Bank Wins Ruling in Customer’s Bid for Punitive Damages

Handing a welcome legal reversal to big business, a state appellate court in San Diego has ruled that a chiropractor who lost $32,913 from his bank account when a bank cashed forged checks cannot sue the bank for punitive damages.

Reversing a rule it had issued just six years ago, the 4th District Court of Appeal said Tuesday that a bank does not have the kind of “special relationship” with its customers that the law demands to warrant the threat of punitive awards, which commonly reach millions of dollars.

The new rule, a three-judge panel of the court said, is that consumers may not seek punitive damages when suing a bank on allegations that it broke a basic promise to deal fairly and in good faith with its borrowers or depositors.

The decision marked the latest in a line of dramatic cutbacks in consumer and worker rights achieved in recent years by the California courts. The switch in the 6-year-old rule, the 4th District panel said, was required by a landmark 1988 state Supreme Court opinion that sharply limited damages in a commercial context.

Given the current climate at the Supreme Court, Paul A. Zumberge, the attorney for chiropractor Paul Copesky, said the success of a further appeal appeared dim. Still, Zumberge said, the issue might be worth fighting for.

“You talk to anybody who puts their money in a savings account or a checking account, you ask them whether they think the bank owes them a duty to act responsibly, provide safety, provide security, peace of mind and all that stuff,” Zumberge said. “I think you know what the answer’s going to be. It’s just common sense.”

Roy M. Bell, the lawyer for San Diego National Bank, the bank Copesky had sued, said that it had acted responsibly. Copesky was at fault because he did not check his statements each month, Bell said.

Copesky, who runs Torrey Pines Chiropractic Clinic on Sorrento Valley Road, had an ordinary checking account with the bank, a San Diego-based business bank. Only he and his wife were authorized to sign checks.

From March, 1987, through September, 1988, the clinic’s bookkeeper cashed a number of checks, all under $1,000, using Copesky’s signature stamp. He failed to discover the $32,913 total fraud, according to the 4th District court, because his wife, who supervised the bookkeeper, was not around the business during those 18 months.

The bookkeeper, Natalie Ford, was convicted in late 1989 of criminal charges, served a jail term and was ordered to make restitution, Copesky said Wednesday.

According to the lawsuit, the bank failed to require identification from Ford when the checks were presented. The use of the signature stamp was an “obvious” forgery that the bank should have discovered, the suit said.

“I find it hard for the bank not to have some kind of empathy,” Copesky said. “In my mind, they did not exercise some sort of proper protocol.”

When Copesky finally noticed that the money was missing, he asked the bank to cover the loss. The bank, citing a little-known state law that said it had no liability beyond checks cashed in the final weeks of the loss, offered to pay that amount, “to the letter of the law,” Bell said.

Bell said he did not know how much that was. But, since the checks dribbled in, it was nowhere near $32,913, he said.

Though the bank has $164 million in assets, forcing it to pay all $32,913 would require it, in essence, to act as an insurance company for depositors who fail to check their statements, Bell said.

“You are charged with the responsibility of looking at your own bank accounts,” Bell said. “That’s just common sense.”

Zumberge said that Copesky “has not been paid a dime of that money, despite repeated requests.” Since Copesky had not gotten back his out-of-pocket costs--the $32,913--he sued the bank, alleging that it violated the promise to deal fairly, and asked for punitive damages.

Punitive damages are available only in what in legal jargon is called a tort case--meaning a a civil lawsuit that is not over a contract, such as a fraud case. The checking account that Copesky had with the bank, however, was nothing more than a contract, Judge Charles W. Froehlich Jr. said.

In a rare case, a punitive award can be based on a broken contract, Froehlich said. But, he said, that takes a case with a “special relationship,” one where a large corporation offers an individual only a standard form contract and, after it is signed, acts in bad faith.

Typically, that means the company ignores the contract or fails to pay what the contract says. Usually, it’s an insurance company, Froehlich said.

Copesky said that the bank--because it is large, had so much more money and offered him a standard checking account--had a “special relationship” with a small depositor like him.

Under the 4th District’s 1985 rule, that was indeed the case, Froehlich said.

But the 1988 Supreme Court ruling sent a clear signal that a “special relationship” existed only in insurance cases, Froehlich said. And, as Bell argued, a bank is not an insurance company, Froehlich said.

Because the 4th District’s old rule, Froehlich said, turned out “to be misdirected,” it had to be reversed, leaving Copesky with no case.

Judges Patricia Benke and Richard Huffman concurred in the opinion.