Submitted on Briefs: oral argument: September 7, 2018
OF DECISION OF THE COURT OF APPEALS Reported at 379 Wis.2d
639, 907 N.W.2d 447');">907 N.W.2d 447 PDC No: 2018 WI.App. 1
Circuit Court: Milwaukee County: (L.C. No. 2010CV21290) David
L. Borowski Judge
the plaintiff-appellant-petitioner and third-party
defendant-appellant-cross-respondent, there were briefs filed
by Michael S. Yellin, Ralph Weber, and Gass Weber Mullins
LLC, Milwaukee, with whom on the brief were Michael J.
Avenatti, Ahmed Lbrahim, and Eagen Avenatti LLP, Newport
Beach, California. There was an oral argument by Ahmed
there was a brief filed by Dean P. Laing, Gregory W. Lyons,
Joseph D. Newbold, and O'Neil, Cannon, Hollman, DeJong
& Laing S.C., Milwaukee. There was an oral argument by
the third-party-defendant-cross-respondent, there was a brief
filed by Joseph L. Olson and Michael Best & Friedrich
LLP, Milwaukee. There was an oral argument by Joseph Olson.
amicus curiae brief was filed on behalf of Wisconsin Bankers
Association and the American Bankers Association by John E.
Knight, James E. Bartzen, Kirsten E. Spira, and Boardman
& Clark LLP, Madison
PATIENCE DRAKE ROGGENSACK, C.J.
We review a published decision of the court of
appeals that affirmed an order of the circuit
court granting summary judgment dismissing Koss
Corporation's Uniform Fiduciaries Act (UFA) claim against
Our review centers on two related issues: First, consistent
with the UFA, we interpret and apply the terms "good
faith" as set out in Wis.Stat. § 112.01(1) (c) and
"bad faith" employed in § 112.01(9); and
second, we determine whether summary judgment dismissing Koss
Corporation's claim was properly granted.
We conclude Wis.Stat. § 112.01(1) (c) describes the term
"good faith" as honest bank acts, even when
negligently done, and consistent with the majority of
jurisdictions' interpretations of the UFA, "bad
faith" is inconsistent with the statutory criteria for
"good faith." Therefore, bad faith pursuant to
§ 112.01(9), which is an intentional tort, may be shown
by acts evidencing bank dishonesty such as a bank willfully
failing to further investigate compelling and obvious known
facts suggesting fiduciary misconduct because of a deliberate
desire to evade knowledge of fiduciary misconduct.
We further conclude that given the allegations that Koss
Corporation asserts in regard to its claim that Park Bank is
liable for the intentional tort of bad faith, no proof has
been proffered of bank dishonesty wherein Park Bank willfully
failed to further investigate compelling and obvious known
facts suggesting fiduciary misconduct because of a deliberate
desire to evade knowledge of fiduciary misconduct.
Accordingly, we affirm the court of appeals' affirmance
of the circuit court's dismissal of Koss
Corporation's claim that Park Bank acted in bad faith in
processing the transactions that Sujata Sachdeva initiated.
Because we conclude Park Bank is not liable to Koss
Corporation, we also affirm the dismissal of Park Bank's
In this lawsuit, Koss Corporation seeks to collect millions
of dollars from Park Bank that Sachdeva embezzled from its
accounts at Park Bank. As Vice President of Finance for Koss
Corporation, Sachdeva was one of three people authorized to
conduct transactions from Koss Corporation's Park Bank
accounts pursuant to bank signature cards. As was explained
by Park Bank's attorney at oral argument, nothing
prohibited Sachdeva from exercising her transaction authority
for Koss Corporation's accounts at Park Bank through
another Koss Corporation employee so long as Sachdeva made
the decision to initiate the transaction.
Sachdeva embezzled approximately $34 million from Koss
Corporation over a period of ten years, from about 1999 until
she was caught in 2009. In 2010, she pled guilty to six
counts of wire fraud in connection with her embezzlement from
Park Bank and from Koss Corporation's Chicago banks. She
was sentenced to eleven years in prison and ordered to pay
$34 million in restitution.
