Grain Traders, Inc. v. Citibank, N.A.

• Decision Date: 14 April 1997
• Docket Number: No. 95 Civ. 9315(DC).,95 Civ. 9315(DC).
• Citation: 960 F.Supp. 784
• Parties: GRAIN TRADERS, INC., Plaintiff, v. CITIBANK, N.A., Defendant.
• Court: U.S. District Court — Southern District of New York

960 F.Supp. 784

GRAIN TRADERS, INC., Plaintiff, v. CITIBANK, N.A., Defendant.

No. 95 Civ. 9315(DC).

United States District Court, S.D. New York.

April 14, 1997.

COPYRIGHT MATERIAL OMITTED

Steiner & Ebeling by Scott J. Steiner, White Plains, for Plaintiff.

J. Kelly Nevling, Jr., Citibank Legal Affairs Office, New York City, for Defendant.

OPINION

CHIN, District Judge.

Plaintiff Grain Traders, Inc. ("Grain Traders") brings this diversity action under Article 4-A of New York's Uniform Commercial Code (the "U.C.C.") and principles of common law seeking the refund of money it alleges it lost in the process of an electronic funds transfer. The funds transfer—which was to "pass" through several banks—was not completed, allegedly because defendant Citibank, N.A. ("Citibank") froze an account of one of the banks in question. Grain Traders claims that Citibank acted improperly by accepting $310,000 for a funds transfer and then failing to forward the funds in accordance with instructions, and contends that Citibank instead took the funds as a set-off against a debt owed to Citibank by one of the intermediary banks.

On the record before the Court, however, no reasonable factfinder could conclude that Citibank engaged in any conduct that would form the basis for liability under the U.C.C. or the common law. Rather, Citibank did all that it was required to do: it debited one account $310,000, credited another account $310,000, and forwarded payment instructions to the bank whose account it credited. That bank was supposed to carry out the next step in the funds transfer, but it was unable to do so because of apparent financial problems that eventually caused it to cease doing business. Likewise, the final bank in the chain also was suffering from financial problems that forced it to go out of business. Both banks were chosen by Grain Traders, not Citibank, and it was those choices — rather than any wrongdoing by Citibank—that led to the apparent loss of the $310,000.

Grain Traders's principal argument is that Citibank should not have accepted the payment order. Rather, Grain Traders argues that because Citibank knew or should have known that the next bank in the chain was experiencing financial problems, Citibank should have exercised its judgment to reject the payment order. Grain Traders's arguments, however, do not make sense and they are inconsistent with the concept of funds transfers as well as the letter and spirit of Article 4-A.

Funds transfers are high-speed means of moving large sums of money at a low cost. As the Prefatory Note to Article 4-A observes:

There are a number of characteristics of funds transfers covered by Article [4-A] that have influenced the drafting of the statute. The typical funds transfer involves a large sum of money. Multimillion dollar transactions are commonplace. The originator of the transfer and the beneficiary are typically sophisticated business or financial organizations. High speed is another predominant characteristic. Most funds transfers are completed on the same day, even in complex transactions in which there are several intermediary banks in the transmission chain. A funds transfer is a highly efficient substitute for payments made by the delivery of paper instruments. Another characteristic is extremely low cost. A transfer that involves many millions of dollars can be made for a price of a few dollars. Price does not normally vary very much or at all with the amount of the transfer. This system of pricing may not be feasible if the bank is exposed to very large liabilities in connection with the transaction....

U.C.C. Art. 4-A, Prefatory Note, p. 38 (McKinney Supp.1997).¹ Because of these characteristics—high speed and low cost— one could not expect an intermediary bank in the funds transfer to engage in due diligence to verify the creditworthiness of subsequent banks in the chain, particularly when those banks were designated by the originator itself. Indeed, in such circumstances, the risk of loss must be borne by the originator, for it was the originator's choice of an intermediary bank that led to the loss.

Grain Traders's motion for summary judgment on its claims under Article 4-A of the U.C.C. is denied and Citibank's cross-motion for summary judgment dismissing Grain Traders's claims is granted. The complaint is dismissed.

