ACH Case: Headed to Trial?

Legal Experts Debate Whether EMI, Comerica Will Settle
ACH Case: Headed to Trial?
A series of motions in the Experi-Metal vs. Comerica Bank case indicate that this high-profile ACH fraud conflict could be headed for a jury trial.

Both sides have filed recent motions, with EMI requesting a jury trial and Comerica asking for a non-jury trial.

The case is set to be heard after mid-November, with Nov. 16 being set as the final pre-trial conference date.

Legal experts differ over whether this case will actually proceed to trial, or if a settlement will be reached first, as happened with the PlainsCapital Bank vs. Hillary Machinery ACH fraud dispute.

Christopher Loeffler, an attorney at Kelley, Drye and Warren's Privacy and Information Security practice, believes the EMI/Comerica case may get its day in court. "Each side appears to have dug in its heels and is proceeding as if the case will be determined by a trial."

However, David Navetta, a partner at InfoSec Law Group disagrees. "Although I can't quote statistics, it is generally known that the vast majority of cases -- probably 80 to 90 percent -- do not go to trial," he says. Even setting a trial date does not necessarily mean anything. What a trial date tends to do, he says, is get the parties focused on the strength of their positions and chances of victory or defeat. "That focus, and the risks inherent in trial, often times lead to settlement (sometimes up to the very day of the trial)."

Jury Trial: Pros and Cons

Comerica was sued for losses sustained in ACH fraud by its business customer, Experi-Metal, in December 2009. Although the parties and court may have additional extensions to the trial schedule for good cause, a trial date in Jan/Feb 2011 appears reasonable to Loeffler.

Although the filings are somewhat unexpected, Loeffler says, given the contractual provision waiving a jury trial, "The rationale behind EMI's filing is not surprising. Each party is posturing and seeking to make its argument before the most favorable decision-maker."

EMI appears to believe that its story is most persuasive when heard by a jury. "Jurors themselves undoubtedly have deposited their own money in banks, and generally assume that these funds are securely protected, Loeffler says. "Some jurors may even have experienced a data security incident, identity theft, or bank fraud."

Comerica, though, appears to believe that its story is best positioned by avoiding an emotional appeal and a potentially subjective jury determination of what is considered "good faith," instead focusing on the contractual relationship between the parties and how the contract was not breached during the incident. That argument is best made before a judge, Loeffler says.

Navetta also sees that "Comerica would probably prefer a more 'technical' analysis of the case that would likely come from a judge (and some would say that a jury is more prone to persuasion through non-technical legal arguments)." In this case, since there are a lot of technical legal and contract issues to resolve, "a jury trial favors EMI because EMI can focus on some of the intangible aspects of this case," Navetta says.

Navetta says he always bets against a case going to trial. "It really depends on the motives of the parties and their strategy," he says. "I could see this case going forward closer to trial and then settling."

ACH Fraud Updates

In other news on recent ACH fraud incidents:

PATCO Seeks to Educate: Mark Patterson, president of PATCO, a Maine-based construction company that fell victim to ACH fraud after its bank, Ocean Bank, allowed more than $500,000 of fraudulent ACH transactions to go through last year, says the legal fight continues. (Note: People's United Bank is the bank corporation that owns Ocean Bank.)

Patterson says the bank requested that all of the court documents in the case be sealed, citing private information may be exposed. PATCO filed a motion for summary judgment in the court on August 27. People's United also has filed a motion for summary judgment. Patterson says he expects an answer by late September as to whether either motion is accepted, or when the two sides are headed to a court date. Depositions have been taken from People's United and PATCO prior to the summary judgment motions being filed.

PATCO has also raised awareness among the building trade with a cautionary article describing its case in a national building and construction magazine. "We want to get the word out to the home building community that cyber fraud is a growing threat, and any business could fall victim to what happened to us," Patterson says. He says there needs to be a legislative solution so that firms can obtain similar legal protections that consumers enjoy, "so that they won't be forced to absorb losses when their online banking credentials are hijacked by cyber thieves."

The challenge of ACH fraud is that most people are simply unaware that this kind of crime is happening. "The larger issue is that when explained the process, all the small business owners I speak with assume that it is covered by FDIC insurance," Patterson says. "I warn everyone I speak with about the dangers of ACH fraud. They are all simply astonished that banks are not responsible."

Village View Escrow Mulls Options: The news about the fraud incident that hit a California escrow company hasn't changed. The Redondo Beach-based Village View Escrow had its business accounts looted by cyber criminals earlier this year, says owner Michelle Marisco. Since the attack happened in March and $465,000 was taken, Marisco says it was difficult to keep the business going, and after having to take out loans to cover the losses, "I am still working with my attorney as far as filing a lawsuit against the bank," she says. "I am working very hard to keep on going forward."

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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