GRASSI DESIGN GROUP, INC., & another [Note 1] vs. BANK OF AMERICA, N.A., [Note 2] & another. [Note 3]

GRAINGER, J. The plaintiffs, Grassi Design Group, Inc. (Grassi), and Beauchemin Grassi Interiors, Inc. (Beauchemin), are two interrelated businesses that maintained commercial checking accounts with the defendants, Bank of America, N.A. (Bank of America), and RBS Citizens, N.A. (Citizens). [Note 4] After discovering that an employee common to both corporations had forged and cashed numerous checks that the defendants honored upon presentment, the plaintiffs sought damages. The plaintiffs appeal from the entry of summary judgment against them on all counts of the complaint. [Note 5]

The factual and procedural background was set out below by the motion judge in a detailed and thoughtful memorandum of decision, and we need not repeat it here. We confine our summary of the findings to pertinent facts as they relate to the issues raised in this appeal.

The plaintiffs each filed claims seeking (1) reimbursement as provided by Article 4 of the Uniform Commercial Code, see G. L. c. 106, § 4-406, [Note 6] (2) damages for breach of contract, (3) damages for breach of implied contract, and (4) damages for violation of G. L. c. 93A. They argue that summary judgment on all counts was improperly granted pursuant to both the Uniform Commercial Code and contract law. They also assert that the judge erred in excluding their expert witness's opinion report regarding the automatic processing of the forged checks. For the following reasons, we affirm the judgment.

1. Reimbursement pursuant to Article 4 of the UCC. The plaintiffs have conceded that they failed to examine the monthly statements sent to them by the defendant banks. General Laws c. 106, § 4-406, requires a bank customer promptly to examine

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monthly statements and to notify the bank of any unauthorized transactions, as the customer is in the best position to discover and report forgeries. If the customer fails to report the first forged check within thirty days, the customer is precluded from recovery for any additional checks forged by the same wrongdoer and paid in good faith before the bank has received notice from the customer. G. L. c. 106, § 4-406(d)(2).

The plaintiffs are thus subject to this preclusion unless they can invoke certain exceptions enumerated in G. L. c. 106, § 4-406(e). This section of the statute provides that if the plaintiffs can demonstrate that the banks did not exercise "ordinary care" in processing a forged check, liability is assigned proportionately to each party's responsibility for the loss. [Note 7] Ordinary care, in turn, is defined by G. L. c. 106, § 3-103(a)(7), with reference to the "reasonable commercial standards, prevailing in the area in which the [bank] is located." Where a bank "takes an instrument for processing for collection or payment by automated means," § 3-103(a)(7) provides that "reasonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the bank's prescribed procedures and the bank's procedures do not vary unreasonably from general banking usage not disapproved by this Article or Article 4." [Note 8] Ibid.

The ordinary care exception is inapplicable here because the banks have demonstrated the absence of any genuine dispute on either exception, namely whether the failure to examine here

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"violate[d] the bank's prescribed procedures" or whether those procedures "vary unreasonably from general banking usage." Ibid. Specifically, both banks presented evidence that they used fraud detection computer software called ASI/16 to identify potentially fraudulent checks. The evidence tended to establish that the software "flagged," or outsorted, checks that failed to meet specified parameters of normal transaction activity, that the ASI/16 software process complied with the banks' policies and procedures for check handling, and that the ASI/16 software was the prevailing industry standard in the area where the banks were located during 2003 and 2004 -- the time period during which the checks at issue were processed.

The only evidence that the plaintiffs, who bear the burden of proof on this issue, offer in support of their position are expert reports by Gene Cooney (Cooney reports) that they submitted in response to the defendants' motions for summary judgment. [Note 9] The judge excluded these reports, relying on his discretion to impose sanctions on the plaintiffs for violations of discovery orders. See Mattoon v. Pittsfield, 56 Mass. App. Ct. 124 , 131-132 (2002) (abuse of discretion standard applies when reviewing sanction order). We conclude that the exclusion of the reports was problematic under the circumstances presented by this record; however, as discussed infra, the reports provided the plaintiffs with no basis to avert the award of summary judgment to the defendants.

