Another Win for Banks: Illinois Federal Court Tosses Wire Fraud Claims

Troutman Pepper

A recent decision out of the Northern District of Illinois should help banks defend against increasingly common claims involving fraudulent wire transfers. In Trivedi v. Bank of America, et al., the district court granted the defendant banks’ motions to dismiss, holding that the plaintiff’s common law claims were preempted by the Illinois Uniform Commercial Code (UCC), the consumer fraud claims failed to meet R. 9(b)’s heightened pleading standard, and claims under the Electronic Funds Transfer Act failed to state a claim.

The plaintiff was duped by an individual he believed to be with his wealth advisor firm into providing orders to transfer $100,000 from his account at the sending bank to an account in the name of a broker held by the beneficiary bank (under UCC parlance, the beneficiary bank is the bank receiving the wired funds). One week after sending the order and not receiving credit for the funds, the plaintiff reached out to his bank to request a fraud recall on the wire. The funds were not able to be recalled, but the beneficiary bank did freeze the account shortly after the fraud was reported. The plaintiff initiated litigation against the sending bank and beneficiary bank, alleging violations by the sending bank of breach of fiduciary duty, common law negligence, and a violation of the Illinois Consumer Fraud Act (ICFA). The plaintiff asserted claims against the beneficiary bank for a violation of the ICFA, common law negligence, and a violation of the Electronic Funds Transfer Act (EFTA), 12 C.F.R. § 205.11, asserting that the beneficiary bank failed to investigate allegations of error in the transfer.

In its opinion, the district court found that the plaintiff’s common law claims against the banks were preempted by Article 4A of the Illinois UCC. Specifically, the court held that the banks’ duties when completing a wire transfer “are detailed in Article 4A.” The banks “had a duty to follow any written instructions from [the plaintiff] in the issuing and acceptance of payment orders,” and no violation of Article 4A was alleged. Further, because the plaintiff did not try to cancel the payment order until after it was accepted by the beneficiary bank, the court held that the plaintiff’s claims for breach of fiduciary duty and negligence were preempted by Article 4A.

The court also dismissed the plaintiff’s ICFA claim as the plaintiff failed to allege that either bank participated in deceiving the plaintiff, or otherwise colluded with the unknown fraudster with requisite specificity as required by R. 9(b). Finally, as to the EFTA claim, the court held that the plaintiff’s claims were also preempted by the UCC. Specifically, the court looked to precedent from the Sixth Circuit and the language of Article 4A in holding that when a transaction involves a wire transfer, “the rules adopted from Article 4A serve as the exclusive means for determining the rights, duties and liabilities of all parties involved in a Fedwire funds transfer.” The court refused to grant the plaintiff leave to amend, finding that the complaint had already been amended once, and further amendment would be futile.

With wire fraud cases on the rise, this case provides a textbook example of how the sending and beneficiary bank can mount a defense against wire fraud claims. Because Article 4A of the UCC governs wire transfers, plaintiffs asserting wire fraud claims are generally limited to relief afforded under Article 4A of the UCC; claims under common law, consumer fraud statutes, and the EFTA generally cannot be used to impose liability on a bank for its role in a wire transfer transaction.

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Troutman Pepper
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