AMPLITECH GROUP INC v. TRUIST BANK (2024)

ORDER ON DEFENDANT'S MOTION TO DISMISS

THIS CAUSE comes before the Court upon Defendant's Motion to Dismiss the Amended Complaint, filed on April 2, 2024. (DE 12). The Motion is fully briefed. (DE 20; DE 23). For the reasons set forth below, the Motion is granted.

BACKGROUND

Plaintiff AmpliTech Group, Inc. filed this diversity action on February 28, 2024, alleging that Defendant violated Florida Statute 670.207. (DE 1). In its three-page Amended Complaint Plaintiff brings one count against Defendant Truist Bank. (DE 8). Plaintiff is a New York corporation that as part of its business sends wire transfers to vendors for goods ordered and received. (Id. at ¶6). Defendant is a national bank organized under the laws of North Carolina. (Id. at 4).

Between October 26, 2023, and November 1, 2023, Plaintiff caused three wire transfers to a bank account owned by a third party and maintained by Defendant Truist Bank. (Id. at ¶6). Plaintiff believed that the wires were to pay a vendor for goods ordered and received, however Plaintiff states that its email account had been compromised by a “fraudster.” (Id.). Instead of sending the wire transfers to the vendor, Plaintiff wired the amounts to the “fraudster's” account, held with Defendant Truist. Each wire indicated the name of the beneficiary as the true vendor but contained the fraudster's account number. (Id. at ¶7). Therefore, according to Plaintiff, the name on the beneficiary's account did not match the account number. (Id. at ¶8). The total amount wired was $535,515.95. (Id. at ¶7)

Plaintiff brings this action seeking to recover the total amount wired, interest, costs, and attorney's fees. Plaintiff alleges that an employee of Defendant knew of the discrepancies between the name of the account holder and the account number on the wire transfers, and in violation of Florida Statute 670.207, credited the “fraudster's account.” (Id. at ¶9). Defendant filed the present Motion to Dismiss, arguing first that Plaintiff does not have a cause of action and second that Plaintiff has not plausibly alleged that Defendant had actual knowledge of the discrepancy between account number and name. (DE 12).

LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) challenges the legal sufficiency of the allegations in a complaint. See Fed. R. Civ. P. 12(b)(6). In assessing legal sufficiency, the Court is bound to apply the pleading standard articulated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). That is, the complaint “must ․ contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face,’ ” Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1289 (11th Cir. 2010) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). “Dismissal is therefore permitted when on the basis of a dispositive issue of law, no construction of the factual allegations will support the cause of action.” Glover v. Liggett Grp., Inc., 459 F.3d 1304, 1308 (11th Cir. 2006) (internal quotations omitted) (citing Marshall Cty. Bd. of Educ. v. Marshall Cty. Gas Dist., 992 F.2d 1171, 1174 (11th Cir. 1993)).

When reviewing a motion to dismiss, a court must construe the complaint in the light most favorable to the plaintiff and assume the truth of the plaintiff's factual allegations. See Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007); Christopher v. Harbury, 536 U.S. 403, 406, 122 S.Ct. 2179, 153 L.Ed.2d 413 (2002); Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1369 (11th Cir. 1997). However, pleadings that “are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations,” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937; see also Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1260 (11th Cir. 2009) (stating that an unwarranted deduction of fact is not considered true for purposes of determining whether a claim is legally sufficient). “[A] formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citation omitted). “Factual allegations must be enough to raise [the plaintiff's] right to relief above the speculative level.” Id.

