Court Opinion

ID: 74873
Source: CourtListenerOpinion
Date Created: 2010-04-26 08:58:43+00
Date Added: 2024-06-11T14:59:02.456424
License: Public Domain

[PUBLISH]

                IN THE UNITED STATES COURT OF APPEALS
                                                                       FILED
                        FOR THE ELEVENTH CIRCUIT             U.S. COURT OF APPEALS
                                                               ELEVENTH CIRCUIT
                                                               SEPTEMBER 06, 2000
                           ________________________
                                                                THOMAS K. KAHN
                                                                     CLERK
                                 No. 00-10730
                             Non-Argument Calendar
                           ________________________

                       D.C. Docket 98-00239-CIV-OC-21C

STEPHEN GROSSMAN,
                                                          Plaintiff-Appellant,
      versus

NATIONSBANK, N.A.,
                                                          Defendant-Appellee.

                         __________________________

                Appeal from the United States District Court for the
                            Middle District of Florida
                          _________________________
                              (September 6, 2000)

Before TJOFLAT, BARKETT and HULL, Circuit Judges.

PER CURIAM:

      Plaintiff-Appellant Stephen Grossman appeals the district court’s order

dismissing his complaint for failure to state a claim upon which relief could be

granted. Fed.R.Civ.P. 12(b)(6). This case arises out of Grossman’s claims that
Nationsbank improperly transmitted a fund transfer on his behalf through the

Federal Reserve Wire Transfer Network (“Fedwire”).1 Grossman alleged that the

improper transfer resulted in damages of over $200,000 to him. After review, we

affirm.

                           I. GROSSMAN’S COMPLAINT

       We first review the allegations in Grossman’s complaint. Grossman’s

complaint alleges that he entered into a joint venture agreement (the “JV

agreement”) with HMF Management (“HMF”) in order to participate in an

investment program. On October 7, 1996, in furtherance of the JV agreement,

Grossman opened an account at First Union National Bank (the “HMF-Grossman

JV account”). Grossman received instructions from HMF for the wire transfer of

Grossman’s investment funds into the HMF-Grossman JV account at First Union.

Grossman attached to his complaint as Exhibit B a copy of the wire-transfer

instructions as he received them from HMF. The wire transfer instructions read as

follows:

   1
     Fedwire is the funds-transfer system owned and operated by the Federal Reserve Banks.
See 12 C.F.R. § 210.26(e). Fedwire is an “electronic funds transfer system which permits large
dollar fund transfers by computer-to-computer communications between banks.” Lopez v. First
Union National Bank of Florida, 129 F.3d 1186, 1188 (11th Cir. 1997).

                                               2
                            WIRE TRANSFER INSTRUCTIONS
                                 HMF-GROSSMAN JV

              BANK NAME:                                 AM SOUTH BANK
              BANK ADDRESS:                              CLEARWATER, FLORIDA
              ABA#:                                      063 210 112
              ACCOUNT NAME:                              DIVERSIFIED VENTURES
              ACCOUNT NUMBER:                            3283155856

              FOR FURTHER CREDIT TO:
                   BANK NAME:                            FIRST UNION
                   BANK ADDRESS:                         JACKSONVILLE, FLORIDA
                   ABA#:                                 063000021
                   ACCOUNT NAME:                         HMF-GROSSMAN JV
                   CAP ACCOUNT NUMBER:                   9981575600 [handwritten]

(R1-2 at Exh. B). The wire transfer instructions thus directed that the funds be

wired to bank name “Am South Bank,” account name “Diversified Ventures,”

account number 3283155856, and then “for further credit to” bank name “First

Union,” account name “HMF-Grossman JV,” account number 9981575600.

       On October 11, 1996, Grossman visited a Nationsbank2 branch office and

requested assistance in effecting the wire transfer of his funds to the HMF-

Grossman JV account. Grossman provided a copy of the wire-transfer instructions

to an employee of Nationsbank. The employee prepared a “Request for Funds

Transfer” form that Grossman signed. Grossman attached to his complaint at

Exhibit C a copy of the funds transfer form. The funds transfer form contained the

   2
     Grossman originally filed his complaint against Barnett Bank. After Barnett Bank merged
into Nationsbank, Nationsbank was substituted as the defendant in this case. To avoid
confusion, we will refer only to Nationsbank in this opinion.

