Chavez v. Mercantil Commercebank, N.A.

• Decision Date: 27 November 2012
• Docket Number: No. 11–15804.,11–15804.
• Parties: Roger CHAVEZ, Plaintiff–Appellant, v. MERCANTIL COMMERCEBANK, N.A., Defendant–Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

701 F.3d 896

23 Fla. L. Weekly Fed. C 1697

Roger CHAVEZ, Plaintiff–Appellant,

v.MERCANTIL COMMERCEBANK, N.A., Defendant–Appellee.

No. 11–15804.

United States Court of Appeals, Eleventh Circuit.

Nov. 27, 2012.

Robert G. Post, Post & Romero, Coral Gables, FL, for Plaintiff–Appellant.

David S. Garbett, Joseph David Perkins, Garbett, Stiphany, Allen & Roza, Pa, Miami, FL, for Defendant–Appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before BARKETT and PRYOR, Circuit Judges, and BATTEN,^* District Judge.

BATTEN, District Judge:

Roger Chavez is a customer of Mercantil Commercebank, N.A. (“the bank”). This case involves an allegedly fraudulent payment order that resulted in the bank's transfer of $329,500 from his account to someone in the Dominican Republic. Chavez sued the bank to recover the $329,500. In response to Chavez's complaint, the bank asserted, inter alia, an affirmative defense premised upon Fla. Stat. § 670.202(2), which relieves a bank of liability for fraudulent payment orders in certain situations. The district court granted the bank's motion for summary judgment and denied Chavez's motion for partial summary judgment on this defense. Chavez appeals.

Generally speaking, under Florida's version of the Uniform Commercial Code (“UCC”), if a bank and its customer agree upon a “security procedure,” as that phrase is defined by Fla. Stat. § 670.201, and the procedure is commercially reasonable, a bank is absolved of liability for a fraudulent transfer of the customer's funds if the bank, when processing an order to transfer the customer's funds, follows the security procedure in good faith. SeeFla. Stat. §§ 670.201 & 670.202(2). We conclude that the parties' agreed-upon security procedure does not satisfy § 670.201 and consequently § 670.202(2) does not apply. Accordingly, we reverse.

I. BACKGROUND

In September 2002, Chavez, a resident of Venezuela, opened an account with the bank, which is located in Miami, Florida. Chavez contends that when he opened his account, the bank created and maintained an electronic file that had a copy of his passport and that included his address and phone number.

Chavez's account was subject to the bank's funds transfer agreement (“FTA”). Relevant to the current dispute is § 5 of the FTA, which details the security procedure for the account. In general, a security procedure is a procedure that the bank uses when processing payment orders in order to verify the authenticity of the order and to detect any errors in their transmission or content. Fla. Stat. § 670.201. Section 5 of the FTA provides in pertinent part:

(i) The parties shall comply with the security procedure selected on Annex 1 to this Agreement (the “Security Procedure”) ....

(ii) The use of the Security Procedure is hereby accepted and authorized by the Client and, unless and until any writing that is signed by the Bank and made a part of this Agreement, the use of the Security Procedure in the manner set forth in this Agreement shall be the sole security procedure required with respect to any Order, and the Client acknowledges and agrees that: (a) the Bank offers various procedures affording differing degrees of security; (b) the Security Procedure is sufficient to protect the interests of the Client in light of the Client's needs, and no special circumstances exist with respect to the Client that would require any other security procedure; and (c) the Security Procedure is a method of providing security against unauthorized Orders that is commercially reasonable under the circumstances of the Client and in light of the size, type, frequency and volume of Transfers the Client contemplates undertaking.

(iii) The Bank may execute any Payment Order and act on any other instruction relating to the Payment Order and the Payment Order or instruction shall be effective as the Client's Order, whether or not authorizedby the Client and regardless of the actual transmitter, provided that the Bank accepts the Payment Order or instruction in good faith and in compliance with the Security Procedure. At its option, the Bank may use, in addition to the Security Procedure selected by the Client, any other means to verify any Payment Order or related instruction.

(iv) The Client shall preserve the security and confidentiality of the Security Procedure and any related devices or materials, and shall promptly notify the Bank of any suspected compromise of the integrity of the Security Procedure.

