## Facts

- Ralph Falk II maintained demand deposit accounts at Northern Trust Company.
- Falk employed Patricia Podmokly as his personal assistant for over 13 years to manage bill-paying, bookkeeping, and related financial tasks.
- In 1984, Falk made Podmokly a signatory on his Northern Trust demand accounts; Falk alleged the bank knew she acted in a fiduciary capacity for him.
- From 1993 to 1997, Podmokly allegedly misappropriated over $2 million from Falk’s accounts, including by drawing large checks payable to cash and using them to pay personal obligations.
- Podmokly had her own accounts and credit facilities at Northern Trust, and Falk alleged she used funds drawn from his accounts to pay those bank-held obligations.
- Falk alleged the bank was on notice of wrongdoing due to irregular account activity and the bank’s acceptance of an unsigned check (1995) drawn on Falk’s account to pay Podmokly’s personal equity credit line.
- Falk sued for damages and an accounting based on the bank’s alleged failure to investigate and alert him to fraudulent transactions.

## Issues

1. Whether UCC § 4-406(f) barred Falk’s claims because he did not discover and report unauthorized signatures or alterations within one year after account statements and items were made available.
2. Whether the statutory preclusion applied even when the complaint asserted common-law theories (including alleged bad faith and failure to investigate) rather than a direct claim for payment of unauthorized items.
3. Whether allegations that the bank knew Podmokly was a fiduciary and ignored warning signs avoided § 4-406(f)’s preclusive effect.

## Decision

- The Illinois Appellate Court affirmed the dismissal of Falk’s second amended complaint.
- The court held that § 4-406(f) operated as a preclusion rule, barring a customer from asserting claims based on unauthorized signatures or alterations if not reported within one year after statements and items were made available.
- The court concluded Falk did not allege timely notice to the bank for the challenged items within the one-year period.
- The court treated Falk’s multi-count claims as, in substance, seeking recovery for debits reflecting unauthorized items, bringing them within § 4-406(f).
- Allegations of the bank’s knowledge of a fiduciary relationship and asserted bad faith did not prevent application of the statutory preclusion on the pleadings as filed.

## Legal Principles

- Under UCC § 4-406(f), a customer must discover and report an unauthorized signature or alteration within one year after the statement and items are made available; otherwise, the customer is precluded from asserting the unauthorized signature or alteration against the bank.
- Section 4-406(f) functions as a statutory preclusion, not merely a limitations period, and can bar claims outright when the notice requirement is not met.
- A plaintiff cannot avoid § 4-406(f) by relabeling claims as negligence, breach of duty, or similar common-law theories where the claimed loss is based on payment of unauthorized items reflected on account statements.
- The statutory scheme allocates duties between bank and customer by placing on the customer the obligation to review statements and report unauthorized items within the fixed period.

## Conclusion

The court held that Falk’s failure to allege notice to the bank within one year after statements and items were made available triggered UCC § 4-406(f)’s preclusion, barring his claims—despite allegations that the bank knew the wrongdoer was a fiduciary and failed to investigate suspicious account activity.


Falk v. N. Tr. Co., 327 Ill. App. 3d 101, 763 N.E.2d 380 (Ill. App. Ct. 2001)