The supply chain company and a shipping company exchanged emails regarding the supply chain company paying the shipping company. A hacker hacked into the shipping company’s email and sent the supply chain company fraudulent instructions for wiring money to the shipping company. While the wire instructions identified the shipping company as the recipient, the specified account number was different. The supply chain company wired the money to the supply chain company through the bank. The bank completed the transfer despite the recipient account number differing from the shipping company’s known account number, resulting in the supply chain company sending hundreds of thousands of dollars to the hackers. The supply chain company sued the bank for negligently completing the transfer and failing to “timely freeze the identified funds.”
In Zhejiang Matrix SCM Co. v. PNC Bank, N.A., No. 23-0979, 2024 WL 1096534, 2024 U.S. Dist. LEXIS 44671 (E.D. Pa. March 13, 2024) (opinion not yet released for publication), the court approved the bank’s motion to dismiss. The supply chain company sued asserting common law negligence. In Pennsylvania, common law claims for funds transfers, including wire transfers, are preempted by Article 4A of the Pennsylvania Commercial Code. Consequently, the court dismissed the supply chain company’s claim regarding the bank’s negligence in approving the wire transfer. Regarding the bank’s failure to freeze the supply chain company’s funds after approving the transfer, Section 606 of the Pennsylvania Banking Code states that for a party other than the recipient party or another party approved to remove money from the recipient account to make a claim concerning control over a deposit account, that party must “obtain and serve on the institution an appropriate order directed to the institution by a court restraining any action with respect to the account or property . . . or . . . deliver to the institution a bond.” The supply chain company did not do so, and thus, the court dismissed the supply chain company’s claim concerning the bank’s failure to freeze the deposited money. The court further held that the supply chain company could not amend its complaint. Following case law from other courts, the court held that a party may only sue a bank with which it is in privity. As the supply chain company was not a customer of nor in privity with the bank, the supply chain company could not sue the bank under Article 4A. Furthermore, the supply chain company could not sue the bank under an amended negligence claim because the bank had no duty of care to the supply chain company.
By Gregory Ferrer [email protected]
Edited By Ashley Boyce [email protected]
Edited By Hayden Mariott [email protected]