Present: Hassell, C.J., Lacy, Keenan, Kinser, and Lemons,
JJ., and Carrico and Russell, S.JJ.
IAN G. COLLINS, ET AL. OPINION BY
SENIOR JUSTICE CHARLES S. RUSSELL
v. Record No. 052647 November 3, 2006
FIRST UNION NATIONAL BANK
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Gaylord L. Finch, Jr., Judge
This appeal presents the question whether a bank is
liable to parties designated as beneficiaries of accounts set
up for their benefit, using the term “For The Benefit Of ___”
(FBO accounts), when the beneficiaries had not contracted with
the bank and had no signatory authority over the accounts.
The dispositive issues are whether the beneficiaries were
“customers” of the bank as defined by the Uniform Commercial
Code, Code § 8.4-104(a)(5), or whether the bank had otherwise
assumed duties to protect their interests.
Background
In 1990, Congress enacted 8 U.S.C. § 1153(b)(5) (1988 &
Supp. II 1990), known as the EB-5 Investment Visa Program,
whereby foreign nationals could obtain permanent resident
status in the United States for themselves and their families
upon two conditions: (1) the applicant must invest $500,000
in a new commercial enterprise located in a rural or high-
unemployment location in the United States, and (2) the
enterprise must create at least ten new jobs. Each applicant
was required to furnish proof that he had at least $500,000 in
cash, fully at risk, that the source was lawful, and that he
had a relationship with a financial institution in this
country that would hold his money on deposit while his
application for a visa was being processed.
Two individuals, James F. O’Connor and James A. Geisler,
concocted an elaborate scheme to defraud foreign nationals
interested in obtaining such visas. 1 In 1996, they began to
market to foreign investors worldwide an “opportunity” to
enter the EB-5 visa program by making an investment of only
$100,000 to $150,000 instead of the $500,000 required by the
federal law.
O’Connor and Geisler were partners in an umbrella
organization called The InterBank Group, Inc. (InterBank),
which encompassed a number of business entities that they
controlled. Through InterBank, they marketed and sold their
EB-5 visa program to foreign investors worldwide under the
name “Invest in America.” The investors were told that after
they had contributed $100,000 to $150,000, plus a $20,000
“processing fee,” InterBank would fund the rest of the
required $500,000 by a loan InterBank would obtain for each
1
O’Connor and Geisler were both convicted of a number of
federal felonies and sentenced to imprisonment as a result of
a 61-count federal indictment arising from this scheme. U.S.
v. O’Connor, 158 F. Supp. 2d 697 (E.D. Va. 2001).
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investor from a bank in the Bahamas. The investors were told
that they would not be required to repay the loans or put up
any collateral to secure them; rather, InterBank would be
fully responsible for the loans. The investors were told that
the money they had contributed would be held in escrow until
their EB-5 visa application had been approved by the federal
government. 2 Over the life of the “Invest in America” program,
InterBank took in approximately 21 million dollars from over
200 foreign investors.
InterBank set up a system of sham loans in order to place
$500,000 in each investor’s account for a short period of time
to demonstrate to the federal authorities that the investor
had the requisite funds on deposit to qualify for an EB-5
visa. InterBank first opened an FBO account in First Union
National Bank (FUNB) for the benefit of an individual
investor, and in it deposited the investor’s original $100,000
to $150,000 contribution. Within 24 hours, InterBank wired
$350,000 to $400,000 to an account in the Bahamas. The
Bahamian bank then wired that sum to FUNB for deposit to the
individual investor’s FBO account, thus increasing that
account’s balance to $500,000. InterBank then obtained a
2
Each investor was given an “Escrow Agreement” wherein
“Invest in America, LP” and its attorney agreed to hold the
investor’s money in an “attorney's trust account” until a visa
was issued. No such accounts were ever opened.
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“print screen” showing a $500,000 balance in the investor’s
FBO account at FUNB as false proof to the federal authorities
that the investor had indeed put up the amount to qualify for
a visa. As soon as the “print screen” had been obtained,
InterBank, which exercised sole signatory authority over the
FBO account, promptly removed the entire $500,000 and re-
deposited it in a general account under InterBank’s control.
As the United States District Court found at O’Connor and
Geisler’s criminal trial, “These funds were then used, again
and again, to effect similar sham loan transactions in
connection with other alien investors.” U.S. v. O’Connor, 158
F. Supp. 2d 697, 707 (E.D. Va. 2001). Needless to say, the
investors’ funds disappeared entirely in the process.
