Banks regularly enter into commercial relationships with their customers such as opening new depository accounts. These relationships are often contractual in nature and seem relatively straightforward until an unexpected incident occurs that causes the relationship to unravel. What then are the duties owed by each party to each another? The default rule seems to be that the terms and conditions that the parties agreed to at first govern the parties’ actions throughout their banking relationship.

But, this default rule has not stopped creative lawyering from trying to elevate traditional commercial banking relationships into ones that are governed by noncontractual terms. Such was the case in Fort v. SunTrust Bank (In re International Payment Group, Inc.), No. 16-2001 (4th Cir. March 21, 2018), where a chapter 7 trustee sought to hold a bank liable for tort claims, because the bank had terminated its regular services to the Debtor pre-bankruptcy. In the end, the Fourth Circuit disagreed with the trustee’s contentions.

Facts

Debtor International Payment Group, Inc. (“Debtor”) operated a money service business, facilitating foreign currency transactions, including exchanging foreign currencies and related wire transfers and drafts. In most transactions, a customer paid the Debtor for foreign currencies and the Debtor became obligated to pay the customer’s beneficiary.

In 2005, the Debtor contracted with SunTrust Bank to facilitate its foreign currency business. SunTrust’s rules and regulations for deposit accounts and terms and conditions for foreign exchanges set forth the contractual obligations between the parties. These agreements included several provisions (a) disclaiming any fiduciary status of SunTrust, (b) disclaiming any liability for acts performed in compliance with the parties’ contractual terms and (c) limiting SunTrust’s liability to instances involving willful misconduct or gross negligence. The rules and regulations further provided that the Debtor could discontinue or refuse to offer the Debtor any account, service or product at any time.

Based on the foregoing, SunTrust provided the Debtor with various foreign exchange services, including access to an online foreign exchange system and an online treasury management system. SunTrust also performed other ancillary services, including opening two foreign bank accounts in its own name to facilitate the Debtor’s foreign exchange transactions.

Apparently, the Debtor employed poor accounting and oversight practices that contributed to its financial demise. In January 2018, the Debtor’s president discovered that his chief financial officer had misappropriated $1 million or more from the Debtor. The Debtor contemporaneously informed SunTrust of the malfeasance and further expressed uncertainty as to whether other employees were involved.

Considering the unknowns, SunTrust blocked all of the Debtor’s employees from accessing its online systems. This severely limited the Debtor from continuing to operate it business and ultimately resulted in the Debtor filing for chapter 7 bankruptcy.

Trustee’s Claims

Two years after the bankruptcy filing, the chapter 7 trustee filed an adversary proceeding against SunTrust, claiming that the Bank committed negligence, gross negligence and breach of fiduciary duty under South Carolina law. According to the trustee, after the Bank blocked the Debtor from accessing its online systems, the Debtor’s business collapsed.

Because the adversary proceeding involved state law, Stern—type claims, the District Court held sole jurisdiction to adjudicate the claims. The District Court ultimately entered a take-nothing judgment in favor of SunTrust and an appeal ensued.

Analysis

On appeal to the Fourth Circuit, the chapter trustee 7 argued that SunTrust owed the Debtor a non-contractual duty of care and fiduciary duty by virtue of a unique relationship.

The Fourth Circuit found that under applicable state law, the “relationship between a general depositor and his bank is that of creditor and debtor, and money deposited, unless put into a special account or specifically designated to be kept separate, becomes the property of the bank and goes into the [bank’s] general account.” Citing Owens v. Andrews Bank & Trust Co., 220 S.E.2d 116, 119 (S.C. 1975). As such, banks generally owe depositors no extra duty of care unless there are special circumstances. Citing Cowburn v. Leventis, 619 S.E. 437, 451 (S.C. Ct. App. 2005).

The trustee contended that SunTrust provided special services to the Debtor that elevated the relationship beyond that of a normal creditor and debtor. In particular, the trustee pointed to SunTrust’s daily accounting and communications, SunTrust’s opening of foreign bank accounts, the Debtor’s exemption from certain SunTrust policies, and the financial gain reaped by both sides throughout the relationship.

The Fourth Circuit held, however, that SunTrust owed no non-contractual duty to the Debtor, first, because SunTrust’s rules and regulations disclaimed the creation of any such duty, and, second, because SunTrust did not separate the Debtor’s funds, advise the Debtor on how to run its business or otherwise perform roles beyond those contemplated by parties’ contractual arrangement. The Fourth Circuit further held that, pursuant to SunTrust’s rules and regulations—which limited liability—the Bank could not be held liable for merely complying with its contractual terms with the Debtor.

With respect to the breach of fiduciary duty claim, the trustee relied on the same evidence. But, the Fourth Circuit noted that a bank is generally not a fiduciary unless it intentionally separates a customer’s funds into a special account or undertakes to advise the customer as part of the services the bank offers. Citing Rush v. S.C. Nat’l Bank, 343 S.E.2d 667, 668 (S.C. Ct. App. 1986).

Using the same reasoning as before, the Fourth Circuit then concluded that the Debtor’s and SunTrust’s debtor-creditor relationship was not transformed into one of fiduciary nature, because there was an absence of unique facts to support such a relationship. According to the Fourth Circuit, even though the Debtor may have been a unique client of SunTrust, the character of what the Debtor was doing through SunTrust’s online systems did not differ significantly from the average depositor’s relationship with the Bank. The Fourth Circuit finally held that, even if a fiduciary duty existed, SunTrust could not have breached such duty by merely following the terms in its rules and regulations.

Conclusion

While the International Payment Group opinion primarily revolves around South Carolina law, the laws governing commercial banking relationships are similar throughout the United States. Thus, it would not be surprising if the Fourth Circuit’s conclusions are replicated in other jurisdictions.

What is clear from this opinion is that, while a commercial bank may hold unique clients, its traditional, commercial banking relationship with any clients are contractual in nature, and the bank cannot be held liable for breach of noncontractual duties unless it significantly deviates from the agreed-upon terms of its relationship. In International Payment Group, the Fourth Circuit held that SunTrust did not deviate so far as to impose any noncontractual duties.