Essilor Int'l SAS v. J.P. Morgan Chase Bank, N.A.

650 F.Supp.3d 62

ESSILOR INTERNATIONAL SAS and Essilor Manufacturing (Thailand) Co., Ltd., Plaintiffs, v. J.P. MORGAN CHASE BANK, N.A., Defendant.

22-cv-3361 (LJL)

United States District Court, S.D. New York

Signed January 4, 2023

Ariel Moore, Steven Sanford Fitzgerald, William Andrew Maher, Wollmuth Maher & Deutsch LLP, New York, NY, for Plaintiff Essilor International SAS.

Ariel Moore, Randall R. Rainer, Steven Sanford Fitzgerald, William Andrew Maher, Wollmuth Maher & Deutsch LLP, New York, NY, for Plaintiff Essilor Manufacturing (Thailand) Co., Ltd.

Alan Schoenfeld, Wilmer Cutler Pickering Hale & Dorr LLP, New York, NY, Margarita Maria Botero, Wilmer Cutler Pickering Hale & Dorr LLP, Denver, CO, for Defendant.

OPINION AND ORDER

LEWIS J. LIMAN, United States District Judge:

Defendant J.P. Morgan Chase Bank, N.A. ("JP Morgan" or "Defendant") moves to dismiss the complaint against it pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt. No. 18. For the following reasons, Defendant's motion to dismiss is granted in part and denied in part.

BACKGROUND

The Court accepts as true for purposes of this motion the well-pleaded factual allegations of the complaint, Dkt. No. 1 ("Complaint"), and the documents incorporated by reference therein.

This case arises out of a complex fraud orchestrated against plaintiffs Essilor International SAS ("Essilor") and Essilor Manufacturing (Thailand) Co., Ltd. ("EMTC," and, together with Essilor, "Plaintiffs") from mid-September 2019 through mid-December 2019 by a group of international cybercriminals. Dkt. No. 1 ¶ 1. The scheme resulted in the transfer of approximately $272 million from an account in the name of EMTC maintained at a New York, New York branch of JP Morgan. Id. ¶ 2. As of April 25, 2022, Plaintiffs were able to recover approximately $172 million, but have been unable to recover approximately $100 million. See id.

Essilor is a French simplified joint-stock company with its principal place of business in Charenton-le Pont, France. Id. ¶ 11. It is one of three main subsidiaries of EssilorLuxottica SA, the world's leading ophthalmic company. Id. EMTC, a wholly owned subsidiary of Essilor, is a Thai limited company with its principal place of business in Bangkok, Thailand. Id. ¶ 12. EMTC operates a manufacturing plant in Thailand. Id. EMTC has a U.S. bank account with JP Morgan, a national banking association; EMTC uses this account to purchase supplies and conduct other transactions in U.S. dollars. Id. ¶¶ 12-13.

EMTC and Essilor both had long-standing relationships with JP Morgan. Id. ¶ 16. Although long in allegations about the fraud and the red flags that allegedly accompanied it, the Complaint is short on allegations about the nature and timing of the relationships of each of EMTC and Essilor with JP Morgan. As noted, Plaintiffs allege that EMTC had an account at a JP Morgan branch located in New York, New York (the "NY Account"). Id. Plaintiffs also allege that a "broader cash management system . . . was put in place in [March] 2017 involving EMTC and other Essilor subsidiaries." Id. ¶ 53; see also id. ¶ 16. The cash management system ("Cash Management System") ensured that EMTC and other affiliates had sufficient funds to operate. Id. ¶ 27. JP Morgan permitted overdrafts, subject to a daily limit; JP Morgan would settle negative balances through the daily cash sweeping process. Id. If the balance of any affiliate's account was negative, proceeds would be "swept down" from Essilor at the end of each day, while positive balances would be "swept up" to Essilor. Id. As a result, the account of each affiliate would begin each day with a balance of $0. Id. The Complaint alleges that the NY Account was opened pursuant to the Cash Management System, presumably also in March 2017. See id. ¶¶ 16, 27, 53.

