This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2000).
IN COURT OF APPEALS
Richfield Bank & Trust Co.,
Affirmed in part, reversed in part, and remanded
Hennepin County District Court
File Nos. 9911254, 9911255
James T. Martin, Dan T. Ryerson, Gislason, Martin & Varpness, P.A., 7600 Parklawn Avenue South, Suite 444, Edina, MN 55435 (for appellants)
Ronn B. Kreps, Nicholas A.J. Vlietstra, Larkin, Hoffman, Daly & Lindgren, Ltd., 1500 Wells Fargo Plaza, 7900 Xerxes Avenue South, Bloomington, MN 55431-1194 (for respondent)
Mike Hatch, Attorney General, Thomas Vasaly, Assistant Attorney General, 445 Minnesota Street, Suite 1100, St. Paul, MN 55101-2128 (for amicus curiae Client Security Board)
Considered and decided by Lansing, Presiding Judge, Crippen, Judge, and Kalitowski, Judge.
Appellants John and Linda McCartney, victims of their attorney’s misappropriation of funds, contend that the trial court erred in its summary judgment dismissing their claim that respondent Richfield Bank & Trust Co. was liable to them because the bank paid the lawyer’s checks with knowledge of facts making it legally responsible under the Minnesota Uniform Fiduciary Act for breach of his fiduciary obligations. Appellants also contend that respondent is liable under theories of negligence and breach of contract to third-party beneficiaries. Because there are genuine issues of material fact regarding appellants’ claims under the fiduciary statute, we reverse and remand the case for further proceedings.
a. Supervision of lawyers’ trust accounts
In the mid-1980s, the Office of Lawyers Professional Responsibility approved Richfield Bank & Trust Co. as a financial institution for the maintenance of lawyers’ trust accounts. In 1990, in order to continue handling the trust accounts, respondent was required to agree in writing to report to the professional responsibility office whenever an overdraft on a lawyer’s trust account occurred. The Trust Account Overdraft Notification Agreement required the financial institution to report “in the event any properly payable attorney trust account instrument [was] presented against insufficient funds, irrespective of whether or not the instrument [was] honored.”
b. Orlins Trust Account
Attorney Peter I. Orlins had a law office in the Richfield bank building until 1998. In 1991, Orlins opened a trust account at the bank for purposes of depositing client funds. Orlins specifically directed that the trust account not be opened as an “Interest on Lawyers Trust Account” (IOLTA). Because the bank was accustomed to maintaining only IOLTA accounts for lawyers’ trust funds, it contacted the professional responsibility office and was informed that attorneys may maintain trust accounts outside of the IOLTA system. Accordingly, the bank opened Orlins’s trust account under the title “Peter I. Orlins, Attorney at Law Trust Account.” Orlins also maintained an operating account for his law office and a personal checking account with the bank.
c. Misappropriation of funds
In 1994, appellants retained Orlins to handle the administration of two trusts (the Victorine M. Nelson Trust and the Sedoris N. McCartney Trust), following the deaths of their relatives. Appellants had been appointed trustees, and because they understood little about the requirements and procedures for administering the trusts, they left all trust matters to Orlins. The assets from the two trusts totaled over $700,000, which Orlins deposited into his attorney trust account at respondent bank. From 1994 until February 1998, Orlins worked for appellants, administering the trusts and assisting them with their fiduciary duties.
In 1998, the professional responsibility office contacted appellants to inform them that Orlins was under investigation for misappropriating client funds. The investigation revealed that Orlins had misappropriated over $500,000 of appellants’ funds between August 1994 and July 1996. From 1993 to 1996, there were more than 25 overdrafts against the trust account, which included the following:
· In June 1993, respondent bank honored a $64,818 check that put the trust account into a $19,982 deficit.
· In October 1993, respondent bank honored a $127,572 check that resulted in a $51,744 deficit for the account.
· In September 1994, an overdraft totaling $7,606.
· In April 1996, an overdraft totaling $1,190 that was clearly part of the check-kiting scheme.
