Koss Corporation v. Park Bank

2019 WI 7

SUPREME COURT OF WISCONSIN

CASE NO.: 2016AP636

COMPLETE TITLE: Koss Corporation,

Plaintiff-Appellant-Petitioner,

v.

Park Bank,

Defendant-Third-Party

Plaintiff-Respondent-Cross-Appellant,

v.

Michael J. Koss,

Third-Party

Defendant-Appellant-Cross-Respondent,

Grant Thornton LLP,

Third-Party Defendant-Cross-

Respondent.

REVIEW OF DECISION OF THE COURT OF APPEALS

Reported at 379 Wis. 2d 639, 907 N.W.2d 447

PDC No: 2018 WI App 1 - Published

OPINION FILED: January 29, 2019

SUBMITTED ON BRIEFS:

ORAL ARGUMENT: September 7, 2018

SOURCE OF APPEAL:

COURT: Circuit

COUNTY: Milwaukee

JUDGE: David L. Borowski

JUSTICES:

CONCURRED: A.W. BRADLEY, J. concurs, joined by ABRAHAMSON,

J., and DALLET, J. (opinion filed).

DISSENTED: KELLY, J. dissents joined by R.G. BRADLEY, J.

(opinion filed).

NOT PARTICIPATING:

ATTORNEYS:

For the plaintiff-appellant-petitioner and third-party

defendant-appellant-cross-respondent, there were briefs filed by

Michael S. Yellin, Ralph Weber, and Gass Weber Mullins LLC,

Milwaukee, with whom on the brief were Michael J. Avenatti,

Ahmed Ibrahim, and Eagen Avenatti LLP, Newport Beach,

California. There was an oral argument by Ahmed Ibrahaim.

For the defendant-third-party-plaintiff-respondent-cross-

appellant, there was a brief filed by Dean P. Laing, Gregory W.

Lyons, Joseph D. Newbold, and O'Neil, Cannon, Hollman, DeJong &

Laing S.C., Milwaukee. There was an oral argument by Dean

Laing.

For the third-party-defendant-cross-respondent, there was a

brief filed by Joseph L. Olson and Michael Best & Friedrich LLP,

Milwaukee. There was an oral argument by Joseph Olson.

An amicus curiae brief was filed on behalf of Wisconsin

Bankers Association and the American Bankers Association by John

E. Knight, James E. Bartzen, Kirsten E. Spira, and Boardman &

Clark LLP, Madison.

2

2019 WI 7

NOTICE

This opinion is subject to further

editing and modification. The final

version will appear in the bound

volume of the official reports.

No. 2016AP636

(L.C. No. 2010CV21290)

STATE OF WISCONSIN : IN SUPREME COURT

Koss Corporation,

Plaintiff-Appellant-Petitioner,

v.

Park Bank,

Defendant-Third-Party

Plaintiff-Respondent-Cross-Appellant,

FILED

v. JAN 29, 2019

Michael J. Koss, Sheila T. Reiff

Clerk of Supreme Court

Third-Party

Defendant-Appellant-Cross-Respondent,

Grant Thornton LLP,

Third-Party Defendant-Cross-

Respondent.

REVIEW of a decision of the Court of Appeals. Affirmed.

¶1 PATIENCE DRAKE ROGGENSACK, C.J. We review a

published decision of the court of appeals1 that affirmed an

1

Koss Corp. v. Park Bank, 2018 WI App 1, 379 Wis. 2d 629,

907 N.W.2d 447.

No. 2016AP636

order of the circuit court2 granting summary judgment dismissing

Koss Corporation's Uniform Fiduciaries Act (UFA) claim against

Park Bank.3

¶2 Our review centers on two related issues: First,

consistent with the UFA, we interpret and apply the terms "good

faith" as set out in Wis. Stat. § 112.01(1)(c) and "bad faith"

employed in § 112.01(9); and second, we determine whether

summary judgment dismissing Koss Corporation's claim was

properly granted.

¶3 We conclude Wis. Stat. § 112.01(1)(c) describes the

term "good faith" as honest bank acts, even when negligently

done, and consistent with the majority of jurisdictions'

interpretations of the UFA, "bad faith" is inconsistent with the

statutory criteria for "good faith." Therefore, bad faith

pursuant to § 112.01(9), which is an intentional tort, may be

shown by acts evidencing bank dishonesty such as a bank

willfully failing to further investigate compelling and obvious

known facts suggesting fiduciary misconduct because of a

deliberate desire to evade knowledge of fiduciary misconduct.

2

The Honorable David L. Borowski of Milwaukee County

presided.

3

Wisconsin Stat. § 112.01 (2015-16) is Wisconsin's version

of the UFA.

All subsequent references to the Wisconsin Statutes are

to the 2015-16 version unless otherwise indicated.

2

No. 2016AP636

¶4 We further conclude that given the allegations that

Koss Corporation asserts in regard to its claim that Park Bank

is liable for the intentional tort of bad faith, no proof has

been proffered of bank dishonesty wherein Park Bank willfully

failed to further investigate compelling and obvious known facts

suggesting fiduciary misconduct because of a deliberate desire

to evade knowledge of fiduciary misconduct.

¶5 Accordingly, we affirm the court of appeals'

affirmance of the circuit court's dismissal of Koss

Corporation's claim that Park Bank acted in bad faith in

processing the transactions that Sujata Sachdeva initiated.

Because we conclude Park Bank is not liable to Koss Corporation,

we also affirm the dismissal of Park Bank's third-party claims.4

I. BACKGROUND

¶6 In this lawsuit, Koss Corporation seeks to collect

millions of dollars from Park Bank that Sachdeva embezzled from

its accounts at Park Bank. As Vice President of Finance for

Koss Corporation, Sachdeva was one of three people authorized to

conduct transactions from Koss Corporation's Park Bank accounts

pursuant to bank signature cards.5 As was explained by Park

4

Two justices join in the totality of the decisions

expressed in this opinion: Chief Justice Patience Drake

Roggensack and Justice Annette Kingsland Ziegler. The opinions

of other justices in regard to the issues presented for the

court's review are found in the separate opinions that follow.

5

Sachdeva also served as Secretary and Principal Accounting

Officer for Koss Corporation.

3

No. 2016AP636

Bank's attorney at oral argument, nothing prohibited Sachdeva

from exercising her transaction authority for Koss Corporation's

accounts at Park Bank through another Koss Corporation employee

so long as Sachdeva made the decision to initiate the

transaction.

¶7 Sachdeva embezzled approximately $34 million from Koss

Corporation over a period of ten years, from about 1999 until

she was caught in 2009. In 2010, she pled guilty to six counts

of wire fraud in connection with her embezzlement from Park Bank

and from Koss Corporation's Chicago banks. She was sentenced to

eleven years in prison and ordered to pay $34 million in

restitution.

¶8 One method Sachdeva used to embezzle funds from Koss

Corporation was to order cashier's checks for personal

expenditures. She admits that she used hundreds of cashier's

checks drawn on Koss Corporation's Park Bank accounts to pay for

her purchases from luxury retailers, as well as to pay her

personal credit card bills. She sometimes used the payee's

initials to avoid detection, such as "S.F.A., Inc." for Saks

Fifth Avenue or "N.M." for Nieman Marcus.

¶9 Generally, Sachdeva did not go to the bank herself to

obtain cashier's checks. Instead, she instructed Julie

Mulvaney, another Koss Corporation employee, to call the bank

and request a cashier's check on Sachdeva's behalf. Mulvaney

was not a signatory on Koss Corporation's Park Bank accounts.

Despite the existence of the signature cards, Park Bank's

4

No. 2016AP636

general practice was to allow non-signatories to call and

request cashier's checks on a signatory's behalf.

¶10 After receiving telephone requests for cashier's

checks, Park Bank would place the checks in an envelope to

Sachdeva's attention. Sachdeva would then send another Park

Bank employee, usually Betty Caver, to pick up the envelopes.

Caver was not a signatory on Koss Corporation's account. The

employees who picked up the checks were not asked to present

signed documentation from Sachdeva, and Park Bank did not call

Sachdeva to verify the transactions. When the cashier's checks

reached Sachdeva, she would mail them to her creditors to pay

personal debts.

¶11 On one occasion in January of 2004, Betty Caver went

into the bank and endorsed a $60,598.03 counter check6 against a

Koss Corporation account, made payable to cash. Park Bank did

not call Sachdeva to verify the transaction. The funds were

then used to purchase two cashier's checks in the amounts of

$42,441.61 and $18,156.42, which were used to pay Sachdeva's

personal credit card bills to American Express and Comerica

Bank. Koss Corporation does not dispute that Caver, Mulvaney,

and any other employees involved were acting at Sachdeva's

direction.

¶12 Sachdeva also used "petty cash" requests to embezzle

funds. Sachdeva would instruct a non-signatory Koss employee,

6

A counter check is a check available at a bank that can be

used to make a withdrawal from an account at the bank.

5

No. 2016AP636

usually Betty Caver, to go to the bank and endorse a manually

written check made out to "petty cash." Sachdeva would call and

tell the bank the employee was coming. The employee would pick

up cash for Sachdeva, sometimes from a drive-through window,

without being asked for identification. Sachdeva used the cash

to pay her "handyman," as well as to buy shoes, purses, and

dinners. The petty cash requests were often for thousands of

dollars at a time. From 2005 to 2009, there were at least 43

such "petty cash" checks, totaling $171,985.02.

¶13 Sachdeva's third method of embezzling funds, and the

method that eventually led to her downfall, was to request wire

transfers to an out-of-state bank where Koss Corporation

maintained accounts. Between 2004 and 2009, Park Bank made

seven wire transfers totaling $2 million from Koss Corporation's

Park Bank accounts to Koss Corporation's accounts in Chicago

banks. Either Sachdeva or Mulvaney would call Park Bank and

initiate the wire transfer over the phone by providing a

"repetitive code," which was used in lieu of providing account

numbers when the same client regularly wired money between the

same two accounts. Park Bank's policy required a wire transfer

agreement to initiate wire transfers, which Koss Corporation did

not have.

