MEMORANDUM DECISION

DENNY CHIN, District Judge

In this diversity action for breach of warranty, The Bank of Nova Scotia ("BNS") sues HSBC Bank USA ("HSBC") for repayment of losses arising from a stolen check in the amount of $224,706.50. Both parties move for summary judgment under Fed.R.Civ.P. 56. For the reasons that follow, BNS's motion is granted and HSBC's motion is denied.

BACKGROUND

A. The Facts

The facts are drawn from the pleadings, various affidavits and depositions, and the parties' Rule 56.1 statements. They are largely undisputed and are summarized as follows:

BNS is a bank organized and existing under the laws of Canada, with its principal place of business in Canada. (Def.'s 56.1 Statement ¶ 1). HSBC is a bank organized under the laws of the United States, with its principal place of business in New York. (Id. ¶ 2). Pfizer Canada ("Pfizer") has been a BNS customer since the 1970s, and in 2003 maintained account balances of $20-30 million. (Id. ¶ 3; LeBlanc Dep. at 15). For all relevant time periods, BNS forwarded Pfizer monthly bank statements relating to the Pfizer account that were accompanied by the checks paid for the particular time period. (Def.'s 56.1 Statement ¶ 4).

On or about November 28, 2001, Pfizer issued a check drawn from its Pfizer account at BNS dated November 28, 2001 to one of its vendors named Dendrite International, Inc. ("Dendrite") in the amount of $224,706.50. (Id. ¶ 5). Apparently, the check was stolen by an unknown party and the named payee on the check was altered from Dendrite to an entity known as 1422 Putnam Avenue Reality [sic] Corp. ("Putnam"). Id. ¶ 6). An unknown individual deposited the altered check into Putnam's account at HSBC on or about December 24, 2001. (Id.; DiPaolo Decl. Ex. E). Upon deposit, HSBC presented the check to BNS for payment, and BNS ultimately paid the check and deducted tendered amount from Pfizer's account. (Def.'s 56.1 Statement ¶ 7). HSBC credited Putnam's account, and Putnam started withdrawing the proceeds from the check. (Rabinowitz Aff. Ex. 2). By March 22, 2002, just three months after the check was deposited, Putnam's account had a balance of only $2,644.93 (it never again rose from that amount). (Def.'s 56.1 Statement ¶ 21). On May 22, 2002, Putnam's account balance was $29.16, and on July 17, 2002, Putnam's account had a negative balance of $2,060.84. (Id. ¶¶ 22, 23). This check was the third check stolen from Pfizer and altered to show Putnam as the payee. (Paiva Dep. at 17-20). The first two checks are not at issue in this case and were submitted to the FBI prior to Pfizer's discovery of the check intended for Dendrite. (See id. at 18-19).

At some point in January or February 2002, Dendrite contacted Pfizer and inquired about payment of a certain invoice. (Def.'s 56.1 Statement ¶ 8). Pfizer was under the impression that the stolen check had been used to pay Dendrite's invoice. (Id.). After investigating, Pfizer learned that the check had been altered and that Dendrite did not receive the proceeds of the check. (Id.).

Pfizer did not notify BNS about the altered check until approximately August 2002, and did not provide written notice until December 2002. (Id. ¶ 9; Pl.'s Rule 56.1 Counter-Statement ¶ 9). According to Pfizer, the delay was a result of Pfizer waiting for the FBI to return the first two altered checks so that Pfizer could submit a single claim to BNS for all three checks. (Paiva Dep. at 19, 21-23). In addition, BNS had previously informed Pfizer that it required an original check to process a claim for crediting Pfizer's account. (Id. at 19). Pfizer was not concerned about the delay because its legal counsel informed it that it had one year to make a claim for the stolen check. (Id. at 25-26). As a result, Pfizer was under the impression that it had until January 2003 to file a claim with BNS for the check at issue in this case. (Id.).

