Alas, National Banks Have Virtually No Fiduciary Duties To Depositors And Are Almost Impossible To Sue

I’ve sued several multinational banks for breaches of fiduciary duty and breaches of contract, and have always been amazed their lack of any accountability or responsibility. It’s not just a handful of instances of banks selling a company’s loan to their competitor and bank lawyers lying to federal regulators. They live in a different world from you and I.

In one of my cases, a bank fired a financial adviser because he was covering his gambling losses by stealing from clients. All well and good, until the bank covered up the whole mess and didn’t tell any of his clients about it. The thief left, opened up his own office, took a bunch of those same clients with him and continued all of his same old hijinks. When we sued, the bank blamed my clients for trusting the guy.

In another, the bank downright stole my client’s money — it was in the account one minute, then gone the next, because the bank wanted to cover its losses on a bad investment. The bank and their lawyers never once acknowledged, not even implicitly, that they did anything wrong. They blamed my clients for the “misunderstanding.”

So it wasn’t any surprise to see, via Barry Barnett, Fisher & Mandell LLP v. Citibank, N.A., No. 10-2155-cv, slip op. at 15 (2d Cir. Feb. 3, 2011), in which the Second Circuit affirmed dismissal of a lawyer’s negligence and breach of contract case against Citibank.

The case arose from a scam that lands in my inbox about once a week. Some overseas corporation asks for representation, typically by claiming they need my help to collect a six-figure debt from a customer. I’ve never responded to any of those e-mails, but apparently some lawyers do, and the scam works by the “client” sending a large check to the attorney and then immediately demanding some large portion of it be transferred out again.

The initial check is, of course, fraudulent and counterfeit, and the scam is supposed to work by fooling the attorney into sending a check out before the fraudulent check has bounced. Lawyers are supposed to protect themselves from this by waiting for the initial check to clear the bank before sending out the second transfer, which is apparently what the target in this case did.

Joke was on them: when Citibank claimed that the funds were “available,” they weren’t really. But even that wasn’t enough to make the fraud work. Even though the lawyer’s trust account was empty except for the not-really-available funds, Citibank had a way of fixing that:

That afternoon, the Federal Reserve Bank returned the Check as dishonored and unpaid. A Citibank representative telephoned F&M to advise that the Check was counterfeit and had been dishonored. Citibank charged back to the trust account the amount of the Check and a $10 returned check fee, resulting in an overdraft. Citibank then debited an amount necessary to satisfy the overdraft from a money market account F&M maintained at Citibank.

Got that? Citibank raided one of his the law firm’s own accounts to make the outbound check from its trust account clear.

But all of that is tucked into Citibank’s customer agreement. They can say funds are “available” even when they aren’t, and can raid your personal accounts to satisfy checks made from your lawyer’s trust account.

As Eric Turkewitz quotes another attorney, Stephen Chawkin:

When I was taking my commercial paper course in law school 8,000 years ago, the teacher – who was a good guy and nobody’s fool – said that the underlying principle that trumped all other is simply this: “the bank wins”. Everything else is a corollary, an elaboration, a commentary, or (once in a blue moon) an exception to this.

Pretty much the truth, although there are exceptions, since I’ve cashed checks from banks settling these cases.

Or at least I think I did, the funds just said “available.”

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  • Gene Boyce

    Check out the change as Wachovia Bank moves into and becomes part of Wells Fargo Bank.
    The Wachovia “Customer Disclosure” statement says: “You hereby appoint us as your attorney-in-fact.” I say this establishes a fiduciary relationship.
    The new Wells Fargo “Disclosure” document says the “relationship is that of debtor and creditor.” Which appears clearly arms-length with no duty of being “open, fair and honest.”
    This from one who has control of my money, who collects and spends it on my behalf and on its terms, chooses third parties to whom my money is entrusted, who can change terms of compensation without approval or negotiation, etc., etc.
    The public has no idea they are allowing their assets to be handled like the arrangement is akin to used car salesman and used car shopper.
    I sued Wachovia on fiduciary grounds 2009 and 2010. See Forbes Magazine, January 2010.