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

• Citation: 160 F.3d 97
• Decision Date: 27 October 1998
• Docket Number: No. 97-7620,97-7620
• Parties: 36 UCC Rep.Serv.2d 1141 GRAIN TRADERS, INC., Plaintiff-Appellant, v. CITIBANK, N.A., Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

Page 97

160 F.3d 97

36 UCC Rep.Serv.2d 1141

GRAIN TRADERS, INC., Plaintiff-Appellant, v. CITIBANK, N.A., Defendant-Appellee.

No. 97-7620.

United States Court of Appeals, Second Circuit.

Argued Jan. 9, 1998.

Decided Oct. 27, 1998.

Scott J. Steiner, Steiner & Ebeling, LLP, White Plains, New York, for Plaintiff-Appellant.

J. Kelley Nevling, Jr., Citibank Legal Affairs Office, New York, New York, for Defendant-Appellee.

Bruce E. Clark, Sullivan & Cromwell, New York, New York (Norman R. Nelson, General Counsel, The New York Clearing House Association, H. Rodgin Cohen, and Tamar Feder, Sullivan & Cromwell, of counsel), for Amicus Curiae The New York Clearing House Association.

Before: WALKER and JACOBS, Circuit Judges, and MISHLER, District Judge. ^*

JOHN M. WALKER, Jr., Circuit Judge.

Plaintiff Grain Traders, Inc., ("Grain Traders") appeals from the April 16, 1997, judgment granting summary judgment for defendant Citibank, N.A., ("Citibank") and dismissing Grain Traders's diversity action brought under Article 4-A of New York's Uniform Commercial Code ("Article 4-A") and principles of common law seeking a refund from Citibank for an alleged uncompleted electronic funds transfer.

BACKGROUND

Grain Traders, in order to make a payment of $310,000 to Claudio Goidanich Kraemer ("Kraemer"), initiated a funds transfer on December 22, 1994, by issuing a payment order to its bank, Banco de Credito Nacional ("BCN"), that stated

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. 00541-318 0057/318-0184 AT. DISTEFANO/M. FLIGUEIRA.

Thus the transfer, as instructed by Grain Traders, required BCN to debit Grain Traders's account at BCN in the amount of $310,000, and then to issue a payment order to Citibank. That payment order, in turn, was to require Citibank to debit $310,000 from BCN's account at Citibank and to credit that amount to the account that Banque du Credit et Investissement Ltd. ("BCIL") maintained at Citibank. Citibank, in turn, was to issue a payment order to BCIL instructing it to transfer, by unspecified means, $310,000 to Banco Extrader, S.A. ("Extrader"). Extrader was then to credit the $310,000 to the account maintained at Extrader by Kraemer.

BCN duly carried out Grain Traders's instructions. Citibank, in turn, executed BCN's payment order by debiting $310,000 from BCN's account at Citibank, crediting that amount to BCIL's account at Citibank Both BCIL and Extrader suspended payments at some point after Citibank executed the payment order. BCIL apparently began closing its offices on December 31, 1994, and its banking license was revoked in July of 1995. Similarly, Extrader became insolvent sometime in late December of 1994 or early January of 1995. On December 28, 1994, apparently at Grain Traders's request, BCN contacted Citibank and requested cancellation of its payment order and return of the amount of the payment order. The message sent by BCN stated:

and issuing a payment order to BCIL concerning the further transfers.

REGARDING OUR PAYMENT ORDER FROM 12/22/94 FOR USD 310,000 TO BANCO EXTRADER S.A. ACCT. NO. 30114 F/O BANQUE DE CREDIT ET INVESTISSEMENT LTD. ACCT NO. 36013997 F/C TO CLAUDIO GOLDANICH [SIC] KRAEMER. PLEASE NOTE THAT WE ARE REQUESTING FUNDS BACK AS SOON AS POSSIBLE.

YOUR IMMEDIATE ATTENTION TO THIS MATTER IS APPRECIATED.

Citibank sought authorization from BCIL to debit the amount that had been credited to its account on December 22, 1994, and, after several unsuccessful attempts to contact BCIL, received a message on January 3, 1995, from BCIL that purportedly authorized the debit. Citibank asserts that it was at this juncture that it determined that BCIL had exceeded its credit limitations and placed the account on a "debit no-post" status, meaning no further debits would be posted to the account. Citibank refused BCN's request to cancel the payment order, stating:

RE: YOUR PAYMENT [ORDER] ... WE ARE UNABLE TO RETURN FUNDS AS BNF [SIC] BANK HAS AN INSUFFICIENT BALANCE IN THEIR ACCOUNT. FOR FURTHER INFORMATION WE SUGGEST THAT YOU CONTACT THEM DIRECTLY. WE CLOSE OUR FILE.

