Large corporations rarely resort to small claims court, but that is where two of New York's best-known financial institutions recently found themselves duking it out.
Chemical Bank and Emigrant Savings Bank went that route to determine responsibility for $2,000 in unauthorized withdrawals from an automated teller machine in the Bronx.
The $6 billion-asset Emigrant accused what will is soon to be the biggest bank in the United States of negligence for failing to destroy a confiscated ATM card. The card belonged to a customer whose account was later tapped for improper withdrawals.
Chemical maintained that it properly destroyed the card; the bank attributed the fraud to other factors.
The two sides agreed to submit to arbitration. On Dec. 15, more than two years after the first of the disputed NYCE network transactions, the Manhasset, N.Y.-based arbitrator, Michael J. Siris of Debrot & Siris, ruled in Chemical's favor.
The evidence was equally balanced, said Mr. Siris, noting that the two banks "put principle above the dollars it will (and has) cost to vindicate those principles."
But Emigrant failed to meet its burden of proof, he said, and had to eat the loss.
The case will go no further, because decisions rendered by an arbitrator cannot be appealed.
The dispute can be traced to Aug. 1, 1993, when a Chemical ATM "captured" a card belonging to Emigrant depositor Berta West after she allegedly tried to gain access to a closed account.
The $188 billion-asset Chemical said one of its employees routinely destroyed the card the following business day, but Emigrant contended that the card may not have been destroyed.
On Sept. 16, 1993, Ms. West received a replacement ATM card from Emigrant. The thrift acknowledged that it did not ask her about the status of her original card, "thus depriving itself of an opportunity to disable the card's subsequent use," wrote Mr. Siris.
On Oct. 6, 11, and 12, three withdrawals of $500 each from Ms. West's Emigrant account were made at the branch where her first card was captured. A letter from Emigrant regarding excessive account activity was sent to her on Oct. 13, four days before a fourth and final $500 withdrawal.
On Oct. 18, Ms. West denied making these transactions and demanded reimbursement. Emigrant complied only after she filed a complaint with the New York State Department of Banking.
The arbitrator ruled that Chemical did not have to pay out the $2,000.
Mr. Siris wrote that "it would, indeed, be quite a coincidence that an ATM card legitimately confiscated would then be illegitimately counterfeited (and then used) by persons having nothing to do with the confiscation. Still, a counterfeit ATM card is certainly a possibility."
"In any event, even if there were no plausible theories to reconcile Emigrant's and Chemical's views, Chemical is still entitled to prevail if the evidence is effectively balanced, as it is here."
It is seen as far likelier that this was an isolated incident rather than something more sinister.
"Given the billions of ATM transactions, it's always possible for someone to make a mistake, just like errors happen on the teller line," said Bob Landry, technology analyst for the Tower Group, a consulting firm in Wellesley, Mass. He described the Chemical-Emigrant dispute as a "freak occurrence."
"Banks have always been extremely cautious about these transactions," said Mr. Landry. "They want to maintain the viability of ATMs, and they want to protect consumers."
