LITIGATING’A’ SAFE’DEPOSIT’BOX’CASE’ - · PDF fileLITIGATING’A’ SAFE’DEPOSIT’BOX’CASE ... Three elements% must be proved: ... of%forced%entry,%bank%followed%procedures%to%preventunauthorized%

LITIGATING A SAFE DEPOSIT BOX CASE

© STAGG, TERENZI, CONFUSIONE & WABNIK, LLP, 2012

From the customer’s perspective, items stored in a safe deposit box should remain untouched and inviolate.


CUSTOMER PERSPECTIVE

From the bank’s perspective, the search for the truth in safe deposit box cases is especially difficult because, unlike a typical bailment, a bank has no control over what is stored by the customer.

BANK PERSPECTIVE


Scenario 1   Plaintiff claims she put cash or other valuables in

her safe deposit box and when she opened the box, it was empty or the box sleeve itself is missing.

Scenario 2   Plaintiff claims that valuable items in the safe

deposit box are now damaged. Scenario 3   The items have escheated to the state, either

because the items went unclaimed or the customer passed away and the bank had no notice.

Scenario 4   Two or more customers claim they rent the same

safe deposit box and have deposited items in the box.


Common Scenarios

Common Claims against Banks   Breach of Contract   Negligence   Conversion   Emotional Distress

Common Plaintiffs   Individuals   Estates   Insurance Companies

Common Missing Items   Cash, jewelry, documents, gold, coins, other rare items, and belongings with sentimental value.


Theories of Recovery Typical Claims Asserted in New York:   Breach of Contract: Most common. This can be shown if the bank breached its

obligation to the customer as outlined in the lease.   Implied Contract: Courts are also willing to find an implied contract based upon the

parties’ intent and course of conduct. Levina v. Citibank, N.A., 16 A.D. 3d 160 (1st Dep’t 2005); Daskolopoulos v. European Am. Bank & Tr. Co., 104 A.D. 2d 1020 (2d Dep’t 1984).

  Negligence: A viable claim, but may be limited by an exculpatory clause -‐ as long as the clause is not against public policy. Glassman v. Wachovia Bank, NA, 16 Misc.3d 1135 (N.Y. Sup. Ct. 2007) (cannot waive gross negligence).

  Conversion: Commonly asserted, but difficult to sustain. To establish conversion, plaintiff must show legal ownership or an immediate superior right of possession to a specific identifiable thing and that the bank exercised unauthorized dominion over the property in question to the exclusion of plaintiff’s rights. Scott v. Fields, 85 A.D. 3d 756 (2d Dep’t 2011).


Less Common Claims:   Emotional Distress: Not likely to be successful. Must prove that the bank

committed an outrageous act and that the desire to cause plaintiff’s emotional distress was more than incidental to proper business motives. O’Rourke v. Pawling Sav. Bank, 80 A.D.2d 847 (2d Dep’t 1981).

  Bank's actions in entering customer's safe deposit box because of nonpayment of rental fee was not sufficiently outrageous to support action for intentional infliction of emotional distress. Curtin v. Bowery Sav. Bank, 150 A.D.2d 327 (2d Dep’t 1989).

  NY General Business Law § 349: Hard claim to establish, unless based on a provision of the lease agreement or advertisements. Attorneys like to assert because it allows for recovery of fees.

  Generally, New York General Business Law §349 forbids deceptive acts or practices in the conduct of any business, trade, or commerce.

  Three elements must be proved: 1) A consumer oriented transaction; 2) deceptive acts by the defendant; and 3) injury caused by such deceptive acts. Oswego Laborer’s v. Marine Midland Bank, 85 N.Y.2d 20 (1995).

Theories of Recovery


Authority: New York Banking Law § 96 gives institutions the ability to rent safe deposit boxes to customers and enumerates some of the obligations of the bank.

General Rule: The relationship between a bank and a safe deposit customer is similar to a bailee/bailor relationship.   Bailee/Bailor: Places a duty of care on the bank, which can be the predicate for a negligence claim if the bank fails to exercise ordinary care. Sichel v. Central Fed. Sav. & Loan Assn., 143 Misc. 2d 42 (N.Y. Sup. Ct. 1989).

  Differs from a standard bailment because the bank/bailee does not exercise control over the items stored in its facility. Veihelmann v. Manufacturer’s Safe Deposit Co., 303 N.Y. 526 (1952); Greco v. First Union Nat’l Bank Corp., 267 A.D.2d 278 (2d Dep’t 1999).

The Law on Safe Deposit Boxes


Presumption: There is a rebuttable presumption of negligence if the customer’s items are missing. Lev v. Chase Manhattan Bank, 300 A.D.2d 155 (1st Dep’t 2002); Greco v. First Union Nat’l Bank Corp., 267 A.D.278 (2d Dep’t 1999).

