Protective Orders usually list those persons who can view documents that are designated "confidential": like counsel of record and their staff, designated business representatives of the client, court reporters, and experts.

Sometimes information can be so sensitive that the producing party doesn’t want to share it with an expert.  A well-designed Protective Order can deal with that type of concern.  That was the case in this  week’s Order in SCR-Tech LLC v. Evonik Energy Services LLC, 2012 NCBC 43.  The issue was whether an expert designated by the Plaintiff should be allowed to see the confidential material produced by the Defendants under the terms of the Protective Order agreed to by the parties.

The Protective Order said that the party producing confidential information could object to it being seen by an expert "with current or prior employment within the industry in which the parties compete."

The Defendants objected to an expert named Staudt, who Defendants said "actively consulted for its competitors," being allowed to see the confidential material they had produced,   Plaintiff disagreed, and took the dispute to Judge Gale for resolution.

The Judge first concluded that the term "industry" as used in the Protective Order was "the broader SCR industry in which both parties operate and in which the expert was involved.  ("SCR" stands for "selective catalyst reduction," which is "a chemical process by which harmful nitrogen oxide contained in coal-burning power plants’ exhaust gas is converted into harmless nitrogen gas and water.")

The next step for the Business Court was to decide how to balance the risk to the Defendants of producing sensitive confidential information to an expert "with prior or ongoing involvement with [the Defendants’] competitors."  Op. 15.

North Carolina’s courts hadn’t addressed this issue yet, so Judge Gale looked to federal decisions for guidance.  The leading case is apparently Digital Equip. Co. v. MicroTech, Inc., 142 F.R.D. 488 (D. Colo. 1992).  It lays out five factors for consideration:

(1) the expert’s affiliation with the receiving party;

(2) the extent of regular employment, consultation, or association with the receiving party;

(3) present involvement in the receiving party’s competitive decisions;

(4) the potential for future involvement of the expert in the receiving party’s competitive decisions; and

(5) if the expert’s involvement is deemed beyond the point of independent, the expert’s willingness to curtail or forego future involvement with the receiving party.

The past work done by Staudt for the Plaintiff did not give the Court much pause under the first two factors, as it was more than five years ago.   But Judge Gale was concerned more about Staudt’s work for the Defendants’ other competitors.  He said there was not enough information in the record on that point for him to make a decision, and he ordered the Plaintiff to supplement the record on Staudt’s "independence" from those competitors, using the Digital factors.

Judge Gale also indicated that he might require Staudt to agree that he would not do future "non-litigation" consulting work with the Plaintiff related to the services at issue in the lawsuit.  He said that "[s]uch a covenant would eliminate concerns relating to the fourth and final Digital factors of future involvement with the receiving party."  Op. 22.

The SCR-Tech Order is a good illustration of the concerns that experts may present in a case between competitors.  Tailor your Protective Orders carefully in those types of cases.

 

Let’s say a client calls telling you that a valued former employee has left to work for a competitor.  Just before leaving, the employee emailed himself a substantial number of your client’s confidential documents.  He’s now made a presentation to a potential customer, using the "stolen" information, and he secured the customer for his new employer.

The client asks what can you sue the rogue employee for.  Lots of causes of action come to mind.  Violating a non-compete (if there was one).  Conversion?  Tortious Interference? Misappropriation of trade secrets?  Maybe violation of a confidentiality agreement?

What about a claim under the Computer Fraud and Abuse Act?  It seems to fit.  The CFAA

renders liable a person who (1) "intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains . . . information from any protected computer," in violation of [18 U.S.C.] § 1030(a)(2)(C); (2) "knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value," in violation of § 1030(a)(4); or (3) "intentionally accesses a protected computer without authorization, and as a result of such conduct, recklessly causes damage[,] or . . . causes damage and loss," in violation of § 1030(a)(5)(B)-(C).

If you had read the Fourth Circuit’s opinion last week in WEC Carolina Energy Solutions LLC v. Miller, you would stop dead in your tracks.  In affirming the dismissal of the CFAA claim, Judge Floyd wrote:

Our conclusion here likely will disappoint employers hoping for a means to rein in rogue employees. But we are unwilling to contravene Congress’s intent by transforming a statute meant to target hackers into a vehicle for imputing liability to workers who access computers or information in bad faith, or who disregard a use policy

Op. 13.

