Peoples Westchester Sav. Bank v. F.D.I.C.

• Citation: 961 F.2d 327
• Decision Date: 07 April 1992
• Docket Number: No. 1085,D,1085
• Parties: PEOPLES WESTCHESTER SAVINGS BANK, Plaintiff-Appellee, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Guardian Bank, N.A., Defendant-Appellant. ocket 91-6277.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 327

961 F.2d 327

60 USLW 2669

PEOPLES WESTCHESTER SAVINGS BANK, Plaintiff-Appellee, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Guardian Bank, N.A., Defendant-Appellant.

No. 1085, Docket 91-6277.

United States Court of Appeals, Second Circuit.

Argued March 10, 1992.

Decided April 7, 1992.

Norva v. Granito (William E. Kelly, Lane & Mittendorf, of counsel), New York City, for plaintiff-appellee.

Jerome A. Madden (Ann S. Duross, Richard J. Osterman, Jr., Z. Scott Birdwell, of counsel), Washington D.C., for defendant-appellant.

Before: OAKES, Chief Judge, and ALTIMARI and WALKER, Circuit Judges.

WALKER, Circuit Judge:

This case comes to us on appeal from the United States District Court for the Eastern District of New York (Hon. Thomas C. Platt, Chief Judge). By memorandum and order dated September 9, 1991, the district court granted summary judgment in favor of Peoples Westchester Savings Bank ("Peoples Westchester"), denied the Federal Deposit Insurance Corporation's ("FDIC") motion for summary judgment, and directed the FDIC, as Receiver for Guardian Bank, N.A. ("Guardian") to pay over to Peoples Westchester $197,211.68--a sum held by Guardian allegedly as a special deposit or bailment on behalf of Peoples Westchester. See Peoples Westchester Sav. Bank v. FDIC, 772 F.Supp. 738, 741 (E.D.N.Y.1991). Because we hold, as a matter of law, that the district court erroneously concluded that the Guardian account was a special deposit rather than a general one, we reverse the grant of summary judgment, and remand the case with instructions to enter summary judgment for the FDIC.

BACKGROUND

The facts are not in dispute. On September 19, 1988, Bonnie S. Nachamie, Esq. ("Nachamie") opened a client custodial account with Guardian. She established the account in the name of "Bonnie S. Nachamie, Esq., Attorney at Law, Trust Account # 2" (hereafter "Nachamie Account") and designated it to be an "interest on lawyer account" or an "IOLA." An IOLA is a creation of New York State statute, and is defined as "an unsegregated interest-bearing deposit account ... for the deposit by an attorney of qualified funds." N.Y.Jud.Law § 497(1) (McKinney Supp.1991). In turn, "qualified funds" are statutorily defined as,

monies received by an attorney in a fiduciary capacity from a client or beneficial owner and which, in the judgment of the attorney, are too small in amount or are reasonably expected to be held for too short time to generate sufficient interest to justify the expense of administering a segregated account for the benefit of the client or beneficial owner.

Id. at § 497(2). The interest earned by an IOLA is remitted directly to the state IOLA fund, and is used by New York to pay for legal assistance for the poor, and to improve the administration of justice generally. See id. at § 497(6)(c)(i).

On June 21, 1989, the United States Comptroller of Currency declared Guardian insolvent and appointed the FDIC as its receiver. As of that date, the Nachamie Account had a balance of $197,211.68--$168,700.00 of which was held by Nachamie on behalf of her client Peoples Westchester. The remaining $28,511.68 belonged to various other Nachamie clients. The FDIC informed Nachamie that because the account contained more than the federally-insured amount of $100,000, allotted for each beneficial owner, see 12 C.F.R. § 330.2(b), (c), she would have to file a claim against the receivership estate for the uninsured excess.

In consideration of the $28,511.68 difference, Nachamie assigned all of her rights, title, and interest in the Nachamie Account to Peoples Westchester. Peoples Westchester then brought this action against the FDIC, as receiver, seeking to compel the FDIC to turn over the entire $197,211.68 Nachamie Account balance. In the alternative, Peoples Westchester requested a declaration of preference in Guardian's liquidation for the amount of the full account balance.

Both parties moved for summary judgment. The FDIC argued before the district court that the Nachamie Account was a "general deposit" which created a creditor-debtor relationship between the depositor-- In its motion, Peoples Westchester contended that the Nachamie Account was a "special deposit" in the form of a bailment, and that a creditor-debtor relationship never existed. Peoples Westchester rested its claim on the theory that Nachamie never had title to the funds and thereby could not cede them to Guardian, and that, by virtue of the account being an IOLA, Guardian was on notice of the fact that Nachamie did not have title to the funds. The argument continued that a special deposit was thus created in favor of Nachamie's clients, and that because its funds had never become part of the Guardian estate, Peoples Westchester was entitled to full reimbursement from the FDIC.

