Opinion ID: 759122
Heading Depth: 2
Heading Rank: 2

Heading: The Article 4-A Claim

Text: 14 Article 4-A of New York's Uniform Commercial Code governs the rights and liabilities of parties involved in commercial electronic funds transfers. BCI-NY's Article 4-A claim was brought pursuant to § 211(6), which provides: 15 Unless otherwise provided in an agreement of the parties or in a funds-transfer system rule, if the receiving bank, after accepting a payment order, agrees to cancellation or amendment of the order by the sender or is bound by a funds-transfer system rule allowing cancellation or amendment without the bank's agreement, the sender, whether or not cancellation or amendment is effective, is liable to the bank for any loss and expenses, including reasonable attorney's fees, incurred by the bank as a result of the cancellation or amendment or attempted cancellation or amendment. 16 N.Y.U.C.C. § 4-A-211(6). Northern Trust argues that this section does not apply to the transaction at issue because it was governed by the CIB Rules, a funds-transfer system rule. We need not address this argument, however, because we agree with the district court's conclusion that BCI-NY's Article 4-A claims were time-barred. 17 The statute itself does not provide an express statute of limitations for claims brought pursuant to its terms. The district court adopted Northern Trust's contention that New York CPLR § 214(2), which provides a three-year statute of limitations for an action to recover upon a liability, penalty, or forfeiture created or imposed by statute, applied to BCI-NY's Article 4-A claim. If so, BCI-NY's claim was time-barred as of April 23, 1994, almost 20 months before this action was filed. 18 BCI-NY counters that the liability it seeks to impose on Northern Trust under Article 4-A has a common law antecedent, and, therefore, is not one created or imposed by statute. Instead, BCI-NY contends, its claim is governed by CPLR § 213(1), which provides a six-year statute of limitations for actions for which no limitation is specifically prescribed by law. 19 For a claim to fall within the confines of CPLR § 214(2), the statute must impose a liability  'for wrongs not recognized in the common or decisional law.'  State v. Stewart's Ice Cream Co., 64 N.Y.2d 83, 88, 484 N.Y.S.2d 810, 473 N.E.2d 1184 (1984) (quoting State v. Cortelle Corp., 38 N.Y.2d 83, 86, 378 N.Y.S.2d 654, 341 N.E.2d 223 (1975)). The New York Court of Appeals has consistently held that [CPLR § 214(2)] ... only governs liabilities which would not exist but for a statute. It does not apply to liabilities existing at common law which have been recognized by statute. Thus, if the [statute imposing liability] merely codifies or implements an existing liability, the three-year statute would be inapplicable. Aetna Life & Casualty Co. v. Nelson, 67 N.Y.2d 169, 501 N.Y.S.2d 313, 315, 492 N.E.2d 386 (1986) (citations omitted). Section 211(6), quoted above, departs from the common law: it imposes absolute liability on the sender of an electronic funds transfer to the receiving bank if the sender cancels a payment order that has already been accepted, even though the receiving bank has freely agreed to the cancellation. It does not require any showing of the elements required to establish common law fraud or unjust enrichment. In particular, § 211(6) does not require any showing of wrongfulness on the part of the sender. 20 BCI-NY points to Banque Worms v. BankAmerica Int'l, 77 N.Y.2d 362, 568 N.Y.S.2d 541, 570 N.E.2d 189 (1991), and General Elec. Capital Corp. v. Central Bank, 49 F.3d 280 (7th Cir.1995), for the proposition that it could have brought a common law claim under the discharge for value rule. Under this rule, 21 [a] creditor of another or one having a lien on another's property who has received from a third person any benefit in discharge of the debt or lien, is under no duty to make restitution therefor, although the discharge was given by mistake of the transferor as to his interests or duties, if the transferee made no misrepresentation and did not have notice of the transferor's mistake. 22 Banque Worms, 77 N.Y.2d at 367, 568 N.Y.S.2d 541, 570 N.E.2d 189 (quoting Restatement of Restitution § 14(1)). We find BCI-NY's argument unpersuasive. 