Summary
The Illinois Supreme Court held that a futures commission merchant (broker-dealer) qualifies as a "bank" under Article 4A of the Illinois UCC (810 ILCS 5/4A-105(a)(2)) when it processes wholesale wire transfers on behalf of customers, even if it does not offer traditional checking services. The court adopted a liberal construction of "engaged in the business of banking," relying on the official comments and federal precedent to include financial institutions that regularly handle funds transfers. The case was remanded to determine whether the parties implemented a commercially reasonable security procedure and whether the bank acted in good faith under section 4A-202.
Topics
Practice areas
Questions Presented
- Whether defendant qualifies as a 'bank' under article 4A of the Illinois UCC (810 ILCS 5/4A-105(a)(2)) and is therefore subject to liability for unauthorized funds transfers.
- Whether the trial court erred in excluding plaintiffs' exhibit No. 11, and whether this court should decide the remaining issues of commercial reasonableness, good faith, and damages.
Key quotations
“The comment states, in pertinent part, that the term 'bank' 'includes some institutions that are not commercial banks' and that '[t]he definition reflects the fact that many financial institutions now perform functions previously restricted to commercial banks, including acting on behalf of customers in funds transfers.'” (¶ 33)
“If the legislature had intended to limit the definition of a bank to financial institutions providing checking services, it could have easily done so.” (¶ 30)
Factual background
Plaintiffs, a physician and his professional corporation, maintained commodity futures trading accounts that were transferred to defendant, a registered futures commission merchant. A hacker gained access to Whitaker's email account and sent unauthorized wire transfer requests to defendant, who processed four transfers totaling $374,960 to a bank in Poland using BMO Harris Bank's online portal. Defendant sent confirmation emails to Whitaker's compromised email account. Whitaker discovered the unauthorized transfers when he received an account statement with an incorrect balance and later statements reflecting the transfers.
Procedural history
Plaintiffs sued defendant in the circuit court of Cook County for fraudulent concealment and refund of unauthorized wire transfers under article 4A of the UCC. The trial court granted summary judgment on the fraudulent concealment counts and, after a bench trial, entered judgment for defendant on the article 4A claims, finding defendant was not a bank. The appellate court affirmed. The Illinois Supreme Court allowed plaintiffs' petition for leave to appeal.
Remand instructions
The cause is remanded to the circuit court for further proceedings on the remaining issues, including whether the parties implemented a commercially reasonable security procedure and whether defendant processed the payment orders in good faith, and the amount of damages.