PUBLISHED

UNITED STATES COURT OF APPEALS
               FOR THE FOURTH CIRCUIT


WACHOVIA BANK, N.A.,                    
                Plaintiff-Appellee,
                v.
FEDERAL RESERVE BANK OF
RICHMOND,                                      No. 02-1912
              Defendant-Appellant,
               and
WAL-MART STORES, INCORPORATED,
          Third Party Defendant.
                                        
WACHOVIA BANK, N.A.,                    
                           Plaintiff,
                v.
FEDERAL RESERVE BANK OF
RICHMOND,                                      No. 02-2080
              Defendant-Appellant,
                v.
WAL-MART STORES, INCORPORATED,
   Third Party Defendant-Appellee.
                                        
           Appeals from the United States District Court
     for the Western District of North Carolina, at Charlotte.
               Lacy H. Thornburg, District Judge.
                        (CA-01-514-3-T)

                      Argued: April 4, 2003

                     Decided: July 29, 2003
2            WACHOVIA BANK v. FEDERAL RESERVE BANK
      Before NIEMEYER and SHEDD, Circuit Judges, and
     Terry L. WOOTEN, United States District Judge for the
        District of South Carolina, sitting by designation.



Affirmed by published opinion. Judge Shedd wrote the opinion, in
which Judge Niemeyer and Judge Wooten joined.


                            COUNSEL

ARGUED: Glen Kirkland Hardymon, RAYBURN, COOPER &
DURHAM, P.A., Charlotte, North Carolina, for Appellant. Alan Mer-
edith Ruley, BELL, DAVIS & PITT, P.A., Winston-Salem, North
Carolina, for Appellee Wachovia; Richard D. Ballot, PITNEY,
HARDIN, KIPP & SZUCH, L.L.P., Morristown, New Jersey, for
Appellee Wal-Mart. ON BRIEF: Stephen D. Poe, BELL, DAVIS &
PITT, P.A., Winston-Salem, North Carolina, for Appellee Wachovia.


                            OPINION

SHEDD, Circuit Judge:

   Wachovia Bank ("Wachovia") brought an action in North Carolina
state court against the Federal Reserve Bank of Richmond ("FRB")
for breach of transfer and presentment warranties under Article 4 of
the Uniform Commercial Code ("U.C.C."), and under 12 C.F.R.
§ 210.6(b)("Regulation J"). The FRB removed the case to the United
States District Court for the Western District of North Carolina and
filed a third-party complaint against Wal-Mart Stores, Inc. ("Wal-
Mart"). The district court granted both Wachovia’s and Wal-Mart’s
motions for summary judgment, and the FRB appeals. For the reasons
set forth below, we affirm the judgments entered in favor of
Wachovia and Wal-Mart.

                                 I.

  We review the grant of summary judgment de novo. A.T. Massey
Coal Co., Inc. v. Massanari, 

, 235 (4th Cir. 2002). Sum-
             WACHOVIA BANK v. FEDERAL RESERVE BANK                 3
mary judgment is appropriate when there is no genuine issue of mate-
rial fact and the moving party is entitled to judgment as a matter of
law. Anderson v. Liberty Lobby, Inc., 

, 247 (1986). We
view the evidence in the light most favorable to the FRB. See 

   Wal-Mart issues 1.6 million checks to its vendors annually. In any
given year, approximately twenty of these checks are stolen. Between
April 1999 and April 2000, six checks were stolen from Dallas,
Texas. Postal inspectors informed Wal-Mart officials that the Dallas
thefts were not part of an organized scheme but were independent
criminal acts. The inspectors also indicated that several individuals
responsible for stealing the checks had been apprehended.

   Another Wal-Mart check, written on a Wachovia checking account,
was stolen from Dallas in late 2000. On November 30 of that year,
Wal-Mart issued a check made payable to Alcon Laboratories, Inc.
("Alcon") in the amount of $563,288.95. Wal-Mart mailed the check
from its headquarters in Arkansas to Alcon in Dallas, but Alcon never
received the check. On December 7, 2000, an individual named Pit
Foo Wong deposited the check in his account at Asia Bank in Flush-
ing, New York. The payee on the check had been altered from "Alcon
Laboratories, Inc." to "Pit Foo Wong."

