Revived Suit Over Bank Security Measures Potentially Opens Door to More Cases

July 5, 2012 – In The News
The National Law Journal
The U.S. Court of Appeals for the First Circuit recently reversed a district court’s rejection of a suit that involved the commercial reasonableness of bank security measures under the Uniform Commercial Code (UCC). Some attorneys believe that the ruling could open the door to more UCC actions against banks following fraudulent transactions, but they emphasize that the fact pattern is unlikely to be replicated in other cases.

A unanimous panel reversed the summary judgment ruling in favor of People’s United Bank, which does business as Ocean Bank, in a suit that was brought on by Patco Construction Co. Inc.

Patco, a real estate developer and contractor, sued Ocean Bank in September 2009 in Maine Superior Court. Patco claimed that it lost $345,444.43 out of $588,851.26 worth of fraudulent withdrawals. The company also claimed that Ocean Bank’s security measures did not comply with UCC's Article 4A, which requires banks "to adopt commercially reasonable security procedures for authenticating payment orders." However, in August of 2011, the Maine Superior Court denied Patco’s claims and granted Ocean Bank’s summary judgment motion.

In the recent opinion that reversed this ruling, the U.S. Court of Appeals Chief Judge Sandra Lynch wrote that, “the bank's generic "one-size-fits-all" approach to customers violates Article 4A's instruction to take the customer's circumstances into account."

Scott L. Vernick, a partner and member of the firm’s Philadelphia office, recently spoke with The National Law Journal about this ruling. Vernick believes that the opinion is important because it interprets Article 4A of the UCC about what is commercially reasonable, but it's unlikely to open the floodgates to similar cases.

"The court addresses a very unique set of facts which are not necessarily going to be replicated in other cases," Vernick said.

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