Can online banking portals be considered products under Utah law? Legal Tender Services v. Bank of American Fork Explained

Background and facts

Legal Tender Services (LTS) provided escrow services for an online gold seller and used Bank of American Fork’s (BAF) automated clearinghouse payment portal to process customer payments. In 2016, fraudsters stole a doctor’s personal information and used it to purchase approximately $420,000 worth of gold through LTS’s system. After the theft was discovered, BAF restored the money to the doctor’s Chase bank account, leaving LTS with a $420,000 deficit. LTS sued both banks, claiming products liability against BAF for its allegedly defective online payment portal and negligence against both banks for failing to prevent the unauthorized transfers.

Key legal issues

The Court of Appeals addressed three primary issues: (1) whether BAF’s online payment portal qualified as a “product” under Utah’s Product Liability Act, (2) whether either bank owed LTS a duty of care under negligence principles, and (3) whether sanctions were appropriate for LTS’s counsel filing overlength motions in violation of court rules.

Court’s analysis and holding

The court affirmed all district court rulings. On the products liability claim, the court held that BAF’s online payment portal was not a “product” because it lacked the movable, tangible characteristics required under UCC definitions. Even if considered a hybrid transaction, the predominant purpose was to provide services, not sell goods. For the negligence claims, the court ruled that the economic loss rule barred LTS’s claim against BAF because the contract covered the disputed conduct, and Chase owed no duty to LTS as a noncustomer under Ramsey v. Hancock. The court also determined that UCC Article 4 does not govern electronic fund transfers, only traditional written instruments. Finally, the court upheld sanctions against LTS’s counsel for attempting to circumvent page limits through improper single-spacing.

Practice implications

This decision reinforces important limitations on both products liability and banking negligence claims in Utah. Practitioners should carefully analyze whether digital services qualify as “products” under established UCC definitions focusing on movable goods. When bringing negligence claims against banks, consider whether contractual relationships exist and whether the economic loss rule applies. The decision also emphasizes strict compliance with procedural rules, as courts will not tolerate attempts to circumvent page limitations through formatting manipulation.