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Texas Supreme Court Finds Wire Transfer Form Did Not Create a Contract Under Which Bank Could Be Sued Banner Image

Texas Supreme Court Finds Wire Transfer Form Did Not Create a Contract Under Which Bank Could Be Sued

Month: March 2022

Texas Supreme Court Finds Wire Transfer Form Did Not Create a Contract Under Which Bank Could Be Sued

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The Texas Supreme Court recently held that an attorney who fell victim to a scam and wired monies before a check cleared could not sustain a breach of contract claim against the bank based on the bank’s wire transfer form.  See Cadence Bank, N.A. v. Elizondo, 2022 Tex. LEXIS 263 (2022).  In 2014, a party asked an attorney to help with a legal matter.  Upon the attorney’s agreement to represent the party, the party informed the attorney that he had settled with the adversary and that the adversary would be sending a cashier’s check.  The attorney deposited the check in his IOLTA account with the plaintiff bank, then had the bank wire the money to an account in Japan, per the client’s instructions.  The next day, the check was dishonored and the bank demanded that the attorney reimburse it for the overdrawn funds.  The attorney refused, and the bank brought this action.  The bank alleged that the attorney breached the deposit agreement and the UCC, and the attorney counterclaimed that the bank breached the wire-transfer form used as part of the wire.  The attorney did not dispute “that both the UCC and the deposit agreement authorize [the bank] to revoke credit provisionally given for the deposit of a check that is later dishonored,” but argued that the wire form superseded the UCC rules.  The trial court granted the attorney’s motion for summary judgment on his breach of contract claim and denied the bank’s motion, and a divided appellate court affirmed.  As the Supreme Court stated, “the lower courts agreed with that [the bank’s] damages were caused by its breach of a superseding contractual duty to transfer funds from a ‘verified’ or ‘collected balance’ that excludes provisionally credited funds. . . . If [the bank] had fulfilled its duty to ensure that [the attorney’s] ‘collected balance’ was sufficient before making the transfer, then [the bank] would have seen that [the attorney’s] collected balance was insufficient, it would not have made the transfer, and it would not have any damages.”

On appeal, the Court reversed.  First, the Court found that UCC sections 4.207 and 4.214 control. See, e.g. UCC 4.214 (“If a collecting bank has made provisional settlement with its customer for an item and fails by reason of dishonor . . . or otherwise to receive settlement for the item that is or becomes final, the bank may 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”).  Second, it found that the wire-transfer form was not a contract superseding the UCC.  It found that a contract must be “sufficiently definite” to enable a court to determine the parties’ respective obligations.  Here, “the wire-transfer form fails to create the contractual duty that [the attorney] urges. Its title is ‘International Outgoing Transfer Request’. It has all the indicia of a form whose purpose is to facilitate [the bank’s] internal processing of the wire transfer. With one exception, all of the fields in the bottom half of the form were blank when [the attorney] signed and returned it.”  Because this form was not a contract, it could not supersede the express obligations of the UCC.  “In [the attorney’s] view, the mere presence of these words on a form created by [the bank] had the effect of implicitly imposing on [the bank] a contractual duty that superseded its rights under the UCC and the deposit agreement. If that reasoning carried the day, then any one of a bank’s routine administrative forms could potentially override the UCC’s default rules.”  Accordingly, the Court reversed and remanded to the trial court.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

New York Appellate Court Affirms Decision Granting Title Insurer Summary Judgment

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New York’s Second Department Appellate Division recently affirmed a trial court’s decision granting a title insurer’s motion for summary judgment, finding that the insureds’ claim regarding a driveway encroachment was specifically excepted by the policy.  See Pierot v. Chi. Title Ins. Co., 159 N.Y.S.3d 729 (App. Div. 2022).  In 2001, Plaintiffs purchased a property and received a title insurance policy from the defendant title insurance company.  The driveway on the property provides access to Elizabeth Street, a private road to the east of the property, and the property also abuts Healy Avenue, a public road to the west.  In 2011, a nonparty purchased the lot to the north of the property, and a dispute arose because Plaintiffs’ driveway encroached upon the neighbors’ property.  Plaintiffs filed a claim with the title insurer, who denied coverage based on a policy exception that stated “[n]o title is insured in and to so much of the driveway that encroaches the north as shown on the survey . . .”  Plaintiffs then brought this action against the title insurer.  The trial court granted the insurer’s motion for summary judgment, and Plaintiffs appealed.