One method Sachdeva used to embezzle funds from Koss
Corporation was to order cashier's checks for personal
expenditures. She admits that she used hundreds of
cashier's checks drawn on Koss Corporation's Park
Bank accounts to pay for her purchases from luxury retailers,
as well as to pay her personal credit card bills. She
sometimes used the payee's initials to avoid detection,
such as "S.F.A., Inc." for Saks Fifth Avenue or
"N.M." for Nieman Marcus.
Generally, Sachdeva did not go to the bank herself to obtain
cashier's checks. Instead, she instructed Julie Mulvaney,
another Koss Corporation employee, to call the bank and
request a cashier's check on Sachdeva's behalf.
Mulvaney was not a signatory on Koss Corporation's Park
Bank accounts. Despite the existence of the signature cards,
Park Bank's general practice was to allow non-signatories
to call and request cashier's checks on a signatory's
After receiving telephone requests for cashier's checks,
Park Bank would place the checks in an envelope to
Sachdeva's attention. Sachdeva would then send another
Park Bank employee, usually Betty Caver, to pick up the
envelopes. Caver was not a signatory on Koss
Corporation's account. The employees who picked up the
checks were not asked to present signed documentation from
Sachdeva, and Park Bank did not call Sachdeva to verify the
transactions. When the cashier's checks reached Sachdeva,
she would mail them to her creditors to pay personal debts.
On one occasion in January of 2004, Betty Caver went into the
bank and endorsed a $60, 598.03 counter check against a Koss
Corporation account, made payable to cash. Park Bank did not
call Sachdeva to verify the transaction. The funds were then
used to purchase two cashier's checks in the amounts of
$42, 441.61 and $18, 156.42, which were used to pay
Sachdeva's personal credit card bills to American Express
and Comerica Bank. Koss Corporation does not dispute that
Caver, Mulvaney, and any other employees involved were acting
at Sachdeva's direction.
Sachdeva also used "petty cash" requests to
embezzle funds. Sachdeva would instruct a non-signatory Koss
employee, usually Betty Caver, to go to the bank and endorse
a manually written check made out to "petty cash."
Sachdeva would call and tell the bank the employee was
coming. The employee would pick up cash for Sachdeva,
sometimes from a drive-through window, without being asked
for identification. Sachdeva used the cash to pay her
"handyman," as well as to buy shoes, purses, and
dinners. The petty cash requests were often for thousands of
dollars at a time. From 2005 to 2009, there were at least 43
such "petty cash" checks, totaling $171, 985.02.
Sachdeva's third method of embezzling funds, and the
method that eventually led to her downfall, was to request
wire transfers to an out-of-state bank where Koss Corporation
maintained accounts. Between 2004 and 2009, Park Bank made
seven wire transfers totaling $2 million from Koss
Corporation's Park Bank accounts to Koss
Corporation's accounts in Chicago banks. Either Sachdeva
or Mulvaney would call Park Bank and initiate the wire
transfer over the phone by providing a "repetitive
code," which was used in lieu of providing account
numbers when the same client regularly wired money between
the same two accounts. Park Bank's policy required a wire
transfer agreement to initiate wire transfers, which Koss
Corporation did not have.
In December of 2009, an employee from American Express's
fraud department called Michael Koss directly and informed him
that Sachdeva had been using wire transfers from Koss
Corporation's Chicago bank account to pay her credit
transactions with American Express. This call led to
Sachdeva's prosecution and eventual guilty plea.
In 2010, Koss Corporation originally sued Park Bank for
negligence. It later amended its complaint to add a UFA
"bad faith" claim, and to add factual information
about the petty cash and wire transfers. Park Bank filed a
third-party complaint against Michael Koss and against Koss
Corporation's auditors, Grant Thornton LLP, for
contribution and equitable subrogation. In 2013, Koss
Corporation dismissed its negligence claim with prejudice.
Its second and third amended complaints both asserted bad
faith under the UFA as the sole claim for relief.