¶14 In December of 2009, an employee from American

Express's fraud department called Michael Koss7 directly and

7

Michael Koss was Koss Corporation's President, COO, CEO,

and CFO.

6

No. 2016AP636

informed him that Sachdeva had been using wire transfers from

Koss Corporation's Chicago bank account to pay her credit

transactions with American Express. This call led to Sachdeva's

prosecution and eventual guilty plea.

¶15 In 2010, Koss Corporation originally sued Park Bank

for negligence. It later amended its complaint to add a UFA

"bad faith" claim, and to add factual information about the

petty cash and wire transfers. Park Bank filed a third-party

complaint against Michael Koss and against Koss Corporation's

auditors, Grant Thornton LLP, for contribution and equitable

subrogation. In 2013, Koss Corporation dismissed its negligence

claim with prejudice. Its second and third amended complaints

both asserted bad faith under the UFA as the sole claim for

relief.

¶16 In support of its claims, none of Koss Corporation's

factual allegations asserted, or even implied, that Park Bank

acted dishonestly such as being motivated by self-interest with

regard to the transactions Sachdeva initiated. Furthermore,

none of Koss Corporation's allegations assert that Park Bank

suspected that Sachdeva was acting improperly. After

considerable discovery was completed, Park Bank moved for

summary judgment on the UFA bad faith claim.

¶17 On March 11, 2016, the Milwaukee County Circuit Court

granted Park Bank's motion for summary judgment, thereby

dismissing all claims against Park Bank. It also dismissed the

third-party complaint against Grant Thornton LLP and Michael J.

Koss. In regard to the claims against Park Bank, the circuit

7

No. 2016AP636

court first held that Park Bank, as the moving party, had met

its initial burden and that Koss Corporation had failed to

establish the existence of a material factual dispute. The

circuit court concluded that to show bad faith under the UFA,

Koss Corporation would have had to have provided evidence that

Park Bank intentionally ignored evidence of Sachdeva's breach of

her fiduciary obligations, which Koss Corporation had failed to

do.

¶18 The court of appeals affirmed the circuit court's

decision dismissing Koss Corporation's UFA claim. Koss Corp. v.

Park Bank, 2018 WI App 1, ¶2, 379 Wis. 2d 629, 907 N.W.2d 447.

The court of appeals first acknowledged that Wisconsin's version

of the UFA must be interpreted to make Wisconsin law uniform

with the law of other states that have enacted the UFA. Id.,

¶23; Wis. Stat. § 112.01(14). After reviewing case law from

other UFA jurisdictions, the court of appeals created a two-

element test for bad faith that required a showing of:

1) circumstances that are suspicious enough to place a

bank on notice of improper conduct by the fiduciary;

and 2) a deliberate failure to investigate the

suspicious circumstances because of a belief or fear

that such inquiry would disclose a defect in the

transaction at issue.

Koss Corp., 379 Wis. 2d 629, ¶27.

¶19 The court of appeals agreed with the circuit court's

determination that Park Bank had established prima facie

eligibility for summary judgment, id., ¶29, and that Koss

Corporation failed to controvert that eligibility with a genuine

issue of material fact as to whether Park Bank acted with bad

8

No. 2016AP636

faith regarding Sachdeva's embezzlement, id., ¶50. Because the

court of appeals concluded that Park Bank was not liable to Koss

Corporation, the court of appeals did not address Park Bank's

third-party complaints. Id., ¶2 n.3.

¶20 We granted Koss Corporation's petition for review and

now affirm.

II. DISCUSSION

A. Standard of Review

¶21 This case requires us to interpret and apply statutes,

and to review a grant of summary judgment. "Statutory

interpretation and the application of a statute to a given set

of facts are questions of law that we review independently, but

benefiting from the analyses of the court of appeals and the

circuit court." Marder v. Bd. of Regents, 2005 WI 59, ¶19, 286

Wis. 2d 252, 706 N.W.2d 110.

¶22 We also independently review grants of summary

judgment, applying the same methodology as the circuit court and

the court of appeals, while once again benefitting from their

analyses. Dufour v. Progressive Classic Ins. Co., 2016 WI 59,

¶12, 370 Wis. 2d 313, 881 N.W.2d 678. "The standards set forth

in Wis. Stat. § 802.08 are our guides." Id.

B. The Uniform Fiduciaries Act

1. History of UFA

¶23 The UFA was approved by the National Conference of

Commissioners on Uniform State Laws in 1922. It was adopted by

Wisconsin in 1925, and is set out in Wis. Stat. § 112.01(1)-

9

No. 2016AP636

(16). Bolger v. Merrill Lynch Ready Assets Tr., 143 Wis. 2d

766, 774, 423 N.W.2d 173 (Ct. App. 1988).

¶24 Prior to the development of the UFA, a bank could be

found liable to a principal in common law negligence if the bank

"negligently assisted a fiduciary in misappropriating [the]

principal's funds." Maryland Cas. Co. v. Bank of Charlotte, 340

F.2d 550, 553 (4th Cir. 1965). Some courts "went so far as to

charge depository banks with constructive notice of fiduciary

misconduct." Bolger, 143 Wis. 2d at 774. The result burdened

banks with the duty of "seeing that fiduciary funds are properly

applied to the account of the principal." Sugarhouse Fin. Co.

v. Zions First Nat'l Bank, 440 P.2d 869, 870 (Utah 1968).

¶25 As banking grew as a business and "[a]s banks began to

process more and more transactions," policymakers questioned

"whether it was wise policy to place the duty of monitoring

fiduciary accounts for wrongdoing on the bank's shoulders."

Attorneys Title Guar. Fund v. Goodman, 179 F. Supp. 2d 1268,

1274 (D. Utah 2001). This led several states, including

Wisconsin in 1925, to adopt the newly drafted UFA. Id.; Bolger,

143 Wis. 2d at 774.

¶26 The UFA's purpose was to "facilitate banking and

financial transactions" by "provid[ing] relief from the dire

consequences of the common law rule," as well as to "place on

the principal the burden of employing honest fiduciaries."

Bolger, 143 Wis. 2d at 774-75; Johnson v. Citizens Nat'l Bank,

334 N.E.2d 295, 300 (Ill. App. 1975). Adoption of the UFA

evinced a recognition of the economic importance of allowing

10

No. 2016AP636

banks to efficiently process a high volume of transactions. For

this reason, courts have long recognized that a return to the

common law rule of liability based on negligence by a bank

"would practically put an end to the banking business," Am. Sur.

Co. of N.Y. v. First Nat'l Bank in W. Union, 50 F. Supp. 180,

185-86 (N.D. W. Va. 1943), and that "[t]he present banking

system under which an enormous number of checks are processed

daily could not function effectively if banks were not required

to make prompt and effective decisions on whether to pay or

dishonor checks." Chazen v. Centennial Bank, 71 Cal. Rptr. 2d

462, 466 (Ct. App. 1998).

2. Koss Corporation's Claim8

¶27 Koss Corporation grounds its claim in Wis. Stat.

§ 112.01(9), which states in relevant part:

If a check is drawn upon the account of a fiduciary's

principal in a bank by a fiduciary, who is empowered

to draw checks upon his or her principal's account,

the bank is authorized to pay such check without being

liable to the principal, unless the bank pays the

check with actual knowledge that the fiduciary is

committing a breach of the fiduciary's obligation as

fiduciary in drawing such check, or with knowledge of

such facts that its action in paying the check amounts

to bad faith. If, however, such a check is payable to

the drawee bank and is delivered to it in payment of

8

In the case before us, Wis. Stat. § 112.01(9) is argued as

a claim against Park Bank, rather than as a defense to a claim

that Park Bank assisted Sachdeva's unlawful conduct.

Accordingly, we shall discuss it as a claim. However, Compare

Appley v. West, 832 F.2d 1021, 1031 (7th Cir. 1987) (explaining

that the "UFA did not create the cause of action. Rather, the

UFA is a defense."); Manfredi v. Dauphin Deposit Bank, 697 A.2d

1025, 1029-30 (1997) (same).

11

No. 2016AP636

or as security for a personal debt of the fiduciary to

it, the bank is liable to the principal if the

fiduciary in fact commits a breach of the fiduciary's

obligation as fiduciary in drawing or delivering the

check.

¶28 Wisconsin Stat. § 112.01(9), quoted above, provides

three entirely different standards whereby a bank could be

liable: (1) when a bank had actual knowledge of the unlawful

conduct of a fiduciary; (2) when a bank had knowledge of

sufficient facts to show that it acted in bad faith by honoring

a fiduciary's withdrawals from the principal's account; or

(3) when a drawee bank accepts its own check in payment of or as

security for a personal debt of the fiduciary at the drawee

bank, contrary to the interest of the principal.9

¶29 Koss Corporation sued Park Bank alleging that the

bank's transactions with Sachdeva were done in bad faith. Koss

Corporation did not allege, nor has any proof been shown, that

Park Bank had knowledge of Sachdeva's unlawful conduct or that

it paid, or used Koss's funds as security for, personal debts of

Sachdeva at Park Bank. Accordingly, we focus on defining bad

faith.

3. Defining "Bad Faith"

¶30 The UFA does not define bad faith. It does, however,

define good faith. Under the UFA, "[a] thing is done 'in good

9

Maryland Cas. Co. v. Bank of Charlotte, 340 F.2d 550, 554-

55 (4th Cir. 1965) is often cited. There, the Bank of Charlotte

had a monetary interest in the transactions where it received

checks drafted on the corporation's account at the bank and

applied those checks to the employee's private debt at the bank.

