Opinion
3:21-cv-01854-YY
10-13-2022
THE DEACONESS ASSOCIATIONS, INC., an Ohio Corporation, CENTRAL PYRAMID ACCOUNTING, INC., an Arizona corporation, Plaintiffs, v. WELLS FARGO BANK, N.A., a National Bank chartered in Delaware, Defendant.
FINDINGS AND RECOMMENDATIONS
Youlee Yim You, United States Magistrate Judge.
FINDINGS
Plaintiffs The Deaconess Associations, Inc. (“Deaconess”) and Central Pyramid Accounting, Inc. (“Central Pyramid”) have brought suit against defendant after a wire transfer that was supposed to be between plaintiffs was circumvented by a fraudulent scheme that resulted in money being sent from Central Pyramid to one of defendant's bank accounts held in the name of some unknown third party. Defendant has filed a Motion to Dismiss (ECF 17) pursuant to Federal Rule of Civil Procedure 12(b)(6) against plaintiffs' claims of common law negligence and violation of Oregon's Uniform Commercial Code (“UCC”) Article 4A, codified at ORS 74A.1010 to 74A.5070.
As to plaintiffs' common law negligence claim, defendant's motion should be granted because that claim is displaced by Oregon's UCC Article 4A. Additionally, any allegations regarding defendant's conduct that might not be displaced by UCC Article 4A cannot sustain a negligence claim because plaintiffs have not and cannot allege facts sufficient to establish a special relationship with defendant, a necessary element for a negligence claim that alleges only economic harm.
Plaintiffs' UCC claim fares no better. As the “intended beneficiary” of the wire transfer, plaintiff Deaconess lacks statutory standing to sue defendant. Also, section 2070 of Oregon's UCC Article 4A provides a safe harbor for defendant and dictates that the only remedy for plaintiffs' claims lies solely against the party to whom Central Pyramid sent the wired money by mistake. Defendant's motion, therefore, should be granted and plaintiff's Amended Complaint should be dismissed with prejudice.
I. Background
Plaintiff Deaconess has a bank account at JP Morgan Chase Bank. Am. Compl. ¶ 5, ECF 14. Plaintiff Central Pyramid is a wholly-owned subsidiary of Deaconess, and has a bank account at Guaranty Bank & Trust. Id. ¶¶ 3, 5. In connection with an inter-company transaction in late April of 2021, Central Pyramid was to wire money from its account at Guaranty Bank & Trust to Deaconess's account at JP Morgan Chase Bank. Id. ¶ 5. But the transaction did not go as planned. Someone, or perhaps several individuals, tricked Central Pyramid into sending the funds to a different account. Id. ¶ 6. The fraudsters disguised themselves using spoofed emails to make it look like wire instructions were coming from Deaconess. Id. They first instructed Central Pyramid to send funds to an account at U.S. Bank, but U.S. Bank detected something strange about the transaction and rejected the attempted wire transfer on April 29, 2021. Id. ¶ 7.
Undeterred, on April 30, 2019, the fraudsters sent new instructions for Central Pyramid to send funds to an account at defendant's bank. Id. ¶ 8. Central Pyramid sent $1,850,705 via wire transfer to the unidentified fraudsters' account as requested, and defendant accepted it. Id. ¶ 9. After Central Pyramid learned that its wire transfer never reached Deaconess and instead was processed by defendant, Central Pyramid's bank contacted defendant. Id. ¶ 10. On June 2, 2021, Central Pyramid received a wire transfer from defendant for $933,199.95, which plaintiffs assert was merely partial repayment of the funds erroneously sent by Central Pyramid to the fraudsters' account. Id. Defendant has not returned the remaining $917,505.05 to Central Pyramid, and has refused to identify the account holder that actually received the wire transfer. Id.
