Huang v. Hong Kong and Shanghai Banking Corporation LTD

Background

Yen Hwa Huang alleged that scammers posing as Chinese officials told her she was being investigated for fraud and money laundering. They threatened that she could be arrested and extradited to China unless she cooperated. The scammers instructed her to liquidate her accounts and send wire transfers while keeping the supposed investigation secret.

Huang made four transfers to separate accounts at HSBC Hong Kong: $400,000 on August 27, 2019; $330,000 on August 29, 2019; $450,000 on September 10, 2019; and $160,000 on October 16, 2019. HSBC USA acted as the intermediary bank that accepted and processed the transfers from Huang's New York financial institutions. The accounts at HSBC Hong Kong were allegedly emptied after the deposits. HSBC Hong Kong flagged the fourth transfer as possible fraud and returned the $160,000, but Huang then sent that money through another bank after following the scammers' instructions.

After realizing she had been defrauded, Huang sought recalls of the transfers. She alleged that HSBC USA responded on behalf of HSBC Hong Kong that the money had cleared and the accounts were empty. Huang sued HSBC Hong Kong, HSBC USA, and unnamed defendants, asserting claims for aiding and abetting fraud, aiding and abetting conversion, negligence, and violation of Article 4A of the Uniform Commercial Code. HSBC USA moved to dismiss all four claims under Federal Rule of Civil Procedure 12(b)(6), which addresses failure to state a legally sufficient claim, and Rule 9(b), which requires fraud allegations to be stated with particularity.

Article 4A displacement

The court explained that Article 4A governs electronic funds transfers, including wire transfers processed by intermediary banks. A common-law claim is displaced when it conflicts with Article 4A or when the circumstances underlying the claim are specifically covered by Article 4A. Claims concerning events outside the mechanics of processing a wire transfer—such as conduct before or after processing—may survive displacement.

The court denied HSBC USA's motion insofar as it sought dismissal of Huang's common-law claims on the theory that Article 4A displaced them. Reading the allegations in Huang's favor, the court found that some alleged conduct involved matters outside the mechanics of the transfers, including alleged failures to administer security procedures and to detect or investigate suspicious activity.

Aiding and abetting claims

Under New York law, aiding and abetting a tort requires a primary violation, actual knowledge by the alleged aider, and substantial assistance in the violation. The court held that Huang did not plausibly allege either of the latter two elements.

The allegations did not support a strong inference that HSBC USA actually knew, before or during the transfers, that the money was being obtained through a fraud scheme. The alleged warning signs—including the large amounts, different recipients and accounts, and the accounts' being emptied after the deposits—could at most support an inference that the bank might have suspected fraud. Suspicion or failure to recognize warning signs was not enough to establish actual knowledge.

The court also held that HSBC USA's processing of routine wire transfers, even if the transfers appeared suspicious, did not constitute substantial assistance under New York law. Because Huang did not plausibly allege actual knowledge or substantial assistance, the court dismissed both aiding and abetting claims.

Negligence

A negligence claim requires a duty of care, a breach, and a resulting injury. The court identified the existence of a legal duty as the threshold issue. Generally, banks do not owe noncustomers a duty to protect them from the intentional wrongdoing of the banks' customers.

The allegations did not indicate that Huang or the scammers were HSBC USA customers. Instead, they described HSBC USA as an intermediary that processed transfers from Huang's various New York accounts to HSBC Hong Kong accounts and relayed a response to Huang's later recall request. Huang did not identify a source of any legal duty owed to her by HSBC USA. The court therefore granted the motion as to the negligence claim.

UCC Article 4A claim

Huang's fourth claim alleged a violation of Article 4A but did not identify which of Article 4A's provisions HSBC USA allegedly violated. HSBC USA suggested that Huang might be relying on Sections 4A-202 and 4A-203, but argued that those security-procedure provisions did not apply because Huang authorized the transfers.

The court stated that it saw no viable claim under the provisions identified by HSBC USA, but it gave Huang an opportunity to specify the legal basis of her Article 4A claim. The court granted Huang permission to move for leave to file another amended complaint. Any proposed amendment had to identify the relevant Article 4A provisions, plead plausible supporting facts, and provide additional details about Huang's domicile and citizenship for diversity-jurisdiction purposes.

Disposition

Judge Laura Taylor Swain granted HSBC USA's motion to dismiss the Amended Complaint. Counts I, II, and III—Huang's aiding and abetting fraud, aiding and abetting conversion, and negligence claims—were dismissed with prejudice as against HSBC USA for failure to state claims upon which relief may be granted. Count IV, the Article 4A claim, was also dismissed as against HSBC USA, but without prejudice to Huang's filing a motion for leave to replead it within 30 days. If Huang did not timely file that motion, or if the motion was denied as futile, Count IV would be dismissed with prejudice. The opinion resolved docket entry number 18, and the action remained referred to Magistrate Judge Netburn for general pretrial management.