12

No. 2016AP636

faith' . . . when it is in fact done honestly, whether it be

done negligently or not." Wis. Stat. § 112.01(1)(c). A bank

does not violate its obligations to its depositor if its

transactions with the depositor's fiduciary are honestly done.

Buffets, Inc. v. Leischow, 732 F.3d 889, 899, (8th Cir. 2013);

Rheinberger v. First Nat. Bank of St. Paul, 150 N.W.2d 37, 41

(Minn. 1967) (concluding that "[b]ad faith does not exist if the

bank was acting honestly.").

¶31 Accordingly, the definition of good faith under Wis.

Stat. § 112.01(1)(c) implies that bad faith under § 112.01(9)

must involve something more than negligent bank conduct and must

involve conduct during which the bank did not act honestly.

Because § 112.01 is a uniform law, we consider decisions from

other jurisdictions that have defined bad faith. § 112.01(14).

As we do so, we note that variations in facts from which claims

of bad faith arose have resulted in different expressions of the

definition of bad faith, with bank dishonesty expressed in most

decisions. See Attorneys Title Guar. Fund, 179 F. Supp. 2d at

1277 (concluding that "bad faith is the subjective deliberate

desire to evade knowledge because of a belief or fear that

inquiry would disclose a vice or defect in the

transaction . . . [and] bad faith requires dishonesty and

implies wrongdoing or some motive of self-interest" when

considering repetitive nonsufficient fund activities); N.J.

Title Ins. Co. v. Caputo, 748 A.2d 507, 514 (N.J. 2000)

(concluding that when "facts suggesting fiduciary misconduct are

compelling and obvious, it is bad faith to remain passive and

13

No. 2016AP636

not inquire further because such inaction amounts to a

deliberate desire to evade knowledge" of improper trust account

transactions); Rheinberger, 150 N.W.2d at 41 (concluding that

bad faith in making transfers between accounts by a son who had

power of attorney for his mother "does not exist if the bank was

acting honestly").

¶32 As a preliminary matter, we do not apply Wisconsin

common law from other contexts to define "bad faith" under Wis.

Stat. § 112.01(9) because bad faith under the UFA requires

interpretation of a term in a specific statute. Under Wisconsin

common law, the definitions of bad faith and good faith can vary

depending on the context in which they arise. For example, in

contract law, bad faith does not simply mean the absence of good

faith because good faith can be defined in a number of ways by

contract. Amoco Oil Co. v. Capitol Indem. Corp., 95 Wis. 2d

530, 542, 291 N.W.2d 883 (Ct. App. 1980). In an insurance

context, bad faith and good faith have developed definitions

relative to an insurer's obligations. Roehl Trans., Inc. v.

Liberty Mut. Ins. Co., 2010 WI 49, ¶49, 325 Wis. 2d 56, 784

N.W.2d 542.

¶33 That said, our task is to define bad faith as it is

used in Wis. Stat. § 112.01(9). We are required to interpret

and apply the provisions of § 112.01 "to effectuate its general

purpose to make uniform the law of those states which enact it."

§ 112.01(14). Given that legislative directive, as we define

14

No. 2016AP636

bad faith, we consider judicial decisions from other

jurisdictions that have adopted the UFA.10

a. Bad faith principles and criteria

¶34 There are a number of general principles and specific

criteria that appear repeatedly in decisions from other

jurisdictions as courts have considered how to analyze and to

define bad faith. We will not address all of them, but rather,

we will discuss those general principles and specific criteria

that appear most frequently and have been central to the

reasoning of many courts as they sought to analyze and define

bad faith.

¶35 We begin by noting that under the UFA when presented

with the issue of bad faith, generally courts consider the

circumstances surrounding each fiduciary transaction,

individually. They do not aggregate circumstances as though

each transaction were a part of preceding transactions. We

agree that aggregation of transactions is inapposite, relying on

the structure of Wis. Stat. § 112.01(9) and prior UFA decisions.

¶36 Wisconsin Stat. § 112.01(9) states that "[i]f a check

is drawn upon the account of a fiduciary's principal in a bank

by a fiduciary, who is empowered to draw checks upon his or her

10

All states that have adopted the UFA have not adopted the

same version as has Wisconsin, e.g., Peoples Nat. Bank v. Guier,

145 S.W.2d 1042, 1047 (Ky. 1940) (explaining that the Kentucky

version of the UFA does not contain the same provisions as

Wisconsin has in Wis. Stat. § 112.01(9)). Sometimes the

differences in state law matter in regard to the usefulness of a

decision from such a state and sometimes they do not.

15

No. 2016AP636

principal's account," the bank is liable to the principal if

"its action in paying the check amounts to bad faith."11 Section

112.01(9) does not envision aggregation of general protections

from fiduciary misconduct.12 As the Eighth Circuit recently

explained, "[t]he UFA is drawn in terms of specific transactions

made in violation of certain fiduciary obligations." Buffets,

Inc., 732 F.3d at 899. It does not provide "general protection"

to principals, but rather, "provides principals limited

protection against a bank's knowing or bad-faith processing of a

specific transaction that breaches a fiduciary obligation." Id.

at 900; see also Rosemann v. St. Louis Bank, No. 14-CV-983-LLR,

slip op. at *14 (E.D. Mo. Nov. 17, 2015). Furthermore, a bank

has no obligation to piece together various transactions by a

fiduciary, but rather it is permitted to engage in the

presumption that the fiduciary is acting in accord with the

fiduciary's lawful authority for each transaction. Gen. Ins.

Co. of Am. v. Commerce Bank of St. Charles, 505 S.W.2d 454, 457

(Mo. Ct. App. 1974).

11

Wisconsin Stat. § 112.01(9) also provides that if "a

check is payable to the drawee bank and is delivered to it in

payment of or as security for a personal debt of the fiduciary

to it, the bank is liable to the principal if the fiduciary in

fact commits a breach of the fiduciary's obligation as

fiduciary." This appears to assign a bank greater potential for

liability. However, those circumstances are not present in the

matter before us.

12

We also note that the text of Wis. Stat. § 112.01(9)

employs singular forms of nouns and verbs.

16

No. 2016AP636

¶37 This is not to say that when examining an individual

transaction about which the bank has become suspicious, previous

transactions by the fiduciary cannot be examined as the bank

considers whether the fiduciary has breached a fiduciary

obligation in the current transaction. The focus, however, is

on whether the bank exhibited bad faith with regard to the

individual transaction in question at the time the transaction

occurred. Mikrut v. First Bank of Oak Park, 832 N.E.2d 376, 387

(Ill. App. 2005).

¶38 In their decisions, courts often have opined on

whether the standard for bad faith is subjective or objective,

with the majority concluding that the test is subjective. See,

e.g., Caputo, 748 A.2d at 514. The conclusion that bad faith is

determined by a subjective standard contrasts with the due care

or objective reasonableness standard applicable to negligence

determinations because the UFA directs that negligence is

insufficient to support liability for a fiduciary's conduct.

See id. And finally, the vast majority of UFA decisions hold,

and Koss Corporation has repeatedly conceded, that bad faith

under the UFA is an intentional tort. See Lawyers Title Ins.

Corp. v. Dearborn Title Corp., 904 F. Supp. 818, 820 (N.D. Ill.

1995). It would be unusual to conclude that an intentional tort

does not require subjective intent.

¶39 In regard to particular factors that are indicative of

bad faith, most courts have concluded that dishonesty is a

necessary component in the assessment of whether a bank has

acted in bad faith. See, e.g., Caputo, 748 A.2d at 514

17

No. 2016AP636

(explaining that the dishonesty standard "has been a static

epithet in our bad faith jurisprudence"); Research-Planning,

Inc. v. Bank of Utah, 690 P.2d 1130, 1132 (Utah 1984) (reasoning

that bad faith requires a dishonest purpose and implies some

motive of self-interest by the bank); Bd. of Cty. Comm'rs of Hot

Springs Cty. v. First Nat'l Bank of Thermopolis, 368 P.2d 132,

139 (Wyo. 1962) (concluding that bad faith "is not simply bad

judgment" but "imports a dishonest purpose"); Nat'l Cas. Co. v.

Caswell & Co., 45 N.E.2d 698, 699 (Ill. App. Ct. 1942) (holding

that "bad faith imports a dishonest purpose"); Edwards v.

Northwestern Bank, 250 S.E.2d 651, 657 (N.C. 1979) (adopting the

dishonesty standard for bad faith and concluding that dishonesty

"is, unlike negligence, wilful"); C-Wood Lumber Co. v. Wayne

Cty. Bank, 233 S.W.3d 263, 284 (Tenn. Ct. App. 2007) (requiring

a UFA plaintiff to prove that "the bank was acting dishonestly

or that the bank actually knew [the fiduciary] was breaching her

fiduciary obligations").

¶40 When the bank permits a fiduciary to use the

principal's funds to pay his or her personal debt to the same

bank where the principal's account is located, dishonesty of a

type involved in bad faith is shown. Maryland Cas. Co., 340

F.2d at 554 (affirming that "where a bank had both reason to

suspect a misappropriation by the fiduciary and a monetary

interest in the continuance of such activity" dishonesty under

the UFA is evidenced) (citing Union Bank and Trust Co. v. Girard

Trust Co., 161 A. 865 (Pa. 1932)).

18

No. 2016AP636

¶41 In contrast to negligence, dishonesty is viewed as

requiring purposeful bank conduct. See, e.g., Caputo, 748 A.2d

at 513 (concluding that dishonesty is "a way of differentiating

bad faith from negligence in terms of purpose."); Guild v. First

Nat'l Bank of Nev., 553 P.2d 955, 958 (Nev. 1976) (concluding

that a showing of "conscious purposeful misconduct" is required

for bad faith).