In February 1998, Orlins entered into a disciplinary stipulation with the professional responsibility office, confessing to the allegations of misconduct. The Minnesota Supreme Court disbarred Orlins for, among other reasons, misappropriating client funds and failing to maintain proper trust accounts. As part of the stipulation with the professional responsibility office, Orlins explained that he would “kite” checks between accounts by floating checks among several banks, using successive deposits to cover the checks when there was insufficient money in the chain of transactions to cover the deposits.
It was further revealed that respondent bank had a computerized system that would automatically generate a “suspect kiting report” whenever the ratios of deposits to check writing reached a certain level. It was bank policy to review the check-kiting report and, if necessary, review the account, contact other banks, and, at times, dishonor the check. Although the bank wrote Orlins in 1994, advising him that the overdrafts must stop, it continued to honor his checks drawn on insufficient funds and never contacted any of the other banks when a suspect-kiting entry would appear on his account reports.
Appellants sued Orlins to recover the funds he embezzled from them. They were able to obtain default judgments against Orlins but had very limited success in collecting the money owed. The Minnesota Client Security Board gave appellants $200,000 in partial satisfaction of losses to both trusts.
In their May 1999 suit against respondent, appellants sought cash recovery for the money embezzled from both trusts on theories of negligence, breach of contract, and liability under the Uniform Fiduciary Act. Appellants claim that the bank breached its overdraft-notification agreement, to which appellants were third-party beneficiaries, was negligent in not investigating and reporting Orlins’s check-kiting activities in connection with the overdrafts, and had knowledge of such facts as to constitute bad faith under the Minnesota Uniform Fiduciaries Act.
In July 2000, the trial court granted respondent’s motion for summary judgment, dismissing all three claims raised by appellants against the bank.
On appeal from a summary judgment, we must determine whether there are any issues of material fact and whether the trial court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). The court is to read “the evidence in the light most favorable to the party against whom judgment was granted.” Nygaard v. State Farm Ins. Co., 591 N.W.2d 738, 740 (Minn. App. 1999) (quotation omitted), review denied (Minn. June 29, 1999). “[S]ummary judgment is inappropriate when reasonable persons might draw different conclusions from the evidence presented.” DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (citation omitted).
1. Uniform Fiduciaries Act
The parties agree that the Minnesota Uniform Fiduciaries Act, Minn. Stat. §§ 520.01-.33 (2000), applies to this case. The act imposes liability on a bank for deposits drawn from a trust account to the credit of the fiduciary if the bank pays the check “with actual knowledge that the fiduciary is committing a breach of an obligation” in drawing the check or “with knowledge of such facts that its action in paying the check amounts to bad faith.” Id. § 520.07. In addition,
[I]f such a check is payable to the drawee bank and is delivered to it in payment of or as security for a personal debt of the fiduciary to it, the bank is liable to the principal if the fiduciary in fact commits a breach of an obligation as fiduciary in drawing or delivering the check.
Id. Orlins was the fiduciary handling funds for appellants, the principals. See id. § 520.01. Appellants contend that respondent bank is liable to them for violating all three conditions of liability under section 520.07—actual knowledge of a breach, bad faith, and accepting a wrongful payment.
a. Actual knowledge
Appellants first contend that the evidence in the case would permit a finding by the trier of fact that respondent had actual knowledge of Orlins’s breach of obligations to the trust owners. The Restatement on Trusts explains that a “fiduciary is under a duty not to profit at the expense of the other * * * without the latter’s consent.” Restatement (Third) of Trusts § 2 cmt. b. (Tentative Draft No. 1, 1996). It is undisputed that Orlins, acting as appellant’s agent, breached his fiduciary duty to safeguard their funds.
The trial court determined that the bank did not have actual knowledge because the various overdrafts over a three-year period demonstrated, at most, constructive knowledge of Orlins’s misuse of the money, and the overdrafts themselves were not evidence of a breach of fiduciary duty. The court explained that although “any overdraft of an attorney trust account is cause for concern,” not every overdraft results in the misuse of funds, as it is “possible to overdraft a trust account innocently.” But appellants have presented material fact questions as to whether the actual nature of the lawyer’s overdraft practices became apparent to the bank and whether knowledge of those practices and the danger posed by the overdrafts constitutes knowledge sufficient to create a liability.
