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The Fiduciary Litigator

Texas Supreme Court Held Bank Was Not Liable For Fraudulent Withdrawals From An Account Due To UCC 4.406

By David Fowler Johnson on January 27, 2019
Posted in Cases Decided, Texas Supreme Court

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.

Tags: fraud with bank account, fraudulent activity, make bank account statements available, UCC 4.406
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Photo of David Fowler Johnson David Fowler Johnson

[email protected]
817.420.8223

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary…

[email protected]
817.420.8223

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. Read More

David’s financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class action, RICO actions, usury, various tort causes of action, breach of fiduciary duty claims, and preference and other related claims raised by receivers.

David also has experience in estate and trust disputes including will contests, mental competency issues, undue influence, trust modification/clarification, breach of fiduciary duty and related claims, and accountings. David’s recent trial experience includes:

  • Representing a bank in federal class action suit where trust beneficiaries challenged whether the bank was the authorized trustee of over 220 trusts;
  • Representing a bank in state court regarding claims that it mismanaged oil and gas assets;
  • Representing a bank who filed suit in probate court to modify three trusts to remove a charitable beneficiary that had substantially changed operations;
  • Represented an individual executor of an estate against claims raised by a beneficiary for breach of fiduciary duty and an accounting; and
  • Represented an individual trustee against claims raised by a beneficiary for breach of fiduciary duty, mental competence of the settlor, and undue influence.

David is one of twenty attorneys in the state (of the 84,000 licensed) that has the triple Board Certification in Civil Trial Law, Civil Appellate and Personal Injury Trial Law by the Texas Board of Legal Specialization.

Additionally, David is a member of the Civil Trial Law Commission of the Texas Board of Legal Specialization. This commission writes and grades the exam for new applicants for civil trial law certification.

David maintains an active appellate practice, which includes:

  • Appeals from final judgments after pre-trial orders such as summary judgments or after jury trials;
  • Interlocutory appeals dealing with temporary injunctions, arbitration, special appearances, sealing the record, and receiverships;
  • Original proceedings such as seeking and defending against mandamus relief; and
  • Seeking emergency relief staying trial court’s orders pending appeal or mandamus.

For example, David was the lead appellate lawyer in the Texas Supreme Court in In re Weekley Homes, LP, 295 S.W.3d 309 (Tex. 2009). The Court issued a ground-breaking opinion in favor of David’s client regarding the standards that a trial court should follow in ordering the production of computers in discovery.

David previously taught Appellate Advocacy at Texas Wesleyan University School of Law located in Fort Worth. David is licensed and has practiced in the U.S. Supreme Court; the Fifth, Seventh, and Eleventh Federal Circuits; the Federal District Courts for the Northern, Eastern, and Western Districts of Texas; the Texas Supreme Court and various Texas intermediate appellate courts. David also served as an adjunct professor at Baylor University Law School, where he taught products liability and portions of health law. He has authored many legal articles and spoken at numerous legal education courses on both trial and appellate issues. His articles have been cited as authority by the Texas Supreme Court (twice) and the Texas Courts of Appeals located in Waco, Texarkana, Beaumont, Tyler and Houston (Fourteenth District), and a federal district court in Pennsylvania. David’s articles also have been cited by McDonald and Carlson in their Texas Civil Practice treatise, William v. Dorsaneo in the Texas Litigation Guide, and various authors in the Baylor Law Review, St. Mary’s Law Journal, South Texas Law Review and Tennessee Law Review.

Representative Experience

  • Civil Litigation and Appellate Law
Read more about David Fowler JohnsonDavid's Linkedin Profile
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