Bank Customers Beware: Recovery of Unauthorized Electronic Funds Transfers Isn’t So Easy
It could happen today. You’re sitting at your desk, and the phone rings. On the line you hear the voice of a family member, a good friend, or a long-time client. But now the voice is different; you hear the panic. Her bank account has been emptied by a series of electronic transfers she did not authorize. Can you help get her money back, she asks urgently.
The short answer is “maybe.”
This article considers several issues you will encounter in trying to assist your bank customer client in this all too familiar predicament.1
For a remedy, you will first look to Uniform Commercial Code Article 4A, adopted in Florida as F.S. Ch. 670,2 which regulates electronic funds transfers. The statute sets out the bank’s and the customer’s rights and responsibilities and prescribes which party bears the loss for unauthorized transfers. Complete familiarity with this statute is essential because you will soon discover that it may provide the only available remedy — one that the bank may attempt to further limit through its form account agreements.3
Article 4A Security Procedures
As electronic funds transfers became more common in recent years, it became apparent that U.C.C. art. 4 (bank deposits and collections)4 did not adequately address a number of new issues. Article 4A was drafted to remedy this. Funds transfers to which art. 4A was intended to apply are typically initiated by electronic means (rather than face-to-face or by telephone), and often involve the transfer of large sums of money through multiple banks.5 The primary purpose of art. 4A is to establish uniform and predictable rights, duties, and liabilities for arm’s-length funds transfers between various commercial parties and their banks.6
But just because the customer who seeks your advice is not a commercial enterprise engaging in far-flung funds transfers through multiple banks does not mean he or she can escape the requirements and limitations of art. 4A. Even if the transfer from your client’s account was initiated by a thief in person at a local bank, and the money moved from one account to another within that bank, art. 4A still applies.7 These days, unless the money was transferred by check or withdrawn in cash, the bank transferred your client’s funds using electronic means, and, consequently, art. 4A is the first place to look for a remedy.
The good news for your client is that art. 4A imposes on banks the obligation to refund unauthorized funds transfers for a one-year period after the bank gives the customer notice (ordinarily in the monthly account statement), thereby allowing the customer to identify the disputed transaction and notify the bank.8 Accordingly, customers have a corresponding statutory right to receive a refund for that one-year period upon proper notice to the bank.
Beware that F.S. §670.202 permits a bank to shift the risk of loss for unauthorized transfers to the customer in two ways.9 First, a payment order initiating an electronic transfer is deemed authorized and effective if the sender, or the sender’s agent, acting with actual or apparent authority, authorized it.10 Second, if the account holder and the bank have agreed that authorization for payment orders will be verified by a security procedure (such as a PIN), a payment order is also effective, if 1) the security procedure is commercially reasonable; and 2) the bank accepted the payment order in good faith and in compliance with the security procedure and in compliance with any written agreement or instruction from the customer restricting acceptance of payment orders.11
“Given the large amount of the typical payment order, a prudent receiving bank will be unwilling to accept a payment order unless it has assurance that the order is what it purports to be. This assurance is normally provided by security procedures….”12 This is because “[i]n a very large percentage of cases covered by [a]rticle 4A, transmission of the payment order is made electronically,” on the basis of a message on a computer screen, and the common law concepts of the authority of an agent to bind a principle are not helpful.13
The art. 4A security procedure provision “is based on the assumption that losses due to fraudulent payment orders can best be avoided by the use of commercially reasonable security procedures….”14 Otherwise, “the bank acts at its peril in accepting a payment order that may be unauthorized.”15
As a result, to limit their risk of liability to refund unauthorized transfers, banks routinely enter into agreements with their customers specifying the security procedures the bank will use to verify that transfers from the customer’s account are authorized by the customer. You must first determine whether your client’s account was subject to security procedures and, if so, whether the bank complied with those.
Let’s say you do some checking and discover there was no agreed security procedure for the account. In that situation, the issue under art. 4A becomes whether the transfer was authorized under general principles of agency.16
This will require you to examine carefully the facts as to how your client has used the account. Did anyone else have access to the account with your client’s consent; and if so, when and under what circumstances? If your client is a business and an employee embezzled the money, the issue of whether the transaction was authorized under the law of agency may be thorny; certainly, the business would not have given the employee actual authority to steal funds, but did the employee have apparent authority to order the transfers? These issues will be very fact-specific and may require you to review a lengthy history of your client’s banking practices.
