Mass. SC says bank can't be held liable for attorney's fraud

Jessica M. Karmasek Aug. 6, 2012, 11:15am


BOSTON (Legal Newsline) - The Massachusetts Supreme Court ruled last week that a bank cannot be found liable for a former Boston defense attorney's fraudulent taking of $5 million from a Hong Kong-based company.

In July 2000, plaintiff Go-Best Assets Limited wired $5 million to an account entitled "Morris M. Goldings client account" at Citizens Bank of Massachusetts, based on representations Goldings made at the time.

However, Goldings later admitted that the representations were false and that he had used the money to pay other debts.

Go-Best then filed a lawsuit against Citizens Bank, bringing claims of misrepresentation, conversion, aiding and abetting a fraud, aiding and abetting a breach of fiduciary duty, aiding and abetting a conversion, and negligence in its first amended verified complaint.

A superior court judge granted Citizens Bank's motion to dismiss the claims. A divided panel of the state Appeals Court reversed in part, vacating the dismissal of Go-Best's claims of negligence and of aiding and abetting.

On appeal, the state's high court granted Citizen Bank's application for review of the resurrected claims.

At issue is whether the bank can be found liable on the claims where it had no knowledge of Goldings' scheme to defraud Go-Best but failed to notify the Board of Bar Overseers of dishonored checks issued on the client account more than six months before Go-Best wired funds into that account.

In its July 30 opinion, the Court ruled that Citizens Bank may not be found liable and affirmed the dismissal of the claims.

Justice Ralph Gants said there is no evidence that the bank had actual knowledge of Goldings' intended or apparent misappropriation of Go-Best's funds in the lawyer's client account.

Therefore, the bank had no duty in tort to take reasonable steps to prevent the misappropriation, the justice explained.

"Without such actual knowledge, the bank's duty to notify the board of dishonored checks from 'trust accounts' arose only from its contractual duty, not from any duty in tort, so the bank could not be liable to Go-Best for any negligence in fulfilling that duty," Gants wrote, adding that the Court is "unwilling" to transform the bank's contractual duty owed to the board into a duty of care in tort owed to those whose funds are held in a "trust account."

He continued, "Citizens Bank's contractual duty arises from our regulation of the profession of law through the rules of professional conduct, because we forbid attorneys from maintaining 'trust accounts' in banks that have not executed a dishonored check notification agreement with the board."

The Court noted it requires attorneys to maintain "trust accounts" only at banks that have agreed to provide the overseeing board with notice of dishonored checks from those accounts because it recognizes that such checks, at a minimum, indicate there is a "significant risk" that an attorney is not properly safeguarding trust funds.

Notification, it explained, gives the board the opportunity to protect trust funds by making a "diligent inquiry" and, if necessary, taking the appropriate action.

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