Page 28 - John Hundley 2011

In Denkewalter, in contrast, the counterfeit item was drawn on the account of a Canadian law firm at a
Canadian bank. The purported payor bank in Nova Scotia was apparently not covered by the United
States’ next-banking-day rules and did not give notice of dishonor until some time had passed. At issue in
Denkewalter was whether the law firm’s bank gave timely notice of dishonor to the law
firm after that bank received notice of dishonor from the Canadian bank. The rules
governing the required notice (set forth in the Fed’s Reg. CC) required notice to the
customer by midnight of the next business day after notice was received by the
customer’s bank. However, because the firm had wired out the money before its
bank was given notice of the dishonor, no claim for damages was proper.
Moreover, the court said, the bank’s erroneous oral advice that the counterfeit
check had been collected did not make it a guarantor of the check. Federal claims
were dismissed, and the law firm sent back to state court for hearing of its state law claims.

These cases follow last year’s decision in Clausen Miller, P.C. v. Citibank, N.A., 738 F.Supp.2d 850
(N.D. Ill. 2010), in which a Chicago law firm sued Citibank for alleged untimely dishonor of a $372,640
“check” purportedly drawn upon it. Though most of the discussion in Clausen is on extraneous issues, the
decision stands for the propositions that notice of dishonor may be timely when given by electronic means
or when return of the physical check to the intermediary bank is timely.

Several observations may be offered as a result of these cases.

First, acceptance of such a check places the lawyer in an ethical dilemma. Under the
typical understanding, the majority of the “check’s” funds are the client’s, and the lawyer
properly will feel a duty to comply with the client’s instructions regarding those funds. See
Illinois Rule of Professional Conduct 1.15(d) (“a lawyer shall promptly deliver to the client
or third person any funds or other property that the client or third person is entitled to
receive”).

Second, it is too late to respond to that dilemma once one has accepted the check.
The check typically purporting to be a cashier’s check, the
“client” will expect that it be treated as same-day funds and
the non-fee portion wired out promptly, and the above-quoted ethical rule
will appear applicable.

Third, to protect oneself through a blanket policy of not accepting
internet-initiated or international matters is reminiscent of cutting off one’s
nose to spite one’s face. Global commerce creates many legitimate
representation opportunities, and electronic communications are now the
norm.

Likely the best policy is to make clear to such prospective clients at the outset that the firm will not
accept payments on anyone else’s behalf via such “checks”, and then enforce that policy. If a “settling
defendant” or other payer insists on making payment through the firm, insist that the funds be submitted
by wire transfer. Merely announcing those policies makes most illegitimate “clients” lose interest.

--John T. Hundley, 618-242-0246, Jhundley@lotsharp.com

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