On appeal, the Court affirmed.  First, the Court found that the policy language controls, and that the title insurer “met its prima facie burden of establishing its entitlement to judgment as a matter of law by demonstrating that the plaintiffs’ claim fell within an exception to coverage under the policy.”  Second, the Court rejected Plaintiffs’ claims regarding access, finding that “plaintiffs have a legal right of access to the property because it abuts a public street” (i.e., Healy Avenue).  Accordingly, the Court affirmed that there was no coverage under the policy.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

Public Health Emergency Lifted in New Jersey Regarding Omicron

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For more information about this blog post, please contact Labinot Alexander Berlajolli.

Governor Murphy recently signed Executive Order (“EO”) No. 292, which terminated the COVID‑19 public health emergency declared in EO No. 280 (and extended via EO No. 281) in response to the Omicron variant. The State of Emergency declared in EO No. 103 and continued in EO No. 280 will remain in place to ensure that the State continues to have necessary resources as COVID‑19 is managed on an endemic level.

EO No. 292 does continue some of the EOs that were reinstated in EO No. 281.

As set forth in our prior Update, EO No. 281 reinstated EO Nos. 111, 112, and 207, except for the provision in EO No. 112 granting civil and criminal immunity related to the COVID‑19 response. EO No. 281 also continued the effectiveness of EO Nos. 251, 252, 253, 264, and 271, as well as certain regulatory actions taken by the Executive branch departments and agencies in response to COVID-19, including various administrative orders, directives, and waivers.

Under EO No. 292, EO No. 251 and paragraphs 11 and 13 of EO No. 264 are rescinded, but the other EOs remain in full force and effect.

New Jersey Federal Court Denies Motion for Reconsideration of Dismissal of Mortgage “Mishandling” Claims

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The United States District Court for the District of New Jersey recently denied a borrower’s motion for reconsideration of the dismissal of claims that she made asserting “mishandling” of her mortgage, holding they were barred by the Rooker-Feldman doctrine because a final judgment of foreclosure had been entered in state court.  See Davis v. Bank of Am., 2022 U.S. Dist. LEXIS 40529 (D.N.J. Mar. 7, 2022).  Plaintiff Kim Davis (“Davis”) executed a mortgage on property in Jackson, New Jersey, and the mortgage was eventually assigned to Defendant Bank of America (“BoA”).  After Davis defaulted on her mortgage, BoA filed for foreclosure in state court in 2016, with a final judgment of foreclosure entered on May 21, 2018.  Davis filed a series of appeals that were denied, and eventually filed this action against BoA in federal court, asserting various causes of action alleging the “mishandling” of her mortgage.  The Court agreed with BoA’s argument that Davis’s claims should be dismissed for a number of reasons, including the Rooker-Feldman doctrine, which prohibits actions when “(1) the federal plaintiff lost in state court, (2) the plaintiff complain[s] of injuries caused by [the] state-court judgments, (3) those judgments were rendered before the federal suit was filed, and (4) the plaintiff is inviting the district court to review and reject the state judgment.”

In her motion for reconsideration, Davis argued that Federal Rules 60(a) and (b) supported granting reconsideration.  Rule 60(a) provides that a “court may correct a clerical mistake or mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record.”  The Court found that Davis’ argument under this rule was unavailing, as it centered on the substance of the Court's Opinion and Order, and not on a scrivening or clerical error, making it inappropriate for relief under Rule 60(a).

Rule 60(b) provides relief from a final judgment for a number of enumerated reasons, including mistake and fraud, as well as a catchall provision that allows for reconsideration for “any other reason that justifies relief.”  The Court rejected Davis’s mistake and fraud contentions, noting that her arguments for reconsideration merely “regurgitated” the same facts presented in her motion to dismiss papers. The Court further noted that relief under the catchall provision was appropriate only in “extraordinary, special circumstances” that are not present in cases of legal errors that can be addressed by appeal. The Court bluntly stated that Davis had raised nothing more than disagreement with the Court’s decision as alleged legal error, and said that given the Court’s earlier decision regarding Rooker-Feldman, that the denial of reconsideration should come as no surprise to Davis.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

Florida Federal Court Holds E&O Carrier Required to Defend Insured in Underlying Lawsuit

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The United States District Court for the Southern District of Florida recently granted a title company’s motion for summary judgment, holding that an E&O insurance carrier was required to defend its insured in a related lawsuit brought by the title company arising out of wire fraud.  See Houston Specialty Ins. Co. v. Fontecilla, 2021 U.S. Dist. LEXIS 187928 (S.D. Fla. 2021).  In the case, Plaintiff issued an E&O policy to the defendant law firm.  The law firm also was a policy-issuing agent for the defendant title insurance company.  In 2018, the law firm conducted a closing whereby it disbursed funds on behalf of a lender, purportedly in exchange for mortgages on two properties.  In connection with these closings, the law firm issued title insurance policies to the lender on behalf of the defendant title insurance company.  It was later discovered that “imposters purporting to act on behalf of the property owners executed the loan documents but were not associated with and did not have authority to act on behalf of” the property owners.  The title company had to pay the lender to settle the lender’s claims, and the title company brought a state court action against the law firm seeking reimbursement.  Plaintiff then brought this action seeking a declaratory judgment that it is not required to defend or indemnify the law firm in the state court action.  The title insurer moved to dismiss or, in the alternative, for summary judgment.

