Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court for the County of Los Angeles. David A. Workman, Judge; James E. Satt, Judge; and Richard C. Neal, Referee. Los Angeles County Super. Ct. No. BC252316
Burton V. McCullough for Plaintiffs and Appellants.
Barton, Klugman & Oetting, Charles J. Schufreider and Mark A. Newton for Defendant and Respondent Wells Fargo Bank, N.A.
Pillsbury Winthrop Shaw Pittman, Kevin M. Fong, Jennie L. La Prade and Daphne P. Bishop for Third-Party Deponents and Respondents Bank of the West, Comerica Bank and Union Bank of California, N.A.
OPINION
COOPER, P. J.
SUMMARY
L&B Real Estate, a limited partnership, and William Little, its general partner, filed a complaint against Wells Fargo Bank based on Wells Fargo’s payment of more than $774,000 in forged checks drawn on two successive L&B accounts. The forgeries were perpetrated by L&B’s office manager, who managed to embezzle about $1.6 million in this fashion between 1998 and 2001. Judgment was entered for Wells Fargo after a referee found L&B’s claims were barred by California Uniform Commercial Code section 4406, which, under certain conditions, precludes a customer who fails promptly to examine its statements and report unauthorized signatures from asserting claims for further forgeries by the same wrongdoer. L&B and Little contend the referee erred. They also contend that, with respect to one of the two accounts on which the checks were forged, no agreement existed to have disputes decided by a referee. In addition, they challenge several adverse discovery rulings and the award of expert witness fees to Wells Fargo.
All further statutory references are to the California Uniform Commercial Code, unless otherwise specified.
We affirm the judgment, concluding (1) there was no error in any of the referee’s rulings; and (2) while L&B did not agree to resolve disputes involving the first of the two accounts by judicial reference, it did so agree with respect to the second account, and the doctrine of collateral estoppel bars it from relitigating the issues decided by the referee.
LEGAL, FACTUAL AND PROCEDURAL BACKGROUND
We briefly describe the statutory principles relating to payment of forged checks before turning to the facts of the case.
1. The relevant statutory principles.
A bank is liable for paying a check containing a forged drawer’s signature, whether or not the bank exercised due care in doing so. The bank’s liability, however, may be limited by section 4406. Section 4406 requires a customer promptly to examine statements provided by the bank to determine whether any payment was unauthorized, and promptly to notify the bank of unauthorized payments the customer reasonably should have discovered. (§ 4406, subd. (c).) If the bank proves the customer failed to comply with these duties, then the customer is precluded from asserting, against the bank, the customer’s unauthorized signature by the same wrongdoer on any other item paid in good faith by the bank, “unless the customer notified the bank no more than 30 days after the first forged item was included in the monthly statement . . . .” (Espresso Roma Corp. v. Bank of America (2002) 100 Cal.App.4th 525, 529 (Espresso Roma); § 4406, subd. (d)(2).) The customer may avoid application of this preclusion by proving that the bank failed to exercise ordinary care in paying the item and that the bank’s failure to do so contributed to the loss. (§ 4406, subd. (e).) “Ordinary care” is defined in terms of reasonable commercial standards. In the case of banks using automated check processing systems, “reasonable commercial standards” do not require the bank to examine the instrument, if its failure to do so does not violate its prescribed procedures, and if its procedures do not vary unreasonably from general banking usage. (§ 3103, subd. (a)(7).) If the bank has failed to exercise ordinary care in paying the item, then the loss is allocated between the customer and the bank.
With this background in mind, we describe the facts leading to this appeal.
2. Factual and procedural background.
William Little and his wife own L&B Real Estate, a limited partnership which owns and manages real property. Little is L&B’s sole general partner.
L&B has banked with Wells Fargo since 1993, when Little opened a basic business checking account for L&B (the first L&B account). At the beginning of February 2001, due to an unrelated incident involving counterfeit checks, L&B’s first account was closed and another business account was opened (the second L&B account). Little was the only person authorized to sign checks on either account. As to the first L&B account, Little signed a signature card, acknowledging receipt of a business account agreement stating the governing terms. Similarly, Little signed an application for the second L&B account, acknowledging receipt of a copy of the terms and conditions governing the account (the “2000 disclosure statement”). As to the second L&B account, Little agreed in the application to be bound by the terms of the dispute resolution program, including arbitration, described in the 2000 disclosure statement. The terms governing the first L&B account, by contrast, contained no dispute resolution procedure. However, in October 2000, after its merger with NorWest Bank, Wells Fargo mailed its customers a copy of the 2000 disclosure statement, which provided that it superseded all prior agreements and that continued use of an account would show the customer’s consent to the new agreement.
Between 1998 and 2001, approximately $1.6 million was embezzled from L&B by means of forged checks drawn on the two accounts: $206,093 in 1998; $532,282 in 1999; $651,802 in 2000, and $272,000 in 2001. The evidence was overwhelming that L&B’s office manager, Hyun Moon Lee, was the embezzler. Lee was hired in 1998 by John Ko, an independent contractor who supervised L&B’s accounting and office management functions. Ko did not check Lee’s references, or inquire about the gap between his last employment in 1996 and his application to work for L&B. (Ko found out after the embezzlement was discovered that Lee had previously been convicted of grand theft by embezzlement.)
Wells Fargo sent L&B monthly statements enclosing all items paid on its accounts (an average of several hundred items per month). Because the number of checks exceeded the capacity of its automated handling system, L&B’s items were hand-stuffed in self adhesive or gum label envelopes. Lee apparently intercepted the incoming envelopes, removed the forged checks, and resealed the envelopes before giving them to Little, so the envelopes appeared to have been unopened. (L&B’s standard procedures required the bank statement envelopes to be delivered to Little unopened.) Little faithfully reviewed the statements and the cancelled checks, but did not reconcile the statements or otherwise confirm that each paid item listed in the statement was also included among the cancelled checks. L&B’s office procedures, prepared by Ko, included steps for reconciliation of bank statements and returned items, but L&B personnel did not follow those procedures, and L&B had no regularly prepared quarterly or annual financial statements.
Little finally discovered the embezzlement, and gave notice to Wells Fargo on April 13, 2001. L&B and Little (collectively, L&B) filed this lawsuit on June 13, 2001, seeking recovery for the Bank’s payment of forged checks totaling more than $774,000 during the year immediately preceding the filing of the lawsuit. (Claims for the other forgeries were barred by section 4406, subdivision (f), which precludes claims if the customer does not discover and report the unauthorized signature within one year after the bank’s statement is made available to the customer.) The final list of forged checks for which L&B sought recovery totaled $567,582.90 drawn on the first L&B account (from April 2000 through January 2001), and $187,000 drawn on the second L&B account (from February to April 2001).
