Coastal Agricultural Supply, Inc. filed suit against Chase Bank, asserting claims of conversion and negligence under the Texas Uniform Commercial Code (UCC) and money had and received under the common law. Chase, as a collecting bank, accepted checks on indorsements forged by Coastal’s bookkeeper. The first issue presented in this interlocutory appeal was whether § 3.405 of the UCC, a provision often called the “imposter” or the “padded payroll” rule and that places certain losses on the employer for the fraudulent indorsement by an employee, can serve as an affirmative defense to a common law “money and received” claim. The Fifth Circuit affirms that the District Court was correct in holding that it can. The second issue presented was whether settlement credits in Texas reduce the nonsettling defendant’s liability rather than the plaintiff’s total loss. A panel majority resolves that the District Court was correct in holding that the settlement credit should be applied to reduce the nonsettling defendant’s liability, not the plaintiff’s total loss. In remanding the case, however, the Court instructed the District Court to give Coastal an opportunity to demonstrate that allocation of the settlement amount is appropriate. A dissent opines that leave to hear an interlocutory appeal on that question was improvidently granted.

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