Jewelry Store Left Holding the Bag After Hacker Robbery

Theft is a problem all New York businesses must contend with. A Brooklyn-based jewelry store recently learned this harsh lesson when thieves made off with over $70,000 worth of luxury watches. But unlike most jewelry store robberies, this one was not accomplished by masked men with guns. And in the robbery's aftermath, the store tried to resort to civil litigation against a third party.

Golden Door V& I, Inc. v. TD Bank

In September 2011, Golden Door jewelry store received an order for the watches from a man doing business under a corporate name. Payment was made by wire transfer from the account of another company, known as MHIC, from its account at Eastern Bank. Golden Door's own account at TD Bank received the $71,000 payment. Once notified of the transfer, Golden Door delivered the merchandise to a man who appeared at the Brooklyn store in person.

As it turned out, hackers had compromised MHIC's Eastern Bank account and used its funds to pay for the watches. The man who appeared at the store was a thief who made off with the merchandise. MHIC notified Eastern Bank of the unauthorized transfer. Eastern Bank then credited the MHIC account. In turn, TD Bank reversed the original wire transfer to Golden Door's account.

This left Golden Door without its cash or its merchandise. Golden Door sued both banks for breach of contract and violation of the Uniform Commercial Code. Kings Supreme Court granted summary judgment to both banks in December 2012, and the Appellate Division, Second Department affirmed in an order issued on December 24th of last year.

The breach of contract claim was a non-starter, the Second Department explained, because wire transfers are expressly governed by the Uniform Commercial Code. The UCC is a statutory instrument adopted by the New York legislature that overrules common law claims such as breach of contract.

Now as to the UCC claim, both the Supreme Court and the Second Department said Golden Door had no case. Article 4-A of the UCC provides a “payment order,” such as a wire transfer, may be canceled when both banks agree and “the order was unauthorized in the first place.” There was no dispute MHIC never authorized the wire transfer. Golden Door argued it was still entitled to restitution. Not so, the Second Department said. MHIC had no business relationship with Golden Door. It never placed the order for the watches. It was not a “customer” of the jewelry store; therefore it could not owe any debt to it. Even though Golden Door acted in good faith and had done nothing wrong, it could still not recover anything from the banks.

Need Advice on UCC Matters?

This is fairly straightforward case. But the UCC is a frequent subject of many complex civil and commercial litigation matters. If you are faced with such a case, it is important to have an experienced attorney on your side. Contact our office today if you need to speak with a qualified New York business attorney right away.