Grabowski v. Bank of Boston
| Decision Date | 07 August 1997 |
| Docket Number | No. 94-CV-12201-PBS.,No. 94-CV-11461-PBS.,94-CV-11461-PBS.,94-CV-12201-PBS. |
| Citation | 997 F.Supp. 111 |
| Parties | Armin GRABOWSKI, Herbert Blesch, Dieter Wurdig, Gunter Huber, Stephen Carter Corby, Thomas Kriesl, Willem Adriaanse, Klaus George Weigand, and Upclass Investments, Ltd., Plaintiffs, v. BANK OF BOSTON, Kinder Capital, Inc., Continental Capital Markets, Inc. Norman Epstein, Harold Glantz, Guido Haak and Arthur James Laycock, Defendants, and NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Intervenor. and FRIONA LIMITED and Bernd Weber, Plaintiffs, v. BANK OF BOSTON, Kinder Capital, Inc., Continental Capital Markets, Inc. Norman Epstein, Harold Glantz, Arthur James Laycock, and John Does 1 through 100, Defendants, and NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Intervenor. |
| Court | U.S. District Court — District of Massachusetts |
Michael A. Collora, Dwyer & Collora, Boston, MA, for Gunter Huber, Stephen Carter Corby, Thomas Kriesl.
Robert Axelrod, Axelrod, Lanzoni & Teague, Meriden, CT, Michael A. Collora, Dwyer & Collora, Boston, MA, for Willem Adrianse, Upclass Investments, Ltd.
Robert Axelrod, Axelrod, Lanzoni & Teague, Meriden, CT, Michael A. Collora, Dwyer & Collora, Boston, MA, Christopher Weld, Jr., Todd & Weld, Boston, MA, for Klaus George Weigand.
Harold Jacobi, III, Robert C. Cooley, Jacobi & Associates, Boston, MA, for Bernd Weber.
Robert Christo, Robert Christo & Associates, Springfield, MA, Timothy M. Kotfila, Law Office of Timothy Kotfila, Springfield, MA, for National Union Fire Ins. Co., Pittsburgh.
Thomas H. Walsh, Jr., S. Elaine McChesney, Peter J. Mancusi, Laura A. Clark, Bingham, Dana & Gould, Boston, MA, for Bank of Boston.
Richard Ben-Veniste, Weil, Gotshal & Manges, Washington, DC, for Continental Capital Markets, Inc., Harold Glantz.
David J. Burgess, Michael A. Collora, Dwyer & Collora, Boston, MA, for Dieter Wurdig.
MEMORANDUM AND ORDER ON MOTIONS AND CROSS-MOTIONS FOR SUMMARY JUDGEMENT
These cases arise out of an investment scheme operated by Kinder Capital ("Kinder") involving so-called "prime bank instruments" —a non-existent security. At the direction of Kinder Capital's agents, plaintiffs Armin Grabowski, Herbert Blesch, Dieter Wurdig, Gunter Huber, Stephen Carter Corby, Thomas Kriesl, Willem Adriaanse, Klaus George Weigand, Upclass Investments, Friona Ltd., and Bernd Weber deposited approximately $21 million in various accounts at the Bank of Boston ("the Bank"). All of these accounts were subject to a power of attorney drafted by Kinder for Norman Epstein, who was given authority to operate the accounts so long as the account balance of cash, invoices, and prime bank instruments did not drop below the amount of their initial deposits. Epstein used Kinder's power of attorney to abscond with the plaintiffs, money by withdrawing substantially all of their funds.1 The plaintiffs have sued the Bank, Kinder, Epstein, and others to recover their funds.
The present controversy before the Court concerns various motions for summary judgment. The plaintiffs have moved for summary judgment against the Bank, and the Bank has cross-moved for summary judgment. The main issue in all these motions is whether the power of attorney granted by plaintiffs to Epstein limited his authority to draw against plaintiffs, accounts. The Court has concluded with one exception that it does, and that therefore the Bank is liable for the unauthorized withdrawals by Epstein at issue in this case.
The following are the facts material to the resolution of these motions. Disputed facts are noted as necessary.2
In 1993, the Kinder defendants through its agents—Uwe Schwabe, Norbert Goebel, Helmut Hagenlucke, Tony Verillo and Harry Turkington—began soliciting the plaintiffs to participate in an investment program operated by Kinder Capital, Inc. ("Kinder" or "Kinder program") to buy and sell prime bank instruments.3 These agents represented that the Kinder program was low risk because Kinder would not have the ability to take funds out of their bank accounts without replacing them with an equivalent amount of prime bank instruments or invoices for prime bank instruments and because the program yielded returns in excess of 200 percent.
