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Court-Ordered Blocked Accounts – Any Bank Takers?

by | Jan 24, 2024 | Firm News

I have several matters where the cash assets in the estate, conservatorship, guardianship or trust are ordered to be placed in an account that is blocked from any funds being withdrawn without a court order.  The benefit of this arrangement is that the court may not require the fiduciary to be bonded because the funds are considered safe from any misuse by the fiduciary.  Also, the court is more inclined to waive the requirement of an accounting if the funds are in a court ordered blocked account since the court will be involved in any withdrawal from the account.

The initial downside to a court ordered blocked account is getting a bank to open such an account.  I warn my clients that it can be difficult to find a bank that is able or willing to open a court-ordered blocked account.   I project that it will only become more difficult after the recent holding in The Law Firm of Fox & Fox v. Chase Bank, N.A. (B319265, filed September 5, 2023, Second District, Div. Seven). The appellate court found that Chase Bank owed a duty to the law firm that was entitled to a distribution from a court-ordered block account that was drained by the administrator of the probate estate which owned the funds.

An administrator was appointed in a probate estate which held real property.  When that real property was sold, the proceeds were ordered to be placed in a court-ordered blocked account.  The administrator deposited the funds with Chase Bank which acknowledged the requirements for the blocked account.  The final order in the probate estate provided for payment of statutory compensation to both the administrator and the law firm that represented the administrator, the reimbursement of costs to the law firm, and the remainder of the funds were to be distributed to creditors and heirs of the decedent.  An attorney with law firm went with the administrator to Chase Bank with the court order and got an assurance from Chase Bank that no funds would be withdrawn without both attorney and administrator present.  Later, the administrator went to Chase Bank with the order and withdrew all the funds and absconded.

The law firm sued Chase Bank for negligence for allowing the administrator to withdraw all the funds without the attorney being present.  Chase Bank argued that it did not owe a duty to the law firm and its motion for summary judge was granted. But the appellate court found that since the law firm was a beneficiary of the funds in the account and the court specified that funds in the account were to be distributed to the people named in the order and not just to the administrator, Chase Bank owed a duty to the law firm.

Over the last several years I have seen the banks be more and more difficult to work with my fiduciary (trustees, executors, administrators, conservators and guardians) clients.  I am sympathetic to the law firm not being paid its statutory fees and reimbursement.   But with a holding like this, I can see Chase Bank refusing to open court-ordered bank accounts and other banks doing the same.