Choice Escrow and Land Title, LLC v. BancorpSouth Bank

Filing 21

ORDER GRANTING IN PART AND DENYING IN PART 2 Motion to Dismiss for Failure to State a Claim. Accordingly Count III of the First Amended Petition is DISMISSED. Signed on 6/30/11 by Magistrate Judge John T. Maughmer. (Alexander, Pam)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
SOUTHERN DIVISION
CHOICE ESCROW AND LAND TITLE, LLC,
Plaintiff,
v.
BANCORPSOUTH BANK,
Defendant.

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Case No. 10-03531-CV-S-JTM

ORDER
In 2010, Choice Escrow and Land Title, LLC (“Choice”), the plaintiff herein, maintained
a trust account with BancorpSouth Bank (“BSB”), the defendant herein. On March 17, 2010,
BSB received an internet-based request to make a wire transfer of $440,000.00 out of Choice’s
trust account through “In-View,” BSB’s internet wire transfer system. The wire transfer request
was made using Choice’s “User ID” and “Password.” Although Choice’s trust account did not
have a balance sufficient to cover the wire transfer request, BSB nonetheless transferred
$440,000 to an intermediary bank [Bank of New York] who then transferred the funds to an
institution in the Republic of Cypress, as a beneficiary for an entity identified as “Brolaw
Services, Ltd.”
In the present action, Choice has sued BSB under several different theories of liability.
In general, Choice alleges that it “has never heard of, done business with, or held money in
escrow for Brolaw.” Moreover, Choice asserts that it did not initiate, approve, authorize, or
ratify the March 17, 2009 wire transfer. Instead, Choice contends that the wire transfer was
fraudulently initiated by an unknown third party. Choice has sued BSB alleging that the bank
violated the “Funds Transfers” provisions of the Uniform Commercial Code (“UCC”) as adopted

by Missouri, MO. REV. STAT. §§ 400.4A-101, et seq. In addition, Choice asserts that BSB is
liable for damages for negligence and/or breach of fiduciary duty.1 Pending before the Court is
BSB’s motion to dismiss the claims raised by Choice for failing to state a claim upon which
relief may be granted. For the reasons stated herein, the motion is granted in part and denied in
part.
In Count I of its FIRST AMENDED PETITION, Choice asserts a claim that BSB violated the
Funds Transfers provisions of the UCC. That law generally places the risk of loss on a customer
(as opposed to a bank) in the event of a dispute regarding the propriety of a funds transfer.
If a bank and its customer have agreed that the authenticity of
payment orders issued to the bank in the name of the customer as
sender will be verified pursuant to a security procedure, a payment
order received by the receiving bank is effective as the order of the
customer, whether or not authorized, if (i) the security procedure is
a commercially reasonable method of providing security against
unauthorized payment orders, and (ii) the bank proves that it
accepted the payment order in good faith and in compliance with
the security procedure and any written agreement or instruction of
the customer restricting acceptance of payment orders issued in the
name of the customer.
MO. REV. STAT. § 400.4A-202(b). Inherent in this rule, however, are requirements that the
security procedure utilized by a bank must be a “commercially reasonable method” and the bank
must prove that it accepted a transfer request in good faith and in compliance with the security
procedures and prior agreements with the customer. To the extent that either or both of these
requirements cannot be met, then the risk of loss falls on the bank. BSB describes this as the
“verification theory” for shifting the loss to the bank.

1

Initially, Choice also sued BSB for an alleged violation of the Gramm-LeachBliley Act, 15 U.S.C. §§ 6801-09. By agreement of the parties, however, that claim was
previously dismissed by the Court.
2

