Kaplan v. Valley Natl. Bank, Index No. 611107/05, 07/20/2016 (Elizabeth H. Emerson, J.)

Life Estate; Trusts; Trustees; Duties of the Trustee; UCC §3-419; Negligence; Malpractice

By: Christopher Atlee F. Arcitio | Editor-in-Chief

Plaintiff Bruce Kaplan (“Plaintiff”) is a trustee and son of Marilyn Kaplan, who executed a will that created two trusts to her husband, Donald Kaplan, upon her death. The first trust consisted of interest in a home in the form of a life estate (the “Jericho property”). The second trust consisted of $250,000 in cash and securities in trust (the “Family Part Sum”). In her will, Marilyn named three trustees: her husband, Donald, and two sons, Daniel and Plaintiff. Marilyn died shortly thereafter.

Later, the Family Part Sum’s principal neared depletion. The trustees then sold the Jericho Property and used the proceeds to purchase a home. The trustees sold the home at a later time. Using the proceeds from the second home, the trustees purchased a two-thirds interest in another home (the “Altessa Property”), with the remaining one-third interest belonging to Donald’s second wife. Without Plaintiff’s involvement as a trustee, Donald and Daniel sold the Altessa Property, dividing the proceeds to satisfy the existing mortgage, to the Family Part Sum, and to the wife’s estate. Donald and Daniel then deposited the trust proceeds (“the House Trust”) in Defendant Valley National Bank, without making Plaintiff a signatory or disclosing that Plaintiff was a beneficiary and trustee of the Family Part Sum.

Plaintiff commenced an action against Defendants Valley National Bank; underwriter Fidelity National Title Insurance Company; and the law firm of Bodian and Bodian, who represented the sellers of the Altessa property. Plaintiff alleged four causes of action: (1) conversion under UCC § 3-419 when Defendant-bank accepted the check proceeds without an endorsement; (2) for negligence on the basis that Defendant-bank opened an account on Donald and Bruce’s representations; (3) for money had and received against Defendant-bank; (4) malpractice against Defendant-law firm for culminating an undisclosed sale of the Altessa property and diversion of the proceeds of the sale. Defendants moved to dismiss all claims.

The Court granted Defendants’ motion to dismiss. First, the Court found that Defendant-bank was not liable for conversion based upon a forged indorsement under UCC § 3-419. Liability for depositary and collective banks under UCC § 3-419 is limited to the true owner, who has possession of the instrument. Here, the check from the House Trust was payable to the trust under Marilyn’s will, not the Plaintiff, individually. Consequently, Plaintiff as an individual bore no standing to sue Defendant-bank under UCC § 3-419. Second, the Court found that Defendant-bank was not liable under the theory of negligence. Typically, depository banks have no duty to monitor fiduciary accounts and may safely assume that a fiduciary will act in accordance with its proper purposes. Here, the responsibility to ensure the signing authority on the trust account was consistent with the trust agreement lied with the trust and trustees, not Defendant-bank. Third, the Court found that Defendant-bank was not liable for money had and received. Depository and collecting banks are liable only if they pay out over a restrictive endorsement, actually retain the proceeds, or fail to act in accordance with reasonable commercial standards. Here, neither of the situations applied and, on the contrary, Defendant-bank acted in accordance with reasonable commercial standards by supplying the missing endorsement by stamping the back of a check. Fourth, the Court dismissed the malpractice claim because Plaintiff could not establish the existence of an attorney-client relationship. To establish an attorney-client relationship, a party must prove an attorney was aware that his or her services were being used for a specific purpose. Here, the will gave a majority of the trustees the power to sell real property. As a result, two of the three trustees, Donald and Daniel, properly exercised the power when they sold the House Trust’s two-thirds share of the Altessa property. Therefore, Plaintiff cannot commence an action on the House Trust’s behalf without the other trustees.

Kaplan v. Valley Natl. Bank, Index No. 611107/05, 07/20/2016 (Elizabeth H. Emerson, J.).

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