Wellton International Express v. Bank of China

Background

Wellton International Express and Wellton Express Inc. said that they regularly worked together to ship goods from China to the United States. Wellton International owed Wellton Express $152,357.61 and intended to pay it through a transfer from Wellton International’s account at Bank of China (Hong Kong) to Wellton Express’s account at JP Morgan.

An unknown hacker sent Wellton International a fraudulent email that appeared to come from Wellton Express and directed the payment to a Wells Fargo account. Wellton International sent the money there. JP Morgan acted as an intermediary bank. Wellton Express told Wells Fargo that the transfer was fraudulent because it did not have an account there, and Wellton International notified Bank of China (Hong Kong), JP Morgan, and Wells Fargo that the money should not be transferred. The money was nevertheless deposited into the Wells Fargo account, after which unknown fraudsters withdrew it and closed the account.

The complaint did not identify specific causes of action. In their opposition papers, the plaintiffs acknowledged that they did not have common-law breach-of-contract or negligence claims and agreed that Article 4-A of New York’s Uniform Commercial Code governed the case. The defendants moved to dismiss under Federal Rules of Civil Procedure 12(b)(1), which addresses the court’s power to hear a case, and 12(b)(6), which addresses whether a complaint states a legally sufficient claim.

Claims Against Wells Fargo and JP Morgan

JP Morgan argued that Wellton Express lacked constitutional standing, meaning a concrete injury sufficiently connected to the defendant’s conduct and likely to be remedied by a court decision. The court rejected that argument. It held that Wellton Express alleged an injury because it was deprived of money intended for it, and that the alleged execution of the payment order was sufficiently connected to that injury. Whether the banks were required by the Uniform Commercial Code to execute the order was a merits issue, not a standing issue.

The plaintiffs relied on New York Uniform Commercial Code sections 4-A-202(2) and 4-A-207. The court held that section 4-A-202(2) did not apply because the plaintiffs alleged that Wellton International itself sent and therefore authorized the transfer, although it did so because of a fraudulent communication. The court further explained that the plaintiffs had not alleged the existence of a security procedure, whether any procedure was commercially reasonable, or whether a bank accepted the payment order in good faith and complied with that procedure.

The court also held that neither Wells Fargo nor JP Morgan could be liable under section 4-A-207. The statutory remedy requires a relationship between the parties to the particular payment order. The relevant payment order was between Wellton International and Bank of China (Hong Kong); Wells Fargo was the beneficiary’s bank and JP Morgan was the intermediary bank. Because the plaintiffs lacked that required relationship with Wells Fargo and JP Morgan, the court dismissed all claims against those defendants.

Claims Against Bank of China (Hong Kong)

The court applied New York’s choice-of-law rules because the case had been brought under the court’s diversity jurisdiction. New York’s Article 4-A provides that the rights and duties between the sender of a payment order and the receiving bank are governed by the law where the receiving bank is located. Because Bank of China (Hong Kong) is located in Hong Kong, the court held that Hong Kong law governed the dispute between it and the plaintiffs. The plaintiffs did not substantively challenge that choice-of-law conclusion. The court therefore dismissed the plaintiffs’ claims against Bank of China (Hong Kong) to the extent they were based on New York’s Uniform Commercial Code.

Possible Forum Non Conveniens Dismissal

After the rulings on the motions, the court stated that it was inclined to dismiss the remaining lawsuit under the doctrine of forum non conveniens, which allows a court to decline a case when another forum is more appropriate. The court noted that the remaining dispute involved two plaintiffs, one of whom was based in Hong Kong, and a Hong Kong-based defendant under Hong Kong law. Because Bank of China (Hong Kong) had not moved for dismissal on that ground, the court gave the parties an opportunity to brief it rather than ruling on it immediately.

Disposition

Judge J. Paul Oetken granted JP Morgan Chase Bank’s and Wells Fargo’s motions to dismiss. He granted Bank of China (Hong Kong)’s motion to dismiss in part. The plaintiffs had to show cause by April 24, 2020, why the complaint should not be dismissed on forum non conveniens grounds, and Bank of China (Hong Kong) had to respond by May 8, 2020. The clerk was directed to terminate JP Morgan Chase Bank and Wells Fargo as parties.