Richard N. Golden, Respondent,v.Citibank, N.A., Appellant.BriefN.Y.March 25, 2014APL-2013-00169 Queens County Clerk’s Index No. 31238/10 Appellate Division, Second Department Docket No. 2011-10976 Court of Appeals STATE OF NEW YORK RICHARD N. GOLDEN, Plaintiff-Respondent, against CITIBANK, N.A., Defendant-Appellant. >> >> BRIEF FOR DEFENDANT-APPELLANT ZEICHNER ELLMAN & KRAUSE LLP Attorneys for Defendant-Appellant 1211 Avenue of the Americas, 40th Floor New York, New York 10036 212-223-0400 Of Counsel: Barry J. Glickman Bruce S. Goodman Date Completed: September 13, 2013 To Be Argued By: Barry J. Glickman Time Requested: 30 Minutes CORPORATE DISCLOSURE STATEMENT Pursuant to 22 N.Y.C.R.R. 500.1(f), Defendant-Appellant Citibank, N.A. discloses that Citibank, N.A. is a wholly owned indirect subsidiary of Citigroup Inc. and is not publicly traded. Citigroup Inc. is a publicly traded company that does not have a parent company. No publicly held company owns 10% or more of the stock of Citigroup Inc. TABLE OF CONTENTS TABLE OF AUTHORITIES ......................................................................... ii PRELIMINARY STATEMENT ................................................................... 2 STATEMENT OF QUESTION PRESENTED ............................................. 7 STATEMENT OF FACTS ............................................................................ 7 PROCEDURAL HISTORY ........................................................................ 10 ARGUMENT ............................................................................................... 13 POINT I NEW YORK LAW PERMITS A BANK TO STOP PAYMENT OF A CASHIER’S CHECK WHEN THERE IS A FAILURE OF CONSIDERATION AND THE PAYEE IS NOT A HOLDER IN DUE COURSE AND NOT SIMPLY WHEN THERE IS A FRAUD ................................. 13 CONCLUSION ............................................................................................ 21 ii TABLE OF AUTHORITIES Page(s) CASES Banco Ganadero y Agricola, S.A. v. Soc’y Nat’l Bank of Cleveland, 418 F. Supp. 520 (N.D. Ohio 1976) ....................................................... 18 Burke v. Crosson, 85 N.Y.2d 10, 623 N.Y.S.2d 524 (1995) .................................................. 1 Crossland Sav., FSB v. Foxwood & Southern Co., 202 A.D.2d 544, 609 N.Y.S.2d 282 (2d Dept. 1994) ............................. 19 EA Mgmt. v. JP Morgan Chase Bank, N.A., 655 F.3d 573 (6th Cir. 2011) .................................................................. 17 Gates v. Manufacturers Hanover Trust Co., 98 A.D.2d 829, 470 N.Y.S.2d 492 (3d Dept. 1983) ........................ passim International Furniture Distribs., Inc. v. First Georgia Bank, 294 S.E.2d 732 (Ga. Ct. App. 1982) ...................................................... 18 State Bank of Springfield v. South Mill Mushroom Sales, Inc., 875 F.2d 158 (8th Cir. 1989) .................................................................. 17 State Farm Mut. Auto. Ins. Co. v. Westlake, 35 N.Y.2d 587, 364 N.Y.S.2d 482 (1974) ................................................ 1 Transcontinental Holding Ltd. v. First Banks, Inc., 299 S.W.3d 629 (Mo. Ct. App. 2009) .................................................... 17 Travi Constr. Corp. v. First Bristol County National Bank, 405 N.E.2d 666 (Mass. App. Ct. 1980) .................................................. 18 U.S. Printnet, Inc. v. Chemung Canal Trust Co., 220 A.D.2d 544, 703 N.Y.S.2d 821 (3d Dept. 2000) ............................. 14 iii Wilmington Trust Co. v. Delaware Auto Sales, 271 A.2d 41 (Del. 1970) ......................................................................... 18 STATUTES CPLR § 5602(a)(1)(i) ..................................................................................... 1 CPLR § 5602(a)(1)(ii) ................................................................................. 13 CPLR § 5602(B)(1) ..................................................................................... 13 N.Y.U.C.C. § 3-302(1)(a) ............................................................................ 19 22 N.Y.C.R.R. § 500.22 ............................................................................... 13 22 N.Y.C.R.R. § 670.6(a) ............................................................................ 12 22 N.Y.C.R.R. § 670.6(c) ............................................................................ 13 OTHER AUTHORITIES 6 Hawkland & Lawrence, Uniform Commercial Code Series § 3-411 .................................................................................................... 16 Henry J. Bailey and Richard B. Hagedorn, Brady on Bank Checks, The Law of Bank Checks ¶ 26.12 (rev. ed. 2012) .................... 