Plaintiffs allege a negligence claim against defendant for failing to design and maintain “security procedures and internal controls” that complied “with applicable banking law, regulations, and commercially reasonable banking practices,” and for failing to “detec[t] the signs of inconsistencies and potential fraudulent activity associated with” the fraudulent wire transfer and “failing to reject” it. Id. ¶¶ 15-16. Plaintiffs also assert that defendant violated its statutory duty under Oregon's UCC Article 4A by failing to use commercially reasonable banking practices or security procedures and by failing to provide to plaintiffs the customer information or data relating to the account where the funds from the fraudulent wire transfer were sent. Id. ¶¶ 20-23. Defendant moves to dismiss both claims under Rule 12(b)(6). ECF 17.
II. Motion to Dismiss Standards
To state a claim for relief, a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). This standard “does not require ‘detailed factual allegations,' ” but does demand “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.' ” Id.(quoting Twombly, 550 U.S. at 555). To survive a motion to dismiss for failure to state a claim under Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.' ” Id. (quoting Twombly, 550 U.S. at 570).
In evaluating a motion to dismiss, the court must accept the allegations of material fact as true and construe those allegations in the light most favorable to the non-moving party. ParksSch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). In addition to the allegations in the complaint, the court may consider documents that are attached to or incorporated by reference in the complaint, where the parties do not contest the authenticity of those documents, as well as matters capable of judicial notice. Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).
III. Discussion
A. Negligence Claim
Defendant's primary argument for dismissal of plaintiffs' negligence claim is that the claim is displaced by Oregon's UCC Article 4A, which governs funds transfers like the one at issue here. Mot. Dismiss 4-6, ECF 17; see also ORS 74A.1020 (defining statutory scope as applying to “funds transfers”); ORS 74A.1040 (defining “funds transfer”).
The comments to ORS 74A state that “[Article 4A is] intended to be the exclusive means of determining the rights, duties and liabilities of the affected parties in any situation covered by particular provisions of the Article. Consequently, 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.” ORS 74A.1020, UCC cmt. The UCC comments are particularly important because they “are actually statements of the purpose of each section” and “[i]t was the intention of the drafters that these comments be used to determine the purposes of the UCC and accordingly they are labeled as statements of purpose.” Sec. Bank v. Chiapuzio, 304 Or. 438, 415 n.6 (1987) (citation omitted); see also U.S. Nat. Bank of Oregon v. Boge, 311 Or. 550, 563 (1991) (explaining that “[a]lthough the Official Comments lack the force of law, they are instructive, because the legislature took note of them at the time of adoption, because they are consistent with the structure of the UCC, . . . and because the purpose of the Official Comments is to promote uniform construction of the UCC”).
The UCC comments are available through Westlaw under the corresponding ORS 74A provisions.
Both parties recognize that there do not appear to be any cases that have analyzed the displacing effect of ORS 74A on common law negligence claims under Oregon law. Resp. 3-4, ECF 22; Reply 4-5, ECF 23. It is well-established, though, that the “legislative intent to make the UCC a uniform code makes relevant the decisions of other courts that have examined these questions[.]” Boge, 311 Or. at 564. And numerous courts have held that Article 4A “displaces any common-law claim if the [UCC] provisions squarely cover the transactions at issue.” SlidersTrading Co. L.L.C. v. Wells Fargo Bank NA, No. 17-CV-04930-LB, 2017 WL 6539843, at *5 (N.D. Cal. Dec. 21, 2017) (citing Zengen v. Comeria Bank, 41 Cal.4th 239, 244, 253-54 (2007)); see also Chelan Cnty., Wash. v. Bank of Am. Corp., No. 2:14-CV-0044-TOR, 2014 WL 3101935, at *4 (E.D. Wash. July 7, 2014) (holding that under Washington's version of UCC Article 4A, “the remedies set forth in Article 4A displace common law causes of action relating to the same subject matter.”); Rock Point Sch., Inc. v. Wells Fargo Bank, N.A., No. CV-15-08057-PCT-SRB, 2015 WL 13123002, at *5-6 (D. Ariz. Aug. 4, 2015) (holding the same for Arizona UCC and collecting cases).
