TRUMP TAJ MAHAL ASSOCIATES, L.L.C. v. THE BANK OF NEW YORK

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4875-03T24875-03T2

TRUMP TAJ MAHAL ASSOCIATES,

L.L.C., a New Jersey general

partnership (d/b/a Trump

Taj Mahal Casino Resort),

Plaintiff-Appellant/

Cross-Respondent,

v.

THE BANK OF NEW YORK,

Defendant-Respondent/

Cross-Appellant.

_____________________________________________________________

 

Argued March 28, 2006 - Decided October 18, 2006

Before Judges Kestin, Hoens and R. B. Coleman.

On appeal from the Superior Court of New Jersey, Law Division, Morris County, L-3302-00.

Robert W. Mauriello, Jr., argued the cause for appellant/cross-respondent (Graham, Curtin & Sheridan, attorneys; Mr. Mauriello, on the brief).

Michael J. Geraghty argued the cause for respondent/cross-appellant (Saiber Schlesinger Satz and Goldstein, attorneys; Mr. Geraghty, on the brief).

PER CURIAM

This appeal and cross-appeal arise from losses that plaintiff, Trump Taj Mahal Associates (TTMA), alleges it sustained after it attempted to verify the validity of a teller's check presented by one of its patrons, Jamail Mekhail. The check, payable to TTMA, was drawn on an account maintained by Canadian Imperial Bank of Commerce (CIBC) at defendant, Bank of New York (BNY). On June 16, 2000, in advance of his arrival, Mekhail faxed a copy of the teller's check, in the amount of $370,208, to TTMA's Atlantic City casino. TTMA reviewed Mekhail's history at the casino and decided to monitor his activities. In addition, a TTMA employee contacted BNY, the payor bank, at its international call center in Lodi, to verify whether the issuing bank, CIBC, had available funds in its account to cover a teller's check in the amount of $370,208 and whether any stop payments had been issued. The BNY representative advised TTMA that, according to her records, there were "funds available[;] no stops or holds." Without further inquiry or investigation, TTMA accepted Mekhail's teller's check. That check had been altered from its issuance amount of $1,040 to $370,208.

BNY offered an electronic advice of drawings (AOD) service to subscribing banks, including CIBC, pursuant to which the subscribing bank could send BNY an electronic message with identifying information regarding cashier's or teller's checks or any check greater than $5,000, and periodic updates on such checks would be incorporated into BNY's Current Account System. If BNY did not have an electronic AOD message on the check at the time of presentment, or if a message was at variance with a check, BNY would contact the subscribing issuer for payment instructions. Thus, when the TTMA employee contacted BNY's international call center, the BNY representative at the call center could have reviewed another screen on her computer system to see if an AOD message had been received, but she did not do so. If she had made such a review, she would have found there was no evidence of a $370,208 check drawn on CIBC's account at BNY.

On June 16, 2000, shortly after 4:00 p.m., Mekhail called plaintiff from the airport to ask about his check. He spoke to an employee who advised him that he "had to play against at least half the funds or buy back the check," to which he replied, "of course, I am coming to play."

On June 17, 2000, at 8:00 a.m., Mekhail deposited the check with plaintiff at the cage. An employee of TTMA advised him that plaintiff's policy on cash equivalents required him "to show a specific amount of play in order to receive cash back at the end of his trip." At 8:00 a.m., he made his first withdrawal of chips, worth $30,000. During that day and the next, Mekhail made eight more chip withdrawals for a total of $370,000. Each withdrawal was documented by a "customer deposit withdrawal" receipt, as follows:

June 17 8:00 a.m. $30,000

June 17 10:52 a.m. $50,000

June 17 1:24 p.m. $50,000

June 17 4:51 p.m. $40,000

June 17 7:59 p.m. $50,000

June 17 10:30 p.m. $50,000

June 18 11:04 a.m. $10,000

June 18 3:30 p.m. $50,000

June 18 7:09 p.m. $40,000

At an unspecified time on June 17, 2000, one of plaintiff's dealers filed a "suspicious activity report" in which she wrote that Mekhail paid a "cash deposit" for $50,000 on her game and "took [a] marker," but "took money out when he did not need it." The report was in line with an internal memo of plaintiff's listing examples of suspicious activities, including the deposit of a cashier's check and the withdrawal of funds after little or no play. Ken Pomeroy, the manager of the casino's "cashier's cage," testified that a suspicious activity report did not necessarily result in immediate action because plaintiff used its institutional judgment to weigh such a "preliminary report," which he saw as a "minor filing" of occurrences that are not extraordinary, against "the entire trip and the entire activity" of the patron.

