Opinion
Index No. 652678/2023
08-23-2024
Innovative Telecom LLC, Plaintiff, v. Spin Capital LLC, 3667 Corp., Silver Birch Systems, LLC, Telecard Communications International, Inc., Rocky Mountain Eurovest, LLC, Voip One Solutions Inc., Amtel Consulting Inc., Teleescrow, Inc., Louis Arriola, and Daniel Todd Oshatz, Defendants.
Freiberger Haber LLP, Melville, NY (Jonathan H. Freiberger of counsel), for plaintiff. Wells Law P.C., Lancaster, NY (Steven W. Wells and Will Parsons of counsel), for defendant Spin Capital LLC.
Freiberger Haber LLP, Melville, NY (Jonathan H. Freiberger of counsel), for plaintiff.
Wells Law P.C., Lancaster, NY (Steven W. Wells and Will Parsons of counsel), for defendant Spin Capital LLC.
GERALD LEBOVITS, J.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 13, 14, 15, 16, 18, 19, 20, 22, 23, 24 were read on this motion to DISMISS.
This action arises from a $1,000,000 wire transfer that plaintiff, Innovative Telecom LLC, erroneously made to defendant 3667 Corp.-not to plaintiff's intended recipient, nonparty Viettel Group. A month after the erroneous transfer occurred, defendant Spin Capital LLC, a judgment creditor of 3667 Group, levied on 3667 Group's bank account and debited $999,974 from the account- i.e., the remaining balance from the erroneous transfer. Several months later, plaintiff, upon realizing that the wire transfer had gone astray and that the transferred funds were now in Spin Capital's hands, contacted it to demand the return of those funds. Spin Capital did not return the funds.
Plaintiff brought this action against Spin Capital, 3667 Corp., and other judgment debtors of Spin Capital, asserting claims for money had and received, unjust enrichment, and conversion. Spin Capital now moves to dismiss the claims against it under CPLR 3211 (a) (7). The motion is granted.
DISCUSSION
I. Whether Plaintiff's Claims Against Spin Capital are Governed by UCC Article 4-A
At the outset, Spin Capital's motion to dismiss raises the issue of what body of law governs the causes of action at issue on the motion. Spin Capital argues that because the payment at issue from plaintiff to 3667 Corp. was made by wire transfer, plaintiff's claims against Spin Capital are governed by Article 4-A of the Uniform Commercial Code, as adopted in New York. (See NYSCEF No. 14 at 3.) Plaintiff, on the other hand, contends that the applicability of Article 4-A is limited, properly speaking, to claims that arise from, and relate to, "the mechanics of wire transfers." (NYSCEF No. 20 at 4.) Plaintiff asserts that because its causes of action do not rest on how the initial transfer to 3667 Corp. was conducted, but instead are brought against Spin Capital-"a stranger to the underlying Erroneous Wire transaction"-those claims are not subject to Article 4-A but are instead governed only by common-law principles. (Id. at 8.) This court agrees with Spin Capital.
As plaintiff itself concedes, Article 4-A "'controls how electronic funds transfers are conducted and specifies certain rights and duties related to the execution of such transactions.'" (Id. at 4, quoting Niram, Inc. v Sterling Natl. Bank, 2023 WL 6394007, at *4 [SD NY Sept. 29, 2023].) One of the core rights that Article 4-A addresses is who has title to funds transferred by wire at which points in time-particularly when a transfer goes astray instead of reaching the intended beneficiary. (See e.g. UCC 4-A-205 , 4-A-207, 4-A-402, 4-A-405.) Each of plaintiff's claims against Spin Capital rests on the legal premise that the (erroneously) transferred funds properly belong to plaintiff, rather than to 3667 Corp. or to Spin Capital. (See NYSCEF No. 2 at ¶ 53 [money had and received]; id. at ¶¶ 59-61 [unjust enrichment]; id. at ¶¶ 66-71 [conversion].) The validity of that premise, in turn, depends on the terms of UCC Article 4-A, as applied to the facts alleged in the complaint. And plaintiff may maintain its common-law claims against Spin Capital only to the extent that they are consistent with those provisions. (See Bayerische Hypo-Und Vereinsbank AG v HSBC Bank USA, N.A., 144 A.D.3d 501, 501 [1st Dept 2016] [explaining that "a common-law claim may be asserted" if it "does not contravene or alter the rights and obligations created under article 4-A"].)
