## Facts

- Heritage Bank issued an ATM card to depositors Donald and Luella Buell for access to their checking account.
- Richard Bennett, an employee of Culligan Water Conditioning of Ida Grove (owned by Terry, Robert, and Roma Lovett), entered the Buells’ home to perform services within the scope of his employment.
- Bennett stole the Buells’ ATM card and made unauthorized ATM withdrawals totaling nearly $10,000.
- Under federal electronic funds transfer rules governing consumer liability for unauthorized transfers, Heritage recredited the Buells for almost all withdrawals and charged them only $50.
- Heritage sued the Lovetts/Culligan seeking to recover the withdrawals, asserting (1) respondeat superior and (2) negligent hiring/retention, and claimed standing primarily through subrogation to the Buells’ rights.
- The district court granted summary judgment for the Lovetts/Culligan, concluding Heritage’s loss was the bank’s own and not recoverable via subrogation; Heritage appealed.

## Issues

1. Whether a bank that recredits customers for unauthorized ATM withdrawals may sue the wrongdoer’s employer as subrogee of the customers to recover the amounts recredited.
2. Whether Iowa’s U.C.C. § 4-407 grants a bank subrogation rights for losses arising from unauthorized electronic funds transfers (ATM withdrawals), rather than check payments.

## Decision

- The Iowa Supreme Court affirmed summary judgment for the Lovetts/Culligan.
- Heritage could not proceed on a subrogation theory because the loss sought to be recovered was suffered by Heritage directly, not as payment of a loss sustained by the Buells.
- Subrogation could not enlarge Heritage’s rights beyond the Buells’ rights; because the Buells were reimbursed for nearly all losses, they had no claim for the recredited amounts (at most, a claim for $50).
- U.C.C. § 4-407 did not provide subrogation rights because it applies to a bank that “pays an item” in the check-collection context and does not apply to electronic funds transfers.
- Because Heritage’s respondeat superior and negligent hiring theories depended on its asserted subrogation standing, those claims failed once subrogation was unavailable.

## Legal Principles

- Subrogation is derivative: a subrogee acquires only the rights the subrogor possessed, and no greater rights.
- A party cannot invoke subrogation to recover a loss it bears in its own right rather than a loss it paid on behalf of another.
- When federal consumer electronic funds transfer rules allocate most of the loss from unauthorized ATM withdrawals to the financial institution, the bank’s recrediting of the customer generally reflects the bank’s statutory/contractual obligation, not satisfaction of the customer’s tort damages.
- U.C.C. § 4-407 provides limited subrogation rights tied to improper payment of check items and does not extend to unauthorized electronic funds transfers.

## Conclusion

The court held that Heritage’s reimbursement of the Buells for unauthorized ATM withdrawals did not make Heritage a subrogee entitled to pursue the employer of the thief for the amounts recredited, and that U.C.C. § 4-407 did not supply subrogation rights for electronic funds transfers; summary judgment for the Lovetts/Culligan was therefore proper.


Heritage Bank v. Lovett, 613 N.W.2d 652 (Iowa 2000)