Francisco Calleja-Ahedo v. Compass Bank ( 2015 )


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  •                                                                      ACCEPTED
    01-15-00210-CV
    FIRST COURT OF APPEALS
    HOUSTON, TEXAS
    12/14/2015 2:32:10 PM
    CHRISTOPHER PRINE
    CLERK
    No. 01-15-00210-CV
    FILED IN
    IN THE                     1st COURT OF APPEALS
    HOUSTON, TEXAS
    12/14/2015 2:32:10 PM
    FIRST COURT OF APPEALS
    CHRISTOPHER A. PRINE
    Clerk
    HOUSTON, TEXAS
    FRANCISCO CALLEJA-AHEDO
    Appellant
    V.
    COMPASS BANK
    Appellee
    On Appeal from the 55th District Court
    Harris County, Texas
    Trial Cause No. 2014-22168
    APPELLANT’S REPLY BRIEF
    Michael C. O’Connor
    State Bar No. 15187000
    Lesley C. O’Connor
    State Bar No. 24086952
    O’CONNOR & CRAIG
    2825 Wilcrest Drive, Suite 261
    Houston, TX 77042
    713-266-3311
    ORAL ARGUMENT REQUESTED
    TABLE OF CONTENTS
    TABLE OF CONTENTS .........................................................................................i
    INDEX OF AUTHORITIES……………………………………..………………...ii
    ARGUMENT……………………………………………………………………....1
    PRAYER………………………………………………………………………….19
    i
    INDEX OF AUTHORITIES
    Case Law
    All Seasons Window & Door Man, Inc. v. Red Dot Corp.,
    
    181 S.W.3d 490
    , 504 (Tex. App. ― Texarkana 2005, no pet.)....................19
    American Airlines Employees Federal Credit Union v. Martin,
    
    29 S.W.3d 86
    , 94 (Tex. 2000).........................................................................3
    Bank of America, N.A. v. Haag,
    
    37 S.W.3d 55
    , 58-59 (Tex. App. — San Antonio 2000, no pet.)................... 5
    Bank of Texas v. VR Elec, Inc.,
    
    276 S.W.3d 671
    , 678 (Tex. App. — Houston [1st Dist.] 2008,
    pet. denied)...............................................................................................15,16
    Centex Corp. v. Dalton,
    
    840 S.W.2d 952
    , 956 (Tex. 1992)...................................................................7
    Coleman v. Bldg State Bank,
    
    592 P.2d 103
    , 111 (Kan. App. 1979).............................................................4
    Compass Bank v. Nacim,
    
    459 S.W.3d 95
    (Tex. App. - El Paso, 2015, no pet.).........................10, 12, 15
    Cumis Insurance Society, Inc. v. Girard Bank,
    
    522 F. Supp. 414
    , 422 (E.D. Pa. 1981).........................................................17
    El Apple 1, Ltd. v. Olivas,
    
    370 S.W.3d 757
    , 763 (Tex. 2012).................................................................19
    FDIC v. Lenk,
    
    361 S.W.3d 602
    , 607-08 (Tex. 2012)........................................................4, 12
    Greater Houston Transp. Co. v. Phillips,
    
    801 S.W.2d 523
    , 525 (Tex. 1990) ..................................................................1
    Hohenberg Bros. Co. v. George E. Gibbons & Co.,
    537, S.W.2d 1, 3 (Tex. 1976)..........................................................................7
    ii
    Jag Orthopedics, P.C. v. AJC Advisory Corp.,
    
    2015 NY Slip Op 31360
    , at 15 (U) (N.Y. Sup. Ct. 2015).............................16
    Jefferson State Bank v. Lenk,
    
    323 S.W.3d 146
    , 149 (Tex. 2010).............................................................4, 
    12 Mart. v
    . Chase Manhattan Bank,
    
    791 N.Y.S.2d 158
    , 159-60 (N.Y.S.Ct. 2004)..................................................5
    McConnell v. Southside Independent School District,
    
    858 S.W.2d 337
    , 341 (Tex. 1993).................................................................12
    McDowell v. Dallas Teachers Credit Union,
    
    772 S.W.2d 183
    , 192 (Tex. App. ― Dallas 1989, no writ)..........................15
    Myrick v. National Savings & Trust Co.,
    
    268 A.2d 526
    , 528 (D.C. 1970).......................................................................4
    Robinson Motor Xpress, Inc. v. HSBC Bank, USA,
    
