Sunset Community Health Center, Inc. v. Capital One Financial Corporation

Background

Sunset alleged that it intended to wire $2 million to Arizona Community Foundation. An unidentified fraudster accessed Sunset’s email and changed the routing and account information in the wire instructions. Sunset sent the money on March 3, 2022, listing Arizona Community Foundation as the intended beneficiary but using the fraudster’s Capital One account number.

Capital One contacted Sunset’s bank on March 7 about fraud concerns. Sunset confirmed that the account information was wrong and asked that the transfer be recalled. Sunset alleged that Capital One deposited the money into the fraudster’s account after that call. Capital One later agreed to return the funds, but in August it returned only $1,220,900.47.

Sunset sued Capital One for conversion, civil theft, promissory estoppel, breach of contract, unjust enrichment, declaratory relief, and injunctive relief. Capital One moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint plausibly states a legal claim.

Uniform Commercial Code framework

The parties agreed that Article 4A of the Uniform Commercial Code governs commercial electronic funds transfers. Applying Minnesota law, the court treated Sunset’s instructions as a payment order—an instruction to a bank to pay a specified amount to a beneficiary.

The court explained that a sender may unilaterally cancel a payment order before the receiving bank accepts it. Acceptance can occur when the beneficiary’s bank pays or notifies the beneficiary, receives the full amount, or reaches the next business day after receiving a fully covered order. The court found that Sunset plausibly alleged that Capital One had not accepted the order when Sunset reported the fraud, because Capital One allegedly asked whether Sunset wanted the funds released and allegedly deposited the money only afterward. The court also found the complaint potentially supported a claim that Capital One had not yet received the entire amount when Sunset made the report.

The court separately concluded that Sunset plausibly alleged a misdescription of the beneficiary. The payment order named Arizona Community Foundation but identified the fraudster’s account. Because Sunset alleged that Capital One learned of the mismatch before making the funds available, the court found that Sunset plausibly alleged Capital One had actual knowledge of the misdescription before payment.

The court rejected, at this stage, claims based on Capital One’s alleged consent to cancel the accepted payment order. Although the Uniform Commercial Code allows a beneficiary’s bank to consent to cancellation in certain circumstances, the court stated that the bank has broad discretion and that consent may be revoked. The court found that Sunset had not adequately pleaded that Capital One consented to return the remaining funds under this provision.

Rulings

The court denied Capital One’s motion to dismiss Sunset’s declaratory relief and injunctive relief claims. Sunset plausibly alleged claims under the Uniform Commercial Code based on unilateral cancellation of the payment order and Capital One’s alleged wrongful acceptance of an order misdescribing the beneficiary. The court required Sunset to amend those claims to identify the specific Uniform Commercial Code provisions on which it relied.

The court granted Capital One’s motion to dismiss the promissory estoppel, breach of contract, conversion, civil theft, and unjust enrichment claims. It held that Article 4A preempted those claims because they addressed the same rights, duties, and alleged misconduct governed by the Uniform Commercial Code. The court also stated that, even absent preemption, Sunset had not pleaded the required detrimental reliance for promissory estoppel.

Order

Capital One’s motion to dismiss was GRANTED as to the promissory estoppel, breach of contract, conversion, unjust enrichment, and civil theft claims. It was DENIED as to the declaratory relief and injunctive relief claims. Sunset was ordered to amend its complaint within 30 days to identify the specific Uniform Commercial Code provisions supporting those surviving claims.