
    UNION STREET CORRIDOR-COMMUNITY DEVELOPMENT CORPORATION, Plaintiff v. SANTANDER BANK, N.A., Defendant.
    CIVIL ACTION NO. 16-10441-DPW
    United States District Court, D. Massachusetts.
    Signed June 13, 2016
    
      Nicole M. BluefoH, Lynn, MA, for Plaintiff.'
    Jeffrey L. Adams, Parker Ibrahim & Berg, LLC, Boston, MA, for Defendant.
   MEMORANDUM AND ORDER

DOUGLAS P. WOODLOCK; UNITED STATES DISTRICT JUDGE

Before me is a Motion to Dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) regarding a bank check matter governed by the Uniform Commercial Code. Plaintiff Union Street Corridor-Community Development Corporation alleges that defendant San-tander Bank, N.A. caused it injury by cashing 97 checks submitted by individuals associated with Union Street who were not authorized signatories on the Union Street account held at Santander. I conclude that Union Street may not collect on any of its claims related to the checks in question. I will therefore grant Santander’s motion to dismiss this ease.

I, BACKGROUND

In October of 2007, Union Street opened a business bank account with Santander. As part of the standard signup process, Union Street identified certain affiliated individuals as authorized signatories for the account by listing them on a signature card. From November 29, 2011 to July 13, 2015, three unauthorized board members, Michael Phelps, Norman Cole, and Edward Battle, and one non-board member, Steve Godfrey, are alleged to have signed checks for payment-from the account. In all, it appears they signed 97 checks—the value of which totaled $143,191.77—that were ultimately paid out of Union Street’s account by Santander.

The dates of the first checks signed by each individual were as follows:

— Godfrey—November 29,2011

— Cole—February 15, 2012

— Battle—August 6,2012

— Phelps—November 15,2013

At no point had any of those individuals been added to the signature card on file with Santander for Union Street’s account.

During the period in question, Santan-der sent Union Street monthly statements detailing all of the check. payments. On November 2, 2015—apparently after a change in leadership—Union Street sent Santander notice' that -the 97 checks in dispute had been signed by unauthorized persons. ■

Union Street asserts four state law claims against Santander. Claim I is a claim for common law negligence, alleging that Santander did not comply with applicable law or its own policies in allowing the checks to be paid despite being signed by unauthorized signees. Claim II is for fraud. In this claim, however, Union Street does not adequately plead fraud. It simpiy lists some of the consequences of the payment' of the checks, and restates its allegation that Santander paid the checks without determining whether the signatures on them were authorized. Claim III alleges a violation of Massachusetts General Laws Chapter 93A. Union Street claims that the terms of the agreement'it had to sign' in order to open an account were deceptive and unfair, and that Santander breached its own agreement by allowing payment of checks signed by unauthorized persons. Count IV alleges breach of contract based on the-same underlying agreement. ■

II. ANALYSIS

In support of its motion to' dismiss, San-tander makes two main arguments. '

The first is that Union Street.should be prevented from collecting anything on its common law claims because the UCC displaces common law claims such as the ones alleged here. The second is directed to the Chapter 93A claim; Santander argues that Union Street has failed adequately to allege any unfair or deceptive business practices undertaken by Santander.

A. UCC

Santander contends UCC provisions dictate that plaintiffs in Union Street’s situation may not recover on claims against a bank. Santander cites two specific rules in support of this contention. Before analyzing the specific U.CC rules themselves, however, I will first address whether as a general proposition the UCC displaces common law theories of liability.

In Massachusetts, “[c]heck collection is governed by the UCC,” and, in the check collection context, “[w]here a UCC provision specifically defines parties’ rights and remedies, it displaces analogous common-law theories of liability.” Gossels v. Fleet Nat. Bank, 453 Mass. 366, 370, 902 N.E.2d 370, 376 (2009). This approach has been adopted under the UCC so that banks do not “face a motley patchwork of liability standard from State to State.” Id. The UCC also applies where it “provides a comprehensive scheme for enforcement of rights and allocation of losses that would be effectively undermined by application of conflicting common-law principles.” Reading Co-Op. Bank v. Suffolk Constr. Co., 464 Mass. 543, 549, 984 N.E.2d 776, 781-82 (2013) (citation omitted). Article 4 of the UCC,, as adopted by Massachusetts in Chapter 106 of the Massachusetts General Laws, which covers bank deposits and collections, provides just such a scheme in this context.

