BANK NOT LIABLE FOR LAWYER'S MISCONDUCT

In Diamore Realty Corp. v. Stern, Diamore Realty sued HSBC Bank USA when the funds in an attorney escrow account were misappropriated.

While a bank typically doesn't have a responsibility to monitor or protect escrow funds, if the institution had "actual knowledge or notice" that some thievery was occurring or about to occur, it could be exposed to liability if it failed to conduct an appropriate investigation.

Based on a sworn statement that it had no knowledge of any party's intention to steal the deposited funds, the Queens County Supreme Court granted HSBC's request to dismiss the case.

On appeal, the Appellate Division, Second Department, found HSBC "had no implied contractual duty to insure that funds to be held in escrow were deposited into an attorney trust account." A "lapse of wary vigilance" or disregard of "suspicious circumstances" wasn't enough to support a case. Diamore needed to come forward with proof of "out-and-out dishonesty" or "complicity ... with the wrong doers."

You can take that to the bank!

To download a copy of the Appellate Division's decision, please use this link: Diamore Realty Corp. v. Stern