Rapid Die and Molding Co. v. Royal Bancshares Inc.

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
October 7, 2021
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.

Appeal No. 2020AP1552 Cir. Ct. No. 2020CV121

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT IV

RAPID DIE AND MOLDING CO.,

PLAINTIFF-APPELLANT,

V.

ROYAL BANCSHARES INC.,

DEFENDANT-RESPONDENT.

APPEAL from an order of the circuit court for Grant County:
ROBERT P. VAN DE HEY, Judge. Affirmed.

Before Fitzpatrick, Graham, and Nashold, JJ.

¶1 FITZPATRICK, J. Rapid Die and Molding Co. appeals an order of
the Grant County Circuit Court dismissing its claims against Royal Bancshares,
No. 2020AP1552

Inc.1 One of RDM’s employees stole funds from the business checking account
that RDM maintained with Royal Bank. RDM’s complaint alleged that Royal
Bank is liable for the stolen funds because: (1) Royal Bank breached the parties’
contract regarding the terms of the checking account; and (2) Royal Bank was
negligent in that Royal Bank “breached its duty to act with reasonable care to
protect RDM’s funds” in that account.

¶2 In response, Royal Bank filed in the circuit court motions to dismiss
RDM’s causes of action for failure to state a claim upon which relief can be
granted. Royal Bank argued that the complaint did not allege facts to plausibly
suggest that Royal Bank breached its contract with RDM and that RDM’s
negligence claim is barred by Wisconsin’s version of the Uniform Fiduciaries
Act.2 The circuit court granted Royal Bank’s motion on each claim and dismissed
RDM’s complaint without prejudice to RDM filing an amended complaint on
RDM’s second cause of action. RDM appeals.

¶3 For the reasons that follow, we affirm the circuit court’s order.

BACKGROUND

¶4 The following facts are taken from the complaint. All well-pleaded
facts in a complaint must be accepted as true on a motion to dismiss. Cattau v.
National Ins. Servs. of Wis., 2019 WI 46, ¶4, 386 Wis. 2d 515, 926 N.W.2d 756.

1
For convenience, we refer to the parties as “RDM” and “Royal Bank.”
2
Wisconsin’s version of the Uniform Fiduciaries Act is codified at WIS. STAT. § 112.01
(2019-20). All references to the Wisconsin Statutes are to the 2019-20 version unless otherwise
noted.

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¶5 RDM is an Illinois corporation that manufacturers loudspeaker
components in Cassville, Wisconsin. Royal Bank is a Wisconsin corporation with
its principal place of business in Elroy, Wisconsin.

¶6 RDM maintained its primary business checking account (“the
account”) with Royal Bank. RDM and Royal Bank entered into a written
agreement that set forth the terms and conditions of the account (“the agreement”).
The relevant terms of the agreement will be discussed later in this opinion.

¶7 RDM’s owner discovered that Curtis Tarver, one of RDM’s
employees, was stealing from the account for at least twelve years “through a
series of unauthorized electronic debit transactions, among other strategies.”3
Tarver was a manager with authority to perform financial transactions for RDM
and was a signatory on the account. However, RDM did not authorize Tarver to
transfer RDM’s funds in the account to himself or to others for his own benefit or
interests.

¶8 One “scheme[]” Tarver used to steal money from RDM was to set
up, without authorization from RDM, a PayPal4 business account in RDM’s name
and use the account at Royal Bank to fund the PayPal account. Tarver then

3
The complaint does not give any detail about Tarver’s “other strategies” to steal money
from RDM, and the parties do not argue in this court that Tarver’s other strategies make a
difference to the result. So, like the parties, we ignore Tarver’s purported other strategies used to
steal money from RDM.
4
“PayPal is an online payment service that allows a business or private individual to
send and receive payments via the Internet. A PayPal account holder sends money by informing
PayPal of the intended recipient[] … and the amount to be sent and by designating a funding
source such as a credit card, bank account or separate PayPal account. PayPal accesses the funds
and immediately makes them available to the intended recipient.” Comb v. PayPal, Inc., 218 F.
Supp. 2d 1165, 1166 (N.D. Cal. 2002).

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instructed PayPal to transfer RDM’s funds to his own personal accounts and to
Tarver’s third-party vendors and creditors. RDM estimates that Tarver stole over
$650,000. Tarver has since pled guilty to wire fraud and began serving a sentence
in federal prison in January 2020.

¶9 RDM describes in the complaint what it refers to as “red flags” that
should have raised Royal Bank’s suspicion about Tarver’s misconduct. More
specifically, we read the complaint to state that, at least in some instances, the
information in Royal Bank’s “transaction detail reports” would have allowed
Royal Bank to infer that the money transferred from the account to PayPal would
go to Tarver’s own personal accounts and to Tarver’s third-party vendors and
creditors. These red flags will be described in greater detail later in this opinion.
At no point did Royal Bank notify RDM of any suspicious activity on the account.

¶10 As noted, RDM filed a complaint against Royal Bank alleging both
breach of contract and negligence. Royal Bank filed motions to dismiss for failure
to state a claim upon which relief can be granted, arguing that: (1) there was no
breach of contract because Royal Bank acted consistently with the terms of the
parties’ agreement; and (2) the Uniform Fiduciaries Act (“UFA”) bars RDM’s
negligence claim. The circuit court issued an initial decision and order in which
the court dismissed RDM’s breach of contract claim. After supplemental briefing,
the circuit court issued a second decision and order that dismissed RDM’s
negligence claim without prejudice to RDM’s ability to file an amended complaint
regarding that second cause of action. RDM appeals.

DISCUSSION

¶11 RDM makes two principal arguments on appeal. First, RDM argues
that it has sufficiently pled facts which show that Royal Bank breached the parties’

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agreement. Second, RDM argues that the UFA does not bar RDM’s negligence
claim. In the alternative, RDM contends that the complaint sufficiently states a
claim for lack of “good faith” against Royal Bank under the UFA. Each argument
is addressed in turn.

I. Standard of Review on a Motion to Dismiss.

¶12 A party may file a motion to dismiss on the ground that the
complaint fails to state a claim upon which relief can be granted. WIS. STAT.
§ 802.06(2)(a)6. We review de novo a circuit court’s order granting a defendant’s
motion to dismiss. Data Key Partners v. Permira Advisers LLC, 2014 WI 86,
¶17, 356 Wis. 2d 665, 849 N.W.2d 693.

¶13 In determining whether a party has stated a claim, we are concerned
only with the legal sufficiency of the complaint. Id., ¶19. “[A] complaint must
plead facts, which if true, would entitle the plaintiff to relief.” Data Key, 356 Wis.
2d 665, ¶21. “[T]he sufficiency of a complaint depends on substantive law that
underlies the claim made because it is the substantive law that drives what facts
must be pled.” Cattau, 386 Wis. 2d 515, ¶6 (quoting Data Key, 356 Wis. 2d 665,
¶31).