2. The exclusion of the reports as a sanction for discovery violations. The judge was well within his discretion in concluding that the plaintiffs should be penalized for discovery violations. See Mass.R.Civ.P. 37(d), 365 Mass. 800 (1974). The plaintiffs did not produce the Cooney reports or disclose Cooney as an expert until ten months after they first received expert interrogatories from the banks and not until they were required to file responses to the banks' motions for summary judgment, forty days after the close of discovery. See Mass.R.Civ.P. 26(e)(1), 365 Mass. 776 (1974) (requiring party "seasonably to supplement his

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response" with respect to "the identity of each person expected to be called as an expert witness at trial, the subject matter on which he is expected to testify, and the substance of his testimony"). The Cooney reports were impermissibly and inexcusably tardy, [Note 10] and could have prejudiced the defendants, as they gave the plaintiffs an opportunity to fashion them in response to the defendants' summary judgment motions. It was thus permissible for the judge to impose a sanction.

Having chosen to impose a sanction it was incumbent upon the judge to fashion one that was appropriately punitive in relation to the objectionable behavior, and appropriately remedial in relation to the disadvantage visited on the defendants. Our case law is replete with appellate affirmation of trial judges who have excluded expert testimony where the expert was revealed shortly before trial. See Kearns v. Ellis, 18 Mass. App. Ct. 923 , 924 (1984) (affirming exclusion of expert testimony where plaintiff gave name of expert two days before trial, after previously representing that there would be no expert); Shaw v. Rodman Ford Truck Center, Inc., 19 Mass. App. Ct. 709 , 713 (1985) (affirming exclusion of expert testimony where defendant ignored supplemental interrogatory requests for nine months and did not provide them until four days before trial); Mattoon v. Pittsfield, supra at 132-134 (affirming exclusion of expert testimony where plaintiff did not provide opportunity to depose expert and where plaintiff, ten days before trial, served answers to interrogatories opening new subject of testimony).

Here, however, we are confronted with misbehavior at an earlier stage of the litigation, a stage at which the delay is less egregious

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and the prejudice more easily remedied. The judge could have remedied the prejudice by, for example, granting a continuance for the defendants to respond to the plaintiffs' late submissions and ordering compensation for extra costs incurred as a result. See Morgan v. Jozus, 67 Mass. App. Ct. 17 , 24 (2006) ("While a judge, in the exercise of discretion, may exclude expert testimony for failure to comply with discovery, the judge must consider other options, including a sua sponte continuance of the [case]"). At the same time, we note that our system favors the substantive resolution of disputes on the merits in most instances. See Monahan v. Washburn, 400 Mass. 126 , 129 (1987) ("The law strongly favors a trial on the merits of a claim"). The exclusion of the plaintiffs' sole proffer of evidence in opposition to the motion for summary judgment was tantamount to the dismissal of their complaint, a sanction reserved for egregious circumstances. See id. at 128 ("Involuntary dismissal is a drastic sanction which should be utilized only in extreme situations"). Cf. Atlas Tack Corp. v. Donabed, 47 Mass. App. Ct. 221 , 224 (1999) (affirming exclusion of impermissibly vague portion of answer to expert witness interrogatory that ultimately resulted in dismissal on summary judgments). Accordingly, under the circumstances of this case, we are troubled by the application of a penalty which was, in all material respects, extreme in that it foreclosed the plaintiffs' ability to seek legal redress.

We affirm the result here however because we conclude that the Cooney reports, even had they been admitted, were insufficient to oppose summary judgment.

3. Entry of summary judgment. The Cooney reports are included in the record before us and the defendants have argued on appeal that the reports do not avail the plaintiffs. "Because the record compiled for summary judgment is open to our independent consideration, we have made an independent compilation of the relevant facts to frame the ultimate legal question whether summary judgment is appropriate." Matthews v. Ocean Spray Cranberries, Inc., 426 Mass. 122 , 123 n.1 (1997). We agree with the defendants.

