Negligent Enablement: Cause of Action: Cases Saying "No

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David A. Szwak

Negligent Enablement: Cause of Action: Cases Saying "No

Postby David A. Szwak » Tue Oct 11, 2005 10:28 am

Is There a Cause of Action for Negligent Enablement?

A. Cases Saying No

Some courts have refused to find a cause of action styled “negligent enablement of an impster” in favor of the ID theft victim back against the duped lender who created the application fraud account in favor of the imposter. Huggins v. Citibank, NA, et al, 2003 WestLaw 21901366, 585 S.E.2d 275, No. 25691 [S.C. 8/11/03]. In Huggins, suit was filed in federal court in South Carolina but questions were certified to the state Supreme Court after Chief U.S. District Judge Joseph F. Anderson, Jr., decided that it presented unanswered questions of state law. Judge Anderson certified the following questions to the State Supreme Court: "Does South Carolina law recognize the tort of Negligent Enablement of Impostor Fraud? If so, what are the elements of the tort and does plaintiff's complaint state an actionable claim for the tort?" The South Carolina Supreme Court have unanimously ruled that no such tort exists. One Justice stated that: "The relationship, if any, between credit card issuers and potential victims of identity theft is far too attenuated to rise to the level of a duty between them."

The plaintiff, P. Kenneth Huggins, alleged that an identity thief had applied for six credit cards in his name and that the banks issued the cards "with no investigation, no verification, no identification, no corroboration, and no effort whatever to determine whether Doe was who he claimed to be." The impostor utilized the credit cards for money and goods but failed to make any payments, thereby causing Huggins to be pursued by false credit reporting arising therefrom and from collection agencies’ contacts.

Huggins argued that the banks should be liable under a negligence theory since they failed to scrutinize the applications and took no care. He unsuccessfully argued that identity theft is increasingly common and is, therefore, "foreseeable" by the banks. The Huggins court, however, agreed with the defendants that "foreseeability alone does not suffice to create a duty of care." The South Carolina Supreme Court stated: "Even though it is foreseeable that injury might arise by the negligent issuance of a credit card, foreseeability alone does not give rise to a duty."

In an earlier opinion, the New York Supreme Court also refused to recognize the tort of "negligent enablement of impostor fraud" in its 1998 decision in Polzer v. TRW Inc., et al, 256 A.D.2d 248, 682 N.Y.S.2d 194 (N.Y. App. Div. 1998). The New York court ruled that the banks "had no special relationship either with the impostor who stole the plaintiffs' credit information and fraudulently obtained credit cards, or with plaintiffs, with whom they stood simply in a creditor/debtor relationship." The intermediate New York State appellate court affirmed summary judgment dismissal of the plaintiffs’ causes of action against a duped lender-furnisher of credit data. The court found that New York law, contrary to Patrick v. Union State Bank, an Alabama Supreme Court decision, and other cases, did not recognize a cause of action for "negligent enablement of imposter fraud." The court found no "special relationship" with either the imposter who stole plaintiffs’ credit information, or with the plaintiffs, with whom they stood simply in a creditor/debtor relationship. As to the other state law claims, the court found "no evidence of ill will, malice or extreme outrageous conduct, or of actual physical injury or apprehension of physical harm..."

In First Select, Inc. v. Washington, 2002 WL 31109817, Not Reported in N.Y.S.2d,
N.Y.Sup.App.Term, Sept. 13, 2002, the plaintiff-lender moved to dismiss the defendant’s-
consumer’s second and third counterclaims. The court modified its order and granted plaintiff's motion to dismiss the second and third counterclaims. The court of appeal affirmed, with $10 costs awarded to the plaintiff-appellant. This suit arose as: plaintiff claimed that the defendant owed credit card charges. The defendant denied opening the account or incurring the debt sued upon. At issue on appeal was the civil court's denial of the plaintiff's motion to dismiss the defendant's counterclaims for negligent infliction of emotional distress and harassment: “Even assuming the truth of defendant's allegations, these causes of action should have been dismissed because there is no record evidence of "ill will, malice or extreme outrageous conduct"’ and “no special duty owed defendant by plaintiff.” Citing Polzer. The defendant, in his counterclaim, argued that the plaintiff had negligently enabled an imposter and thereby damaged plaintiff in various respects.

