Law Offices of Oliver Zhou v. PNC Bank, N.A. et al
Filing
38
OPINION AND ORDER re: 25 MOTION to Dismiss filed by PNC Bank, N.A., 27 MOTION to Dismiss Plaintiff's complaint filed by Citibank, N.A. For the reasons stated above, Defendants' motion to dismiss is GRANTED and Plai ntiff's Complaint is dismissed. As discussed, Plaintiff is granted leave to amend only the claims for breach of contract and fraudulent concealment against Citibank (first and ninth causes of action). Plaintiff's Amended Complaint should be filed, if at all, on or before June 10, 2016. The Clerk of the Court is respectfully directed (1) to terminate the motions, Docs. 25, 27, and (2) to terminate PNC Bank as a party to the case. It is SO ORDERED. (As further set forth in this Order.) (Amended Pleadings due by 6/10/2016.) PNC Bank, N.A. terminated. (Signed by Judge Edgardo Ramos on 5/17/2016) (kko)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
LAW OFFICES OF OLIVER ZHOU,
Plaintiff,
OPINION AND ORDER
15 Civ. 5266 (ER)
- against CITIBANK N.A., and
PNC BANK, N.A.,
Defendants.
Ramos, D.J.:
The Law Offices of Oliver Zhou (“Plaintiff”) alleges various claims of negligence,
breach of contract, misrepresentation, fraudulent concealment, and aiding and abetting against
Citibank, N.A. (“Citibank”) and PNC Bank, N.A. (“PNC Bank”) (collectively “Defendants”), for
failing to prevent Plaintiff’s losses from what appears to have been a counterfeit check scheme.
Before the Court is Defendants’ motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules
of Civil Procedure. Defendants’ motion is GRANTED.
I.
BACKGROUND
The following facts, accepted as true for purposes of the instant motion, are based on the
allegations in the Complaint. Complaint (“Compl.”) (Doc. 1, Ex. A).
Plaintiff and its principal, Oliver Zhou (“Zhou”), 1 maintained an “IOLA Attorney Trust
Account” (the “Account”) at Citibank. Compl. ¶ 3. On June 17, 2013, Plaintiff received a
cashier’s check from a new purported client that displayed PNC Bank’s logo and the routing
1
The Complaint refers at one point to “Plaintiff, Oliver Zhou, Esq., pro se.” Compl. at 1. The case was formally
filed, however, by the Law Offices of Oliver Zhou, a limited liability company organized under New York law. See
ECF Dkt. No. 15-cv-5266; Compl. ¶ 2. According to the docket, Zhou is representing his own law firm, but he is
not himself an individual plaintiff. This case, therefore, does not formally involve a pro se plaintiff.
number 071921891 (the “Check”), in the amount of $297,500. Id. at ¶ 3 & Ex. 1. The next day,
Zhou deposited the Check into the Account by presenting it to a Citibank teller. Id. at ¶¶ 3–4.
The teller reviewed the Check, accepted it without using any “counterfeit device” to determine
the Check’s validity or checking whether the routing number was right, and provided Zhou with
a bank receipt stamped with notice of the funds’ availability. Id. at ¶¶ 4, 8. That notice was
dated June 18, 2013, and stated that $297,750 was “Available Today.” Id. at Ex. 2.
On June 19, 2013, after asking John Huang (“Huang”), a Citibank clerk, whether the
Check “was valid and equivalent to cash,” Zhou was told that “the money was available since
June 18, 2013” and that “the fund was good.” Id. at ¶ 12. Thereafter on the same day, at the
direction of his purported client, Zhou requested a wire transfer of $287,450 from the Account to
a third party’s account in Japan (the “Transfer”). Id. at ¶ 12 & Ex. 4. On June 20, 2013, PNC
Bank returned the Check to Citibank as “Altered/Fictitious,” and Citibank then “reversed the
provisional credit” in the Account in the amount of $297,512. Id. at Exs. 4, 5. 2
On June 24, 2013, one of Plaintiff’s other clients notified Zhou that a check Zhou had
issued to him had been dishonored due to insufficient funds in the Account. Id. at ¶ 16. Zhou
then immediately contacted Citibank and was informed that PNC Bank had determined that the
Check was “a forged or counterfeit instrument” and would not be honored. Id. at ¶ 17. Zhou
requested that the Transfer be cancelled, and while Citibank’s representatives told Zhou they
would report back, Plaintiff has not been further contacted by Citibank, and from the pleadings it
appears plain that the Transfer was never successfully recalled. Id. at ¶¶ 18–19 & Exs. 4, 5. On
June 26, 2013, Plaintiff received written notice from Citibank that the Check returned as
“bounced” because it was “Altered/Fictitious.” Id. at ¶ 20.
2
The charge back was for the original Check amount of $297,500 plus a $12.00 service fee. Compl., Ex. 5.
2
In sum, Plaintiff appears to have been the victim of an unfortunately commonplace
scheme targeting attorneys, in which a fake new client provides a counterfeit check for the
attorney to deposit and then requests an emergency wire of funds from the attorney’s bank
account before the check bounces. The victim attorney is then both subject to his bank’s right to
charge back the funds from the check when it is eventually dishonored, and unable to reverse the
wire of funds to the fake client.
On June 10, 2015, Plaintiff timely commenced this action by filing a Complaint in the
Supreme Court of New York, County of New York. See Compl. On July 7, 2015, PNC Bank
removed the case to this Court with consent from co-defendant Citibank, on grounds of diversity
jurisdiction. See Defendants’ Notice of Removal (Doc. 1). Defendants filed the instant motions
to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on September 18,
2015. (Docs. 25, 27).
II.