17 JURISDICTION The Court of Appeals has jurisdiction to hear this appeal pursuant to CPLR § 5602(a)(1)(i) because by Decision and Order dated November 7, 2012 (the “Order on Appeal”) the Appellate Division, Second Department reversed the denial by the IAS Court of Plaintiff-Respondent’s motion for partial summary judgment and, instead, awarded plaintiff- respondent summary judgment on the first cause of action of his amended complaint and severed that cause of action. (R. 106) The Second Department reasoned that “it would be inequitable to compel Plaintiff- Respondent to wait for the resolution of [the other] causes of action before recovering the face value of the dishonored check.” Id. Consequently, the court expressly severed the first cause of action. The Order on Appeal thus constitutes a final order. See State Farm Mut. Auto. Ins. Co. v. Westlake, 35 N.Y.2d 587, 590, 364 N.Y.S.2d 482, 484 (1974) (an appellate division order directing the entry of judgment is final); see also Burke v. Crosson, 85 N.Y.2d 10, 16, 623 N.Y.S.2d 524, 527 (1995) (court order resolving severing one cause of action is a final order for purposes of its appealability). Finally, on December 3, 2012 the Queens County Clerk 2 entered Judgment on the first cause of action in the amount of $380,688.80 (the “Judgment”) as a result of the Order on Appeal. (R. 107) By order dated June 26, 2013, this Court granted Citibank’s motion for leave to appeal the Order on Appeal and the Judgment. (R. 103) PRELIMINARY STATEMENT Defendant-Appellant Citibank, N.A. submits this brief in support of its appeal of the Order on Appeal and entry of the Judgment. The Order on Appeal was improperly granted and must be reversed, together with the Judgment that was entered thereon. The facts here are simple and not in dispute. On December 29, 2009 third-party defendant Jian Juan Zheng (“Zheng”) delivered to Plaintiff-Respondent a Citibank official check in the sum of $300,000. payable to the order of Plaintiff-Respondent “Richard Golden As Attorney” (the “Citibank Official Check”). (R. 24-5) 1 Plaintiff- Respondent admits that he held the Citibank Official Check “for the use and benefit of [his client, third-party defendant] James Tilton.” (R. 26) 1 “R. ___” refers to the Record on Appeal. 3 The Citibank Official Check was obtained by XOX Solutions, Inc. (“XOX”), Citibank’s customer, based upon alleged proceeds of a $335,600. check deposited to the credit of an account maintained in the name of XOX (the “XOX Check”). (R. 74) The XOX Check was dishonored because of an improper indorsement. Id. Thus, Citibank properly did not pay the Citibank Official Check because Citibank did not receive payment for it from XOX – a failure of consideration. The narrow issue before this Court is whether a bank has the legal right to stop payment on a cashier’s check when (i) there has been a failure of consideration to the bank for the issuance of the cashier’s check, and (ii) the party seeking payment of the cashier’s check is not a holder in due course because he gave no value for it. Consistent with the controlling authority of Gates v. Manufacturers Hanover Trust Co., 98 A.D.2d 829, 470 N.Y.S.2d 492 (3d Dept. 1983), the resounding response is that a bank is permitted to stop payment on a cashier’s check under such facts. Here, the Citibank Official Check was drawn to Plaintiff-Respondent’s order “as attorney” and he was not a holder in due course, and there was a failure of consideration to Citibank for the issuance of the Citibank Official Check. 4 However, in spite of clear and controlling authority, the Second Department held that a bank may stop payment on a cashier’s check only when there is evidence of fraud (or the check is lost, stolen or destroyed). The Second Department’s exposition of the law is incomplete and misstates the controlling authority in both New York and elsewhere. It is well established both in New York and other jurisdictions that a bank has the legal right to stop payment on a cashier’s check when there has been a failure of consideration to the bank for the issuance of the cashier’s check, and the party seeking the proceeds of such check is not a holder in due course because he gave no value for it. This well-established defense to payment was recognized by the Third Department in Gates. The Order on Appeal thus directly conflicts with the Gates decision. Moreover, Gates is in accord with case law from other jurisdictions outside of New York, while the Order on Appeal conflicts with such nationwide authority. As a result, by the Order on Appeal, the Second Department incorrectly reversed the IAS Court’s proper denial of Plaintiff- Respondent’s motion and awarded Plaintiff-Respondent summary judgment for a sum equal to the face amount of the proceeds of the 5 cashier’s check even before discovery had taken place. Thus, the Order