Wells Fargo filed a motion to compel judicial reference. Wells Fargo relied on the 2000 disclosure statement, which provided that, if a court action were commenced and neither party requested arbitration, the dispute was to be heard by a reference under Code of Civil Procedure section 638. That section permits the appointment of a referee if the court finds a reference agreement exists between the parties. In its motion, Wells Fargo incorrectly asserted that the second L&B account was opened in 1993, rather than in 2001, and quoted the alternative dispute resolution agreement in the second account application. L&B opposed the motion, but did not mention the inaccuracy in Wells Fargo’s motion.
L&B’s opposition cited Badie v. Bank of America (1998) 67 Cal.App.4th 779 as controlling. Badie held that a provision allowing the Bank to change the terms of a credit card agreement with its customer did not authorize it to add a completely new term requiring disputes to be resolved by arbitration, without the consent of the customer. (Id. at pp. 803-806.) Wells Fargo replied by arguing that Badie did not apply because L&B expressly agreed to an alternative dispute resolution program (failing to note this express agreement did not occur until the second account was opened in February 2001). L&B apparently did not enlighten the trial court on the point.
The trial court (Judge David Workman) found a general reference agreement existed, and granted the Bank’s motion. David Eagleson was appointed referee in December 2001. After his death the parties stipulated to the appointment of Richard C. Neal, who was appointed referee in February 2004.
Meanwhile, L&B, now represented by different counsel, issued deposition subpoenas to several third-party banks (Bank of the West, Comerica Bank – California, and Union Bank of California), seeking information on their procedures and policies concerning the processing of checks for payment by automated means. The third-party banks moved to quash the subpoenas as burdensome and oppressive, asserting they called for information L&B could obtain by retaining its own expert witnesses and from other sources. L&B also sought to depose Jack Thomas, a consulting expert Wells Fargo had engaged in this case. Wells Fargo sought a protective order precluding the deposition, as expert designations had yet to be made. The referee granted both the third-party banks’ motion to quash and Wells Fargo’s motion to preclude Thomas’s deposition.
A month or so before the scheduled trial of the case, L&B sought to compel Wells Fargo to submit to “persons most knowledgeable” depositions and to produce documents concerning types and numbers of accounts serviced, numbers of checks processed, past fraud losses, and other matters relating to the reasonableness of Wells Fargo’s procedures. The referee denied L&B’s motion, finding the discovery sought was irrelevant and, while technically timely, that it would be burdensome to require a substantial wave of discovery shortly before trial on a case filed four years earlier and on which discovery in the same areas had been undertaken more than a year previously.
Hearings were held before the referee over several days in November 2005. In addition to the facts adduced about the forgeries and L&B’s office and accounting practices and procedures, described above, evidence was presented, principally by expert witnesses, about Wells Fargo’s automated payment system and its procedures for detecting fraudulent checks. In particular:
· Banks historically sought to detect forged checks by manual inspection of all checks, and later set dollar thresholds for “outsorting” a subset of checks for inspection.
· In the early 1990s Wells Fargo and others pioneered use of computerized fraud detection systems. These systems outsorted checks for inspection based on specified rules or “fraud filters,” such as checks with serial numbers that duplicated previously-negotiated checks, checks with serial numbers substantially out of the current sequence of numbers in the customer’s account, and checks for amounts above a specified threshold (the “high-dollar” threshold). These systems were much more effective in reducing fraud than the earlier method that employed only dollar thresholds for outsorting checks.
· The experts agreed the “duplicate” and “out of sequence” rules are not effective in the detection of “bookkeeper” fraud, because a bookkeeper can assure his forged checks are in sequence and do not have duplicate numbers. Outsorting checks above the high-dollar threshold, however, will select forged checks for inspection if they exceed the specified threshold.
· Wells Fargo’s high-dollar threshold was $35,000 during part of the period of the L&B forgeries, and was reduced to $25,000 during the period. None of L&B’s forged checks were outsorted for signature verification, as the largest check forged was for $20,000.
· L&B’s banking expert, John Britt, testified Wells Fargo should have set its threshold at $10,000 (or at $5,000 with an option to the customer to pay an extra charge for application of the lower threshold). He testified that other banks with comparable presences in California, such as Washington Mutual, had a $10,000 threshold. Britt excluded Bank of America (which had a $50,000 threshold) and several other large institutions from consideration because they did not operate or were not centered in California.
· Wells Fargo, on the other hand, presented evidence of Bank of America’s $50,000 high-dollar threshold, as well as evidence that each of two banks which merged into Wells Fargo in the late 1990s (First Interstate Bank and NorWest Bank) also had $50,000 thresholds. Wells Fargo’s banking expert, Paul Carrubba, testified that Wells Fargo’s threshold was within the range of general banking practice.
· Wells Fargo maintained a digital specimen of Little’s signature on its computer system, available to its fraud checkers for comparison in the event a check were outsorted for inspection. The referee stated that the signatures on checks forged by Lee appeared to him to be closely similar to the digital specimen of Little’s signature. Carrubba opined the signatures on the forged checks were sufficiently similar to the digital specimen that a check reviewer of average skill would not have detected the forgery.
After post-trial briefing, the referee issued a tentative statement of decision. The referee concluded that:
· L&B’s challenge to the propriety of the trial court’s order referring the matter to the referee for decision was precluded by Code of Civil Procedure section 642, which provides that objections to a reference “must be heard and disposed of by the court, not by the referee.”
· L&B’s claims were barred under section 4406, subdivisions (c) and (d)(2). The referee observed that if Little had reconciled L&B’s bank statements, or even compared the check numbers on the statement with those on the enclosed checks, the fraud would have been quickly discovered, and reasonable care required such scrutiny.
· Wells Fargo should not share the loss with L&B. The preponderance of the evidence showed that Wells Fargo’s fraud procedures, including its $25,000 and $35,000 high-dollar thresholds for outsorting checks for inspection, did not vary unreasonably from general banking usage. The referee stated that Britt’s focus solely on California banking practice was not in accord with the statute, and in any event the relevant “area” for national banks doing a national business was the nation, not a single locality.
· A further ground for rejecting L&B’s claims was that the preponderance of the evidence showed that, even if forged checks had been outsorted, personnel reviewing outsorted checks would not have detected the forgeries.
