1. D
By Dennis M.Egan,Esq.; John T.Below,Esq.;
and Courtney B.Ciullo,Esq.
A community bank client recently encountered
an unusual situation and learned some valuable
lessons about ways to protect itself from potential
liability in the future. By way of background, a
dishonest lawyer was depositing checks received
from insurance carriersfor lawsuit settlements into a
clienttrustaccount he maintained with the bank.The
settlement checks were made payable to the lawyer
and the client.The lawyer signed the clients' names
to the checks ostensibly under powers of attorney
signed by the clients. In each case,he endorsed the
check for the client by signing the client's name and
his name with"POA."
The Problem
Rather than paying each client his or her share of
the settlement,in the fashion of a Ponzi scheme,he
paid Client A's overdue settlement with Client B's
money,because he had either used ClientA's money
elsewhere or had paid it to earlier clients. The later
clients whose money had been used to pay the earlier
clients did notreceive any or only received a portion
ofthe settlement moniesto which they were entitled.
The lawyer has since been disbarred, declared
bankruptcy,and is in the processofbeing prosecuted
criminally.
Our Case
In our case,the attorney had received a $400,000
multi-party check,made out to him and three of his
clients, a mother and her two children.The mother
had executed two powers of attorney ("POAs")
which specifically authorized the attorney to endorse
settlementcheckson her behalfand depositthem into
the attorney's clienttrustaccount atthe bank,and the
attorney didjustthat.We had notlearned whetherthe
dishonest lawyer has a POA signed on behalf of the
two children.Theclients neverreceived their money,
because the attorney gave their share to earlier,
unpaid clients or used the money for something else
altogether. The clients filed a lawsuit arguing that
the bank was liable to them for damages because the
attorney forged their endorsements on the check that
he deposited into his client trust account.
0
Court Ruling
Upon our client's
motion for summary
disposition, the judge
dismissed the action,
because the check was
deposited into the client
trust account, where the
principal clients intended
it to be deposited. The
Court agreed with us that
the clients'damages were
caused by the attorney's
actions after he deposited
the money into this
account -for which the
bank was not liable.
Under the Uniform
Commercial Code,
a depository bank is
exposed if it accepts a
check which contains
forged endorsements.
In our case, the bank's
policy did notrequire itto
obtain a copy ofthe POA,
and the POA here was
not signed on behalf of a
legal representative for
the children. The Court
in this case did not rule
on the validity of POA
signed by the mother,
but to safeguard banks
in the future from facing
this potential issue,it would be wise to implement a
policy whereby the bank obtains a copy of the POA
for its records.
Lessons Learned
There are a few lessons learned from this matter.
If an agent signs the name of all parties on a multi-
party check,make sure he is authorized by the POA
to do so.Although the court in this case did not rule
on the allegation that the check contained forged
endorsements,banks would do well to confirm each
multi-partycheckisendorsed with every named party
PageI6 Michigan Banker•December,2015

2. before cashing it or permitting it to be deposited.
Also, under the Uniform Commercial Code,banks
must act in a "commercially reasonable" manner.
While banks are notrequired by law to obtain copies
of POAs,asking for them provides protection. If a
bank asksfor and receives a genuine POA,it knows
it is protected.IfthePOA isforged,however,and the
forgery is witnessed or notarized,a bank should be
entitled to rely on thatfact. Under the commercially
reasonable standard, the bank is not required to
investigate on any significantlevel;however,certain
initial steps can go a long way to protect the bank.
If the bank neither asks for nor receives any POA,
it risks that there is no POA or that it wasforged.In
summary,actin a"commercially reasonable"manor
by requesting copiesofall utilized POAsand confirm
that all multi-party checks are properly endorsed.
DennisK.Egan is an accomplished trial lawyer with
morethan35yearsofexperience.Hehassuccessfully
represented banking and financial institution clients
in lawsuits and arbitration proceedings brought in
Michigan and throughoutthe country. Dennisstrives
to outwork and outthink his opponents to get the
best possible result for his clients. Contact Dennis:
degan@kotzsangster.com or 313.259.8300.
John T.Below concentrates his practice in state and
federallitigationofcommercialand bankinglitigation
matters, including foreclosures, receiverships,
contractand loan disputes,fraud,and lenderliability.
John brings23 years ofexperienceto solve problems
and win cases for the firm's banking and financial
servicesclients. ContactJohn:jbelow@kotzsangster.
com or 248.646.1050.
Courtney B. Ciullo provides strategic advocacy
for commercial clients, including banks,in a wide
variety of contexts such as those involving defaults,
foreclosures and receiverships. She is a skilled
negotiator and has leveraged her extensive litigation
experience to achieve favorable results for her
clients. Contact Courtney: cciullo@kotzsangster.
com or 313.259.8300.
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Investment Advisors Established 934
36700 Woodward Avenue,Suite 201 •Bloomfield Hills, Michigan 48304
heberinvestments.com • 248,258.6866
Michigan Banker•December,2015 Pagel7