Dixon, Laukitis and Downing, P.C. v. Busey Bank

                           ILLINOIS OFFICIAL REPORTS
                                         Appellate Court




         Dixon, Laukitis & Downing, P.C. v. Busey Bank, 2013 IL App (3d) 120832




Appellate Court            DIXON, LAUKITIS AND DOWNING, P.C., Plaintiff-Appellant, v.
Caption                    BUSEY BANK, Defendant-Appellee.



District & No.             Third District
                           Docket No. 3-12-0832


Filed                      July 31, 2013


Held                       Plaintiff’s complaint alleging that defendant bank breached its duty of
(Note: This syllabus       ordinary care in connection with a fraudulent check plaintiff deposited
constitutes no part of     and drew against that was later found not to be collectible was properly
the opinion of the court   dismissed for failure to state a cause of action, since the bank had no duty
but has been prepared      to investigate the check’s genuineness or to tell plaintiff that it could be
by the Reporter of         counterfeit, the account agreement was satisfied, the agreement was not
Decisions for the          unreasonable, and the complaint was barred by the Moorman doctrine
convenience of the         that no recovery could be had for a solely economic loss under a tort
reader.)
                           theory.


Decision Under             Appeal from the Circuit Court of Peoria County, No. 12-L-8; the Hon.
Review                     David J. Dubicki, Judge, presiding.



Judgment                   Affirmed.
Counsel on                 William R. Kohlhase (argued) and Joshua Herman, both of Miller, Hall
Appeal                     & Triggs, of Peoria, for appellant.

                           Joseph B. VanFleet (argued) and Emily H. Wilburn, both of VanFleet
                           Law Offices, of Peoria, for appellee.


Panel                      JUSTICE O’BRIEN delivered the judgment of the court, with opinion.
                           Justices Carter and McDade concurred in the judgment and opinion.




                                            OPINION

¶1          Plaintiff Dixon, Laukitis, & Downing, P.C. (DLD), filed this negligence action against
        defendant Busey Bank, alleging that Busey breached a duty of ordinary care it owed DLD
        regarding a fraudulent check DLD deposited and drew against, which was later determined
        to be uncollectible. The trial court dismissed the complaint on Busey’s motion and DLD
        appealed. We affirm.

¶2                                            FACTS
¶3          Plaintiff Dixon, Laukitis & Downing, P.C., is a law firm that maintained its client trust
        account at defendant Busey Bank. On May 25, 2011, DLD deposited into its trust account
        a check from one of its clients in the amount of $350,000. The check was drawn on the
        account of Intact Insurance Company at Royal Bank of Canada in Toronto, Ontario. The
        check was marked, “US Funds” and “This Cheque contains a true security watermark–hold
        at an angle to view.” On June 6, 2011, DLD transferred $210,000 from its trust account to
        the client who provided the $350,000 check. On June 8, 2011, DLD transferred $60,000 from
        the trust account to the client. On June 10, 2011, the check was returned to Busey
        uncollected, and Busey notified DLD and charged back $350,000 to DLD’s account the same
        day.
¶4          DLD filed a complaint sounding in negligence in January 2012. After the complaint was
        dismissed without prejudice for failure to state a claim (735 ILCS 5/2-615 (West 2010)),
        DLD filed an amended complaint in April 2012. In its amended complaint, DLD alleged that
        Busey owed it “a duty to act with ordinary care by observing such reasonable commercial
        standards as prevail in the area where the Bank conducts business” and that the Bank
        breached its duty by failing to inquire as to the circumstances of how DLD acquired the
        check; to recognize the check as counterfeit and inform DLD; to advise DLD that funds
        should not be withdrawn until final payment given the nature of the check and the account;
        and to notify DLD at the “earliest time it knew or should have known that the Check would