After BNS received notice from Pfizer that the check had been altered, it requested an affidavit from Pfizer. (Id. at 24). Pfizer provided an affidavit to BNS on or about December 11, 2002. (Pl.'s 56.1 Statement ¶ 18). Thereafter, BNS submitted a claim to HSBC for reimbursement for the altered check. (Rabinowitz Aff. Ex. 4). On January 7, 2003, HSBC denied BNS's claim because there was "a twelve month delay in the pursuit of [the] claim." (Id. Ex. 5). At that point, BNS had not reimbursed Pfizer for the check. (LeBlanc Dep. at 46-48).

Over the next several months, Pfizer, BNS, and HSBC negotiated and discussed the circumstances surrounding the altered check. (Pl.'s 56.1 Counter-Statement ¶ 15). Most banks in Canada, including BNS, require a customer to enter into a verification agreement, or financial services agreement ("FSA") which is a contractual arrangement governing a bank's relationship with its customer. (LeBlanc Dep. at 63). Neither Pfizer nor BNS was able to find any FSA governing their relationship during 2002. (Id.). In addition, although it is standard practice for BNS to require its customers to sign a FSA, neither party could locate or recall whether such an agreement had ever been entered into between BNS and Pfizer. (Id.). Because there was apparently no FSA governing Pfizer and BNS's ongoing relationship, in or about August 2004, Pfizer and BNS entered into a FSA that governs their relationship going forward. (Id. at 15). The applicable portion of the current FSA states:

You must review each statement carefully to check and verify the entries. If you believe that there are any errors or omissions, you must tell us in writing within thirty days of our mailing the statement or making it available for pick up electronically or in person. If you don't tell us of any errors or omissions within thirty days, you have acknowledged that . . . all amounts charged to your account are valid. . . . After the thirty days you can not claim, for any purpose, that any entry on your statement is incorrect and will have no claim against us for reimbursement relating to an entry, even if the instruction charged to your account was forged, unauthorized or fraudulent.

(DiPaolo Decl. Ex. H at 4). During the negotiations concerning the altered check, Pfizer threatened litigation against BNS. (Pl.'s 56.1 Counter-Statement ¶ 15). BNS was concerned about its on-going business relationship with Pfizer, and did not believe it had any legal basis for not reimbursing Pfizer. (Id.). In November 2003, BNS reimbursed Pfizer for the amount of the altered check. (Id.). HSBC continued to deny BNS's claim for repayment of the check due to Pfzier's delay. B. Procedural History

BNS filed a complaint in this action on February 27, 2004, alleging five claims of breach of warranty against HSBC. Specifically, BNS alleges that HSBC breached its warranty to BNS by (1) presenting the altered check for payment on behalf of one who did not have good title to the check, (2) presenting the altered check to BNS for payment, (3) transferring the altered check for payment on behalf of one who did not have good title to the check, and receiving payment thereof, (4) transferring the altered check with an unauthorized signature to BNS for payment and receiving payment thereof, and (5) presenting the altered check to BNS for payment and receiving payment thereof. (Compl. ¶¶ 21-37). The sides completed discovery and on March 28, 2005, both parties moved for summary judgment.

DISCUSSION

A. Choice of Law 1. New York Law Applies to the Relationship Between BNS and HSBC

In analyzing the choice of law question in a diversity case, a federal court applies the law of the forum state. Cap Gemini Ernst Young, U.S., LLC v. Nackel, 346 F.3d 360, 365 (2d Cir. 2003); Tri-State Employment Servs., Inc. v. Mountbatten Sur. Co., 295 F.3d 256, 261 (2d Cir. 2002); Campbell v. Metropolitan Prop. Cas. Ins. Co., 239 F.3d 179, 186 (2d Cir. 2001). In New York Uniform Commercial Code cases ("UCC") such as this one, UCC § 4-102(2) determines which forum's law governs the dispute between BNS and HSBC. Section 4-102(2) provides:

The liability of a bank for action or non-action with respect to any item handled by it for purposes of presentment, payment or collection is governed by the law of the place where the bank is located. In the case of action or non-action by or at a branch or separate office of a bank, its liability is governed by the law of the place where the branch or separate office is located.

