Kathleen Wolens v. Morgan Stanley Smith Barney, LLC

NOT FOR PUBLICATION WITHOUT THE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
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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
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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.
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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
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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
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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,
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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
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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
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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
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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
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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
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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.
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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
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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.
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