on Appeal is in direct conflict with the decision of the Appellate Division, Third Department in Gates. The Record demonstrates conclusively that Citibank’s decision to stop payment of the Citibank Official Check was based on the indisputable and uncontested fact that as a result of the dishonor of the XOX Check Citibank did not receive payment from its customer for its issuance. Therefore, there was a failure of consideration. Moreover, Plaintiff-Respondent admits he had no interest in the proceeds of the Citibank Official Check, but held them in his attorney escrow account for the benefit of third-party defendant Tilton. Thus, Plaintiff-Respondent was not a holder in due course as a matter of law because as escrow agent he gave no value for the Citibank Official Check. The Order on Appeal concerns an issue of public importance. If the conflict between the decisions of the Second and Third Departments is permitted to continue, New York banks will be in the untenable position of not knowing whether they may properly stop payment of cashier’s checks in the circumstances similar to those presented here. If a bank 6 decides to stop payment, it risks being liable to the payee of the check. If the bank decides to pay the cashier’s check, it could suffer a significant loss. This Court has never addressed the issue. Based upon the foregoing, it is respectfully submitted that this Court should reverse the Order on Appeal because it conflicts with indisputable Third Department precedent which is harmonious with national authority. In contrast, the Order on Appeal unsettles the law and leaves banks in the position of not knowing whether they may properly stop payment of cashier’s checks in these circumstances. Finally, the Order on Appeal also works an injustice to Citibank because it awarded summary judgment to Plaintiff-Respondent before any discovery had been taken, thereby depriving Citibank of the opportunity to develop facts that would establish valid and well recognized defenses. 2 2 In fact, though they are dehors the Record, facts developed since the appeal that resulted in the Order on Appeal demonstrate that neither Plaintiff-Respondent nor his clients have any claim or right to the proceeds of the Citibank Official Check. Discovery similarly reveals that it is undisputed and indisputable that any obligation for which the Citibank Official Check was delivered to Plaintiff-Respondent has been paid and extinguished by third-party defendant Tilton. 7 Based on the question presented below, the Court should reverse the Order on Appeal, resolve the conflict between the Second and Third Department, and correct this injustice. STATEMENT OF QUESTION PRESENTED Whether the Second Department committed reversible error by failing to hold that a bank has the right to stop payment on a cashier’s check when there has been a failure of consideration to the bank, and the party seeking payment of the cashier’s check is not a holder in due course. STATEMENT OF FACTS On December 23, 2009, XOX deposited the XOX Check drawn to its order by BNB Bank to the XOX Account. (R. 74) Citibank provisionally credited the XOX Account for the amount of the XOX Check, subject to collection. Id. Third-party defendant Zheng is the only authorized signer on the XOX Account. (R. 73) On December 29, 2009, Ms. Zheng obtained the Citibank Official Check, payable to the order of “Richard Golden As Attorney,” drawn on the proceeds of the XOX Check provisionally credited to the 8 XOX Account. (R. 74) Later that same day, the XOX Check was returned to Citibank unpaid on account of an improper indorsement. Id. Ms. Zheng had incorrectly indorsed the XOX Check individually, rather than as principal of XOX. Id. Because the XOX Check was returned to Citibank unpaid, Citibank stopped payment on the Citibank Official Check as there were insufficient funds in the XOX Account to pay it. Id. Plaintiff-Respondent admits that Ms. Zheng delivered the Citibank Official Check to him, as attorney, “for the use and benefit of James Tilton,” Plaintiff-Respondent’s client. (R. 26) He further alleges that on or about December 30, 2009, he deposited the Citibank Official Check to an attorney’s escrow account in his name at JPMorgan Chase Bank (“Chase”). (R. 25) According to Plaintiff-Respondent, his client third-party defendant Tilton instructed him to draw a check on his attorney’s escrow account in the amount of $102,083.43 (the “Escrow Check”) on the proceeds of the Citibank Official Check. (R. 27) On December 31, 2009, the day after he says he deposited the Citibank Official Check to his escrow account, Plaintiff-Respondent claims he drew the Escrow Check as instructed by Mr. Tilton. Id. 9 Plaintiff-Respondent claims that, by reason of Citibank’s dishonor of the Citibank Official