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C.A. Allows Bank to Sue Check-Cashing Scam Victim

By STEVEN M. ELLIS, Staff Writer

The Fourth District Court of Appeal yesterday declined to stop a Chino bank from pursuing $468,000 in overdrafts against a customer who participated in a check-cashing e-mail scam.

Div. Two said that the Chino Commercial Bank did not act negligently when it used ordinary care while accepting checks from the “Nigerian-style” e-mail scam’s victim, regardless of who bore the burden of proof.

The unanimous panel ruled in May that the victim, Brian Peters, needed to show that the bank acted negligently when it accepted the checks for deposit and wired funds to banks in Hong Kong and China at his direction.

On rehearing, however, Justice Betty Ann Richli said the bank was not negligent in accepting the checks—even if the bank was required to show that—because it accepted the checks under procedures consistent with national standards. She further determined that the bank could recover for the overdraft, even if it had acted negligently in executing the wire transfers, because the Uniform Commercial Code does not allow common law liability for mere acceptance of wire-transfers.

Chino sued to recover the overdrafts after three checks deposited at Peters’ direction and totaling more than $800,000 bounced. Peters, president of construction business Faux Themes Inc., ordered the checks deposited after agreeing to an e-mail solicitation by purported Malaysian citizen “Husaine Norman.”

Norman said in the e-mail that he was owed money by parties in the United States and Canada who would not make transfers “to any bank account outside America [sic] continent due to their new company policy.” He suggested that Peters deposit the funds and pay them out in exchange for a 12 percent fee, which Peters apparently negotiated up to 15 percent.

Peters later conceded he was “less than smart in moving forward on the transaction.” He received checks for $178,000, $374,000 and $257,000 in April and May 2009, and through his corporation’s treasurer directed the bank to wire $80,000 and then $71,000 to a bank in Hong Kong, and $317,000 to a bank in China.

The checks displayed no facial irregularities, but Chino filed suit after learning that they had been altered with acid to change the name of the payee. The bank obtained a right to attach order against Peters, but he appealed, arguing that the bank bore the burden of proving that it did not act negligently.

The Div. Two panel initially rejected that argument, placing the burden on Peters to show negligence.

But on rehearing, Richli wrote that the bank demonstrated the probable validity of its claim for attachment, regardless of who bore the burden, given the “uncontradicted evidence that it did use ordinary care.”

She explained:

“The operations officer had looked for any irregularities on the face of the checks, but the alterations were not readily apparent. The operations officer had also considered whether the amounts of the checks raised a red flag, but the amounts were consistent with deposits to other companies owned and operated by Peters at the same address as Faux.”

Richli also wrote that the bank was entitled to recover the overdraft resulting from the wire transfers even if it was negligent in making them because the Uniform Commercial Code does not allow liability under common law theories for merely accepting a wire transfer.

Justices Thomas E. Hollenhorst and Art W. McKinster joined Richli in her opinion.

The case is Chino Commercial Bank, N.A. v. Peters, E049170.

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December 24, 2010 - Posted by | Uncategorized

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