Upon learning that his attorney has forged the endorsement on a settlement check and the money is now gone, the client has multiple options for redress
This article explains the authority of the attorney to endorse a client’s name to a settlement check and deposit the check in the attorney’s trust account, and the liability of the bank to the client for conversion under Uniform Commercial Code section 3420 if the endorsement is forged or unauthorized.1
The client owns the check — not the attorney
Here is the issue: The attorney settles the case with or without client’s authority, negotiates the settlement check, but lacks the client’s written authority to affix the name of the client as the endorsement to the check.
As can be imagined, the money is gone. The sad summary is that the attorney, without the client’s knowledge or consent, settled the case, forged the client’s name to the settlement agreement and settlement check, deposited check or checks, and absconded with the proceeds.2 Through the state bar disciplinary process and ensuing client security fund proceedings,3 the client learns
that the attorney has illicitly settled the case and came into possession of the settlement check. Even the cops or FBI (if large scale) are called.
Upon learning that the attorney has in fact forged the name of the client, and assuming no special or general power of attorney, the client has multiple options. The first and most economical option is that the client can demand upon the collecting bank [i.e., the bank for the attorney who processed the check] for reimbursement by presenting an affidavit of forgery. Banks establish security departments that process affidavits of forgery, open an investigatory file, confront the customer attorney and attempt to determine in fact that the signature was a forgery, and that the attorney acted wrongfully and lacked a retainer agreement with a power of attorney. The bank might even pay.
The next option is that the client prosecutes a claim under the statutory authorized client security fund.4 The State Bar of California provides a client security fund to compensate clients for attorney thefts and embezzlements.5 The client files a verified application asserting an attorney theft. In response, the client security fund commission investigates the claim, might hold a hearing, and renders an award compensating the client. Upon payment to the client, the fund is subrogated to the client’s rights and files a civil action for reimbursement against the attorney. The state bar might file suit against the collecting bank for the loss based on equitable, contractual or statutory subrogation principles.
Another option is that the client recycles the underlying litigation. This is a moment for pause. In some instances, the client fully authorized the settlement and signed the releases, but the attorney forged the client’s name on the settlement check and dissipated the proceeds [Substance abuse, or gambling, is prevalent in these cases.] The client does not have a credible claim to vacate the authorized settlement just because the attorney embezzled the settlement check.
On the other hand, if the attorney settled the case without the client’s authorization and forged the client’s name to the settlement agreement, the client would have a credible claim to topple the underlying settlement, rescind the mutual releases (forged) and reinstate the underlying litigation, but faces an offset for the money taken by the errant attorney.
Bank is liable on forged endorsement
The collecting bank is strictly liable for the conversion by deposit or payment based on a forged endorsement under Uniform Commercial Code section 3420. [The bank who took the check for payment from the attorney is called the collecting bank; the bank who paid the check is calling the paying bank or drawee on the check. The account holder is called the drawer.] The collecting bank is said to have converted the check in the event of deposit without an endorsement, a forged endorsement, or an unauthorized endorsement.
The fact that a bank is liable in conversion for the deposit and collection of proceeds is well understood and generally undisputed.6 The thesis percolating through Divisions 3 and 4 of the Uniform Commercial Code has always been to impose a duty upon each party in the transaction to insure that they are receiving good title to the instrument. The rationale in imposing liability upon each serial party is that they are in the better position to assure good title, or reject the item. Despite the use of ATMs, remote deposit strategies (smart phones), and other non-personal methods of deposit, the collecting bank remains strictly liable in conversion in the handling of the instrument.
Attorneys lack authority to endorse the client’s name to a settlement check
The courts have repeatedly held that attorneys lack the authority to give way, transfer or surrender the client’s substantative rights, such as surrendering the client’s right for a jury trial. Courts have held that attorneys, by virtue of their employment, are not authorized per se to affix their names to a settlement agreement. Levy vs. Superior Court (Golant)7 squarely held that an attorney cannot affix his or her name to a binding settlement agreement which is subject to enforcement as a final judgment under the California unique settlement statute, California Code of Civil Procedure
The near unanimous rule is those attorneys per se lack the authority to endorse the client’s name to a settlement check.9 The paradigm is the attorney settling the case, forging the client’s signature on the settlement agreement, affixing the client’s name as an endorsement on the settlement draft and depositing the check in the collecting bank. These facts would impose liability upon the bank for conversion under section 3420 which provides for strict liability.10
In Navrides v. Zurich Insurance Co.,11 the California Supreme Court differentiated between the authority of the attorney to receive the check from the adverse party, and the separate authority of the attorney to endorse the client’s name to the check. The Court intimated that the collecting bank would be strictly liable to the attorney’s clients for accepting the check based on a forged or missing endorsement. Navrides rearranges the relationship between clients, seeking to protect their recovery, attorneys seeking to facilitate the orderly receipt and collection of the settlement proceeds, and the financial institution seeking to avoid liability for the mishandling of a settlement check.12 Navrides compels the banks to confirm that the attorney is authorized, as a matter of contract, to endorse the client’s name to the check (or face liability for conversion) and commands the client to hire an honest attorney if executing a power of attorney.
David J. Cook has been practicing in the collection of debts and enforcement of judgment for nearly 46 years. He represents Fred Goldman in his quest to recover his historical judgment against O.J. Simpson. Over many years, David has advised and assisted many trial attorneys in the collection of many large dollar judgments. His email address says all: Cook@Squeezebloodfromturnip.com.
2023 by the author.
For reprint permission, contact the publisher: www.plaintiffmagazine.com