NJ Appellate Court Says Banks Owe Duty Of Care To Victims Of Identity Theft
Banks beware! In a case of first impression, a New Jersey appeals court held that a bank that pursues criminal charges against an innocent third party whose identify is stolen and used to defraud the bank can be sued civilly for negligence and malicious prosecution.
In this particular case, Brunson v. Affinity Federal Credit Union, A-4439-06, the bank employed a fraud and loss prevention specialist (Mr. Wilcox) who happened to be a certified fraud examiner. According to the appellate record, an imposter posing as the plaintiff Brunson opened an Affinity account in Brunson's name using Brunson's social security number and an out-of-state driver's license bearing Brunson's date of birth and a Paterson, NJ address (misspelled with two "t's".) Within days of opening this account, the imposter successfully cashed $9,506 in phony checks drawn against a corporation known as Viva International Group.
The bank's fraud and loss prevention specialist Wilcox was provided with surveillance tapes and still photographs depicting the imposter as a black male about five feet six inches tall. Wilcox verified that Viva International Group did not employ anyone named "Brunson" on its payroll nor was there any "Brunson" authorized to sign company checks. Wilcox also learned that Brunson had a criminal record. Hastily reaching the conclusion that Brunson was responsible for this fraud, Wilcox filed two criminal complaints against Brunson for uttering a forged document and for theft by deception and testified before the grand jury that ultimately indicted Brunson. Critically, Wilcox didn't bother to review police photographs of Brunson to compare against the surveillance images maintained by the bank, nor did he show the bank's tellers who dealt with the imposter a photo of Brunson to confirm the identification. Had he taken these extra precautions, Wilcox would have learned that Brunson is six foot three, nine inches taller than the imposter.
Brunson, a New York City resident, was arrested in Virginia, was extradited to New Jersey and was released after spending 13 days in jail. The charges were ultimtaely dropped.
At the trial level, the Superior Court judge dismissed Brunson's suit against Affinity and Wilcox on motion practice without the case having reached a jury, labeling the incident as an innocent mistake and finding that Wilcox did not willfully withhold or misrepresent information in his grand jury testimony. Brunson timely appealed the granting of summary judgment in defendants' favor, arguing that there were disputed factual issues and that a grand jury indictment did not preclude a claim for malicious prosecution.
The appeals court agreed with Brunson, ruling that financial institutions and fraud investigators have a duty to "pursue with reasonable care their responsibility for protecting not only their own customers, but non-customers who may be victims of identity theft." In the absence of any reported New Jersey legal precedent supporting a duty of care in this particular setting, the 3-judge appellate panel was persuaded to follow the holding of the Alabama Supreme Court in similar decision where that court ruled that a bank could be liable for the false arrest of someone whose stolen identity was used to open an account. Patrick v. Union State Bank, 681 So.2d 1364 (Ala. 1995).
The New Jersey Appellate Division concluded that the trial court erroneously granted summary judgment in favor of Affinity and Wilcox, noting that the facts surrounding whether Wilcox had probable cause to file criminal complaints against Brunson were in dispute, and that the mere existence of a grand jury indictment against Brunson does not bar Brunson's claim for malicious prosecution.
In this particular case, Brunson v. Affinity Federal Credit Union, A-4439-06, the bank employed a fraud and loss prevention specialist (Mr. Wilcox) who happened to be a certified fraud examiner. According to the appellate record, an imposter posing as the plaintiff Brunson opened an Affinity account in Brunson's name using Brunson's social security number and an out-of-state driver's license bearing Brunson's date of birth and a Paterson, NJ address (misspelled with two "t's".) Within days of opening this account, the imposter successfully cashed $9,506 in phony checks drawn against a corporation known as Viva International Group.
The bank's fraud and loss prevention specialist Wilcox was provided with surveillance tapes and still photographs depicting the imposter as a black male about five feet six inches tall. Wilcox verified that Viva International Group did not employ anyone named "Brunson" on its payroll nor was there any "Brunson" authorized to sign company checks. Wilcox also learned that Brunson had a criminal record. Hastily reaching the conclusion that Brunson was responsible for this fraud, Wilcox filed two criminal complaints against Brunson for uttering a forged document and for theft by deception and testified before the grand jury that ultimately indicted Brunson. Critically, Wilcox didn't bother to review police photographs of Brunson to compare against the surveillance images maintained by the bank, nor did he show the bank's tellers who dealt with the imposter a photo of Brunson to confirm the identification. Had he taken these extra precautions, Wilcox would have learned that Brunson is six foot three, nine inches taller than the imposter.
Brunson, a New York City resident, was arrested in Virginia, was extradited to New Jersey and was released after spending 13 days in jail. The charges were ultimtaely dropped.
At the trial level, the Superior Court judge dismissed Brunson's suit against Affinity and Wilcox on motion practice without the case having reached a jury, labeling the incident as an innocent mistake and finding that Wilcox did not willfully withhold or misrepresent information in his grand jury testimony. Brunson timely appealed the granting of summary judgment in defendants' favor, arguing that there were disputed factual issues and that a grand jury indictment did not preclude a claim for malicious prosecution.
The appeals court agreed with Brunson, ruling that financial institutions and fraud investigators have a duty to "pursue with reasonable care their responsibility for protecting not only their own customers, but non-customers who may be victims of identity theft." In the absence of any reported New Jersey legal precedent supporting a duty of care in this particular setting, the 3-judge appellate panel was persuaded to follow the holding of the Alabama Supreme Court in similar decision where that court ruled that a bank could be liable for the false arrest of someone whose stolen identity was used to open an account. Patrick v. Union State Bank, 681 So.2d 1364 (Ala. 1995).
The New Jersey Appellate Division concluded that the trial court erroneously granted summary judgment in favor of Affinity and Wilcox, noting that the facts surrounding whether Wilcox had probable cause to file criminal complaints against Brunson were in dispute, and that the mere existence of a grand jury indictment against Brunson does not bar Brunson's claim for malicious prosecution.
"Because of the foreseeability of harm, fairness and public policy require financial institutions to be accountable when they negligently put individuals at risk by failing to exercise reasonable care in undertaking investigations of fraud claims," the Appellate Panel remarked ... [even when the person is not an account holder].Only a civil jury can determine "whether the grand jury would have indicted plaintiff [Brunson] if it had been presented with photographs of the imposter along with the disparity in their [physical] descriptions," the 3-Judge Appellate Panel concluded. In remanding the case back to the trial court for further proceedings, Brunson will have to demonstrate the following elements to sustain a civil claim for malicious prosecution arising out of a criminal prosecution: (i) the ciminal proceeding was instituted by the defendant, (ii) the criminal proceeding was actuated by malice, (iii) there was no probable cause for the proceeding, and (iv) the proceeding was terminated in his favor.
Comments
Cheers, Catch You Later