SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: IAS PART 3
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G & G DiPOL USA, INC.,
Plaintiff,
Index No. 123839/97
Sequence No. 001
-against-
CITIBANK, N.A.,
Defendant.
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Barry A. Cozier, J.:
This is an action for negligence, wrongful dishonor of certain checks and for punitive damages by plaintiff G & G DiPol USA, Inc. ("G & G") arising out of the payment by defendant Citibank, N.A. ("Citibank") of allegedly forged withdrawal slips and Citibank’s freezing of G & G’s checking account. Citibank moves, pursuant to CPLR 3211(a)(7), for an order dismissing the second and fourth causes of action in the complaint on the grounds that they fail to state a cause of action.
FACTUAL ALLEGATIONS
According to the complaint, sometime prior to 1997, G & G established a checking account with a Citibank branch located in Spring Valley, New York. Two individuals, Naum Polur and Gennady Polur, were designated by G & G as the authorized signatories on the account. Citibank issued Automatic Teller cards to both individuals with a daily ATM cash limit of $1,000.
Plaintiff alleges that sometime prior to May 9, 1997, an unknown and unauthorized individual obtained a replacement ATM card in Naum Polur’s name from a Citibank branch in Brooklyn, New York. Naum Polur claims to have been outside the United States at that time and with the original card in his possession. On various dates between May 9, 1997 and May 15, 1997, at various Citibank locations, Citibank delivered a total of $60,000 in cash upon presentment of forged withdrawal slips drawn on G & G’s checking account. G & G seeks the return of the $60,000 as well as punitive damages of $5,000,000 and consequential damages of $300,000.
DISCUSSION
The second cause of action alleges that Citibank was grossly negligent in allowing $60,000 to be fraudulently withdrawn from G & G’s checking account and in failing to establish systems and procedures to prevent such allegedly fraudulent transactions. This cause of action seeks the return of the $60,000, as well as $5,000,000 in punitive damages.
Citibank argues that the second cause of action should be dismissed
because G & G has not alleged the existence of any duty independent of the contractual relationship between the parties which was established when G & G opened its account. See,New York University v. Continental Insurance Co., 87 N.Y.2d 308 (1995). However, the Court of Appeals has noted that a defendant "may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations." Id. at 316. "The very nature of a contractual obligation, and the public interest in seeing it performed with reasonable care, may give rise to a duty of reasonable care in performance of the contractobligations, and the breach of that independent duty will give rise to a tort claim." Id., citingSommer v. Federal Signal Corp., 79 N.Y.2d 540 (1992). Moreover, it is well established that under both common law and under UCC 4-103, a bank has a duty to exercise due care and diligence, i.e. ordinary or reasonable care, in protecting its customer's funds. Holland v. Greater New York Savings Bank, 222 A.D.2d 654 (2d Dept. 1995). In the instant case, the complaint sufficiently alleges the existence of such a duty and the breach of that duty by Citibank. Therefore, the Court finds that this portion of the second cause of action is sufficiently pleaded.
Citibank also argues that punitive damages are not warranted under the circumstances alleged in the second cause of action. It is well settled that "[p]unitive damages are available only in those limited circumstances where it is necessary to deter defendant and others like it from engaging in conduct that may be characterized as ‘gross’ and ‘morally reprehensible,’ and of 'such wanton dishonesty as to imply a criminal indifference to civil obligations’". New York University v. Continental Insurance Co., supra, at 315-316; seeRocanova v. Equitable Life Assurance Society of the United States, 83 N.Y.2d 603 (1994); Walker v. Sheldon, 10 N.Y.2d 401 (1961). The second cause of action does not allege any facts which, taken as true for the purposes of this motion, would suggest that Citibank’s conduct was morally reprehensible or implied a criminal indifference to civil obligations. Therefore, the motion to dismiss the second cause of action is granted to the extent of dismissing the claim for punitive damages.
G & G’s fourth cause of action alleges that Citibank wrongfully froze G & G’s account from May 20, 1997 until June 3, 1997, depriving G & G of the use of $12,000 in the account. It also alleges that Citibank refused to credit G & G’s account for the $60,000 which was fraudulently withdrawn, thus depriving G & G of the use of that money as well. This causeof action seeks consequential damages of $300,000 as well as punitive damages of $5,000,000. Citibank argues that the fourth cause of action must be dismissed because the bank-depositor relationship does not give rise to any duty outside the contractual relationship between the parties. However, as noted above, a bank has a duty to exercise due care and diligence, i.e. ordinary or reasonable care, in protecting its customer's funds. Holland v. Greater New York Savings Bank, supra. Therefore, because the fourth cause of action sufficiently pleads the existence of such a duty and the breach of that duty, the motion to dismiss that portion of the fourth cause of action is denied.
Citibank also argues that G & G cannot recover consequential damages. Citibank relies on UCC § 4-103(5), which provides that, absent a demonstration of bad faith, the measure of damages for failure to exercise ordinary care in handling an item is the amount of the item reduced by the amount which could not have been realized by the use of ordinary care. UCC § 4-103; Wilhelm Foods, Inc., v. National Bank of North America, 388 F.Supp. 1376 (S.D.N.Y. 1974). Consequently, plaintiff’s claim for consequential damages must be dismissed.
Citibank also argues that punitive damages are not warranted under the fourth
cause of action. The Court finds that, as with the second cause of action, the fourth cause of action does not allege any facts which would support a finding that Citibank’s conduct was morally reprehensible or implied a criminal indifference to civil obligations. SeeNew York University v. Continental Insurance Co., supra. Therefore, the portion of the fourth cause of action which seeks punitive damages is dismissed.
Accordingly, it is
ORDERED that the motion to dismiss the second and fourth causes of action is
granted only to the extent that the claims for punitive damages and consequential damages are dismissed and the motion is otherwise denied; and it is further
ORDERED that the parties shall appear before the Court in Part 3 (Room 218) on March 2, 1999 at 11:00 a.m. for purposes of a preliminary conference.
This constitutes the decision and order of the Court.
Dated: January 25, 1999
ENTER:
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J.S.C.