LEGAL STANDARD
Under Rule 12(b)(6), a complaint may be dismissed for “failure to state a claim upon
which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When ruling on a motion to dismiss
pursuant to Rule 12(b)(6), the Court must accept all factual allegations in the complaint as true
and draw all reasonable inferences in the plaintiff’s favor. Koch v. Christie’s Int’l PLC, 699 F.3d
141, 145 (2d Cir. 2012). However, the Court is not required to credit “mere conclusory
statements” or “threadbare recitals of the elements of a cause of action.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)); see also id.
at 681 (citing Twombly, 550 U.S. at 551). “To survive a motion to dismiss, a complaint must
contain sufficient factual matter…to ‘state a claim to relief that is plausible on its face.’” Id. at
678 (quoting Twombly, 550 U.S. at 570). A claim is facially plausible “when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
3
for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). If the plaintiff has not
“nudged [his] claims across the line from conceivable to plausible, [the] complaint must be
dismissed.” Twombly, 550 U.S. at 570.
III.
DISCUSSION
A. Claims Against Citibank
Plaintiff asserts seven claims against Citibank, falling into four categories: breach of
contract, negligence, misrepresentation, and concealment. None of these claims is supported by
sufficient allegations to survive Citibank’s motion to dismiss.
1. Breach of Contract
“Under New York law, a breach of contract claim requires proof of (1) an agreement, (2)
adequate performance by the plaintiff, (3) breach by the defendant, and (4) damages.” Fischer &
Mandell, LLP v. Citibank N.A., 632 F.3d 793, 799 (2d Cir. 2011) (citations omitted). In its first
cause of action, Plaintiff claims that Citibank breached when it failed “to provide its professional
service” in a “good faith, ordinary and reasonable manner,” because it failed to discover
fraudulent checks. Compl. ¶ 29.
Because Plaintiff failed to attach or make reference to any specific contract in the
Complaint, Citibank attached to its motion three documents that it represents to be the operative
contracts between it and Plaintiff: the Citibank Signature Card (the “Signature Card”), the
Citibank Client Manual (the “Client Manual”), and the Marketplace Addendum (the
“Addendum”). See Declaration of John Haslam (Doc. 29), Ex. A (Signature Card), Ex. B (Client
Manual), Ex. C (Addendum). Plaintiff denies that these are the documents underlying his
breach-of-contract claim. See Memorandum of Law in Opposition (“Pl.’s Opp’n”) (Doc. 33) at 8
(“[T]his so-called Client Manual and its subsequent amendments unilaterally made by
Defendants have no legal bearing upon the contractual relationship between plaintiff and
4
defendant Citibank.”). But Plaintiff does not specify any other contract between the parties.
Plaintiff’s breach-of-contract claim is thus ripe for dismissal because the Complaint fails to
allege or describe a specific contract, alluding only in the most general terms to a “contractual
relationship” between Plaintiff and Citibank. 3
Even if Plaintiff had agreed with Citibank’s representation that the Client Manual and
Addendum constituted the contractual agreement between them (and hence enabled the Court to
rely on these extrinsic documents for purposes of this motion), those contracts do not appear to
obligate Citibank to detect or investigate fraudulent checks. Moreover, as Citibank details in its
briefing, those documents contain clear notice provisions describing the process that Citibank
undertakes when it accepts a deposited check, including its process for making the check amount
provisionally “available” to the depositor, 4 and the bank’s right to “charge back” the check
amount from the depositor’s account in the event the check goes unpaid. See Memorandum of
Law of Citibank, N.A. (Doc. 30) at 6–7.
Plaintiff’s breach-of-contract claim against Citibank is dismissed without prejudice. 5
3
Plaintiff appears to invoke UCC sections 4-201 and 4-202, as well as the law of bailments, to define what Plaintiff
describes as the “expansive contractual relationship” between it and Citibank. See Pl.’s Opp’n at 9–10. The three
breaches specified in the opposition brief—failure to provide due notice, failure to detect the check that was facially
defective, and failure “to exercise ordinary and reasonable care”—are identical to Plaintiff’s negligence claims,
which are also governed by the duties provided under the UCC. The Court will thus discuss those theories of
liability in the next section addressing negligence, as it cannot do so under the auspices of a breach-of-contract claim
where no specific contract has been identified. Plaintiff does not provide any authority or persuasive arguments for
why the common law of bailment is applicable in this case.
4
“Pursuant to the Expedited Funds Availability Act (12 U.S.C. § 4001 et seq.), banks are required to make funds
from a deposited check available for the depositor’s withdrawal within certain short time periods.” Greenberg,
Trager & Herbst, LLP v. HSBC Bank USA, 958 N.E.2d 77, 82 (N.Y. 2011) (citing 12 U.S.C. § 4002 (b)(1)). “The
purpose of the ‘[a]ct is to provide faster availability of deposited funds.’” Id. (quoting Haas v. Commerce Bank, 497
F. Supp. 2d 563, 565 (S.D.N.Y. 2007)). As will be discussed, the availability of funds “is provisional and the
collecting bank has the right to charge back the amount if the check is dishonored or the bank fails to receive a
settlement for the check.” Id. (citing New York Uniform Commercial Code § 4-212). This expedited-butprovisional availability of funds, combined with the lag time it takes for checks to be finally settled or returned as
dishonored, is what makes possible the type of fraudulent scheme that Plaintiff apparently fell victim to here.