Beyond these issues, you should also examine the bank’s conduct. Did the bank have internal operating procedures to protect customer accounts that it failed to follow? And, again, you should review the account agreements because those may impose duties the bank failed to follow. In other words, do you have a potential cause of action against the bank outside art. 4A?
What if you review your client’s records and discover unauthorized transfers occurring well more than one year before the client’s telephone call to you; can you reach back to recover those? Again, the answer to both questions is “maybe.”
Article 4A Displacement of Common Law Claims
The drafters made clear that art. 4A provides the exclusive remedy and displaces common law claims related to unauthorized funds transfers when a specific provision of art. 4A addresses the situation giving rise to the claim, and if the common law claims would create rights, duties, and liabilities inconsistent with art. 4A.17 Such targeted displacement is consistent with the U.C.C.’s general acceptance of principles of equity and common law to supplement its provisions unless specifically displaced.18
Whether art. 4A provides the exclusive remedy for your client is important because common law claims, if allowed, would provide a much longer statute of limitations (such as for breach of contract or negligence claims) than 4A’s one-year look back, significantly expanding your client’s potential for recovery.19
Thus, you will want to examine whether the bank undertook duties outside the funds transfer process, either unilaterally through its own internal procedures or in the account agreement, to protect your client’s account. If so, art. 4A may allow you to assert common law remedies as a supplement to art. 4A’s refund remedy.20
Notably, the U.C.C. drafters did not say expressly that either subsection (1) or subsection (2) of §670.202 extinguishes bank duties (or customer claims) arising from account protection practices the bank may have undertaken unilaterally or through your client’s account agreement. Indeed, art. 4A expressly excludes some such duties from §670.202(2).21 The drafters merely state what is apparent from the statutory language of §670.202: If a bank and a customer have not agreed to a security procedure under subsection (2) to verifya transfer, the bank’s sole defense against the customer’s claim that the transfer was not authorizedis under subsection (1), in accordance with general agency principles.22
Whether this opens the door to common law claims is largely uncharted territory in Florida jurisprudence.23 Article 4A encourages banks to offer “security procedures” to customers to protect their accounts, but it does not require banks to do so.24 You might argue for your client that if a bank adopts its own account protection practices, or agrees to certain practices by contract, and then fails to follow these, there should be a remedy outside art. 4A. Otherwise, the bank would have little or no incentive to follow its internal practices and meet its contractual duties.25 But expect your client’s bank to say that, nevertheless, art. 4A provides the exclusive remedy to recover his or her losses from unauthorized transfers.
The scope of art. 4A displacement of common law claims was addressed by the Third District Court of Appeal in Corfan Banco Asuncion Paraguay v. Ocean Bank, 715 So. 2d 967 (Fla. 3d DCA 1998). The plaintiff bank, which had transferred funds for its customer by wire, brought a negligence claim against the beneficiary bank because an account number error in the wiring instructions resulted in the beneficiary customer obtaining double the funds intended and authorized.26 The Third District noted that §670.207(1) addressed this precise situation of an error in the wiring instructions.27 On that basis, the court affirmed the trial court’s dismissal of the sending bank’s negligence claim, noting “[t]he duty claimed to have been breached by Ocean Bank in its negligence count is exactly the same duty established and now governed by the statute.”28
The Third District cautioned that its decision should not be construed as supporting blanket displacement: “We do not reach the issue of whether the adoption of art. 4A of the U.C.C. preempts negligence claims in all cases.”29 Notably, Corfan did not involve alleged bank negligence outside the error in the wire transfer itself.30
Yet despite the expressed intent of the U.C.C. drafters as to the proper scope of 4A displacement, many courts apply what is essentially a blanket preclusion of all common law claims arising in relation to an electronic funds transfer. Many do this without analysis of whether a particular provision of 4A addresses the factual circumstances giving rise to the claim or whether permitting a common law claim would create rights, duties, and liabilities inconsistent with art. 4A.31 This “but-for” displacement approach would seemingly encompass any conduct that preceded an electronic funds transfer and seemingly renders superfluous the art. 4A drafters’ comment that common law claims are displaced “in any situation covered by particular provisions of the [a]rticle.”32