(v) The Client acknowledges that the sole purpose of the Security Procedure is to determine the authenticity of Orders, and not to determine their accuracy ....

As indicated above, § 5(i) incorporates by reference a document entitled Annex 1, which lists three different options for security procedures that the bank will use when processing a customer's payment orders. Depending on the option, customers can select one option and at most two options.

Chavez selected only the first option, “Written Payment Orders.” It provides:

Written Payment Orders shall be delivered by an Authorized Representative (as defined below) to the Bank either in original form, in person or by mail, or by facsimile transmission. Each written Payment Order must be signed by at least one Authorized Representative or, if the terms of the account to which the Payment Order relates (the “Affected Account”) require signature by more than one Authorized Representative, by the number of Authorized Representatives so required. Each written Payment Order not delivered to the Bank in person by an Authorized Representative must be confirmed by the Bank by telephone callback to any person who identifies himself or herself to the Bank's satisfaction as one of the Authorized Representatives, (irrespective of whether the terms of the Affected Account require more than one Authorized Representative to sign Payment Orders) ....

For Chavez's account, he was the only authorized representative. Thus, for written payment orders delivered in person, Chavez had to sign the payment order.

On February 4, 2008, Chavez flew to Miami and visited the bank's Doral branch. He inquired about why he had not been receiving monthly statements, and he made a large cash deposit. The next day, he returned and made a smaller cash deposit. On February 6, he returned his rental car to the Miami airport around 6:40 a.m. and flew back to Venezuela.

On February 6, someone purporting to be Chavez went to the Doral branch with a written payment order for $329,500. Chavez contends that he had already departed for Venezuela at the time the payment order was delivered to the bank. The order was processed by bank employee Rossana Gutierrez, who was a greeter at the bank, but she occasionally performed the responsibilities of a customer service representative, the type of employee who would typically process a payment order.

According to the district court, Gutierrez confirmed (1) the information on the payment order, (2) the customer's identity via an identification document provided by the customer, (3) the sufficiency of funds in the account, (4) the existence of an FTA for the account, and (5) the authenticity of the signature on the payment order. She then obtained written approval from two branch officers, Talia Pina and Lolita Peroza, who then performed additional steps to verify the authenticity of the payment order. After Pina and Peroza signed off on the order, Gutierrez submitted the payment order for completion, and on February 7 the funds were transferred from Chavez's account to a beneficiary in the Dominican Republic.

The bank's security cameras were not working on the day the payment order was delivered, and Gutierrez did not make a copy of the ID she was shown. As a result, the identity of the person allegedly impersonating Chavez cannot be determined. The bank does not concede that the person presenting the payment order was not in fact Chavez or someone acting on his behalf.

On April 14, 2008, over two months after the payment order was processed, Chavez checked his account online from Venezuela. He claims that this is when he first learned that his balance was considerably lower than expected. He called the bank and allegedly learned for the first time of the February 7 payment order and transfer of the $329,500.

On August 6, 2010, Chavez filed this action against the bank in state court, seeking to recover the $329,500 transferred from his account. The bank timely removed the action to the U.S. District Court for the Southern District of Florida.

The bank filed a motion for summary judgment in which it argued that its third affirmative defense, premised upon the safe-harbor provision in § 202, shifted the risk of loss to Chavez. Chavez filed a motion for partial summary judgment in which he contended that the bank's safe-harbor defense failed as a matter of law.

The district court entered an order granting the bank's motion and denying Chavez's. The district court ruled that the safe-harbor provision in § 202(2) shifted the risk of loss from the bank to Chavez because the parties' agreed-upon security procedure satisfied the statutory definition of a “security procedure” contained in § 201, the bank's security procedure was commercially reasonable, and the bank complied with its security procedure in good faith.

II. STANDARD OF REVIEW

We review de novo a district court's rulings on cross-motions for summary judgment, Owen v. I.C. Sys., Inc., 629 F.3d 1263, 1270 (11th Cir.2011), and the facts are viewed in the light most favorable to the non-moving party on each motion, Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328, 1331 (11th Cir.2005). Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

III. DISCUSSION

We divide our discussion into three parts. We begin with a brief overview of Article 4A of the UCC, which...