¶14 We accept as true all factual allegations in a plaintiff’s complaint as
well as “reasonable inferences therefrom.” Id., ¶4. We do not add facts in the
process of construing a complaint and do not accept as true legal conclusions in
the complaint. Id., ¶5.

¶15 “[W]hen a document is attached to the complaint and made part
thereof, it must be considered a part of the pleading, and may be resorted to in
determining the sufficiency of the pleadings.” Peterson v. Volkswagen of Am.,

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Inc., 2005 WI 61, ¶15, 281 Wis. 2d 39, 697 N.W.2d 61 (quoting Friends of
Kenwood v. Green, 2000 WI App 217, ¶11, 239 Wis. 2d 78, 619 N.W.2d 271).
However, a document attached to a party’s brief concerning a motion to dismiss is
generally not considered part of the complaint and will not be considered on a
motion to dismiss. Id., ¶15 n.8. Therefore, we will consider as part of our
analysis the parties’ agreement attached to RDM’s complaint.5 However, we will
not consider the “certification” from a person RDM refers to as an “expert” which
was attached to RDM’s brief filed in the circuit court in opposition to Royal
Bank’s motion to dismiss.6

II. Breach of Contract Claim.

¶16 We now turn to RDM’s claim that Royal Bank breached the parties’
agreement.

5
The parties do not dispute the pertinent language of the agreement. This is fortunate
because we cannot discern each word on the agreement attached to the complaint either with a
magnifying glass or at maximum magnification in the electronic record. We remind counsel to
provide legible copies of exhibits for the record.
6
We note that WIS. STAT. § 802.06(2)(b) provides, in pertinent part:

If on a motion asserting the defense described in par. (a)6. to
dismiss for failure of the pleading to state a claim upon which
relief can be granted, or on a motion asserting the defenses
described in par. (a)8. or 9., matters outside of the pleadings are
presented to and not excluded by the court, the motion shall be
treated as one for summary judgment and disposed of as
provided in [WIS. STAT. §] 802.08, and all parties shall be given
reasonable opportunity to present all material made pertinent to
such a motion by s. 802.08.

(Emphasis added.) Here, as noted, RDM attached the certification to its brief in opposition to
Royal Bank’s motion to dismiss. As did the circuit court, we treat Royal Bank’s motion as a
motion to dismiss for failure to state a claim and not one for summary judgment. See Peterson v.
Volkswagen of Am., Inc., 2005 WI 61, ¶15 n.8, 281 Wis. 2d 39, 697 N.W.2d 61.

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A. Governing Principles and Standard of Review.

¶17 “The primary goal in contract interpretation is to give effect to the
parties’ intentions.” Seitzinger v. Community Health Network, 2004 WI 28, ¶22,
270 Wis. 2d 1, 676 N.W.2d 426. We ascertain the parties’ intentions by looking to
the language of the contract itself. Id. “Where the terms of a contract are clear
and unambiguous, we construe the contract according to its literal terms.”
Maryland Arms Ltd. P’ship v. Connell, 2010 WI 64, ¶23, 326 Wis. 2d 300, 786
N.W.2d 15 (quoting Gorton v. Hostak, Henzl & Bichler, S.C., 217 Wis. 2d 493,
506, 577 N.W.2d 617 (1998)). “A construction which gives reasonable meaning
to every provision of a contract is preferable to one leaving part of the language
useless or meaningless.” Maas v. Ziegler, 172 Wis. 2d 70, 79, 492 N.W.2d 621
(1992).

¶18 Whether contract terms are plain or ambiguous is a question of law,
which we review de novo. Converting/Biophile Lab’ys, Inc. v. Ludlow
Composites Corp., 2006 WI App 187, ¶33, 296 Wis. 2d 273, 722 N.W.2d 633.

¶19 A complaint states a claim for breach of contract when it alleges:
(1) a contract between the plaintiff and the defendant that creates obligations
flowing from the defendant to the plaintiff; (2) failure of the defendant to do what
it undertook to do; and (3) damages. Brew City Redevelopment Grp., LLC v.
Ferchill Grp., 2006 WI App 39, ¶11, 289 Wis. 2d 795, 714 N.W.2d 582, aff’d
2006 WI 128, 297 Wis. 2d 606, 724 N.W.2d 879.

B. The Complaint Does Not State a Claim for Breach of Contract.

¶20 RDM argues that Royal Bank breached its contractual duty to RDM
by allowing electronic debits from the account that were “not authorized.”

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Pertinent language in the agreement is within the “Withdrawals” heading and
states:

Unless otherwise clearly indicated on the account records,
any one of you who signs this form including authorized
agent signers, may withdraw or transfer all or any part of
the account balance at any time on forms approved by
us.… We reserve the right to refuse any withdrawal or
transfer request which is attempted by any method not
specifically permitted .… Even if we honor a
nonconforming request, repeated abuse of the stated
limitations (if any) may eventually force us to close this
account.

RDM does not dispute that, for the purpose of analyzing its breach of contract
claim, Tarver was authorized to withdraw or transfer funds out of the account.
Rather, we understand RDM’s argument to be that Royal Bank breached the
agreement because the electronic debits Tarver used to transfer funds from the
account were not authorized by the terms of the agreement. We next address and
reject each of RDM’s arguments.

1. The Transactions Occurred on Forms Approved by Royal Bank.

¶21 First, RDM argues that the phrase in the agreement “on forms
approved by [Royal Bank]” requires that withdrawals or transfers from the
account occur “on forms specifically approved in advance [by Royal Bank].”7
RDM also contends that the complaint sufficiently alleges that the disputed
transactions did not occur on such forms.

7
At one point in briefing in this court, RDM argues that transactions must occur “on
forms provided by Royal Bank.” This argument incorrectly changes the words “approved by”
into the words “provided by.” The agreement contemplates that the withdrawal or transfer may
be accomplished using forms “approved by” Royal Bank; it does not require that Royal Bank be
the entity providing any such forms.

