Do you have a client who says his associate embezzled a lot of his money? Does he want to sue the Bank that held the funds, claiming that the Bank should have known that misdoings were afoot and blown the whistle? You’d better tell him to think twice before bringing that claim to the Business Court, based on last week’s decision in Global Promotions Group, Inc. v. Danas Inc.
The Plaintiffs in Global had given one of the Defendants signature authority over their accounts at BB&T. That Defendant later made unauthorized wire transfers from the accounts and deposited forged and unauthorized checks drawn on those accounts into their own accounts. The total amount embezzled was more than $300,000.
The Plaintiffs said that BB&T should have discovered and prevented these transactions, but it was a claim looking for a cause of action that just couldn’t be found.
Judge Jolly first considered the North Carolina Uniform Fiduciaries Act, which states that a Bank can be liable for checks drawn by a depositor’s fiduciary only if "the bank pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing such check, or with knowledge of such facts that its action in paying the check amounts to bad faith." N.C. Gen. Stat. §32-9.
Even if the Defendants were fiduciaries of the Plaintiffs (about which there was little discussion) Judge Jolly found nothing in the Complaint to support an allegation of bad faith, He said that "suspicious circumstances," with a "failure to make inquiry," were not "bad faith." Op. ¶24. A failure to make inquiry amounts to bad faith only if if it is "due to the deliberate desire to evade knowledge because of a belief or fear that inquiry would disclose a vice or defect in the transaction, – that is to say, where there is an intentional closing of the eyes or stopping of the ears.’" (quoting Edwards v. Northwestern Bank, 39 N.C.App. 261 (1979)).
He held that the Plaintiffs had not alleged facts giving rise to a reasonable inference of either actual knowledge or the turning of a blind eye to the misconduct. He went on to hold also that the Plaintiffs did not have a claim under what he termed the "more stringent" common law standards of care for banks.
On that "more stringent" standard, in trying to impose a fiduciary duty on BB&T, the Plaintiffs argued that the Bank and its employee had "exercised actual control over" the accounts and that they had placed a "special confidence" in the employee as a result. They argued that the Bank’s employee therefore had a "responsibility to oversee their accounts." Op. ¶32.
Not so, said Judge Jolly, who wrote that "all banks exercise some degree of custodial control over their
customers’ accounts; nonetheless, banks ordinarily do not owe fiduciary duties to their customers." Op. ¶33. The Plaintiffs’ allegations did nothing more than merely establish the existence of an ordinary relationship between a bank and its customers, as all banks have a responsibility to safeguard their customers’ accounts." Id. Judge Jolly observed that "an ordinary relationship between a bank and its customers does not, without more, impose upon the Bank any special duties to its customers." Op. ¶30.
After that, the other claims asserted by the Plaintiffs against BB&T fell like dominoes.
Negligence? Judge Jolly said that "the Complaint fails to allege that Bank Defendants had notice of the facts or circumstances that would give rise to a legal duty on the part of Bank . . .to refuse to honor written checks and electronic transactions authorized by Plaintiffs’ alleged agents. . . ." Op. ¶37.
Respondeat Superior? For BB&T’s failure to supervise its employee? No, given that the claims for negligence and breach of fiduciatry duty had been dismissed.
Breach of Contract? No, there was no contract referenced, nor any provision of it that was breached.
Unjust Enrichment? No, there were no "property or benefits that [BB&T] allegedly received that [it had] a legal or equitable obligation to account for." Op. ¶46.
How about an accounting? No, there were no facts alleged that would entitle the Plaintiffs to an accounting from BB&T.
So you’ll need better facts than Global had to survive a motion to dismiss on a claim against a bank for allowing an embezzlement.