The problem with the claim by WEC was that its former employee had been given access to the confidential information during his employment.  CFAA doesn’t provide a remedy for misappropriation, said the appellate court, when the authorization has not been rescinded.

In reaching this conclusion the Fourth Circuit rejected the approach taken by Judge Posner and the Seventh Circuit in Int’l Airport Ctrs., LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006), which was that an employee who takes data to further interests contrary to those of his employer violates his duty of loyalty and thereby terminates his agency relationship, thus losing his authority to access the computer or any information on it. 

Judge Floyd held that "[t]he deficiency of a rule that revokes authorization when an employee uses his access for a purpose contrary to the employer’s interests is apparent."  Op. 12.  It was as obvious to the Judge as Facebook.  He said that:

Such a rule would mean that any employee who checked the latest Facebook posting or sporting event scores in contravention of his employer’s use policy would be subject to the instantaneous cessation of his agency and, as a result, would be left without any authorization to access his employer’s computer systems.

 Id.

The Court concluded that Congress didn’t intend to impose criminal liability for a Facebook "frolic."

In a classic understatement, Judge Gale said in a North Carolina Business Court opinion last Thursday that "North Carolina case law addressing problems inherent in electronic discovery. . .is not yet well developed."  Op. 50.  But in Blythe v. Bell, 2012 NCBC 42, the Judge went ahead and posted some road signs along that undeveloped and difficult path.

The issue in Blythe was waiver of attorney-client privilege.  The Defendants had produced 3.5 million documents on two hard drives of which 1700 turned out afterwards to be potentially privileged.  They made a motion for an order compelling the return of the privileged documents, which Judge Gale denied, ruling that the privilege had been waived.

The first lesson of the case is the test the Court will follow in determining whether an inadvertent disclosure will result in a waiver of attorney-client privilege in an electronic production.  It is that the Court will consider "(1) the reasonableness of the precautions taken to prevent inadvertent disclosure; (2) the number of inadvertent disclosures; (3) the extent of the disclosures; (4) any delay in measures taken to rectify the disclosures; and (5) the overriding interests of justice."  Op. 52.  You might remember that test from the infamous case of Victor Stanley, Inc. v. Creative Pipe, Inc. (D. Md. 2008).

Judge Gale didn’t get much past the reasonableness of the precautions, which he said was "paramount."  That was especially so given the size of the production by the Bell defendants.  He ruled that the "degree of those efforts should increase as the potential volume of documents to be produced increases."  Op. ¶54.

The "sheer volume" of the production suggested that "more than minimal efforts" have been taken to guard against an inadvertent production.  But the precautions were almost non-existent.

The Defendants had hired a computer consultant — a firm named "Computer Ants" — to process their email.  The person overseeing the production for Computer Ants had limited experience in litigation matters.  His employment background included stints as a truck driver and a Bass Pro Shops Security Manager.  Defendants’ counsel had told Computer Ants to withhold from production any emails with their email address extension (hickorylaw.com), but those emails had been included in the production.  The form of the production was also a problem.  The documents were not searchable unless they were opened individually.

To further underscore the lack of precautions, the Defendants hadn’t reviewed the documents gathered by Computer Ants before providing them.  Judge Gale stopped short of applying a bright line test that a failure to conduct a privilege review before production would establish waiver, but said that "efforts by a consultant demand a degree of oversight…."  Op. 61.  He held that "counsel cannot altogether delegate the need to guard against production of privileged communications to an outside consultant."  Op. 63 (emphasis added).

Judge Gale said that he took "no pleasure in finding the waiver of attorney-client privilege."  Op. 65.  The opinion reflects a caution that general North Carolina state court trial practice may not be as experienced in electronic discovery as federal court practice is.  (Op. ¶56). 

That gap of experience has got to be closing at this point. This isn’t the first clarion call from the Business Court on the obligations of North Carolina counsel with regard to e-discovery.  I wrote about a decision by Judge Tennille from a couple of years ago which sent a "message for counsel" about e-discovery.

Maybe you’ve got a friend who is a bankruptcy lawyer.  Maybe not.  But if you do, you should think about forwarding to them this post about the Fourth Circuit’s decision from last Tuesday in Johnson v. Zimmer.  It’s a decision of first impression in all of the Circuit Courts about how to determine the size of a Chapter 13 Debtor’s "household", which is relevant to determining her "disposable income" for purposes of a Chapter 13 Plan.

