG Zoeller's arguments in the cases of Obamacare and Same-sex Marriage can be relegated to the ash heap of history. 0-fer

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