1. One Year Rule

The One Year Rule of Article 4 requires that a customer report any unauthorized signatures or endorsements to her bank within one year of the unauthorized act in question. See Mass. Gen. Laws Ann. ch. 106, § 4—406(f) (West). As long as the bank has been providing regular statements to the customer, if one year has passed since the unauthorized .transaction in question, the customer is “precluded from asserting against the bank the unauthorized signature.” Id.

This rule applies “[without regard to care or lack of care of either the customer or the bank.” Id. “The one-year period in [section (f) ] is not a statute of limitations which might not start to run until the plaintiff knew or should have known of [his injury].” Arkwright Mut. Ins. Co. v. State Street Bank & Trust Co., 428 Mass. 600, 605, 703 N.E.2d 217, 221 (1998). “[I]t necessarily follows that the discovery rule is ... inapplicable.” Id. at 606, 703 N.E.2d 217, 221. These rules were developed to ensure “finality in check fraud litigation.” Id. at 603, 703 N.E.2d 217, 221 (citation omitted).

Union Street did not notify Santan-der of the alleged unauthorized checks until November 2, 2015. Consequently, a claim based on any check that would have appeared on Union Street’s monthly statement before November 2, 2014, is barred by the One Year Rule. It is undisputed that Santander issued monthly statements at the end of every calendar month. As a result, claims based on any check cashed before (and not including) the November 4, 2014 check are barred by the One Year Rule. I note at this point that there were 21 checks cashed after that date, collection on which would not be precluded by the One .Year Rule. I will turn to those checks in the next subsection.

However, as pertinent to this subsection, the claims arising from the 76 checks that are subject to the One Year Rule are not saved by Union Street’s argument that a discovery rule should apply. It is clear from both the language of the statute and the case law that the one-year period established in § 4-406(f) governs as a statute of repose -without consideration of the timing of discovery, so long as the bank continued to send its client regular statements. The undisputed documentation properly submitted in connection with the motion to dismiss demonstrates that San-tander did just that.

Accordingly, Union Street is precluded from collecting on any claims related to any of the pre-November 4, 2014 checks. This leaves the 21 checks cashed after the cutoff date to be considered. As will appear in the next subsection, recovery on these checks is barred by another UCC rule: the Repeater Rule. ■

2. Repeater Rule

The Repeater Rule, of Article 4 bars claims against a bank for subsequent fraudulent checks signed by the same person unless the .customer gives notice of the fraud to the bank, within 30 days of the original fraudulent check. If a bank, as Santander did here, sends regular statements to the customer, Mass. Gen. Laws ch. 106, § 4-406(c) (West). The reasonable promptness required in subsection (c) has been interpreted to mean a period “not exceeding 30 days” after the customer has received her statement. See Mass. Gen. Laws ch. 106, § 4-406, cmt. 2 (West). This requirement was codified because “the customer is in the best position to discover and report forgeries.” Grassi Design Grp., Inc. v. Bank of Am., N.A., 74 Mass.App.Ct. 456, 457-58, 908 N.E.2d 393, 395 (2009).

[t]he customer must exercise reasonable promptness in examining the statement ... to determine whether any payment was not authorized ... because a purported signature by or on, behalf of the customer was not authorized. If, based on the statement Or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.

However, “[a]s an exception, comparative fault applies where ‘the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure substantially contributed to loss.’ ” Sullivan Surveying Co., LLC v. TD Bank, N.A., No. 15-cv-11819-RGS, 2015 WL 4207133, at *2 (D.Mass. July 10, 2015). But if the plaintiff alleges that the bank failed to exercise ordinary care, it bears the burden of pleading and establishing that fact. Grassi, 908 N.E.2d at 395. Ordinary care is defined to be acting under “reasonable commercial standards.” Id. (citing Mass. Gen. Laws ch. 106, § 3-103(a)(7)). These reasonable commercial standards are, in turn, defined as “general banking usage not disapproved by” other provisions of the UCC. Mass. Gen. Laws ch. 106 § 4-103. And general banking usage means practices “common to banks in the area concerned” or “followed generally throughout [the] state.” Id. at cmt. 4.

If I were to find that the Repeater Rule applies, claims arising from any of the remaining 21 checks would be precluded. This is because all of the remaining 21 cheeks cashed within one year of the notice Union Street sent Santander were signed by unauthorized signatories who had previously signed fraudulent checks well more than 30 days before.