Let’s start with why those terms are important.  A Chapter 13 Debtor is obligated to make payments to his creditors based on her "projected disposable income."  The Bankruptcy Code defines "disposable income" as "current monthly income received by the Debtor" reduced by "amounts reasonably necessary to be expended for the Debtor’s maintenance and support, for qualifying charitable contributions, and for business expenditures."

The "amounts reasonably necessary to be expended" are determined, in part, by the size of the Debtor’s "household."  Congress didn’t bother to define what "household" means, so that was the main challenge for the Fourth Circuit.

How The Dictionaries Define "Household"

Well that’s easy, you would think.  Look up "household" in the dictionary.  Because we give undefined words their ordinary meaning. But that doesn’t really work because the common definitions for "household" are different and could yield different results.

Black’s Law Dictionary says that a "household" is "1. A family living together.  2. A group of people who dwell under the same roof."  Webster’s Third New International Dictionary says that the term means "a social unit comprised of those living together in the same dwelling place."

How The Bankruptcy Courts Have Dealt With This Issue

The bankruptcy courts have adopted three different approaches to define a "household."  Those are:

  • The "heads-on-beds" approach, which follows the Census Bureau’s broad definition of a household as "all the people who occupy a housing unit," without regard to relationship, financial contributions,or financial dependency;
  • the "income tax dependent" method derived from the Internal Revenue Manual’s definition that examines which individuals either are or could be "included on the debtor’s tax return as dependents";
  • The "economic unit" approach that "assesses the number of individuals in the household who act as a single economic unit by including those who are financially dependent on the debtor, those who financially support the debtor, and those whose income and expenses are inter-mingled with the debtor’s."

The reason that Johnson’s case was so difficult was that she was divorced and remarried.  Her new husband had three kids from his prior marriage and she had two.  The children from the first marriages spent about half a year with the Debtor and her new husband and the rest of their time with their other parent.

So the Debtor said her household consisted of her husband and all the kids, or seven.  Zimmer, a creditor, said that the count of 7 resulted in an overcalculation of the Debtor’s expenses and that counting the household as smaller would free up income to pay under her Chapter 13 Plan to her unsecured debts.

The Fourth Circuit Applies The Economic Unit Approach, With Fractions

The Bankruptcy Judge, J. Rich Leonard, agreed partly and applied a variation of the economic unit approach.  He "fractionated" the kids based on the number of days that they were in the Debtor’s house, and calculated that she had 2.59 children in her house full-time.  He rounded that up to three, and declared the household to be one of five.

A divided Fourth Circuit affirmed.

Continue Reading Fourth Circuit Carves Up Children (For Bankruptcy Purposes Only)

We all know how a residential real estate loan goes. You apply to a Bank for the loan; the Bank orders an appraisal of the property; maybe you get a copy of the appraisal; maybe you don’t; the Bank makes the loan taking a Deed of Trust on the property as security. What if the appraiser flubs the appraisal? Do you have a claim against him or her?

Judge Murphy answered a number of questions about appraiser liability yesterday, in Cabrera v. Hensley, 2012 NCBC 41. By the end of the 26 page opinion, summary judgment was granted for the appraisers on all of the claims that they had overvalued the lots purchased by the Plaintiffs at "Wild Ridges," an upscale gated community in the North Carolina mountains which was never completed by the developer.

The primary issues addressed by Judge Murphy were whether the appraisers owed a duty to the Plaintiffs in preparing their appraisals, and whether the Plaintiffs could show that they relied on the appraisals.

The answer to both issues was found in Section 552 of the Restatement (Second) of Torts, which is the governing standard for negligent misrepresentation claims against appraisers (and accountants)..

The Duty Of An Appraiser

As Judge Murphy put it:

Stated plainly, an appraiser owes a duty to those who he intends to be the recipients of an appraisal and those to whom he knows the intended recipient also intends to supply the appraisal.

Op. ¶45.

