Daniel F. McGuire et al. v. Hudson Valley Bank, N.A. et al. (2013)

MEMORANDUM OF DECISION RE MOTION TO STRIKE NO. 117.00

This action is brought by Daniel F. McGuire, Esq., an attorney with offices in Stamford, Connecticut, seeking permanent injunctive relief related to the closing of branches that the defendant Hudson Valley Bank, N.A. (HVB) formerly operated in Fairfield County, Connecticut.   Attorney McGuire has commenced this action against HVB and its president and chief executive officer, the defendant Michael J. Gilfeather, asking that this court issue orders preventing the defendant from maintaining client fund accounts which were formerly held at Connecticut branches at any of the bank's New York locations.   The plaintiff also seeks injunctive relief ordering the defendant to provide what he describes as “proper notice” to former Connecticut trust account holders relating to the Connecticut branch closings.   The plaintiff further seeks additional relief should this action be certified and move forward as a class action on behalf of trust account holders who are similarly situated.   The defendants have moved to strike all three counts of the plaintiff's second amended verified class action complaint dated August 22, 2013 on the grounds that none of the counts set forth legally sufficient causes of action upon which relief may be granted by this court.

FACTS

The facts of this case are straightforward and undisputed.   The plaintiff is a member of the Connecticut bar with an office in Stamford, Connecticut, where he is a member of a law firm specializing in litigation matters.   The defendant HVB is a federally-chartered bank with its principal corporate offices located in Scarsdale, New York. For approximately five years prior to the commencement of this action, HVB operated branches in Fairfield County, Connecticut, and engaged in the business of general retail banking for its customers.   Those customers included attorneys like the plaintiff who used the bank's products and services for the handling of client funds.   From April 2011 to May 24, 2013, the plaintiff's law firm maintained an IOLTA account at one of the defendant's local branches as required by Rule 1.15 of the Rules of Professional Conduct.¹

On or about February 28, 2013, HVB began notifying its customers, including the plaintiff, of its intention to leave the Connecticut market and close all of its Connecticut branches.   All depositors, including the plaintiff, were notified by letter that they could keep their accounts with HVB's New York branch offices, or close their HVB accounts altogether and transfer them to other banks.   HVB first notified the plaintiff by letter dated February 28, 2013, and by a second letter dated April 19, 2013, signed by Gilfeather, that it would be closing all Connecticut branches on July 19, 2013.

At all times relevant hereto, attorneys practicing in Connecticut who hold funds for their clients under certain circumstances are required to hold those funds in IOLTA accounts in “eligible institutions,” as defined by Rule 1.15(a)(2) of the Rules of Professional Conduct.   The gravamen of the plaintiff's cause of action centers on Rule 1.15(b) of the Rules of Professional Conduct, which states in relevant part that “[f]unds shall be kept in a separate account maintained in the state where the lawyer's office is situated or elsewhere with the consent of the client or third person.” ²  The plaintiff argues that by closing the Connecticut branches and moving the IOLTA accounts to branches located in New York, the defendant has caused Connecticut attorneys to violate this Rule. The plaintiff has framed his second amended verified class action complaint as one representing the class of all persons situated similarly to himself, who may find themselves inadvertently in violation of Rule 1.15(b) as a result of the transfer of accounts to HVB's New York branches.

This action was originally returnable to the court on May 21, 2013 when the accounts (including the plaintiff's firm's account) were still held by Connecticut branches.   The plaintiff initially moved for a temporary injunction commanding the defendants and their employees “to absolutely desist and refrain from transferring Connecticut based HVB IOLTA accounts in the name of the plaintiff and all Connecticut attorneys similarly situated until the return day of the writ.”   That application was heard and denied by this court on May 20, 2013, Povodator, J., and shortly thereafter HVB moved all its Connecticut accounts (including the plaintiff's) to the Port Chester, New York, HVB branch.   Thus, as of October 28, 2013, when defendants' motion to strike was heard by this court, the plaintiff's IOLTA account (along with all other such trust accounts) has been transferred to one of HVB's New York branches.

