Adato v. Kagan

Juan and David Graiver were in the banking business. The Graivers controlled a Belgian bank and New Loring, Incorporated, a Panamanian shell company. American Bank & Trust Company (American Bank) was a New York state-chartered bank. American Bank was owned by American B & T Corporation (American Corporation) (defendant). Continental Trade Bank (Continental) (defendant) owned a majority of American Corporation’s stock, and nine American Bank officers (defendants) owned 9 percent of its stock. In November 1975, Juan Graiver agreed to purchase American Corporation’s stock owned by Continental and the officers. Between mid-1975 and mid-1976, American Bank extended millions of dollars in credit to the Graivers. The Graivers used the loan proceeds to finance their purchase of American Corporation. The extensions of credit by American Bank put it in a precarious financial position. Subsequently, David Graiver directed an American Bank representative to find new deposits. American Bank received over $5 million in new deposits. The deposits came from a group of depositors, which included 59 foreign nationals (the new depositors) (plaintiffs). The new depositors were given receipts showing that they were depositors of American Bank. However, the deposits were actually credited to the accounts of the Belgian bank, New Loring, and American Corporation rather than to American Bank. In September 1976, American Bank went into receivership. The receiver arranged for the sale of American Bank to Bank Leumi Trust Company of New York (Bank Leumi). Bank Leumi assumed the deposits of American Bank as a liability. In turn, Bank Leumi informed the new depositors that they would not be repaid because the deposited funds were not on American Bank’s books as deposits. The new depositors had no recourse from the Belgian bank, New Loring, and American Corporation because the Belgian bank had been closed, New Loring had no assets, and American Corporation was insolvent. Accordingly, the new depositors sued Continental, American Corporation, and the nine officers of American Bank. The district court dismissed the complaint because it found that the new depositors did not have an individual cause of action. The new depositors appealed.