In support of its claims, none of Koss Corporation's
factual allegations asserted, or even implied, that Park Bank
acted dishonestly such as being motivated by self-interest
with regard to the transactions Sachdeva initiated.
Furthermore, none of Koss Corporation's allegations
assert that Park Bank suspected that Sachdeva was acting
improperly. After considerable discovery was completed, Park
Bank moved for summary judgment on the UFA bad faith claim.
On March 11, 2016, the Milwaukee County Circuit Court granted
Park Bank's motion for summary judgment, thereby
dismissing all claims against Park Bank. It also dismissed
the third-party complaint against Grant Thornton LLP and
Michael J. Koss. In regard to the claims against Park Bank,
the circuit court first held that Park Bank, as the moving
party, had met its initial burden and that Koss Corporation
had failed to establish the existence of a material factual
dispute. The circuit court concluded that to show bad faith
under the UFA, Koss Corporation would have had to have
provided evidence that Park Bank intentionally ignored
evidence of Sachdeva's breach of her fiduciary
obligations, which Koss Corporation had failed to do.
The court of appeals affirmed the circuit court's
decision dismissing Koss Corporation's UFA claim.
Koss Corp. v. Park Bank, 2018 WI.App. 1, ¶2,
379 Wis.2d 629, 907 N.W.2d 447');">907 N.W.2d 447. The court of appeals first
acknowledged that Wisconsin's version of the UFA must be
interpreted to make Wisconsin law uniform with the law of
other states that have enacted the UFA. Id.,
¶23; Wis.Stat. § 112.01(14). After reviewing case
law from other UFA jurisdictions, the court of appeals
created a two-element test for bad faith that required a
1) circumstances that are suspicious enough to place a bank
on notice of improper conduct by the fiduciary; and 2) a
deliberate failure to investigate the suspicious
circumstances because of a belief or fear that such inquiry
would disclose a defect in the transaction at issue.
Koss Corp., 379 Wis.2d 629, ¶27.
The court of appeals agreed with the circuit court's
determination that Park Bank had established prima facie
eligibility for summary judgment, id., ¶29, and
that Koss Corporation failed to controvert that eligibility
with a genuine issue of material fact as to whether Park Bank
acted with bad faith regarding Sachdeva's embezzlement,
id., ¶50. Because the court of appeals
concluded that Park Bank was not liable to Koss Corporation,
the court of appeals did not address Park Bank's
third-party complaints. Id., ¶2 n.3.
We granted Koss Corporation's petition for review and now
Standard of Review
This case requires us to interpret and apply statutes, and to
review a grant of summary judgment. "Statutory
interpretation and the application of a statute to a given
set of facts are questions of law that we review
independently, but benefiting from the analyses of the court
of appeals and the circuit court." Marder v. Bd. of
Regents, 2005 WI 59, ¶19, 286 Wis.2d 252, 706
We also independently review grants of summary judgment,
applying the same methodology as the circuit court and the
court of appeals, while once again benefitting from their
analyses. Dufour v. Progressive Classic Ins. Co.,
2016 WI 59, ¶12, 370 Wis.2d 313, 881 N.W.2d 678.
"The standards set forth in Wis.Stat. § 802.08 are
our guides." Id.
Uniform Fiduciaries Act 1. History of UFA
The UFA was approved by the National Conference of
Commissioners on Uniform State Laws in 1922. It was adopted
by Wisconsin in 1925, and is set out in Wis.Stat. §
112.01(1)- (16) . Bolger v. Merrill Lynch Ready Assets
Tr., 143 Wis.2d 766, 774, 423 N.W.2d 173 (Ct. App. 1988)
Prior to the development of the UFA, a bank could be found
liable to a principal in common law negligence if the bank
"negligently assisted a fiduciary in misappropriating
[the] principal's funds." Maryland Cas. Co. v.
Bank of Charlotte, 340 F.2d 550, 553 (4th Cir. 1965) .
Some courts "went so far as to charge depository banks
with constructive notice of fiduciary misconduct."
