Powers v. American Express ( 2000 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
AMY LYNN POWERS, 
Plaintiff-Appellee,
v.
AMERICAN EXPRESS FINANCIAL
ADVISORS, INCORPORATED,
Defendant & Third-Party  No. 00-1390
Plaintiff-Appellant,
v.
MICHAEL D. D’AMBROSIA,
Third-Party Defendant.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Frederic N. Smalkin, District Judge.
(CA-99-385-S)
Argued: October 30, 2000
Decided: December 6, 2000
Before WILKINSON, Chief Judge, and MICHAEL and
TRAXLER, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Gilbert William Boyce, KUTAK ROCK, L.L.P., Wash-
ington, D.C., for Appellant. Clifford Roy Bridgford, Frederick, Mary-
land, for Appellee.
2 POWERS v. AMERICAN EXPRESS FINANCIAL ADVISORS
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Amy Powers and Michael D’Ambrosia, who lived together, had a
joint investment account with American Express Financial Advisors
(American Express). On the instructions of D’Ambrosia alone, Amer-
ican Express transferred all of the funds ($86,836.79) in the invest-
ment account to a bank account in the couple’s joint name. After
D’Ambrosia took all of the money, Powers sued American Express,
claiming that its transfer to the bank account was ineffective because
the signature of both owners of the investment account was required
for a transfer of more than $50,000. The district court granted sum-
mary judgment to Powers and awarded her damages of $86,836.79,
together with prejudgment interest. We affirm.
I.
Powers and D’Ambrosia began living together in 1983. On July 28,
1994, the couple opened an investment account, as joint tenants with
right of survivorship, with American Express. The account was ini-
tially funded with a $15,000 transfer from the couple’s joint bank
account. Additions to the account were to come from D’Ambrosia’s
earnings. D’Ambrosia agreed to the joint account because Powers
provided him with "domestic needs" and because she had contributed
to improvements made to the couple’s residence. To open the Ameri-
can Express account, Powers and D’Ambrosia filled out an invest-
ment application. In Section C of the application, Powers and
D’Ambrosia checked the box next to the "Joint Tenant" provision,
which reads:
First and second clients have right of Survivorship. This is
not the same as tenants-in-common. The first client’s home
or mailing address will be used for account-related pur-
poses. You understand that only one signature is required
for redemption requests up to $50,000.
POWERS v. AMERICAN EXPRESS FINANCIAL ADVISORS 3
The couple’s application also directed American Express to place
their money in four separate mutual funds.
On August 4, 1997, Powers and D’Ambrosia parted ways. By that
time their American Express account was valued at over $80,000.
Both of them contacted American Express and asked it to freeze the
account. Later, in a letter dated September 26, 1997, D’Ambrosia and
Powers authorized a release of the freeze and directed American
Express to transfer the funds to a Prudential Securities account. There
is a dispute about whether Powers actually signed the September 26
letter. Powers asserts that her signature was forged, but American
Express contends that there is a genuine issue of fact about whether
that is the case. The forgery issue is not material, however. See foot-
note *, infra.
On October 15 and 16, 1997, D’Ambrosia sent American Express
two separate faxes. The first, on October 15, contained a memo
signed by D’Ambrosia, a copy of D’Ambrosia and Powers’s state-
ment of account at American Express, and a copy of the September
26 letter. D’Ambrosia’s memo, included in the fax, changed the
instructions in the September 26 letter. The memo directed American
Express to close the couple’s account and to mail the proceeds to
D’Ambrosia and Powers’s former residence in Columbia, MD. The
second fax, dated October 16, also contained a memo from
D’Ambrosia, a statement of the couple’s account at American
Express, and a copy of the September 26 letter. The memo attached
to this fax again changed the instructions in the September 26 letter.
The memo, signed only by D’Ambrosia, directed American Express
to transfer the funds to a joint bank account held by Powers and
D’Ambrosia at FCNB Bank. After receiving both faxes, American
Express ignored the September 26 letter and followed the instruction
in D’Ambrosia’s October 16 fax memo. The company wired
$86,836.79 to Powers and D’Ambrosia’s FCNB joint account, and
within a few days, D’Ambrosia absconded with the money.
When Powers discovered what had happened, she filed this action
against American Express to recover the money. Both parties moved
for summary judgment. Powers claimed that American Express trans-
ferred the funds in contravention of section 8-507(b) of Maryland’s
Commercial Code. See Md. Com. Law (U.C.C.) § 8-507(b). Under
4 POWERS v. AMERICAN EXPRESS FINANCIAL ADVISORS
U.C.C. § 8-507(b), a "securities intermediary," like American
Express, which transfers funds pursuant to an "ineffective entitlement
order," is liable to an "entitlement holder" for any damages caused by
the improper transfer. Powers contended that the faxes were ineffec-
tive entitlement orders because Section C of the investment applica-
tion required both signatures for redemption requests over $50,000.
Thus, as an entitlement holder, Powers claimed that American
Express was liable to her for acting on D’Ambrosia’s fax requests of
October 15 and 16, 1997, which she did not sign. American Express
claimed that Powers’s authorization was not necessary. It claimed that
D’Ambrosia’s faxes constituted an effective entitlement order
because, under U.C.C. § 8-107(b)(1), D’Ambrosia was an "appropri-
ate person" to order the transfer of the couple’s funds.
