Vinogradova v. Suntrust Bank, Inc.

THEODORE G. BLOOM, Judge, Retired, Specially Assigned. Appellant, Yelena Vinogradova, sustained investment and other losses of almost one million dollars, allegedly due to the ⁴⁹⁸ actions of Igor Besson, a friend and advisor acting under a broad power of attorney in his management of appellant’s funds and investment accounts at SunTrust Bank. She filed, in the Circuit Court for Montgomery County, a complaint, alleging breach of fiduciary duty and negligence, against appellees, SunTrust Bank, Inc., and SunTrust Securities, Inc. (collectively, “SunTrust”), and Maarten Rietveld, the SunTrust account representative who had assisted Ms. Vinogradova in opening her accounts at the bank. 1 Ms. Vinogradova appeals from the circuit court’s grant of summary judgment against her on the first count of her complaint, asserting a claim for negligence, and dismissing the second count, which asserted a claim for breach of fiduciary duty. She presents the following arguments: I. Financial institutions, like SunTrust, owe customers, like Yelena, a duty to advise and warn of suspicious account activity committed by customers’ agents.

II

The circuit court erred in granting summary judgment on Yelena’s negligence claim despite material factual issues in genuine dispute.

III

The circuit court erred in dismissing Yelena’s breach of fiduciary duty claim. For the reasons set forth below, we shall affirm the circuit court’s judgment. FACTS AND LEGAL PROCEEDINGS Ms. Vinogradova emigrated to the United States from Russia in 1990. She speaks limited English and relies largely on interpreters.

A former international ballet dancer, Ms. Vino-gradova now serves as the Director of the Universal Ballet Company in Washington, D.C. ⁴⁹⁹ There is no dispute about Ms. Vinogradova being an unsophisticated investor. She apparently met Besson while she was training Besson’s daughter in ballet. In 1997, with Bes-son’s help, Ms. Vinogradova opened six brokerage accounts, including one retirement account, at the Chevy Chase branch of SunTrust (then Crestar Bank). Her account representative at SunTrust was Rietveld.

Ms. Vinogradova executed a General And Specific Durable Power of Attorney (POA) on 16 October 1997, designating Besson as her Attorney-in-Fact and granting him total actual authority over the funds in her accounts. She also executed an Advance Medical Directive, naming Besson a contingent agent to make health care decisions on her behalf should she become incapable of doing so, and a will naming Besson a contingent beneficiary and making him the Executor of her estate and Trustee of trusts created by her Will. The broad POA contained, inter alia, the following language: [Igor Besson] is authorized to act for me as follows: (1) To ... hold any and all moneys, securities, and other property, of any nature whatsoever ...; (3) To write checks upon or otherwise withdraw all funds or account balances now or hereafter outstanding to my credit or the credit of [Besson], whether or not the check or other instrument is drawn to the order of [Besson]; (4) To ... sell or otherwise dispose of, ... and to transfer, redeem, convert, or exchange any security that now belongs to me or may belong to me in the future or in which I may have an interest^] ... (5) To buy, acquire, or invest in property, real or personal, tangible or intangible, including but not limited to any security, option, or other type of investment of whatever kind and nature; ... ⁵⁰⁰ (9) To open accounts of whatsoever nature in my name or in the name of [Besson][.]” It is undisputed that Ms. Vinogradova signed the POA and recognized Besson as her appointed agent.

Thereafter, the balances in Ms. Vinogradova’s various accounts declined substantially. She places the amount of her losses at $935,000. For purposes of this opinion, we shall adopt that figure. Her retirement account alone declined in value from $207,000 to $20,000 between October 2000 and September 2001.

After Ms. Vinogradova became aware of the substantial losses in her accounts, she revoked the POA in writing on 9 October 2001. She then undertook to investigate what had occurred. Appellant filed her complaint on 18 April 2003, alleging negligence and breach of fiduciary duty. The complaint described the alleged duty and breach, upon which her negligence claim was based, as follows: 30.