5
The Court notes the following language from the Client Manual that would appear to apply to Plaintiff’s case, and
urges Plaintiff to address the implications of this provision in an amended complaint, should one be filed: “When
5
2. Negligence
Plaintiff asserts four negligence claims against Citibank: (1) Citibank was negligent
because its tellers did not identify the defective routing number on the face of the Check upon
Plaintiff’s presentment (Compl. ¶ 32); (2) Citibank was negligent in failing to use an “anticounterfeit device to detect the fake cashier’s check” (id. at ¶ 35); (3) Citibank failed to “notify
the plaintiff promptly” that the same-day “availability” of funds meant only that Plaintiff’s
account received a provisional credit “subject to collection and revocation” (id. at ¶ 39); 6 and (4)
Citibank negligently “failed to investigate the matter” after the “discovery” that Plaintiff
deposited a counterfeit check, “thereby failing to assist recovery or to mitigate the amount of the
plaintiff’s loss” (id. at ¶¶ 63–64).
The New York Uniform Commercial Code (the “UCC”) prescribes extra-contractual
duties to banks in New York. Specifically, the UCC “prescribes the duties the various banks
owe to a depositor.” Greenberg, Trager, & Herbst, LLP v. HSBC Bank USA, 958 N.E.2d 77, 82
(N.Y. 2011); see also Dixon, Laukitis, & Downing, P.C. v. Busey Bank, 993 N.E.2d 580, 585,
587 (Ill. App. Ct. 2013) (“Provisions such as section 4–202 of the UCC displace common law
negligence principles….Timely compliance with the section 4-202 responsibilities constitutes
ordinary care and is not negligent as a matter of law.”) (citation omitted); Pl.’s Opp’n at 11.
The UCC defines the roles of, and duties imposed on, each bank throughout the deposit
and collection process. Under the UCC’s terms, Citibank initially acted as a “depositary bank”
and later as a “collecting bank” during the events alleged. A depository bank is defined in the
you open an account, you agree to abide by the rules and regulation governing that account. While some of the
information, rules and regulations are contained in this manual, others can be found in the account agreements and
other documents we give you at the time you open particular accounts.” Client Manual at 5.
6
Although Plaintiff’s Complaint does not expressly style this as a negligence claim, it does not provide any other
basis for liability—contractual, statutory, or otherwise. The Court thus construes the cause of action as sounding in
negligence under the UCC’s “ordinary care” standard. See UCC § 4-202.
6
UCC as “the first bank to which an item is transferred for collection,” which was Citibank’s role
upon Plaintiff’s depositing of the Check. UCC § 4-105(a). A collecting bank is defined as “any
bank handling the item for collection except the payor bank,” § 4-105(d), which became
Citibank’s role upon initiation of its efforts to collect a final settlement from PNC. PNC served
as the “payor bank” as defined by section 4-105(b), throughout the transaction. See infra III.B.
Citibank’s obligations as a collecting bank are governed by UCC Article 4. In relevant
part, section 4-201 states that, “[u]nless a contrary intent clearly appears and prior to the time
that a settlement given by a collecting bank for an item is or becomes final…the bank is an agent
or sub-agent of the owner of the item and any settlement given for the item is provisional.” § 4201(1). 7 Under section 4-202, a collecting bank owes a depositor a duty of “ordinary care” when
“presenting a check or sending a check for presentment, sending a notice of dishonor or
nonpayment or returning a check, and settling the check when the colleting bank receives final
payment from the payor bank.” Greenberg, Trager, 958 N.E.2d at 82 (citing § 4-202(1)). 8 “The
UCC does not define ‘ordinary care,’ but it should be read as to have its normal tort meaning.”
Id. at 85. “[A] collecting bank has until midnight of the next banking day…to take the
[prescribed] actions when receiving a check, notice of dishonor, or final settlement of the check.”
Id. at 82 (citing § 4-202(2)). Furthermore, the UCC expressly permits collecting banks to make
“provisional settlements” upon deposit, i.e., credit a depositor’s account with the check amount,
and then “revoke the settlement” and “charge back the amount of any credit given” in the event
the collecting bank does not receive final settlement from the payor bank, which is what occurred
7
One “practical result[]” stemming from this provision codifying the “agency status” of the collecting bank is that
“risk of loss continues in the owner of the item rather than the agent bank.” UCC § 4-201, cmt. 4 (citing § 4-212,
the UCC provision allowing collecting back to charge back provisional credit upon rejection of item by payor bank).
8
The UCC defines the term “presentment” as “a demand for acceptance or payment made upon the maker, acceptor,
drawee or other payor by or on behalf of the holder.” § 3-504.
7
in this case. See § 4-212(1); see also Greenberg, Trager, 958 N.E.2d at 81 n.6 (“UCC 4–212(1)
states that a collecting bank retains its right to charge back to a customer’s account any
provisional credit it has given if, upon an item’s dishonor, the bank ‘returns the item or sends
notification of the facts’ by the midnight deadline.”).
Plaintiff here does not adequately allege that Citibank breached its UCC-prescribed duty
of ordinary care. Nor does Plaintiff provide any authority for the proposition that ordinary care
requires a collecting bank to identify false routing numbers, use fraudulent-check detection
devices, investigate the source of counterfeit checks, or provide explicit notices upon deposit that
explain the bank’s policies on provisional credits and the bank’s right to charge back if a check
goes unpaid. 9 Were collecting banks required to ensure the validity of all checks at the time of
deposit, as Plaintiff’s negligence theory essentially demands, there would be no need for the
UCC provision allowing for provisional settlement and charge back. Cf. JPMorgan Chase Bank,
N.A. v. Freyberg, No. 14 Civ. 6851 (RMB), 2016 WL 2605209, at *5 (S.D.N.Y. Mar. 17, 2016)
(collecting New York cases affirming collecting bank’s right to charge back provisionally
credited funds after fraudulent check is rejected by payor bank); UCC § 4-212, cmt. 1 (“Under
current bank practice, in a major portion of cases banks make provisional settlement for items
when they are first received and then await subsequent determination of whether the item will be
finally paid….Statistically, this practice of settling provisionally first and then awaiting final
9
Although not part of the Court’s analysis here, and because there is a possibility that Plaintiff may seek to file an
amended complaint, the Court notes that Plaintiff may have been on notice already: There are clauses within the
Client Manual and Addendum describing Citibank’s policy of provisional settlements and charge backs. See Client
Manual at 27 (“The Bank’s policy on availability of funds from checks that you deposit will not affect your
obligation to repay the Bank for any check that you deposit that is not paid, nor will it affect the Bank’s right to
charge back your account or to obtain reimbursement for any check that is not finally paid for any reason.”);
Addendum at 37 (same). The UCC includes a similar provision. See § 4-212(1).
