in support of the proposition that it was general banking usage to not sight-pay all checks; this statement does not support the proposition that it was general banking usage to not sight-pay any checks. Merrill Lynch has therefore failed to present any evidence that its failure to compare any WCMA checks with customer signature cards conformed with reasonable commercial standards.
In addition, courts outside of Pennsylvania have uniformly held that a bank fails to meet reasonable commercial standards when it fails to check the signatures on any checks. See, e.g., Perley v. Glastonbury Bank & Trust Co., 170 Conn. 691, 368 A.2d 149, 155 (Conn. 1976) (involving forged endorsements); McDowell v. Dallas Teachers Credit Union, 772 S.W.2d 183, 189 (Tex. Ct. App. 1989) (reversing judgment in favor of bank even though bank had established that its procedures conformed to general bank usage); see also Hanover Ins. Cos. v. Brotherhood State Bank, 482 F. Supp. 501 (D. Kan. 1979) (holding that bank has a duty to examine checks as to the named payee). In addition, cases applying the requirement that banks exercise "ordinary care" in handling checks are also instructive as courts have generally held that "ordinary care" under U.C.C. § 4-406 is the same as "reasonable commercial standards" under U.C.C. § 3-406. See Rhode Island Hosp. Trust Nat'l Bank, 848 F.2d 291, 293 (listing cases); McDowell, 772 S.W.2d at 192. Those cases have held that a failure by a bank to check the signatures on any checks fails to meet the duty of the bank to exercise ordinary care. See, e.g., Putnam Rolling Ladder Co v. Manufacturers Hanover Trust Co., 74 N.Y.2d 340, 546 N.E.2d 904, 547 N.Y.S.2d 611 (N.Y. 1989) (entering judgment for customer); Medford Irrigation Dist. v. Western Bank, 66 Ore. App. 589, 676 P.2d 329 (Or. App. Ct. 1984) (affirming summary judgment for customer when bank failed to check signatures on all checks under $ 5,000); McDowell, 772 S.W.2d at 191 (reversing judgment in favor of bank). While courts in other states have held that a bank need not "sight-pay" all checks, they have also held that some type of spot checking system is required in order to meet reasonable commercial standards and fulfill the duty of a bank to exercise ordinary care. See, e.g., Rhode Island Hosp. Trust Nat'l Bank v. Zapata Corp., 848 F.2d 291, 294-96 (1st Cir. 1988) (holding that system of spot checking met duty of ordinary care under U.C.C. § 4-406); McDowell, 772 S.W.2d 183 at 189-90.
Merrill Lynch acknowledges the holdings of these courts, but it argues that Pennsylvania courts have adopted a different standard. As the Supreme Court of Pennsylvania has not ruled on this issue, this Court must predict how that court would rule. Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S. Ct. 1776, 18 L. Ed. 2d 886 (1967). In making that prediction, this Court may consider a range of information, including "relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand." McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 663 (3d Cir.), cert. denied, 449 U.S. 976, 101 S. Ct. 387, 66 L. Ed. 2d 237 (1980). Decisions of intermediate state courts, while but one datum to consider, are "'indicia of how the state's highest court might decide' the issue." McGowan v. University of Scranton, 759 F.2d 287, 291 (3d Cir. 1985) (quoting Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1167 (3d Cir. 1981)). Such decisions should only be disregarded if this Court is "convinced by other persuasive data that the highest court of the state would decided otherwise." West v. A.T. & T. Co., 311 U.S. 223, 237, 61 S. Ct. 179, 85 L. Ed. 139 (1940).