Exculpatory Clauses: Contract can also limit the liability between a bank and a depositor. Uribe v. Merchant’s Bank of N.Y., 91 N.Y.2d 336 (1998).

The Law on Safe Deposit Boxes


Rebutting the Presumption of Negligence: Factual Defense

  Greco v. First Union Nat’l Bank Corp.   Three customers had access, box required a key for entry, no sign of forced entry, bank followed procedures to prevent unauthorized access.

  Presumption of negligence rebutted.

  Veilhelmann v. Manufacturer’s Safe Deposit Co.   Box could only be opened by customer key, no sign of forcible entry, but others allowed access to vault without identification and no record of people let in and out of vault.   Did not rebut presumption as a matter of law, determination left to

jury.

  Lev v. Chase Manhattan Bank   Bank established: security measures in place at time of loss, a key was needed to enter, no forcible entry or damage to vault area.   Verdict set aside, and complaint dismissed


-‐ Access Records -‐ Secure Vault

Significance: Establishes bank procedures and provides evidence of exercising ordinary care to prevent unauthorized access-‐will help rebut the presumption of negligence.

-‐ Drill Process Checklist:   Preparation   Drilling   Inventorying – Standard Content

Descriptions   Storage of Box Contents


Rebutting the Presumption of Negligence: Factual Defenses

Exculpatory Clauses

  The bank’s liability can be modified by contract, i.e., the lease agreement. Uribe v. Merchant’s Bank of N.Y., 91 N.Y.2d 336 (1998)(currency prohibition is enforceable).

  For example, a bank can limit its liability by providing that certain items cannot be held in the box, e.g., drugs, weapons, cash. Radelman v. Manufacturer’s Hanover Tr. Co., 61 Misc.2d 669 (N.Y. Sup. Ct. 1969).

•  “Tenant agrees not to store anything inherently dangerous (including firearms or weapons), illegal to possess, or cash.”


When will a court refuse to enforce the exculpatory clause?

  Courts will strictly construe the meaning of these clauses and thus interpret them narrowly. Valuable Holding Corp. v. Midtown Vault Corp., 120 A.D. 356 (1st Dep’t 1986).

  If there is any ambiguity in the lease, the court will not interpret it to exclude liability by the bank. “If the defendant wished to prevent its liability for damage caused by a faulty sprinkler system it should have been more explicit in the lease agreement.” Goldbaum v. Bank Leumi Tr. Co. of N.Y., 545 F. Supp. 1008, 1011 (S.D.N.Y. 1982) (clause only mentioned water damage).

  Certain limitations are against public policy, e.g. gross negligence. Uribe v. Merchant’s Bank of N.Y., 91 N.Y.2d 336 (1998).

Exculpatory Clauses


Abandoned Property New York Banking Law § 335: Remedies for when safe deposit box rent is not paid or box is not vacated.

  Applies where rent is not paid for one year, or 30 days have elapsed from termination of lease for reason other than nonpayment.

  Bank must send a 30-‐day cure notice.   After the 30-‐day period, bank may in the presence of a notary and

a designated bank employee open the box and inventory the contents.

  Notary must prepare certificate setting forth date of opening, lessee’s name and list of contents.

  The contents must be retained by the bank for two years.


  Within 10 days of opening the box, a certificate filed by the notary with the bank must be mailed to the customer by registered or certified mail/return receipt requested.

  After the two year period following the mailing of the certificate, the bank shall serve a notice of an intent to sell the contents in not less than 30 days.

  The bank may then sell the items upon publishing in a newspaper which circulates in the location of the sale.

  The bank may use proceeds from sale to pay arrears.

  After 3 years from opening, the value of the property, i.e., the excess proceeds, is deemed abandoned.

Abandoned Property


Calculation of Damages   Rule: The measure of damages is usually the market value of an item.

  When no market: courts will use the “hypothetical market standard.” Schonfeld v. Hilliard, 218 F. 3d 164, 178 (2d Cir. 2000) (licensing agreement).

  Under this standard, the proponent must prove the hypothetical transaction using expert testimony based upon prior sales history, comparable assets or through other expert valuation methods. Schonfeld v. Hilliard, 218 F. 3d 164, 178 (2d Cir. 2000).

  This can arise for artwork, illustrations, recordings, etc.

  Burden of Proof: Plaintiff must establish value of items. See Golomb v. North Fork Bank, 13 Misc.3d 1214 (N.Y. Sup. Ct. 2006).   Appraisals based upon speculation have no probative value. Triple Cities

Shopping Ctr., Inc. v. State, 26 A.D.2d 744 (3d Dep’t 1966).

  Limitation: Does lease limit damages, e.g., damage cap? Martin v. Citibank, N.A., 64 A.D.3d 477 (1st Dep’t 2009) (must show customer was given entire lease with limiting provision).