8
payment is justified because more than ninety-nine per cent of such cash items are finally
paid….”).
Indeed, the New York Court of Appeals, in a practically identical case to the one here,
explicitly held that under the UCC “any inherent risk [] remains with the depositor and not the
collecting bank” until final settlement by the payor bank, because a depositor-attorney is “in the
best position to guard against the risk of a counterfeit check by knowing its client.” Greenberg,
Trager, 958 N.E.2d at 84, 86 (emphasis added) (citation and internal quotation marks omitted). 10
“‘A collecting bank acts as the agent of its customer, and until such time as the collecting bank
receives final payment, the risk of loss continues in the customer, the owner of the item.’”
Freyberg, 2016 WL 2605209, at *4 (quoting Hanna v. First Nat’l Bank of Rochester, 661 N.E.2d
683, 689 (N.Y. 1995)). Plaintiff repeatedly attempts to place the risk of loss on Citibank, the
collecting bank here. See, e.g., Pl.’s Opp’n at 13–14 (“Above all, it is plaintiff’s position that
banks, rather than bank’s customers, are in a much better and superior position to detect and
prevent the fraudulent banking activities since banks are in the forefront of their normal and
regular business operation dealing with these issues on a daily basis.”). But that approach has no
support under New York’s UCC statute. Freyberg, 2016 WL 2605209, at *5 (“The UCC is clear
10
The facts of Greenberg, Trager are practically identical to the facts in this case. The Greenberg, Trager plaintiff
was also a law firm, which received an unsolicited email from a purported client seeking legal representation. The
fake client agreed to pay the plaintiff a $10,000 retainer, and informed plaintiff that a customer of the client’s would
be sending the plaintiff a check for $197,750, which the customer supposedly owed to the client. The client
instructed plaintiff to receive and deposit the check into the plaintiff’s attorney trust account, and then wire $187,750
from that account to the client’s account in Hong Kong, holding on to the $10,000 retainer. Plaintiff contacted the
collecting bank three days after deposit to ask whether the check had “cleared,” was told that “the funds were
available,” and wired the $187,750 to the fake client that same day. Days later, the payor bank informed the
collecting bank that the check had been dishonored and was being returned as counterfeit. The collecting bank then
charged back the $197,750 credit it had made provisionally available to the plaintiff, and the plaintiff was unable to
cancel the wire to the Hong Kong account. The plaintiff then sued both the collecting bank and the payor bank on
grounds of negligence and negligent misrepresentation. See Greenberg, Trager, 958 N.E.2d at 78–81. The New
York Court of Appeals affirmed dismissal of the plaintiff’s claims on summary judgment. Id. at 87.
9
that, until there is a final settlement of the check, the risk of loss lies with the depositor.”)
(citations omitted). 11
Plaintiff’s negligence claims, based on the failure to identify the check as fraudulent or to
give specific notice of Citibank’s provisional-settlement and charge-back policies at the time of
deposit, 12 are all dismissed with prejudice, because even alleging additional facts establishing
this conduct would not constitute a breach of ordinary care as a matter of law. See Greenberg,
Trager, 958 N.E.2d at 85–86; Dixon, Laukitis, 993 N.E.2d at 586–87 (relying on Greenberg,
Trager to dismiss negligence claim based on duty of ordinary care under UCC § 4-202, where
plaintiff alleged that collecting bank failed in “investigating the circumstances regarding the
check, recognizing it as counterfeit, advising [plaintiff] not to withdraw funds until final
settlement, and notifying [plaintiff] at the earliest time that it was dishonored”). 13
11
Plaintiff attempts to distinguish Greenberg, Trager, and a similar Second Circuit case, Fischer & Mandell, LLP v.
Citibank, N.A., 632 F.3d 793 (2d Cir. 2011), by arguing that those cases did not involve a counterfeit check
“defective on its face,” and that the courts in those cases did not explicitly analyze whether a depository or
collecting bank owed explicit notice of its provisional-credit and charge-back policies upon deposit. Pl.’s Opp’n at
14. Neither of these minor distinctions, even if accurate, would compel the Court to disregard these two controlling
cases or the UCC’s statutory allocation of the risk of loss in these situations.
12
Plaintiff also attempts to frame its notice claim as sounding in principles of due process. See Pl.’s Opp’n at 16
(citing, inter alia, Goldberg v. Kelly, 397 U.S. 254 (1970); Mullane v. Central Hanover Trust Co., 339 U.S. 306
(1950)). Since there is no allegation that any defendant here was a state actor, this claim too must fail. See, e.g.,
Horvath v. Westport Library Ass’n, 362 F.3d 147, 151 (2d Cir. 2004) (“The right to due process established by the
Fourteenth Amendment applies only to government entities, and an attempt to vindicate that right…can be lodged
only against a government entity.”).
