Ma v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

• Decision Date: 02 March 2010
• Docket Number: Docket No. 08-4828-cv.
• Citation: 597 F.3d 84
• Parties: Youxin MA, Plaintiff, George Brothers Investment Co. Ltd. and Covina 2000 Ventures Corp., Plaintiffs-Appellants, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant-Appellee, Irene S. Ng, Defendant.
• Court: U.S. Court of Appeals — Second Circuit

597 F.3d 84

Youxin MA, Plaintiff, George Brothers Investment Co. Ltd. and Covina 2000 Ventures Corp., Plaintiffs-Appellants, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant-Appellee, Irene S. Ng, Defendant.

Docket No. 08-4828-cv.

United States Court of Appeals, Second Circuit.

Argued: June 26, 2009.

Decided: March 2, 2010.

David Francescani (Karolina Jesien, on the brief), Fish & Richardson P.C., New York, NY, for Plaintiffs-Appellants George

Brothers Investment Co. Ltd. and Covina 2000 Ventures Corp.

Lawrence E. Fenster (Lawrence D. Ross and Matthew C. Plant, on the brief), Bressler Amery & Ross, P.C., New York, NY, for Defendant-Appellee Merrill Lynch, Pierce, Fenner & Smith, Inc.

Before DENNIS JACOBS, Chief Judge, B.D. PARKER, Circuit Judge, NICHOLAS TSOUCALAS, Judge, Court of International Trade.^*

BARRINGTON D. PARKER, Circuit Judge:

This appeal, arising from a judgment of the United States District Court for the Southern District of New York (Cote, J.), requires us to consider whether the New York Uniform Commercial Code Section 4-A-505, which imposes a one-year statute of repose on certain claims based on electronic funds transfers, bars Plaintiffs-Appellants' common law claims, which have longer limitations periods. The District Court concluded that it does. Covina 2000 Ventures Corp. v. Merrill Lynch, Pierce, Fenner & Smith, No. 06 Civ. 15497, 2008 WL 1821738 (S.D.N.Y. April 21, 2008). We agree and affirm.

I. BACKGROUND

The relevant facts are undisputed unless otherwise noted. In 2000, Youxin Ma, a businessman with substantial interests in Asia and in this country, established Covina 2000 Ventures Corp., a British Virgin Islands-based company, and George Brothers Investment Co. Ltd., a Cayman Islands-chartered corporation, as investment vehicles. That same year, Ma opened accounts for Covina and George Brothers at Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch"). Merrill Lynch assigned Irene Ng, a financial advisor, as the registered representative on both accounts. Ng was authorized to, among other things, effectuate funds transfers from the accounts upon Ma's request.

Ma maintains that Ng was involved in an elaborate scheme involving Rebecca and Terry Solomon, a married couple who pled guilty to conspiracy to commit mail and wire fraud, wire fraud, and money laundering, in connection with their perpetuation of two fraudulent investment schemes.¹ See Press Release, United States Department of Justice, United States Attorney's Office, Northern District of California, Husband and Wife Plead Guilty to Conspiracy, Fraud, and Money Laundering in $18 Million Investment Scheme (Sept. 26, 2008). According to Ma, Ng fraudulently, and without his knowledge, executed a loan agreement pursuant to which George Brothers was to lend the Solomons an unspecified amount of money. Apparently pursuant to this loan agreement, and in a series of approximately twenty-five wire transfers occurring from June 2002 to April 2004, Ng transferred more than $9 million from the Covina and George Brothers accounts to various accounts controlled by Rebecca Solomon.

The record is unclear as to how much Ma knew about these transactions. Twenty-four of the wire transfers' letters of authorization were apparently signed by Ma. Twenty-one of these letters contain written notations by Ng purportedly indicating that she confirmed the transactions with Ma. However, Ma maintains that Ng forged his signature on the letters of authorization and falsely noted that she had confirmed the transfers with Ma. We assume, for purposes of this appeal, that, as Ma contends, the transactions were unauthorized.

The account agreements required Merrill Lynch to send Ma monthly statements summarizing the accounts' activity, such as any wire transfers executed from the accounts. The parties do not dispute that Merrill Lynch generated these statements in the ordinary course of business, that Merrill Lynch mailed them to Ma at the address he provided, and that Ma received at least some of them. None of the statements was returned as undeliverable by the post office. It is also not disputed that the Covina and George Brothers monthly account statements listed the date and amount of each wire transfer, though the statements did not identify the wire transfers' beneficiaries.