In November of 1995, Grain Traders filed this action seeking a refund from Citibank pursuant to U.C.C. §§ 4-A-402(4), 4-A-209, 4-A-301, 4-A-305, and 1-203, as well as common law theories of conversion and money had and received. Grain Traders alleges that the transfer was never completed--i.e., Extrader never credited Kraemer's account for the $310,000. Grain Traders further claims that the reason the transfer was not completed was because Citibank had already placed BCIL's account on a "hold for funds" status before it credited the $310,000 intended for Kraemer to BCIL's account. By making the credit to BCIL's allegedly frozen account, Grain Traders contends, Citibank improperly used the funds to offset BCIL's indebtedness to it and prevented BCIL from withdrawing the funds to complete the transfer.

Grain Traders moved for summary judgment on its Article 4-A claim. Citibank cross-moved for summary judgment on the grounds that Grain Traders had failed to state a claim under Article 4-A, could not establish its common law claims, and that its common law claims were, in any event, pre-empted by Article 4-A. The district court denied summary judgment to Grain Traders and granted summary judgment in favor of Citibank. Grain Traders now appeals.

DISCUSSION

In its opinion, the district court held that (1) Section 402 of Article 4-A established a cause of action only by a sender against its receiving bank, thus Grain Traders, who was a sender only with respect to BCN, had sued the wrong bank; (2) Sections 4-A-209, 4-A-301, 4-A-305, and 1-203 of the U.C.C. did not create causes of action; and (3) Grain Traders could not establish elements necessary to its common law claims of conversion and money had and received. See Grain Traders, Inc. v. Citibank, N.A., 960 F.Supp. 784, 789, 792-93 (S.D.N.Y.1997). The district court did not reach Citibank's argument that the common law claims were pre-empted by Article 4-A. Id. at 793 n. 8. On appeal, Grain Traders argues that the district court erred in dismissing its claim under U.C.C. § 4-A-402 and its common law claims. It also argues that the district court abused its discretion in declining to consider an alleged assignment made by BCN to Grain Traders after Citibank had cross-moved for summary

judgment and in dismissing Grain Traders's complaint without granting leave to replead on the basis of the assignment. Grain Traders does not appeal the dismissal of its claims under Sections 4-A-209, 4-A-301, 4-A-305, and 1-203 of the U.C.C., and thus these claims are not a subject of this opinion. For the following reasons, we affirm the district court's judgment.

I. Standard of Review

We review the district court's grant of summary judgment de novo, drawing all reasonable inferences and resolving all ambiguities in favor of the non-movant. See Lendino v. Trans Union Credit Information Co., 970 F.2d 1110, 1112-13 (2d Cir.1992); Taggart v. Time Inc., 924 F.2d 43, 46 (2d Cir.1991); Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir.1987). Summary judgment is appropriate if the evidence offered, viewed in the light most favorable to the non-moving party, demonstrates that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). However, there "is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id. at 249, 106 S.Ct. 2505. When a defendant moving for summary judgment has pointed to the absence of evidence to support an essential element on which the plaintiff has the burden of proof, the plaintiff, in order to avoid summary judgment, must show the presence of a genuine issue by coming forward with evidence that would be sufficient, if all reasonable inferences were drawn in his favor, to establish the existence of that element at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Fed.R.Civ.P. 56(c).

II. Article 4-A Claims

Article 4-A of the U.C.C. governs the procedures, rights, and liabilities arising out of commercial electronic funds transfers. ¹ A funds transfer is defined as a

series of transactions, beginning with the originator's payment order [and] includes any payment order issued by the originator's bank or an intermediary bank intended to carry out the originator's payment order.

N.Y.U.C.C. § 4-A-104(1). A "payment order" is defined as

an instruction of a sender to a receiving bank ... to pay, or to cause another bank to pay, a fixed or determinable amount of money [where] the receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender, and ... the instruction is transmitted by the sender directly to the receiving bank.

N.Y.U.C.C. § 4-A-103(1)(a). Thus, as noted by the district court, "funds are 'transferred' through a series of debits and credits to a series of bank accounts." Grain Traders, 960 F.Supp. at 788. A "sender" is defined as "the person giving the instruction [directly] to the receiving bank," and a "receiving bank" is defined as "the bank to which the sender's instruction is addressed ." There are other defined roles in a given funds transfer for the senders, receiving banks, or other participants, including the "originator" of the funds transfer (here Grain Traders), the "originator's bank" (here BCN), the "beneficiary" (here Kraemer) and the "beneficiary's bank" (here Extrader). For any given funds transfer, there can be only one originator, originator's...