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     not be paid by the drawee bank.”
¶5       Busey filed a motion to dismiss under section 2-619.1 of the Code of Civil Procedure
     (Civil Code) (735 ILCS 5/2-619.1 (West 2010)), arguing that dismissal was proper under
     section 2-615 (735 ILCS 5/2-615 (West 2010)) based on the insufficiency of facts to support
     a negligence claim and under section 2-619 (735 ILCS 5/2-619 (West 2010)) on the basis
     that the Moorman doctrine precluded recovery. See Moorman Manufacturing Co. v. National
     Tank Co., 91 Ill. 2d 69 (1982). Attached to its motion to dismiss was the account agreement
     DLD executed with Busey when the law firm established the client trust account. The
     agreement provided that it was subject to all applicable state and federal laws, except where
     varied in the agreement, and that the account holders “agree to be jointly and severally
     (individually) liable for any account shortage resulting from charges or overdrafts.” The
     agreement further stated, in pertinent part: “DEPOSITS–We will give only provisional credit
     until collection is final for any items, other than cash, we accept for deposit (including items
     drawn ‘on us’).” Also attached to Busey’s motion to dismiss was the affidavit of Daniel
     Daly, executive vice president/market president of Busey Bank. He attested “[t]here was
     nothing on the face of this Check that gave any indication that it may not be genuine or that
     it may be dishonored”; the check complied with the requirements for a negotiable instrument
     under section 3-104 of the Uniform Commercial Code (UCC) (810 ILCS 5/3-104 (West
     2010)); the Bank provided written and oral notice to DLD on June 10, 2011, the same day
     the Bank was informed the check was uncollectible; and the Bank charged back $350,000
     against DLD’s account per the account agreement.
¶6       A hearing took place on the Bank’s motion to dismiss and the trial court issued a verbal
     ruling granting the motion. Thereafter, the trial court issued a written order granting the
     section 2-615 motion to dismiss and declining to address the section 2-619 motion to
     dismiss. The trial court stated the motion to dismiss was granted “for all the reasons stated
     by the Court in its verbal Ruling from the Bench.” The record on appeal does not contain a
     transcript from the hearing. The trial court also issued a supplemental order in which it found
     that Busey did not owe DLD a duty under the common law because the UCC provides a
     comprehensive remedy for check processing which places the risk of loss on the depositor
     until final collection. In a supplemental order, the trial court also held that DLD’s complaint
     was barred under the Moorman doctrine. DLD appealed.

¶7                                       ANALYSIS
¶8        The issue on appeal is whether the trial court erred when it granted Busey’s motion to
     dismiss DLD’s negligence complaint. DLD argues that it alleged facts satisfying each
     element of a negligence action and dismissal of its complaint should be reversed. According
     to DLD, Busey owed it a duty of ordinary care under the common law and the UCC,
     breached its duty, and caused DLD damages. DLD argues that issues of fact as to whether
     Busey acted consistent with reasonable commercial standards in the local area exist and
     preclude judgment on the pleadings. Lastly, DLD submits that the UCC does not supplant
     Busey’s common law duty of ordinary care and that the Moorman doctrine does not preclude
     its negligence action against Busey.


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¶9         A section 2-619.1 (735 ILCS 5/2-619.1 (West 2010)) motion to dismiss is a hybrid
       motion combining grounds for dismissal under sections 2-615 and 2-619 (735 ILCS 5/2-615,
       2-619 (West 2010)). A section 2-615 motion admits all well-pleaded facts and attacks the
       legal sufficiency of the complaint. Seip v. Rogers Raw Materials Fund, L.P., 408 Ill. App.
       3d 434, 438 (2011). A section 2-615 dismissal is proper where it is apparent the plaintiff
       cannot prove any set of facts entitling him to relief. Seip, 408 Ill. App. 3d at 438. Under
       section 2-615, the test is “ ‘whether the allegations of the complaint, when viewed in a light
       most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can
       be granted.’ ” Seip, 408 Ill. App. 3d at 438 (quoting Canel v. Topinka, 212 Ill. 2d 311, 317
       (2004)). A section 2-619 motion admits the legal sufficiency of the complaint and asserts
       affirmative matters defeating the claims. Seip, 408 Ill. App. 3d at 438. The test on review of
       a dismissal under section 2-619 is “whether a genuine issue of material fact exists and
       whether the defendant is entitled to a judgment as a matter of law.” Seip, 408 Ill. App. 3d at
       438. When considering a dismissal under either section 2-615 or section 2-619, the reviewing
       court must accept as true all well-pleaded facts as well as all reasonable inferences arising
       from the facts. Zahl v. Krupa, 365 Ill. App. 3d 653, 658 (2006). Our review is de novo. Zahl,
       365 Ill. App. 3d at 658.
¶ 10       To sustain a negligence action, the plaintiff must establish that the defendant owed it a
       duty, the defendant breached its duty, and the plaintiff was damaged as a result of the breach.
       Ward v. K mart Corp., 136 Ill. 2d 132, 140 (1990). The existence of a duty is a question of
       law to be determined by the trial court. Ward, 136 Ill. 2d at 140. The UCC governs the
       relationship between a bank and its customer. Napleton v. Great Lakes Bank, N.A., 408 Ill.
       App. 3d 448, 451 (2011). The principles of law and equity supplement the UCC unless they
       are displaced by a particular provision in the UCC. 810 ILCS 5/1-103(b) (West 2010).
       Article 4 of the UCC governs bank deposits and collections. 810 ILCS 5/4-101 et seq. (West
       2010). It sets forth a bank’s general duty to exercise ordinary care and states that “action or
       non-action approved by this Article *** is the exercise of ordinary care and, in the absence
       of special instructions, action or non-action consistent *** with a general banking usage not
       disapproved by this Article, is prima facie the exercise of ordinary care.” 810 ILCS 5/4-
       103(c) (West 2010).
¶ 11       A bank that takes an item is a “Depository Bank” and a bank that handles an item for
       collection and is not a drawee of the draft is a “Collecting Bank.” 810 ILCS 5/4-105 (West
       2010). A collecting bank acts as an agent of an item’s owner until final settlement of the item
       and “any settlement given for the item is provisional.” 810 ILCS 5/4-201(a) (West 2010). In
       addition, a collecting bank has a superior right over the item’s owner to a setoff if an item
       does not settle. 810 ILCS 5/4-201(a) (West 2010).
¶ 12       The UCC does not enumerate duties for a depository bank but section 4-202 sets forth
       the responsibilities for a collecting bank as follows:
                “(a) A collecting bank must exercise ordinary care in:
                    (1) presenting an item or sending it for presentment;
                    (2) sending notice of dishonor or nonpayment or returning an item other than a
                documentary draft to the bank’s transferor after learning that the item has not been