                                              3
following information, in pertinent part (the printed form headings are underlined):

      WIRE AMOUNT               $250,000.00

      RECEIVING BANK (Use ONLY if different from Beneficiary’s Bank)
      FINAL DESTINATION: FIRST UNION, JACKSONVILLE, FL R/T
      # 06300021, HMF-GROSSMAN JV # 9981575600

      BENEFICIARY’S BANK
      FIRST DESTINATION: AM SOUTH BANK, CLEARWATER, FL R/T/ #063
      210 112 DIVERSIFIED VENTURES

      BENEFICIARY NAME
      AM SOUTH BANK

      BENEFICIARY ACCOUNT NUMBER (REQUIRED)
      3283155856

      ORIGINATOR TO BENEFICIARY INFORMATION (SPECIAL
      INSTRUCTIONS, EX. ATTENTION, REFERENCE NUMBER, ETC.)
      FINAL DESTINATION ADDRESS: FIRST UNION 2801 SOUTHWEST HIGH
      MEADOWS AVE, PALM CITY, FL 34490

      ORIGINATOR/BY ORDER OF
      STEPHEN GROSSMAN METHOD OF PAYMENT: DBT ACCT # 2010788969

(R1-2 at Exh. C).

      On October 17, 1996, Grossman was again in the Nationsbank branch office.

The employee who had prepared the funds transfer form asked Grossman if the

transfer had gone well. Grossman replied that he assumed it had gone well because

the funds had reached the HMF-Grossman JV account at First Union. The

employee then told Grossman that the “wire transfer room” had told her that

because both Nationsbank and First Union were “on line,” there was no need to

route the funds through Am South Bank. As a result, Nationsbank had wired the

                                         4
money directly to First Union for credit to the HMF-Grossman JV account.

      Grossman then reviewed the joint-venture documents, and determined that

the transfer directly from Nationsbank to the HMF-Grossman JV account

“appeared to be inconsistent with the wiring instructions given to him.” While the

funds had reached the ultimate intended account, the HMF-Grossman JV account,

the funds had gone to the account directly and not through Am South Bank and the

Diversified Ventures account. On October 18, 1996, Grossman again contacted the

Nationsbank branch office and requested that the “wire be sent in accordance with

the instructions he had been provided and, in turn, had provided the bank.” After

the same Nationsbank employee consulted with the “wire room,” she told

Grossman that the funds would be recalled and resent in conformity with the

instructions.

      Within the next several days, Grossman received confirmation from both the

“wire room” and the same Nationsbank employee that the funds had been recalled

and resent. However, in early November, Grossman contacted First Union and

learned that no deposit had been received to the HMF-Grossman JV account.

Grossman immediately called Am South Bank to inquire as to why the funds had

not been forwarded to the HMF-Grossman JV account as the wiring instructions

had directed. Am South told Grossman that it could not provide him any

                                         5
information regarding an account to which he was not a signatory, and that he

should contact the owner of the Diversified Ventures account at Am South to

which Nationsbank had wired the funds.

      Over the next several months, Grossman tried unsuccessfully to determine

what had happened to the funds that were intended for deposit in the HMF-

Grossman JV account at First Union. Nationsbank continued to insist that it had

transferred the money to Am South according to Grossman’s instructions, and that

it was then Am South’s responsibility to complete the transaction pursuant to the

instructions that Nationsbank had forwarded to Am South with the funds. In

March 1997, Am South informed Grossman that the Diversified Ventures account

had been closed in February 1997.

