Chappell v. Bank of America , N.A.

Background

Larry Chappell and ERA Chappell & Associates Realty LLC alleged that individuals posing as Santander Bank employees told Chappell that he was entitled to approximately $10 million from an estate. The alleged impersonators directed Chappell and his company to wire amounts ranging from $5,529 to $112,500 to accounts held by several entities. Plaintiffs alleged that those entities were fraudulently formed and that they ultimately wired more than $1.5 million.

The accounts were held at Bank of America, J.P. Morgan Chase, Wells Fargo, PNC, and Truist. Plaintiffs alleged that these banks failed to verify the entities’ corporate records and ownership information before opening the accounts. Plaintiffs also alleged that Santander Bank UK failed to warn Chappell about people impersonating its employees or misusing its accounts and email addresses.

Plaintiffs asserted negligence, unjust enrichment, and equitable fraud. The defendants moved to dismiss under Federal Rule of Civil Procedure 12, which allows a court to dismiss claims that do not adequately state a legal claim and, in some circumstances, claims against defendants over whom the court lacks authority.

Personal Jurisdiction Over Santander Bank UK

The court granted Santander Bank UK’s motion under Rule 12(b)(2), which concerns personal jurisdiction. Applying New York’s long-arm statute, the court found that plaintiffs had not shown that Santander Bank UK conducted the relevant business in New York or that their claims arose from a transaction in New York. The court also found that plaintiffs had not shown the required constitutional minimum contacts with New York or proper service on Santander Bank UK.

Negligence Claims Against the Other Banks

The court rejected the defendants’ argument that Article 4-A of New York’s Uniform Commercial Code completely preempted the negligence claims. The court reasoned that Article 4-A governs how electronic funds transfers are carried out, while plaintiffs’ allegations concerned whether the bank accounts receiving the transfers should have existed. The court also found that claims based on transfers made before September 18, 2021, were barred by New York’s three-year limitations period.

Nevertheless, the court dismissed all of the negligence claims because plaintiffs did not allege that the banks owed them a duty of care. Plaintiffs were not customers of the defendant banks. Under the general rule described by the court, banks do not owe noncustomers a duty to protect them from intentional wrongdoing by bank customers. The court found that the alleged failures to screen the fraudulent entities did not establish an applicable exception. It also concluded that the Bank Secrecy Act and Patriot Act did not create a private right of action or provide a basis for imposing the alleged duty.

Unjust Enrichment Claims

The court dismissed the unjust-enrichment claims. New York law requires a plaintiff to show that the defendant was enriched at the plaintiff’s expense and that fairness requires the defendant to return the benefit. Plaintiffs did not allege that the defendant banks directly received any part of the transferred funds. To the extent the banks received fees or other benefits connected to the accounts, plaintiffs did not allege that those amounts came from plaintiffs rather than from the fraudulent entities.

Equitable Fraud Claims

The court dismissed the equitable-fraud claims. For the banks other than Wells Fargo, plaintiffs generally did not identify any statement or omission directed to them, and they did not allege that they had asked those banks whether the accounts had been screened or verified. The court also found no adequately pleaded duty to disclose.

Plaintiffs alleged that Chappell asked Wells Fargo about the companies with accounts there and that Wells Fargo said the companies were legitimate. The court found that this allegation did not satisfy Federal Rule of Civil Procedure 9(b), which requires fraud claims to identify the allegedly misleading statement, who made it, when and where it was made, and why it was fraudulent. The court further concluded that equitable fraud would not apply because plaintiffs had not alleged that the banks obtained or retained a benefit through a breach of a fiduciary or equitable duty.

Leave to Amend and Disposition

Judge Jessica G. L. Clarke denied leave to amend. The court noted that plaintiffs had already amended the complaint in response to earlier dismissal motions and that their current request did not explain what new allegations would cure the defects. The court therefore granted the defendants’ motions to dismiss, denied leave to amend, directed the Clerk to terminate the outstanding docket entries, and closed the case. The opinion did not state that the dismissal was with or without prejudice.