Bank Owes No Duty of Care to Non-Customers, Including No Duty to Detect Fraudulent Conduct of Its Customers

From Public Serv. Co. of Okla. v. A Plus, Inc., 2011 U.S. Dist. LEXIS 85179 (W.D. Okla. Aug. 2, 2011):

PSO brought this action to recover sums it paid to A Plus, Inc. a/k/a Jarvis Furniture a/k/a A Plus Spraying (collectively, "A Plus") pursuant to invoices submitted to PSO by A Plus and/or its owners, defendants Randel R. Stone and Kimberly A. Stone (the "Stones"). PSO alleges the invoices were false or fraudulent because they reflected work which was never performed by A Plus. ***

In the Amended Complaint, PSO named additional defendants, including the Bank.1A Plus and the Stones maintained accounts at the Bank during the relevant time period. According to PSO, it paid the amounts reflected on the allegedly fraudulent invoices by checks made payable to A Plus. PSO further alleges the Stones, acting on behalf of A Plus, did not deposit these checks in the A Plus account at the Bank; instead, they cashed the checks, asked the Bank to convert them into cashier's checks made payable to the Stones or a third party, or deposited the checks in the Stones' personal account at the Bank.

PSO's claims against the Bank are set forth in its Sixth Cause of Action. PSO asserts claims of negligence and gross negligence against the Bank, alleging it breached a duty to PSO arising under common law or statute. According to PSO, the Bank was negligent in allowing the Stones to engage in the foregoing banking transactions and in failing to report those transactions "as required by law." Amended Complaint, ¶¶ 66-67. PSO alleges the Bank had a duty to accept the checks only for deposit into the A Plus account, and it was negligent in allowing the Stones to obtain cash or cashier's checks and/or to deposit the checks into their personal account. PSO also alleges the Bank failed to generate "anti-structuring" reports regarding these transactions, and that it was required to do so by law. Amended Complaint ¶¶ 33-34, 17-18. PSO alleges the Bank's negligent conduct resulted in injury to PSO.***

In this case, the Bank argues PSO has not pled facts sufficient to show the Bank owed PSO any legal duty on which a common law negligence claim could be based. As the Bank points out, PSO does not allege that it was a depositor or customer of the Bank or that it had any legal relationship with the Bank; in its response, PSO concedes that it cannot do so. Further, the Court notes that no facts are alleged which suggests PSO relied upon the Bank for any action or information during the course of conduct complained of here. ***

Oklahoma follows the generally accepted principle that a defendant does not have "a duty to anticipate and prevent the intentional or criminal acts of a third party" which resulted in harm to the plaintiff. J. S. v. Harris, 227 P. 3d 1089, 1092 (Okla. Civ. App. 2009). Oklahoma also recognizes an exception to that rule where certain "special circumstances" exist.... The types of special circumstances recognized in Oklahoma are those in which: 1) the actor/defendant has a special responsibility toward the person who suffers the harm; or 2) the actor's "'own affirmative act has created or exposed the other to a recognizable high degree of risk of harm" caused by the misconduct of another, and that risk would have been taken into account by a reasonable person. Id. (quoting Joyce v. M & M Gas Co., 672 P. 2d 1172, 1174 (Okla. 1983)) (emphasis in original). The first circumstance arises where the defendant and the plaintiff had a pre-existing relationship, and the specific risk to the plaintiff was reasonably foreseeable to the defendant. Gaines-Tabb, 995 F. Supp. at 1317; Henry v. Merck and Co., Inc., 877 F. 2d 1489, 1492-93 (10th Cir. 1989) (applying Oklahoma law). In that situation, the foreseeability of harm to the plaintiff is the most important consideration. J. S., 227 P. 3d at 1093. The second circumstance arises where the defendant's affirmative act created or exposed the plaintiff to a recognizable high degree of risk of harm from the reasonably foreseeable conduct of third persons. Gaines-Tabb, 995 F. Supp. at 1317; Joyce, 672 P. 2d at 1174.

In this case, PSO's allegations cannot support the existence of the first category of "special circumstances" which would warrant imposition of a duty upon the Bank because PSO concedes that it had no pre-existing relationship with the Bank. Construing its argument most liberally in its favor, PSO apparently relies on the second category which requires a showing that the Bank's affirmative acts exposed PSO to a "recognizable high degree of risk of harm" to PSO based on the reasonably foreseeable conduct of the Stones. Joyce, 672 P. 2d at 1174. ***

In Eisenberg v. Wachovia Bank, N. A., 301 F. 3d 220 (4th Cir. 2002), the Fourth Circuit, applying North Carolina law, expressly held a bank does not have a duty of care to a non-customer on which a negligence claim can be based. In reaching that conclusion, the Fourth Circuit examined decisions from other jurisdictions, and concluded most reject the existence of such a duty:

Courts in numerous jurisdictions have held that a bank does not owe a duty of care to a noncustomer with whom the bank has no direct relationship. See Weil v. First Nat'l Bank of Castle Rock, 983 P.2d 812, 815 (Colo.Ct.App.1999); Volpe v. Fleet Nat'l Bank, 710 A.2d 661, 664 (R.I.1998); Miller-Rogaska, Inc. v. Bank One, 931 S.W.2d 655, 664 (Tex.App.1996); Software Design & Application, Ltd. v. Hoefer & Arnett, Inc., 49 Cal.App.4th 472, 56 Cal.Rptr.2d 756, 760-63 (1996); Portage Aluminum Co. v. Kentwood Nat'l Bank, 106 Mich.App. 290, 307 N.W.2d 761, 764-65 (1981); Pa. Nat'l Turf Club, Inc. v. Bank of W. Jersey, 158 N.J.Super. 196, 385 A.2d 932, 936 (1978); Gesell v. First Nat'l City Bank, 24 A.D.2d 424, 260 N.Y.S.2d 581, 581-82 (1965).

Eisenberg, 301 F. 3d at 225. See also Zabka v. Bank of America Corp., 127 P. 3d 722, 723-24 (Wash. Civ. App. 2005) ("absent a direct relationship or statutory duty, a bank does not owe a duty to third party noncustomers"); Commerce Bank/Pennsylvania v. First Union Nat'l Bank, 911 A. 2d 133 (Pa. 2006).

In Commerce Bank, the court explained the rationale for rejecting the existence of a bank duty to non-customers, even where the bank was aware of a customer's suspicious conduct; the court held a bank had no duty to take action against its depositor to protect another bank from possible "check kiting" by the depositor. In doing so, the court applied the rule, also followed in Oklahoma, that the existence of a legal duty must be predicated upon a relationship that exists between the parties. The court found the two banks at issue had no relationship warranting the imposition of a duty sufficient to support a negligence claim. Id. at 138. The Pennsylvania Superior Court expressly declined "to make banks the guarantors of their clients' trustworthiness." Id. According to the court, imposing a duty on a bank in such circumstances "would inevitably force banks to close or restrict the clients' accounts on the least degree of suspicion...in order to avoid unspecified liability" to third parties; thus, imposing such a duty was found contrary to public policy. Commerce Bank, 911 A. 2d at 139-40.

More specifically applicable to PSO's claims in this case are decisions expressly holding a bank does not have a duty to third-party non-customers to detect and prevent a bank customer's fraudulent conduct. Grad v. Associated Bank, N.A., 2011 WL 2184335 (Wis. Civ. App. June 7, 2011) (unpublished opinion) (citing Hoida, Inc. v. M & I Midstate Bank, 717 N. W. 2d 17 (Wis. 2006) and Commercial Discount Corp. v. Milwaukee W. Bank, 214 N. W. 2d 33 (Wis. 1974)); McCallum v. Rizzo, 1995 WL 1146812 (Mass. Super. Ct. Oct. 13, 1995) (unpublished opinion). In McCallum, the Massachusetts court held "a bank's failure to investigate a customer's suspicious activity...does not give rise to liability to the third party who is injured by the customer's fraud." Id., at *2. The court held:

The mere fact that a bank account can be used in the course of perpetrating a fraud does not mean that banks have a duty to persons other than their own customers. To the contrary, the duty is owed exclusively to the customer, not to the persons with whom the customer has dealings.

McCallum, 1995 WL 1146812, at *2. Noting the question was one of first impression in Massachusetts, the court examined other courts' decisions, and concluded "there is an abundance of precedent from other jurisdictions holding that a bank owes no duty of care to third parties who are not bank customers." Id. (citing Guidry v. Bank of LaPlace, 740 F.Supp. 1208, 1218-19 (E.D. La.1990), rev'd in part, 954 F.2d 278 (5th Cir.1992); E.F. Hutton Mortgage Co. v. Equitable Bank, N.A., 678 F.Supp. 567, 579 (D.Md. 1988); Chicago Title Insurance Co. v. California Canadian Bank, 174 Cal. App.3d 1142, 1158-59, 220 Cal. Rptr. 507 (1986); Portage Aluminum Co. v. Kentwood National Bank, 307 N.W.2d 761, 764-65 (Mich. 1981); Pennsylvania National Turf Club Inc. v. Bank of West Jersey, 385 A.2d 932, 936 (N.J. 1978)).

In a recent decision, the United States District Court for the District of Massachusetts considered whether Connecticut courts would hold a bank has a duty to third-party non-customers. VIP Mortgage Corp. v. Bank of America, N. A., F. Supp. 2d , 2011 WL 573601, at *6 (D. Mass. Feb. 11, 2011) (for publication). The Court determined the question was one of first impression in Connecticut. Examining decisions from other jurisdictions, the Court found an overwhelming majority rejected the existence of such a duty; it concluded there is a "now almost universal rule that banks do not owe a common law duty of care to third-party non-customers." Id. (emphasis added).

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