13
Plaintiff’s reliance on two older cases applying New York law is also unavailing. See Pl.’s Opp’n at 12 (citing
Northpark Nat’l Bank v. Bankers Trust Co., 572 F. Supp. 524 (S.D.N.Y. 1983); Broadway Nat’l Bank v. BartonRussell Corp., 154 Misc. 2d 181 (N.Y. Sup. Ct. 1992)). These cases involve unreasonable delays and alleged
failures to provide notice by collecting banks after nonpayment or “red flags” of potential fraud. See Northpark
Nat’l, 572 F. Supp. at 531–33; Broadway Nat’l, 154 Misc. 2d at 192; see also Reply Mem. of Law of Citibank N.A.
(Doc. 35) at 2 (noting that the Complaint does not seek relief on grounds of delayed notice “for good reason,” given
that exhibit attached to Complaint shows that Plaintiff’s account was debited on June 20, 2013 because the Check
was “returned unpaid”). These two cases do not support Plaintiff’s proposition that the UCC’s standard of ordinary
care requires collecting banks to undertake the variety of preemptive obligations that Plaintiff seeks to impose here.
Broadway Nat’l is particularly inapposite here, as it involved the duty of a collecting bank vis-à-vis a depository
bank to timely process merchant credit card slips in a manner that allowed for reasonable and timely notice to the
depositor bank of possible fraudulent slips. See 154 Misc. 2d at 183–86, 192. Indeed, tellingly, neither case was
even mentioned by the New York Court of Appeals in Greenberg, Trager.
10
3. Misrepresentation
Plaintiff’s fifth cause of action alleges that Citibank “misrepresented material fact[s]
regarding the date of fund availability, which really is the date of credit availability subject to
collection,” and that Plaintiff detrimentally relied on that representation by wiring out funds prior
to final settlement. Compl. ¶ 43. Based on factual allegations elsewhere in the Complaint, this
claim appears to be premised on two representations: (1) the “stamp” on the receipt Zhou
received the day he deposited the Check, stating that the deposited funds were “Available
Today,” id. at ¶ 8 & Ex. 2, and (2) the statement by Huang, the Citibank clerk, that that “the
money was available since June 18, 2013” and “the fund was good,” allegedly made to Zhou on
June 19, 2013, the day after the deposit, id. at ¶ 12.
A plaintiff must show “reasonable reliance” on a misrepresentation to prevail in an action
for negligent misrepresentation under New York law. See Crawford v. Franklin Credit Mgmt.
Corp., 758 F.3d 473, 490 (2d Cir. 2014). But in cases substantially similar to this one, “New
York courts have found that alleged oral statements such as ‘the check had cleared,’ or ‘the funds
are available’ to be ‘ambiguous remark[s] that may have been intended to mean only that the
amount of the check was available…,’” and have thus concluded that a plaintiff’s reliance on
such statements when effectuating a wire is unreasonable as a matter of law. Freyberg, 2016
WL 2605209, at *10 (quoting Greenberg, Trager, 958 N.E.2d at 85). For example, in
Greenberg, Trager, the plaintiff was told by a bank clerk that its checks had “cleared” and that
funds “were available,” but the New York Court of Appeals rejected the plaintiff’s claim for
negligent misrepresentation, holding that reliance on such statements was unreasonable as a
matter of law. 958 N.E.2d at 80, 85.
11
The same reasoning applies to the two purported misrepresentations in this case, both of
which were functionally equivalent to, and just as ambiguous as, statements that New York
courts have previously addressed. See Greenberg, Trager, 958 N.E.2d at 85; see also Fischer &
Mandell, 632 F.3d at 799 (construing statement on Citibank website that funds were “available”
as meaning “only that the account balance could be withdrawn from the account and not that the
balance represented collected funds”); Freyberg, 2016 WL 2605209, at *10; Margot J. Garant,
Inc. v. Suffolk Cty. Nat’l Bank, 46 Misc. 3d 1218(A), 17 N.Y.S.3d 383, 2015 WL 669452, at *8
(N.Y. Sup. Ct. 2015) (citing the “overwhelming weight of authority” that has “declined to
unsettle the statutory allocation of risk of loss found in UCC article 4” and “rejected claims of
reliance on statements by banks, either express or implied, that funds were ‘available’ or had
‘cleared,’” because such terms “are not found in the UCC,” “their meaning is ambiguous,” and
“reliance thereon by the plaintiffs was unreasonable as a matter of law”) (citations omitted). 14
Plaintiff’s misrepresentation claim—whether based on a negligence theory or a fraud theory—is
dismissed with prejudice. See Freyberg, 2016 WL 2605209, at *11–12 (“Reasonable reliance is
an essential element of both fraud and negligent misrepresentation….[Depositor’s] reliance on
[collecting bank’s] statement as assurance that final settlement of the Counterfeit Check had
occurred was, under the circumstances here, unreasonable as a matter of law.”) (citing
Greenberg, Trager, 958 N.E.2d at 85; Margot J. Garant, 2015 WL 669452, at *7). Amended
allegations describing the same representations by Citibank would be futile, given that reliance
14
Plaintiff argues that his allegations of Citibank’s misrepresentations should not be dismissed without the benefit of
discovery, citing JP Morgan Chase Bank, N.A. v. Cohen, 26 Misc. 3d 1215(A), 907 N.Y.S.2d 101, 2009 WL
5612345 (N.Y. Sup. Ct. 2009). Pl.’s Opp’n at 15. But Cohen merely refused to foreclose the possibility of a
negligent misrepresentation claim where there was an express statement from a bank that final settlement had
already occurred. Cohen, 2009 WL 5612345, at *7 (citing Chase v. Morgan Guarantee Trust Co., 590 F. Supp.
1137, 1139 n.3 (S.D.N.Y. 1984)). There is no such allegation here. Cohen also predated the New York Court of
Appeal’s holding in Greenberg, Trager, which definitively ruled on the type of statements alleged here. Cf.
