Legal Tender Servs. v. Bank of Am. Fork, 20200310-CA

CourtCourt of Appeals of Utah
Writing for the CourtTENNEY, JUDGE
Citation2022 UT App 26
PartiesLegal Tender Services PLLC, Appellant, v. Bank of American Fork and JPMorgan Chase Bank, Appellees.
Decision Date25 February 2022
Docket Number20200310-CA

2022 UT App 26

Legal Tender Services PLLC, Appellant,

Bank of American Fork and JPMorgan Chase Bank, Appellees.

No. 20200310-CA

Court of Appeals of Utah

February 25, 2022

Fourth District Court, Provo Department The Honorable Lynn W. Davis No. 190400833

Lawrence D. Hilton, Attorney for Appellant Stephen C. Tingey and Brent D. Wride, Attorneys for Appellee Bank of American Fork

Douglas P. Farr and Zaven A. Sargsian, Attorneys for Appellee JPMorgan Chase Bank

Judge Ryan D. Tenney authored this Opinion, in which Judges Gregory K. Orme and Ryan M. Harris concurred.



¶1 Legal Tender Services (LTS) is a vendor for an online gold seller, and LTS also provides escrow services for some of the gold seller's sales. To facilitate these transactions, LTS's customers made payments through an online payment portal that was owned and provided by the Bank of American Fork (BAF). After they did, LTS would send them their purchased gold.

¶2 In 2016, an internet fraudster stole a doctor's personal financial information and used that information to purchase several hundred thousand dollars' worth of gold from LTS. After the theft was belatedly discovered, LTS was left with the losses.


¶3 LTS later sued both BAF and JPMorgan Chase Bank (which was the doctor's bank), claiming that they should have prevented the theft. Of note, LTS raised claims sounding in products liability and negligence. But the district court granted the banks' respective motions for summary judgment and/or to dismiss the claims. Along the way, the court also sanctioned LTS's counsel for filing an overlength motion.

¶4 LTS now appeals those decisions, but we affirm. As explained below, the district court correctly ruled that BAF's online payment portal did not qualify as a "product" for purposes of LTS's products liability claim. It also correctly ruled that LTS's negligence claims against both banks failed as a matter of law. Finally, under the circumstances of this case, the district court did not abuse its discretion when it sanctioned LTS's counsel for filing an overlength motion.


¶5 LTS was a vendor for an online gold seller, and it also provided escrow services for that gold seller. These services included receiving money from various buyers, transferring the


buyers' money to the gold seller, facilitating the shipment of the gold to the buyer on behalf of the seller, and transferring the escrow funds to the seller.

¶6 LTS opened an account with BAF and entered into an agreement (the Agreement) to use BAF's automated clearinghouse (ACH) payment portal to receive money from the gold buyers. This portal allowed the buyers to access the ACH, which is "a nationwide network through which depository institutions send each other batches of electronic credit and debit transfers." Far West Bank v. Robertson, 2017 UT App 213, ¶ 8 n.7, 406 P.3d 1134 (quotation simplified). In this sense, the ACH acts as a communication line for banks that helps them transfer money to one another virtually, and BAF's payment portal acted as an entryway into that network.

The Agreement's Terms[2]

¶7 The Agreement described the "Services" and "Processing Service Options" provided by BAF through its online payment portal, explaining in pertinent part that LTS "desired BAF to provide certain payment processing services." "This Service consisted of a Customer Payment Portal . . . offered through BAF's service provider" that "provided the tools to LTS to allow an End User to make a payment or donation to LTS via the Internet."[3]


¶8 Payments were made when an End User accessed LTS's website and provided the End User's credit card number or bank account information. Each transaction was then "considered to have been transmitted by LTS to the Service Provider." Although the service provider would provide LTS with "a branded website and website link that would enable the End User to perform the web page coding necessary to" make the payments, the Agreement made clear that "[a]ll right, title[, ] and interest in and to (a) any and all computer programs, . . . (b) the Service procedures[, ] and (c) any and all users guides, instructions[, ] and other documentation provided to, or used by, LTS in connection with the Service . . . shall be, and remain, the property of BAF."