In the first count of his four-count second amended verified complaint, the plaintiff alleges that the defendants committed an “intentional tort” against the plaintiff by moving the trust accounts to New York. The plaintiff alleges that by doing so, the plaintiff and others like him are now exposed to “significant civil liability and money damages from clients and third parties whose funds are held in Connecticut trust accounts.”   The plaintiff further alleges that the defendants have deprived the Connecticut courts of the “supervisory jurisdiction” that they would have had if the transfers out of state had not been made.   In his second count, the plaintiff alleges breach of the defendant's fiduciary obligations to him and to all other trust account holders similarly situated.   The plaintiff's third count alleges breach of an agency relationship by the defendants.   Finally, in his fourth count, the plaintiff alleges that the transfers are (or should be ruled by this court to be) void as they are against a public policy of the State of Connecticut.   In his claims for relief the plaintiff seeks a permanent injunction enjoining the defendants “from maintaining [the plaintiffs] and the class members [t]rust [a]ccounts in New York without the express permission of the account holders and the clients or third parties whose funds are in those accounts.”   The plaintiff also asks for a “permanent injunction requiring proper notice to Connecticut [a]ccount holders that they will need to transfer their [t]rust [a]ccount funds to other Connecticut banks that are duly approved and in good standing to maintain [t]rust [a]ccount accounts.”

In response the defendants argue that Connecticut law does not recognize a generic cause of action for intentional tort.   In response to the second count, they argue that ordinary banking relationships such as the one created here are debtor-creditor relationships only, which do not impose fiduciary obligations upon banks.   The defendants further argue that the plaintiff has failed to plead the existence of an agency relationship that would give rise to a cause of action apart from the contractual relationship of debtor and creditor.   And finally the defendants argue that Connecticut law does not recognize a cause of action for violation of a public policy.   For all of these reasons, the defendants argue, none of the causes of action advanced by the plaintiff are legally sufficient to state a cause of action against either defendant upon which relief may be granted.

ANALYSIS

“The purpose of a motion to strike is to contest ․ the legal sufficiency of the allegations of any complaint ․ to state a claim upon which relief can be granted ․ A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court ․ We take the facts to be those alleged in the complaint ․ and we construe the complaint in the manner most favorable to sustaining its legal sufficiency ․ Thus, [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied.”  (Citations omitted;  internal quotation marks omitted.)  Fort Trumbull Conservancy Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).   Conversely, “[a] motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  Novametrix Medical Systems, Inc. v. BOC Group, Inc., 224 Conn. 210, 215, 618 A.2d 25 (1992).

“It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those necessarily implied from the allegations are taken as admitted.”  (Internal quotation marks omitted.)  Doe v. Board of Education, 76 Conn.App. 296, 299–300, 819 A.2d 289 (2003).  “The role of the trial court [on ruling on a motion to strike is] to examine the [complaint], construed in favor of the plaintiffs, to determine whether the [pleading party] has stated a legally sufficient cause of action.”  (Internal quotation marks omitted.)  Dodd v. Middlesex Mutual Assurance Co., 242 Conn. 375, 378, 698 A.2d 859 (1997).

I

COUNT ONE:  INTENTIONAL TORT

The court agrees with the defendants that Connecticut law does not recognize a cause of action for intentional tort.   Intentionally wrongful conduct may be an element in many causes of action sounding in tort, but this court is unaware of any authority for a cause of action for intentional tort.   The court notes that the plaintiff cites no authority in his memorandum of law recognizing such a cause of action for intentional tortious conduct, standing alone, and the facts as set forth in the first count do not set forth a cause of action for any other recognized cause of action.   The court is required, however, to view the pleading in the light most favorable to sustaining its legal sufficiency.   In doing so the court finds that the nearest cause of action that might fit the facts as stated by the plaintiff would be a claim of tortious interference with the IOLTA account holders' business relations with their trust account beneficiaries.   But this cause of action requires proof that the defendant knowingly “sought to interfere with [the business relationship in question] and, as a result, the plaintiff ․ suffered actual loss.”  Indiaweekly.com LLC v. Nehaflix.com, Inc., 596 F.Sup.2d 497, 505 (D.Conn.2009).   Intentional interference with a business relationship also “requires proof that the defendant [is] guilty of fraud, misrepresentation, intimidation or molestation,” none of which have been alleged by the plaintiff.  (Internal quotation marks omitted.)  Sportsmen's Boating Corp. v. Hensley, 192 Conn. 747, 754, 474 A.2d 780 (1984).