In Smith v. Citibank (South Dakota), N.A., 2001 WestLaw 34079057 [U.S.D.C. W.D. Mo. 2001], on reconsideration, the plaintiff’s negligent enablement claims were dismissed as to two duped lenders. Smith had alleged that defendants have defamed him by furnishing false information to consumer reporting agencies, and that Defendants were negligent in opening a credit account in Smith's name and in investigating disputes regarding liability for amounts due on the account. The court had issued an order granting summary judgment with respect to defamation, and denying it for the negligence claims. On reconsideration, the court dismissed his negligence claims as well.

The defendants asserted that they had no duty to Smith because he was a non-customer. Most courts have held that banks do not owe a duty to non-customers. See, e.g., Guidry v. Bank of LaPlace, 954 F.2d 278 (5th Cir.1992) ("a bank owes no duty to those not its customers"); Polzer v. TRW, Inc., 682 N.Y.S.2d 194 (N.Y. App. Div.1998) (plaintiffs failed to state a cause of action for negligence because Defendants had no special relationship with the plaintiffs or with the imposter who stole plaintiffs' personal information and fraudulently obtained the credit cards); Software Design and Application, Ltd. v. Hoefer & Arnett, Inc., 49 Cal.App. 4th 472 (Cal.App. 1 Dist.1996); and Volpe v. Fleet Nat'l Bank, 710 A.2d 661 (R.I.1998). Smith admitted that he was not a customer of the defendants. The court found that Smith failed to set forth by affidavit or other evidence specific facts showing that the defendants owed him a duty.

The Smith court had already held that Smith's negligence claim was outside the realm of the FCRA. Thus, even if his claim was properly brought pursuant to the FCRA, the claim would fail. Regarding the FCRA, the defendants asserted that they had no duty to investigate Smith's disputes because the duty to investigate arises only when a consumer reporting agency provides the furnishers of information with notice of a dispute. Smith claimed, for the first time, that he notified national consumer reporting agencies and the defendants of the dispute with his credit report. The Smith court found no evidence of a dispute to any credit bureau to trigger a FCRA section 1681s-2[b] duty or claim.

The court in Software Design and Application, Ltd. v. Hoefer & Arnett, Inc., 49 Cal.App.4th 472, 478-83 [1996], held that the defendant credit card issuer did not owe a duty of care to the plaintiff because the plaintiff was not a customer and because the credit card issuer had no idea that the credit card account was actually opened by an impostor using the plaintiff’s personal information. Similarly, Chazen v. Centennial Bank, 61 Cal.App.4th 532 at 481-83, held that the defendant bank owed no duty of care to non-depositor third party unknown to bank. And, Karen Kane v. Bank of America Nat. Trust and Savings Assn., 67 Cal.App.4th 1192, 1197-1203 [1998], held that neither the defendant check cashing service nor the bank owed a duty of inquiry to a non-customer with whom neither had any preexisting relationship, despite unconventional or unorthodox endorsements on the allegedly forged checks).

One of the best-known recent cases is Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220, 48 UCC Rep.Serv.2d 694, 4th Cir.(N.C.), Aug 26, 2002. In Eisenberg, the victim of a fraudulent investment scheme brought a negligence action against the bank through which the funds were transferred. Under North Carolina law, the bank did not owe a duty of care to a non-customer who was defrauded by the bank's customer through use of its services: Eisenberg had no direct relationship with Wachovia. He was not a Wachovia bank customer and, so far as the allegations indicate, has never conducted business with Wachovia. Eisenberg instead transacted with Reid, a Wachovia bank customer.