The Cabrera Plaintiffs argued that they, as prospective buyers of the properties, were reasonably forseeable plaintiffs who should have been known to the appraisers and that they met the requirements of Section 552. There is some authority for that proposition in an old NC Court of Appeals decision, Alva v. Cloninger, 51 N.C. App. 602, 277 S.E.2d 535 (1981)(holding that an appraiser’s duty to third parties include[s] a prospective buyer who reasonably relies upon the outcome of the appraisal.),

But the Restatement represents a "more limited standard of liability than a test of forseeability" Op. ¶43.  Judge Murphy rejected the Plaintiffs’ argument, holding that:

Taken to its logical conclusion, Plaintiffs’ argument—that those who are reasonably foreseeable to the maker of a representation are also known to the maker—would eviscerate the limits on liability enunciated by the Court in [Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200, 367 S.E.2d 609 (1988)]. A Defendant would not have to ‘know that the recipient intends’ to supply another with the information, rather, liability would be extended to all reasonably foreseeable individuals that the intended recipient, unbeknownst to the Defendant,intended to supply the information. This interpretation would effectively write out the knowledge requirement from section 552.

Op. ¶51 (emphasis added).

Reliance On The Actual Appraisal Is A Must

The Plaintiffs had an even more difficult argument to accept on how they met the reliance requirement. That was particularly so because they had never seen the appraisals before committing to buy the lots.

They said that "at the most fundamental level of intuition," lenders didn’t lend money without supporting appraisals and that they had relied on the banks’ decisions to approve financing in taking out their loans.

That was at best indirect reliance on the appraisals, which is insufficient under Section 552. Plaintiffs had to show that they relied on the actual appraisals themselves to have a valid claim.

 

 

 

It’s not every day that you see a "mandatory injunction,"  In fact, Judge Jolly said last Friday that such an injunction was "rare and generally disfavored as an interlocutory remedy," in Bayer Cropscience LP v. Chemtura Corp., 2012 NCBC 40. Op. 22.  But that didn’t stop the Judge from entering an injunction that most of us would think of as mandatory: an injunction ordering Defendant Chemtura to reinstate its contract with the Plaintiff Bayer and resume its exclusive arrangement to sell a seed treatment called Ipconazole to Bayer. 

Injunctions are normally "prohibitory."  They prohibit the defendant from taking a particular action. If an injunction is "mandatory," it requires the defendant to take a specific action. 

So was this injunction mandatory?  No, not according to Judge Jolly.

The difference to Judge Jolly between the two types of injunction lay in the status quo between the parties, the state of affairs which an injunction is designed to preserve during litigation.  Chemtura said that it had already terminated the contract so the status quo at the time of the lawsuit was that no agreement existed.  The Judge rejected this argument, rolling the clock back a bit.  He said the status quo was not the "circumstances existing at the moment suit was filed," but rather "the last peaceable uncontested status that existed before the dispute arose."  Op. 24.  The "peaceable uncontested status" was the four years that the contract had been in place, and the Court said it should remain so.

He said that Bayer was seeking in substance to prohibit Chemtura from terminating the contract, and that the injunction was therefore prohibitory.  He said that ruling otherwise "would create an incentive for a party to breach an existing contract before the other party can seek injunctive relief in an effort to alter the status quo and the nature of the injunctive relief sought (i.e., mandatory relief rather than prohibitory relief)."  Op. 24.

The other valuable piece of this opinion was in the Court’s ruling on irreparable harm.  Chemtura said that any harm to Bayer could be compensated by money damages after trial, but Bayer said its harm would be irreparable because it would lose "customer goodwill, market share, and its competitive position in the marketplace," which were not determinable by money damages.

Judge Jolly agreed, relying on North Carolina federal court rulings that harms such as the loss of "customer goodwill" and "competitive positions, including threatened loss of market share and threatened loss of existing and potential customers" are types of injuries that satisfy the irreparable harm requirement.  Op. 42.

The Court set the amount of the bond to be posted by Bayer as a condition of the injunction at $3 milllion pending further submissions from the parties.

If you are making a motion to disqualify opposing counsel before Judge Murphy in the Business Court, his decision yesterday in McKee v. James is likely to be of concern.  He not only denied the Motion, but he dropped a few nuggets along the way which the party opposing the motion in your case may want to quote:

He said that disqualification motions should be "carefully scrutinized" because they "have a potential for abuse as litigation tactics," and that "disqualification is viewed by courts as a ‘drastic measure’ to be imposed only when ‘absolutely necessary.’"  Op. 10.

The burden on the party moving for disqualification is "high."  Op.11.  It’s also important to note that "a party’s right to counsel of its choosing is a fundamental tenet of American jurisprudence, and that, therefore, a court may not lightly deprive a party of its chosen counsel." (citing United States v. Smith, 653 F.2d 126 (4th Cir. 1981)). Id.

