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The now-defunct Mechanics Bank is liable for improperly paying out more than $650,000 on unendorsed checks cashed by an accountant who concocted a check fraud scheme against a family-run construction firm, the Massachusetts Appeals Court ruled Feb. 23. With interest accrued since the original case was filed in Worcester Superior Court in February 1991, the award now comes to more than $1.4 million. “We conclude that the bank wrongfully debited plaintiff’s account when, without any inquiry into [accountant James] Maddalena’s authority, it paid to him the proceeds of the Mechanics Bank checks,” wrote Appeals Court Chief Justice Christopher J. Armstrong. Appeals judges affirmed the decision of Superior Court Judge James P. Donohue, who presided over the 1995 bench trial. But unlike the trial judge, the Appeals Court held the bank responsible for the full amount of the loss suffered by the plaintiffs in Govoni & Sons Construction Co. Inc. v. Mechanics Bank no. 97-P-117. Donohue had found the Govonis 25 percent negligent and reduced the award accordingly based on the state’s comparative negligence statute, G.L.c. 231, Section 85. The Appeals Court determined that Donohue “erroneously applied” the statute to reduce the amount recovered by the plaintiffs. The plaintiffs’ appellate attorney, Suffolk University Law School professor Herbert Lemelman, successfully argued that the state statute was displaced by provisions of the Uniform Commercial Code in place at the time the case was filed. “This is an important case because it sets a minimum standard of conduct for banks with regard to how checks are handled,” Lemelman said. “This decision says the bank employees have to say more than ‘We’re too busy’ to look at them.” Mechanics has since been taken over by Bank of Boston, which subsequently merged into Fleet Bank. Fleet’s lawyer in the case, Worcester attorney John O. Mirick, of Mirick, O’Connell, DeMallie & Lougee, maintained the blame was put on the wrong party. “We’re disappointed with the decision. It’s a case in which Maddalena had a scheme to defraud his employer and we don’t believe it’s fair for the bank to take responsibility for that,” he said. A BANK’S DUTY TO CHECK IT OUT The Appeals Court ruling stems from a period between February 1988 and December 1990 when the Govoni family paid more than $650,000 in state and federal taxes by checks given to its accountant, Maddalena, to pay appropriate tax agents. Instead Maddalena deposited those checks into an account for his own firm, A.R. Davis Associates, Inc., at Mechanics Bank, according to court documents. Of the 132 checks involved, 29 were for at least $7,500 and subject to manual review by bank personnel. According to court papers, Maddalena’s method of fraud was to “bury” the unendorsed Govoni checks among a stack of his own endorsed checks, thereby escaping close scrutiny by bank tellers who would “fan,” or flip through stacks of checks to find those that are unendorsed. Court papers describe how he would go to his local bank branch, where he was known, at particularly busy times when bank employees were less likely to review the checks closely. The bank claimed it was using methods of review routinely used by other banks. Mechanics Bank argued on a variety of fronts — the “fictitious payee” rule, estoppel, holder in due course status and common law indemnification — that the bank should not be held liable for Maddalena’s actions. All were struck down by the Appeals Court. The complaint against the bank “is properly characterized as setting out a claim of wrongful debit because the checks were not properly payable to Maddalena under G.L. c. 106, section 4-401(1), inserted by St. 1957, c. 765, Section 1. This is a common law claim that was retained under the Uniform Commercial Code,” wrote Armstrong, citing the cases of Stone & Webster Engr. Corp. v. First National Bank & Trust Co., 345 Mass. 1, 9-11 (1962) and Siegel v. New England Merchants National Bank, 386 Mass. 672, 675 (1982). Falmouth attorney Philip F. Mulvey said the original case that he filed in 1991 on behalf of the Govoni family has taken longer to conclude than any case he’s ever handled. “I couldn’t be happier with the result,” he said. A consumer protection claim launched by the plaintiffs also was found to be “without merit” in the decision.

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