The district court agreed with Powers that the faxes received by
American Express constituted an "ineffective entitlement order."
Powers v. American Express Fin. Advisors, Inc., 82 F. Supp. 2d 448,
452 (D. Md. 2000). The court recognized that Powers and
D’Ambrosia were "entitlement holders" because as co-owners of the
American Express account, "they were identified in the records of the
securities intermediary (American Express) as having a security enti-
tlement against the intermediary." Id. at 451. Because D’Ambrosia
was an entitlement holder, the court acknowledged American
Express’s contention that D’Ambrosia was an "appropriate person" to
give an entitlement order to American Express under U.C.C. § 8-107.
Id. at 451-52. The court also noted that when an "appropriate person"
issues an entitlement order to a securities intermediary, the intermedi-
ary has a duty to execute the order under U.C.C. § 8-507(a)(2). Id. at
452. The court decided, however, that section 8-507(a)(2) cannot be
read in a vacuum because Section C of the couple’s investment appli-
cation with American Express requires the signatures of both inves-
tors for any redemption request above $50,000. The district court held
that Section C’s joint signature requirement was valid under U.C.C.
§ 1-103. See id. at 453. Section 1-103 states that "the principles of law
and equity . . . shall supplement [the U.C.C.]." Thus, "when an inter-
mediary has agreed that the ‘appropriate person’ to make an order is
both owners of a joint account, both owners must make the order." Id.
Because Powers did not authorize or otherwise ratify the transfer of
the $86,836.79 to an the account at FCNB, the district court con-
cluded that the transfer was ineffective. See id. at 452.
POWERS v. AMERICAN EXPRESS FINANCIAL ADVISORS 5
The district court also rejected American Express’s assertion that
the $50,000 threshold only applied to transfers from a single mutual
fund account. See id. at 454. Because Powers and D’Ambrosia did not
have more than $50,000 in any one of their four mutual funds, Ameri-
can Express asserted that two signatures were not required for the
$86,836.79 redemption. The district court held, however, that Ameri-
can Express’s interpretation was contrary to the plain language of
Section C which states that "only one signature is required for
redemption requests up to $50,000." Because the language of Section
C refers to redemption requests generally and not to redemption
requests out of individual funds, the district court concluded that two
signatures were required for any transfer greater than $50,000. See id.
The district court summarily rejected American Express’s remain-
ing contentions. American Express claimed that Powers was barred
from seeking damages under U.C.C. § 8-115. According to U.C.C.
§ 8-115, a securities intermediary is not liable to an individual who
has an adverse claim to an asset that a securities intermediary trans-
fers at the direction of a customer. The district court held that Powers
was not an adverse claimant for the simple reason that she was one
of two entitlement holders with respect to the account. See id. at 453.
Finally, the district court rejected American Express’s request that
the court impress the funds in the FCNB account with a constructive
trust on behalf of D’Ambrosia’s former employer, Signal Perfection
Limited. See id. D’Ambrosia had been an accountant at Signal Perfec-
tion. Around December 1997 or January 1998, Signal Perfection dis-
covered that D’Ambrosia had been embezzling money from the
company for some time. In late January of 1998 D’Ambrosia and Sig-
nal Perfection signed a settlement agreement disposing of all claims
the company had against D’Ambrosia. In exchange for the release
D’Ambrosia assigned to Signal Perfection his interest in certain
accounts, including the FCNB joint account. American Express
argued that the district court should impose a constructive trust on the
FCNB account because D’Ambrosia allegedly had deposited the con-
verted American Express funds in that account. The district court
denied American Express’s request, holding that American Express
did not have standing to seek a constructive trust on behalf of Signal
Perfection and that, in any event, American Express had failed to
demonstrate that it could trace the converted funds. See id.
6 POWERS v. AMERICAN EXPRESS FINANCIAL ADVISORS
Based on this reasoning, the district court granted Powers’s motion
for summary judgment and concluded that she was entitled to dam-
ages caused by American Express’s improper transfer of the funds
from the joint investment account. See id. at 454. The district court
subsequently entered judgment against American Express in the
amount of $86,836.79, together with prejudgment interest. See id. at
457-58. American Express appeals.
II.
After considering the joint appendix, the briefs, and the oral argu-
ments of counsel, we are persuaded that the district court reached the
correct result. We therefore affirm substantially on the reasoning of
the district court. See Powers v. American Express Fin. Advisors, Inc.,
82 F. Supp. 2d 448 (D. Md. 2000).*
AFFIRMED
*American Express contends that a genuine issue of material fact
exists as to whether Powers’s signature on the September 26 letter was
forged. We disagree. Although the district court devoted some attention
to the September 26 letter, its decision did not depend on the validity or
invalidity of Powers’s signature on that letter. Rather, the court’s deci-
sion turns on the fact that Powers never authorized a transfer of funds to
the FCNB account. The September 26 letter directed American Express
to send the funds to a Prudential Securities account. The only entitlement
order requesting a transfer to the FCNB account was the October 16 fax
memorandum that Powers never signed. Thus, the district court’s ulti-
mate conclusion that Powers never authorized or ratified the transfer to
the FCNB account is based on facts that are not contradicted.