FYI: Fla Court Holds Alleged "No Lawful Basis to Debit" Enough to State Claim Under Reg J and UCC Art 4A

The Circuit Court of the Eleventh Judicial Circuit in Miami-Dade County, Florida recently dismissed equitable and tort claims for restitution, "money had and received," negligence, indemnification, tortious interference and conversion brought by a company against its bank for reversing a wire transfer due to fraud.  However, the Court refused to dismiss the account holder's claim for breach of the deposit agreement.

 

The Court held that Regulation J (12 CFR § 210.25-210.32) and Article 4A of the Uniform Commercial Code ("UCC") were incorporated into the deposit agreement at issue, and these provisions only allowed the bank to reverse the payment under the common law governing mistake and restitution.  Here, the plaintiff alleged the bank had "no lawful basis to debit" the account, which in the Court's view was enough to state a claim for breach of the deposit agreement.

 

A copy of the opinion is attached.

 

A wire transfer in the amount of $62,000 was credited to a company's deposit account at a bank (the beneficiary bank), but later reversed at the request of the originating bank, which informed the beneficiary bank that it had mistakenly wired funds from an account of its customers that had no business relationship with the recipient of the wire transfer.

 

By the time the fraud was discovered, the wire recipient company had delivered more than $100,000 worth of goods to a purchaser it believed had wired the money.

 

The wire transfer recipient company sued both its bank and the originating bank, raising seven legal and equitable claims "sounding in both contract and tort." The banks moved to dismiss.

 

The Court began it opinion by noting that question presented was whether the beneficiary bank "had a legal right to debit the account."

 

The beneficiary bank argued that it had the right under the deposit agreement with the plaintiff to reverse a wire transfer if it was "fraudulent, counterfeit or invalid for some other reason." The plaintiff wire transfer recipient company argued that the deposit agreement did not apply to wire transfers and provided that "[f]und transfers through Fedwire will be governed by … Regulation J, Subpart B, and [UCC] Article 4A…."

 

The Court first addressed whether the deposit agreement applied to fraudulent or invalid wire transfers, finding that a wire transfer was not an "item" as defined by the "Deposits and Cashed Items" provision of the deposit agreement, and that the parties' rights and duties were governed exclusively by the "Funds Transfer Service" section of the deposit agreement.

 

The "Funds Transfer Service" section provided that funds sent through "Fedwire" were governed by Regulation J and UCC Article 4A. Because there was no dispute the money was sent through "Fedwire," the Court found that the parties' relationship was governed by and subject to Regulation J and UCC Article 4A, which were "enacted to provide a comprehensive statutory scheme to apply to fund transfer disputes not involving the Electronic Funds Transfer Act."

 

The Court explained that when Article 4A applies to a funds transfer, it provides the sole remedy, to the exclusion "common law or other statutory claims."

 

The Court then turned to the applicable UCC provision -- Article 4A-211(c)(2), codified as § 670.211(3)(b), Fla. Stat. -- which provides that a payment order may be cancelled or amended by the beneficiary bank after it accepts it, if it "was issued in execution of an authorized payment order".  In addition, the Court noted that "the beneficiary's bank is entitled to recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution."  See Article 4A-211(c)(2); § 670.211(3)(b), Fla. Stat.

 

Thus, the Court held, the beneficiary bank could "charge back the funds initially wired and credited to [plaintiff wire transfer recipient company] only if [the beneficiary bank] would be entitled to reverse the initial payment by application of the common law 'governing mistake and restitution.'"

 

Because the Court concluded that the provisions of the deposit agreement giving the beneficiary bank the unfettered right to reverse items credited fraudulently did not apply to wire transfers, and instead that Regulation J and the UCC applied, the plaintiff stated a cause of action for breach of contract because it alleged that its bank had "no lawful basis to debit" the account and doing so breached the deposit agreement.

 

Turning to the remaining equitable and tort claims, the Court dismissed the equitable claims with prejudice because of the common law rule that equitable relief is not available where an express contract exists between the parties.

 

The Court also dismissed the claims for negligence and indemnification against the originating bank with prejudice because that bank owed no legal duty of care to the plaintiff, which was not its customer.

 

Finally, the Court dismissed with prejudice the claims for tortious interference and conversion against the originating bank, finding that the bank had the right to request that the beneficiary bank return the funds under the UCC and thus could not have unlawfully interfered with the business relationship between the plaintiff and its beneficiary bank. In addition, the Court noted, the money returned by the plaintiff's bank "was not separate and identifiable it cannot be the subject of a claim for conversion."

 

In sum, the Court denied the motion to dismiss the breach of contract claim, but granted the motion as to the other six non-contract claims. It also left intact plaintiff's claim for attorney's fees based on the deposit agreement, but struck any claim for attorney's fees as "consequential damages."