Many of the assertions in the Cooney reports fail to comply with Mass.R.Civ.P. 56(e), 365 Mass. 825 (1974). Both reports contain legal conclusions and extensive legal argument, speculation

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based on assumptions conceded to be unverified, irrelevant digressions questioning the defendants' compliance with deposition subpeonae issued pursuant to Mass.R.Civ.P. 30(b)(6), 365 Mass. 782 (1974), and irrelevant assertions concerning the defendants' ability, or lack thereof, to compare presented instruments with signature cards if they wished to do so. [Note 11]

While the defendant banks proffered specific evidence pertaining to the "reasonable commercial standards, prevailing in the area" in which the bank is located, see G. L. c. 106, § 3-103(a)(7), the May 19, 2006, Cooney report concludes, with no stated elaboration, that "[a]utomated fraud detection systems were not the standard in the banking industry during 2003 and 2004," with no reference to any particular market. [Note 12] In sum, the Cooney reports, on the whole, do not qualify as expert opinions under the standards set forth in Commonwealth v. Lanigan, 419 Mass. 15 , 25-26 (1994), and, even where admissible, are insufficient to create a genuine issue of material fact as they do not relate to the "general banking usage" in the area, as required by G. L. c. 106, § 4-103. We must uphold summary judgment where the defendants demonstrate that the plaintiffs are unable to offer admissible

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evidence to support an essential element of their claim. See Kourouvacilis v. General Motors Corp., 410 Mass. 706 , 716 (1991). Because the plaintiffs are unable to prove an essential element of their claim, summary judgment was appropriate.

4. Contract claims. The plaintiffs next argue that the judge improperly granted summary judgment to the defendants on the contract claims. However, as the motion judge properly concluded, the contract provisions cited by the plaintiffs are substantially similar to those in G. L. c. 106, § 4-406, and must likewise fail.

The Bank of America agreement with Grassi, reproduced in relevant part in the margin, [Note 13] provides that the customer will be precluded from asserting claims for unauthorized items, unless it reports them to Bank of America "within [thirty] days after we make the statement available to you." This provision is similar to G. L. c. 106, § 4-406(d), which also precludes the customer from recovery for unauthorized items if the customer does not "promptly notify" the bank. [Note 14] In any event, Grassi points to no items that were reported within thirty days of appearing on a statement.

The Citizens agreement with Beauchemin, also reproduced in relevant part in the margin, [Note 15] similarly provides that the customer must bear or share the loss for unauthorized items that are not

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reported by the customer within thirty days of the statement's becoming available, depending on whether the bank used ordinary care or contributed to the loss. In the third paragraph, the bank disclaims any liability whatsoever, regardless whether it used ordinary care, for claims made sixty days after the statement is made available. Thus, for claims made within thirty days of the statement, the customer may recover without any additional showing. For claims made between thirty and sixty days, the customer may recover only if the bank failed to exercise ordinary care and substantially contributed to the loss. And for claims made more than sixty days after the statement became available, the customer may not recover, regardless whether the bank exercised ordinary care. Beauchemin points to no items that were reported within thirty days of the statements' becoming available.

As to the items reported between thirty and sixty days of the statements becoming available, Beauchemin was required to show both that Citizens failed to exercise ordinary care and that the failure substantially contributed to the loss, just as Beauchemin was required to show pursuant to § 4-406. See G. L. c. 106, § 4-406(e). Beauchemin, as discussed above, has failed to make such a showing. Finally, as to items reported sixty days after appearing on a statement, the bank's contract does not avail Beauchemin, inasmuch as Beauchemin did not qualify under the analogous section of the Uniform Commercial Code, which gives more protection than the contract. See G. L. c. 106, § 4-406(f) ("Without regard to care or lack of care . . . a customer who does not within one year after the statement or items are made

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available to the customer . . . discover and report [the unauthorized item] is precluded from asserting [a claim] against the bank").

Because the contract claims fail, we need not address the judge's determination that those claims are supplanted by the Uniform Commercial Code. See Jensen v. Essexbank, 396 Mass. 65 , 66-67 (1985); Arkwright Mut. Ins. Co. v. State Street Bank & Trust Co., 428 Mass. 600 , 606 (1998).

5. Remaining claims. Inasmuch as no genuine dispute exists with respect to the banks' good faith or exercise of ordinary care, summary judgment was appropriately entered against the plaintiffs on their assertion of a violation of G. L. c. 93A.

The plaintiffs also asserted a claim for breach of an implied contract, arguing that the defendants committed a breach of an implied contract that they created by requiring the plaintiffs to sign a signature card. The plaintiffs make no argument on appeal that the judge erred when he determined these claims were supplanted by the Uniform Commercial Code. Nor do they make any argument that, if the claims were not supplanted, a dispute existed as to any material fact. Because the issue is not argued, we need not address it. See Mass.R.A.P. 16(a)(4), as amended, 367 Mass. 921 (1975).

Judgment affirmed.