Certification from the U.S. Dist. Court for the E. Dist. of Wash. in Travelers Cas. & Surety Co. v. Wash. Trust Bank

Decision Date03 November 2016
Docket NumberNo. 92483–0,92483–0
CourtWashington Supreme Court
Parties Certification from the United States District Court for the Eastern District of Washingtonin Travelers Casualty & Surety Co., As Assignee and Subrogee of Skils'Kin, Plaintiff, v. Washington Trust Bank, Defendant.

GONZÁLEZ, J.

¶1 An employee of a nonprofit serving disabled adult clients used her position to embezzle more than half a million dollars held by the nonprofit for its clients. She did this by drawing checks from the nonprofit's account payable to its clients, signing the back of those checks with her own signature, and cashing them at the nonprofit's local bank. After the embezzlement was discovered, Travelers Casualty & Surety Company, the nonprofit's insurance company, made the nonprofit whole. Travelers now seeks contribution from the bank in federal court. By submitting certified questions, that court has asked us to decide, among other things, whether a nonpayee's signature on the back of a check is an indorsement. We are also asked whether claims based on unauthorized indorsements that are not discovered and reported to a bank within one year of being made available to the customer are time barred. We answer yes to both questions.

FACTS & PROCEDURAL HISTORY

¶2 Travelers insured Skils'Kin, a nonprofit agency providing services to disabled adult clients in Spokane. Skils'Kin was the representative payee for many of its clients' Social Security benefits, which were deposited into a single business checking account at Washington Trust Bank (Bank). Skils'Kin wrote checks as representative payee and agent for its clients' use. Checks were written either to the clients directly or to those who provided services to the clients. Clients and Skils'Kin entered into a " 'Financial Service Agreement' " in which clients " 'authorize SKILS KIN staff to act as agent/payee on [their] behalf.' " Doc. No. 191–1, at 2. Skils'Kin managed the monthly income and living expenses for about 1,000 clients. Shannon Patterson was a Skils'Kin employee who oversaw Skils'Kin's bank account and was a signatory on the account. Skils'Kin adopted and delivered a corporate resolution to the Bank, authorizing Patterson to open deposit and checking accounts and to indorse checks.1

¶3 From 2008 to 2013, Patterson embezzled hundreds of thousands of dollars from Skils'Kin by drawing over 300 checks from Skils'Kin's account payable to its disabled clients or to third party service providers, signing the back of each check with her own name, cashing the checks at the Bank, and keeping the money. Patterson was not the named payee on any of the checks at issue, and no named payee indorsed the checks to Patterson. Patterson's bad acts were not discovered until she admitted them in a suicide note.

¶4 The Bank sent Skils'Kin monthly bank statements during Patterson's embezzlements. These statements included copies of the fronts of the checks that had been cashed at the Bank. The statements did not include copies of the backs of the checks, which would have readily revealed Patterson's signature. Each statement contained contact information for the bank and listed cleared checks by check number, date, and dollar amount. Skils'Kin's bookkeeper used these statements to reconcile the accounts. Beginning in 2011, Skils'Kin could access its checking account online at any time to view both the front and backs of checks that cleared its account. The online process required clicking an account to view, clicking a link for the front of the check, clicking a link for the back of the check, closing the check, and repeating as necessary.

¶5 After Patterson's confession, Travelers covered Skils'Kin's losses and sued the Bank for contribution. Travelers alleges that the Bank breached its duty of care as a matter of law by cashing checks to Patterson—who was not the named payee—and that the checks at issue are not "properly payable" under RCW 62A.4–401(a).2 Thus, it reasons, the time bar under RCW 62A.4–406(f)3 does not apply. Washington Trust Bank argues that an oral agreement between the Bank and Patterson allowed tellers to cash the checks signed on the back by Patterson. The parties dispute whether an oral agreement existed. The Bank also contends the "Terms and Conditions" contract for Skils'Kin's pooled account at Washington Trust Bank gave Patterson authority to indorse checks on behalf of the named payees.4 Additionally, the Bank argues that Skils'Kin's corporate resolution allowed Patterson to make an agreement with the Bank and that Skils'Kin clients were unable to personally sign the checks at the bank because they were homebound, disruptive, and/or lacked proper identification. As an affirmative defense, the Bank contends RCW 62A.4–406(f)precludes Travelers's claims as time barred, while Travelers denies that Patterson's signature qualifies under RCW 62A.4–406(f)and argues the statute does not apply.

