Monday, April 28, 2008
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Court of Appeal Rejects Lawyer’s Claim Against Bank Over Fraud
Embezzling Employee, Not Lawyer, Was ‘Customer’ to Whom Financial Institution Owed Duty, Justices Say
By SHERRI M. OKAMOTO, Staff Writer
A bank did not owe a duty of due care to an employer whose employee forged the employer’s signature, opened bank accounts and drew on those accounts without the employer’s knowledge, the Court of Appeal for this district held Thursday.
Div. One found that Los Angeles Superior Court Judge Paul Gutman properly sustained a bank’s demurrer to an employer’s cross-complaint against it because the employer had no contractual relationship with the bank, reasoning that it was the employee who was the bank’s customer, not the employer.
Two former clients filed suit against Los Angeles attorney Stephen A. Rodriguez and his law firm, Rodriguez & Rodriguez, alleging that the law firm had failed to place monies paid to the firm in a client trust account, but had converted the money for the firm’s own use. Rodriguez later discovered that the law firm’s former office manager, Evelyn Oberhuber had misappropriated the money.
Rodriguez alleged that Oberhuber had opened bank accounts in his name at Bank of the West and Union Bank without his knowledge or approval, and that she had forged his name on several checks drawn from the accounts. The attorney cross-complained against his former office manager and the banks.
As to the banks’ liability, Rodriguez alleged that the banks were negligent “as a matter of public policy” for failing to use due care to him as a “putative” customer in allowing a third-party to make him an “involuntary customer” of the banks. He further alleged that the banks had violated industry standards and the banks’ own policies in permitting Oberhuber to open the accounts without his signature or consent.
Duty of Care
Writing for the appellate court, Justice Miriam A. Vogel concluded that a bank’s duty to act with reasonable care in its transactions arises from the bank’s contract with its customer. Because Rodriguez allegedly did not consent to the creation of the accounts and claimed he did not know of their existence until after Oberhuber’s wrongful acts were completed, Vogel reasoned, he could not claim a contractual relationship with the banks.
She wrote:
“At its core, this is a case of identity theft” which was ‘substantively indistinguishable’ from Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4th 472, which involved an action against a bank where a financial consultant had opened brokerage accounts in the name of a fictitious partnership using money from a client. In affirming the trial court’s opinion sustaining the banks demurrer, the Software Design court ruled that the banks did not owe any duty to the victim of a client’s fraudulent acts.
Justice Frances Rothschild and Los Angeles Superior Court Judge Frank Y. Jackson, sitting by assignment, joined Vogel in her opinion.
Rodriguez could not be reached for comment.
Policies Allegedly Violated
John A. Girardi of Girardi & Keese, who represented Rodriguez in the civil action, said his client was “terribly taken advantage of” and explained:
“We tried to make the point that the bank had certain internal policies for opening an account, which had they been followed, would have led to this situation being avoided completely.”
However, he said this argument was “secondary” for the court, and the court’s main focus was on the banks obligations when there was an unanticipated criminal act and the ramifications of the third party’s actions. He said he was not sure yet if this client would appeal the court’s decision.
James T. Reed Jr., of Hood & Reed, who represented the banks, said the court’s decision was “certainly not a change in the law,” but was “pretty narrowly limited to the facts of this case.”
He added that implicit in the court’s decision was the conclusion that employers are in a “better position to monitor their employees” than the banks to guard against identity theft and fraud.
The case is Rodriguez v. Bank of the West, 08 S.O.S. 2407.
Copyright 2008, Metropolitan News Company