Bolger, 143 Wis.2d at 774. The result burdened banks
with the duty of "seeing that fiduciary funds are
properly applied to the account of the principal."
Sugarhouse Fin. Co. v. Zions First Nat'1 Bank,
440 P.2d 869, 870 (Utah 1968) .
As banking grew as a business and "[a]s banks began to
process more and more transactions," policymakers
questioned "whether it was wise policy to place the duty
of monitoring fiduciary accounts for wrongdoing on the
bank's shoulders." Attorneys Title Guar. Fund v.
Goodman, 179 F.Supp.2d 1268, 1274 (D. Utah 2001) . This
led several states, including Wisconsin in 1925, to adopt the
newly drafted UFA. Id.; Bolger, 143 Wis.2d
The UFA's purpose was to "facilitate banking and
financial transactions" by "provid[ing] relief from
the dire consequences of the common law rule," as well
as to "place on the principal the burden of employing
honest fiduciaries." Bolger, 143 Wis.2d at
774-75; Johnson v. Citizens Nat'1 Bank, 334
N.E.2d 295, 300 (111. App. 1975) . Adoption of the UFA
evinced a recognition of the economic importance of allowing
banks to efficiently process a high volume of transactions.
For this reason, courts have long recognized that a return to
the common law rule of liability based on negligence by a
bank "would practically put an end to the banking
business," Am. Sur. Co. of N.Y. v. First Nat' 1
Bank in W. Union, 50 F.Supp. 180, 185-86 (N.D. W.Va.
1943), and that "[t]he present banking system under
which an enormous number of checks are processed daily could
not function effectively if banks were not required to make
prompt and effective decisions on whether to pay or dishonor
checks." Chazen v. Centennial Bank, 71
Cal.Rptr.2d 462, 466 (Ct. App. 1998).
Koss Corporation grounds its claim in Wis.Stat. §
112.01(9), which states in relevant part:
If a check is drawn upon the account of a fiduciary's
principal in a bank by a fiduciary, who is empowered to draw
checks upon his or her principal's account, the bank is
authorized to pay such check without being liable to the
principal, unless the bank pays the check with actual
knowledge that the fiduciary is committing a breach of the
fiduciary's obligation as fiduciary in drawing such
check, or with knowledge of such facts that its action in
paying the check amounts to bad faith. If, however, such a
check is payable to the drawee bank and is delivered to it in
payment of or as security for a personal debt of the
fiduciary to it, the bank is liable to the principal if the
fiduciary in fact commits a breach of the fiduciary's
obligation as fiduciary in drawing or delivering the check.
Wisconsin Stat. § 112.01(9), quoted above, provides
three entirely different standards whereby a bank could be
liable: (1) when a bank had actual knowledge of the unlawful
conduct of a fiduciary; (2) when a bank had knowledge of
sufficient facts to show that it acted in bad faith by
honoring a fiduciary's withdrawals from the
principal's account; or (3) when a drawee bank accepts
its own check in payment of or as security for a personal
debt of the fiduciary at the drawee bank, contrary to the
interest of the principal.
Koss Corporation sued Park Bank alleging that the bank's
transactions with Sachdeva were done in bad faith. Koss
Corporation did not allege, nor has any proof been shown,
that Park Bank had knowledge of Sachdeva's unlawful
conduct or that it paid, or used Koss's funds as security
for, personal debts of Sachdeva at Park Bank. Accordingly, we
focus on defining bad faith.
Defining "Bad Faith"
The UFA does not define bad faith. It does, however, define
good faith. Under the UFA, "[a] thing is done 'in
good faith' . . . when it is in fact done honestly,
whether it be done negligently or not." Wis.Stat. §
112.01 (1) (c) . A bank does not violate its obligations to
its depositor if its transactions with the depositor's
fiduciary are honestly done. Buffets, Inc. v.
Leischow, 732 F.3d 889, 899, (8th Cir. 2013);
Rheinberger v. First Nat. Bank of St. Paul, 150
N.W.2d 37, 41 (Minn. 1967) (concluding that "[b]ad faith
does not exist if the bank was acting honestly.").