      HMF, the sole signatory to the Diversified Ventures account at Am South,

initially told Grossman that the delay in forwarding the funds to the HMF-

Grossman JV account at First Union had been due to a federal audit of Diversified

Ventures. However, on March 6, 1997, HMF wired $50,000.00 to Grossman’s

Nationsbank account in return for an agreement from Grossman authorizing HMF

to deduct $50,000.00 from the principle sum of the investment that it would soon

transfer to the HMF-Grossman JV account. Grossman attached to his complaint at

Exhibit D a copy of this agreement.

                                         6
      In August 1997, Grossman sought assistance from the Federal Reserve Bank

in Washington D.C. Officials there informed him that Nationsbank was

responsible for the loss of the funds due to its failure to execute the payment order

according to Grossman’s instructions. According to the Federal Reserve, the loss

of the funds was not to be blamed on Am South’s failure to forward the funds as

instructed. As a result, Grossman made a written demand for damages on

Nationsbank. Nationsbank promised to address Grossman’s demands “as

expeditiously as possible,” but never concluded its inquiry. Grossman’s complaint

alleges damages in excess of $200,000.00 as a result of Nationsbank’s “failure to

complete the wire transfer transaction in accordance with the instructions

Grossman had provided, or to advise Grossman that such transaction could not be

completed as structured.”

                    II. THE DISTRICT COURT’S ORDER

      In its motion to dismiss, Nationsbank contended that Grossman failed to

plead the essential elements of a cause of action for the erroneous execution of a

Fedwire funds transfer. Fed.R.Civ.P. 12(b)(6). In granting Nationsbank’s motion

to dismiss, the district court noted that Grossman’s complaint had failed to specify

pursuant to which statute or statutes he had filed his claims, and whether he was

suing under Florida or federal law. After an analysis of the preemptive effect of

                                          7
federal regulations, the district court concluded that even if Grossman had intended

to proceed under Florida law, the state law would be preempted by Subpart B of

Federal Reserve Board Regulation J (“Regulation J”),3 which governs wire

transfers effected through Fedwire.

       Therefore, the district court analyzed the claims in Grossman’s complaint

exclusively using Subpart B of Regulation J, which applies U.C.C. Article 4A as

the governing statute for Fedwire funds transfers. See 12 C.F.R. § 210.25(b)(1)

(providing also that Regulation J controls in the event of inconsistencies with

U.C.C. Article 4A). All of the parties now agree that Nationsbank’s duty was

governed by Regulation J and U.C.C. Article 4A. The parties disagree regarding

whether the district court properly held that Grossman’s complaint failed to allege

a cause of action under Regulation J, 12 C.F.R. Part 210, Subpart B, App. B, § 4A-

302(a)(1).

                           III. STANDARD OF REVIEW

       We review de novo a district court’s order dismissing a complaint for failure

to state a claim upon which relief could be granted. See Lopez v. First Union

National Bank of Florida, 129 F.3d 1186, 1189 (11th Cir. 1997) (citation omitted).

   3
    55 Fed. Reg. 40,791 (1990) (as amended Oct. 5, 1990) (codified at 12 C.F.R. Part 210
(Subpart B & Appendix B)).

                                              8
When considering a motion to dismiss, all facts set forth in the plaintiff’s

complaint “are to be accepted as true and the court limits its consideration to the

pleadings and exhibits attached thereto.” GSW, Inc. v. Long County, 999 F.2d

1508, 1510 (11th Cir. 1993). A complaint may not be dismissed pursuant to Rule

12(b)(6) “unless it appears beyond doubt that the plaintiff can prove no set of facts

in support of his claim which would entitle him to relief.” Lopez, 129 F.3d at 1189

(internal quotations and citation omitted).

                                     III. DISCUSSION

       The district court held, and the parties agree, that the provisions of

Regulation J exclusively apply to the fund transfer in this case because it was

effected by the use of Fedwire, the Federal Reserve Banks’ wire-transfer system.

See 12 C.F.R. § 216.25-32. Regulation J applies U.C.C. Article 4A to wire

transfers conducted using Fedwire. See 12 C.F.R. § 210.25(b)(1); Appendix B to

Subpart B to Part 2104; see also Donmar Enters. Inc. v. Southern Nat’l Bank, 64

F.3d 944, 948 (4th Cir. 1995).