Judgment was entered on the referee’s statement of decision. L&B’s motions for a new trial and to set aside the judgment were denied, as was its motion to tax costs with respect to expert witness fees. L&B filed a timely appeal.
DISCUSSION
We conclude the referee correctly determined that section 4406 precluded L&B from asserting any claims against the bank, and did not err in the discovery rulings or in the award of expert witness fees. We further conclude that L&B’s claims relating to forgeries on the first L&B account were not properly subject to resolution by judicial reference. However, because the parties agreed to judicial reference as the method for deciding claims on the second L&B account, the reference was proper as to those claims, and principles of collateral estoppel preclude L&B from re-litigating factual issues identical to those determined against it by the referee. Because all issues relating to the forgeries on either account are identical, the judgment entered on the referee’s decision must be affirmed.
We discuss first the referee’s decision as it applies L&B’s claims of unauthorized payments on the second L&B account, which were clearly subject to the reference agreement, and then turn to L&B’s claims relating to the first account.
I. The second L&B account.
We conclude, as did the referee, that (1) L&B reasonably should have discovered the unauthorized payments and notified the bank when the forgeries began in 1998, and (2) Wells Fargo exercised ordinary care in paying the forged items. Consequently, the section 4406 preclusion barred L&B’s claims on the second L&B account. L&B seeks to avoid this conclusion, which is supported by substantial evidence, by contending that the section 4406 preclusion applies separately to each of the two accounts. If that were so, then even if L&B should have notified the bank in 1998 of the forgeries on the first account, its failure to do so would not bar it from asserting forgeries by the same wrongdoer on the second L&B account. We reject L&B’s interpretation of the statute (part A, post), and then turn to the issues decided by the referee (parts B and C, post).
A. The section 4406 preclusion applies to any unauthorized signature by the same wrongdoer “on any other item paid in good faith by the bank,” not merely on any other item paid on the same account.
Section 4406, subdivision (c) states:
“If a bank sends or makes available a statement of account or items …, the customer shall exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized … because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer shall promptly notify the bank of the relevant facts.”
If the bank proves the customer failed to comply with the duties described in subdivision (c), the customer is precluded from asserting the customer’s unauthorized signature “by the same wrongdoer on any other item paid in good faith by the bank . . . .” (§ 4406, subd. (d)(2).)
L&B contends that “law and logic” demand that the section 4406 preclusion be applied only to the account on which the forged check is written. If this were so, then L&B’s claim for forgeries on the second account, opened in February 2001, were timely reported to the Bank. But the words of the statute do not support L&B’s contention; logic is to the contrary; and the only “law” L&B cites consists of non-specific statutory references to “the account” in the singular. L&B insists that, if the drafters of the Code had intended for the preclusion to extend beyond the account on which the forged check was written, “it is certain” they would have so provided in the statute. We are not persuaded. Let us review:
The only statutory reference L&B cites is section 4406, subdivision (a), which begins by stating, “A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid ….”
· First, the text of the statutory preclusion itself has no account limitation. It is expressly limited to the same wrongdoer, not to the same account. It states that if the customer has failed to comply with its duty to examine the bank’s statements and notify the bank of unauthorized payments, then:
“[T]he customer is precluded from asserting [¶] . . . [¶] [t]he customer’s unauthorized signature … by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer … and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.” (§ 4406, subd. (d)(2), emphasis added.)
· Second, the purpose of section 4406, as summarized in its title (“Customer’s duty to discover and report alteration or unauthorized signature”), is to require the customer promptly to review statements and canceled checks to detect forgeries. As the official comments to the Code point out, section 4406 makes the customer responsible for losses incurred from the payment of additional forged checks by the same wrongdoer because those losses arise from the customer’s failure to examine its statement and notify the bank. We see no reason why the Code drafters would have wished to excuse a customer from the consequences of failing to review his statements merely because the wrongdoer forges checks on more than one of the customer’s accounts. The point is that the customer could have prevented further forgeries by that same wrongdoer merely by exercising reasonable care in reviewing his statement of account.
“The rule of subsection (d)(2) follows pre-Code case law that payment of an additional item or items bearing an unauthorized signature or alteration by the same wrongdoer is a loss suffered by the bank traceable to the customer's failure to exercise reasonable care … in examining the statement and notifying the bank of objections to it. One of the most serious consequences of failure of the customer to comply with the requirements of subsection (c) is the opportunity presented to the wrongdoer to repeat the misdeeds. Conversely, one of the best ways to keep down losses in this type of situation is for the customer to promptly examine the statement and notify the bank of an unauthorized signature or alteration so that the bank will be alerted to stop paying further items.” (1990 Official Comments on Unif. Com. Code, comment 2 to § 4406.)
In short, we see no basis in the statute, in logic, or in the underlying statutory objective for concluding that a customer’s failure to notify the bank of forgeries on one account should not bar it from asserting subsequent forgeries – whether on the same account or any other of the customer’s accounts – “by the same wrongdoer on any other item paid in good faith by the bank . . . .” (§ 4406, subd. (d)(2).)
B. The referee did not err in concluding that L&B failed in its duty to exercise reasonable care and promptness in examining its statement and items to determine whether any payment was unauthorized.
L&B argues that, because Little examined L&B’s bank statements promptly, and looked at every item in the envelope to determine whether there were any unauthorized payments, Little acted reasonably and therefore complied with the customer’s duty as described in section 4406. L&B argues it was “not L&B’s fault that the statement envelopes, when they were received by Little, did not have the forged checks in them – that was the fault of [Wells Fargo] for using the type of envelope it used and for not warning L&B that the envelopes could be opened and resealed without detection.” We cannot agree.
Again, we look first to the statute. After describing the customer’s duty to “exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized,” it states:
“If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer shall promptly notify the bank of the relevant facts.” (§ 4406, subd. (c).)
It is undisputed that Wells Fargo provided regular monthly statements that contained all of the forged checks when the statements arrived at L&B’s post office box. After the arrival of the statements, and before Little’s review, Lee removed the forged checks. However, once the bank has provided its statements, its responsibility ends and the customer’s begins. Thus: “The fact that the employee of a bank’s customer has concealed a forgery does not obviate the customer’s responsibility to examine his own bank statements.” (Kiernan v. Union Bank (1976) 55 Cal.App.3d 111, 115 (Kiernan).) In Kiernan, the court found plaintiff’s claim was barred, regardless of fault by either party, by the absolute preclusion of the one year statute of limitations within which a customer must notify the bank of any unauthorized signatures. The point made, however, is the same. “The statement of account is made available whenever the bank . . . sends or mails the statement to the customer . . . .” (Ibid.) “Section 4406 places a burden upon a bank customer to examine his statements regularly and discover any forgeries or alterations on any item included therein so long as the bank has met its duty of making available the statement of account and items paid to the customer.” (Ibid., emphasis added.) Wells Fargo complied with its duty to send a statement of account and all cancelled checks to L&B, and thereafter it was L&B’s duty “to examine [its] statements . . . and discover any forgeries . . . .” (Ibid.)
