Langston & Langston, PLLC v. SunTrust Bank

• Decision Date: 20 August 2020
• Docket Number: CAUSE NO. 3:18-CV-741-CWR-FKB
• Citation: 480 F.Supp.3d 737
• Parties: LANGSTON & LANGSTON, PLLC; Jeff Cahn; Laurie Cahn; and David Cahn, Plaintiffs v. SUNTRUST BANK; Charles Hopkins, III, individually and d/b/a CML Home Improvements ; Dazai Harris; and John Does 3-10, Defendants SunTrust Bank, Cross Claimant v. Charles Hopkins, III, individually and d/b/a CML Home Improvements ; Dazai Harris, Cross Defendants
• Court: U.S. District Court — Southern District of Mississippi

480 F.Supp.3d 737

LANGSTON & LANGSTON, PLLC; Jeff Cahn; Laurie Cahn; and David Cahn, Plaintiffs

v.SUNTRUST BANK; Charles Hopkins, III, individually and d/b/a CML Home Improvements ; Dazai Harris; and John Does 3-10, Defendants

SunTrust Bank, Cross Claimant

v.Charles Hopkins, III, individually and d/b/a CML Home Improvements ; Dazai Harris, Cross Defendants

CAUSE NO. 3:18-CV-741-CWR-FKB

United States District Court, S.D. Mississippi, Northern Division, Northern Division.

Signed August 20, 2020

Jason L. Nabors, Nabors Law Firm, Ridgeland, MS, Kevin J. White, Shane F. Langston, Langston & Langston, PLLC, Jackson, MS, for Plaintiff Langston & Langston, PLLC.

Shane F. Langston, Kevin J. White, Langston & Langston, PLLC, Jackson, MS, for Plaintiffs Jeff Cahn, Laurie Cahn, David Cahn.

Cody W. Gibson, Cody W. Gibson, Attorney at Law, PLLC, Jackson, MS, for Cross Defendant Dazai Harris.

Frederick N. Salvo, III., Joseph Lott Warren, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Jackson, MS, for Defendant/Cross Claimant SunTrust Bank.

Cody W. Gibson, Cody W. Gibson, Attorney at Law, PLLC, Jackson, MS, for Defendant Dazai Harris 2334 Lionheart Drive Murfreesboro, TN 39201.

ORDER

Carlton W. Reeves, UNITED STATES DISTRICT JUDGE Before the Court is Defendant SunTrust Bank's motion for summary judgment. The matter is fully briefed and ready for adjudication.

I. Factual and Procedural History

This lawsuit stems from a wire transfer scam. Plaintiff Langston & Langston, PLLC ("L&L"), a Mississippi law firm, represented Plaintiffs Jeff Cahn, Laurie Cahn, and David Cahn in a wrongful death suit against a drug rehabilitation facility. The facility reached a settlement with the Cahn family in April 2018, and the settlement was a "lump sum" for the family. L&L and the Cahn family intended the settlement proceeds of $229,559.20 to be distributed equally among the three family members – with each member receiving $73,519.73.

During settlement negotiations, however, an unknown individual hacked the email account of Jeff Cahn. Jeff served as the spokesperson for the Cahn family throughout the litigation and settlement proceedings.

On April 24, 2018, L&L received a Release executed by each member of the Cahn family. On May 4, the hacker emailed L&L with fraudulent wiring instructions regarding distribution of the Cahn family settlement proceeds. On May 9, L&L authorized its bank, BankPlus, in Jackson, Mississippi to wire transfer funds to Jeff Cahn, Laurie Cahn, and David Cahn. The instructions directed three separate deposits of $73,519.73 to three different bank accounts – two SunTrust accounts and one Wells Fargo account. The accounts were purportedly held by Jeff Cahn, Laurie Cahn, and David Cahn individually.

On the morning of May 9, BankPlus transmitted to SunTrust a request to transfer funds from the L&L client account at BankPlus to the account purportedly belonging to David Cahn at SunTrust. SunTrust accepted the wire transfer order at 12:01 PM,¹ and at 12:02 PM, the funds were credited to the account. However, the account did not belong to David Cahn. Though the account number provided by BankPlus was a legitimate account at SunTrust, it was not associated with David Cahn's name and address as provided by BankPlus. The account actually belonged to Defendant Charles Hopkins.

Prior to Hopkins withdrawing any of this money from the account, Jeff Cahn discovered the fraud and notified L&L. L&L immediately informed BankPlus, and by 2:42 PM that same day, BankPlus notified SunTrust and instructed it to: "PLS [please] RET [return] FUNDS, SUSPECT FRAUD." Docket No. 88-17 at 3.

Twenty-six minutes later, Hopkins entered a Hendersonville, Tennessee branch of SunTrust. Via cash and cashier's check, he withdrew a total of $59,865 from the funds intended for David Cahn. The cashier's checks were made payable to Dazai Harris and an entity created by Harris.

