YAIR BARAK v. ACS INTERNATIONAL PROJECTS, LTD., etc.

Opinion

Third District Court of Appeal State of Florida

Opinion filed October 6, 2021. Not final until disposition of timely filed motion for rehearing.

________________

No. 3D20-0670 Lower Tribunal No. 16-6231 ________________

Yair Barak, Appellant,

vs.

ACS International Projects, Ltd., etc., Appellee.

An appeal from the Circuit Court for Miami-Dade County, Veronica Diaz, Judge.

Yair Barak, in proper person.

The Bobadilla Law Firm, and D. Fernando Bobadilla, for appellee.

Before LINDSEY, MILLER, and LOBREE, JJ.

MILLER, J. Appellant, Yair Barak, challenges a final judgment rendered in favor of

appellee, ACS International Projects, Ltd., an Israeli corporation (“ACS

Israel”). The primary issue on appeal is whether Article 4A of the Uniform

Commercial Code, as adopted and codified in chapter 670, Florida Statutes

(2021), preempts ACS Israel’s civil theft and conversion claims. Concluding

the claims are not preempted, we affirm as to all issues, save the calculation

of damages and prejudgment interest. 1

1 Barak raises a myriad of other issues on appeal, none of which warrant reversal. See Christopher Advert. Grp., Inc. v. R & B Holding Co., Inc., 883 So. 2d 867, 875 (Fla. 3d DCA 2004) (finding no prejudice in the premature filing of an amended complaint where the defendant did not tender the purloined funds within thirty days of receipt of the civil theft letter); Hebert v. State, 25 So. 3d 612, 614 (Fla. 1st DCA 2009) (holding that evidence of specific intent to commit theft may be demonstrated “by circumstantial evidence found in the surrounding circumstances of the event”); 12 Fla. Jur. 2d Conversion and Replevin § 7 (2021) (“To be a proper subject of conversion, each coin or bill need not be earmarked, but there must be an obligation to keep intact or deliver specific money in question so that such money can be identified. Money is capable of identification where it is delivered at one time, by one act and in one mass, or where the deposit is special, and the identical money is to be kept for the party making the deposit, or where wrongful possession of such property is obtained.”) (footnotes omitted); Edwards v. Landsman, 51 So. 3d 1208, 1214 (Fla. 4th DCA 2011) (quoting P.V. Constr. Corp. v. Kovner, 538 So. 2d 502, 504 (Fla. 4th DCA 1989)) (“Under Florida law, ‘an officer of a corporation who commits or participates in a tort, whether or not it is in furtherance of corporate business and whether or not it is by authority of the corporation, is liable to the injured party whether or not the corporation is also liable.’”); Kendall Healthcare Grp., Ltd. v. Madrigal, 271 So. 3d 1120, 1123 (Fla. 3d DCA 2019) (holding “although the trial judge adopted verbatim the [plaintiffs]’ proposed order, the record before this Court reflects that the trial judge did not delegate its independent judgment”).

2 BACKGROUND

Because Barak asserted his Fifth Amendment privilege against self-

incrimination in this litigation, the relevant facts of record are undisputed.

After performing certain contractually obligated services, ACS Israel invoiced

the Venezuelan state-owned petroleum company, Petroleo de Venezuela,

S.A. (“PDVSA”), seeking payment by way of an electronic funds transfer. To

allay concerns regarding possible wire fraud, the parties entered into a risk

of loss agreement providing that any damages incurred after the wire was

originated would be borne by ACS Israel.

Barak, a former business partner of ACS Israel, created a Florida

limited liability company denominated as “ACS International Projects, Ltd.”

(“ACS Florida”) and opened a Mercantil Commercebank, N.A. account under

the same name. Unbeknownst to ACS Israel, he furtively persuaded PDVSA

to order payment be made to ACS Florida.

PDVSA initiated two separate wire transfer payment orders, totaling

$1,566,921.60, through its bank, Banco Espirito Santo. Mercantil accepted

both wires and subsequently deposited the funds into ACS Florida’s account.

The funds were then transferred to several entities owned by Barak.

After learning of the apparent fraud, ACS Israel obtained a temporary

injunction in the circuit court, freezing ACS Florida’s account, and filed suit

3 against Barak alleging fraud, conversion, civil theft, and conspiracy and

seeking the imposition of a constructive trust and damages. It subsequently

served Barak with a civil theft letter, demanding the return of $1,566,921.60

within thirty days.

A successful banking recall with the Society for Worldwide Interbank

Financial Transactions (“SWIFT”) yielded $1,364,666.40 in recovered funds

within the thirty-day demand period. Some months later, ACS Israel

recouped an additional $182,546.35 by way of a second SWIFT recall.