Ma's position is somewhat inconsistent. He concedes that he received some account statements during the June 2002 to April 2004 period, but maintains that he did not receive the statements on a regular basis. He also contends that he did not review any of the statements that he did receive. Instead, he relied on Ng to update him on the state of the accounts while his secretary placed the unopened statements in a storage room in his office. Ma did not notify Merrill Lynch that he believed he was not receiving his statements on a regular basis until November 2006, when he was preparing to sue. Ma also admits that, prior to that time, he was not aware that any of the statements was missing. As he put it: "[b]ecause I never reviewed a statement, therefore, I don't know whether I received it or not."

Ma sued Merrill Lynch in December 2006 (more than two years after the last allegedly fraudulent wire transfer), alleging various common law claims, including breach of contract, breach of fiduciary duty, fraud, conversion, negligence, and breach of the covenant of good faith and fair dealing.² Merrill Lynch moved for summary judgment on the ground that the one-year statute of repose in Section 4-A-505 of the New York Uniform Commercial Code bars all of Ma's claims. The District Court granted Merrill Lynch's motion. This appeal followed. We review de novo the District Court's grant of summary judgment. See Arbitron, Inc. v. Tralyn Broad., Inc., 400 F.3d 130, 134 (2d Cir. 2005).

II. DISCUSSION

Article 4-A of the New York Uniform Commercial Code governs electronic funds transfers, commonly known as wholesale wire transfers. N.Y. UCC § 4-A-102 & cmt. Funds transfers are "series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order" and are completed "by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order." Id. § 4-A-104. A payment order is "an instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay ... a fixed or determinable amount of money to a beneficiary [where] the receiving bank is to be reimbursed by debiting an account of ... the sender." Id. § 4-A-103. The "sender" is "the person giving instruction to the receiving bank." The "receiving bank" is "the bank to which the sender's instruction is addressed." Id. The "beneficiary" is "the person to be paid by the beneficiary's bank" and the beneficiary's bank is "the bank identified in a payment order in which an account of the beneficiary is to be credited pursuant to the order." Id. Under these definitions, the Merrill Lynch wire transfers constitute electronic funds transfers governed by Article 4-A.³

Sections 4-A-202, 4-A-203, and 4-A-204 of the N.Y. UCC govern liability for unauthorized funds transfers. If a receiving bank accepts a payment order issued in its customer's name, and the customer did not authorize the payment order, the bank is obligated to refund any payment made pursuant to that payment order. Id. §§ 4-A-202, 203, 204. In other words, under the N.Y. UCC, banks bear the risk of loss from unauthorized wire transfers (if certain conditions discussed below are met). See id. However, Section 4-A-505 contains a one-year statute of repose⁴ pursuant to which a bank is not required to reimburse its customer for a wire transfer processed pursuant to an unauthorized payment order if the bank's customer did not object within one year of receiving notice of the account's debit:

If a receiving bank has received payment from its customer with respect to a payment order issued in the name of the customer as sender and accepted by the bank, and the customer received notification reasonably identifying the order, the customer is precluded from asserting that the bank is not entitled to retain the payment unless the customer notifies the bank of the customer's objection within one year after the notification was received by the customer.

Id. § 4-A-505; see id. cmt.

Section 4-A-505's text appears to bar Ma's claims: they are based on electronic funds transfers and he failed to notify Merrill Lynch of his objections within one year. Undeterred, Ma claims that his common law claims—all having limitations periods well in excess of one year— remain viable for three reasons. First, he contends that the transfers are "only incidental" to the common law claims, and, consequently, are not controlled by Article 4A. Second, though he concedes that "common law claims that are either inconsistent with Article 4-A or covered by its provisions are preempted," he maintains that his common law claims fall into neither category. He contends that, because Article 4A contains no direct reference to claims such as those for breach of fiduciary duty, conversion, or fraud, the Article, presumably, was not intended to reach them and, in any event, his common law claims do not impose liabilities inconsistent with the rights and liabilities created by Article 4A. Third, Ma contends that because the account statements he received did not identify the beneficiary of the funds transfers, they failed to comply with Section 4-A-505's limitation of its one-year period of repose to bank customers who received notification "reasonably identifying" the payment order at issue. We are not persuaded.

Prior to Article 4A's adoption by the New York State Legislature in 1990, "existing rules of law did not adequately address the problems presented by" the widespread use of electronic funds transfers. Banque Worms v. BankAmer. Int'l, 77 N.Y.2d 362...