Eisenberg v. Wachovia Bank, N.A.

• Decision Date: 26 August 2002
• Docket Number: No. 02-1166.,02-1166.
• Citation: 301 F.3d 220
• Parties: Eric EISENBERG, Plaintiff-Appellant, v. WACHOVIA BANK, N.A., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

301 F.3d 220

Eric EISENBERG, Plaintiff-Appellant, v. WACHOVIA BANK, N.A., Defendant-Appellee.

No. 02-1166.

United States Court of Appeals, Fourth Circuit.

Argued June 5, 2002.

Decided August 26, 2002.

ARGUED:

Richard J.J. Scarola, Scarola, Reavis & Parent, New York, New York, for Appellant.

John Benton Morris, Kilpatrick Stockton, L.L.P., Winston-Salem, North Carolina, for Appellee.

ON BRIEF:

Daniel R. Taylor, Jr., Kristin M. Major, Kilpatrick Stockton, L.L.P., Winston-Salem, North Carolina, for Appellee.

Before MICHAEL, Circuit Judge, BEEZER, Senior Circuit Judge of the United States Court of Appeals for the Ninth Circuit, sitting by designation, and LEGG, United States District Judge for the District of Maryland, sitting by designation.

Affirmed by published opinion. Senior Judge BEEZER wrote the opinion, in which Judge MICHAEL and Judge LEGG joined.

OPINION

BEEZER, Senior Circuit Judge.

Eric Eisenberg ("Eisenberg") appeals the district court's dismissal of his complaint alleging two claims of negligence against Wachovia Bank, N.A. ("Wachovia"). We affirm.

I

The district court dismissed Eisenberg's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). We state the relevant facts as alleged by the complaint. See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir.1999) ("In its review of Rule 12(b)(6) dismissals, this Court must accept as true all of the Appellant's allegations and must construe factual allegations in the light most favorable to the plaintiff.").

Eisenberg was the victim of a fraudulent investment scheme perpetrated by Douglas Walter Reid ("Reid"). Reid falsely represented to Eisenberg that he was a senior vice president of Bear Stearns Companies, a large financial securities firm, and convinced Eisenberg to make a putative investment. At Reid's direction, Eisenberg transferred $1,000,000 via electronic wire to a Wachovia branch bank in North Carolina for deposit in an account bearing the name "Douglas Walter Reid dba Bear Stearns," "For Further Credit to BEAR STEARNS." The electronic transfer was made through the "Fedwire" wire service operated by the Federal Reserve Bank. Wachovia accepted the transfer and deposited the funds to the credit of the specified account, which had been opened by and was under the control of Reid. Reid withdrew almost all of Eisenberg's funds and converted them to his own use.

Wachovia's customer agreements do not restrict the name under which a new customer may open a bank account. The Wachovia employee who opened Reid's account did not verify that Reid was authorized to operate under the name Bear Stearns. Reid possessed no such authority and was not in any way affiliated with Bear Stearns.

Eisenberg filed a complaint against Wachovia in federal court on the basis of diversity jurisdiction, see 28 U.S.C. § 1332, asserting two claims of negligence. The first claim alleged that Wachovia negligently allowed Reid to establish and operate a fraudulent bank account and negligently failed to train its employees to detect fraud. The second claim alleged that Wachovia was vicariously liable for its employee's negligence in allowing Reid to open the bank account without proper verification. Both claims include the allegation that Wachovia breached a duty of care owed to people like Eisenberg, who transact with Wachovia customers, to detect and prevent the fraudulent use of its bank accounts.

Wachovia moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Wachovia argued that both negligence claims are preempted by Federal Reserve Board Regulation J ("Regulation J"), Subpart B, 12 C.F.R. §§ 210.25-210.32 (2002). Wachovia also argued, in the alternative, that the claims fail as a matter of law because Wachovia does not owe Eisenberg a duty of care. Agreeing that the claims are preempted, the district court granted Wachovia's motion and dismissed the complaint with prejudice. The court did not address Wachovia's alternative argument for dismissal based on the absence of a duty of care.

We review de novo the district court's dismissal of the complaint and can affirm on any basis fairly supported by the record. Korb v. Lehman, 919 F.2d 243, 246 (4th Cir.1990). We hold that Regulation J does not preempt Eisenberg's negligence claims but the claims still fail because Wachovia does not owe Eisenberg a duty of care under the facts of this case.

