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Where Is My Money? Holding A Bank Liable For Misappropriation Of Funds Held In An Escrow Account By The Bank's Customer.

Have you been defrauded? Has your money invested in an escrow or trust account disappeared?

Who can you turn to for compensation: the individual bank customer who committed the fraudulent scheme or, the bank, whom allowed the fraudulent activity to occur?

There is good news for Florida victimswho have been defrauded through fraudulent schemes by a bank’s customer. You may be able to recover your losses from the bank, according to the recent case of Chang v. JP Morgan.

In Chang, the Eleventh Circuit recently ruled that a non-customer alleged sufficient facts to assert claims against a bank for negligence and aiding and abetting fraud when a bank’s customer engaged in fraud.

Although the Eleventh Circuit acknowledged Florida, like other jurisdictions, recognizes that as a general matter, “a bank does not owe a duty of care to a noncustomer with whom the bank has no direct relationship,” the court also stated that there is an exception to this rule: “a bank may be liable to a noncustomer for its customer's misappropriation when a fiduciary relationship exists between the customer and the noncustomer, the bank knows or ought to know of the fiduciary relationship, and the bank has actual knowledge of its customer's misappropriation.”

In Chang, the non-customer/investor alleged that the customer owed it a fiduciary duty; the bank, through its vice-president, was aware of this fiduciary relationship; and the bank, through its vice president, knew that customer was misappropriating funds held in escrow account into which non-customer/investor wired money. Further, the court held that under Florida law, the vice-president’s knowledge could be imputed to the bank because the interests of the vice-president were not entirely adverse to those of the bank, which gained some benefit from the vice-presidents conduct.

Further, the Eleventh Circuit stated that “[b]ecause banks do have a duty to safeguard trust funds deposited with them when confronted with clear evidence indicating that those funds are being mishandled, a bank’s inaction — that is, its failure to stop the theft of such trust funds — can constitute substantial assistance.” Thus, the court concluded that bank’s alleged inaction was sufficient to constitute the “substantial assistance” element for aiding and abetting fraud.

For more information about bank liability and how to protect your funds from misappropriation, call us to speak with our knowledgeable Florida business litigation attorneys at Rosenthal Law Group today.