¶42 In Davis v. Pa. Co. for Ins. on Lives & Granting

Annuities, 12 A.2d 66 (Pa. 1940), the Pennsylvania Supreme Court

articulated a test for distinguishing bad faith from mere

negligence that has since been repeated in numerous UFA cases

across the country:

At what point does negligence cease and bad faith

begin? The distinction between them is that bad

faith, or dishonesty, is, unlike negligence, willful.

The mere failure to make inquiry, even though there be

suspicious circumstances, does not constitute bad

faith unless such failure is due to the deliberate

desire to evade knowledge because of a belief or fear

that inquiry would disclose a vice or defect in the

transaction,——that is to say, where there is an

intentional closing of the eyes or stopping of the

ears.

Id. at 69 (internal citations omitted). The court's reasoning

supports the conclusion that "a thing is done in bad

faith . . . only when it is done dishonestly and not merely

negligently." Id. at 68. Many states use this "dishonesty

standard" to define bad faith. See, e.g., Smith v. Halverson,

273 N.W.2d 146, 151-52 (S.D. 1978); Sugarhouse Fin. Co., 440

P.2d at 870.

19

No. 2016AP636

¶43 However, the dishonesty involved in bad faith does not

require "a high degree of moral guilt." Maryland Cas. Co., 340

F.2d at 554; see also Caputo, 748 A.2d at 514 (dishonesty

"should not be interpreted as having sinister implications").

"Neither criminal fraud nor downright corruption is an essential

ingredient of legal 'bad faith.'" Maryland Cas. Co., 340 F.2d

at 554. Rather, "wrongdoing or some motive of self-interest" by

the bank is required for bad faith. Sugarhouse Fin. Co., 440

P.2d at 870.

¶44 In addressing dishonesty, none of these opinions

eliminated the subjective purpose requirement that has been a

necessary component of bad faith under the UFA. In Caputo, for

example, the New Jersey Supreme Court explained that the

dishonesty standard is "a way of differentiating bad faith from

negligence in terms of purpose." Caputo, 748 A.2d at 514. In

Maryland Cas. Co., where the Bank of Charlotte permitted a

fiduciary to credit checks written on the principal's account to

her personal debt at the bank, the Fourth Circuit asked whether

it was commercially unjustifiable for the payee to "disregard

and refuse to learn facts readily available." Maryland Cas.

Co., 340 F.2d at 554. The Eighth Circuit has recently

reaffirmed that a bank cannot be liable for failing to

investigate suspicious circumstances unless that failure to

investigate is due to "the deliberate desire to evade knowledge

because of a belief or fear that inquiry would disclose a vice

or defect in the transaction." Buffets, Inc., 732 F.3d at 901

(citations omitted); see also Nations Title Ins. of N.Y., Inc.

20

No. 2016AP636

v. Bertram, 746 N.E.2d 1145, 1151 (Ohio App. 3d 2000)

(concluding that "failure to make inquiry, even though there be

suspicious circumstances, does not constitute bad

faith . . . unless such failure is due to the deliberate desire

to evade knowledge because of a belief or fear that inquiry

would disclose a vice or defect in the transaction").

Subjective intent grounded in dishonest purpose has been

required in the majority of UFA decisions.

¶45 Koss Corporation points to language from a few

opinions that it contends evidences an objective test for bad

faith, citing Caputo, Master Chem. Corp. v. Inkrott and UNR-

Rohn, Inv. v. Summit Bank of Clinton Cty.

¶46 In Caputo, the court reasoned that "where facts

suggesting fiduciary misconduct are compelling and obvious, it

is bad faith to remain passive and not inquire further because

such inaction amounts to a deliberate desire to evade

knowledge." Caputo, 748 A.2d at 514.

¶47 Master Chem. Corp. v. Inkrott, 563 N.E.2d 26, 31 (Ohio

1990), employs similar language in explaining that a bank acts

in bad faith when "facts and circumstances" are "so cogent and

obvious that to remain passive would amount to a deliberate

desire to evade knowledge because of a belief or fear that

inquiry would disclose a defect in the transaction." According

to Koss Corporation, the words "would amount to a deliberate

desire" taken from Inkrott and Caputo suggest that an actual,

subjective desire to evade knowledge need not exist. Koss

Corporation also asserts that because courts deciding summary

21

No. 2016AP636

judgment motions under the UFA have asked whether "a trier of

fact could conclude that it was commercially unjustifiable for

[the bank] to disregard and refuse to learn facts readily

available," as occurred in UNR-Rohn, Inc. v. Summit Bank of

Clinton Cty., 687 N.E.2d 235, 239 (Ind. App. 1997) an objective

standard is inferred.

¶48 Koss Corporation's arguments are interesting, but when

the quoted language is read in context, they do not support the

use of an objective standard to define bad faith. For example,

in Caputo, the court clarified the phrase, "amounts to a

deliberate desire to evade knowledge." The court explained that

it was "differentiating bad faith from negligence in terms of

purpose." Caputo, 748 A.2d at 514. The court further clarified

that the required determination was "whether the bank recklessly

disregarded or was purposefully oblivious to facts suggesting

impropriety by Caputo." Id. Caputo explained that "bad faith

denotes a reckless disregard or purposeful obliviousness of the

known facts suggesting impropriety by the fiduciary." Id. The

court's reasoning is based on a subjective test. Stated

otherwise, negligence, for which an objective standard is

employed, is insufficient to support bad faith under Wis. Stat.

§ 112.01(9).

¶49 The existence of facts suggesting fiduciary misconduct

can, of course, serve as strong evidence of bank dishonesty,

such as when facts are so "compelling and obvious" that the

factfinder may be able to infer dishonesty on the part of a bank

employee. The focus, however, must be on the employee's state

22

No. 2016AP636

of mind, not on the circumstances alone. This is what the

Caputo decision meant by describing fiduciary misconduct as

"compelling and obvious" to the bank's employee; otherwise, it

would not have held that "the test for good faith or bad faith

is a subjective one." Caputo, 748 A.2d at 514. To focus

exclusively on facts suggesting fiduciary misconduct, without

considering their effect on the employee's state of mind, would

be to transform the test for "bad faith" into an objective one,

and would thereby cause Wisconsin's interpretation of the UFA to

be inconsistent with the majority of other jurisdictions that

have adopted the UFA.

¶50 Similarly, the "commercially unjustifiable" language

from cases similar to Inkrott, 563 N.E.2d at 31, and UNR-Rohn,

Inc., 687 N.E.2d at 239, does not support Koss Corporation's

contention when read in context. As a starting point, Koss

Corporation focuses exclusively on the words "commercially

unjustifiable" without considering the context in which the term

"commercially unjustifiable" is employed. Courts ask whether it

was commercially unjustifiable to "disregard and refuse to learn

facts readily available." Id. To "refuse" to learn facts is to

deliberately choose not to learn them. This necessarily implies

a subjective suspicion that such facts may exist.

¶51 Koss Corporation asserts that if we conclude that bad

faith requires a deliberate failure to investigate suspicious

circumstances, such a conclusion would swallow the "actual

knowledge" prong of the UFA. We disagree. The actual knowledge

phrase in Wis. Stat. § 112.01(9) requires the bank to have

23

No. 2016AP636

"actual knowledge that the fiduciary is committing a breach of

the fiduciary's obligation as fiduciary." § 112.01(9). Bad

faith, on the other hand, requires a bank to have knowledge of

compelling and obvious facts that raise a subjective suspicion

that a fiduciary has breached its fiduciary obligations.

Furthermore, with knowledge of such compelling and obvious

facts, the willful failure to further investigate those facts

must be due to the bank's desire to avoid potentially obtaining

actual knowledge of a fiduciary's misconduct. Buffets, Inc.,

732 F.3d at 901; see also Mikrut, 832 N.E.2d at 385 (explaining

that to establish bad faith, evidence must be presented that the

bank suspected the fiduciary was acting improperly and

deliberately refrained from investigating so that the bank could

avoid knowledge that the improper fiduciary conduct).

b. The test for bad faith13

¶52 From the foregoing discussion, we recognize several

UFA foundational principles that form the framework for

analyzing a bank's conduct when bad faith is alleged. First,

bad faith is reviewed on a transaction by transaction basis,

such that the facts known to each individual bank employee are

not aggregated to form collective knowledge of the bank. Colby

v. Riggs Nat'l Bank, 92 F.2d 183, 195 (D.C. Cir. 1937)

(concluding that "[i]t must be remembered also that practically

13

We do not adopt the court of appeals test because, as we

explain below, we set out a test that is more consistent with

the majority of jurisdictions that have defined bad faith under

the UFA than is the test chosen by the court of appeals.

24

No. 2016AP636

all the clues are not known to any one employee of the bank, and

that the facts known to any one employee are not sufficient to

arouse suspicion."). Second, whether a bank acted in bad faith

is determined at the time of the breach of fiduciary duty, not

by looking back at transactions that occurred many months

earlier. Bolger, 143 Wis. 2d at 777-78 n.5.

¶53 Third, bad faith is an intentional tort; negligence by

a bank is insufficient to show bad faith. Lawyers Title Ins.

Corp., 904 F. Supp. at 820 (citing Restatement (Second) of Torts

§ 8A cmt.b (1965)); Wis. Stat. § 112.01(1)(c). Fourth,

considerations of bad faith require analyses of a bank's actions

to determine its subjective intent. Caputo, 748 A.2d at 514;

Attorneys Title Guar. Fund, 179 F. Supp. 2d at 1277 (concluding

that bad faith "is the subjective deliberate desire to evade

knowledge").

¶54 In regard to specific evidence necessary to support an

allegation that a bank acted in bad faith, a claimant who shows

bank dishonesty will be successful. A majority of courts have

held that "[b]ad faith does not exist if the bank was acting

honestly." Rheinberger, 150 N.W.2d at 41; Official Comm. of

Unsecured Creditors of Allegheny Health, Educ. & Research Found.

v. Pricewaterhouse Coopers, LLP, 2:0001684, slip op. at *12

(W.D. Penn. July 19, 2011); Guild, 553 P.2d at 958.

