Bank Does Not Have a Duty to Freeze an Account at the Request of a Non-Customer
 
May 16, 2005
 
Michael Weissman - Chicago

In Terry v. Bank of America, N.A., 350 F.Supp.2d 727 (W.D. Va. 2004) the receiver for a securities firm sought damages against Bank of America for violating a freeze order but was rebuffed.

The securities firm was headed by Terry L. Dowdell (Dowdell) who conducted a Ponzi scheme. Dowdell had opened a series of accounts at Bank of America. Four of the accounts were in the name of T.L. Dowdell. The fifth was in the name of Authorized Auto Service, Inc. (Authorized Auto). Dowdell was one of six authorized signatures on that account.

On November 19, 2001, an order was entered freezing Dowdell’s assets. A copy of the order was sent to the bank. In response, the bank froze the four accounts in the name of T.L. Dowdell, but did not freeze the Authorized Auto account.

On November 20, 2001, members of the Dowdell family went to the bank and exchanged a check drawn on the Authorized Auto account for a $512,000 cashier’s check payable to Authorized Auto. The $512,000 cashier’s check was deposited in Authorized Auto’s account at SunTrust Bank.

The receiver sued Bank of America for damages contending that the bank was negligent in not placing a hold on the Authorized Auto account and/or was guilty of converting the funds in the account.

The court said Bank of America could not be held liable for negligence since the receiver was not its customer and, since he was not a customer, the bank owed the receiver no duty of care. The court noted that the freeze order “… was not intended to create a legal relationship between the bank and the receivership entities or provide a private cause of action for negligence.”

As to the conversion claim, the court said it failed because one cannot bring a cause of action for conversion unless one is entitled to immediate possession of the contested money or property. The receiver did not allege he was entitled to immediate possession of the funds so his request for relief was denied

What’s the point?

When faced with a demand to freeze funds in an account, the bank may disregard it if the party making the demand is one with whom the bank has no legal relationship.

For more information, e-mail Michael L. Weissman at michael.weissman@hklaw.com or call toll free, 1-888-688-8500.