The Court denied the motion to dismiss but granted the motion for summary judgment.  The Court first held that there was no need to abstain from exercising jurisdiction because, although there was overlap between the facts of this matter and the facts of the state court action, they were not “parallel” proceedings.  Nonetheless, the Court granted the title insurance company’s motion for summary judgment.  Plaintiff had argued that the E&O policy’s “Theft or Conversion of Funds” exclusion precluded coverage.  The Court, however, held that “[u]nfortunately for Plaintiff, . . . the complaint in the Underlying Lawsuit asserts allegations that are not limited to the loss of funds due to theft, stealing, conversion, misuse, or misappropriation,” including that the law firm issued a policy in an amount in excess of $1 million, despite the fact that it needed prior authorization from the title company to do so and did not request or receive such authority.  Accordingly, the Court found that Plaintiff had a duty to defend the law firm in the underlying state court action and granted the title company’s motion for summary judgment.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

NJBPU Denies Extensions of Solar Transition Incentive Project Completion Deadlines

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New Jersey has been successful in supporting the development of solar energy facilities through incentive programs, but solar projects within New Jersey’s Transition Incentive Program are having difficulties completing construction within the timeline required to remain eligible for these incentives.

Although applicable deadlines vary based on circumstances specific to each project, many projects within the Transition Incentive (TI) program have a completion deadline of April 30, 2022.  These projects must complete construction and obtain Permission to Operate from the local electric utility in order to remain eligible for the incentives.  (TI projects are entitled to receive financial incentives referred to as Transition Renewable Energy Certificates or TRECs.  The TI program replaced the original Solar Incentive program, and in turn is being replaced by the Successor Solar Incentive program, referred to as the “SuSi Progrem.”  Generally, the incentives under each new program are less lucrative than under the prior programs.)

Solar developers are facing a wide range of difficulties in meeting the applicable completion deadlines, including supply chain issues as well as delays in the process of connecting to the grid.  However, the New Jersey Board of Public Utilities has denied four recent requests from projects seeking extensions to applicable deadlines.

Based on the reasoning of these denials, the Board has set a high bar for extension requests for TI projects, and parties involved should carefully craft any request for an extension based on the lessons in these recent decisions.

Procedure for Seeking an Extension

There is no specific standard for extension of the deadlines set forth in the TI program, but the New Jersey Board of Public Utilities’ regulations provide that “[i]n special cases, upon a showing of good cause the [B]oard may relax or permit deviations from the rule,” including through the extension of applicable deadlines N.J.A.C. 14:1-1.2(b).  The Board’s rules go on to explain that “the Board shall, in accordance with the general purpose and intent of the rules, waive section(s) of the rule if full compliance with the rule(s) would adversely affects ratepayers, hinders safe, adequate and proper service, or is in the interest of the general public.” N.J.A.C. 14:1-1.2(b)(1).

Because of the absence of a specific extension provision, TI projects must file a petition for an extension.  The petition should be prepared and filed in accordance with N.J.A.C. 14:1-4 and -5, including requirements relating to filing, verification, service and notice.

The Board generally acts on petitions only at regularly scheduled meetings, and there are only two meetings remaining before April 30, 2022, the deadline applicable to many TI projects.

In contrast, the SuSi program has a built-in extension mechanism, which allows projects to request one six-month extension.  As set forth in N.J.A.C. 14:8-11.5(i), SuSi program extension requests will be reviewed “on a case by on a case-by-case basis, based on consideration of extenuating circumstances for the delay in completing the facility, evidence that the facility has made progress towards completion, and the likelihood of timely and successful completion of the solar facility.”

Lessons from Recent Petitions for Extensions

As noted above, the New Jersey Board of Public Utilities has received and recently denied four different petitions for extensions of deadlines under the TI Program, thereby setting a high bar for any TI project seeking an extension.

