First Am. Bank v. RBS Citizens, N.A.

FIRST AMERICAN BANK, et al., Plaintiffs, v. RBS CITIZENS, N.A., Defendants.

Case No. 14 C 8120

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

December 22, 2015

Honorable John Robert Blakey

MEMORANDUM OPINION AND ORDER

Plaintiff First American Bank (individually and as subrogee of First Aid Corporation d/b/a 1st Ayd Corporation), filed a Second Amended Complaint [48] against defendants Federal Reserve Bank of Atlanta, RBS Citizens, N.A. d/b/a Charter One (individually, "RBS Citizens" and collectively, the "bank defendants") and David Goodson, alleging breach of warranty under Regulation J, 12 C.F.R § 210.6 (Count I), implied indemnity against the bank defendants (Count II), restitution for payment by mistake under 810 ILCS 5/3-418 (Count III), negligent spoliation of evidence against RBS Citizens (Count IV) and professional negligence against Goodson (Count V). The defendants have moved to dismiss for failure to state a claim [52], [57]. For the reasons explained below, the motions are granted.

Background

Plaintiff filed this lawsuit "to recover for the defendants' participation in the transfer and collection of a fraudulent check in the amount of $486,750.33 and for professional negligence." Second Amended Complaint ("SAC") [48], ¶1. Plaintiff, along with Federal Insurance Company, filed an initial complaint on October 16, 2014 [1], and an amended complaint [6] on November 12, 2014. On June 25, 2015, this Court dismissed the amended complaint as to the bank defendants [43]. Plaintiff then filed the SAC on August 3, 2015. The bank defendants again moved to dismiss [52]. Goodson has also moved to dismiss [57].

In the SAC, Plaintiff alleges that defendant Goodson received an email from "Fumiko Anderson" seeking his assistance in recovering funds purportedly owed pursuant to a divorce proceeding. SAC [6], ¶17. Goodson then received a check via UPS delivery from Ontario, Canada, in the amount of $86,176.96; the check was made payable to the "Law Office of David M. Goodson" and "drawn by" First Aid Corporation on its account at First American. Id., ¶¶18-19. Goodson endorsed the check and deposited it in his client trust account at RBS Citizens. Id., ¶20. He then "caused RBS Citizens to wire some or all of the funds . . . to Japan." Id., ¶22. Plaintiff further alleges that RBS "took an electronic image of the check, transferred the image through the Federal Reserve System for payment by First American, and destroyed the original check." Id., ¶23. The Complaint does not seek damages or make any claims with respect to this check.

Plaintiff further alleges in the SAC that Goodson received a second check in November 2013; this check too arrived via UPS from Ontario, Canada, was made payable to the "Law Office of David M. Goodson" and was drawn by First Aid Corporation on its account at First American. SAC [48], ¶24. As before, Goodson endorsed the second check and deposited it into his client trust account at RBSCitizens; that same day, he caused RBS Citizens to wire some or all of the funds to Japan. Id., ¶¶25, 27. Again, Plaintiff alleges, RBS Citizens took an electronic image of the check, transferred the image through the Federal Reserve System for payment by First American, and destroyed the original check. Id., ¶26. This second check is designated No. 191435. Id., ¶24.

Both checks were fraudulent, as the parties later learned. SAC [48], ¶6. As a result, First American re-credited First Aid Corporation's account for both amounts and then sought indemnity from RBS Citizens. Id., ¶28-29. RBS Citizens indemnified First American for the first check, but not the second. Id., ¶29. Pursuant to a policy of insurance, Federal Insurance Company "(FIC") indemnified First American for a portion of its losses with regard to check No. 191435, First American assigned FIC the right to pursue recovery of those losses and then FIC reassigned such rights back to First American. Id., ¶30. As a result, First American is now the sole party in interest for the pursuit of the claims asserted in this action, and the SAC is filed on behalf of First American alone. Id.

First American sued RBS Citizens and the Federal Reserve Bank of Atlanta. According to the amended complaint, RBS Citizens transferred the item through the Federal Reserve System for payment by First American, and the Federal Reserve Bank of Atlanta was the immediate transferor of the item to First American. SAC [48], ¶7. First American also sued Goodson for his part in the transaction. The SAC asserts five claims: Count I asserts breach of warranty under Regulation J, 12 C.F.R. §210.6 against all defendants; Count II asserts an impliedindemnity claim against the bank defendants; Count III asserts restitution by mistake under 810 ILCS 5/3-418 against all defendants; Count IV asserts a claim of negligent spoliation of evidence against RBS Citizens; and Count V asserts a claim of professional negligence against Goodson. Plaintiff seeks judgment in its favor against the defendants, jointly and severally, in the amount of $486,750.33, plus interest, costs, attorneys' fees and expenses.