SUNTRUST and RIETVELD each owed a duty to YELENA to monitor her accounts, the trading activity and transfers in and out of the accounts, to exercise reasonable care to prevent loss or harm, and to advise her of any suspicious activity in these accounts. 31. SUNTRUST and RIETVELD also each owed a duty to YELENA to monitor her accounts to ensure that Sun-trust’s internal policies, as well as the policies of the National Association of Securities Dealers [NASD] regarding suitability were followed. 32. Despite having serious concerns about the conduct of BESSON, SUNTRUST and RIETVELD violated their duty of care to YELENA by failing to inform her of their concerns, failing to determine the suitability of investments made, and ultimately depriving her of the ability to preserve and protect her assets which were at risk. On 21 July 2003, appellees filed an answer to the complaint, together with a motion to dismiss the breach of fiduciary duty ⁵⁰¹ and negligence counts.

They also filed a third-party complaint against Besson. Ms. Vinogradova requested a hearing on the motion to dismiss, but the circuit court, on 4 September 2003, dismissed Ms. Vinogradova’s breach of fiduciary duty claim "without conducting a hearing on appellees’ motions. Thereafter, on 10 March 2004, appellees moved for summary judgment in their favor on Ms. Vinogradova’s negligence claim. A hearing on that motion was convened on 14 April 2004.

At the conclusion of that hearing, the court ruled from the bench, granting summary judgment against Ms. Vinogra-dova on the negligence claim. The court issued a formal order to that effect on 24 May 2004, entering a final judgment in favor of appellees on all claims against them. Aggrieved, Ms. Vinogradova noted this appeal. During the course of these proceedings, various evidence was placed into the record by both parties.

That evidence included copies of SunTrust’s internal documents and policies; the deposition testimony of T. Michael Smith, a Senior Vice President at SunTrust and Rietveld’s supervisor; the affidavit and report of an expert whom Ms. Vinogradova had employed to evaluate the standard of care relevant to the securities industry; and copies of the POA and various account documents. We shall set forth that evidence in further detail below. SunTrust’s Policies SunTrust’s “Registered Representative Compliance Guide,” under a section headed “Opening and Servicing of Accounts,” contained a paragraph concerning POAs, which read: Power of Attorney A Power of Attorney for the purpose of opening an account should only be accepted if it has been executed within the last twelve months. If the Power of Attorney is more than twelve months old it is reasonable for us to request a new Power of Attorney to verify that the Power of Attorney ⁵⁰² remains in effect and that the designated Attorney-In-Fact remains unchanged.

(Emphasis added.) Another section of the Compliance Guide provided: Investment consultants must not ... [ajccept an order for a securities transaction from anyone other than the entitled customer(s) on an account. A signed third party trading authorization naming a specific individual is required in order to do this or the account must have been previously established via a Power of Attorney. (Emphasis added.) Deposition of T. Michael Smith During his 29 January 2004 deposition, Smith testified that it was the practice of a SunTrust broker or account representative to meet with the client and talk about the significance of a power of attorney upon the opening of the account. Smith first became aware of Ms. Vinogradova’s accounts when they showed up on SunTrust’s “active account list,” 2 which featured accounts that were engaging in heavy trading. 3 He ⁵⁰³ related that his first priority when an account appeared on this list was to talk with the SunTrust broker handling the account to ensure that the broker was not “churning” the account, i.e., advocating numerous transactions in order to enhance the brokerage commissions.

Smith phoned Rietveld, who informed him that there was a POA on the account and that the POA “was initiating the trades.” Rietveld and Smith had an in-person meeting three days later. Rietveld informed Smith that, in accordance with broker practice, when Ms. Vinogradova opened the account, he talked to her about the nature of a POA. During their meeting, Rietveld showed Smith the POA document, and the men discussed it. We discussed the fact that it was a broad power of attorney.

That it gave the POA a lot of discretion and power over the account.... He indicated that he had talked to Ms. Vino-gradova, that he had explained to her the gravity of giving an individual this much discretion and power over her accounts. She indicated to him — that Mr. Besson was a long and trusted friend, that he knew what he was doing, that she did not want to be involved with this type of business, and that she had faith and trust in Mr. Besson to do this. And then he indicated to me that she sort of waved him away, dismissively, that she didn’t want to talk about this anymore.