Courts in numerous jurisdictions have held that a bank does not owe a duty of care to a non-customer with whom the bank has no direct relationship. See Weil v. First
Nat'l Bank of Castle Rock, 983 P.2d 812, 815 (Colo. Ct. App. 1999); Volpe v.
Fleet Nat'l Bank, 710 A.2d 661, 664 (R.I.1998); Miller-Rogaska, Inc. v. Bank
One, 931 S.W.2d 655, 664 (Tex. App. 1996); Software Design & Application,
Ltd. v. Hoefer & Arnett, Inc., 49 Cal.App.4th 472, 56 Cal.Rptr.2d 756, 760-63
(1996); Portage Aluminum Co. v. Kentwood Nat'l Bank, 106 Mich.App. 290, 307
N.W.2d 761, 764-65 (1981); Pa. Nat'l Turf Club, Inc. v. Bank of W. Jersey, 158 N.J.Super. 196, 385 A.2d 932, 936 (1978); Gesell v. First Nat'l City Bank, 24 A.D.2d 424, 260 N.Y.S.2d 581, 581-82 (1965).

In McCallum v. Rizzo, 1995 WestLaw 1146812 (Mass. Super. Ct. Oct. 13, 1995), plaintiff McCallum loaned money to the Tsongas Committee, an organization advocating the election of presidential candidate Paul Tsongas. Rizzo, the chief fund raiser for the Tsongas Committee, opened a bank account at Andover Bank bearing the committee's name and listed himself as sole signatory. The bank did not verify that Rizzo was authorized to transact business on behalf of the Tsongas Committee. Rizzo used the bank account to convert the proceeds of contributions and loans to the Tsongas Committee to his own use. McCallum's funds were converted by Rizzo. McCallum sued Andover Bank on a theory of negligence. He argued that the bank "owed a duty to contributors to the Tsongas committee to exercise due care in the opening and handling of the Tsongas Committee account." The McCallum court disagreed and followed cases in other jurisdictions which held "a bank's failure to investigate a customer's suspicious activity ... does not give rise to liability to the third party who is injured by the customer's fraud." The court explained:
The mere fact that a bank account can be used in the course of perpetrating a fraud does not mean that banks have a duty to persons other than their own customers. To the contrary, the duty is owed exclusively to the customer, not to the persons with whom the customer has dealings.

And in Galaxie Corp. v. Bank of America, case no. 97-70275, [U.S.D.C. S.D. Mich. 6/16/97], the plaintiff sued under various theories due to credit card fraud, alleging that Bank of America (BOA) negligently enabled the defrauder. BOA sent an unsolicited credit card application to the plaintiff at his employment address. It was intercepted and returned by the defrauder, using the plaintiff’s identifiers. BOA sent the card to the defrauder’s address in the plaintiff’s name. The court held that the “plaintiffs cannot prevail on their claim of negligent issuance of a credit card, as they have failed to present any facts upon which a court could find that BOA was the proximate cause of any damages.” The court used an“intervening, superseding cause” analysis and ignored the fact that BOA’s neglect and reckless/wanton behavior facilitated the criminal actions. In short, nothing intervened or superseded BOA’s fault in continuing to allow fraudulent charges and error-ridden reports dunning the plaintiff. BOA directed the false reportings to its agents, the credit bureaus for reproduction and publication.

The “Banker's privilege” thus holds that a bank does not have a general duty to non-customer third parties. General Electric v. Central Bank, 49 F.3d 280, 281 (7th Cir.1995). “Banker's privilege” deals with tort actions, not contract or warranty actions. Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220 (4th Cir. 2002) (negligence); Aetna Cas. & Sur. Co. v. Leahey Constr. Co., 219 F.3d 519 (6th Cir.2000) (fraud and negligence); Chrysler Credit Corp. v. Whitney Nat'l Bank, 798 F.Supp. 1234 (E.D. La.1992) (conversion); Volpe v. Fleet Nat'l Bank, 710 A.2d 661 (R.I.1998) (restitution); McCallum v. Rizzo, 1995 WestLaw 1146812 (Mass. Super. Oct 13, 1995) (negligence). Ramsey v. Hancock, --- P.3d ----, 2003 WestLaw 22208359, 483 Utah Adv. Rep. 10, 2003 UT.App 319, Utah App., [Sept. 25, 2003] [Depository bank did not owe duty to payee, who was not a customer, but who was a victim of check fraud]. In accord: Miller-Rogaska, Inc. v. Bank One, 931 S.W.2d 655 (Tex.App.1996), Volpe v. Fleet National Bank, 710 A.2d 661 (R.I.1998), and Anschutz v. Central National Bank of Columbus, 173 Neb. 60, 112 N.W.2d 545 (1961); IBP, Inc. v. Mercantile Bank of Topeka, 6 F.Supp.2d 1258, 1265 (D. Kan. 1998); Bank Polska Kasa Opieki v. Pamrapo Sav. Bank,909 F.Supp. 948, 956 (D. N.J. 1995); Roy Supply Inc. v. Wells Fargo Bank, 39 Cal.App.4th 1051, 46 Cal.Rptr.2d 309, 312 (1995) (affirming lower court's dismissal of the defendant's individual negligence claim because the bank "did not owe a duty of care to [the plaintiff] individually as he was not a customer of the Bank"); Weil v. First Nat'l Bank of Castle Rock, 983 P.2d 812, 814 (Colo. Ct. App.1999) (holding bank generally has no duty to non-customer with whom it has no relationship); Pennsylvania Nat'l Turf Club, Inc. v. Bank of West Jersey, 158 N.J.Super. 196, 385 A.2d 932, 936 (1978) (holding no duty owed by drawee bank to holder of checks absent "agreement, undertaking or contact between plaintiff and defendant from which any special duty can be derived").