Similarly, a claim of prima facie tort, which the plaintiff does not plead but references in his memorandum of law, also fails because the plaintiff does not allege that the defendants acted with intent to cause harm to the plaintiff and others similarly situated.  “The theory of a prima facie tort requires an intentional, wrongful or culpable act causing injury if the conduct is not justifiable under the circumstances.”  (Emphasis omitted.)   Brandt v. Walker Digital, LLC, Superior Court, judicial district of Stamford–Norwalk at Stamford, Complex Litigation Docket, Docket No. X08–CV–03–0194566–S (November 1, 2004, Adams, J.) (38 Conn. L. Rptr. 182, 185);  see also Deutsch v. Backus Corp., Superior Court, judicial district of Hartford, Complex Litigation Docket, Docket No. X07–CV–10–6022074–S (May 2, 2012, Berger, J.) [54 Conn. L. Rptr. 30];  Grigorenko v. Pauls, 297 F.Sup.2d 446, 450 (D.Conn.2003).   Therefore, the court agrees with the defendants that the first count of the plaintiff's second amended verified class action complaint fails to state a cause of action upon which relief may be granted.

II

COUNT TWO:  BREACH OF FIDUCIARY DUTY

The second cause of action is equally deficient, as the court finds no fiduciary relationship between the plaintiff and the defendants that could, if violated, give rise to the cause of action asserted by the plaintiff.  “It is axiomatic that a party cannot breach a fiduciary duty to another party unless a fiduciary relationship exists between them.  [A] fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other.”  (Emphasis in original;  internal quotation marks omitted.)  Biller Associates v. Peterken, 269 Conn. 716, 723, 849 A.2d 847 (2004).  “Connecticut courts have specifically refused to define a fiduciary relationship in precise detail and in such a manner as to exclude new situations ․ Instead, a fiduciary relationship exists where there is a justifiable trust confided on one side and a resulting superiority and influence on the other.”  (Citation omitted;  internal quotation marks omitted.)  Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 18, 728 A.2d 1114 (1999).  “The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him.”  Dunham v. Dunham, 204 Conn. 303, 322, 528 A.2d 1123 (1987).

Counsel for the defendants cites a plethora of appellate and lower court decisions which support their position that ordinary retail depository banking creates a debtor-creditor relationship only.   See, e.g., Monachelli v. Farmers Savings Bank, 13 Conn.App. 662, 665–66, 538 A.2d 1039 (1988) (holding that there was no fiduciary relationship between the bank and its depositor because “the agreement between the parties imposed no duty of care on the defendant bank beyond that which it exercised, and the plaintiff introduced no evidence to establish any further duty of care”);  Southbridge Associates, LLC v. Garofalo, supra, 53 Conn.App. 17–19 (holding that there was no fiduciary relationship between a bank and its customer because the bank failed to establish anything more than an ordinary debtor-creditor relationship with the bank, the bank did not act as the customer's financial advisor and there was no evidence that the bank intended to act with the customer's interests in mind);  see also Frigon v. Enfield Savings & Loan Ass'n., 195 Conn. 82, 87, 486 A.2d 630 (1995) (“fact that a bank is indebted to its account holders for the amount of the funds that they have deposited ․ imposes no special duty of care for the safekeeping of the funds on deposit” [citations omitted.] );   Marino v. Bank of America, N.A., Superior Court, judicial district of Litchfield, CV–07–5001571–S (July 11, 2007, Pickard, J.) (43 Conn. L. Rptr. 751, 752) (“The mere fact that an account holder has deposited funds into a bank does not automatically create a fiduciary relationship between the bank and the customer ․ In fact, such relationships rarely give rise to a fiduciary duty ․ A fiduciary duty may arise only in exceptional circumstances, such as when there is a long history of dealings between the parties and the bank acts as an advisor or when the bank gains the confidence of the account holder.”   [Citations omitted.] ).

