Supreme Court, Richmond County, January 5, 2021

Chuhak & Tecson, P.C., New York City (Joshua S. Hyman of counsel), for J.P. Morgan Chase and Company, defendant.

Eric M. Gansberg, Staten Island, for plaintiff.

Tara A. Babstock, defendant pro se.

Most of the relevant facts are not in dispute. In the year 2000 the plaintiff, then seven years old, was involved in a trip and fall accident. As a result of that accident, she was awarded the gross sum of $35,000 in settlement, less fees and expenses. On or about December 20, 2004, this settlement was approved by the court^[FN1] by an infant compromise order. Pursuant to the terms of that order, the net sum of $22,207.60 was to be deposited in an interest-bearing account in defendant Tara Babstock's (mother's) name "as guardian to the credit of the said infant, subject to further order of this court." The infant compromise order also contained an express prohibition against withdrawals for any purpose, stating that "no withdrawals shall be made from said account or accounts before the infant reaches the age of 18 years, except upon further order of the Court" (infant compromise order at 2).

Defendant mother deposited $22,207.60 into a Staten Island branch of Chase bank as required by the order. At her deposition she testified that when she originally opened the account, she gave a copy of the order to the bank official (Oct. 14, 2019 tr at 8).^[FN2] The first account opened by mother was a 60-month certificate of deposit (CD). The official who testified on behalf of Chase bank at their deposition indicated that any order that was given to the bank would have been forwarded to the "document retention department." However, Chase's witness had no personal knowledge as to whether an order was given to the branch by mother or subsequently sent to the retention department. Chase's witness indicated that they had not contacted the retention department to inquire (Aug. 5, 2019 tr at 14-15).{**70 Misc 3d at 1100}

Approximately 8 to 10 years later mother received a notification from the bank that the CD had matured, and that the money would need to be deposited into a different account. Accordingly, mother went to the same Chase branch and transferred the money into a different account in her name. The exact nature of this second account is unclear. However, it is undisputed that over the course of the next few years mother repeatedly withdrew funds from the account without a court order authorizing her to do so. Mother testified that she withdrew "a couple thousand" for the plaintiff to attend her high school prom, and a few thousand more to purchase a car. Mother further testified that she believed that the infant compromise order allowed her to withdraw the money for her daughter's benefit, and moreover that unidentified bank officials told her that she was permitted to withdraw money from the account. The present action was commenced after the relationship between mother and daughter soured, and plaintiff discovered that there was only $1,200 left in the account and that she was not permitted to access it.

In support of its motion, defendant Chase argues that the bank does not have a fiduciary duty to either plaintiff or defendant mother. Moreover, it claims that plaintiff cannot prove damages as the account withdrawals were allegedly used for her benefit. Plaintiff, in opposition, argues that Chase had a duty to watch over the funds and see that they were not withdrawn in violation of the infant compromise order. As indicated above, defendant mother has taken no [*3]position on either motion, despite the fact that the plaintiff's cross motion also seeks summary judgment against her.

The proponent of a summary judgment motion has the initial burden of making a prima facie showing of entitlement to judgment as a matter of law by tendering sufficient evidence to eliminate any material issues of fact from the case. (See OTTY Cab Corp. v Nazir, 57 Misc 3d 158[A], 2017 NY Slip Op 51666[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2017].) Once a prima facie showing of entitlement to summary judgment has been established, the burden shifts to the non-moving party or parties to raise a material issue of fact. (See CAS Mktg. & Licensing Co. v Jay Franco & Sons, Inc., 188 AD3d 522 [1st Dept 2020].) When adjudicating a motion for summary judgment, the opposing party is entitled to an assumption that{**70 Misc 3d at 1101} all of the facts asserted on their behalf are true and the court is constrained to view those facts in a light most favorable to them. (See Matter of Gobes, 189 AD3d 1402 [2d Dept 2020]; see also Rubin v Napoli Bern Ripka Shkolnik, LLP, 179 AD3d 495 [1st Dept 2020].)

