Ent Credit v. Sayre

Opinion

24CA0002 Ent Credit v Sayre 08-01-2024

COLORADO COURT OF APPEALS

Court of Appeals No. 24CA0002

Mesa County District Court No. 23CV30168

Honorable Brian J. Flynn, Judge

Ent Credit Union,

Plaintiff-Appellee,

v.

Sayre & Harris Law, P.L.L.C., a dissolved Colorado limited liability company,

Defendant-Appellant.

JUDGMENT AFFIRMED

Division II

Opinion by JUDGE FOX

Grove and Sullivan, JJ., concur

NOT PUBLISHED PURSUANT TO C.A.R. 35(e)

Announced August 1, 2024

Brown Dunning Walker Fein Drusch PC, Neal K. Dunning, Greenwood Village,

Colorado, for Plaintiff-Appellee

Coleman, Quigley & Foster, LLC, Joseph Coleman, Isaiah Quigley, Stuart R.

Foster, Grand Junction, Colorado, for Defendant-Appellant

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¶ 1 Defendant, Sayre & Harris Law, P.L.L.C. (Sayre & Harris),

appeals the district court’s grant of summary judgment in favor of

plaintiff, Ent Credit Union (Ent). We affirm.

I. Background

¶ 2 Ent is a state-wide credit union based in El Paso County.

Sayre & Harris, a dissolved limited liability company, was formerly

a law firm in Grand Junction. This case concerns Ent’s efforts to

collect an overdraft from Sayre & Harris’ COLTAF

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business

checking account.

¶ 3 Sayre & Harris opened a COLTAF account with Ent in March

2021. That December, Sayre & Harris fell victim to an email scam.

The firm was contacted by a prospective “client” seeking counsel to

draft a purchase and sale agreement with a hospital for the sale of

respiratory ventilators. Given the national importance of

respiratory ventilators during the COVID-19 pandemic, Sayre &

Harris treated the transaction with great urgency. The client wrote

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The Colorado Lawyer Trust Account Foundation (COLTAF)

administers Colorado’s Interest on Lawyers’ Trust Accounts

program, whereby interest on lawyers’ trust accounts holding

nominal funds or funds expected to be held for a short time is used

to support charitable causes. See Colo. RPC 1.15B.

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Sayre & Harris a cashier’s check for $153,550 with instructions

that the firm wire $115,750 of the funds to an “inspection

company” so the ventilators could be inspected before the sale.

¶ 4 Sayre & Harris deposited the cashier’s check into its COLTAF

account with Ent. Ent granted provisional credit of $153,550 to the

account the next business day. Believing that Ent’s provisional

credit meant that the cashier’s check cleared, Sayre & Harris

directed Ent to issue a wire transfer of $115,750 from its COLTAF

account to a bank account in New York (which supposedly belonged

to the ventilator inspection company). The cashier’s check was

later deemed fraudulent, but not before Sayre & Harris’ wire

transfer was deposited to a bank account in Nigeria where it could

not be recovered.

¶ 5 Before initiating the wire transfer, a Sayre & Harris partner

called the bank that purportedly issued the cashier’s check to verify

its legitimacy. But by the time the issuing bank returned the

partner’s call to inform him that the cashier’s check was fraudulent,

he had already initiated the wire transfer from Ent to the New York

account. By the time the partner notified Ent that the cashier’s

check was a counterfeit, the fraudsters had wired the funds from

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the New York account to the Nigerian account. An Ent employee

described doing “everything we could” to recall Sayre & Harris’ wire,

but the Nigerian bank did not answer.

¶ 6 When the bank that purportedly issued the cashier’s check

formally dishonored it, Ent alerted the partner, though he already

knew the check was fraudulent. The scam left Sayre & Harris with

a $114,540.14 overdraft in its COLTAF account. Unable to pay the

negative balance, the firm closed its account and was later

dissolved.

¶ 7 Ent sued Sayre & Harris for breach of contract, unjust

enrichment, and breach of transfer warranties under section 4-4-

207(a), C.R.S. 2023. It sought the overdraft amount of $114,540.14

plus interest and attorney fees and costs. Sayre & Harris asserted

several affirmative defenses, including failure to mitigate damages.

¶ 8 Ent moved for summary judgment, arguing that Sayre &

Harris’ membership agreement with Ent placed the risk of loss of

provisional credit on the firm, so it owed the credit union for the

overdraft. Sayre & Harris argued that two factual disputes

precluded summary judgment: (1) whether Ent acted reasonably

and with ordinary care in processing the cashier’s check, as is

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required by the membership agreement; and (2) whether Ent timely

discovered and alerted Sayre & Harris to the counterfeit check.

Citing nonbinding authority, Sayre & Harris argued that Ent was

required to have reasonable procedures in place to detect a

counterfeit check.

¶ 9 Adopting a proposed summary judgment order drafted by Ent,

the district court granted its motion for summary judgment.

