NEWPORT BEACH : Court Rules Embezzled Funds Can’t Be Recovered From Bank

The city of Newport Beach cannot recover money from the troubled Bank of Newport for checks that former city Utilities Director Robert J. Dixon wrote and the bank honored, a state appellate court has ruled.

The court ruled that the district was “better able to prevent the success of such frauds than the bank” and that the fraudulent checks might have been difficult if not practically impossible to detect for the banking institution, Justice Edward J. Wallin wrote in a unanimous opinion issued Sept. 29.

The city sued the bank for negligence in July, 1992, contending bank employees should have discovered that something was wrong sometime between 1982, when the fraud began, and January, 1992, when it was discovered.

Dixon was released earlier this year after serving part of a four-year prison term on a 1992 embezzlement conviction. He siphoned more than $1.8 million from city accounts at other banks, depositing the checks in his personal account at the Bank of Newport. He also used some of the checks to pay off his credit card debts, which ultimately exposed the scam.

Lawyers for the city contended in court that the Bank of Newport was negligent for not noticing the volume and size of the checks that Dixon was depositing into his account.

Lawyers for the bank, now in a receivership under the Federal Deposit Insurance Corp., contended bank employees were not liable to the city because it had no Bank of Newport account and there was no reason to suspect anything was amiss with the checks.

Orange County Superior Court Judge Richard Frazee sided with the bank and threw the case out, prompting the city’s appeal to the 4th District Court of Appeal.

The city’s allegations against Dixon’s credit card companies, contending the civil equivalent of theft, are still pending.