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

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FYI: 10th Cir Affirms Refusal to Compel Arbitration as to Non-Signatory Third-Parties

The U.S. Court of Appeals for the Tenth Circuit recently affirmed a trial court's denial of a motion to compel arbitration against non-signatory third-party beneficiaries who did not accept the benefits of the contract.

 

A copy of the opinion is available at:  Link to Opinion

 

In 2009, a buyer financed a mobile home purchase with a manufactured-home retail installment contract (the "Contract").  The Contract contained an arbitration provision that purportedly extended to "all co-signors and guarantors … and any occupants of the manufactured home."

 

Five years later, the buyer and her family sued the home's manufacturer and the lender.  The buyer and her family alleged that defects in the home caused toxic mold, rendering the home unfit for habitation.  The buyer and her family sought rescission of the manufactured home purchase.

 

The defendants moved to compel arbitration and argued that the buyer's husband and their children were bound by the arbitration agreement, even though they never signed the contract.  The trial court granted the defendants' motion to compel the buyer's claims but denied it with respect to those claims asserted by the buyer's family. 

 

The Tenth Circuit affirmed the trial court's refusal to compel arbitration as to the buyer's family. 

 

The Tenth Circuit first noted that the nonsignatory plaintiffs were not third-party beneficiaries of the Contract as a whole.  Instead, they were third-party beneficiaries only to the Contract's arbitration clause.

 

The Tenth Circuit then rejected the defendants' arguments that the arbitration clause applied to the buyer's family as third-party beneficiaries.  The Tenth Circuit reasoned that a "contract (here, the arbitration agreement) [cannot] be enforced against an intended third-party beneficiary who has not accepted the benefit (here, the right to compel arbitration)." 

 

The Tenth Circuit also rejected the defendants' arguments that the buyer's family was bound to arbitrate their claims under the doctrine of equitable estoppel.

 

Defendants first advanced an "integrally-related-claim estoppel" theory.  Specifically, Defendants argued that all of the Plaintiffs were subject to the Contract's arbitration clause because the buyer's claims and her family's claims were identical, and thus, integrally related to the Contract. 

 

The Tenth Circuit rejected the defendants' argument, holding that the "integrally-related-claim estoppel" theory (or "intertwined claims" theory) does not apply "where a signatory-defendant seeks to compel arbitration with a nonsignatory-plaintiff."

 

The defendants also argued that the buyer's family was required to arbitrate their claims based on the "direct-benefit estoppel doctrine," which "applies when a nonsignatory knowingly exploits the agreement containing the arbitration clause."

 

As you may recall, "[u]nder 'direct benefits estoppel,' a non-signatory plaintiff seeking the benefits of a contract is estopped from simultaneously attempting to avoid the contract's burdens, such as the obligation to arbitrate disputes." However, the Tenth Circuit found that the defendants waived their "direct-benefit estoppel" theory by not arguing it before the trial court.

 

Thus, the Tenth Circuit affirmed the trial court's ruling.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

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FYI: DC Cir Holds FCC Exceeded Its Authority Under TCPA as to "Solicited Fax" Rule

The U.S. Court of Appeals for the District of Columbia Circuit recently held that the Federal Communications Commission's ("FCC") 2006 Solicited Fax Rule exceeded its authority under the federal Telephone Consumer Protection Act (TCPA) to the extent that it requires opt-out notices on fax advertisements sent with the permission of the recipient ("solicited" faxes) as well as on unsolicited fax advertisements.

 

A copy of the opinion is available at:  Link to Opinion

 

A company that sells generic drugs faxed advertisements to small pharmacies containing weekly pricing information and "specials." Many small pharmacies gave consent to receive the faxes.  The drug company was sued in a class action lawsuit for allegedly sending fax advertisements that did not include the opt-out notice required by the FCC's Solicited Fax Rule, even though many of the recipients had given consent.

 

The drug company and other similarly situated companies petitioned the FCC in 2010 for a declaratory ruling "clarifying that the Act does not require an opt-out notice on solicited fax advertisements—that is, those that are sent with the recipient's prior express permission."  The FCC entered an administrative order declaring that the TCPA gives it the power to require opt-out notices on both solicited and unsolicited faxes, although it agreed to waive application of the rule to faxes sent prior to April 30, 2015.

 

The petitioner's sought review of the order in the U.S. Court of Appeals for the District of Columbia Circuit pursuant to 47 U.S.C. § 402(a) and 28 U.S.C. § 2342(1).

 

The Court of Appeals began is opinion by explaining that the TCPA became law in 1991 and was amended in 2005 by the Junk Fax Prevention Act (collectively, the "TCPA").

