A customer brought a claim against a bank in which it held a business account (the “transferring bank”) and a separate bank in which they had no account (the “receiving bank”) (collectively the “banks”) for allegedly enabling a fraudulent transaction. In December 2022, a third party had made an electronic transfer in the amount of $23,765 from the customer’s account at the transferring bank to a separate account at the receiving bank. “Criminal customer(s)” withdrew a majority of the amount transferred the following day from the receiving bank. Later, the customer claimed both the transferring bank and the receiving bank violated 4A of the Uniform Commercial Code (UCC) (adopted in South Carolina in S.C. Code Ann. § 36-4A (1996)). Specifically, the complaint alleged the transferring bank authorized a transfer initiated by someone other than the customer or its agent(s) in violation of § 36-4A-201; the receiving bank failed to confirm the payment order name with the name associated with the account number in violation of § 36-4A-207(b)(2); and that both banks failed to cancel the payment despite the customer notifying both banks of cancelation in violation of § 36-4A-211. Next, the customer alleged negligence, conversion, and money and received claims. Finally, the customer alleged the banks violated the South Carolina Unfair Trade Practices Act (SCUTPA) by collecting transfer fees from the transaction at issue despite knowing it was fraudulent and by exhibiting a pattern of misinforming commercial victims of fraud by making false statements in their investigation letters. The transferring bank and receiving bank moved to dismiss the customer’s claims for failure to state or sufficiently plead viable claims.
In Skin Studio Day Spa, LLC v. Wells Fargo Bank, NA, No. 3:23-cv-2111-SAL, 2024 WL 503666, 2024 U.S. Dist. LEXIS 25372 (D.S.C. Jan. 9, 2024) (opinion not yet released for publication), the U.S. District Court for the District of South Carolina granted in part and denied in part the banks’ motions to dismiss. The court first examined the customer’s claims brought under Article 4A of the UCC. The court first denied the transferring bank’s motion to dismiss the customer’s § 36-4A-201 claim. The court reasoned that the customer pleaded facts that would allow it to draw a reasonable inference that the transferring bank processed an order the customer did not authorize but was instead initiated by a third party. The court then granted the receiving bank’s motion to dismiss the customer’s § 36-4A-207(b)(2) claim, finding the customer failed to allege facts to support the assertion that the receiving bank had actual knowledge of any discrepancies between the names, a requirement for a bank to be liable under § 36-4A-207(b)(2). Next, the court addressed the customer’s § 36-4A-211 cancellation notice claims. It denied the transferring bank’s motion to dismiss, finding it plausible that the customer satisfied the notice requirements by submitting a cancelation order at a time and in a manner affording it a reasonable opportunity to act. However, it granted the receiving bank’s motion to dismiss with the same reasoning. The court then addressed and granted the banks’ motions to dismiss the negligence, conversion, and money had and received claims. The court held that Article 4A of the UCC preempted these common law actions. Finally, the court addressed and granted the banks’ motions to dismiss claims brought under the SCUTPA. A plaintiff must show (1) the defendant engaged in unlawful trade practice(s); (2) the plaintiff suffered actual damages as a result; and (3) the unlawful trade practice adversely impacted public interest. The court found the customer failed to adequately plead the public interest element because “allegations of accusations are not the same as allegations of specific similar past acts.”
By Kristin Meurer [email protected]
Edited By Ashley Boyce [email protected]
Edited By Riley Caraway [email protected]