II

We discussed the preemptive effect of Regulation J in Donmar Enterprises, Inc. v. Southern National Bank of North Carolina, 64 F.3d 944 (4th Cir.1995). Subpart B of Regulation J incorporates Article 4A of the Uniform Commercial Code to "provide [] rules to govern funds transfers through Fedwire." 12 C.F.R. § 210.25(a) (2002); see id. at § 210.25(a)-(b). The rules adopted from Article 4A serve as the exclusive means for determining the rights, duties and liabilities of all parties involved in a Fedwire funds transfer. Comm. on Sec. 210.25(b), 12 C.F.R. Part 210, Subpt. B., App. A (2002). Affected parties include senders, intermediary banks, receiving banks and beneficiaries. Id. The Federal Reserve Board intended Subpart B to create a "uniform and comprehensive national regulation of Fedwire transfers." Donmar, 64 F.3d at 949.

By its own terms, Regulation J "supersedes or pre-empts inconsistent provisions of state law." Comm. on Sec. 210.25, 12 C.F.R. Part 210, Subpt. B, App. A (2002). We held in Donmar that Regulation J preempts any state law cause of action premised on conduct falling within the scope of Subpart B, whether the state law conflicts with or is duplicative of Subpart B. 64 F.3d at 949-50. Determining if a state law claim is preempted by Regulation J turns on whether the challenged conduct in the state claim would be covered under Subpart B as well.

Eisenberg's negligence claims focus on several aspects of Wachovia's conduct in establishing Reid's account and crediting Eisenberg's funds transfer to that account. One instance of alleged negligence involves Wachovia "accepting and crediting the Wire Transfer to Mr. Reid's account when the wire instructions designated `Bear Stearns' as the intended recipient." Eisenberg addressed the Fedwire transfer to "Wachovia Bank," "Beneficiary Account 1861296138," "For Further Credit to BEAR STEARNS." Subpart B applies here. When a transfer order identifies the beneficiary by an account number, the receiving bank may rely on the account number in crediting the account even though the transfer order identifies a person different from the holder of the account. See 12 C.F.R. § 210.27 (2002). Wachovia properly processed Eisenberg's funds transfer order under the standards of Subpart B.

Wachovia is not liable under Subpart B for the manner in which it received and credited Eisenberg's Fedwire funds transfer. Any state law claim that is premised on this same conduct would be either duplicative of or contradictory to Regulation J and is thus preempted. Eisenberg's negligence claims are preempted insofar as they challenge Wachovia's Fedwire transfer processing.

Eisenberg contends, however, that his negligence claims primarily challenge not the wire transfer processing but rather Wachovia's conduct in allowing Reid to open and operate the bank account under the name "dba Bear Stearns." The Fedwire transfer, according to Eisenberg, is only incidental to his negligence claims. Eisenberg thus urges that his negligence claims are not preempted by Regulation J. We agree.

Eisenberg's allegations of negligence are not limited to Wachovia's conduct in processing the Fedwire transfer order. Eisenberg also alleged that Wachovia is negligent by reason of allowing Reid to open the "dba Bear Stearns" bank account, failing to discover Reid's improper use of the account and failing to train its employees to recognize and prevent fraud. Subpart B has no application to Wachovia's conduct in these instances. Subpart B governs only Fedwire funds transfers, defined as "the series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order." Comm. to Secs. 4A-102 & 4A-104, 12 C.F.R. Part 210, Subpt. B, App. B (2002). Subpart B does not address the duties, obligations and liabilities applicable to bank functions having nothing to do with a Fedwire transfer.

State law claims premised on conduct not covered by Subpart B cannot create a conflict with or duplicate the rules established in Subpart B.¹ Permitting Eisenberg's claims to go forward would not create an obstacle to the fulfillment of Subpart B's purpose of establishing a uniform body of federal law to govern Fedwire transfers. See Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982) (holding state law claim preempted if it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress") (internal quotations and citation omitted). A finding that Wachovia is negligent in opening Reid's account would not conflict with a finding that, under Subpart B of Regulation J, Wachovia properly credited the Fedwire transfer to the account. The two findings would touch on distinct and independent conduct by Wachovia.

We hold that Eisenberg's negligence claims, insofar as they challenge the opening and management of Reid's account, are not preempted by Regulation J.

III

Wachovia reasserts on appeal an alternative argument for dismissal, not decided by the district court, that Eisenberg fails to allege one essential element in a negligence claim. Wachovia contends that it does not owe Eisenberg a duty of care and therefore cannot be held liable in negligence for Eisenberg's injury.

Under North Carolina law, "[n]egligence is the failure to exercise proper care in the performance of a legal duty owed by a defendant to a plaintiff under the circumstances." Cassell v. Collins, 344 N.C. 160, 472 S.E.2d 770, 772 (1996). A...