Cook County Record

Monday, February 17, 2020

Judge: Banks not on hook to shield businesses from employees who use app to double-deposit checks

By Jonathan Bilyk | Aug 9, 2016

Law money 09

A Lakeview hotel business will not be allowed to press its class action claim JP Morgan Chase should be held responsible for fraud perpetrated by people using Chase’s mobile banking app to double-deposit checks, creating legal and financial headaches for those issuing the checks.

On Aug. 3, U.S. District Judge Samuel Der-Yeghiayan tossed the complaint brought late last year by plaintiff 1409 West Diversey Corporation, which does business as the Bellwood Hotel in Chicago, against Chase.

According to that complaint, Chase’s mobile check capture service, which allows customers to deposit checks remotely through the bank’s smartphone app, also allows customers to deposit checks more than once.

As an example, the hotel related the tale of an employee who in early 2014 deposited her $473 paycheck through the Chase app, but then also cashed the check at a currency exchange. When the hotel company refused to honor the checks, the currency exchange sued, forcing the business to spend more than $2,000 to settle the matter in court.

Asserting such fraud is increasing and becoming commonplace, the Bellwood Hotel operators had asked to expand the case to a class action involving others who had been defrauded by people double-depositing checks through Chase’s app.

The case had originally been filed in Cook County Circuit Court, but was removed to federal court earlier this year.

And in this case, Judge Der-Yeghiayan said the Bellwood Hotel group was asking too much of Chase under the law.

Der-Yeghiayan noted Chase and the hotel business have no contractual relationship, and “under Illinois law, a bank such as Chase owes no duty to a non-customer under circumstances such as in this case.”

Further, the judge said, if the bank has a cause for action against anyone in connection with the double-deposit problems, any litigation should be directed against the individuals, including its employees, seeking to double-deposit the checks.

“Nothing in this ruling prevents the Hotel from pursuing such a remedy against such an employee,” the judge wrote. “In addition, if the Hotel faces a repetition of such conduct by its employees with Chase accounts and the Hotel is dissatisfied with the services it receives, the Hotel can always choose in this free market system to switch to a new bank.

“Neither the law nor equity supports creating a new common law claim under the circumstances in this case to protect the Hotel from potential fraud by its own employees.”

According to state corporation records, David S. Labunski is listed as president of 1409 West Diversey Corporation. Labunski also is listed as managing broker at Cedar Realty in Chicago.

1409 West Diversey Corporation was represented in the legal action against Chase by attorneys Edward A. Berman and Terrence Buehler, both of Chicago.

Chase was represented by the firm of Greenberg Traurig, of Chicago.

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Organizations in this Story

Greenberg Traurig, LLPEdward A. Berman P.C.J.P. Morgan Chase