The parties have submitted a number of documents that each claims constitutes the relevant agreements between JP Morgan and Plaintiffs. Defendant has submitted a declaration from Siriwan Premplumjit, a Vice President and Client Services Manager at JPMorgan Chase Bank, N.A.-Bangkok Branch and the dedicated client suite manager for EMTC (the "Premplumjit Declaration"), declaring that EMTC's JP Morgan account was opened in September 2015 and was governed by a set of account terms ("EMTC Account Terms"). See Dkt. No. 20 ¶¶ 3-5. The EMTC Account Terms give "[e]ach Authorized Person . . . , subject to any written limitation provided by [EMTC] and received and accepted by [JP Morgan]," the authority to "give instructions [ ], including requests and payment orders, by means other than the signing of an [i]tem, with respect to any Account transaction . . . ." Dkt. No. 20-2 § 1.2. Authorized Person is defined as "a person authorized to act on behalf of [EMTC] . . . with respect to the Accounts and Services." Id. § 1.1. The EMTC Account Terms also provide that "[w]hen issuing instructions, [EMTC] is required to follow [JP Morgan]'s security procedures as communicated to [EMTC] by [JP Morgan] from time to time," and that "[u]pon receipt of an instruction, [JP Morgan] will use the security procedures to verify that the instruction is effective as that of [EMTC]." Id. § 2.1. The EMTC Account Terms further state: "It is understood that the purpose of the security procedure is to verify the authenticity of, and not to detect errors in, [i]nstructions." Id. The EMTC Account Terms impose a two-year statute of limitations for claims in connection with any account. Id. § 16.2 ("Any claim in connection with any Account or Service, unless a shorter period of time is expressly provided, must be brought against [JP Morgan] within two (2) years of the occurrence of the event giving rise to the claim, except as prohibited by applicable law.").

Plaintiffs contest that the EMTC Account Terms apply to the NY Account. In support of its contention, Plaintiffs have submitted copies of two contracts entitled "US Cash Concentration Service Terms (Multi Entity)." Dkt. Nos. 29-1, 29-2. The first agreement, effective March 10, 2017, is between JP Morgan and a number of Essilor-affiliated customers, including EMTC, for cash concentration services. See Dkt. No. 29-1 §§ 1, 4(a). It requires JP Morgan to transfer funds to and from a list of customer accounts identified in an attached schedule in accordance with certain instructions and selections agreed to by JP Morgan and the customers. Id. § 1 & Sch. A. Schedule A identifies Essidev SASU ("Essidev") as the "Master Customer," identifies an EMTC account (number 496591988) as a "participating account," permits overdrafts among the participating accounts, and indicates that intercompany reporting services were not requested in connection with the cash concentration services. See id. Sch. A & nn.2, 5, 15. The second agreement, which is undated, mirrors the first, but lists Essilor as the "Master Customer" and Essidev as the only "participating account."¹ See Dkt. No. 29-2, Sch. A. Schedule A also permits overdrafts between the participating accounts and indicates that intercompany reporting services were not requested in connection with the cash concentration services. Id. Sch. A & n. 15. EMTC is not identified as a party to this contract. Plaintiffs have also submitted a set of account terms between JP Morgan and Essidev ("Essidev Account Terms"). See Dkt. No. 29-3. The Essidev Account Terms are similar to the EMTC Account Terms, except the statute of limitations is three years. Id. § 16.2.

Plaintiffs allege that from mid-September 2019 until mid-December 2019 (the "Fraudulent Period"), approximately 243 fraudulent payments were made from EMTC's NY Account, resulting in the fraudulent transfer of approximately $272,151,000. Dkt. No. 1 ¶ 17. This fraud was accomplished with the active assistance of a then-EMTC employee, Chamanun Phetporee ("Phetporee"). Id. ¶ 18. JP Morgan's security protocol involved a two-step verification process for the NY Account. Id. ¶ 41. First, the "maker" would initiate a payment order. Id. Two separate "approvers" would then have to approve the payment order before it was executed. Id. Phetporee was authorized to provide the first approval. Id. ¶ 19. To obtain the required second approval, Phetporee misappropriated the credentials of the designated second approver. Id. The nature of the transactions from EMTC's NY Account differed markedly during the Fraudulent Period from their nature prior to that period. Id. ¶ 32. During the period prior to September 2019, the average total dollar value of transfers per month was less than $15 million. Id. ¶ 33. In October 2019, approximately $33,222,000 was transferred from the NY Account. Id. The average increased to $119,354,000 in November 2019 and $140,117,000 in December 2019. Id. Similarly, the number of monthly payment orders from the NY Account doubled after September 2019. Id. ¶ 34. In 2017, there was an average of thirty-two payment orders per month from the NY Account. Id. In 2018, there was an average of fifty-four payment orders per month from the NY Account. Id. And between January and August 2019, there was an average of fifty-six payment orders per month from the NY Account. Id. In contrast, during the three-month period from October 2019 through December 2019, there was an average of 102 payment orders from the NY Account, with over a hundred payment orders made in each of October, November, and December 2019. Id.

Plaintiffs allege that, based on JP Morgan's communications, they "reasonably understood that [JP Morgan] would monitor the NY Account" for this type of fraudulent activity. Id. ¶ 22. Plaintiffs point to both JP Morgan's legal and contractual obligations. Plaintiffs specifically point to a section of JP Morgan's website, which describes the company's anti-money laundering efforts designed to comply with "laws and regulations in the U.S." Id. Based on this portion of the website, Plaintiffs claim that JP Morgan "was required to monitor EMTC's account activity . . . [and] to...