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ADS Associates Group, Inc. v. Oritani Savings Bank

A-2999-08T1 (N.J. Super. App. Div. 2011) (Unpublished)

BANKS; CUSTOMERS —One can assert a “non-customer” claim against a bank based upon the nature of the contact between the bank and the non-customer and the surrounding circumstances of that contact, such as information that the non-customer may have received when an account was opened by a bank customer.

Two individuals opened up a business checking account in the name of one of the individual’s corporation. It was a two-signature account. The corporation already had accounts at the bank. Shortly thereafter, without knowledge of one of the individuals, the corporation’s sole shareholder began electronically transferring funds from the new account to the corporation’s other accounts. Electronic transfers only required one “signature.” The individual, non-shareholder had no control or interest in those accounts even though he was an employee of the corporation. As soon as he learned about these transfers, he sued the corporation’s shareholder and the bank.

The lower court found that the corporation was the bank’s customer under the Uniform Commercial Code (UCC), not the individual’s bank. Consequently, it dismissed all of the claims against the bank. The court, however, allowed the individual to file an amended complaint naming the corporation as the plaintiff, and the bank as the defendant. Essentially, it allowed the individual, non-shareholder to prosecute the matter on behalf of the corporation. An amended complaint was filed, and it alleged breach of contract, conversion, UCC violations, negligence, breach of fiduciary duty, misrepresentations, and omissions in violation of the Consumer Fraud Act. The lower court dismissed all the claims against the bank, except the claim that the unauthorized internet transfers had violated the UCC. A jury returned a verdict in favor of the corporation but, based on indemnity agreements between the corporation and the bank, the bank was granted judgment notwithstanding the verdict.

On appeal, the individual argued that the lower court erred in dismissing his individual claims against the bank. The bank cross-appealed, arguing that the individual should not have been allowed to prosecute the matter on behalf of the corporation. First, the Appellate Division ruled that the lower court correctly found that the corporation, not the individual, was the bank’s customer. Under the UCC, a customer is a person or entity either having an account with a bank or is one from whom the bank has agreed to receive payment orders. Even though the individual was the corporation’s treasurer and a signatory, he fell into neither category of customer. Therefore it was the corporation that was considered the bank’s customer, not the individual.

The Court ruled that the lower court erred when it held that the individual could prosecute a claim on behalf of the corporation. Under the corporation’s by-laws, he had no authority whatsoever to file or prosecute any lawsuits on behalf of the corporation. He was never a shareholder or director. He had no authority to act on behalf of the corporation. Therefore, the bank’s summary judgment motion should have been granted.

On the other hand, even though the individual could not pursue a “customer claim” against the bank, he was still entitled to assert common law “non-customer” claims. Even where there is no agreement, a bank can still be liable to a non-customer on the basis of a “contact.” This depends on the nature of the contact and the surrounding circumstances. Thus, the individual should have been permitted to pursue his common law, non-customer claims against the bank since his contact with the bank created a special relationship. As a result, the bank had a duty to disclose the availability and effect of internet banking and how it could result in an electronic transfer of funds without the two-signature authorization. The individual had stressed how important the two-signature requirement would be to move funds from the account, even though he was not a “customer.” It may have had a duty to tell him that electronic funds did not need two signatures to move funds. For all these reasons the Court reversed and remanded the matter.

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