United States: Florida Appellate Court Holds Bank Does Not Owe A Duty To Refrain From Negligent Lending

On August 30, 2023, the Florida Third District Court of Appeal ("the Court") issued its opinion in the matter of Suzmar v. First National Bank of South Miami, No. 3D22-1839, LEXIS 6065 (Dist. Ct. App. Aug. 30, 2023), affirming the dismissal of a negligence claim brought against a bank on the basis that the bank had breached an alleged duty to refrain from negligent lending.

Background

The matter arose out of a dispute between First National Bank of South Miami ("First National") and Suzanne DeWitt ("DeWitt"), who claimed to be the manager and owner of a group of entities consisting of Plaintiff Suzmar, LLC and sixteen other associated corporations ("the LLCs"). Based on DeWitt's ownership representations, First National issued her a $5.5 million dollar loan, with DeWitt using the LLCs as security for the loan. However, DeWitt's ownership claims were subsequently disputed by the Belgian corporation Agorive NV and found to be false, which caused First National to declare the loan in default. DeWitt was unable to return the full value of the loan funds or personally cover the shortfall, leading First National to assess the LLCs' various accounts for repayment.

The LLCs subsequently brought suit against First National for negligence and unjust enrichment, based upon the contention that First National had "improvidently grant[ed] the loan" to DeWitt. More specifically, they claimed that First National had failed to adequately investigate DeWitt prior to issuing the loan, with the LLCs describing DeWitt as "a Miami attorney who claimed to own the LLCs, and used their accounts as collateral [and] security[,] despite inconsistencies in her loan application." The LLCs contended that this alleged inadequate investigation of DeWitt constituted a violation of the "know-your-customer" requirements imposed by the Bank Secrecy Act.¹

In response, First National moved to dismiss these claims, asserting that the LLCs were unable to state a valid cause of action because: (1) Florida law does not recognize a claim for negligent lending absent a fiduciary relationship; and (2) a claim for unjust enrichment cannot lie without a windfall benefit. The trial court granted this motion to dismiss, leading the LLCs to appeal the dismissal before the Court.

The Appeal

In addressing the appeal the Court began with the LLCs' negligence claim, which it observed was premised upon the allegation that First National had owed the LLCs a duty to act in good faith. This duty was allegedly breached when First National failed to comply with the "know-your-customer" requirements and issued the loan to DeWitt despite her having made false representations in support of her application. The Court next noted that to successfully state a negligence claim, it is incumbent upon the plaintiff to establish the existence of a legally recognized duty – however, citing Florida case law, the Court held that "banks have no duty to customers to prevent negligent lending absent a fiduciary relationship."

The Court then proceeded to find that no fiduciary relationship existed between First National and the LLCs, as the Florida general rule holds that the relationship between a bank and its borrowers is "that of a creditor-debtor" and, accordingly, a "bank does not owe a borrower a fiduciary duty." Thus, the Court affirmed that the trial court had properly dismissed the negligence claim against First National, as absent the existence of a fiduciary relationship between the parties, First National did "not owe the LLCs a duty to refrain from negligent lending." Additionally, the Court held that the "know-your-customer" requirements relied upon by the LLCs could not create or impose a duty upon First National, as based upon Eleventh Circuit precedent, bank consumers "do not have a private right of action to enforce these rules."

As to the LLCs' remaining unjust enrichment claim, the Court held that it was "similarly insufficient," as unjust enrichment cannot exist where payment or other adequate consideration has been made for a benefit conferred. Accordingly, the Court held that the LLCs had failed to state a sufficient cause of action for unjust enrichment, as the loan to DeWitt "was adequate consideration to someone related to the LLCs for the benefit conferred."

Therefore, based upon the above, the Court affirmed the trial court's dismissal of the LLCs' claims.

Takeaways

This opinion demonstrates that absent an additional agreement voluntarily entered into between the parties, a bank will not owe its consumers a fiduciary duty, nor will such a duty be imposed despite a bank having clearly erred. It also demonstrates that even where a violation of the Bank Secrecy Act has seemingly occurred, an action for this violation will only be permissible if brought by the proper officials possessing enforcement authority under the statute.

Footnote

1. The "know-your-customer" requirements of the Bank Secrecy Act – found at 31 31 U.S.C. § 5318 – impose a set of guidelines to which financial institutions and businesses are required to adhere in order to prevent money laundering and other financial improprieties, requiring that a lender verify the identity, suitability, and risks of all current or potential customers. The goal of these obligations is to preemptively identify suspicious behavior such as money laundering or financial terrorism.

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