A federal court in the Southern District of Florida addressed that concern. In Gilson v. TD Bank, N.A., No. 10-20535-CIV, 2011 WL 294447 at *1-2 (S.D. Fla. Jan. 27, 2011), the plaintiffs sued their bank for violations of Ch. 670 and for negligence because the bank permitted an investment advisor to open accounts in the names of two of the plaintiffs, with himself as a signatory, and then allowed the advisor to transfer more than $3.5 million of the plaintiffs’ funds into and out of those accounts. The bank sought summary judgment on the negligence claim, asserting that Ch. 670 displaced it.33
The Gilson court noted that the plaintiffs’ negligence claims arose, in part, from the opening of the embezzler’s false accounts and the bank’s alleged failure to follow its standard account opening procedures — conduct that was not part of the electronic funds transfer process and, therefore, not addressed by a particular provision of art. 4A.34 Presented with such conduct beyond the actual transfers themselves, the court found that the negligence claim did not create rights, duties, or liabilities inconsistent with any provision, purpose, or policy of art. 4A, “[b]ecause the crux of [p]laintiffs’ negligence claim is TD Bank’s lack of care during the account openings, not the wire transfers….”35
The Gilson court also declined to follow In re Bancredit Cayman Ltd. v. Regions Bank Corp., 419 B.R. 898 (Bankr. S.D. Fla. 2009), (relied on by the bank) because that decision had applied a “but-for” causation test.36
Consequently, applying Gilson, a determination that “but for” the funds transfer, no loss would have occurred, does not fully determine art. 4A displacement.37 More fundamentally, if a customer alleges claims that arise from conduct outside the funds transfer process, there should be no inconsistency between the remedy sought for such claims and the remedy for claims arising under a “particular provision” of the statute.38
But expect your client’s bank to argue for blanket displacement, applying what is essentially a “but-for” test. Decisions from courts outside Florida take divergent approaches to the scope of art. 4A displacement. Some courts have permitted customers to assert common law claims in connection with electronic funds transfers,39 while other decisions apply a much broader displacement rule.40
At this point you might be thinking you’ll just be grateful for a refund under the statute. That, too, can be tricky.
Can Banks Limit Their Statutory Refund Duty by Contract?
When a customer opens an account, the bank typically binds the customer to a standard account agreement, often through a statement on the signature card that the customer agrees that the account agreement will govern the account.41 Ordinarily, none of the account agreement terms are negotiated with the customer and the agreement is not executed by the bank or the customer (and may be available only online). Moreover, the customer often agrees in either the account agreement itself or in the signature card that by continuing to use the account, she will be bound by any future amendments to the agreement adopted by the bank.
Be aware that these standard account agreements often contain terms that eliminate or significantly limit important customer rights.
Article 4A directs that “[e]xcept as otherwise provided in this chapter, the rights and obligations of a party to a funds transfer may be varied by agreement of the affected party.”42 The statute’s plain language, thus, supports freedom to contract and opens the door for the parties to undertake contractual obligations outside art. 4A or to vary their 4A statutory obligations unless expressly prohibited.43 On this basis, account agreements often attempt to reduce the bank’s refund obligation period from one year to 60, 30, or even 15 days from the date of notice of the transfer by the bank to the customer (again, usually given by the bank statements). Whether this particular limitation is enforceable has not been addressed in Florida.
Certainly, the statute allows some limitations on the refund obligation imposed on banks; §670.204(1) eliminates interest to the customer on the refund amount if the customer fails to exercise ordinary care to discover the unauthorized transfer and to notify the bank of the relevant facts within a reasonable time not exceeding 90 days after the customer received notice of the transfer.44 The statute goes on to say that a “[r]easonable time under subsection (1) may be fixed by agreement, but the obligation of the receiving bank to refund payment as stated in subsection (1) may not be otherwise varied by agreement.”45 Applying basic rules of statutory interpretation to the plain statutory language, you would argue that the 90-day customer notice period for entitlement to interest may be varied by agreement, but the one-year period during which the customer may object to unauthorized transfers (to receive a refund) may not be.46
The polestar of statutory interpretation is to give effect to legislative intent.47 The U.C.C. drafters explain that “[t]he only consequence of a failure of the customer to perform this duty [to notify the bank within 90 days] is a loss of interest on the refund payable by the bank…. Loss of interest is in the nature of a penalty on the customer designed to provide an incentive for the customer to police her account. There is no intention to impose a duty on the customer that might result in shifting loss from the unauthorized order to the customer.”48 Though again, no Florida court has addressed the widespread practice of banks to include language reducing the one-year period in their account agreements.