David A. Szwak

SD Ala Has Never Been Consumer-Friendly

Postby David A. Szwak » Tue Oct 11, 2005 11:09 pm

Robinson v. Equifax Information Services, LLC.
Slip Copy, 2005 WL 1712479

"B. SSA Was Not Negligent.

1. This Is Not a Case of Imposter Fraud.

Before Any Action Was Taken that Would Adversely Affect Plaintiff's Credit History, She Was Notified by SSA that It Intended to Act on the Personal Guarantee.
*9 SSA notes that plaintiff has asserted a state law claim against it for negligently opening an account for, and issuing credit cards to, an imposter.

According to SSA, this claim generally is known as negligent enablement of imposter fraud. Conventionally, SSA maintains, the cases dealing with this claim involve a bank or creditor opening an account for an imposter using stolen personal identification information.

SSA contends that a number of states have refused to recognize such a cause of action, relying on the rule that one does not owe a duty to protect another from the criminal acts of a third party, absent a special relationship. See Smith v. Citibank (South Dakota), N.A., No. 00-0587-CV-W-1-ECF, 2001 WL 34079057, at *2-3 (W.D.Mo. October 3, 2001) (finding credit card issuer owed no duty to victim of imposter fraud, a non-customer); Huggins v. Citibank, N.A., 355 S.C. 329, 585 S.E.2d 275, 277 (S.C.2003) (finding that foreseeability alone does not give rise to duty, and holding that credit card issuers have no duty of care to protect potential victims of identity theft because there is no special relationship); Polzer v. TRW, Inc., 256 A.D.2d 248, 248, 682 N.Y.S.2d 194 (N.Y.App.Div.1998) (holding that credit card issuer had no special relationship with either imposter or victim and, therefore, no duty was owed).

According to SSA, Alabama courts have long applied the rule that, "absent a special relationship or special circumstances, a person has no duty to protect another from criminal acts of a third person." Patrick v. Union State Bank, 681 So.2d 1364, 1367 (Ala.1996).

Nevertheless, SSA acknowledges, in Patrick, the Alabama Supreme Court recognized a claim for negligent enablement of imposter fraud. Id. at 1371. However, SSA maintains, Patrick is distinguishable from the facts here. SSA argues that Patrick questioned the actions of a bank under conventional imposter fraud circumstances. In Patrick, an imposter opened an account in the plaintiff's name and was issued checks, allowing the imposter to write several bad checks. Id. at 1365. As a result of the imposter's actions, the plaintiff was arrested and incarcerated for several days. Id. at 1366. Under those facts, the Patrick court held that "a bank owes a duty of reasonable care to the person in whose name, and upon whose identification, an account is opened to ensure that the person opening the account and to whom checks are given is not an imposter." Id. at 1371. SSA argues that the facts here are different. [FN20]

FN20. According to SSA Patrick is the only Alabama case imposing such a duty. SSA maintains that the only other Alabama case dealing with negligent enablement of imposter fraud is Smith v. AmSouth Bank, Inc., 892 So.2d 905 (Ala.2004). In Smith, the court refused to impose a duty on the defendant, and stated "[t]he circumstances in Patrick were particularly egregious, and Patrick is distinguishable from this case." 892 So.2d at 912.

