On March 3, 2022, the United States District Court for the District of Columbia issued a groundbreaking decision allowing Schulman Bhattacharya’s client, Marjorie Bloom, to proceed with her lawsuit against PNC Bank, N.A., in a ruling that has significant implications for the banking industry. Schulman Bhattacharya defeated PNC’s motion to dismiss, with the Court holding that PNC owed Ms. Bloom a contractual duty of care to investigate and intervene when faced with clear evidence of elder financial exploitation.
Ms. Bloom’s case against PNC arises from a situation that has become all too common. In the spring of 2021, Ms. Bloom, who was 75 years old at the time, was the target of a computer scam by which fraudsters posing as a Microsoft engineer and a PNC fraud investigator coerced her into liquidating her financial assets and transferring them the proceeds. In all, $661,00 moved into and out of Ms. Bloom’s PNC account through a series of two exceptionally large deposits and five wire transfers in quick succession over a period of only 29 days. This banking activity occurred from PNC locations in three different jurisdictions, and Ms. Bloom ordered all five wire transfers in-person at PNC bank branches where she interacted directly with PNC consumer banking personnel who observed her, reviewed her account information, and processed each wire transfer. All of these transactions were completely inconsistent with Ms. Bloom’s banking history—suddenly, a checking account that Ms. Bloom had used for everyday purchases was being used to receive and quickly wire hundreds of thousands of dollars. Ms. Bloom’s transactions in the spring of 2021 had the well-known hallmarks of elder financial exploitation.
Despite PNC’s claimed sophisticated, federally-mandated systems designed to detect suspicious banking activity and the robust policies that PNC purports to maintain to ensure its customer-facing employees have the knowledge and skill to recognize elder financial exploitation, PNC repeatedly ignored the obvious red flags raised by each of Ms. Bloom’s five wire transfers. PNC employees took no action to investigate Ms. Bloom’s transfer requests or to determine whether her assets were at risk. Instead, when faced with textbook evidence of financial exploitation PNC employees did nothing, and Ms. Bloom’s life savings were stolen.
On May 5, 2022, Schulman Bhattacharya, on Ms. Bloom’s behalf, filed suit against PNC in the United States District Court for the District of Columbia, asserting claims for breach of contract and, in the alternative, negligence. PNC moved to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing that Article 4A of the Uniform Commercial Code (the “UCC”) preempts common law claims related to wire transfers and that, in the alternative, PNC did not owe Ms. Bloom a contractual duty of care under the circumstances.
The Court, agreeing with Schulman Bhattacharya, denied PNC’s motion with respect to Ms. Bloom’s contract claim. First, the Court held that UCC Article 4A does not preempt Ms. Bloom’s contract claim because the circumstances of this case fall outside the scope of Article 4A’s express provisions. The Court adopted Schulman Bhattacharya’s argument, holding that “Article 4A applies only to instances where a funds transfer is not authorized, or if there is an error in the actual mechanics of executing a funds transfer . . . [Ms.] Bloom does not allege that the wire transfers here were unauthorized or that there were any errors in PNC’s execution of the wire transfers. Instead, she alleges that PNC repeatedly failed to respond appropriately to clear indications that [Ms.] Bloom was being defrauded, despite PNC’s extensive institutional knowledge about elder financial exploitation.” “Because Article 4A preemption only applies when a common law claim fits squarely within the terms of the Article, [Ms.] Bloom’s claims are not precluded by the U.C.C.”
The Court then held that Ms. Bloom sufficiently pleaded a contractual claim because the UCC itself establishes an implied duty of care in an account agreement between a bank and its customer that could be enforced through an action for breach of contract. In reaching this holding, the Court adopted Schulman Bhattacharya’s argument that, although no District of Columbia precedent existed on the issue, the Court should look to the law of Maryland, which recognizes this implied duty of ordinary care under UCC Articles 3 and 4, and that this implied duty should be extended to include wire transfers under Article 4A as well. The Court went on to hold that Ms. Bloom had successfully established that PNC owed her a legally actionable duty—i.e., that PNC owed Ms. Bloom a duty of ordinary care under her account agreement to investigate and intervene if necessary to stop her wire transfers when it was repeatedly confronted with clear evidence that she was a victim of elder financial exploitation. Underscoring the strength of this contractual duty, Ms. Bloom’s negligence claim, which she pleaded in the alternative to her contract claim, was dismissed because no duty independent of her account agreement was implicated.
Schulman Bhattacharya’s research indicates that this is the first decision in the District of Columbia in which a court has held that a bank owed its elder customer a duty to investigate and intervene to prevent an authorized transaction where the bank knew or should have known that its customer was being defrauded. Elder financial exploitation is a major societal problem recognized by the entire banking industry, as well as by federal and state governments—indeed, PNC has internal policies and published webpages on the issue. This decision makes clear that banks cannot turn a blind eye when their elderly customers are being taken advantage of.
The Schulman Bhattacharya team handling this matter consists of Jeremy Schulman and Mace Phillips. A copy of the March 3, 2022 court decision can be found here.
Schulman Bhattacharya, LLC is an international law firm based in the Washington, D.C. area focused on resolving the most complex and challenging commercial disputes facing its clients— through litigation, arbitration, mediation, and informal negotiation. The Firm has vast experience representing clients in nearly every industry sector. The Firm represents companies of all sizes, locally, regionally, nationally, and internationally, and it represents individuals with valuable commercial and personal interests to protect.
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