Page 27 - John Hundley 2011

Sharp Thinking

No. 54 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. November 2011

Lawyers Tagged With Losses For Accepting

Checks Later Shown To Be Counterfeit

Scams Promulgated Via The Internet Make E-Client Relations Risky

Lawyers who accept checks and then promptly wire-transfer part of the funds to clients or others out of
the country are exposed to substantial losses, a series of recent federal court cases in Northern Illinois
demonstrates.

In one case a law firm was left with a shortfall of $126,312.13
after it accepted deposit of what turned out to be a counterfeit
check and wired the bulk of the “check” funds to a Japanese LAWYERS
“supplier” on a real estate renovation project. Denkewalter &
Assocs., Ltd. v. Cole Taylor Bank, 2011 WL 3164460 (N.D. Ill. @
2011). In another, a lawyer lost some $269,500 after he accepted
deposit of a counterfeit check in a marital settlement and wire-
transferred some 90% of that amount to the “client” overseas. RI$K
Fifth Third Bank v. Hirsch, 2011 WL 2470643 (N.D. Ill. 2011).

The cases demonstrate two of many variations on a common
theme: the lawyer accepts a client, usually via the internet, and then is asked to accept and apportion out
a large check, which usually purports to be a cashier’s check and looks official. Typically, the lawyer
keeps a portion of the “check” funds for his fee and wire transfers the remainder to a bank account
overseas. Only after the wire transfer is completed does he learn the check was counterfeit. And
by then it is too late, because wire transfers are effective immediately.

In Hirsch, the lawyer was sued by his bank after dishonor of the
counterfeit check left his trust account with a substantial overdraft. He
impleaded the bank on which the bogus check was purportedly drawn
(Citibank), arguing that it had not dishonored the check in time and
invoking §§ 4-104(a)(10) and 4-302(a)(1) of Illinois’ enactment of the
Uniform Commercial Code (810 ILCS 5) (“UCC”). Under those provisions,
a bank is obligated to give notice of dishonor “on the next banking day
after the banking day on which (Citibank) received the check.” See also
Oak Brook Bank v. Northern Trust Co., 256 F.3d 638 (7th Cir. 2001).

Rejecting the lawyer’s calendar approach, and citing Federal Reserve Board Regulation CC, the court
held that Citibank had not been untimely because Saturdays and Sundays do not count as “banking
days”. So holding, the court did not have to face the impact of UCC §§ 4-302(b), which preserves
defenses for breach of warranty of presentment. See also UCC §§ 3-416, 3-417, 4-207, 4-208.

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
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