¶55 Bad faith requires some evidence of bank dishonesty

such as a bank willfully failing to further investigate

compelling and obvious known facts that suggest fiduciary

misconduct because of a deliberate desire to evade knowledge of

25

No. 2016AP636

fiduciary misconduct. Caputo, 748 A.2d at 514; see also Trenton

Trust Co. v. W. Sur. Co., 599 S.W.2d 481, 492 (Mo. 1980)

(concluding that the failure to further investigate suspicious

circumstances is not bad faith "unless such failure is due to

the deliberate desire to evade knowledge because of a belief or

fear that inquiry would disclose a vice or defect in the

transaction"). Bank inaction under those circumstances is an

intentional tort. Id.; see also Davis, 12 A.2d at 69

(explaining that the distinction between negligence and bad

faith "is that bad faith, or dishonesty, is, unlike negligence,

wilful").

C. Application

¶56 The evidence presented by Koss Corporation does not

raise a genuine issue of material fact as to whether Park Bank

acted in bad faith during any transaction related to Sachdeva's

embezzlement.14 We first address Koss Corporation's arguments

that Park Bank's policies and general practices constitute bad

faith; then we address the three types of transactions Sachdeva

employed: cashier's checks, petty cash requests, and wire

transfers.

1. Policies and General Practices

¶57 Many of Koss Corporation's allegations in regard to

bad faith are driven by Koss Corporation's assertion that Park

14

Generally, the determination of bad faith is for the

trier of fact unless only one finding can be made as a matter of

law. N.J. Title Ins. Co. v. Caputo, 748 A.2d 507, 514 (N.J.

2000).

26

No. 2016AP636

Bank's general practice of not enforcing bank policies

contributed to Koss Corporation's loss. For example, Koss

Corporation asserts that Park Bank had a "practice of giving out

cashier's checks . . . to persons not authorized on the

signature card," had "inadequate policies to detect suspicious

activity," and "routinely violated" its stated wire transfer

policy. These allegations could go toward proving negligence.

However, negligence is not at issue; Koss Corporation has

voluntarily dismissed its negligence claim. Park Bank's general

practices do not suggest that any employee of Park Bank

deliberately failed to investigate compelling and obvious known

facts that suggested impropriety by Sachdeva because of the

belief or fear that such inquiry would disclose fiduciary

misconduct.

¶58 Koss Corporation cites to Inkrott, 563 N.E.2d 26, in

which the Supreme Court of Ohio found bad faith under the UFA

when a bank had "established a procedure where a transfer from

one corporate account to another would be presumed correct and

would not be questioned." Id. at 31. Koss Corporation contends

this suggests that a bank's policy, itself, is sufficient to

support a finding of bad faith. However, assuming without

deciding that the Inkrott decision is not an outlier, Inkrott is

distinguishable from the case now before us.

¶59 In Inkrott, the court determined that the policies

enacted by the bank were "more than negligent," they were

"designed to promote [the bank's] own self-interest in

derogation of the Uniform Commercial Code and beyond the

27

No. 2016AP636

protections provided by the Uniform Fiduciaries Act." Id. at

31. In other words, the Inkrott decision concluded that in

establishing bank policies, the bank enacted deficient

procedures for the purpose of allowing the bank to avoid

discovering evidence of misconduct by fiduciaries. Here, there

has been no offer of proof that Park Bank established deficient

bank policies in order to avoid discovering fiduciary

misconduct.

¶60 Koss Corporation's allegation is quite the opposite.

Koss Corporation alleges that Park Bank's general practice of

carelessly failing to follow its own policies facilitated

Sachdeva's embezzlement. However, carelessness is a negligence

standard, Zastrow v. Journal Commc'ns, Inc., 2006 WI 72, ¶30,

291 Wis. 2d 426, 718 N.W.2d 51, and negligence is insufficient

to support a claim for bad faith under the UFA. O'Neal v. Sw.

Mo. Bank of Carthage, 118 F.3d 1246, 1251 (8th Cir. 1997).

2. Cashier's Checks

¶61 Koss Corporation alleges that Park Bank's processing

Sachdeva's requests for cashier's checks constituted bad faith.

Koss Corporation points to Park Bank's method of readying

cashier's checks for non-signatories, as well as Holly Pape's

testimony, years after cashier's checks were issued, that the

number of cashier's checks Mulvaney ordered was "strange."15

15

Holly Pape was the Park Bank employee assigned to work

with Koss Corporation.

28

No. 2016AP636

¶62 Over the ten years of Sachdeva's embezzlement, 49 bank

employees issued the 359 cashier's checks to Koss Corporation

employees at Sachdeva's request.16 Koss Corporation has provided

no evidence that any of those 49 employees was dishonest in

processing Sachdeva's requests because the employee believed the

transaction in which he or she engaged was improper for Sachdeva

to have initiated. Stated otherwise, there is no evidence that

any Park Bank employee had knowledge of compelling and obvious

facts that suggested impropriety by Sachdeva that the employee

willfully failed to further investigate because of a deliberate

desire to evade knowledge of Sachdeva's misconduct or that such

an employee shared his or her suspicions with another employee.17

¶63 Another problem for Koss Corporation is the relevance

of the evidence it did present. That a non-signatory made

requests for cashier's checks and later picked them up is not

relevant to the issue of bad faith. Koss Corporation does not

dispute that its employees were acting at Sachdeva's direction,

or argue that any of its other employees stole money. Koss

Corporation does not explain how Mulvaney's being a non-

signatory amounted to an obvious and compelling fact that

16

Park Bank issued more than 60,000 cashier's checks during

that same period of time.

17

Although we do not examine transactions collectively when

reviewing a claim of bad faith, we note that Park Bank provided

monthly statements to Koss Corporation. Those monthly

statements included a complete listing of every transaction

Sachdeva initiated, including the date and the amount of each

transaction.

29

No. 2016AP636

Sachdeva was breaching her fiduciary obligations to Koss

Corporation.

¶64 With respect to the $60,568.03 counter check that a

non-signatory drafted, cashed and used to purchase two cashier's

checks, Koss Corporation has never asserted that this

transaction was not personally initiated by Sachdeva or honestly

completed by Park Bank. Koss Corporation appears to argue that

Park Bank was negligent in permitting a non-signatory this much

latitude, but negligent conduct is not sufficient to support bad

faith, which is grounded in intentional conduct. It is

undisputed that Sachdeva, a signatory and Vice President of

Finance for Koss Corporation, carried out each cashier's check

transaction personally or through an agent. There is no genuine

issue of material fact as to whether Park Bank acted in bad

faith regarding any of the cashier's checks.

3. The Petty Cash Requests

¶65 Koss Corporation's argument surrounding petty cash

requests fails for reasons similar to those applied above to

cashier's checks. It is true that on 43 occasions, Sachdeva

drafted checks for petty cash at Koss Corporation's offices and

that Park Bank allowed non-signatories to retrieve the cash at

Sachdeva's request.18

¶66 Furthermore, Koss Corporation provides no proof that

Park Bank did not cash Koss Corporation checks in the honest

18

During that same period of time, Park Bank cashed more

than 7.6 million checks for its customers.

30

No. 2016AP636

belief that Sachdeva had authority to draft them and to

authorize a Koss Corporation employee to cash them. And

finally, no evidence has been proffered that any Park Bank

employee knew compelling and obvious facts that suggested

impropriety by Sachdeva and then willfully failed to further

investigate those facts because of a deliberate desire to evade

knowledge of misconduct by Sachdeva. Accordingly, there is no

genuine issue of material fact as to whether Park Bank acted in

bad faith under the UFA with regard to Sachdeva's petty cash

requests.

4. Wire Transfers

¶67 Koss Corporation's final argument is that Park Bank's

violation of its own wire transfer policy by conducting wire

transfers without a wire transfer agreement in place constituted

bad faith. Between 2004 and 2009, Park Bank made seven wire

transfers totaling $2 million from Koss Corporation's Park Bank

accounts to Koss Corporation's accounts with Chicago banks.19

¶68 Koss Corporation requested wire transfers over the

phone, sometimes by a non-signatory, in violation of Park Bank's

wire transfer policy. Sachdeva later used wire transfers from

Koss Corporation's Chicago banks to pay more than $16 million in

credit card bills. However, Sachdeva's misconduct with regard

to Koss Corporation's Chicago banks does not give rise to a

triable issue of fact in the matter before us.

19

During that same period of time, Park Bank made more than

40,000 wire transfers on behalf of its customers.

31

No. 2016AP636

¶69 No evidence has been proffered that Park Bank did not

honestly complete the wire transfers or that any Park Bank

employee who participated in them was suspicious that Sachdeva

was violating her fiduciary obligation to Koss Corporation in

commencing the transfers. Additionally, Koss Corporation does

not dispute that each wire transfer was to another Koss

Corporation bank account. Koss Corporation retained possession

of the funds after each wire transfer. Koss Corporation also

does not explain why wire transfers that were admittedly sent to

other Koss Corporation bank accounts would have raised

suspicions on the part of any Park Bank employee. Accordingly,

there is no genuine issue of material fact as to whether Park

Bank acted in bad faith with regard to any of the seven wire

transfers.

D. Summary Judgment

¶70 Summary judgment is granted when "the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law." Dufour, 370

Wis. 2d 313, ¶12; Wis. Stat. § 802.08(2).

¶71 While discovery was extensive and conducted for years,

no proof has been proffered from which a factfinder could find

that any Park Bank transaction was not honestly done. There is

much here from which a claim of negligence could be made.

However, negligence is not sufficient to establish bank

liability for transactions that were honestly done.

32

No. 2016AP636

Rheinberger, 150 N.W.2d at 41; Pricewaterhouse Coopers, LLP,

2:0001684, slip op. at *12; Guild, 553 P.2d at 958; Wis. Stat.

