Ads Associates Group, Inc. v. Oritani Savings Bank (069987) ( 2014 )

SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized).
ADS Associates Group, Inc. v. Oritani Savings Bank (A-114-11) (069987)
Argued September 10, 2013; Reargued April 9, 2014 -- Decided September 30, 2014
PATTERSON, J., writing for a majority of the Court.
In this appeal, the Court considers whether plaintiff is a bank “customer” who can bring a claim under
Article 4A of the Uniform Commercial Code (UCC), N.J.S.A. 12A:4A-101 to -507, and, if not, whether plaintiff, as
a non-bank customer, can assert a common law negligence claim against the bank.
Plaintiff Brendan Allen and defendant Asnel Diaz Sanchez engaged in a joint business venture to perform
work on the Bergen-Hudson Light Rail project. Allen and Sanchez decided to operate the joint venture through
Sanchez’s company, ADS Associates, Inc. (ADS). On October 2, 2003, Allen and Sanchez went to Oritani Savings
Bank (Oritani) and, with the assistance of Oritani employee Marlene Fabregas, opened a dual-signature account in
the name of ADS. The account was separate from preexisting accounts that ADS had with Oritani and required both
Allen’s and Sanchez’s signatures to transact business from the account. Using an Oritani form, Sanchez also issued
a corporate resolution appointing Allen as Treasurer of ADS. The Bank’s “Business Checking Account” Agreement
(Account Agreement), which was signed by Allen and Sanchez, acting on behalf of ADS, and Fabregas, acting on
behalf of Oritani, required ADS to “examine the [monthly statement issued by Oritani] and report any problem or
error with an account statement within 60 days after the statement is sent to [ADS].” Failure to do so meant that
Oritani would “not [be] liable for such problem or error.” The Account Agreement further provided that ADS
would be “liable for any losses or expenses caused by [ADS’s] employees, owners, principals or agents who forge
or alter any instrument or endorsement or make any unauthorized charge to [ADS’s] account.” Fabregas explained
to Allen and Sanchez that only ADS, as the account holder, would receive bank statements, and that Oritani would
not separately mail bank statements to Allen. Soon after ADS commenced work on the project, Sanchez, using
Oritani’s internet banking services, linked the dual-signature ADS account to other ADS accounts within his control.
Thereafter, without Allen’s knowledge, through a series of internet transactions, Sanchez transferred a substantial
sum of money from the dual-signature ADS account that he had opened with Allen to his other ADS accounts.
After learning of Sanchez’s transfers, Allen filed a lawsuit alleging, among other things, common law
negligence and UCC violations against Oritani. The trial court dismissed Allen’s individual claims against Oritani,
but permitted Allen to file claims against Oritani on behalf of ADS. Following the close of all evidence but before
the case was submitted to the jury, the court considered motions to dismiss filed pursuant to Rules 4:37-2(b) and
4:40-1, and dismissed all the claims that Allen brought on ADS’s behalf except for a UCC Article 4A claim. In
dismissing the negligence claim, the trial court reasoned that “because the internet transfers are covered by Article
4A any negligence or gross negligence claim based upon them is preempted by Article 4A.” The jury subsequently
returned a verdict in ADS’s favor on the sole remaining Article 4A claim. The trial court, however, entered a
judgment notwithstanding the verdict in favor of Oritani premised on the indemnification provision in the Account
Agreement. On appeal, the Appellate Division determined that Allen could not pursue claims on behalf of ADS
based on a resolution issued by Sanchez denying Allen that authority. The panel held, however, that Allen could
pursue common law claims on his own behalf against Oritani based on his “special relationship” with Oritani
pursuant to City Check Cashing, Inc. v. Manufacturers Hanover Trust Co., 166 N.J. 49, 60-65 (2001). The panel
therefore reversed the trial court’s order dismissing Allen’s individual common law negligence claim and remanded
for a new trial. The Court granted limited certification. 210 N.J. 260 (2012).
1
HELD: Allen may not assert a UCC Article 4A claim against Oritani because he is not a bank “customer” under the
statute. Allen also may not assert a common law negligence claim against Oritani because such a claim would
contravene the objectives of Article 4A. Even if Article 4A did not bar Allen’s negligence claim, no “special
relationship” existed to create a duty of care between Oritani and Allen under City Check Cashing, 166 N.J. 49.
1. Article 4A of the UCC was enacted in 1994 to address electronic funds transfers. Article 4A provides the
statutory framework that governs the transactions at issue in this case because Sanchez’s internet transfers from the
dual-signature ADS account to his other ADS accounts were “funds transfers” within the meaning of Article 4A.
See N.J.S.A. 12A:4A-104(1). Article 4A defines in detail the rights and obligations of banks and their customers
concerning non-authorized funds transfers. Throughout the statutory provisions and their official comments, the
word “customer” is used to describe the person or entity entitled to pursue a remedy against a bank if the statutory
requirements for a cause of action are met. The term “customer” is defined as “a person, including a bank, having
an account with a bank or from whom a bank has agreed to receive payment orders.” N.J.S.A. 12A:4A-105(1)(c).
The record here demonstrates that ADS, and not Allen, was Oritani’s “customer.” ADS, not Allen, executed the
Account Agreement, was the account holder, and was entitled to receive bank statements and to report account
errors. The record contains no evidence that Oritani ever agreed to receive a payment order from Allen or acted in a
manner that could have induced Allen to believe that he was its “customer.” Therefore, because Allen was not
Oritani’s “customer,” he cannot pursue a claim against the bank under UCC Article 4A. (pp. 18-26)
2. Notwithstanding its expansive language, “the UCC does not purport to preempt the entire body of law affecting
the rights and obligations of parties to a commercial transaction.” N.J. Bank, N.A. v. Bradford Sec. Operations, Inc.,
690 F.2d 339, 345 (3d Cir. 1982). In City Check Cashing, this Court considered whether a check-cashing service
that was not the customer of the defendant bank could assert a common law cause of action against the bank. 166
N.J. at 52-55. The Court held that “in the check collection arena, unless the facts establish a special relationship
between the parties created by agreement, undertaking or contact, that gives rise to a duty, the sole remedies
available are those provided in the [UCC].” Id. at 62. In Brunson v. Affinity Federal Credit Union, the Court
underscored its holding in City Check Cashing, noting that “in the unique context of whether a bank owes a duty to
a non-customer, it is clear that ‘[a]bsent a special relationship, courts will typically bar claims of non-customers
against banks.’” 199 N.J. 381, 400 (2009) (alteration in original) (quoting City Check Cashing, 166 N.J. at 60). (pp.
26-30)
3. In that analytical framework, the Court considers whether a claim by Allen against Oritani premised upon
common law negligence would contravene the provisions of UCC Article 4A. The official comments to UCC
Article 4A make clear that it was enacted to comprehensively define the rights and remedies of parties affected by
the funds transfers governed by the statute’s terms. See N.J.S.A. 12A:4A-102 cmt. 1. The dispute in this case arises
from a setting directly addressed by Article 4A -- a bank’s acceptance of an order transferring funds from one
account held by its customer to another of that customer’s accounts. Consequently, this matter is among the
disputes for which the Legislature intended Article 4A to constitute “the exclusive means of determining the rights,
duties and liabilities of the affected parties.” Ibid. If Allen were permitted to assert a negligence claim against
Oritani, the “careful and delicate balancing” of competing interests that generated Article 4A would be undermined.
Ibid. Therefore, a decision authorizing Allen to assert a negligence claim in this case, in which he clearly lacks the
status of a customer, would contravene the purpose and the terms of Article 4A. (pp. 30-36)
4. Even if Article 4A’s language and intent did not bar a negligence claim, no duty of care premised upon a “special
relationship,” as contemplated in City Check Cashing, could be found in the circumstances of this case. The duty of
care recognized in City Check Cashing must be premised on a special relationship derived from the parties’
“agreement, undertaking or contact.” 166 N.J. at 62. None of those sources of a special relationship can be found in
this case. Oritani had no direct agreement with, or undertaking for the benefit of, Allen as an individual. The
Account Agreement and the statements of Oritani’s representative made clear that its duties were to ADS and that
Allen was not individually Oritani’s customer. There was also no contact between Allen and Oritani that would
support a special relationship. In City Check Cashing, the Court characterized “contact,” comparing it to
agreements and undertakings, as “the loosest of the three terms, defined as the ‘establishment of communication
with someone.’” Id. at 62 (quoting Webster’s Ninth New Collegiate Dictionary 282 (9th ed. 1984)). Allen’s
2
“contact” with Oritani was limited to two visits: The October 2, 2003, meeting to open the dual-signature ADS
account with Sanchez, and a visit to the bank after Allen learned of Sanchez’s transfers. The record reveals no
contact at all between Allen and Oritani during the period in which Sanchez conducted the disputed transfers, much
less a communication that would have alerted Oritani to monitor ADS’s account activity. (pp. 36-40)
The judgment of the Appellate Division is REVERSED, and the judgment of the trial court is
REINSTATED.
JUSTICE ALBIN, DISSENTING, expresses the view that Allen was a bank customer for UCC purposes
and his common-law negligence claim pursuant to City Check Cashing was not inconsistent with the UCC;
therefore, he should have been permitted to proceed on both claims.
CHIEF JUSTICE RABNER, JUSTICES LaVECCHIA and FERNANDEZ-VINA, and JUDGES
RODRÍGUEZ and CUFF (temporarily assigned) join in JUSTICE PATTERSON’s opinion. JUSTICE
ALBIN filed a separate, dissenting opinion.
3
SUPREME COURT OF NEW JERSEY
A-114 September Term 2011
069987
ADS ASSOCIATES GROUP, INC.,
and BRENDAN ALLEN,
Plaintiffs-Respondents,
v.
ORITANI SAVINGS BANK,
Defendant-Appellant,
and
ASNEL DIAZ SANCHEZ,
Defendant.
Argued September 10, 2013
Reargued April 9, 2014 – Decided September 30, 2014
On certification to the Superior Court,
Appellate Division.
Gregg S. Sodini argued the cause for
appellant.
Gary S. Newman argued the cause for
respondents (Newman & Denburg, attorneys).
JUSTICE PATTERSON delivered the opinion of the Court.
In this appeal, the Court considers whether an individual who is
not the customer of a bank can assert a common law negligence
claim, premised upon the bank’s allegedly improper handling of a
corporation’s funds transfers.
1
This case arose from a business venture that was
established by plaintiff Brendan Allen (Allen) and defendant
Asnel Diaz Sanchez (Sanchez). The venture was operated through
plaintiff ADS Associates, Inc. (ADS), a corporation fully owned
by Sanchez. Allen and Sanchez opened a business checking
account in the name of ADS at a branch of Oritani Savings Bank
(Oritani), where ADS had preexisting accounts. By agreement
between ADS and Oritani, the new ADS account required the
signatures of both Allen, who served as ADS’s Treasurer, and
Sanchez to appear on each check drawn on the account. Despite
that limitation, Sanchez linked the new ADS account to other ADS
accounts within his control and, through a series of internet
transactions, transferred a substantial sum of money from the
ADS account he had established with Allen to his other ADS
accounts.