In the present case, SSA asserts, there were no typical fraud circumstances, and the parties were not involved in a banking relationship. [FN21] Further SSA contends, an imposter did not open an account in Robinson's name. Instead, the account was in the name of Lethal's Landscaping, and Dunn was the only signatory on the account. Moreover, SSA argues, credit charges were never made in Robinson's name.

Unlike the circumstances in Patrick, SSA observes, here nothing was done to adversely affect Robinson's credit rating until after she was put on notice that SSA had a personal guarantee that purportedly bore her signature. In Patrick, SSA notes, several checks were written by an imposter in the plaintiff's name, and the plaintiff knew nothing about the fraud until she was notified about a warrant for her arrest for issuing worthless checks. 681 So.2d at 1365-66. Here, SSA states, before it took any action that might have impacted Robinson, she was notified about the personal guarantee. Yet, SSA asserts, even though Robinson was advised that the SSA account would be placed in her name and that her credit history would be affected, she did nothing for nearly a year.

FN21. SSA argues that the fact that the defendant was a bank was significant to the court's holding in Patrick. The court stated:

In a case upholding legislative regulation of the banking industry, this Court noted, generally: "Banks stand in the intimate relation of a fiduciary to those who are their customers, depositors, stockholders, and associate banks, as well as the public generally, whose members are affected by their operation. Ordinary corporations handle their own money, but banks handle the money of other individuals. They are quasi-public corporations by nature, subject to regulation and supervision by the state."
Security Trust & Savings Bank v. Marion County Banking Co., 287 Ala. 507, 513, 253 So.2d 17, 21 (1971). Of course, banks do not actually have a legal fiduciary duty to the public at large, see Bank of Red Bay v. King, 482 So.2d 274 (Ala.1985) (noting that special circumstances are necessary to impose on a bank a fiduciary duty to disclose, because the relationship between a bank and its customer has been traditionally viewed as merely a creditor-debtor relationship), but the quotation from
Security Trust illustrates the importance of, and the public trust placed in, the banking industry. Thus, the nature of the activity of a bank, such as Union State Bank, is such that some duty to the public in the exercise of the bank's business may be justifiably imposed. 681 So.2d at 1369. As it is not a bank, SSA argues, it does not holed the same fiduciary-like position in relation to the public.

*10 SSA argues that, in Smith v. AmSouth Bank, Inc., 892 So.2d 905 (Ala.2004), the Alabama Supreme Court clarified its position on the question of foreseeability in imposter fraud situations. In Smith, the court stated:
Additionally, and most importantly to this case, the question of foreseeability is answered by viewing events from the perspective of the defendant charged with negligence, in this case, AmSouth. Hanna v. Riggs, 333 So.2d 563, 567 (Ala.1976).
In Patrick, the resolution of the issue of foreseeability was unclear. We concluded that "[t]he issuance of worthless checks is extremely likely to result from opening a checking account for, and giving checks to, an imposter." 681 So.2d at 1369. Rather than approaching the inquiry from the perspective of the defendant bank, this Court in Patrick appears to have approached the foreseeability inquiry from the perspective of the impostor. Without addressing whether the conclusion in Patrick was appropriate, we note that a properly framed question would ask whether it was foreseeable that the opening of the checking account under the particular circumstances would lead to criminal activity, perhaps the passing of worthless checks. The correct question may have still yielded an affirmative answer, but our inquiry in Patrick was not properly focused. 892 So.2d at 910-11. Therefore, SSA concludes, the question in the instant case should be whether it was foreseeable to SSA that, in agreeing to open a commercial account in the name of Lethal's Landscaping, Dunn would forge Robinson's name on the personal guarantee

