Shawmut Worcester County Bank v. First Amer. Bank, Civ. A. No. 87-0048-XX.

• Decision Date: 05 February 1990
• Docket Number: Civ. A. No. 87-0048-XX.
• Citation: 731 F. Supp. 57
• Parties: SHAWMUT WORCESTER COUNTY BANK, Plaintiff, v. FIRST AMERICAN BANK & TRUST, Michael Woods, and Joseph Merle, Defendants.
• Court: U.S. District Court — District of Massachusetts

731 F. Supp. 57

SHAWMUT WORCESTER COUNTY BANK, Plaintiff, v. FIRST AMERICAN BANK & TRUST, Michael Woods, and Joseph Merle, Defendants.

Civ. A. No. 87-0048-XX.

United States District Court, D. Massachusetts.

February 5, 1990.

A.W. David LaVigne, Boylston, Mass., for plaintiff.

John J. Rosenberg, Friedman & Atherton, Boston, Mass., and Peter W. Homer and Marjorie E. Murphy, Greer, Homer, Cope & Bonner, P.A., Miami, Fla., for defendants.

Oliver C. Mitchell, Jr., Ravech, Aronson & Shuman, Boston, Mass., for Joseph Merle.

MEMORANDUM AND ORDER

YOUNG, District Judge.

This action arises out of an error made by the plaintiff, the Shawmut Worcester County Bank ("Shawmut" or "transferor"). As is often the case with bank errors concerning money, restoring the status quo ante is somewhat more complicated than the slip that created the problem. In the instant case, Shawmut mistakenly transferred $10,000 from the account of American Optical Corporation, not a party to this action, to First American Bank & Trust in West Palm Beach, Florida ("First American" or "transferee"), purportedly for the benefit of one Fernando Degan ("Degan" or "beneficiary"), also not a party to this action, by means of an Electronic Funds Transfer System known as "Fedwire." Although Degan was the sole named beneficiary of the transfer, the payment order issued from Shawmut to First American also indicated that First American should credit account number 100 205 001 633, an account, it turns out, which is jointly held by Degan and one Joseph Merle. Shawmut discovered its error one hundred six (106) days after the mistaken transfer, credited the account of its customer American Optical the sum of $10,000.65, and asked First American to "reverse" a "previous day's" transfer, i.e., credit Shawmut the amount mistakenly transferred. First American asked Merle, its customer, if he would authorize the "reversal." Merle refused. Accordingly, American told Shawmut it would not reverse the transfer. Merle has already been adjudicated liable to Shawmut for $10,000. Apparently unsatisfied, Shawmut also seeks judgment against First American and its employee Michael Woods ("Woods").

Shawmut asserts claims of conversion against First American (Count I) and Woods (Count III) in handling the transfer. Shawmut also claims that First American is liable to it for breaching a principal-agent relationship (Count V) and for negligence (Count VI). Finally, Shawmut seeks recovery under rights purportedly derived from a federal statute, the Electronic Funds Transfers Act, 15 U.S.C. sec. 1693 (1982) et seq., (Counts VII, VIII, X, and XI), as well as two Massachusetts statutes: Mass.Gen. Laws ch. 93A (the Massachusetts "consumer protection statute") (Count II) and Mass. Gen.Laws ch. 106 (the Massachusetts Uniform Commercial Code) (Counts XIII and XIV). First American and Woods have moved either to dismiss or for summary judgment with respect to all claims.

The first issue concerns the choice of law to be applied to the common law claims. Shawmut argues conclusorily that Massachusetts law applies. Woods and First American do not argue the point. This Court, applying the choice of law rules of the forum state as dictated by Klaxon Co. v. Stentor Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), here Massachusetts, concludes that Florida law applies. In Massachusetts, the choice of law in actions such as this depends on a number of factors as set forth in Bushkin Associates, Inc. v. Raytheon Co., 393 Mass. 622, 473 N.E.2d 662 (1985).¹ Here, these criteria all point toward the application of Florida law.

Woods and First American are entitled to summary judgment with respect to Shawmut's conversion theory. It is well-settled Florida law that conversion consists of an act in derogation of the plaintiff's possessory rights. The essence of a conversion claim is the wrongful deprivation of identifiable property from a person entitled to possession. Star Fruit Co. v. Eagle Lake Growers, Inc., 160 Fla. 130, 132, 33 So.2d 858, 860 (1948); E.J. Strickland Construction, Inc. v. Dept. of Agriculture and Consumer Services of Florida, 515 So.2d 1331, 1335 (Fla.App. 5th Dist.1987). The act must be unauthorized, Aubin v. Hentz & Co., 303 F.Supp. 1119, 1121 (S.D.Fla. 1969) (citing 7 Florida Jurisprudence, Conversion sec. 2), and must involve an interference with legal rights incident to ownership, West Yellow Pine Co. v. Stephens, 80 Fla. 298, 304, 86 So. 241, 243 (1920).