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¶22 As noted above, to properly plead a claim for breach of contract, a
complaint must allege facts showing the “failure of the defendant to do what it
undertook to do” in the contract. Brew City, 289 Wis. 2d 795, ¶11. Further, when
determining whether a claim for relief is properly pled, our decision is controlled
by “the sufficiency of the facts alleged” in the complaint. Data Key, 356 Wis. 2d
665, ¶21 (citing Strid v. Converse, 111 Wis. 2d 418, 422-23, 331 N.W.2d 350
(1983)). Here, the complaint fails to allege sufficient facts to show that the
disputed withdrawals or transfers did not occur on “forms approved by [Royal
Bank].”8 None of the facts alleged in the complaint indicate the type of form used,
and the complaint does not explicitly state whether the withdrawals or transfers
used a form at all. Nonetheless, the complaint suggests that there was some kind
of form used for the withdrawals or transfers with various “fields” denominated as
“customer,” “company,” “transaction,” and “receiver.” The complaint also fails to
indicate that Royal Bank did not “approve” any such form. As a result, even if the
agreement required Royal Bank to process withdrawals or transfers only on
“forms approved by [Royal Bank],” the complaint provides no basis to conclude
that Royal Bank breached that duty.

8
The parties appear to adopt different interpretations of the phrase “on forms approved
by [Royal Bank].” RDM argues that this phrase suggests that the word “form” as used in the
agreement should be interpreted to mean “a written form” or “the document on which the
transaction is processed.” Conversely, one of Royal Bank’s arguments suggests that the word
“form” means “the form of the transaction” or “the method or procedure by which the transaction
occurs.” We conclude that this phrase in the agreement is not ambiguous and addresses
transactions that occur on some sort of document, template, or other form of writing that Royal
Bank has approved. Contrary to Royal Bank’s suggestion, the phrase cannot reasonably be
interpreted to mean “a form of transaction approved by Royal Bank” because the phrase
addresses transactions that occur “on” forms. We apply this meaning of the phrase in our
analysis in the main text.

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¶23 In addition, even if the complaint had alleged facts indicating the
type of form on which the transactions occurred and that this type of form was not
“approved by [Royal Bank],” the complaint would still not state a claim that Royal
Bank breached its contractual obligation because the agreement does not require
withdrawals or transfers to occur on forms approved by Royal Bank. Instead, the
agreement states that “any one of you who signs this form including authorized
agent signers, may withdraw or transfer all or any part of the account balance at
any time on forms approved by [Royal Bank].” (Emphasis added.) By using the
word “may” instead of “must,” the agreement indicates that the phrase “on forms
approved by [Royal Bank]” is not the only process by which funds may be
withdrawn or transferred from the account. The agreement confirms this
interpretation by further stating that Royal Bank “reserve[s] the right to refuse any
withdrawal or transfer request which is attempted by any method not specifically
permitted” and that Royal Bank may “honor a nonconforming request.”
(Emphasis added.) These provisions bolster the conclusion that the agreement sets
forth a process by which such transactions may occur, but that it would not be a
breach of the agreement if such transactions occurred by another process that is
not specifically delineated in the agreement.

2. The Agreement Authorizes the Electronic ACH Debits Made by Tarver.

¶24 Second, RDM argues that Royal Bank breached the agreement
because electronic debits from the account do not qualify as “withdrawals” or

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“transfers,” and are not otherwise contemplated by the agreement.9 RDM
contends that the meanings of the terms “withdrawals” and “transfers” under the
“Withdrawals” heading in the agreement are informed by the provision of the
agreement located under the “ACH and Wire Transfer” heading in the agreement.
The “ACH and Wire Transfer” provision states in pertinent part:

This agreement is subject to Article 4A of the Uniform
Commercial Code in the state in which you have your
account with us.… You agree to be bound by automated
clearing house association rules.

Both parties agree that the debits at issue are not covered by Article 4A of the
Uniform Commercial Code (“Article 4A”) because Article 4A only addresses
credits. The parties also agree that electronic debits are covered by the Automated
Clearing House Association (“ACH Association”) rules because those rules
address both “credits” and “debits.” See, e.g., Costoso v. Bank of America, N.A.,
74 F. Supp. 3d 558, 570-71 (E.D.N.Y. 2015).

¶25 To the extent we understand RDM’s argument, it appears to contend
that the above-quoted language from the ACH and Wire Transfer provision of the
agreement demonstrates that electronic debits are not authorized by the agreement
for two reasons: (1) the reference to Article 4A excludes debits from the scope of
the agreement; and (2) the reference to the ACH Association rules could address
either credits or debits, so it “does not tell us anything about whether credits or
debits are the subject of this paragraph of the Agreement.”

9
The complaint refers to a “scheme[]” used by Tarver through PayPal along with more
ambiguous references to “electronic debits.” RDM’s briefing in this court refers to “debit
transfers” through PayPal “and other third parties.” RDM does not assert that any electronic
debits through third parties other than PayPal have features separate than those of PayPal that
make any difference to the result in this appeal.

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¶26 We reject RDM’s reasoning and conclude that the debits at issue in
this case are “withdrawals” or “transfers” within the terms of the agreement. First,
RDM does not dispute that these debits qualify as “transfers” under the agreement.
Indeed, in the complaint, RDM alleged that Tarver instructed PayPal to “transfer”
RDM’s funds and described the purported “red flag” transactions as “transfers.”
Second, these debits are not excluded from the meaning of “withdrawals” or
“transfers” simply because the agreement is subject to Article 4A. If we were to
interpret the agreement’s reference to Article 4A as restricting the scope of the
entire agreement to credits, we would render meaningless the agreement’s
subsequent reference to the ACH Association rules which address electronic ACH
debits, and that would be an improper interpretation of the agreement. See Maas,
172 Wis. 2d at 79 (“A construction which gives reasonable meaning to every
provision of a contract is preferable to one leaving part of the language useless or
meaningless.”). Therefore, the complaint fails to state a claim that Royal Bank
breached its contractual duty not to allow electronic debits from the account.

3. Tarver Performed the Transactions.

¶27 Third, RDM argues that Royal Bank breached the agreement based
on the following string of propositions advanced on appeal, each of which is
necessary to this argument from RDM. Tarver did not give any “instructions” to
Royal Bank to pay out RDM’s funds “in the account.” Instead, the “electronic
ACH debit[s]” were “originated by PayPal” “to the account of RDM.” The
agreement authorized Tarver to withdraw funds but because the ACH debit entries
were “originated” by PayPal—a third party—Royal Bank did not have authority
under the agreement “to pay out RDM’s funds” in the transactions described in the
complaint.

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¶28 For the following reasons, either of which is sufficient to reject
RDM’s argument, we conclude that the complaint does not state a claim that
Royal Bank breached the agreement in these circumstances. Initially, RDM does
not allege in the complaint that Royal Bank breached the agreement by allowing
PayPal to withdraw or transfer funds out of the account. Next, Tarver had the
authority under the agreement to transfer funds from the account. Tarver initiated
the transfers and directed PayPal’s actions. In other words, Royal Bank did not
allow an “unauthorized” party (PayPal) to transfer funds from the account. The
transactions were controlled by Tarver, a signatory to the account. Therefore,
RDM’s complaint does not sufficiently allege that Royal Bank breached the
agreement for this reason.