On June 18, 2000, sometime "in the later morning," another employee, the casino cage supervisor reported that Mekhail was withdrawing markers at the gaming table without showing any play. She advised him that "there was not much we could do if he was withdrawing from his front money." Pomeroy was called at home and informed of Mekhail's suspicious activity.

A short time later, Mekhail went to the cashier's cage seeking to withdraw $80,000 in cash. At that time, he had $100,208 still on deposit. He had registered sixteen hours of play, which Pomeroy called "quite a bit of time," and an overall win of $16,000. Pomeroy testified that plaintiff generally did not "give cash out" to winning patrons with a cash equivalent on deposit, and asked them to buy back their deposit instrument or take a casino check instead.

Wilson accordingly told Mekhail that he had to engage in play at gaming tables and draw markers there against his deposit. Mekhail stated that he had "lost" in plaintiff's casino, taken some of his chips to another casino and lost them there, and wanted cash to continue playing at that other casino. Rescigno and Wilson told him that he could not withdraw cash. Mekhail said that he had chips in his room, and Wilson replied that he could cash them out if they had been issued by plaintiff. Mekhail went away and returned with $40,000 in chips, for which plaintiff gave him an equal amount of cash. Wilson then filed a suspicious activity report. Thus, despite what was regarded as suspicious activity by Mekhail over a period of two days, TTMA allowed Mekhail to draw casino chips against the altered check and to exchange some of his chips for $40,000 cash.

TTMA held Mekhail's check until June 20, 2002. It then deposited the teller's check with First Union, which presented it for payment to BNY. The check was stamped "paid" without an inspection but, because BNY had not received an AOD message from CIBC for a check in the amount of $370,208, BNY contacted CIBC for payment instructions. CIBC advised BNY that the check had been altered from $1,040 to $370,208. BNY cancelled the "paid" stamp and returned the check to First Union. The next day the check was returned to TTMA.

In its complaint, TTMA alleged that BNY is liable for damages associated with the altered check because: (1) TTMA is a holder in due course; (2) BNY acted negligently in verifying the check; (3) BNY negligently misrepresented that the check was valid; and (4) BNY should be estopped from denying the validity of the check. The trial court found that both TTMA and BNY had been negligent, but dismissed plaintiff's negligent misrepresentation and estoppel claims. The court agreed that plaintiff was a holder in due course of the teller's check, but that plaintiff's claims for losses were limited to $21,040 by reason of its own negligence, and that pursuant to the offer-of-judgment rule, R. 4:58, defendant was entitled to an award of attorneys' fees and costs. The net result was a judgment for defendant of $60,493.51. Plaintiff appealed and defendant cross-appealed. We affirm in part and reverse in part. We remand for a modification of the judgment.

TTMA contends the trial court erred by finding it was negligent. TTMA also argues it reasonably relied on BNY's silence about the validity of the teller's check as confirmation that it was indeed valid. The trial court found that TTMA did not adhere to casino regulations or to its own procedures, and, if it had, it would have learned of the alteration of the check and avoided the loss.

For a teller's check made payable to a casino, the Casino Control Act requires the casino to have its "validity . . . verified by the drawer," meaning the issuing bank. N.J.S.A. 5:12-101(g)(1)(b), (g)(1)(c), and (g)(4); N.J.S.A. 12A:3-104(g). Furthermore, TTMA's own written procedures required employees to determine the validity of a cash equivalent, such as a teller's check, by verifying it with "the issuer," here CIBC, prior to acceptance. Instead of calling the issuer, as required, TTMA's employee called the payor bank, BNY. Under all the circumstances, the court properly concluded that TTMA was negligent. On the other hand, it is clear that BNY did not negligently verify the teller's check, nor misrepresent its validity. An imprecise and inadequate inquiry was made by TTMA and no representations were given by BNY with respect to the issuance of the check by CIBC. BNY truthfully confirmed that CIBC had available funds to cover a teller's check in the amount of $370,208 and that no stops or holds had been issued by CIBC. BNY was not asked whether CIBC had issued such a check.

This court's review of the trial court's fact-finding is limited. "Trial court findings are ordinarily not disturbed unless 'they are so wholly unsupportable as to result in a denial of justice.'" Meshinsky v. Nichols Yacht Sales, 110 N.J. 464, 475 (1988) (quoting Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974)). Based on the above facts, the trial court was well within its fact-finding discretion to find: (a) that plaintiff's purported reliance on the BNY representative's response to its inquiry as validation of Mekhail's check was unjustified and unreasonable; (b) that TTMA's unreasonable reliance was a substantial contributing factor to TTMA's subsequent payment of $40,000 in cash to Mekhail for his chips; and (c) that there was no public policy reason to justify plaintiff's failure to follow its own requirement of verifying a teller's check with the issuer. TTMA should have followed proper protocol. If it had done so, plaintiff could have avoided the loss completely. Moreover, upon making its inquiry, TTMA should have been more precise. If it had asked whether CIBC had issued a check to Mekhail, it would have either learned that no such check had been issued or it would have been told the information was not available and that further inquiry was available. Thus, the record not only contains sufficient evidence to support the trial judge's determination that plaintiff was negligent, but also that TTMA did not reasonably rely on representations made by BNY.