Greenberg, Trager, 958 N.E.2d at 88 (Pigott, J., dissenting) (citing Cohen in dissent from majority’s holding).
12
on such representations is unreasonable as a matter of law. Cf. Stokes v. Lusker, No. 08 Civ.
3667 (CM), 2009 WL 612336, at *6 (S.D.N.Y. Mar. 4, 2009) (“The dismissal is with prejudice
because there is no way that the plaintiff could re-plead to demonstrate reasonable reliance on
the defendants’ alleged misrepresentations and omissions.”), aff’d, 425 F. App’x 18 (2d Cir.
2011). 15
4. Fraudulent Concealment
Plaintiff’s final claim against Citibank alleges that Citibank “had knowledge of multiple
instances of forged or counterfeit instruments, yet intentionally concealed said information
necessary to protect the public in order to maintain a positive corporate image and for other
purposes.” Compl. ¶ 65. Although the Complaint does not specify a specific theory of liability,
and Plaintiff’s brief in opposition does not even refer to this claim, the allegations most closely
resemble those of fraudulent concealment. To state a claim for fraudulent concealment under
New York law, a plaintiff must allege that there was “(1) a duty to disclose material facts; (2)
knowledge of material facts by a party bound to make such disclosures; (3) failure to discharge a
duty to disclose; (4) scienter; (5) reliance; and (6) damages.” De Sole v. Knoedler Gallery, LLC,
15
To the extent Plaintiff intended to allege negligent misrepresentation, the claim fails for an independent reason:
the lack of a special relationship. Among other elements, a claim for negligent misrepresentation under New York
law requires proof of “the existence of a special or privity-like relationship imposing a duty on the defendant to
impart correct information to the plaintiff.” Freyberg, 2016 WL 2605209, at *11 (citation omitted). No such
special relationship is alleged here, because there is no automatic fiduciary or special relationship based on a garden
variety borrower-lender relationship between a bank and its depositor. See id.; see also Banque Arabe et
Internationale D’Investissement v. Maryland Nat’l Bank, 57 F.3d 146, 158 (2d Cir. 1995) (“Generally, banking
relationships are not viewed as special relationships giving rise to a heightened duty of care.”) (citations omitted);
Jurgensen v. Felix Storch, Inc., No. 12 Civ. 1201 (KBF), 2012 WL 2354247, at *9–10 (S.D.N.Y. June 14, 2012)
(dismissing negligent misrepresentation claim with prejudice for inability to plead special relationship).
Furthermore, in the section discussing misrepresentation, Plaintiff’s brief makes a passing reference to the Expedited
Funds Availability Act (“EFAA”), 12 U.S.C. § 4001 et seq. Pl.’s Opp’n at 14. Reference to the EFAA, however,
does not save Plaintiff’s misrepresentation claim from dismissal. “Courts have uniformly held that the EFAA does
not make banks liable for their customers’ checks….The language of the statute is clear and creates no exception for
cases in which the bank makes inaccurate assurances or outright misrepresentations regarding the account.”
Freyberg, 2016 WL 2605209, at *12 (citations and internal quotation marks omitted).
13
No. 12 Civ. 2313 (PGG), 2015 WL 5773847, at *15 (Sept. 30, 2015) (citation and internal
quotation marks omitted); see also Aetna Cas. & Sur. Co. v. Aniero Concrete Co., Inc., 404 F.3d
566, 582 (2d Cir. 2005).
Fraudulent concealment claims must meet the pleading standards set out in Rule 9(b) of
the Federal Rules of Civil Procedure. See Hinds Cty., Miss. v. Wachovia Bank N.A., 620 F.
Supp. 2d 499, 520 (S.D.N.Y. 2009) (“A claim of fraudulent concealment must be pled with
particularity, in accordance with the heightened pleading standards of Fed. R. Civ. P. 9(b).”)
(citation omitted). To satisfy Rule 9(b), Plaintiff “must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). “At the pleading stage, under Rule 9(b), a
fraud plaintiff may establish a ‘strong inference’ of scienter, among other ways, ‘by alleging
facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.’”
Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 177 (2d Cir. 2015)
(quoting Lerner v. Fleet Bank, N.A., 459 F.3d 273, 291 (2d Cir. 2006)).
The Complaint here falls well short of the Rule 9(b) pleading standard. First, the
Complaint does not allege any facts to support an inference that Citibank had a duty to disclose
knowledge of past instances of forgery to Plaintiff. Cf. Brass v. Am. Film Techs., Inc., 987 F.2d
142, 150 (2d Cir. 1993) (“New York recognizes a duty to disclose by a party to a business
transaction in three situations: first, where the party has made a partial or ambiguous
statement…; second, when the parties stand in a fiduciary or confidential relationship with each
other…; and third, where one party possesses superior knowledge, not readily available to the
other, and knows that the other is acting on the basis of mistaken knowledge.”) (citations and
internal quotation marks omitted). Second, Plaintiff does not come close to alleging with
particularity the “prior instances of unauthorized signatures” or Plaintiff’s knowledge thereof,
14
merely stating in a conclusory fashion the existence of an “epidemic of forged and counterfeit
PNC bank instruments.” Compl. ¶¶ 22, 25. Third, apart from a passing reference to Citibank’s
incentive “to maintain a positive corporate image,” id. at ¶ 65, the allegations of scienter are
generic and conclusory, and do not give rise to the “strong inference” required under Rule 9(b).
Complaints dismissed under Rule 9(b) are “almost always” dismissed with leave to
amend, particularly when a plaintiff has not had a chance to replead with particularity. See City
of Sterling Heights Police & Fire Ret. Sys. v. Vodafone Grp. Pub. Co., No. 07 Civ. 9921 (PKC),
2010 WL 309009, at *2 (S.D.N.Y. Jan. 22, 2010) (quoting Luce v. Edelstein, 802 F.2d 49, 56 (2d
Cir. 1986)). The Complaint’s ninth cause of action is thus dismissed without prejudice.