¶29 In sum, we conclude that the complaint fails to state a claim that
Royal Bank breached the agreement. We affirm the circuit court’s order
concerning this cause of action. After remittitur, the circuit court may rule on any
request by RDM to file an amended complaint regarding breach of contract by
Royal Bank. We next turn to RDM’s negligence claim.

III. RDM’s Negligence Claim.

¶30 RDM argues that Royal Bank negligently failed to protect the funds
in the account because Royal Bank allowed Tarver’s debits from the account,
failed to adequately monitor the account for suspicious activity, and failed to
notify RDM of suspicious activity. Royal Bank responds that WIS. STAT.
§ 112.01(3)—a subpart of Wisconsin’s version of the UFA—applies to these
disputed transactions and bars RDM’s claim. We now consider whether the UFA
applies to RDM’s claim.

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A. Standard of Review and Statutory Interpretation.

¶31 The parties’ arguments require us to interpret statutes. “Statutory
interpretation and the application of a statute to a given set of facts are questions
of law that we review independently.” Marder v. Board of Regents of Univ. of
Wis. Sys., 2005 WI 159, ¶19, 286 Wis. 2d 252, 706 N.W.2d 110. Statutory
interpretation “begins with the language of the statute. If the meaning of the
statute is plain, we ordinarily stop the inquiry. Statutory language is given its
common, ordinary, and accepted meaning, except that technical or specially-
defined words or phrases are given their technical or special definitional
meaning.” State ex rel. Kalal v. Circuit Ct. for Dane Cnty., 2004 WI 58, ¶45, 271
Wis. 2d 633, 681 N.W.2d 110 (internal citations omitted).

B. The UFA Applies to RDM’s Claim.

¶32 WISCONSIN STAT. § 112.01(3) states in pertinent part:

(3) Application of payments made to fiduciaries.
A person who in good faith pays or transfers to a fiduciary
any money or other property which the fiduciary as such is
authorized to receive, is not responsible for the proper
application thereof by the fiduciary; and any right or title
acquired from the fiduciary in consideration of such
payment or transfer is not invalid in consequence of a
misapplication by the fiduciary.

Sec. 112.01(3).10 RDM argues that this provision of the UFA does not apply in
these circumstances for three reasons: (1) Tarver was not a “fiduciary” as defined
in the UFA because he was not an “officer” of RDM; (2) for this subpart of the

10
This section is identical to § 2 of the Uniform Fiduciaries Act. See UNIF. FIDUCIARIES
ACT § 2 (UNIF. L. COMM’N 1922). In addition, we note that RDM does not dispute that Royal
Bank is a “person” as mentioned in WIS. STAT. § 112.01(3).

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UFA to apply, Royal Bank must “pay” or “transfer” money directly to Tarver,
rather than through a third party such as PayPal; and (3) Tarver was not
“authorized to receive” the funds because RDM did not authorize Tarver to
receive the transfers of money from the account. Each argument is addressed, and
rejected, below.

1. Tarver Was a “Fiduciary.”

¶33 RDM argues that Tarver did not qualify as a “fiduciary” under the
UFA which defines “fiduciary” as follows:

(1) Definitions. … (b) “Fiduciary” includes a …
partner, agent, officer of a corporation, public or private,
public officer, or any other person acting in a fiduciary
capacity for any person, trust, or estate.

WIS. STAT. § 112.01(1)(b) (emphasis added). RDM acknowledges that Tarver was
its “agent.” Further, RDM’s complaint states that Tarver was a manager with
authority to perform financial transactions for RDM, and RDM admits in briefing
in this court that Tarver was “an agent with authority to act for RDM with regard
to certain financial transactions.” Nonetheless, RDM contends that an “agent”
under the UFA is not a “fiduciary” unless that agent is also an “officer” of the
corporation. RDM contends that if “every employee of a corporation were an
agent within the meaning of the UFA, then there would be no reason for the
words: ‘officer of a corporation.’”

¶34 RDM’s argument misinterprets WIS. STAT. § 112.01(1)(b). That
statutory subpart lists the types of persons who qualify as fiduciaries in the
disjunctive, such that the term “fiduciary” includes an “agent” or an “officer” of a
corporation. Id. RDM attempts to change the meaning of the subpart when it
argues that a fiduciary must be both an “agent” and an “officer.” Moreover, the

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term “agent” does not include all employees of a corporation because “agent”
denotes the authority “to act for or in place of another.” Agent, BLACK’S LAW
DICTIONARY (11th ed. 2019); see also Meyers v. Matthews, 270 Wis. 453, 467, 71
N.W.2d 368 (1955) (an agent is a “person authorized by another to act on his
account”). An employee of a corporation who does not have the authority to
represent or act in the place of the corporation would not be considered an “agent”
under § 112.01(1)(b).

¶35 Therefore, Tarver was an “agent” under WIS. STAT. § 112.01(1)(b)
and thus a “fiduciary” pursuant to § 112.01(3).

2. Royal Bank Transferred Money “to” Tarver.

¶36 Next, in an abbreviated argument, RDM contends that WIS. STAT.
§ 112.01(3) does not apply to these transactions because that statutory subpart
addresses payments or transfers made “to” a fiduciary. RDM asserts that Royal
Bank did not pay or transfer funds directly “to” Tarver because Royal Bank
transferred the funds to PayPal which then transferred the funds to Tarver’s
payees, including his own personal accounts.

¶37 RDM’s interpretation of WIS. STAT. § 112.01(3) is too narrow.
RDM’s interpretation of the statute impermissibly adds the word “directly” to the
phrase “pays or transfers to a fiduciary.” See State v. Neill, 2020 WI 15, ¶23, 390
Wis. 2d 248, 938 N.W.2d 521 (“One of the maxims of statutory construction is
that courts should not add words to a statute to give it a certain meaning.”). Under
RDM’s narrow interpretation of the statute, the UFA would not apply when a
fiduciary simply transferred funds from the principal’s account at one bank to the
fiduciary’s account at another bank because there was an intermediary or a
clearing house to electronically transfer funds. In fact, according to the complaint,

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Royal Bank transferred funds “to” Tarver because Tarver initiated the transactions
and directed the acts that transferred funds to accounts that were his accounts or
that he controlled. Therefore, we conclude that Royal Bank transferred funds “to”
Tarver under § 112.01(3).