Two out-of-state courts have upheld a reduced refund notice period in an account agreement based on the general language of §670.501, which permits banks and their customers to vary 4A rights and responsibilities.49 Those decisions do so without any analysis of the differences between the art. 4 and 4A notice provisions. These decisions are also unpersuasive compared to the analysis by the court in the Southern District of New York (adopted by the Second Circuit Court of Appeals) in the Regatos cases, which concluded that the art. 4A one-year period may not be modified by contract.50
One further issue is whether the account agreement that seeks to reduce your client’s one-year notice period (usually a dense, multi-page, standardized form) meets the tests of a contract of adhesion and of unconscionability.51 If so, you might challenge it on those grounds.52
The Right to Trial by Jury for Unauthorized Transfer Claims
A final key consideration will be whether you can ask a jury to decide your client’s entitlement to relief.53 The Florida Constitution,54 like the U.S. Constitution,55 guarantees the fundamental right to trial by jury and Florida courts closely scrutinize waivers of this fundamental right: “Waiver of the right to a jury trial is to be strictly construed and not to be lightly inferred. When such a constitutional right is vested in a party who has timely invoked it and there is doubt as to whether this right has been waived, such doubt is to be resolved in favor of the party for whom the right is provided.”56
Florida law recognizes contractual waivers of the right to trial by jury, but the waiver is unenforceable if it is not knowing, voluntary, and intelligent, or if circumstances otherwise suggest it should not be enforced.57
This waiver analysis is usually difficult to apply to banking transactions executed in accounts governed by unexecuted, standardized agreements that have been amended from time to time at the bank’s discretion. This is particularly so when the account signature card contains the customer’s acknowledgment that she has read the account agreement or has had the opportunity to do so, and understands that she is giving up specific rights.
Some Suggestions for Your Client
As you can see, banking customers face significant hurdles in recouping losses from electronic theft from their accounts. Here are a few suggestions for your clients to follow to protect themselves:
• Carefully review all account agreements when a new account is opened, and watch for amendments. Try to negotiate unfavorable terms.
• Take particular note of account agreement terms setting time limits for, and the manner of, disputing unauthorized transactions.
• Request art. 4A security procedures for each account and make sure the bank adheres to these.
• If other persons must have access to the account, designate the specific transactions those persons have authority to order, give those persons only enough account information to perform those specific transactions, and communicate any limits of authority in writing to the bank.58
• Review all account statements immediately upon receipt. Any business should assign this task to more than one employee.
If your clients follow these simple protections, it is unlikely you will receive that panicked phone call. But if you do receive it, you’ll have much more to work with to help.
1 This article does not specifically cover 1) wire transfers via the Federal Reserve Wire Transfer Network (Fedwire) owned and operated by the Federal Reserve Banks, governed by Subpart B of Federal Reserve Regulation J, 12 C.F.R. §§210.25-210.32; 2) electronic transactions utilizing the Automated Clearinghouse Network governed by the National Automated Clearinghouse Association Operating Rules; or 3) consumer electronic transfers governed by the Electronic Funds Transfers Act, 12 C.F.R. §205 (Regulation E).
2 This article refers to U.C.C. art. 4A and Ch. 670 interchangeably, and cites to sections of F.S. Ch. 670 (2015), which correspond to art. 4A sections unless otherwise indicated. References to U.C.C. drafters’ comments are found in Florida Statutes Annotated.
3 “Account agreements” as used throughout this article refer to written contracts intended to define the rights, duties, and responsibilities of the customer and the bank as to the account. Those agreements usually include a signature card executed upon opening the account and an account agreement, and may also include separate agreements specifying security procedures, persons with authority to transact business in the account or other agreements related to monitoring and management of the account. Unless the customer conducts significant business with the bank, and has the wherewithal and bargaining power to negotiate specific terms, account agreements are typically standardized forms.
4 U.C.C. art. 4 is F.S. Ch. 674.
5 Ch. 670 applies to funds transfers made by means of one or more payment orders. Fla. Stat. §§670.102 and cmt. 670.104(1). A payment order is an instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or cause another bank to pay money to a beneficiary. Fla. Stat. §670.103(c). “Transactions covered by [a]rticle 4A typically involve very large amounts of money in which several transactions involving several banks may be necessary to carry out the payment.” Fla. Stat. §670.104, cmt. 2.