SSA maintains that foreseeability depends on the facts and circumstances known to the defendant at the time of the events in question. See Ex parte Wild Wild West Social Club, Inc., 806 So.2d 1235, 1239-41 (Ala.2001) (stating that foreseeability "depends upon the facts and circumstances of each case"). Here, SSA asserts, it knew that Robinson was a corporate officer of Lethal's Landscaping. SSA notes that it received the signed personal guarantee after writing Robinson at the company's address. Further, Robinson's purported signature was witnessed by Dunn and another company officer. According to SSA, there was nothing that occurred during the application process that gave, or should have given, SSA any reason to suspect any impropriety. [FN22]

FN22. SSA contends that the facts here differ from those in
Patrick, where the bank was held to have had "actual notice" of a discrepancy between the imposter signature and the victim's stolen driver's license. 681 So.2d at 1370."[/u]

David A. Szwak

Postby David A. Szwak » Sat Dec 03, 2005 11:19 am

Riley v. General Motors Acceptance Corp.
226 F.Supp.2d 1316

Before proceeding to analysis of § 1681s-2(b), the court must first address plaintiff's allegations in paragraph 17 of the complaints against GMAC. The plaintiff alleges that "Defendant likewise violated the mandates of section 1681s-2(a) and such violations form the basis of a negligence per se claim and an intentional tort per se." The preliminary question of standing prevents the court from reaching the question of whether violations of 1681s-2(a) may constitute "negligence per se" or "intentional tort, per se" claims under Alabama law.
There is no private cause of action under 15 U.S.C. § 1681s-2(a). This is clear from the language of 15 U.S.C. § 1681s-2(c), which states, "Sections 1681n and 1681o of this title [providing for civil liability for willful or negligent noncompliance with the FCRA] do not apply to any failure to comply with subsection (a) of this section, except as provided in section 1681s(c)(1)(B) of this title [providing for civil actions filed by the chief law enforcement officer of a State or other such official]." 15 U.S.C. § 1681s-2(c)(West 2002). The limitation is more clearly stated in § 1681s-2(d): "Subsection (a) of this section shall be enforced exclusively under section § 1681s of this title by the Federal agencies and officials and the State officials identified in that section." Thus, because he is not the Attorney General of Alabama or an appropriate federal official, the plaintiff has no standing to allege claims under 1681s-2(a) against FCRA. See Aklagi v. Nationscredit Financial, 196 F.Supp.2d 1186, 1192 (D.Kan.2002)("[B]ecause of [§ 1681s-2] subsections (c) and (d), the [plaintiffs] have no private cause of action for [defendant/credit information furnisher's] arguable violations of [§ 1681s-2] subsection (a)."); Yelder v. Credit Bureau of Montgomery, L.L.C., 131 F.Supp.2d 1275, 1283 (M.D.Ala.2001)("[Plaintiff's FCRA] claim fails because no private right of action exists for a violation of § 1681s-2(a)"); Fino v. Key Bank of New York, 2001 WL 849700 *4 (W.D.Pa.2001)("There is no private right of action for a violation of [§ 1681s-2(a) ]." (emphasis in original)); Quigley v. Pennsylvania Higher Education Assistance Agency, 2000 WL 1721069 *2 (N.D.Cal.2000)(In suit filed under 1681s-2(a), concluding that "plaintiff does not have a private right of action under the FCRA against [defendant] as a furnisher of information to consumer reporting agencies."); DiMezza v. First USA Bank, Inc., 103 F.Supp.2d 1296, 1299 (D.N.M.2000)("It is without doubt, ... that § 1681s-2(d) under the subtitle defining the duties of furnishers of information, by its language, exclusively limits enforcement of the accurate information provisions under § 1681s-2(a) to federal and state officers thus precluding any action under sections 1681n and 1681o.").
*1320 [1] The court finds no reported authority confronting the first issue before this court: an allegation that violations of § 1681s-2(a) form the basis for state law "negligence per se or intentional tort, per se" claims. Either no federal court has confronted a similarly pled complaint or the proposition is so fundamental that no court has bothered to publish on the issue. In any case, this court holds that where the plaintiff has no private cause of action under § 1681s-2(a), the plaintiff cannot allege violations of 1681s-2(a) as the basis for state law claims. Accordingly, all state law claims based on alleged violations of § 1681s-2(a) are DISMISSED.

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