Defendant Chase's Motion

In support of its motion for summary judgment defendant Chase correctly states the general rule that financial banking institutions do not have a fiduciary relationship with the customers they serve. The legal relationship between a borrower or depositor and a bank is a contractual one, and does not create a fiduciary relationship. (See Nathan v J & I Enters., 212 AD2d 677 [2d Dept 1995]; see also Curtis-Shanley v Bank of Am., 109 AD3d 634 [2d Dept 2013].) However, a fiduciary duty can be formed when a customer places "special trust and confidence" in the bank. (See Manufacturers Hanover Trust Co. v Yanakas, 7 F3d 310 [2d Cir 1993].) A bank may also become liable if it has independent notice of bad faith or dishonesty and despite such notice it allows a misappropriation. (See Aetna Cas. & Sur. Co. v Lafayette Natl. Bank of Brooklyn in N. Y., 35 AD2d 137 [1st Dept 1970]; see also Cerrato v Crossland Sav. FSB, NYLJ, June 20, 1994 at 2, col 6, 1994 NYLJ LEXIS 9229 [Sup Ct, Suffolk County 1994].) In the absence of such notice, a bank has the right to assume that the custodian of an account will utilize the funds for their proper purpose. (See Brown v Flushing Fed. Sav. & Loan Assn., 112 AD2d 185 [2d Dept 1985].)

[1] Here, defendant mother testified that when she opened the initial account, she provided the bank with a copy of the infant compromise order. For the limited purposes of a summary judgment motion, the court must accept this fact as true. (See De Paris v Women's Natl. Republican Club, Inc., 148 AD3d 401 [1st Dept 2017].) While defendant mother could not recall if she produced a copy of the order when she opened the second account, the bank representative who testified at Chase's deposition indicated that any such order would normally be retained by a separate department, with which she had not communicated. So, there is a question of fact as to whether Chase was initially provided notice and whether it remained on notice, or constructive notice, when the second account was opened.{**70 Misc 3d at 1102}

"Liability may be imposed if a depository bank has actual knowledge or notice that a diversion will occur or is ongoing.[*4] Facts sufficient to cause a reasonably prudent person to suspect that trust funds are being misappropriated will trigger a duty of inquiry on the part of [the] depository bank." (Baron v Galasso, 83 AD3d 626, 628 [2d Dept 2011].)

Plaintiff argues that any reasonable inquiry might have revealed that any withdrawals were prohibited absent court order.

The clear terms of the infant compromise order indicate that no withdrawals could be made absent court order or until the plaintiff turned 18. Accordingly, Chase was given notice that no one could withdraw money from the account until one of those court mandated preconditions were met. The failure of a bank to comply with court mandated preconditions may be sufficient to impose liability. (See Siroty v Nelson, 75 NY2d 957 [1990]; see also Matter of Leftridge, 113 Misc 2d 689 [Sur Ct, Bronx County 1982].)

Despite the clear directives of this order, the bank allowed defendant mother to open an account from which she could make withdrawals. Moreover, it authorized a number of withdrawals without inquiring as to whether mother had a court order. As a financial institution, Chase is charged with the responsibility of safeguarding the interests of its depositors, and is therefore required to show that the circumstances surrounding the withdrawals were such as would not arouse the suspicion of its employees. (See Novak v Greater N.Y. Sav. Bank, 30 NY2d 136 [1972]; see also Holland v Greater N.Y. Sav. Bank, 222 AD2d 654 [2d Dept 1995].) Chase also had a duty to conduct itself with normal prudent care in allowing the withdrawal of the property to which the infant was entitled. (See Matter of Leftridge; see also Noah v Bowery Sav. Bank, 225 NY 284 [1919].) Here the plaintiff has raised a triable question of fact as to whether Chase met these obligations under the circumstances presented.

Finally, defendant Chase argues that the plaintiff's case against it must be dismissed because she suffered no damages. In support of this argument Chase adopts the deposition testimony of mother wherein she indicated that all of the funds were used for the plaintiff's behalf. However, plaintiff disagrees and indicates that she has no information as to where her money went. Moreover, how her money was spent is irrelevant{**70 Misc 3d at 1103} at this procedural juncture, as the infant compromise order prohibited any withdrawals absent court order, no matter the justification. While an evidentiary showing that all of the funds were used for the plaintiff's behalf might serve to mitigate damages at a trial, the conclusory allegation is insufficient to support a motion for summary judgment.