6 See Fla. Stat. §670.104, cmt. 1, cases 2 and 3; id., cmt. 2; §670.203, cmt. 4. Notably, art. 4A does not apply to withdrawals from a bank account in cash or by check, as no receiving or beneficiary bank is involved in an electronic transfer of funds. See Fla. Stat. §670.104, cmts. 1, 2, 4, 6; 670.102 cmt.; §670.103.
7 See §670.104, cmt. 1, case 1.
8 If a receiving bank accepts an ineffective, unauthorized, unverified, or otherwise nonenforceable payment order, the bank must refund the unenforceable amount to the originating customer or sender, plus interest. Fla. Stat. §670.204(1).
9 Fla. Stat. §§670.201-203 and cmts.
10 See Fla. Stat. §670.202(1).
11 Fla. Stat. §670.202(2); see Fla. Stat. §§670.202, 670.204. A “security procedure” for purposes of art. 4A can only be an agreed procedure between the bank and the customer. See Fla. Stat. §670.201; see also Fla. Stat. §670.202(2). Significantly, the term “security procedure” does not include “procedures that the receiving bank may follow unilaterally in processing payment orders.” Fla. Stat. §670.201, cmt.; see Chavez v. Mercantil Commercebank, N.A., 701 F.3d 896, 900, 904 (11th Cir. 2012); Patco Const. Co. v. People’s United Bank, 684 F.3d 197, 209-10, 213 (1st Cir. 2012). Further, “[c]omparison of a signature on a [funds transfer] payment order or communication with an authorized specimen signature of the customer [i.e., a signature card] is not by itself a security procedure.” Fla. Stat. §670.201. This provision may prevent any number of general protection practices that a bank may adopt and follow internally from being engrafted onto art. 4A.
12 Fla. Stat. §670.203, cmt.
14 Fla. Stat. §670.203, cmt. 3.
16 See Fla. Stat. §670.202(1).
17 Funds transfers involve competing interests — those of the banks that provide funds transfer services and the commercial and financial organizations that use
the services, as well as the public interest. These competing interests were represented in the drafting process and they were thoroughly considered. The rules that emerged represent a careful and delicate balancing of those interests and are intended to be the exclusive means of determining the rights, duties, and liabilities of the affected parties in any situation covered by particular provisions of the article. Consequently, resort to principles of law or equity outside of art. 4A is not appropriate to create rights, duties, and liabilities inconsistent with those stated in this article. Fla. Stat. §670.102, cmt. (emphasis added) “[T]his is not a blanket preemption of all common law claims once a transaction implicates art. 4A. Only issues covered by the provisions of art. 4A or claims that would create inconsistent rights, duties, or liabilities are preempted.” 3 White, Summers, & Hillman, Uniform Commercial Code §22.9.
18 See Fla. Stat. §671.103.
19 See Fla. Stat. §670.505. “This section [establishing a one-year refund period] is in the nature of a statute of repose for objecting to debits made to the [sending or originating] customer’s account.” Fla. Stat. §670.505, cmt. The various provisions of art. 4A are intended to work together to provide “unique rules” for “a unique method of payment” to allow the various parties to funds transfers “to predict risk with certainty, to insure against risk, to adjust operational and security procedures, and to price funds transfer services appropriately.” Fla. Stat. §670.102, cmt. The one-year statute of repose, limiting a customer’s potential recovery, combined with strict liability imposed upon receiving banks to refund unauthorized or ineffective transfers, represent a balance the U.C.C. drafters (and the Florida Legislature) struck to achieve these important business purposes.
20 See, e.g., Regions Bank v. The Provident Bank, Inc., 345 F.3d 1267, 1274-76 (11th Cir. 2003).
21 See Fla. Stat. §670.201, cmt.; see also Samples v. Florida Birth-Related Neurological, 40 So. 3d 18, 22 (Fla. 5th DCA 2010), approved sub nom. Samples v. Florida Birth-Related Neurological Injury Comp. Ass’n, 114 So. 3d 912 (Fla. 2013) (statutes enacted in derogation of the common law must be strictly construed; such statutes “must be clear on the extent of abrogation or change,” and if they are not, “the common-law rule stands.”) (citations omitted).