Viewing the record before the Court in the light most favorable to Shawmut and indulging all inferences favorably to Shawmut, Ismert and Associates, Inc. v. New England Mutual Life Ins. Co., 801 F.2d 536, 537 (1st Cir.1986), neither First American nor it employee, Woods, effected a conversion of property owned by Shawmut when the bank, through Woods, refused to "reverse" the erroneous funds transfer made 106 days earlier. A conversion occurs at the time the defendants act in derogation of an interest in possession in identifiable goods.²

No conversion took place by virtue of the acts of August 11, 1986, the day of the transfers, since First American was authorized to act, that is, to execute the payment orders issued by Shawmut. Likewise, no conversion took place on November 25, 1986, the day Shawmut first requested that First American "reverse" the erroneous transfer, because, as of November 25, Shawmut had no possessory rights in the mistaken transfer. By then the money had been "finally paid" by First American's Federal Reserve bank to First American, which extinguished Shawmut's "ownership interest" in the funds as personal property. Put another way, by November 25, 1986, there was no longer any property owned by Shawmut which was subject to conversion by First American. Therefore, Woods and First American are entitled to summary judgment with respect to the conversion counts, Counts I and III.

Shawmut's second common law claim alleges that First American breached its duties as Shawmut's agent (1) in handling the August 11 transfers and (2) in refusing to "reverse" the erroneous transfer on November 25. On August 11, First American was undoubtedly the receiving agent for its customers, Merle and Degan, for purposes of receiving the transfer and crediting the account. See Delbrueck & Co. v. Manufacturers Hanover Trust Co., 609 F.2d 1047, 1051-52 (2d Cir.1979); see also 12 C.F.R. 210 (1989). Shawmut, however, alleges that First American was also acting as Shawmut's agent for purposes of the transaction and it was in this capacity that First American was negligent in discharging its duties. See Securities Fund Services, Inc. v. American Nat. Bank & Trust Co. of Chicago, 542 F.Supp. 323, 327 (N.D.Ill.1982) (a "corresponding bank," which regularly performs services for another in a market to which the other does not have direct access, may be an "agent" for the initiator of a wire transfer).

Shawmut claims that the pattern of dealings between the banks establishes a general agency between them, with no limiting dimension, that extended at least until November 25, one hundred six days after the August 11 transactions, and that it was within the scope of First American's duties as Shawmut's agent to "reverse" the transaction at that time. This view is not supported by the undisputed facts. The record before the Court is insufficient to establish the existence of any principal-agent relationship between Shawmut and First American. Scrutiny of all attendant facts surrounding the relationship between these banks reveals that, unlike the scenario in Securities Fund, First American was not operating as a "correspondent bank" for Shawmut. It is simply an independent bank, like Shawmut, that maintains an account with the Federal Reserve System and, like Shawmut, participates in the national Federal Reserve Wire Network ("Fedwire") facilitating electronic fund transfers between financial institutions on behalf of the financial institutions' customers. See generally Geva, Fedwire Transfer of Funds, 104 Banking Law Journal 412 (1987). Participants in Fedwire transfers like the one in this case are bound, to be sure, to conform their conduct to the standards prescribed by Fedwire regulations. See 12 C.F.R. sec. 210.25-38 ("Subpart B of Regulation J"). Subpart B of Regulation J governs the wire transfer of credits and debit of funds and preempts all conflicting state laws and private contract provisions. See D. Baker & R. Brandel, The Law of Electronic Fund Transfer Systems at 1914 (2d Ed.1988). A difficult hurdle that Shawmut has failed to negotiate in establishing an agency relationship is that under Regulation J the transferor bank, Shawmut, did not have the right to control First American's conduct with respect to the original crediting of the account specified in the payment order. Under Regulation J, the transferor bank, in making a request for a transfer, authorizes its Reserve Bank to debit its account for the amount of funds to be transferred and further authorizes the transferee institution's Reserve Bank to credit the same amount to the transferee bank. Any request by a transferor to interrupt the carrying out of a funds transfer must be made to the transferee's Reserve Bank, not to the transferee. Even then, that Reserve Bank is not obligated to accomodate the transferor, but may do so if the request is made in time to give the Reserve Bank a reasonable opportunity to comply, 12 C.F.R. sec. 210.35(a) — that is, before it makes final payment to the transferee receiving bank. This legal limitation on the powers of the purported principal is fatal to Shawmut's agency theory.

In the alternative, this Court rules that even if an agency relationship existed between a transferor bank and a transferee bank in transactions of this kind, it is necessarily circumscribed by the parties' respective obligations as set out in Regulation J. See 12 C.F.R. sec. 210.27(b). Any agency a transferor bank may be said to have...