L&B contends Kiernan, in which the customers’ bank statements were intercepted by their own agent – a dishonest bookkeeper – does not apply, because L&B did not entrust the examination of the bank statement and cancelled checks to its dishonest office manager, but rather to Little. This is a distinction without a difference. In both cases, the defalcating employee has intercepted the statements provided by the bank. In Kiernan, the court concluded that, because the customer had imputed notice of its bookkeeper’s activities by reason of the employment relationship, “they cannot shift their burden of inquiry from themselves to [the bank] in order to invoke an estoppel against the running of the statute of limitations.” (Kiernan, supra, 55 Cal.App.3d at p. 117.) Likewise here, L&B is the customer, and it cannot shift its duty to examine “the statement or items provided . . . .” (§ 4406, subd. (c).)
L&B’s contention that Wells Fargo was at fault for using envelopes with self-adhesive flaps, which could be opened and resealed by a dishonest employee, is without merit. The bank’s duty is “to exercise ordinary care in paying the item ….” (§ 4406, subd. (e).) It is only if the bank fails to exercise ordinary care “in paying the item” that it may be required to share the customer’s loss when the customer fails to discover and notify the bank of unauthorized signatures. (See Espresso Roma, supra, 100 Cal.App.4th at p. 534 [assertions that bank mishandled investigation of forgeries and incorrectly changed an account address were irrelevant because they related to events occurring long after the items were paid].)
In short, the mere fact that the person examining the statement (here, Little) may have acted reasonably in assuming all the checks were in the envelope when it was given to him by an L&B employee does not mean that L&B complied with its duty under section 4406. The question is whether the customer – L&B – “should reasonably have discovered the unauthorized payment . . . .” (§ 4406, subd. (c).) Further, we agree with the referee that Little did not exercise reasonable care by simply looking at the checks, without reconciling the statement, or comparing the check numbers on the statement with those enclosed with it, or even merely comparing the number of items enclosed with the number of checks listed on the statement. Any of these procedures would have resulted in discovery of the forgeries in short order. The unfortunate fact is that Little did none of these things. In addition, L&B either failed to follow its own procedures, which included steps for reconciliation of bank statements and returned items, or entrusted that duty to a defalcating employee. But the concealment of a forgery by the customer’s employee does not obviate the customer’s duty, which is “to examine his statements regularly and discover any forgeries . . . .” (Kiernan, supra, 55 Cal.App.3d at p. 115.) The fact is that Wells Fargo provided a complete statement and all cancelled checks to L&B, and “based on the statement or items provided,” L&B should have discovered the unauthorized signatures and notified the bank. (§ 4406, subd. (c).) Consequently, L&B’s assertion that it complied with its duties under section 4406, subdivision (c), is without merit.
C. The referee properly concluded that Wells Fargo did not fail to exercise ordinary care in paying the forged checks.
Under section 4406, even though L&B failed in its duty to notify the bank of the forgeries, the loss may be shared by the Bank if L&B could prove that Wells Fargo (1) failed to exercise ordinary care in paying the checks, and (2) its failure contributed to the loss. (§ 4406, subd. (e).) “Ordinary care” is defined generally in section 3103, subdivision (a)(7):
Section 4406, subdivision (e) states: “If subdivision (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with subdivision (c) and the failure of the bank to exercise ordinary care contributed to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under subdivision (d) does not apply.”
“‘Ordinary care’ in the case of a person engaged in business means observance of reasonable commercial standards, prevailing in the area in which the person is located, with respect to the business in which the person is engaged.”
However, section 3103’s definition of ordinary care continues with an express specification of “reasonable commercial standards” in the case of a bank using automated systems to process checks for payment. The definition continues:
“In the case of a bank that takes an instrument for processing for collection or payment by automated means, reasonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the bank’s prescribed procedures and the bank’s procedures do not vary unreasonably from general banking usage . . . .” (§ 3103, subd. (a)(7).)
L&B contends that Wells Fargo did not exercise ordinary care in paying the forged checks, because its $35,000/$25,000 high-dollar threshold did not comport with the threshold “used by other banks of comparable size in the area concerned,” and that the use of national banks for comparison purposes was contrary to California law. Again, we find no error in the referee’s conclusion to the contrary.
Wells Fargo contends the issue, properly stated, is whether its overall automated check processing system, which utilizes a number of fraud filters in addition to the high-dollar threshold, comported with general banking usage.
The testimony on the issue included (1) Britt’s testimony that Washington Mutual and several other local banks (banks with head offices or corporate centers in California) had outsorting thresholds of $10,000 or less, and (2) Carrubba’s testimony that Bank of America and other similar large national banks had thresholds of $50,000 or higher, and that Wells Fargo’s threshold was within general banking practice for large banks. The referee found Carrubba’s testimony persuasive. L&B attacks that conclusion, arguing, in effect, that it was improper to compare Wells Fargo – a national bank doing a national business – to other national banks doing national business, such as Bank of America. But nothing in the statute precludes such a comparison.
When the statute describes “reasonable commercial standards” for banks using automated check processing systems, it does not expressly confine “general banking usage” to “the area in which the person is located” – as it does in the general definition of “ordinary care.” And, even if it did, “the area in which the person is located” in Wells Fargo’s case is a nationwide area, not just California. In any event, it is difficult to see any basis for excluding similar large, nationwide banks in determining whether the outsorting procedures of a nationwide bank (Wells Fargo) “vary unreasonably from general banking usage . . . .” (§ 3103, subd. (a)(7).)
L&B flatly states this is “contrary to California law,” and cites Story Road Flea Market, Inc. v. Wells Fargo Bank (1996) 42 Cal.App.4th 1733 (Story Road).) Story Road, however, did not directly address the issue. Story Road recounted the history of the definition of “ordinary care” prior to the 1992 amendments to the California Uniform Commercial Code (when the Code was amended to include the specific definition of ordinary care, in the context of automated check processing, that appears in section 3103 today). Story Road held that the defendant bank had made an adequate showing that the procedures it used in dealing with forged checks “comported with ‘general banking practice’ in the area.” (Id. at p. 1743.) Story Road did not discuss the meaning of the term “in the area in which the person is located,” and certainly did not preclude a comparison with banks that operate nationwide.
