Owczarzak v. JP Morgan Chase Bank

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GERARD OWCZARZAK, Plaintiff, v. JP MORGAN CHASE BANK, N.A., Defendant.

No. 23-cv-13113

United States District Court, E.D. Michigan, Southern Division

July 15, 2024

Honorable Judith E. Levy

REPORT AND RECOMMENDATION TO GRANT DEFENDANT'S MOTION TO DISMISS (ECF NO. 10)

ELIZABETH A. STAFFORD UNITED STATES MAGISTRATE JUDGE

I. Introduction

Plaintiff Gerard Owczarzak sues Defendant JP Morgan Chase Bank, N.A., for allegedly failing to prevent him from being defrauded into making multiple wire transfers to bank accounts in Hong Kong. ECF No. 1. JP Morgan moves to dismiss the case. ECF No. 10. The Honorable Judith E. Levy referred the motion to the undersigned for report and recommendation under 28 U.S.C. § 636(b)(1)(B). ECF No. 11. The Court RECOMMENDS that JP Morgan's motion be GRANTED.

II. Background

Owczarzak had a deposit account at JP Morgan and did his banking at several branches in Macomb County. ECF No. 1, PageID.2. In September and October 2022, Owczarzak was defrauded into making ten wire transfers, totaling $725,205, to bank accounts in Hong Kong. Id., PageID.2-5. When he tried to make an eleventh wire transfer, a JP Morgan employee intervened to prevent the transfer. Id.

Owczarzak brings a negligence claim, asserting that JP Morgan failed to exercise reasonable care in preventing and investigating suspected fraudulent transfers, given that he was 70 years old and had cognitive limitations from a stroke. Id. He also claims that JP Morgan failed to employ recommendations from the Consumer Financial Protection Bureau (CFPB) to help recognize signs of elder financial exploitation. Id., PageID.5-6. JP Morgan seeks dismissal of the case.

III. Analysis

A.

A motion to dismiss under Rule 12(b)(6) tests a complaint's legal sufficiency. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The Iqbal Court explained, “[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.” Id. The complaint's allegations “must do more than create speculation or suspicion of a legally cognizable cause of action; they must show entitlement to relief.” League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007).

In deciding whether a plaintiff has set forth a “plausible” claim, the Court must construe the complaint in the light most favorable to the plaintiff and accept as true all well-pleaded factual allegations. Iqbal, 556 U.S. at 678. But “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice,” id., and the Court has no duty to create a claim not spelled out in the pleadings, Freightliner of Knoxville, Inc. v. DaimlerChrysler Vans, LLC, 484 F.3d 865, 871 n.4 (6th Cir. 2007).

B.

JP Morgan argues that Owczarzak's common-law negligence claim is displaced by Article 4A of Michigan's Uniform Commercial Code (UCC). ECF No. 10, PageID.34-39. The Court agrees.

Article 4A governs “funds transfers,” commonly known as wholesale wire transfers. Mich. Comp. Laws § 440.4602 cmt. “A funds transfer is made by means of one or more ‘payment orders,'” defined as “an instruction of a sender to a receiving bank to pay, or to cause another bank to pay, a fixed or determinable amount of money to a beneficiary.” Id. §§ 440.4602 cmt., 440.4603(1)(a) (cleaned up). A “sender” is “the person giving the instruction to the receiving bank,” and the “receiving bank” is “the bank to which the sender's instruction is addressed.” Id., § 440.4603(1)(d), (e). The “beneficiary” is the person to be paid. Id. § 440.4603(1)(b). Here, Owczarzak was the sender, JP Morgan was the receiving bank, and the Hong Kong account owners were the beneficiaries.

Article 4A displaces principles of common law that conflict with its terms:

The rules represent a careful and delicate balancing of [banks' and consumers'] interests and are intended to be the exclusive means of determining the rights, duties and liabilities of the affected parties in any situation covered by particular provisions of the Article. Consequently, resort to principles of law or equity outside of Article 4A is not appropriate to create rights, duties and liabilities inconsistent with those stated in this Article.

Id., § 440.4602 cmt. (cleaned up). Yet the UCC also states, “Unless displaced by the particular provisions of this act, the principles of law and equity shall supplement its provisions.” Id., § 440.1103(2) (cleaned up).