Check, on January 6, 2010 Chase debited his escrow account for $300,000. Id. Plaintiff-Respondent also alleges that Chase returned the Escrow Check unpaid when it was presented for payment because there were insufficient funds in Plaintiff-Respondent’s attorney escrow account to pay it. Id. On January 6, 2010, Ms. Zheng properly indorsed and re- deposited the XOX Check to the credit of the XOX Account. (R. 74) This time the XOX Check was paid. Id. Instead of asking Citibank to issue another official check payable to Plaintiff-Respondent “as attorney,” upon Ms. Zheng’s instruction on January 8, 2010 Citibank wired $300,000. from the XOX Account to an account maintained at HSBC Bank in Hong Kong. (R. 75) At that time Ms. Zheng explained to Citibank personnel that while she originally delivered the Citibank Official Check to Plaintiff- Respondent in connection with a business deal between XOX and Mr. Tilton, she had since made alternate arrangements to fund the business deal with Plaintiff-Respondent’s client, Mr. Tilton. (R. 74-5) 10 PROCEDURAL HISTORY Plaintiff, an attorney acting pro se, commenced this action by filing a summons and complaint on December 16, 2010. (R. 6-23) This was the beginning of what was to become an uncommonly acrimonious lawsuit if only because Plaintiff-Respondent is a lawyer who elected to represent himself instead of retaining independent counsel who may have been able to proceed with a greater degree of objectivity. Plaintiff- Respondent filed an amended complaint immediately thereafter. (R. 24- 38) The amended complaint asserts five causes of action against Citibank. By the first cause of action, upon which Plaintiff-Respondent made a motion for summary judgment, Plaintiff-Respondent seeks payment of the proceeds of the Citibank Official Check in the amount of $300,000. On or about March 7, 2011, Citibank served its verified answer to Plaintiff- Respondent’s amended complaint, together with discovery demands. (R. 39-44, 76-88) Plaintiff-Respondent failed to serve disclosure responsive to Citibank’s discovery demands. Instead, on or about March 28, 2011 Plaintiff-Respondent immediately made a motion for summary judgment 11 on his first cause of action. (R. 45-60) On or about April 22, 2011, Citibank served opposition to the motion. (R. 61-90) By Short Form Order dated October 28, 2011, entered on November 10, 2011, the IAS Court denied Plaintiff-Respondent’s motion (the “IAS Court Order”) on the grounds that it was “premature” in the absence of any discovery. (R. 4-5) By a Notice of Appeal dated November 15, 2011, Plaintiff- Respondent appealed the IAS Court Order to the Appellate Division, Second Department. (R. 3) By the Order on Appeal entered on November 7, 2012, the Second Department reversed the IAS Court Order, and awarded Plaintiff-Respondent summary judgment on the first cause of action of the amended complaint (the “Order on Appeal”). (R. 105-6) In contravention of Appellate Division precedent, the Second Department erred in holding that “[o]nce a bank issues a cashier’s check, it cannot thereafter stop payment, even upon a request from its customer, unless there is evidence of fraud...or evidence that the check was lost, stolen, or destroyed.” (R. 106) Consistent with this, the Second Department mistakenly concluded that because Citibank did not present 12 any evidence that the Citibank Official Check was fraudulently issued or obtained, it was not entitled to stop payment of it. Id. 3 In so holding, the Second Department wrongly failed to recognize that there are circumstances other than fraud in which it is legally permissible for a bank to stop payment of a cashier’s check. Notably, the circumstances presented here, where the bank has its own defense to payment of the cashier’s check. As set forth in greater detail below, it is well established in both New York and nationally that a stop payment of a cashier’s check is permitted where there has been a failure of consideration, and the party seeking payment is not a holder in due course. Plaintiff-Respondent served Notice of Entry of the Order on Appeal by first class mail on November 8, 2012. Pursuant to the Order on Appeal, the IAS Court entered the Judgment on the first cause of action on December 3, 2012. 4 On December 13, 2012, Citibank made a motion in the Appellate Division pursuant to 22 N.Y.C.R.R. § 670.6(a) for leave to 3 Even were this the correct standard, which it is not, Plaintiff-Respondent made his motion before any discovery had even been conducted. Thus, Citibank could not have presented or been expected to present evidence of any such fraud. 4 On December 18, 2012, Citibank posted an Appeal Bond. Consequently, enforcement of the Judgment is stayed pending the determination of this appeal. 