Header graphic for print
6th Circuit Appellate Blog Tagline

Sixth Circuit Rejects Effort to Hold Bank Liable For Fiduciary’s Fraud

Posted in Recent Cases

In Estate of William R. Barney, Jr. v. PNC Bank, the Court framed the issue as “whether Ohio law permits a principal to hold a bank liable for money that the principal entrusted a fiduciary to deposit at the bank in which the fiduciary then withdrew, without the principal’s permission, and squandered.”  Answering that question in the negative, the Court upheld the dismissal of the complaint against the bank related to the fiduciary’s absconding with $1.2 million of trust assets.  The defrauding party opened a checking account at the bank as executor of an estate and deposited substantial sums of money into that account.  Unfortunately for the plaintiffs, he then withdrew about $1.2 million of it and deposited it in accounts for his own personal business, which ultimately failed.

The plaintiffs raised a variety of negligence-based theories, but the bank moved to dismiss based on Ohio’s Uniform Fiduciaries Act.  The act provides that if a check is drawn on the principal’s account by a fiduciary who is empowered to do so, the bank may pay the check without being liable except under a couple of narrow exceptions.  Because the complaint alleged that the individual did in fact possess authority to withdraw money from the accounts, it effectively insulated the bank from liability.  As the Court recognized, the effect of this statutory section “is to assign the risk that a fiduciary might defraud a principal to the principal instead of to a third party (like a bank).”  The bank thus had no duty to monitor the use of funds and detect the wrongdoing unless there was some basis for the bank to have actual knowledge of the breach of fiduciary duty.

While this opinion is premised on Ohio law, because the statute in question is part of the Uniform Act, it may well have broader repercussions.  The Court’s opinion also provides a good overview of pleading requirements in this area which will be important to understand both for plaintiffs and defendants in these types of cases.