L&B insists that Wells Fargo’s check paying procedures must be tested against those used “by other banks of comparable size in the area concerned,” and that the only such banks were those identified by Britt. (Britt asserted Washington Mutual was comparable based on $65 billion in deposits compared with $70 billion in deposits for Wells Fargo, and that Bank of America’s domestic deposit total was $311 billion. Other banks Britt identified as comparable had deposit bases much smaller ($25 to $30 billion) than Wells Fargo’s.) But the statute does not refer to “banks of comparable size.” The statute says that the bank’s procedures may not “vary unreasonably from general banking usage ….” The official comments to the Code state that under the section 3103 definition of ordinary care, sight examination is not required if the bank’s procedure “is reasonable and is commonly followed by other comparable banks in the area.” (1990 Official Comments on Unif. Com. Code, comment 4 to § 4406.) Size is certainly a relevant factor in identifying comparable banks, as the court recognized in Espresso Roma, supra, 100 Cal.App.4th at p. 532:
Wells Fargo points out in its brief that Britt was comparing Bank of America’s national total deposits of $311 billion to Wells Fargo’s California total deposits of $70 billion.
“Size is a relevant factor in identifying comparable businesses because, in the banking context, a reasonable commercial standard for processing checks at a small bank with a relatively small volume of checks, and personal familiarity with its customers, would be quite different than what is reasonable for a large bank that processes upwards of 1,000,000 checks per day.” (Id. at p. 532 [bank’s expert declaration “established that the reasonable industry standard prevailing in the area for similarly sized banks was to bulk process checks through an automated system that employs fraud filters, but does not include sight review of individual checks for signature verification”].)
And, while Espresso Roma emphasized the size factor – and rejected a claim that the bank’s practices had to be consistent with those of all banks in the area (Espresso Roma, supra, 100 Cal.App.4th at p. 532) – the case does not suggest that size is the only factor in identifying comparable banks. Carrubba testified, for example, that Washington Mutual was primarily a consumer-based bank, in contrast to the corporate or commercial customer base of Wells Fargo and Bank of America. Carrubba also testified that Wells Fargo had had its pioneering, rules-based fraud filtering system in place for ten years by the time of these events, while Washington Mutual had no system until it acquired one through mergers with other consumer-based savings and loan institutions. Carrubba testified that the longer banks have rule-based fraud filter systems in place, the higher they tend to set their high-dollar thresholds, because the banks become comfortable with the system and find that it does, in fact, detect fraudulent transactions much better than the earlier method of using only a dollar threshold. And Britt testified that Wells Fargo is currently the second largest deposit bank in the country.
Carrubba also pointed out: “A bank obviously is in the business to make a profit. And losses come right off that bottom line, and it’s a cost to the bank. So it’s in the bank’s benefit to identify as much fraud as it possibly can benefit (sic), at the same time balancing out the cost with the costs associated with it. So the banks establish their own parameters based on their loss experience and based on the various types of accounts that they have.”
Britt rejected Carrubba’s identification of Bank One and U.S. Bank as comparable to Wells Fargo because they “are not California-based and their operations are more outside of California than within the state.”
The bottom line is that neither the statute nor case law provides any basis for rejecting comparisons with large national banks in establishing “general banking usage.” Nor does common sense. Substantial evidence supported the referee’s conclusion rejecting Britt’s analysis and finding, consonant with Carrubba’s testimony, that Wells Fargo’s fraud procedures, including its high-dollar threshold, did not vary unreasonably from general banking usage.
D. Even if Wells Fargo had deviated from general banking usage, L&B did not establish that the deviation contributed to its loss.
When, as here, the customer should reasonably have discovered the forgeries, and the preclusion in section 4406, subdivision (d)(2) applies, the loss may be allocated between the customer and the bank only if the customer proves both that the bank failed to exercise ordinary care in paying the item and that the failure contributed to the loss. (§ 4406, subd. (e).) In this case, the referee expressly found that even if the forged checks had been outsorted for inspection, typical bank personnel reviewing outsorted checks would not have detected the forgeries. Substantial evidence – including testimony from Paul Carrubba and from Howard Rile, L&B’s handwriting expert (confirmed by the referee’s own observation of the forged signatures and the digital exemplar of Little’s signature) supported the referee’s conclusion. Carrubba testified that the signatures on the forged checks were sufficiently similar to the digital specimen that a check reviewer of average skill would not have detected the forgery. Rile testified that Wells Fargo’s clerks would not have detected the forgeries without an actual signature for comparison (rather than the digital specimen Wells Fargo and other banks regularly used).
L&B argues Rile testified that if Wells Fargo had properly trained and equipped its employees to compare signatures, the forgeries could have been caught. But L&B’s characterization of Rile’s testimony is misleading; he merely testified that Wells Fargo could have trained someone to do so – not that its actual training was improper or unreasonable. L&B also cites Britt’s opinion that Wells Fargo’s exclusive use of on-the-job training by its own personnel did not meet the industry standard, because other major financial institutions had written procedures for signature verification, and some brought in experts like Rile to give training presentations. But the referee was free to reject Britt’s opinion and credit the testimony of Carrubba and Rile. In short, substantial evidence supports the conclusion that the forgeries would not have been detected even had the forged checks been outsorted. Thus, even if the bank’s $35,000/$25,000 high-dollar threshold constituted a failure “to exercise ordinary care in paying the item,” that failure did not cause L&B’s loss because the forgeries were too good to be detected by personnel following standard bank procedures.
Rile answered the question, “[c]ould they have trained someone to have picked them [the forged signatures] up?” as follows: “To determine they were forgeries? Yes, I assume that if they hired someone with the requisite skills and provided them with adequate training, and the individuals knew what they were looking at and had the equipment and had the material they needed, under those conditions, yes, I would expect someone to detect forgeries, because they would be looking at the execution and design of the questioned signatures in comparison to the execution and design of known signatures. [¶] And in this situation here, the overall design is – is consistent with the signature card, but the execution, I would say, is defective. Some of the letter designs are defective.”
II. The first L&B account.
We turn now to L&B’s claims with respect to the forgeries on the first L&B account. L&B contends its claim for breach of contract for paying forged checks drawn against the first L&B account was not subject to alternative dispute resolution. On this point, we agree with L&B. However, because Wells Fargo was entitled to have the claims on the second L&B account decided by the referee, and those claims were so decided, principles of collateral estoppel preclude L&B from litigating identical issues relating to the first L&B account in a court action.