UCC § 4-102(2); see also Zurich American Ins. Co. v. Dah Sing Bank, Ltd., No. 03 Civ. 7778 (DLC), 2004 WL 1328215, at *6 (S.D.N.Y. June 15, 2004). Because it is undisputed that the altered check was deposited at HSBC in New York, HSBC is located in New York, and the parties do not dispute its applicability, New York law governs the dispute between BNS and HSBC. Zurich, 2004 WL 1328215, at *6.

2. Canadian Law Applies to BNS's Relationship with Pfizer

HSBC argues that the UCC, and not the law of Canada, should apply to BNS's relationship with Pfizer. (See Def.'s Mem. at 5). Because BNS seeks recovery under the UCC, HSBC asserts it should be entitled to all of the defenses available under the UCC. (See id.). The difficulty with HSBC's position is that the UCC — the very law that it argues applies — provides that the liabilities between a bank and its customer are governed by the law of the location of the bank. See UCC § 4-102(2). In this case, both BNS and its customer, Pfizer, are located in Canada. HSBC puts forth no case law or reasoning as to why § 4-102(2) should not be applied in this case, except to argue that it loses the benefits of certain defenses available under New York law. I reject this argument. The UCC applies to this action, and under the choice of law provisions of the UCC, the laws of Canada apply to BNS's relationship with Pfizer. See id. B. Applicable Law 1. Summary Judgment Standard

Summary judgment will be granted when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986). Accordingly, the court's task is not to "weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial."Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Summary judgment is inappropriate if, resolving all ambiguities and drawing all inferences against the moving party, there exists a dispute about a material fact "such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248-49 (citing Adickes v. S.H. Kress Co., 398 U.S. 144, 159 (1970));accord Bay v. Times Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir. 1991).

To defeat a motion for summary judgment, however, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus., 475 U.S. at 586. There is no issue for trial unless there exists sufficient evidence in the record favoring the party opposing summary judgment to support a jury verdict in that party's favor. Anderson, 477 U.S. at 249-50. As the Court held in Anderson, "if the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. (citations omitted).

2. JCC — Breach of Warranty

When a collecting bank, meaning a bank that accepts a check for deposit and seeks money from the payor bank, presents a check to the payor bank, it warrants that it has good title to the check.See UCC § 4-207; Kous-TV, Inc. v. Spot Time Ltd., 599 F. Supp. 9, 92 (S.D.N.Y. 1984). The relevant portions of the UCC provides:

(1) Each . . . collecting bank who obtains payment or acceptance of an item . . . warrants to the payor bank . . . that

(a) he has a good title to the item or is authorized to obtain payment or acceptance on behalf of one who has a good title; and

. . .

(c) the item has not been materially altered

. . .

(2) Each . . . collecting bank who transfers an item and receives a settlement or other consideration for it warrants to his . . . collecting bank who takes the item in good faith that

(a) he has a good title to the item or is authorized to obtain payment or acceptance on behalf of one who has a good title and the transfer is otherwise rightful; and

(b) all signatures are genuine or authorized; and

(c) the item has not been materially altered; and

. . .

(4) Unless a claim for breach of warranty under this section is made within a reasonable time after the person claiming learns of the breach, the person liable is discharged to the extent of any loss caused by the delay in making claim.

UCC § 4-207.

The UCC places the initial risk of a loss from a forged or stolen check on the bank, not on the customer whose signature is forged. See UCC § 4-401; Zambia Nat'l Commercial Bank Ltd. v. Fidelity Int'l Bank, 855 F. Supp. 1377, 1386 (S.D.N.Y. 1994);Fergang v. Flanagan, 665 N.Y.S.2d 785, 787 (Sup.Ct. 1997). The UCC does recognize, however, several conditions that shift the risk of loss to the customer. See, e.g., UCC §§ 3-406 (customer negligence), 3-404 (ratification), and 4-406 (timeliness). One of these conditions is if the customer fails to examine bank statements in a timely manner. Id. § 4-406. The relevant portions of the UCC provides:

(1) When a bank sends to its customer a statement of account . . . the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or any alteration on an item and must notify the bank promptly after discovery thereof.

(2) If the bank establishes that the customer failed with respect to an item to comply with the duties imposed on the customer by subsection (1) the customer is precluded from [recovering its losses from the bank]

. . .