The bank defendants moved to dismiss Counts I, II, III and IV under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for which relief may be granted. Goodson moved to dismiss Counts I, III and V, joining the bank defendants' motion as to Counts I and III.

Discussion

"To survive a motion to dismiss under Rule 12(b)(6), the complaint must provide enough factual information to 'state a claim to relief that is plausible on its face' and 'raise a right to relief above the speculative level.'" Doe v. Village of Arlington Heights, 782 F.3d 911, 914 (7th Cir. 2015)(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

When analyzing a motion under Rule 12(b)(6), the Court must construe the allegations of the operative complaint in the light most favorable to the plaintiffs, accepting as true all well-pleaded facts and drawing all reasonable inferences intheir favor. E.g., Yeftich v. Navistar, Inc., 722 F.3d 911, 915 (7th Cir. 2013)(citing Fed. R. Civ. P. 12(b)(6); Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008)). Additionally, Rule 12(b)(6) limits this Court's consideration to "allegations set forth in the complaint itself, documents that are attached to the complaint, documents that are central to the complaint and are referred to in it, and information that is properly subject to judicial notice." Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013).

A. Plaintiff's Claim for Breach of Warranty in Violation of Regulation J

In Count I, Plaintiff alleges that defendants breached the warranty required in Regulation J that the electronic version of the check accurately reflected all of the information on the original check. The bank defendants argue in their motion that Count I should be dismissed because Plaintiff has failed to plead a plausible claim for breach of warranty in violation of Regulation J. Goodson joins the motion.

Just as it did with respect to the motion to dismiss the prior complaint, resolution of the current motions turns on the construction of the language of Regulation J. Applying basic rules of statutory construction, the Court begins with the language of the regulation itself. E.g., U.S. v. Balint, 201 F.3d 928, 932 (7th Cir. 2000)("When we interpret a statute, we look first to its language.") If the operative language is unambiguous when read within its context, the Court's job is simply to give those words their full force and effect. If the language is ambiguous or is otherwise reasonably subject to conflicting interpretation, then the Court's analysis is more complex.

Here, the Court's interpretation of Regulation J "is guided not just by a single sentence or sentence fragment, but by the language of the whole law, and its object and policy." Balint, 201 F.3d at 933 (citing Grammatico v. United States, 109 F.3d 1198, 1204 (7th Cir.1997)). The Federal Reserve Board's commentary is also instructive as to the meaning of a given word or phrase. E.g., Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566 (1980); Fogle v. William Chevrolet/GEO, Inc., No. 99 C 5960, 2000 WL 1129983, at *3 (N.D. Ill. Aug. 9, 2000)("considerable respect is due 'the interpretation given [a] statute by the officers or agency charged with its administration.' An agency's construction of its own regulations has been regarded as especially due that respect.")(quoting Zenith Radio Corp. v. United States, 437 U.S. 443, 450 (1978); Udall v. Tallman, 380 U.S. 1, 16 (1965)). See also U.S. v. Vizcarra, 668 F.3d 516, 520 (7th Cir. 2012)(commentary in the guidelines manual that interprets or explains a guideline is authoritative unless it is inconsistent with, or a plainly erroneous reading of, that guideline); U.S. v. Mitchell, 353 F.3d 552, (7th Cir. 2003)(treating the USSC's commentary to the guideline as authoritative).

Regulation J consists of two subparts: Subpart A, which addresses the collection of checks and other items by Federal Reserve Banks; and Subpart B, which deals with Funds Transfers through Fedwire. For present purposes, only Subpart A is relevant, and particularly Section 210.6 of Subpart A, which addresses "[s]tatus, warranties, and liabilities of Reserve Bank." 12 C.F.R. §210.6. Under Regulation J, when a Reserve Bank presents or sends an item, it "warrants to a subsequent collecting bank and to the paying bank and any other payor that—

(i) The Reserve Bank is a person entitled to enforce the item (or is authorized to obtain payment of the item on behalf of a person that is either entitled to enforce the item or authorized to obtain payment on behalf of a person entitled to enforce

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