The trial court is correct in stating that not every overdraft practice constitutes a breach of a fiduciary duty. Rheinberger v. First Nat’l Bank of St. Paul, 276 Minn. 194, 200, 150 N.W.2d 37, 41 (1967); Western Sur Co. v. Farmers & Merchants State Bank of Breckenridge, 241 Minn. 381, 384, 63 N.W.2d 377, 379 (1954); Rodgers v. Bankers Nat’l Bank, 179 Minn. 197, 208, 229 N.W. 90, 94 (1930). But none of these cases refutes the proposition that an overdraft practice may constitute a breach of a fiduciary duty, and that a breach may occur without an actual misappropriation.
The trial court erred in examining only whether respondent had actual knowledge of the “misappropriation.” Appellants’ burden is to show that respondent had actual knowledge that Orlins was “committing a breach of an obligation as fiduciary.” Minn. Stat. § 520.07. There are many ways a fiduciary may breach an obligation “other than by defrauding the principal or misappropriating the funds or using them for private purposes.” Trenton Trust Co. v. Western Surety Co., 599 S.W.2d 481, 491 (Mo. 1980) (providing examples of breaches of fiduciary obligations, such as a fiduciary purchasing bonds in own name; pledging guardianship property to secure a loan without prior approval; or acting “in any way to the detriment of the principal” (citations omitted)).
Under the circumstances of this case, the number of the overdrafts may establish a duty of inquiry, even without evidence that the bank actually knew Orlins was stealing funds. See, e.g., Home Sav. of Am., FSB v. Amoros, 661 N.Y.S.2d 635, 637 (N.Y. App. Div. 1997) (“Facts sufficient to cause a reasonably prudent person to suspect that trust funds are being misappropriated will trigger a duty of inquiry * * * and a bank’s failure to conduct a reasonable inquiry when the obligation to do so arises will result in the bank being charged with such knowledge as inquiry would have disclosed.” (citations omitted)).
b. Bad faith
The trial court did not explain its reasoning for rejecting appellant’s claim of bad faith, except to cite to Rheinberger, which states: “Bad faith does not exist if the bank was acting honestly.” 276 Minn. at 199, 150 N.W.2d at 41 (quotation omitted). In accord with its analysis of actual knowledge, the court found that there was no bad faith unless respondent was privy to Orlins’s misappropriations. But there is no precedent for the proposition that dishonesty cannot arise in the form of a bank’s toleration of a severe practice of overdrafts or significant evidence of check kiting. Just as there may have been a known breach of a fiduciary duty, knowledge of check kiting and overdrafts could constitute bad faith and the cases do not suggest that the bank needs to know more. See County of Macon v. Edgcomb, 654 N.E.2d 598, 601 (Ill. App. Ct. 1995) (“An example of bad faith is where the taker suspects that the fiduciary is acting improperly and deliberately refrains from investigating in order that he may avoid knowledge that the fiduciary is acting improperly.” (citation omitted)); Home Sav. of Am., FSB, 661 N.Y.S.2d at 638. (“[N]either a large bank nor a small bank may urge that it is ignorant of facts clearly disclosed in the transactions of its customers with the bank[.]” (quotation omitted)).
Because there are material fact questions as to whether the bank had actual knowledge or was acting in bad faith with respect to the lawyer’s breach of his fiduciary obligation to appellants, we reverse the trial court’s grant of summary judgment in this regard.
c. Direct benefit of breach
Appellants also suggest that they presented sufficient evidence on their claim of liability under the added provision of the Uniform Fiduciaries Act, which states that a bank is liable if it accepts a check drawn from a trust account in payment of a fiduciary’s personal debt to the bank and, in drawing or delivering the check, the fiduciary was breaching an obligation as fiduciary. Minn. Stat. § 520.07. Because both disputed transactions were small in amount, the trial court was correct in stating that those transactions by themselves provided too little information to determine whether they constituted a breach of the lawyer’s fiduciary obligation. But in light of the evidence that will be heard on other issues, the issue must be reexamined by the trial court to determine whether Orlins was actually breaching his fiduciary obligations in drawing or delivering these checks to respondent in payment of his personal debt to it.