II. Whether Plaintiff's Common-Law Claims are Consistent with UCC Article 4-A
The question thus becomes whether plaintiff is correct that the transferred funds still belong to it, such that plaintiff's common-law claims can be asserted against Spin Capital consistent with the terms of UCC Article 4-A. This court concludes that plaintiff is not correct.
Under Article 4-A, a wire transfer is "the series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order." (UCC 4-A-104 [1].) A "payment order" is "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," as long as "the receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender." (Id. § 4-A-103 [1] [a].) A wire transfer thus can involve three or more parties: for example, (i) the sender of the wired funds; (ii) sender's bank (i.e., the bank that sender directs to transfer the funds by wire); (iii) recipient's bank (i.e., the bank receiving the wire that the sender directed be sent); and (iv) the recipient of the wired funds. (See UCC 4-A-103 [1] [a]-[e]; id. § 4-A-104.) Here, sender's bank and recipient's bank were the same: Plaintiff's wire directed the transfer of funds from "its account at Chase [Bank] to an account owned by 3667 at Chase." (NYSCEF No. 2 at ¶ 26.)
In some cases, wire transfers may also involve intermediary banks between the original sender/sender's bank and receipient/recipient's bank. (See UCC 4-A-104 [1].) It is undisputed that the transfer at issue in this action did not go through any intermediary bank.
In this scenario, "acceptance of the [payment] order by the [recipient's] bank obliges the sender to pay the amount of the order." (UCC 4-A-402 [2].) Acceptance will occur when the recipient's bank credits the recipient's account with the transferred funds and notifies the recipient that the funds have been credited and are available for withdrawal. (See id. at §§ 4-A-209 [2] [a], 4-A-405 [1].) Once the transfer goes through and the funds have been released to the recipient of the transfer, the funds belong to the recipient, not the sender. (Bayerische Hypo-Und Vereinsbank AG, 144 A.D.3d at 502, citing Bank of NY v Norilsk Nickel, 14 A.D.3d 140, 145 [1st Dept 2004]; cf. Allied Contracting II Corp. v CTBC Bank Corp. (USA), 2020 NY Slip Op 31419[U], at *3 [Sup Ct, NY County 2020] ["[I]f a beneficiary's bank accepts a payment order, the bank is obliged to pay the amount of the order to the beneficiary of the order, and the funds become the property of the beneficiary."] [internal citation and quotation marks omitted].)
The wire transfer in Norilsk Nickel involved multiple intermediary banks. But the Court made clear in that case that the sender of the transfer relinquished title to the funds as soon as the first intermediary bank accepted the sender's payment order (by sending on a payment order to the second intermediary). (See 14 A.D.3d at 145.)
To be sure, Article 4-A provides for two types of exceptions to this rule when the sender makes an error in the payment order directing funds to be transferred (whether in the amount of the order or in the ultimate recipient). (See UCC 4-A-402 [1]-[2] [providing that this section's rule that "acceptance of the order by the bank obliges the sender to pay the bank the amount of the order" is "subject to Sections 4-A-205 and 4-A-207"].) But neither type of exception applies here.
Section 4-A-207 governs scenarios in which (i) the beneficiary identified in the payment order, or the beneficiary's account does not exist; or (ii) "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." (Id. § 4-A-207 [1], [2].) Plaintiff does not allege (or contend in opposing the motion to dismiss) that the transfer at issue here implicates either of these scenarios.