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                paid or accepted, as the case may be;
                    (3) settling for an item when the bank receives final settlement; and
                    (4) notifying its transferor of any loss or delay in transit within a reasonable time
                after discovery thereof.
                (b) A collecting bank exercises ordinary care under subsection (a) by taking proper
            action before its midnight deadline following receipt of an item, notice, or settlement.”
            810 ILCS 5/4-202(a), (b) (West 2010).
       Section 4-214(a) provides that a collecting bank may charge back a customer’s account when
       the bank makes provisional settlement but does not receive final payment on an item if the
       collecting bank gives notice to its customer by midnight of the next banking day. 810 ILCS
       5/4-214(a) (West 2010).
¶ 13        Provisions such as section 4-202 of the UCC displace common law negligence principles;
       UCC compliance is nonnegligent as a matter of law. Merrill Lynch, Pierce, Fenner & Smith,
       Inc. v. Devon Bank, 702 F. Supp. 652, 665 (N.D. Ill. 1988). The standards set forth in section
       4-202 are “a restatement” of the common law negligence standard in that they define the
       applicable standard of care. Merrill Lynch, 702 F. Supp. at 660. The UCC’s provisions may
       also be varied by an agreement of the parties but a bank’s responsibility for its failure to
       exercise ordinary care cannot be disclaimed. 810 ILCS 5/4-103(a) (West 2010); Scott
       Stainless Steel, Inc. v. NBD Chicago Bank, 253 Ill. App. 3d 256, 260-61 (1993). An
       agreement between the parties may set forth the standards to measure the bank’s
       responsibility so long as the standards are not manifestly unreasonable. 810 ILCS 5/4-103(a)
       (West 2010). The relationship between a bank and its account holders is contractual in nature
       and one of creditor and debtor. Continental Casualty Co. v. American National Bank & Trust
       Co. of Chicago, 329 Ill. App. 3d 686, 692 (2002). An account holder agreement executed
       between a bank and its customer creates a binding contract. Continental Casualty Co., 329
       Ill. App. 3d at 692. Under the common law, a collecting bank does not owe a duty to its
       customer to inspect a check later determined to be counterfeit. Sibley v. Central Trust Co.
       of Illinois, 226 Ill. App. 180, 186 (1922).
¶ 14        We first determine whether Busey owed DLD a duty and whether the complaint states
       a cause of action for negligence. In its first amended complaint, DLD alleges that Busey
       owed it a duty to act with ordinary care by observing prevailing reasonable commercial
       standards, a duty DLD maintains arises from the common law as directed by the UCC. It
       looks to the definition of ordinary care set forth in the general definitions of article 4 of the
       UCC as support for its claim. According to DLD, since neither the UCC nor the account
       agreement provides specific standards governing Busey’s conduct concerning processing a
       foreign check suspected to be counterfeit, the common law standards, like the general UCC
       provisions, provide that the duty of ordinary care owed by Busey to DLD is the observance
       of reasonable commercial standards.
¶ 15        We disagree with DLD’s conclusion that Busey owed it a common law duty of
       reasonable care. Under the facts as set forth in DLD’s amended complaint and available in
       the record, the duty owed to DLD by Busey was defined under the parties’ account agreement
       and the UCC. The account agreement placed the risk of loss on DLD until final settlement