For example, in Birdseye Development Co., LLC v. TD Bank North, N.A., Superior Court, judicial district of Fairfield, CV–09–5028582–S (April 13, 2011, Dooley, J.) [51 Conn. L. Rptr. 735], the plaintiff brought a number of claims against its local bank after a large deposit was mishandled by the bank's employees.   The court granted the defendant's motion to strike the claim of breach of fiduciary duty, declaring that even though “the complaint contains the talismanic and conclusory language required to establish a fiduciary relationship,” the facts did not “transform the role of the bank from creditor to fiduciary or trustee.”  Id.

The plaintiff relies on the case of Krondes v. Norwalk Savings Society, Superior Court, judicial district of Fairfield, CV–91–288828–S (Mar. 23, 1995, Cocco, J.), for the proposition that there can be a fiduciary relationship between a depositor and a bank where there are “exceptional circumstances,” and argues that by accepting IOLTA deposits, those exceptional circumstances exist here.  “[W]here a bank becomes involved in a transaction with a customer with whom it has established a relationship of trust and confidence, and it is a transaction from which the bank is likely to benefit at the customer's expense, the bank may be found to have assumed a duty to disclose facts to the transaction, peculiarly within its knowledge, and not otherwise available to the customer.”  (Emphasis in original;  internal quotation marks omitted.)   Id. The plaintiff's reliance on this case is, in the court's view, entirely misplaced.   Krondes involved a customer who claimed that she had relied on the bank as a source of information before proceeding with her purchase of certain commercial real estate.  Id. The court, in analyzing the plaintiff's claim that the bank owed her certain fiduciary obligations, stated, inter alia, that any subjective reliance by the plaintiff on the defendant alleged as the basis of a fiduciary relationship must be reasonable.  Id. The court found that if she did rely on the bank for specific information, that reliance was not reasonable and therefore found no fiduciary duty to her on the part of the defendant.  Id.

In the present case, if the plaintiff claims that he is relying on the defendants to inform him and other attorneys of their obligations under the Rules of Professional Responsibility, that reliance can hardly be considered reasonable or justifiable.   Additionally, knowledge of IOLTA requirements is certainly not exclusively within the defendant's knowledge and unavailable to the plaintiff.   It is the plaintiff who is charged by law with knowledge of the Rules of Professional Responsibility and the obligation to comply with them, not the defendants.   In the case of Siemiatkoski v. Windsor Federal Savings & Loan Ass'n., Superior Court, judicial district of Hartford, Complex Litigation Docket, Docket No. X07–CV–06–5001791–S (Sep. 10, 2008, Berger, J.), the court held that a bank did not breach a fiduciary duty to disclose information to the plaintiffs because the plaintiffs knew about the information and the information was publicly available.

Finally, as a matter of law, it is clear that the statute which created and now governs administration of IOLTA accounts prohibits the courts from imposing any additional requirements on banks for their participation in the IOLTA program.³  This statutory background makes clear that acceptance of IOLTA deposits does not impose fiduciary responsibilities upon banks, including HVB and its officers.

In reviewing a motion to strike, the court is required to “assume the truth of both the specific factual allegations and any facts fairly provable thereunder.   In doing so, moreover, we read the allegations broadly, rather than narrowly.”  Craig v. Driscoll, 262 Conn. 312, 321, 813 A.2d 1003 (2003).   The court finds that even when viewed in the light most favorable to the plaintiff, the facts set forth in the second count would not, if proven, establish any special or exceptional circumstances which would support a cause of action for breach of fiduciary duty by either of the defendants.

III

COUNT THREE:  BREACH OF AGENCY RELATIONSHIP

Similarly, the court finds no support for the plaintiff's claim that the acceptance of IOLTA deposits imposes a duty of loyalty upon the defendants under an agency relationship.