13 reargue the Order on Appeal, or in the alternative for an order pursuant to CPLR § 5602(a)(1)(i)-(ii), CPLR § 5602(B)(1), and 22 N.Y.C.R.R. § 670.6(c) for leave to appeal the Order on Appeal and Judgment to the Court of Appeals. By a decision and order dated March 7, 2013, the Appellate Division denied the motion. (R. 104) Plaintiff-Respondent served Notice of Entry of such order by first class mail on March 21, 2013. On April 25, 2013, Citibank made a motion in this Court pursuant to 22 N.Y.C.R.R. § 500.22 for leave to appeal the Order on Appeal and the Judgment. By an order dated June 26, 2013, this Court granted Citibank’s motion. (R. 103) ARGUMENT POINT I NEW YORK LAW PERMITS A BANK TO STOP PAYMENT OF A CASHIER’S CHECK WHEN THERE IS A FAILURE OF CONSIDERATION AND THE PAYEE IS NOT A HOLDER IN DUE COURSE AND NOT SIMPLY WHEN THERE IS A FRAUD By the Order on Appeal, the Second Department held that “[o]nce a bank issues a cashier’s check, it cannot thereafter stop payment, even upon a request from its customer, unless there is evidence of fraud.” 14 (R. 106) This is an incorrect statement of controlling New York law. It ignores both Third Department precedent, as well as national authority on the issue. While a bank may stop payment of a cashier’s check where it has been procured by fraud, that is not the only circumstance in which a bank may stop payment of a cashier’s check. 5 As explained by the Third Department, it is well established that a bank may also refuse payment of a cashier’s check when (i) there has been a failure of consideration provided the bank for its issuance, and (ii) payment is sought by one who is not a holder in due course. See Gates v. Manufacturers Hanover Trust Co., 98 A.D.2d 829, 470 N.Y.S.2d 492 (3d Dept. 1983). Specifically, the Third Department held that: “The code also provides that lack of consideration is a defense against one who does not have the rights of a holder in due course (Uniform Commercial Code, § 3-306, subd [b]).” Id. at 830, 470 N.Y.S.2d at 493. Gates is squarely on point and addresses precisely the facts of this case. In Gates, the defendant bank issued cashier’s checks (the 5 See, e.g., U.S. Printnet, Inc. v. Chemung Canal Trust Co., 220 A.D.2d 544, 546, 703 N.Y.S.2d 821, 823 (3d Dept. 2000). 15 “Cashier’s Checks”) to the order of American Nail Corporation (“American Nail”) who purchased the Cashier’s Checks with funds that were provisionally credited to its account upon the deposit of checks drawn on accounts at another bank (the “Deposited Checks”). American Nail then indorsed the Cashier’s Checks to their attorney, who deposited them into his attorney’s escrow account, and drew checks thereon to meet American Nail’s payroll obligations to its employees. However, after learning that the Deposited Checks were dishonored by the drawee bank, the defendant bank stopped payment on the Cashier’s Checks. Id. at 829, 470 N.Y.S.2d at 493. Like Plaintiff-Respondent here, the attorney/escrow agent in Gates made a motion for summary judgment seeking payment on the Cashier’s Checks on the ground that the bank had no right to stop payment on them. The Third Department affirmed an order denying plaintiff’s summary judgment motion. It held that defendant bank may be entitled to stop payment on the Cashier’s Checks because there was a failure of consideration for their issuance, and plaintiff may not be a holder in due course. Therefore, the defendant bank was given the opportunity to prove 16 those facts (at trial or otherwise), and establish a valid defense to plaintiff’s claim to payment on the Cashier’s Checks. Id. at 830, 470 N.Y.S.2d at 494. Gates is not some obscure decision involving an arcane issue of law. To the contrary, the Gates decision is consistent with noted Uniform Commercial Code commentators and learned treatises. The well- respected Hawkland & Lawrence treatise explains: A bank seldom has a defense of its own arising out of the issuance of a bank check. Most banks require payment in full before issuing a bank check. On rare occasion, however, a bank may take a personal check or another bank check in payment for issuance of the bank check. In the event that the personal check or other bank check is not paid, the obligated bank may have a defense to its obligation to pay its bank check. This defense is available against any person other than a holder in due course with whom it has not dealt. The bank is not liable for either consequential damages or expenses, whether or not it is successful in raising the defense, as long as the bank reasonably believes that it has such a defense, and that the presenter is subject to the defense. 6 Hawkland & Lawrence, Uniform Commercial Code Series § 3-411. 