Case Types - Wrongful Death

New York Wrongful Death Settlement

Lawyers’ Fund v. Bank Leumi Trust, 2000 N.Y. Int. 0005 (Feb. 22, 2000).

SUBROGATION AGREEMENT - CONVERSION - FORGED INSTRUMENT - WRONGFUL DEATH SETTLEMENT - LAWYERS' FUND FOR CLIENT PROTECTION

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ISSUE & DISPOSITION
Issue(s)
Whether Plaintiff, as subrogee, can collect the full face value of the instrument plus interest and a collection fee against a Defendant, despite awarding only a fraction of the full face amount of an instrument to the subrogor.
Disposition
Yes. Plaintiff as subrogee is entitled to full face value of the instrument plus interest, but not including a collection fee, even though Plaintiff only awarded the subrogor a fraction of that amount.

SUMMARY
The Administrator of the Estate of Marcial Valentin, Jr., ("Estate") filed a claim with Lawyer's Fund for Client Protection, ("Plaintiff"), seeking to recover proceeds from a wrongful death settlement. Two years earlier, the law firm representing the Estate in the wrongful death action had forged the endorsement of the Administrator on a settlement check and deposited the check in the law firm’s bank account. The firm never paid the Estate its share of the proceeds. The law firm subsequently abandoned the practice of law and filed for bankruptcy. Plaintiff awarded the Estate an amount that was approximately two-thirds of the face value of the settlement check and signed a Subrogation Agreement with them, giving Plaintiff rights that the Estate would have had against the law firm and the banks that paid on the forged check. Plaintiff then sought to hold the drawee of the check, the depository bank, and the bank that the check was made payable through liable for conversion of the full amount of the check.

The trial court granted the motion to dismiss the bank through whom the check was made payable, granted the drawee’s motion ordering the depository bank to indemnify the drawee, and denied Plaintiff’s cross-motion for summary judgment against drawee.

The Appellate Division modified the supreme court ruling and held that Plaintiff was entitled to summary judgment against drawee and to recovery only in the amount it paid out to the Estate. Plaintiff appealed.

On appeal, Defendant first argued that Plaintiff as subrogee was only entitled to the amount that it paid to the subrogor Estate. The Court, after examining the Subrogation Agreement between Plaintiff and the Estate, concluded that the subrogation rights imposed by Judiciary Law §468-b [9] do not limit the power of Plaintiff to further contract with those it seeks to reimburse. The Court held that Plaintiff’s recovery is not limited by the Subrogation Agreement or by §468-b [9] to the amount it awarded the Estate. Plaintiff is entitled to pursue the full face amount of the converted check.

Defendant then raised the issue, left open by the court in Mouradian v. Astoria Federal Savings and Loan, 91 N.Y.2d 124, whether, under UCC 3-419, a co-payee can recover the full face value of a converted check. UCC 3-419[1][c] provides that an instrument is converted when it is paid on a forged indorsement. In New York, a rule of absolute liability is presumed on behalf of the drawee. The Court in Mouradian found that a co-payee could recover the face amount of the instrument against the drawee where there was no showing that Plaintiff benefited from the full amount converted. Defendant argued that because the Estate benefited from the law firm’s legal advice and the law firm would have received its one-third share of the check, Plaintiff could not recover more than two-thirds of the check. The Court rejected Defendant’s argument because it ran contrary to the plain language of UCC 3-419 and the Court’s holding in Mouradian. The Estate in the instant case did not receive a benefit from the proceeds of the converted check. The critical inquiry is whether a plaintiff actually received all or part of the proceeds of the check, not whether plaintiff may have benefited from the forgery.

The Court also held that Plaintiff was entitled to recover interest running from the date of conversion or defalcation, but that Plaintiff was not allowed to recover a collection fee. The Court reasoned that the sum owed to Plaintiff was not liquidated, and therefore a collection fee would be inappropriate under State Finance Law §18.