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Big banks not on the hook for failing to stop $14 million embezzlement by doctors' bookkeeper

COOK COUNTY RECORD

Sunday, December 22, 2024

Big banks not on the hook for failing to stop $14 million embezzlement by doctors' bookkeeper

Medical malpractice 09

Three big banks will not be on the hook for millions allegedly embezzled by the former bookkeeper for a group of Chicago area medical practices, after a federal judge agreed the banks had no duty to detect and thwart the fraud, which the doctors said cost them more than $14 million.

In an opinion and order issued April 27, U.S. District Judge Joan H. Lefkow granted the request of Citibank, Bank of America and PNC Bank to dismiss a lengthy complaint from two doctors and their 11 nonprofit medical groups. The physicians, Vijay L. Goyal and Vinod K. Goyal, alleged 91 counts of check conversion under the Uniform Commercial Code and Illinois common law negligence and breach of fiduciary duty.


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The dispute between the doctors and the banks revolves around the medical groups’ former bookkeeper Irina Nakhshin. While employed by the doctors from 1992 to 2013, Nakhshin was, per Lefkow, “responsible for posting and documenting the medical insurance payments plaintiffs received. During her employment, Nakhshin created four illegitimate companies with names similar to those of plaintiffs and opened bank accounts for the illegitimate companies at Devon Bank and TCF Bank.”

The doctors say the “embezzlement caused a loss to them of between $14 and $16 million.” Nakhshin pleaded guilty March 9 to stealing hundreds of checks, endorsing them and depositing the money into illegitimate accounts at the depository banks. The plaintiffs said Bank of America made payments to Devon and TCF banks on 70 checks; Citibank did so 40 times.

“None of the checks identifies PNC as the drawee bank,” Lefkow wrote, though the doctors’ second amended complaint indicated PNC’s involvement.

Lefkow’s analysis began with the Uniform Commercial Code and its “responsible employee rule,” which, she noted, exists “to shift the risk of loss from the bank to the employer, who is in a better position to monitor their employees.”

The doctors, Lefkow wrote, “cited no authority indicating that the law places a duty on a drawee bank to review payee endorsements on checks received from a depository bank.” Further, they did “not clearly articulate what their negligence theory is, whether breach of a duty to inspect the endorsements or, possibly, breach of a duty to implement fraud-detection procedures such as computer software to identify fraud occurring in the client’s accounting records.”

Lefkow said the doctors argued Illinois law imposes a duty on the banks to install fraud detection procedures, but “they cite no common law or statutory authority for it,” and she disregarded their argument. The doctors also said they continue to be Bank of America and Citibank customers, but in the transactions at issue, the bank’s direct customers were the insurance companies whose checks Nakhshin allegedly stole and deposited in illegitimate accounts.

Ultimately, the judge said the Uniform Commercial Code places a duty of care in accepting endorsements on depository banks, but does not do the same for drawee banks, which is the role of the defendant banks in the disputed transactions.

With respect to the doctors’ breach of fiduciary claims against Citibank, the banks argued “it is well established in Illinois, and virtually everywhere, that ‘(a) fiduciary relationship does not exist as a matter of law between a bank and its depositors. The relationship is simply that of a debtor-creditor.’ ” Lefkow said the plaintiffs “completely failed to respond to these arguments for dismissal and apparently accede in the motion with regard to this claim.”

Lefkow granted the full motion to dismiss with prejudice.

The doctors were represented in the action by attorney James T. Zeas, of Crystal Lake.

The banks were defended by attorneys with the firm of Thompson Coburn, with offices in Chicago and St. Louis.

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