FILED: KINGS COUNTY CLERK 09/25/2024 01:42 PM
`NYSCEF DOC. NO. 14
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`INDEX NO. 501491/2024
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`RECEIVED NYSCEF: 09/25/2024
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`SUPREME COURT OF THE STATE OF NEW YORK
`COUNTY OF KINGS
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`Index No. 501491/2024
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`HIGH STYLE FLOORS, INC.,
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`Plaintiff,
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`-against-
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`DISCOVER BANK; JP MORGAN CHASE
`BANK, N.A.; JOHN DOES 1-10,
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`Defendants.
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`MEMORANDUM OF LAW IN SUPPORT OF MOTION TO DISMISS AMENDED
`COMPLAINT
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`MORGAN, LEWIS & BOCKIUS LLP
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`Arjun P. Rao
`2049 Century Park East
`Los Angeles, CA 90067
`Telephone: (310) 907-1000
`Email: arjun.rao@morganlewis.com
`
`
`
`Sarah M. Bouskila
`Tanya Y. Shah
`101 Park Avenue
`New York, New York 10178
`Telephone: (212) 309-6175
`Email: sarah.bouskila@morganlewis.com
`
`tanya.shah@morganlewis.com
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`Attorneys for Discover Bank
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`FILED: KINGS COUNTY CLERK 09/25/2024 01:42 PM
`NYSCEF DOC. NO. 14
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`INDEX NO. 501491/2024
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`Defendant Discover Bank (“Discover”) respectfully moves pursuant to CPLR 3211(a)(7)
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`for dismissal of the claims asserted by High Style Floors, Inc. (“Plaintiff”) in its Amended
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`Complaint against Discover due to a failure to state a claim upon which relief can be granted.
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`I.
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`INTRODUCTION
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`The Amended Complaint asserts that Plaintiff fell victim to an all-too common scam: an
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`unknown third party transmitted a fake invoice to Plaintiff which appeared to come from Plaintiff’s
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`vendor and Plaintiff mistakenly paid it thinking it was paying its actual vendor. Plaintiff admits
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`that it did not learn of the scam until four days after it transferred the money. By that time the
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`funds transferred by Plaintiff to an account held at Discover had already been transferred again.
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`As unfortunate as the circumstances may be, there is no basis in law to shift Plaintiff’s loss to
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`Discover.
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`The law is clear: Discover—the bank which received the funds admittedly voluntarily
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`transmitted to it by Plaintiff—has no liability to Plaintiff who is not a customer of Discover.
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`Despite Discover’s efforts to resolve this dispute informally with counsel for Plaintiff, Plaintiff
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`refuses to dismiss Discover from this action. As a result, Discover respectfully requests that this
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`Court dismiss all claims (for unjust enrichment and violation of Article 4-A of the New York
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`Uniform Commercial Code (“Article 4-A”)) asserted against Discover with prejudice.
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`II.
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`RELEVANT PROCEDURAL AND FACTUAL BACKGROUND
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`Plaintiff asserts that it received an invoice via email with instructions to pay
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`“ItalgranitiGroup,” a supplier it does business with, by sending funds to an account held at
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`Discover. (See NYSCEF Doc. No. 9 ¶¶ 6-7.) In response, Plaintiff admits that on September 14,
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`2023, it sent an ACH payment in the amount of $61,076.30 to an account at Discover. (Id. ¶ 5.)
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`The Complaint also admits that Plaintiff is a customer of “Chase Bank.” (Id. ¶ 10 (“Plaintiff
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`contacted Chase Bank, from where the funds had been sent . . .”).) Plaintiff did not discover the
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`alleged fraud until September 18, 2023—four days after the ACH was transmitted. (Id. ¶ 6.) On
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`an unknown date, although necessarily on or after September 18, 2023, Plaintiff asserts that it
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`reported the incident to Chase and that Plaintiff signed a release and indemnity in favor of Chase.
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`(Id. ¶ 10.) The Complaint alleges that the Plaintiff’s ACH instructions included the beneficiary
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`name “ItalgranitiGroup,” but that the Discover account name did not match that name. (Id. ¶¶ 5,
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`9.) The Complaint further alleges that Plaintiff reported fraud to Discover but that “Discover failed
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`to hold the funds, or take an action to prevent the withdrawal of the funds.” (Id. ¶¶ 11-13.)