BNY argues that the trial court erred by finding it liable for common law negligence. The trial court found that based on the phone call to defendant's call center, plaintiff and defendant had a special relationship because BNY's employee did not request a fax of the check, did not reject TTMA's request for information in the first place, and did not leave the conversation with TTMA open-ended or unanswered. When TTMA called BNY's call center, BNY's representative was asked about fund availability and stop payments, and told TTMA that there were sufficient funds and no stops or holds. TTMA only requested verification, without being more specific or otherwise implying a particular concern beyond the existence of sufficient funds and the absence of stops or holds. BNY's employee did not attempt to access the AOD information on her computer, although it was easily accessible. Generally, the AOD screen was accessed "under very limited circumstances," for example, when a customer asked for advice about re-presenting a check that had been returned with a notice that defendant was "cabling for authority to pay" and referring the customer to the maker. TTMA was not a customer or subscribing bank.

The existence of a duty of care for a negligence claim is a question of law to be decided by the court. Kernan v. One Washington Park Urban Renewal Assocs., 154 N.J. 437, 445 (1998); Wang v. Allstate Ins. Co., 125 N.J. 2, 15 (1991); Arvanitis v. Hios, 307 N.J. Super. 577, 581 (App. Div. 1998). It is "ultimately a question of fairness" or policy which "'involves a weighing of the relationship of the parties, the nature of the risk, and the public interest in the proposed solutions.'" Kelly v. Gwinnell, 96 N.J. 538, 544 (1984) (quoting Goldberg v. Hous. Auth. of Newark, 38 N.J. 578, 583 (1962)); accord Wang, supra, 125 N.J. at 15. Like all questions of law, such determinations are reviewed de novo. Appellate courts are not bound by a trial court's interpretation of the law or of the legal consequences of uncontested facts. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

In a similar case, a non-customer's negligence action against a bank for "nonfeasance" was held to be barred, unless there was a "special relationship," such as, fiduciary, confidential, contractual or legal where there has been fraud or misrepresentation on the part of the bank. City Check Cashing v. Mfrs. Hanover Trust Co., 166 N.J. 49, 59-60 (2001). Without such a connection, a bank could not be liable to a non-customer even if it had improperly handled the customer's account or a related matter. Id. at 61. Since there was no agreement between plaintiff and defendant regarding the verification of a teller's check, the only applicable question is whether there was an undertaking giving rise to the "special relationship," or to a common law duty to give a more complete response than what was called for by the questions asked.

There is no evidence before us that TTMA was aware of the AOD message system in place or that it had an expectation that the payor bank would be able to confirm the validity of a teller's check in the same manner as the issuing bank. Furthermore, BNY had no notice that TTMA's inquiry was anything other than a merchant's typical concerns about sufficient funds and stop-payment orders and had no reason to speculate about why TTMA was directing the inquiry to it or whether it was or was not also contacting CIBC, the issuing bank. The practice in BNY's call center for handling non-customer inquiries like plaintiff's did not include looking for an AOD message, until presentment. That practice was sufficient for defendant to satisfy the limited duty that a payor bank owes under City Check Cashing. BNY did not breach that duty, so its conduct cannot be considered a proximate cause of plaintiff's loss. Accordingly, we reverse the trial court's order as to BNY's asserted negligence.

TTMA contends the trial court incorrectly denied its claims for both negligent misrepresentation and estoppel. A trial court's finding concerning estoppel is reviewed under an abuse of discretion standard. See Faustin v. Lewis, 85 N.J. 507, 512 (1981). Negligent misrepresentation is the negligent furnishing of false information to a "reasonably foreseeable recipient" who relies on it to his or her detriment. Karu v. Feldman, 119 N.J. 135, 146-47 (1990). Reliance upon the representation must be justifiable. H. Rosenblum, Inc. v. Adler, 93 N.J. 324, 334 (1983); Zielinski v. Prof'l Appraisal Assocs., 326 N.J. Super. 219, 227 (App. Div. 1999).

A party claiming equitable estoppel has the burden to show that the party which it seeks to estop had performed the action or made the representation in question "intentionally or under such circumstances that it was both natural and probable that it would induce action," and the claiming party must have relied on that action or representation to its detriment. Miller v. Miller, 97 N.J. 154, 163 (1984). "The requirements of equitable estoppel are quite exacting," but the doctrine may be invoked to prevent a "manifest injustice." W.V. Pangborne & Co. v. New Jersey Dep't of Transp., 116 N.J. 543, 553-54 (1989).

