Studco Bldg. Sys. U.S., LLC v. 1st Advantage Fed. Credit Union
| Decision Date | 18 December 2020 |
| Docket Number | Civil Action No: 2:20-cv-417 |
| Citation | 509 F.Supp.3d 560 |
| Parties | STUDCO BUILDING SYSTEM U.S., LLC, Plaintiff, v. 1ST ADVANTAGE FEDERAL CREDIT UNION, John Doe, Defendants. |
| Court | U.S. District Court — Eastern District of Virginia |
Bethany Jean Fogerty, Brett Alexander Spain, Willcox & Savage PC, Norfolk, VA, Michael McCabe, Pro Hac Vice, Myriah Valentina Jaworski, Pro Hac Vice, Beckage PLLC, Buffalo, NY, for Plaintiff.
John M. Bredehoft, Kaufman & Canoles PC, Norfolk, VA, Adam Benjamin Pratt, Kaufman & Canoles PC, Williamsburg, VA, for Defendants.
Before the Court is Defendant's Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6). ECF No. 35. The Court finds that a hearing is not necessary. Having reviewed the parties’ filings, this matter is ripe for judicial determination. For the following reasons, Defendant's Motion to Dismiss is GRANTED IN PART AND DENIED IN PART.
The following facts taken from Studco Building System U.S.’ ("Studco" or "Plaintiff") Complaint are considered true and cast in the light most favorable to Studco. ECF No. 11; see also , Adams v. Bain , 697 F.2d 1213, 1219 (4th Cir. 1982).
Around August 2018, 1st Advantage opened a personal checking account for an individual ("John Doe") in Virginia. Id. at ¶ 61. 1st Advantage is required to comply with the "Know Your Customer" ("KYC") regulations of federal Anti-Money Laundering ("AML") laws. Id. at ¶ 45. The Anti-Money Laundering laws require 1st Advantage to conduct customer due diligence which includes, among other things, verifying a member's identity, address and source of funds. Id. at ¶ 46. However, 1st Advantage did not verify John Doe's identity, physical/mailing, address, prior banking history, whether John Doe was eligible to be a member, nor did 1st Advantage verify the source of funds intended for the account. Id. at ¶¶ 62-64. Shortly after, in or around October 2018, John Doe transmitted fraudulent emails to Studco in New York State. Id. at ¶¶ 70-73. The emails appeared to be legitimate emails from a Studco supplier, Olympic Steel based in Ohio, and directed Studco to transmit funds intended for Olympic Steel into a bank account held at 1st Advantage. Id. at ¶ 70, 72, 81. 1st Advantage was aware that Olympic Steel did not hold an account at 1st Advantage. Id. at ¶¶ 81. Then, starting in October 2018, Studco sent one ACH credit to 1st Advantage pursuant to John Doe's fraudulent email instructions. Id. at ¶¶ 75-95. Specifically, 1st Advantage received an ACH transfer of $156,834.55 that identified Studco as the originator and Olympic Steel, by corporate address, as the beneficiary or receiver which did not match any account holder with 1st Advantage. Id. at ¶ 83. The ACH credit identified the Personal Account number, but it was commercially coded as "CCD" which stands for "Corporate Credit or Debit." Id. at ¶¶ 79-83, 180. Pursuant to the Rules of the National Automated Clearing House Association (NACHA), CCD payments are restricted to transactions that involve only businesses. Id. at ¶ 77. Moreover, any CCD payments directed to personal accounts are required to be rejected by the Bank, which 1st Advantage did not do. Id. ¶¶ 75-79. Shortly thereafter, 1st Advantage accepted three additional high-value commercial ACH credit payments for the Personal Account, totaling $558,868.17. Id. at ¶ 87-92, 75.
After the funds were transferred to the Personal Account, John Doe withdrew over $558,868.17 incrementally and in-person at a 1st Advantage branch with the assistance of 1st Advantage. Id. at ¶¶ 108-146, 129-135. In a period of over a month, 1st Advantage employee(s) issued thirteen (13) cashier checks or wire transfers totaling $558,868.17 from the Personal Account. Id. at ¶¶ 113-115. Nine (9) of the thirteen (13) withdrawals from the Personal Account were made out to an individual or entity that is alleged to be known to 1st Advantage or its employee(s). Id. at ¶¶ 115-119, 139. Specifically, $268,500 of the total money was withdrawn in person by John Doe in the form of six cashier checks at a 1st Advantage branch location made out to "Vee's Enterprises," an entity that is incorporated in Georgia and opened by a person named "Victoria Jones" (and/or "Vemasta Newton"). Id. at ¶¶ 117-119, 135-138. Eventually the Federal Bureau of Investigation ("FBI") in Rochester, New York commenced an investigation. During the investigation, Studco alleges that 1st Advantage has intentionally concealed, and continues to conceal, material information from Studco related to John Doe and the Personal Account and continues to perpetuate a fraud on Studco. Id. at ¶¶ 147-161.