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`On January 15, 2024, Plaintiff filed the Complaint against Discover and ten “John Doe”
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`defendants. See NYSCEF Doc. No. 1. On April 15, 2024, Discover filed a Motion to Dismiss the
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`Complaint. See NYSCEF Doc No. 4 and 5. In response, Plaintiff filed an Amended Complaint,
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`adding Chase as a Defendant and claiming now that upon information and belief, the subject funds
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`were present in the account at Discover Bank when Plaintiff put Discover on notice of the alleged
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`fraud. See NYSCEF Doc. No. 9. As for a first cause of action against Discover, Plaintiff alleges
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`that as a result of Discover’s actions, John Doe Defendants “received things of value from Plaintiff
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`and not fully paid for the benefit received.” (Id. ¶ 23.) As a result, Plaintiff alleges that Discover
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`has “become unjustly enriched with money rightfully belonging to Plaintiff.” (Id. ¶ 24.) As a
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`second cause of action against Discover, Plaintiff alleges that it is “entitled to repayment of the
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`sums transferred pursuant to Article 4-A.” (Id. ¶ 28.) Plaintiff seeks an award of unidentified
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`statutory damages, “actual, compensatory, consequential, punitive and incidental damages in an
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`amount not less than $61,076.30,” as well as costs, attorneys’ fees and interest. (Id. Wherefore
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`clause.)
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`INDEX NO. 501491/2024
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`A.
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`Standard Of Review
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`III. LEGAL ARGUMENT
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`On a motion to dismiss pursuant to CPLR 3211(a)(7), the Court must “accept the facts as
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`alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference,
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`and determine only whether the facts as alleged fit within any cognizable legal theory.” Leon v.
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`Martinez, 84 N.Y.2d 83, 87-88 (1994). The merits of the complaint, or any of its factual
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`allegations, are not assessed, and the court only determines if, assuming the truth of the alleged
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`facts, and the inferences that can be drawn therefrom, the complaint states a legally cognizable
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`claim. See Skillgames, LLC v. Brody, 1 A.D.3d 247, 250 (1st Dep’t 2003), citing Guggenheimer
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`v. Ginzburg, 43 N.Y.2d 268, 275 (1977). However, “factual allegations that do not set forth a
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`viable cause of action, or that consist of bare legal conclusions, are not entitled to such
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`consideration.” Delran v. Prada USA, Corp., 23 A.D.3d 308, 308 (1st Dep’t 2005) (internal
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`citations omitted).
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`Furthermore, dismissal should be with prejudice if leave to amend would prove futile. See
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`Thomas Crimmins Contracting Co. v. City of New York, 74 N.Y.2d 166, 170 (1989); Curran v.
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`Auto Lab Serv. Ctr., 280 A.D.2d 636, 637 (2d Dep’t 2001); Heckler Elec. Co. v. Matrix Exhibits–
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`N.Y., 278 A.D.2d 279, 279 (2d Dep’t 2000); Wieder v. Skala, 168 A.D.2d 355, 355 (1st Dep’t
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`1990); Desarrolladora Farallon S. de R.L. de C.V. v. Mexvalo, S. de R.L. de C.V., 146 A.D.3d
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`442, 442 (1st Dep’t 2017); Putney v. People, 94 A.D.3d 1193, 1195 (3d Dep’t 2012); Twitchell v.
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`Town of Pittsford, 78 A.D.2d 586, 586 (4th Dep’t 1980).
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`Applying these standards here, the Motion should be granted in all respects.
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`B.
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`The Complaint Fails To State A Claim Against Discover Under Article 4-A.
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`Although the Amended Complaint fails to specify which section of Article 4-A is alleged
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`to have been violated, the Amended Complaint alleges that the beneficiary name listed within
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`Plaintiff’s transfer order did not match to the name of the accountholder and therefore Discover
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`“should have refused to complete the transaction[.]” (See NYSCEF Doc. No. 9 ¶¶ 9, 29.) By
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`these allegations, Discover surmises that Plaintiff is attempting to assert a claim against Discover
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`for an alleged violation of Section 4-A-207, which addresses the circumstance where a payment
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`order does not correctly identify the recipient but does have a valid account number. Critically,
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`Section 4-A-207 does not create a private right of action for a non-customer to sue a beneficiary
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`bank. Indeed, the originator of a funds transfer has no claim against any bank except their own
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`bank under Article 4-A. Accordingly, given that Plaintiff is not a customer of Discover, the claim
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`under Article 4-A must be dismissed.
