Kathleen Wolens v. Morgan Stanley Smith Barney, LLC

155 A.3d 1, 449 N.J. Super. 1

• Court: New Jersey Superior Court Appellate Division
• Decided: February 21, 2017
• Docket: A-1028-15T1
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-1028-15T1

KATHLEEN WOLENS, APPROVED FOR PUBLICATION Plaintiff-Appellant, February 21, 2017 v. APPELLATE DIVISION MORGAN STANLEY SMITH BARNEY, LLC and WILLIAM GIBSON,

Defendants-Respondents. ____________________________________

Telephonically argued February 8, 2017 – Decided February 21, 2017

Before Judges Sabatino, Nugent and Currier.

On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-6244-13.

Paul V. Fernicola argued the cause for appellant (Paul V. Fernicola & Associates, LLC, attorneys; Mr. Fernicola, of counsel and on the brief).

Nikolas S. Komyati argued the cause for respondents (Bressler, Amery & Ross, attorneys; Mr. Komyati and Boris Peyzner, on the brief).

The opinion of the court was delivered by

SABATINO, P.J.A.D.

Plaintiff Kathleen Wolens appeals the trial court's October

9, 2015 order granting summary judgment and dismissing her complaint against her deceased mother's former investment

company, Morgan Stanley Smith Barney ("Morgan Stanley"), and its

account manager, co-defendant William Gibson. The essence of

plaintiff's claims is that defendants acted negligently and

improperly in carrying out a written request to have the

mother's investments changed from accounts solely in her name to

joint accounts with one of plaintiff's sisters. We affirm

because it has not been shown that defendants owed or breached

any legal duties to plaintiff, as she was neither their customer

nor a person known to them with whom they had any established

contractual or special relationship.

I.

Although the focus of our analysis necessarily centers on

pivotal legal issues of alleged duty, we briefly note the

following pertinent facts, allegations and procedural history.

We consider the factual record in a light most favorable to

plaintiff, who was the non-moving party on the summary judgment

motion. R. 4:46-2; Brill v. Guardian Life Ins. Co. of Am., 142

N.J. 520, 540 (1995); see also W.J.A. v. D.A., 210 N.J. 229,

237-38 (2012) (applying de novo on appeal the same summary

judgment standards).

Plaintiff's present lawsuit is essentially a follow-up to

previous litigation she brought concerning the estate of her

2 A-1028-15T1 mother, Patricia Hardy Johnson. Plaintiff has two sisters,

Deirdre Mistri and Carol Alexander. Their mother 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" and dated February 3, 2008.

The letter 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."

Defendants thereafter converted Johnson's two Citibank

accounts, as requested, to joint accounts with Johnson and

Mistri. As a joint account holder with her mother, Mistri

consequently obtained a right of survivorship in the funds if

her mother predeceased her.

Johnson died a few months later in May 2008. Because of

the account change, the Citibank investments were treated as

non-probate assets and were transferred to Mistri. Plaintiff

contested the transfer, arguing that Johnson had been the

subject of undue influence by Mistri.

Plaintiff consequently sued both Mistri and Alexander in a

probate action in the Chancery Division (Docket ESX-CP-0013-

2011). After discovery, defendants in the probate case moved

3 A-1028-15T1 for summary judgment. The Chancery Judge, Hon. Walter

Koprowski, Jr., issued a lengthy written opinion on June 25,

2012 granting summary judgment on certain issues and denying

summary judgment on other issues. Subsequently, that litigation

settled, with plaintiff receiving approximately $450,000 from

Mistri, Alexander, or both.1

Plaintiff then filed the present lawsuit in the Law

Division against both Morgan Stanley and Gibson, claiming that

these defendants owed a duty to her even though she was not a

customer of the financial institution. She alleges that

defendants acted negligently in allowing the account to be

changed without adhering to the protocol prescribed by Morgan

Stanley's internal policies and procedures.