After learning of these transfers, Allen sued Oritani and
Sanchez. Although it dismissed Allen’s claims, the trial court
permitted Allen to assert claims on ADS’s behalf against
Oritani, notwithstanding Sanchez’s issuance of a resolution
denying Allen the authority to maintain an action on ADS’s
behalf. A jury returned a verdict in favor of ADS. The trial
court, however, entered a judgment notwithstanding the verdict
in favor of Oritani premised on an indemnification provision in
the agreement governing ADS’s account with Oritani.
2
An Appellate Division panel reversed the trial court’s
determination. It found that the ADS resolution signed by
Sanchez deprived Allen of authority to assert a claim on behalf
of ADS. The panel held, however, that Allen could assert a
common law negligence claim against Oritani despite the fact
that he was not Oritani’s banking customer. It concluded that,
by virtue of their prior communications, Allen had a “special
relationship” with Oritani, pursuant to this Court’s holding in
City Check Cashing, Inc. v. Manufacturers Hanover Trust Co., 166
N.J. 49, 60-65 (2001), and that Oritani had a duty to advise
Allen of its internet banking policies when he and Sanchez
opened the ADS account.
We concur with the trial court that Article 4A of the
Uniform Commercial Code (UCC), N.J.S.A. 12A:4A-101 to -507,
governs the wire transfers at the center of this case, and that
Allen may not assert a claim under Article 4A against Oritani
because he does not meet the statutory definition of a bank
“customer.” N.J.S.A. 12A:4A-105(1)(c). We further hold that
Allen may not assert a negligence claim based upon an alleged
special relationship with Oritani under City Check Cashing,
supra, 166 N.J. at 59-62. The Legislature enacted Article 4A to
comprehensively address the issues raised by funds transfers and
to determine the rights, duties, and liabilities of the parties
affected by such transactions. Allowing Allen’s common law
3
negligence claim to proceed would undermine the statute’s
objectives.
Accordingly, we reverse the determination of the Appellate
Division, and reinstate the judgment of the trial court.
I.
We derive our account of the facts from the trial testimony
and documents admitted into evidence before the trial court.
In August 2003, Allen approached Sanchez regarding a
potential business venture involving the removal of a dirt
stockpile from a construction site for the Bergen-Hudson Light
Rail project. When Allen learned of the Bergen-Hudson Light
Rail project, he was interested in bidding on it, but concluded
that to proceed with the venture he would need to operate
through a corporate entity with a union contract and minority-
owned business status. Consequently, Allen approached Sanchez,
who was already the sole shareholder, officer, and director of
ADS, a New Jersey corporation established in September 2001.1
Allen and Sanchez agreed to jointly bid on the project and
perform the work should their bid be successful. According to
Allen, Sanchez undertook the tasks of billing, preparing
invoices, processing all paperwork, managing the checkbook, and
reviewing bank statements. Further, Sanchez testified that he
1 “ADS” stands for Asnel Diaz Sanchez.
4
and Allen agreed that ADS would assume liability related to the
work. Allen and Sanchez agreed that after all expenses related
to the venture were paid, Allen would receive seventy percent of
the profits and Sanchez would receive thirty percent.2
ADS was the successful bidder on the project and was
awarded the Bergen-Hudson Light Rail contract. With the work
about to commence, Allen and Sanchez agreed to open a bank
account at Oritani, at which ADS already held accounts.
According to Allen, the account was to be opened in ADS’s name
because of ADS’s status as an established minority-owned
business.
On October 2, 2003, Allen and Sanchez visited Oritani to
open the account. They met with Marlene Fabregas, a
representative of the bank. Allen testified that he and Sanchez
explained to Fabregas that they wanted to open an account
separate from ADS’s preexisting accounts in order to
cooperatively control funds relating to what they termed their
“joint venture.” According to Allen, he and Sanchez advised
Fabregas that they wanted a dual-signature account, on which
2 At a pretrial hearing, Sanchez maintained that once all
expenses were paid, ADS was to receive thirty percent of the
profits “off the top . . . for being at risk and taking all the
liability and responsibility for the job,” and that the
remaining profits were then to “be split 70/30.”
5
neither individual could unilaterally write a check without the
other’s signature.
The new Oritani account was opened under the name “ADS
Associates Group Inc.,” with ADS’s tax identification number.
The blank checks provided by Oritani included the notation “two
signature lines required,” with spaces for both Allen and
Sanchez to sign each check. Allen and Sanchez were listed as
the authorized signatories on the account’s signature cards.
Allen testified that during the initial meeting with
Fabregas, at the suggestion of Sanchez, he was given the title
of Treasurer of ADS. On an Oritani form, Sanchez, acting as
ADS’s Secretary, formalized Allen’s appointment as ADS Treasurer
in a corporate resolution dated October 2, 2003. The resolution
provided that Allen’s appointment would remain effective until
it was rescinded or modified by ADS. Allen testified that it
was his understanding that his role as Treasurer involved
approving payments from the account.
Allen and Sanchez, acting on behalf of ADS, and Fabregas,
acting on behalf of Oritani, signed the Bank’s “Business
Checking Account” Agreement (Account Agreement).3 The Account
Agreement provided in part:
3 During his testimony, Allen expressed confusion as to when the
parties signed the Account Agreement, but the document bears the
date October 4, 2003.
6
You will receive a monthly statement
reflecting all account activity, all charges
assessed therewith and the balance of your
account, together with canceled checks for the
period. In order to preserve your rights, you
must examine the statement and report any
problem or error with an account statement
within 60 days after the statement is sent to
you or [Oritani] is not liable for such
problem or error. This includes a forged,
unauthorized or missing signature or
endorsement, a material alteration, a missing
or diverted deposit, or any other error or
discrepancy.
The Account Agreement further provided that ADS would be “liable
for any losses or expenses caused by [ADS’s] employees, owners,
principals or agents who forge or alter any instrument or
endorsement or make any unauthorized charge to [ADS’s] account.”
According to Allen, during the October 2, 2003, meeting,
Fabregas explained that only ADS, as the account holder, would
receive bank statements, and that Oritani would not separately
mail bank statements to Allen. Therefore, Allen and Sanchez
determined that it would be Sanchez’s responsibility to review
the bank statements and to report any errors to Oritani.
In October 2003, when Allen and Sanchez opened the ADS
account, Oritani offered its customers internet banking
services, accessible to any authorized signatory on an account
through a separate electronic banking application. At trial,
Marjorie Lois Chup, a manager in Oritani’s electronic banking
services, testified about Oritani’s internet banking policy.
7
She stated that any individual who was an authorized signatory
on an account could complete an application to gain access to
the internet banking services using a selected code, and could
then link the account holder’s existing accounts online.4 The
Account Agreement signed by Allen, Sanchez and Fabregas did not
set forth any provision, or state any bank policy, regarding the
linking of accounts via the internet. The internal Oritani
Branch Procedures Manual in effect in 2003 did not expressly
address internet transactions, but generally discussed funds
transfers between Oritani accounts. It provided that “[a]ll
signatures that are required for withdrawal of funds from the
‘from’ account [must be] present” before a transfer between two
Oritani accounts would be authorized.
Using his own funds, Allen made the initial deposit of $750
into the new ADS account, and later wired $28,000 into the
account to cover payments to vendors. As Allen conceded in his
testimony, all remaining deposits into the new ADS account were
made by Sanchez. At a September 10, 2008 pretrial hearing,
4 Branch Manager Rocco Pinto testified that by 2008, when the
trial took place, Oritani required each signatory on a dual-
signature account to fill out a separate internet banking
application, and that in the absence of such an application
executed by both parties with signing authority, internet
transactions on the account would be considered unauthorized.
Pinto, however, was unfamiliar with the internet banking policy
that existed in 2003, and did not provide testimony regarding
Oritani’s internet banking policy during the relevant time.
8
Sanchez maintained that he deposited between $200,000 and
$400,000 of his own money into the account during the course of
the project.
According to Allen, between October 2003 and June 2004, he
and Sanchez met frequently to sign checks, which were used to
pay ADS’s vendors and to reimburse Allen and Sanchez for
expenses paid using their personal funds. At times, when Allen
was difficult to reach, Sanchez would arrange for Allen to pre-
sign checks so that Sanchez could use them to pay ADS expenses.
Allen testified that Sanchez did not maintain a running balance
in ADS’s checkbook and conceded that he did not challenge that
practice. He testified that on occasion he requested to see
bank statements for the account, but maintained that Sanchez, in
response to his requests, offered only excuses as to why he
could not provide the statements to Allen. With Sanchez
handling the bank account and reviewing statements on ADS’s
behalf, Allen had no direct contact with the bank between the
initial meeting on October 2, 2003, and June 15, 2004, when he
discovered the internet transactions at issue in this case.
Soon after ADS commenced work on the project, Sanchez,
using the Oritani website, linked the new ADS account with two
other preexisting ADS accounts that were approved for internet
banking. According to Sanchez, he linked the three accounts
because Allen’s unavailability made it difficult to pay expenses
9
incurred in the Bergen-Hudson Light Rail project. Between
October 15, 2003, and June 14, 2004, Sanchez made eighty-five
transfers, totaling $613,972.26, from the dual-signature account
to the two other ADS accounts that he had previously established
on ADS’s behalf. He made six transfers, totaling $61,400, from
ADS’s two other accounts to the dual-signature account. At
trial, Allen denied ever authorizing internet banking on the ADS
account or having contemporaneous knowledge of these transfers.
According to Allen, on June 15, 2004, he discovered that
Sanchez had made internet transfers of money from the dual-
signature ADS account. That day, a check from the dual-
signature account in the amount of $70,000, written to a company
that Allen owned with his wife, failed to clear due to
insufficient funds. Allen testified that, later that morning, a
distraught Sanchez visited him and told him that “[t]here’s no
more money” in the account and that he had “used it for
expenses.”
Allen immediately went to the Union City Oritani branch,
seeking information about the account. After an Oritani
employee refused to provide him with bank statements for the
account, Allen spoke directly with branch manager Rocco Pinto.
Pinto testified that Allen’s request to see statements for the
dual-signature account was declined because Sanchez was not
present to co-authorize the request. Allen testified, however,
10
that Pinto gave him records of transactions on the ADS account
conducted during the previous five months. Later, Allen’s wife
obtained statements from Oritani covering the first three months
of the account’s existence.
Notwithstanding these developments, Allen continued to work
with Sanchez on the Bergen-Hudson Light Rail project for nearly
a year. Sanchez made no further internet transfers of funds
from or to ADS’s dual-signature account, and discontinued his
participation in his business venture with Allen in April 2005.
After Sanchez ceased working on the project, Allen continued to
transact business for the project under the ADS name. Allen
testified that he did not file criminal charges against Sanchez.
At trial, Sanchez refuted the suggestion that he stole
money from ADS’s account. He testified that the Bergen-Hudson
Light Rail contract was unprofitable and that, by the conclusion
of the project, ADS was subject to numerous liabilities for
which he was the personal guarantor. Sanchez stated that as a
result of these remaining liabilities, he was forced to file for
bankruptcy. According to Sanchez, ADS suffered no damages due
to Oritani’s conduct.