DISCUSSION

Florida codified Article 4A of the Uniform Commercial Code (“UCC”), which deals with funds transfers. The dispositive provision of Article 4, which is now Fla. Stat. § 670.207, “describes the rights, duties, and obligations of parties when a funds transfer ‘misdescribes’ the beneficiary.” Peter E. Shapiro, P.A. v. Wells Fargo Bank N.A., 795 F. App'x 741, 746 (11th Cir. 2019). The statute defines a funds transfer as a “series of transactions, beginning with the originator's payment order” and ends “by acceptance by the beneficiary's bank of a payment order.” See Fla. Stat § 670.104(1). The UCC, and Florida law having adopted Article 4, defines specifically each of the parties necessary to a funds transfer. The “originator” is defined as “the sender of the first payment order in a funds transfer” and the “originator's bank is the receiving bank to which the payment order of the originator is issued if the originator is not a bank.” Id. at (3)-(4). Plaintiff's facts, as alleged, suggest that Plaintiff is the “originator” of the funds transfer. Plaintiff does not allege any facts about an originator bank, but as alleged, it is clear that Plaintiff is not itself a bank. Therefore, the “originator bank” would be an entity separate from Plaintiff, and Plaintiff only states that it “caused three wires” to be sent. (DE 8 at ¶6).

Section (2) of Fla. Stat. § 670.207 describes the duties of the parties in a funds transfer if there is a conflict on the wire between the name and account number of the intended beneficiary. Plaintiff cites to the following provisions as having been violated by Defendant:

(2) 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, the following rules apply:

(a) Except as otherwise provided in subsection (3), 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.

(b) If the beneficiary's bank pays the person identified by name or knows that the name and number identify different persons, no person has rights as beneficiary except the person paid by the beneficiary's bank if that person was entitled to receive payment from the originator of the funds transfer. If no person has rights as beneficiary, acceptance of the order cannot occur.

Fla. Stat § 670.207(2). If the beneficiary's bank, here Defendant, pays the person identified by name or knows that the name and account number don't match, then “no person has rights as beneficiary” and “acceptance of that order cannot occur.” Id. at (2)(b). Here, Plaintiff alleges that Defendant Truist “accepted the order” by depositing the funds into the fraudster's account, despite the mismatched name and account number and in doing so, Truist violated this law, according to Plaintiff.

Section 207(3)(b) describes what happens if the originator, when it is not a bank, can prove that the person identified by the account number was not entitled to receive payment.

If the originator is not a bank and proves that the person identified by number was not entitled to receive payment from the originator, the originator is not obliged to pay its order unless the originator's bank proves that the originator, before acceptance of the originator's order, had notice that payment of a payment order issued by the originator might be made by the beneficiary's bank on the basis of an identifying or bank account number even if it identifies a person different from the named beneficiary. Proof of notice may be made by any admissible evidence. The originator's bank satisfies the burden of proof if it proves that the originator, before the payment order was accepted, signed a writing stating the information to which the notice relates.

Fla. Stat § 670.207(3)(b). This subsection establishes that the originator may not be obligated to pay if it can prove that Defendant Truist wrongly accepted the funds – Plaintiff is not required to pay the originator bank unless the originator bank can prove that the originator had notice of the error. Section 402 of the codified UCC provides the remedies for violations of Section 207, or what happens when a sender of a payment order pays an order it was not obliged to pay. Specifically, in what is called the “money back guarantee,” “if the sender of a payment order pays the order and was not obliged to pay all or part of the amount paid, the bank receiving payment is obliged to refund the payment to the extent the sender was not obliged to pay.” Fla. Stat. 607.402(d). A sender of a payment order “means the person giving the instruction to the receiving bank.” Fla. Stat. 670.103(1)(e).

Defendant now argues that because Plaintiff is the originator and not the originator bank, it is not the sender of the payment order that Defendant received. Defendant concludes therefore that Plaintiff has no right to recover from Defendant as that right lies with the true sender of the wire transfer to Defendant, Plaintiff's bank. In a factual scenario such as this, whether Plaintiff, as the originator, has a cause of action under Fla. Stat § 670.207 against Defendant, the beneficiary's bank, has not been decided by the Eleventh Circuit. The Parties have not provided, and the Court has not found, any precedent from the Eleventh Circuit or from the Florida Supreme Court analyzing whether the statutes create a cause of action between these specific parties in a fund transfer. In the absence of any case law in Florida, “where a Florida statute is patterned after a statute of another state, we may look to the judicial interpretation of the other state as persuasive authority in interpreting the Florida statute.” United Auto. Ins. Co. v. Rivero Diagnostic Ctr., Inc., 327 So. 3d 376, 380 (Fla. Dist. Ct. App. 2021).

