Chantilly Auto Body, Inc. v. Truist Bank et al

Filing 110

MEMORANDUM OPINION AND ORDER Granting Truist's Motion, [Doc. No. 74] and Denying Chantilly's Motion, [Doc. No. 94]. Signed by District Judge Anthony J Trenga on 3/12/2025. (see order for details)(dvanm)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Alexandria Division
CHANTILLY AUTO BODY, INC.,

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Plaintiff,
v.
TRUIST BANK, N.A., et al.,
Defendants.

Civil Action No. 1:24-cv-1337-AJT-LRV

MEMORANDUM OPINION AND ORDER
Plaintiff Chantilly Auto Body, Inc. (“Chantilly”) filed this civil action against Truist Bank,
N.A. (“Truist”) alleging violations of the Virginia Uniform Commercial Code (“Virginia UCC”)
and constructive fraud.1 [Doc. No. 1-1]. Before the Court is Chantilly and Truist’s cross Motions
for Summary Judgment, [Doc. Nos. 74, 94] (the “Motions”), which the Court took under
advisement after a hearing on March 7, 2025.2 Upon consideration of the Motion, the memoranda
in support thereof and in opposition thereto, and for the reasons stated below, Truist’s Motion for
Summary Judgment, [Doc. No. 74], is GRANTED, and Chantilly’s Motion for Summary
Judgement, [Doc. No. 94], is DENIED.
I. BACKGROUND
The following facts are undisputed by the parties unless otherwise noted:

1

In its Complaint, Chantilly also filed claims for fraud and constructive fraud claims against Evolve Bancorp, Inc.
(“Evolve”) and Paystand, Inc. (“Paystand”). The Court granted Evolve’s motion to dismiss the claims against it, [Doc.
No. 31], and Chantilly voluntarily dismissed its claims against Paystand. [Doc. Nos. 51, 52].
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Chantilly consents to dismissal of Count III for constructive fraud against Truist but opposes dismissal of Count I
under the Virginia UCC. See [Doc. No. 82] at 1 n.1.

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Chantilly is a for-profit corporation that provides automobile repair services to customers
in Northern Virginia. [Doc. No. 82] at 8. At all times material to this litigation, Chantilly
maintained a business checking account at Truist (the “Account”). Id. Ryan Roberts is an owner,
corporate vice president, and general manager of Chantilly, and in these roles, he can initiate bank
transactions from the Account on Chantilly’s behalf. Id.
From September 2023 to November 2023, someone impersonating Roberts initiated twenty
unauthorized Automatic Clearing House (“ACH”) transfers from the Account to Paystand, [Doc.
No. 82-2]; [Doc. No. 82] at 9, a financial services company that provides a business-to-business
payment platform.3 [Doc. No. 82] at 9. The individual impersonating Roberts provided Paystand
with Roberts’ email address and the Account’s routing and account numbers, all of which appeared
on a series of authorization forms. See id. at 8; see also [Doc. No. 82-2]. As a result of the twenty
unauthorized ACH transactions, Truist removed $172,934.83 from the Account and transferred
those funds to Evolve, which deposited those amounts into Paystand’s bank account at Evolve.
[Doc. No. 82] at 9.
On January 6, 2023, Chantilly provided Truist with five unauthorized ACH return forms
in support of its claim that the twenty ACH debit transactions were unauthorized.4 Id. at 10. Truist
reviewed the authorization forms for the twenty ACH transfers, and through a letter dated January
31, 2023, denied Chantilly’s claim for reimbursement because Truist concluded that the twenty
ACH debit transfers were authorized. Id. In support of its Motion, Chantilly also asserts that Truist