II.
On May 17, 2006, Allen filed this action in the Law
Division, naming Oritani and Sanchez as defendants. After an
initial period of discovery, Oritani moved for summary judgment
11
to dismiss Allen’s complaint against it. Allen cross-moved for
summary judgment and to amend the complaint to include ADS “as a
[p]laintiff by and through its treasurer Brendan Allen.” The
trial court granted Oritani’s motion and dismissed Allen’s
individual claims. However, it entered orders designating ADS
as a plaintiff in this matter and stated that “nothing herein
prevents [ADS] from asserting a corporate claim against
Oritani.”
Oritani then filed a second motion for summary judgment
seeking to dismiss the claims asserted by Allen on behalf of
ADS. Allen’s counsel filed a cross-motion for partial summary
judgment on behalf of a plaintiff designated as “ADS Associates
Group, Inc. formerly Brendan Allen” seeking a declaration that
$613,972 represented “an amount not authorized and not effective
as the order of the customer or not enforceable against the
customer with such declaration subject to [d]efendant’s
defenses.” The trial court denied Oritani’s summary judgment
motion, denied ADS’s cross-motion for partial summary judgment,
directed ADS to file an amended complaint naming itself as the
plaintiff, and ordered further discovery.
Allen then filed an amended complaint in his own name as
well in the name of ADS. ADS and Allen asserted claims against
Oritani for breach of contract, conversion, violation of various
UCC provisions, general liability, negligence, gross negligence,
12
breach of fiduciary duty and good faith, violations of the
Consumer Fraud Act, N.J.S.A. 56:8-1 to -20, and common law
fraud.5 In its answer to the amended complaint, Oritani asserted
counterclaims against Allen and ADS alleging, among other
claims, that Allen fraudulently asserted a cause of action on
ADS’s behalf without authorization in violation of New Jersey’s
Frivolous Litigation Statute, N.J.S.A. 2A:15-59.1. Oritani also
asserted cross-claims against Sanchez.6
Prior to trial, at the request of Oritani’s counsel,
Sanchez signed a resolution on behalf of ADS. The resolution
stated that Allen lacked authorization to file suit or
“otherwise take action on behalf of ADS,” that Allen’s counsel
was not authorized to represent ADS, and that ADS had no cause
of action against Oritani or Sanchez. Notwithstanding the terms
of the resolution, the trial court denied Oritani’s third motion
for summary judgment and entered an order authorizing Allen to
prosecute claims against Oritani on ADS’s behalf.
5 In addition to their claims against Oritani, ADS and Allen
asserted claims for breach of contract, conversion,
misrepresentation and fraud, and breach of fiduciary duty
against Sanchez in the amended complaint. The amended complaint
notes that all claims against Sanchez had been stayed pending
bankruptcy proceedings.
6 Oritani’s answer to the amended complaint notes that the bank’s
cross-claims against Sanchez had been stayed as a result of his
bankruptcy.
13
With trial imminent, the trial court conducted a hearing
pursuant to N.J.R.E. 104(a). During the course of that hearing,
the trial court determined that Allen had standing to bring suit
on behalf of ADS by virtue of the fact that he had a fiduciary
duty to ADS as one of its officers. However, the court
determined that Allen could not assert claims against Oritani on
his own behalf.
The case was tried before a jury. Following the close of
all evidence but before the case was submitted to the jury, the
court considered the parties’ motions to dismiss brought
pursuant to Rules 4:37-2(b) and 4:40-1. At a subsequent
hearing, the trial court dismissed all the claims brought by
Allen on behalf of ADS except for the claim premised on
Oritani’s alleged violations of UCC Article 4A.7 In dismissing
the negligence claim, the trial court reasoned that “because the
internet transfers are covered by Article 4A any negligence or
gross negligence claim based upon them is preempted by Article
7 At the end of ADS’s and Allen’s proofs, Oritani moved to
dismiss plaintiffs’ claims, including the negligence and gross
negligence claims, pursuant to Rule 4:37-2(b). At the close of
all evidence, the parties disputed whether Oritani could also
move for judgment pursuant to Rule 4:40-1. The trial court
found that nothing in Rule 4:40-1 barred Oritani from making
such a motion. The trial court evidently applied the standards
of both Rule 4:37-2(b) and Rule 4:40-1 in denying Oritani’s
motion to dismiss the UCC claims served by ADS and Allen, and
dismissed ADS’s and Allen’s negligence claims pursuant to Rule
4:37-2(b).
14
4A.” The court also dismissed all counterclaims asserted by
Oritani against plaintiffs except for the counterclaim alleging
that plaintiffs violated the Frivolous Litigation Statute,
N.J.S.A. 2A:15-59.1. Plaintiffs’ sole remaining claim -- for
Oritani’s alleged violation of UCC Article 4A -- was submitted
to the jury.
The jury returned a verdict in favor of ADS. It found that
none of the internet transfers initiated by Sanchez between
October 15, 2003, and June 14, 2004 had been authorized by ADS,
and that ADS had objected to these transfers within one year of
the date upon which it received notice of them. The jury
awarded damages to ADS in the amount of $295,500. When the
trial court inquired how the jury arrived at this figure, the
jury responded that it represented the total amount of internet
transfers from ADS’s new Oritani account between April 2, 2004,
and June 14, 2004. The jury explained that this was
“representative [of] 60 days from the date of notification.”8
8 On October 21, 2008, ADS filed a motion for additur, by which
it sought to increase the jury’s verdict by $318,472.26. ADS
also sought an award of interest, attorneys’ fees and expenses,
and an entry of final judgment. ADS subsequently withdrew its
motion for additur, but did not withdraw its motions for
interest, attorneys’ fees and expenses, and an entry of final
judgment. On November 14, 2008, ADS moved for a judgment
notwithstanding the verdict, seeking to increase the amount of
the judgment to $613,972.26 and incorporating its prior motions
for interest and attorneys’ fees. The trial court ultimately
denied the motions.
15
On October 28, 2008, Oritani moved pursuant to Rule 4:40-2
for a judgment notwithstanding the verdict. The trial court
granted Oritani’s motion and dismissed ADS’s UCC claim with
prejudice. It reasoned that the Account Agreement required ADS
to indemnify Oritani for losses and expenses caused by Sanchez,
who was a corporate officer when he transferred the disputed
funds.
ADS and Allen appealed the trial court’s judgment.9 The
Appellate Division reversed the trial court’s determination. It
ruled that in the wake of ADS’s resolution divesting Allen of
the authority to litigate on its behalf, Allen no longer had the
right to pursue ADS’s corporate claims against Oritani.
The panel, however, reasoned that although Allen was not
Oritani’s customer, he could pursue common law claims on his own
behalf against Oritani. The panel recognized a special
relationship between Allen and Oritani within the meaning of
this Court’s decision in City Check Cashing, supra, 166 N.J. at
59-62. In support of its finding of a “special relationship,”
the panel cited Allen’s insistence on a dual-signature checking
account in his October 2, 2003, meeting with Oritani’s
representative and Sanchez, Oritani’s knowledge of ADS’s two
9 Oritani filed a cross-appeal from the denial of its motion for
attorneys’ fees and costs. The issues raised in the cross-
appeal are not before this Court.
16
preexisting accounts, trial testimony about Oritani’s internet
policies, and the jury’s finding that Sanchez’s internet
transfers were unauthorized by ADS. The panel reasoned that
Oritani had a duty to disclose to Allen that the bank’s internet
banking policy would allow Sanchez to move funds between ADS
accounts under his control. It reversed the trial court’s order
dismissing Allen’s individual common law negligence claims and
remanded for a new trial.
We granted certification, limited to the issue of whether
Allen may maintain a common law non-customer negligence claim
against Oritani. 210 N.J. 260 (2012).
III.
Oritani argues that the Appellate Division misapplied this
Court’s decision in City Check Cashing, and that the panel
granted broader rights to Allen, a non-customer, than the rights
accorded to customers. It contests the panel’s conclusion that
Allen and Oritani had a “special relationship,” arguing that
Allen established contact with Oritani only through ADS.
Oritani contends that Allen’s claims are governed by Article 4A
of the UCC, which precludes Allen from asserting a common law
negligence claim. In the alternative, Oritani argues that New
Jersey case law provides that banks have no duty to monitor or
supervise the account activity of their depositors. Finally,
Oritani argues that the record is devoid of evidence that would
17
support a negligence claim because the parties never discussed
internet transfers when Allen and Sanchez met with Oritani
representatives to set up the account for ADS, and all parties
were aware of ADS’s existing accounts at Oritani.
ADS and Allen maintain that the Appellate Division
appropriately reinstated Allen’s common law negligence claims
because Allen established a special relationship with Oritani,
as recognized by this Court in City Check Cashing. They contend
that this special relationship derived from Oritani’s
representations to Allen, particularly its assurance that the
account would require two signatures on each check in order for
a withdrawal to be effected. They urge the Court to affirm the
Appellate Division’s determination.
IV.
We review the trial court’s grant of Oritani’s motions for
involuntary dismissal of Allen’s negligence claim, filed
pursuant to Rule 4:37-2(b). A motion for involuntary dismissal
is premised “on the ground that upon the facts and upon the law
the plaintiff has shown no right to relief.” R. 4:37-2(b). The
“motion shall be denied if the evidence, together with the
legitimate inferences therefrom, could sustain a judgment in
plaintiff’s favor.” R. 4:37-2(b). If the court, “‘accepting as
true all the evidence which supports the position of the party
defending against the motion and according him the benefit of
18
all inferences which can reasonably and legitimately be deduced
therefrom,’” finds that “‘reasonable minds could differ,’” then
“‘the motion must be denied.’” Verdicchio v. Ricca, 179 N.J. 1,
30 (2004) (quoting Estate of Roach v. TRW, Inc., 164 N.J. 598,
612 (2000)). An appellate court applies the same standard when
it reviews a trial court’s grant or denial of a Rule 4:37-2(b)
motion for involuntary dismissal. Fox v. Millman, 210 N.J. 401,
428 (2012).
We review the trial court’s interpretation of Article 4A
and all other legal determinations by the trial court de novo.
Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366,
378 (1995) (“A trial court’s interpretation of the law and the
legal consequences that flow from established facts are not
entitled to any special deference.”).
A.
At the outset, we address the impact of UCC Article 4A on
Allen’s individual claim.10 We interpret Article 4A in
accordance with the Legislature’s direction that the UCC
shall be liberally construed and applied to
promote its underlying purposes and policies,
which are:
10Contrary to the suggestion of the dissent, post at ___ (slip
op. at 6), we do not exceed the scope of our grant of
certification, but analyze the principles of Article 4A,
N.J.S.A. 12A:4A-101 to -507, as applied to this case in order to
determine whether Allen can maintain a common law non-customer
claim against Oritani.
19
(1) to simplify, clarify, and modernize
the law governing commercial
transactions;
(2) to permit the continued expansion of
commercial practices through custom,
usage and agreement of the parties; and
(3) to make uniform the law among the
various jurisdictions.
