Banks beware: At the very least in Florida, you may be liable for negligence and “aiding and abetting fraud” to non-customers for trust funds deposited by a bank customer that were obtained by the customer through fraud, according to a recent decision in JSI Chang v. JP Morgan Chase Bank, 11th Circuit, Case No. 15-13636 (Slip Op. November 8, 2016).
Introduction
|
The Eleventh Circuit recently ruled that a noncustomer alleged sufficient facts to assert state law negligence and fraud causes of action against a bank when a bank’s customer engaged in the fraud. The court held that “[b]ecause banks do have a duty to safeguard trust funds deposited with them when confronted with clear evidence indicating that those funds are being mishandled, a bank’s inaction — that is, its failure to stop the theft of such trust funds — can constitute substantial assistance,” which can give rise to a claim for “aiding and abetting fraud” against a bank. This decision did not rule upon the merits of the claim, but only held that a cause of action could be sustained. Here, after several pleading attempts, the plaintiff asserted sufficient facts to avoid dismissal of a negligence and “aiding and abetting” fraud claim. Of note, the plaintiff alleged that the bank employee had received improper payment for cooperation – a rare event in everyday banking. This case illustrates that bad facts sometimes force a court to apply broad legal principles to allow for a potential remedy of an actual harm to an innocent party.
Facts, Law, and Court AnalysisThe case stems from an alleged scheme where the bank’s customer stole $750,000 from a business investor. The investor alleged that the bank customer defrauded him through a scheme whereby funds were deposited into an escrow account at the bank. The bank customer allegedly set up a business for individuals to deposit money into the company’s escrow accounts with...