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Chantilly had no prior business relationship with Paystand. [Doc. No. 82-1] at 41:14-42:3, 53:8-55:11, 74:19-77:6.
Chantilly had already reported that the transactions were unauthorized to Truist on an unknown date in December
2022. See [Doc. No. 82-3] at 26:20–27:1.
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did not have any algorithm, procedural process, or method that monitors for fraudulent ACH
transaction requests. [Doc. No. 82-3] at 26:10-15.
II. STANDARD OF REVIEW
Rule 56 permits a court to enter summary judgment where “the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” FED. R. CIV. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The party
moving for summary judgment bears the burden of showing that no genuine dispute of material
fact exists. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). To serve as a bar to
summary judgment, facts must be “material,” which means that the disputed fact “might affect the
outcome of the suit under the governing law.” Id. The parties agree that there are no genuine issues
of material fact and that this action can be adjudicated by way of summary judgment.
III. DISCUSSION
Under the Virginia UCC, a bank generally bears the risk of loss associated with fraudulent
transactions, with two statutory exceptions that do not appear to apply in this case.5 However,
Article 4A of the Virginia UCC only applies to “credit transactions,” Va. Code § 8.4A-104, Off.
Cmt. 4, and Chantilly argues that the twenty unauthorized ACH transactions were credit
transactions, [Doc. No. 82] at 12; [Doc. No. 95] at 9, whereas Truist argues that the transactions
were debit transactions that are not covered by Article 4A of the Virginia UCC. [Doc. No. 81] at
1; [Doc. No. 99] at 1-2.

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The exceptions to bank liability set forth in Virginia Code § 8.4A-202 and 8.4A-203 apply if a bank has adequate
security procedures in place to prevent and detect fraudulent transactions. The undisputed evidence is that Truist did
not have any security procedures in place, see [Doc. No. 82-3] at 26:10-15, and Truist would therefore bear the risk
of loss under Article 4A if the Virginia UCC applied to this matter.

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A credit transaction arises where “the instruction to pay is given by the individual making
payment.” Va. Code § 8.4A-104, Off. Cmt. 4. Conversely, a debit transaction exists when “the
instruction to pay is given by the person receiving payment.” Id. Generally, before a debit
transaction is initiated by the person receiving payment, “the party being charged does have to
authorize the transaction” because the payor is not requesting the transaction. Keppler v. RBS
Citizens N.A., No. 12–10768–FDS., 2014 WL 2892352, at *8 (D. Mass. June 24, 2014) (citing
NACHA Rule 2.1.36) (emphasis added). Put simply, a credit transaction arises where the payment
instruction is submitted by a payor—or someone impersonating the payor—directly to the payor’s
bank for processing. Conversely, a debit transaction arises where the payee—with authorization
of the payor—submits the payment instruction to the payee’s bank, which then removes the money
from the payor’s bank account.
Based on the plain language of the Virginia UCC, the “sender” is the person “giving the
instruction to the receiving bank,” Va. Code § 8.4A-103(a)(5), and the “receiving bank” is “the
bank to which the sender’s instruction is addressed.” Id. § 8.4A-103(a)(4). Based on these
governing Virginia UCC definitions, Truist argues that the ACH transactions are debit transactions
because Paystand was the “sender” of the payment instructions, that is, the party that submitted
the payment instructions to the “receiving bank,” in this case Evolve, which then initiated the ACH
transactions, [Doc. No. 81] at 7-9. Therefore, according to Truist, because the party receiving the
payment from Truist was Paystand through its account at Evolve, was also the party submitting
the payment instruction, these ACH transactions were debit transactions.

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ACH debit transfers are governed by the NACHA Rules and Operating Guidelines, which the parties concede apply
to these transactions. See [Doc. No. 81] at 10 n.5.

