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First American Bank v. RBS Citizens, N.A.

United States District Court, N.D. Illinois, Eastern Division

June 25, 2015

FIRST AMERICAN BANK, et al., Plaintiffs,
v.
RBS CITIZENS, N.A., Defendants.

MEMORANDUM OPINION AND ORDER

JOHN ROBERT BLAKEY, District Judge.

Plaintiffs, First American Bank (individually and as subrogee of First Aid Corporation d/b/a 1st Ayd Corporation) and Federal Insurance Company (as subrogee and assignee of First American Bank), have sued defendants Federal Reserve Bank of Atlanta, RBS Citizens, N.A. d/b/a Charter One (collectively, the "bank defendants"), and David Goodson "to recover for the defendants' participation in the transfer and collection of a fraudulent check in the amount of $486, 750.33 and for professional negligence." Amended Complaint [6], ¶1. The bank defendants have moved to dismiss the claims against them [21] for failure to state a claim. For the reasons explained below, the motion is granted.

Background

In their amended complaint, the plaintiffs allege defendant David Goodson received an email from "Fumiko Anderson" seeking his assistance in recovering funds owed pursuant to a divorce proceeding. Amended Complaint [6], ¶16. Goodson then received a check, via UPS delivery from Ontario, Canada, in the amount of $86, 176.96; the check was made payable to the "Law Office of David M. Goodson" and "drawn by" First Aid Corporation on its account at First American. Id., ¶¶17-18. Goodson endorsed the check and deposited it in his client trust account at RBS Citizens. Id., ¶19. He then "caused RBS Citizens to wire some or all of the funds... to Japan." Id., ¶21. The plaintiffs further allege that RBS "took an electronic image of the check, transferred the image through the Federal Reserve System for payment by First American, and destroyed the original check." Id., ¶22. The Complaint does not seek damages or make any claims with respect to this check.

The plaintiffs further allege in their amended complaint that Goodson received a second check in November 2013; this check too arrived via UPS from Ontario, Canada, was made payable to the "Law Office of David M. Goodson" and was drawn by First Aid Corporation on its account at First American. Id., ¶23. As before, Goodson endorsed the second check and deposited it into his client trust account at RBS Citizens; that same day, he caused RBS to wire some or all of the funds to Japan. Id., ¶¶24, 26. Again, plaintiffs allege, RBS took an electronic image of the check, transferred the image through the Federal Reserve System for payment by First American, and destroyed the original check. Id., ¶25.

Both checks were fraudulent, as the parties later learned. Amended Complaint [6], ¶¶4, 20, 27. As a result, First American re-credited First Aid Corporation's account for both amounts and then sought indemnity from RBS. RBS indemnified First American for the first check, but not the second. Id., ¶¶27-28.

First American and its insurer, Federal Insurance Company (which indemnified First American for a portion of its losses with regard to the second check), id., ¶29, sued RBS and the Federal Reserve Bank of Atlanta (according to the amended complaint, RBS transferred the item through the Federal Reserve System for payment by First American, and the Federal Reserve Bank of Atlanta was the immediate transferor of the item to First American). Amended Complaint [6], ¶5. They also sued Goodson for his part in the transaction. The amended complaint includes four counts: Counts I and II assert claims of breach of warranty under Regulation J, 12 C.F.R. §210.6, and restitution by mistake under 810 ILCS 5/3-418 against all defendants; Count III asserts a claim of negligent spoliation of evidence against RBS; and Count IV asserts a claim of professional negligence against Goodson. Goodson filed an answer to the amended complaint [19], claiming that he had no idea the checks were fraudulent. The bank defendants moved to dismiss the counts against them, arguing that none pleads a claim for which relief may be granted.

Discussion

"To survive a motion to dismiss under Rule 12(b)(6), the complaint must provide enough factual information to state a claim to relief that is plausible on its face' and raise a right to relief above the speculative level.'" Doe v. Village of Arlington Heights, 782 F.3d 911, 914 (7th Cir. 2015)(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)). "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." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

When analyzing a motion under Rule 12(b)(6), the Court must construe the allegations of the operative complaint in the light most favorable to the plaintiffs, accepting as true all well-pleaded facts and drawing all reasonable inferences in their favor. E.g., Yeftich v. Navistar, Inc., 722 F.3d 911, 915 (7th Cir. 2013)(citing Fed.R.Civ.P. 12(b)(6); Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008)). Additionally, Rule 12(b)(6) limits this Court's consideration to "allegations set forth in the complaint itself, documents that are attached to the complaint, documents that are central to the complaint and are referred to in it, and information that is properly subject to judicial notice." Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013).

As explained above, the bank defendants have moved to dismiss the claim for breach of warranty in violation of Regulation J (Count I), the claim for restitution for payment by mistake (Count II) and the spoliation claim (Count III) for failure to state a claim.

A. Plaintiffs' Claim for Breach of Warranty in Violation of Regulation J

In Count I, the plaintiffs allege that the bank defendants breached the warranty required in Regulation J that the electronic version of the check accurately reflected all of the information on the original check. The bank defendants argue that Count I should be dismissed because plaintiffs have failed to plead a plausible claim for breach of warranty in violation of Regulation J.

Resolution of defendants' motion turns on the construction of the language of Regulation J. Applying basic rules of statutory construction, the Court begins with the language of the regulation itself. E.g., U.S. v. Balint, 201 F.3d 928, 932 (7th Cir. 2000)("When we interpret a statute, we look first to its language.") If the language is plain, the Court's job is simply to enforce it; it is where the language is not plain, or where it is subject to conflicting interpretation, that the analysis get a bit trickier. The Court's interpretation "is guided not just by a single sentence or sentence fragment, but by the language of the whole law, and its object and policy." Balint, 201 F.3d at 933 (citing Grammatico v. United States, 109 F.3d 1198, 1204 (7th Cir.1997)). The Federal Reserve Board's commentary is also instructive as to the meaning of a given word or phrase. E.g., Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566 (1980); Fogle v. William Chevrolet/GEO, Inc., No. 99 C 5960, 2000 WL 1129983, at *3 (N.D. Ill. Aug. 9, 2000)("considerable respect is due the interpretation given [a] statute by the officers or agency charged with its administration.' An agency's construction of its own regulations has been regarded as especially due that respect.")(quoting Zenith Radio Corp. v. United States, 437 U.S. 443, 450 (1978); Udall v. Tallman, 380 U.S. 1, 16 (1965)). See also U.S. v. Vizcarra, 668 F.3d 516, 520 (7th Cir. 2012)(commentary in the guidelines manual that interprets or explains a guideline is authoritative unless it is inconsistent with, or a plainly erroneous reading of, that guideline."); U.S. v. Mitchell, 353 F.3d 552, (7th Cir. 2003)(treating the USSC's commentary to the guideline as authoritative).

Thus, we turn first to the relevant statutory language, which is Regulation J. According to the Board of Governors of the Federal Reserve System (the governing body of the Federal Reserve System and the agency charged with ...


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