   In accordance with Federal Reserve procedures, Asia Bank pre-
sented the check to the Federal Reserve Bank of New York, which
then presented the check to the FRB in Richmond. On December 8,
2000, the FRB presented the check to Wachovia, and Wachovia
issued payment.1 Before issuing payment, Wachovia employed a
fraud detection service known as "Positive Pay" on Wal-Mart’s
account. Positive Pay allows a paying bank to verify check numbers
and amounts by comparing them to checks issued by the drawer. In
this way, the paying bank can detect counterfeit and unauthorized
checks before making payment. Although Positive Pay prevents sev-
eral types of fraud, it cannot detect alterations of payee names.
Because the check presented by Wong had been altered to change the
name of the payee, Positive Pay did not detect the alteration.
  1
   A copy of the check was passed from the FRB to Wachovia at the
time of presentment.
4             WACHOVIA BANK v. FEDERAL RESERVE BANK
Wachovia, in accordance with its internal policy, did not manually
review the copy of the check presented by the FRB.

   Although the employees at Asia Bank allowed Wong to deposit the
check, their suspicions were aroused by his deposit of over $500,000,
and a hold was placed on the funds. At the time of deposit, Wong’s
account carried a balance of $108.55, and the highest balance it had
ever carried was $8,652.55. On December 8, the day following
Wong’s deposit, Asia Bank employee Sindy Lee called Wachovia to
inquire about the check. At the time of this telephone call, Wachovia
had already issued payment. Lee spoke to a customer service repre-
sentative, who informed Lee that the check was "good."2 Despite this
information, the branch manager at Asia Bank remained suspicious
and continued to hold the funds.

   On December 11, 2000, Alcon representative Penny Shaw called
Wal-Mart’s automated vendor support line and learned that the check
to Alcon had been paid. After determining that Alcon had not
received the check, Shaw called Wal-Mart employee Paula King, who
handled Alcon’s accounts. Although Wal-Mart’s records indicated
that the check had been paid, King informed Shaw that Wal-Mart’s
policy was to wait thirty days before tracing missing checks.

   On December 20, 2000, after Asia Bank’s hold on the funds had
expired, Wong attempted to wire large portions of the funds to
accounts in Malaysia by submitting five separate wire transfer appli-
cations to five different tellers. Because of this unusual behavior, Lee
called Wachovia for a second time and was informed that the check
had been paid. Shortly thereafter, another Asia Bank employee placed
    2
   The substance of this conversation is in dispute. The district court
found that Lee’s version of events changed over time. At her deposition,
Lee testified that she called to inquire whether the check was "good,"
which is often interpreted in the banking industry to mean that a check
has cleared. In Lee’s affidavit, however, she asserts that she also called
to determine the validity of the check. In light of our determination
below that post-presentment activities do not establish liability under the
U.C.C., this dispute is immaterial and fails to create a question of fact
that will survive summary judgment. See Anderson v. Liberty Lobby,
Inc., 

, 248 (1986).
              WACHOVIA BANK v. FEDERAL RESERVE BANK                    5
a call to Wal-Mart to inquire about the check. The Asia Bank
employee spoke to a Wal-Mart customer service representative, Kim-
berly Feast, who was unable to confirm that Wong was the proper
payee. At the conclusion of this telephone call, Feast did not notify
her superiors of Asia Bank’s inquiry. Subsequently, Asia Bank
released the funds, and Wong completed his wire transfers to Malay-
sia.

   When Wal-Mart discovered that the Alcon check had been altered,
it notified Wachovia, which sought reimbursement from Asia Bank.
Asia Bank refused, and Wachovia brought suit against the FRB for
breach of presentment and transfer warranties under the U.C.C. and
federal regulations.3 The FRB filed a third-party complaint against
Wal-Mart, alleging that Wal-Mart’s failure to exercise ordinary care
substantially contributed to the alteration of the check. The district
court granted summary judgment in favor of both Wachovia and Wal-
Mart.4 This appeal followed.

                                   II.

   We first address the district court’s award of summary judgment to
Wachovia on its claim for breach of presentment warranty under the
U.C.C. Wachovia brought its claim under § 4-208 of the U.C.C., codi-
fied as N.C. Gen. Stat. § 25-4-207.1, which establishes that a bank
presenting a check for payment warrants that it has not been altered.
The warranty is made at the time of presentment, and the paying
bank, or drawee, that pays the draft in good faith may recover dam-
ages against the presenting bank for breach of the presentment war-
ranty. 