The following day, the FBI contacted the Vice President of Fraud Operations at SunTrust, Debbie Ligouri. The FBI advised Ligouri that it had received notification of fraudulent activity related to the SunTrust account in question. The FBI also inquired into the status of the funds and requested that the funds be frozen. Ligouri followed company protocol and checked the status of the funds via one of SunTrust's system of record for customer accounts. The record indicated that the funds were still in the account. Based on this information, Ligouri – who was unaware of the withdrawals made by Hopkins the previous day – advised the FBI that there had been no transactions. SunTrust subsequently returned the remaining funds intended for David Cahn to L&L.

In this suit, Plaintiffs seek to shift David Cahn's $59,865 loss to SunTrust. They lay out their negligence claims against SunTrust in different ways, but all are rooted in three central allegations: (1) SunTrust negligently failed to reject the wire transfer from BankPlus because the name and address provided by BankPlus did not match the name and address associated with the SunTrust account number, (2) after being put on notice of the suspected fraudulent wire transfers, SunTrust negligently failed to immediately freeze or return the funds, and (3) SunTrust negligently misrepresented, concealed, or provided false or incomplete information regarding the status of the funds to the FBI.

Lastly, Plaintiffs claim that SunTrust's failure to prevent the fraudulent wire transfer is a violation of the Electronic Fund Transfer Act.

II. Legal Standard

Summary judgment is appropriate when the movant can show that there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "Once a summary judgment motion is made and properly supported, the nonmovant must go beyond the pleadings and designate specific facts in the record showing that there is a genuine issue for trial. Neither ‘conclusory allegations’ nor ‘unsubstantiated assertions’ will satisfy the nonmovant's burden." Wallace v. Tex. Tech Univ. , 80 F.3d 1042, 1047 (5th Cir. 1996) (quotation marks and citations omitted).

The Court views the evidence and draws reasonable inferences in the light most favorable to the nonmovant. Maddox v. Townsend and Sons, Inc. , 639 F.3d 214, 216 (5th Cir. 2011). But the Court will not, "in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts." McCallum Highlands, Ltd. v. Wash. Capital Dus, Inc. , 66 F.3d 89, 92 (5th Cir. 1995), as revised on denial of reh'g , 70 F.3d 26 (5th Cir. 1995).

III. Discussion

Because this case is proceeding in diversity, the applicable substantive law is that of the forum state, Mississippi. Erie R.R. Co. v. Tompkins , 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Mississippi law is determined by looking to the decisions of the Mississippi Supreme Court. Transcon. Gas Pipe Line Corp. v. Transp. Ins. Co. , 953 F.2d 985, 988 (5th Cir. 1992). When Mississippi case law on a topic is limited, "we look to caselaw around the country for guidance." Newsome v. Peoples Bancshares , 269 So. 3d 19, 34 (Miss. 2018). To avoid confusion when citing case law from other states or circuits, this Court will refer to Article 4A of the UCC by chapter and part, i.e. , UCC § 4A-101, et seq.

A. Uniform Commercial Code

Mississippi codified Article 4A of the Uniform Commercial Code ("UCC") at Mississippi Code §§ 75-4A-101, et seq. Article 4A of the UCC governs electronic "funds transfers." UCC § 4A-102 ; see also Comment to UCC § 4A-102 ("Article 4A governs a specialized method of payment ... commonly referred to in the commercial community as a wholesale wire transfer.").

In drafting the UCC rules, a deliberate decision was made "to use precise and detailed rules to assign responsibility, define behavioral norms, allocate risks and establish limits on liability, rather than to rely on broadly stated, flexible principles." Comment to UCC § 4A-102. The Comment to UCC § 4A-102 further explains that these rules:

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. (emphasis added). In other words, common-law claims are displaced by the UCC when it directly addresses or specifically covers the allegations. Newsome , 269 So. 3d at 34 (citations omitted).

A few definitions from Article 4A of the UCC are pertinent to this case. "Article 4A governs a method of payment in which the person making payment (the ‘originator’) directly transmits an instruction to a bank either to make payment to the person receiving payment (the ‘beneficiary’) or to instruct some other bank to make payment to the beneficiary." Comment 1 to UCC § 4A-104. A payment order is "an instruction of a sender to a receiving bank." UCC § 4A-103(a)(1). A funds transfer is a "series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order." Id. § 4A-104(a). The bank that receives payment order instructions from the originator is the "originator's bank." Id. § 4A-104(d). A 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. § 4A-103(a)(3). And finally, the beneficiary is the "person to be paid by the beneficiary's bank." Id. § 4A-103(a)(2).

1. Section 4A-207

UCC § 4A-207 governs liability when a wire transfer "misdescribes" a beneficiary. "A misdescription occurs when a wire identifies a beneficiary by name and account number and the name and account number identify different persons or entities." First Sec. Bank of New Mexico, N.A. v. Pan American Bank , 215 F.3d 1147, 1152 (10th Cir. 2000).

A misdescription happened in this...