§ 112.01(1)(c). Furthermore, there was no proffer of proof from

which a factfinder could infer dishonesty by finding that Park

Bank willfully failed to further investigate compelling and

obvious known facts suggesting Sachdeva's embezzlement because

of Park Bank's desire to evade further knowledge out of fear

that it would find her misconduct. We conclude that the court

of appeals did not err in affirming the circuit court's summary

judgment that dismissed Koss Corporation's complaint against

Park Bank.

E. Third Party Claims

¶72 Park Bank brought third-party claims against Grant

Thornton LLP and Michael Koss for contribution and equitable

subrogation, contingent on Park Bank's having liability to Koss

Corporation. Because we conclude that Park Bank is not liable

to Koss Corporation, we affirm the circuit court's dismissal of

Park Bank's third-party claims without further comment.

III. CONCLUSION

¶73 We conclude Wis. Stat. § 112.01(1)(c) describes the

term "good faith" as honest bank acts, even when negligently

done, and consistent with the majority of jurisdictions'

interpretations of the UFA, "bad faith" is inconsistent with the

statutory criteria for "good faith." Therefore, bad faith

pursuant to § 112.01(9), which is an intentional tort, may be

shown by acts evidencing bank dishonesty such as a bank

willfully failing to further investigate compelling and obvious

33

No. 2016AP636

known facts suggesting fiduciary misconduct because of a

deliberate desire to evade knowledge of fiduciary misconduct.

¶74 We further conclude that given the allegations that

Koss Corporation asserts in regard to its claim that Park Bank

is liable for the intentional tort of bad faith, no proof has

been proffered of bank dishonesty wherein Park Bank willfully

failed to further investigate compelling and obvious known facts

suggesting fiduciary misconduct because of a deliberate desire

to evade knowledge of fiduciary misconduct.

¶75 Accordingly, we affirm the court of appeals'

affirmance of the circuit court's dismissal of Koss

Corporation's claim that Park Bank acted in bad faith in

processing Sachdeva's transactions. Because we conclude Park

Bank is not liable to Koss Corporation, we also affirm the

dismissal of Park Bank's third-party claims.

By The Court.—The decision of the court of appeals is

affirmed.

34

No. 2016AP636.awb

¶76 ANN WALSH BRADLEY, J. (concurring). I agree with

the lead opinion1 that summary judgment was properly granted to

1

I use the term "lead" opinion because I am concerned that

without this cue, the reader may mistakenly believe that the

lead opinion has precedential authority. Although five justices

join in the mandate of the opinion to affirm the court of

appeals, it represents the reasoning of only two justices

(Roggensack, C.J., joined by Ziegler, J.). I, along with

Justices Abrahamson and Dallet, join in the mandate, but would

rely on contrary reasoning. Justice Kelly, joined by Justice

Rebecca Grassl Bradley, does not join in the mandate of the

court, and would adopt a legal standard for bad faith that is

also contrary to the lead opinion's formulation. Thus, although

set forth in two separate opinions (this concurrence and Justice

Kelly's dissent), five justices would not adopt the legal

standard for bad faith set forth by the lead opinion.

In order to alert the public, litigants and courts, I urge

the court to adopt a procedure requiring the author of a lead

opinion to include an admonition that it is a lead opinion. The

rationale for such a procedure is simple: lest there be

confusion that the first appearing opinion be regarded as the

majority opinion.

Recently such confusion arose in news reports referring to

this court's opinion in State v. Mitchell, 2018 WI 84, 383

Wis. 2d 192, 914 N.W.2d 151, cert. granted, 2019 WL 166881 (U.S.

Jan. 11, 2019) (No. 18-6210), announcing that the United States

Supreme Court granted certiorari in that case. The first

appearing opinion gave no alert that it was anything other than

a majority opinion. Some media reports apparently assumed that

the first appearing opinion garnered sufficient votes and

referred to it as a majority opinion. See Kevin Lessmiller and

Barbara Leonard, Unconscious Driver DUI Case Taken Up by Supreme

Court, Courthouse News Service (Jan. 11, 2019),

https://www.courthousenews.com/justices-take-up-unconscious-

drivers-dui-case/. Litigants and courts may inadvertently make

the same erroneous assumption.

(continued)

1

No. 2016AP636.awb

Park Bank. See lead op., ¶71. I write separately, however,

because in interpreting a uniform law, the lead opinion unearths

a heretofore unknown standard for bad faith.

¶77 The lead opinion errs in its creative exercise in two

ways. First, this new standard for bad faith runs afoul of the

legislative directive that uniform laws are to be interpreted

uniformly with other jurisdictions. Second, the legal standard

The only reference to "lead opinions" in our Internal

Operating Procedures (IOPs) states that if during the process of

circulating and revising opinions, "the opinion originally

circulated as the majority opinion does not garner the vote of a

majority of the court, it shall be referred to in separate

writings as the 'lead opinion.'" Wis. S. Ct. IOP III(G)(4)

(Feb. 22, 2018). The potential confusion that arises from

mislabeling a lead opinion is exacerbated because the

precedential effect (or lack thereof) of a lead opinion is

uncertain. This remains an uncertainty even though two prior

certifications from the court of appeals have asked us to

resolve the issue. State v. Dowe, 120 Wis. 2d 192, 192–93, 352

N.W.2d 660 (1984); State v. Hawley, No. 2015AP1113-CR,

unpublished certification, 2-3 (Nov. 21, 2018); see also State

v. Lynch, 2016 WI 66, ¶145, 371 Wis. 2d 1, 885 N.W.2d 89

(Abrahamson and Ann Walsh Bradley, JJ., concurring in part,

dissenting in part).

In the midst of the potential confusion and uncertainty,

the very least we can do is to alert the reader to beware that

no part of the rationale in the first appearing opinion has

garnered a majority vote. Unlike the first appearing opinion

in Mitchell, 383 Wis. 2d 192, which completely failed to advise,

the lead opinion here takes a first step. It announces that

only two justices join the opinion in totality. But that leaves

unanswered the question of whether any of the separate writings

join in part.

When the opinion originally circulated as the majority

fails to garner sufficient votes during the process of revising

and circulating opinions, it should as clearly as possible

advise the reader of its status. It is not something that

should be hidden or left for the reader to figure out.

2

No. 2016AP636.awb

for bad faith that the lead opinion embraces is too exacting on

bank customers with Uniform Fiduciaries Act (UFA) claims.

¶78 Because I determine that Wisconsin should adopt a bad

faith standard that promotes uniformity among the states,

vindicates the purpose of the UFA, and provides bank patrons

with a meaningful check on bank behavior, I respectfully concur.

I

¶79 The Uniform Law Commission, which has a diverse

representation from all fifty states, promulgates uniform laws

for consideration by state legislatures. "The purpose of

uniform laws is to establish both uniformity of statutory law

and uniformity of case law construing the statutes, ensuring

certainty and guidance to litigants who rely on the courts to

interpret uniform statutes in a predictable and consistent

manner." Estate of Matteson v. Matteson, 2008 WI 48, ¶42, 309

Wis. 2d 311, 749 N.W.2d 557 (citing M.J. Wallrich Land & Lumber

Co. v. Ebenreiter, 216 Wis. 140, 143, 256 N.W. 773 (1934)). In

this context, the goal is to provide uniformity and

predictability for both banks and those who use them, regardless

of the state in which the banking transaction occurs.

¶80 At issue here is the bad faith provision set forth in

Wisconsin's enactment of the UFA. Wis. Stat. § 112.01(9). It

is substantially identical to other state enactments throughout

3

No. 2016AP636.awb

the country.2 Pursuant to this provision, a bank that wrongfully

cashes a check can be liable to a defrauded principal if one of

two possibilities is fulfilled: (1) the bank has actual

knowledge that the fiduciary is committing a breach of his or

her obligations or (2) the bank acts in "bad faith."

§ 112.01(9).3 The question before us is the standard that must

be fulfilled for a plaintiff to prove "bad faith" in this

context.

¶81 The lead opinion observes that "bad faith" is

inconsistent with "good faith," a defined term in the statute.

Lead op., ¶3; see Wis. Stat. § 112.01(1)(c). Using the

definition of "good faith" as a springboard, it concludes that

"bad faith pursuant to § 112.01(9), which is an intentional

tort, may be shown by acts evidencing bank dishonesty such as a

bank willfully failing to further investigate compelling and

obvious known facts suggesting fiduciary misconduct because of a

2

See, e.g., Ariz. Rev. Stat. Ann. § 14-7507; 760 Ill. Comp.

Stat. 65/8; Ind. Code § 30-2-4-8; Md. Code Ann., Est. & Trusts

§ 15-207; Minn. Stat. § 520.08; N.J. Stat. Ann. § 3B:14-55; N.C.

Gen. Stat. § 32-9; Ohio Rev. Code Ann. § 5815.07; 7 Pa. Cons.

Stat. § 6392.

3

Wis. Stat. § 112.01(9) provides:

If a check is drawn upon the account of a fiduciary's

principal in a bank by a fiduciary, who is empowered

to draw checks upon his or her principal's account,

the bank is authorized to pay such check without being

liable to the principal, unless the bank pays the

check with actual knowledge that the fiduciary is

committing a breach of the fiduciary's obligation as

fiduciary in drawing such check, or with knowledge of

such facts that its action in paying the check amounts

to bad faith.

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No. 2016AP636.awb

deliberate desire to evade knowledge of fiduciary misconduct."

Lead op., ¶3.

¶82 Wisconsin Stat. § 112.01 does not define "bad faith."

However it does provide some guidance to our endeavor, dictating

that our state's UFA "shall be so interpreted and construed as

to effectuate its general purpose to make uniform the law of

those states which enact it." § 112.01(14). Thus, we look to

the case law of other states to guide our analysis.