Michigan's state courts have not addressed Article 4A displacement. But when addressing a Tennessee provision that mirrors Michigan's Article 4A, the Sixth Circuit held that the article “displaces common-law claims relating to wire transfers if the claims arise out of a situation addressed by Article 4A or attempt to create rights, duties, or liabilities inconsistent with Article 4A.” Wright v. Citizen's Bank of E. Tenn., 640 Fed.Appx. 401, 406 (6th Cir. 2016). The critical inquiry is whether Article 4A's “‘provisions protect against the type of underlying injury or misconduct alleged in a claim.'” Id. (quoting Ma v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 597 F.3d 84, 87, 89-90 (2d Cir. 2010)).

In Wright, the plaintiff entered a payment order to be completed on October 9, but the defendant receiving bank inaccurately entered the beneficiary's account number, causing the transfer to fail. Id. at 402-03. The receiving bank corrected the wiring instruction and completed the transfer the next day. Id. The plaintiff brought a negligence claim, alleging that the receiving bank failed to exercise reasonable care in completing the authorized October 9 wire transfer and fraudulently issuing the transfer on October 10. Id. Finding that Article 4A addressed a receiving bank's failure to comply with a sender's order, the court found that the claim was displaced. Id. at 407-08.

Following Wright, courts in this district have held that Michigan's Article 4A displaces negligence claims. In Blostein v. J.P. Morgan Chase Bank, N.A., which addressed allegations like those here, the court said that “any common law claims based upon wire transfers have been found to be displaced by [Michigan's] Article 4A.” No. 22-12856, 2023 WL 3319917, at *1 (E.D. Mich. May 9, 2023). The account holder in Blostein authorized the defendant bank to make several wire transfers totaling over $300,000 to an account in Thailand. The guardian of the account holder sued the bank for negligence, alleging that the account holder was a “vulnerable adult” and that the bank executed three transfers for the account holder even after the bank's branch manager reported a transfer to adult protective services. Id. Because Michigan's Article 4A “sets forth the rights and liabilities for payment orders, or wire transfers,” and because the claim stemmed from wire transfers, the court held that the negligence claim was displaced. Id. at *3 (cleaned up).

In McLaughlin v. Comerica Bank, the elderly plaintiff fell victim to a scam and made a single wire transfer of $92,600 from her Comerica bank account. No. 21-12661, 2022 WL 16040109, at *1, 3 (E.D. Mich. Apr. 18, 2022). Fifteen minutes after authorizing the transfer, McLaughlin told Comerica to cancel the transfer, and Comerica staff allegedly told her that the transfer would be stopped. Id. at *4. But Comerica did not cancel the transaction, which was completed four days later. Id. McLaughlin asserted that Comerica negligently completed the transfer without questioning her mental acuity and failed to cancel the transfer. Id. The court found that because “all of Plaintiffs' common-law claims are based upon the wire transfer,” they were displaced by Article 4A. Id. at *6.

Owczarzak's claim stems from JP Morgan's alleged negligence in (1) completing the payment orders by wire transfer without questioning whether Owczarzak was being exploited and (2) failing to follow the CFPB recommendations on elder financial exploitation. ECF No. 1, PageID.5-6. But Article 4A governs both matters. First, Article 4A states that “[a] payment order received by the receiving bank is the authorized order of the person identified as sender if that person authorized the order or is otherwise bound by it under the law of agency.” Mich. Comp. Laws § 440.4702(1). The article sets forth a receiving bank's duties when executing an authorized payment order. Id. § 440.4802. Second, a receiving bank's duty to maintain commercially reasonable security procedures is covered under the article. Id. § 440.4702(2); Berry v. Regions Fin. Corp., 507 F.Supp.3d 972, 978 (W.D. Tenn. 2020). Thus, Owczarzak's negligence claim is displaced.

Owczarzak argues that “[t]he type of misconduct alleged in this case is not specifically addressed in Article 4A,” citing two cases in support. ECF No. 14, PageID.167. In Imperium Logistics, LLC v. Truist Fin. Corp., the plaintiffs were to receive $150,000 in settlement proceeds through a wire transfer to their attorney's client-trust account. 686 F.Supp.3d 600, 602 (E.D. Mich. 2023). But a fraudster hacked into the attorney's email and sent a message to the party transferring the funds that changed the wiring instructions to designate an account at Truist. Id. A second fraudster who worked at Truist accepted the wire transfer despite inconsistencies in the wiring instructions. Id. at 602-03.

The plaintiffs sued Truist for common-law conversion. Because a Truist employee knew that the transfer was fraudulent, the court found that “acceptance”...