Maryland Court of Special Appeals Case Summaries: March 17, 2008

Daily Record, The (Baltimore), Mar 17, 2008

Commercial Law

Cashing counterfeit checks

BOTTOM LINE: Payroll check cashing company was not entitled to summary judgment where issuer of payroll checks did nothing to contribute to issuance of counterfeit checks.

CASE: Select Express, LLC v. American Trade Bindery, Inc., No. 2588, September Term, 2006 (filed Mar. 3, 2008) (Judges Eyler, D., Sharer & KENNEY (retired, specially assigned)). RecordFax No. 8- 0303-00, 19 pages.

FACTS: American Trade Bindery, Inc. (ATB), a document binding company located in Baltimore, typically employs 40 to 50 full-time employees, including an office manager who also serves as the company's bookkeeper. ATB pays its employees weekly.

During the relevant period, ATB would submit its weekly payroll information to Paychex, a payroll services business, for processing. Paychex would prepare checks on ATB's payroll account made payable to ATB's employees and forward them, unsigned, to ATB.

An authorized ATB officer would then personally sign the checks and distribute them to the employees. ATB did not use or even possess a signature stamp, and all of the payroll checks were signed by hand.

ATB maintained two bank accounts with Provident Bank of Maryland, an operating account and the payroll account. Provident Bank issued a monthly statement for each account to ATB.

Typically, ATB's office manager would reconcile the accounts within two business days after receiving the statements. Leo Jubb, ATB's Treasurer, would later review the accounts.

Select Express cashes payroll checks, social security checks, and income tax checks for a fee and deposits the cashed checks into its account with Bank of America. Between December 6, 2001, and February 21, 2002, Select Express accepted and cashed approximately 87 separate checks purporting to be ATB payroll checks. The counterfeit checks, totaling $50,926.96, were presented to Select Express by approximately 15 unidentified individuals.

In December 2001, ATB's office manager resigned and a new office manager was hired in March 2002. In the interim, Jubb assumed the bookkeeping duties.

On February 13, 2002, while reconciling ATB's accounts, Jubb discovered that the counterfeit checks had been paid from ATB's payroll account. Provident Bank immediately closed the payroll account. Ultimately, Bank of America debited Select Express's account in the amount of the checks.

Select Express sued ATB, alleging negligence and breach of contract. ATB filed a motion for summary judgment. The circuit court entered summary judgment in favor of ATB on both the negligence count and the breach of contract count. The Court of Special Appeals affirmed.

LAW: In Lightolier, A Div. of Genlyte Thomas Group, LLC v. Hoon, 387 Md. 539, 552, 76 A.2d 100 (2005), the Court of Appeals said: "The purpose of the summary judgment procedure is not to try the case or to decide the factual disputes, but to decide whether there is an issue of fact which is sufficiently material to be tried. Thus, once the moving party has provided the court with sufficient grounds for summary judgment, the non-moving party must produce sufficient evidence to the trial court that a genuine dispute to a material fact exists. ..."

To defeat a motion for summary judgment, the party opposing the motion must identify "with particularity each material fact as to which it is contended that there is a genuine dispute." Rule 2- 501(b).

"[M]ere general allegations or conclusory assertions which do not show facts in detail and with precision will not suffice to overcome a motion for summary judgment." Educ. Testing Serv., 399 M d. at 139.

Select Express argued that summary judgment was not appropriate because a genuine dispute of material fact existed as to whether ATB's actions and inactions were a 'failure to exercise ordinary care' that contributed to the forgeries." This negligence argument was dependent on a duty owed to it by ATB. See West Virginia Central & Pittsburgh Ry. Co. v. Fuller, 96 Md. 652, 671, 54 A. 669 (1903).

In granting summary judgment in favor of ATB on the negligence count, the circuit court found that ATB had no duty to Select Express to check its bank account statement earlier than it did.

Whether a legal duty exists is to be decided by the court, as a question of law, not an issue of fact to be submitted to a fact- finder. Pendleton v. State, 398 Md. 447, 462, 921 A.2d 14 6 (2007); Gourdine v. Crews, 177 Md. App. 471, 479, 935 A .2d 146 (2007).

Select Express argued that the nexus supporting ATB's duty to Select Express to check its bank statements in a more timely fashion arose from the fact that ATB knew or should have known that Select Express had cashed payroll checks for ATB employees over a period of time.

This knowledge arose from the fact that when ATB received its checks back with the bank statement, Select Express's indorsement was on the back of the checks. This was in addition to an alleged telephone call to ATB when it first cashed an ATB payroll check.

When a failure to exercise due care creates the risk of economic loss only, an intimate nexus between the parties is a predicate to the imposition of tort liability. "The rationale underlying the requirement of an intimate nexus between the parties as a condition of liability for negligent conduct creating only a risk of economic damages is to avoid 'liability in an indeterminate amount for an indeterminate time to an indeterminate class'." Simmons v. Lennon, 139 Md. App. 15, 36, 773 A.2d 1064 (2001) (citing Walpert, Smullian & Blumenthal, P.A. v. Katz, 361 Md. 645, 671, 762 A.2d 582 (2000)).