On November 5, 2019, Studco initiated a suit seeking $558,868.71 in compensatory damages and not less than $100,000 in punitive damages against 1st Advantage and John Doe. ECF No. 1. On January 29, 2020, Plaintiff filed an amended complaint. ECF No. 11. Plaintiff claims six causes of action. Count I alleges Misdescription of Beneficiary, pursuant to UCC § 4A-207, against 1st Advantage and John Doe. Id. at ¶¶ 174-184. Count II alleges Conversion of Instrument against 1st Advantage and John Doe. Id. at ¶¶ 185-198. Count III alleges Bailment against 1st Advantage. Id. at ¶¶ 199-220. Count IV alleges fraud against John Doe and Aiding and Abetting Fraud against 1st Advantage. Id. at ¶¶ 221-241. Count V alleges Fraudulent Concealment against 1st Advantage. Id. at ¶¶ 242-256. Count VI alleges a civil Racketeer Influenced and Corrupt Organizations Act (RICO) claim against 1st Advantage and John Doe, pursuant to 18 U.S.C. §§ 1961. Id. at ¶¶ 257-269. Count VII alleges Money Had and Received against 1st Advantage. Id. at ¶¶ 270-275. Count VIII alleges a Prima Facie Tort Against 1st Advantage. Id. at ¶¶ 276-283.
On September 11, 2020, 1st Advantage filed the instant Motion to Dismiss the Complaint for failure to state claims pertaining to 1st Advantage. ECF Nos. 35, 36. On September 25, 2020, Studco opposed the motion. ECF No. 39. On October 1, 2020, 1st Advantage replied. ECF No. 40.
Federal Rule of Civil Procedure 12(b)(6) provides for dismissal of actions that fail to state a claim upon which relief can be granted. The United States Supreme Court has stated that in order "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Specifically, "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678, 129 S.Ct. 1937. Moreover, at the motion to dismiss stage, the court is bound to accept all of the factual allegations in the complaint as true. Id. However, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. Assessing the claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937.)). In considering a Rule 12(b)(6) motion to dismiss, the Court cannot consider "matters outside the pleadings" without converting the motion to a summary judgment. Fed. R. Civ. P. 12(d). Nonetheless, the Court may still "consider documents attached to the complaint ... as well as those attached to the motion to dismiss, so long as they are integral to the complaint and authentic." Sec'y of State for Defence v. Trimble Navigation Ltd. , 484 F.3d 700, 705 (4th Cir. 2007) ; see also Fed. R. Civ. P. 10(c).
As an initial matter, the Court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332. Studco is a corporation organized under the laws of the state of New York and with a primary place of business in New York. ECF No. 1 at ¶ 9. 1st Advantage is a member-owned federal cooperative bank organized under the laws of the Commonwealth of Virginia with a primary place of business in Virginia. Id. at ¶ 5, 10. The amount in controversy exceeds $75,000 because Studco is seeking $558,868.71 in compensatory damages. Id. Exhibit 4 at 24. In a diversity action, district courts apply federal procedural law and state substantive law. See Gasperini v. Ctr. For Humanities, Inc. , 518 U.S. 415, 427, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996). Federal courts sitting in diversity jurisdiction apply the choice of law rules in the state in which it sits.
Klaxon v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) (). Therefore, the Court will apply the law of the Commonwealth of Virginia to the state claims.
Plaintiff also asserts a federal claim, Count VI, pursuant to 18 U.S. C. §§ 1961. The law is well-established that "[r]egardless of the allegations of a state law claim, ‘where the vindication of a right under state law necessarily turn[s] on some construction of federal law,’ the claim arises under federal law and thus supports federal question jurisdiction under 28 U.S.C. § 1331." North Carolina v. Alcoa Power Generating, Inc. , 853 F.3d 140, 146 (4th Cir. 2017) (quoting Franchise Tax Bd. v. Constr. Laborers Vacation Tr. for S. Cal. , 463 U.S. 1, 9, 103 S. Ct. 2841, 77 L. Ed. 2d 420 (1983) ). Thus, the Court also has sufficient basis for federal question jurisdiction over Count VI and has supplemental jurisdiction over the remaining Counts because these claims result from the same transaction or occurrence. 28 U.S.C. § 1367(a).
The United States Court of Appeals for the Fourth Circuit has recognized that while there...
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...1226 (S.D. Fla. 2018), aff'd, 795 Fed.Appx. 741 (11th Cir. 2019); and Studco Bldg. Sys. U.S., LLC v. 1st Advantage Fed. Credit Union, 509 F.Supp.3d 560 (E.D. Va. 2020))). However, none of the cases Plaintiff cites analyzed the issue of privity, and the parties in those cases did not raise a......