    826 N.Y.S.2d 350
    (N.Y.S.Ct. 2006)..............................................................5
    Terry v. Puget Sound Nat’l Bank,
    
    492 P.2d 534
    , 535 (Wash. 1972).....................................................................4
    Union Planters Bank v. Rogers,
    
    912 So. 2d 116
    , 122 (Miss. 2005)....................................................................4
    Via Net v. TIG Ins. Co.,
    
    211 S.W.3d 310
    , 314 (Tex. 2006)...................................................................2
    Wachovia Bank v. Fed. Reserve Bank,
    
    338 F.3d 318
    , 324-25 (4th Cir. 2003).............................................................18
    Westport Bank & Trust v. Lodge,
    
    325 A.2d 222
    , 226 (Conn. 1973).....................................................................4
    iii
    Statutes
    Tex. Bus. & Comm. Code §1.201.....................................................................10, 16
    Tex. Bus. & Comm. Code §3.406.....................................................................15, 17
    Tex. Bus. & Comm. Code §4.103.......................................................................5, 13
    Tex. Bus. & Comm. Code §4.406.....................................1, 2, 3, 4, 5, 10, 12, 13, 14
    Tex. Fin. Code §34.301...........................................................................................12
    Tex. Fin. Code §34.302.............................................................................................6
    iv
    ARGUMENT
    I. APPELLANT’S NEGLIGENCE IS IRRELEVANT
    TO APPELLEE’S LIABILITY
    Appellee Bank devotes a substantial part of its Brief to emphasizing that
    Appellant Calleja was negligent in failing to inquire about missing bank statements
    for almost 18 months. However, Calleja’s negligence in failing to inquire, if any, is
    irrelevant to the liability issues in this case.
    Negligence requires a duty of care. See, e.g., Greater Houston Transp. Co. v.
    Phillips, 
    801 S.W.2d 523
    , 525 (Tex. 1990). There can be no common law duty
    because the Bank concedes, and even emphasizes, that Tex. Bus. & Comm. Code
    §4.406, specifically provides a complete scheme of rights and duties regulating the
    relationship of a bank and its customer concerning the handling of bank statements.
    See Appellee’s Brief at 22, fn 10. Any duty of Calleja to inquire about missing
    bank statements must emanate from §4.406, which expressly provides that a bank
    customer has no duty concerning bank statements unless and until the bank first
    “sends or makes available” the statements to its customer. See also, Official
    Comment 1 to §4.406, which states:
    The duty stated in subsection (c) [for customer to review bank
    statements] becomes operative only if the “bank sends or makes
    available a statement of account or items pursuant to subsection (a).”
    A bank is not under a duty to send a statement of account or the paid
    1
    items to the customer, but if it does not do so, the customer does not
    have any duties under subsection (c).
    If a bank complies with its initial duty under §4.406, Calleja concedes that the
    customer bears the risk of non-receipt of the statements, such as when a wrongdoer
    intercepts the statements. In this case, the Bank failed to comply with this initial
    duty, which makes Calleja’s alleged negligence irrelevant.
    The crux of this lawsuit is whether the Bank sent or made available the
    relevant bank statements to its customer, as such duty was modified by the relevant
    Account Agreement. As shown below, the Bank failed to show that it properly sent
    or made available the relevant bank statements, which defeats the Bank’s summary
    judgment. The Bank further ignores its own negligence and/or lack of good faith,
    which allowed an unknown wrongdoer to change the proper address where account
    statements were to be sent and then cashed a $37,800 check which contained a
    signature of Calleja completely dissimilar to the signature card.
    II. CASELAW SUPPORTS APPELLANT’S POSITION
    The Bank cites numerous cases in its Brief, all of which are inapplicable to
    the Bank’s initial duty to properly send or make available account statements. The
    Bank first cites and quotes from the Texas Supreme Court case of Via Net v. TIG
    Ins. Co. 
    211 S.W.3d 310
    , 314 (Tex. 2006), which discusses a common law duty of
    due diligence in non-banking contractual relationships. This duty simply does not
    2
    apply to §4.406, which specifically requires that a bank first send or make
    available account statements to its customer before the customer has any duty with
    respect to such statements. The Bank has recognized repeatedly that the UCC
    creates a “discrete fault scheme, specifically allocating responsibility among
    parties to a banking relationship.” See Appellee’s Brief at 16, fn 5; CR 188-92. The
    focus must be on §4.406 and not common law principles.