Plaintiff rested her contentions of negligence and breach

of alleged duty upon testimony Gibson provided at his

deposition. Gibson testified that, in general, he monitored

Johnson's investment positions, recommended investments for her

when appropriate, transferred funds between her bank and her

investment accounts, and answered any questions that she might

raise about securities. He acknowledged that he received the

1 The record does not disclose the portions respectively contributed to the settlement by the sisters.

4 A-1028-15T1 February 3, 2008 letter requesting the change in Johnson's

accounts and took steps to carry out that request.

As described by Gibson, Morgan Stanley's usual protocol is

that when a customer asks to create a joint account, typically

the firm "contact[s] the parties to get additional information"

if it is needed. The firm then obtains the signatures of both

parties on a new accounts agreement, which the parties send back

to Morgan Stanley. Gibson did not have a "specific

recollection" as of the time of his 2011 deposition whether he

had seen such a new accounts form signed by Johnson and Mistri,

nor did he know where such a form, if it existed, was presently

kept.

Gibson further explained Morgan Stanley's internal process

for opening joint accounts, stating that the firm "required" a

letter of authorization and personal and financial information

from the new party. Gibson did have a "specific recollection"

that Morgan Stanley obtained personal and financial information

from Mistri. He also testified that, had the firm not obtained

Mistri's driver's license when changing the accounts, "the

account [change] would have been blocked by [the company's]

compliance [unit]."

Gibson initially noted that he had telephone communications

with Johnson when she added Mistri to the accounts, but admitted

5 A-1028-15T1 that he did not maintain any notes from those conversations. He

later acknowledged that he lacked a "specific recollection" of

such a conversation. However, he did attest that he had

explained to Johnson what "right of survivorship" meant,

although he could not recall exactly what he said to her.

Gibson acknowledged that if Morgan Stanley had received only the

February 2008 letter from Johnson, a change in the accounts to

joint accounts with rights of survivorship would not have

complied with the firm's internal requirements.

In her Law Division complaint, plaintiff focused upon the

two accounts, totaling $847,162 in value, which represented the

bulk of her mother's estate. She alleged that those accounts

had been improperly converted to joint accounts with Mistri

based solely on the February 2008 letter addressed to Gibson.

Plaintiff claimed that the authenticity of that letter was

questionable. She also noted that the letter did not explicitly

state that a right of survivorship would be conveyed to Mistri.

Plaintiff alleged that both Morgan Stanley and Gibson were

thereby negligent in their handling of the matter and

negligently misrepresented the accounts to her, thereby

"depriv[ing] [her] of the income from those accounts and the use

thereof since Johnson's death, when a portion of the [a]ccounts

rightfully became hers upon the Probate of Mrs. Johnson's Last

6 A-1028-15T1 Will and Testament." Plaintiff demanded compensatory and

punitive damages, plus attorneys fees and costs.

Plaintiff has not provided an expert report from a financial

expert supporting her allegations of negligence and breach of

duty. In addition, she has not identified any federal or state

statute, regulation, or other codified provision, nor any

written industry guideline, that was breached. Instead, her

contentions rest entirely upon asserted deviations from Morgan

Stanley's own internal policies and procedures, which, viewing

the record in a light most favorable to plaintiff, Gibson

acknowledged to some extent at his deposition.

In granting summary judgment to defendants, the trial court

determined that plaintiff had not established a viable legal

basis for her claims. The motion judge, Hon. Garry J. Furnari,

noted in his oral opinion that "it is clear or appears to be

clear that . . . no agreement[,] undertaking[,] or even contract

. . . existed between [plaintiff] and the defendants.

[Plaintiff] admits that she never even spoke with the

defendants." The judge additionally found that plaintiff's

argument that "Morgan Stanley owed her a duty merely because she

stood to inherit under the decedent's will" was "untenable"

under applicable case law. In this regard, the judge cited to

Pennsylvania National Turf Club, Inc. v. Bank of West Jersey,

7 A-1028-15T1 158 N.J. Super. 196 (App. Div. 1978) and Globe Motor Car Co. v.

First Fidelity Bank, N.A., 273 N.J. Super. 388 (App. Div. 1993),

which rejected imposing a legal duty upon a financial

institution to a non-customer unless "special circumstances"

justify imposing such a duty on the company. The judge also

observed that "a defendant's internal policy standing alone

cannot demonstrate the applicable standard of care."