Hypotheticals  Case 1:

  Plaintiff leases a safe deposit box and deposits $100,000 in gold jewelry.

  Plaintiff goes to bank and has wrong key.   Plaintiff returns to bank and asked for the box to be drilled.   The box is drilled and the items are missing.   Access records show that plaintiff is the only one who accessed the box.

  Plaintiff later finds her keys.   Issues Raised:

  Can the bank rebut the presumption of negligence?   Can plaintiff prove her loss?   Is there an exculpatory clause?


 Case 2:   Plaintiff deposits jewelry and cash into his safe deposit box.   Plaintiff goes through a divorce, spouse appears at bank and has the bank drill open the box.

  Plaintiff is notified and makes claim for stolen jewelry and $20,000 cash as spouse was not named on lease.

  Issues Raised: The bank will be found negligent.   The defense is based upon proof of damages   Does lease prohibit cash in safe deposit box?   Implead spouse?

Hypotheticals


 Case 3:   Customer leases box and then passes away.   Bank sends rental notifications to last known address and rent is never paid.

  Bank is notified of death.   Contents of box are auctioned after the bank is notified of the death.

  Estate makes claim for loss.   Issues Raised:

  Did Bank follow notice procedure?   Was bank negligent in not noting the death in its record, and failing to follow its procedure?

  Can the bank avail itself of the Banking Law §335 defense?

Hypotheticals


 Case 4:   Friend leases safe deposit box and gives plaintiff POA to access the

box.   Plaintiff deposits jewelry in the box.   When plaintiff goes to access the box, the jewelry is missing.   The access records indicate only plaintiff accessed the box, and it was

never drilled.   The jewelry is found two years later in an unlocked and unassigned

slot.   Issues Raised:

  Does plaintiff have standing to sue? Uribe v. Merchants Bank of NY, 239 A.D.2d 128 (1st Dep’t 1997) (individual had no standing when box rented by corporation).

  Was the jewelry altered or tampered with?   What is the value of deprivation of property?   Attempt to rebut negligence by showing only plaintiff accessed the

box.

Hypotheticals


Hypotheticals  Case 5:

  Plaintiff rents safe deposit with predecessor bank.   Plaintiff passes away, and sister/executor finds late rental notification from current bank in decedent’s possessions.

  Sister appears at branch to access box with court order, box is drilled, and $30,000 of cash is inventoried.

  Later, current renters access box, but never notified of the drilling.

  Now contest for $30,000.   Issues raised:

  Interpleader action appropriate?   Were notice procedures followed?   Does court order insulate bank from liability?


Evidence Checklist  Have the depositor make a lost property report while still in the branch (with an inventory of the items and estimated value).

 Obtain copy of the depositor’s lease.   Gather other relevant documents (bank procedures, access log, witness reports, security reports, etc.)

 Once legal involved, investigate the claim and make a report (avoid discovery of report).

  Put a hold on the safe deposit box and notify customer that he will not have access to it while the dispute is being resolved.

  Interview employees with relevant information.


Other Issues

 Adverse Publicity  Witness Credibility

 Estate/Surrogate Court Issues


Contact Information & Biographies   Thomas E. Stagg – Thomas focuses his practice on banking, commercial,

general and appellate litigation. Thomas has achieved an "AV" Martindale-‐Hubbell Peer Review Rating, and was selected to the 2012 New York Super Lawyers – Metro list.   Direct Phone:(516) 812-‐4501   Email: [email protected]

  Debra L. Wabnik – Debra’s practice areas include commercial and banking litigation and employment law. Debra, an “AV” Martindale-‐Hubbell rated attorney, also represents clients in administrative forums such as the Equal Employment Opportunity Commission and the New York State Division of Human Rights. She has handled numerous appellate matters.   Direct Phone:(516) 812-‐4504   Email: [email protected]


Long Island, NY: New York, NY: 401 Franklin Avenue, Suite 300 111 Broadway, Suite 701 Garden City, New York 11530 New York, New York 10006 Phone: 1-‐516-‐812-‐4500 Phone: 1-‐212-‐324-‐3800 Fax: 1-‐516-‐812-‐4600

New Jersey: Connecticut: 331 Newman Springs Road 1 1111 Summer Street, 5th Floor Building 1, 4th Floor, Suite 143 Stamford, Connecticut 06905 Red Bank, New Jersey 07701 Phone: 1-‐732-‐784-‐1586


Documents

LITIGATING’A’ SAFE’DEPOSIT’BOX’CASE’ - · PDF fileLITIGATING’A’ SAFE’DEPOSIT’BOX’CASE ... Three elements% must be proved: ... of%forced%entry,%bank%followed%procedures%to%preventunauthorized%