On May 21, 2010, the Kentucky Court of Appeals, in the published decision Swinford Trucking Co. v. Paducah Bank & Trust Co., No. 2008-CA-1748-MR, reversed the circuit court’s order dismissing a complaint filed by a bank customer, alleging that the bank was negligent in allowing the customer’s employee to unlawfully withdraw funds from its accounts.

The plaintiff’s office manager embezzled funds from its bank accounts at Paducah Bank & Trust. The office manager pled guilty and eventually made full restitution of $343,726.50 after a criminal restitution hearing. The plaintiff then filed a civil action against Paducah Bank & Trust, alleging that the office manager was able to embezzle the funds because of the bank’s negligence, resulting in its economic losses. The plaintiff seeks compensatory damages, punitive damages, and attorney fees.

The bank moved for summary judgment, arguing that because the plaintiff had already received full restitution, its civil action was precluded pursuant to the doctrine of collateral estoppel. While the circuit court agreed with the bank, the Court of Appeals found that the bank had failed to establish the necessary elements of collateral estoppel because there was no identity of issues. The criminal litigation was prosecuted by the Commonwealth of Kentucky, not by the plaintiff, the plaintiff was not represented by counsel during the restitution hearing and was not entitled to a jury trial, and the plaintiff’s current action was civil in nature and would depend on the plaintiff successfully showing that Paducah Bank & Trust was negligent in allowing the plaintiff’s employee to withdraw funds from the plaintiff’s account.

The Court of Appeals noted that its decision was consistent with KRS 533.030(3)(d), which essentially provides that a restitution order will not preclude the victim from proceeding in a civil action to recover damages from the defendant. Similarly, the plaintiff here was not precluded from proceeding against a third party who it alleges is responsible for the unlawful act. (This statute also provides, however, that the civil verdict will be reduced by the amount paid under the criminal restitution order.)

Although the bank attempted to make alternative arguments supporting summary judgment – that the plaintiff could not establish a loss of business opportunity or recover interest or attorney fees – the Court declined to address those because they were not presented to the circuit court in the bank’s motion for summary judgment. The Court emphasized, however, that it was not “dictating a result” in the civil litigation, and that the bank was not foreclosed from seeking summary judgment on other grounds in the future.