Kentucky Court of Appeals Holds That Bank Has No Duty to Non-Customer

Kentucky Court of Appeals Holds That Bank Has No Duty to Non-Customer

      In a just rendered decision, the Court of Appeals has rejected the suggestion that it alter Kentucky law to provide that a bank has a duty of care to a third party who is not the bank’s customer.  Ahlan Wa Sahlan Hospitality Company d/b/a Holiday Inn Express v. United Citizens Bank of Southern Kentucky, Inc.,  No. 2011-CA-001349-MR (Ky. App. Jan. 25, 2013).

      Moss was employed by Ahlan Wa Sahlan Hospitality Company (“Hospitality”), the operator of a Holiday Inn Express, as its manager.  In that capacity, Moss was authorized to receive and negotiate checks on behalf of Hospitality.  In August of 2009, he opened an account at Citizens Bank, and began to deposit checks made payable to Hospitality into that account, from which the funds were used for his personal purposes.  Over an approximately 8-month period he embezzled some $51,571.42.

     Hospitality sued Citizens Bank alleging it had failed to exercise ordinary and reasonable care regarding Hospitality’s funds in that it should have attempted to identify the relationship between Hospitality and Moss.  This claim was dismissed by the trial court for failure to state a cause of action, from which this appeal followed.

      As it had at the trial court, Citizens Bank argued that under Kentucky law, a bank does not have a duty of care to third parties who are neither its customers or account holders.  Implicit in the decision is that Hospitality had its banking relationship elsewhere and had no other contact with Citizens Bank.

      After reviewing the law, including a pair of unpublished federal decisions indicating that Kentucky courts would not find the existence of such duty and the laws of other jurisdictions a similar effect, the court affirmed the determination that Citizens Bank had no duty to Hospitality in not being its customer or client.  Rather, observed the Court of Appeals, “Creation of such a duty appears to be a matter more properly left to the purview of the General Assembly.”