A. L&B’s claims relating to the first L&B account were not subject to alternative dispute resolution.
L&B did not agree to any form of alternative dispute resolution when it opened the first L&B account. And, under Badie v. Bank of America, supra, 67 Cal.App.4th 779 (Badie), the bank cannot simply add a dispute resolution procedure to the account terms without the account-holder’s consent.
In Badie, the court held that no agreement to arbitrate was formed when the Bank of America, relying on a clause in its credit card agreement giving it the unilateral right to change its customer account agreements at any time, added an arbitration clause by means of a bill stuffer. The court held the bank’s unilateral right to modify the agreement did not allow the bank to add an entirely new kind of term, on a subject not addressed in the original agreement and not within the reasonable contemplation of the parties when they entered the agreement, particularly where the new term deprives the other party of the right to a jury trial. (Id. at p. 796.) So, under Badie, Wells Fargo’s claim that L&B agreed to the resolution of disputes by a referee when it continued to use the first account after Wells Fargo sent L&B the 2000 disclosure statement in October 2000 is without merit.
In the 1993 account agreement, Wells Fargo “reserve[d] the right to change the charges, fees, or other terms described in this Agreement.” The agreement also stated that if L&B continued to use the account after being notified of changes, “you are agreeing to be bound by the changes.” As in Badie, the 1993 agreement contained no provision on dispute resolution, so when Wells Fargo added such a term, it was not merely “chang[ing] the charges, fees, or other terms described in this [1993] Agreement.”
Wells Fargo contends Badie does not apply for two reasons. First, in Badie, the bank sent a one-page addendum to its agreement along with its monthly bill, whereas in this case, Wells Fargo sent an entirely new 70-page agreement along with its monthly statement. We fail to see any substantive difference; the fact remains that there was no provision governing dispute resolution in the original agreement, so Wells Fargo was not free unilaterally to add an arbitration provision without L&B’s consent. Second, Wells Fargo claims that, unlike in Badie, the “consent by continued use” provision was in the original 1993 agreement. We cannot see the relevance of this distinction either. Consequently, the mere fact that Wells Fargo sent L&B the 2000 disclosure statement with new terms in October 2000, and L&B continued to use its account, does not amount to an agreement to the alternative dispute resolution terms Wells Fargo unilaterally added to the account terms. L&B did not agree to those terms until it opened the second L&B account in February 2001.
Wells Fargo also asserts that, unlike Badie, in this case “the procedure for amending the original agreement was contained in the original agreement and was not added by new provisions.” Wells Fargo is mistaken; in Badie, the bank “relied upon the change of terms provision included in the original account agreements, which gave the bank the unilateral right to modify the agreements after customers entered into them.” (Badie, supra, 67 Cal.App.4th at pp. 785-786.) The same is true in this case.
Wells Fargo also argues that the account agreement entered into in February 2001, by its terms, applies to all disputes regarding all accounts, past and present. It cites these provisions:
B. Principles of collateral estoppel preclude relitigation of identical issues relating to the first L&B account.
While L&B did not agree to have disputes over its first account decided by a judicial reference, this does not mean it is now entitled to a jury trial on those claims. L&B did agree to resolve disputes over the second account by judicial reference, and the referee decided those disputes. If we were to return this case to the trial court for a decision on the claims on the first account, Wells Fargo would seek dismissal of the lawsuit based on collateral estoppel principles. We agree with Wells Fargo that, because the issues in each case are identical, L&B is precluded by collateral estoppel from relitigating the issues decided by the referee. While ordinarily the issue of collateral estoppel would be decided in the first instance by the trial court, the issue is one of law subject to independent review (Roos v. Red (2005) 130 Cal.App.4th 870, 878), and the parties have briefed the issue in this appeal. Under these circumstances, it would be pointless and a waste of judicial resources to return this case to the trial court for a ruling.
We reiterate the background facts. When Wells Fargo brought its motion to compel judicial reference, L&B opposed the motion, but failed to enlighten the trial court as to the differences in the parties’ agreements on the two accounts. Nor did it at any time seek reconsideration of the trial court’s order of reference. While it argued to the referee that the referee should refuse to hear the claim involving the first L&B account, the Code of Civil Procedure does not permit the referee to do so. (Code Civ. Proc., § 642 [“[o]bjections … to a reference … must be heard and disposed of by the court, not by the referee”].) And, L&B specifically stated in its trial brief that the referee, if he determined the first L&B account was not subject to reference, “may proceed to hear the claim regarding the Second L&B Account.”
On appeal, L&B asserts that, because the claim relating to the first L&B account was not subject to reference, the trial court had no authority to appoint the referee and the referee had no authority to hear that claim; the referee’s decision on that claim is a “nullity”; and the judgment is “void.” But the referee had authority to decide the claims on the second account, and did so without objection from L&B. The referee – who had no reason to, and did not, distinguish between the two accounts – issued his decision finding that L&B’s claims were barred by section 4406. That decision is not a “nullity,” as it was necessary for the resolution of L&B’s claims on the second L&B account.
While the referee’s decision cannot be applied directly to L&B’s claims on the first account, L&B may not relitigate the issues decided by the referee. Under the doctrine of collateral estoppel, a judgment on the merits in a prior suit “precludes relitigation of issues actually litigated and necessary to the outcome of the first action.” (Parklane Hosiery Co. v. Shore (1979) 439 U.S. 322, 326, fn. 5, 324 [a party who has had issues of fact adjudicated against it in an equitable action may be collaterally estopped from relitigating the same issues before a jury in a subsequent legal action brought against it by a new party]; Roos v. Red, supra, 130 Cal.App.4th at p. 879.) Collateral estoppel applies “when (1) the party against whom the plea is raised was a party . . . to the prior adjudication, (2) there was a final judgment on the merits in the prior action and (3) the issue necessarily decided in the prior adjudication is identical to the one that is sought to be relitigated.” (Roos v. Red, supra, 130 Cal.App.4th at p. 879 [affirming a trial court decision giving collateral estoppel effect to factual findings of a bankruptcy court on liability issue, precluding defendant in subsequent wrongful death action from contesting the liability issue before the jury].) Courts also consider whether the party against whom the earlier decision is asserted had a full and fair opportunity to litigate the issue. (Id. at p. 880.)
In this case, all of the requisites for the application of the doctrine of collateral estoppel are met: the same parties, a final judgment on the merits, identical issues, and a full and fair opportunity to litigate the matter. L&B asserts several reasons why the doctrine should not be applied, but we cannot agree with any of them.
