Public Citizen, Inc. v. First Nat. Bank in Fairmont

• Decision Date: 05 December 1996
• Docket Number: No. 23282,23282
• Citation: 480 S.E.2d 538,198 W.Va. 329
• Court: West Virginia Supreme Court
• Parties: , 32 UCC Rep.Serv.2d 162 PUBLIC CITIZEN, INC., Plaintiff Below, Appellant v. FIRST NATIONAL BANK IN FAIRMONT, Defendant Below, Appellee.

Page 538

480 S.E.2d 538

198 W.Va. 329, 32 UCC Rep.Serv.2d 162

PUBLIC CITIZEN, INC., Plaintiff Below, Appellant v. FIRST NATIONAL BANK IN FAIRMONT, Defendant Below, Appellee.

No. 23282.

Supreme Court of Appeals of West Virginia.

Submitted Sept. 18, 1996.

Decided Dec. 5, 1996.

[198 W.Va. 331] Syllabus by the Court

1. In reviewing challenges to the findings and conclusions of the circuit court made after a bench trial, a two-pronged deferential standard of review is applied. The final order and the ultimate disposition are reviewed under an abuse of discretion standard, and the circuit court's underlying factual findings are reviewed under a clearly erroneous standard. Questions of law are subject to a de novo review.

2. A statute that diminishes substantive rights or augments substantive liabilities 3. Under W. Va.Code § 46-3-406 (1963), a bank may not assert the affirmative defense of negligence in a claim involving a transaction unless it first establishes that in that transaction, it acted in accordance with the reasonable commercial standards of the banking business.

[198 W.Va. 332] should not be applied retroactively to events completed before the effective date of the statute (or the date of enactment if no separate effective date is stated) unless the statute provides explicitly for retroactive application.

4. Under W. Va.Code § 46-3-116 (1963), a check made out to two parties may be endorsed and negotiated by either of them only when the check clearly indicates that it is to be paid in the alternative. When a check is ambiguous as to whether payees are joint or alternative, it will be construed as payable jointly.

5. Under W. Va.Code § 46-3-406 (1963), it is commercially unreasonable for a bank to accept for deposit in an individual account a check made payable to a corporation, without first ascertaining, or at least inquiring as to, the authority of the depositor/endorser.

6. The transfer and presentment warranties in W. Va.Code § 46-4-207 (1963) do not extend to the payee of a check paid on a forged, missing, or unauthorized endorsement.

Ross Maruka, Fairmont, John J. Beins, Gavett and Datt, P.C., Rockville, Maryland, for Appellant.

Philip C. Petty, Rose, Padden & Petty, L.C., Fairmont, for Appellee.

CLECKLEY, Justice.

The plaintiff below and appellant herein, Public Citizen, Inc., ¹ appeals from a final decision of the Circuit Court of Marion County in favor of the defendant below and appellee herein, the First National Bank in Fairmont ² (the bank). The plaintiff assigns two separate errors: (1) The circuit court committed error in holding the defendant acted in accordance with reasonable commercial standards applicable to the business of the bank, and (2) the circuit court erred in finding the plaintiff was negligent and that its negligence barred its recovery in this action. For reasons stated below, we reverse the decision of the circuit court. ³

I. FACTUAL AND PROCEDURAL BACKGROUND

Adhering to the familiar praxis, we recite the pertinent facts in the light most consistent with the circuit court's factual findings. Jim Kampanos was the administrator for the plaintiff, Public Citizen, Inc., from April, 1989, to November, 1990. Mr. Kampanos's responsibilities included handling all investments for Public Citizen, including its accounts with Tucker Anthony, Inc., a Washington, D.C., brokerage firm. Between July and September of 1989, Mr. Kampanos perpetrated an embezzlement scheme whereby he deposited a total of $26,807.00 from the plaintiff's Tucker Anthony account into his own personal checking account at the bank.

Specifically, on July 7, 1989, Mr. Kampanos requested a Tucker Anthony representative to withdraw $12,225.00 from the plaintiff's investment account and send it to his attention at Public Citizen. As requested, Tucker Anthony issued a check for $12,225.00 payable to the order of "Public Citizen, Attn Jim Kampanos." Mr. Kampanos In November, 1990, the plaintiff's auditor, after concluding an audit of the 1989 books, discovered Mr. Kampanos had embezzled funds from the plaintiff. ⁴ Apparently, the auditor detected only the check for $14,582.00 and failed to notice that the second check for $12,225.00 had been deposited to Mr. Kampanos's account. In May, 1992, the plaintiff demanded the return of the proceeds of the check for $14,582.00, which demand was refused by the bank. On October 3, 1992, Public Citizen filed suit in the Circuit Court of Marion County asserting a cause of action for breach of warranty under the Uniform Commercial Code. On February 14, 1994, the bank informed the plaintiff of the $12,225.00 check which had been drawn on the plaintiff's Tucker Anthony account and deposited in Mr. Kampanos's account. In March, 1994, the plaintiff demanded that the bank return the proceeds of this second check, and upon the defendant's refusal, on March 31, 1994, the plaintiff amended its complaint to seek additional damages for this check as well. ⁵