Among other reasons, the Board justified its decision to deny these petitions by indicating that the projects:

  • previously received an extension for similar delays, including pandemic-related delays covered by the blanket extensions granted by the Board;
  • identified only generalized delays, such as supply chain issues, that were known to the developer at the time of admission to the TI program, rather than unanticipated, project-specific delays;
  • were not “mature” (e.g., had not proceeded substantially through the interconnection or construction process);  and
  • placed too much responsibility or blame on the relevant electric utility for delays in the interconnection process.

Conclusion

TI projects will continue to come up against applicable deadlines, and the New Jersey Board of Public Utilities has shown that it will closely scrutinize the facts and may be unwilling to issue extensions.  Project developers seeking extensions should fully detail the special circumstances that justify the extension request and should distinguish their requests from the facts of the Board’s recent denials.  Otherwise, it seems likely that the Board will continue to push TI projects that are unable to meet their deadlines into the less lucrative SuSi program.

For more information, please contact any attorney in our Environmental Practice Group.

New York Court Denies Injunction to Stay Foreclosure Sale of Boston’s State Street Building

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The New York Supreme Court, Kings County, recently denied a plaintiff’s motion for an injunction staying the foreclosure sale of shares of a corporation that indirectly owned the State Street Financial Center (the “Property”) in Boston, finding that the foreclosing lender did not act unreasonably under the UCC.  See Lincoln St. Mezz II, LLC v. One Lincoln Mezz 2 LLC, 2021 NY Slip Op 32635(U) (Sup. Ct.).  The Property is owned by a non-party, and Plaintiff Lincoln St. Mezz II, LLC (“Plaintiff”) owns 100% of the shares of a corporation that indirectly owns the Property.  Plaintiff had been negotiating to refinance the four outstanding loans on the Property. However, Plaintiff defaulted on the loan on November 10, 2021, triggering a notice by Defendant One Lincoln Mezz 2 LLC (“Defendant”), who owned one of the loans, pursuant to Article 9 of the UCC.  The notice was for the sale of collateral:  the 100% equity interest in defendant corporation pursuant to an agreement executed when the Defendant purchased the loan. Defendant scheduled a foreclosure sale for December 20, 2021. Plaintiff moved to stay the foreclosure sale, and Defendant opposed.

The Court noted that, pursuant to New York law, a preliminary injunction could be issued if the party seeking it could demonstrate a probability of success on the merits, the danger of irreparable injury, such that monetary damages would be insufficient, and a balance of the equities.  As to the likelihood of success on the merits, Plaintiff argued that Defendant had failed to satisfy §9-627(b) of the UCC, requiring that the “disposition of the collateral” be “made in a commercially reasonable manner.” Plaintiff’s primary argument as to the commercial reasonableness was that the timeline of the foreclosure sale was convoluted and confusing because it was during the holiday season, and that the sale occurring right before the holiday season provides insufficient time for buyers to obtain the necessary financing.

The Court noted that under New York law, a disposition of collateral is commercially reasonable if made “in the usual matter on any recognized market . . . at the price current in any recognized market at the time of the disposition . . . or otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.” Regarding Plaintiff’s first argument, the Court found that notices of the sale of the building were publicized on November 11, 2021, well before the holiday season, and that the mere fact the actual sale was a few days before a holiday and might interfere with the holiday season does not mean the sale is commercially unreasonable as a matter of law, and that detailed information about vacation habits, flight availability and reduced work hours would “virtually eliminate most of the year as appropriate for scheduling a sale.”

As to irreparable injury, Plaintiff argued that one of the loan agreements provided that, where the lender has acted unreasonably, the “borrower’s sole remedy shall be limited to commencing an action seeking injunctive relief or declaratory judgment.” The Court found that Plaintiff had provided no evidence that Defendant had acted unreasonably, which was a necessary prerequisite to any injunction.  Further, Plaintiff argued that the foreclosure sale of the Property would result in loss of the Property which cannot be “replaced with any money damages.”  To this argument, the Court noted that the Plaintiff did not actually own the Property – rather, it owned all of the shares of a corporation that indirectly owned the Property. As such, the Court found that there was no basis for Plaintiff to argue that it had an interest in the Property that cannot be compensated with money damages.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

Texas Appellate Court Finds Jurisdiction Over Two Brothers Who Received Funds from Property Sale