Importantly, Article 4A does not “necessarily displac[e] all common law actions based on all activities surrounding funds transfers.” Zengen, 41 Cal.4th at 254. Rather, it displaces common law claims “where the common law claims would create rights, duties, or liabilities inconsistent” with Article 4A and where “the circumstances giving rise to the common law claims are specifically covered” by Article 4A. Id. (citation omitted); see also Patco Const. Co.v. People's United Bank, 684 F.3d 197, 215 (1st Cir. 2012) (“We adopt the test, as set forth in the [UCC] commentary, that Article 4A embodies an intent to restrain common law claims only to the extent that they create rights, duties, and liabilities inconsistent with Article 4A.”) (citing Ma v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 597 F.3d 84, 89 (2d Cir. 2010); Regions Bankv. Provident Bank, Inc., 345 F.3d 1267, 1275 (11th Cir. 2003)).
It is necessary, then, to determine whether ORS 74A displaces plaintiffs' common law negligence claim as alleged here. Plaintiffs allege that defendant “fail[ed] to reject the attempted transfer and restore funds to Plaintiffs.” Am. Compl. ¶ 15, ECF 14. Plaintiffs claim that defendant's alleged failure to “detec[t] the signs of inconsistencies and potential fraudulent activity associated” with the transfer was based in part on defendant's allegedly inadequate security measures and internal controls. Id. ¶¶ 15-16. The alleged “inconsistencies” are presumably that the bank account to which the funds were actually sent was not held in plaintiff Deaconess's name or was not otherwise identified as being associated with Deaconess. See id. ¶¶ 8-9.
These allegations fall squarely within ORS 74A. Plaintiffs do not dispute that the transaction at issue is a “funds transfer” as defined by ORS 74A.1040. And other sections of Oregon's UCC directly address wire transfers that have a conflict between the receiving account name and number. ORS 74A.2070. In fact, the comments to section 2070 provide a hypothetical that is almost directly on-point, and for which the statute provides the exclusive remedy:
The statute defines “funds transfer” as “the series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order. The term includes any payment order issued by the originator's bank or an intermediary bank intended to carry out the originator's payment order. 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.” ORS 74A.1040 (UCC 4A-104).
Subsection (b)(1) deals with the typical case in which the beneficiary's bank pays on the basis of the account number and is not aware at the time of payment that the named beneficiary is not the holder of the account which was paid. In some cases the false number will be the result of error by the originator. In other cases fraud is involved. For example, Doe is the holder of shares in Mutual Fund. Thief, impersonating Doe, requests redemption of the shares and directs Mutual Fund to wire the redemption proceeds to Doe's account #12345 in Beneficiary's Bank. Mutual Fund originates a funds transfer by issuing a payment order to Originator's Bank to make the payment to Doe's account #12345 in Beneficiary's Bank. Originator's Bank executes the order by issuing a conforming payment order to Beneficiary's Bank which makes payment to account #12345. That account is the account of Roe rather than Doe.ORS 74A.2070, UCC cmt. 2. The comments then explain how the section operates depending on whether the “Beneficiary Bank” (defendant here) had knowledge regarding any inconsistency between name of the intended beneficiary of the transfer and the account information. Id.
Plaintiffs' allegations are based in part on defendant's alleged failure to adopt and maintain “commercially reasonable” security protocols. Am. Compl. ¶¶ 12-16, ECF 14. Article 4A also governs the security procedures banks use and whether those procedures are considered “commercially reasonable,” and defines the duty of care for both sides of the transaction. ORS 74A.2020-2040. Thus, Article 4A also displaces any common law claims based on defendant's failure to adopt or follow any “commercially reasonable” security procedures. Rock Point, 2015 WL 13123002, at *5 (“Courts have generally concluded that analogous U.C.C. Article 4A provisions preempt negligence claims for the improper processing of wire transfer requests or insufficient security protocols unless misconduct occurs outside the wire transfer process.”); Patco, 684 F.3d at 216 (concluding negligence claim was “inconsistent with the duties and liability limits set forth in Article 4A” because “the standard for the duty of care as to both sides is set forth in Article 4A and its limitation of liability”).
