Peterboro Tool Co., Inc. Profit Sharing Plan & Trust v. People’s United Bank

Over an approximately two-year period, Bernard Mullan, the fiduciary for the Peterboro Tool Company, Inc. Profit Sharing Plan & Trust (plan) (plaintiff), stole approximately $250,000 from the plan’s account with the Flagship Bank and Trust, a predecessor of the People’s United Bank (collectively, bank) (collectively, defendants). Mullan accomplished his theft via 23 separate withdrawals, ranging from $1,000 to $40,000, from the plan’s account. Mullan sought to cover his tracks by falsifying the plan’s books by recording his withdrawals as transfers to a fake account at another financial institution. At least two and perhaps many more of Mullan’s withdrawals involved his receipt of a combination of cash and deposits into his personal bank account. The plan sued the bank in New Hampshire state court, alleging negligence, breach of fiduciary duty, and breach of a bailment agreement. Per the plan, Mullan’s suspicious transactions should have alerted the bank to Mullan’s possible misconduct. The plan also alleged that the bank’s internal procedures were inadequate. The bank removed the case to federal court on diversity-of-citizenship grounds. The bank moved to dismiss the plan’s complaint, arguing that it was not negligent because, among other things, the bank (1) had no special relationship with the plan that created a duty to protect the plan from third-party fraud and (2) did not have a duty to protect the plan based on its alleged constructive knowledge of Mullan’s fraud. The bank further argued that it did not have a fiduciary or bailor-bailee relationship with the plan.