Accordingly, the definition of good faith under Wis.Stat.
§ 112.01(1) (c) implies that bad faith under §
112.01(9) must involve something more than negligent bank
conduct and must involve conduct during which the bank did
not act honestly. Because § 112.01 is a uniform law, we
consider decisions from other jurisdictions that have defined
bad faith. § 112.01(14) . As we do so, we note that
variations in facts from which claims of bad faith arose have
resulted in different expressions of the definition of bad
faith, with bank dishonesty expressed in most decisions.
See Attorneys Title Guar. Fund, 179 F.Supp.2d at
1277 (concluding that "bad faith is the subjective
deliberate desire to evade knowledge because of a belief or
fear that inquiry would disclose a vice or defect in the
transaction . . . [and] bad faith requires dishonesty and
implies wrongdoing or some motive of self-interest" when
considering repetitive nonsufficient fund activities);
N.J. Title Ins. Co. v. Caputo, 748 A.2d 507, 514
(N.J. 2000) (concluding that when "facts suggesting
fiduciary misconduct are compelling and obvious, it is bad
faith to remain passive and not inquire further because such
inaction amounts to a deliberate desire to evade
knowledge" of improper trust account transactions);
Rheinberger, 150 N.W.2d at 41 (concluding that bad
faith in making transfers between accounts by a son who had
power of attorney for his mother "does not exist if the
bank was acting honestly").
As a preliminary matter, we do not apply Wisconsin common law
from other contexts to define "bad faith" under
Wis.Stat. § 112.01(9) because bad faith under the UFA
requires interpretation of a term in a specific statute.
Under Wisconsin common law, the definitions of bad faith and
good faith can vary depending on the context in which they
arise. For example, in contract law, bad faith does not
simply mean the absence of good faith because good faith can
be defined in a number of ways by contract. Amoco Oil Co.
v. Capitol Indem. Corp., 95 Wis.2d 530, 542, 291 N.W.2d
883 (Ct. App. 1980) . In an insurance context, bad faith and
good faith have developed definitions relative to an
insurer's obligations. Roehl Trans., Inc. v. Liberty
Mut. Ins. Co., 2010 WI 49, ¶49, 325 Wis.2d 56, 784
That said, our task is to define bad faith as it is used in
Wis.Stat. § 112.01(9) . We are required to interpret and
apply the provisions of § 112.01 "to effectuate its
general purpose to make uniform the law of those states which
enact it." § 112.01(14). Given that legislative
directive, as we define bad faith, we consider judicial
decisions from other jurisdictions that have adopted the
faith principles and criteria
There are a number of general principles and specific
criteria that appear repeatedly in decisions from other
jurisdictions as courts have considered how to analyze and to
define bad faith. We will not address all of them, but
rather, we will discuss those general principles and specific
criteria that appear most frequently and have been central to
the reasoning of many courts as they sought to analyze and
define bad faith.
We begin by noting that under the UFA when presented with the
issue of bad faith, generally courts consider the
circumstances surrounding each fiduciary transaction,
individually. They do not aggregate circumstances as though
each transaction were a part of preceding transactions. We
agree that aggregation of transactions is inapposite, relying
on the structure of Wis.Stat. § 112.01(9) and prior UFA
Wisconsin Stat. § 112.01(9) states that "[i]f a
check is drawn upon the account of a fiduciary's
principal in a bank by a fiduciary, who is empowered to draw
checks upon his or her principal's account," the
bank is liable to the principal if "its action in paying
the check amounts to bad faith." Section
112.01(9) does not envision aggregation of general
protections from fiduciary misconduct. As the Eighth
Circuit recently explained, "[t]he UFA is drawn in terms
of specific transactions made in violation of certain
fiduciary obligations." Buffets, Inc., 732 F.3d
at 899. It does not provide "general protection" to
principals, but rather, "provides principals limited
protection against a bank's knowing or bad-faith
processing of a specific transaction that breaches a
fiduciary obligation." Id. at 900; see also
Rosemann v. St. Louis Bank, No. 14-CV-983-LLR, slip op.
at *14 (E.D. Mo. Nov. 17, 2015). Furthermore, a bank has no
obligation to piece together various transactions by a
fiduciary, but rather it is permitted to engage in the
presumption that the fiduciary is acting in accord with the
fiduciary's lawful authority for each transaction.