17 Brady on Bank Checks concurs. It states: It has been held that a bank may stop payment on its cashier’s check where it has been issued without consideration…and where the cashier’s check is not in the hands of a holder in due course. In general, the right to stop payment may arise where the bank has its own defense, not that of its customer. Henry J. Bailey and Richard B. Hagedorn, Brady on Bank Checks, The Law of Bank Checks ¶ 26.12 (rev. ed. 2012). Decisions nationwide are also in accord with this well- established principle of law. See EA Mgmt. v. JP Morgan Chase Bank, N.A., 655 F.3d 573, 576 (6th Cir. 2011) (affirming a bank’s right to assert lack of consideration as a defense against a claim for payment of a cashier’s check by one who is not a holder in due course); Transcontinental Holding Ltd. v. First Banks, Inc., 299 S.W.3d 629 (Mo. Ct. App. 2009) (affirming a bank’s right to stop payment of a cashier’s check where there has been a failure of consideration to the bank, and the party seeking payment is not a holder in due course); State Bank of Springfield v. South Mill Mushroom Sales, Inc., 875 F.2d 158 (8th Cir. 1989) (where one who is not a holder in due course seeks payment on a cashier’s check where 18 there has been a failure of consideration the bank is within its right to stop payment); International Furniture Distribs., Inc. v. First Georgia Bank, 294 S.E.2d 732 (Ga. Ct. App. 1982) (a bank may assert failure of consideration as a defense against payment on a cashier’s check to one who is not a holder in due course); Travi Constr. Corp. v. First Bristol County National Bank, 405 N.E.2d 666 (Mass. App. Ct. 1980) (a bank may rely on failure of consideration as a defense against payment on a cashier’s check to one who is not a holder in due course); Banco Ganadero y Agricola, S.A. v. Soc’y Nat’l Bank of Cleveland, 418 F. Supp. 520 (N.D. Ohio 1976) (as against one who is not a holder in due course, the bank issuing a cashier’s check may assert as a defense failure of consideration); Wilmington Trust Co. v. Delaware Auto Sales, 271 A.2d 41 (Del. 1970) (a bank may properly stop payment on a cashier’s check where there has been a failure of consideration). As in Gates, the Record here indisputably establishes that there was a failure of consideration to Citibank for the issuance of the Citibank Official Check. It was drawn upon proceeds Citibank provisionally credited to the XOX Account on account of the XOX Check. 19 However, because the XOX Check was improperly indorsed, it was dishonored by the drawee bank, and returned to Citibank. Consequently, Citibank did not receive payment for issuing the Citibank Official Check. (R. 74) A holder in due course takes a check “for value.” N.Y.U.C.C. § 3-302(1)(a). It is black letter law that an attorney who deposits a check into an escrow account, the proceeds from which check are held for the benefit of another, is not a holder in due course because he does not give value for the check. See Crossland Sav., FSB v. Foxwood & Southern Co., 202 A.D.2d 544, 546, 609 N.Y.S.2d 282 (2d Dept. 1994). Here, Plaintiff- Respondent admits that he gave no value for and had no beneficial interest in the Citibank Official Check. Rather, Plaintiff-Respondent admits that Ms. Zheng delivered the Citibank Official Check to him “as attorney” for the benefit of his client Tilton, in connection with Tilton’s business deal with Ms. Zheng, for which Plaintiff-Respondent acted as escrow agent. (R. 26-7) Thus, the Record establishes that Plaintiff-Respondent was not a holder in due course of the Citibank Official Check. 20 Accordingly, because (i) there was a failure of consideration to Citibank for the issuance of the Citibank Official Check, and (ii) Plaintiff-Respondent was not a holder in due course as a matter of law, Citibank was absolutely entitled to stop payment of the Citibank Official Check. Therefore, Citibank has a valid defense to the first cause of action of the amended complaint. Notwithstanding the wealth of authority cited above, the Second Department concluded that Citibank could not stop payment of the Citibank Official Check because it had not presented any evidence that it had been fraudulently issued or obtained. This constitutes reversible error. Moreover, in doing so, the Second Department deprived Citibank of its opportunity to conduct discovery and establish this well recognized defense. #728826v6/BG/5015.350 CONCLUSION For the foregoing reasons, Citibank respectfully requests that this Court issue an order reversing the Order on Appeal, together with such other and further relief as is just and proper. Dated: New York, New York September 13, 2013 ZEICHNER ELLMAN & KRAUSE LLP By: ______________________________ Barry J. Glickman Bruce S. Goodman Attorneys for Defendant-Appellant 1211 Avenue of the Americas New York, New York 10036 (212) 223-0400