All Am. Siding & Windows, Inc. v. Bank of Am., Nat'l Ass'n

• Decision Date: 05 June 2012
• Docket Number: No. 06–11–00104–CV.,06–11–00104–CV.
• Citation: 367 S.W.3d 490,77 UCC Rep.Serv.2d 388
• Court: Texas Court of Appeals
• Parties: ALL AMERICAN SIDING & WINDOWS, INC., and EagleOne Financial, Inc., Appellants, v. BANK OF AMERICA, NATIONAL ASSOCIATION, Appellee.

367 S.W.3d 490

77 UCC Rep.Serv.2d 388

ALL AMERICAN SIDING & WINDOWS, INC., and EagleOne Financial, Inc., Appellants,

v.BANK OF AMERICA, NATIONAL ASSOCIATION, Appellee.

No. 06–11–00104–CV.

Court of Appeals of Texas, Texarkana.

Submitted March 13, 2012.

Decided April 20, 2012.

Rehearing Overruled June 5, 2012.

Craig P. Henderson, William L. Wolf, PC, Dallas, for appellants.

Tricia R. DeLeon, Lauren Brown, Bracewell & Giuliani, LLP, Dallas, for appellee.

Before MORRISS, C.J., CARTER and MOSELEY, JJ.

OPINION

Opinion by Justice CARTER.

All American Siding & Windows, Inc. (AAS), and its affiliated company EagleOne Financial, Inc. (EagleOne), appeal a summary judgment entered ¹ in favor of Bank of America, N.A. (Bank). AAS and EagleOne argue that the trial court erred in: (1) overruling the objections to the affidavit of corporate representative Ryan Evans in support of the Bank's summary judgment; (2) granting the Bank's motions for summary judgment; and (3) granting the Bank's motion for bench trial. We find no abuse of discretion in the overruling of objections to the affidavit, determine that traditional summary judgment based upon the Bank's affirmative defense was proper, find that the no-evidence summary judgment was properly granted, and overrule the point of error complaining of the order granting a bench trial as moot.

I. Factual Background

Affiliated companies and Bank customers AAS and EagleOne became “a victim of fraudulent checks drawn on the company's business bank accounts” in 2006. James R. Keehn, controller for AAS and EagleOne, and Linda Kirks, AAS and EagleOne's secretary and treasurer, conferred with “Brian Tokarz, Plaintiff's account manager at Bank of America, and other personnel of Bank of America” regarding fraud prevention options. According to Keehn, “Tokarz and the other Bank of America personnel represented that Bank of America would no longer be responsible for any losses due to fraudulent checks if All American did not take steps to reduce the check fraud.”

To reduce check fraud, the Bank recommended its “On-line Business Suite and Bank of America Direct modules.” The online suite would allow AAS and EagleOne to view transaction activity and transfer funds between the company bank accounts on the Internet. Through utilization of a product called Positive Pay, AAS could “electronically transmit a daily check register of all checks issued by All American, and Bank of America would match the checks listed in the Positive Pay file and pay only those checks with an exact match.” In order to set up and manage Positive Pay, AAS and EagleOne were required to use the America Direct module, a function used to monitor and process Positive Pay exceptions and payments due to EagleOne from its customers.

Keehn believed this was a “full service, internet based, banking management system.” Keehn recited that “Tokarz and the other Bank of America personnel explained to us and assured us of all the secure benefits of ... Direct module.” Positive Pay was implemented in 2006 after new software used to implement the program was purchased through an approved provider. AAS and EagleOne also implemented the automated clearinghouse (ACH), which allowed for authorized originators to transfer funds to or from accounts by initiating entries sent through the online system as an alternative to wire transfers. To use the ACH and other online banking accounts, a party was required to use “the company ID, user ID, and user password.” Evans also explained that the Bank required a digital certificate to be installed on the browser from which the transactions were conducted to verify the browser as an authorized computer.

AAS and EagleOne “became victims of electronic banking fraud that began on September 10, 2008 and continued through September 12, 2008.” On September 12, Keehn logged on to the business suite module to review bank account activity. AAS and EagleOne's second amended petition recited that Keehn found an unauthorized transfer on September 10 from AAS to EagleOne for $24,763.49, another transfer of $18,322.03 on September 11, and an ACH disbursement of $24,763.49 on September 11 from EagleOne. Keehn contacted Kirks and the Bank. Pursuant to the Bank's instructions, Keehn faxed a written report to the Bank's fraud department at 10:05 on September 12, 2008. Keehn was contacted by David Baker of TD North Bank's fraud department, who indicated he was investigating an incoming ACH transaction in the amount of $5,174.92 which was to be credited to the account of a TD North Bank customer who had placed an order to wire transfer the funds to Russia.

