Bank One sued Bank Two, alleging that Bank Two accepted and deposited fraudulent checks stolen from Bank One’s customers. Bank One claimed that several account holders at Bank Two stole checks issued by its clients, altered them to list themselves as payees, and then deposited them. The fraudulent checks totaled $153,879.31. Bank One sued under state law, asserting claims for breach of UCC warranties, unjust enrichment, fraud, and aiding and abetting. Bank Two removed the case to federal court, arguing that federal jurisdiction was proper because the claims involved federal banking regulations, particularly Regulation CC and Anti-Money Laundering (AML) requirements. It further argued that the aiding and abetting claim raised a substantial federal issue because of alleged violations of federal banking laws. However, Bank One moved to remand, asserting that the claims arose solely under state law and that removal was improper because of Bank Two’s failure to obtain a co-defendant’s consent.
In NewFirst Nat'l Bank v. JPMorgan Chase Bank, N.A., No. 24-3352, 2024 WL 5170755, 2024 U.S. Dist. LEXIS 229446 (S.D. Tex. Dec. 19, 2024) (opinion not yet released for publication), the court granted the bank’s motion to remand, ruling that the case did not create a substantial issue of federal law to establish subject-matter jurisdiction. The court explained that simply referencing Regulation CC does not automatically create a federal question. A state law claim must raise a “actually disputed and substantial” federal issue to be eligible for removal. Grable & Sons Metal Prods. v. Darue Eng'g & Mfg., 545 U.S. 308 (2005). Further, Bank Two needed to prove that “(1) resolving a federal issue is necessary to resolution of the state-law claim; (2) the federal issue is actually disputed; (3) the federal issue is substantial; and (4) federal jurisdiction will not disturb the balance of federal and state judicial responsibilities.” Singh v. Duane Morris LLP, 538 F.3d 334, 339 (5th Cir. 2008). Here, Regulation CC’s creation of a rebuttable presumption regarding the altered checks was insufficient to establish federal jurisdiction. Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 814 (1986). The court also rejected Bank Two’s argument that the aiding and abetting claim warranted federal jurisdiction. Applying the Fifth Circuit’s test for federal jurisdiction, the court determined that Bank One’s reliance on federal law to assert the aiding and abetting claim satisfied the first and second factors. The court found that the third factor, however, weighed in favor of remand because Bank Two failed to show that a substantial federal issue existed by failing to demonstrate how the issue would “bear heavily on ‘the federal system’ as a whole.” Furthermore, analyzing the fourth factor, the court noted that aiding and abetting fraud is not yet an “explicitly recognize[d] cause of action” under Texas law. Therefore, the court found that the fourth factor favored remand. Because the court found no federal question, it declined to consider whether the failure to obtain a co-defendant’s consent also rendered the removal improper. Ultimately, the court remanded the case back to the state court.
By Chandler Davis: [email protected]
Edited By Callighan Ard: [email protected]
Edited By Ashley Boyce: [email protected]
Edited By Hayden Mariott: [email protected]