Grassi Design Group, Inc. v. Bank of America, N.A.

Citations: 74 Mass. App. Ct. 456; 908 N.E.2d 393Docket: No. 08-P-927

Court: Massachusetts Appeals Court; June 23, 2009; Massachusetts; State Appellate Court

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Plaintiffs Grassi Design Group, Inc. and Beauchemin Grassi Interiors, Inc., both having commercial accounts with defendants Bank of America and RBS Citizens, sought damages after discovering that a shared employee had forged and cashed multiple checks, which the banks honored. Following a summary judgment against them on all claims, the plaintiffs appealed, arguing that the judgment was improperly granted under the Uniform Commercial Code (UCC) and contract law, and that their expert witness's report on the processing of forged checks was wrongly excluded.

The plaintiffs claimed (1) reimbursement under Article 4 of the UCC, (2) damages for breach of contract, (3) damages for breach of implied contract, and (4) damages for violation of G. L. c. 93A. They conceded failing to review monthly statements and noted that under G. L. c. 106, § 4-406, customers must promptly examine statements and notify banks of unauthorized transactions within thirty days; failing to do so precludes recovery for subsequent forgeries by the same perpetrator.

The ordinary care exception under G. L. c. 106, § 4-406(e) was deemed inapplicable as the banks showed no genuine dispute regarding their adherence to prescribed procedures and compliance with prevailing industry standards. Evidence indicated that the banks utilized fraud detection software (ASI/16) effectively to identify fraudulent checks, which aligned with their established policies and general banking practices at the time of the incidents. Consequently, the judgment in favor of the banks was affirmed.

Plaintiffs relied solely on expert reports by Gene Cooney as evidence against defendants' motions for summary judgment, but these reports were excluded by the judge as a sanction for the plaintiffs' discovery violations. The judge exercised discretion by penalizing the plaintiffs after they failed to produce the Cooney reports or disclose Cooney as an expert until ten months post-interrogatories and shortly before responding to the defendants' motions, which was deemed impermissibly late. Although the exclusion was problematic, the reports would not have sufficiently countered the defendants' summary judgment motion. The judge could have opted for less severe remedies, such as granting a continuance for the defendants to respond or compensating them for additional costs incurred. The law generally favors resolving disputes on their merits, and excluding the only evidence against summary judgment effectively dismissed the plaintiffs' complaint, a penalty typically reserved for extreme cases. Despite concerns over the severity of the sanction, the court affirmed the decision as the Cooney reports, even if admitted, did not provide adequate grounds to oppose summary judgment. The reports were found to contain legal conclusions, speculation, and irrelevant assertions, failing to meet the requirements set by Massachusetts civil procedure rules.

Defendant banks provided evidence regarding reasonable commercial standards in their area, but the Cooney report concluded, without elaboration, that automated fraud detection systems were not standard in the banking industry during 2003 and 2004, lacking specificity to any market. The Cooney reports did not meet the expert opinion standards from Commonwealth v. Lanigan and failed to create a genuine issue of material fact related to "general banking usage" as required by G. L. c. 106, § 4-103. Consequently, summary judgment was upheld because plaintiffs could not produce admissible evidence for a crucial element of their claim.

Regarding contract claims, the plaintiffs contended that summary judgment was improperly granted. However, the motion judge correctly found that the cited contract provisions were similar to G. L. c. 106, § 4-406 and were thus inadequate. The Bank of America agreement mandated that customers report unauthorized items within thirty days, mirroring G. L. c. 106, § 4-406(d), and Grassi did not report any items within this timeframe. The Citizens agreement also required prompt reporting of unauthorized items, and Beauchemin similarly failed to report items within thirty days. For claims reported between thirty and sixty days, Beauchemin needed to prove that Citizens did not exercise ordinary care and that this failure significantly contributed to the loss, which he did not demonstrate. Claims made over sixty days after a statement's availability were barred regardless of the bank's care. The court concluded that since the contract claims were unsuccessful, it was unnecessary to consider whether they were superseded by the Uniform Commercial Code.

Summary Judgment was granted against the plaintiffs on their claims of violation of G. L. c. 93A and breach of an implied contract, as no genuine dispute existed regarding the banks' good faith or ordinary care. The plaintiffs did not contest the judge's finding that these claims were superseded by the Uniform Commercial Code (UCC) and failed to demonstrate any material fact dispute that would warrant reconsideration. The judgment was affirmed, with the plaintiffs maintaining accounts at Bank of America and Citizens, both of which filed counterclaims. The case referenced the UCC's Articles 3 and 4, as modified by St. 1998, c. 24, stating that a bank is liable for losses only if it did not act in good faith. The plaintiffs did not appeal the dismissal of their "good faith" claims under Article 4. They contended that automatic processing standards of G. L. c. 106. 3-103(ti)7 did not apply when a teller initially accepted a check, but failed to provide evidence showing that this lack of visual examination breached reasonable commercial standards. No admissible evidence was presented indicating that the banks did not follow prevailing standards. The plaintiffs filed reports regarding the banks, but a typographical error led to a misunderstanding about the timing of one report's preparation, which was clarified by referencing subsequent documents and depositions from 2006.

The Cooney report regarding codefendant Citizens, dated July 18, 2006, contains legal conclusions and arguments in specific paragraphs, with speculation based on unverified assumptions in others. The report includes irrelevant content about compliance with deposition subpoenas as per Mass. R.Civ. P. 30(b)(6) and speculation related to the defendants’ ability to compare instruments with signature cards. It references a May 19 report that analyzes statistics from an Internet site regarding a successor banking system, concluding that only 1.1% of banks use it. This calculation, based on hearsay, does not pertain to whether the banks’ procedures deviate unreasonably from established banking practices, as defined by G.L. c. 106. The document outlines customer responsibilities to examine statements for unauthorized signatures and to notify the bank within thirty days. Failure to report unauthorized items within this timeframe or within sixty days results in the customer bearing the loss, regardless of the bank's care level. This obligation extends to all items with unauthorized signatures or alterations. The customer’s time to report issues is capped at thirty days from the statement's availability, with an additional sixty-day limitation for claims against the bank.