Accordingly, I look to recent decisions out of the Seventh Circuit and Second Circuit, which have considered this issue and held that no cause of action exists. On June 28, 2024, the Seventh Circuit affirmed in part a district court's order dismissing Section 207 claims for lack of privity between the parties. Approved Mortg. Corp. v. Truist Bank, 106 F.4th 582, 585 (7th Cir. 2024). In Approved Mortg. Corp., plaintiff (a non-bank) initiated two wire transfers, the instructions of which were altered by a third party. Truist Bank, the defendant and the wire transfer beneficiary's bank, received the transfers from plaintiff's bank and deposited the funds into one of its accounts. The Seventh Circuit affirmed that plaintiff did not have a cause of action against Truist Bank and found that, “a claim alleging that acceptance was barred under Section 207 must look to Section 402 for its remedy, and under Section 402(d), a sender is only entitled to a refund from its receiving bank.” Id. at 589. Inputting our Parties into this factual scenario, Plaintiff “sent” the money to its own bank with instructions for them to continue to transfer it to Defendant. In that specific transaction, Plaintiff was the sender and Plaintiff's bank was the receiving bank. Plaintiff's bank then sent the money to Defendant Truist. In that second transaction, Plaintiff's bank was the sender and Defendant Truist was the receiving bank. Therefore, according to the Seventh Circuit, because a sender is only entitled to a refund from its receiving bank, Plaintiff can only seek a refund from its bank. This is because, as explained by the Seventh Circuit, Article 4 of the UCC provided a framework for facilitating complicated transactions between sophisticated parties and the same framework requires that transfers be “orderly unwound.” Id. at 592. Under Section 402(d), parties can only recover money from the direct entity to which they sent the money. If any party in the transaction makes the claim that Section 207 bars acceptance of the wire, then any sender in the series of transactions can only recover from the receiving bank of their transaction. Applying this limitation on recovery to the language of Fla. Stat. § 670.207, if the originator claims that the beneficiary bank improperly accepted a payment order, the originator can only recover from the originator's bank, the receiving bank of its transfer. In reaching this conclusion, the Seventh Circuit affirmed that Section 402(d) includes a privity requirement and relied on the reasoning of the Second Circuit in Grain Traders. Id. at 591.

Grain Traders v. Citibank concerned a refund sought from an intermediary bank, and the Second Circuit discussed the burdens that the lack of privity requirements would have on the intricate system established by the UCC. Grain Traders, Inc. v. Citibank, N.A., 160 F.3d 97, 100 (2d Cir. 1998). The Second Circuit held that Section 402 “imposes a privity requirement such that a sender seeking a refund for an uncompleted funds transfer may look only to the receiving bank to whom it issued a payment order and payment.” Id. at 106. While the statute does not explicitly include a privity requirement, the Second Circuit reasoned that a plain reading of the statute's text and “sound policy reasons” support “limiting the right to seek a refund to the sender who directly paid the receiving bank.” Id. at 102. The Appellate Court also found that the official comments to Article 4 of the UCC and the UCC's primary goals of “certainty and finality” supported this finding. The Second Circuit concluded “[t]o allow a party to, in effect, skip over the bank with which it dealt directly, and go to the next bank in the chain would result in uncertainty as to rights and liabilities, would create a risk of multiple or inconsistent liabilities, and would require intermediary banks to investigate the financial circumstances and various legal relations of the other parties to the transfer.” Id. Applying the logic of Grain Traders, the Seventh Circuit held that the Defendant bank was only obligated to refund the bank that originated the wire transfer, not the individual party that instructed the originator bank. Approved Mortg. Corp., 106 F.4th at 592.