       We address Nationsbank’s duty under Regulation J and U.C.C. Article 4A

once Grossman requested the fund transfer, so that we can determine whether

   4
     Subsection 210.25(b)(1) states that Subpart B to Part 210 (the codification of Regulation J)
“incorporates the provisions of Article 4A set forth in appendix B to this subpart. In the event of
an inconsistency between the provisions of the sections of this subpart and appendix B, to this
subpart, the provisions of the sections of this subpart shall prevail.”

                                                 9
Grossman’s complaint sufficiently stated a claim that Nationsbank breached its

duty under those provisions. However, we will first provide Article 4A’s

definition of the terms that are necessary to discuss the wire-transfer process in

this case.5 The originator is “the sender of the first payment order in a funds

transfer,” in this case, Grossman.6 12 C.F.R. Part 210, Subpart B, App. B, § 4A-

104(c). The payment order is the “instruction . . . to pay . . . a fixed or

determinable amount of money to a beneficiary.” Id. § 4A-103(a)(1). The

originator’s bank is “the receiving bank to which the payment order of the

originator is issued if the originator is not a bank.” Id. § 4A-104(d)(i). Because

Grossman is not a bank, he took his payment order to the originator’s bank, in this

case, Nationsbank. The beneficiary is “the person to be paid by the beneficiary’s

bank.” Id. § 4A-103(2). The beneficiary’s bank is “the bank identified in the

payment order in which an account of the beneficiary is to be credited pursuant to

the order or which otherwise is to make payment to the beneficiary if the order

   5
     We recognize that many other terms would need to be defined to allow a complete
understanding of the complex wire-transfer process. In an attempt to present this subject in the
most simple, yet comprehensive, manner, we have selected to define the following terms. We
believe that these definitions are sufficient to discuss the issues in this case.
   6
      A sender is defined as “the person giving the instruction to the receiving bank.” 12 C.F.R.
Part 210, Subpart B, App. B, § 4A-103(5). There is a sender at each step in the transfer chain,
but for our purposes, it is important to note that Grossman was a sender when he transmitted the
initial wire-transfer instructions to Nationsbank. A receiving bank is “the bank to which the
sender’s instruction is addressed.” Id. § 4A-103(4).

                                               10
does not provide for payment to an account. Id. § 4A-103(3).

       In the simplest Fedwire transfer, the funds to be transferred are debited from

the originator’s account, and travel from the originator’s bank to the beneficiary’s

bank, where the beneficiary’s account is credited.7 However, an originator can

instruct the originator bank that the funds are to travel through one or more

intermediary banks, defined by Article 4A as a “receiving bank other than the

originator’s bank or the beneficiary’s bank.” Id. § 4A-104(b). A receiving bank is

“the bank to which the sender’s instruction is addressed,” id. § 4A-103(4), or in

other words, each bank in the chain that receives a payment order, including the

originator’s bank, any intermediary banks, and ultimately the beneficiary’s bank.

       Now we address whether Nationsbank complied with it’s duty under

Regulation J. Regulation J directs that Nationsbank’s duty as a receiving bank was

to issue a payment order that complied with the sender’s (Grossman’s),

   7
     This appears to be what happened in Nationsbank’s initial attempt to carry out Grossman’s
request. Nationsbank debited $250,000 from Grossman’s Nationsbank account, Nationsbank
transferred the money to First Union, and First Union credited the HMF-Grossman joint venture
account. We recognize that we are simplifying the process, in that we are leaving out the role of
the Federal Reserve Bank. Often, the actual transfer involves steps in which originator’s bank
sends a payment order to a Federal Reserve Bank (in this function, technically an intermediary
bank, to be defined and discussed below), and the reserve bank debits the account of the
originator’s bank at the reserve bank, and credits the reserve bank account of the beneficiary’s
bank. At that point, the reserve bank sends a payment order to the beneficiary’s bank, which
now has the money in its account and can credit the individual account of the beneficiary.
However, the steps involving the Federal Reserve Bank are not crucial to this case, so for
simplicity’s sake, we will leave them out of our descriptions.

