Consumer Finance Litigation

In Belle Meade Title & Escrow Corp. v. Fifth Third Bank, et al., No. 3:17-cv-874, ECF No. 26, --- WL ---- (M.D. Tenn. Oct. 17, 2017), a federal district court granted Regions Bank's motion to dismiss the claims against it, recognizing -- in a case of first impression -- that banks do not owe a duty of care to non-customers under Tennessee law.

The plaintiff, Belle Meade Title & Escrow Corporation, is a title company that claimed to be the victim of a fraudulent check-floating/wire-transfer scheme. The plaintiff had received a check for approximately $400,000, which was drawn on an account with the Royal Bank of Canada, from a client who purportedly was seeking assistance in closing a real estate transaction. The plaintiff agreed to assist the client and deposited the check in its escrow account with Fifth Third Bank. While most of the funds were to be used for the real estate transaction, the client requested plaintiff send a portion of the funds via wire transfer of $130,000 to a bank account held at Regions Bank. Plaintiff agreed to do so, but allegedly told Fifth Third Bank that the wire transfer was contingent upon the client's check first clearing at the Royal Bank of Canada. Plaintiff alleges that, before the check cleared, Fifth Third Bank initiated the wire transfer to the Regions Bank account and approximately $116,000 of the wire-transfer funds were withdrawn from the account.

When the Royal Bank of Canada subsequently dishonored the check as counterfeit, plaintiff brought suit against Fifth Third Bank and Regions Bank in an attempt to recover the $116,000 funds it claimed were "irretrievably lost." As to Regions Bank, Plaintiff asserted two claims against it regarding the apparent fraudulent check-floating/wire-transfer scheme: (1) "negligent hiring, training, monitoring and supervision"; and (2) "breach of customary practices of financial institutions" for purported violations of the federal Patriot Act, Bank Secrecy Act, Anti-Money Laundering Act, and "other federal regulations."

Regions Bank, who was represented by Burr & Forman LLP, promptly moved to dismiss plaintiff's claims, arguing that both claims against it failed as a matter of law because no duty exists between a bank and non-customers under Tennessee law, and that (in any event) plaintiff had not pled specific facts to support either of the two claims asserted against Regions. The district court agreed with Regions' motion to dismiss, finding plaintiff's allegations were "patently insufficient to state a claim against Regions Bank."

As to the negligent training claim, the Court first observed that any negligence-based claim would require proof of a duty of care to plaintiff. However, as Regions noted, courts across the country have widely agreed that banks only owe a duty of care to their customers. Thus, while there was no Tennessee case law directly on point, the Court agreed that Tennessee courts "would conclude that banks do not owe a duty of care to non-customers." For this reason, the Court held that plaintiff's negligent training claim failed as a matter of law. Additionally, the Court further agreed with Regions that, even if a legal duty existed, the plaintiff had failed to alleges sufficient facts to show a breach of such a duty, because there was no allegation that any Regions employee knew or should have known of any irregularity in the wire transfer or that Regions mishandled the wire transfer, much less that any carelessness was due to inadequate training or monitoring by Regions.

With respect to the "breach of customary practices of financial institutions" claim, the Court agreed with Regions that the various federal statutes upon which plaintiff relied do not create a private right of action. And, because the statutes did not create a private right of action, the Court also concluded that they "do not create a common law duty on the part of banks to non-customers." Finally, the Court also agreed with Regions that, even if such a duty existed, plaintiff's complaint failed to explain exactly what duty Regions owed, which customary practice it failed to follow, or how it breached this duty and customary practice. Because both claims failed as a matter of law, the Court granted Regions' motion to dismiss with prejudice and entered judgment in Regions' favor.

This decision provides an important limitation on potential liability for banks and financial institutions under Tennessee law. As noted by the Fourth Circuit in a similar case, "to extend a duty of care to strangers like [plaintiff] would be contrary to the normal understanding of the purpose of a bank account and would expose banks to unlimited liability for unforeseeable frauds." Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220, 226-27 (4^th Cir. 2002) (discussing policy reasons for rejecting a duty between banks and non-customers). Thus, the decision in Belle Meade Title & Escrow Corp. provides much-needed support to banks and financial institutions under Tennessee law in defending against potential claims brought by non-customers.

Federal District Court: Banks Do Not Owe a Duty of Care to Non-Customers Under Tennessee Law written by Zachary Miller and Chris Suedekum.