Keehn was initially told that the fraudulent transactions would be reimbursed. He claimed “[i]n a conference call with various Bank of America representatives and myself and Linda Kirks on September 24, 2008, Carrie O'Brien of Bank of America stated that she ‘had seen the Trojan’ malware that was responsible for the fraudulent transactions.” The reimbursement was conditioned upon the Bank recovering the fraudulently taken funds from the receiving bank, although Keehn swore he was not aware of this condition.

Evans, vice president and treasury service manager in the global fraud prevention department, testified in a deposition that “[t]ypically Bank of America will not cover loss for commercial accounts” because“there's no governmental requirement to do so.” Evans stated,

[U]pon notification, Brian Tokarz contacted our ACH corporate returns who requested the client present in writing their statement that this was indeed fraudulent activity according to the client, and based on receipt of that, reverse those transactions. And that reversal is requesting those funds be returned to us from the receiving banks.

Evans stated, “As soon as those funds had been withdrawn, the chance for recovery was slim.” After the results of a corporate investigation revealed that no funds were available, the initial reimbursements to AAS and EagleOne were reversed.

In their second amended petition, AAS and EagleOne claimed they had lost a total of $26,783.07. They sued the Bank for breach of “Contract/Deposit Agreement/On–Line Banking Agreement/Guaranty/Warranty,” in failing to protect their accounts from the fraudulent bank transfers and in failing to reimburse them for the lost funds. AAS and EagleOne also alleged that the Bank “and Plaintiffs had an express agreement whereby [the Bank] agreed to reimburse Plaintiffs.” DTPA, fraud, fraudulent inducement, negligence, and negligent misrepresentation claims were also lodged. AAS and EagleOne complained that the Bank promised its services were secure and that it made a host of promises on its website to that effect.

Based upon its Treasury Services Terms and Conditions and Deposit Agreement and Disclosures, the Bank moved for no-evidence and traditional summary judgments on its affirmative defense under the Texas Business and Commerce Code. It also alleged AAS and EagleOne had waived its right to a trial by jury in these documents. The trial court granted the Bank's motion for bench trial, as well as its motions for summary judgment.

II. The Trial Court Did Not Abuse Its Discretion in Overruling Objections to Evans' Affidavit

Evans' affidavit stated:

Plaintiffs agreed to the Security Procedures after refusing additional security options offered by Bank of America.... Plaintiffs expressly refuse[d] to sign up for Dual Administration. Plaintiffs also had the ability to add the Dual Authorization/Approval options to their account through their online access, which Plaintiffs never did.

.... Bank of America had no knowledge that the transactions were allegedly conducted by anyone other than Plaintiffs. At the time the alleged transactions occurred, Bank of America had no way to verify whether Plaintiffs' Security Procedures had been compromised. I explained this to Plaintiffs.

We review the trial court's evidentiary rulings for an abuse of discretion. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 906 (Tex.2000). “A trial court ‘abuses its discretion when it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law.’ ” BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 800 (Tex.2002).

AAS and EagleOne objected to the affidavit of Evans as a whole because “[h]e was not designated as an expert,” “admitted that he was not a computer expert,” and stated he was not “familiar with other bank's security policies” in his deposition. Thus, it appears that they believe his affidavit should not have been allowed due to a lack of designation and qualification.

However, Evans was designated as the Bank's corporate representative. He held the position of “Treasury Services Manager in the fraud monitoring team,” was assigned to this case, was familiar with the Bank's security policies, and swore that the facts contained within the affidavit were within his personal knowledge as a result of his position with the Bank. Moreover, this objection to Evans' affidavit was contained within a response to the Bank's motion for summary judgment, which did not seek relief from the court relating to the affidavit and failed to specify what portions of the affidavit required expert testimony. We cannot say the trial court abused its discretion in overruling this objection to Evans' affidavit.

Next, AAS and EagleOne argued that paragraph three of the affidavit of this “interested witness” contained “conclusory statements regarding the security procedures that were in place and that the fraudulent transactions complained of by [AAS and EagleOne] were verified by [the Bank] using the security procedures.” ² That paragraph stated:

The Security Procedures in place for the ... online banking accounts at Bank of America required a party be logged in using the company ID, user ID, and user password before conducting any transactions. Additionally, Bank of America required a digital certificate, specific to that user,...