Opinion ID: 1365781
Heading Depth: 1
Heading Rank: 3

Heading: Whether an Originator or Intended Beneficiary Has a Substantial ... Interest in a Midstream EFT under the FDCPA

Text: Applying the two-step framework outlined above, we conclude that whatever interest or right an originator or intended beneficiary has in a midstream EFT under New York law, if any, it is insufficient to constitute a substantial ... interest under the FDCPA. Article 4-A of New York's Uniform Commercial Code (Article 4-A) governs EFTs, N.Y. U.C.C. § 4-A-102, and was enacted to provide a comprehensive body of law that defines the rights and obligations that arise from wire transfers, Banque Worms v. BankAmerica Int'l, 77 N.Y.2d 362, 369, 568 N.Y.S.2d 541, 570 N.E.2d 189 (1991). The system Article 4-A establishes is not intuitive. As various provisions of Article 4-A make clear, wire transfers, which include EFTs, are a unique type of transaction to which ordinary rules do not necessarily apply. See, e.g., N.Y. U.C.C. § 4-A-102 cmt. (stating that the provisions of Article 4-A are intended to be the exclusive means of determining the rights, duties and liabilities of the affected parties to covered EFT transactions); Banque Worms, 77 N.Y.2d at 369, 568 N.Y.S.2d 541, 570 N.E.2d 189 (noting that attempts to define rights and obligations in funds transfers by general principles or by analogy to rights and obligations in [other more traditional areas of law] have not been satisfactory). Pursuant to Article 4-A, [a] receiving bank is not the agent of the sender or beneficiary of the payment order it accepts, or of any other party to the funds transfer, and the bank owes no duty to any other party to the funds transfer except as provided in this article or by express agreement. N.Y. U.C.C. § 4-A-212. An authoritative comment accompanying Article 4-A further states that a creditor of an originator may serve process on an originator's bank before a funds transfer is initiated, but not afterwards, because no property of the originator is being transferred during the funds transfer process. N.Y. U.C.C. § 4-A-502 cmt. 4; see Jaldhi, 585 F.3d at 71 (describing the above comment as authoritative). Likewise, until the funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary, the beneficiary has no property interest in the funds transfer which the beneficiary's creditor can reach. N.Y. U.C.C. § 4-A-502 cmt. 4. [7] Recent commentary of the Permanent Editorial Board for the Uniform Commercial Code (PEB), which drafted the U.C.C., [8] notes: Under Article 4A ... the originator does not have any claim against the intermediary bank for return of the value in the event the funds transfer is not completed. Rather, the only party with a claim against the intermediary bank is the sender to that bank, which is typically the originator's bank. ... The originator's bank must refund to the originator even if it cannot recover from the intermediary bank. The beneficiary likewise has no claim to any payment from the intermediary bank. PEB Commentary No. 16, §§ 4A-502(d) and 4A-503, at 3 (2009). According to the PEB, this is so because [t]he intermediary bank has no contractual obligation to the originator or to the beneficiary, and neither the originator nor the beneficiary has any contractual obligation to or rights flowing from the intermediary bank. Thus, credits in an intermediary bank are credits in favor of the originator's bank, and are not property of either the originator or the beneficiary. Id. at 2 (emphasis omitted). All of this is just to say that, according to the PEB, under the Article 4A structure, the issuance and acceptance of payment orders creates rights and obligations only as between the sender of the payment order and its receiving bank (e.g., between originator and originator's bank as to the originator's payment order), between the originator's bank and an intermediary bank as to the originator's bank's payment order, between the intermediary bank and the beneficiary bank as to the intermediary bank's payment order, and finally, as between the beneficiary bank that has accepted a payment order and that beneficiary. Id. We have readily determined that these various provisions and commentary establish that EFTs are neither the property of the originator nor the beneficiary while briefly in the possession of an intermediary bank. Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58, 71 (2d Cir.2009), cert, denied ___ U.S. ___, 130 S.Ct. 1896, 176 L.Ed.2d 402 (2010). Resolution of the ownership issue, however, does not definitively answer our threshold question concerning the existence and scope of an originator or intended beneficiary's right or interest, if any, in a midstream EFT. An interest in property is not necessarily synonymous with title to or ownership of property. See, e.g., BLACK'S LAW DICTIONARY 149 (7th ed.1999) (defining a beneficial interest as [a] right or expectancy in something ..., as opposed to legal title in that thing). Indeed, we have recognized that it would be reasonable for a court to hold that an individual has an interest in property, even when he does not own that property, so long as the property benefitted him as if he had received the property directly. United States v. Coluccio, 51 F.3d 337, 341 (2d Cir.1995). Noting that [t]he terms `interest' and `title' are clearly not synonymous, the Appellate Division of the New York Supreme Court has stated that, although Article 4-A establishes that neither an originator nor a beneficiary owns or has title to a midstream EFT, Article 4-A does not address the separate issue of who has an interest in an EFT. Bank of N.Y. v. Nickel, 14 A.D.3d 140, 145-47, 789 N.Y.S.2d 95 (N.Y.App. Div. 1st Dep't 2004). The Nickel court found no conflict between Article 4-Awhich, it says, governs only passage of titleand a different federal statute that authorized the blocking or freezing of certain entities' interests in property. Id. at 147, 789 N.Y.S.2d 95. According to the Nickel court, Article 4-A and the federal statute that authorized the freezing of certain entities' EFTs simply addressed different issues. [9] Id. Even though, according to Nickel, Article 4-A does not directly or explicitly address whether an originator or intended beneficiary has an interest in a midstream EFT, Article 4-A undoubtedly addresses some related issues and imposes significant limitations on the rights and expected benefits associated with such EFTs. First, as already noted, an intermediary bank is the legal agent of neither the originator nor the intended beneficiary. N.Y. U.C.C. § 4-A-212. Second, an originator and intended beneficiary have no legal claim or contractual rights against an intermediary bank in the event that a funds transfer is not completed. See Grain Traders, Inc. v. Citibank, N.A., 160 F.3d 97, 101-02 (2d Cir.1998); PEB Commentary No. 16, §§ 4A-502(d) and 4A-503, at 3. Finally, although an originator or intended beneficiary's lack of ownership is not dispositive of whether they have an interest in a midstream EFT, it nevertheless suggests that whatever interests or rights exist, if any, are limited. Based on these limitations, we conclude that whatever interest or right an originator or intended beneficiary has in a midstream EFT under New York law, it is insufficient to constitute a substantial . . . interest under the FDCPA. Because neither the statutory language nor the legislative history of the FDCPA defines the phrase substantial . . . interest, we look to the common, ordinary definition of the words. See generally Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct. 311, 62 L.Ed.2d 199 (1979) (A fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning.). Some of the common definitions of substantial include essential, material, firmly or solidly established, and weighty. 17 OXFORD ENGLISH DICTIONARY 67 (2d ed.1989). Our analysis of whether a right or interest in property constitutes a substantial . . . interest is further guided by how direct and tangible an originator or beneficiary's benefit from the property appears. See Coluccio, 51 F.3d at 341 (noting that the benefit the judgment debtor received from the property was significantly less direct and tangible than the benefit involved in other cases and remanding to the district court for further findings). Although originators and intended beneficiaries presumably derive some benefit from midstream EFTsas EFTs are frequently used and destined to satisfy debts owed by the originator to the intended beneficiarythis benefit is insufficient to qualify as a substantial . . . interest under the FDCPA. We have recognized that it would be reasonable for a court to hold that a judgment debtor has an interest in funds, even though he never acquired physical possession of those funds, if the funds benefitted him as if he had received the money directly. Coluccio, 51 F.3d at 341. While an EFT is temporarily in the possession of an intermediary bank, however, that EFT clearly does not benefit the originator or intended beneficiary in the same way as if they had received the money directly. As noted earlier, neither an originator nor an intended beneficiary own an EFT while it is temporarily in the possession of an intermediary bank; they cannot seek a refund from the intermediary bank if the funds transfer is not completed; and an intermediary bank is not the agent of either the originator or the intended beneficiary. For these reasons, we conclude that an originator or intended beneficiary's interests and rights in a midstream EFT, if any, are not sufficiently essential, material, firmly or solidly established, weighty, or direct and tangible, to constitute a substantial . . . interest under the FDCPA. Accordingly, we hold that an EFT temporarily in the possession of an intermediary bank may not be garnished under the FDCPA to satisfy judgment debts owed by the beneficiary or originator of that EFT.