Facts and Proceedings
The plaintiffs in the present case are 15 foreign
nationals (the investors) 3 who lost their investments as a
result of the “Invest in America” scheme. They brought this
action for damages against FUNB alleging fraud, breach of
contract, negligence, and civil conspiracy. After a bench
trial, the trial court ruled against the investors on all
3
Ian G. Collins, Pradip Muchala, Manish Patel, Muna
Zuniera, Kiran M. Shah, Kshama Lodha, Megha Shresta, Archana
Shresta, Bishnu Shresta, Doraisamy Venkataperumal, Mohammed
Siddiqi, Roberto Comige Woisky Do Rio, Seyed Ali Shahrokny,
Simon Oliver, and Carlo Barbieri.
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counts. We awarded the investors an appeal, limited to the
breach of contract and negligence claims. The pertinent facts
will be stated in the light most favorable to FUNB, the
prevailing party at trial.
The evidence showed that the investors had, together,
lost $1,872,000 and that none of them had ever received a
visa. Their claims against FUNB were based primarily on the
conduct of Harry Biehl, an assistant vice president of FUNB
who oversaw the opening and operations of the "Invest in
America" accounts, including the investors’ FBO accounts.
Biehl testified that he first met O’Connor and Geisler in
September 1997 during a visit to InterBank’s offices to
explore the contemplated business relationship between FUNB
and InterBank. He understood that InterBank was dealing with
foreign investors and his concern was “what assurances as a
bank do we have that we’re not dealing with some drug
trafficking, some criminal aspects that might be overseas.”
A few days later, Biehl visited InterBank again.
O’Connor and Geisler showed him an escrow agreement they had
prepared with FUNB’s name entered on it. He testified: “I
immediately handed it back to them and told them we would not,
[on] any condition, open up escrow accounts.” They then asked
him, “what it is that we could do.” In response, Biehl
suggested a single account under InterBank’s control which
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could receive transfers and from which InterBank could
disperse funds to invest for their clients in accordance with
“whatever agreement they might have had.” O’Connor and
Geisler told him that they could not commingle the investor’s
funds; that “[they] had to stay separate.” Biehl then
suggested that they set up accounts “for them and for the
benefit of . . . for their clients” in order to “identify who
the individuals were that they were opening these accounts up
for, for their own internal accounting records.” O’Connor and
Geisler agreed to this proposal and InterBank opened the
accounts in the form: “Invest In America For the Benefit Of
[name of investor]” or, in short form: “Invest In America, LP
FBO [name].” It is undisputed that the individual investors
had no direct relationship with FUNB with respect to the FBO
accounts, had no communication with the bank concerning them
before Interbank opened them, signed no documents relating to
them, and had no signatory powers over them.
At the conclusion of the trial, the court took the case
under advisement and considered briefs filed by counsel.
Thereafter, the court ruled that the plaintiff investors had
failed to carry their burden of proving, by a preponderance of
the evidence, that they were customers of FUNB or that FUNB
had entered into any agreement to assume fiduciary duties
toward them. The Court also held that the plaintiffs had
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failed to prove, by a preponderance of the evidence, that a
relationship existed between the investors and the bank that
would give rise to a duty of care on the part of FUNB. Thus,
the court found in favor of FUNB on both the breach of
contract and negligence counts and entered final judgment for
the defendant.
Analysis
We give the findings of fact made by a trial court that
heard the evidence and evaluated the credibility of the
witnesses at a bench trial the same weight as a jury verdict.
Those factual findings will not be disturbed on appeal unless
they are plainly wrong or without evidence to support them.
Forbes v. Rapp, 269 Va. 374, 379-80, 611 S.E.2d 592, 595
(2005). For those issues that present mixed questions of law
and fact, we give deference to the trial court’s findings of
fact and view the facts in the light most favorable to the
prevailing party, but we review the trial court’s application
of the law to those facts de novo. Caplan v. Bogard, 264 Va.
219, 225, 563 S.E.2d 719, 722 (2002).
On appeal, the investors contend that FUNB owed duties to
them because they were customers of the bank within the terms
of the U.C.C., and that even if they were not customers, the
bank nevertheless owed duties to them when establishing their
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FBO accounts, and that in any event, they were third-party
beneficiaries of the contract between FUNB and InterBank.
The principles of contract law that formerly regulated
the relationships between a bank and its customers have been
generally displaced by the Uniform Commercial Code with
respect to any situation covered by particular provisions of
Article 4 of the U.C.C. Schlegel v. Bank of America, 271 Va.
