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Supreme Court to hear Shelby County suit

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Attorney claims bank negligent in not detecting check fraud on his account

By Lisa King

A Shelbyville attorney who sued a bank for not noticing that his secretary was embezzling millions of dollars from him will see his case reviewed in the state Supreme Court.

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Oral arguments will be heard at 10 a.m. Friday at the Kentucky Supreme Court in Frankfort in the case of Mark Dean vs. Commonwealth Bank & Trust Co., a suit Dean filed in January 2009, accusing the bank of a violation of a Kentucky Uniform Commercial Code, as well as aiding and abetting fraud and illegal activity and breach of duty of ordinary care.

In 2008, Dean learned that his secretary, Jody Wills, who had been with him since he opened his office in 1998, had diverted more than $800,000 from his clients’ escrow accounts, thefts that had been occurring from 2003 to 2005.

Wills wrote herself duplicate payroll checks and paid her credit card bills and mortgage payments on her home with funds stolen from the accounts.  To cover up those thefts, she floated checks among numerous banks that involved more than $2.6 million.

Dean’s suit states that the bank “acted negligently and fraudulently in allowing his former secretary to unlawfully divert his funds for her own use, acting in concert with Commonwealth by it providing generic counter-checks that did not have Dean's pre-printed personal information on the checks.”

The lawsuit was dismissed in 2010 by Shelby Circuit Judge Charles Hickman in a summary judgment, an action a judge uses only when he or she determines the facts of the case to be undisputed.

In this case, the fact that the bank mailed bank statements to Dean each month, containing photocopies of all checks, swayed Hickman.

Dean took his suit to the Kentucky Court of Appeals, where in 2011 it also was dismissed, with the court writing that Dean should have been aware of Wills’ check-kiting scheme.

Dean then petitioned the Supreme Court and last year was granted a discretionary review, which is the authority of the court to decide if a case merits being heard. Only about 10 percent of cases presented to the Supreme Court are heard.

Dean, represented by a team of attorneys including Laurence J. Zielke, Nancy J. Schook and Karen D. Campion of Louisville, said he thinks that the Supreme Court’s willingness to grant his suit a discretionary review is a good sign.

 “There’s something in that case that they want to address,” he said. “Our hope is that they find a genuine issue of material fact that needs to go to a jury.”

Dean said if the Supreme Court rules in his favor, he could get another trial.

“What the court would do is overrule the circuit court’s order and direct that it go all the way back to Shelby County for trial; just reopen the case and start all over,” he said.

 

Check-kiting scheme

Wills, who pleaded guilty and had received probation for the theft of $720,000 from Dean’s escrow account, was jailed at the beginning at 2012 for falling behind on her restitution schedule of $600 per week to Dean. When Wills went up before the state parole board in March, the board not only granted her parole but also lowered her restitution payment.

Between 2003 and 2005, Wills used money she stole from Dean’s escrow account to pay her credit cards and home mortgage. Lawyers are required to maintain escrow accounts so that their clients’ retainers and legal fees are separated from normal cash flow.

To cover up those thefts, she floated checks among numerous banks that amounted to more than $2.6 million. When she left Dean’s employ, his escrow account was $840,000 in the negative.

Dean’s suit against Commonwealth Bank says that the bank gave Wills blank counter checks, which the suit said was an action outside normal and customary banking practices, and that the bank knew – or should have known – that Wills was engaged in suspicious activity.

The suit said the bank should have contacted him to make sure the blank counter checks were authorized and that the bank was negligent in not advising him of the check-cashing scheme, the document said.

The suit also said the bank failed to contact Dean about very large amounts of money and the repeated use of counter checks.

 

Hickman’s ruling

Dean said he did not want to criticize Hickman for his decision, but he felt there were other issues to be considered.

“What Judge Hickman is saying is that he just didn’t feel like there were any genuine issue of material fact in the case, and I understand that,” he said, adding that he could see where someone would think that if a person had reviewed their bank statements and didn’t catch anything wrong, it would be their fault.

Dean said that Wills not only kept bank statements from him, but even if he had seen them, he would not have been able to detect the fraud.

“Her check-kiting scheme was so sophisticated, it took months for the people who audited the accounts to find it out. It took six months for trained professionals to figure it all out,” he said.

 

Bank says it’s not at fault

John T. McGarvey of Louisville, attorney for Commonwealth Bank, said that in his oral argument this Friday he intends to point out that the bank was not negligent in its duty toward Dean.

“The bank’s claim, that has been sustained thus far by the Shelby Circuit Court and by the Kentucky Court of Appeals, is that the person who signed the checks was an authorized signer on the account, that when the bank paid the checks, it returned every one of the checks…and the bank was never notified that the checks had been improperly paid,” he said.

“Now, was that person operating outside of what that person should have been doing in regards to his or her duty to the entity for which he or she was an authorized signer? The bank has no way of knowing that. That’s why the checks get returned back to the customer, so the customer can look at what got paid and say, ‘Hold on a minute. Something’s wrong here.’ That never happened.”

Could Dean take his suit higher if the Kentucky State Supreme Court rules against him?

McGarvey says he thinks not.

“Technically, the only appeal from the state’s highest court would be to the United States Supreme Court, and you’d have to have a Constitutional issue to get you there,” McGarvey said.