3. Tarver was “Authorized to Receive” the Transfers.

¶38 RDM next argues that WIS. STAT. § 112.01(3) does not apply to
these transactions because Tarver was not, as required by that statutory subpart,
“authorized to receive” the transfers of money from the account. Royal Bank
responds that Tarver was “authorized to receive” the transfers from the account
because Tarver had the authority to perform financial transactions for RDM,
Tarver was a signatory on RDM’s account with Royal Bank, and the agreement
authorized such signatories to “withdraw or transfer all or any part of the account
balance at any time.”

¶39 The meaning of the phrase “authorized to receive” as used in WIS.
STAT. § 112.01(3) has been addressed by courts in other states that have adopted
the UFA.11 These courts have interpreted this phrase as requiring that the
fiduciary obtain authorization from the principal to conduct the transaction at
issue. See, e.g., Mutual Serv. Cas. Ins. Co. v. Elizabeth State Bank, 265 F.3d
601, 624 (7th Cir. 2001) (“[The ‘authorized to receive’] language reiterates the
need to focus on the agent’s authority with respect to the particular transaction at

11
The parties do not identify—and our research does not reveal—any Wisconsin case
law examining the scope of this language. Nevertheless, because WIS. STAT. § 112.01 is a
uniform law, we may consider decisions from other jurisdictions. Sec. 112.01(14) (“This section
shall be so interpreted and construed as to effectuate its general purpose to make uniform the law
of those states which enact it.”); see also Koss Corp. v. Park Bank, 2019 WI 7, ¶¶33, 82, 385
Wis. 2d 261, 922 N.W.2d 20 (relying on case law from other states in light of § 112.01(14)).

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No. 2020AP1552

issue.”); Zions First Nat’l Bank v. Clark Clinic Corp., 762 P.2d 1090, 1100-01
(Utah 1988) (“In other words, for the Uniform Fiduciaries Act to apply to this
case, Westover must have been a fiduciary who was authorized or empowered in
fact to endorse and/or sign the subject instruments and checks.”); Master Chem.
Corp. v. Inkrott, 563 N.E.2d 26, 30 (Ohio 1990) (holding that part of this inquiry
is “whether the fiduciary in fact possessed the authority to conduct the transaction
in question”). Contrary to RDM’s argument, a fiduciary may still be “authorized
to receive” funds under § 112.01(3) even when those funds are withdrawn for the
fiduciary’s personal benefit.

¶40 That point is illustrated by the analysis in the Elizabeth State Bank
case. In that case, Hemmen (the company’s controller) was not a signatory to the
company’s operating account and did not have authority to withdraw funds from
that account. Elizabeth State Bank, 265 F.3d at 606-07. Nevertheless, Hemmen
had authority to prepare checks drawn on the operating account to pay the
company’s suppliers and to transfer funds to the company’s other accounts. Id. at
607. Hemmen used these checks to embezzle over $80,000 from the company in
the following manner. Id. Hemmen prepared a check on the company’s operating
account payable to the bank. Id. He then presented the check to the company’s
general manager for signature. Id. The general manager assumed the check was
written to legitimately transfer funds to the company’s other accounts. Id. In
reality, however, Hemmen would present the check to the teller at the bank and
request that a portion of the balance be disbursed to himself in the form of cash or
cashier’s checks. Id. Even though the bank knew that Hemmen was not a
signatory, the bank acceded to his requests without first consulting with the
company regarding his authority to receive the proceeds of the checks. Id. at 608.

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No. 2020AP1552

¶41 The Seventh Circuit held that Hemmen was not “authorized to
receive” the funds at issue under the UFA.12 Id. at 625. The court noted that the
key consideration on this question is that the UFA “will not absolve the bank of
liability for the presenter’s misapplication of the check proceeds unless the
evidence reveals that he was authorized to receive those proceeds.” Id. at 624.
Hemmen was not “authorized to receive” the funds because:

[N]o evidence demonstrates that Hemmen was ever given
broad authority to receive cash on checks drawn to the
bank’s order, or to divert funds from the operating account
to anywhere but the [company’s other] accounts, and it is
Hemmen’s lack of authority in this regard that precludes
the bank’s resort to [the UFA].

Id. at 625. In other words, although Hemmen had the authority to move funds
from the operating account to other accounts at the bank, he was not “authorized
to receive” funds because he was not a signatory on the account and had no
authority to move the funds from the operating account to himself. Id. (“[W]hat is
key is his authority to have funds from the operating account issued to himself.”).

¶42 The Seventh Circuit compared the facts of Hemmen’s embezzlement
to those in St. Stephen’s Evangelical Lutheran Church v. Seaway National
Bank, 350 N.E.2d 128 (Ill. App. Ct. 1976). In that case, the agreement between
the church and the bank designated Ferguson (the church’s bookkeeper) as the
only signatory on the account and authorized the bank to honor checks drawn to
Ferguson’s individual order “without further inquiry or regard to his authority or
the use of the proceeds of such checks.” Id. at 129. Ferguson stole from the

12
The court relied on 760 ILL. COMP. STAT. 65/2 (2001), which contains language
identical to WIS. STAT. § 112.01(3). See Mutual Serv. Cas. Ins. Co. v. Elizabeth State Bank,
265 F.3d 601, 624 (7th Cir. 2001).

19
No. 2020AP1552

account by drawing numerous checks on the account payable to the bank, then
directing the bank to cash each check and give him the proceeds. Id. The
Appellate Court of Illinois held that “the payment by the bank was to a fiduciary
authorized to receive funds from the account” because the broad powers granted to
Ferguson under the bank resolution authorized Ferguson “to receive the proceeds
of checks he drew payable to the bank.” Id. at 130. As a result, the UFA “protects
the bank against Ferguson’s misapplication of the proceeds of the checks.” Id.

¶43 The Seventh Circuit contrasted Ferguson’s authority in St. Stephen’s
to Hemmen’s authority in Elizabeth State Bank. Whereas Ferguson was
authorized by the agreement between the church and the bank to act as he did,
Hemmen had no authority to receive the proceeds of checks himself or to divert
funds from the operating account to himself. Elizabeth State Bank, 265 F.3d at
624-25.

¶44 We now apply those principles to the present case. The complaint
describes Tarver’s authority with respect to the account:

Tarver was not an officer of RDM but was a
manager with authority to perform financial transactions
for RDM and as such, was a signatory on the Account.

Additionally, the agreement attached to the complaint describes the authority of
Tarver as a signatory to the account: “any one of you who signs this form
including authorized agent signers, may withdraw or transfer all or any part of the
account balance at any time on forms approved by us.”