Gen. Ins. Co. of Am. v. Commerce Bank of St.
Charles, 505 S.W.2d 454, 457 (Mo.Ct.App. 1974).
This is not to say that when examining an individual
transaction about which the bank has become suspicious,
previous transactions by the fiduciary cannot be examined as
the bank considers whether the fiduciary has breached a
fiduciary obligation in the current transaction. The focus,
however, is on whether the bank exhibited bad faith with
regard to the individual transaction in question at the time
the transaction occurred. Mikrut v. First Bank of Oak
Park, 832 N.E.2d 376, 387 (111. App. 2005).
In their decisions, courts often have opined on whether the
standard for bad faith is subjective or objective, with the
majority concluding that the test is subjective. See,
e.g., Caputo, 748 A.2d at 514. The conclusion
that bad faith is determined by a subjective standard
contrasts with the due care or objective reasonableness
standard applicable to negligence determinations because the
UFA directs that negligence is insufficient to support
liability for a fiduciary's conduct. See id. And
finally, the vast majority of UFA decisions hold, and Koss
Corporation has repeatedly conceded, that bad faith under the
UFA is an intentional tort. See Lawyers Title Ins. Corp.
v. Dearborn Title Corp., 904 F.Supp. 818, 820 (N.D. 111.
1995). It would be unusual to conclude that an intentional
tort does not require subjective intent.
In regard to particular factors that are indicative of bad
faith, most courts have concluded that dishonesty is a
necessary component in the assessment of whether a bank has
acted in bad faith. See, e.g., Caputo, 748
A.2d at 514 (explaining that the dishonesty standard
"has been a static epithet in our bad faith
jurisprudence"); Research-Planning, Inc. v. Bank of
Utah, 690 P.2d 1130, 1132 (Utah 1984) (reasoning that
bad faith requires a dishonest purpose and implies some
motive of self-interest by the bank); Bd. of Cty.
Comm'rs of Hot Springs Cty. v. First Nat' 1 Bank of
Thermopolis, 368 P.2d 132, 139 (Wyo. 1962) (concluding
that bad faith "is not simply bad judgment" but
"imports a dishonest purpose"); Nat'1 Cas.
Co. v. Caswell & Co., 45 N.E.2d 698, 699 (111. App.
Ct. 1942) (holding that "bad faith imports a dishonest
purpose"); Edwards v. Northwestern Bank, 250
S.E.2d 651, 657 ( N.C. 1979) (adopting the dishonesty
standard for bad faith and concluding that dishonesty
"is, unlike negligence, wilful"); C-Wood Lumber
Co. v. Wayne Cty. Bank, 233 S.W.3d 263, 284 (Tenn. Ct.
App. 2007) (requiring a UFA plaintiff to prove that "the
bank was acting dishonestly or that the bank actually knew
[the fiduciary] was breaching her fiduciary
When the bank permits a fiduciary to use the principal's
funds to pay his or her personal debt to the same bank where
the principal's account is located, dishonesty of a type
involved in bad faith is shown. Maryland Cas. Co.,
340 F.2d at 554 (affirming that "where a bank had both
reason to suspect a misappropriation by the fiduciary and a
monetary interest in the continuance of such activity"
dishonesty under the UFA is evidenced) (citing Union Bank
and Trust Co. v. Girard Trust Co., 161 A. 865 (Pa.
In contrast to negligence, dishonesty is viewed as requiring
purposeful bank conduct. See, e.g., Caputo,
748 A.2d at 513 (concluding that dishonesty is "a way of
differentiating bad faith from negligence in terms of
purpose."); Guild v. First Nat'l Bank of
Nev., 553 P.2d 955, 958 (Nev. 1976) (concluding that a