First Am. Bank v. Fed. Reserve Bank of Atlanta

• Decision Date: 22 November 2016
• Docket Number: No. 16-1122,16-1122
• Citation: 842 F.3d 487
• Parties: First American Bank, Plaintiff-Appellant, v. Federal Reserve Bank of Atlanta, Citizens Bank, N.A., and David M. Goodson, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

842 F.3d 487

First American Bank, Plaintiff-Appellant,

v.Federal Reserve Bank of Atlanta, Citizens Bank, N.A., and David M. Goodson, Defendants-Appellees.

No. 16-1122

United States Court of Appeals, Seventh Circuit.

Argued October 20, 2016

Decided November 22, 2016

Mark E. Wilson, Attorney, FisherBroyles, LLP, Chicago, IL, for Plaintiff-Appellant.

Victoria R. Collado, Attorney, Burke, Warren, MacKay & Serritella, P.C., Chicago, IL, for Defendants-Appellees Federal Reserve Bank of Atlanta and Citizens Bank, N.A.

Edward X. Clinton, Jr., Julia Christine Williams, Attorneys, Law Offices of Edward X. Clinton, P.C., Chicago, IL, for Defendant-Appellee David M. Goodson.

Before Bauer, Posner, and Kanne, Circuit Judges.

Posner, Circuit Judge.

This is a complicated case regarding contested liability for a counterfeit check; we shall simplify ruthlessly.

In 2013 an Illinois lawyer named David M. Goodson received an email from a person who represented himself or herself to be a woman named "Fumiko Anderson." The email stated that she wanted to hire Goodson to help her recover money that she claimed to be owed in a divorce proceeding. Later Fumiko told him that her retaining a lawyer had convinced her ex-husband to settle, and that Goodson should expect a substantial check in the mail to cover his fee plus the amount of the settlement, which he was to pass on to her. The check that Goodson received, marked payable to the order of "Law Office David M. Goodson," was drawn on the account of First Aid Corporation (an Illinois manufacturer—doing business as 1st Ayd Corporation—of industrial and sanitation products), at a Chicago bank named First American. The check looked like a real check but actually was counterfeit. The scammers wrote a check on First American for $486,750.33 to Goodson, which he deposited in his client trust account in Citizens Bank, N.A., one of the defendants in this case. Fumiko told Goodson she needed the money immediately. Goodson directed the bank to transfer it to a Japanese entity that he believed to be Fumiko but actually was part of an Internet-based fraudulent check scheme known as the "Fumiko Bandit." So First Aid had lost the entire $486,750.33 that had been transferred out of its account by the fraudulent check; the money had been stolen by Fumiko Bandit.

First American reimbursed First Aid, its defrauded and therefore unhappy client, but then turned to Citizens Bank in an effort to recover from it the money that it had transmitted to Goodson's Citizens Bank account. Citizens refused, precipitating this suit by First American, which seeks back the $486,750.33 it has lost and names as defendants not only Goodson and Citizens Bank but also the Federal Reserve Bank of Atlanta, which as we're about to see was involved in the transaction, though only peripherally.

The money had been on account at First American Bank and had been stolen by a fraudulent check, so the bank recredited its customer and brought this suit seeking to be reimbursed by the individual (Goodson) and the two banks (Citizens and the Atlanta Federal Reserve Bank) for its loss. See Illinois Uniform Commercial Code, 810 ILCS 5/4–407. The district court gave judgment for all three defendants, however, and First American appeals, urging several grounds for reversal. The first is breach of warranty. When Citizens deposited the $486,750.33 in Goodson's account, it did so by an electronic rather than paper check (more precisely an electronic image of the paper check) and the electronic check passed through the Federal Reserve Bank of Atlanta en route to First American. The Federal Reserve Board's Regulation J, 12 C.F.R. § 210.6(b)(3)(i)(A), provides that when a Federal Reserve Bank presents an electronic check (such as the check drawn on First American) for payment, "the electronic image ... [must] accurately represent[ ] all of the information on the front and back of the original check as of the time that the original check was truncated." By "truncated" is just meant that an electronic image is substituted for the original paper check.

Some information that was on the original check was missing from the electronic version, but unavoidably so because it was information consisting of "characteristics of the check, such as watermarks, microprinting, or other physical security features that cannot...