## Facts

- Amy Powers and Michael D’Ambrosia opened a joint investment account with American Express Financial Advisors, Inc. (American Express).
- The joint account was funded primarily from D’Ambrosia’s earnings.
- The investment application required the signatures of both Powers and D’Ambrosia for any redemption request above $50,000.
- After Powers and D’Ambrosia ended their relationship, they requested that American Express freeze the joint investment account.
- By a letter dated September 26, 1997, Powers and D’Ambrosia jointly authorized American Express to release the freeze and instructed American Express to transfer the account funds to a Prudential Securities account.
- On October 16, 1997, D’Ambrosia alone faxed American Express a memo instructing it to transfer all funds from the joint investment account to a joint bank account at FCNB Bank held in both names.
- American Express executed D’Ambrosia’s October 16 instruction and wired $86,836.79 to the joint FCNB account.
- D’Ambrosia withdrew the money from the FCNB account and fled.
- Powers sued American Express to recover the funds, alleging that American Express, as a securities intermediary, violated Md. Code Ann., Com. Law § 8-507(b) by honoring an ineffective entitlement order.
- The United States District Court for the District of Maryland granted summary judgment for Powers and awarded $86,836.79 plus prejudgment interest.
- American Express appealed to the Fourth Circuit.

## Issues

1. Whether American Express violated Md. Code Ann., Com. Law § 8-507(b) by transferring more than $50,000 from a joint investment account based solely on D’Ambrosia’s unilateral fax when the account documents required both joint holders’ signatures for such a redemption.
2. Whether the September 26, 1997 joint letter releasing the freeze and directing a transfer to a Prudential account authorized (or otherwise excused) American Express’s later transfer to the FCNB joint bank account based on D’Ambrosia’s October 16 fax.
3. Whether summary judgment and an award of the transferred amount (plus prejudgment interest) were proper remedies for the intermediary’s failure to comply with the governing authorization requirements.

## Decision

- The Fourth Circuit affirmed the district court’s summary judgment for Powers.
- The court left in place the award of $86,836.79 in damages, plus prejudgment interest, against American Express.

## Legal Principles

- A brokerage holding securities for a customer in an account relationship governed by UCC Article 8 functions as a “securities intermediary,” and the customer holds a “security entitlement.”
- Under Md. Code Ann., Com. Law § 8-507(b), a securities intermediary must comply with an entitlement order only when the order is originated by an “appropriate person” under the account’s governing authorization terms.
- For a joint account, the intermediary may be bound by agreed signature conditions (such as a dual-signature requirement above a stated dollar threshold) in determining whether an instruction is effective.
- A prior, jointly signed instruction to lift a freeze and make a specified transfer does not, by itself, authorize later transfers to different destinations on different terms, particularly where the account documents require joint approval for large redemptions.
- When an intermediary executes a transfer inconsistent with the account’s stated authorization requirements, it can be liable to the nonconsenting entitlement holder for the resulting loss, including the amount wrongfully transferred and, where appropriate, prejudgment interest.
- Summary judgment is proper when the material facts are not disputed and the account documents and transfer instructions show that the intermediary executed a large redemption without the required joint authorization.

## Conclusion

Powers v. American Express Financial Advisors, Inc. holds that American Express, acting as a securities intermediary, was liable under Md. Code Ann., Com. Law § 8-507(b) for wiring $86,836.79 out of a joint investment account based on D’Ambrosia’s unilateral faxed instruction despite an account requirement that both joint holders sign any redemption over $50,000; the Fourth Circuit affirmed summary judgment for Powers and the accompanying damages and prejudgment interest award.


Powers v. American Express Financial Advisors, Inc., 238 F.3d 414 (2000)