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       of the $350,000 check. This provision applied whether Busey acted as a depository bank or
       a collecting bank. The language in the agreement tracks the risk of loss language of the UCC.
       DLD opted to write checks based on the $350,000 deposit before final settlement. The terms
       of the account agreement did not require Busey to investigate the genuineness of the check
       or specially warn DLD not to rely on the funds until the deposited check settled. Because
       DLD bore the risk of loss under the agreement, it cannot state a claim for the Bank’s
       negligence based on its own withdrawal of funds before the check was finally settled.
       Moreover, as stated under the account agreement, applicable UCC provisions also governed
       the responsibilities between the parties. As a collecting bank, Busey’s duties were
       enumerated in section 4-202 of the UCC. In its amended complaint, DLD did not allege that
       Busey breached any duties under section 4-202 in collecting or processing the counterfeit
       check. Rather, DLD alleged that Busey failed to exercise ordinary care in that it did not
       follow prevailing reasonable commercial banking standards, which it asserts includes
       investigating the circumstances regarding the check, recognizing it as counterfeit, advising
       DLD not to withdraw funds until final settlement, and notifying DLD at the earliest time that
       it was dishonored.
¶ 16       DLD maintains that the section 4-202 ordinary care standard only applies to the
       timeliness of the actions and not to whether they were performed in accordance with the
       ordinary care. We disagree. Under section 4-202, a collecting bank exercises ordinary care
       when it presents an item, sends notice of dishonor, finally settles an item, or timely notifies
       the transferor of any delay by performing such actions before midnight following receipt,
       notice or settlement of an item. DLD seeks to add an additional duty of ordinary care under
       the common law to supplement these specific standards. Contrary to DLD’s claims, the UCC
       displaces common law duties for a collecting bank. As the trial court noted, the UCC
       provides a comprehensive plan for the processing of checks. Where, like here, its specific
       provisions set forth standards regarding particular banking practices, they displace the
       ordinary care standard under the common law. In the amended complaint, DLD does not
       assert that Busey failed to timely perform any section 4-202 duties of a collecting bank,
       including notifying DLD before the midnight deadline that the check was dishonored.
¶ 17       The cases offered by DLD do not compel a different determination. In Mutual Services
       Casualty Insurance Co. v. Elizabeth State Bank, 265 F.3d 601, 614 (7th Cir. 2001), a
       customer’s breach of contract claim against a bank that allowed the customer’s employee to
       cash checks on an account on which he was not authorized was based on the bank’s common
       law duty to its customer. In Mutual Services, neither the account agreement nor any specific
       provisions of the UCC governed the duty of the bank concerning the circumstances at issue.
       Mutual Services, 265 F.3d at 613-14. Here, in contrast, the account agreement and the UCC
       spelled out the standards constituting ordinary care. In Greenberg, Trager & Herbst, LLP v.
       HSBC Bank USA, 958 N.E.2d 77 (N.Y. 2011), a case on which Busey also relies, the plaintiff
       law firm fell victim to an international check scam similar to that in the instant case. The law
       firm filed an action alleging negligence, in part, against the depository/collecting bank and
       the payor. Greenberg, 958 N.E.2d at 80-81. As in Mutual Services, there were no specific
       provisions under the parties’ account agreement or the UCC governing the circumstances at
       issue and the bank presented evidence that its action complied with the duty of ordinary care