warranties, the general scheme of the U.C.C.
shifts losses up the collection stream to presenting and depository
  3
    By operation of regulation, when an action is brought against the FRB
for breach of presentment warranty, the FRB may recover the costs of
the litigation and any damages awarded from its sender, in this case Asia
Bank. See 12 C.F.R. § 210.5(b).
  4
    The district court granted judgment to the FRB on Wachovia’s claim
for breach of transfer warranty. This issue, however, is not before us on
appeal.
6             WACHOVIA BANK v. FEDERAL RESERVE BANK
banks. See 2 White & Summers, Uniform Commercial Code § 18-7
(4th ed. 1995). This scheme is subject to certain exceptions, however,
and the U.C.C. does not impose liability on presenting banks if a loss
is more appropriately borne by other parties. There are several
defenses available to presenting banks, two of which are relevant
here. First, a presenting bank may defend a breach of warranty action
on the ground that the paying bank lacked good faith. See N.C. Gen.
Stat. § 25-4-207.1(a). The U.C.C. defines good faith as "honesty in
fact and the observance of reasonable commercial standards of fair
dealing." N.C. Gen. Stat. § 25-3-103(a)(4). The failure of the paying
bank to exercise ordinary care is insufficient to establish a lack of
good faith. N.C. Gen. Stat. § 25-4-207.1(b). Second, a presenting
bank may assert a defense if the drawer of the check is precluded
from asserting a claim against the paying bank. N.C. Gen. Stat. § 25-
4-207.1(c). A presenting bank may avail itself of this defense if the
drawer’s failure to exercise ordinary care "substantially contributes to
an alteration." N.C. Gen. Stat. § 25-3-406. Thus, applying this defense
to the facts here, Wachovia may not recover its loss from the FRB if
Wal-Mart’s failure to exercise ordinary care substantially contributed
to the alteration of the check.

   The FRB asserts both of these defenses, alleging that Wachovia
lacked good faith in paying the check and that Wal-Mart’s failure to
exercise ordinary care substantially contributed to the alteration. We
address each of these defenses in turn.
                                  A.
   The FRB argues that summary judgment was improperly granted
for Wachovia because a question of fact exists as to whether
Wachovia paid the check in good faith. In support of this argument,
the FRB alleges that the two telephone calls made by Asia Bank
employee Sindy Lee to Wachovia, after the payment of the check but
before Asia Bank had released the funds, should have alerted
Wachovia to a problem. Despite these phone calls, Wachovia failed
to take any action that may have averted the ultimate loss of the
funds. Wachovia’s inaction, according to the FRB, demonstrates
Wachovia’s lack of good faith.
   We conclude that the FRB’s argument is foreclosed by the plain
language of U.C.C. § 4-208, which provides that the presenting bank
             WACHOVIA BANK v. FEDERAL RESERVE BANK                  7
warrants the check "at the time of presentment" to a drawee that pays
in good faith. N.C. Gen. Stat. § 25-4-207.1(a). Because the statute
directs us to examine the question of Wachovia’s good faith at the
time of presentment, we do not consider Wachovia’s acts, or its fail-
ure to act, subsequent to presentment. While the FRB may be correct
in its assertion that Lee’s telephone calls should have prompted
Wachovia to investigate the check, these calls occurred after the
check was presented and paid. We conclude, therefore, that the FRB
cannot establish a defense to the warranty action based upon
Wachovia’s post-presentment activities.
   The FRB also argues that Wachovia failed to act in good faith by
failing to supplement the Positive Pay system, which does not detect
alterations of payee names, with a manual review of high-dollar
checks. Because Wachovia, or any bank, must process a check prior
to issuing payment on it, Wachovia’s processing procedures are rele-
vant to its good faith in paying the check at issue here. We must
therefore consider whether Wachovia’s failure to review checks man-
ually creates a question of good faith that survives summary judg-
ment.
   The U.C.C. defines "good faith" as (1) "honesty in fact" and (2)
"the observance of reasonable commercial standards of fair dealing."
§ 25-3-103(a)(4). As to the second prong of the good faith test, the
question is not whether a bank acted in accordance with "reasonable
commercial standards," but whether the bank’s actions conformed to
"reasonable commercial standards of fair dealing." White & Sum-
mers, supra, § 17-6 (4th ed. 1995). To determine whether Wachovia
acted in conformity with reasonable commercial standards of fair
dealing, we consider the fairness of Wachovia’s actions, rather than
any negligence on its part.
   The FRB has not come forward with evidence demonstrating that
Wachovia’s failure to review high-dollar checks manually was not
honest in fact or did not conform to reasonable commercial standards
of fair dealing. While the FRB does allege that Wachovia’s check-
processing procedures did not conform to reasonable commercial
standards, the FRB has not made a showing that Wachovia failed to
comply with reasonable commercial standards of fair dealing. This
distinction is critical. In order to survive summary judgment, the FRB
must point to evidence in the record indicating that Wachovia acted
8              WACHOVIA BANK v. FEDERAL RESERVE BANK
in an unfair or dishonest manner, rather than in a negligent manner.
Because the FRB has not demonstrated that a question of material fact
exists as to Wachovia’s honesty or fair dealing, the FRB cannot pre-
vail on its defense that Wachovia lacked good faith in paying the check.5

                                    B.

