Opinion ID: 2973303
Heading Depth: 2
Heading Rank: 2

Heading: Breach of Fiduciary Duties (Count II)

Text: Ms. Pavlovich claims that the Bank breached a variety of fiduciary duties including the duty of good faith and the duty to disclose material facts. This claim also fails because the Bank upheld its narrow and primary fiduciary duty not to make unauthorized distributions and because no applicable fiduciary duty imposed any obligation separate from, and in addition to, that imposed on the Bank by the relevant agreements. An agency relationship between the Bank and Ms. Pavlovich was created through execution of the Custody Agreement. Under Ohio law, there are four elements of an agency relationship: “Agency is the fiduciary relation which results from [1] the manifestation of consent by one person -9- No. 04-4372 Pavlovich v. National City Bank to another that the other shall [2] act on his behalf and [3] subject to his control, and [4] consent by the other so to act.” Berge v. Columbus Cmty. Cable Access, 736 N.E.2d 517, 531 (Ohio Ct. App. 1999) (quoting Restatement (Second) of Agency § 1 (1958)). By executing the Custody Agreement and Trading Letter, Ms. Pavlovich manifested consent to the Bank’s custody of her funds and its compliance with Cashel’s investment directives. The Bank acted on her behalf, and consented to do so, in making distributions according to the Custody Agreement and Trading Letter. The Bank was subject to her control because she had the sole power to authorize transactions or to delegate that power and could have terminated the relationship at any time. An agency relationship gives rise to those fiduciary duties within the scope of the agency. See Miles v. Perpetual Savs. & Loan Co., 388 N.E.2d 1364, 1365 (Ohio 1979) (per curiam). The key issue here, therefore, is determining the scope of the agency and whether the accompanying fiduciary duties differ from the Bank’s contractual obligations. Ms. Pavlovich’s account was administrative and nondiscretionary in that the Bank would not distribute funds absent written direction from her or an authorized third party. See Merrill Lynch Pierce Fenner & Smith, Inc. v. Cheng, 901 F.2d 1124, 1128 (D.C. Cir. 1990) (“With respect to a non-discretionary account, the customer must give prior approval for all transactions.”). In such nondiscretionary situations, a bank owes primarily the very narrow fiduciary duty not to make unauthorized distributions. See Abbott v. Chem. Trust, No. 01-2049-JWL, 2001 U.S. Dist. LEXIS 6214, at  (D. Kan. Apr. 26, 2001) (“[T]o the extent [the Bank] owed a fiduciary duty to plaintiffs, that duty was limited to executing the transactions requested by plaintiffs.”); cf. Tapia v. Chase Manhattan Bank, N.A., 149 F.3d 404, -10- No. 04-4372 Pavlovich v. National City Bank 412 (5th Cir. 1998) (“[W]here the investor controls a nondiscretionary account and retains the ability to make investment decisions, the scope of any duties owed by the broker will generally be confined to executing the investor’s order.”); Hill v. Bache Halsey Stuart Shields, Inc., 790 F.2d 817, 824 (10th Cir. 1986) (The fiduciary duty owed by a broker operating a nondiscretionary trading account is “very narrow -- primarily not to make unauthorized trades.”). In the instant case, the Bank did not violate its primary fiduciary duty not to make unauthorized distributions because all of its disbursements were directed by Cashel pursuant to Ms. Pavlovich’s written authorization. In addition, having concluded that no breach of contract occurred, we cannot now find a breach of a fiduciary duty where Ms. Pavlovich has identified no applicable fiduciary duty separate from, and in addition to, that imposed on the Bank by the Custody Agreement and Trading Letter. It is well established in Ohio that “[t]he duties of an agent to his principal are dependent upon the agreement between them.” Orvets v. Nat’l City Bank, Northeast, 722 N.E.2d 114, 119 (Ohio Ct. App. 1999); see also Gem Sav. Ass’n v. Sterling Gold Props., Ltd., No. 12719, 1992 Ohio App. LEXIS 4965, at  (Ohio Ct. App. Oct. 2, 1992) (“[T]he fact that this contract created an agency relationship between [the parties] did not, without more, impose a fiduciary duty upon [the agent] which was separate from, and in addition to, that imposed on it by the contract.”); Restatement (Second) of Agency § 376 (1958) (“The existence and extent of the duties of the agent to the principal are determined by the terms of the agreement between the parties . . . .”). The Bank honored its contractual obligations and was bound to no fiduciary duty outside the terms of the relevant agreements.