Opinion
PC-2022-07068
05-04-2023
JOHN J. TENNANT, JR., Plaintiff, v. CITIZENS BANK, N.A. AND WELLS FARGO & COMPANY, Defendants.
For Plaintiff: Cale P. Keable, Esq. For Defendant: Geoffrey W. Millsom, Esq.
Providence County Superior Court
For Plaintiff: Cale P. Keable, Esq.
For Defendant: Geoffrey W. Millsom, Esq.
DECISION
STERN, J.
Before the Court is Defendant Citizens Bank, N.A.'s (Citizens Bank) Motion to Dismiss all counts set forth in Plaintiff John J. Tennant, Jr.'s (Plaintiff) Amended Complaint. Citizens Bank argues that Plaintiff's common law claims are preempted by Article 4A of the Uniform Commercial Code, G.L. 1956 chapter 4.1 of title 6A (Article 4A). Citizens Bank further argues that Plaintiff failed to sufficiently plead facts showing that Citizens Bank had actual knowledge of a discrepancy in Plaintiff's wire transfer instructions, as required under G.L. 1956 § 6A-4.1-207(b)(2). Jurisdiction is pursuant to Rule 12 of the Superior Court Rules of Civil Procedure.
I Facts and Travel
By way of background, Plaintiff is an individual residing in Vancouver, Washington. (Am. Compl. ¶ 1.) Citizens Bank is alleged to be, upon information and belief, a national banking association with headquarters in Providence, Rhode Island. Id. ¶ 2. Defendant Wells Fargo & Company (Wells Fargo) is alleged to be, upon information and belief, a multinational financial services company with corporate headquarters in California, operational headquarters in New York, and managerial offices throughout the United States and internationally. Id. ¶ 3.
At all relevant times, Plaintiff was a "Private Banking" member at Wells Fargo and maintained a "Private Banking Interest Checking" account. Id. ¶ 10. On December 29, 2021, Plaintiff arranged to transfer $1.49 million from his Wells Fargo Private Banking account to what he believed was an account that Surf Sports One, LLC (Surf Sports One) held with Citizens Bank (the Wire Transfer). Id. ¶ 23. However, unknown persons intercepted e-mail communications between Plaintiff and Surf Sports One and fraudulently changed the account and routing number. Id. ¶¶ 25-26. Thus, "[b]ased on the fraudulent wire instructions, Plaintiff drafted a wire transfer payment order addressed to Surf Sports One[.]" Id. ¶ 27. Wells Fargo required Plaintiff to physically appear at a local branch to effectuate the transfer but did not ask whether he had called Surf Sports One to confirm the accuracy of the wire transfer instructions. See id. ¶ 28. After Plaintiff confirmed the instructions, Wells Fargo executed the Wire Transfer and Citizens Bank issued a payment order to "the fraudulent Citizens Bank account for payment of [$1.49 million] on Wednesday, December 29, 2021." Id. ¶ 29.
The Amended Complaint alludes to "Private Banking" as an exclusive and preferential member status. See Am. Compl. ¶¶ 10-18. Plaintiff allegedly invested significant funds with Wells Fargo to maintain this special relationship. Id. ¶ 11.
Plaintiff alleges that Citizens Bank "had actual knowledge of the discrepancy between the actual name on the account number that the funds were sent to, i.e., Franklin, and the name on the account number that the funds were supposed to be sent to, i.e., Surf Sports One." Id. ¶ 43. Plaintiff submits that, notwithstanding Citizens Bank's actual knowledge of the fraudulent conduct, it nevertheless effectuated the Wire Transfer. Id. ¶ 44. Plaintiff also avers that Citizens Bank failed to take appropriate steps to verify the identity of the fraudulent accountholder. Id.