B. Claims Against PNC Bank
Plaintiff asserts two claims against PNC Bank. The first alleges that “PNC’s failure to
implement effective mechanisms to monitor the whereabouts and status of its instruments or
criminal acts of its employees” meant that “PNC enabled, aided and ab[e]tted, contributed to, or
caused the usage by a third party of a missing or stolen PNC Cashier’s Check which the plaintiff
deposited into its IOLA account at Citi.” Compl. ¶¶ 47–48. The second alleges that “PNC by its
negligence caused or substantially contributed to the making of an unauthorized signature on its
forged PNC Cashier’s Check,” because PNC Bank had previously become aware of “several
instances” of “missing, stolen or forged” checks, “accepted these incidents as normal risks
during the course of doing its business,” and “failed to adopt any reasonable and effective
procedures for protecting the plaintiff and the public” from such forgeries. See id. at ¶¶ 52–61.
This second claim, in addition to negligence, arguably sounds in fraudulent concealment, as well.
See id. at ¶ 60 (“But for defendant PNC’s negligence and intention to conceal the information
that is necessary to protect its customers, holders in due course and the public, the plaintiff
15
suffered damages….”) (emphasis added). Regardless, neither claim survives PNC Bank’s
motion to dismiss.
To the extent it is not entirely duplicative of the more encompassing second claim against
PNC Bank, the first claim appears to be for aiding and abetting. Compare id. at ¶¶ 45–49, with
id. at ¶¶ 50–61. Under New York law, to state a claim for aiding and abetting, Plaintiff must
“establish the existence of a violation by the primary wrongdoer, knowledge of this violation by
the aider and abettor, and proof that the aider and abettor substantially assisted in the primary
wrong.” Renner v. Chase Manhattan Bank, N.A., 85 F. App’x 782, 784 (2d Cir. 2004) (citing
Armstrong v. McAlpin, 699 F.2d 79, 91 (2d Cir. 1983)). “New York courts require that the
alleged abettor have actual knowledge of the primary wrong.” Id. (citing Wight v. Bankamerica
Corp., 219 F.3d 79, 91 (2d Cir. 2000)). “[U]under New York law, a complaint adequately
alleges the knowledge element of an aiding and abetting claim when it pleads not…constructive
knowledge, but actual knowledge of the fraud as discerned from the surrounding circumstances.”
Krys v. Pigott, 749 F.3d 117, 127 (2d Cir. 2014) (citation and internal quotation marks omitted).
“A failure to allege sufficient facts to support the inference that the alleged aider and abettor had
actual knowledge of the fraudulent scheme warrants dismissal of the aiding and abetting claim at
the pleading stage.” Id. (citations omitted).
The Complaint here does not contain allegations sufficient to sustain a claim of aiding
and abetting because Plaintiff does not allege any facts suggesting that PNC Bank knew the
Check in this case was counterfeit and being used for fraud. At most, the Complaint alleges that
PNC Bank knew of previous instances of counterfeit and forged checks using the same or similar
routing numbers and signatures. Compl. ¶¶ 21–27. This falls well short of alleging that PNC
Bank actually knew that the fraud in this case was taking place. Cf. Lerner, 459 F.3d at 292–93
16
(dismissing claim for aiding and abetting fraud where “alleged facts do not give rise to the
‘strong inference,’ required by Federal Rule of Civil Procedure 9(b), of actual knowledge of []
outright looting of client funds.”); In re Agape Litig., 773 F. Supp. 2d 298, 312–13 (E.D.N.Y.
2011) (dismissing aiding and abetting claim where allegations did not create inference that
defendant “had actual knowledge of the underlying fraudulent scheme”).
Furthermore, despite arguments specifically challenging the aiding-and-abetting claim in
PNC Bank’s moving brief, 16 Plaintiff does not discuss nor even refer to aiding and abetting in its
opposition brief. The Complaint’s sixth cause of action is thus dismissed as abandoned. See,
e.g., Harborview Value Masterfund, L.P. v. Freeline Sports, Inc., No. 11 Civ. 1638 (CM), 2012
WL 612358, at *14 (S.D.N.Y. Feb. 23, 2012) (“‘This Court may, and generally will, deem a
claim abandoned when a plaintiff fails to respond to a defendant’s arguments that the claim
should be dismissed.’”) (quoting Upton v. County of Orange, NY, 315 F. Supp. 2d 434, 446
(S.D.N.Y. 2004)). Dismissal is with prejudice. See, e.g., Marks v. Nat’l Commc’ns Ass’n, Inc.,
72 F. Supp. 2d 322, 328 n.6 (S.D.N.Y. 1999) (dismissing abandoned claims with prejudice).
The second claim against PNC Bank primarily sounds in negligence. Under the UCC,
PNC Bank is considered a “payor bank.” See UCC § 4-105(b) (defining “payor bank” as “a bank
by which an item is payable as drawn or accepted”). In a negligence action under New York
law, “[t]he duty of a payor bank…to a non-customer depositor of a check is derived solely from
UCC 4-301 and 4-302.” Greenberg, Trager, 958 N.E.2d at 83. Section 4-301(1) states that:
Where an authorized settlement for a demand item…received by a payor bank
otherwise than for immediate payment over the counter has been made before
midnight of the banking day of receipt the payor bank may revoke the settlement
and recover any payment if before it has made final payment…and before its
midnight deadline it (a) returns the item; or (b) sends written notice of dishonor or
nonpayment if the item is held for protest or is otherwise unavailable for return.
