Monday, July 30, 2012

Bank Not Liable For Attorney's Misappropriation

In a case where an attorney had allegedly misappropriated $5 million wired to his trust account by a client, the Massachusetts Supreme Judicial Court affirmed the dismissal of a negligence action brought by the client against the attorney's bank:

When we promulgated Mass. R. Prof. C. 1.15(h), we intended that the protection of trust funds be accomplished by the board through its disciplinary process, not by the beneficiaries of trust funds through a new remedy in tort. See Binns v. Board of Bar Overseers, 369 Mass. 975, 976 (1976) ("The board was established by this court ... acting in accordance with its power to supervise the conduct of attorneys, and the board exists as the disciplinary arm of this court"). The agreement mandated by the rule requires a bank to provide notice of dishonored instruments to the board, and does not establish any procedure to ensure that notice be provided to an attorney's clients whose funds are held in an attorney's "trust account." See Mass. R. Prof. C. 1.15(h). Because the board and bar counsel are generally required to keep confidential all information regarding allegations of misconduct by an attorney, they may give such notice to the beneficiaries of trust funds only where notice is necessary "to protect the public, the administration of justice, or the legal profession." S.J.C. Rule 4:01, ยง 20(2)(d), as amended, 438 Mass. 1301 (2002). [FN11] See Rule 3.22(a) of the Rules of the Board of Bar Overseers (2012). In addition, although we provide in Mass. R. Prof. C. 1.15(h)(5) that an attorney is "conclusively deemed to have consented to the reporting and production requirements mandated by [Mass. R. Prof. C. 1.15(h) ]," notice to trust beneficiaries would fall outside the scope of this consent because such notice is not mandated by the rule.

Although clients may benefit from board discipline or from bar counsel's investigation, we do not give clients standing to bring formal charges against an attorney; only bar counsel may recommend that formal charges be instituted and only the board may do so. Rule 2.7(3) of the Rules of the Board of Bar Overseers (2012). See Gorbatova v. Semuels, 462 Mass. 1012, 1012 (2012) ( "there is no private right to commence a court action to seek disciplinary action against an attorney"); Slotnick v. Pike, 374 Mass. 822, 822 (1977) ( "it is the Board of Bar Overseers and not private individuals, which is ordinarily responsible for prosecuting complaints against attorneys"). Similarly, if a bank commits a breach of its agreement with the board to provide notice of dishonored checks, the board has standing to seek a remedy in contract for that breach; we will not give a trust beneficiary a separate remedy in tort by making the contractual obligation owed to the board a duty of care owed to the trust beneficiary. [FN12]

Even if a bank's duty to notify the board of dishonored checks were required by statute rather than by a contract mandated by our rule, such a statutory duty would not create a duty of care in tort in the absence of legislative intent to create a private right of action. See Juliano v. Simpson, 461 Mass. 527, 531-532 (2012). "A duty of care must already exist before a plaintiff can use a defendant's statutory violation to support a claim of tort liability." Id. at 532. See Bennett v. Eagle Brook Country Store, Inc., 408 Mass. 355, 358 (1990) (where statute does not provide private right of action, "[a]ny liability on the defendant's part" for violation of statute "must be grounded in the common law of negligence").

We conclude that, because there is no evidence that Citizens Bank had actual knowledge of [attorney] Goldings's intended or apparent misappropriation of Go-Best's funds in Goldings's client account, the bank had no duty in tort to take reasonable steps to prevent the misappropriation. 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.

The case is Go-Best Assets LTD v. Citizens Bank of Massachusetts, decided today. (Mike Frisch)

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