¶45 We conclude that Tarver was “authorized to receive” funds from
RDM’s account under WIS. STAT. § 112.01(3). As established in the Elizabeth
State Bank and St. Stephen’s cases, the key consideration is whether Tarver was

20
No. 2020AP1552

authorized to perform the withdrawals and transfers in dispute. Elizabeth State
Bank, 265 F.3d at 625 (“[W]hat is key is his authority to have funds from the
operating account issued to himself.”); St. Stephen’s, 350 N.E.2d at 1024. Here,
Tarver’s authority is akin to the fiduciary’s authority in St. Stephen’s rather than
in Elizabeth State Bank. To repeat, the account agreement RDM entered into
authorizes signatories to the account—including Tarver—to “withdraw or transfer
all or any part of the account balance at any time.” This language indicates that
Tarver had wide latitude to withdraw or transfer funds from the account, including
to himself.

¶46 RDM contends that the UFA only applies when a bank knows the
transacting party is a fiduciary and that Royal Bank did not know that it was
interacting with a fiduciary because Royal Bank “knew only that the drawer was
PayPal, and did not know that Tarver was behind the curtain pulling the strings.”
RDM attempts to support this argument by referencing the prefatory note to the
UFA which states that “the Act covers situations which arise where one person
deals with another person whom he knows to be a fiduciary.” 13 See UNIF.
FIDUCIARIES ACT, notes on Uniform Fiduciaries Act (UNIF. L. COMM’N 1922).
We reject RDM’s argument for the following reasons. From a factual standpoint,
there is no allegation in the complaint that Royal Bank was unaware of Tarver’s
involvement with the PayPal transactions. Indeed, as we noted earlier, the

13
We note that the language from the prefatory note to the UFA is not codified in WIS.
STAT. § 112.01. Nevertheless, when a Wisconsin statute corresponds to a uniform law, “we may
consider the official and published comments of the drafters of the uniform law.” Hunt Club
Condos., Inc. v. Mac-Gray Servs., Inc., 2006 WI App 167, ¶16, 295 Wis. 2d 780, 721 N.W.2d
117 (citing State v. Mueller, 201 Wis. 2d 121, 141, 549 N.W.2d 455 (Ct. App. 1996)); see also
Bolger v. Merrill Lynch Ready Assets Tr., 143 Wis. 2d 766, 774-75, 423 N.W.2d 173 (Ct. App.
1988) (referencing the prefatory note to the UFA).

21
No. 2020AP1552

complaint is read to state that, at least in some instances, the information in Royal
Bank’s “transaction detail reports” would have allowed Royal Bank to infer that
the money transferred from the account to PayPal would go to Tarver’s own
personal accounts and Tarver’s third-party vendors and creditors. On a motion to
dismiss, we cannot add facts in the process of construing a complaint. Cattau, 386
Wis. 2d 515, ¶5. Further, the UFA’s prefatory note states only that the UFA
applies with certainty when a person deals with a known fiduciary. This language
sets forth the ordinary situation covered by the UFA, but it does not preclude the
application of the UFA when a bank does not know it is dealing with a fiduciary.
See Springfield Twp. v. Mellon PSFS Bank, 889 A.2d 1184, 1192 (2005)
(“[E]ven if the UFA was designed to allow a bank to dispense with formalities
when it knows it is dealing with a fiduciary, this does not [mean that] where a
bank does not know it is dealing with a fiduciary, it has no defense under the
UFA.”). Moreover, as discussed earlier, whether a fiduciary is “authorized to
receive” funds from the account depends on the fiduciary’s actual authorization to
receive funds, not the bank’s perception of the fiduciary’s authorization. See id. at
1191 n.10 (“Personal inquiry by a teller before accepting a deposit is less
significant than a generation ago, reinforcing our conclusion that actual authority
is more important than perceived authority.”).

¶47 Accordingly, Tarver was “authorized to receive” funds from the
account within the meaning of WIS. STAT. § 112.01(3).

¶48 In sum, the provisions of the UFA apply to the allegations in RDM’s
complaint regarding the transfers and withdrawals made by Tarver from the
account, including the allegations in the complaint’s second cause of action.

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No. 2020AP1552

C. RDM’s Second Cause of Action Fails to State a Claim.

¶49 We have determined that the provisions of the UFA apply to RDM’s
second cause of action. That cause of action is based on Royal Bank’s purported
negligence concerning the transactions in dispute. RDM’s second cause of action
fails under the UFA to the extent that claim sounds in negligence. See WIS. STAT.
§ 112.01(1)(c), (3); see also Koss Corp. v. Park Bank, 2019 WI 7, ¶¶31, 86, 385
Wis. 2d 261, 922 N.W.2d 20. However, RDM argues in the alternative in this
appeal that, if the UFA bars its second cause of action based on negligence, RDM
has still pled sufficient facts in that second cause of action to state a claim that
Royal Bank did not act in “good faith” under § 112.01(3) in these circumstances.
Sec. 112.01(3) (“A person who in good faith pays or transfers to a fiduciary any
money … which the fiduciary as such is authorized to receive, is not responsible
for the proper application thereof by the fiduciary.”). We take up RDM’s
alternative argument because, “[i]n order to satisfy WIS. STAT. § 802.02(1)(a), a
complaint must plead facts, which if true, would entitle the plaintiff to relief.”
Data Key, 356 Wis. 2d 665, ¶21. Royal Bank responds that the allegations in
RDM’s complaint do not state a claim that Royal Bank failed to act in “good
faith” under § 112.01(3).14

14
RDM contends that the UFA is an affirmative defense and that RDM is not required to
“disprove” an affirmative defense in response to a motion to dismiss. This argument is incorrect.
A court may grant a motion to dismiss based on an affirmative defense if the applicability of the
defense is “apparent from the face of the complaint.” Energy Complexes, Inc. v. Eau Claire
Cnty., 152 Wis. 2d 453, 463 n.7, 449 N.W.2d 35 (1989) (quoting 2A J. Moore, W. Taggart &
J. Wicker, Moore’s Federal Practice, ¶12.07 at 12-68 to 12-69 (2d ed. 1989)); see also C.L. v.
Olson, 143 Wis. 2d 701, 706-07, 422 N.W.2d 614 (1988). Here, the applicability of the UFA as a
defense is apparent from the face of RDM’s complaint. RDM alleged that Royal Bank is liable
under common law negligence and the purpose of the UFA is to “provide relief from the dire
consequences of the common law rule” that placed on banks and others “dealing with fiduciaries
the duty to assure that fiduciary funds were properly applied to the account of the principal.”
Bolger, 143 Wis. 2d at 774; see also Koss, 385 Wis. 2d 261, ¶¶26, 88. Further, RDM is not
(continued)

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No. 2020AP1552

¶50 We begin by establishing the meaning of “good faith” under WIS.
STAT. § 112.01(3).