   We next consider the FRB’s argument that summary judgment was
improperly granted to Wachovia because a question of fact exists
regarding the purported negligence of the drawer Wal-Mart. The
U.C.C. provides that the FRB may assert a defense to Wachovia’s
warranty action if Wal-Mart’s failure to exercise ordinary care "sub-
stantially contributes" to the alteration. N.C. Gen. Stat. § 25-3-406.
    5
    In making the argument to the district court that Wachovia failed to
act in good faith because it did not manually review the check, the FRB
offered the affidavit of Barbara Ann Tosi, the president of a banking
industry consulting firm. According to Tosi, a review of the check would
have revealed that the name of the payee had been highlighted and
printed in a different font size from the rest of the check, both of which
are inconsistent with the format of Wal-Mart checks. The district court,
without explanation, declined to consider the Tosi affidavit. While it is
not clear why the district court did not consider the affidavit, we have
examined it and conclude that it fails to create an issue of fact as to
whether Wachovia acted in good faith. In her affidavit, Tosi asserts that
Wachovia’s activities were insufficient as fraud protection. Her analysis,
however, is one of negligence, not of fairness. To the extent that her affi-
davit could be construed as asserting the appropriate standard of good
faith under the U.C.C., it is unsupported by any evidence, amounting to
nothing more than a legal conclusion that carries no weight for purposes
of summary judgment. See Evans v. Technologies Applications & Ser-
vice Co., 

, 962 (4th Cir. 1996).
   Even though the correct analysis is one of fairness, rather than negli-
gence, Wachovia’s check-processing procedures cannot even be charac-
terized as negligent. Under the U.C.C., a bank does not violate ordinary
care if it processes instruments by automated means without examining
the instruments, unless such a practice violates the bank’s prescribed pro-
cedures, the bank’s procedures vary unreasonably from general banking
usage, or the bank’s procedures are otherwise prohibited by the U.C.C.
See N.C. Gen. Stat. § 25-3-103(a)(7). There is simply no evidence that
Wachovia has violated this section.
              WACHOVIA BANK v. FEDERAL RESERVE BANK                      9
   The FRB argues that Wal-Mart, in electing not to implement pre-
cautionary measures for checks mailed to the Dallas area, failed to
exercise ordinary care that substantially contributed to the alteration
of the check. Specifically, the FRB maintains that Wal-Mart should
have utilized Electronic Funds Transfer ("EFT") to pay vendors in
Dallas or used an overnight courier such as Federal Express. The FRB
also maintains that Wal-Mart should have shortened the standard 30-
day period for tracing missing checks sent to the Dallas area and, at
the very least, should have alerted its customer service representatives
to be on the lookout for suspicious checks sent there.

   We conclude, based upon the facts presented, that Wal-Mart’s fail-
ure to implement the FRB’s suggested methods of payment did not
"substantially contribute" to the alteration. While it is true that a rela-
tively high percentage of stolen checks were taken from Dallas
between April 1999 and April 2000, the six checks stolen from Dallas
constituted a very small percentage of the 1.6 million checks issued
annually by Wal-Mart. The check at issue here was stolen in Decem-
ber 2000, and a check had not been stolen from Dallas since April of
that year. Moreover, postal inspectors informed Wal-Mart employees
that there was no organized effort to steal Wal-Mart checks in the
Dallas area and that several individuals responsible for previous thefts
had been apprehended. Given these circumstances, Wal-Mart’s failure
to send payment via EFT or Federal Express did not constitute a fail-
ure to exercise ordinary care, much less a failure to exercise ordinary
care that substantially contributed to the alteration.6

  Furthermore, it cannot be said that had Wal-Mart instructed its cus-
tomer service representatives to pay particular attention to suspicious
checks from Dallas, or had Wal-Mart shortened the 30-day tracing
period, the alteration to the check at issue here would have been pre-
vented. At the time Wal-Mart received the inquiries from both Alcon
  6
    The FRB’s argument that Wal-Mart should have used EFT is particu-
larly unconvincing given that the issue here requires an interpretation of
statutes governing the use of commercial paper. The FRB’s argument
can thus be reduced to the proposition that to avoid liability in the con-
text of commercial paper, Wachovia should have refrained from using
commercial paper. This result, of course, would result in an absurdity,
and we decline to so hold.
10            WACHOVIA BANK v. FEDERAL RESERVE BANK
and Asia Bank, the check had already been altered. Therefore, Wal-
Mart’s failure to implement these procedures could not have contrib-
uted to this particular alteration.7

