Whitaker v. Wedbush Securities, Inc.
162 N.E.3d 269
Ill.2020Background
- Whitaker (and his practice) had commodity futures accounts that were assigned to Wedbush Securities, Inc. (Wedbush) in December 2014; no new customer agreement was executed.
- Wedbush held customer funds in segregated accounts at BMO Harris Bank and used BMO Harris’s online portal to process customer wire-transfer requests.
- A hacker obtained Whitaker’s email account and sent fraudulent wire instructions; Wedbush transmitted four unauthorized wires totaling $374,960 via BMO Harris.
- Plaintiffs sued in Cook County asserting fraudulent concealment and seeking a refund under Article 4A of the Illinois UCC; the trial court granted summary judgment on the fraudulent-concealment counts and then found Wedbush was not a “bank” under Article 4A and entered judgment for Wedbush on the UCC claims.
- The appellate court affirmed; the Illinois Supreme Court reversed, holding Wedbush qualifies as a “bank” under Article 4A and remanded for the trial court to decide commercial reasonableness, good faith, and damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Wedbush is a “bank” under Article 4A (810 ILCS 5/4A-105(a)(2)) | Wedbush is a financial institution that acts on behalf of customers in funds transfers and thus falls within the Article 4A definition of “bank.” | Wedbush is not engaged in the business of banking; absence of checking/deposit/loan services means it cannot be a “bank.” | Court: Article 4A’s term “bank” is not limited to institutions offering checking; on these facts Wedbush (a registered futures commission merchant and broker-dealer that regularly processed wholesale wires) qualifies as a bank. |
| Whether offering checking services is required to be a “bank” under the UCC | Not required; Article 4A and its comments show financial institutions that perform funds-transfer functions can be banks. | Past cases under Articles 3 and 4 relied on checking as a key factor; therefore checking services should be required here. | Court: Checking services are not a prerequisite; the statute and comments do not impose that limitation. |
| Admissibility of plaintiffs’ Exhibit No. 11 (website printout claiming banking services) | Exhibit would support that Wedbush offered banking services. | Exhibit lacked proper authentication. | Court: Did not decide whether exclusion was error because admissible evidence already established Wedbush is a bank; therefore exclusion unnecessary to resolve. |
| Whether this court should decide commercial-reasonableness, good-faith, and damages now | Plaintiffs urged immediate resolution on the merits and damages. | Wedbush implied those issues should be decided by the trial court in the first instance. | Court: Remanded for the trial court to determine commercially reasonable security procedure, good faith, and damages; declined to resolve those issues on appeal. |
Key Cases Cited
- MidAmerica Bank, FSB v. Charter One Bank, FSB, 232 Ill. 2d 560 (Ill. 2009) (use of UCC official comments when construing UCC provisions)
- Ma v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 597 F.3d 84 (2d Cir. 2010) (Article 4A definition of “bank” can encompass brokerage firms)
- Choice Escrow & Land Title, LLC v. BancorpSouth Bank, 754 F.3d 611 (8th Cir. 2014) (purpose of Article 4A to allocate risks of wholesale wire transfers)
- Woods v. MONY Legacy Life Ins. Co., 641 N.E.2d 1070 (N.Y. 1994) (non-bank financial institution treated as a bank under UCC when account resembled checking)
- Grain Traders, Inc. v. Citibank, N.A., 160 F.3d 97 (2d Cir. 1998) (Article 4A enacted to address funds-transfer rights and obligations)
- Nisenzon v. Morgan Stanley DW, Inc., 546 F. Supp. 2d 213 (E.D. Pa. 2008) (brokerage firm offering checking-like services held a bank under the UCC)
- West Bend Mut. Ins. Co. v. TRRS Corp., 2020 IL 124690 (Ill. 2020) (remand appropriate for trial court to decide unresolved factual issues)