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       as defined through custom and practice of the banking industry. Greenberg, 958 N.E.2d at
       85-86.
¶ 18       In our view, Greenberg supports Busey’s position. The Greenburg court recognized that
       pursuant to section 2-214(a) of the UCC, the risk of loss remained with the law firm until the
       check was finally settled with the bank. Greenberg, 958 N.E.2d at 87. Both the UCC and the
       account agreement in the instant case place the risk of loss on DLD until the check finally
       settled. The Daly affidavit establishes that the check on its face did not indicate it was
       counterfeit and that the check satisfied the requirements necessary for a negotiable
       instrument. Daly also attested that DLD was notified the check was uncollectible the same
       day Busey learned it was dishonored. DLD did not offer any facts in its amended complaint
       or in response to Busey’s motion to dismiss that dispute Daly’s statements or that Busey did
       not timely satisfy the responsibilities of a collecting bank under the UCC, including notice
       before the midnight deadline that the check was dishonored.
¶ 19       We consider that DLD’s common law negligence claim cannot be sustained. Busey owed
       DLD no other duties aside from those set forth in the account agreement and the UCC. The
       amended complaint fails to allege that Busey breached any duties under the account
       agreement or the UCC. On these facts, DLD cannot present allegations sufficient to establish
       any common law duty. Even if the account agreement and the UCC did not apply, there is
       no duty under the common law to inspect a check for genuineness or to remind customers
       that they bear the risk of loss before a deposited check is finally settled. We find that the trial
       court’s dismissal of the complaint for failure to state a claim was not in error. Timely
       compliance with the section 4-202 responsibilities constitutes ordinary care per the UCC and
       is not negligent as a matter of law. The facts establish that Busey processed the check per its
       standard methods, received notice the check was uncollectible on June 10, and informed
       DLD the same day. In addition to complying with the terms of the agreement, Busey also
       timely complied with the UCC provisions concerning the responsibilities of a collecting
       bank. Contrary to DLD’s assertions, Busey had no duty under the agreement or the UCC to
       investigate the genuineness of the check or to inform DLD that it could be counterfeit.
       Because DLD cannot allege that Busey failed to comply with the account agreement, it must
       establish that its terms are manifestly unreasonably, a claim it did not allege in its complaint
       and which these facts cannot sustain.
¶ 20       The trial court also dismissed DLD’s complaint under section 2-619 of the Civil Code,
       finding that the complaint was precluded by the Moorman doctrine. Under the Moorman
       doctrine, a plaintiff cannot recover for solely economic loss under a tort theory of negligence.
       Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69, 91-92 (1982). The doctrine
       was extended to services, and claims against a service provider are barred where the “duty
       of the party performing the service is defined by the contract that he executes with his client.”
       Congregation of the Passion, Holy Cross Province v. Touche Ross & Co., 159 Ill. 2d 137,
       162 (1994). The reasoning behind the rule is that tort law provides a remedy for losses from
       personal injuries or property damages, and contract law and the UCC provide remedies for
       economic losses resulting from diminished commercial expectations without personal injury
       or property damage. In re Illinois Bell Switching Station Litigation, 161 Ill. 2d 233, 241
       (1994). An exception applies to service providers, such as attorneys or accountants, where

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       their duty arises outside of the contract; under those circumstances the Moorman doctrine
       does not preclude a claim based solely on economic loss. Congregation of the Passion, 159
       Ill. 2d at 161.
¶ 21        As discussed above, the account holder agreement between DLD and Busey formed a
       contract, which incorporated the applicable UCC provisions and defined the parties’
       responsibilities. DLD relies on Mutual Service Casualty Insurance Co. v. Elizabeth State
       Bank, 265 F.3d 601, 618 (7th Cir. 2001) as support for its claim that Busey owed it a duty
       outside the contract that was amenable to a tort action. In Mutual Service, the reviewing court
       declined to decide the issue but suggested that the implied duty of ordinary care implicit in
       every contract under common law “may well support an exception from Moorman.” Mutual
       Service Casualty Insurance Co., 265 F.3d at 619. It looked to the extracontractual duty owed
       by an attorney or accountant that precludes application of the Moorman doctrine to
       malpractice claims and reasoned that banks owe a similar common law duty of care to its
       customers. Mutual Service Casualty Insurance Co., 265 F.3d at 618. We consider Mutual
       Service is distinguished in that it relied on a provision of the UCC that did not delineate
       Busey’s responsibilities or standard of care. Mutual Service Casualty Insurance Co., 265
       F.3d at 616-17. Where, as here, the account agreement and UCC set forth Busey’s duties and
       define ordinary care, there is no extracontractual relationship. Because DLD is claiming
       solely economic loss, it cannot pursue a tort action under the Moorman doctrine. We find that
       the trial court properly dismissed the complaint under section 2-619.
¶ 22        For the foregoing reasons, the judgment of the circuit court of Peoria County is affirmed.

¶ 23      Affirmed.




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