¶ 46. As support for these contentions, Plaintiff asserts that "Citizens Bank documentation shows that the fraudulent account at Citizens Bank was opened by an individual named Lauren Franklin with an Alabama Driver's License, who listed a Maple Shade, New Jersey address and a business address of Mount Laurel, New Jersey for a company called Franklin Consultancy, LLC." Id. ¶ 47. Moreover, Plaintiff submits that additional "documentation also shows that in the first two months of the fraudulent account's existence, the only activity was an initial deposit of $1,900.00 on October 15, 2021, and the only withdrawal was a wire transfer of $395.00 on November 8, 2021." Id. ¶ 49. Hence, Plaintiff claims that "Citizens Bank violated its own anti-fraud policies that are designed to protect itself and innocent third parties from loss" by failing to "verify the identity or propriety of either Lauren Franklin or Franklin Consultancy, LLC." Id. ¶¶ 48, 50.
Almost immediately after the Wire Transfer was completed, the funds associated therewith were transferred to banks in Taiwan, the People's Republic of China, Indonesia, North Carolina, and a cryptocurrency broker in New York. Id. ¶¶ 55(a)-(g). Citizens Bank purportedly did not investigate the Wire Transfer in the wake of this suspicious activity. Id. ¶ 56.
On December 31, 2021, Plaintiff learned that Surf Sports One did not receive the funds associated with the Wire Transfer and became aware of the fraudulent conduct at issue. Id. ¶ 30. That same day, Plaintiff contacted a Wells Fargo branch at or about 11:30 a.m. Pacific Standard Time (PST), informed Wells Fargo of the fraudulent transfer, and went to Wells Fargo in person immediately thereafter. Id. ¶¶ 31-32. On January 3, 2022, Plaintiff notified Citizens Bank of the suspected fraud at or about 8:00 a.m. Eastern Standard Time (EST). Id. ¶ 39. Despite its demonstrable knowledge of the fraudulent conduct on December 31, 2021, Wells Fargo allegedly failed to alert Citizens Bank of said fraud claim until approximately 2:25 p.m. EST on January 3, 2022. See id. ¶¶ 35, 38. During a telephone call on the morning of January 3, 2022, Citizens Bank informed Plaintiff that it would work with Wells Fargo to recover his funds. Id. ¶ 40.
On January 21, 2022, Tanya Jolley-identified as Executive Office Case Specialist for Wells Fargo in the Amended Complaint-dispatched a letter to Plaintiff informing him that Wells Fargo would not insure the Wire Transfer because Plaintiff authenticated the wire instructions and recipient account information. Id. ¶ 60. The same letter also purportedly states that "'[i]mposter requests are hard to spot because they closely mimic legitimate email request or phone calls and seem to come from a business or person you're already working with.'" Id. ¶ 61 (emphasis removed). Furthermore, Jolley allegedly stated the following:
"'There are a few simple steps you can take to help protect yourself from impostor wire fraud: . . . . Before wiring any funds, confirm the details of the payment and vendor information with a phone call. When you do, it's important to use a phone number that you know and trust, instead of what's provided in the payment request.'" Id. ¶ 63 (emphasis removed).Plaintiff maintains these statements demonstrate Wells Fargo knew that its authentication procedures were insufficient, and that the fraud could have been avoided by making a phone call to the recipient to confirm the wire instructions. Id. ¶¶ 62, 64-65.
On December 20, 2022, Plaintiff filed the present action against Wells Fargo and Citizens Bank. Docket, PC-2022-07068. Thereafter, Plaintiff filed an Amended Complaint on February 10, 2023 sounding in negligence, conversion, constructive trust, breach of warranty, breach of contract, return of funds under § 6A-4.1-207(b)(2), and misrepresentation. (Am. Compl. 11-22.) On February 20, 2023, Citizens Bank moved to dismiss all counts in Plaintiff's Amended Complaint pursuant to Rule 12(b)(6) of the Superior Court Rules of Civil Procedure. Docket, PC-2022-07068. On April 3, 2023, Plaintiff filed an objection in response to Citizens Bank's Motion. Id. Thereafter, Citizens Bank filed its Reply to Plaintiff's Objection on April 17, 2023. Id.
Plaintiff voluntarily dismissed Wells Fargo from this action on February 21, 2023. (Notice of Voluntary Dismissal of Def. Wells Fargo & Company (Feb. 21, 2023).)