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The Court of Appeals of Texas recently held that a title company could pursue an action over two brothers who received proceeds from the sale of their deceased father’s property in Texas, and that the brothers’ actions were sufficient to confer jurisdiction.  See Capital Title of Tex., LLC v. Shank, 2022 Tex. App. LEXIS 1138 (Tex. App. Feb. 17, 2022).  In the case, a couple purchased a second home in Texas.  The husband passed away and, although his will provided that his interest in the property should go to his wife, she never probated the will.  In 2019, the wife entered into a contract to sell the property.  Under Texas intestacy law, the husband’s undivided 50% interest in the property passed to his four children from a prior marriage in equal shares (i.e., 12.5% each).  Thus, the title company contacted the children about the sale.  All four agreed to sign deeds, but two agreed that their sales proceeds could go to the wife and two, Mark and Douglas, asked to receive their 12.5% of the proceeds themselves.  However, for reasons that are in dispute, only 50% of the proceeds went to the wife and 25% went to each of Mark and Douglas, who refused to return the excess monies.  The wife and the two children who did not want the sales proceeds then brought an action against the title company, and the title company brought a third-party complaint against Mark and Douglas for unjust enrichment.  Mark and Douglas filed a combined special appearance arguing that the Texas court did not have jurisdiction over them.  The trial court agreed and granted the special appearance.

On appeal, the Court reversed.  The Court confirmed that “[t]he exercise of personal jurisdiction satisfies due process if (1) the nonresident defendant established minimum contacts with the forum state and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice.”  The Court then agreed with Mark and Douglas that the fact that their father purchased the property, that their stepmother declined to probate the will, and that their stepmother decided to sell the property did not confer jurisdiction over them.  However, the transaction did not end there.  “[I]f the brothers wanted to avoid jurisdiction in Texas with respect to this transaction, then they could have simply refused to sign the deed. And if they wanted to sever all ties to Texas with respect to the property, then they could have executed a quitclaim deed in favor of Carolyn or their brothers. . . . Instead, they elected to sign the general warranty deed and convey their interests to the buyers in exchange for a portion of the sales proceeds. In doing so, they established an ongoing relationship between themselves, the buyers, and Texas.”  Further, because Douglas resides in a neighboring state and Mark acknowledged that he sometimes traveled to Texas to visit his father, the Court found it would not be particularly burdensome for them to defend a suit in Texas.  Accordingly, the Court reversed the trial court.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

Nevada Supreme Court Holds Four-Year Limitations Period Applies to Prior Lender Challenging HOA Sale

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In a question certified by the Ninth Circuit Court of Appeals, the Nevada Supreme Court recently held via a split decision that a prior lender’s action attacking an HOA sale is subject to a four-year limitations period, and that the period does not begin to run as of the date of sale, but instead when “the lienholder receives notice of some affirmative action by the titleholder to repudiate the lien or that is otherwise inconsistent with the lien’s continued existence.”  See U.S. Bank, N.A. v. Thunder Props., 2022 Nev. LEXIS 3 (Feb. 3, 2022).  In the case, the lender had a first deed of trust on the property.  In 2011, the HOA foreclosed and sold the property, and the lender did not challenge the sale at that time.  The property was subsequently transferred to the defendant and, in 2016, the lender brought a quiet title action.  The defendant filed a motion to dismiss arguing that the claim was time-barred because the limitations period began to run upon the sale date, and the District Court agreed.  The lender appealed, and the Ninth Circuit certified the questions of (i) how long the limitations period is; and (ii) when the period begins to run to the Nevada Supreme Court.

First, the four-judge majority found that a four-year limitations period should apply.  The Court determined that none of the proposed limitations statutes proposed by the parties were analogous, and that “we conclude that this is exactly the type of situation for which NRS 11.220’s catch-all period was built.”  Accordingly, the lender had four years to bring the claim.  Second, the Court found that “the limitations period does not begin to run until the lienholder receives notice of some affirmative action by the titleholder to repudiate the lien or that is otherwise inconsistent with the lien’s continued existence.”  Moreover, “[t]he HOA foreclosure sale, standing alone, is not sufficient to trigger the period. . . . because the foreclosure sale does not necessarily extinguish the lien. . . . To rise to the level that would trigger the limitations period, something more is required.”  Three judges concurred in part and dissented in part from the majority’s decision.  Although they agreed that the four-year period was applicable to any claim to invalidate the sale, they argued that the period should begin at the time of the sale:  “If a superpriority lien foreclosure sale does not call the deed of trust sufficiently into question to trigger the statute of limitations, it is hard to imagine what would.”  They also argued that, to the extent the lender claimed that the sale itself was vaild but did not affect the deed of trust (e.g., “that tender of the superpriority portion of the lien was futile and therefore excused”), that limitations period would follow the standard periods for enforcing deeds of trusts as against borrowers (e.g., six years from the maturity date).

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

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