RANKIN v. MT. LEBANON SCH. DIST., 70 Pa. Commw. 210 (1982)

452 A.2d 1117

Commonwealth Court of Pennsylvania.Argued October 6, 1982
December 2, 1982.

Schools — Treasurer — Public School Code of 1949, Act of March 10, 1949, P.L. 30 — Depository — Investment of school funds — Duty of bank

1. Under provisions of the Public School Code of 1949, Act of March 10, 1949, P.L. 30, the function of a school district treasurer ends when money is deposited in the regularly designated depository. [214]

2. Nothing in the Public School Code of 1949, Act of March 10, 1949, P.L. 30, precludes a bank from serving both as treasurer of a school district and as its depository. [214]

3. A cause of action is not stated against a school district depository for commingling deposits of the district with funds of other depositors as such commingling is not prohibited. [214]

4. A cause of action is not stated against a school district depository for making unauthorized investments in the absence of an allegation that investments made were not authorized by the Public School Code of 1949, Act of March 10, 1949, P.L. 30. [215]

5. There is no duty on the part of a bank acting as treasurer and as depository of school district funds, which was awarded such position after competitive bidding, to offer to the district the same interest rates or fee arrangements offered another customer nor to advise the district of the arrangements made with others. [215-16]

Argued October 6, 1982, before Judges ROGERS, BLATT and CRAIG, sitting as a panel of three.

Appeal, No. 56 C.D. 1982, from the Order of the Court of Common Pleas of Allegheny County in case

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of Bob E. Rankin, Marilyn Nichols, and all others similarly situated v. Mt. Lebanon School District, Mt. Lebanon Board of Directors and Mellon Bank, N.A., No. GD 81-17556, In Equity.

Complaint in equity in the Court of Common Pleas of Allegheny County challenging investment of school district funds. Defendants filed preliminary objections. Preliminary objections sustained. Complaint dismissed. SILVESTRI, J. Plaintiffs appealed to the Commonwealth Court of Pennsylvania. Held: Affirmed.

Joseph M. Loughren, Wayman, Irvin McAuley, for appellants.

Donald C. Bush, with him James C. Kletter and Thomas P. Peterson, Anderson, Moreland Bush, for appellees, Mt. Lebanon School District and Mt. Lebanon Board of School Directors.

Walter T. McGough, with him Arthur J. Schwab, Anthony J. Basinski and Debra M. Coulson, Reed, Smith, Shaw McClay, for appellee, Mellon Bank, N.A.

OPINION BY JUDGE CRAIG, December 2, 1982:

Bob E. Rankin and Marilyn Nichols (taxpayers) appeal the order of the Court of Common Pleas of Allegheny County which sustained the preliminary objections of the Mt. Lebanon School District, the school directors and Mellon Bank, N.A., and dismissed the taxpayers’ class action suit in equity.

The preliminary objections set forth demurrers and also sought dismissal on the ground of failure to exhaust a statutory remedy, namely, a statutory appeal

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from official audit under the Public School Code.[1] Judge SILVESTRI, of the common pleas court, issued a comprehensive opinion sustaining both attacks. We need to address only the matter of failure to state a cause of action because that matter, despite a scarcity of precedent, is one which clearly resolves itself upon examining the pleadings in the light of the School Code.

In their complaints,[2] the taxpayers averred that, at all times relevant here, the bank was the school district’s treasurer and the district’s designated depository; that the bank was authorized to receive money for deposit in two accounts, the “special account” and the “current account;” that the local tax collector deposited the district’s real estate tax revenues directly in the special account and state and federal funding agencies remitted funds directly to the current account; that the bank, holding district funds as a fiduciary, commingled the district’s funds with other funds in the bank’s possession without pledging appropriate collateral held by the bank’s trust department; that the bank made a profit from the use of funds deposited in the district’s accounts; that the bank promised to serve as the district’s treasurer at no cost to the district, but has debited the district’s accounts for service charges; that the district entered into “repurchase agreements”[3]
with the bank under which the bank paid the district a lower interest rate than the bank makes available to other similarly situated customers; that the district earned less interest

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from repurchase agreements with the bank than it could have earned by putting its funds in investments authorized under the School Code;[4] and that the bank knew or should have known that the district could realize higher interest rates than those offered through the repurchase agreements and failed so to inform the district.

The taxpayers contend that the direct deposit of school district funds, by the local tax collector and state and federal agencies, is unlawful because, under the Code, the treasurer has the duty to receive and deposit the district’s funds.[5] However, there are no

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averments to support a conclusion that the bank did not receive the funds as treasurer at the same time the funds were deposited.

The School Code clearly recognizes that the treasurer’s function ends where the depository’s function begins. Section 625, in part, provides:

After any funds have been deposited with such regularly designated depository by any school treasurer, he shall thereafter be relieved from all liability therefor, and all school orders drawn on the school treasurer for any funds so deposited by him shall be endorsed by said treasurer and made “Payable at ________________ depository of the School District of _________”

The bank does not hold the district’s funds as treasurer while those funds are on deposit in the district’s current and special accounts.

The treasurer bank is the district’s fiduciary; as depository, however, it and the district have a debtor-creditor relationship. The bank, when acting as the depository, is not prohibited from commingling the district’s funds or from making a profit from their use and has no duty to collateralize the district’s account when the bank invests the funds on deposits in the secondary money market. The taxpayers have been able to prove no authority to establish that, although the functions of treasurer and depository are separate, the bank cannot perform both roles simultaneously.

The taxpayers also contend that the school district’s practice of “investing” in repurchase agreements is unlawful because such investments are not authorized under Section 440.1 of the School Code.

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However, the taxpayers have not alleged facts establishing that the repurchase agreements here were investments in and of themselves, as opposed to a method whereby the district made an investment, either directly or indirectly, and the taxpayers have made no averment that the investments which are the subject of the repurchase agreements are not authorized investments for the district.

The taxpayers further contend that the bank breached its fiduciary duty by failing to inform the district that the bank made better interest rates available to other customers in like transactions or that the district could earn higher interest from other authorized investments. However, the decision to invest in one type of authorized investment instead of another is clearly within the discretion of the school directors.[6] Also, the bank had no duty to offer the same interest rates or fee arrangements to the district as those which it offered to other similarly situated customers. When a school district goes into the market place and invites competitive offers for a type of investment, as the pleadings indicate the district did here,[7]
and when

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the district receives competitive offers in addition to that of the bank acting as district treasurer, the treasurer bank has no duty to inform the district as to the bank’s terms with other customers.

We agree that the taxpayers were unable to plead averments necessary to make out a cause of action against the district, the school directors or the bank. Accordingly, we affirm.

ORDER
NOW, December 2, 1982, the order of the Court of Common Pleas of Allegheny County, Docket No. GD 81-17556, dated December 16, 1981, is hereby affirmed.