II Standard of Review
A motion to dismiss under Rule 12(b)(6) of the Superior Court Rules of Civil Procedure "has a narrow and specific purpose: 'to test the sufficiency of the complaint.'" Mokwenyei v. Rhode Island Hospital, 198 A.3d 17, 21 (R.I. 2018) (quoting Multi-State Restoration, Inc. v. DWS Properties, LLC, 61 A.3d 414, 416 (R.I. 2013)). A trial justice "'must look no further than the complaint, assume that all allegations in the complaint are true, and resolve any doubts in a plaintiff's favor.'" Multi-State Restoration, Inc., 61 A.3d at 416 (quoting Laurence v. Sollitto, 788 A.2d 455, 456 (R.I. 2002) (internal citations omitted)). The Court will grant a motion to dismiss "if it 'appears beyond a reasonable doubt that a plaintiff would not be entitled to relief under any conceivable set of facts[.]'" Laurence, 788 A.2d at 456 (quoting Rhode Island Affiliate, ACLU, Inc. v. Bernasconi, 557 A.2d 1232, 1232 (R.I. 1989)).
III
Analysis
A
Article 4A Preempts Plaintiff's Common Law Claims
As a threshold matter, the Court first considers whether Plaintiff's common law claims sounding in negligence, conversion, constructive trust, breach of warranty, and breach of contract are preempted by his claim arising under Article 4A. For the reasons detailed below, Article 4A exclusively governs the subject matter of Plaintiff's claims, therefore he may not avail himself of common law remedies or legal theories, and his common law claims fail as a matter of law.
Article 4A governs "funds transfers." Section 6A-4.1-102; see also 7 David Frisch, Lawrence's Anderson on the Uniform Commercial Code § 4A-102:3, at 590 (3d ed. 2018). A "funds transfer" is defined as "the series of transactions beginning with the originator'spayment order, made for the purpose of making payment to the beneficiary of the order." Section 6A-4.1-104(a). "To the extent that Article 4A makes provision for a particular situation, Article 4A is the exclusive statement of the rights and liabilities of the parties." Frisch, supra, at 592 (emphasis added); see also § 6A-4.1-102 cmt. ("resort to principles of law or equity outside of Article 4A is not appropriate to create rights, duties and liabilities inconsistent with those stated in this Article").
The term "originator" "means the sender of the first payment order in a funds transfer." G.L. 1956 § 6A-4.1-104(c).
Under Article 4A, a "payment order" is defined as "an instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or to cause another bank to pay, a fixed or determinable amount of money to a beneficiary" upon satisfaction of three conditions.Section 6A-4.1-103(a)(1). The term "beneficiary's bank" is defined as "the bank identified in a payment order in which an account of the beneficiary is to be credited pursuant to the order or which otherwise is to make payment to the beneficiary if the order does not provide for payment to an account." Section 6A-4.1-103(a)(3). Furthermore, Article 4A provides that "[a] funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order." Section 6A-4.1-104(a).
The term "receiving bank" is defined as "the bank to which the sender's instruction is addressed." Section 6A-4.1-103(a)(4).
The term "beneficiary" is defined as "the person to be paid by the beneficiary's bank." Section 6A-4.1-103(a)(2).
The three conditions are enumerated as follows:
"(i) The instruction does not state a condition to payment to the beneficiary other than time of payment;
"(ii) The receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender; and
"(iii) The instruction is transmitted by the sender directly to the receiving bank or to an agent, funds-transfer system, or communication system for transmittal to the receiving bank." Section 6A-4.1-103(a)(1)(i)-(iii).
Here, Plaintiff, as the sender, issued a payment order for a funds transfer to Wells Fargo, the receiving bank. See Am. Compl. ¶¶ 23, 27-29; § 6A-4.1-103(a)(1), (a)(4)-(5). Wells Fargo then executed Plaintiff's payment order by requesting that the beneficiary's bank-i.e., Citizens Bank-credit the account listed therein. See Am. Compl. ¶ 29; § 6A-4.1-103(a)(3). After Citizens Bank accepted the sole payment order at issue, the funds transfer was complete. See Am. Compl. ¶¶ 23-29 (factual averments regarding payment order and acceptance of the same); Section 6A-4.1-104; id. cmt. 1, case no. 2.
