EDGARDO RAMOS, District Judge.
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.
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"),
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.
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.
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).
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 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.
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.
"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 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.
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,
Plaintiff's breach-of-contract claim against Citibank is dismissed without prejudice.
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);
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 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." § 4-201(1).
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.
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).
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,
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.
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).
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, 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, 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.
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 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 (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,
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:
§ 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).
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).
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).
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
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.
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).