[N.J.S.A. 12A:1-103(a).]
UCC Article 4A was enacted by the Legislature in 1994 to
address the subject of electronic funds transfers. N.J.S.A.
12A:4A-104(1) broadly defines “[f]unds transfer” to mean “the
series of transactions, beginning with the originator’s payment
order, made for the purpose of making payment to the beneficiary
of the order.” A bank customer’s transfer of money between two
of its own accounts may constitute a “funds transfer” governed
by Article 4A of the UCC. See N.J.S.A. 12A:4A-104 cmt. 1
(noting that in some funds transfers within UCC definition, “the
originator and the beneficiary may be the same person . . . for
example, when a corporation orders a bank to transfer funds from
an account of the corporation in that bank to another account of
the corporation in that bank”). Sanchez’s internet transfers
from the dual-signature ADS account that he established with
Allen at Oritani to his other ADS accounts at Oritani clearly
constitute “funds transfers” within the meaning of Article 4A.
20
Accordingly, UCC Article 4A provides the statutory framework
that governs the transactions at issue in this case.
Article 4A addresses in detail the circumstances under
which a bank may conclude that a payment order for a transfer of
funds is properly authorized. It provides that “[a] payment
order received by the receiving bank is the authorized order of
the person identified as sender if that person authorized the
order or is otherwise bound by it under the law of agency.”
N.J.S.A. 12A:4A-202(1). Article 4A defines the customer’s
rights, and limits the liability of the bank, when it accepts a
payment order that turns out to be unauthorized. N.J.S.A.
12A:4A-202(2) provides:
If a bank and its customer have agreed that
the authenticity of payment orders issued to
the bank in the name of the customer as sender
will be verified pursuant to a security
procedure, a payment order received by the
receiving bank is effective as the order of
the customer, whether or not authorized, if
(i) the security procedure is a commercially
reasonable method of providing security
against unauthorized payment orders, and (ii)
the bank proves that it accepted the payment
order in good faith and in compliance with the
security procedure and any written agreement
or instruction of the customer restricting
acceptance of payment orders issued in the
name of the customer.
[N.J.S.A. 12A:4A-202(2).]
“The effect of [N.J.S.A. 12A:4A-202(2)] is to place the risk of
loss on the customer if an unauthorized payment order is
21
accepted by the receiving bank after verification by the bank in
compliance with a commercially reasonable security procedure.”
N.J.S.A. 12A:4A-203 cmt. 5.
A second provision, N.J.S.A. 12A:4A-203, protects the
customer from the loss of funds under specified conditions:
The receiving bank is not entitled to enforce
or retain payment of the payment order if the
customer proves that the order was not caused,
directly or indirectly, by a person (i)
entrusted at any time with duties to act for
the customer with respect to payment orders or
the security procedure, or (ii) who obtained
access to transmitting facilities of the
customer or who obtained, from a source
controlled by the customer and without
authority of the receiving bank, information
facilitating breach of the security procedure,
regardless of how the information was obtained
or whether the customer was at fault.
Information includes any access device,
computer software, or the like.
[N.J.S.A. 12A:4A-203(1)(b).]
That provision allows the customer to “avoid the loss resulting
from . . . a payment order if the customer can prove that the
fraud was not committed by a person described in that
subsection.” N.J.S.A. 12A:4A-203 cmt. 5.
A third provision of Article 4A, N.J.S.A. 12A:4A-204,
defines the circumstances under which a customer may be awarded
a refund of funds found to have been transferred without
authorization. That provision
applies only to cases in which (i) no
commercially reasonable security procedure is
22
in effect, (ii) the bank did not comply with
a commercially reasonable security procedure
that was in effect, (iii) the sender can
prove, pursuant to [N.J.S.A.] 4A-203(a)(2),
that the culprit did not obtain confidential
security information controlled by the
customer, or (iv) the bank, pursuant to
[N.J.S.A.] 4A-203(a)(1) agreed to take all or
part of the loss resulting from an
unauthorized payment order.
[N.J.S.A. 12A:4A-204 cmt. 1.]11
Article 4A thus defines in detail the rights and
obligations of banks and their customers in the event that funds
are transferred in accordance with a payment order that the
customer has not authorized. Throughout the statutory
provisions and their official comments, the word “customer” is
used to describe the person or entity entitled to pursue a
remedy against a bank if the statutory requirements for a cause
of action are met. See, e.g., N.J.S.A. 12A:4A-203(1)(b)
(stating that a “receiving bank is not entitled to enforce or
retain payment of [a] payment order if the customer proves”
specified circumstances); N.J.S.A. 12A:4A:203 cmt. 5 (stating
that “[t]he customer may avoid the loss resulting from” certain
11A refund awarded to a customer may include interest on the
amount refunded “calculated from the date the bank received
payment to the date of the refund.” N.J.S.A. 12A:4A-204(1).
The amount of interest awarded may, however, be affected by a
customer’s failure to exercise ordinary care to discover and
report the unauthorized payment order. N.J.S.A. 12A:4A-204(1).
Moreover, a customer’s ability to seek a refund from a receiving
bank may be limited by N.J.S.A. 12A:4A-505.
23
payment orders “if the customer can prove” particular
circumstances exist). The term “customer” is specifically
defined in the statute as “a person, including a bank, having an
account with a bank or from whom a bank has agreed to receive
payment orders.” N.J.S.A. 12A:4A-105(1)(c).
Here, the definition of a customer does not apply to Allen.
The record demonstrates that ADS was the customer, as defined by
N.J.S.A. 12A:4A-105(1)(c). ADS, not Allen, executed the Account
Agreement dated October 4, 2003. ADS, not Allen, was the
account holder for the Oritani account at issue under that
Agreement. ADS, not Allen, was the party entitled to receive
the bank statements. Although N.J.S.A. 12A:4A-501(1) provides
that “the rights and obligations of a party to a funds transfer
may be varied by agreement of the affected party,” the Account
Agreement between ADS and Oritani does not in any respect confer
upon Allen the status of a customer for purposes of UCC Article
4A, or otherwise support Allen’s right to bring an individual
claim against Oritani. Instead, the Account Agreement
underscores the status of ADS as Oritani’s sole customer for the
purposes of the disputed account.
The dissent relies on two cases, Schoenfelder v. Arizona
Bank, 796 P.2d 881, 883-84, 889 (Ariz. 1990), and First Nat’l
Bank v. Hobbs, 450 S.W.2d 298, 299 (Ark. 1970), for the
proposition that Allen should be considered a “customer” of
24
Oritani within the meaning of N.J.S.A. 12A:4A-105(1)(c). Post
at ___ (slip op. at 7-10). Both Schoenfelder and
Hobbs constituted applications of Article 4, not Article 4A, and
were decided before Article 4A was adopted by their states’
respective legislatures. See Ariz. Rev. Stat. Ann. §§ 47-4A101
to 47-4A507 (1991); Ark. Acts 1991, No. 540 § 1 (Enacted March
14, 1991).
Article 4 and Article 4A do not define the term “customer”
in precisely the same way. For purposes of Article 4, N.J.S.A.
12A:4-104 defines “customer” to denote “a person having an
account with a bank or for whom a bank has agreed to collect
items, including a bank that maintains an account at another
bank.” N.J.S.A. 12A:4-104(a)(5). In contrast, for purposes of
Article 4A, N.J.S.A. 2A:4A-105 connects the scope of the term
“customer” directly to the payment orders that are the subject
of Article 4A, defining the term to mean “a person, including a
bank, having an account with a bank or from whom a bank has
agreed to receive payment orders.” N.J.S.A. 12A:4A-105(1)(c).
Here, Allen clearly did not meet the narrow definition of
“customer.” As confirmed by the Account Agreement, the “account
holder” was ADS, not Allen, and the record contains no evidence
that Oritani ever agreed to receive a payment order from Allen.
Moreover, in neither of the cases cited by the dissent was
the plaintiff advised -- as was Allen in this case -- that he
25
was not the account holder, and that he was not entitled to
receive bank statements. See Schoenfelder, supra, 796 P.2d at
888; Hobbs, supra, 450 S.W.2d at 302. In contrast to the
conduct of the defendant banks in Schoenfelder and Hobbs,
Oritani never acted in a manner that could have induced Allen to
believe that he was its “customer”; indeed, he was expressly
told otherwise. The dissent cannot, and does not, cite a case
in which an individual in Allen’s position has been deemed to be
a “customer” for purposes of Article 4A.
In short, if N.J.S.A. 12A:4A-203 or -204 afforded a remedy
under the circumstances of this case, such a remedy would be
available only to the “customer.” In this case, the sole
customer of Oritani is ADS.12
B.
In that setting, in which the Legislature has unequivocally
limited claims against banks under N.J.S.A. 12A:4A-203 and -204,
we consider whether Allen may assert a common law negligence
claim against Oritani.
Prior to this case, no New Jersey appellate court has
determined whether a non-customer, who claims damages arising
from a funds transfer, may sue a bank under a common law
12We do not reach the issue of whether ADS could assert a claim
against Oritani under Article 4A of the UCC in the circumstances
of this case. Only Allen’s individual claims are before the
Court.
26
negligence theory independent of Article 4A of the UCC. In
other settings, however, our courts have addressed the
availability of common law remedies in commercial disputes.
Notwithstanding its expansive language, “the UCC does not
purport to preempt the entire body of law affecting the rights
and obligations of parties to a commercial transaction.” N.J.
Bank, N.A. v. Bradford Sec. Operations, Inc., 690 F.2d 339, 345
(3d Cir. 1982). N.J.S.A. 12A:1-103(b) provides:
Unless displaced by the particular provisions
of the [UCC], the principles of law and
equity, including the law merchant and the law
relative to capacity to contract, principal
and agent, estoppel, fraud,
misrepresentation, duress, coercion, mistake,
bankruptcy, and other validating or
invalidating cause supplement its provisions.
[N.J.S.A. 12A:1-103(b); see also N.J.S.A.
12A:1-103 cmt. 4 (stating that “[t]he list of
sources of supplemental law . . . is intended
to be merely illustrative . . . and is not
exclusive”).]
Addressing the UCC provisions that are now codified in New
Jersey under N.J.S.A. 12A:1-103, the Third Circuit has stated
that “[a]s a general rule, courts have read [the] principles of
construction to mean that the [UCC] does not displace the common
law of tort as it affects parties in their commercial dealings
except insofar as reliance on the common law would thwart the
purposes of the UCC.” N.J. Bank, supra, 690 F.2d at 345-46; see
Psak, Graziano, Piasecki & Whitelaw v. Fleet Nat’l Bank, 390
27
N.J. Super. 199, 204 (App. Div. 2007); Sebastian v. D & S
Express, Inc., 61 F. Supp. 2d 386, 391 (D.N.J. 1999).
In City Check Cashing, supra, this Court considered whether
a check-cashing service that was not the customer of the
defendant bank could assert a common law cause of action against
the bank, which allegedly failed to respond to the service’s
urgent request to authenticate a certified check. 166 N.J. at
52-55. Addressing the framework for check collection and
payment set forth in Articles 3 and 4 of the UCC, the Court
stated:
It is against that backdrop, and mindful of
the balance of interests reflected in the
Legislatures’ enactment of the [UCC]’s
provisions, that most courts have been
reluctant to sanction common law negligence
claims. “Only in very rare instances should
a court upset the legislative scheme of loss
allocation and permit a common law cause of
action.”