After the pleadings closed, the parties filed competing summary

judgment motions. Concluding the grand theft and conversion claims were

not preempted by the remedies codified in Article 4A of the Uniform

Commercial Code, the trial court granted summary judgment in favor of ACS

Israel. Thereafter, the court rendered final judgment, awarding damages in

the amount demanded in the civil theft notice and prejudgment interest on

the trebled damages. The instant appeal ensued.

STANDARD OF REVIEW

As the operation of preemption constitutes a pure issue of law, “we

apply a de novo standard of review.” See Marcy v. DaimlerChrysler Corp.,

921 So. 2d 781, 783 (Fla. 5th DCA 2006).

LEGAL ANALYSIS

4 The resolution of this appeal requires an analysis as to the reach of

Article 4A of the Uniform Commercial Code, as adopted in chapter 670,

Florida Statutes. Rapid developments in financial technology have enabled

commercial consumers to expeditiously exchange value through electronic

means. While such transactions “have become ubiquitous,” forming an

“integral element of the banking experience for many [commercial]

consumers,” they carry “inevitable risks.” Stephanie L. Tang, Increasing the

Role of Agency Deference in Curbing Online Banking Fraud, 91 N.D. L. Rev.

329, 330–31 (2015). In particular, the increased use of automated

clearinghouse (“ACH”) services and wire transfers has precipitated surges in

banking fraud. Robert W. Ludwig, Jr., Salvatore Scanio, & Joseph S. Szary,

Malware and Fraudulent Electronic Funds Transfers, Who Bears the Loss,

Fidelity L. J. 101, 103 (Oct. 2010).

Article 4A of the Uniform Commercial Code was developed to address

disputes arising out of misdirected or unauthorized electronic funds transfers

and payment orders. Prior to its enactment, “there was no comprehensive

body of law—statutory or judicial—that defined the judicial nature of a

[commercial] funds transfer or the rights and obligations flowing from

payment orders.” U.C.C. § 4A-102 cmt. The drafters endeavored to deliver

clarity to this area of the law by establishing “uniform and predictable rights,

5 duties, and liabilities for arm’s-length funds transfers between various

commercial parties and their banks.” Michael G. Tanner & JoAnne

Eichelberger, Bank Customers Beware: Recovery of Unauthorized

Electronic Funds Transfers Isn’t So Easy, 91 Fla. B. J. 36, 36 (Apr. 2017).

In crafting the provisions of Article 4A, the drafters made “[a] deliberate

decision . . . to use precise and detailed rules to assign responsibility, define

behavioral norms, allocate risks and establish limits on liability, rather than

to rely on broadly stated, flexible principles.” U.C.C. §4A-102, cmt. Further,

“a critical consideration was that the various parties to funds transfers need

to be able to predict risk with certainty, to insure against risk, to adjust

operational and security procedures, and to price funds transfer services

appropriately.” Id.

Although indubitably expansive, Article 4A is not exhaustive. The

drafters “intended that Article 4A would be supplemented, enhanced, and in

some places, superceded by other bodies of law . . . the [A]rticle is intended

to synergize with other legal doctrines.” Regions Bank v. Provident Bank,

Inc., 345 F.3d 1267, 1275 (11th Cir. 2003) (alterations in original) (quoting

Thomas C. Baxter & Raj Bhala, The Interrelationship of Article 4A with Other

Law, 45 Bus. Law. 1485, 1485 (1990)). This is consistent with the

proposition that “[u]nless displaced by the particular provisions of [the

6 Uniform Commercial Code], the principles of law and equity . . . shall

supplement its provisions.” § 671.103 Fla. Stat. Hence, other sources of

law may supplement, but not supplant the provisions of the UCC, and where

the provisions of the Code “do not venture, the claimant need not turn back;

he or she may seek other guides, statutory or judicial.” Sheerbonnet, Ltd. v.

Am. Exp. Bank, Ltd., 951 F. Supp. 403, 408 (S.D.N.Y. 1995); see also 15A

Am. Jur. 2d Commercial Code § 18 (2021).

Under Article 4A, a bank receiving a payment order ordinarily bears

the risk of any misdirected funds transfer. U.C.C. § 4A-202(a)–(b). That risk

may be shifted to the customer under two defined circumstances. The first

is where the customer is deemed to have authorized the transfer, and the

second is where the parties stipulated to the use of a commercially

reasonable security procedure. Id.