Plaintiffs' reliance on Attisha Enterprises does not change this analysis. Resp. 4-5, ECF 22 (citing Attisha Enterprises, Inc. v. Cap. One, N.A., No. 3:20-cv-01366-BEN-RBB, 2021 WL 698200, at *2 (S.D. Cal. Feb. 22, 2021)) (hereinafter “Attisha Enterprises II”). The plaintiff's claims in that case were not displaced by the UCC because the plaintiff alleged that the defendant bank had “negligently allowed an entity that was not TICOR to open an account in TICOR's name.” Attisha Enterprises, Inc. v. Cap. One, N.A., 505 F.Supp.3d 1051, 1055 (S.D. Cal. 2020). The UCC's provisions about “funds transfers” and related definitions did not apply “to opening an account [the defendant] allegedly knew was being created in a fraudulent name,” and thus the negligence claim was not displaced. Id. The claims here, by contrast, only allege fraudulent activity related to “funds transfers,” which as described above, fall squarely under the UCC.
The subsequent procedural history in Attisha Enterprises that plaintiffs rely on in their response is not relevant to determining whether plaintiffs' claims here are displaced by the UCC. See Resp. 4, ECF 22. The amended complaint was necessary for the plaintiff in Attisha Enterprisesto allege more facts to support the duty element of the negligence claim. 505 F.Supp.3d at 1057 (“The failure to allege facts supporting suspicious circumstances places the claim within the general set of cases findings banks do not owe a duty of care to noncustomers.”). The later amendment cured the defect and the claim survived the next motion to dismiss. AttishaEnterprises II, 2021 WL 698200 at *2 (“The Court has addressed this [negligence] claim before but reaches a different conclusion here based on Attisha Enterprises' revised pleadings.). None of those later events or rulings had any effect on that court's initial ruling that a claim regarding fraudulent “account opening” was not displaced by the “funds transfer” portions of the UCC. Attisha Enterprises, 505 F.Supp.3d at 1055.
Plaintiffs' other authorities are similarly inapposite. Resp. 5, ECF 22 (citing CAM Logic,Inc. v. Bank of Am., N.A., No. 16-CV-10802, 2016 WL 9738114 (E.D. Mich. Sept. 14, 2016); Golden State Concessions LLC v. Wells Fargo Bank NA, No. 21-CV-00014-KAW, 2021 WL 5002222 (N.D. Cal. Mar. 10, 2021)). For instance, the claims at issue in CAM Logic were related to allegedly forged checks, which are governed by UCC Articles 3 and 4, and the court rejected the defendant's displacement argument because it was “not properly developed or supported by citation to controlling statutory or case authority.” CAM Logic, 2016 WL 9738114, at *2. Here, Article 4A controls, and defendant's displacement argument is well-developed and well-supported.
The court in Golden State Concessions expressly found that “to the extent Plaintiff's common law claims are based on the wire transfers, including transferring the funds to an account with a different owner than the stated intended beneficiary, such claims are displaced by the UCC.” Golden State Concessions, 2021 WL 5002222 at *4. The only portions of the claims that were not displaced by the UCC were “common law claims . . . based on Defendant's alleged failure to monitor suspicious accounts and assist with the investigation.” Id. Here, plaintiffs do not allege any facts that show defendant “failed to monitor suspicious accounts,” only that defendant should have recognized the “signs of inconsistencies between the wire transfer instructions and the details regarding the purported destination account[.]” Am. Compl. ¶ 7, ECF 14. As described above, the UCC directly addresses these kinds of inconsistencies in a wire transfer and thus a common law claim based on those allegations is displaced.