[Id. at 58 (quoting Bank Polska Kasa Opieki,
S.A. v. Pamrapo Sav. Bank, S.L.A., 909 F.
Supp. 948, 956 (D.N.J. 1995)); see also Girard
Bank v. Mount Holly State Bank, 474 F. Supp.
1225, 1239 (D.N.J 1979) (noting that “[c]ourts
should be hesitant to improvise new remedies
outside the already intricate scheme of
Articles 3 and 4”).]
Nevertheless, the Court observed “that implicit in those
expressions of the need for restraint is a recognition that a
common law duty, in fact, may arise and that its breach may be
actionable in spite of the existence of the [UCC].” City Check
28
Cashing, supra, 166 N.J. at 58-59 (citing Girard Bank, supra,
474 F. Supp. at 1239). The Court held that “in the check
collection arena, unless the facts establish a special
relationship between the parties created by agreement,
undertaking or contact, that gives rise to a duty, the sole
remedies available are those provided in the [UCC].” Id. at 62.
In City Check Cashing, the Court found no special
relationship that would support a common law cause of action
arising from the defendant bank’s failure to respond to the
plaintiff check-cashing service’s request to verify the
authenticity of an altered certified check, prior to a midnight
deadline imposed by a UCC provision. Id. at 62-63. The Court
noted that the check-cashing service was not the bank’s
customer, that it had no agreement with the bank, and that it
had not promised an immediate response to its urgent request.
Id. at 63.
In Brunson v. Affinity Federal Credit Union, the Court
underscored its holding in City Check Cashing, noting that “in
the unique context of whether a bank owes a duty to a non-
customer, it is clear that ‘[a]bsent a special relationship,
courts will typically bar claims of non-customers against
banks.’” 199 N.J. 381, 400 (2009) (alteration in original)
(quoting City Check Cashing, supra, 166 N.J. at 60); see also
Psak, Graziano, Piasecki & Whitelaw, supra, 390 N.J. Super. at
29
204 (holding that “the UCC displaces the common law where
reliance on the common law would thwart the purposes of the
UCC”).
In that analytical framework, we consider whether a claim
by Allen against Oritani premised upon common law negligence
would contravene the provisions of UCC Article 4A. In that
inquiry, we find substantial guidance in the official comments
to Article 4A, which are promulgated on behalf of the National
Conference of Commissioners on Uniform State Law and the
American Law Institute.13
The Official Comment to N.J.S.A. 12A:4A-102 states that
Article 4A was intended to prescribe detailed requirements for
funds transfers so that parties affected by such transfers may
comply with those requirements and anticipate the risks assumed:
In the drafting of Article 4A, a deliberate
decision was made to write on a clean slate
and to treat a funds transfer as a unique
method of payment to be governed by unique
rules that address the particular issues
raised by this method of payment. A
deliberate decision was also made to use
precise and detailed rules to assign
responsibility, define behavioral norms,
allocate risks and establish limits on
liability, rather than to rely on broadly
stated, flexible principles. In the drafting
13The UCC Article 4A Prefatory Note of National Conference of
Commissioners on Uniform State Laws and the American Law
Institute states that the “[c]omments that follow each of the
sections of [Article 4A] are intended as official comments.
They explain in detail the purpose and meaning of the various
sections and the policy considerations on which they are based.”
30
of these rules, a critical consideration was
that the various parties to funds transfers
need to be able to predict risk with
certainty, to insure against risk, to adjust
operational and security procedures, and to
price funds transfer services appropriately.
[N.J.S.A. 12A:4A-102 cmt. 1.]
That Official Comment further provides that Article 4A
comprehensively governs the rights and remedies of parties
affected by funds transfers:
Funds transfers involve competing interests -
- those of the banks that provide funds
transfer services and the commercial and
financial organizations that use the services,
as well as the public interest. These
competing interests were represented in the
drafting process and they were thoroughly
considered. The rules that emerged represent
a careful and delicate balancing of those
interests and are intended to be the exclusive
means of determining the rights, duties and
liabilities of the affected parties in any
situation covered by particular provisions of
the Article. Consequently, resort to
principles of law or equity outside of Article
4A is not appropriate to create rights, duties
and liabilities inconsistent with those stated
in this Article.
[N.J.S.A. 12A:4A-102 cmt. 1.]
Accordingly, with respect to the categories of transactions
within its reach, UCC Article 4A was intended to define the
rights and obligations of the affected parties, and set forth
the remedy for the breach of a duty.
In light of this expression of legislative intent, we
consider the impact of Article 4A on Allen’s common law
31
negligence claim, premised on his contention that Oritani was
negligent when it permitted Sanchez to transfer funds among
ADS’s three accounts at Oritani. The dispute in this case
arises from a setting directly addressed by Article 4A -- a
bank’s acceptance of an order transferring funds from one
account held by its customer to another of that customer’s
accounts. Therefore, this matter is among the disputes for
which the Legislature intended Article 4A to constitute “the
exclusive means of determining the rights, duties and
liabilities of the affected parties.” Ibid. Moreover, our
recognition of the common law negligence action asserted by
Allen in his individual capacity would contravene the essential
objective of Article 4A: to provide definitive principles that
allocate the risks and define the duties of banks effecting
electronic transfers on behalf of their customers. Ibid.
As shown by the definition of customer in N.J.S.A. 12A:4A-
105(1)(c), and the plain language of N.J.S.A. 12A:4A-202, -203
and -204, the Legislature clearly intended to impose upon banks
specified duties to customers. Article 4A recognizes a cause of
action against a bank for unauthorized transfers that may only
be asserted by a customer. That statutory claim is not afforded
to individual officers, directors, or employees of that
customer. If Allen were permitted to assert a common law
negligence claim against Oritani, the “careful and delicate
32
balancing” of competing interests that generated Article 4A
would be undermined. N.J.S.A. 12A:4A-102 cmt. 1.14 Indeed, were
we to permit a corporate officer to assert such a common law
claim, the result might be to grant broader rights to non-
customers than those afforded to customers in some settings, for
instance where a customer has a viable Article 4A claim that is
limited by the terms of the customer’s agreement with the bank.
The recognition of a common law negligence claim -- in this case
premised upon a special relationship such as that contemplated
in City Check Cashing in the different setting of Articles 3 and
4 -- would be precisely the type of “resort to principles of law
or equity outside of Article 4A” that the Legislature expressly
sought to avoid. N.J.S.A. 12A:4A-102 cmt. 1.
Our dissenting colleague contends that Allen should be
permitted to maintain a “non-customer” claim under City Check
Cashing for negligent misrepresentation, independent of Article
4A, based upon Oritani’s assurance that two signatures would be
14Two reported cases from other jurisdictions that addressed
this issue in settings governed by Article 4A have barred the
common law claims asserted. See Corfan Banco Asuncion Paraguay
v. Ocean Bank, 715 So. 2d 967, 968, 970-71 (Fla. Dist. Ct. App.)
(barring plaintiff’s negligence claim premised on allegation
that bank incorrectly accepted transfer despite incorrect
account number because UCC Article 4A provided exclusive
remedy), rev. dismissed, 728 So. 2d 203 (Fla. 1998); Aleo Int’l,
Ltd. v. Citibank, N.A., 612 N.Y.S.2d 540, 541 (N.Y. Sup. Ct.
1994) (dismissing negligence claim for failure to cancel
transfer, in light of UCC Article 4A provisions that governed
cancellation and Comment to UCC 4-A-102).
33
required for a check to be honored without disclosing the fact
that transfers among ADS’s accounts could be effected by means
of internet banking. Post at ___ (slip op. at 13-14).
In his amended complaint, Allen did not plead a negligent
misrepresentation claim as a non-customer of Oritani -- indeed,
he asserted no negligent misrepresentation claim of any kind.
As his counsel stated to the trial court, Allen’s “City Check
Cashing claim,” in which he asserted that “there is a special
relationship” with Oritani, was pled in Count Four of his
amended complaint.15 In Count Four, designated “General
Liability, Negligence and Gross Negligence – Oritani,” Allen
generally asserted a claim for negligence and gross negligence
against Oritani, premised upon Oritani’s alleged failure to
15Arguing that Count Four should be construed as a claim for
negligent misrepresentation, our dissenting colleague does not
rely on the negligence claim in Count Four itself, but on
allegations of fraud and misrepresentation. Post at ___ (slip
op. at 4-6). In Count Six, ADS and Allen asserted a claim for
common-law fraud, premised upon ADS’s status as Oritani’s
customer, and alleged the elements of that claim, including
affirmative misrepresentations and reliance. In addition, ADS
and Allen asserted a misrepresentation claim against Sanchez in
Count Nine. Allen identified only the negligence claim of Count
Four -- not the fraud claim set forth in Count Six or the
misrepresentation claim alleged in Count Nine -- as his
individual claim against Oritani premised upon City Check
Cashing. In that claim -– the sole non-customer claim asserted
in this case -- Allen alleges the elements of negligence, but
made no attempt to plead a cause of action for negligent
misrepresentation. Accordingly, the dissent postulates a City
Check Cashing non-customer claim for negligent misrepresentation
that was never asserted in this case.
34
enforce its dual signature policy, permitting the disputed
transfers to occur. That claim includes the elements of
negligence, but does not state the elements of a cause of action
for negligent misrepresentation, which must be pled with
particularity in accordance with Rule 4:5-8. Accordingly, the
negligent misrepresentation claim that our dissenting colleague
contends should be permitted under City Check Cashing, supra, is
not part of this case.16
Moreover, even if the claim described by the dissent had
been pled, such a claim would directly contravene the
Legislature’s stated objectives in enacting Article 4A. As
described by the dissent, the negligent misrepresentation claim
would be premised upon the contention that because Oritani
assured its customer, ADS, that two signatures would be required
16The cases which our dissenting colleague cites in support of
his argument that Article 4A was not intended “to repeal the law
of misrepresentation, or allow banks a free hand to deceive the
public” involve allegations of fraud and misconduct that are not
reflected by the facts of the instant case. See Regions Bank v.
Provident Bank, Inc., 345 F.3d 1267, 1275 (11th Cir. 2003)
(involving claims “based on the theory that [the defendant] bank
accepted funds when it knew or should have known that the funds
were fraudulently obtained”); Regions Bank v. Wieder &
Mastroianni, P.C., 423 F. Supp. 2d 265 (S.D.N.Y. 2006) (arising
from same factual circumstances involving claims of actual
fraudulent transfer); Dubai Islamic Bank v. Citibank, N.A., 126
F. Supp. 2d 659, 661-62 (S.D.N.Y. 2000) (involving claims that
defendant Citibank maintained “a secretive department . . . as a
tool for wealthy patrons to accomplish secret, untraceable
financial transaction without regard to the legality or
legitimacy of such transactions,” and facilitated efforts of “a
reputed international financial terrorist”).
