A bank’s customer decided to invest in two cryptocurrency companies. The customer wired money to one company, and a week later, wired an additional amount of money to another company. The customer properly authorized each wire transfer. Furthermore, both companies had bank accounts at the same bank as the customer. After initiating the wire transfer, the customer learned that the companies were fraudulent and contacted the bank notifying it of the fraud and requesting an investigation. However, the wire transfers had already been processed (in fact, both were processed the same day the transfers were made) and the bank did not have the ability to cancel the transactions at that point. The customer claimed that because the bank was aware of the fraud between its own customers and did not reverse the transfers, it acted in a negligent and grossly negligent way, causing the customer to lose money. The bank claimed that the customer could not bring common law negligence claims because Article 4-A of New York’s Uniform Commercial Code (UCC) preempts them; thus, the bank moved to dismiss the customer’s claims entirely.
In Jajati v. JPMorgan Chase Bank, N.A., No. 22-CV-07676 (HG), 2024 WL 99659, 2024 U.S. Dist. LEXIS 4703 (E.D.N.Y. Jan. 9, 2024) (opinion not yet released for publication), the court held that the customer was barred from bringing a common law negligence claim and dismissed the case. The court examined the wire transfer agreements between the customer and the bank, and determined the documents clearly outlined the process the bank would follow if a customer initiated a wire transfer. The court discussed that the bank completely followed the requirements found in the agreement, and that the customer admitted that the bank carried out its contractual obligations. Nonetheless, the customer continued to urge the court to find the bank negligent in releasing the funds after learning of fraud. However, the court determined that the bank was at no fault for following the terms of the transfer agreement, and the court further stated that Article 4-A of the UCC preempts negligence claims. Article 4-A governs money transfers and dictates when a bank must refund a customer. Official comments to the article also state that the article is the “exclusive means of determining the rights, duties, and liabilities of the affected parties.” Thus, the court reasoned that because Article 4-A does not include negligence, the customer’s claims would not stand. The court granted the motion to dismiss and declined the customer’s ability to amend.
By Maycee Redfearn [email protected]
Edited By Ashley Boyce [email protected]
Edited By Melissa Hightower [email protected]