Case of interest where the 11th Circuit ruled that a bank agreement cannot reduce the 1-year reporting requirement for unauthorized wire transfers

In this case of interest, the Eleventh Circuit Court of Appeals ruled a bank cannot reduce the time requirement for an account holder to notify the bank of fraudulent wire transfers. The district court granted summary judgment in favor of the bank holding that the bank’s agreement effectively shortened the time-period for an account holder to report unauthorized wire transfers. However, the Court of Appeals reversed and remanded the trial court ruling. In Rodriguez v. Branch Banking & Tr. Co., 46 F.4th 1247 (11th Cir. Aug. 26, 2022), the Court of Appeals held that under Florida’s version of the UCC, the parties could not reduce in a bank agreement the one-year period to make demand for a refund of a fraudulent wire transfer.

The Appellants were Venezuelan citizens who opened personal and commercial bank accounts at a bank in Florida. The bank’s agreements required the bank’s customers to examine bank statements and notify the bank of any irregularity within 30 days of the statement date. In a five-month period, $850,000 was fraudulently transferred out of the customer’s accounts. The account holders did not notify the bank of the fraudulent wire transfers within 30 days but did notify the bank of the transfers within the statutory one-year period under the Florida version of UCC § 4A.505 which is codified in Florida law as Fla. Stat. § 670.505. On appeal, Appellants argued that the Florida statutes provided a one-year time period to notify a bank of unauthorized transfers and the time-period could not be modified by agreement. The Court of Appeals, citing the commentary to the Florida UCC, agreed, holding “Florida made a policy choice about who should bear the risk of a fraudulent transfer: the bank or account holder. It chose the bank.”

Texas might reach a different result. In American Airlines Emps. Fed. Credit Union v. Martin, 29 S.W.3d 86, 95 (Tex. 2000), and again in Compass Bank v. Calleja-Ahedo, 569 S.W.3d 104 (Tex. 2018), a case I argued to the Texas Supreme Court, the Texas high court expressly approved of bank agreements that contractually shorten the one-year reporting period for “items” under the UCC Section 4. However, wire transfers are governed by UCC §4A. In the Felix v. Prosperity Bank, No. 01–14–00997–CV, 2015 WL 9242048 (Tex. App.—Houston [1st Dist.] Dec. 17, 2015, no pet.), the Court awarded the bank its attorney’s fees incurred in asserting the shortened 30-day reporting requirement included in the deposit agreement as a defense to a customer’s claim based on an unauthorized wire transfer. Plus, courts in other states have upheld similar shortened reporting deadlines to report unauthorized wire transfers to banks. See Priority Staffing v. Regions Bank, No. Civ. A. 5:11-0667, 2013 WL 5462239 (W.D. La. Sep 30, 2013), appeal dismissed (5^th Cir. 13-31136) (Mar 06, 2014). See also, Bonnema v. Heritage Bank NA-Willmar, No. C9-01-1940, 2002 WL 1363985, 48 U.C.C. Rep. Serv. 2d 287 (Minn. Ct. App. June 19, 2002) and ReAmerica, S.A. v. Wells Fargo Bank Int’l, No. 04 CIV. 5233 (DAB) 2008 WL 7811571 (S.D.N.Y. Mar 18, 2008). This split in authority shows the importance of banks knowing the applicable statutes and interpretations of those statutes in each state where they do business and banks need to account for same in drafting any applicable deposit account agreement, treasury management agreement or other agreements governing wire transfers.

No information in this communication is intended to constitute specific legal advice. For specific legal advice, please contact an attorney, and if you have any such questions or would like more information about this issue, please contact William “Pat” Huttenbach at 713.752.8616, or email at [email protected].

Thanks,

Pat

Rodriguez v. Branch Banking & Trust Company