In Compass Bank v. Calleja-Ahedo, an identity thief drained the plaintiff’s bank account through a series of fraudulent transactions in 2012 and 2013, and the plaintiff sued his bank to recover the stolen funds. No. 17-0065, 2018 Tex. LEXIS 1314 (Tex. December 21, 2018). The trial court granted summary judgment for the bank under Section 4.406 of the Business and Commerce Code. The court of appeals reversed and rendered judgment for the plaintiff. 508 S.W.3d 791 (Tex. App.—Houston [1st Dist.] 2016, reversed). The bank appealed to the Texas Supreme Court.
The Court acknowledged that a bank can be liable to its account holder for losses incurred when an imposter takes over the account. Id. (citing Am. Airlines Emps. Fed. Credit Union v. Martin, 29 S.W.3d 86, 95 (Tex. 2000)). However, Section 4.406 provides an exception to this liability and describes consequences that follow when a bank “sends or makes available to a customer” a monthly bank statement showing account transactions. The plaintiff argued, and the court of appeals held, that the statements sent to the imposter were not sent “to a customer” as contemplated by subsection 4.406(a), and therefore, it did not apply. The imposter had contacted the bank and had the statements sent to a different address.
The Texas Supreme Court noted that Section 4.406 applies when the bank sends or makes available a statement to the customer. The statements were made available:
As in the Lenk cases, our conclusion in this case that the Bank made the statements available to Calleja is dictated by the particular circumstances present here. Calleja stopped receiving bank statements a year and a half before he reported a problem. He does not dispute that he could have called the Bank at the 1-800 number provided on his previous statements to ask why the statements stopped arriving. He does not dispute that he could have requested copies of any of the statements by phone, or that he could have obtained copies by visiting any bank branch. He also does not dispute that he could have received copies of the statements or their equivalent by setting up online banking, which the Bank offered for free. Finally, he does not dispute that he failed for over a year to ascertain whether his brother continued to receive mailed statements. Having every reason to notice the paper statements were no longer coming and having several avenues of inquiry available to him, he made no effort to monitor his account until many months after the imposter drained it.
…
When a bank customer waits more than one year after a statement has been made available to report an unauthorized signature reflected on the statement, subsection 4.406(f) protects banks from liability “[w]ithout regard to care or lack of care of either the customer or the bank.” … Applying subsection 4.406(f) to Calleja’s claims, the bulk of the transactions he challenges were listed on his bank statements more than one year before he discovered and reported the transactions. Subsection 4.406(f) bars his claims against the Bank regarding these unauthorized withdrawals.
Id. However, the Court held that Subsection 4.406(f) did not bar claims for unauthorized charges that occurred less than one year before statements reflecting the charges were made available: “some small transactions were recorded in statements made available to Calleja less than one year before he notified the Bank of the fraud. Subsection 4.406(f) does not apply to this small percentage of Calleja’s losses.” Id.
The Court then held that recovery of these remaining amounts was nevertheless barred by subsection 4.406(d)(2), which provides that, after an initial unauthorized withdrawal, subsequent withdrawals “by the same wrongdoer” cannot be recovered from the bank if “the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.” Id. Because the same imposter drained the funds, the bank could not be liable for the newer charges under subsection 4.406(d)(2). The Court held that the trial court correctly concluded that section 4.406 bars the plaintiff’s claims. The Court reversed for the bank, but remanded to the court of appeals, the issue of whether the trial court should not have awarded attorney fees to the Bank as that was not decided by the court of appeals in the earlier opinion.