Section 4-A-205, when it applies, provides safeguards to the sender of a funds transfer if the sender's payment order "erroneously instructed payment to a beneficiary not intended by the sender." (Id. § 4-A-205 [1]; see § 4-A-205 [1] [b]-[c].) But as plaintiff itself notes (NYSCEF No. 20 at 4), § 4-A-205 applies only when "an accepted payment order was transmitted pursuant to a security procedure for the detection of error" (id. § 4-A-205 [1])- i.e., a procedure established by the sender and the bank to which it sent the payment order (see id. §§ 4-A-103 [2] [d], 4-A-201). And plaintiff concedes that at the time "the Erroneous Wire was sent," plaintiff "did not have a 'security procedure for the detection of error' as set forth in UCC § 4-A-205." (NYSCEF No. 22 at ¶ 22.)
If § 4-A-205 "does not apply" to an erroneous funds transfer "and the funds transfer is completed, Sender is obliged to pay the order." (UCC 4-A-205 official comment 1.) Sender's remedy in this event, "based on payment by mistake, is to recover from the beneficiary that received payment." (Id.) If, however, a creditor of the beneficiary/recipient levies on the transferred funds first-as occurred here-the sender has no recourse against the creditor. Thus, in Bayerische Hypo-Und Vereinsbank, the Appellate Division affirmed the motion court's grant of summary judgment dismissing claims brought by the sender of an erroneous wire transfer against a creditor of the recipient of the transfer. (See 2015 NY Slip Op 31270[U] [Sup Ct, NY County 2015], affd 144 A.D.3d at 502.) The motion court explained that sender had not "raise[d] a triable issue of fact as to its claim of ownership of the funds following acceptance of the wire transfer, when title passed" to the recipient of the transfer. (2015 NY Slip Op 31270[U], at *8.) As a result, the sender's money-had-and-received, unjust-enrichment, and restitution claims against the creditor failed, "as these claims are also premised on [the sender's] interest in these funds." (Id.) So too here.
Plaintiff does not allege, or argue on this motion, that Spin Capital's property execution on 3667 Corp.'s Chase bank account was defective or improper.
Bayerische Hypo-Und Vereinsbank was decided on a CPLR 3212 summary-judgment motion, unlike the current CPLR 3211 motion to dismiss. But that is immaterial. The basis for the motion court's denial of the motion to dismiss in that case was based on (i) an equitable doctrine that the court at summary judgment held inapplicable to the case as a legal matter; and (ii) allegations by the sender "that it had a possessory interest in the funds" transferred that, again, the court later rejected on the law. (Compare 2011 NY Slip Op 52268[U], at *3-4 [motion to dismiss], with 2015 NY Slip Op 31270[U], at *7-8 [summary-judgment motion].) In other words, the motion court's granting of summary judgment in that case in Bayerische Hypo-Und Vereinsbank, after having denied the motion to dismiss, was not based on a more-developed factual record, but instead on the court's reaching different legal conclusions with the benefit of further consideration of the issues involved. That outcome does not suggest that Spin Capital's motion to dismiss in this case should be denied.
Finally, plaintiff asks this court, if it grants the current motion to dismiss, to permit plaintiff to amend its complaint "to cure any deficiencies indicated by the Court or otherwise." (NYSCEF No. 20 at 11.) But plaintiff does not identify any fact it might allege that would undermine Spin Capital's arguments for dismissal. The court sees no basis, in these circumstances, to permit amendment of plaintiff's claims against Spin Capital.
Accordingly, it is
ORDERED that Spin Capital's motion to dismiss plaintiff's claims against it is granted, and those claims are dismissed, with costs and disbursements as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further
ORDERED that the balance of the claims in this action are severed and shall continue; and it is further
ORDERED that Spin Capital serve a copy of this order with notice of its entry on plaintiff by e-filing on NYSCEF; on the remaining defendants by certified mail, return receipt requested, directed to their respective last-known addresses; and on the office of the County Clerk (by the means set forth in the court's e-filing protocol, available on the e-filing page of the court's website, https://ww2.nycourts.gov/courts/1jd/supctmanh/E-Filing.shtml), which shall enter judgment accordingly.