Hopkins v. BMO Bank NA

• Court: District Court, D. Arizona
• Decided: September 27, 2024
• Docket: 2:24-cv-00904
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8

David H opkins, et al., ) No. CV-24-00904-PHX-SPL ) 9 ) 10 Plaintiffs, ) ORDER vs. ) ) 11 ) BMO Bank NA, et al., ) 12 ) 13 Defendants. ) ) 14 )

15 Before the Court is Defendant BMO Bank, N.A.’s (“Defendant BMO”) Motion to 16 Dismiss Party (Doc. 12), Plaintiffs’ Response (Doc. 22), Defendant BMO’s Reply (Doc. 17 23), Plaintiffs’ Second Amended Complaint (Doc. 24), and the Joint Statement Regarding 18 Whether Amended Complaint Cures Defects Alleged in BMO Bank, N.A.’s Pending 19 Motion to Dismiss (Doc. 26). The Court now rules as follows. 1 20 I. BACKGROUND 21 Plaintiffs are allegedly victims of a wire transfer fraud scheme in which they paid 22 $177,196.60 to Defendant Betty Holland (“Defendant Holland”). (Doc. 24 at 3). Plaintiffs 23 allege that they entered into a purchase agreement to buy a piece of real property in January 24 of 2022. (Id. at 2). In March of that year, an escrow account through Yavapai Title was 25 opened to facilitate the transaction. (Id.). On March 16, 2022, Defendant Holland allegedly 26