23 In Banque Worms, the New York Court of Appeals applied the discharge for value rule to allow the recipient of a mistakenly sent payment order to retain the funds in discharge of a debt already owed the recipient by the sender. Although the case was decided barely a month after Article 4-A had become effective and did not apply Article 4-A retroactively, the court relied heavily on Article 4-A's purposes and goals in reaching its decision; specifically, the court found that the discharge for value rule was consistent with Article 4-A. Id. at 373, 568 N.Y.S.2d 541, 570 N.E.2d 189. Significantly, however, the court applied the discharge for value rule as a defense to the sender's claim that it was entitled to recover the funds because they were sent in error. There is no indication in the opinion that the discharge for value rule would support a cause of action by itself, were the recipient to voluntarily return the funds to the sender and then bring suit for their return. 24 General Electric also involved a funds transfer mistakenly sent to a recipient who was already owed a debt by the sender. As in the instant case, the recipient's bank, at the sending bank's request, returned the funds to the sender and debited the funds from the recipient's account without the recipient's consent. The recipient brought a claim against its bank for conversion arguing that it would have been entitled to retain the funds under the discharge for value rule. The court agreed and required the recipient's bank to return the funds. Here, BCI-NY could not have maintained an action for conversion, which requires a showing that the defendant exercised an unauthorized dominion over that property, ... to the exclusion of the plaintiff's rights, because it voluntarily returned the funds to Northern Trust and Northern Trust issued it a full indemnification. Middle East Banking Co. v. State St. Bank Int'l, 821 F.2d 897, 906 (2d Cir.1987) (internal quotation marks omitted) (alterations in original) (noting that issuance of full indemnification defeated claim for conversion). BCI-NY makes much of the General Electric court's observation that, upon returning the funds to the recipient, the recipient's bank would be subrogated to the recipient's rights. See 49 F.3d at 286. However, the court was referring to the recipient's rights under the original agreement (i.e., against Wallace Smith in this case), not against the sending bank based on the electronic funds transfer (i.e., in this case Northern Trust). In fact, the court specifically noted that the recipient's bank's failure to request an indemnity prevented it from recovering from the sending bank. Id. 25 BCI-NY does not identify any other common law action which could be said to be antecedent to the liability imposed by § 211(6). Indeed, it is widely recognized that Article 4-A was enacted to correct the perceived inadequacy of  'attempt[ing] to define rights and obligations in funds transfers by general principles [of common law] or by analogy to rights and obligations in negotiable instruments law or the law of check collection.'  Banque Worms, 77 N.Y.2d at 369, 568 N.Y.S.2d 541, 570 N.E.2d 189 (quoting Official Comment to N.Y.U.C.C. § 4-A-102); see also Centre-Point Merchant Bank Ltd. v. American Express Bank Ltd., 913 F.Supp. 202, 206 (S.D.N.Y.1996) (The rule-makers also labored to write a detailed statute that would allocate risks among the various parties to such transactions in light of competing interests.). The Official Comment to Article 4-A states that the drafters made a deliberate decision ... to write on a clean slate and to treat a funds transfer as a unique method of payment to be governed by unique rules that address the particular issues raised by this method of payment. N.Y.U.C.C. § 4-A-102, cmt. This lends powerful support to the application of CPLR § 214(2) to claims brought under Article 4-A. 26 Finally, any lingering doubts we might have about imposing a three-year statute of limitations are removed by the New York Court of Appeals' observation in Banque Worms that [e]stablishing finality in electronic fund wire transactions was considered a singularly important policy goal to be served by Article 4-A. 77 N.Y.2d at 372, 568 N.Y.S.2d 541, 570 N.E.2d 189 (emphasis added). This goal is better served by requiring claimants to assert their claims concerning electronic funds transfers within a limitations period of three years rather than six years. Accordingly, we affirm the district court's holding that BCI-NY's Article 4-A claims were time-barred.