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Illinois appeals court holds that law firm is not entitled to recover funds from a bank for counterfeit check that was deposited into a client trust account as part of a scam

Hello and welcome to this Ethics Alert blog which will discuss the recent Illinois Court of Appeals case which upheld a dismissal on summary judgment which confirms that a law firm which is the victim of a check scam involving a client trust account has no recourse against the financial institution for negligence.  The case is Dixon, Laukitis, & Downing, P.C. v. Busey Bank, 2013 Il. App. (3d) 120832 (July 31, 2013).  The case is online at: https://www.state.il.us/court/Opinions/AppellateCourt/2013/3rdDistrict/3120832.pdf        

According to the opinion, the law firm maintained its client trust account at the defendant bank.  As part of a scam, the law firm apparently unknowingly deposited a worthless $350,000.00 check from a foreign bank into the law firm’s client trust account and then wrote $270,000.00 in checks before the foreign check was fully negotiated.  When the check bounced, the bank removed $350,000.00 from law firm’s trust account.  Ouch.

The law firm then sued the bank for negligence alleging that the bank had a duty to “inquire as to the circumstances of how (the law firm) acquired the check; recognize the check as counterfeit and inform (the law firm); advise (the law firm) that funds should not be withdrawn until final payment given the nature of the check and the account; and notify (the law firm) at the ‘earliest time it knew or should have known that the check would not be paid by the drawee bank.'”

The trial court dismissed the lawsuit on summary judgment, relying on the account agreement that the law firm had with the bank as well as various provisions of Article 4 of the Federal UCC.  Since the bank complied with the provisions of the UCC, and UCC compliance is “non-negligent” as a matter of law, the court concluded that the bank was not liable to the law firm.  Also, any bank duties to the law firm were set forth out in the account agreement and the economic loss doctrine in Illinois prohibited tort claims under that theory.

The appellate opinion upheld the dismissal on summary judgment stating:  “(w)here, as here, the account agreement and UCC set forth (the bank’s) duties and define ordinary care, there is no extracontractual relationship.  Because (the law firm) is claiming solely economic loss, it cannot pursue a tort action under the Moorman doctrine. We find that the trial court properly dismissed the complaint under section 2-619.”

Bottom line:  This decision confirms that lawyers and law firms must be very wary and not be tricked by these types of check scams since they have little recourse, absent insurance coverage, and they may also be subject to Bar discipline.

Be very careful out there!                         

Disclaimer:  this e-mail does not contain any legal advice and the comments herein should not be relied upon by anyone who reads it.

Joseph A. Corsmeier, Esquire

Law Office of Joseph A. Corsmeier, P.A.

2454 McMullen Booth Road, Suite 431

Clearwater, Florida 33759

Office (727) 799-1688

Fax     (727) 799-1670

[email protected]

www.jac-law.com

 

 

 

 

 

 

 

 

 

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