The third count of the plaintiff's second amended verified class action complaint claims that HVB was the plaintiff's agent by virtue of its acceptance of IOLTA accounts.   The plaintiff alleges that by moving the accounts to New York under the circumstances alleged, the defendants violated a duty of loyalty inherent in every agency relationship.   The plaintiff argues that “as a bank, it is legally bound to obey lawful instructions from its depositors and must act in accordance with all applicable Connecticut rules for the benefit of lawyer-depositors ․ Applicable rules include the Connecticut Practice Book and the Connecticut Rules of Professional Conduct, which have the force of law.”   According to the plaintiff, the defendants violated this inherent duty of loyalty by moving the trust accounts to New York without prior authorization because it exposed the plaintiff and others similarly situated to civil liability and “placed them in violation of Rule 1.15(b).”

As discussed subsequently in this opinion, the court finds that the relationship between the parties was a debtor-creditor relationship, and that the bank owed no enhanced duty of loyalty to the plaintiff other than the ordinary duty of good faith and fair dealing inherent in all debtor-creditor relationships.   The plaintiff does not assert the existence of a contract whereby the defendant agreed to act as the agent of the plaintiff (other than the deposit agreement), nor does the plaintiff define with specificity the terms of the alleged principal-agent relationship.  “Agency is defined as the fiduciary relationship that arises when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act ․ Three elements are required to show an agency relationship:  (1) a manifestation by the principal that the agent will act for him;  (2) acceptance by the agent of the undertaking;  and (3) an understanding between the parties that the principal will be in control of the undertaking.”  (Citation omitted;  internal quotation marks omitted.)  LeBlanc v. New England Raceway, LLC, 116 Conn.App. 267, 274–75, 976 A.2d 750 (2009).   The plaintiff alleges that the “agency was established when the plaintiff authorized HVB to hold third-party funds in a trust account, an implicit term of the relationship being that the bank would not act in its own interest in such a way as to cause the plaintiff to be out of compliance with the legal requirements for such specialized accounts.”   What is missing here, in the court's view, is any allegation that the defendants undertook to act on the plaintiff's behalf regarding IOLTA accounts other than the needs of an ordinary banker-customer relationship.   Even when viewed in the light most favorable to the plaintiff, the court finds that the third count does not plead with sufficient specificity how and in what manner the defendants undertook extra responsibilities relating to IOLTA accounts that would give rise to a claim of breach of a principal-agent relationship.   Further, any such extra responsibilities relating to IOLTA accounts for banks would be in direct violation of the IOLTA statutes mentioned previously.   See General Statues § 51–81c(d) & (e).

IV

COUNT FOUR:  VIOLATION OF PUBLIC POLICY

The final count of the plaintiff's second amended verified class action complaint alleges violation of the public policy of the state of Connecticut as a ground upon which the plaintiff asks the court to grant the injunctive relief described sought.   The plaintiff alleges that the defendants have wrongfully “interfered with the Court's ability to efficiently or effectively administer justice over attorney-officers and also with its ability to protect the public from attorney misconduct involving [t]rust [a]ccount funds because those funds are no longer located in this jurisdiction.”   Any actions, according to the plaintiff, that impact “the ability of the courts to do that job is void as against public policy.”

On this point the plaintiff calls upon the court to enforce its own rules, i.e., to enter orders forcing the defendants to comply with Rule 1.15(b) of the Rules of Professional Conduct.   First of all, as the defendants correctly point out, the plaintiff's allegation that the defendants' actions are against public policy is a legal conclusion that cannot be accepted as true for purposes of a motion to strike.  Mingachos v. CBS, Inc., 196 Conn. 91, 108, 491 A.2d 368 (1985) (stating that a motion to strike “admits all facts well-pleaded;  it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings” [emphasis in original.] ).   The plaintiff's allegation that the transfers are “void as against public policy” is a legal conclusion that is unsupported by relevant legal authority or factual basis.