22 See Fla. Stat.§670.203, cmt.1.
23 One Florida circuit court has applied what is essentially a “but-for” blanket displacement test to dismiss common law negligence and breach of contract claims based on allegations involving unauthorized [a]rticle 4A funds transfers, but no Florida appellate court has adopted such analysis. See Demetree v. BBVA Compass Bank, No. 16-2014-CA-1800 (Fla. Cir. Ct. Order entered Oct. 9, 2010), aff’d per curiam sub nom, Pennrail Capital Corp. v. BBVA Compass Bank, Case No. 1D15-4919 (Fla. 1st DCA Aug. 9, 2016).
24 See Fla. Stat. §670.203, cmt. 3.
25 See American Home Assurance Co. v. Plaza Materials Corp., 908 So. 2d 360, 366 (Fla. 2005).
26 Corfan, 715 So. 2d at 968.
27 Id. at 969 (emphasis added) (“Subject to subsection (2), if, in a payment order received by the beneficiary’s bank, the name, bank account number, or other information of the beneficiary refers to a nonexistent or unidentifiable person or account, no person has rights as a beneficiary of the order and acceptance of the order cannot occur.”). Fla. Stat. §670.207(1) (1997).
28 Id. at 971 (emphasis added).
30 See also Commonwealth Land Title Ins. Corp. v. Regions Bank, No. 07-36978 CA 05, 2008 WL 744061, unpaginated (Fla. Cir. Ct. Feb. 25, 2008) (primary issue decided was standing, but as in Corfan, the error in the wire instructions themselves (a mismatch between the account number and named beneficiary on the payment order) was addressed directly by Fla. Stat. §670.207(1)).
31 See, e.g., In re Bancredit Cayman Ltd. v. Regions Bank Corp., 419 B.R. 898 (Bankr. S.D. Fla. 2009); Fitts v. AmSouth Bank, 917 So. 2d 818, 823-24 (Ala. 2005) (court employed a “but-for” analysis to conclude that because the alleged unauthorized transfer was an art. 4A transfer, all other claims are displaced, but did not address whether the contract there qualified as an “agreed” security procedure for purposes of art. 4A).
32 See Fla. Stat. §670.102 cmt.; American Home, 908 So. 2d at 366 (“[C]ourts should avoid readings that would render part of a statute meaningless.”) (citation omitted). See also Sheerbonnet, Ltd. v. Am. Express Bank, Ltd., 951 F. Supp. 403, 408 (S.D.N.Y. 1996) (Article 4A is not a hermetic seal over funds transfers but is intended to synergize with other state and federal laws.).
33 Gilson, 2011 WL 294447 at *1, *3, *7.
34 Id. at *9.
35 Id. at *9-10.
36 Id. at *9.
37 See id. at *9.
38 Cf. Corfan, 715 So. 2d at 971, n.5 (negligence claim inconsistent where specific art. 4A provision applied).
39 See, e.g., Patco, 684 F.3d at 215-16 (breach of contract claim remanded because 4A preemption language does not on its face displace breach of contract claim, and claim not inherently inconsistent with 4A because contract may impose higher standards on bank; negligence claims were displaced by 4A because on facts of case, 4A standard of care applied) (citing Regions Bank with approval); Miller v. Union Planters Bank, N.A., 2006 WL 3391095 (S.D. Miss. Nov. 22, 2006) (negligence claim); Sheerbonnet, Ltd. v. American Express Bank, Ltd., 951 F. Supp. 403 (S.D.N.Y. 1996) (various common law claims); In re Awal Bank v. HSBC Bank, USA, N.A., 455 B.R. 73 (Bankr. S.D.N.Y. 2011) (various common law claims); Koss Corp. v. American Express Co., 309 P.3d 898 (Ariz. Ct. App. 2013) (various common law claims); Hedge Inv. Partners, L.P. v. Norwest Bank Minn., N.A., 578 N.W.2d 765 (Minn. Ct. App. 1998) (contract claim).
40 See, e.g., Ma v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 597 F.3d 84 (2d Cir. 2010); Reamerica, S.A. v. Wells Fargo Bank, Int’l, 577 F.3d 102 (2d Cir. 2009); Zengen, Inc. v. Comerica Bank, 158 P.3d 805 (Cal. 2007); Fitts v. AmSouth Bank, 917 So. 2d 818 (Ala. 2005).
