PNC Not Bound By Fiduciary Duties to Trust Beneficiaries
Harry Kuskin 2008 Irrevocable Tr. By Dworkin v. PNC Fin. Grp., Inc., No. A-1937-21, 2023 WL 4693141 (N.J. Super. Ct. App. Div. July 24, 2023)
This case focuses mainly on a bank’s immunity under the Uniform Fiduciaries Law (“UFL”). N.J.S.A. § 3B:14-52 to -61.
Plaintiffs were the Harry Kuskin 2018 Irrevocable Trust (“HKIT”) and the Anna Kuskin 2018 Irrevocable Trust (“AKIT”) through their Trustees, Susan Dworkin (“Susan”), Richard Kuskin (“Richard”), and Susan, individually. They appealed summary judgment granted to defendants, PNC Financial Group, Inc., PNC Bank and PNC Wealth Management (collectively referred to herein as “PNC”) as well as the denial of plaintiffs’ motion for partial summary judgment.
The underlying facts are convoluted. In 2018, Richard established the HKIT and the AKIT for the benefit of his two children, Harry and Anna Kuskin, and naming Steven Dworkin (“Steven”), his brother-in-law, as trustee. The trusts granted Steven broad authority and management discretion, specifically authorizing him to borrow money and make loans. Further, the trusts provided that loans to any persons having an interest in the income or principal of the property held by the trustee may in the trustee’s discretion be made on whatever terms the trustee deems advisable. Id. at *5.
Pursuant to his authority under the trusts, Steven opened a deposit account for each trust with PNC and executed account agreements for personal checking, savings and money market accounts. These agreements, among other provisions, included the following language:
The Bank is authorized to follow the direction of your agent regarding your Account until it receives written notice that the agency or fiduciary relationship has been terminated and has had reasonable time to act upon the notice. We will not be liable to you in any way if your agent misapplies any of the funds from your account.
As authorized per the terms of the trusts, from July 2012 to July 2014 in his capacity as trustee, Steven made four withdrawals from each of the trusts deposit accounts for loans to Foreign Tire Sales (“FTS”), a company owned by Richard and the trusts. The loans totaled $5,700,000 and were mostly repaid with interest. Id. at *6. In April 2014 at Richard’s direction, Steven opened an investment management account with PNC for each trust and transferred approximately $5,500,000 from each of the trust’s deposit accounts into the investment management accounts. Almost immediately thereafter, Steven transferred $800,000 back to the deposit accounts, approximately $400,000 to each deposit account.
Around this same time, Steven approached PNC and requested a $2,500,000 line of credit using the assets of the trusts as collateral. Steven intended to use the line of credit for the benefit of Auto Toy Store (“ATS”), a company of which he was a partner. The trusts did not have an ownership interest in ATS. Id. at *7. PNC considered Steven’s request and investigated Steven, uncovering that he had a prior felony conviction (i.e., in 1990, Steven pled guilty to federal crimes involving inner-state transport of pharmaceuticals). Thus, PNC declined to review a formal loan application on Steven’s request. Upon this denial, Steven began transferring funds from the trust deposit accounts to ATS (also a PNC customer), withdrawing over $2,200,000 between April 2014 and June 2015. Some, but not all of the deposit tickets used to deposit these checks, into ATS’ account described the transaction as “loan.” From March through June 2015, Steven withdrew $961,000 via online transfers to ATS. In total, ATS repaid $1,165,000 to the trusts, leaving an outstanding balance of $1,111,000. Id. at *9.
Eleven days after Steven’s first withdrawal from the deposit accounts, PNC’s Anti-Money Laundering Compliance Manager discussed with other employees setting up surveillance on Steven and monthly review of his accounts. Id.
In February 2015 PNC met with Richard to discuss the investment management accounts and, according to Richard, PNC assured him that the accounts were in good shape and there was nothing to worry about. Richard alleged that PNC did not inform him that Steven had transferred funds from the investment management accounts to deposit accounts. Id. at *10.
In July 2015, Steven confessed to his wife Susan Dworkin that he had misappropriated money from the trusts. She informed Steven that she wanted a divorce. Steven resigned as trustee and Susan succeeded him as trustee of the trusts.
Plaintiffs then filed a complaint which they later amended against Steven and PNC, alleging negligence, breach of contract, aiding and abetting, and breach of fiduciary duty by PNC. Id. PNC filed an answer and cross-claim against Steven for contribution, common law indemnification and contractual indemnification.
Steven defaulted; both plaintiffs and PNC obtained default judgments against him. PNC also filed counterclaims and a third-party complaint against Susan, alleging she opportunistically secured benefits for herself personally by way of her marital settlement agreement with Steven, to the detriment of Steven’s creditors and the beneficiaries of the trusts.
After discovery, PNC moved for summary judgment and argued: it was immune from liability for Steven’s misconduct under the UFL; the parties’ relationship was governed by the account agreements; and there was no special relationship between the parties that established PNC’s duty to monitor the deposit accounts and disclose suspicious activity. Plaintiffs also moved for partial summary judgment.
The court entered granted PNC’s motion for summary judgment and denied plaintiffs’ motion for partial summary judgment.
The Appellate Division affirmed the trial court’s rulings in full.
Plaintiffs had argued that the trial court erred in dismissing their claims against PNC for negligence and breach of fiduciary duty because the trusts had a special relationship with PNC, giving rise to a duty PNC breached by failing to inform the trusts’ beneficiaries or Richard that Steven was transferring money belonging to the trusts to his personal and business accounts. The Appellate Division held that plaintiff had not identified any authority, either in case law or the parties’ contractual relationship, that imposed a duty on PNC to monitor the deposit accounts. “Being a bank customer alone, however does not create a fiduciary relationship requiring the bank to monitor the customers’ accounts and disclose suspicious activity.” Id. at *19.
Further, the court found that plaintiffs did not identify any contractual relationship that obligated PNC to monitor the deposit accounts and disclose specific activity. To the contrary, the parties’ relationship with respect to the deposit accounts was governed by the account agreement, which alleviated PNC of liability. Plaintiffs also failed to establish the existence of any special relationship between PNC and the plaintiffs. Additionally, the record did not support the conclusion that PNC and the trusts entered into either a confidential or fiduciary relationship. Id. at *20.
Plaintiffs also argued that the court erroneously dismissed their aiding and abetting fraud claim against PNC. The Appellate Division found that the trust agreements authorized Steven to loan trust funds on commercially reasonable terms and the record did not contain evidence that PNC was aware that Steven’s transfers to ATS were commercially unreasonable.
Finally, with respect to whether PNC qualified for UFL immunity, plaintiffs argued on appeal that the trial court’s grant of summary judgment was erroneous because: (1) there were numerous genuine issues of material fact that needed to be adjudicated; and (2) the court’s conclusion that PNC qualified for immunity was erroneous as a matter of law given PNC’s knowledge of Steven’s actions as to the accounts. The Appellate Division held that the UFL confers a limited immunity on a bank, unless the bank acts in bad faith or has actual knowledge of a fiduciary breach. Id. at *29-31. Here, the trusts authorized Steven to loan trust funds, and there was no evidence that PNC had actual knowledge of Steven’s fiduciary misconduct or acted in bad faith.