The only allegation here that is similar to those that survived in Golden State Concessionsis that defendant has “refuse[d] to provide identifying information for the . . . account holder that received the” fraudulent wire transfer. Am. Compl. ¶ 10, ECF 14. Even assuming this allegation is sufficient to avoid displacement, the claim has other problems related to Oregon law regarding negligence and is not legally viable. “To state a claim for negligence under Oregon common law, a plaintiff must show that the defendant owed the plaintiff a duty, that the duty was breached, and that the breach caused the plaintiff harm.” Jane Doe 130 v. Archdiocese of Portland inOregon, 717 F.Supp.2d 1120, 1137 (D. Or. 2010) (citation omitted). To recover purely economic loss under Oregon law, a plaintiff needs “to show some source of duty outside the common law of negligence, such as a special relationship or status that imposed a duty on the defendant beyond the common-law negligence standard.” Benson Tower Condo. Owners Ass'n v.Victaulic Co., No. 13-cv-01010-SI, 2014 WL 5285475, at *6 (D. Or. Oct. 15, 2014) (quoting Harris v. Suniga, 344 Or. 301, 308 (Or. 2008)).
Plaintiffs allege purely economic harm, see Am. Compl. ¶ 23, ECF 14, but do not allege facts suggesting any relationship with defendant, much less a “special relationship” that could support recovery. Deaconess is an account holder at JP Morgan Chase Bank and Central Pyramid has an account at Guaranty Bank & Trust; neither has an account with defendant. Under Oregon law, even the “borrower-lender and bank-depositor relationships fail to give rise to a special relationship.” RoHillCo Bus. Servs. LLC v. JPMorgan Chase Bank, N.A., No. 3:15-CV-02270-SB, 2016 WL 4051296, at *3 (D. Or. June 24, 2016), report and recommendation adopted, No. 3:15-CV-02270-SB, 2016 WL 4059220 (D. Or. July 25, 2016) (internal quotation marks omitted). Plaintiffs do not offer any authority that supports finding the necessary special relationship between a bank and a non-customer. See Resp. 11, ECF 22. And contrary to plaintiffs' assertion, the failure to plead a special relationship requires dismissal of their claim. Id. at 10 (“[T]here is no bright-line rule for assessing the duty of care or existence of a special relationship at the pleading stage.”); RoHillCo, 2016 WL 4051296, at *4 (“Plaintiffs were required to plead a special relationship with Defendant, but failed to do so. Accordingly, Plaintiffs' negligence claim should be dismissed.”) (citing Mackey v. Uttamchandani, No. 3:13-CV-00065-AC, 2014 WL 3809487, at *12 (D. Or. June 30, 2014), report and recommendation adopted, No. 3:13-CV-0065-AC, 2014 WL 3797607 (D. Or. Aug. 1, 2014)) (additional citations omitted).
Plaintiffs' negligence claim exactly tracks the statute's definitions, elements, and provided examples, and thus it is displaced by Oregon's UCC Article 4A. See Golden StateConcessions, 2021 WL 5002222, at *4 (finding that plaintiff's claims “based on the wire transfers, including transferring the funds to an account with a different owner than the stated intended beneficiary . . . are displaced by the UCC”). To the extent plaintiffs' complaint alleges any post-transfer conduct that is not displaced by the UCC, plaintiffs' failure to allege any facts that could support finding the special relationship necessary to maintain a negligence claim based on purely economic harm is fatal to that claim. Therefore, defendant is entitled to prevail on its motion to dismiss plaintiffs' negligence claim.
B. UCC Claim
Plaintiffs' amended complaint also asserts a claim under unspecified portions of Oregon's UCC Article 4A, codified at ORS 74A.1010 to 74A.5070. Am. Compl. 5-6, ECF 14. As explained below, neither Deaconess nor Central Pyramid have statutory standing to sue Wells Fargo under Article 4A's careful and comprehensive scheme governing the rights and responsibilities of parties to a funds transfer. See Koss Corp. v. Am. Exp. Co, 309 P.3d 898, 906 (Ariz.Ct.App. 2013), as amended (Sept. 3, 2013) (“A review of Article 4A demonstrates that it carefully and comprehensively governs the rights and responsibilities between the originator and the originator's bank . . . involved in payment orders, as well as between a beneficiary's bank and the beneficiary.”)