II. Discussion

A. Standard of Review

¶ 10 Summary judgment is appropriate when the pleadings and

supporting documents demonstrate there is “no genuine issue as to

any material fact and that the moving party is entitled to a

judgment as a matter of law.” C.R.C.P. 56(c); see also Nat. Energy

Res. Co. v. Upper Gunnison River Water Conservancy Dist., 142 P.3d

1265, 1276 (Colo. 2006). A material fact is one that affects the

outcome of the case. Han Ye Lee v. Colo. Times, Inc., 222 P.3d 957,

960 (Colo. App. 2009). “In determining the existence of an issue of

material fact, a court must view the evidence in the light most

favorable to the nonmoving party.” Id.

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¶ 11 “The moving party bears the initial burden of showing no

genuine issue of material fact exists; the burden then shifts to the

nonmoving party to establish a triable issue of fact.” Westin

Operator, LLC v. Groh, 2015 CO 25, ¶ 20. The nonmoving party

may not rest on the allegations made in the pleadings and must

provide facts “by affidavit or otherwise” to show there is a triable

issue. Han Ye Lee, 222 P.3d at 960; see C.R.C.P. 56(e).

¶ 12 Summary judgment is a “drastic” remedy and may only be

granted where there is a “clear showing that the controlling

standards have been met.” Westin, ¶ 21 (citation omitted). We

review a district court’s grant of summary judgment de novo. Id. at

¶ 19.

B. Applicable Law and Ent’s Membership Agreement

¶ 13 “[A] deposit of money becomes available for withdrawal as of

right at the opening of the bank’s next banking day after receipt of

the deposit.” § 4-4-215(f), C.R.S. 2023. But a check’s depositor

remains the “owner” of the check until final settlement (as here,

when the check clears). § 4-4-201(a), C.R.S. 2023. The collecting

bank acts as the depositor’s agent until the payor bank settles the

check; thus, the risk of loss remains with the depositor until the

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check clears. Lamson v. Com. Credit Corp., 187 Colo. 382, 386-87,

531 P.2d 966, 969 (1975); Mercantile Bank & Tr. Co. v. Hunter, 31

Colo. App. 200, 202, 501 P.2d 486, 487 (1972).

¶ 14 Until final settlement from the payor bank, any credit given

from the collecting bank to the depositor is provisional. § 4-4-201.

A collecting bank retains a security interest in the value of the

deposited item for which it grants provisional credit, which is

realized when the collecting bank receives final settlement from the

payor bank. § 4-4-210(a), (c), C.R.S. 2023. When a collecting bank

makes a provisional settlement for an item for its depositor, but it

fails to receive final settlement from the payor bank, the collecting

bank may revoke the provisional settlement and obtain a refund

from the depositor. Mercantile, 501 P.2d at 487.

¶ 15 A collecting bank must exercise ordinary care in sending

notice of dishonor from a payor bank. § 4-4-202(a)(2), C.R.S. 2023.

It does so by giving notice of dishonor to the depositor before its

midnight deadline following its receipt. § 4-4-202(b).

¶ 16 If a collecting bank has given provisional credit to its customer

for a deposited check, but the payor bank dishonors the check, the

collecting bank may

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revoke the settlement given by it, charge-back

the amount of any credit given for the item to

its customer’s account, or obtain refund from

its customer . . . if, by its midnight deadline or

within a longer reasonable time after it learns

the facts, it . . . sends notification of the facts.

§ 4-4-214(a), C.R.S. 2023; see also Flatiron Linen, Inc. v. First Am.

State Bank, 1 P.3d 244, 250 (Colo. App. 1999), rev’d on other

grounds, 23 P.3d 1209 (Colo. 2001). If the collecting bank delays

giving its customer the requisite notice beyond its midnight

deadline or a longer reasonable time, the bank may “revoke the

settlement, charge back the credit, or obtain refund from its

customer, but it is liable for any loss resulting from the delay.” § 4-

4-214(a).

¶ 17 While a financial institution cannot disclaim its duty of good

faith and ordinary care, parties may, by contract, set the standards

by which the bank’s responsibility is to be measured, so long as

those standards are not manifestly unreasonable. § 4-4-103(a),

C.R.S. 2023.

¶ 18 Ent’s membership agreement, which Sayre & Harris signed,

mirrored the foregoing legal principles. It provided:

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• “We act only as your agent in handling your deposits and

assume no responsibility beyond the exercise of ordinary

care.”

• “All items . . . credited to your account are provisional

and subject to our receipt of final payment.”

• “If final payment is not received, we reserve the right to

charge your account for the amount of such items.”

• “We shall have the right to charge back against your

account all previously deposited items . . . endorsed by

you that are returned to us unpaid, regardless of whether

the amount of the item has been available for your use.”

• “Amounts may be provisionally credited to your account

until we receive final payment.”

• “You waive any notice of nonpayment, dishonor or

protest regarding any items purchased or received by us

for credit to your account.”

• “We will not be liable if . . . your loss is caused by your

negligence.”

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The agreement also provided that Ent may only allow a withdrawal

when the customer has “sufficient funds in [its] available balance to

cover the entire amount of the withdrawal.”