In turn applying the logic and reasoning of both the Seventh Circuit and Second Circuit here, it cannot be that Plaintiff has a cause of action against Defendant. Plaintiff is the “originator.” As Plaintiff is not a bank, it cannot also be the “originator bank.” Therefore, while Plaintiff did not allege facts about its own bank, it is apparent that Plaintiff instructed its own bank to wire money to Defendant. Plaintiff concedes as much in its Response to the Motion to Dismiss and states that it “gave wiring instructions to its bank to send a wire to the beneficiary's account at Truist.” (DE 20 at 1). Per the definition of “sender” as “the person giving the instruction to the receiving bank,” Plaintiff's bank is the sender of the money to Defendant Truist. If there is any cause of action to be had over the alleged mishap that occurred here, it would be Plaintiff's bank who would have the ability to recover from Defendant under the plain text of Section 402(d), not Plaintiff, who could only seek to recover the funds from its own bank. Further, I am persuaded by the policy reasons articulated in Grain Traders. Requiring privity between the Parties for a remedial cause of action aligns with the need for certainty and finality imbedded in the UCC. Grain Traders, 160 F.3d at 102.

Plaintiff argues that nothing in the statute prevents it from seeking recovery from Defendant and that the cases cited by Defendant, non-binding as they might be, “defy common sense.” (DE 20 at 2). Plaintiff argues that its bank has not been defrauded out of money but that Plaintiff, as the originator, is the one who lost money in this transaction and should be entitled to recover from Defendant. (Id.). However, Plaintiff does not cite any case law to support its arguments. In fact, in addition to the Seventh Circuit, the majority of district courts have recently required privity between parties for recovery under Section 207, Article 4, of the UCC. Scura, Wigfield, Heyer, Stevens & Cammarota, LLP v. Citibank, NA, No., 2022 WL 16706948, at *2 (D.N.J. Oct. 3, 2022) (“The Court agrees with Defendant Citibank that privity is required and, because Plaintiff fails to allege privity, it lacks standing to assert a claim against Defendant Citibank under Article 4A.”); Valley Chili Properties, LLC v. Truist Bank, 705 F.Supp.3d 768, 773 (W.D. Tex. 2023) (“even if Defendant had actual knowledge of the mismatch and could not rightfully accept the wire transfer pursuant to Section 25-4A-207(b)(2), Plaintiff has no right to recover its funds directly from Defendant. Rather, that right of recovery would only belong to Western Heritage, from whom Plaintiff could, in turn, attempt to recover the funds.”) (internal citations omitted); Wellton Int'l Express v. Bank of China (Hong Kong), 612 F. Supp. 3d 358, 364 (S.D.N.Y. 2020) (“Because there is a lack of privity between Plaintiffs and Wells Fargo, and between Plaintiffs and JP Morgan, Plaintiffs cannot maintain a cause of action against either defendant under Sec. 4-A-207.”).

I note, however, that in 2021, the Middle District of Florida found differently. In Wheels Investments, LLC. v. Wells Fargo Bank, the court found that while privity might be required under Section 402, Fla. Stat. § 670.207 contained no explicit privity requirement. 2021 WL 8895130 **2-3 (Apr. 29, 2021). Without such an explicit requirement, the court declined to dismiss Plaintiff's complaint. Id. While it is evident that there is no textual privity requirement in § 670.207 and this is the subsection Plaintiff brings its claim under, it is not the portion of the law that creates the remedial structure necessary for a cause of action. Every other court has found that Section 402 lays out the remedial structure when a beneficiary bank accepts a transfer knowing that the name and account number identify different beneficiaries. “It is axiomatic that all parts of a statute must be read together in order to achieve a consistent whole. Where possible, courts must give full effect to all statutory provisions and construe related statutory provisions in harmony with one another.” Robbins v. Garrison Prop. & Cas. Ins. Co., 809 F.3d 583, 586 (11th Cir. 2015). It is apparent to me that Section 402 of Chapter 670 of the UCC lays out the remedies available while Section 207 describes the duties a beneficiary bank owes. However, even Section 207(3)(b) describes that the originator is not obligated to pay a wrongly accepted order “unless the originator's bank proves that the originator ․ had notice that payment of a payment order might be made on the basis of an identifying or bank account number.” The fact that the originator bank could defeat the originator's argument that it has no obligation to pay supports that those are the parties in privity and that those are the parties between whom a cause of action lies. If the originator is excused from paying, it is the originator bank who they do not have to pay. Read together, and for the reasons already described, I find that privity is required for a cause action under the statute as a whole.¹