Article 4A only purports, however, to allocate liability as between

“parties” to the funds transfer, a term narrowly defined as including only the

originator, sender, beneficiary, and enabling financial institutions. U.C.C. §§

4A-103–104; §§ 670.103–.104, Fla. Stat. The text is wholly silent as to the

rights and remedies of all others.

In the instant case, ACS Israel and Barak were not parties to either of

the underlying transactions. Further, both wire transfers were clearly

7 authorized. Liability was not therefore predicated upon the mechanics of the

transfers, but rather upon tortious conduct initiated by Barak after the

transfers were completed. Hence, Article 4A affords no remedy. See §

670.209, Fla. Stat.

Under these circumstances, barring the asserted claims would yield

the absurd result of divesting ACS Israel of any avenue of redress and

shielding Barak from liability. As “[i]t could hardly have been the intent of the

drafters [of Article 4A] to enable a party to succeed in engaging in fraudulent

activity,” such a result would contravene legislative intent. Simple Helix, LLC

v. Relus Techs., LLC, 493 F. Supp. 3d 1087, 1107 (N.D. Ala. 2020) (quoting

Regions, 345 F.3d at 1276). Consequently, concluding this “is not a situation

covered by any of the particular provisions of [Article 4A],” we find the trial

court did not err in eschewing preemption. Schlegel v. Bank of Am., N.A.,

628 S.E.2d 362, 368 (Va. 2006); see also Sheerbonnet, 951 F. Supp. at 409;

Koss Corp. v. Am. Exp. Co., 309 P.3d 898, 904 (Ariz. Ct. App. 2013).

Barak further contends that ACS Israel, as the guarantor under the risk

of loss agreement and mere intended beneficiary of the misappropriated

funds, was barred from maintaining suit by operation of section 670.402(6),

Florida Statutes. See § 670.402(6), Fla. Stat. (“The right of the sender of a

payment order to be excused from the obligation to pay the order as stated

8 in subsection (3) or to receive refund under subsection (4) may not be varied

by agreement.”). Under the facts presented, PDVSA was not excused from

its obligation and there was no right to a refund. Thus, heeding the

fundamental tenet of freedom of contract that parties are endowed with the

right to agree to terms governing their private affairs so long as the terms do

not violate law or public policy, we reject this argument. Franks v. Bowers,

116 So. 3d 1240, 1247 (Fla. 2013).

Upon ACS Israel’s partial confession of error and our independent

review of the record, however, we are constrained to reverse the

computation of damages and prejudgment interest. On remand, the trial

court shall award threefold “the actual damages sustained.”2 See §

772.11(1), Fla. Stat.; Standard Jury Instructions–Civil Cases (No. 98-3), 720

So. 2d 1077 (Fla. 1998); see also Ocala Jockey Club, LLC v. Rogers, 981

So. 2d 1245, 1247 (Fla. 5th DCA 2008); Haddad v. Cura, 674 So. 2d 168,

2 The civil theft statute is remedial in nature, and the term “actual damages,” in the absence of any statutory definition, is used synonymously with “compensatory damages.” See § 812.037, Fla. Stat. (“Notwithstanding s. 775.021, ss. 812.012–812.037 shall not be construed strictly or liberally, but shall be construed in light of their purposes to achieve their remedial goals.”); Snyder v. Bell, 746 So. 2d 1096, 1098 (Fla. 2d DCA 1999) (“Florida’s civil theft statute is without question remedial, rather than punitive, in nature.”); see also, Ross v. Gore, 48 So. 2d 412, 414 (Fla. 1950) (“Since it is used synonymously with ‘compensatory damages’ in many of our decided cases, we think it is fair to assume that ‘actual damages’ mean ‘compensatory damages.’”).

9 169 (Fla. 3d DCA 1996); Barbe v. Villeneuve, 505 So. 2d 1331, 1333 (Fla.

1987); Villeneuve v. Atlas Yacht Sales, Inc., 483 So. 2d 67, 69 (Fla. 4th DCA

1986); Sebastiano v. Sclafani, 984 So. 2d 673, 673 (Fla. 4th DCA 2008);

Vining v. Martyn, 660 So. 2d 1081, 1082 (Fla. 4th DCA 1995). Any funds

derived from collateral sources shall be offset against the trebled actual

damages, and prejudgment interest shall be calculated from the date of each

respective loss and awarded only on actual damages. See AVP Destiny,

LLC v. FD Destiny, LLC, 267 So. 3d 1048, 1050 (Fla. 4th DCA 2019);

Greenburg v. Grossman, 683 So. 2d 156, 157 (Fla. 3d DCA 1996).

Affirmed in part; reversed in part; and remanded.