35
in order for a check from its account to be honored, it should
not have authorized the electronic funds transfers in dispute.
Post at ___ (slip op. at 13-14). In Article 4A, the Legislature
has treated electronic funds transfers as a distinct category of
transactions governed by special rules, and has carefully
limited the liability of banks to refund money transferred in
accordance with a payment order that the customer has not
authorized. See N.J.S.A. 12A:4A-204. The negligent
misrepresentation claim postulated by the dissent –- devoid of
any allegation that the bank failed to utilize an agreed-upon,
commercially reasonable security procedure for the electronic
transfer -- would seek a remedy outside of the statutory
parameters. Ibid.
In short, a decision authorizing Allen to assert a
negligence claim in the setting of this case, in which he
clearly lacks the status of a customer, would contravene the
purpose and the terms of Article 4A. Accordingly, the trial
court properly dismissed ADS and Allen’s common law negligence
claim.
C.
Even if Article 4A’s language and intent did not itself bar
a negligence claim, no duty of care premised upon a “special
relationship,” as contemplated in City Check Cashing, could be
found in the circumstances of this case. As this Court has
36
noted, the determination of a duty “‘involves identifying,
weighing, and balancing several factors -- the relationship of
the parties, the nature of the attendant risk, the opportunity
and ability to exercise care, and the public interest in the
proposed solution.’” Brunson, supra, 199 N.J. at 403 (quoting
Hopkins v. Fox & Lazo Realtors, 132 N.J. 426, 439 (1993)). The
duty of care recognized in City Check Cashing, supra, must be
premised on a special relationship derived from the parties’
“agreement, undertaking or contact.” 166 N.J. at 62.
None of those sources of a special relationship can be
found in this case. As defined in City Check Cashing, “[a]n
agreement is essentially a meeting of the minds between two or
more parties on a given proposition.” Ibid. (citing Black’s Law
Dictionary 44 (6th ed. 1991)). “An undertaking is the willing
assumption of an obligation by one party with respect to another
or a pledge to take or refrain from taking particular action.”
Ibid. (citing Black’s Law Dictionary 1060 (6th ed. 1991)).
Here, Oritani had no direct contract with, or undertaking
for the benefit of, Allen as an individual. The Account
Agreement provided that ADS was the account holder and thus the
bank’s customer, that ADS held the title to the “Business
Checking Account” maintained by Oritani, and that Oritani had an
obligation to send statements only to ADS. Nothing in the
Account Agreement remotely suggests a duty on the part of
37
Oritani to detect potentially fraudulent conduct by Sanchez and
to report it to Allen. See Globe Motor Car v. First Fidelity,
273 N.J. Super. 388, 395 (Law Div. 1993) (noting that “[a]bsent
a contractual duty, a bank has no obligation to manage,
supervise, control or monitor the financial activity of its
debtor-depositor and is not liable to its depositor in
negligence for failing to uncover a major theft”).
To the contrary, the Account Agreement required ADS to
“examine the [monthly statement issued by Oritani] and report
any problem or error with an account statement within 60 days
after the statement is sent to [ADS].” Failure to do so meant
that Oritani would “not [be] liable for such problem or error.”
There was no “undertaking” on the part of Oritani to constrain
Sanchez’s ability to transfer funds among the multiple accounts
held by ADS at the bank. Further, if Oritani had any obligation
to disclose its internet banking policy, that obligation was to
share that policy with ADS, not with Allen in his individual
capacity.
Moreover, the record does not indicate that Oritani misled
Allen to believe that he held the status of a customer.
Instead, it establishes that Oritani clearly informed Allen that
his status as a signatory did not make him a customer; its
representative told Allen that bank statements would be sent to
ADS in care of Sanchez, and that no duplicate statements would
38
be sent to him. Accordingly, no special relationship can be
premised upon an agreement or an undertaking in this case. See
City Check Cashing, supra, 166 N.J. at 62.
In City Check Cashing, the Court characterized “contact,”
comparing it to agreements and undertakings, as “the loosest of
the three terms, defined as the ‘establishment of communication
with someone.’” Id. at 62 (quoting Webster’s Ninth New
Collegiate Dictionary 282 (9th ed. 1984)). Allen’s “contact”
with Oritani was limited to two visits: Allen’s October 2,
2003, meeting with Fabregas and Sanchez to open the dual-
signature ADS account, and Allen’s June 15, 2004, visit to the
bank after he learned of Sanchez’s transfers of funds. The
record reveals no contact at all between Allen and Oritani
during the period in which Sanchez conducted the disputed
transfers, much less a communication that would have alerted
Oritani to monitor ADS’s account activity. Indeed, despite
ADS’s contractual obligation to alert Oritani to any problem or
error reflected in a bank statement within sixty days of the
issuance of that statement, Oritani received no communication
from ADS, Allen or Sanchez regarding any such concern. Thus,
there was no contact between Allen and Oritani that would
support a finding of a special relationship in this case. Even
if Allen’s claim were not barred by Article 4A of the UCC, no
39
such special relationship could be recognized based on the
record in this case.17
In sum, UCC Article 4A was enacted to comprehensively
define the rights and remedies of parties affected by the funds
transfers governed by the statute’s terms. The plain language
of N.J.S.A. 12A:4A-105(1)(c) makes clear that Allen is not a
customer entitled to assert a claim against Oritani. Allen’s
assertion of a common law negligence claim in this case,
premised on a special relationship such as that contemplated by
this Court in City Check Cashing, contravenes the language and
purpose of Article 4A. Accordingly, the trial court properly
dismissed Allen’s negligence claim.18
V.
17In contending that we “consign[] into irrelevance” City Check
Cashing, our dissenting colleague misreads our opinion. City
Check Cashing was decided in the very different context of an
Article 4 claim. In the Article 4 setting, the common law
claims contemplated by City Check Cashing are not subject to the
limitations that apply in fund transfer cases governed by
Article 4A. The viability of City Check Cashing is unaffected
by this opinion, which addresses claims arising from funds
transfers regulated by N.J.S.A. 12A:4A-101 to -507.
18The trial court’s entry of judgment notwithstanding the
verdict in favor of Oritani, following the dismissal of Allen’s
individual claims, was premised upon ADS’s obligation to
indemnify Oritani for any losses and expenses caused by Sanchez.
Because the Appellate Division’s determination that Allen had no
authority to assert claims on ADS’s behalf is not under review,
ADS has no judgment against Oritani, and the issue of
indemnification is moot.
40
The determination of the Appellate Division panel is
reversed, and the judgment of the trial court is reinstated.
CHIEF JUSTICE RABNER; JUSICES LaVECCHIA and FERNANDEZ-VINA;
and JUDGES RODRÍGUEZ and CUFF (both temporarily assigned) join
in JUSTICE PATTERSON’s opinion. JUSTICE ALBIN filed a separate,
dissenting opinion.
2
SUPREME COURT OF NEW JERSEY
A-114 September Term 2011
069987
ADS ASSOCIATES GROUP, INC.,
and BRENDAN ALLEN,
Plaintiffs-Respondents,
v.
ORITANI SAVINGS BANK,
Defendant-Appellant,
and
ASNEL DIAZ SANCHEZ,
Defendant.
JUSTICE ALBIN, dissenting.
Today, the majority announces that a bank can make material
misrepresentations to a party, facilitate the fleecing of the
party by his partner, and yet have no accountability and face no
liability. The majority comes to that fundamentally unjust
result by a crabbed reading of the Uniform Commercial Code
(UCC), by ignoring UCC jurisprudence, and by consigning to
irrelevance one of our recent precedents, City Check Cashing
Inc. v. Mfrs. Hanover Trust Co., 166 N.J. 49, 62 (2001), which
allows for common-law causes of action against banks for
negligent misrepresentation. I do not believe that the UCC or
1
the common law immunizes a bank from liability when it violates
established norms of commercial conduct. I therefore
respectfully dissent.
I.
A.
Plaintiff Brendan Allen brought suit against defendant
Oritani Savings Bank for common-law negligence and fraud and for
violations of the UCC, N.J.S.A. 12A:4A-204, and the Consumer
Fraud Act, N.J.S.A. 56:8-1 to -2.13. I need not repeat the
complex and convoluted procedural history, which the majority
has ably described. I will focus only on the issue before the
Court.
The trial court granted summary judgment in favor of
Oritani on Allen’s negligence claim, and the Appellate Division
reversed. We granted certification “limited to the issue
whether [Allen] can maintain a common law non-customer
negligence claim against the bank.” 210 N.J. 260 (2012).
Whether Oritani is entitled to summary judgment on Allen’s
negligence claim requires that we view the summary-judgment
record in the light most favorable to Allen, the non-moving
party. With that standard in mind, here are the relevant facts.
B.
2
Allen and Asnel Diaz Sanchez agreed to pursue a joint
business venture through an existing corporation, ADS Associates
Group, Inc., of which Sanchez was the sole stockholder. In
October 2003, Allen and Sanchez visited Oritani Savings Bank
with the purpose of opening a joint business account. Allen
explained to Oritani’s branch manager, Marlene Fabrigas, that he
wanted a joint account so that no funds could be removed from
the account without his written consent. He also explained that
this safeguard was to protect his business investment. Fabrigas
told Allen that only one person or entity could be listed as the
account holder. She assured Allen, however, that the account
would be established in a way so that no monies could be removed
without his consent.
Using a bank form, Fabrigas prepared a corporate resolution
-- for Sanchez’s signature -- that designated Allen as treasurer
of ADS Associates. Fabrigas also completed a “Business Account
Signature Card” that required the signatures of both Allen and
Sanchez “in the payment of funds or in the transaction of any
business for this account.” In other words, by agreement,
Oritani was not authorized to permit any transaction from the
new account without Allen’s written consent, including a
transfer of funds from the account. In accordance with that
arrangement, Fabrigas had checks printed with two signature
lines, one for Allen and one for Sanchez. Based on Fabrigas’s
3
representations, Allen placed $28,750 of his personal funds into
the bank account.
Less than two weeks later, unbeknownst to Allen, the bank
allowed Sanchez, on his own, to begin making Internet transfers
out of the ADS account until it was bled dry. Fabrigas never
hinted to Allen that the bank made an exception to the two-
signature rule with Internet transfers. Allen only became aware
of the transfers when a check issued on the account bounced.
II.
The majority contends that Allen’s general claim of
negligence is not supported by allegations that Oritani made
misrepresentations in violating its duty of due care. A fair
reading of the complaint says otherwise.
In Count Four of the complaint, titled “General Liability,
Negligence, and Gross Negligence,” Allen asserted that “Oritani
had a duty to Allen based upon the promises made directly by the
branch manager and representations [she] made.” Accordingly,
Oritani had “a duty to reasonably and diligently enforce the
dual signature security provisions contracted for with regard to
the ADS account.” In support of that claim, Allen specifically
alleged the misrepresentations -- the promises -- made by the
bank manager:
4
[Paragraph] 11. The manager assured ALLEN
several times during the filling out of the
paperwork that there was no way [SANCHEZ]
could remove any money from the account
without Allen’s consent.
[Pararaph] 12. The manager did this with
full knowledge that Defendant ORITANI could
not live up to this promise.
[Paragraph] 18. Oritani assured ALLEN each
and every time requested to send statements
that it did not matter because there was no
way that money could be removed from the
account without ALLEN’s signature on a
check.
[Paragraph] 19. Oritani knew that
representation to be false at the time it
was made.
[Paragraph] 45. This method of security
requiring both signatures was purposely
undertaken to prevent either holder from
obtaining funds from the ADS account without
the express and written consent of BOTH
ALLEN and SANCHEZ which consent was to be
evidenced by both parties’ signatures being
submitted to ORITANI before any funds could
be accessed or disbursed on behalf of ADS.
[Paragraph] 50. In fact, ORITANI made
affirmative misrepresentations to both ADS
and ALLEN in connection with the opening up
and creation of the ADS account by
representing to all parties that the dual
signature requirement would be strictly and
5
reasonably enforced diligently, with regard
to each and every transaction.1
The majority’s strained parsing of the complaint does not
obscure what is self-evident -- that Allen’s negligence claim is
premised, in part, on the repeated misrepresentations made by
the bank manager. Those misrepresentations are particularized
in accordance with Rule 4:5-8. Oritani was on notice of a
negligent-misrepresentation cause of action, consistent with the
pleading practices in this state. See Printing Mart-Morristown
v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989) (holding that
under our liberal notice-pleading standards, “a reviewing court
searches the complaint in depth and with liberality to ascertain
whether the fundament of a cause of action may be gleaned even
from an obscure statement of claim, opportunity being given to
amend if necessary” (citation and internal quotation marks
omitted)). That Allen’s negligence claim is based partly on
Oritani’s misrepresentations is not undermined by Allen’s claims
alleging fraud and misrepresentation and consumer fraud in other
counts.
Allen’s cross-petition for certification, moreover, made
clear that the non-customer negligence claim rested on Oritani’s
1 These paragraphs were all incorporated into Count Four of the
complaint.
6
misrepresentations. In the cross-petition, which we granted,
Allen stated that “there was clearly a special relationship
between Oritani and Allen. . . . Oritani made representations
to [Allen] which [Allen] relied upon to [his] detriment, i.e.[,]
that Oritani would treat this as a two signature account for
[Allen’s] protection, which misrepresentations were breached.”
On this basis, Allen claimed he could “maintain a negligence
cause of action.” Significantly, Oritani did not challenge
Allen’s characterization that his negligence claim was premised
on the bank’s misrepresentations. The majority raises this
objection on its own.
In short, Allen fairly pled a cause of action for
negligence based on misrepresentations made by the bank. The
record does not allow that fact to be willed away. I now turn
to the substantive issues before the Court.
III.
Although the Court granted certification solely to resolve
“whether [Allen] can maintain a common law non-customer
negligence claim against Oritani,” 210 N.J. 260, the majority
also resolves an issue on which the Court denied certification -
- whether Allen was a bank customer able to pursue a UCC claim
under N.J.S.A. 12A:4A-204. That issue -- technically not before
us -- the majority wrongly decides. I now believe that we erred
7
in not granting certification on Allen’s UCC claim. Indeed,
Allen was correct: the Appellate Division erroneously affirmed
the dismissal of his UCC claim based on the mistaken notion that
he was not a customer of Oritani.
The majority concludes that Allen has no UCC claim because
ADS Associates -- not Allen -- was Oritani’s customer, and that
because he was not a customer, he has no common-law negligence
claim either. The majority is wrong on both counts. First,
substantial authority supports the view that Allen was a bank
customer for UCC purposes. Second, contrary to the position
taken by the majority, courts have overwhelmingly held that UCC
Article 4A does not bar common-law claims and that it is not the
exclusive remedy for harms related to funds transfers. In
particular, Article 4A is not the exclusive remedy when a bank
induces a person to open and place money in an account based on
misrepresentations. Last, Allen’s common-law negligence claim
finds support not only in City Check Cashing but also in the
Restatement (Second) of Torts (1977), and in cases from this
Court and other courts across the country.
IV.
A.
A person “having an account with a bank” is a “customer”
for the purposes of Article 4 (bank deposits) and Article 4A
8
(funds transfers). N.J.S.A. 12A:4-104(a)(5); N.J.S.A. 12A:4A-
105(1)(c). Although, under Article 4 and Article 4A, a customer
is not limited to a person “having an account with a bank,” that
definition of a customer is common to both Articles.2 No case
suggests that a person “having an account with a bank” could be
a customer for Article 4 purposes but not for Article 4A
purposes.
The majority contends that Allen was not a bank customer
under Article 4A. According to the majority, a person is not a
customer unless his name is on the title of the bank account. I
would not follow the majority’s formalistic definition of
“customer,” a definition that has been rejected by a number of
courts.
Indeed, the Arizona Supreme Court in Schoenfelder v.
Arizona Bank, 796 P.2d 881, 889 (Ariz. 1990), held that a person
who is a mandatory signatory on an account held by a corporation
can stand as a customer in his own right. That case is
2 Compare N.J.S.A. 12A:4-104(a)(5) (“‘Customer’ means a person
having an account with a bank or for whom a bank has agreed to
collect items, including a bank that maintains an account at
another bank.”), with N.J.S.A. 12A:4A-105(1)(c) (“‘Customer’
means a person, including a bank, having an account with a bank
or from whom a bank has agreed to receive payment orders.”).
Thus, the relevant definitions in both Articles are the same.
9
strikingly similar to the one before us and refutes the
majority’s position.
In Schoenfelder, the plaintiff arranged to sell a parcel of
land to a corporate developer who intended to finance a
construction project with a bank loan. Id. at 884. The
plaintiff and the corporate developer opened an account in the
developer’s name in a bank where the developer had other
accounts. Ibid. The plaintiff wanted to ensure that the loan
proceeds would be used only on the project. Ibid. To that end,
the new account was structured so that the plaintiff’s signature
would be required for the withdrawal of any funds. Ibid. The
corporate account’s signature card indicated that the
plaintiff’s signature and either of two other signatures were
necessary for a funds withdrawal. Ibid. The bank paid on
checks that bore the plaintiff’s forged signature. Ibid. On
that basis, the plaintiff sued the bank, seeking relief under
Article 4 of the UCC. Id. at 885.
The Arizona Supreme Court concluded that the plaintiff was
the bank’s “customer” under the UCC. Id. at 889. In reaching
that conclusion the Arizona high court took “into account all
the material circumstances surrounding the opening of the
account, the acknowledged intent of the parties to the
transaction, the bank’s knowledge of that intent, and the nature
10
of the bank’s transactions with the parties.” Id. at 886. The
Schoenfelder court reasoned that a “fact-intensive analysis” is
required and that the focus should not be on “the mere
technicalities of the named owner of the account, and the formal
organization of that entity.” Id. at 887. It also observed
that in those cases in which courts held that signatories were
not bank customers, the banks did not have “knowledge of a
unique arrangement between the plaintiff and the named account
owner regarding ownership of the funds.” Id. at 886.
Accordingly, the plaintiff was entitled to sue the bank for the
forged checks. Id. at 889. The plaintiff in Schoenfelder
unquestionably would have had a cause of action if the bank had
paid on checks where a necessary signature was missing from the
signature line.
In another similar case, the Arkansas Supreme Court allowed
a cause of action under Article 4 for a bank’s failure to
enforce a dual-signature requirement, finding Lloyd Hobbs a
customer even though the account was not in his name. First
Nat’l Bank v. Hobbs, 450 S.W.2d 298, 301-02 (Ark. 1970). In
that case, Hobbs owned a motel franchise and contracted with a
businessman to lease and operate the motel. Id. at 299. They
agreed that all revenues would be deposited into a corporate
account at a local bank. Id. at 299-300. They explained their
business arrangement to the bank manager, who agreed to open an
11
account that would require two signatures on all checks. Id. at
300. Later, the bank allowed money to be withdrawn from the
account by check without two authorized signatures. Ibid. The
Arkansas high court found that, for Article 4 purposes, Hobbs
was a customer because he had “opened the account, and directed
the manner in which it was to be handled.” Id. at 301.
A number of cases are in accord with Schoenfelder and Hobbs
and have rejected the majority’s narrow definition of customer.
See, e.g., Murdaugh Volkswagen, Inc. v. First Nat’l Bank, 801
F.2d 719, 725 (4th Cir. 1986) (holding that, despite
corporation’s name on account, sole stockholder was herself
customer and able to bring UCC suit against bank because she
personally guaranteed corporation’s obligations); Parrett v.
Platte Valley State Bank & Trust Co., 459 N.W.2d 371, 379 (Neb.
1990) (holding same for principal shareholder); Kendall Yacht
Corp. v. United Cal. Bank, 50 Cal. App. 3d 949, 956 (Ct. App.
1975) (holding same for husband-and-wife-owned corporation).
Schoenfelder and Hobbs, Murdaugh Volkswagen, Parrett and
Kendall Yacht Corp. are persuasive in defining when a person is
a customer under the UCC. I would adopt the Schoenfelder
totality-of-the-circumstances test for determining when a person
is a UCC bank customer. That test considers “the relationship
of the parties to the bank, the purpose of the account, and the
12
bank’s knowledge of those facts.” Schoenfelder, supra, 796 P.2d
at 887. Here, Oritani orchestrated the opening of the account -
- requiring Allen’s signature for a withdrawal of funds. The
purpose of the dual-signature requirement was to prevent Sanchez
from emptying the account without Allen’s knowledge. Oritani
not only misrepresented to Allen that his interest in the
account would be protected by the dual-signature requirement,
but it also facilitated the fraud by allowing Sanchez to act
unilaterally.
Those facts were sufficient to justify bringing this matter
before a jury for its ultimate determination.
B.
As indicated earlier, had this Court not denied
certification on Allen’s UCC claims, I would have held that
Allen was a customer. I would also have held that he survives
summary judgment on his UCC claim under N.J.S.A. 12A:4A-204(1),
which provides that: “If a receiving bank accepts a payment
order issued in the name of its customer as sender which is . .
. not authorized . . . the bank shall refund any payment . . .
.” (emphasis added). The transfers by Sanchez were not
“authorized” because they were expressly forbidden by the
agreement (expressed in the Signature Card) that two signatures
13
are required for any transaction. Thus, Allen’s UCC claim
should have been allowed to proceed to trial.
I would rectify our mistake in denying certification on the
UCC claim even at this late date. I would grant certification
now. Justice delayed is better than a complete denial of
justice.
V.
A.
Concerning the issue on which we granted certification, I
would hold that Allen is entitled to proceed to trial on his
common-law negligence claims pursuant to City Check Cashing,
supra, 166 N.J. at 62. There, we held that a bank may owe a
common-law duty -- not inconsistent with the UCC -- when “the
facts establish a special relationship between the parties
created by agreement, undertaking or contact.” Here, there was
an agreement -- “a meeting of the minds between two or more
parties on a given proposition.” See ibid. The bank, Allen,
and Sanchez all agreed that financial transactions on the
account required two signatures. The bank also engaged in an
undertaking. It willingly made “a pledge to take . . .
particular action” -- not to release funds without two
signatures. See ibid. Last, “whether a contact creates a duty
is determined by its nature and surrounding circumstances.”