¶83 The lead opinion correctly observes that other

jurisdictions have been inconsistent in defining bad faith when

it states, "variations in facts from which claims of bad faith

arose have resulted in different expressions of the definition

of bad faith, with bank dishonesty expressed in most decisions."

Lead op., ¶31 (citations omitted). However, it errs when it

deviates from the legislative directive that the interpretation

of our uniform laws be consistent with the interpretations

adopted by our sister states.

¶84 Contrary to the directive, the lead opinion adopts a

standard for bad faith that is inconsistent with the majority of

our sister states that have interpreted the uniform act. It is

not even consistent with a minority of states' interpretations.

The standard for bad faith that the lead opinion embraces does

not closely track the case law in any other jurisdictions.

Wisconsin stands alone.

II

¶85 Although there has been some inconsistency in

interpretation among the various states, not all expressions of

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No. 2016AP636.awb

the definition of bad faith are created equal. The standard

this court adopts should promote uniformity and vindicate the

purpose of the UFA, while at the same time avoid placing an

inordinate and nearly impossible burden on bank patrons.

¶86 Several courts have adopted such a standard. They

interpret the UFA bad faith standard to attach liability to a

bank in the event the bank does not affirmatively act but simply

"remains passive" in the face of compelling and obvious facts

suggesting fiduciary misconduct. See; In re Broadview Lumber

Co., 118 F.3d 1246, 1251 (8th Cir. 1997); Maryland Cas. Co. v.

Bank of Charlotte, 340 F.2d 550, 554 (4th Cir. 1965); Time

Savers, Inc. v. LaSalle Bank, N.A., 863 N.E.2d 1156, 1165 (Ill.

App. Ct. 2007);; New Jersey Title Ins. Co. v. Caputo, 748

A.2d 507, 514 (N.J. 2000). As the New Jersey supreme court

stated the standard in Caputo:

[B]ad faith denotes a reckless disregard or purposeful

obliviousness of the known facts suggesting

impropriety by the fiduciary. It is not established

by negligent or careless conduct or by vague

suspicion. Likewise, actual knowledge of and

complicity in the fiduciary's misdeeds is not

required. However, where facts suggesting fiduciary

misconduct are compelling and obvious, it is bad faith

to remain passive and not inquire further because such

inaction amounts to a deliberate desire to evade

knowledge.

Caputo, 748 A.2d at 514.

¶87 I would adopt the Caputo standard in Wisconsin. This

standard is preferable to that proffered by the lead opinion

because it promotes uniformity and emphasizes that no "high

degree of moral guilt" is required on the part of the bank. See

Wis. Stat. § 112.01(14); Maryland Cas. Co., 340 F.2d at 554.

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"Neither criminal fraud nor downright corruption is an essential

ingredient of legal 'bad faith.'" Maryland Cas. Co., 340 F.2d

at 554. The Caputo standard would permit bank patrons with

legitimate claims a better chance at relief. Otherwise, it is

the rare customer indeed that will be able to demonstrate

"willful" and "deliberate" actions on the part of a bank.

¶88 Importantly, such a standard also remains consistent

with the purpose of the UFA. The UFA was instituted to provide

banks with relief from the dire consequences of the previous

common law rule that entities dealing with fiduciaries had the

duty to assure that fiduciary funds were properly applied to the

account of the principal. Bolger v. Merrill Lynch Ready Assets

Tr., 143 Wis. 2d 766, 774, 423 N.W.2d 173 (Ct. App. 1988); see

Master Chem. Corp. v. Inkrott, 563 N.E.2d 26, 29 (Ohio 1990)

("By altering the common law, the Act relaxes some of the

harsher rules which require of a bank and of individuals the

highest degree of vigilance in the detection of a fiduciary's

wrongdoing.") (internal quotations and citations omitted). It

was meant to "facilitate banking and financial transactions and

place on the principal the burden of employing honest

fiduciaries[,]" thereby relieving banks of their previously

onerous duty. Bolger, 143 Wis. 2d at 775 (citing Johnson v.

Citizens Nat'l Bank of Decatur, 334 N.E.2d 295, 300 (Ill. App.

Ct. 1975)).

¶89 Although the UFA was certainly enacted to provide

relief to banks, it should not make proving a bank's liability a

mountain that is nearly impossible for a bank customer to scale.

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The Caputo standard strikes the right balance by furthering the

purpose of the UFA while at the same time allowing bank patrons

a more significant check on bank behavior.

III

¶90 I conclude that even under the less exacting Caputo

standard, summary judgment for Park Bank is appropriate. Koss

has not put forth evidence sufficient to create a genuine issue

of material fact that Park Bank remained passive in the face of

"compelling and obvious" facts suggesting fiduciary misconduct.

¶91 The sheer number of transactions and number of Park

Bank employees involved in cashing Koss checks belie Koss's

assertion that a nefarious pattern was apparent. Over the ten

years of Sachdeva's embezzlement, a period during which Park

Bank issued greater than 60,000 cashier's checks, forty-nine

bank employees issued the 359 cashier's checks requested by

Sachdeva. Lead op., ¶62, n.16. Neither "the amount and number

of transactions carried out on an account containing fiduciary

funds, nor the mere names of payees on checks drawn on that

account, are sufficient to create bad faith liability based on

the bank's action in paying such checks." Heffner v. Cahaba

Bank & Tr. Co., 523 So. 2d 113, 115 (Ala. 1988).

¶92 Indeed, Koss itself did not notice the fraud for

years. Even viewed in the light most favorable to Koss, the

facts of this case do not present the "compelling and obvious"

suggestion of fiduciary misconduct so as to foist liability onto

Park Bank.

¶93 For the above stated reasons, I respectfully concur.

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No. 2016AP636.awb

¶94 I am authorized to state that Justice SHIRLEY S.

ABRAHAMSON and Justice REBECCA FRANK DALLET join this

concurrence.

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No. 2016AP636.dk

¶95 DANIEL KELLY, J. (dissenting). There is no bad

faith, Park Bank says, when it disburses funds from fiduciary

accounts while intentionally remaining ignorant of whether the

individuals making the requests have authority to transact

business on those accounts. The court agreed——not as a matter

of fact, but of law. Because the law does not require that

conclusion, I respectfully dissent.

*

¶96 Bad faith does not exist in a vacuum——it occurs in the

context of a specific relationship. Here, Koss Corporation

tells us the bad faith took place within a relationship created

by statute as well as the documentation requested and maintained

by Park Bank. With respect to the latter, Park Bank provided a

copy of its Depository Declaration form to Koss Corporation to

complete and return. The form's purpose is to identify the Koss

Corporation employees who have authority to transact business on

the company's accounts:

The persons and the number thereof designated by name

or title on the reverse side opposite the accounts

("authorized person") are authorized, for and on

behalf of the Depositor, (a) to sign checks, drafts

notes, bills, certificates of deposit and other orders

for payment or withdrawal of money from the accounts

and to issue instructions regarding them, (b) to

endorse for cash, deposit, negotiation, collection or

discount by the Bank any and all checks, drafts,

notes, bills, certificates of deposit or other

instruments or orders for the payment of money owned

or held by the Depositor.

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Koss Corporation identified its President & CEO,1 Vice-President

of Finance,2 Vice-President of Sales,3 and Vice-President of MIS

as the only "authorized persons" to transact business on its

general account.

¶97 Koss Corporation subsequently submitted a Corporate

Authorization Resolution to Park Bank, which (as with the

Depository Declaration) identified the employees authorized to

transact business on its accounts. It provided that "[a]ny

agent listed below, subject to any written limitations, is

authorized to exercise the powers granted as indicated

below: . . . (3) Endorse checks and orders for the payment of

money or otherwise withdraw or transfer funds on deposit with

this Financial Institution." The resolution identified only

three people: Michael J. Koss, John C. Koss Jr., and Sujata

Sachdeva. Together, the resolution and Depository Declaration

serve as the "signature card," and so I will refer to them as

such.

¶98 Park Bank had Koss Corporation's completed signature

card on file before Ms. Sachdeva embarked on her embezzlement

spree, and it remained on file all during her criminal behavior.

So that is the documentary aspect of Koss's relationship with

Park Bank.

1

Michael Koss

2

Koss Corporation's Vice-President of Finance was Sujata

Sachdeva.

3

John C. Koss Jr.

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¶99 The statutory aspect of the Park Bank/Koss Corporation

relationship arises from Wis. Stat. § 112.01(9), a provision

that received such intense, but narrow, inspection that its

significance seems to have become a little warped. The court's

analysis, with a heavy assist from the parties, gives the

impression that § 112.01(9) created a bank-specific tort of "bad

faith." It didn't. Customers were free to bring bad faith

actions against banks before adoption of § 112.01(9), and they

can, right now, bring those claims without ever mentioning this

statute. And that is true because § 112.01(9) does nothing but

give banks limited immunity from liability for improper

transactions on fiduciary accounts.

¶100 The statute starts with a grant of immunity, followed

by two potentially relevant exceptions.4 The immunity provision

says: "If a check is drawn upon the account of a fiduciary's

principal in a bank by a fiduciary, who is empowered to draw

checks upon his or her principal's account, the bank is

authorized to pay such check without being liable to the

principal . . . ." Wis. Stat. § 112.01(9). The relevant

exception clauses say the immunity applies "unless the bank pays

the check [1] with actual knowledge that the fiduciary is

committing a breach of the fiduciary's obligation as fiduciary

in drawing such check, or [2] with knowledge of such facts that

its action in paying the check amounts to bad faith." Id.

4

The lead opinion lists all three potential exceptions to

immunity. See lead op., ¶¶27-28. However, because the facts of

this case do not implicate the third exception, I will confine

my attention to the first two.

