Donmar Enterprises v. Southern Nat. Bank

• Decision Date: 29 July 1993
• Docket Number: No. 3:92CV206-P.,3:92CV206-P.
• Citation: 828 F. Supp. 1230
• Court: U.S. District Court — Western District of North Carolina
• Parties: DONMAR ENTERPRISES, INC., Plaintiff, v. SOUTHERN NATIONAL BANK OF NORTH CAROLINA and Southern International Corp., Defendants.

828 F. Supp. 1230

DONMAR ENTERPRISES, INC., Plaintiff, v. SOUTHERN NATIONAL BANK OF NORTH CAROLINA and Southern International Corp., Defendants.

No. 3:92CV206-P.

United States District Court, W.D. North Carolina, Charlotte Division.

July 29, 1993.

COPYRIGHT MATERIAL OMITTED

James O. Cobb, Robert S. Adden, Jr., Ruff, Bond, Cobb, Wade & McNair, Charlotte, NC, for plaintiff.

Irvin W. Hankins, Josephine H. Hicks, Parker, Poe, Adams & Bernstein, Charlotte, NC, for defendants.

MEMORANDUM OF DECISION

ROBERT D. POTTER, District Judge.

THIS MATTER is before the Court on Defendant's motion to dismiss or for summary judgment, supported by affidavits and a memorandum, as well as a motion requesting a protective order and to quash subpoena, filed November 2, 1992. Plaintiff responded by memorandum, accompanied by an affidavit, filed November 19, 1992, to the motion to dismiss and for summary judgment.

The Court has reviewed the pleadings, motions, briefs, affidavits and applicable legal authorities. Based upon its review of this case, the Court believes summary judgment is the appropriate vehicle for addressing part of the instant motion and Fed.R.Civ.P. 12(b)(6) is appropriate for the other portion of the motion. Accordingly, the Court makes the following findings of fact and conclusions of law in light of the standards mandated by Rule 56. Fed.R.Civ.P. 56 (West 1993).

MOTION FOR PROTECTIVE ORDER

On November 2, 1992, Defendant filed a motion for a protective order to quash subpoenas issued to Rebecca Stephens and Rita Mashburn. Because the ruling of the Court will render this motion moot, the Court will deny it as moot.

STATEMENT OF FACTS

This action concerns a dispute between these litigants arising from a foreign currency exchange agreement entered into by Plaintiff and Stephen's Trading Corporation (STC) involving $540,680 in U.S. dollars for 280,000 British pounds. This transaction involved an electronic transfer of the $540,680 through Defendant, who served as STC's bank, from Plaintiff to STC.

Donmar Enterprises, Inc. (Plaintiff) purchases and sells sunroofs and related automotive accessories. This enterprise requires Plaintiff to do business with companies in Great Britain which in turn requires it to exchange U.S. dollars for British pounds. On February 25, 1991, Plaintiff contracted with Stephen's Trading Corporation (STC), a trader in foreign currency owned by Mr. Stephen Selleck, to purchase a sum of $540,680 U.S. dollars in British pounds (i.e. 280,000 GBP). To consummate the currency exchange, Plaintiff and STC agreed that on February 26 1991, Plaintiff would wire $15,000 as a margin to hold the transaction, and on March 27, 1991 Plaintiff would wire $524,276.71 to Southern International, Corp.¹ from First Union Bank (Plaintiff's bank) in Florida.

Plaintiff and STC agreed that they would be joint beneficiaries of the monies wired to SNB. Moreover, both parties agreed that the President of Donmar Enterprises, Inc., Kal Levinson, would provide written authorization to STC designating the amount of foreign currency Plaintiff wished to purchase and where the foreign currency was to be transferred. Furthermore, Selleck agreed to deliver Plaintiffs written instructions to SNB to assist SNB in conducting the transaction of U.S. currency for foreign currency. However, neither party contends SNB ever received Plaintiffs written instructions given to STC either from STC or Plaintiff. Similarly, neither Plaintiff nor SNB contend SNB was directed not to deposit the funds into the account of its customer, and a beneficiary, STC.

The February 26 transaction went forward with First Union wiring $15,000 to SNB accompanied by a wire notation which said, "ATTN INTL DIV RE STC DONMAR TRANS CODE 102-1011." The transfer of funds was completed without incident and SNB deposited the money into STC's account. On March 27, 1991, Selleck sent SNB a facsimile message which read, "INCOMING WIRE STC/DONMAR CODE 102-1011" to notify SNB that it could expect a wire of additional money from Plaintiff. Selleck further instructed SNB to deposit that money into STC's account numbered XXXXXXXXX. The March 27 transfer went forward similarly with Plaintiff authorizing First Union to wire $524,276.71 to SNB accompanied by a wire notation which read, "ATTN INTL DIV REF SLC/DONMAR TRANS CODE 102-1011." The reference to SLC was remedied by Plaintiff who quickly wired SNB telling it "SLC ... SHOULD HAVE BEEN STC."