The plaintiffs took the bait and entered into investment agreements with Kinder that provided that they would grant a power of attorney to Kinder "for the purpose of giving instructions to the Bank to buy and sell prime bank instruments ... or invoice[s] ... for said instruments." The agreements further provided that the "power of attorney shall be lodged with the Bank, and the Bank will control said power of attorney to insure that the client's account at all times contains the client's funds either in cash and/or bank authenticated prime bank instruments of credit." Plaintiffs were told that they should open accounts with the Bank of Boston and deposit their funds in those accounts. Plaintiffs were also told that they must execute a power of attorney granting Norman Epstein, Kinder's principal, control over the accounts. Kinder's agents told them that this power of attorney would protect their funds and that the account would hold cash and securities, which the Bank would authenticate.
Kinder's power of attorney stated as follows:
To: Bank of Boston
This power of attorney made this [date] by [account holder].
Witness as follows:
The Customer hereby appoints Kinder Capital, Inc. of 400 Paradise Road Suit C2E, Swampscott, MA 01907 USA and/or Mr. Norman Epstein (hereinafter called the "Attorney") to be the Attorney of the Customer to give instructions and to take all actions in the name of the Customer and on the Customer's behalf required of the Customer to operate the Account.
This Account is solely for the buying and selling of Prime Bank Instruments of Credit. This Account at all time shall contain cash and/or Prime Bank Instruments of Credit, or invoices committing to deliver Prime Bank Instruments of Credit to a purchasing bank on behalf of [account holder] in an amount of not less than the initial cash deposited. The purchasing bank shall be irrevocably instructed to remit payment for the letter of credit directly to Client's bank account no. [number] at Bank of Boston.
Set out at the foot of this Power of Attorney is the specimen signature of the Attorneys.
In witness whereof the signature of the Customer was hereunto affixed the day and year first above written.
[Signed by account holder]
[Witnessed by bank personnel]
[Specimen signature of attorney]
After the plaintiffs executed the Investment Agreements, they opened their accounts and executed powers of attorney as follows.4
Blesch, Wurdig, Grabowski, Wellauer, Weber and Lonneman, Accounts. On three separate occasions Laycock took groups of plaintiffs to the London Branch of the Bank of Boston where they met with Stuart B. Patterson, a private banking officer, and completed account opening documents for accounts at the Bank's Marblehead, Massachusetts, branch. At different times, these groups of plaintiffs—Blesch, Wurdig, and Corby; Grabowski and Wellauer; Weber (for Friona); and Blesch, Lonneman, and Corby—presented their passports for the Bank to photocopy, and signed signature cards and Kinder's power of attorney, which Patterson witnessed and kept on file at the Bank. Weber, as authorized agent for Friona, an Isle of Man entity, also completed a "Commercial Deposit Account Resolution." This resolution contained an indemnity provision for unauthorized funds transfers5 made by the Bank in good faith. Within a few days of opening their accounts, the plaintiffs deposited millions of dollars into them.
Huber/Corby Account. On September 13 or 14, 1993, Epstein opened a joint account in the names of Stephen Corby or Gunter Huber.6 That same day, Corby, as a joint account-holder, executed a Kinder power of attorney over this account and two other accounts on which Corby was a co-signor. Corby denies that the power of attorney was signed on September 15th. However, the Kinder power of attorney itself states that it was "made this 15th day or September 1993." (See Huber & Kriesl Statement of Undisputed Facts, Ex. F.)
On September 15, 1993, Huber sent a wire transfer of $3.5 million to the attention of the Marblehead Branch Manager with the message: "To be held for further direct instructions from Gunter Huber." The wire transfer did not identify a Bank of Boston account into which the money was to be deposited or a beneficiary. However, the Bank construed Huber's instruction to hold the funds as being directed to the beneficiary of the transfer, not it, and deposited this money in the Huber/Corby account. The next day, September 16, 1993, Epstein wired $3.41 million out of the Huber/Corby account to an account under Kinder's control.
Huber signed two Kinder powers of attorney. On September 21, 1993, he signed a "provisional" power of attorney that was very similar to the Kinder power of attorney signed by the other plaintiffs. (See Huber & Kriesl Statement of Undisputed Facts, Ex. O.) On September 24, 1993, Huber executed a second Kinder power of attorney that was backdated to September 16—the date that Epstein withdrew most of $3.5 million from the account. On that same date he and Corby signed a signature card and a Bank form power of attorney with no designated attorney. (See Huber & Kriesl Statement of Undisputed Facts, Ex. B.) The Bank contends that the back-dated Kinder power of attorney signed by Huber ratified Epstein's September 16th withdrawal. The Bank power of attorney granted Epstein general, unlimited authority to operate the account.
Upclass Account. On August 12, 1993, Adriaanse and Weigand opened an account on behalf of Upclass Investments at Bank of Boston's Frankfurt Branch with the assistance of the Bank's employee, Roswitha Campbell. Adriaanse and...
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