Next, the court agrees again with the defendants that there is simply no cause of action recognized in Connecticut law for violation of a claimed public policy;  even with respect to attorneys, there can be no cause of action based solely on alleged violations of the Rules of Professional Conduct.  Biller Assoc. v. Peterken, supra, 722 (“[a]s ․ previously recognized, however, the rules governing the professional conduct of attorneys, without more, do not give rise to a cause of action”).   Finally, the Preamble to the Rules themselves state that they are not to be used to provide a basis for civil liability.⁴  Once again viewing the allegations in the light most favorable to the plaintiff, even if the Rules did provide a basis for civil liability, they are directed to attorneys only, and certainly cannot form the basis of causes of action against retail banks.   Therefore, the court finds' that the fourth count of the plaintiff's second amended verified class action complaint alleging violation of a public policy fails to state a cause of action upon which relief may be granted.⁵

CONCLUSION

The defendants' motion to strike the second amended verified class action complaint, No. 117, is granted as to all four counts for the reasons set forth herein.

By the Court,

Anthony D. Truglia, Jr. J.

FOOTNOTES

FN1. IOLTA is an acronym for Interest on Lawyers' Trust Accounts.   Black's Law Dictionary (9th Ed.2009)..  FN1. IOLTA is an acronym for Interest on Lawyers' Trust Accounts.   Black's Law Dictionary (9th Ed.2009).

FN2. While not all client funds accounts are required to be held in IOLTA accounts, and while exceptions to IOLTA do exist, for the sake of clarity all IOLTA and trust accounts will be referred to herein interchangeably..  FN2. While not all client funds accounts are required to be held in IOLTA accounts, and while exceptions to IOLTA do exist, for the sake of clarity all IOLTA and trust accounts will be referred to herein interchangeably.

FN3. Subsections (d) and (e) of General Statues § 51–81c provide, “(d) The judges of the Superior Court shall adopt rules to implement the program for the use of interest earned on lawyers' clients' funds accounts, provided nothing in this section shall grant to the judges of the Superior Court or any other judicial authority any legislative, regulatory or rule-making authority over banks, insurance companies or other financial institutions. (e) The program shall not require the banking corporations or financial institutions receiving such funds, holding such accounts and paying interest on such accounts to the depositors of the account to perform any administrative functions or assume any additional responsibilities or obligations in connection with the program or accounts so maintained.”   (Emphasis added.).  FN3. Subsections (d) and (e) of General Statues § 51–81c provide, “(d) The judges of the Superior Court shall adopt rules to implement the program for the use of interest earned on lawyers' clients' funds accounts, provided nothing in this section shall grant to the judges of the Superior Court or any other judicial authority any legislative, regulatory or rule-making authority over banks, insurance companies or other financial institutions. (e) The program shall not require the banking corporations or financial institutions receiving such funds, holding such accounts and paying interest on such accounts to the depositors of the account to perform any administrative functions or assume any additional responsibilities or obligations in connection with the program or accounts so maintained.”   (Emphasis added.)

FN4. The Scope of the Rules of Professional Responsibility provides in relevant part as follows:  “Violation of a Rule should not of itself give rise to a cause of action against a lawyer nor should it create any presumption that a legal duty has been breached ․ The Rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies.   They are not designed to be a basis for civil liability.”.  FN4. The Scope of the Rules of Professional Responsibility provides in relevant part as follows:  “Violation of a Rule should not of itself give rise to a cause of action against a lawyer nor should it create any presumption that a legal duty has been breached ․ The Rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies.   They are not designed to be a basis for civil liability.”

FN5. Having found that none of the four counts state legally sufficient causes of action against the defendants, the court does not reach the issue of preemption which was also raised by defendants.   The court also does not reach the issue of mootness which it raised sua sponte at oral argument of this motion..  FN5. Having found that none of the four counts state legally sufficient causes of action against the defendants, the court does not reach the issue of preemption which was also raised by defendants.   The court also does not reach the issue of mootness which it raised sua sponte at oral argument of this motion.

Truglia, Anthony D., J.