Appellants contend that respondent bank owed them a duty to exercise reasonable care, establishing the basis for a claim of negligence. See Hudson v. Snyder Body, Inc., 326 N.W.2d 149, 157 (Minn. 1982) (providing the elements of negligence: a duty, a breach of that duty, causation, and damages). “A person practicing a profession is bound to exercise the degree of care and skill usually exercised by members of the profession under similar circumstances.” Minneapolis Employees Ret. Fund v. Allison-Williams Co., 519 N.W.2d 176, 182 (Minn. 1994) (citation omitted). Whether one party owes a legal duty to another presents a question of law, which is reviewed de novo. Larson v. Larson, 373 N.W.2d 287, 289 (Minn. 1985).
Under most circumstances, “professionals have no duty to disclose information concerning a client to a nonclient.” Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 190 (Minn. 1999). Here, appellants were not customers of respondent bank but rather clients of a customer of the bank. Consequently, absent a special agreement between the bank and appellants, the bank did not owe appellants a duty of care. We affirm the trial court’s summary judgment on the issue of negligence.
3. Breach of contract
Finally, appellants argue that they were intended third-party beneficiaries to the overdraft-notification agreement between respondent and the Office of Lawyers Professional Responsibility. In general, persons who are not parties to a contract but benefit from its performance are merely incidental beneficiaries and have no rights under the contract. Wurm v. John Deere Leasing Co., 405 N.W.2d 484, 486-87 (Minn. App. 1987). But a third party may still recover as an intended beneficiary “if recognition of third-party beneficiary rights is appropriate and either the duty-owed or intent-to-benefit test is met.” Mears Park Holding Corp. v. Morse/Diesel, Inc., 427 N.W.2d 281, 285 (Minn. App. 1988).
Appellants do not claim that they meet the duty-owed test but rather the intent-to-benefit test. This test is satisfied if “the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.” Id. (quotation omitted). There must be contract language that “expresses some intent” by the contracting parties to benefit the third party through their contractual performance; otherwise, the “beneficiary is no more than an incidental beneficiary and cannot enforce the contract.” Wurm, 405 N.W.2d at 486 (citation omitted). Because there is nothing in the overdraft-reporting agreement that states a design to benefit appellants, we affirm the trial court’s summary judgment on this issue.
Affirmed in part, reversed in part, and remanded.
 In 1997, respondent bank received a letter from the Office of Lawyers Professional Responsibility informing it that various bank statements from the Orlins’s trust account reflected numerous overdrafts and requested an explanation for why the bank had failed to report the overdrafts as required by their overdraft-reporting agreement. The bank stated that it did not report the overdrafts on Orlins’s trust account because the reporting requirement applied only to IOLTA accounts, so it treated Orlins’s account “like other commercial checking accounts.”
 Bad faith is evident where bank officers actually conspire with a fiduciary to divert funds. Minnesota Valley Country Club, Inc. v. Gill, 356 N.W.2d 356, 362 (Minn. App. 1984). But even where the bank does not actually conspire with the fiduciary, its indifference may constitute bad faith under particular circumstances. See New Jersey Title Ins. Co. v. Caputo, 748 A.2d 507, 514 (N.J. 2000) (holding “bad faith denotes a reckless disregard or purposeful obliviousness of the known facts suggesting impropriety by the fiduciary”); see also Broadview Lumber Co., Inc. v. Southwest Mo. Bank of Carthage, 118 F.3d 1246, 1251 (8th Cir. 1997) (providing that “bad faith” can be found when the person “disregards circumstances that are suggestive of a breach and are sufficiently obvious such that it is in bad faith to remain passive” (citations omitted)); Trenton Trust Co. v. Western Sur. Co., 599 S.W.2d 481, 492 (Mo. 1980) (“Where circumstances suggestive of the fiduciary’s breach become sufficiently obvious it is ‘bad faith’ to remain passive.” (citations omitted)).
 The court has before it respondent’s motion to strike the amicus brief of the Minnesota Client Security Board that addressed this issue. Because respondents have been granted relief on the merits of the issue, the motion is denied.