Financial Institution’s Non-Compliance With Internal Policy Does Not Create a Duty to Non-Customers

Wolens v. Morgan Stanley Smith Barney, LLC, 449 N.J. Super. 1 (App. Div. 2017).  In the opening paragraph of his opinion for the Appellate Division today, Judge Sabatino encapsulated virtually this entire case:

“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 (“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 [Deirdre I. Mistri].  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.”

This case was a sequel to a probate action that plaintiff filed against her two sisters.  There, plaintiff alleged that Mistri and the other sister, complaining that the mother had been subjected to undue influence by the two sisters of plaintiff.  The case was ultimately settled, and plaintiff received $450,000 from one or both sisters.  Plaintiff then sued Morgan Stanley and Gibson for changing the accounts.  Among other things, plaintiff charged that Morgan Stanley had failed to follow its own internal procedures in changing the accounts.

Defendants moved for summary judgment based on the lack of any duty to plaintiff.  The Law Division granted that motion.  Plaintiff appealed, but the Appellate Division affirmed, substantially for the reasons given by Judge Garry Furnari below.

Judge Sabatino observed that Judge Furnari had rightly relied on Pennsylvania Nat’l Turf Club, Inc. v. Bank of West Jersey, 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), in ruling against plaintiff based on the lack of any duty owed to her by Morgan Stanley.  As shown by those precedents, “[a]s 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 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.”  Judge Sabatino proceeded to describe those decisions at length, and he noted that the Supreme Court had “endorsed these principles,” citing Brunson v. Affinity Fed. Credit Union, 199 N.J. 381 (2009).

There was indisputably no contractual or special relationship here, and absent such a relationship, the panel declined to recognize “a novel duty” arising out of a financial institution’s failure to follow its own internal procedures.  “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.”

That aspect of the opinion was likely why it was approved for publication, since the reiteration of Pennsylvania Nat’ l Turf Club and Globe Motor Car added little to the law.  Judge Sabatino concluded by affirming Judge Furnari’s other basis for decision:  if a duty did exist, there was still no proximate cause of any damage.  If the mother were in fact the subject of undue influence by Mistri, “presumably the account changes would have been made anyway at her behest.”  Any remedy for plaintiff would have been in the probate case, “through which she has also derived a substantial recovery in settlement.”