Chase Can’t Dodge $10M Identity Theft Suit

(CN) - Chase Bank must face identity theft claims for employees who let money launderers use a customer's dormant accounts in a Medicare fraud scheme, the Second Circuit ruled Wednesday.

Yelena Galper sued JP Morgan Chase Bank N.A. in New York state court in May 2013, claiming several of its employees accepted bribes to help now-convicted money launderers defraud the Medicare program from 2008 to 2011, using accounts in her name.

Controllers of three clinics - Bay Medical Care, SZS Medical Care and SVS Wellcare Medical - would allegedly write checks to phony corporations, thus concealing the fraud.

The launderers would then withdraw cash from the phony accounts and return it to the clinic owners, after taking a fee for themselves, according to Galper's amended complaint.

Chase employees knowingly let the launderers control Galper's previously dormant personal checking account and let them use an associated ATM card to deposit and pay out proceeds of the Medicare fraud scheme, the complaint states.

The Chase employees falsified bank records so the launderers could make withdrawals in Galper's name, including for extravagant luxury purchases, unbeknownst to her, she claims.

The schemers often overdrew the various fraudulent accounts, causing many bounced checks, which the government eventually discovered before closing the accounts.

Though Galper told investigators that she did not know anything about the fraudulent activity, she was arrested, indicted, and tried on charges of money laundering conspiracy.

But after a seven-week trial, a jury acquitted Galper of all charges.

Galper then filed suit, alleging the fraud benefitted Chase by upping profits, while harming her - and her credit - by closing her accounts and barring her from opening new ones.

She alleges identity theft and aiding and abetting, in violation of New York's Fair Credit Reporting Act, or FCRA. Galper seeks $10 million in compensatory and punitive damages.

After Chase removed the suit to federal court, U.S. District Judge Robert Sweet dismissed it, finding that the federal FCRA preempted Galper's claims under the state law.

Galper appealed and the Second Circuit vacated the lower court's ruling Wednesday, finding that she sufficiently alleged vicarious liability.

Galper's alleged identity theft "could be actionable under the New York statute because it eventually resulted in an alert by someone to consumer reporting agencies," whether made by Chase or some other party, Judge Jeffrey Meyer wrote for a three-judge panel.

"Chase could face vicarious liability under the New York law for its employees' theft of Galper's identity, not for any later act by Chase or anyone else-proper or improper-of reporting adverse information about Galper to a consumer reporting agency," the ruling states. (Emphasis in original)

The federal act does not preempt all of Galper's state law claims, the New York City-based appeals court ruled.

"We are not persuaded by Chase's argument that [federal law] preempts all claims 'relating to the responsibilities' of furnishers in any way, and regardless of the capacity in which the furnisher is acting," Meyer wrote. "This broad argument overlooks the language of the statute."

The panel remanded the case to the lower court for further proceedings.

Eric Creizman, one of Galper's lawyers, said, "We are very pleased with the decision and look forward to prosecuting our case in the district court."

Chase representatives declined to comment on the ruling.

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