Unlimited Adjusting Group, Inc. v. Wells Fargo Bank, N.A.

INTRODUCTION

This case presents a novel issue under California Uniform Commercial Code section 3404, subdivisions (b)(i) and (d). Plaintiffs lost more than $6 million in an investment fraud scheme. The perpetrator led plaintiffs to believe that brokerage accounts in their names would be opened with Carlin Equities Corporation, an existing broker-dealer, and induced plaintiffs to make checks payable to “Carlin Co.,” “Carlin Corp.,” and “Carlin Corporation.” The culprit opened his own bank account at defendant and respondent Wells Fargo Bank, N.A. (Wells Fargo), under the fictitious business name “Carlin Co.” He deposited plaintiffs’ checks into that account and then appropriated the monies.

Section 3404, subdivisions (b)(i) and (d) provide, in effect, that the drawer of a check may recover from a depositary bank on a comparative negligence basis if, inter alia, the depositary bank failed to use ordinary care in permitting a customer to deposit a check when the person who signed the check as, or on behalf of, the drawer (the “signer”) did not intend the person identified as payee on the check to have an interest in the check. (§ 3404, subds. (b)(i), (d).) Plaintiffs…