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No. 2016AP636.dk

¶101 The first exception to immunity depends on the nature

of the fiduciary's actions. That is, the analysis focuses on

the fiduciary's culpable conduct in relation to his company. If

the fiduciary is "committing a breach of the fiduciary's

obligation," and the bank knows it, there is no immunity from

liability. Id. I'll refer to this exception as a "Fiduciary

Breach Exception." The second exception, however, depends on

the bank's conduct in relation to the company. If the bank's

knowledge of relevant facts makes the transaction an act of bad

faith, there is no immunity. That is to say, Wis. Stat.

§ 112.01(9) provides no defense against a common-law claim of

bad faith. I'll refer to this exception as a "Bad Faith

Exception."

¶102 The difference between the Fiduciary Breach Exception

and the Bad Faith Exception is important because Koss

Corporation's complaint described two conceptually distinct

categories of transactions. The first comprises those in which

Ms. Sachdeva personally contacted Park Bank to initiate the

process. The second encompasses those initiated by Koss

Corporation employees who were not listed on the signature card

maintained by Park Bank. The court collapsed the two, and

applied an analysis to the resulting mélange that was suitable

for only one of the categories. In doing so, it missed Park

Bank's potential bad faith with respect to many of the

transactions described by Koss Corporation.

¶103 A proper assessment of Park Bank's potential liability

requires us to test the two categories of suspect transactions

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against the two exceptions to the immunity provided by Wis.

Stat. § 112.01(9). The four possible permutations are as

follows:

1. Did the transactions initiated by Ms. Sachdeva

create a Fiduciary Breach Exception to immunity

(Combination 1)?

2. Did the transactions initiated by Ms. Sachdeva

create a Bad Faith Exception to immunity (Combination

2)?

3. Did the transactions initiated by unauthorized

Koss employees create a Fiduciary Breach Exception to

immunity (Combination 3)?

4. Did the transactions initiated by unauthorized

Koss employees create a Bad Faith Exception to

immunity (Combination 4)?

Because my purpose in this dissent is simply to demonstrate that

Koss Corporation identified matters that should have gone to the

jury for its consideration, I will not assess each of the

combinations; addressing only the fourth should be sufficient to

make the point.

*

¶104 With respect to Combination 4, the task is to

determine whether Park Bank acted in bad faith when it processed

a transaction on a fiduciary account without first checking the

fiduciary's name against the signature card. And so we arrive

at the heart of the lead opinion, to wit, the definition of "bad

faith." It said that, for purposes of Wis. Stat. § 112.01(9),

"bad faith" means "acts evidencing bank dishonesty such as a

bank willfully failing to further investigate compelling and

obvious known facts suggesting fiduciary misconduct because of a

deliberate desire to evade knowledge of fiduciary misconduct."

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Lead op., ¶¶3, 73. I disagree with this formulation because it

improperly mixes elements of the Fiduciary Breach Exception with

elements of the Bad Faith Exception.

¶105 As I mentioned above, the Fiduciary Breach Exception

inquires into the fiduciary's fidelity to his company. The Bad

Faith Exception does not. With respect to this exception, the

terms of Wis. Stat. § 112.01(9) require only that the bank know

of facts sufficient to demonstrate it——the bank——had acted in

bad faith in conducting the transaction. And although bad faith

may arise out of knowledge of a fiduciary's misconduct, the

statute's terms do not limit the tort to such a situation. Nor

does the statute's context or structure suggest such a reading

is necessary, or even reasonable. So when the court borrowed

"fiduciary misconduct" from the Fiduciary Breach Exception and

imported it into the Bad Faith Exception, it gratuitously and

atextually limited the type of facts that could establish a

bank's bad faith.

¶106 I agree with Justice Ann Walsh Bradley that we should

adopt a definition of "bad faith" that comports with our sister

states. However, I would not adopt (as she does) the Caputo

standard because it, too, conflates the Fiduciary Breach

Exception with the Bad Faith Exception. The New Jersey Supreme

Court said:

[B]ad faith denotes a reckless disregard or purposeful

obliviousness of the known facts suggesting

impropriety by the fiduciary. It is not established

by negligent or careless conduct or by vague

suspicion. Likewise, actual knowledge of and

complicity in the fiduciary's misdeeds is not

required. However, where facts suggesting fiduciary

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No. 2016AP636.dk

misconduct are compelling and obvious, it is bad faith

to remain passive and not inquire further because such

inaction amounts to a deliberate desire to evade

knowledge.

N.J. Title Ins. Co. v. Caputo, 748 A.2d 507, 514 (N.J. 2000).

The references to the fiduciary's "impropriety," "misdeeds," or

"misconduct" (if we adopted this test) would read into the Bad

Faith Exception limiting factors that simply do not exist in the

statute's language.

¶107 I think the United States Court of Appeals for the

Fourth Circuit more accurately assesses bad faith in this

context:

Neither criminal fraud nor downright corruption is an

essential ingredient of legal 'bad faith.' The 'bad

faith' test was borrowed from the Uniform Negotiable

Instruments Act. The standard used in construing the

term under that Act has not been evil motive. Instead

courts have asked whether it was 'commercially'

unjustifiable for the payee to disregard and refuse to

learn facts readily available. At some point, obvious

circumstances become so cogent that it is 'bad faith'

to remain passive.

Maryland Cas. Co. v. Bank of Charlotte, 340 F.2d 550, 554 (4th

Cir. 1965) (citations and footnote omitted). This standard is

compatible with the language of Wis. Stat. § 112.01(9) because

it does not limit the tort to instances of fiduciary misconduct.

Instead, it accurately reflects the statutory structure in that

it allows a plaintiff to address the bank's bad faith

independently from that of the fiduciary.

*

¶108 Applying those principles to this case inevitably

leads to the conclusion that the circuit court should have

allowed Koss Corporation to submit the Combination 4

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transactions to the jury. Everyone acknowledges that Park Bank

allowed Koss Corporation employees who were not listed on the

signature card to request and pick up cashier's checks. See

lead op., ¶63.5 They also agree that Park Bank allowed one such

employee to draft a counter check against Koss Corporation's

account, cash it, and use the proceeds to purchase two cashier

checks. Id., ¶64. The facts of record demonstrate that a jury

could find Park Bank acted in bad faith when it remained

intentionally ignorant of whether the individuals transacting

business on Koss Corporation's accounts had the authority to do

so.

¶109 In summarily dismissing the significance of this

conduct, the court illustrated the defect in its analytical

structure. It said that "Koss Corporation does not explain how

Mulvaney's being a non-signatory amounted to an obvious and

compelling fact that Sachdeva was breaching her fiduciary

obligations to Koss Corporation." Id., ¶63. That misses the

point. If we were analyzing this case under the Fiduciary

Breach Exception to immunity, we would be interested in Ms.

Sachdeva's conduct toward Koss Corporation. But we aren't doing

that analysis, and so we aren't particularly interested in Ms.

Sachdeva's behavior. We are instead assessing Koss

5

Although these employees were not listed as individuals

authorized to transact business on Koss Corporation's accounts,

they were, nonetheless, fiduciaries. According to Wis. Stat.

§ 112.01(1)(b), a "fiduciary" includes an "agent" of a

corporation. It is fair to say that the Koss Corporation

employees were holding themselves out as agents of the company

when they transacted business on Koss Corporation's accounts.

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Corporation's claims under the Bad Faith Exception to immunity,

which means the proper focus is on Park Bank's conduct toward

Koss Corporation.

¶110 Properly re-oriented, the undisputed facts reveal a

pattern of conduct that should cause any corporate officer's

heart to fearfully skip a beat, or several. Park Bank said,

unapologetically(!), that its policy is to remain intentionally

and steadfastly ignorant of whether an individual has the

authority to transact business on a fiduciary account. Avoiding

that knowledge takes some effort because the information resides

in the bank's own records. It's in the signature card, the

specific purpose of which is to tell the bank which of Koss

Corporation's employees may access the company's accounts. Yet

the bank deliberately and consistently refused to consult the

signature card to determine whether it was helping an

unauthorized person gain access to a fiduciary account.

¶111 This is not evidence of negligence, as the court would

have it. Id., ¶57. Negligence would be a bank employee

forgetting to check the signature card, or checking so cursorily

that the names failed to register in his mind, or a training

regimen that failed to teach employees to check the signature

cards, or an inconstant enforcement of a policy to check the

signature cards. None of that is at issue here. What Park Bank

did was intentional. It chose to ignore its depositors'

signature cards. It chose not to know whether the Koss

Corporation employees with whom it was dealing had the authority

to access the company's accounts. It chose to have a policy of

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No. 2016AP636.dk

ignorance with respect to its customers' instructions. The

consequence of those intentional choices was that it disbursed

enormous sums of money to people who were not authorized to

access Koss Corporation's accounts.

¶112 This does not mean, however, that Park Bank is

necessarily liable to Koss Corporation. It is possible that a

jury would find no bad faith in Park Bank's conduct. Further,

Koss Corporation must still prove that Park Bank's actions were

the proximate cause of its damages. If Park Bank had called

Koss Corporation when an unauthorized employee tried to access

its accounts, perhaps Ms. Sachdeva's embezzlement attempt would

have been revealed. We know this is possible, because her

scheme came to light when American Express observed suspicious

activity on Koss Corporation's account and called to

investigate. Or perhaps Park Bank's call would have gone to Ms.

Sachdeva, who would have been in a position to ratify what the

unauthorized employee was doing.

¶113 These "perhaps" are within the jury's province, and a

jury should have been allowed to consider them. Caputo, 748

A.2d at 514 ("The test for good or bad faith is a subjective one

to be determined by the trier of fact unless only one inference

from the evidence is possible."). By concluding, as a matter of

law, that Park Bank's intentional ignorance of its own records

could not amount to bad faith, we erred.

¶114 For the foregoing reasons, I respectfully dissent.

¶115 I am authorized to state that Justice REBECCA GRASSL

BRADLEY joins this dissent.

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1