 

The TCPA "generally prohibits the use of 'any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.'"  The Court noted that the TCPA defines "unsolicited advertisement" as "any material advertising the commercial availability or quality of any property, goods or services which is transmitted to any person without that person's prior express invitation or permission, in writing or otherwise."

 

However, the D.C. Circuit noted, the TCPA allows unsolicited fax advertisements in three situations if: "(1) 'the unsolicited advertisement is from a sender with an established business relationship with the recipient; (2) the sender obtained the recipient's fax under through 'voluntary communication with the recipient or 'the recipient voluntarily agreed to make' his information available in 'a directory, advertisement, or site on the Internet'' and (3) the unsolicited advertisement 'contains a notice … [that is] 'clear and conspicuous' and 'on the first page' … must state that the recipient may opt out from 'future unsolicited advertisements,' and must include a 'cost-free mechanism' to send an opt-out request 'to the sender of the unsolicited advertisement.'"

 

The TCPA provides a private right of action to fax recipients and provides that aggrieved plaintiffs can recover from fax senders $500 per violation.

 

In 2006, the FCC promulgated the Solicited Fax Rule, which "requires a sender of a fax advertisement to include an opt-out notice on the advertisement, even when the advertisement is sent to a recipient from whom the send 'obtained permission.' In other words, the FCC's new rule mandates that the senders of solicited faxes comply with the statutory requirement that applies only to senders of unsolicited faxes."

 

The Court of Appeals disagreed with the FCC's interpretation of the TCPA, finding that the clear language of the TCPA requires an opt-out notice on unsolicited faxed ads, but does not require an opt-out notice on solicited faxes. In addition, the D.C. Circuit held, the TCPA does not provide the FCC with the power to require the inclusion of opt-out notices on solicited faxed ads.

 

The Court rejected the FCC's argument that it could require opt-out notices on solicited faxes as long as Congress had not expressly prohibited it because "[t]hat theory has it backwards as a matter of basic separation of powers and administrative law. The FCC may only take action that Congress has authorized."

 

Because the text of the statute did not expressly authorize the FCC to require the inclusion of opt-out notices on solicited faxes, the D.C. Circuit held that "the FCC's Solicited Fax Rule is "unlawful to the extent that it requires opt-out notices on solicited faxes." Because the FCC administrative order interpreted its 2006 Solicited Fax Rule, the Court vacated the order and remanded for further proceedings.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 11th Cir Adopts "Claim Splitting" Doctrine, Upholds Dismissal of Duplicative Litigation

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a complaint alleging violations of the federal Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq. ("TCPA"), the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA") and its analogue under Florida state law, because the plaintiff previously filed a separate lawsuit against the same defendant alleging violations of the TCPA based on the same conduct.

 

Because the Eleventh Circuit concluded that the claims asserted in the second action were based on the same nucleus of operative facts, the plaintiff was barred from splitting her claims among the lawsuits.

 

A copy of the opinion is available at:  Link to Opinion

 

In April 2014, the plaintiff ("Plaintiff") filed a complaint alleging that the defendant ("Defendant") violated the TCPA when it used an automatic telephone dialing system to call her cell phone, without her prior express consent, in attempt to collect medical debts ("First TCPA Action"). 

 

Nearly one year after the First TCPA Action was filed, Plaintiff sued Defendant again in Florida state court alleging violations of the TCPA, FDCPA, and the Florida Consumer Collection Practices Act, Fla. Stat. § 595.55, et seq. ("FCCPA") ("Second TCPA Action").  The complaint in the Second TCPA Action named the same plaintiff and defendant named in the First TCPA Action, and alleged that Defendant was attempting to collect medical debts from Plaintiff.

 

Notably, the complaint in the Second TCPA Action did not allege that the debts at issue were different from the debts at issue in the First TCPA Action.

 

Defendant removed the Second TCPA Action to federal court and filed a motion to dismiss for improper claim splitting.  The federal trial court granted Defendant's motion to dismiss and denied Plaintiff's motion to join additional parties.  Plaintiff appealed.

 

The appeal involved two issues.  First, Plaintiff argued that the trial court erred by denying her motion to join additional parties.  Second, the Plaintiff argued that the trial court erred in dismissing the Second TCPA Action for improper claim splitting.

 

In an attempt to defeat Defendant's motion to dismiss for improper claim splitting, Plaintiff moved to join Defendant's vendors in a proposed amended complaint in the Second TCPA Action.  Plaintiff alleged that these vendors violated state and federal law when they attempted to collect medical debts after Defendants advised them she did not owe the alleged debts.  The proposed amended complaint alleged the same attempted collection of debts that were subject of the alleged unlawful collection efforts in the First TCPA Action.  Plaintiff sought to join the vendors on the basis that the court could not accord complete relief without them.