    The Bank does discuss several §4.406 cases, all of which deal with
    situations in which a bank mailed account statements to a proper address, but the
    statements were then intercepted by a wrongdoer. The most important case is
    American Airlines Emp. Fed. Credit Union v. Martin, 
    29 S.W.3d 86
    , 94 (Tex.
    2000), in which the Texas Supreme Court stated that the customer’s duty to detect
    and report unauthorized transactions “is triggered when the bank meets its burden
    to provide the customer with enough information that the customer can detect that
    the unauthorized transaction has occurred.” The Bank emphasizes that the Supreme
    Court also stated that a bank customer’s burden “includes the risk of non-receipt of
    account statements.” However, this latter quote must be taken in context with
    footnote 37 immediately following the statement, which clarifies that the risk of
    non-receipt falls on the account holder “when account statements are mailed to the
    proper address.” The bank in Martin mailed the account statements to a proper
    address.
    3
    The Bank also cites and discusses Union Planters Bank v. Rogers, 
    912 So. 2d 116
    , 122 (Miss. 2005); Myrick v. Nat’l Sav. Trust Co., 
    268 A.2d 526
    , 528 (D.C.
    1970); Coleman v. Bldg State Bank, 
    592 P.2d 103
    , 111 (Kan. App. 1979); Westport
    Bank & Trust Co. v. Lodge, 
    325 A.2d 222
    , 226 (Conn. 1973); and Terry v. Puget
    Sound Nat’l Bank, 
    492 P.2d 534
    , 535 (Wash. 1972), for the proposition that a bank
    customer loses if he fails to contact the bank concerning missing bank statements.
    Appellee’s Brief at 15. However, these cases must again be considered in context,
    since in each case the bank sent statements to the proper address and/or to the
    person authorized to receive statements.1 Calleja admits that when a bank complies
    with its initial duty under §4.406, and under its account agreement, the bank
    customer bears the risk of non-receipt of statements, as provided by the Texas
    Supreme Court in the Martin case.
    The undisputed facts in this case are different. The evidence shows that the
    Bank sent the relevant statements to an unknown wrongdoer who convinced the
    Bank to change the authorized address on the Account. CR 49. The Bank
    completely ignores the cases holding that a bank is responsible in this situation.
    The most important cases are from our own Texas Supreme Court. In both
    FDIC v. Lenk, 
    361 S.W.3d 602
    , 607-08 (Tex. 2012), and in Jefferson State Bank v.
    1 The Lodge case is the only case cited by the Bank which involves the wrongdoer changing the address to which
    statements were mailed. However, the wrongdoer was an employee of the account holder, the account holder knew
    and intended that account statements were being sent to the wrongdoer, and the account holder received overdraft
    notices at her home address.
    4
    Lenk, 
    323 S.W.3d 146
    , 149 (Tex. 2010), the Supreme Court clearly stated that a
    bank does not fulfill its §4.406 obligation to provide account statements “to a
    customer” by sending them to an imposter. Another significant case is Bank of
    America, N.A. v. Haag, 
    37 S.W.3d 55
    , 58-59 (Tex. App. ― San Antonio 2000, no
    pet.), in which the court held specifically that a bank customer has no duty to
    notify the bank concerning missing bank statements that were improperly
    addressed. See Appellant’s Original Brief at 18-19, 26 for further discussion of
    these cases. See also, Martin v. Chase Manhattan Bank, N.Y.S.2d 158, 159-60
    (N.Y.S.Ct. 2004), and Robinson Motor Xpress v. HSBC Bank, USA, 
    826 N.Y.S.2d 350
    (N.Y.S.Ct. 2006), discussed in Appellant’s Original Brief at 20-21. The Bank
    does not attempt to discuss or distinguish these cases in its Brief.
    III. THE 2008 DEPOSIT AGREEMENT CONTROLS THE
    PARTIES’ RELATIONSHIP
    The Bank and Calleja both agree that §4.103(a) permits a bank and its
    customer to contractually modify “the effect of the provisions” in §4.406, which
    was done in this case. See Appellee’s Brief at 23. However, §4.103(a) further
    provides that a bank cannot disclaim its responsibility “for its lack of good faith or
    failure to exercise ordinary care.”
    Although the parties agree that a contract applies to the deposit relationship,
    there is a dispute over which contract applies. The Bank produced not one but three
    5
    potential account agreements in this case. The first agreement, dated as of August
    22, 2008, was attached to Calleja’s Motion for Summary Judgment. CR 51-70. A
    more legible copy is attached at Appendix 2 to Appellant’s Original Brief. The
    second agreement, dated as of February 2012, was attached to the Bank’s Motion
    for Summary Judgment. CR 205-228. The third agreement, dated as of September
    2013, was also produced by the Bank and attached to Calleja’s Motion for
    Summary Judgment. CR 136-150.
    An account agreement becomes effective as to the bank customer when it is
