Lufthansa German Airlines v. Bank of America National Trust and Savings Association

This case concerns a bank’s right to “charge back” to its customer’s account the amount of a check deposited by the customer and dishonored by the drawee bank. The issue is whether the telephonic notice of the dishonor by the Federal Reserve Bank to the depositary bank’s central clearing center triggered the bank’s duty to notify the customer of dishonor. The decision requires an interpretation of relevant sections of the California Commercial Code.

Lufthansa German Airlines (“Lufthansa”) brought this diversity action against the Bank of America (“Bank”) to dispute the charge-back of a $63,081.98 check that Lufthansa had deposited to its account in the Union Square Branch of the Bank. The check was drawn by Novo International Airfreight Corporation on First Pennsylvania Bank and Trust Company with Lufthansa as payee. The check was forwarded through Federal Reserve Bank channels to First Pennsylvania Bank and Trust Company for collection where it was dishonored for insufficient funds. Pursuant to Federal Reserve Operating Circular # 2, which requires expedited notice of non-payment of large items, the Federal Reserve Bank gave telephonic notice on June 21st to the Bank’s…