Article 4A governs any “funds transfer,” which is defined as “the series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order....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.” ORS 74A.1040.
The statute provides specific definitions for the parties involved in a funds transfer. The “originator” is “the sender of the first payment order in a funds transfer.” ORS 74A.1040(3). The “sender” is “the person giving the instruction to the receiving bank.” ORS 74A.1030(1)(e). Here, Central Pyramid is the originator and sender of the payment order. Am. Compl. ¶ 9, ECF 14 (“Central Pyramid initiated the wire transfer pursuant to the instructions.”).
The “originator's bank” is “[t]he receiving bank to which the payment order of the originator is issued if the originator is not a bank[.]” ORS 74.1040(4)(a). The “receiving bank” is the “bank to which the sender's instruction is addressed.” ORS 74A.1030(1)(d). Therefore, Central Pyramid's bank, Guaranty Bank & Trust, is the receiving bank and originator's bank here. Am. Compl. ¶ 5, ECF 14 (“The intended transfer was to be initiated from an account owned and administered by Central Pyramid at Guaranty Bank & Trust and was intended by Plaintiffs to be deposited in an account owned by Deaconess at JP Morgan Chase Bank.”).
The “beneficiary's bank” is “the bank identified in a payment order in which an account for the beneficiary is to be credited pursuant to the order[.]” ORS 74A.1030(1)(b). Here, defendant is the beneficiary's bank because it was the bank that Central Pyramid identified in its wire transfer instructions. Am. Compl. ¶ 8, ECF 14 (explaining that the instructions indicated “that the account was under the name of ‘Deaconess Associations, Inc.' and . . . used a Wells Fargo account number.”). And the fraudsters who received the funds according to Central Pyramid's instructions in the payment order are the beneficiaries. ORS 74A.1030(1)(a) (“ ‘Beneficiary' means the person to be paid by the beneficiary's bank.”).
Section 2070 of Article 4A determines the rights and obligations of the various parties to a wire transfer in the event of a “misdescription of beneficiary.” ORS 74A.2070. There are several different factual scenarios covered by the statute, but for purposes of this case, it suffices to say that if Wells Fargo did not actually know there was a discrepancy between the name on the account and the account number, it did not have a duty to determine the name and number matched, and the statute allows for the bank to rely on the account number as the “proper identification of the beneficiary of the order.” ORS 74A.2070(2)(a).
The statute states:
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, . . . if the beneficiary's bank does not know that the name and number refer to different persons, it may rely on the number as the proper identification of the beneficiary of the order. The beneficiary's bank need not determine whether the name and number refer to the same person.Id. “This section provides, in effect, immunity from responsibility -- a safe harbor -- for a beneficiary's bank that relies on the account number specified in a wire transfer order to identify the beneficiary of the order.” Golden State Concessions, 2021 WL 5002222, at *3 (citing TME Enters., Inc. v. Norwest Corp., 124 Cal.App.4th 1021, 1031 (2004)) (internal quotation marks omitted). “The safe harbor provision applies so long as the bank does not know the beneficiary's name and account number refer to different persons. The knowledge requirement, in turn, requires actual knowledge; constructive knowledge is insufficient to establish a violation.” Id. (citing TME Enters., 124 Cal.App.4th at 1031, 1033) (simplified). Instead of allowing a remedy against the beneficiary bank, the statute provides that if a wire transfer is accepted with a mismatch between the name on the account and the account number, and the person who received the money “was not entitled to receive payment from the originator, the amount paid may be recovered from [the] person” who received the money. ORS 74A.2070(4).