(4) Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer . . . discover and report his unauthorized signature or any alteration on the face or back of the item or does not within three years from that time discover and report any unauthorized indorsement is precluded from asserting against the bank such unauthorized signature or indorsement or such alteration.

(5) If under this section a payor bank has a valid defense against a claim of a customer upon or resulting from payment of an item and waives or fails upon request to assert the defense the bank may not assert against any collecting bank or other prior party presenting or transferring the item a claim based upon the unauthorized signature or alteration giving rise to the customer's claim.

UCC § 4-406.

3. Canadian Law

Both Pfizer and BNS are located in Canada, and so under the UCC, Canadian law governs their relationship. See UCC § 4-102(2). Under the applicable Canadian statute of limitations, called prescription, Pfizer had three years to recover from BNS. (See Levine Decl. at 7-8). While the UCC imposes a duty on customers to inspect bank statements, Canadian law imposes no such duty. (See id. at 7).

C. Application

In early 2002, Pfizer learned that the check had been stolen and altered. Yet, it waited until August 2002 to notify BNS orally of the altered check and did not do so in writing until December 2002. Notwithstanding this delay, BNS eventually reimbursed Pfizer for the amount of the check. HSBC argues that BNS should not have done so, because Pfizer failed to meet its obligations under UCC § 4-406 to "exercise reasonable care and promptness" in reviewing its bank statements and reporting any unauthorized transactions or alterations on any checks.

The issue presented is whether BNS waived any defenses under UCC § 4-406 that it could have invoked against Pfizer due to Pfizer's delay in providing notice of the altered check. If a defense under § 4-406 was waived, then BNS cannot seek reimbursement from HSBC. See UCC § 4-406(5). If, however, BNS did not waive any valid defense, then HSBC must reimburse BNS because HSBC, as the collecting bank, incorrectly warranted to BNS that it had good title to the altered check. I conclude as a matter of law that no reasonable jury could find that BNS had a valid defense against Pfizer because under Canadian law, Pfizer had three years to seek recovery from BNS and it had no duty to inspect its bank statements. (See Levine Decl. at 7). Hence, HSBC must reimburse BNS for the altered check.

Most banks in Canada apparently side step the three-year limitations period under Canadian law through verification agreements or FSAs that impose duties on customers similar to those required by the UCC. (See Levine Resp. Decl. at 2 (discussing cases); LeBlanc Dep. at 63). In this case, Pfizer and BNS had a relationship spanning nearly three decades, and had either lost the applicable FSA or were operating without one. Absent such an agreement, BNS's only legal option was to reimburse Pfizer for the forged check, notwithstanding the delay in reporting on the part of Pfizer. Thus, by reimbursing Pfizer, BNS did not waive any defenses available to it under Canadian law. Hence, HSBC is required, under UCC § 4-406, to reimburse BNS for the altered check.

HSBC argues that because BNS's standard FSA and the agreement that governs BNS and Pfizer's relationship today impose a duty on Pfizer to review bank statements and report errors in writing within thirty days, the Court should "infer" a similar agreement between the parties in 2002. (See Def.'s Mem. at 7-8). While it is true that the current FSA imposes such a duty on Pfizer, there is no evidence as to what, if any, duty Pfizer was under in 2002. HSBC argues that "it is not imaginable" that a FSA did not exist in 2002 between BNS and Pfizer, yet it submits no evidence to support this position. (Id. at 6). The only evidence (which is not controverted) is that neither Pfizer nor BNS could locate or was aware of any contractual agreement, FSA or otherwise, that governed their relationship in 2002. Thus, summary judgment is appropriate because the only conclusion a reasonable jury could reach is that BNS did not have any available defense based on Pfizer's delay in notifying BNS of the altered check. Thus, summary judgment is granted in favor of BNS and denied as to HSBC.

CONCLUSION

For the foregoing reasons, plaintiff's motion for summary judgment alleging breach of warranty against defendant is granted, and defendant's cross-motion is denied. The Clerk of the Court shall enter judgment in favor of BNS against HSBC for $224,706.50 with pre-judgment interest from November 24, 2003, the date BNS paid Pfizer, and also with costs.

SO ORDERED.