Merrill Lynch argues that the Superior Court case of Jacoby Trans. Sys. case establishes that under Pennsylvania law not comparing the signatures on any checks to customer signature cards can meet reasonable commercial standards. Jacoby Trans. Sys., 277 Pa. Super. 440, 419 A.2d 1227 at 1231. This argument by Merrill Lynch fails, however, because Jacoby Trans. Sys. is distinguishable from the instant case for several reasons. First, the checks involved in that case lacked signature lines and instead had the name of the corporate customer printed in the place where signature lines would normally be found. Id. at 1228. Second, the bank in that case presented evidence that its practice of not checking any signatures was both in conformance with general bank usage and was supported by substantial economic and practical reasons. Id. at 1233. And finally, the court in Jacoby Trans. Sys. appears to have relied on the egregiousness of the negligence of the customer in that case, which included giving unsigned checks to a third-party and not attempting to stop those checks from being cashed even after becoming aware that some of those checks had been cashed. Id. at 1232-33. Under Pennsylvania law, the degree of negligence of a customer should not even be considered if the bank has failed to follow reasonable commercial standards. Menichini, 995 F.2d at 1236 ("if Mellon Bank fails to establish that it acted in good faith and in accordance with commercially reasonable standards, the estoppel bar of [13 Pa. Cons. Stat. Ann. § 3406] will prove unavailing and the loss must be allocated to Mellon Bank"); see also Perley, 368 A.2d at 153 (holding that once a bank has failed to act in accordance with reasonable commercial standards the negligence of a customer has no effect under U.C.C. § 3-406); Putnam Rolling Ladder Co., 546 N.E.2d at 908 (rejecting the use of comparative negligence under U.C.C. § 4-406). While there is some evidence that ALA may have been negligent in the instant case, its negligence does not rise to the level involved in Jacoby Trans. Sys., even viewing the evidence in the light most favorable to Merrill Lynch. Compare Moss Dep. at 9-14, 20, 24-28 (describing disorganization of ALA office and broad, largely unchecked responsibilities of Stedman) with id. at 18-19, 29, 35 (describing various controls and limits then ALA Executive Director Moss placed on Stedman). Therefore, this Court concludes that Jacoby Trans. Sys. is distinguishable from the instant cause.
Even if the Jacoby Trans. Sys. case was applicable to the instant case in the way that defendant Merrill Lynch asserts, there are substantial grounds for believing that the Supreme Court of Pennsylvania would not adopt its holding. The Supreme Court of Pennsylvania gives a significant amount of deference to decisions of other states when deciding questions under uniform laws. 1 Pa. Cons. Stat. Ann. § 1927 ("statutes uniform with those of other states shall be interpreted and construed to effect their general purpose to make uniform the laws of those states which enact them"); Commonwealth v. National Bank & Trust Co., 469 Pa. 188, 364 A.2d 1331, 1335 (Pa. 1976). As has already been discussed, other jurisdictions have uniformly held that to not check the signatures on any checks, as was the case here, does not meet reasonable commercial standards, although conducting only spot checks may be acceptable. See discussion supra pp. 7-8. In light of the consistent holdings of courts in other jurisdictions, this Court predicts that the Supreme Court of Pennsylvania would conclude that the failure of Merrill Lynch to conduct at least spot checks of signatures on WCMA checks demonstrates a failure to meet reasonable commercial standards. Therefore, this Court concludes that Merrill Lynch is barred by its failure to follow reasonable commercial standards from availing itself of this first exception, embodied in 13 Pa. Cons. Stat. Ann. § 3406, to the general rule that a drawee bank is liable to a drawer customer for paying on a check containing a forged maker signature.
B. Negligence After Forgery
The second exception to the general rule that a drawee bank is liable to a drawer customer for paying on a check containing a forged maker signature is provided by 13 Pa. Cons. Stat. Ann. § 4406:
(a) General rule. --When a bank sends its customer a statement of account accompanied by items paid in good faith in support of the debit entries or holds the statement and items pursuant to a request or instructions of its customer or otherwise in a reasonable manner makes the statement and items available to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or any alteration on an item and must notify the bank promptly after discovery thereof.
(b) Effect of failure to report unauthorized signature or alteration. --If the bank establishes that the customer failed with respect to an item to comply with the duties imposed on the customer by subsection (a) the customer is precluded from asserting against the bank: