Taxation & Estate Planning

M.D.Fla: What to do when your bank pays out trust funds to the wrong guy?

By Juan C. Antúnez

Fintak v. Wachovia Bank, N.A., Slip Copy, 2009 WL 413599 (M.D.Fla. Feb 18, 2009)

Say you have a trust that owns two CDs that together are worth a little over $200,000 and Wachovia pays them out to one of your three co-trustees . . . and he runs off with the loot. Now assume the bank wasn't supposed to pay those CDs unless at least two of the co-trustees signed off on the transaction. Oops!!

Most of us - whether we represent the bank or the trust - would intuitively know there's a lawsuit lurking around in there somewhere, but actually formulating that lawsuit (or predicting what the claims will be if you're playing defense) is how lawyers add value. Once you know what the claims will be, both sides can evaluate the risks of winning/losing and negotiate a settlement  before a lot of money, time and effort is poured into pre-trial motion practice.

And that's where the linked-to order comes into play: we now have a battle-tested road map for evaluating this type of case. The plaintiffs in this case sued Wachovia on the following three grounds:

• conversion (Count I),
• breach of contract (Count II), and
• negligence (Count III)

Wachovia sought to dismiss the conversion and negligence counts . . .  and lost. Here's why the court said the claims stood.

Conversion:

In Count I, the plaintiffs allege that Wachovia is liable for [Wachovia's] conversion of the trust's funds in violation of Section 673.4021, Florida Statutes. (Doc. 2, ¶ 13) The defendant argues that the conversion claim fails because no conversion action arises from a mere obligation to pay money and because the plaintiffs “fail to describe with particularity any identified, specific money.” (Doc. 7 at 3) The statute provides:

The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.

§ 673.4021, Fla. Stat . Under the Florida Commercial Code, a certificate of deposit is an “instrument.” See § 673.1041, Fla. Stat .

The plaintiffs allege that Wachovia converted the certificates of deposit by allowing Edmund Fintak to redeem the certificates without obtaining the signatures of two trustees. Construed most favorably to the plaintiffs, the allegations in the complaint establish that [Wachovia] permitted Edmund Fintak to redeem the certificates of deposit and that Edmund Fintak lacked the authority to receive payment without the signature of at least one more trustee. Accordingly, the motion to dismiss Count I is DENIED.

Negligence:

In Count III, the plaintiffs allege that [Wachovia] negligently failed to comply with the terms of the certification of trust. (Doc. 2, ¶¶ 22-29) Moving for dismissal of Count III, Wachovia argues that the economic loss rule bars the plaintiffs' negligence claim. However, the economic loss rule primarily applies “to limit actions in the product liability context.” See Moransais v. Heathman, 744 So.2d 973, 983 (Fla.1999); Ron's Quality Towing, Inc. v. Se. Bank of Fla., 765 So.2d 134, 136-37 (tort claims against bank not barred by the economic loss rule). Wachovia fails to show that the economic loss rule bars the plaintiffs' negligence claim. See Fed. Ins. Co. v. NCNB Nat'l Bank of N.C., 958 F.2d 1544, 1546 (11th Cir.1992) (applying Florida law and recognizing a negligence action against a bank for bank's failing to obtain two hand signatures before paying on corporate checks). Accordingly, Wachovia's motion to dismiss Count III is DENIED.

Full post as published by Florida Probate Litigation Blog on February 26, 2009 (boomark / email).