1. The “Good Faith” Standard.

¶51 The definition of “good faith” as used in the UFA is supplied by
statute: “A thing is done ‘in good faith’ within the meaning of this section, when
it is in fact done honestly, whether it be done negligently or not.” WIS. STAT.
§ 112.01(1)(c). The parties have not identified—and our research has not
revealed—Wisconsin case law that analyzes the meaning of “good faith” under
§ 112.01(3).

¶52 Subpart (3) of WIS. STAT. § 112.01—the subpart at issue in this
appeal—is the only subpart in § 112.01 that uses the phrase “good faith”; all of the
remaining subparts of the UFA use the phrase “bad faith,” which is not defined in
§ 112.01. In Koss, our supreme court addressed the meaning of “bad faith” under
§ 112.01(9).15 Koss, 385 Wis. 2d 261, ¶27. A two-justice plurality of the court in
the lead opinion stated that “‘bad faith’ is inconsistent with the statutory criteria

required to “disprove” the applicability of the UFA in its complaint. Rather, RDM must
demonstrate that the allegations in the complaint sufficiently state a claim that the UFA does not
bar.
15
WISCONSIN STAT. § 112.01(9) states in relevant part:

(9) Deposit in name of principal. 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.…

24
No. 2020AP1552

for ‘good faith.’” Id., ¶73. A three-justice concurrence in Koss recognized, but did
not reject, that proposition stated in the lead opinion. Id., ¶81 (A.W. Bradley, J.,
concurring). Indeed, the standard adopted by the Koss concurrence draws a clear
distinction between “bad faith” and negligence, and negligent conduct comes
within the definition of “good faith” if such conduct is done “honestly.” Id., ¶¶86-
87; New Jersey Title Ins. Co. v. Caputo, 163 N.J. 143, 748 A.2d 507, 514 (2000);
see § 112.01(1)(c). In addition, in briefing in this court, both RDM and Royal
Bank embrace the statement in the lead opinion in Koss that “bad faith” is
inconsistent with “good faith” as those phrases are used in the UFA. We thus look
to the Koss court’s discussion of “bad faith” to guide our analysis of § 112.01(3).

¶53 Koss sought to hold Park Bank liable for the funds stolen by
Sachdeva, Koss’s Vice President of Finance. Koss, 385 Wis. 2d 261, ¶6.
Sachdeva was authorized to conduct transactions from Koss’s accounts at Park
Bank. Id. Sachdeva embezzled funds from these accounts by ordering cashier’s
checks and petty cash requests from Koss’s Park Bank accounts, then directing
other Koss employees to go to the bank to pick up the checks. Id., ¶¶8-13. Koss
sued Park Bank under WIS. STAT. § 112.01(9), alleging that Park Bank’s
transactions with Sachdeva were done in bad faith. Id., ¶¶27-29.

¶54 Five justices in Koss agreed that Koss failed to prove bad faith under
WIS. STAT. § 112.01(9). The two-justice lead opinion expressed the view that bad
faith is an “intentional tort” that requires an analysis of a bank’s actions to
determine its “subjective intent,” and “a claimant who shows bank dishonesty will
be successful” in proving that a bank acted in bad faith. Koss, 385 Wis. 2d 261,
¶¶53, 54. Acts evidencing bank dishonesty include “a bank willfully failing to
further investigate compelling and obvious known facts that suggest fiduciary
misconduct because of a deliberate desire to evade knowledge of fiduciary

25
No. 2020AP1552

misconduct.” Id., ¶55 (citing Trenton Tr. Co. v. Western Sur. Co., 599 S.W.2d
481, 492 (Mo. 1980)).

¶55 In the Koss concurrence, three justices applied a “less exacting” (for
a plaintiff) standard that would not require “willful” or “deliberate” actions on the
part of the bank:

[B]ad faith denotes a reckless disregard or
purposeful obliviousness of the known facts suggesting
impropriety by the fiduciary. It is not established by
negligent or careless conduct or by vague suspicion.
Likewise, actual knowledge of and complicity in the
fiduciary’s misdeeds is not required. However, where 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.

Koss, 385 Wis. 2d 261, ¶¶86-87, 90 (A.W. Bradley, J., concurring) (quoting
Caputo, 748 A.2d at 514). Under this standard, “[n]either ‘the amount and
number of transactions carried out on an account containing fiduciary funds, nor
the mere names of payees on checks drawn on that account, are sufficient to create
bad faith liability based on the bank’s action in paying such checks.’” Id., ¶91.
The Koss concurrence concluded that the facts did not “present the ‘compelling
and obvious’ suggestion of fiduciary misconduct so as to foist liability onto Park
Bank.” Id., ¶92.

¶56 We acknowledge that neither the lead opinion nor the concurrence in
Koss has binding precedential value.16 Regardless, we must apply an articulable
16
When examining a divided opinion of the Wisconsin Supreme Court to determine its
holding, “a majority of the participating [justices] must have agreed on a particular point for it to
be considered the opinion of the court.” State v. Elam, 195 Wis. 2d 683, 685, 538 N.W.2d 249
(1995) (citing State v. Dowe, 120 Wis. 2d 192, 194-95, 352 N.W.2d 660 (1984) (Per Curiam));
see also Doe v. Archdiocese of Milwaukee, 211 Wis. 2d 312, ¶38 n.11, 565 N.W.2d 94 (1997).

26
No. 2020AP1552

standard in our analysis. For the following reasons, in analyzing whether RDM
has sufficiently pled that Royal Bank did not act in good faith, we apply the
standard for bad faith from the Koss concurrence. We agree with the Koss
concurrence that the legislature has, in the context of the UFA, stated that pursuant
to WIS. STAT. § 112.01(14), “our state’s UFA ‘shall be so interpreted and
construed as to effectuate its general purpose to make uniform the law of those
states which enact it.’” Koss, 385 Wis. 2d 261, ¶82. The standard for bad faith
enunciated in the Koss concurrence has been adopted in more jurisdictions than
the standard adopted in the Koss lead opinion, and that militates strongly toward
using those principles. See id., ¶¶85-86. We next consider the allegations of
RDM’s complaint in light of that standard.

2. The Complaint Fails to State a Claim That Royal Bank
Did Not Act in “Good Faith.”

¶57 RDM argues that the following facts stated in the complaint—if
taken as true—show that Royal Bank did not act in “good faith.” We address in
turn each of three categories of facts relied on by RDM. For the following
reasons, we conclude that RDM’s complaint does not allege “compelling and
obvious” facts suggesting fiduciary misconduct. See id., ¶86. Therefore, the
complaint fails to state a claim sufficient to defeat Royal Bank’s affirmative
defense under WIS. STAT. § 112.01(3).