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`Section 4-A-207, entitled “Misdescription of Beneficiary,” concerns situations where
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`instructions either identify different accounts or an “unidentifiable person or account.” Relevant
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`here, where “a payment order received by the beneficiary’s bank identifies the beneficiary both by
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`name and by an identifying or bank account number and the name and number identify different
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`persons . . . if the beneficiary’s bank does not know that the name and number refer to different
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`persons, it may rely on the number as the proper identification of the beneficiary of the order.”
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`This is what the Complaint alleges to have happened in this instance—the beneficiary name
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`allegedly did not match the name of the account holder and Discover credited the funds based on
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`the account number, not the name. The statute sets forth a limited exception whereby the
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`“originator” is not obligated to pay for the payment order. See 4-A-207(3). Under circumstances
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`where payment of the order is not required, Section 4-A-402, provides the remedial scheme. See
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`4-A-207 cmt. 2; accord Grain Traders, Inc. v. Citibank, N.A., 160 F.3d 97, 100-01 (2d Cir. 1998);
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`Wellton Int’l Express v. Bank of China (Hong Kong), 612 F. Supp. 3d 358, 364 (S.D.N.Y. 2020).
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`Critically, it is well-established that claims under Article 4-A can only be asserted by the
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`originator (here, Plaintiff) against a receiving bank (here, Plaintiff’s own bank). Similar claims by
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`an originator against the beneficiary bank pursuant to various sections of Article 4-A are
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`consistently dismissed for failure to state a claim. For example, in a very similar action, Wellton
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`Int’l Express v. Bank of China (Hong Kong), 612 F. Supp. 3d 358 (S.D.N.Y. 2020), plaintiff
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`transferred funds from their Bank of China account to a Wells Fargo Bank PLC (“Wells Fargo”)
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`account after receiving a fraudulent email from an unknown third-party purporting to be a party to
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`whom plaintiff owed a debt. Id. at 361-62. The plaintiff asserted a claim against Wells Fargo, the
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`beneficiary’s bank, under Section 4-A-207. The court found that the plaintiff did not have a
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`Section 4-A-207 cause of action against Wells Fargo because the plaintiff was not in privity with
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`Wells Fargo, as Wells Fargo, the beneficiary bank, was not a party to the payment order. Id. The
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`court held that remedies available under this Article 4-A apply “only to the parties to a particular
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`payment order and not to the parties to the funds transfer as a whole.” Id. at 364, citing Grain
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`Traders, Inc., 160 F.3d at 101. Similarly, in L&M Const. Dry Wall Inc. v. Wells Fargo Bank,
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`N.A., No. 608951/2020, 2022 WL 20472238 (Sup. Ct. Nassau Cnty. March 21, 2022), the plaintiff
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`alleged that it was the “victim of a fraudulent creation of an email account and diversion of its
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`payment to a fraudulent account” held with Wells Fargo. The court dismissed all of the plaintiff’s
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`claims under Article 4-A and held:
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`Similarly, the plaintiff’s claim that Wells Fargo violated various sections of the
`New York Uniform Commercial Code falls short. As discussed above, the plaintiff
`conceded that it is not a customer of Wells Fargo. The Complaint also provides
`that, at the time of the transfer, the plaintiff believed that the electronic transfer was
`sent to Allstate. The plaintiff admits that it only became aware that it was the victim
`of a fraudulent diversion after the payment was sent. It is reasonable to conclude,
`then, that the plaintiff authorized the payment at the time of the transfer was made.
`Since the plaintiff is admittedly not a customer of Wells Fargo and authorized the
`wire transfer, its allegations sounding in violations of New York Uniform
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`FILED: KINGS COUNTY CLERK 09/25/2024 01:42 PM
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`Commercial Code §§ 4-A-202, 4-A-203, 4-A-204, 4-A-205, and 4-A-203 are
`insufficiently pled.