 

As you may recall, Federal Rule of Civil Procedure 19 governs the mandatory joinder of parties.  First, the court must determine whether the absent party is a required party under Rule 19(a).  See, e.g., Molino Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1344 (11th Cir. 2011).  Second, if the absent party is a required party, but joinder is not feasible (i.e., joinder would deprive the court of subject matter jurisdiction), the court must consider "a list of factors to 'determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.'"  Id. (quoting Fed. R. Civ. P. 19(b)).

 

Here, the Eleventh Circuit noted that Plaintiff's proposed amended complaint failed to alleged anything about the relationship between Defendant and the vendors that would prevent Plaintiff from obtaining full relief for any allegedly unlawful communications from Defendant. 

 

Because Plaintiff failed to demonstrate that she could not obtain full relief from Defendant without joining the vendors, the Eleventh Circuit held that joining the vendors would not have defeated subject matter jurisdiction and the trial court did not err in denying the joinder of the vendors pursuant to Rule 19(a).

 

Plaintiff alternatively sought to join the vendors pursuant to Rule 20(a), which governs permissive jointer of parties. 

 

As you may recall, Rule 20(a) requires a plaintiff to demonstrate two prerequisites in order to permissible join a party:  first, the claims against the party to be joined must "aris[e] out of the same transaction or occurrence, or series of transactions or occurrences," and second, there must be some question of law or fact common to all parties to be joined.  See, e.g., Alexander v. Fulton Cty., 207 F.3d 1303, 1323 (11th Cir. 2000).

 

The trial court concluded that Defendant faced duplicative litigation in the First TCPA Action and the Second TCPA Action – specifically finding that both lawsuits arose out of the same underlying conduct, i.e., the collection of medical debts allegedly owed by Plaintiff.  The trial court also rejected Plaintiff's argument that she had just become aware that the vendors should be joined because by her own admission, the vendors' alleged involvement in attempting to collect the medical debts was confirmed from her cell phone before she filed the First TCPA Action.

 

Because Plaintiff had nine months to amend her complaint in the First TCPA Action, but she failed to do so, the Eleventh Circuit held that the trial court did not abuse its discretion in denying the permissive joinder of the vendors. 

 

Next, the Eleventh Circuit turned to Defendant's motion to dismiss in the Second TCPA Action for improper claim splitting.  This was an issue of first impression in the Eleventh Circuit.  But, other federal circuit courts have comprehensively analyzed the claim splitting doctrine.

 

For example, the U.S. Court of Appeals for the Tenth Circuit confronted the issue of "whether a plaintiff can split potential legal claims against a defendant by bringing them in two different lawsuits" and held that "related claims must be brought in a single cause of action."  Katz v. Gerardi, 655 F.3d 1212, 1214 (10th Cir. 2011).

 

The Eleventh Circuit determined that the district court in this case properly applied a two-factor test whereby the court "analyzes (1) whether the case involves the same parties and their privies, and (2) whether separate causes arise from the same transaction or series of transactions."  Khan v. H & R Block E. Enters., Inc., 2011 WL 3269440, at *6 (S.D. Fla. July 29, 2011). 

 

Plaintiff argued that the operative or transactional nucleus of fact related to her TCPA claims in the First TCPA Action were limited to whether Defendant placed calls to her cell phone in violation of the TCPA.  Plaintiff also argued that the claims asserted in the Second TCPA Action were distinct and relate to abusive and harassing communications in the collection of consumer debts prohibited by the FDCPA and FCCPA. 

 

Additionally, Plaintiff averred that the calls in the Second TCPA Action allegedly began earlier than the date alleged in the First TCPA Action, and unlike the First TCPA Action where Defendant was alleged to have called only Plaintiff's cell phone, the Second TCPA Action involved calls Defendant made to her residential phone and to third parties. 

 

Notwithstanding Plaintiff's attempt to distinguish the two cases, the Appellate Court concluded that the claims in the Second TCPA Action were still based upon the same collection efforts set forth in the First TCPA Action.  Specifically, Court noted that the factual basis for both lawsuits were "related in time, origin, and motivation, and they form[ed] a convenient trial unit, thereby precluding [Plaintiff] from splitting her claims among the lawsuits."

 

Moreover, the Eleventh Circuit held that claim splitting was not defeated by Plaintiff's additional causes of action.  The two additional causes of action for violations of the FDCPA and FCCPA arose out of the same transactional nucleus of facts and would involve substantially the same evidence.  Thus, the Appellate Court concluded that the trial court did not error in dismissing the Second TCPA Action for improper claim splitting.

 

Accordingly, the Eleventh Circuit affirmed the trial court's dismissal of the Second TCPA Action.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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