   The FRB also urges us to consider the alleged negligence of Wal-
Mart employees Paula King and Kimberly Feast subsequent to the
alteration. In particular, the FRB notes that King already knew that
the check was missing when an Asia Bank employee spoke to Feast
regarding the check. According to the FRB, Wal-Mart was in posses-
sion of information that it should have used to prevent the ultimate
loss. While it may well be that Wal-Mart’s failure to act on the infor-
mation made available to King and Feast constituted less than prudent
behavior, which could perhaps be characterized as negligence, the
unambiguous terms of the statute provide a defense to the FRB only
if Wal-Mart’s negligence substantially contributed to the alteration.
See N.C. Gen. Stat. § 25-3-406. Because Paula King and Kimberly
Feast were both informed of problems with the check after the alter-
ation was made, Wal-Mart’s failure to act could not have contributed
to the alteration. We therefore conclude that the FRB cannot establish
a defense to the warranty claim based upon the asserted post-
alteration negligence of Wal-Mart.8
  7
     The FRB relies heavily on Fidelity Bank v. United National Bank of
Washington, 

(D.D.C. 1985), in support of its argument
that Wal-Mart’s negligence substantially contributed to the alteration.
There, after issuing a stop payment order on a missing check made out
to John J. Ryan, Fidelity again drew a check on itself to the order of John
J. Ryan. At the time the second check was drawn, the problems associ-
ated with the first check had not been resolved. The second check was
subsequently forged and presented to United Bank by a man identifying
himself as John J. Ryan. The court held that Fidelity’s breach of warranty
claim against United was barred by § 3-406 because Fidelity’s negli-
gence substantially contributed to the making of the forged signature. In
our view, Wal-Mart’s behavior prior to the alteration is not analogous to
Fidelity’s acts that contributed to the forgery. Wal-Mart was not con-
fronted with the wholly unexplained loss of a check. To the contrary,
Wal-Mart officials were led to believe that the series of thefts in Dallas
were perpetrated by independent criminal actors and that several individ-
uals had been apprehended.
   8
     The FRB further argues that Wal-Mart’s failure to act should be
viewed in light of "Regulation CC," which strictly limits the time period
               WACHOVIA BANK v. FEDERAL RESERVE BANK                     11
  Because we find that the FRB cannot establish a defense to
Wachovia’s warranty action based upon Wal-Mart’s purported negli-
gence, we conclude that the grant of summary judgment in favor of
Wachovia was proper.9
                                    III.
   We briefly address the FRB’s third-party complaint against Wal-
Mart based upon U.C.C. § 3-406. See N.C. Gen. Stat. § 25-3-406. We
note that this statute provides for a defense but does not expressly
create a cause of action. To the extent that such a cause of action is
cognizable, which we do not hold, we conclude that summary judg-
ment for Wal-Mart was properly granted. As we have discussed, the
FRB is unable to demonstrate that the asserted negligence of Wal-
Mart substantially contributed to the alteration of the check. There-
fore, the FRB’s claim must fail.
                                    IV.
  For the foregoing reasons, the judgment of the district court is
                                                              AFFIRMED.

during which a bank can hold funds after deposit. See 12 C.F.R. § 229.
While Asia Bank was indeed faced with the unenviable choice of com-
plying with a federal regulation or exercising caution in the face of suspi-
cious circumstances, this question is ultimately irrelevant. Asia Bank
subjected itself to the requirements of Regulation CC when it permitted
Wong to deposit the check. Asia Bank also warranted that the check had
not been altered when it presented the check to Wachovia for payment.
The FRB’s liability, and ultimately, Asia Bank’s liability, is entirely con-
sistent with the general scheme established by the U.C.C., which seeks
to shift losses upstream to presenting and depository banks. See White
& Summers, supra, § 18-7 (4th ed. 1995); see also supra, § 19-3.
   9
     We also conclude, for the reasons that we have set forth in our analy-
sis under the U.C.C., that the district court properly granted summary
judgment in favor of Wachovia on its breach of presentment warranty
claim under Regulation J. See 12 C.F.R. § 210.6(b). Because we have
determined that any negligence on Wal-Mart’s part did not substantially
contribute to the alteration of the check, we need not address the FRB’s
argument that, under Regulation J, it may offset Wachovia’s claim due
to Wal-Mart’s negligence.