Appellate Court Finds Financial Institutions Do Not Owe A Legal Duty To Non-Customers

Wolens v. Morgan Stanley Smith Barney, LLC, 155 A.3d 1 (N.J. Super. Ct. App. Div. Feb. 21, 2017).

Plaintiff Kathleen Wolens (“Wolens”) appealed a trial court order granting summary judgment and dismissing her complaint against her deceased mother’s former investment company — Morgan Stanley Smith Barney, LLC (“Morgan Stanley”) — and its account manager, co-defendant William Gibson (“Gibson”).  Essentially, Wolens argued that defendants acted negligently and improperly in carrying out a written request to have her mother’s investments changed from accounts solely in her name to joint accounts.

Wolens had two sisters:  Deirdre Mistri and Carol Alexander.  Their mother, Patricia Hardy Johnson, maintained several investment accounts with Citibank that were managed by Morgan Stanley.  Gibson was the individual manager on those accounts.  On February 8, 2008, Gibson received a one-page typewritten letter signed by “Patricia Johnson” that read as follows:  “Please take my individual accounts [account numbers omitted], and make them a joint [sic] with my daughter Deirdre I. Mistri[.]  Thank you.”  Thus, defendants converted Johnson’s two Citibank accounts as requested to joint accounts with Patricia Johnson and Deirdre Mistri.  Consequently, upon Patricia Johnson’s death in May 2008, Deirdre Mistri had the right of survivorship in the funds.  Id. at *3.

Upon her mother’s death, Wolens sued both her sisters in a probate action in the Chancery Division.  After discovery, defendants in the probate case moved for summary judgment.  The Chancery Judge, Honorable Walter Koprowski, Jr., issued a lengthy written opinion, granting summary judgment on certain issues and denying summary judgment on other issues.  Subsequently, the litigation was settled, and Wolens received approximately $450,000 from her sisters.  Id. at *3-4.

Wolens then filed a lawsuit in the Law Division against both Morgan Stanley and Gibson, claiming that the defendants owed a duty to her even though she was not a customer of the financial institution.  She alleged that the defendants acted negligently in allowing the account to be changed without adhering to the protocol prescribed by Morgan Stanley’s internal policies and procedures.  Wolens alleged that the two Citibank accounts totaling approximately $847,162 had been improperly converted to joint accounts based solely on the February 3, 2008, letter addressed to Gibson.  The authenticity of that letter, according to Wolens, was questionable, and she argued it did not explicitly state that a right of survivorship would be conveyed to her sister – Deirdre Mistri.  Id. at *4.

Further, Wolens’s argument as to Morgan Stanley deviating from their internal policies and procedures was based solely on Gibson’s testimony during his deposition.  Gibson had testified that it was Morgan Stanley’s usual protocol, when a customer asks to create a joint account, to contact the parties to get additional information if needed and obtain the signatures of both parties on a new account agreement, which the parties send back to Morgan Stanley.  Gibson did not have a recollection as to whether such an agreement was signed by the parties in this matter.  Id. at. *5.

In presenting her case, Wolens did not provide a report from a financial expert supporting her allegations of negligence and breach of duty.  She did not identify any federal or state statute, regulation, or other codified provision, nor any written industry guideline that was breached.  Instead, her entire assertion rested on the fact that Morgan Stanley deviated from its own internal policies and procedures.

In granting summary judgment to defendants, the trial court determined that Wolens had not established a viable legal basis for her claims.  In addition, the trial court determined that she could not establish a legal requirement of proximate cause for her alleged damages.  Regardless of whether Morgan Stanley adhered to its internal policies, the accounts would have been changed, and the probate litigation would have followed.  As the trial court observed, presumably the alleged undue influence exerted by Deirdre Mistri would have been just as effective to persuade her mother to sign a new account agreement as it would have been for her to sign a letter to Gibson.

The Appellate Division, in an opinion delivered by Judge Sabatino, affirmed the trial court’s decision.  The Appellate Division opined:

As a general proposition, the case law in our state has not recognized that a financial institution owes legal duty to injured third parties who are not their customers unless a statute, regulation or other codified provision imposed such a duty, or where a contractual or ‘special relationship’ has been established between the non-customer third party and the financial institution.

The Appellate Division found no contractual relationship between Wolens and the defendants who managed her mother’s investment accounts.  Defendants had no written or oral agreements with Wolens — a non-customer.  Indeed, there was no proof in the record that defendants even knew her identity before her mother’s death.  Furthermore, the Appellate Division found that both parties’ counsel represented that their research had identified no federal or state statute, regulation, or codified provision that imposes such a duty owed to a non-customer in these circumstances.  Wolens relied exclusively on Morgan Stanley’s own internal procedures (which may not have been strictly followed here); however, such a proven departure from a company’s internal guidelines is immaterial if there is no contractual or special relationship established that could support a legal duty to a non-customer in a cause of action for negligence or breach.  Id. at *13-14.

The Appellate Division “declined to alter the course of established precedent by recognizing a novel duty in this case …. Such a duty arguably might impose undue burdens on financial institutions, and invite meddlesome interference with the relationships between investors and those who manage their accounts.”  Id. at *14.