                Bonnie Nachamie--and Guardian.   As a general creditor, the FDIC further argued that Nachamie (and now by assignment, Peoples Westchester) was solely entitled to the federally-insured $128,511.68, and a pro rata distribution of the Guardian estate for any funds held on account in excess of that sum
                

The district court agreed with Peoples Westchester, and granted summary judgment in its favor. This appeal followed.

DISCUSSION

We review a grant of summary judgment de novo. See Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir.1991). Under Fed.R.Civ.P. 56(c), summary judgment should be granted if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id. As stated above, the facts in this case are uncontested. Thus, we limit our analysis solely to the district court's application of the relevant law.

On appeal, the FDIC reasserts its argument that the Nachamie Account was a general deposit and, thus, the funds contained therein became part of the Guardian's general assets. It further adds that the National Bank Act, see 12 U.S.C. § 91, prohibits Peoples Westchester from receiving a preference in the distribution of the Guardian estate. Because we substantially agree with the FDIC's position concerning the "general" as opposed to "special" nature of the Nachamie Account, we need not reach the National Bank Act claim.

As a common rule, bank deposits can be classified as either general or special. 1 Natter, Schlichting, Rice & Cooper, Banking Law § 9.06 (1992). Long ago, the Supreme Court explained the distinction as follows:

All deposits made with bankers may be divided into two classes, namely, those in which the bank becomes a bailee of the depositor, the title of the thing deposited remaining with the latter; and that other kind of deposit of money peculiar to the banking business, in which the depositor, for his own convenience, parts with the title to his money, and loans it to the banker; and the latter, in consideration of the loan of the money and the right to use it for his own profit, agrees to refund the same amount, or any part thereof, on demand.

Marine Bank v. Fulton Bank, 69 U.S. (2 Wall.) 252, 256, 17 L.Ed. 785 (1864).

This case turns on whether we conclude that IOLA accounts are essentially general or special deposits. The guiding rule for making this determination is set out in Keyes v. Paducah & I.R. Co., 61 F.2d 611, 613 (6th Cir.1932), and states:

Whether a deposit in a bank is general or special depends upon the mutual understanding and intention of the parties at the time such deposit is made, and a deposit made in the ordinary course of business is presumed to be general, and the burden of proof is on the depositor to overcome such presumption by proving that the deposit was made upon such terms and conditions as constituted a special deposit, or a deposit for a specific purpose, as distinguished from a general deposit.

See also In re Kountze Bros., 103 F.2d 785, 789 (2d Cir.1939); Swan v. Children's Home Society, 67 F.2d 84, 86-87 (4th Cir.1933). Contrary to the district court, we believe that Peoples Westchester has failed to carry its burden, and has not overcome the presumption that the Nachamie Account was intended as a general deposit.

First, the documents generated in opening the Nachamie Account do not evidence that Guardian assumed a duty to segregate those funds from its own general assets. To the contrary, the signature card evidencing the contract of deposit between Nachamie and Guardian makes no mention of a duty to segregate funds. It simply states that "[t]he Bank ... assumes no responsibility beyond its exercise of due care." Furthermore, the "Notice to Financial Institution to Establish IOLA Account," supplied by Guardian, merely indicated that Nachamie was opening an ordinary NOW checking account from which the interest that accrued would be paid to the state IOLA fund. Finally, the deposition testimony of Guardian officials, Catucci and Nolan, reveals the same--that there was no explicit agreement between the bank and Nachamie to segregate Nachamie's client funds, and that the money was held in a simple NOW account with the one difference being that the interest earned on the account was remitted to the State of New York.

We also note that the fact that a bank pays interest on an account, while not dispositive, is "very strong evidence that the title to the money deposited passed out of the depositor by the act of making the deposit," and thus, the creation of a general deposit was intended by the parties. Swan, 67 F.2d at 87. See also John L. Walker Co. v. Alden, 6 F.Supp. 262, 267 (E.D.Ill.1934). This conviction stems from the basic premise that a depositor receives interest in return for loaning money to a bank so that the bank may use the funds for its own investments. As the FDIC persuasively argues, "[a]s a matter of simple business or economic sense, a bank would not pay interest on funds which it could not use." The fact that...