As we have already stated, there was no justification for plaintiff to interpret defendant's statement that there were sufficient funds and no stops or holds to mean that a check of a certain description had been issued. There simply was no confirmation of valid issuance. The unsolicited call to BNY and its simple, and accurate, response are insufficient to establish that BNY intended the caller to regard the response as confirmation of the validity of a check that was not definitively identified. BNY neither misrepresented information nor knowingly concealed any material information. Therefore, the trial court did not abuse its discretion in dismissing plaintiff's claims for equitable estoppel and negligent misrepresentation.

BNY also contends that the trial court erred by finding that TTMA was entitled to enforce against it the rights of a holder in due course. The trial court found that TTMA was a holder in due course of the check because it took the check for value and in good faith without notice of the alteration. It held that a teller's check is "accepted upon presentment," and TTMA effected presentment when its bank sought payment from BNY.

We agree that plaintiff satisfied the N.J.S.A. 12A:3-302(a) definition of a holder in due course and, therefore, has a right of enforcement in the obligation represented by the check. However, as the drawee of the check, BNY is not liable, even to a holder in due course, until it accepts the check. N.J.S.A. 12A:3-408; Trump Plaza Assocs. v. Haas, 300 N.J. Super. 113, 123 (App. Div.), certif. denied, 151 N.J. 75 (1997). Unless the drawee has certified a check, it may defer acceptance until its midnight deadline for payment or dishonor. N.J.S.A. 12A:4-301(a).

The "paid" stamp that defendant put on Mekhail's check as a routine matter was simply evidence of internal processing, which defendant could and did cancel before the midnight deadline. Neither presentment of the check nor defendant's preliminary stamping it as "paid" constituted acceptance. Defendant rightfully avoided acceptance by dishonoring the check prior to the midnight deadline. Therefore, plaintiff's rights as a holder in due course were not enforceable, and the trial court's findings on this issue are reversed. Plaintiff would, however, be entitled to $1,040, representing the amount of the check as issued and before it was altered.

Finally, TTMA contends that the trial court erred in awarding BNY attorneys' fees, based on BNY's offer, pursuant to R. 4:58-3, to allow judgment to be entered against itself for $102,000 in advance of trial.

The UCC provision, N.J.S.A. 12A:3-411(b), urged by TTMA as an additional basis for it to recover attorneys' fees, is inapplicable. Pursuant to N.J.S.A. 12A:3-411(a), "'obligated bank' means the acceptor of a certified check or the issuer of a cashier's check or teller's check bought from the issuer." The term "obligated bank" refers to the issuer of the cashier's check or teller's check and the acceptance of the check. BNY is not an "obligated bank" as defined by the statute. The check at issue was not a certified check and BNY was not the issuing bank. On the other hand, the offer of judgment rule, R. 4:58, was properly invoked and understandably applied. TTMA rejected BNY's offer to allow judgment to be taken against it in the amount of $102,000. The damages awarded to TTMA, on its negligence and holder-in-due-course counts, which we vacate, were in an amount more favorable than the offer and the judgment amount was less than eighty percent of the amount of the offer. In light of our determination that TTMA was not entitled to recover damages, we remand the issue of attorneys' fees under R. 4:58-3 to the trial court for further consideration.

To summarize, the trial court correctly determined that plaintiff was negligent and that its negligence was a proximate cause of its loss. It erred by finding that defendant violated a common law duty of care when it responded to plaintiff's inquiry, and also by finding that defendant was subject to plaintiff's rights as a holder-in-due-course. Those findings are reversed and the remaining claims, except the award of attorneys' fees to defendant, pursuant to R. 4:58-3, are affirmed. The matter is remanded for adjustment of the net counsel fee award to BNY to reflect our reversal of the liability award to plaintiff.

 
Reversed in part; affirmed in part; and remanded for further consideration of counsel fees under R. 4:58-3.

The Appellate Division mandated use of this name when it reinstated the appeal on the conclusion of the bankruptcy proceedings for plaintiff's predecessor.

Before the events at issue in this case, Mekhail's most recent visit to plaintiff had been in 1995, for which he had a "cash buy-in" of $4,800, an average bet of $181, a total playing time of approximately eleven hours, and a loss of $5,300. From 1990 through 1993, he had made numerous similar visits.

The trial court decision resulted in TTMA having to pay BNY $60,493.51, representing the difference between the amount of fees and expenses awarded to BNY and the amount of damages awarded to TTMA at trial.

(continued)

(continued)

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A-4875-03T2

October 18, 2006