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Megan Lyn BABSTOCK, Plaintiff v. Tara A. BABSTOCK and J.P. Morgan Chase and Company, Defendants.
The Decision and Order is as follows:
Defendant J.P. Morgan Chase and Company (“Chase”) moves by notice of motion (Seq. No. 001) for an order granting them summary judgment and dismissing the “breach of fiduciary duty” claim asserted against them in the Plaintiff's Complaint. Plaintiff cross moves for summary judgment (Seq. No. 002) against both Defendants on the issue of liability and damages and seeks a money judgment in the amount of $38,467.15 plus interest and attorneys' fees. Defendant Tara A. Babstock, who is self-represented, has not filed written opposition to the present motion, although she was present for oral argument which was held on March 4, 2020.
Most of the relevant facts are not in dispute. In the year 2000 the Plaintiff, then seven years old, was involved in a trip and fall accident. As a result of that accident, she was awarded the gross sum of $35,000 in settlement, less fees and expenses. On or about December 20, 2004 this settlement was approved by the Court 1 by an Infant Compromise Order. Pursuant to the terms of that order, the net sum of $22,207.60 was to be deposited in an interest-bearing account in Defendant Tara Babstock's (“Mother's”) name “as guardian to the credit of the said infant, subject to further order of this court.” The Infant Compromise Order also contained an express prohibition against withdrawals for any purpose, stating that “no withdrawals shall be made from said account or accounts before the infant reaches the age of 18 years, except upon further order of the Court ” (Infant Comp. Order pg. 2).
Defendant Mother deposited $22,207.60 into a Staten Island branch of Chase bank as required by the Order. At her deposition she testified that when she originally opened the account, she gave a copy of the Order to the bank official. (Tr. 10/14/19, Pg. 8) The first account opened by Mother was a 60-Month Certificate of Deposit (“CD”). The official who testified on behalf of Chase Bank at their deposition indicated that any order that was given to the Bank would have been forwarded to the “document retention department.” However, Chase's witness had no personal knowledge as to whether an order was given to the branch by Mother or subsequently sent to the retention department. Chase's witness indicated that they had not contacted the retention department to inquire. (Tr. 8/5/19, Pg. 14-15)
Approximately eight to ten years later Mother received a notification from the bank that the CD had matured, and that the money would need to be deposited into a different account. Accordingly, Mother went to the same Chase branch and transferred the money into a different account in her name. The exact nature of this second account is unclear. However, it is undisputed that over the course of the next few years Mother repeatedly withdrew funds from the account without a court order authorizing her to do so. Mother testified that she withdrew “a couple thousand” for the Plaintiff to attend her high school prom, and a few thousand more to purchase a car. Mother further testified that she believed that the Infant Compromise Order allowed her to withdraw the money for her daughter's benefit, and moreover that unidentified bank officials told her that she was permitted to withdraw money from the account. The present action was commenced after the relationship between Mother and Daughter soured, and Plaintiff discovered that there was only $1,200 left in the account and that she was not permitted to access it.
In support of its motion, Defendant Chase argues that the bank does not have a fiduciary duty to either Plaintiff or Defendant Mother. Moreover, they claim that Plaintiff cannot prove damages as the account withdrawals were allegedly used for her benefit. Plaintiff, in opposition, argues that Chase had a duty to watch over the funds and see that they were not withdrawn in violation of the Infant Compromise Order. As indicated above, Defendant Mother has taken no position on either motion, despite the fact that the Plaintiff's cross motion also seeks summary judgment against her.
The proponent of a summary judgment motion has the initial burden of making a prima facie showing of entitlement to judgment as a matter of law by tendering sufficient evidence to eliminate any material issues of fact from the case. See Otty Cab Corp. v. Nazir, 72 N.Y.S.3d 517, 2017 WL 6047381 (2d Dept. 2017). Once a prima facie showing of entitlement to summary judgment has been established, the burden shifts to the non-moving party or parties to raise a material issue of fact. See CAS Mkt. & Licensing Co. v. Jay Franco & Sons, Inc., 188 A.D.3d 522, 137 N.Y.S.3d 1 (1st Dept. 2020). When adjudicating a motion for summary judgment, the opposing party is entitled to an assumption that all of the facts asserted on their behalf are true and the Court is constrained to view those facts in a light most favorable to them. See Matter of Gobes, 189 A.D.3d 1402, 139 N.Y.S.3d 269(2d Dept. 2020); see also Rubin v. Napoli Bern Ripka Shkolnik, LLP, 179 A.D.3d 495, 118 N.Y.S.3d 4 (1st Dept. 2020).
Defendant Chase's Motion
In support of their motion for summary judgment Defendant Chase correctly states the general rule that financial banking institutions do not have a fiduciary relationship with the customers they serve. The legal relationship between a borrower or depositor and a bank is a contractual one, and does not create a fiduciary relationship. See Nathan v. J & I Enters., 212 A.D.2d 677, 622 N.Y.S.2d 798 (2d Dept. 1995); see also Curtis-Shanley v. Bank of Am., 109 A.D.3d 634, 970 N.Y.S.2d 830 (2d Dept. 2013). However, a fiduciary duty can be formed when a customer places “special trust and confidence” in the bank. See Manufacturers Hanover Trust Co. v. Yanakas, 7 F.3d 310 (2d Cir. 1993). A bank may also become liable if they have independent notice of bad faith or dishonesty and despite such notice they allow a misappropriation. See Aetna Casualty & Surety Co. v. Lafayette Natl' Bank, 35 A.D.2d 137, 314 N.Y.S.2d 818 (1st Dept. 1970); see also Cerrato v. Crossland Sav. FSB, 1994 WL 16856163, 1994 NYLJ Lexis 9229 (Sup. Ct. Suff. Cty. 1994). In the absence of such notice, a bank has the right to assume that the custodian of an account will utilize the funds for their proper purpose. See Brown v. Flushing Fed. S & L Ass'n, 112 A.D.2d 185, 491 N.Y.S.2d 411 (2d Dept. 1985).
Here, Defendant Mother testified that when she opened the initial account, she provided the bank with a copy of the Infant Compromise Order. For the limited purposes of a summary judgment motion, the Court must accept this fact as true. See De Paris v. Women's Natl. Republican Club, Inc., 148 A.D.3d 401, 48 N.Y.S.3d 383 (1st Dept. 2017). While Defendant Mother could not recall if she produced a copy of the Order when she opened the second account, the bank representative who testified at Chase's deposition indicated that any such order would normally be retained by a separate department, with which she had not communicated. So, there is a question of fact as to whether Chase was initially provided notice and whether they remained on notice, or constructive notice, when the second account was opened. “Liability may be imposed if a depository bank has actual knowledge or notice that a diversion will occur or is ongoing. Facts sufficient to cause a reasonably prudent person to suspect that trust funds are being misappropriated will trigger a duty of inquiry on the part of the depository bank.” Baron v. Galasso, 83 A.D.3d 626, 921 N.Y.S.2d 100 (2d Dept. 2011). Plaintiff argues that any reasonably inquiry might have revealed that any withdrawals were prohibited absent court order.
The clear terms of the Infant Compromise Order indicate that no withdrawals could be made absent court order or until the Plaintiff turned 18. Accordingly, Chase was given notice that no one could withdraw money from the account until one of those court mandated preconditions were met. The failure of a bank to comply with court mandated preconditions may be sufficient to impose liability. See Siroty v. Nelson, 75 N.Y.2d 957, 556 N.Y.S.2d 4, 555 N.E.2d 256 (1990); see also In re Guardianship of Leftridge, 113 Misc.2d 689, 449 N.Y.S.2d 892 (Bronx Cty. Sur. Ct. 1982).
Despite the clear directives of this Order, the bank allowed Defendant Mother to open an account from which she could make withdrawals. Moreover, they authorized a number of withdrawals without inquiring as to whether Mother had a court order. As a financial institution, Chase is charged with the responsibility of safeguarding the interests of its depositors, and is therefore required to show that the circumstances surrounding the withdrawals were such as would not arouse the suspicion of its employees. See Novak v. Greater New York Sav. Bank, 30 N.Y.2d 136, 331 N.Y.S.2d 377, 282 N.E.2d 285 (1972); see also Holland v. Greater N.Y. Sav. Bank, 222 A.D.2d 654, 636 N.Y.S.2d 89 (2d Dept. 1995). Chase also had a duty to conduct itself with normal prudent care in allowing the withdrawal of the property to which the infant was entitled. See In Re Guardianship of Leftridge Supra; see also Noah v. Bowery Sav. Bank, 225 N.Y.284, 122 N.E. 235 (1919). Here the Plaintiff has raised a triable question of fact as to whether Chase met these obligations under the circumstances presented.
Finally, Defendant Chase argues that the Plaintiff's case against them must be dismissed because she suffered no damages. In support of this argument Chase adopts the deposition testimony of Mother wherein she indicated that all of the funds were used for the Plaintiff's behalf. However, Plaintiff disagrees and indicates that she has no information as to where her money went. Moreover, how her money was spent is irrelevant at this procedural juncture, as the Infant Compromise Order prohibited any withdrawals absent court order, no matter the justification. While an evidentiary showing that all of the funds were used for the Plaintiffs behalf might serve to mitigate damages at a trial, the conclusory allegation is insufficient to support a motion for summary judgment.
Accordingly, for the reasons set forth above, Defendant Chase's motion for summary judgment dismissing those aspects of the Plaintiff's Verified Complaint that allege a cause of action against them for improperly releasing funds is hereby denied.
Plaintiff's Cross Motion
In her notice of cross motion, Plaintiff requests an order granting her summary judgment on both the issues of liability and damages against both Defendant Mother and Defendant Chase. In regard to damages, Plaintiff requests a money judgment in the amount of $38,467.15 plus counsel fees and expenses. Defendant Chase has opposed the Plaintiff's cross motion in its entirety; however, Defendant Mother has failed to file opposition papers. Moreover, Mother failed to offer oral opposition, or request an adjournment during the hearing of this motion.
Now, after consideration of the arguments set forth in the Plaintiff's moving papers, and Defendant Chase's opposition papers, the Plaintiff's motion for summary judgment on the issue of liability against the bank is hereby denied. As set forth at length above, there are questions of fact as to whether Defendant Chase had notice, or constructive notice of the Infant Compromise Order when they opened each of the accounts, and as to whether they exercised normal prudent care in allowing the withdrawal of the property to which the infant was entitled in light of the terms of the Order. There are also questions of fact regarding the damages sought, as Defendant Mother testified that every withdrawal was for the direct benefit of her daughter.
However, in the absence of written opposition from Mother, and after considering her deposition testimony, this Court finds that there are no triable questions of fact regarding her liability for the unauthorized withdrawals. The record supports a finding that Mother was aware of the terms of the Infant Compromise Order but simply disregarded them, regardless of her intentions. Accordingly, Plaintiff's motion for summary judgment against Defendant Mother on the issue of liability in regard to her first cause of action sounding in breach of fiduciary duty is hereby granted.
Plaintiff's motion for summary judgment on her second cause of action sounding in conversion is also granted. Conversion is the unauthorized exercise of the right of ownership over another's property to the exclusion of the owner's rights. See Thyroff v. Nationwide Mut. Ins. Co., 8 N.Y.3d 283, 832 N.Y.S.2d 873, 864 N.E.2d 1272 (2007). Where the property alleged to have been converted is money, it must be specifically identifiable and be subject to an obligation to be treated in a particular manner. See Lemle v. Lemle, 92 A.D.3d 494, 939 N.Y.S.2d 15 (1st Dept. 2012). Thus, conversion occurs when funds designated for a particular purpose are used for an unauthorized purpose. See Meese v. Miller, 79 A.D.2d 237, 436 N.Y.S.2d 496 (4th Dept. 1981). Here, it is uncontested that the personal injury settlement funds that were deposited into Chase Bank were designated for the Defendant to receive when she turned 18. However, those funds were used by Mother in violation of the terms of the Infant Compromise Order. Accordingly, she is liable for conversion.
While the Plaintiff's motion seeking an order granting her summary judgment on her first and second causes of action has been granted, the same application is hereby denied without prejudice in relation to the third and forth causes of action. Those causes of action, which seek damages for the commencement of an unrelated Family Offense Petition that was settled between the parties years ago are not discussed in the Plaintiff's moving papers. Moreover, even a liberal reading of the Plaintiff's Summons and Complaint fails to elucidate the legal basis for either of those causes of action.
This constitutes the Decision and Order of the Court on all issues raised in relation to
motion sequence numbers 001 and 002. While partial summary judgment has been granted on liability, the issue of damages relating to all of the causes of action addressed herein is referred to the trial of this action. Moreover, any issues that were raised in those applications, but not specifically addressed herein, are hereby denied without prejudice. Finally, the Court notes that the Plaintiff has failed to establish the legal basis for her request for counsel fees. Generally, a party must pay his or her own attorney's fee unless an award is authorized by an agreement between the parties, or by statute. See Gray v. Hilltop Vil. Co-op. No. Three, Inc., 50 A.D.3d 739, 855 N.Y.S.2d 631 (2d Dept. 2008).
Counsel are hereby directed to exchange any outstanding discovery and to appear for a final compliance conference which shall be conducted virtually on March 2, 2021 at 3:00 PM via Microsoft Teams. Plaintiff's counsel is hereby directed to serve a copy of this Decision and Order on the Defendants.
1. JCP Part 8, Hon. Thomas P. Aliotta Presiding.
Catherine M. DiDomenico, J.
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Docket No: 151090/2018
Decided: January 05, 2021
Court: Supreme Court, Richmond County, New York.
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