The Funds Transfers provisions of the UCC also contain a second avenue for shifting the
risk of loss to a bank, described by BSB as the “agency theory.” In general, under Missouri law:
A payment order received by the receiving bank is the authorized
order of the person identified as sender if that person authorized
the order or is otherwise bound by it under the law of agency.
MO. REV. STAT. § 400.4A-202(b). When the customer contests that an order was made by a
person authorized as an agent (as alleged by Choice herein):
The receiving bank [bears the risk of loss] if the customer proves
that the order was not caused, directly or indirectly, by a person (i)
entrusted at any time with duties to act for the customer with
respect to payment orders or the security procedure, or (ii) who
obtained access to transmitting facilities of the customer or who
obtained, from a source controlled by the customer and without
authority of the receiving bank, information facilitating breach of
the security procedure, regardless of how the information was
obtained or whether the customer was at fault. Information
includes any access device, computer software, or the like.
MO. REV. STAT. § 400.4A-203(a)(2).
BSB moves to dismiss Count I of the FIRST AMENDED PETITION arguing that it “is
inconsistent and unclear as to what precise theory [Choice] seeks to recover under – the agency
theory or the verification theory.” BSB cites no cases to the Court that would require a plaintiff
alleging a violation of a single statutory enactment (in this case the Funds Transfers provisions
of the UCC) that provides different manners of establishing a violation to plead in separate
counts the different manners. The Court will not require such a pleading herein.2

2

In this case, the Funds Transfers provisions of the UCC make it clear that any
court considering application of the “agency theory” [§ 400.4A-203(a)] actually must first
consider whether the “verification theory” [§ 400.4A-202(a)] is at issue. Specifically section
400.4A-203(a) is applied only when “an accepted payment order is not, under section 400.4A202(a), an authorized order of a customer identified as sender, but is effective as an order of the
customer pursuant to section 400.4A-202(b).” MO. REV. STAT. § 400.4A-203(a). The two
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In addition, BSB argues that Choice did not properly plead the elements necessary to
establish either theory. The Court will not undertake a detailed recitation of the allegations
contained the FIRST AMENDED PETITION except to say that the factual allegations generally track
the language in the UCC, and, at this mere pleading stage in the litigation, dismissal is not
warranted.
Finally, BSB argues that Count I of the FIRST AMENDED PETITION must be dismissed
because of the express provisions of the written agreement regarding funds transfers between
Choice and BSB which were attached to the FIRST AMENDED PETITION and which BSB argues
place the risk of loss on Choice – regardless of the provisions of the UCC. BSB’s legal
argument appears to be an affirmative defense that is more appropriately resolved by summary
judgment.
In Count III of the FIRST AMENDED PETITION, Choice alleges that BSB is liable for
“negligence.” However, within Count III, Choice repeatedly argues that BSB “was negligent,
generally and/or as a fiduciary.” Apparently, Choice is seeking to state a claim for negligence as
well as a claim for breach of a fiduciary duty. Under Missouri law, these are two different
theories of liability. Setting aside the question of the wisdom and propriety of pleading the
theories interchangeably in a single count, Choice has failed to plead the existence of a fiduciary
relationship between Choice and BSB – a necessary element to the cause of action.

“theories” are too intrinsically linked to find fault with raising both in a single count. Compare
Federal Deposit Insurance Corporation v. Miller, 781 F.Supp. 1271, 1278 n.5 (N.D. Ill. 1991)
(“[The defendant] argues that the FDIC has not complied with [the Federal Rules of Civil
Procedure] by combining state and federal claims in a single count[; this] argument is rejected,
as plaintiffs may plead counts which rely on different theories of recovery, if the theories are
based on the same facts.”).
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In that regard, the Court has considered whether a fiduciary relationship may be inferred
from the other factual pleadings in the FIRST AMENDED PETITION which certainly establish a
business relationship between Choice and BSB and, more specifically, a bank-customer
relationship. However, in Missouri, a mere business relationship does not give rise to a fiduciary
relationship. See, e.g., Lucas v. Enkvetchakul, 812 S.W.2d 256, 261 (Mo. App. [S.D.] 1991).
Moreover, absent specific allegations establishing fiduciary responsibilities, the relationship
between a bank and its customers does not automatically connote a fiduciary relationship.
Compare Brown v. Mercantile Bank of Poplar Bluff, 820 S.W.2d 327, 334 (Mo. App. [S.D.]
1991). Thus, to the extent that Count III of the FIRST AMENDED PETITION purports to assert a
claim for breach of fiduciary duty, it is dismissed for failing to state a claim.
Furthermore, BSB argues that even if Count III of the FIRST AMENDED PETITION properly
states claim for both negligence and breach of fiduciary duty, any such claims are effectively
preempted by the Funds Transfers provisions of the UCC. In Zengen, Inc. v. Comerica Bank, 41
Cal.4th 239, 158 P.3d 800 (Cal. 2007), the California Supreme Court found that the California
version of the Funds Transfers provisions of the UCC displaced3 any and all common law claims
that: (1) “create rights, duties, or liabilities inconsistent with” the UCC, and (2) “where the