27 1 Because it would not assist in resolution of the instant issues, the Court finds the pending motions are suitable for decision without oral argument. See LRCiv. 7.2(f); Fed. 28 R. Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 1 sent an email to Plaintiffs, using the name “Taylor Mahlman,” posing as a representative 2 from Yavapai Title, and instructing Plaintiffs to wire a down payment for the property to 3 her. (Id. at 3). Plaintiffs initiated the wire transfer through their bank, Defendant BMO, and 4 sent the money to an account with Defendant Chase. (Id. at 5). Plaintiffs and BMO 5 representatives engaged in a conference call to discuss the transaction, and BMO agreed to 6 verify the accuracy of the Wiring Instructions upon Plaintiffs’ request. (Doc. 24 at 4-5). 7 Plaintiffs allege that “upon receiving the Down Payment proceeds from BMO, 8 Chase was made aware that such proceeds were intended to be transferred to Yavapai 9 Title.” (Id. at 5). Yavapai Title, however, never received the money as Defendant Holland 10 allegedly withdrew the money from the Chase account. (Id.). Finally, Plaintiffs allege that 11 “[s]hortly after March 17, 2022, BMO and Chase learned that the Chase Account was not 12 affiliated with Yavapai Title, yet took no action to prevent [Defendant] Holland from 13 converting the Down Payment, or retrieving it from [Defendant] Holland.” (Id.) 14 Plaintiffs originally filed suit in state court, but Defendants removed the case to this 15 Court on April 20, 2024. (Doc. 1). Plaintiffs bring six counts against various Defendants, 16 four of which are specifically against Defendant BMO: breach of contract, negligence, 17 fraud, and punitive damages. (Doc. 24). On May 10, 2024, Defendant BMO filed a Motion 18 to Dismiss (Doc. 12), which is fully briefed (Docs. 22, 23). On June 11, 2024, the Court 19 dismissed Plaintiffs’ punitive damages claim with prejudice and without leave to amend in 20 its entirety against all Defendants. (Doc. 21). 21 On July 10, 2024, Plaintiffs filed a Second Amended Complaint. (Doc. 24). The 22 Court ordered the parties to file a joint statement addressing whether the amended 23 complaint cures the defects alleged in the pending Motion to Dismiss. (Doc. 25). On July 24 19, 2024, the parties filed a Joint Statement stating that the Second Amended Complaint 25 did not cure the defects alleged in Defendant BMO’s Motion to Dismiss. (Doc. 12). 26 II. LEGAL STANDARD 27 “To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must 28 meet the requirements of Rule 8.” Jones v. Mohave County, No. CV 11-8093-PCT-JAT, 1 2012 WL 79882, at *1 (D. Ariz. Jan. 11, 2012); see also Int’l Energy Ventures Mgmt., 2 L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 203 (5th Cir. 2016) (Rule 12(b)(6) 3 provides “the one and only method for testing” whether pleading standards set by Rule 8 4 and 9 have been met); Hefferman v. Bass, 467 F.3d 596, 599–600 (7th Cir. 2006) (Rule 5 12(b)(6) “does not stand alone,” but implicates Rules 8 and 9). Rule 8(a)(2) requires that a 6 pleading contain “a short and plain statement of the claim showing that the pleader is 7 entitled to relief.” Fed. R. Civ. P. 8(a)(2). A court may dismiss a complaint for failure to 8 state a claim under Rule 12(b)(6) for two reasons: (1) lack of a cognizable legal theory, or 9 (2) insufficient facts alleged under a cognizable legal theory. In re Sorrento Therapeutics, 10 Inc. Secs. Litig., 97 F.4th 634, 641 (9th Cir. 2024) (citation omitted). A claim is facially 11 plausible when it contains “factual content that allows the court to draw the reasonable 12 inference” that the moving party is liable. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 13 Factual allegations in the complaint should be assumed true, and a court should then 14 “determine whether they plausibly give rise to an entitlement to relief.” Id. at 679. Facts 15 should be viewed “in the light most favorable to the non-moving party.” Faulkner v. ADT 16 Sec. Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013). “Nonetheless, the Court does not 17 have to accept as true a legal conclusion couched as a factual allegation.” Jones, 2012 WL 18 79882, at *1 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). 19 III. DISCUSSION 20 Defendant BMO makes three arguments against Plaintiffs’ remaining breach of 21 contract, negligence, and fraud claims against BMO.2 (Doc. 12). Specifically, Defendant 22 BMO first argues that Article 4 of the U.C.C., as codified in A.R.S. § 47-4A101 et seq., 23 24 2 Defendant BMO’s Motion to Dismiss also moves to dismiss Count Six – Punitive Damages (Doc. 12) and Plaintiffs’ Response withdraws this claim. (Doc. 22 at 5). As this 25 Court already dismissed Count Six with prejudice and without leave to amend in its entirety against all Defendants (Doc. 21), this Court will not address Defendant BMO’s arguments 26 regarding Count Six here. 27 Defendant BMO’s Motion to Dismiss also moves to dismiss Plaintiffs’ conversion claim included in the First Amended Complaint. (Doc. 1-1). As this claim was not asserted 28 in the Second Amended Complaint, this Court will not address it here. 1 preempts Plaintiffs’ claims (Doc. 12 at 4); second, that Plaintiffs’ Account Agreement 2 contains a one-year statute of limitations barring Plaintiffs’ claims (Id. at 7); and third, that 3 Plaintiffs’ individual claims fail to state claims upon which relief can be granted. (Id. at 8). 4 As an initial matter, the Court will resolve whether Arizona’s adoption of Article 4 of the 5 U.C.C. preempts Plaintiffs’ common law claims of breach of contract, negligence, 6 conversion, and fraud. Because the Court finds that Plaintiffs’ common law claims fail to 7 state a claim due to preemption by Article 4A, this Court declines to analyze Defendant 8 BMO’s arguments with respect to the Account Agreement’s statute of limitations and 9 Plaintiffs’ individual claims’ failures to meet the requisite pleading standard.3 10 A. Whether A.R.S. § 47-4A101 et seq. Preempts Plaintiffs’ Claims 11 Article 4A of the U.C.C., codified in A.R.S. § 47-4A101 et seq., exclusively governs 12 conduct directly related to the action of a wire transfer. Koss Corp. v. Am. Exp. Co., 309 13 P.3d 898, 906 (Ariz. Ct. App. 2013), as amended (Sept. 3, 2013); see also U.C.C. § 4A– 14 102 cmt. (stating that before the U.C.C. “there was no comprehensive body of law— 15 statutory or judicial—that defined the juridical nature of a funds transfer or the rights and 16 obligations flowing from payment orders”). Article 4A also apportions liability among the 17 parties involved “depending upon the point at which a failure in the funds transfer process 18 occurs.” Id.; see U.C.C. § 4A–102 cmt. (“A deliberate decision was also made to use 19 precise and detailed rules to assign responsibility, define behavioral norms, allocate risks 20 and establish limits on liability.”). “Other courts have recognized that Article 4A does not 21 preempt common-law claims when . . . the alleged misconduct occurred outside the wire 22 transfer process.” Koss Corp., 309 P.3d at 906 (emphasis added); see also Ma v. Merrill 23 Lynch, Pierce, Fenner & Smith, Inc., 597 F.3d 84, 89 (2d Cir. 2010) (“Practically speaking, 24 25 3 Plaintiffs failed to address Defendant BMO’s arguments that the individual claims failed to meet the pleading standard. We therefore accept those as conceded. See, e.g., M.S. 26 v. County of Ventura, No. CV 16-03084-BRO (RAOx), 2017 WL 10434015, at *24 n.20 (C.D. Cal. Mar. 7, 2017) (“Failure to respond to the merits of one party's argument 27 constitutes a concession of that argument.”); see also Indep. Towers of Wash. v. Washington, 350 F.3d 925 (9th Cir. 2003) (“Our circuit has repeatedly admonished that we 28 cannot ‘manufacture arguments for [a party]’ . . . .”). 