Neither party disputes the fact that these remaining checks are subject to the Repeater Rule. Union Street instead contends that Santander’s practices in ensuring the authenticity of signatures on checks which they pay fall below the standards of ordinary care as defined by the UCC. If that were the ease, then the Repeater Rule would not apply,, and liability for the damages caused by the. checks would be apportioned based on a comparative fault scheme.

In its reply, Santander argues that Union Street may not invoke this exception to the Repeater Rule, because Union Street suffered no actual loss. It contends that, because the checks were all paid to entities with which Union Street would or did normally do business, there was no apparent loss suffered, and all of the checks were paid in due course of Union Streets business. As threshold matter, I find that whether any of these checks were for legitimate business expenses to be a fact question beyond the scope of motion to dismiss practice. The allegation that the unauthorized, albeit affiliated, individuals in question, as enabled by Santander . in the process, executed checks without company approval is sufficient to support a damages claim.

Nevertheless, I also conclude that, regardless of any question of injury, Union Streét has not adequately pleaded that Santander’ failed to act with the ordinary care normally exhibited by banks in its position. The only mention of such banking standards is a cursory reference in briefing to one other bank’s electronic check comparison system. And the single case on which Union Street relies in that briefing for its conclusion is based on behavior far more egregious than anything Union Street alleges here.

In Govoni & Sons Construction Co., Inc. v. Mechanics Bank, the bank in question had a practice of saving time on busy days by having its banking tellers simply “fan” through stacks of checks deposited simultaneously, only. looking to see whether each check had been signed and indorsed. 51 Mass.App.Ct. 35, 37, 742 N.E.2d 1094, 1098 (2001). The tellers did not examine the checks, look to see to whom the check was made out, or question the customer. In fact, in Govoni, the teller failed to recognize a number of unendorsed checks. This was because, on particularly busy days, the tellers entirely dispensed with the practice of even fanning the checks and simply deposited them with no questions or inspection.

Union Street has made no allegation that Santander’s practices approximate that lack of care. Moreover, making passing reference—unalleged in the complaint—to the electronic payment system of one of the largest banks in the country in an opposition to- a motion to dismiss is insufficient to plead that such top-of-the-line security systems are in common usage, let alone standard security protocol in Massachusetts. In short, there is nothing in the pleadings to support the conclusory allegation that Santander’s check certification procedures fell below the standards of ordinary care. The checks in question here would' likely have seemed legitimate to even a reasonably diligent teller. They were almost all from Union Street to other businesses, signed by board members or other affiliated individuals, and bore no red flags that would or should have indicated that a security specialist should specially review them.

In conclusion, I find that the Repeater Rule applies to all claims based on the 21 checks not barred by the One Year Rule. Therefore, Union Street is precluded from collecting on any of those checks.

B. Chapter 93A

Although the UCC displaces common law claims, it does not necessarily displace those based on statutes, such as Union Street’s Chapter 93A claim. Therefore, even though Union Street’s common law theories of recovery based on the checks are all barred by UCC rules, its Chapter 93 claim might still proceed if I find that Union Street has adequately pleaded that Santander engaged in unfair or deceptive practices.

[8] In order to prevail on a Chapter 93A claim, the plaintiff must show “1) a deceptive [or unfair] act or practice on the part of the defendant; 2) an injury or loss suffered by.-the plaintiff; and 3) a causal connection between the defendant’s deceptive act or practice and the plaintiffs injury.” Tyler v. Michaels Stores, Inc., 840 F.Supp.2d 438, 448 (D.Mass.2012) (citing Hershenow v. Enterprise Rent-A-Car Co. of Boston, Inc., 445 Mass. 790, 797, 840 N.E.2d 526, 532 (2006)).

Under Chapter 93A, an act or practice is “unfair” if it is “(1) within the penumbra of a common law, statutory, or other established concept of unfairness; (2) immoral, unethical, oppressive, or unscrupulous; or (3) causes substantial injury to competitors or other business people.” Id. (quoting Milliken & Co. v. Duro Textiles, LLC, 451 Mass. 547, 563, 887 N.E.2d 244, 259 (2008)).