3

Like California, Missouri’s adoption of the UCC includes a provision that:
Unless displaced by the particular provisions of this chapter, the
principles of law and equity, including the law merchant and the
law relative to capacity to contract, principal and agent, estoppel,
fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or
other validating or invalidating cause shall supplement its
provisions.

MO. REV. STAT. § 400.1-103 (emphasis added).
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circumstances giving rise to the common law claims are specifically covered by the provisions
of” the UCC. Id. at 253, 158 P.3d at 808. The Zengen rule is in conformity with decisions from
other courts. See, e.g., Grain Traders, Inc. v. Citibank, N.A., 160 F.3d 97, 103 (2d Cir. 1998);
Community Bank, FSB v. Stevens Financial Corp., 966 F.Supp. 775, 788 (N.D. Ind. 1997);
Impulse Trading v. Norwest Bank Minn., N.A., 907 F.Supp. 1284, 1287-88 (D. Minn. 1995); Fitts
v. Amsouth Bank, 917 So.2d 818, 824 (Ala. 2005); Corfan Banco v. Ocean Bank, 715 So.2d 967,
971 (Fla. Dist. Ct. App.1998); Aleo Intern., Ltd. v. Citibank, N.A., 160 Misc.2d 950, 612
N.Y.S.2d 540 (N.Y. Sup. Ct.1994); Moody Nat. Bank v. Texas City Development, 46 S.W.3d
373, 377-79 (Tex. Ct. App. 2001). Although it does not appear that the Missouri Supreme Court
has decided this issue, the Court concludes that Missouri would adopt a similar rule for the wellformulated reasons set out in the above-cited cases.
Reviewing the factual claims asserted in Count III of the FIRST AMENDED PETITION, the
Court finds that the negligence claims therein are displaced inasmuch as those claims [namely
the duty to warn about risks of funds transfers, the adequacy of the safeguards provided by BSB,
and BSB’s efforts (or lack thereof) to retrieve the money transferred from Choice’s trust
account] involve circumstances specifically covered by the provisions of the UCC. The Court
does note that in Count III of the FIRST AMENDED PETITION, Choice asserts one allegation that
BSB was negligent in:
failing to provide Choice a restriction or block of foreign/
international internet-based funds transfers . . . after Choice
specifically requested that [BSB] provide same.
Allegedly, Choice made a specific request and a BSB employee specifically stated that BSB was
unwilling and or unable to provide such a restriction or block.

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This particular claim seems somewhat more removed from the provisions of the Funds
Transfers provisions of the UCC than Choice’s other Count III allegations. However, the Court
nonetheless finds displacement for two reasons. First, the only damages that flow from this
purported negligence are the same damages available under the UCC (i.e., the damages flowing
from the transfer of funds on March 17, 2010). Secondly, the alleged refusal of BSB to place a
restriction or block on foreign transfers arguably goes to the adequacy and reasonableness of its
security safeguards as well as its good faith in honoring the March 17, 2010 funds transfer
request. Under the circumstances of this case, the Court concludes that this claim too involves
circumstances specifically covered by the provisions of the UCC.
For the foregoing reasons, it is
ORDERED that the Defendant’s Motion To Dismiss, filed January 10, 2011 [Doc. 2] is
GRANTED IN PART and DENIED IN PART. Accordingly, Count III of the FIRST
AMENDED PETITION is DISMISSED.

/s/ John T. Maughmer

JOHN T. MAUGHMER
U. S. MAGISTRATE JUDGE

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