Accordingly, for the reasons set forth above, defendant Chase's motion for summary judgment dismissing those aspects of the plaintiff's verified complaint that allege a cause of action against it for improperly releasing funds is hereby denied.

Plaintiff's Cross Motion

In her notice of cross motion, plaintiff requests an order granting her summary judgment on both the issues of liability and damages against both defendant mother and defendant Chase. In regard to damages, plaintiff requests a money judgment in the amount of $38,467.15 plus counsel fees and expenses. Defendant Chase has opposed the plaintiff's cross motion in its entirety; however, defendant mother has failed to file opposition papers. Moreover, mother failed to offer oral opposition, or request an adjournment during the hearing of this motion.

Now, after consideration of the arguments set forth in the plaintiff's moving papers, and defendant Chase's opposition papers, the plaintiff's motion for summary judgment on the issue of liability against the bank is hereby denied. As set forth at length above, there are questions of fact as to whether defendant Chase had notice, or constructive notice of the infant compromise order when it opened each of the accounts, and as to whether it exercised normal prudent care in allowing the withdrawal of the property to which the infant was entitled in light of the terms of the order. There are also questions of fact regarding the damages sought, as defendant mother testified that every withdrawal was for the direct benefit of her daughter.

[2] However, in the absence of written opposition from mother, and after considering her deposition testimony, this court finds that there are no triable questions of fact regarding her liability for the unauthorized withdrawals. The record supports a finding that mother was aware of the terms of the infant compromise order but simply disregarded them, regardless of her intentions. Accordingly, plaintiff's motion for summary judgment against defendant mother on the issue of liability in regard to her first cause of action sounding in breach of fiduciary duty is hereby granted.

{**70 Misc 3d at 1104}[3] Plaintiff's motion for summary judgment on her second cause of action sounding in conversion is also granted. Conversion is the unauthorized exercise of the right of ownership over another's property to the exclusion of the owner's rights. (See Thyroff v Nationwide Mut. Ins. Co., 8 NY3d 283 [2007].) Where the property alleged to have been converted is money, it must be specifically identifiable and be subject to an obligation to be treated in a particular manner. (See Lemle v Lemle, 92 AD3d 494 [1st Dept 2012].) Thus, conversion occurs when funds designated for a particular purpose are used for an unauthorized purpose. (See Meese v Miller, 79 AD2d 237 [4th Dept 1981].) Here, it is uncontested that the personal injury settlement funds that were deposited into Chase bank were designated for the plaintiff to receive when she turned 18. However, those funds were used by mother in violation of the terms of the infant compromise order. Accordingly, she is liable for conversion.

While the plaintiff's motion seeking an order granting her summary judgment on her first and second causes of action has been granted, the same application is hereby denied without prejudice in relation to the third and fourth causes of action. Those causes of action, which seek damages for the commencement of an unrelated family offense petition that was settled between the parties years ago, are not discussed in the plaintiff's moving papers. Moreover, even a liberal reading of the plaintiff's summons and complaint fails to elucidate the legal basis for either of those causes of action.

This constitutes the decision and order of the court on all issues raised in relation to motion sequence numbers 001 and 002. While partial summary judgment has been granted on liability, the issue of damages relating to all of the causes of action addressed herein is referred to the trial of this action. Moreover, any issues that were raised in those applications, but not specifically addressed herein, are hereby denied without prejudice. Finally, the court notes that the plaintiff has failed to establish the legal basis for her request for counsel fees. Generally, a party must pay his or her own attorney's fee unless an award is authorized by an agreement [*6]between the parties, or by statute. (See Gray v Hilltop Vil. Coop. # Three, Inc., 50 AD3d 739 [2d Dept 2008].){**70 Misc 3d at 1105}

Counsel are hereby directed to exchange any outstanding discovery and to appear for a final compliance conference which shall be conducted virtually on March 2, 2021, at 3:00 p.m. via Microsoft Teams. Plaintiff's counsel is hereby directed to serve a copy of this decision and order on the defendants.