    mailed to the customer or as otherwise agreed to by the parties. See Tex. Fin. Code
    §34.302. Calleja acknowledges that he received the 2008 Account Agreement,
    which made it effective as to him. CR 46. The Bank does not dispute that the 2008
    Account Agreement was effective between 2008 and 2012, but argues that the
    2012 Account Agreement became effective and amended the 2008 Account
    Agreement shortly before the relevant account statements showing wrongdoing
    would have been generated by the Bank. Appellee’s Brief at 24-27. Section 17 of
    the 2008 Account Agreement provides that it may be amended by:
    Mailing you notice of the amendment to the last address shown on our
    records, by making the notice available with the periodic statement of your
    account (as applicable) or by posting notice of the amendment in our offices.
    (CR 67 at bottom left, continuing at CR 68 at upper right).
    6
    Compliance with these provisions is in the nature of a condition precedent to
    any effectiveness of the 2012 Account Agreement, and the Bank had the burden of
    proving compliance with such conditions precedent. See, e.g., Centex Corp. v.
    Dalton, 
    840 S.W.2d 952
    , 956 (Tex. 1992): Hohenberg Bros. Co. v. George E.
    Gibbons & Co., 
    537 S.W.2d 1
    , 3 (Tex. 1976). There is no evidence that the Bank
    did any of these things to make the 2012 Account Agreement effective as to
    Calleja. See also, Amer. Airlines Empl. Fed. Credit Union v. Martin, 
    29 S.W.3d 86
    ,
    96 (Tex. 2000), in which the Supreme Court discusses how a Deposit Agreement
    becomes “effective,” which involves notice to the customer, which is lacking in
    Calleja’s case.
    The Bank now argues that Calleja sought to recover attorney’s fees pursuant
    to the 2012 Account Agreement, thereby validating it despite any defects in the
    Bank’s proof. See Appellee’s Brief at 24-25. The Bank is wrong. Calleja never
    relied on the 2012 Account Agreement to recover attorney’s fees. Instead, Calleja’s
    attorney assumed that the 2013 Account Agreement was effective when this
    lawsuit was filed in 2014, and that it applied to a claim for attorney’s fees made
    after 2013. See Calleja’s Motion for Summary Judgment, CR 36, 44. The 2013
    Account Agreement does not retroactively apply to occurrences in 2012, well
    before it would have become effective. See Section 16 of the 2012 Account
    Agreement, CR 219, which provides that amendments apply when they become
    7
    “effective.” Calleja made his position concerning the 2012 and 2013 Account
    Agreements clear in his Motion for Summary Judgment. CR 36 at fn 1. Calleja has
    not taken inconsistent positions which would validate the effectiveness of the 2012
    Account Agreement despite the Bank’s lack of proof.
    The Bank further argues that the account signature card includes Calleja’s
    agreement to any amendments of the deposit contract. See Appellee’s Brief at 24.
    The signature card is illegible concerning what agreements, if any, are in the
    signature card pertaining to amendments. In addition, the signature card is dated 3-
    11-88. The subsequent 2008 Account Agreement supersedes the signature card
    based upon the specific provision in the 2008 Account Agreement as to how
    amendments are to be made effective.
    The Bank curiously quotes from the 2008 Account Agreement, which
    provides that “By continuing to maintain your account ... after the amendment
    becomes effective, you agree to the amendment of this Agreement.” (emphasis
    added). The Bank then argues that Calleja agreed to the 2012 Account Agreement
    because he maintained his account after February 2012. See Appellee’s Brief at 24-
    25. The Bank completely ignores the highlighted language that the customer must
    maintain his account “after the amendment becomes effective.” There is simply no
    evidence that the 2012 Account Agreement ever became effective as to Calleja.
    8
    Finally, there is other evidence which shows that the 2012 Account
    Agreement was not effective as to Calleja. First, the February 7, 2014 letter from
    Jimmy Myers, a vice president of the Bank, quotes verbatim from the 2008
    Account Agreement, which differs from the 2012 Account Agreement. CR 75.
    Second, unlike the 2008 Account Agreement, the 2012 Account Agreement states
    that it is for “Al Nova Branches Only.” CR 228. Third, Mueller, the Bank’s
    representative, states in her second affidavit that she only “believes,” and that it
    “appears,” that the 2012 Account Agreement is the one governing the deposit
    relation between Calleja and the Bank. CR 396. Mueller may have proved that the
    2012 Account Agreement is a business record of the Bank, but this does not prove
    that the 2012 Account Agreement ever became effective as to Calleja.
    Significantly, the Bank fails to address any of this evidence in its Brief, despite
    being discussed by Calleja in his Original Brief at 8-10. The Bank itself conceded
