Sixth Circuit Affirms Dismissal of Suit Based Upon Delayed Wire Transfer

Sixth Circuit Affirms Dismissal of Suit Based Upon Delayed Wire Transfer

      The Sixth Circuit has affirmed the dismissal of the suit premised upon the bank’s delay in completing a wire transfer. The wire was in the amount of $9,167.08; the damages sought were $3 million. Wright v. Citizens Bank of East Tennessee, No. 15-5406 (Sixth Cir. Jan. 8, 2016).

      Mr. and Mrs. Wright maintained margin accounts at several institutions.  They opened an account at Citizens Bank after confirming that it had wire transfer capabilities.  On at least one prior instance, on behalf of the Wrights, Citizens Bank made a wire transfer on their behalf.

      In 2008, Deutsche Bank advised the Wrights of a margin call in order to maintain the required ratios in a margin account.  The notice of the need to make that margin call was sent on October 3 with a deadline of October 9.  On October 9, the deadline date, Mrs. Wright visited a Citizens Bank branch to initiate a wire transfer.  The form that was completed with respect to the wire transfer contained an inaccuracy and, while it was initiated on October 9, the error was not corrected, and the wire was not completed, until October 10.  However, by then, Deutsche Bank's stock clearinghouse had already sold between $50,000 and $80,000 worth of stock owned by the Wrights, the value in the account having in the meantime fallen further.  While not discussed in the opinion, October, 2008 was a particularly bad time for the stock market. For example, it was on October 8 that the Fed announced it would loan AIG an addition $37.8 billion to save it from bankruptcy.

      As recited in the Complaint, the Wrights alleged a litany of consequences following from the delayed wire and the stock selloff to meet the margin, including “additional margin call, lost assets through stock sales, were subject to unexpected capital-gains tax, were forced to sell valuable assets for less than they were worth, and were denied refinancing of their mortgage.” Slip op. at 4.  This suit alleged claims based upon negligent or intentional misrepresentation as to Citizens training of its employees to execute wire transfers, violation of the Federal Electronic Funds Transfer Act (“EFTA”), fraud with respect to the wire transfer as ultimately completed on October 10 and as well as claim for punitive damages.

      The complaint was dismissed by the District Court on summary judgment, which grant of summary judgment would ultimately be upheld by the Court of Appeals.

      With respect to the claimed violation of EFTA, in that the wire transfer was done through the Fed wire system, and as Fed wire transfers are exempt from EFTA, it was confirmed that it is simply inapplicable.

      With respect to the allegations of fraud in the execution of the wire transfers, which claims were brought under common law, it was found that those claims are displaced by and governed by Article 4A of the Uniform Commercial Code.  Essentially, irrespective of what the law may have otherwise been with respect to those counts, they are now exclusively governed by Article 4A of the UCC.  With this ruling, the Sixth Circuit joined a number of other Circuits in finding these state law claims to be preempted by the statute.  In that Article 4A of the UCC provides strict limits as to the liability of the bank with respect to errors in the execution of a wire transfer, and precludes other damages, these claims failed.

      With respect to the allegation that the bank's employees had not been sufficiently trained in the execution of wire transfers, the Sixth Circuit found that the Wrights had not made the required showing that the training was outside of industry norms.  As to this point, it was noted that the teller who met with Mrs. Wright on October 9 had previously completed a wire transfer on behalf of Mr. Wright, which indicated that the teller had been properly trained, and a simple mistake had been made on October 9.