Court Rules Summary Judgment Premature

By Richard Weatherington

A summary judgment is a quick way to dispose of a case, but is appropriate only in a narrow set of circumstances.

After winning a summary judgment as a holder in due course, a check casher found itself going back to the trial court for resolution of whether it had acted in good faith.

The principal owners and officers of a New Jersey automotive repair business had sole responsibility for the company’s bookkeeping and financial operations. Company checks and business records were maintained in a desk drawer of one of the owners, whose first name was Michael.

In August 2007, the company hired a woman, whose first name was Jazmin, to serve as the company’s receptionist. According to Michael, before hiring her, he contacted several of her former employers, receiving confirmation that she was a responsible worker.

Jazmin’s job responsibilities as a receptionist did not include bookkeeping or accounting or involve any of the company’s financial affairs. Moreover, she was not allowed access to the company’s checks and was not provided a key to the desk.

Approximately one week after she was hired, Michael noticed that two company checks were missing. He immediately contacted the local police department and placed a stop order on the checks.

Although the company’s bank complied with the stop order, Jazmin, over the course of four days, had already cashed the checks at a local licensed check cashing store.

Jazmin had stolen two checks, sequentially numbered 32047 and 32048, forged Michael’s signature, and made the checks payable to herself.

The numerically consecutive checks, however, were not presented or dated in proper order. Check 32048, for $6,600, was presented on Aug. 6, 2007. Check 32047, for $3,200, was presented on Aug. 10, 2007.

The company owners were not contacted by the check casher’s employees to verify the authenticity of the checks. The check casher presented the checks to the repair shop’s bank for payment, but the checks were refused because of the stop order.

The check casher filed a complaint against the auto shop and Jazmin in June 2008, claiming that it was entitled to payment as a holder in due course under the Uniform Commercial Code and because of the repair shop’s alleged negligent maintenance and supervision of the stolen checks.

The auto shop failed to answer, and default judgment was entered in September 2008. It was not until the check casher later moved to enforce its rights that the auto shop first learned of the lawsuit, and as a result, it filed a cross motion to vacate the default judgment.

The auto shop’s certifications established that service had been improper, and the court vacated the default judgment, reinstating the matter.

Demands Discovery

The auto shop filed its answer denying the check casher’s allegations, claiming, among other things, that the check casher was comparatively negligent and demanding discovery in the form of interrogatory questions and documents.

The auto shop’s discovery request included all of the check casher’s procedures for check verification, the identity and personnel records of the employees who waited on Jazmin, copies of the check casher’s training documents related to fraud monitoring and verification procedures, all audio or videotapes pertaining to the subject transactions, and the phone records for some of August 2007.

In lieu of providing discovery, the check casher moved for summary judgment, contending that “when it cashed the check, it do so for value, in good faith, and without notice that it was overdue, or had been dishonored, or that there was any defense against or claim to the instrument on the part of any person.” The check casher also argued that the auto shop was negligent per se in leaving the checks in an unlocked drawer.

The auto shop opposed the motion, maintaining that to the extent the check casher’s summary judgment motion was based on the auto shop’s alleged negligence, the check casher’s comparative fault was factually in dispute.

On this point, the auto shop claimed that the check casher did not act properly in verifying the authenticity of the checks. The company was brought two payroll checks totaling about $9,000 with no deductions. The signatures were different. The checks were out of sequence. The handwriting was different.

The person that was alleged to have been called to verify them by the check cashing company was no longer an employee of the auto shop so she could have never verified it, since she physically wasn’t there. All those factors, claimed the auto shop, led to an issue of material fact of whether the check casher was comparatively at fault.

The auto shop acknowledged that the checks were in an unlocked drawer but argued that there was also some fault that could be attributed to the check casher for not taking the proper steps to verify the authenticity of the checks before cashing them.

The auto shop also claimed that the summary judgment motion was premature because the shop’s discovery request remained outstanding.

After arguments, the judge, relying on the 1993 case of Dubin v. Hudson County Prob. Dept, granted summary judgment in favor of check casher and denied the auto shop’s cross motion, reasoning that it t would appear from that Dubin case that the check casher was in fact a holder in due course.

Cites Precedent

In Dubin, the plaintiff took the checks for value by paying out the full amount of each check to the named payee. What the defendants chose to characterize as the plaintiff’s comparative negligence may be considered under the terms of the UCC as a lack of good faith, which would prevent the plaintiff from qualifying as a holder in due course.

The defendant in the Dubin case alleged that the plaintiff did not apply the usual commercial standard in conducting his business because he did not call the Hudson County Probation Department to verify the checks before cashing them. Good faith means honesty in fact in the conduct or transaction concerned.

The plaintiff in Dubin testified that his customary practice was not to call to verify each check because of the volume of checks cashed each month. The plaintiff maintained a listing of companies for whom he cashed checks and verified checks from unknown companies, usually by calling the payor bank to verify that there were sufficient funds in the account.

An additional criterion used by the plaintiff in determining whether to call the maker was the size of the check. But the plaintiff in the Dubin case testified that the amount was not large enough to prompt him to call. The Dubin court found that the customary practice of plaintiff constituted a showing of good faith.

The trial court concluded that the check casher in the current case had shown good faith in the way it handled the cashing of the checks, and, therefore, it granted the check casher a summary judgment in the amount of $9,800 and concluded that the auto shop’s cross motion on delinquent discovery was moot.

The auto shop then appealed to the Superior Court of the New Jersey Appellate Division. On appeal, it raised the following issues:

• The trial court was wrong in granting the check casher’s motion for summary judgment because it misapplied an outdated statutory scheme for relief not requested by the check casher.

• The check casher did not meet its legal burden that it satisfied the good faith requirement to be classified as a holder in due course.

• The trial court failed to consider the issue of comparative fault on the part of the check casher.

• The trial court violated the auto shop’s due process rights when it, on its own, granted summary judgment on a count of the complaint not raised by the check casher.

• Summary judgment was prematurely granted by the trial court because discovery had not been completed.

• The trial court abused its discretion in denying the auto shop’s cross motion to dismiss the check casher’s complaint for failure to answer discovery, despite full knowledge that the check casher had not answered discovery and had no intention of ever doing so.

The Appeals Court said …

Editor’s Note: This is a shortened version of the original article. To read the entire story, subscribe to Cheklist magazine.

Posted in Fall 2010.