    that the 2012 Agreement only “is believed to be the deposit agreement in effect
    during the relevant time period.” CR 168, fn 1.
    IV. THE 2008 ACCOUNT AGREEMENT SUPPORTS
    APPELLANT’S POSITION
    A legible copy of the 2008 Account Agreement is attached at Appendix 2 to
    Appellant’s Original Brief. Significantly, the 2008 Account Agreement does not
    require that Calleja review account statements that were “made available.” Instead,
    9
    the Agreement provides that Calleja must review only account statements he
    “receives” or alternatively, when the Bank “sends” the account statements. CR
    295. The term “send” requires that the statement be “properly addressed.” Tex.
    Bus. & Comm. Code §1.201(b)(36).
    The identical language in another Compass Bank account agreement was
    interpreted by the Court in Compass Bank v. Nacim, 
    459 S.W.3d 95
    (Tex. App. ―
    El Paso 2015, no pet.). The Nacim court held that the distinction between
    “receives” and “sends” in the Compass Bank account agreement creates a conflict
    which must be interpreted against Compass Bank, and therefore the customer is
    only required to review account statements he “receives.” Furthermore, the “made
    available” language in §4.406 was inapplicable because Compass bank had altered
    the §4.406 duties of the bank customer to eliminate that option. The Bank is
    collaterally estopped by the Nacim case from relitigating the terms of its own
    Agreement.
    The Bank completely ignores the Nacim case in its Brief. By eliminating
    both the “send” and    the “makes available” requirements, the 2008 Account
    Agreement completely undercuts the trial court’s focus on whether account
    statements were “made available.” CR 735. 2
    10
    The 2008 Account Agreement specifically provides that only “[a]ny account
    owner or authorized signer of a joint account may change the mailing address for
    your account.” CR 295. The evidence in this case shows that the Bank allowed an
    unknown wrongdoer to change the address on the account multiple times, which
    obviously constitutes a breach of contract. CR 49. In its arguments, the Bank
    assumes that account statements concerning the Calleja account may not have been
    properly addressed. CR 374-75.
    Despite the specific wording in the 2008 Account Agreement that only an
    account holder may change the mailing address for the account (CR 65), the Bank
    argues on appeal for the first time that mailing account statements to a fraudulent
    address not provided by an account holder was authorized. The Bank bases its
    position on wording in the 2012 Agreement, which provides that statements “may
    be mailed to you at the address shown in our records,” coupled with a phrase in a
    later section of the Agreement that “records regarding your accounts will be
    deemed correct unless you timely establish with us that we made an error.” CR
    212; Appellee’s Brief at 29.
    2 The Bank suggests in its Brief the many ways that Calleja could have obtained Account Statements, which
    allegedly shows that the Bank “made available” the Account Statements to Calleja. However, even the 2012
    Account Agreement specifies that statements are “made available” by holding or delivering the statements “in
    accordance with your request or instruction.” CR 212. There is no evidence that the Bank received any request or
    instruction from an account holder to hold the statements or deliver them other than to the brother’s address in the
    Woodlands. See Appellant’s Original Brief at 15-16.
    11
    The Bank never raised its records argument in its Motion for Summary
    Judgment (CR 161-200) and cannot do so here for the first time. Tex. R. Civ. P.
    166a(c). As stated by the Supreme Court in McConnell v. Southside Independent
    School District, 
    858 S.W.2d 337
    , 341 (Tex. 1993):
    Consistent with the precise language of Rule 166a(c), we hold that a
    motion for summary judgment must itself expressly present the
    grounds upon which it is made. A motion must stand or fall on the
    grounds expressly presented in the motion. In determining whether
    grounds are expressly presented, reliance may not be placed on briefs
    or summary judgment evidence.
    The Bank’s argument concerning its records completely falls apart since the
    2008 Account Agreement and the Nacim case provide that Calleja’s duty only
    applies to account statements he “receives.” In addition, the Bank has a clear duty
    under both §4.406 and the 2008 Account Agreement to deliver account statements
    to its customer. The Texas Supreme Court has stated multiple times that a bank
    cannot fulfill this duty by sending account statements to an unknown imposter. See
    FDIC v. Lenk, supra at 607-08; Jefferson State Bank v. Lenk, supra at 149. The
    Supreme Court’s conclusion was based not only on the wording of §4.406, but also
    Tex. Fin. Code §34.301(b), which provides that a bank must provide account
    statements “to an account holder.” The Bank cannot simply contract away its duty