Once SNB received these funds, it deposited them into STC's account. Plaintiff did not have an account with SNB. On March 27, 1991, Plaintiff faxed STC and authorized it to transfer 200,000 GBP to Lloyd's Bank in Birmingham, England. That same day, Selleck directed SNB to wire all of the $524,276.71 deposited in STC's account to Discount Corp. of New York. The following day, STC directed SNB to wire funds in the amount of 200,000 GBP to Lloyd's Bank of Birmingham, England from its account. SNB informed STC that it lacked sufficient funds to accomplish the transfer to Lloyd's Bank. That day, STC informed Plaintiff that its account lacked sufficient funds to transfer the 200,000 GBP to Lloyd's. Plaintiff immediately contacted First Union and directed it to retrieve its money. Unfortunately for Plaintiff, the money was gone at the behest of Stephen Selleck's directions to SNB.

On April 3, 1991, SNB transferred $352,000.00 from STC's account to Lloyd's Bank and secured 200,000 GBP. Exactly what happened after this, and what precipitated this transaction remains unclear, but is also not particularly relevant. In any event, Plaintiff claims it came up at least $187,276.71 short and now seeks to recover that amount from Defendant. Complaint at p. 3 ¶ 16, and Answer p. 4 ¶ 16. Plaintiffs suit seeks recovery of at least $187,276.71 under three legal theories; 12 C.F.R. 210 et seq (Federal Reserve Board Regulation J), common law negligence, and wrongful payment.

DISCUSSION

I. Regulation J as a private cause of action

Initially, the Court must resolve the jurisdictional matter of whether Regulation J, promulgated by the Federal Reserve Board, creates a private cause of action. 12 C.F.R. § 210 et seq. The parties to this action have briefed this question pursuant to this Court's order filed June 17, 1993. Based on the arguments of the parties, the Defendant's position that Regulation J furnishes private plaintiffs a cause of action against banks participating in the FedWire system, and the Court's independent review of the law, the Court is satisfied that 12 C.F.R. § 210 et seq. does establish a private cause of action. Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975).

II. Pre-emptive Effect of Regulation J

The Court also ordered the parties to brief the issue of whether Regulation J pre-empts state law claims (such as those pled by Plaintiff) in cases involving the wire transfer of funds. The Court has reviewed the relevant authorities, the respective briefs, and based upon this review makes the following ruling.

The sort of pre-emption at stake here is that implicated where a federal regulatory agency such as the Federal Reserve Board "acts within the scope of its congressionally delegated authority...." Louisiana Public Service Comm'n v. Federal Communication Comm'n, 476 U.S. 355, 367, 106 S.Ct. 1890, 1898, 90 L.Ed.2d 369 (1986). In such instances, it is well established that "Federal regulations have no less preemptive effect than federal statutes." Fidelity Federal Savings and Loan Association v. De La Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982). The question before this Court obviously does not involve whether North Carolina negligence or wrongful payment law are entirely invalidated by federal regulation. Instead, the Court must decide whether Regulation J has entirely occupied a field of regulation and thereby displaced alternative claims such as those afforded by the common law for losses occasioned by FedWire funds transfers.

Plaintiff simply argues its claims under North Carolina negligence and wrongful payment law are not pre-empted because those doctrines are not inconsistent with Regulation J's federal regulatory scheme. Defendant contends those claims are precluded by Regulation J because the Federal Reserve Board expressly intended to establish an exclusive remedy for losses occasioned by wire transfers, and multiple forms of liability creates conflicts between federal objectives and state tort theories.

"The Supremacy Clause of Art. VI of the Constitution provides Congress with the power to pre-empt state law." Louisiana Public Service Comm'n, 476 U.S. at 368, 106 S.Ct. at 1898, 90 L.Ed.2d 369. The preemptive effect of a federal law depends on whether it bears any of the established traits of a pre-emptive regulation. See, Baker, Watts & Co. v. Miles & Stockbridge, 876 F.2d 1101, 1107 (4th Cir.1989). Federal law preempts state law either where "Congress evidences an intent to occupy a given field ...," or "it is impossible to comply with both state and federal law ...," or "state law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress." Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248, 104 S.Ct. 615, 621, 78 L.Ed.2d 443 (1984).

The starting point for determining congressional intent is the federal statute or regulation at issue. Where a federal lawmaking body explicitly provides for pre-emption in the statute or regulation, pre-emption is indubitable. Jones v. Rath Packing Co., 430 U.S. 519, 524, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977). However, this is rarely the case. More common are those instances where Congress or a regulatory agency implicitly pre-empts state law by the "structure and purpose" of the federal regulation. Id. Here, Courts are to determine if Congress or the regulatory agency has otherwise provided its "clear manifestation of intention" before finding a federal regulatory scheme preempts state laws. New...