It was against this backdrop of skepticism that Judge Murphy turned to Rule 3.7, the Rule of Professional Conduct on which the Motion was based.  Rule 3.7 deals with a lawyer’s ability to continue as litigation counsel if he may be called as a witness.  It says: 

A lawyer shall not act as an advocate at a trial in which the lawyer is likely to be a necessary witness unless: (1) the testimony relates to an uncontested issue, (2) the testimony relates to the nature and value of services rendered in the case, or (3) disqualification of the lawyer would work a substantial hardship on the client. . . . [Moreover, a] lawyer may act as advocate in a trial in which another lawyer in the lawyer’s firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9.

Defendant James was saying that he would be calling Plaintiff’s counsel as witnesses to testify about the circumstances under which they had asked another witness to sign an affidavit.  That witness later disavowed his affidavit, which was highly supportive of Plaintiff’s case, and it turned out that he had been unable to read it before signing it.

If you are thinking that these affidavit issues can’t be central to the issues of the case, Judge Murphy agreed. 

But if Plaintiff’s counsel really found it important to present evidence at trial about the affidavit shenanigans, then Defendant’s counsel were not "necessary" witnesses.  Judge Murphy said that "[a] necessary witness is not the best witness, but the only witness that can testify to information that is relevant and material to the dispute."  Op. 16.  A lawyer’s testimony is “necessary” when it is "relevant, material, and unobtainable by other means."  Op.17.

Since there were other persons who had been present at the signing of the affidavit, that testimony was "obtainable through other means," so the Defendant’s lawyers were not required to step aside.

So, disqualification based on RPC 3.7 is pretty narrow.

If you are interested in other Business Court rulings involving Motions to Disqualify, you can click here, or type "disqualify" into the search box on the left side of the main blog page.

 

 

 Can you force a party to a lawsuit to join in another party’s claim? There’s no answer in the  North Carolina Rules of Civil Procedure. But Judge Gale provided an answer this week in Nelson v. Alliance Hospitality Mgt., LLC, 2012 NCBC 39.

Two Rules were implicated: Rule 18, which allows for joinder of claims, and Rule 19, which allows for joinder of necessary parties. Neither Rule speaks to a forced joinder, and the Judge said he had not found any North Carolina case where a party already involved in a lawsuit was compelled to join other claims or counterclaims.

Why would Nelson want to force one of the Defendants to join in a counterclaim brought by another Defendant anyway? Well, the counterclaim was about the extent of Nelson’s percentage ownership interest in Alliance. Nelson said he had a 16.4% interest, but Alliance had counterclaimed saying that Nelson’s interest was limited to 10%. One of the other Defendants, Axis, was the majority owner of Alliance, and Nelson wanted Axis to be required to join in Alliance’s counterclaim. But Axis was already a Defendant on Nelson’s claims.

If you were to call this "compulsory joinder," the only time NC courts have required a person to join in claims or counterclaims has been when the person is not already a party to the case.

Judge Gale framed the issue as “whether Rule 19 compels a person who is already a plaintiff or defendant on other claims in the lawsuit to be joined to the other claims or counterclaims of that lawsuit.” Op. Par. 11 (emphasis added). He concluded that “when a party is already a party to the lawsuit, Rule 19 does not compel the party to join other claims or counterclaims.” Op. ¶16.

Nelson argued that Axis was the real party in interest, and that Rule 17, which requires all claims to be made in the name of the real party in interest, therefore required its joinder.  Judge Gale said that the LLC itself, Alliance, was the real party in interest, because "Rule 17. . . considers a party authorized by statute to bring the claim in its own name the real party in interest without joining the party for whose benefit the action is brought."  Op. ¶23.

Since Alliance, a Georgia LLC, had the authority under the Georgia Code to sue in its own name, it was the real party in interest, and Axis didn’t need to be joined to Alliance’s claims.

 

 

If you are wondering what North Carolina has to do to comply with the Affordable Care Act now that the Supreme Court has said it passes constitutional muster, there are better places to look than my blog.  But there’s an excellent post from Professor Jill Moore at the UNC School of Government.  It’s on the School of Government’s Coates’ Canons blog, which I highly recommend you add to your reading list if you practice law in North Carolina.

Health Benefits Exchange

North Carolina is behind the curve on the ACA front on establishing a health benefits exchange.  The concept of an HBE "is to create an insurance pool so that uninsured people may purchase health insurance at lower rates than are typically available to individuals in the present market."  North Carolina isn’t the only state to have deferred creating an HBE, only 15 states have put an HBE in place in anticipation of the full deployment of the ACA.  But there’s a deadline.