41 The standard account agreement may not contain agreed art. 4A security procedures the bank will use to verify account transactions or specific instructions regarding who is authorized to withdraw or transfer funds. Such agreements may be reflected in separate agreements that may or may not be standardize or separately negotiated. Account agreements may contain expansive language identifying whom the bank may consider authorized to transact business on the account which far exceeds whom the customer would consider so authorized.
42 See Fla. Stat. §670.501(1) (emphasis added); see also id. cmt. (“[R]ights and obligations arising under art. 4A may also be varied by agreement of the affected parties, except to the extent art. 4A otherwise provides.”).
43 See Fla. Stat. §670.501(1).
44 Fla. Stat. §670.204(1) (emphasis added).
45 Fla. Stat. §670.204(2) (emphasis added).
46 See Young v. Progressive Se. Ins. Co., 753 So. 2d 80, 85 (Fla. 2000) (mention of one thing implies exclusion of another; expressio unius est exclusio alterius).
47 See Raymond James Fin. Servs. v. Phillips, 126 So. 3d 186, 190 (Fla. 2013).
48 Fla. Stat. §670.204, cmt. 2 (emphasis added).
49 See, e.g., Priority Staffing, Inc. v. Regions Bank, Civil Action No. 5:11-0667, 2013 WL 5462239 (W.D. La. Sept. 30, 2013); Bonnema v. Heritage Bank NA-Willmar, No. C9-01-1940, 2002 WL 1363985 (Minn. App. June 19, 2002). Further, art. 4A was drafted to address unique challenges presented by electronic funds transfers between parties who may never meet face-to-face using multiple banks which art. 4 did not address. Therefore, a thorough examination of the differences between similar art. 4 and 4A provisions is important and may require a different result. But see Peter Hargitai, Florida Should Permit Parties to Modify Article 4A’s Notice Period by Agreement, 90 Fla. B. J. 30-35 (Mar. 2016).
50 See Mendes Regatos v. North Fork Bank, 431 F.3d 394, 394 (2d Cir. 2005); Regatos v. North Fork Bank, 257 F. Supp. 2d 632 (S.D.N.Y. 2003). The Regatos cases also found that the “reasonable time” determining the customer’s ability to recover interest begins to run only when the customer receives actual notice of the unauthorized transfer.
51 An “adhesion contract” is defined as “a standardized contract form offered to customers of goods and services on essentially [a] ‘take it or leave it’ basis without affording [the] consumer [a] realistic opportunity to bargain and under such conditions that [the] consumer cannot obtain [the] desired product or services except by acquiescing in the form contract.” Powertel, Inc. v. Bexley, 743 So. 2d 570, 574 (Fla. 1st DCA 1999) (citing Black’s Law Dictionary (6th ed. 1990)).
52 See Gainesville Health Care Ctr., Inc. v. Weston, 857 So. 2d 278, 284-85 (Fla. 1st DCA 2003); Powertel, 743 So. 2d at 574-76; see also Fla. Stat. §672.302, cmt.2. The central question in the procedural unconscionability analysis is whether the complaining party lacked a meaningful choice when entering into the contract. See Basulto v. Hialeah Auto., 141 So. 3d 1145, 1157 n.3 (Fla. 2014) (citing Kohl v. Bay Colony Club Condo., Inc., 398 So. 2d 865, 868-69 (Fla. 4th DCA 1981)). The court will consider such factors as the manner in which the contract was entered into, the relative bargaining power of the parties, whether the terms were presented on a “take-it-or-leave-it” basis, and the complaining party’s ability and opportunity to understand the disputed terms of the contract. Id. Also, a contract of adhesion is a hallmark of procedural unconscionability because the customer lacks any meaningful choice. Powertel, 743 So. 2d at 574-75; see also Gainesville Health Care Ctr., 857 So. 2d at 285. “Substantive unconscionability focuses on whether the terms are ‘unreasonably favorable’ to the other party and ‘whether the terms of the contract are so unfair that enforcement should be withheld.’” Basulto, 141 So. 3d at 157 n.4 (citing Walker-Thomas Furniture, 350 F.2d 445, 449-50 (D.C. Cir. 1965)). And importantly, one indicator of substantive unconscionability is that the agreement requires the customers to give up other legal remedies or “waive important statutory remedies.” Powertel, 743 So. 2d at 576.
