Identity-Theft Victims Owed Duty of Care in Bank Fraud Investigations, N.J. Court Says - Via Law.com :

A bank that pursues criminal charges against an innocent third party whose identity is stolen and used to defraud the bank can be sued for negligence and malicious prosecution, an appeals court held Tuesday in a case of first impression in New Jersey.

The court, in Brunson v. Affinity Federal Credit Union, A-4439-06, ruled that financial institutions and fraud investigators have a duty to "pursue with reasonable care their responsibility for protecting not only their own customers, but non-customers who may be victims of identity theft."

The holding reversed a grant of summary judgment dismissing claims for negligence and malicious prosecution against Affinity Federal Credit Union and its fraud investigator. Plaintiff Howard Brunson was arrested and spent 13 days in custody for a check fraud scheme carried out by a person who opened an Affinity account using his identity.

The panel found that even though Brunson was not an account holder, the credit union owed him a duty and established a relationship with him when it opened an account in his name, because the harm -- the identify theft, the fraudulent scheme and the arrest, indictment and incarceration -- was foreseeable.

"Financial institutions -- particularly banks -- have a duty to exercise reasonable care in opening accounts," wrote Judge Lorraine Parker in a published opinion. "That duty included the duty to conduct a reasonable investigation before initiating criminal proceedings against the person whose stolen identity was used to open the account."

In October 2002, an unknown person opened an Affinity account in Brunson's name using his Social Security number and a New Jersey non-driver's identification card with Brunson's date of birth and a Paterson, N.J., address (misspelled with two "t"s). Within days, $9,506 in phony checks drawn against Viva International Group, a Somerville, N.J., sunglass manufacturer, were cashed through the account at various branches.

James Wilcox III, a certified fraud examiner who worked as Affinity's fraud and loss prevention specialist, was assigned to the matter and was given surveillance tapes and still photographs showing the person responsible. He was described as a black male about five feet six inches tall, which matched the description on the identification card. Brunson was six foot three, nine inches taller.

Wilcox verified that Viva had no one named Howard Brunson on the payroll or authorized to sign company checks. He also learned Brunson had a criminal record but never reviewed a police photo array with Brunson's picture or compared a photo of Brunson against the surveillance images. Nor did he show the tellers who dealt with the perpetrator a photo of Brunson to confirm the identification.

Wilcox signed two criminal complaints against Brunson for uttering a forged document and for theft by deception. He also testified before the grand jury that indicted Brunson.

Brunson, a New York City resident, was arrested in Virginia and extradited to New Jersey. He was released after 13 days and the charges were eventually dropped.

Superior Court Judge Robert Wilson threw out Brunson's suit against Affinity and Wilcox, calling the incident an innocent mistake and noting that Wilcox did not willfully withhold or misrepresent information in his grand jury testimony. Brunson appealed.

Parker, joined by Dorothea Wefing and Ellen Koblitz, found no New Jersey case supporting a duty of care but looked to Patrick v. Union State Bank, 681 So.2d 1364 (Ala. 1995), in which the Alabama Supreme Court said a bank could be liable for the false arrest of someone whose stolen identity was used to open an account.

Parker said the malicious prosecution claim could also go forward, saying the fact that the grand jury indictment was based on truthful testimony from Wilcox did not negate malice and thus did not insulate Affinity or Wilcox from liability. It is a jury question, she said, "whether the grand jury would have indicted plaintiff if it had been presented with photographs of the imposter and plaintiff along with the disparity in their descriptions."

Affinity's lawyer, David Dering of Cedar Knolls, N.J.'s Leary Bride Tinker & Moran, declines comment, as does company spokesperson, Elizabeth McLaughlin.

Brunson's lawyer, Anthony Cariddi, of Cariddi & Garcia in Hackensack, N.J., says the case "goes a long way toward protecting innocent victims from identity theft," adding, "this could happen to anybody." He says he was able to ascertain quickly that Brunson was not the perpetrator of the fraud and get him released after Assistant Bergen County Prosecutor Nicholas Ostuni provided copies of the surveillance photos.

The Brunson decision is the second time in three weeks that Parker has broken new ground in seeking to protect against identity theft. On Aug. 22, in Burnett v. County of Bergen, A-2002-06, she held that a state constitutional right to privacy in Social Security numbers trumped an Open Public Records Act provision that would have allowed their release.

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