Moreover, Plaintiff is not without redress. Plaintiff may seek remedy from its own bank as Fla. Stat. 607.402 allows the sender of a payment order to be refunded from the bank that received its instructions if the transfer should not have been accepted. In other words, if it can be established that Defendant knew, based on an individual person's actual knowledge of the discrepancy between the account number and account name, not to accept the wire transfer from Plaintiff's bank, Defendant shirked its duties under Fla. Stat. 607.207. See Peter E. Shapiro, P.A., 795 F. App'x at 746. Plaintiff could then possibly claim that it is not obligated to pay its order and receive a refund from its own bank. Plaintiff's bank could then seek recovery of that amount from Defendant Truist.

Finally, I decline to grant leave to amend. Federal Rule of Civil Procedure 15(a)(2) directs the court to grant leave to amend “when justice so requires,” a policy intended to facilitate resolution on the merits. In its Response to the Motion to Dismiss, Plaintiff did request leave of court to amend to include additional allegations about the knowledge Defendant had about the mismatch between account number and name. However, “a district court may properly deny leave to amend the complaint under Rule 15(a) when such amendment would be futile.” Hall v. United Ins. Co. of Am., 367 F.3d 1255, 1263 (11th Cir. 2004). “This court has found that denial of leave to amend is justified by futility when the complaint as amended is still subject to dismissal.” Burger King Corp. v. Weaver, 169 F.3d 1310, 1320 (11th Cir. 1999) (citation omitted). Plaintiff now cannot allege any facts that would create privity between itself and Defendant nor can it suddenly allege that it is the originator bank. Accordingly, I will grant Defendant's motion with prejudice.

CONCLUSION

Accordingly, it is hereby ORDERED AND ADJUDGED that:

1) Defendant's Motion to Dismiss (DE 12) is GRANTED.

2) Plaintiff's First Amended Complaint (DE 8) is DISMISSED WITH PREJUDICE.

3) The Clerk of Court is instructed to CLOSE THIS CASE and DENY all pending motions as moot.

FOOTNOTES

1.   The Eleventh Circuit in 2019 did find that a district court did not err in granting summary judgment in favor of a bank under Fla. Stat. § 670.207 in a case brought by an originator against the beneficiary bank. Peter E. Shapiro, P.A. v. Wells Fargo Bank N.A., 795 F. App'x 741, 746 (11th Cir. 2019). The Eleventh Circuit found that the facts did not establish that any individual person at defendant bank had actual knowledge of the mismatch between the account name and number, and therefore the defendant bank had not violated its duties under Fla. Stat. § 670.207. However, the panel did not reach the issue of whether the statutes created a cause of action or whether privity was required. The analysis of Fla. Stat. § 670.207 in Peter E. Shapiro, P.A. does not lead to a contrary conclusion here. In fact, the Eleventh Circuit confirmed that Article 4A as a whole was “intended to be the exclusive means of determining the rights, duties and liabilities of the affected parties in any situation covered by the particular provisions of the Article” and concluded that “resort[ing] to principles of law or equity outside of Article 4A is not appropriate to create rights, duties and liabilities inconsistent with those stated” in Article 4A.” Id. at 750-51.

Donald M. Middlebrooks, United States District Judge