    by providing a “new” interpretation of the Account Agreement which authorizes
    the Bank to send account statements to an imposter.
    12
    Although Tex. Bus. & Comm. Code §4.103 allows the parties to vary “the
    effect of” §4.406, the Bank’s “new” record interpretation goes beyond the “effect”
    of §4.406 to completely eliminate the Bank’s duty thereunder, which it cannot do.
    Furthermore, §4.103 provides that the parties cannot disclaim a bank’s
    responsibility for its lack of good faith or failure to exercise ordinary care.
    Allowing an unknown imposter to change the address on the account, particularly
    in the manner evidenced in this case (CR 49), raises issues both of lack of good
    faith and of negligence.
    Obviously, the Bank’s “new” interpretation concerning records also clashes
    with the provision that only the account holder can change the address on the
    account. The Bank cannot have it both ways. If only account holders can change
    the address on the account, then the Bank breaches the Account Agreement by
    allowing an imposter to change the name on the account. Alternatively, if the Bank
    can change the address on the Account at the request of an imposter, then the Bank
    breaches the provision that only an account holder can change the address on the
    account.
    Furthermore, the Bank’s interpretation concerning its records is flawed. The
    section in the Account Agreement that records are deemed correct unless the
    customer “timely” establishes that an error was made is taken out of context. The
    remainder of the section reflects the types of errors referred to, all of which are
    13
    errors concerning credits or debits described in the account statements. In addition,
    the Bank argues that “timely” means 30 days, which is derived from the wording
    later in the section, requiring that a customer review statements “received” by the
    customer. Appellee’s Brief at 29. Taking the terms “errors” and “timely” in context
    demonstrate that these terms refer to credits or debits in any account statements
    received by Calleja. 3
    V. THE BANK DID NOT PROVE THAT IT SUFFERED A LOSS
    Tex. Bus. & Comm. Code §4.406(d)(1) provides that if a bank customer
    fails to timely report his unauthorized signature on a check after the bank sends or
    makes available the statement showing the problem, the customer is precluded
    from asserting the unauthorized signature against the bank, but only “if the bank
    also proves that it suffered a loss by reason of the [customer’s] failure.” The Bank
    offered no evidence that it suffered a loss and fails to even address this issue in its
    Brief, other than quoting §4.406(d) in its Brief at 23.
    The first statement showing any problem was the June 2012 statement,
    which reflected a charge for new checks not ordered by Calleja. CR 246. Even
    assuming that the Bank sent or made available to Calleja the June 2012 statement
    during the first week in July (when statements for the prior month are customarily
    3The Bank contends that the signature card contains a statement to “Hold All Correspondence” and also shows an
    address in Mexico, which the Bank argues is Calleja’s “address shown in our records” and did not change.
    Appellee’s Brief at 29, fn 17. To the contrary, the uncontroverted evidence shows that Calleja instructed the Bank to
    mail statements to his brother’s address in the Woodlands, which the Bank did only prior to July 2012. CR 46.
    14
    mailed by the Bank), the forged check was paid by the Bank on July 30, 2012,
    which is less than 30 days after the June 2012 statement would have been sent.
    Since the Bank contends that Calleja had 30 days to report a problem, and the
    forged check was already paid during this time, the Bank cannot prove that it
    suffered a loss by reason of Calleja’s failure to report a problem within the 30 day
    period. See, e.g., Compass Bank v. Nacim, 
    459 S.W.3d 95
    , 106-07 (Tex. App. ―
    El Paso 2015, no pet.). Calleja discussed this lack of proof in his Original Brief at
    16, but the Bank fails to even address it in its Brief.
    VI. SECTION 3.406 DOES NOT APPLY
    The Bank argues that Tex. Bus. & Comm. Code §3.406 bars Calleja’s
    claims. Appellee’s Brief at 16-22; CR 195.
    Section 3.406 provides as follows:
    A person whose failure to exercise ordinary care substantially
    contributes to an alteration of an instrument or to making a forged
    signature on an instrument is precluded from asserting the alteration
    or the forgery against a person who, in good faith, pays the instrument
    or takes it for value or for collection (emphasis added).
    In order for §3.406 to apply, the Bank has the burden to prove that it paid
    the $38,700.00 check and any other items in “good faith” (emphasis added). See,
    e.g., Bank of Texas v. VR Elec, Inc., 
    276 S.W.3d 671
    , 678 (Tex. App. ― Houston
    [1st Dist.] 2008, pet. denied); McDowell v. Dallas Teachers Credit Union, 772
    
