Recent Cases of Note:

An unreported decision of the Maryland Court of Special Appeals in the case of Lye H.Ong v. Client Protection Fund of Maryland. The Court affirms the judgment of the Circuit Court of Maryland which affirmed the determination of the Client Protection Fund of the Bar of Maryland. The Fund denied the Appellant's claim for reimbursement seeking unearned legal fees. The Client Protection Fund properly determined that the claimant's loss involved an ineligible fee dispute. (2005)

Two recent appellate court decisions which construe difficult provisions of the Uniform Commercial Code provide important help to the enforcement of the creditor rights of law client protection funds. Check out this Court of Appeals' decision in Lawyers' Fund for Client Protection v. Bank Leumi Trust Co., et al., ___ N.Y.2d ___ (February 22, 2000). The prior decision of the intermediate appellate court is reported at 256 A.D.2d 836 (3rd Dept. 1998).

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The NY Lawyers' Fund restored $69,154 to an infant's trust. The infant's father murdered her mother, and the $69,154 represented the proceeds of the dead mother's life insurance. The trustee's attorney forged the trustee's indorsement on insurance company check and misappropriated the proceeds. The loss was discovered after the lawyer's death.

In an action against the lawyer's bank on the forged indorsement, the Appellate Division of the Supreme Court has ruled that the fund (as subrogee of the trustee) has a contract cause of action against the lawyer's bank with a six-year statute of limitations. The court barred a recovery in the tort of conversion, holding that the three-year statute of limitations was not tolled because of the trust beneficiary's infancy. The court also held that the Staten Island bank could be sued by the fund in upstate Albany County. Lawyers' Fund v. Gateway State Bank, 239 A.D.2d 826 (3^rd Dept., May 22, 1997), aff'g 171 Misc.2d 485, 655 NYS2d 228.

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The NJ Lawyers' Fund paid awards of reimbursement to 15 former clients of a dishonest lawyer who settled tort claims without the clients' knowledge, indorsed their signatures on settlement drafts, and embezzled the proceeds. The fund obtained summary judgment against the lawyer's depository bank, and the bank appealed. In a decision which thoroughly reviews the law and policies affecting client protection funds, the Appellate Division of the Superior Court rejected the bank's argument that the pursuit of "innocent" collateral sources of restitution violates public policy and the goals of the NJ Lawyers' Fund. New Jersey Lawyers' Fund v. First Fidelity Bank, et al., 303 N.J. Super. 208 (App. Div., Docket No. A-0517-967T1, July 9, 1997).

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A bank's failure to notify the NY Lawyers' Fund of bounced checks on an attorney trust account (as required by court rule) is "evidence of negligence". Thus, a depository bank which dishonored 11 law firm checks (totaling $766,000) for insufficient funds (but failed to report them) can be held to answer to a claim of negligence by a client which, in this case, was another bank that had retained the firm to handle mortgage closings. So ruled the Appellate Division of the Supreme Court in reversing a trial court that dismissed the plaintiff's negligence claims. Home Savings of America v. Amoros, et al. 233 A.D. 2d 35 (lst Dept., September 4, 1997).

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Melville Fergang gave his daughter Jane a check for $101,000 for the purchase of real estate. The check was drawn on Morgan Guaranty (the drawee bank) and was payable to the seller, Ronald Burk. Ms. Fergang's lawyer forged Burk's indorsement, collected the proceeds from Chemical Bank (his depository) and stole the proceeds. The NY Lawyers' Fund reimbursed Mr. Fergang $100,000. In an subsequent action against Morgan Guaranty as subrogee, the fund was awarded summary judgment for the face amount of the stolen check. In a related action, Morgan Guaranty was awarded summary judgment against Chemical Bank, based upon Chemical's breach of its warranty of good title when it collected the check proceeds from Morgan. An excellent primer on the basic commercial laws that apply in forged indorsement litigation. Fergang v. Flanagan, 174 Misc.2d 790 (Sup. Ct., Nassau Co., June 16, 1997)

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A drawee bank that pays a check bearing the payee's forged indorsement is absolutely liable to the payee for the face amount of the check pursuant to UCC 3419(2). This rule of absolute liability precludes inquiry into whether the payee benefitted from the proceeds of the check. And the defense of contributory negligence requires a showing by the drawee bank that it acted in accordance with reasonable commercial standards and that the payee substantially contributed to the forgery. Mouradian v. Astoria Federal Savings and Loan, et al., 91 NY2d 124 (12/17/97)