In addition, Judge Furnari determined that plaintiff could

not establish the legal requirement of proximate cause for her

alleged damages. As the judge observed, "[p]resumably, the

[alleged] undue influence exerted by [Mistri] would have been

just as effective to persuade her mother to sign a new account

agreement as it was to have her sign the letter [to Gibson]."

The judge therefore reasoned that, regardless of whether or not

Morgan Stanley adhered to its internal policies, "the accounts

would have been changed, the probate litigation would have

followed."

The judge also dismissed plaintiff's claims of negligent

misrepresentation, noting that she had not addressed that claim

in her summary judgment brief, and, moreover, there was no proof

of such misrepresentation in the record. Lastly, the judge

rejected plaintiff's contention that defendants had failed to

comply with discovery requests, observing that the discovery end

8 A-1028-15T1 date had been extended several times and that plaintiff had not

timely moved for sanctions or other relief when defendants did

not supply the discovery she wanted.

II.

On appeal, plaintiff contends that (1) the trial court erred

in dismissing her claims against both Morgan Stanley and Gibson

as a matter of law, (2) the case was not ripe for summary

judgment, and (3) defendants' conduct in processing the account

changes should make them liable to her for damages. We reject

these arguments, substantially for the sound reasons articulated

in Judge Furnari's bench opinion. We add several comments by

way of amplification.

As a general proposition, the case law in our state has not

recognized that a financial institution owes a 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.

This principle was illustrated long ago by this court in

Pennsylvania National Turf Club, a case which has not been

overruled or questioned. In that case, the Club, which operated

a racetrack, provided a check cashing service for its owners and

9 A-1028-15T1 trainers. Supra, 158 N.J. Super. at 199. Zeek, a trainer at

the club, used this check cashing service. Ibid. However, he

established with his own bank, the Bank of West Jersey, an

"unusual" way of covering checks written to the Club. Id. at

200. Specifically, Zeek would send funds to cover any overdraft

from the previous day's checks. Id. at 199. When Zeek did not

cover several of his checks cashed by the Club in accordance

with this arrangement, the defendant Bank returned twenty-nine

of those checks to the Federal Reserve Bank. Id. at 200.

Twenty of those checks were returned after the so-called

"midnight dishonor" deadline specified in the Uniform Commercial

Code ("UCC") codified at N.J.S.A. 12A:4-301 and 12A:4-302

(imposing duties upon payor banks to be "accountable" for not

returning checks before "midnight of the banking day of

receipt"). Id. at 201. By contrast, the remaining nine checks

were returned by the Bank before the statutory midnight

deadline. Ibid. Zeek, meanwhile, fled to a Caribbean island.

Ibid.

Under these circumstances, the defendant Bank in

Pennsylvania National Turf Club did not oppose the entry of

summary judgment in the plaintiff's favor for the balance due on

the twenty checks that had been returned after the midnight

deadline had expired. Ibid. However, the Bank denied liability

10 A-1028-15T1 for the nine checks that were timely returned in compliance with

the statutory deadline. Ibid. The plaintiff countered that the

Bank had a legal duty to pay the plaintiff for losses stemming

from these nine additional checks, and that the Bank's alleged

"mismanagement" of the overall arrangements with Zeek justified

the recognition of such a duty. Id. at 202. We disagreed.

In our analysis in Pennsylvania National Turf Club, we

recognized that even where a financial institution, such as a

bank, has complied with a statutory obligation, such as the UCC,

"such compliance does not necessarily immunize it from ordinary

tort liability." Id. at 203. "However, a fundamental requisite

for tort liability is the existence of a duty owing from

defendant to plaintiff." Ibid. (internal citations omitted).

As Judge Larner explained, such a duty does not arise in the

absence of a contract or "special" circumstances, which were not

present in that case:

In the context of the record facts herein, the bank owed no general duty to Turf Club by way of warning or other notice, merely because the latter undertook to cash its depositor's checks, which turned out to be dishonored for insufficient funds. Beyond the duty relating to return of the instruments, the drawee bank herein had no duty arising out of a relationship to the holder of the checks which could ripen into tort liability. In the absence of evidence of any agreement, undertaking or contact between plaintiff and defendant from which any special duty can be derived, the

11 A-1028-15T1 improper handling of the Zeek account cannot in the abstract serve as a stepping stone for liability to plaintiff.