                                               11
instructions:

       The receiving bank is obliged to issue, on the execution date, a
       payment order complying with the sender’s order and to follow the
       sender’s instructions concerning (i) any intermediary bank or funds-
       transfer system to be used in carrying out the funds transfer, or (ii) the
       means by which payment orders are to be transmitted in the funds
       transfer. If the originator’s bank issues a payment order to an
       intermediary bank, the originator’s bank is obliged to instruct the
       intermediary bank according to the instruction of the originator. An
       intermediary bank in the funds transfer is similarly bound by an
       instruction given to it by the sender of the payment order it accepts.

12 C.F.R. Part 210, Subpart B, App. B, § 4A-302(a)(1) (emphasis supplied).

       After analyzing Nationsbank’s duty under § 4A-302(a)(1), we conclude that

Grossman could not prove a set of facts in support of his claim which would entitle

him to relief. The instructions Grossman provided to Nationsbank did not identify

the banks by the terms “intermediary bank” and “beneficiary’s bank.” The

instructions were therefore non-specific. On appeal, Grossman argues that he

instructed Nationsbank to send the funds to the HMF-Grossman JV account at First

Union, using Am South as an intermediary bank. However, the instructions

Grossman gave Nationsbank cannot be read as indicating a normal transfer using

an intermediary bank, because funds traveling through an intermediary bank are

not deposited in an individual account at the intermediary bank.8 12 C.F.R. Part

   8
      Article 4A defines a “bank,” as used in the term “intermediary bank,” as a “person engaged
in the business of banking and includes a savings bank, savings and loan association, credit
union, and trust company. A branch or separate office of a bank is a separate bank for purposes

                                               12
210, Subpart B, App. B § 4A-105(a)(2). The instructions Grossman gave to

Nationsbank specifically stated that the money was to reach the Diversified

Ventures account at Am South, account number 3283155856. The next line of the

instructions read “for further credit to” the HMF-Grossman JV account at First

Union, which indicates that the funds were first intended to be credited to the

Diversified Ventures account at Am South with instructions that the funds were

“for further credit to the HMF-Grossman JV account at First Union.” Indeed,

Nationsbank first sent the money directly to the HMF-Grossman JV account at

First Union, and Grossman told Nationsbank in no uncertain terms that was not

what he had instructed.

       Grossman may not have understood that once the funds were deposited in

the Diversified Ventures account at Am South, neither he nor Nationsbank would

have any control over the money. Nonetheless, Grossman’s instructions told

Nationsbank to wire the funds to the Diversified Ventures account at Am South

with instructions to send the money on to the HMF-Grossman JV account at First

Union. Nationsbank did exactly that. The payment order form prepared by

Nationsbank, which Grossman signed, listed the “First Destination” as the Am

of this Article.” 12 C.F.R. Part 210, Subpart B, App. B § 4A-105(a)(2). Therefore, the term
“intermediary bank” does not seem to include an individual bank account.

                                              13
South Diversified Ventures account, and instructed that the “Final Destination”

was to be the HMF-Grossman JV account at First Union. If this is not the

transaction Grossman desired, he has not alleged that he gave Nationsbank any

additional instructions, or that Nationsbank had any other way of knowing that

Grossman intended a different transaction. Because Nationsbank followed the

instructions that Grossman provided, Nationsbank complied with its duty under

Regulation J. Therefore, Grossman cannot state a claim for a violation of

Regulation J, and the district court did not err in granting Nationsbank’s Rule

12(b)(6) motion to dismiss.9

       AFFIRMED.

   9
     Grossman also argues that the district court erred in dismissing his complaint with
prejudice, and without giving him an opportunity to amend. Because Grossman could not prove
that Nationsbank failed to comply with the instructions it received, we conclude that Grossman
could not amend his complaint so that it would state a claim under Regulation J. Thus, we
cannot find that the district court erred in dismissing Grossman’s complaint with prejudice.

                                              14