On December 18, the U.S. District Court for the Southern District of New York granted a bank’s motion to dismiss the complaint in a case involving wire transfers of an elderly customer who was the victim of an internet scam.

Background

The case arose when a 79-year-old customer fell victim to an internet scam in January 2023. Fraudsters convinced the customer that his financial accounts were under threat from foreign hackers. They persuaded him to liquidate his assets and transfer funds from his bank accounts to accounts belonging to the fraudsters in Hong Kong banks. Over 23 days, the customer executed seven wire transfers totaling $1,511,700.

The customer sought reimbursement from the bank in January 2024, claiming that despite the suspicious nature of the transactions, the bank did not flag, investigate, or intervene. When the bank denied the claim, the lawsuit ensued. The complaint contained a single breach of contract claim alleging that the bank breached its contractual duty of ordinary care to the customer when it failed to investigate and stop the electronic wire fund transfers made to the fraudsters.

The customer’s use of his bank account was governed by a client manual, which outlined the bank’s duties and the procedures for wire transfers. The manual specified that the bank owed a duty of ordinary care but disclaimed responsibility for errors in transfer instructions provided by the customer. Additionally, a wire transfer agreement governed the electronic funds transfers, emphasizing that the bank would rely on the information provided by the customer and disclaiming liability for incorrect transfers resulting from customer errors.

Court’s Analysis

The court applied the standard for a motion to dismiss under Rule 12(b)(6), which requires the plaintiff to provide more than labels and conclusions. The complaint must state a plausible claim for relief, supported by factual allegations.

The bank argued that the breach of contract claim was preempted by Article 4-A of the New York Uniform Commercial Code (UCC), which governs electronic funds transfers. The court agreed, noting that Article 4-A provides the exclusive means of determining the rights, duties, and liabilities of parties in situations covered by its provisions. The court found that the claim, which centered on the bank’s handling of the wire transfers, fell within the scope of Article 4-A and was therefore preempted. “[T]he key question here is whether the common law claim ‘would impose liability inconsistent with the rights and liabilities expressly created by Article 4,’ … and, as discussed above, imposing common law liability on a bank for properly processing an authorized transfer is flatly inconsistent with Article 4’s regime.”

Even if the claim were not preempted, the court found that the customer failed to adequately plead a claim for breach of contract. The client manual and wire transfer agreement clearly outlined the bank’s procedures and disclaimed additional responsibilities. The customer’s allegations did not demonstrate that the bank deviated from these agreed-upon procedures. “Plaintiff’s vague allegations that Defendant breached its ‘duty of ordinary care’ by failing to adhere to its own Code of Conduct or follow industry-standard practices — none of which are mandated in the Manual — are plainly insufficient to plead breach of contract.” The court concluded that the claim was insufficiently pled and did not establish a breach of the duty of ordinary care.

Conclusion

The district court reached the right conclusion. Article 4A of the UCC establishes an end-to-end rule set for wire transfers, and carefully sets defined rules limiting the potential liability of banks that act as delineated by the statute. The fact the bank’s customer is elderly or was the victim of a scam does not alter the rules of fund transfers. Similarly, a bank is not liable for breach of contract when it follows a customer’s instructions to transfer funds.

Troutman Pepper Locke attorneys regularly handle cases involving wire transfers and elder fraud scams. These cases are unfortunate, but muddling the rules or finding breach of contract simply because a customer is elderly threatens the efficiency and operation of the U.S. funds transfer system.