A Louisiana court ruled that a church could not sue its bank for negligence in allowing an employee to make unauthorized charges to the church's credit card since it failed to name the bank as a defendant in its original lawsuit.
A church filed a civil lawsuit against its former financial secretary, alleging that during the course of her three-year employment she used church funds for her personal use, mostly through the unauthorized use of church checks and credit cards. The church's lawsuit alleged that the financial secretary:
- Signed other persons' names to church checks without authorization.
- Reported to the church that checks were written to one person or company when in reality checks were written to unauthorized persons or companies.
- Reported to the church that checks so written were in one amount and in fact were written in other amounts not shown.
- Opened credit accounts and credit cards in the church's name unknown to the church. These were used for unauthorized expenses that were not for the use and benefit of the church, but for the financial secretary's personal use.
- Used church funds for her personal benefit.
- Failed to make appropriate and timely payments to the IRS of taxes withheld from employee payroll checks.
- Duplicated payroll payments to herself in excess of the salary amounts authorized by the church.
- Improperly and inaccurately balanced and reported on bank statements and business accounts of the church to cover up the misuse and misappropriation of church funds.
- Failed to use good and acceptable business accounting practices in her fiduciary capacity as an employee of the church.
- Violated the church's financial policies and practices and engaged in conduct to cover up all violations.
The lawsuit also named the financial secretary's husband as a defendant, alleging that the misappropriated funds benefitted both spouses and therefore he was responsible for reimbursement of damages as well. The church's lawsuit did not name any other defendants.
Neither the financial secretary nor her husband responded to the lawsuit, and so the trial court entered a default judgment against them in the amount of $384,000 plus interest and attorneys' fees.
On the same day that the court issued the default judgment, the church amended its lawsuit to include as defendants the church's credit card company and bank. The church asserted that the credit card company (Citigroup) was liable for its losses as it "negligently, improperly and without authority issued in the name of the church a credit card used by [the financial secretary] to charge personal items to the church which were solely for the use and benefit of herself and her family."
The church further alleged that the credit card company "failed to follow reasonable and safe business practices and procedures to ensure that the church had authorized the issuance of credit cards in its name used by the financial secretary to make these charges," and "breached its duty to protect the church from fraudulent use of its name and financial resources for the issuance of credit and payment of unauthorized and fraudulent charges."
The church also named its bank (Capital One) as a defendant, alleging that it was responsible for the financial secretary's acts. Specifically, it alleged that, due to its negligence and lack of care, the financial secretary "was able to draw unauthorized funds for payment for her, her husband and her family's sole benefit by forging signatures of other authorized persons, using the bank's internet banking features to avoid the requirement of two authorized signatures to draw on the church's accounts." The bank further asserted that the bank failed "to warn the church of obviously improper transactions which a reasonably prudent bank knew or should have known were fraudulent."
These two defendants asked the court to dismiss the church's claims against them on the ground that the original lawsuit failed to mention them as defendants, and that the default judgment was for all damages the church sustained. The trial court agreed and dismissed these claims. The church appealed.
A state appeals court affirmed the trial court's dismissal of all claims against the credit card company and bank. It stated the general rule as follows: "After obtaining a default judgment against an original defendant, a plaintiff cannot later amend the lawsuit to add another (sic) defendants." This makes sense, since a default judgment ordinarily grants the plaintiff the full measure of damages requested in the lawsuit, which presumably fully compensate the plaintiff for its injury or loss. To allow a plaintiff to sue additional defendants after a default judgment would potentially allow the plaintiff to collect multiple damages for the same injury.
What this means for churches
This case illustrates the importance of naming all potential defendants in a lawsuit. If only one defendant is named, and a default judgment is entered against the sole defendant because of a failure to respond to the lawsuit, the plaintiff may be precluded from amending the lawsuit to name additional defendants. 26 So.3d 917 (La. App. 2009).
