Jeremy Kirk reports the latest twist in a long-running lawsuit by a construction firm against its bank over fraudulent wire transfers:
A U.S. construction company may stand a greater chance of recovering some of the $345,000 it lost in fraudulent wire transfers that it blames on poor online banking practices of its bank.
Patco Construction Company, based in Sanford, Maine, sued Ocean Bank, now called People’s United Bank, after fraudsters made six wire transfers using the Automated Clearing House (ACH) transfer system amounting to more than $588,000 in May 2009. About $243,000 was recovered.
In its suit, Patco alleged among other claims that Ocean Bank’s online security was not commercially reasonable under Article 4A of the Uniform Commercial Code (UCC), a federal code governing contractual disputes that has been adopted into most U.S. states’ laws.
The UCC does not allow claims such as negligence, fraud and breach of contract. The code makes it potentially costly for small businesses to sue financial institutions over cybercrime-related fraud. Even if a small business wins a lawsuit, under the code the financial damages are limited only to the money stolen plus interest.
In a significant twist, a three-judge federal appeals court panel found on Tuesday that Ocean Bank’s online security measures were not “commercially reasonable,” reversing a lower court ruling from May 2011.
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