[198 W.Va. 333] endorsed the check, "For deposit only, 12-29931, Jim Kampanos," and on July 31, 1989, he presented the check for deposit at the bank. A teller at the bank accepted the check for deposit into Mr. Kampanos's personal account number 12-29931. On August 22, 1989, Mr. Kampanos again requested Tucker Anthony to send funds from the plaintiff's investment account, this time in the amount of $14,582.00. Tucker Anthony again supplied Mr. Kampanos with a check made out to the order of "Public Citizen, Inc., Attn Jim Kampanos" for the requested amount (on each check, the "Attn Jim Kampanos" was directly below the name "Public Citizen, Inc."). Mr. Kampanos endorsed the second check, "For deposit only, 12-29931, Jim S. Kampanos, Public Citizen, Inc." and on September 5, 1989, he deposited it to his personal checking account at the bank.

On November 14, 1994, following a bench trial, the circuit court ruled in favor of the defendant, finding the defendant had acted in accordance with reasonable commercial standards applicable to the business of the bank; that the checks, as drawn, were, at least, ambiguous, and, therefore, the checks were payable in the alternative and could be negotiated by Public Citizen or Jim Kampanos; that the plaintiff was negligent in failing to exercise reasonable control and/or supervision of its employee, Jim Kampanos, in failing to review in any timely manner the statements of the account with Tucker Anthony, and in failing to promptly notify the bank when it first became aware of the breach by one of its employees and its potential claim against the bank; and that the plaintiff's damages were incurred by and through its own negligence, as opposed to any negligence or wrongdoing on the part of the bank. It is from this ruling that the plaintiff appeals.

II. DISCUSSION

On appeal to this Court, the plaintiff presents three grounds for reversal. First, the plaintiff challenges the circuit court's retroactive application of the 1993 revisions to the West Virginia Uniform Commercial Code. Second, the plaintiff contends the circuit court erred in finding the defendant's conduct was commercially reasonable with respect to the checks. Third, the plaintiff argues the circuit court erred by finding its damages were incurred by its own negligence. Following a review of the record, we find (a) the circuit court improperly gave retroactive consideration to the aforesaid 1993 revisions; (b) the defendant did not act in accordance with commercially reasonable standards as a matter of law; and (c) it is unnecessary to address the issue of the plaintiff's negligence. After setting forth the applicable standard of review, we first turn to the retroactive application of the 1993 revisions. We then shift to the issue of the

[198 W.Va. 334] commercial reasonableness of the bank's conduct and, finally, to the negligence of the plaintiff.

A. Standard of Review

In reviewing challenges to the findings and conclusions of the circuit court made after a bench trial, a two-pronged deferential standard of review is applied. The final order and the ultimate disposition are reviewed under an abuse of discretion standard, and the circuit court's underlying factual findings are reviewed under a clearly erroneous standard. A circuit court's finding is clearly erroneous when "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Board of Educ. v. Wirt, 192 W.Va. 568, 579 n. 14, 453 S.E.2d 402, 413 n. 14 (1994), quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746, 766 (1948). However, we exercise complete and independent review over the circuit court's interpretation and conclusions of law. Phillips v. Fox, 193 W.Va. 657, 661, 458 S.E.2d 327, 331 (1995).

B. Analysis

1. Uniform Commercial Code: Applicability of 1993 Revisions

Unless varied by an agreement between them, the legal relationship between the parties is governed by the Uniform Commercial Code, as adopted in Chapter 46 of the West Virginia Code. The Legislature substantially amended Articles 3 and 4 of the West Virginia Uniform Commercial Code in 1993 in order to conform to the changes to the U.C.C. promulgated in 1990 by the Permanent Editorial Board of the Uniform Commercial Code. When a pending case implicates a state statute enacted after the events that form the basis of the suit, "the court's first task is to determine whether [the West Virginia Legislature] has expressly prescribed the statute's proper reach." Landgraf v. USI Film Products, 511 U.S. 244, 280, 114 S.Ct. 1483, 1505, 128 L.Ed.2d 229, 261-62 (1994). Thus, we begin our analysis with an examination of the law regarding retroactivity of legislative acts.

The plaintiff contends the circuit court erred in applying the new amendments retroactively. While noting the underlying transactions in this case occurred in 1989, the defendant argues that...