North Carolina’s motivations were good.  The General Assembly passed a bill last year stating its intention to create an HBE.  The state House passed legislation doing exactly that, but the state Senate hasn’t considered that legislation yet.  Given that the Act requires that a state creating its own exchange must "demonstrate operational readiness by mid-2013 and begin operating in 2014,"  NC is in a crunch on the HBE issue, especially since the Senate isn’t expected to reconvene to consider this issue until next year, after the November elections.

Medicaid Expansion

There also a major issue about Medicaid.  The ACA expands Medicaid to cover a large population of low income adults.  That’s going to involve substantial expense which the federal government will mostly bear until 2020, when the states will be responsible for 10% of the increase and the federal government 90%.

A U.S. Senate Committee report estimates North Carolina’s increased costs to cover the expanded Medicaid program at $1.791 billion between 2014 and 2019.  Even Governor Perdue has expressed concerns about North Carolina’s financial ability to cover nearly half a million estimated new Medicaid recipients.

Given that the Supreme Court’s decision gives the states the option to opt-out of the expansion,  North Carolina has a difficult decision about whether to participate.  Many states are reported to be pondering exactly that.

Since the Republicans currently control the North Carolina General Assembly, and have a serious run ongoing for the Governorship, you can expect the dialogue over Medicaid expansion to be acrimonious after Election Day.

Do you have a client who says his associate embezzled a lot of his money?  Does he want to sue the Bank that held the funds, claiming that the Bank should have known that misdoings were afoot and blown the whistle?  You’d better tell him to think twice before bringing that claim to the Business Court, based on last week’s decision in Global Promotions Group, Inc. v. Danas Inc.

The Plaintiffs in Global had given one of the Defendants signature authority over their accounts at BB&T.  That Defendant later made unauthorized wire transfers from the accounts and deposited forged and unauthorized checks drawn on those accounts into their own accounts.  The total amount embezzled was more than $300,000.

The Plaintiffs said that BB&T should have discovered and prevented these transactions, but it was a claim looking for a cause of action that just couldn’t be found.

Judge Jolly first considered the North Carolina Uniform Fiduciaries Act, which states that a Bank can be liable for checks drawn by a depositor’s fiduciary only if "the bank pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing such check, or with knowledge of such facts that its action in paying the check amounts to bad faith."  N.C. Gen. Stat. §32-9.

Even if the Defendants were fiduciaries of the Plaintiffs (about which there was little discussion) Judge Jolly found nothing in the Complaint to support an allegation of bad faith, He said that "suspicious circumstances," with a "failure to make inquiry," were not "bad faith."  Op. ¶24.  A failure to make inquiry amounts to bad faith only if if it is "due to the deliberate desire to evade knowledge because of a belief or fear that inquiry would disclose a vice or defect in the transaction, – that is to say, where there is an intentional closing of the eyes or stopping of the ears.’"  (quoting Edwards v. Northwestern Bank, 39 N.C.App. 261 (1979)).

He held that the Plaintiffs had not alleged facts giving rise to a reasonable inference of either actual knowledge or the turning of a blind eye to the misconduct.  He went on to hold also that the Plaintiffs did not have a claim under what he termed the "more stringent" common law standards of care for banks.

On that "more stringent" standard, in trying to impose a fiduciary duty on BB&T, the Plaintiffs argued that the Bank and its employee had "exercised actual control over" the accounts and that they had placed a "special confidence" in the employee as a result.  They argued that the Bank’s employee therefore had a "responsibility to oversee their accounts."  Op. ¶32.

Not so, said Judge Jolly, who wrote that "all banks exercise some degree of custodial control over their
customers’ accounts; nonetheless, banks ordinarily do not owe fiduciary duties to their customers."  Op. ¶33. The Plaintiffs’ allegations did nothing more than merely establish the existence of an ordinary relationship between a bank and its customers, as all banks have a responsibility to safeguard their customers’ accounts."  Id.  Judge Jolly observed that "an ordinary relationship between a bank and its customers does not, without more, impose upon the Bank any special duties to its customers."  Op. ¶30.

After that, the other claims asserted by the Plaintiffs against BB&T fell like dominoes.

Continue Reading Bank Not Liable For Embezzlement, Says NC Business Court