¶9 The Agreement further explained that it would be LTS's "responsibility" to ensure "that the origination of ACH transactions complied with U.S. law," as well as to "obtain authorization for each entry prior to debiting [an] End User's account." "With respect to each and every Entry transmitted by LTS and [an] End User, LTS represented and warranted to BAF and agreed that . . . each person shown as the End User on an Entry received by BAF from LTS had authorized the initiation of such Entry and the crediting or debiting of its account."

¶10 Under the Agreement, LTS agreed that it had "the sole responsibility for the accuracy of the data transmitted to [the] Service Provider," and LTS also "acknowledged and agreed that if an inconsistency between an End User's name and account number existed, the transaction would [still] be initiated based upon the account number even if it identified a person different from the named End User." LTS further "agreed to be responsible and liable for any loss incurred by any party" under such circumstances. LTS expressly "acknowledged that it was solely responsible for any and all returned or rejected items," and it further "agreed to indemnify BAF . . . [for] any and all actions taken by End Users as it related to this Agreement, [and] any claim by any End User or other third party that an ACH or credit card entry was not issued by an End User or a person acting on behalf of an End User."


¶11 Regarding security and other safety protocols for the online payment portal, LTS agreed to be "solely responsible for providing for and maintaining the physical, electronic, procedural, administrative, and technical security of data," and it "acknowledged and agreed that it was LTS's responsibility to protect itself and to be vigilant against e-mail fraud, phishing, and other internet frauds and schemes." The Agreement therefore provided that BAF would not be "responsible for any losses, injuries, or harm incurred by LTS or End Users as a result of any electronic, e-mail, or internet fraud."

The Hack

¶12 LTS paid a monthly fee for these services, and it used them "without any noteworthy complications" from April 2013 to April 2016. But in May 2016, someone fraudulently representing himself to be a doctor registered with the gold seller using the doctor's correct (albeit stolen) personal identifying information. The fraudster then began purchasing gold in the doctor's name using the doctor's funds, doing so through the doctor's Chase bank account and LTS's online payment portal provided by BAF. These payments each went through the online payment portal, and each registered as "settled" a few days after the fraudster initiated them. On the day after each transaction "settled," LTS facilitated the shipment of gold coins to the addresses provided by the fraudster.

¶13 The fraudster made five separate deposits into LTS's escrow account over a twelve-day period, and LTS sent four separate shipments of gold coins to the fraudster at various addresses across the country. In all, LTS facilitated the shipment of about $420, 000 worth of gold coins to the fraudster.

¶14 After the theft was finally discovered, BAF restored the money to the doctor's Chase bank account, thus leaving LTS's escrow account "with a deficit balance" of $420, 000.


The Litigation

¶15 LTS later sued BAF and Chase, asserting, among other things, that BAF was strictly liable for its "defective product" (i.e., the online payment portal) and that both BAF and Chase were also liable for LTS's loss under negligence principles.

1. Products Liability

¶16 In its products liability claim, LTS asserted that BAF was strictly liable for the "defective nature" of the online payment portal. LTS faulted BAF for the "utter lack of safeguards," the lack of "limits on transfer amounts," and failing to implement "any other meaningful measures to protect their account holders."

¶17 LTS and later BAF filed competing summary judgment motions regarding the products liability claim. After briefing and argument, the district court granted BAF's motion for summary judgment and denied LTS's motion. The court concluded that "[u]nder the Agreement, [BAF's] software service provider enabled [LTS] to use an ACH customer payment portal by providing the portal through a website," but that BAF "never provided any movable, tangible goods" and "did not provide software or hardware under the Agreement." The court thus concluded that LTS had not "shown that [BAF] provided any 'product[]' for purposes of a strict liability claim." And because "the Agreement put[] the onus on [LTS] to obtain all necessary hardware and software," and because it "expressly state[d] that [BAF would] retain[] any right, title, and interest to any software or documentation that [LTS] obtained pursuant to the Agreement," the court also concluded that no "'sale' or 'license' of any product" took place. The court accordingly concluded that LTS's products liability claim failed and that BAF was "entitled to judgment as a matter of law."

¶18 Alternatively, the court also concluded that, even if "the subject transaction was a hybrid transaction," LTS could not prevail on a products liability claim because "the predominant


purpose of the Agreement was [still] to provide services to [LTS]," not to facilitate a sale of any good or product. It accordingly denied LTS's motion for summary judgment and instead granted summary judgment in BAF's favor on the products liability claim.

2. Negligence

¶19 LTS also brought negligence claims against BAF and Chase,...

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