BACKGROUND

A. The Facts

On December 22, 1994, Grain Traders initiated a funds transfer (the "Funds Transfer") to effectuate the payment of $310,000 to Claudio Goidanich Kraemer ("Kraemer"). (Pl. Rule 3(g) Statement ¶ 3). The Funds Transfer was designed to move money from Grain Traders to Kraemer in one day. The payment order issued by Grain Traders to its bank, Banco de Credito Nacional ("BCN"), stated as follows:

WE HEREBY AUTHORIZE YOU DEBIT OUR ACCOUNT NR 509364 FOR THE AMOUNT OF US$ 310,000.00 AND TRANSFER TO:

BANQUE DU CREDIT ET INVESTISSEMENT LTD ACCOUNT 36013997 AT CITIBANK NEW YORK IN FAVOUR OF BANCO EXTRADER S.A. ACCOUNT NR 30114—BENEFICIARY CLAUDIO GOIDANICH KRAEMER — UNDER FAX ADVISE TO BANCO EXTRADER NR 00541-312 0057/318-0124 AT. DISTEFANO/M. FLIGUEIRA.

(Pargana Aff. ¶ 3 & Ex. C). Thus, the funds transfer was to proceed as follows: (1) Grain Traders's account at BCN was to be debited $310,000; (2) the $310,000 was then to be "transferred" to Banque Du Credit Et Investissement Ltd.'s ("BCI") at Citibank by way of a debit to BCN's Citibank account and a corresponding credit in that amount to BCI's Citibank account; (3) the $310,000 was in turn to be "transferred" from BCI to Banco Extrader, S.A. ("Extrader") by way of an unspecified transaction between BCI and Extrader;² and (4) the $310,000 was finally to be transferred to Kraemer by way of a credit to his account at Extrader.

After the payment order was issued by Grain Traders to BCN, the Funds Transfer initially proceeded as expected. BCN's account at Citibank was debited $310,000 and BCI's account at Citibank was credited $310,000. At the same time, BCN sent instructions to Citibank, directing Citibank to instruct BCI to instruct Extrader to credit $310,000 to Kraemer. (Patrickakos Aff. ¶ 6 & Ex. 1).³ Citibank in turn sent instructions to BCI on the same day, notifying BCI that Citibank had credited its account with $310,000 and instructing BCI to instruct Extrader to credit this amount to Kraemer. (Patrickakos Aff. ¶ 7 & Ex. 2).

Either just before or just after BCI's account at Citibank was credited with the $310,000, however, the BCI account was placed by Citibank on "hold for funds" status. (Pl. Rule 3(g) Statement ¶ 19). The "hold for funds" status, which was put into place because BCI's account with Citibank was overdrawn by more than $12 million, prevented BCI from making any further withdrawals from the account. (Id. ¶¶ 19, 22).

Kraemer apparently never received a credit to his Extrader account for the $310,000. Kraemer's affidavit, submitted by Grain Traders, states that on December 28, 1994, just six days after the attempted Funds Transfer, the government of Argentina ordered Extrader to suspend payments and that Extrader became insolvent "[s]ometime later." (Kraemer Aff. ¶ 5). Likewise, BCI, a Bahamian bank, ceased making payments in January 1995; it was closed by supervisory authorities in the Bahamas on July 31, 1995. (Def. Rule 3(g) Statement ¶ 10-12).

B. Prior Proceedings

Grain Traders commenced this action against Citibank in November 1995. The complaint asserts four causes of action: (1) for a refund under U.C.C. § 4-A-402; (2) for a refund as well as reasonable expenses and attorneys' fees under U.C.C. §§ 4-A-209, 4-A-301, and 4-A-305; (3) for breach of the obligation to deal in good faith under U.C.C. § 1-203; and (4) for conversion and money had and received under common law.

These motions followed.

DISCUSSION

A. Standard for Summary Judgment

Summary judgment may be granted only when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). Accordingly, the Court's task is not to "weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). To defeat a motion for summary judgment, however, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. at 1355. The non-moving party may not rest upon mere "conclusory allegations or denials," but must set forth "`concrete particulars'" showing that a trial is needed. National Union Fire Ins. Co. v. Deloach, 708 F.Supp. 1371, 1379 (S.D.N.Y.1989) (quoting R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 77 (2d Cir.1984)). There is no issue for trial unless there exists sufficient evidence in the record to support a jury verdict in favor of the party opposing summary judgment. Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2510-11. As the Court held in Anderson, "if the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50, 106 S.Ct. at 2511 (citations omitted). With these standards in mind, I turn to the parties' cross-motions for summary judgment.

B. Funds Transfers and Article 4-A

Funds transfers, also commonly referred to as wire transfers, are a specialized "method of payment in which the person making the payment (the `originator') directly transmits an instruction to a bank," generally through electronic means, "to make payment to the person receiving payment (the `beneficiary') or to instruct some other bank to make payment to the beneficiary." § 4-A-104, Official Comment 1. A funds transfer consists of one or more payment orders each instructing the next party in line as...