Ontario Co. lawsuit alleges Chase failed to detect fraudulent checks

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Ontario County has filed suit against JP Morgan Chase Bank, National Association, alleging the financial institution is liable for repayment of just over $100,000 because it processed 21 “obviously” fraudulent checks.

In a complaint filed in state Supreme Court in Ontario County on Thursday, the county claims Chase Bank ignored warning signs and continued to cash fraudulent checks, even though the plaintiff provided written and oral notification of probable fraud.

The nearly two dozen checks were presented at an unspecified Chase Bank branch or branches between May 31 and July 12 and totaled $100,350, court papers say.

The first indication of possible fraud occurred on June 10, when the bank notified Ontario County of two potentially improper checks. Each check exceeded the amount “typically drawn on the county account, reflected obviously incorrect addresses for both the county and the payee, and had non-sequential check numbers that were plainly inconsistent with legitimate checks drawn on the county account,” the complaint says.

The county, in the complaint, says it immediately notified the bank in writing that the checks were fraudulent and pointed out the many indicators that the checks were counterfeit (incorrect addresses, inconsistent numbers and amounts).

The complaint states that even after the bank was notified in writing about the fraudulent activity, 15 more checks drawn on the county account and exhibiting similar “if not identical” indications of fraud were cashed by Chase.

The lawsuit alleges that while the bank “acknowledged that the 21 checks charged against the county account “were unauthorized and fraudulent, Chase was denying the county’s claim due to an unspecified ‘lack of appropriate fraud protection which could have prevented this type of fraud.’ ”

The bank said it would assist in attempted recovery of the money, but only if the county agreed to a “Hold Harmless and Indemnity Agreement,” court papers say.

The county’s complaint says Chase Bank “failed to exercise ordinary care,” as required by Article 4 of the New York Uniform Commercial Code, and is thus liable for the funds.

“Chase owed a duty of care to the county to ensure that only authorized checks were charged against the county account,” the lawsuit says. “… Chase not only failed to exercise this duty of care, but also allowed unauthorized and fraudulent checks to be charged against the county account even after obtaining actual knowledge of the fraudulent activity. In this regard, Chase’s conduct rose to the level of gross negligence.”

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