    15 S.W.2d 183
    , 192 (Tex. App. ― Dallas 1989, no writ). In its brief, the Bank refers
    to VR Elec, Inc., but then states that .... “[A]s the party alleging lack of good faith,
    Appellant bears the burden of proof.” The Bank is wrong and completely
    misconstrues the §3.406 requirement that the Bank has the burden to prove that it
    acted in “good faith” under §3.406.
    In VR Elec, supra at 678, the court began its analysis of §3.406 by clearly
    stating: “[A]s shown above, the Bank must prove that (1) [the customer] failed to
    exercise ordinary care that substantially contributed to the alteration of the check
    and (2) paid the check in “good faith” (emphasis added).
    The Bank’s assertion that its good faith in paying the subject check “is
    presumed” is clearly wrong. The term “good faith” means honesty in fact and “the
    observance of reasonable commercial standards of fair dealing.” Tex. Bus. &
    Comm. Code §1.201(b)(20). The Bank has produced absolutely no evidence of its
    “honesty in fact” or of its “observance of reasonable commercial standards of fair
    dealing.” The Bank cannot satisfy its proof burden by claiming that its good faith is
    presumed. See also, Jag Orthopedics, P.C. v. AJC Advisory Corp., 2015 NY Slip
    Op 31360, at 15 (U) (N.Y. Sup. Ct. 2015) (“With respect to UCC 3-406, a
    bank cannot establish a defense under that section if it fails to show that it acted in
    good faith and in accordance with reasonable commercial standards.”)
    16
    The Bank provides no evidence of either “honesty in fact” or “the
    observance of reasonable commercial standards of fair dealing.” To the contrary,
    there are facts indicating the Bank’s bad faith. The purported signature of Calleja
    on the $38,700 check bears no resemblance to Calleja’s signature on the signature
    card. CR 71. Furthermore, Calleja stated in his affidavit that, “the Bank sent disks
    of recorded conversations between Bank employees and a person purporting to be
    me. I do not recognize this person’s voice, and I did not authorize anyone to call
    the Bank and request that the address for the Account be changed or for the Bank
    to issue a debit/ATM card to anyone.” CR at 49. These facts raise issues of the
    Bank’s good faith which prevents the Bank from relying on §3.406 as a defense. If
    §3.406 is construed as the Bank has proposed, it would “have the effect of
    exculpating the bank from any liability regardless of its own negligence in paying
    the instruments bearing forged drawer signatures.” Cumis Insurance Society, Inc.
    v. Girard Bank, 
    522 F. Supp. 414
    , 422 (E.D. Pa. 1981).
    The Bank speculates that Calleja’s brother was involved in the forgery of the
    $38,700.00 check, and that permitting the brother to access Calleja’s banking
    information allowed other parties to learn Calleja’s banking information, which
    “likely” allowed the forgery to occur. There is simply no proof of these
    speculations.
    17
    Calleja admits that monthly account statements were received at his
    brother’s address in the Woodlands, but the uncontroverted evidence is that the
    Account Statements were never opened by the brother, were not available to
    anyone else before being delivered unopened to Calleja, and that all Account
    Statements and checks were accounted for prior to July 2012. CR 47- 48. The
    Bank has produced no evidence that Calleja or his brother failed to exercise
    ordinary care in handling checks and/or Account Statements and further has
    produced no evidence that actions or failure to act by Calleja or his brother
    contributed to “the making of a forged signature” in the $38,700.00 check. Any
    alleged failure to detect or report a forgery is completely different from any alleged
    action or failure to act which “contributed to the making” of the forgery. See, e.g.,
    Wachovia Bank v. Fed. Reserve Bank, 
    338 F.3d 318
    , 324-25 (4th Cir. 2003).
    VII. THE BANK’S PROOF OF ATTORNEY FEES IS FAULTY
    The Bank relied on three affidavits from Mr. Huttenbach to justify its claim
    for attorney’s fees. CR 571-72; 604-06; 716-17. Calleja stated in his Original Brief
    at 33 that the fee statements proved by Mr. Huttenbach in his first affidavit only
    totaled $22,722.69. The Bank correctly points out that this is an error and that the
    fee statements attached to the first affidavit total $25,201.69. However, the Bank is
    wrong that the total of the fee statements proved by Mr. Huttenbach total
    $51,728.05. The Bank attempts to rely on fee statements included behind Mr.
    18
    Huttenbach’s second affidavit, but Mr. Huttenbach does not mention or attempt to
    prove these fee statements. CR 604-06. The fee statements proved by Mr.
    Huttenbach in his first and third affidavits only total $34,793.04.
    In addition, Mr. Huttenbach testifies in his third affidavit that “I currently
    charge the rate of $345.00 per hour, but Compass Bank gets a discount off my
    standard rate.” CR at 716. However, the fee statement attached to Mr.
    Huttenbach’s third affidavit reflects an hourly rate of $345.00, without the discount
    testified to by Mr. Huttenbach.
    Finally Mr. Huttenbach testifies in his affidavits concerning his own
    credentials but fails to address credentials of the other attorneys and paralegals
    whose charges are reflected in the billing statements. This failure is fatal to the
    Bank’s claim for attorney’s fees. See, e.g., El Apple 1, Ltd. v. Olivas, 
    370 S.W.3d 757
    , 763 (Tex. 2012); All Seasons Window & Door Man, Inc. v. Red Dot Corp.,
    