Accordingly, the facts alleged in Plaintiff's Amended Complaint demonstrate that the Wire Transfer constitutes a funds transfer-as defined by § 6A-4.1-104(a)-such that Plaintiff's claims are governed by Article 4A. See § 6A-4.1-104(a); § 6A-4.1-104 cmt. 1, case no.2; Frisch, supra, at 592; § 6A-4.1-104 cmt. Plaintiff's allegation that Citizens Bank failed to ensure that the Wire Transfer was sent to the correct recipient is specifically contemplated in Article 4A. See generally § 6A-4.1-207. Consequently, because Article 4A serves as an exclusive statement of the parties' rights and liabilities with respect to funds transfers, Plaintiff's common law claims fail as a matter of law. Frisch, supra, at 592; § 6A-4.1-102 cmt. The Court need not discuss each common law theory of liability individually, as Article 4A completely and entirely preempts common law claims involving funds transfers. Accordingly, Citizens Bank's Motion to Dismiss is GRANTED as to Counts I-VII of the Amended Complaint.
B Plaintiff Fails to Sufficiently Allege that Citizens Bank Had Actual Knowledge of Fraud
Having determined that Plaintiff's common law claims are preempted by Article 4A, the Court turns to the sole surviving claim in the Amended Complaint-i.e. Count VIII. See supra, Part III.A; Am. Compl. 16-17. Count VIII of the Amended Complaint demands a return of Plaintiff's funds pursuant to § 6A-4.1-207(b)(2). See Am. Compl. 16-17. Citizens Bank argues that Count VIII fails as a matter of law because the Amended Complaint fails to allege-other than a bare legal conclusion-that Citizens Bank had actual knowledge of a discrepancy between the beneficiary's name and account number on the payment order. (Def.'s Mem. in Supp. of Mot. to Dismiss (Def.'s Mot.) 10-13.) The Court agrees.
Section 6A-4.1-207(b)(2) provides:
"If a payment order received by the beneficiary's bank identifies the beneficiary both by name and by an identifying or bank account number and the name and number identify different persons, the following rules apply:". . .
"(2) If the beneficiary's bank pays the person identified by name or knows that the name and number identify different persons, no person has rights as beneficiary except the person paid by the beneficiary's bank if that person was entitled to receive payment from the originator of the funds transfer. If no person has rights as beneficiary, acceptance of the order cannot occur." Section 6A-4.1-207(b)(2).
Thus, for Count VIII to survive, Plaintiff must plead facts which, if assumed to be true, show that Citizens Bank knew that the beneficiary's name and account number identify different persons. See id.; Laurence, 788 A.2d at 456. To "know" under Rhode Island's Uniform Commercial Code (the RIUCC) is to have actual knowledge. See §§ 6A-4.1-207 cmt. 2, 6A-1-202(b).
The RIUCC provides that "knowledge" generally arises "from the time it is brought to the attention of the individual conducting that transaction and, in any event, from the time it would have been brought to the individual's attention if the organization had exercised due diligence." Section 6A-1-202(f). However, Article 4A takes the practicalities of automated banking into account. See § 6A-4.1-207 cmt. 2. While it is possible for a bank to determine whether the name and account number on a funds transfer refer to the same person, the authors of Article 4A determined that imposing a duty on banks to manually confirm payment orders would vitiate the benefits of automated transactions and expose wire transfers to human error. Id. Article 4A allows banks to "act on the basis of the number without regard to the name if the bank does not know that the name and number refer to different persons." Id. Therefore, Plaintiff cannot assert that Citizens Bank had actual knowledge of a discrepancy in his wire transfer instructions simply because such a discrepancy would have been discovered through the exercise of due diligence. See § 6A-1-202(f); § 6A-4.1-207 cmt. 2. Such an argument directly contradicts the intent of the statutory provisions at issue in this matter. Section 6A-4.1-207 cmt. 2
In addition, Plaintiff does not state any facts under which Citizens Bank could have had actual knowledge of a discrepancy before or at the time of the Wire Transfer, even under Rhode Island's liberal pleading standards. See generally Am. Compl. Instead, Plaintiff merely asserts a legal conclusion that "[u]pon information and belief, Citizens Bank, had actual knowledge of the discrepancy between the actual name on the account number that the funds were sent to . . . and the name on the account number that the funds were supposed to be sent to . . . ." (Am. Compl. ¶ 43.) Although the Court must assume Plaintiff's factual allegations as true for purposes of a Rule 12 motion, it need not assume that his legal conclusions are also true. See DiLibero v. Mortgage Electronic Registration Systems, Inc., 108 A.3d 1013, 1016 (R.I. 2015); Doe ex rel. His Parents and Natural Guardians v. East Greenwich School Department, 899 A.2d 1258, 1262 n.2 (R.I. 2006). Without more, the Court holds that Plaintiff has failed to plead sufficient facts showing that Citizens Bank had actual knowledge of a discrepancy. DiLibero, 108 A.3d at 1016.