[Ibid. (emphasis added).]

We further observed that, despite the wrongful acts of Zeek that

had produced the diversion of funds, "[p]laintiff cannot recoup

[its losses] by attempting to shift responsibility to the bank

which had no relationship with it." Ibid.

Similar principles were recognized and applied in Globe

Motor, supra, another key case relied upon by Judge Furnari. In

Globe Motor, one of the plaintiff company's employees, Gallo,

was embezzling money from the company. Supra, 273 N.J. Super. at

391. The company's loan provider, First Fidelity Bank, and the

defendant accountants failed to recognize the embezzlement,

despite on-site inspections by First Fidelity and reviews by the

accountants. Id. at 392. Globe Motor sued the defendants,

alleging that they were "negligent in failing to detect or

prevent Gallo's criminal spree." Ibid. The Law Division

observed that "creditor-debtor relationships" rarely create a

fiduciary duty. Id. at 393 (internal citations omitted). The

court held that "[a]bsent a contractual duty, a bank has no

obligation to manage, supervise, control or monitor the

financial activity of its debtor-depositor and is not liable to

12 A-1028-15T1 its depositor in negligence for failing to uncover a major

theft." Id. at 395.

The Supreme Court has endorsed these principles. See, e.g.,

Brunson v. Affinity Fed. Credit Union, 199 N.J. 381, 400 (2009)

(rejecting a non-customer's claims against a credit union for

negligence and malicious prosecution, noting that "in the unique

context of whether a bank owes a duty to a non-customer, it is

clear that '[a]bsent a special relationship, courts will

typically bar claims of non-customers against banks'") (citing

City Check Cashing, Inc. v. Mfrs. Hanover Trust Co., 166 N.J.

49, 60 (2001)).

Here, there plainly was no contractual relationship between

plaintiff and the defendants who managed her mother's investment

accounts. Defendants had no written or oral agreements with

plaintiff, a non-customer. Indeed, there is no proof in the

record that they even knew her identity before her mother's

death.

As both parties' counsel have represented to us, their

research has identified no federal or state statute, regulation,

or codified provision that imposes such a duty owed to a non-

customer in these circumstances. Nor does plaintiff point to

any published industry standard or expert support for such an

obligation.

13 A-1028-15T1 Instead, plaintiff exclusively relies on Morgan Stanley's

own internal procedures, which might not have been strictly

followed here when the decedent's accounts were converted to

joint accounts with Mistri. 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 and a cause of action for

negligence or breach.

During oral argument on appeal, defendants' counsel

acknowledged that a special duty to a non-customer may arise in

some circumstances where, for example, the firm removes a named

beneficiary from an account. But plaintiff was never such a

named beneficiary. She had no legal relationship with the firm,

nor any reasonable basis to enforce duties it may have owed to

her mother as the sole account-holder until her sister was

added.

In the absence of a statutory or regulatory mandate, we

decline 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. Of course, nothing in our

existing case law or in this opinion restricts Congress, the

14 A-1028-15T1 Legislature or regulatory agencies from imposing such

obligations. We leave those policy issues for consideration

elsewhere.

We further agree with the trial court that, even if a duty

were recognized here, and a breach of it were established at

trial, plaintiff cannot prove proximate causation for her

losses. See Camp v. Jiffy Lube No. 114, 309 N.J. Super. 305,

309-11 (App. Div.), certif. denied, 156 N.J. 386 (1998). If, in

fact, plaintiff's mother was indeed the subject of her sister's

undue influence, presumably the account changes would have been

made anyway at her behest. Plaintiff's appropriate remedy was

in the estate litigation, through which she has already derived

a substantial recovery in settlement.

The balance of plaintiff's arguments, including those

relating to discovery, lack sufficient merit to warrant

discussion. R. 2:11-3(e)(1)(E).

Affirmed.

15 A-1028-15T1