¶6 Both the bank and the insurance company filed for summary judgment. Neither prevailed. Sometime afterward, the district court found that the case raised unresolved questions of Washington state law and certified three questions to us, as follows:

CERTIFIED QUESTIONS

1. When a check (i) is presented for payment, (ii) bears no signature in the name of the payee on the back, and (iii) the drawee/payor bank pays the check over the counter, in cash, to an individual who is not the payee but who is an authorized signer on the account and who signs the back of the check in her own name, is the signature on the back of the check an "unauthorized signature," "alteration," or "unauthorized indorsement" as a matter of law imposing on the customer the notice requirement of RCW 62A.4–406(f)?
2. If the Answer to Question # 1 is "Yes," does providing a bank customer with a listing of the front of the checks and electronic access to images of the front and back of the checks via on-line banking make the "statement of account" and "items" reasonably available as required by 4–406(a)?
3. Does a bank fail to exercise ordinary care as a matter of law if it pays a check to a person other than the payee when the check contains no indorsement in the name of the payee?

Order Certifying Local Law Questions to the Wash. Supreme Ct., Travelers Cas. & Sur. Co. v. Wash. Tr. Bank , No. CV–13–0409–JLQ, at 9–10 (E.D. Wash. Nov. 10, 2015).

STANDARD OF REVIEW

¶7 Certified questions present questions of law, and this court reviews them de novo. Parents Involved in Cmty. Schs. v. Seattle Sch. Dist. No. 1 , 149 Wash.2d 660, 670, 72 P.3d 151 (2003)(citing Rivett v. City of Tacoma , 123 Wash.2d 573, 578, 870 P.2d 299 (1994)). We consider the legal issues not in the abstract but based on the certified record provided by the federal court. Bradburn v. N. Cent. Reg'l Library Dist. , 168 Wash.2d 789, 799, 231 P.3d 166 (2010)(citing RCW 2.60.030(2)).

¶8 We review questions of statutory interpretation de novo. State v. Wentz , 149 Wash.2d 342, 346, 68 P.3d 282 (2003)(citing City of Pasco v. Pub. Emp't Relations Comm'n , 119 Wash.2d 504, 507, 833 P.2d 381 (1992)). On matters of statutory interpretation, our "fundamental objective is to ascertain and carry out the Legislature's intent." Dep't of Ecology v. Campbell & Gwinn, LLC , 146 Wash.2d 1, 9, 43 P.3d 4 (2002). "[I]f the statute's meaning is plain on its face, then the court must give effect to that plain meaning as an expression of legislative intent." Id. at 9–10, 43 P.3d 4. A statute's "meaning is discerned from all that the Legislature has said in the statute and related statutes which disclose legislative intent about the provision in question." Id. at 11, 43 P.3d 4.

ANALYSIS

¶9 We decline to answer the first certified question as written because part of the original question asks us to make factual determinations regarding Patterson's authority to cash the checks. Instead, we exercise our inherent authority to reformulate question 1 into two questions of law. See Danny v. Laidlaw Transit Servs, Inc. , 165 Wash.2d 200, 205 n.1, 193 P.3d 128 (2008)(plurality opinion) (citing Broad v. Mannesmann Anlagenbau AG , 196 F.3d 1075, 1076 (9th Cir. 1999)). First, is the signature of someone other than the named payee an indorsement if that signature is located on the back of a check5 that is presented for payment, lacks the payee's signature on the back, and is cashed by a bank? Second, are Travelers's claims time barred under RCW 62A.4–406(f)? We answer both in the affirmative, We conclude that Patterson's signature is an indorsement as a matter of law. RCW 62A.3–204(a). But whether Patterson's signature is "unauthorized" for purposes of the latter half of the first question will depend on whether Patterson had the authority to cash checks as an agent for Skils'Kin's customers. We recognize that whether Patterson had that authority is disputed and decline to reach that issue.

¶10 Certified question 2 essentially asks us to decide whether the time bar provision of RCW 62A.4–406(f)has been triggered. To enjoy the benefit of RCW 62A.4–406(f)'s time bar on claims, a bank must make a statement of account available to its customer that meets certain statutory requirements. We find as a matter of law that the Bank's...

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