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`Id. at *3; see also Receivers of Sabena SA v. Deutsche Bank A.G., 142 A.D.3d 242, 255 (2016)
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`(“‘sound policy reasons’ support Article 4-A’s requirement that each party to an EFT seek redress
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`for a failed transfer only against a party with which it is in direct privity in the chain of payment
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`orders”); Nova Mar. B.V.I., Ltd. v. Transvast Shipping Co. Ltd., No. 08-cv-6869, 2009 WL
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`4884162, at *2 (S.D.N.Y. Dec. 16, 2009) (“There is no privity between Transvast and Deutsche
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`Bank. Transvast, as originator, issued a payment order to its bank to transfer funds. Transvast’s
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`bank then issued a payment order to Deutsche Bank, an intermediary bank, to transfer the funds to
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`the beneficiary. Under sections 402(3) and (4) and Grain Traders, Transvast is in privity with its
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`bank only and has no attachable property interest in the right of refund from Deutsche Bank.”).
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`Affirming dismissal of Article 4-A claims by a non-customer, the Second Circuit held:
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`In sum, we agree with the district court’s thoughtful analysis and conclude that §
`4–A–402 allows each sender of a payment order to seek refund only from the
`receiving bank it paid. Not only do the provisions of Article 4–A support the district
`court’s interpretation, there are sound policy reasons for limiting the right to seek a
`refund to the sender who directly paid the receiving bank. One of Article 4–A’s
`primary goals is to promote certainty and finality so that “the various parties to
`funds transfers [will] be able to predict risk with certainty, to insure against risk, to
`adjust operational and security procedures, and to price funds transfer services
`appropriately.” N.Y.U.C.C. § 4–A–102, cmt. To allow a party to, in effect, skip
`over the bank with which it dealt directly, and go to the next bank in the chain
`would result in uncertainty as to rights and liabilities, would create a risk of multiple
`or inconsistent liabilities, and would require intermediary banks to investigate the
`financial circumstances and various legal relations of the other parties to the
`transfer.
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`Grain Traders, Inc. v. Citibank, N.A., 160 F.3d 97, 102 (2d Cir. 1998) (emphasis added).
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`The Amended Complaint admits that Plaintiff authorized the subject wire transfer and only
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`discovered the alleged fraud days after the fact. The Amended Complaint also admits the Plaintiff
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`is not a customer of Discover. Although Plaintiff now claims in the Amended Complaint that the
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`subject funds remained in the Discover account at the time Discover was notified of the alleged
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`fraud (which Discover denies), this does not save Plaintiff’s claims. As explained, Article 4-A 207
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`does not create a private right of action for a non-customer to sue a beneficiary bank. For these
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`reasons, Plaintiff’s claims under Article 4-A fail and must be dismissed.
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`C.
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`The Complaint Fails To State A Claim Against Discover Bank for Unjust
`Enrichment.
`1.
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`Common Law Claims Inconsistent With Article 4-A Are Precluded.
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`Article 4-A is “intended to be the exclusive means of determining the rights, duties and
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`liabilities of the affected parties in any situation covered by particular provisions of the Article.”
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`UCC 4-A-102, Comment (emphasis added). “[A]rticle 4-A was drafted with the intention that it
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`set forth ‘a body of unique principles of law that would address every aspect of the electronic funds
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`transfer process and define the rights and liabilities of all parties involved in such transfers.’”
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`Golden Door V&I, Inc. v. TD Bank, 123 A.D.3d 976, 977 (2d Dep’t 1977), quoting Banque Worms
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`v. BankAmerica Intern., 77 N.Y.2d 362 (1991). Accordingly, Article 4-A comprehensively covers
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`rights and responsibilities concerning electronic funds transfers. Common law claims that “would
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`impose liability inconsistent with the rights and liabilities expressly created by Article 4–A,” are
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`preempted by Article 4-A. Grain Traders, Inc. v. Citibank, N.A., 160 F.3d 97, 103 (2d Cir. 1998)
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`(string citation to supporting authorities); Centre-Point Merch. Bank Ltd. v. Am. Express Bank
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`Ltd., 913 F. Supp. 202, 208 (S.D.N.Y. 1996) (“New York courts have precluded common law
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`claims in cases where Article 4-A specifically addresses the subject matter involved.”); see also
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`Ekopel D.O.O. v. Citibank, N.A., -- F. Supp. 3d --, 2024 WL 519648, *9 (D.D.C. Feb. 9, 2024)
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`(applying New York law and dismissing claim for unjust enrichment as preempted).