Plaintiffs' Article 4A claims against defendant fail for several reasons. First, Deaconess is not the originator or beneficiary of the wire transfer; rather it was the “intended beneficiary” of Central Pyramid's wire transfer. Am. Compl. ¶ 5, ECF 14 (“The intended transfer was to be initiated from an account owned and administered by Central Pyramid at Guaranty Bank & Trust and was intended by Plaintiffs to be deposited in an account owned by Deaconess at JP Morgan Chase Bank.”). Deaconess's status as the “intended beneficiary” is not provided for in section 2070, and thus it plays no role in section 2070's remedies. See Nirav Ingredients, Inc. v. WellsFargo Bank, N.A., No. 320CV00366FDWDSC, 2021 WL 297136 (W.D. N.C. Jan. 28, 2021), aff'd, No. 21-1893, 2022 WL 3334626 (4th Cir. Aug. 12, 2022) (holding that UCC Article 4A does not allow for “intended beneficiaries [to] step in and assert a legal right to the funds in question”) (internal quotation marks omitted).
Second, plaintiffs do not allege that defendant had actual knowledge of the mismatch that would prevent defendant's reliance on the safe harbor provisions of section 2070. Am. Compl. ¶ 15, ECF 14 (“[I]f Wells Fargo's security procedures and internal controls were designed and performed in compliance with applicable banking law, regulations and commercially reasonable banking practices, the Wells Fargo Bank would have detected the signs of inconsistencies and potential fraudulent activity[.]”) (emphasis added); see also id. ¶ 22 (“[W]ells Fargo Bank should have deducted (sic) suspicious activity in the payment order for Fraudulent Wire Transfer, rejected the erroneous payment order and restored the funds to Plaintiffs.”). These allegations that defendant should have or would have discovered some discrepancy fail to establish the actual knowledge required to trigger defendant's potential liability under section 2070.
Plaintiffs insist that “[n]owhere in the Amended Complaint do [they] make any allegation relating [to] the ultimate destination of the misdirected deposit to any information provided by Plaintiffs because they cannot,” Resp. 10, ECF 22; however, this argument is belied by other allegations in the complaint and the underlying facts. While plaintiffs' might not know the specific names of the fraudsters who received Central Pyramid's wire transfer, they admit that Central Pyramid sent instructions to Guaranty Bank & Trust to wire funds to “Deaconess Associations, Inc.” at a Wells Fargo account number. Am. Compl. ¶ 8, ECF 14. The complaint's allegation that “[t]he beneficiary information in the payment order for the Fraudulent Wire Transfer did not identify the beneficiary or beneficiary account intended for receipt of the funds by Plaintiff” simply reflects Central Pyramid's unfortunate mistake in misdirecting the funds to an account held by someone other than Deaconess. Id. ¶ 20. This situation is specifically provided for in section 2070, and the statutory remedy lies against the fraudsters, not defendant. ORS 74A.2070(4) (providing that “the amount paid may be recovered from that person” who “was not entitled to receive payment”).
For similar reasons, plaintiffs' argument that Central Pyramid was actually Deaconess's agent-which was not alleged in the Amended Complaint, and is of dubious legal validity based on the alleged facts-does not change the bottom-line analysis. Plaintiffs allege a mismatch between the name on the account and the account number Central Pyramid provided in its instructions. They do not allege defendant had any actual knowledge of the mismatch, and under those facts, UCC Article 4A does not provide for a remedy against defendant.
RECOMMENDATIONS
Defendant's motion to dismiss (ECF 17) should be granted because plaintiffs' commonlaw negligence claim is displaced by Oregon's UCC Article 4A, and because plaintiffs lack statutory standing to sue defendant and the ability to seek a remedy from defendant under the statute. Because it appears that plaintiffs cannot allege facts sufficient to state a claim against defendant, the complaint should be dismissed with prejudice.
SCHEDULING ORDER
These Findings and Recommendations will be referred to a district judge. Objections, if any, are due Monday, October 03, 2022. If no objections are filed, then the Findings and Recommendations will go under advisement on that date.
If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement.
NOTICE
These Findings and Recommendations are not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any Notice of Appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of a judgment.