542, 553-55, 628 S.E.2d 362, 367-68 (2006); Halifax Corp. v.
First Union National Bank, 262 Va. 91, 104, 546 S.E.2d 696,
704 (2001). That part of the U.C.C. has been adopted as Title
8.4 in the Code of Virginia. Code § 8.4-104(a)(5) defines
“Customer” in this context as “a person having an account with
a bank or for whom a bank has agreed to collect items,
including a bank that maintains an account at another bank.”
That definition is the exclusive determinant of customer
status in this context.
The investors argue that they were “customers” of FUNB
because InterBank established accounts that were “funded with
money that beneficially belongs to another.” We rejected that
theory in United Virginia Bank v. E.L.B. Tank Constr., Inc.,
226 Va. 551, 555, 311 S.E.2d 773, 775 (1984). There, E.L.B.
maintained an account with a bank into which Flippo deposited
funds to be used to defray future debts Flippo might owe
E.L.B. After disputes arose between Flippo and E.L.B., the
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bank permitted Flippo to withdraw funds he had deposited into
the account. E.L.B. successfully sued the bank and we
affirmed on appeal, holding that E.L.B. was the bank’s
customer and Flippo was not. The source of the funds was
immaterial. Id. at 555-56, 311 S.E.2d at 775-76.
The investors further argue that they were “customers” of
FUNB because the bank had agreed to “collect items” for them,
which brought them within the U.C.C. definition quoted above.
They point out that “Item” is defined by Code § 8.4-104(a)(9)
as “an instrument or a promise or order to pay money handled
by a bank for collection or payment.” Thus, they say, when
their checks arrived at FUNB and were deposited into the FBO
accounts, the bank was collecting "items" for them and it had
“agreed” to do so. The fallacy in that argument is that if
FUNB had an agreement to collect items, the agreement was with
InterBank, not the investors, and the agreement was to collect
items for InterBank, not for the investors. Indeed, under our
holding in E.L.B., if the bank had recognized the investors’
interest in the funds deposited to the FBO accounts and
permitted the investors to withdraw them, it would have been
liable in damages to its customer, InterBank. For these
reasons, we conclude that the investors were not “customers”
of FUNB with respect to the FBO accounts.
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The investors contend that even if they were not
customers of FUNB, they were nevertheless third-party
beneficiaries of the contract between FUNB and InterBank.
That contention must rest on Code § 55-22, which provides, in
pertinent part:
[I]f a covenant or promise be made for the benefit,
in whole or in part, of a person with whom it is not
made . . . such person . . . may maintain in his own
name any action thereon which he might maintain in
case it had been made with him only and the
consideration had moved from him to the party making
such covenant or promise.
We have consistently held that this third-party
beneficiary doctrine is subject to the limitation that the
third party must show that the contracting parties clearly and
definitely intended that the contract confer a benefit upon
him. Caudill v. County of Dinwiddie, 259 Va. 785, 793, 529
S.E.2d 313, 317 (2000); MNC Credit Corp. v. Sickels, 255 Va.
314, 320, 497 S.E.2d 331, 334 (1998); Forbes v. Schaefer, 226
Va. 391, 401, 310 S.E.2d 457, 463 (1983).
Here, the trial court, having weighed the evidence and
evaluated the credibility of the witnesses, found no such
intention on the part of FUNB and InterBank, the contracting
parties. The evidence of FUNB’s intention in setting up the
FBO accounts was provided by Biehl’s testimony that his main
concern was to protect the bank from any involvement with
criminal activity. He refused to open escrow accounts, which
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would have imposed upon FUNB duties to the investors as well
as to InterBank, and instead suggested FBO accounts, in which
InterBank, the bank’s sole customer, would have sole control
of the funds on deposit. There was no direct evidence of the
intentions of InterBank, the other contracting party, but the
circumstantial evidence of the conduct of its principals was
sufficient to support the trial court in concluding that
conferring a benefit upon the investors was the farthest thing
from their minds.
Finally, the investors contend that the machinations of
InterBank and its related entities were sufficient to put FUNB
on notice that its customer, InterBank, was engaging in large-
scale money laundering. In that event, FUNB would undoubtedly
have incurred a duty to report the facts to the federal
authorities, but there is no evidence that it failed to do so.
The investors cite no authority, however, and we find none,
that would have imposed upon FUNB any duties to the investors
if such notice were proved.
Conclusion
Because we find that the evidence supported the decision
of the trial court, we will affirm the judgment.
Affirmed.
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