C
Even if Plaintiff Sufficiently Alleged Actual Knowledge, Plaintiff Cannot Recover from Citizens Bank
Finally, Citizens Bank argues that even if Plaintiff sufficiently alleged that Citizens Bank had actual knowledge of fraud, Article 4A dictates that Plaintiff must recover from Wells Fargo. See Def.'s Mem. 13-17. The Court agrees.
Under § 6A-4.1-207(b)(2), if a beneficiary's bank "knows that the name and number identify different persons, no person has rights as beneficiary except the person paid by the beneficiary's bank if that person was entitled to receive payment from the originator of the funds transfer. If no person has rights as beneficiary, acceptance of the order cannot occur." Section 6A-4.1-207(b)(2). Thus, even if Plaintiff could show that Citizens Bank knew that the name and number on the Wire Transfer instructions identified different persons, acceptance of the order would be improper because the intended recipient-Surf Sports One-was not paid by Citizens Bank. See id. The proper remedy in this situation is found in § 6A-4.1-402(d). Section 6A-4.1-402 cmt. 2; see also, e.g., Scura, Wigfield, Heyer, Stevens & Cammarota, LLP v. Citibank, NA, No. 2:21-cv-12835 (ES) (LDW), 2022 WL 16706948, at *3 (D.N.J. Oct. 3, 2022).
Comment two of § 6A-4.1-402 provides that if a beneficiary's bank does not accept a payment order, an originator "doesn't have to pay its payment order, and if it has already paid it is entitled to refund of the payment with interest." Section 6A-4.1-402 cmt. 2. However, § 6A-4.1-402(d) dictates that an originator may only receive a refund from the bank receiving payment. See § 6A-4.1-402(d). In other words, if an originator pays a receiving bank, who in turn pays the beneficiary's bank, the receiving bank-as opposed to the beneficiary's bank-must refund the originator in the event the payment order is not accepted. See § 6A-4.1-402 cmt. 2. Here, the receiving bank is Wells Fargo. See Am. Compl. ¶¶ 23, 27-29; § 6A-4.1-104(c). Thus, under § 6A-4.1-402, Plaintiff would need to first seek a refund from Wells Fargo, after which Wells Fargo could seek a refund from Citizens Bank. Even if Plaintiff were able to show that Citizens Bank had actual knowledge that the payment order identified different persons, his only recourse is against Wells Fargo under § 6A-4.1-402. Accordingly, his claims against Citizens Bank pursuant to Article 4A are without merit.
"This 'money-back guarantee' is an important protection of Originator. Originator is assured that it will not lose its money if something goes wrong in the transfer. For example, risk of loss resulting from payment to the wrong beneficiary is borne by some bank, not by Originator. The most likely reason for noncompletion is a failure to execute or an erroneous execution of a payment order by Bank A or an intermediary bank. Bank A may have issued its payment order to the wrong bank or it may have identified the wrong beneficiary in its order. The money-back guarantee is particularly important to Originator if noncompletion of the funds transfer is due to the fault of an intermediary bank rather than Bank A. In that case Bank A must refund payment to Originator, and Bank A has the burden of obtaining refund from the intermediary bank that it paid." Section 6A-4.1-402 cmt. 2 (emphasis added).
IV Conclusion
Based on the foregoing, Citizens Bank's Motion to Dismiss the Amended Complaint is GRANTED. Counsel shall prepare the appropriate order for entry.