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FIRSTAR BANK v. WELLS FARGO BANK

June 14, 2004.

FIRSTAR BANK, N.A., Plaintiff,
v.
WELLS FARGO BANK, N.A., and THE FEDERAL RESERVE BANK OF CHICAGO, Defendants.



The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff, Firstar Bank N.A. ("Firstar"), has filed a three-count Amended Complaint against defendants, Wells Fargo Bank N.A. ("Wells Fargo") and The Federal Reserve Bank of Chicago ("FRBC"). In Count I, Firstar alleges that Wells Fargo and FRBC breached certain presentment warranties imposed by the Uniform Commercial Code ("UCC"). In Count II, Firstar alleges that FRBC breached warranties imposed under Regulation J, 12 C.F.R. § 210.6(b)(1).*fn1 Before the court are the parties' cross-motions for summary judgment. For the reasons set forth below, Firstar's motion is denied while defendants' motion is granted.

SUMMARY JUDGMENT STANDARDS

  Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). To determine whether any genuine fact exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed R. Civ. P. 56(c) Advisory Committee's notes. The party seeking summary judgment bears the initial burden of proving there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In response, the non-moving party cannot rest on bare pleadings alone but must use the evidentiary tools listed above to designate specific material facts showing that there is a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). A material fact must be outcome determinative under the governing law. Insolia, 216 F.3d at 598-99. Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, Bellaver v. Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the court must construe all facts in a light most favorable to the non-moving party as well as view all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). On cross-motions for summary judgment, the court must consider the merits of each motion and assess the burden of proof that each party would bear on an issue at trial. Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997).

  FACTS*fn2

  A. Background of Check Processing

  A check is written by a drawer and delivered to a payee. (Def. L.R. 56.1 ¶ 6.) The payee typically deposits the check into his or her bank account to obtain the proceeds of the check. (Id.) The payee's bank (referred to as the depositary bank) sends the check through the bank collection system to obtain payment from the drawer's bank (referred to as the drawee or paying bank). (Id.) The bank collection system is a collection of banks, clearinghouses and Federal Reserve Banks governed by Articles 3 and 4 of the UCC and federal regulations. (Id.)

  Banks process and sort checks automatically using Magnetic Ink Character Recognition ("MICR") technology. (Def. L.R. 56.1 ¶ 11.) This technology permits the electronic reading and mechanical processing of paper checks. (Id.) Banks are assigned an identifier called a routing number for processing checks. (Id.) Checks that are to be processed automatically must have a routing number printed in magnetic ink along the bottom of the check that identifies the paying bank. (Id.) The routing number tells processing banks to which bank the check for payment should be sent. (Id.)

  B. The Check at Issue

  On October 12, 2000, a check in the amount of $186,587 (the "Check") was deposited into an ATM in Tempe, Arizona. (Def. L.R. 56.1 ¶ 15.) The Check was made payable to "Najam Ali Property," which had had an account at Wells Fargo since September 2000. (Id.; Pl. L.R. 56.1 ¶ 6.) The drawee of the Check was Central National, an entity to which Firstar, by merger, is the successor in interest. (Def. L.R. 56.1 ¶ 15.) The drawer on the Check purported to be an entity identified as "Business Central." (Pl. L.R. 56.1 ¶ 8.) The MICR encoding on the Check includes an American Banking Association ("ABA") routing number identifying the drawee bank as 263178478. (Pl. L.R. 56.1 ¶ 9.) The MICR encoding on the Check includes a routing number identifying the drawer as 1981572. (Pl. L.R. 56.1 ¶ 10.) The check was not endorsed by either Najam Ali Property or by Orzrenetta Howard, who opened the Najam Ali Property account. (Pl. L.R. 56.1 ¶ 6, 12.) Wells Fargo accepted the Check for deposit into the Najam Ali Property account and processed the Check for payment. (Def. L.R. 56.1 ¶ 16.) The Check was rejected during processing because the automated processing machine could not read the routing number on its MICR line. (Id.) Because the routing number on the Check was not machine readable, Wells Fargo "stripped" the Check with the same routing number and reprocessed it. (Id.) In other words, Wells Fargo attached to the Check the same routing number that existed on it, but in a machine readable form. (Id.)

  The first four digits of the ABA routing number on the Check indicated that the paying bank was located in the region served by the Federal Reserve Bank of Atlanta, Jacksonville office ("FRB Jacksonville"). (Pl. L.R. 56.1 ¶¶ 15-16.) Listed on the face of the check, however, was "Central National Bank" and an address in Mattoon, Illinois.*fn3 (Pl. L.R. 56.1 ¶ 23.) Thus, the address on the face of the check is not located in the same Reserve Bank check processing region as the address indicated by the original routing number appearing on the Check. (Id.)

  On October 18, 2000, the Check was in the possession of FRB Jacksonville. (Pl. L.R. 56.1 ¶ 15.) Digits five through eight of the ABA routing number corresponded to the account of Campus USA Credit Union ("Credit Union"). (Pl. L.R. 56.1 ¶¶ 17-18.) On October 20, 2000, FRB Jacksonville charged the amount of the Check against the account of Credit Union. (Pl. L.R. 56.1 ¶ 18.) Thereafter, Credit Union initiated an inquiry regarding the Check with FRB Jacksonville. (Pl. L.R. 56.1 ¶ 19.) On that same date, FRB Jacksonville credited the Credit Union's account for the full amount of the check. (Pl. L.R. 56.1 ¶ 20.) On October 23, 2000, the Check was reprocessed by FRB Jacksonville and the drawee was now identified as having ABA routing number 071102102, which corresponded with Firstar. (Pl. L.R. 56.1 ¶¶ 21-22.) During this time period, FRBC's records indicated that checks drawn on routing number 071102102 were to be picked up by a courier service for delivery to Firstar. (Def. L.R. 56.1 ¶ 19.) Based on the routing number on the Check and the instruction on file, FRBC's Peoria office charged the Check to Firstar's account on October 23, 2000. (Def. L.R. 56.1 ¶ 19; Pl. L.R. 56.1 ¶ 25.)

  On November 27, 2000, FRBC sent a fax to Firstar in Mattoon, Illinois, where the "Business Central" account was allegedly maintained. (Pl. L.R. 56.1 ¶ 29.) This fax inquired whether the Check was "ever charted to this person's account." (Id.) Firstar claims that it is unclear whether this fax was made from a copy of the Check or from the Check itself. (Pl. L.R. 56.1 ¶ 30.) In any event, Firstar maintains that this was the first opportunity for it to view the name and account number of the alleged customer on the Check. (Pl. L.R. 56.1 ¶ 31.)*fn4 As it turned out, the identification of "Business Central" as a Firstar customer and the drawer account number encoded on the Check were both fictitious. (Pl. L.R. 56.1 ¶ 32.) According to Firstar, this same day, November 27, one of its employees orally informed FRBC that the Check was a fraudulent item. (Pl. L.R. 56.1 ¶ 34.)

  On January 30, 2001, Bonnie Curran ("Curran"), a financial analyst for Firstar, phoned the Peoria office of the Chicago Federal Reserve district and requested information with regard to the Check. (Pl. L.R. 56.1 ¶ 36.) Thereafter, on February 14, 2001, Curran faxed to the Peoria FRBC office a request for identification of the source of the Check. (Pl. L.R. 56.1 ¶ 37.) Curran also sent a fax to Wells Fargo informing it that the Check was fraudulent and requesting a credit with a cashier's check in the amount of $186,597.00. (Pl. L.R. 56.1 ¶ 38.) Wells Fargo responded on March 8, 2001, stating in a collection letter ...


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