Getting the All Clear: Court Found Law Firm’s Reliance on Representation from Bank that Funds had Cleared was Unreasonable

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In Colucci, Colucci, Marcus & Flavin, P.C. v. Citizens Bank of Massachusetts, No. CV 15-13536-GAO, 2018 WL 1567605, at *1 (D. Mass. Mar. 30, 2018), the United States District Court for the District of Massachusetts awarded summary judgment to Citizens Bank of Massachusetts (“Citizens Bank”) on a law firm’s claim of negligent misrepresentation, finding that the law firm’s reliance was unreasonable pursuant to New York law.

A Massachusetts law firm maintained its Interest on Lawyers’ Trust Accounts (“IOLTA”)account at Citizens Bank. Citizens Banks’s terms and conditions for the IOLTA account were detailed in the Business Deposit Account Agreement provided to the law firm at the time the account was opened. The “Funds Availability Disclosure” section of the Business Deposit Account Agreement specified that deposited check funds at Citizens Bank would be “available” the next business day. The section cautioned, however, that “even after [Citizens has] made funds available to you, and you have withdrawn the funds, you are still responsible for checks that you deposit that are returned to us as unpaid.”

On a Friday, the law firm deposited a check from a third party that was intended to be payment of a debt to a client. On the following Monday, the client sent wiring instructions and wire transfer authorization; the client also called the law firm to find out whether the check had cleared. The law firm checked the IOLTA account online and confirmed that the check funds had been credited. A partner and employee from the law firm also went to their Citizens Bank branch and met with the branch manager to confirm that the check had cleared. The partner specifically wanted to confirm that the funds had cleared and were not just “available.” As to whether the funds had “cleared,” the branch manager responded effectively, “Yes, the money is there. You are all set.” A wire transfer was executed.

By Wednesday, Citizens Bank received notice that the original check had been returned unpaid as “ALTERED/FICTITIOUS.” Citizens Bank notified the law firm about the returned check and that it had debited the law firm’s IOLTA account by the amount of the returned check.

The law firm alleged that Citizens Bank falsely misrepresented that the check had “cleared” the IOLTA account, and that the law firm relied on that statement when it wired the funds. Citizens Bank argued that the law firm’s reliance was unreasonable.

The Court determined that New York law applied because the Automated Wire Transfer Request executed by the partner specified that New York law applied to the transaction. Citizens Bank cited four New York cases involving a law firm suing a bank for negligent representation due to representations about a check. In those cases, the courts determined that reliance was unreasonable. Based on the similarities, the Court determined that the law firm’s reliance on representations made by Citizens Bank was unreasonable.

The Court also awarded summary judgment to Citizens Bank on the law firm’s promissory estoppel and M.G.L. c. 93A claims. The law firm filed an appeal with the United States Court of Appeals for the First Circuit.

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