First, L&B asserts “it is impossible that any part of the referee’s decision could be valid and have any effect of any nature whatsoever.” L&B reiterates its claim that the trial court had no power to compel judicial reference, so that the referee’s decision was a “nullity” and the judgment was “void.” But it cites no authority for this proposition, and we are aware of none. The trial court certainly had the power to compel a judicial reference, and if it erred in doing so with respect to L&B’s cause of action on the first L&B account, L&B assisted in the error by failing to enlighten the trial court on the differences between the two accounts. Even had the trial court been so enlightened, it still would have had the power to compel judicial reference on the second cause of action.
L&B suggests that one must “speculate that the referee would have decided the claim for payment of forged checks drawn against the Second L&B Account as if the facts involved in that claim were the identical facts involved in the claim for payment of forged checks drawn against the First L&B Account . . . .” No speculation is involved. The facts are the same. Whether one considers the checks drawn against the first account or the checks drawn against the second account, the fact is that the referee found that L&B should reasonably have discovered the unauthorized payments – which began in 1998 – and therefore was barred by the statute from asserting further forgeries by the same wrongdoer.
Second, L&B asserts that if the referee had tried only the claim for payment of forged checks drawn against the second L&B account, L&B would have prevailed on that claim, because the section 4406 preclusion applies only to unauthorized payments on the same account. This contention is erroneous as a matter of law, as we have determined in part I.A., ante.
L&B also argues the referee’s statement of decision did not address its argument that the section 4406 preclusion only applies to forgeries on the same account, so this court must speculate on how the referee would have decided that point as well. But no speculation is involved, as we have determined the point adversely to L&B as a matter of law.
Third, L&B argues the issues involved in its claim for unauthorized payments on the first L&B account “were not decided in any authorized trial, and were not the identical issues tried in the claim for payment of forged checks drawn against the Second L&B Account.” We have already disposed of the contention that the trial held by the referee was “unauthorized”; L&B agreed to decide claims on the second L&B account by reference, and confirmed that agreement in its trial brief. As for its assertion the issues are not identical, L&B fails to point out any differences, doubtless because it cannot.
Finally, L&B contends collateral estoppel cannot be applied “in the same lawsuit,” but cites no authority for that claim. While it may be that a separate lawsuit is the more common circumstance for the application of collateral estoppel, the point of the doctrine is to “preclude a party to prior litigation from redisputing issues therein decided against him . . . .” (Roos v. Red, supra, 130 Cal.App.4th at p. 879.) We can discern no rational basis for holding the doctrine cannot be applied unless there are “two different lawsuits.”
Accordingly, because the principle of collateral estoppel applies to preclude any claim by L&B of unauthorized payments on the first L&B account, no basis exists for reversing the judgment entered by the trial court in favor of Wells Fargo.
III. L&B’s claims of error in discovery rulings are without merit.
L&B makes several claims of error in the referee’s discovery rulings. None of them has merit.
First, L&B contends it was “prevented from obtaining the most reliable and direct testimony of [check processing] procedures used by other banks” when the referee (1) granted the motion of three non-party banks to quash the deposition subpoenas served on them, and (2) granted Wells Fargo’s motion to quash a deposition subpoena served on Jack Thomas, an expert familiar with check processing procedures for large banks in Southern California. But L&B fails to show why either ruling was an abuse of discretion.
In the first case, the referee concluded the subpoenas were unduly burdensome for third parties, and L&B could develop the necessary information as to reasonable commercial standards from alternative sources. These sources included expert witnesses (one of whom L&B had already retained); information already subpoenaed and obtained from the record in a case involving Bank of America (a bank more closely comparable to Wells Fargo than the subpoenaed third party banks), which included detailed testimony on Bank of America’s check fraud procedures; and industry publications and sources available to its expert. L&B does not explain why the referee’s decision was an abuse of discretion. It merely claims, without citation of authority, that it would be “best” if the trier of fact had direct testimony from each bank on its procedures, rather than “the hearsay evidence of facts by experts.” We cannot see any abuse of discretion. In the second case, Jack Thomas was a banking expert retained by Wells Fargo, not a percipient witness. The deadline for designation of experts had not yet arrived when the referee quashed L&B’s subpoena of Thomas, observing L&B could depose Thomas during the expert deposition phase of the case. L&B offers no rationale for finding this ruling was an abuse of discretion.
Second, in a one-paragraph argument, L&B contends the referee erred in denying its motion to compel Wells Fargo employees to testify about the reasonableness of Wells Fargo’s check processing procedures. The referee found the discovery sought was irrelevant (and, in addition, burdensome, given that trial was to begin shortly and discovery was conducted in the same areas more than a year previously). L&B does not trouble to construct an argument as to why the referee’s ruling was wrong. L&B merely refers to portions of the subsequent trial testimony of Wells Fargo’s banking expert, Carrubba, who testified that different banks may set the parameters of their fraud detection systems, including the high-dollar threshold, differently, depending on several factors, including account types and past fraud losses. (Carrubba also testified the banks would set the parameter to maximize the efficiency of the system.) L&B is apparently arguing that it needed information on Wells Fargo’s types of accounts, past loss experience, and the like to determine whether it was reasonable for Wells Fargo to set its outsorting threshold at $35,000/$25,000. But the question is not whether Wells Fargo’s threshold was reasonable, standing alone; the question is whether it “var[ied] unreasonably from general banking usage . . . .” (§ 3103, subd. (a)(7).) As Story Road explained:
“By defining a bank’s standard of ‘ordinary care’ in terms of ‘general banking usage,’ former section 4103 reflected the Legislature’s decision to subject some conduct of banks to a ‘professional negligence’ standard of care which looks at the procedures utilized in the banking industry rather than what a ‘reasonable person’ might have done under the circumstances.” (Story Road, supra, 42 Cal.App.4th at p. 1741.)
In short, the referee got it exactly right when he decided that the substantial discovery L&B sought shortly before trial was irrelevant to the issue at hand: whether Wells Fargo’s fraud detection procedures varied unreasonably from general banking usage. Certainly we cannot say the ruling was an abuse of discretion.
IV. The referee did not err in the award of expert witness fees.
Wells Fargo sought and obtained expert witness fees based on the rejection by L&B and Little of Wells Fargo’s pretrial settlement offer under section 998 of the Code of Civil Procedure (section 998). Section 998 provides that if a defendant’s offer of compromise is not accepted, and the plaintiff fails to obtain a more favorable judgment, the court or arbitrator may require the plaintiff to pay a reasonable sum for the services of the defendant’s expert witnesses. (Code Civ. Proc., § 998, subd. (c)(1).) Wells Fargo made the following offer of compromise:
“Defendant, Wells Fargo Bank, N.A., hereby offers to have judgment entered against it and in favor of plaintiffs, jointly, in the amount of One Hundred Thousand Dollars ($100,000), pursuant to the provisions of C.C.P. § 998, each party to bear their own attorneys’ fees and costs.”