In its complaint, Union Street alleges that the language found in the agreement it made with Santander to open the account was deceptive and unfair. The provision in question states in relevant part:

If you are a sole proprietor, you and any other authorized signers you designate must sign our signature card when you open an account. Otherwise, the authorized signers you designate must sign our , signature card when you open an Account. If you designate more than one authorized signer, each authorized signer must complete and sign our signature card.... We may rely upon the documentation we have in our files regarding the identity of the authorized signers on your Account until you present appropriate documentation identifying other authorized, signers.. If we do not obtain the information we need under our Customer Identification Program, we reserve the right to prevent you from accessing the funds in your Account until we obtain that information, and you agree we will not be liable to you if your check or other payment order is not paid during this time.

Santander Bank Business Deposit Account Agreement, Part A, Subsection 2, (emphasis added). A later subsection of the Agreement states:

You agree, to examine your statement . promptly after you. receive it or we make it available to you. Unless we hear otherwise from you within 30 calendar days ... from the date we mailed the statement or made it available to you, we will deem the statement and all transactions' reflected therein, including the payment of any check or the amount of any deposit, to be accurate and proper.... In addition, if you fail to notify us of any unauthorized" items(s) within 30 calendar days ... from the date we ' mailed the statement reflecting the first unauthorized item(s) or made it available to you, we are not required to reimburse you for unauthorized items caused by the same person that appear on the statement or any subsequent state- • ments.

Id., Subsection 13.

I find nothing in this plain language or in Santander’s later conduct that could be described as deceptive under Chapter 93A. The Agreement is quite clear in its apportionment of responsibility with regard to authorization of checks. It is evident from the wording of the Agreement that Santander maintains the signature card containing authorized signatures for its own records and internal security purposes. Santander makes no promise to check the authorization card for every transaction, and is thus not acting deceptively or unfairly when it deems such measures unnecessary, so long as it acts consistently with the UCC. The signature cards exist in order for Santander to have a foundation in its security process to identify a possible forgery and then to refuse to pay out on a check. But their existence does not promise more extensive security measures.

The other provisions of the contract, read in a common sense fashion, make it clear that Union Street is in large part responsible for the policing of its own account to thwart any potential unauthorized transaction. The fact that it was board members who were taking part in this alleged scheme does not change the fact that Union Street’s own oversight mechanisms (or lack thereof) were the fundamental cause of the unauthorized check payments. The Agreement makes clear that Union Street has a responsibility to review its own statements. The Agreement is consistent with the wording and structure of the UCC rules regulating this type of transaction, and the case law that has analyzed those rules. The rules and the related case law reflect a considered public policy allocating the burdens of policing against unauthorized check writing. No bank, Santander included, is required under the UCC to be a general insurer against lack of diligence by its customer. Reallocating the respective burdens—and the associated costs—must be the subject of legislative action, not ad hoe judicial recalibration.

Nothing about -the contemplated relationship between Santander and Union Street was unfair or deceptive. Union Street should have been aware that San-tander was not obligated to check the signature card for every, or indeed any, transaction. And nothing in Santander’s conduct could be deemed unfair.

Union Street’s lack of oversight cannot be blamed on its bank. Apparently, new management at Union Street has taken over and realizes that past funds have been spent irresponsibly, or perhaps even embezzled. But if recourse must be had, it should be sought from the individuals who enabled and/or signed the unauthorized checks and not from a bank that, from all that is alleged, performed its duties in a way that was neither unfair nor fell below accepted standards of care in Massachusetts.

III. CONCLUSION

For the foregoing reasons, I GRANT the Defendant’s Motion to Dismiss, and dismiss all claims in the complaint. 
      
      . For this information, I rely on submissions attached by Santander to its Motion to Dismiss that were not originally included with the complaint: specifically, Union Street’s November 2 Demand Letter, copies of the checks in question, and the bank statements' that Santander sent to Union Street every month during the period in question. Normally, extra-pleading submissions cannot be considered under Rule 12(b)(6). However, the First Circuit has recognized some exceptions to this rule. These exceptions include documents "the authenticity of which [is] not disputed by the parties," documents that are "central1 to plaintiffs' claim” and “documents sufficiently referred to in the complaint.” Watterson v. Page, 987 F.2d 1, 3-4 (1st Cir.1993). These materials fall within those exceptions.
     
      
      . Santander also argues, in the alternative, that, even if I were not to agree with its interpretation of the UCC provisions it cites, I should at least dismiss the claim for fraud either because Santander is a holder in due course, or because Union Street has not pleaded its fraud claim with the particularity required under Rule 9(b). I do not reach those arguments.
     
      
      . The Agreement was attached to Santander’s reply to Union Street’s opposition, I may consider it here for the reason stated in footnote 1.
     