Smith did not consider contacting Ms. Vinogradova to inform her of the “active account” status of her accounts because “the trades were basically being initiated by her representative under a power of attorney that we consider to be valid.” Smith then told Rietveld that he would like to speak with Besson, the POA on the account. When he met with Besson, they spoke about Ms. Vinogradova’s accounts, investment strategy, and who was entering the trades. Smith expressed to Besson his concern regarding the level of trading activity on the account, “but he told me, and I happened to agree, that ⁵⁰⁴ the markets were very volatile at that particular time, and he was being nimble to protect the assets of the account.” Smith found Besson to be knowledgeable about the workings of the markets. Smith testified that his concern about the accounts was lessened once he verified that Besson, the POA, was initiating the trades on the account.

Three or four months after Smith’s meeting with Besson, Rietveld called Smith and informed him that Besson sought employment from SunTrust and wished to speak with Smith. Smith had no investment positions open, but informed Besson of some customer service representative openings in another office. Smith had no further conversations with Rietveld regarding Ms. Vinogradova’s accounts until this lawsuit was filed. Expert Witness Report And Affidavit To establish that appellees had breached an industry standard of care, Ms. Vinogradova retained Thomas P. Forde as an expert and consultant to provide insight into “securities industry regulatory requirements and relevant standards of care.” Forde summarized his opinions in a 24 February 2004 Expert Witness Report. 4 In that report, Forde reached the following conclusions: • Suntrust violated an industry standard of care owed to Ms. Vinogradova by failing to properly document account information, and by permitting the transfer of account assets without having obtained appropriate authorization to do so.

Moreover, Suntrust has violated its own internal policies with regard to account updates and accepting and updating a power of attorney for another to act on Ms. Vinogradova’s behalf. • Suntrust also violated an industry standard of care owed to Ms. Vinogradova by failing to document and/or retain ⁵⁰⁵ account review documents pertaining to her accounts (and its own policy by conducting an account review with a “stale” power of attorney) and by failing to document supervisory policies with regard to customer accounts. In an affidavit attached as an exhibit to Ms. Vinogradova’s opposition to summary judgment, Forde averred that he would testify consistently with the views outlined in his report. DISCUSSION I. & II. Summary Judgment On Negligence Standard Of Review “It is essential to the entry of a summary judgment ... that there be no genuine dispute as to any material fact and that the moving party be entitled to judgment as a matter of law.” White v. Friel, 210 Md. 274, 285 , 123 A.2d 303 (1956); see Md. Rule 2-501.

Accordingly, the standard for appellate review is essentially whether the trial court was legally correct in granting summary judgment. See Goodrich v. Sinai Hosp. of Baltimore, Inc., 343 Md. 185, 204 , 680 A.2d 1067 (1996). Therefore, we “review[ ] the same material from the record and decide[ ] the same legal issues as the [circuit] court[.]” Lopata v. Miller, 122 Md.App. 76, 83 , 712 A.2d 24 , cert. denied, 351 Md. 286 , 718 A.2d 234 (1998). “In reviewing a disposition by summary judgment, an appellate court resolves all inferences against the party making the motion.” Southland Corp. v. Griffith, 332 Md. 704, 712 , 633 A.2d 84 (1993). Merits Ms. Vinogradova asserts that the circuit court erred in granting summary judgment in favor of SunTrust and Riet-veld on her negligence claim.

The circuit court found that there was no genuine dispute of material fact regarding whether appellees owed Ms. Vinogradova a duty to warn her of Besson’s conduct. It relied heavily on the broad POA signed by Ms. Vinogradova, which gave Besson nearly unlimit ⁵⁰⁶ ed authority over the funds in the SunTrust accounts. It also noted, in regard to powers of attorney, that “it would be a terribly onerous burden on the banks” to have to “second guess” the authority granted by a POA. In doing so, the court recognized a “significant public policy that allows the use of the