| Andre Romanelli, Inc. v Citibank, N.A. |
| 2009 NY Slip Op 01582 [60 AD3d 428] |
| March 5, 2009 |
| Appellate Division, First Department |
| Andre Romanelli, Inc., et al., Appellants, v Citibank, N.A.,Formerly Known as European American Bank, et al., Defendants, and J.P. Morgan Chase Bank,N.A., et al., Respondents. |
—[*1] Levi Lubarsky & Feigenbaum LLP, New York (Andrea Likwornik Weiss of counsel), forJ.P. Morgan Chase Bank, N.A., respondent. Thompson Hine LLP, New York (Norman A. Bloch of counsel), for Susan Goodman,respondent.
Order, Supreme Court, New York County (Richard B. Lowe, III, J.), entered April 16, 2008,which, to the extent appealed from as limited by the briefs, granted the motions of defendantsJ.P. Morgan Chase Bank, N.A. and Susan Goodman for summary judgment dismissing theamended complaint, unanimously affirmed, without costs.
Plaintiffs allege that defendant Stephen Schor, their accountant and financial advisor,suggested that they open accounts at defendant Chase in order to obtain a lower interest rate on aline of credit. Plaintiffs' principal signed a business account application, corporate resolution andsignature card for Romanelli and gave it to the accountant. However, he failed to cross out theunused signature boxes on the card as directed by the instructions on the signature card.Plaintiffs allege that the accountant later told them he could not get a more favorable interest rateso they instructed him not to open the account.
Unbeknownst to the principal, the accountant signed on one of the blank lines of thesignature card and opened an account for Romanelli at Chase. He also allegedly opened anaccount a year later in the name of Van Gils. The accountant also changed the mailing addresson the forms to his office address.
Plaintiffs allege that sometime later the accountant suggested that they write checks payableto themselves which he would use to pay taxes in order to convince a lender that plaintiffs hadsufficient assets to support an outstanding line of credit. Plaintiffs agreed and the accountantprepared a list of checks for each plaintiff to write payable to themselves. Plaintiffs wrote checkstotaling approximately $4.5 million between 2000 and 2004 payable to themselves [*2]and gave them to the accountant. The accountant endorsed thechecks, deposited them into the accounts at Chase and then withdrew the funds for his personaluse. Plaintiffs allege he embezzled almost the entire amount. Plaintiffs allege that defendantGoodman, a Chase employee, received "gifts" from the accountant during this period todisregard these transactions.
The risk of loss from the unauthorized acts of a dishonest agent falls on the principal thatselected the agent (see Sybedon Corp. v Bank Leumi Trust Co. of N.Y., 224 AD2d 320[1996]). Plaintiffs' principal testified that he hired the accountant to act as a financial advisor forplaintiffs and gave him the checks to pay plaintiffs' taxes. The accountant, therefore, wasplaintiffs' agent and was authorized to endorse the checks payable to plaintiffs and issue checkspayable to the taxing authorities. The bank properly cashed the checks since the endorsement bythe accountant was authorized by the principal (see Rohrbacher v BancOhio Natl. Bank,171 AD2d 533, 535 [1991]).
Moreover, UCC 3-405 (1) provides a complete defense to plaintiffs' claims against the bankand its employee. It creates an exception to the general principle that a drawer is not liable on anunauthorized endorsement. Under this section, an endorsement by any person in the name of thepayee is effective if the maker or drawer did not intend the payee to have an interest in theinstrument or an agent or employee of the maker supplied the maker with the name of the payeeintending the latter to have no interest in the instrument. In the specific factual circumstancesdescribed by this section, the endorsement is treated as effective even though it was technicallyunauthorized, and the loss is allocated to the drawer-employer (see Prudential-Bache Sec. vCitibank, 73 NY2d 263, 270 [1989]).
Plaintiffs' principal signed checks payable to plaintiffs based on the accountant's list whichdetailed the amount of each check and the payee. It is undisputed that plaintiffs were not theintended beneficiaries of the checks since plaintiffs intended that Schor use the checks to paytaxes. Thus, pursuant to UCC 3-405 (1), the accountant's endorsement was effective and Chaseand its employee are not liable for the accountant's alleged defalcations.
Plaintiffs' claims of conversion and fraud are fatally defective because they have failed toraise a triable issue of fact concerning knowledge by Chase and its employee of the accountant'salleged misconduct. Although plaintiffs characterize the gifts given to the bank employee asbribes, there was evidence that she was a friend of the accountant who was known to give overlygenerous gifts to acquaintances and the first gift was given two years after the first account wasopened. Moreover, very few of the checks were presented by the accountant for payment at thebranch where she worked. Plaintiffs also failed to provide any evidence of a quid pro quo for thegifts.
We have reviewed plaintiffs' remaining arguments and find them unavailing.Concur—Tom, J.P., Moskowitz, Renwick and Freedman, JJ. [See 2008 NY SlipOp 31105(U).]