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On the other hand, Chantilly argues that it was the “sender” of the payment instructions
because the person impersonating Roberts, who originated the payment instructions ostensibly
acting on behalf of Chantilly, authorized Paystand to submit the payment instructions, and the
payment instructions should therefore be deemed to have come from Chantilly, making the
transaction a credit transaction entitled to Article 4A’s protections. [Doc. No. 82] at 12. In support
of its position, Chantilly cites to various cases which found a credit transaction but each of those
relied upon cases involve a fraudulent ACH transaction that was initiated by the payor’s bank
directly in response to an instruction ostensibly on behalf of the payor. See Choice Escrow & Land
Title, LLC v. BancorpSouth Bank, 754 F.3d 611, 613 (8th Cir. 2014) (“This litigation began after
an unknown third party accessed [plaintiff] Choice's online bank account at BancorpSouth and
instructed BancorpSouth to ‘wire’ . . . money from Choice's account to a bank account in the
Republic of Cypress.”); Patco Constr. Co. v. People’s United Bank, 684 F.3d 197, 204 (1st Cir.
2012) (explaining the case arose because “Ocean Bank . . . authorized six apparently fraudulent
withdrawals, totaling $588,851.26, from an account held by Patco Construction Company, after
the perpetrators correctly supplied Patco's customized answers to security questions”); Levitz v.
New York Comm. Bancorp., Inc., No. 63691/2017, 2019 WL 13171540, at *3 (N.Y. Sup. Ct. 2019)
(discussing that the fraudulent request for payment was sent to the plaintiff’s bank by the imposter,
and the plaintiff’s bank initiated the transaction); Grabowski v. Bank of Boston, 997 F. Supp. 111,
115, 122 (D. Mass. Aug. 7, 1997) (determining that a transaction was a credit transaction because
the power of attorney over the bank account transferred the funds to another bank account in his
name from the bank account he had access to). None of these cases address a situation where a
fraudulent transfer request was submitted to a payee’s bank, as is the issue here.

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Here, the individual impersonating Roberts signed authorization forms on Paystand
letterhead which “authorize[d] the above business [Paystand] to debit my [Chantilly’s] bank
account as outlined in the payment terms of this agreement.” [Doc. No. 82-2]. If Chantilly were
the “sender” under the UCC, these authorization forms would need to have been given to its bank,
i.e., Truist, to begin the ACH transactions, see Va. Code § 8.4A-103(a)(5); but instead, Paystand,
as the “payee” submitted the request for payment to its bank, Evolve, the “receiving bank,” which
then began the ACH transaction. Under these undisputed facts, Paystand “g[ave] the instruction to
the receiving bank,” and Paystand must be deemed the “sender” under the Virginia UCC, see id.
§ 8.4A-103(a)(5). Accordingly, because the entity receiving payment, i.e., Paystand, was also the
party giving the instruction to pay, the transactions are debit transactions that fall outside of Article
4A’s scope. See Va. Code § 8.4A-104, Off. Cmt. 4.7
IV. CONCLUSION
For the reasons stated above, the Court finds and concludes as a matter of law that the
transactions at issue were debit transactions, not credit transactions, and therefore not within the
scope of Virginia Code § 8.4A-104. Accordingly, it is hereby
ORDERED that Truist’s Motion, [Doc. No. 74], be, and the same hereby is, GRANTED;
and it is further
ORDERED that Chantilly’s Motion, [Doc. No. 94], be, and the same hereby is, DENIED.

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Other courts have reached the same conclusion upon similar facts. For example, in Azure College, Inc. v. Bank of
American, N.A, 629 F. Supp. 3d 1200 (S.D. Fla. 2022), someone impersonating the president of Pistus, a third-party
company that offered payroll and other services, authorized Pistus to initiate six ACH transactions through its bank,
Valley National, which caused money to be debited from plaintiff’s bank account ostensibly to pay for Pistus’ services.
Id. at 1203. The court determined that because the plaintiff “played no part in initiating the transactions,” the “sender”
was either Pistus or Valley National. Id. at 1205. Accordingly, the Court found that because the sender was also the
individual receiving the payment, the transaction was a debit transaction that fell outside of Article 4A of the Florida
UCC. Id. at 1206. Similarly here, Paystand instructed its bank to initiate the ACH payment, just as Pistus did in Azure.

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The Clerk is directed, pursuant to Federal Rule of Civil Procedure 58, to enter final
judgment in favor of Defendants and to send a copy of this Order to all counsel of record.

Alexandria, Virginia
March 12, 2025

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