11th Circuit Affirms Federal District Court’s Rulings on Check Kiting Scheme

A three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit recently affirmed a federal district court’s ruling that an investor had not knowingly participated in a fraudulent check kiting scheme, but was nonetheless contractually obligated to pay $6 million in overdraft fees incurred by the investor as a result of the scheme. 

A bank sued the investor to recover unpaid overdraft fees on the investor’s account with the bank.  The overdraft fees had resulted from the investor’s wiring of funds after receiving dishonored checks used by the perpetrator of a check kiting scheme.  The investor countersued, and filed a third-party complaint against another bank, from which the perpetrator of the scheme issued the checks. 

The district court entered summary judgment for the bank on its breach of contract claim, holding that the investor was contractually obligated by the deposit agreements to reimburse the bank $6 million in overdraft fees.  The district court also dismissed the defamation and invasion of privacy claims brought by the investor against the bank, related to the bank’s reporting that the investor took part in the scheme.  And after a bench trial on the bank’s claims against the investor for fraudulent concealment, aiding and abetting fraudulent concealment, and civil conspiracy, the federal district court found, based on the investor’s testimony, that the investor did not know about or intentionally participate in the check kiting scheme.  Thus, the district court entered judgment for the investor on the bank’s remaining three claims.  

Both the bank and the investor appealed the court’s orders and findings.  The panel upheld the district court’s factual finding that the investor did not participate in the fraud or conspiracy, based on the investor’s testimony that he had no knowledge of the check kiting.  The panel further upheld the district court’s ruling that the investor was contractually obligated to pay the $6 million in overdraft fees based on the account agreements.  Finally, the panel held that the investor’s counterclaims against the bank and its third-party claims against the perpetrator’s bank were properly dismissed.