¶58 First, according to RDM, Royal Bank did not address the “red flags”
regarding the details of the transactions. The complaint described these “red
flags” as follows:

a. Tarver’s numerous, electronic debits described
as “PayPal transfers” in random, large amounts;

27
No. 2020AP1552

b. Tarver’s numerous electronic debits in which
Tarver’s own name was entered in the “customer” field
instead of RDM’s, and two in which his father’s name
appeared in the company field (and then were used to pay
down the balance on his own credit card);

c. Tarver’s numerous electronic debits for which
the “WEB” code was entered in the transaction field,
including transfers from RDM’s operating account to the
PayPal account Tarver had set up;

d. Tarver’s numerous electronic debits for which
his own name was entered in the “receiver” field for large
amounts being transferred from Royal to RDM’s PayPal
account.

e. Payments to various vendors and creditors whose
titles and functions would suggest they are not normally
payees of a loudspeaker component factory.

Most of these allegations merely describe the amount and number of transactions
or the identities of the recipients of those transactions. See id., ¶91 (“Neither ‘the
amount and number of transactions carried out on an account containing fiduciary
funds, nor the mere names of payees on checks drawn on that account, are
sufficient to create bad faith liability based on the bank’s action in paying such
checks.’”). As examples, the fact that there were “numerous” electronic debits
describes the “amount and number of transactions,” while the fact that payments
went to unusual payees for RDM describes the “names of payees” for funds drawn
from the account. See id.

¶59 RDM argues that the allegations go beyond the number, amounts,
and identities of the recipients of the transactions because these allegations
concern “the nature of the transactions as well as Royal’s awareness of these
facts.” In particular, RDM highlights the “WEB” code entered in the transaction
field, “the use of PayPal as a regular intermediary for personal transactions,” and
Tarver’s use of his own name and his father’s name in certain transaction fields.

28
No. 2020AP1552

But, none of these allegations are “compelling and obvious” facts suggesting
fiduciary misconduct. See id., ¶86. The complaint does not explain—or otherwise
provide facts suggesting—why the presence of “WEB” codes on the transactions,
Tarver’s use of PayPal as a regular intermediary, or Tarver’s use of personal
names in certain transaction fields indicates that Tarver engaged in fiduciary
misconduct.

¶60 Further, even if we would accept RDM’s characterization of these
facets of the transactions as “unusual” or “suspicious,” we would still conclude
that that these allegations fall short of “compelling and obvious” facts suggesting
fiduciary misconduct. See id. (stating that bad faith is not established by “vague
suspicion”); see also Johnson v. Citizens Nat’l Bank, 334 N.E.2d 295, 300 (Ill.
App. Ct. 1975) (In the context of the UFA, “[m]ere suspicious circumstances are
not enough to require the Bank to inquire.”).17

¶61 Second, Royal Bank’s employee’s knowledge and an assistant
branch manager’s suspicions about Tarver do not establish that Royal Bank did
not act in good faith. The complaint specifically alleges:

17
RDM contends that any potential dispute over the characterization of the transactions
is a fact question that should be decided by a jury or at the summary judgment stage. But, on a
motion to dismiss, we consider only facts set forth in the complaint. Data Key Partners v.
Permira Advisers LLC, 2014 WI 86, ¶19, 356 Wis. 2d 665, 849 N.W.2d 693. If the facts do not
sufficiently state a claim for relief, then the case should be dismissed before the case proceeds to
the discovery phase or the jury. See Doe v. Archdiocese of Milwaukee, 2005 WI 123, ¶36, 284
Wis. 2d 307, 700 N.W.2d 180 (“It is not enough for the plaintiff to contend that the requisite facts
will be ‘supplied by the discovery process.’”); see also Beedie v. Associated Bank Ill., 2012 WL
13005591, at*7 (C.D. Ill. 2012) (In the context of the UFA, “[t]o allow discovery—even limited
discovery—when a plaintiff has not made sufficient allegations of bad faith or knowledge of
wrongdoing would result in a shifting of the burden away from principals and onto banking
institutions. This would be a clear contravention of legislative intent.”).

29
No. 2020AP1552

After the fraud was discovered, when [RDM’s owner]
pointed out a telephone number that was entered in the
“receiver” field of an electronic debit transaction, [the
assistant branch manager], whose husband works at RDM,
left to check the number in the telephone book, saw that it
was Tarver’s and said she’d “had a hunch” and was “not
surprised.”

As explained above, the purported “red flags” are not “compelling and obvious,”
so the employees’ awareness of Tarver’s activities does not establish bad faith.
More particularly, any suspicions of the assistant branch manager do not alter this
conclusion. The assistant branch manager’s statements that she had a “hunch” and
was “not surprised” are nothing more than “vague suspicion” that do not amount
to a lack of good faith. See Koss, 385 Wis. 2d 261, ¶86 (A.W. Bradley, J.,
concurring).

¶62 Finally, RDM argues that Royal Bank’s failure to monitor RDM’s
other accounts establishes a lack of good faith. In that regard, the complaint
states:

Even after [RDM’s owner] informed Royal of the fraud,
Royal did not monitor RDM’s payroll account for
additional unauthorized debits, claiming later that [RDM’s
owner] had only told them to watch RDM’s operating
account. This allowed another individual, who was not an
RDM employee, to accomplish additional thefts from the
payroll account after stealing the account information from
RDM.

These facts are unrelated to Tarver’s fiduciary misconduct and Royal Bank’s
alleged passivity in the face of “compelling and obvious” facts. As the circuit
court correctly pointed out: “This information appears factually unrelated to the
dispute between these parties over Mr. Tarver’s conduct, and would likely be ruled
inadmissible at trial.” We agree.

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No. 2020AP1552

¶63 In sum, RDM’s complaint does not state facts that are sufficiently
“compelling and obvious” to show Royal Bank’s lack of good faith under WIS.
STAT. § 112.01(3). Therefore, RDM’s second cause of action was properly
dismissed by the circuit court without prejudice with RDM given the opportunity
to file another complaint to allege Royal Bank’s purported failure to act in good
faith under § 112.01(3).18

CONCLUSION

¶64 For the foregoing reasons, the order of the circuit court is affirmed.
The complaint is dismissed without prejudice to RDM’s request after remittitur to
amend the complaint regarding both breach of contract and Royal Bank’s
purported failure to act in good faith under WIS. STAT. § 112.01(3).

By the Court.—Order affirmed.

Not recommended for publication in the official reports.

18
RDM also disputes the propriety of the circuit court’s reference to WIS. STAT.
§ 404.406 and discusses at length the “current expectations of bank security procedures” under
the UCC’s commercial reasonableness standard. We need not reach these issues because our
discussion of bad faith under the UFA is sufficient to resolve RDM’s appeal.

31