14
Ibid. The communications made by the bank to Allen surely gave
rise to a duty. See ibid.
This case falls into all three City Check Cashing
categories: Oritani entered into an agreement with Allen,
undertook to refrain from releasing funds without his signature,
and clearly had contact with him. After having told Allen that
his signature was required for any funds to be taken from the
account, “[Oritani] had a duty to disclose its Internet policy
to Allen when [the account] was opened,” specifically “the
availability and effect of Internet banking, and how it could
result in an electronic transfer of funds from the account
without two-signature authorization.” That is, Oritani had a
duty to be truthful with Allen. Certainly, Oritani should not
have told Allen that funds could not be released from the
account without his written signature when it knew that
statement was false concerning Internet funds transfers.
Oritani’s misrepresentations are a basis for liability
under our tort law. A defendant is liable for negligent
misrepresentation when he “supplies false information for the
guidance of others in their business transactions, . . . if he
fails to exercise reasonable care or competence in obtaining or
communicating the information.” Petrillo v. Bachenberg, 139
N.J. 472, 484 (1995) (alteration in original) (quoting
15
Restatement (Second) of Torts, supra, § 552(1)) (holding
attorney liable to non-client for negligently omitting negative
information from report on which non-client relied in purchasing
real property).
The Restatement standard, which we adopted in Petrillo,
applies to any statements made to others and is not limited to a
defendant’s customers or clients. Ibid. Whether or not Allen
was a customer, the bank was “liabl[e] for pecuniary loss caused
to [Allen] by [his] justifiable reliance upon the [false]
information.” Restatement (Second) of Torts, supra, § 552(1).
That duty does not imply (as the majority claims) that
Oritani had a duty “to detect potentially fraudulent conduct by
Sanchez and to report it to Allen,” ante at ___ (slip op. at
33). The breach of the bank’s duty was complete when the false
statements were made at the account opening.
I now turn to address why a cause of action for negligent
misrepresentation is not inconsistent with the UCC.
B.
At its core, the majority’s rationale is that because Allen
“clearly lacks the status of a customer,” a negligence cause of
action, in addition to those provided in Article 4A, would
inherently “contravene” the UCC. Ante at ___ (slip op. at 31).
16
However, “[n]ot all common law claims are per se inconsistent
with [Article 4A’s] regime.” Ma v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 597 F.3d 84, 89 (2d Cir. 2010). It is
well-established that “Article 4-A . . . is not the exclusive
means by which a plaintiff can seek to redress an alleged harm
arising from a funds transfer.” Sheerbonnet, Ltd. v. Am.
Express Bank, Ltd., 951 F. Supp. 403, 409 (S.D.N.Y. 1995).
The UCC’s drafters and our Legislature intended that
common-law claims would survive -- and indeed supplement -- the
UCC unless a UCC provision bars a particular claim. See
N.J.S.A. 12A:1-103(b) (providing that “unless displaced by the
particular provisions of the [UCC], the principles of law and
equity, including . . . fraud [and] misrepresentation . . .
supplement its provisions”). The Drafting Committee’s comment
cited by the majority, U.C.C. 4A-102 official cmt. (1989),
cannot undermine the text of the statute.
The majority, moreover, overreads the comment, which states
that “resort to principles of law or equity outside of Article
4A is not appropriate to create rights, duties and liabilities
inconsistent with those stated in [that] Article.” U.C.C. 4A-
102 official cmt. By its own language, the comment provides
that a plaintiff may resort to principles of law or equity that
are not inconsistent with Article 4A. As Thomas Baxter, the
17
Chair of the Subcommittee on Proposed UCC Article 4A, explained,
“the Drafting Committee intended that Article 4A would be
supplemented, enhanced, and in some places, superceded by other
bodies of law.” Thomas C. Baxter, Jr. & Raj Bhala, The
Interrelationship of Article 4A with Other Law, 45 Bus. Law.
1485, 1485 (1990). Therefore, “electronic funds transactions
are governed not only by Article 4A, but also by common law.” 3
James J. White & Robert S. Summers, Uniform Commercial Code §
22-3, at 8 (5th ed. 2008).
Consistent with this point, courts “have held that
plaintiffs may turn to common law remedies to seek redress for
an alleged harm arising from a funds transfer where Article 4A
does not protect against the underlying injury or misconduct
alleged.” Patco Constr. Co. v. People’s United Bank, 684 F.3d
197, 215-16 (1st Cir. 2012) (permitting claims for breach of
contract and of fiduciary duty). Those common-law claims
include causes of action for negligence, breach of contract, and
fraud. See, e.g., Fischer & Mandell LLP v. Citibank, N.A., 632
F.3d 793, 797 (2d Cir. 2011) (permitting claim for breach of
contract); Regions Bank v. Provident Bank, Inc., 345 F.3d 1267,
1276 (11th Cir. 2003) (permitting claims for conversion and
unjust enrichment); Regions Bank v. Wieder & Mastroianni, P.C.,
423 F. Supp. 2d 265, 269 (S.D.N.Y. 2006) (permitting claims for
conversion and breach of fiduciary duty), remanded for
18
reconsideration on other issue, 253 Fed. Appx. 52 (2d Cir.),
aff’d on remand, 526 F. Supp. 2d 411 (S.D.N.Y. 2007); Miller v.
Union Planters Bank, N.A., 61 U.C.C. Rep. Serv. 2d (Callaghan)
328, at 10-11 (S.D. Miss. 2006) (“[Plaintiff’s] common law
claims [for negligence, conversion, breach of contract and of
fiduciary duty] are not inconsistent . . . because Article 4A
does not expressly prohibit the remedies [he] is seeking.”);
Dubai Islamic Bank v. Citibank, N.A., 126 F. Supp. 2d 659, 666
(S.D.N.Y. 2000) (permitting claims for negligence and unjust
enrichment); Sheerbonnet, supra, 951 F. Supp. at 412, 414
(permitting claims for conversion, tortious interference with
contract, and unjust enrichment); cf. Hanover Ins. Co. v. M&T
Bank, 783 F. Supp. 2d 809, 815 (E.D. Va. 2011) (“[UCC § 4-
406(f)] does not bar [plaintiff’s] breach of contract claim
because [plaintiff] is not a ‘customer’ . . . .”).
Indeed, claims alleging negligence in the opening of an
account that are not inconsistent with Article 4A may go
forward. See Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220,
224 (4th Cir. 2002) (holding “[plaintiff’s] negligence claims,
insofar as they challenge the opening and management of [the]
account” are not inconsistent with Article 4A); Gilson v. TD
Bank, N.A., 73 U.C.C. Rep. Serv. (Callaghan) 2d 430, at 27 (S.D.
Fla. 2011) (holding that negligence claim alleging “lack of care
during the account openings, not the wire transfers” is not
19
inconsistent with Article 4A, “which governs only wire
transfers”).
Instead of eliminating common-law causes of action across
the board, as the majority does, other courts have recognized
that “[t]he exclusivity of Article 4-A is deliberately
restricted to ‘any situation covered by particular provisions of
the Article.’” Sheerbonnet, supra, 951 F. Supp. at 408 (quoting
N.Y. U.C.C. 4A-102 official cmt.). Article 4A does not cover
misrepresentations that induce a customer to have a relationship
with a bank. The provisions of Article 4A “are transactional,
aimed essentially at resolving conflicts created by erroneous
instruction or execution of payment orders.” Id. at 412. In
these circumstances, the tort of negligent misrepresentation is
not inconsistent with the purpose of Article 4A.
The drafters of Article 4A did not intend to repeal the law
of misrepresentation, or allow banks a free hand to deceive the
public, so long as a funds transfer is incidentally involved and
the bank otherwise complies with Article 4A. See Regions Bank,
supra, 345 F.3d at 1276 (“It could hardly have been the intent
of the drafters to enable a party to succeed in engaging in
fraudulent activity, so long as it complied with . . . Article
4A.”); Regions Bank, supra, 423 F. Supp. 2d at 269 (holding that
“a rule established to govern wire transfers would not restrict
20
a party’s fiduciary duties,” nor sanction conversion); Dubai
Islamic Bank, supra, 126 F. Supp. 2d at 666 (accepting
plaintiff’s argument that “a bank is not immune from common law
liability arising from its tortious conduct simply because wire
transfers may be involved”).
In the related context of Article 4, moreover, courts have
repeatedly held that negligent-misrepresentation claims are not
displaced by the UCC. See, e.g., Avanta Fed. Credit Union v.
Shupak, 223 P.3d 863, 871 (Mont. 2009) (“[T]he customer who
detrimentally relies on the negligent misrepresentations of the
bank’s agents, and thereby suffers damage, is not without
recourse.”); Holcomb v. Wells Fargo Bank, N.A., 155 Cal. App.
4th 490, 498 (Ct. App. 2007) (“There is nothing in the [UCC]
prohibiting a claim based on a depositor’s detrimental reliance
on a bank employee’s incorrect statements.”), appeal denied, No.
S157668, 2007 Cal. LEXIS 14459 (Dec. 19, 2007); First Ga. Bank
v. Webster, 308 S.E.2d 579, 581 (Ga. Ct. App. 1983) (holding
that negligent-misrepresentation action against bank not barred
by UCC).
Finally, contrary to the suggestion by the majority, a non-
customer cause of action is not precluded just because, in
certain instances, the non-customer is accorded broader rights
than a customer. See Hanover Ins. Co. v. M&T Bank, 783 F. Supp.
21
2d 809, 815 (E.D. Va. 2011) (holding that Article 4 statute of
repose, UCC § 4-406(f), “does not bar [plaintiff’s] breach of
contract claim because [plaintiff] is not a ‘customer’”).
VI.
City Check Cashing envisioned this case. A negligence
action premised on a bank’s misrepresentations is not in
conflict with the UCC and is a basis for liability. Bank
deception is not a practice condoned by the UCC or by our common
law. The majority has denied Allen his rightful day in court.
I therefore respectfully dissent.
22
SUPREME COURT OF NEW JERSEY
NO. A-114 SEPTEMBER TERM 2011
ON CERTIFICATION TO Appellate Division, Superior Court
ADS ASSOCIATES GROUP, INC.,
and BRENDAN ALLEN,
Plaintiffs-Respondents,
v.
ORITANI SAVINGS BANK,
Defendant-Appellant,
and
ASNEL DIAZ SANCHEZ,
Defendant.
DECIDED September 30, 2014
Chief Justice Rabner PRESIDING
OPINION BY Justice Patterson
CONCURRING/DISSENTING OPINIONS BY
DISSENTING OPINION BY Justice Albin
REVERSE/
CHECKLIST AFFIRM
REINSTATE
CHIEF JUSTICE RABNER X
JUSTICE LaVECCHIA X
JUSTICE ALBIN X
JUSTICE PATTERSON X
JUSTICE FERNANDEZ-VINA X
JUDGE RODRÍGUEZ (t/a) X
JUDGE CUFF (t/a) X
TOTALS 6 1
1
2