L&B contends the settlement offer was invalid under section 998 because it was a joint offer to both plaintiffs, L&B and Little, and courts have held that “only an offer made to a single plaintiff, without need for allocation or acceptance by other plaintiffs, qualifies as a valid offer under section 998.” (Meissner v. Paulson (1989) 212 Cal.App.3d 785, 791; see also Barella v. Exchange Bank (2000) 84 Cal.App.4th 793, 799 [“an offer to two or more parties, which is contingent upon all parties’ acceptance, is not a valid offer under the statute”].) Again, L&B is mistaken.
More recent cases have made clear that not all joint offers to multiple plaintiffs are invalid. “An exception to the general rule that a single lump sum offer to multiple plaintiffs is not a valid 998 offer exists where the plaintiffs have a unity of interest such that there is a single, indivisible injury.” (Weinberg v. Safeco Ins. Co. of America (2004) 114 Cal.App.4th 1075, 1087 (Weinberg).) This is just such a case. Little is the sole general partner of L&B, which is a California limited partnership. Both bank accounts on which the checks were forged were L&B’s accounts, not Little’s. Little has made no claim of any interest in this litigation that is separate from, or separable from, L&B’s interest as owner of the funds in the accounts. L&B argues its interests and Little’s interests were not identical, because Little was not the account holder, and a judgment “could clearly have been rendered in favor of L&B, but not in favor of Little . . . .” Just so, but as Wells Fargo points out, a judgment could not have been entered in favor of Little absent a judgment for L&B. L&B’s contention merely serves to show that Little had no interest whatsoever in the litigation, other than L&B’s “single, indivisible injury.” (Weinberg, supra, 114 Cal.App.4th at p. 1087.) Indeed, it is hard to see how Wells Fargo could have made anything other than a joint offer to both plaintiffs. If ever an interest were single and indivisible, this is that case. (See also Vick v. DaCorsi (2003) 110 Cal.App.4th 206, 208, 212 [settlement offer made to husband and wife jointly, on their claims for fraud and breach of contract in the purchase of their home, was valid; defendants could not allocate the offer between husband and wife because they asserted damage “to a singular interest in community property”; the complaint “did not allege any transaction or occurrence involving one of the Vicks but not the other, nor did it seek damages on behalf of Mr. or Ms. Vick peculiar to him or her”].)
L&B also claims the referee abused his discretion in awarding expert fees because the fees were not reasonably necessary in preparation for or during trial of the case, and were not reasonable in amount. (§ 998, subd. (c)(1).) Wells Fargo claimed fees for an accounting expert in the amount of $16,868.75. L&B asserts most of the expert’s time was spent in reviewing L&B’s records and opining on the lack of internal controls that would have detected a loss of $1.6 million over a three-year period. L&B contends the only issue was whether L&B failed to “exercise reasonable promptness” in examining its statements for unauthorized signatures, not whether it was otherwise negligent. But one of Wells Fargo’s contentions was that L&B was also precluded from asserting the forgeries under section 3406 of the Code. That section provides that a person “whose failure to exercise ordinary care contributes to . . . the making of a forged signature” is barred from asserting the forgery against a person who pays the instrument in good faith. (§ 3406, subd. (a).) While the referee did not discuss Wells Fargo’s section 3406 contention, because Wells Fargo prevailed on its section 4406 defense, there was certainly no abuse of discretion in concluding the accounting expert’s fees were reasonably necessary to Wells Fargo’s defense of the case.
Wells Fargo also claimed fees of $19,353.45 for its banking expert, Paul Carrubba. L&B argues that “expert testimony was unnecessary”; it was “unfathomable” why Carrubba had to review and analyze the bank’s entire automated check processing system to determine whether it met the standard of care; and it “defies logic that it took Mr. Carrubba fifty-five hours of time to determine what everyone already knew and was not in question” – that Wells Fargo used a computer-assisted program to outsort potential fraudulent checks and that its outsorting threshold was below that of other big banks. L&B’s assertions approach the absurd. Again, it ignores any view of the case other than its own. Wells Fargo sought to show that its overall automated processing procedures and fraud filters met industry standards, and that much more is involved in a fraud detection system than the high-dollar threshold. Carrubba’s testimony about Wells Fargo’s observance of reasonable commercial standards in check processing; about the review of suspected forgeries and whether they could have been identified as likely forgeries if outsorted; and about the opinions of L&B’s expert, was clearly necessary and relevant. There was no abuse of discretion in the award of these fees.
DISPOSITION
The judgment is affirmed. Wells Fargo Bank and the third-party banks are to recover their costs on appeal.
We concur: RUBIN, J., EGERTON, J.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
· “By signing this application, I acknowledge that I have received a copy of the terms and conditions governing this account and agree to be bound by them. . . . In the event of any dispute arising under this Agreement, I agree to be bound by the terms of the dispute resolution program, including arbitration, as more fully described in the Business Account Fee and Information Schedule.”
· “A dispute is any unresolved disagreement between you and the Bank that relates in any way to accounts or services described in this brochure, or to your use of any staffed banking location, Bank ATM, or any other method you may use to access the Bank.”
· “If an action or proceeding is commenced . . ., and neither you nor the Bank requests that the dispute be submitted to arbitration, then … the dispute shall be heard by a reference under the provisions of the California Code of Civil Procedure, Section 638 and following.”
These provisions do not “by [their] terms” apply to disputes over an account which was closed when the second account was opened, and which was governed by an agreement entered into in 1993. Nothing in any of the quoted language would alert a customer that the dispute resolution provision applies to transactions on any previous accounts with the bank. Indeed, the account application itself expressly suggests the contrary, twice: First, the signer acknowledges receiving a copy of, and agrees to be bound by, the terms and condition “governing this account . . . .” Second, the signer agrees to be bound by the dispute resolution program described in the 2000 disclosure statement, “[i]n the event of any dispute arising under this Agreement . . . .” (Emphasis added.) While the Bank could have used explicit language to state that the new agreement covered disputes over previous accounts and transactions, it did not. And nothing in the cited language suggests that the agreement to resolve disputes by arbitration or reference also applies to past transactions involving accounts otherwise governed by previous agreements.