¶ 19 As to stop payment orders, the agreement stated that a

customer may ask Ent to “stop payment on any check” drawn upon

its account, but the stop payment order is only effective if received

in time for Ent to act upon it. It further provided, “If the stop

payment order is not received in time for us to act upon the order,

we will not be liable for failing to stop payment on the check.”

¶ 20 As to wire transfers, the agreement provided,

We may provisionally credit your account for [a

wire] transfer before we receive final settlement

for the transfer. You understand and agree

that if we do not receive final settlement for [a

wire] transfer, we may reverse the provisional

credit to your account or you will refund the

amount to us.

C. Summary Judgment was Proper

¶ 21 Sayre & Harris argues that genuine disputes of material fact

existed as to whether (1) Ent acted reasonably and with ordinary

care in processing the cashier’s check; (2) Ent timely discovered and

alerted Sayre & Harris to the counterfeit check, thus mitigating

damages; and (3) Ent complied with the procedural requirements of

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its alternative breach of transfer warranties claim. We address and

reject each argument in turn.

¶ 22 First, Sayre & Harris argues that a genuine dispute of material

fact existed as to whether Ent acted reasonably and with ordinary

care in processing the cashier’s check and detecting fraud. But

Sayre & Harris fail to direct us to any binding authority or

contractual provision imposing that duty on Ent. Sayre & Harris

cites section 4-4-214(a), which provides that banks are liable for

losses resulting from their delay in notifying a customer of a

dishonored check. But Sayre & Harris knew the cashier’s check

was fraudulent and informed Ent of the fraud even before it was

formally dishonored. Sayre & Harris fails to explain how, given this

advance knowledge and that it informed Ent of the fraudulent

check, its “loss result[ed] from” Ent’s alleged delay in notifying it

once the payor bank formally dishonored the cashier’s check. § 4-

4-214(a).

¶ 23 Sayre & Harris also invokes the portion of the membership

agreement providing that Ent would only permit withdrawals if the

firm had sufficient funds in its account. But the firm ignores

provisions in the same contract notifying it that Ent would grant

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provisional credit for deposited checks, which created a sufficient

balance to support the withdrawal. The risk of loss of that

provisional credit stayed with the firm until the check cleared.

Lamson, 531 P.2d at 969; Mercantile, 501 P.2d at 487. Because no

legal or contractual provision imposed upon Ent the duty that Sayre

& Harris claims it violated, its asserted genuine dispute of material

fact did not preclude summary judgment. See Sarrouf L. LLP v.

First Republic Bank, 148 N.E.3d 1243, 1253 (Mass. App. Ct. 2020)

(law firm victimized by an identical email scam was unsuccessful in

presenting a genuine dispute of material fact as to the bank’s

failure to detect that the check was counterfeit because the bank

had no legal or contractual duty to do so).

¶ 24 Second, Sayre & Harris argues that a genuine dispute of

material fact existed as to whether Ent timely discovered and

alerted the firm to the counterfeit check. Again, the firm fails to

establish that Ent had such a duty. Even so, the undisputed facts

establish that a partner at the firm learned that the cashier’s check

was a counterfeit one day after initiating the wire transfer and

immediately contacted Ent to inform it of the fraudulent cashier’s

check. But the partner’s efforts were too little too late; Ent was

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unable to recall the wire despite doing “everything [it] could.” Ent

again contacted the partner when it learned that the issuing bank

formally dishonored the cashier’s check, though he was already

aware that the check was fraudulent.

¶ 25 To support its timing argument, Sayre & Harris claims that

the affidavit attached to its opposition to Ent’s summary judgment

motion created a genuine dispute of material fact as to Ent’s failure

to mitigate damages. We disagree. In the affidavit, the partner

claimed that Ent did not notify him that something “went wrong

with the wire” until “21 days after the wire had been initiated,”

preventing him from stopping it in time. But the affidavit itself

contradicts that assertion. Elsewhere, the partner admitted that he

contacted Ent the day after the wire transfer to inform it that the

check was counterfeit. Thus, we are unpersuaded that the affidavit

created a genuine dispute of material fact as to Ent’s failure to

mitigate damages. See Markus v. Brohl, 2014 COA 146, ¶ 50 (To

avoid summary judgment, the evidence presented must be

“sufficient to demonstrate that a reasonable jury could return a

verdict for the non-moving party.”) (citation omitted); see also

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Raygor v. Bd. of Cnty. Comm’rs, 21 P.3d 432, 437 (Colo. App. 2000)

(conclusory affidavits do not create genuine issues of material fact).

¶ 26 Third, Sayre & Harris contends — with respect to Ent’s

alternative claim for breach of transfer warranties claim — that Ent

was required and failed to put Sayre & Harris on notice of the claim

within thirty days of discovering the breach. § 4-4-207(d). Because

Ent was entitled to the relief it sought under its breach of contract

theory, the district court was not required to address the alternative

theory for relief, and whether the procedural requirements

underpinning that claim were satisfied.

¶ 27 Because there was no genuine dispute of material fact, the

district court properly granted Ent’s motion for summary judgment.

See C.R.C.P. 56(c).

III. Disposition

¶ 28 The judgment is affirmed.

JUDGE GROVE and JUDGE SULLIVAN concur.