Check Casher Claims Arbitrator Went Too Far


Arbitration can cut two ways. It is clear that one of the purposes of arbitration is to make economic disputes more efficient to resolve. Although that may be true, no check casher wants to be on the losing end of a sizable arbitration award. Recently, a check casher discovered just how hard it is to overturn an arbitrator’s decision.

A building maintenance company filed a lawsuit against a New Jersey check casher in connection with its cashing of various payroll checks.

The company sought, among other things, lost profits and other damages on theories of conversion, wrongful interference with business relationships, wrongful interference with prospective economic advantage, and the like.

The company alleged that the check casher failed to comply with the New Jersey Check Cashers Regulatory Act of 1993 as well as its own internal policies and procedures, all of which contributed to the claimed harm.

The maintenance company and the check casher agreed to submit to binding arbitration, which resulted in a March 26, 2007, order dismissing the pending litigation and, ultimately, an arbitration award for the company totaling $335,346.40, including interest.

The arbitrator found that the company’s trusted operation manager over several years conducted a shadow janitorial business of his own, using the maintenance company’s employees, supplies, and equipment.

The manager also cashed payroll checks for phantom employees, for payment of fictitious overtime, and for work that was not performed.

Finds Conduct Intentional

The arbitrator determined that although the maintenance company “was negligent,” the conduct of the check casher was, unfortunately, intentional. The arbitrator found the following:
• The maintenance company did not receive any cancelled checks with its monthly statements. The statement only contained names and amounts. Accordingly, there was no way for the company owners or staff to see the documents.
• The manager created the payroll by submitting a list of names, hours, and amounts to a payroll service, which in turn computed and deducted taxes and sent net checks to the maintenance company. When checks were received from the payroll service, they were given to the manager to distribute.

No testimony was offered showing that the maintenance company compared names on checks with employee applications or conducted random audits of employees’ pay or questioned them about where they worked, how many hours they worked, or how much they received.

The operations manager had the authority to use the company’s principal signature stamp, which was used to sign checks. In certain instances, the manager physically signed the company’s name rather than using the stamp.
No employee ever complained about receiving insufficient funds in their pay.

Matter of Convenience

Some employees authorized the manager or his subordinate to endorse their payroll checks and others cashed their own checks. Employees found the practice of the operations manager’s endorsement, cashing checks, and delivering their money to them a convenient way to receive their pay.

There was some evidence that certain checks were issued that exceeded the amounts employees normally earned, that is the hours they actually worked did not justify the amount of the check.

People appeared on the payroll while the manager was employed by the maintenance company who never appeared on the payroll after he was terminated and were apparently fictitious.

The maintenance company’s vice president identified persons for whom there were no applications for employment on file or who never worked for the company and were also apparently fictitious. The vice president further identified individuals who got paid by the company when they worked at various locations while these were shadow janitorial service accounts.

Checks were identified that were deposited into the manager’s own bank account that were funds to which he was not entitled or were made out to presumed fictitious employees.

No Follow Up

The maintenance company knew that payroll checks were being cashed at the check casher because when they were cashed and bounced and the check casher contacted the company to make good for the sums paid to employees plus expenses incurred, it sent the amounts requested to the check casher.

The maintenance company never requested that the check casher send it the bounced checks. Had this been done, noted the arbitrator, the alleged forgeries could have been discovered.

In his initial decision, the arbitrator created three categories of additional potential damages resulting specifically from the improper check cashing practices. He directed that the maintenance company resubmit some specified proofs reorganized in line with these categories.

The arbitrator also stated the check casher might be entitled to a credit on its counterclaim, conditioned upon the maintenance company being unable to “prove that one or more of the 27 checks that was subject to a stop payment order fell into one of the three categories…”

After reviewing the submissions, the arbitrator ultimately granted the maintenance company $9,190.50 of additional damages in a supplemental decision.

The check casher appealed the arbitrator’s decision to the Appellate Division of the Superior Court of New Jersey.

Posted in Winter 2012.