53 Account agreements also often contain mandatory arbitration clauses that effectively require the customer to waive the right to trial by jury — with or without a separate waiver provision. This article does not address jury trial waivers by virtue of agreements to arbitrate.
54 Fla. Const. art. I, §22 (“The right of trial by jury shall be secure to all and remain inviolate. The qualifications and the number of jurors, not fewer than six, shall be fixed by law.” In Florida, the right to trial by jury is a deeply cherished and jealously guarded fundamental precept, and will not be taken away when injustice would be the result. See Jerome v. Wm. A. Reid Constr. Ltd,307 So. 2d 248, 249 (Fla. 4th DCA 1975). As a result, “[q]uestions as to the right to a jury trial should be resolved, if at all possible, in favor of the party seeking the jury trial, for that right is fundamentally guaranteed by the U.S. and Florida Constitutions.” Hollywood, Inc. v. City of Hollywood, 321 So. 2d 65 (Fla. 1975).
55 “The Seventh Amendment to the United States Constitution provides that ‘In Suits at common law, where the value in controversy shall exceed [$20], the right of trial by jury shall be preserved.” Omega v. Deutsche Bank Trust Co. Americas, 920 F. Supp. 2d 1298, 1299 (S.D. Fla. 2013) (quoting U.S. Const. amendment VII). The right to a jury trial has been recognized as “a basic and fundamental feature of our system of federal jurisprudence which is protected by the Seventh Amendment.” Jacob v. City of New York, 315 U.S. 752, 752 (1942). “A right so fundamental and sacred to the citizen, whether guaranteed by the Constitution or provided by statute, should be jealously guarded by the courts.” Id.
56 Boston Rug Galleries, Inc. v. Wm. Iselin & Co., 212 So. 2d 58, 61 (Fla. 4th DCA 1968); see also Amquip Crane Rental, LLC v. Vercon Constr. Mgmt., 60 So. 3d 536, 539 (Fla. 4th DCA 2011).
57 See Amquip, 60 So. 3d at 540 (nonmutual contractual waiver may be enforced only if knowing, voluntary, and intelligent); Gelco Corp. v. Campanile Motor Serv., Inc., 677 So. 2d 952, 952-53 (Fla. 3d DCA 1996) (absent showing of circumstances why it should not be enforced, jury waiver in commercial lease enforceable); Vista Centre Venture v. Unlike Anything, Inc., 603 So. 2d 576, 578(Fla. 5th DCA 1992) (waiver in lease agreement enforceable unless there is a sufficient showing why it should not be enforced). While Florida cases examining contractual waivers often do not provide a detailed analysis of the factors considered, Florida courts generally look to factors utilized by federal courts to analyze the validity of jury waivers under the Seventh Amendment to the U.S. Constitution. See, e.g., Amquip, 60 So. 3d at 540; Leslie v. Carnival Corp., 22 So. 3d 567, 581 (Fla. 3d DCA 2009) (dissent) (emphasis added) (explaining that the five factors used by federal courts to assess whether a waiver is knowing and voluntary are not dispositive, and the essential inquiry concerns “whether, in light of all the circumstances, the [c]ourt finds the waiver to be unconscionable, contrary to public policy, or simply unfair”).
58 See 2006 Frank Calandra, Jr. Irrevocable Trust v. Signature Bank Corp., 816 F. Supp. 2d 222, 233-34 (S.D.N.Y. 2011) (Trustee was authorized by unambiguous account application and funds transfer agreement to individually transact business on behalf of the trust. Consequently, the bank properly processed wire transfers at issue pursuant to written blanket authorization from the trust.).
Michael G. Tanner is a partner in Tanner Bishop in Jacksonville. His practice focuses on complex commercial litigation, appellate, and election law.
JoAnne Eichelberger is a graduate with high honors from the University of Florida Levin College of Law. In April 2014, after retiring as a career law clerk to Judge Howell W. Melton, senior U.S. district judge, she began her career in private practice at Tanner Bishop focusing on research and writing for the firm’s appellate and litigation practice.
This column is submitted on behalf of the Trial Lawyers Section, Thomas Edward Bishop, chair, and Kimberly Ashby, editor.