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`Because Plaintiff’s claims unequivocally relate to the making of and/or receipt of a funds
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`transfer, Article 4-A controls. Plaintiff admits that Article 4-A applies by interposing a claim that
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`FILED: KINGS COUNTY CLERK 09/25/2024 01:42 PM
`NYSCEF DOC. NO. 14
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`INDEX NO. 501491/2024
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`Article 4-A was violated (though the claim fails as a matter of law because no liability under
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`Article 4-A lies against Discover). Thus, Plaintiff’s attempt to impose liability on Discover under
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`the common law for conduct that expressly fails as a basis for liability under Article 4-A is
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`inconsistent with the provisions of Article 4–A. Plaintiff’s claim for unjust enrichment must be
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`dismissed.
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`2.
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`Plaintiff Fails To State A Claim For Unjust Enrichment.
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`Even if not precluded (which it is), Plaintiff’s claim for unjust enrichment fails for other
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`reasons as well. Under New York law, to prevail on a claim for unjust enrichment, a plaintiff must
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`establish “(1) that the defendant benefitted; (2) at the plaintiff’s expense; and (3) that equity and
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`good conscience require restitution.” Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield
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`of N.J. Inc., 448 F.3d 573, 586 (2d Cir. 2006) (quoting Kaye v. Grossman, 202 F.3d 611, 616 (2d
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`Cir. 2000)); see also Briarpatch Ltd., L.P. v. Phoenix Pictures, Inc., 373 F.3d 296, 306 (2d Cir.
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`2004). Stated differently, “[a]n unjust enrichment claim ‘lies only where the defendant possesses
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`money or received a benefit which in equity and good conscience the defendant should not retain
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`because it belongs to the plaintiff.’” UPS Store, Inc. v. Hagan, 99 F. Supp. 3d 426, 439 (S.D.N.Y.
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`2015). However, “[t]he general rule that money paid under a mistake of a material fact may be
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`recovered back, although there was negligence on the part of the person making the payment, is
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`subject to the qualification that the payment cannot be recalled when the position of the party
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`receiving it has been changed in consequence of the payment, and it would be inequitable to allow
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`a recovery.” Mayer v. City of New York, 63 N.Y. 455, 457 (1875). Here, the Amended Complaint
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`admits that Discover does not possess the subject funds (See NYSCEF Doc. No. 1 ¶ 13) and does
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`not allege any facts that show that Discover received any benefit, much less one at Plaintiff’s
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`expense.
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`Accordingly, even if this claim were not precluded (though it is), Plaintiff’s claim for unjust
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`enrichment should be dismissed as a matter of law. See Schroeder v. Capital One Fin. Corp., 665
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`F. Supp. 2d 219, 226 (E.D.N.Y. 2009) (“While the Plaintiff here alleges wrongful conduct on the
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`part of the Bank, he nowhere alleges, nor can he, that the Bank benefitted from such wrongful
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`conduct. Indeed, the only party that benefitted from the alleged wrongful transfer of funds was the
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`unauthorized third party to whom the funds were transferred. Since there is no benefit to the Bank
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`stemming f[ro]m the allegedly wrongful transfer of funds, the court grants the motion for summary
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`judgment and dismisses Plaintiff’s cause of action for unjust enrichment.”).
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`IV. CONCLUSION
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`For the foregoing reasons, Discover respectfully requests that the Court enter an order
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`dismissing the Complaint as asserted against it, as well as such other and further relief as this Court
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`deems just, proper and equitable.
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`Dated: September 25, 2024
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`MORGAN, LEWIS & BOCKIUS LLP
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`By: /s/ Arjun P. Rao
`Arjun P. Rao
`2049 Century Park East
`Los Angeles, CA 90067
`Telephone: (310) 907-1000
`Email: arjun.rao@morganlewis.com
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`
`Sarah M. Bouskila
`Tanya Y. Shah
`101 Park Avenue
`New York, New York 10178
`Telephone: (212) 309-6175
`Email: sarah.bouskila@morganlewis.com
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`tanya.shah@morganlewis.com
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`Attorneys for Discover Bank
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`FILED: KINGS COUNTY CLERK 09/25/2024 01:42 PM
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`WORD COUNT CERTIFICATION
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`I hereby certify that this Memorandum of Law complies with Rule 202.8-b of the
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`Uniform Civil Rules for the Supreme Court and the County Court. In determining compliance, I
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`relied on the word count of the word-processing system used to prepare the document. The total
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`number of words in this Memorandum of Law, exclusive of the caption and signature block, is
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`2,953.
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`Dated: September 25, 2024
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`By: /s/ Tanya Y. Shah
`Tanya Y. Shah
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