    181 S.W.3d 490
    , 504 (Tex. App. ― Texarkana 2005, no pet.).
    PRAYER
    WHEREFORE, Appellant Francisco Calleja-Ahedo prays that this Court
    reverse the summary judgment granted by the trial court, render judgment in favor
    of Appellant on his Motion for Summary Judgment, or alternatively, remand this
    case to the trial court for further proceedings.
    19
    Respectfully submitted,
    O'CONNOR & CRAIG
    By: /s/ Michael C. O’Connor
    Michael C. O'Connor
    State Bar No. 15187000
    2825 Wilcrest Drive, Suite 261
    Houston, Texas 77042
    (713) 266-3311
    (713) 953-7513 (Fax)
    Email: moconnor@oconnorcraig.com
    Lesley C. O'Connor
    State Bar No. 24086952
    2825 Wilcrest Drive, Suite 261
    Houston, Texas 77042
    (713) 266-3311
    (713) 953-7513 (Fax)
    Email: loconnor@oconnorcraig.com
    ATTORNEYS FOR APPELLANT
    FRANCISCO CALLEJA-AHEDO
    20
    CERTIFICATE OF COMPLIANCE
    Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), I hereby certify that
    this brief contains 4,660 words (excluding the caption, table of contents, table of
    authorities, signature, proof of service, certificate and certificate of compliance).
    This is a computer generated document created using Microsoft Word, using 14-
    point typeface. In making this certificate of compliance, I am relying on the word
    count provided by the software used to prepare the document.
    CERTIFICATE OF SERVICE
    I hereby certify that a true and correct copy of the foregoing document has
    been served on the following counsel of record by telephonic transfer or electronic
    service, on this the 14th day of December, 2015.
    Michael D. Conner
    Hirsch & Westheimer
    1415 Louisiana, 36th Floor
    Houston, Texas 77002
    Facsimile: 713-223-9319
    E-Mail: Mconner@hirschwest.com
    /s/ Michael C. O’Connor
    Michael C. O’Connor
    21