1 Article 4A controls how electronic funds transfers are conducted and specifies certain 2 rights and duties related to the execution of such transactions. . . . Claims that, for example, 3 are not about the mechanics of how a funds transfer was conducted may fall outside of this 4 regime.”). 5 In the present case, all the alleged conduct which forms the basis of Plaintiffs’ 6 breach of contract, negligence, and fraud claims comes from the mechanics of a wire 7 transaction. Specifically, Plaintiffs allege that Defendant BMO entered into an agreement 8 that BMO would verify the accuracy of the Wiring Instructions and that BMO breached 9 this agreement by failing to take reasonable measures to verify the accuracy of the Wiring 10 Instructions, Holland’s identity, and the relationship between Holland, Yavapai Title, or 11 the Escrow Account. (Doc. 24 at 6). Plaintiffs also allege that Defendant BMO breached 12 its duty of care owed to Plaintiffs to take reasonable measures to verify the accuracy of the 13 wiring instructions. (Id. at 10). Lastly, Plaintiffs allege Defendant BMO is liable for fraud 14 because “BMO falsely represented to Plaintiffs that they would verify the Wiring 15 Instructions, as described above.” (Id. at 11). 16 Verifying the authenticity of an instruction is a procedure explicitly governed by the 17 U.C.C. as adopted in Arizona. See A.R.S. § 47-4A205(A) (“If an accepted payment order 18 was transmitted pursuant to a security procedure for the detection of error and the payment 19 order erroneously instructed payment to a beneficiary not intended by the sender. . . the 20 following rules apply”). Furthermore, Article 4A regulates allocation of liability where the 21 customer is deemed to have authorized the transfer and where the customer and receiving 22 bank stipulate to the use of a commercially reasonable security procedure. A.R.S. § 47- 23 4A202(A)-(B); see also Barak v. ACS Int’l Projects, Ltd., 347 So.3d 81, 84 (Fla. Dist. Ct. 24 App. 2021) (“Under Article 4A, a bank receiving a payment order ordinarily bears the risk 25 of any misdirected funds transfer. U.C.C. § 4A-202(a)–(b). That risk may be shifted to the 26 customer under two defined circumstances. The first is where the customer is deemed to 27 have authorized the transfer, and the second is where the parties stipulated to the use of a 28 commercially reasonable security procedure.”). 1 In so far as the allegations against Defendant BMO are based on Defendant BMO’s 2 compliance with Plaintiffs’ instructions to transfer the payment or alleged failure to verify 3 the instructions, Article 4A preempts Plaintiffs’ common law claims. Plaintiffs do not 4 proceed against Defendant BMO under A.R.S. § 47-4A101 et seq. in their complaint. 5 Furthermore, Plaintiffs did not address Defendant BMO’s arguments regarding Article 4A 6 preemption and each individual claim’s failure to state a claim upon which relief must be 7 granted. (Doc. 22). In light of Plaintiffs’ failure to substantively respond to Defendant 8 BMO’s arguments, the Court finds that Plaintiff has conceded that Article 4A preempts 9 Plaintiffs’ claims and that Plaintiffs’ claims fail to state a plausible claim for relief. See, 10 e.g., M.S. v. County of Ventura, No. CV 16-03084-BRO (RAOx), 2017 WL 10434015, at 11 *24 n.20 (C.D. Cal. Mar. 7, 2017) (“Failure to respond to the merits of one party's argument 12 constitutes a concession of that argument.”); see also Indep. Towers of Wash. v. 13 Washington, 350 F.3d 925 (9th Cir. 2003) (“Our circuit has repeatedly admonished that we 14 cannot ‘manufacture arguments for [a party]’ . . . .”). Therefore, Plaintiffs’ Count One for 15 Breach of Contract, Count Three for Negligence, and Count Five for Fraud must be 16 dismissed against Defendant BMO for failure to state a claim. 17 IV. CONCLUSION 18 All told, “whether a complaint states a plausible claim for relief will . . . be a context- 19 specific task that requires the reviewing court to draw on its judicial experience and 20 common sense.” Iqbal, 556 U.S. at 679. A district court should normally grant leave to 21 amend unless it determines that the pleading could not possibly be cured by allegations of 22 other facts. Cook, Perkiss & Liehe v. N. Cal. Collection Serv., 911 F.2d 242, 247 (9th Cir. 23 1990). 24 While Plaintiff only needs to allege enough facts to “plausibly give rise to an 25 entitlement to relief,” that has not occurred here. Iqbal, 556 U.S. at 679. Therefore, the 26 claims against Defendant BMO fail to satisfy the pleading standards set forth by Rule 8 27 and 12(b)(6), and its dismissal is both warranted and necessary. Plaintiffs’ claims cannot 28 be cured with further amendment and are thus futile. See Bonin v. Calderon, 59 F.3d 815, 1| 845 (9th Cir. 1995) (“Futility of amendment can, by itself, justify the denial of a motion 2| for leave to amend.”). Specifically, Plaintiffs breach of contract, negligence, and fraud claims concerning all actions associated with the wire transfer in question, are preempted 4| byA.R.S. § 47-4A101 et seq. and are barred as a matter of law. As a result, leave to amend these counts would be inappropriate. 6 Accordingly, 7 IT IS ORDERED that Defendant BMO Bank, N.A.’s Motion to Dismiss (Doc. 12) 8 | is granted. 9 IT IS FURTHER ORDERED that Count One, Count Two, and Count Four of the 10 | Second Amended Complaint are dismissed with prejudice. 11 IT IS FURTHER ORDERED that in light of this Order and the Court’s September 12) 18, 2024 Order (Doc. 34), Defendants BMO Bank, N.A., and Chase Bank, N.A. are dismissed from this action. As such, the only remaining parties are Defendant Betty 14 | Holland and Defendant Unknown Holland. 15 Dated this 27th day of September, 2024. 16

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