National Tit. Ins. of NY, Inc. v Spectrum Settlement Group, Inc.

[*1] National Tit. Ins. of NY, Inc. v Spectrum Settlement Group, Inc. 2006 NY Slip Op 52171(U) [13 Misc 3d 1239(A)] Decided on September 25, 2006 Supreme Court, Suffolk County Sgroi, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 25, 2006
Supreme Court, Suffolk County

National Title Insurance of New York, Inc. and Fidelity National Title Insurance Company of New York, Plaintiffs,

against

Spectrum Settlement Group, Inc., Christine Cidoni, HSBC Bank USA and Fleet Boston Financial Corporation, Defendants.



6611-2004



CHRISTOPHER P. KOHN, ESQ.

Attorney for Plaintiffs

350 Fifth Avenue, Suite 5016

New York, New York 10118

LAW OFFICE OF CONRAD D. SINGER, P.C.

Attorney for Defendants HSBC Bank USA and Fleet National Bank

9 Park Place

Great Neck, New York 11021

RUSSO & GAJDOS, LLP

Attorney for Defendants Spectrum Settlement Group, Inc. and Christina Cidoni

31 West Main Street-Suite 203

Patchogue, New York 11772

Sandra L. Sgroi, J.

It is, ORDERED that the motion of the Defendants HSBC Bank USA and Fleet National Bank for summary judgment is granted only to the extent that Fleet National Bank is granted summary judgment as against the Defendants Spectrum Settlement Group, Inc. and Christine Cidoni on its cross claims; and it is further

[*2]ORDERED that the cross motion of the Plaintiffs National Title Insurance of New York, Inc. and Fidelity National Title Insurance Company of New York for summary judgment against the Defendants HSBC Bank and Fleet Bank is granted. Enter Judgment.

In the years from 1999 through 2003, the Defendant Christina Cidoni individually and as the president of the Defendant Spectrum Settlement Group (hereinafter "Spectrum") opened and maintained bank accounts at the Bay Shore branch of HSBC Bank USA (hereinafter HSBC). In 2003, Cidoni allegedly converted a check issued at a closing for residential real property that was intended to pay off a mortgage. Instead of delivering the check to a representative of the mortgagee, Cidoni apparently deposited the check in the amount of $207,530.41 into an HSBC bank account titled to Spectrum. The check was written upon the account of Lara Harmel, Esq. and issued as part of a closing for the purchase and sale of residential real property. This check was made payable to "ABN Amro Mortgage"and it was drawn upon an account located with the Defendant Fleet Boston Financial Corporation (hereinafter "Fleet").

Fidelity National Title Insurance Company of New York (hereinafter "Fidelity") is a Plaintiff by virtue of an assignment of claim from ABN Amro Mortgage Group, Inc. (hereinafter "ABN Amro") as the payee on a negotiable instrument. Fidelity paid ABN Amro the amount of $209,288.55 to satisfy its mortgage after it was discovered that the check made payable to ABN Amro was converted and ABN Amro did not receive the funds necessary to satisfy the mortgage on the property. While the Defendants HSBC and Fleet allege that the Plaintiffs do not have standing to bring this law suit at this time, the facts herein show that Fidelity paid off the mortgage pursuant to its legal obligations under the mortgagee's title insurance policy. After the ABN Amro mortgage was satisfied by Fidelity, Fidelity received an assignment of claim from ABN Amro. (Plaintiffs' Exhibit "A" attached to affirmation in opposition).

On August 30, 2003, Cidoni appeared at a real estate closing as an independent title closer. At that closing, the check drawn on attorney Harmel's account was issued for the purpose of satisfying the mortgage of the seller and Cidoni was responsible for transporting and delivering the check to the mortgage company, ABN Amro, to satisfy the mortgage of the vendors. While Cidoni has repeatedly taken the Fifth Amendment at her civil deposition when asked about the facts surrounding this litigation, certain facts are clear from the testimony of other parties and the documentary evidence before this Court on this motion. After Cidoni received the check drawn on the Harmel account, that check was deposited into an HSBC bank account of Spectrum even though the check was made payable to ABN Amro. The only endorsement on the back of the check read "for deposit" but it did not specify the account that the check was to be deposited into by the holder. The check was not made payable to Spectrum or cash. This check also was never signed by a representative of the payee.