16
Defendant PNC Bank N.A.’s Memorandum of Law (Doc. 26) at 11–13.
17
§ 4-301(1) (emphasis added). In other words, section 4-302(a) further explains that a payor bank
will be liable for the amount of a check, even if counterfeit, if it “retains the [check] beyond
midnight of the banking day of receipt without settling for it or…does not pay or return the
[check] or send notice of dishonor until after its midnight deadline.” § 4-302(a). 17 In sum,
because Plaintiff was not a PNC Bank customer, “the only duty” that PNC Bank owed Plaintiff
“was to pay the check, return the check or send a notice of dishonor of the check by midnight of
the next banking day after receiving the check.” Greenberg, Trager, 958 N.E.2d at 83.
Here, PNC appears to have timely returned the Check, see Compl., Ex. 5 (dating return of
Check as June 20, 2013), and regardless, Plaintiff nowhere alleges that PNC Bank failed to do
so. Accordingly, the negligence claim must be dismissed. See Greenberg, Trager, 958 N.E.2d
at 83 (dismissing negligence claim against payor bank because plaintiff failed to allege that
midnight deadline was broken); Kevin Kerveng Tung, P.C. v. JP Morgan Chase & Co., 105
A.D.3d 709, 709–11 (N.Y. App. Div. 2013) (same, where plaintiff alleged only that payor bank
was negligent for failing to safeguard its checks and failing to inform the public that counterfeit
checks bearing payor bank’s name were being circulated). 18 The negligence claim is dismissed
17
The “midnight deadline” is defined as “midnight on [the bank’s] next banking day following the banking day on
which [the bank] receives the relevant item or notice or from which the time for taking action commences to run,
whichever is later.” UCC § 4-104(h). Section 4-302(a) operates slightly differently when the payor bank is also the
depository bank, but that is not the case here.
18
In its brief, Plaintiff relies on two UCC provisions that are inapplicable here. See Pl.’s Opp’n at 18–19. The first
is section 4-201, which applies to collecting banks, not payor banks. Plaintiff’s reliance on section 4-201’s
reference to a bank’s status as “agent” is also unavailing, because the New York Court of Appeals has already
confirmed that the purpose of the term “agent” in that provision is to keep the risk of loss with the depositor, not the
collecting bank. See Greenberg, Trager, 958 N.E.2d at 84–85. The second is section 3-406, which provides a
defense for payor banks, not a duty owed to non-customers. See Kevin Kerveng Tung, P.C. v. JP Morgan Chase &
Co., 34 Misc. 3d 1209(A), 943 N.Y.S.2d 792, 2011 WL 6989895, at *4 (N.Y. Sup. Ct. 2011) (“Plaintiff’s reliance
on UCC 3-406 is also unavailing, this provides a negligence defense to a payor, under certain circumstances, where
payment is made on an altered or forged instrument. Here, [payor bank] made no payment on the subject check.”)
(citations omitted), aff’d, 105 A.D.3d 709 (N.Y. App. Div. 2013); see also Weafri Well Servs., Co. v. Fleet Bank,
Nat’l Ass’n, No. 98 Civ. 888 (JSM), 2000 WL 1472724, at *4 (S.D.N.Y. Sept. 29, 2000) (“Under U.C.C. § 3–406, a
customer is precluded from asserting a forged signature against a bank where the bank establishes that (1) the
customer’s negligence substantially contributed to the making of the forgery, and (2) the bank itself acted in good
faith and in accordance with reasonable commercial standards.”). Plaintiff also argues, as a “matter of social
18
with prejudice, because an amended complaint could not state a claim premised on a duty PNC
Bank owed to Plaintiff beyond the bank’s duty to abide by the UCC’s midnight deadline. See
Tzaras v. Evergreen Int’l Spot Trading, Inc., No. 01 Civ. 10726 (LAP), 2003 WL 470611, at *6
(S.D.N.Y. Feb. 25, 2003) (dismissing negligence claim without leave to amend because bank did
not owe duty of care to non-customer).
To the extent the Complaint is read as asserting a fraudulent concealment claim, that
claim is also dismissed with prejudice, because Plaintiff “failed to allege the existence of a
fiduciary or confidential relationship between the parties,” nor could an amended complaint do
so as between a payor bank and a non-customer under these circumstances. See Tung, 105
A.D.3d at 711 (affirming dismissal of fraudulent concealment claim against payor bank).
IV.
CONCLUSION
For the reasons stated above, Defendants’ motion to dismiss is GRANTED and Plaintiff’s
Complaint is dismissed. As discussed, Plaintiff is granted leave to amend only the claims for
breach of contract and fraudulent concealment against Citibank (first and ninth causes of action).
Plaintiff’s Amended Complaint should be filed, if at all, on or before June 10, 2016.
The Clerk of the Court is respectfully directed (1) to terminate the motions, Docs. 25, 27,
and (2) to terminate PNC Bank as a party to the case.
It is SO ORDERED.
Dated:
May 17, 2016
New York, New York
_____________________
Edgardo Ramos, U.S.D.J.
policy,” that PNC Bank should be held to a “higher degree of responsibility” vis-à-vis the public at large. Pl.’s
Opp’n at 18–19. But the two cases Plaintiff cites do not stand for such a proposition—they merely discuss situations
in which “special relationships” give rise to extra-contractual, affirmative duties of care between parties to a
contract. See Apple Records, Inc. v. Capitol Records, Inc., 137 A.D.2d 50 (N.Y. App. Div. 1988); Charles v.
Onondaga Cmty. Coll., 69 A.D.2d 144 (N.Y. App. Div. 1979). Plaintiff’s policy argument is thus rejected, as well.
19
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