Seventh Circuit Finds Bank Owes No Fiduciary Duty to Commercial Customers Under Indiana Law

Interactive Intelligence, Inc., is a software company, providing voice-over-internet services to a variety of domestic and international customers. Interactive both received foreign funds and had bills to pay in foreign currencies, and chose KeyBank as its provider of foreign-currency exchange services on a transaction-by-transaction basis beginning in the mid-1990s.

Interactive, claiming that it was unaware that KeyBank was charging a spread on each transaction, sued KeyBank in Indiana state court, asserting claims for breach of contract, breach of fiduciary duty, and negligent supervision (based on a theory that KeyBank had a duty to prevent its employee who was actually pricing the transactions from "overcharging" Interactive). KeyBank, represented by Alan Brown, Darren Craig, and the undersigned, removed the matter to federal court based on diversity jurisdiction and eventually filed for summary judgment on all of Interactive's claims. The District Court granted the motion and Interactive appealed.

The Seventh Circuit, voting 3-0, upheld the District Court's ruling in its entirety. Interactive Intelligence, Inc. v. KeyBank, KeyBank National Association and Adam Ravens, 546 F.3d 897 (7th Cir. 2008). The Court rejected Interactive's claim that a fiduciary duty should be "presumed" even between contracting parties in situations in which one party has a superior position and sustains a substantial advantage over the other. The Court acknowledged that a fiduciary relationship could arise if a confidential relationship existed between a bank and its customer, but found that there was nothing confidential in the foreign-exchange transactions since information about exchange rates was readily available.

The Court also rejected Interactive's theory that it was a third-party beneficiary of a KeyBank's Code of Ethics, which it required Adam Ravens, its employee performing the trades for Interactive, to sign as a condition of his employment. The Court described this claim as "bizarre" and "hopelessly flawed," noting that accepting this argument would result in companies simply doing away with their ethics codes.

Posted by: Thomas E. Satrom

Categories: Bankruptcy & Banking Law