While the tortfeasor who intentionally converts funds using a check payable to another entity remains liable for his misfeasance, UCC § 3-419(1) imposes liability for the conversion upon anyone who pays a check over a forged endorsement or negotiates a check improperly. UCC § 3-419(3) relieves a depository or collecting bank from liability if it has dealt with the instrument in accordance with reasonable commercial standards. It is the duty of the first entity that takes [*3]the check, the depository bank (here HSBC), to examine the chain of endorsements on that check and to honor that check in accordance with the restrictions on the check using commercially reasonable standards (see, Underpinning & Found. Constructors v. Chase Manhattan Bank, 46 NY2d 459, 414 NYS2d 298, 386 NE2d 1319).

It has been held that if a check is only marked "for deposit" and the first bank in the chain of collecting banks accepts that check and deposits it into an account not owned by the payee listed on the face of the check, the acceptance of the deposit violates the reasonable commercial standard imposed by the UCC on collecting banks (see, Millens v. Kingston Trust Co., 118 Misc 2d 512, 461 NYS2d 938 citing Birmingham Trust National Bank v. Central Bank & Trust Co., 12 UCCR 468). Further, it has been held that "where the depositary bank has been negligent in dealing with a check, it is liable for any damage to the true owner even if the check proceeds no longer remain in its hands" ( Alumax Aluminum Corp. v. Norstar Bank, 168 AD2d 163, 165, 572 NYS2d 133). Apparently, the money that was credited to the Spectrum account when the improperly endorsed check was deposited is no longer in that bank account.

Often it is an issue of fact precluding summary judgment as to whether the depository bank, the first bank that accepted the check with an improper endorsement, acted in a commercially reasonable manner when it accepted the check for negotiation after it becomes obvious that a forgery has occurred and litigation has commenced (see, B.D.G.S., Inc. v. Balio, 26 AD3d 730, 811 NYS2d 504, leave to appeal granted 7 NY3d 702, 850 NE2d 1167, 818 NYS2d 192; Shivers v. Citibank, 12 AD3d 248, 783 NYS2d 818).

However, there are times that either the liability or lack of liability of the Bank is so clear that the Court may decide the issue on the basis of a motion for summary judgment. For example, it has been held that where a person has opened an account in the name of a business titled "29th Street Company", it was not commercially unreasonable as a matter of law for the bank to accept checks for deposit made payable to "29th Street Corp." into that account where those checks were endorsed only by the term "29th Street"(see, 29th Street Corp. v. New York Community Bank, 2 AD3d 838, 769 NYS2d 734; see also Penny Technologies, Inc. v. Citibank, N.A., 248 AD2d 217, 669 NYS2d 816 leave to appeal den'd 92 NY2d 814, 704 NE2d 228, 681 NYS2d 475). Here, the Court is faced with the converse situation because the Bank accepted a check for deposit that was made payable to another entity other than the entity that owned the account and this fact scenario should have immediately placed the employees of the bank on notice that the acceptance of that check was improper (see, Society Natl. Bank v. Security Fed. S. & L., 71 Ohio St. 3d 321, 643 NE2d 1090 reconsideration denied, 71 Ohio St. 3d 1459, 644 NE2d 1031; Cairo Co-op. Exchange v. First Nat. Bank of Cunningham, 228 Kan. 613, 620 P.2d 805 rehearing denied and opinion modified 229 Kan. 184, 624 P.2d 420).

The Harmel check was not endorsed by the payee, the entity that owned the account or any other entity and it was only marked "for deposit". Unlike the situation in the case of 29th Street Corp. v. New York Community Bank, the name of Spectrum Settlement Group, Inc., the owner of the account that the check was deposited into by the bank, was by no reasonable review of the names [*4]at all similar to ABN Amro Mortgage, the name of the payee on the check. The acceptance and deposit of that check without a proper endorsement from the payee ABN Amro was unreasonable as a matter of law (see, Home Ins. Co. v. Manufacturers Hanover Trust Co., 203 AD2d 125, 610 NYS2d 508). This is not a situation where the endorsement of the payee was forged and an issue of fact existed as to whether the depository bank acted in a reasonable manner in accepting a forged signature (see, Shivers v. Citibank, N.A., 12 AD3d 248, 783 NYS2d 818). Here, there was no signature on the check, and the acceptance of a check by a bank for negotiation with no endorsement is commercially unreasonable.

The Defendant Fleet has moved for summary judgment against the Co defendants Cidoni and Spectrum (HSBC has not joined in this motion). The Court agrees that Fleet should be awarded summary judgment on its cross claims against Cidoni and Spectrum. Neither Cidoni nor Spectrum has opposed this motion and on the basis of this record, there are no fact issues that would justify the denial of the motion for summary judgment against these two Defendants.

________________________

SANDRA L. SGROI, J. S. C.