see also Russell S. Burnside, The Electronic Communications Privacy Act of 1986: The Challenge of Applying Ambiguous Statutory Language to Intricate Telecommunication Technologies, 13 Rutgers Computer & Tech. L.J. 451, 497-98 (1987) (certain distinctions the 1986 statute makes among various electronic devices are already obsolescent). It has been suggested that in the twenty-first century specialized hardware and software, connected by wires, radio waves, and infrared, will be so ubiquitous that no one will remark their presence. Mark Weiser, The Computer for the 21st Century, in Scientific American, at 93 (Sept. 1991). Such devices will keep track of individuals and objects, their location and function, without any awareness on the part of subjects that they are being monitored.
That the statute was amended to keep pace with technological advancements does not change its purpose and scope. Usually known as the federal wiretap act, the statute was designed by Congress to create a uniform system to govern electronic surveillance. See 1968 U.S. Code Cong. & Admin. News 2112, 2153, cited in United States v. Clemente, 482 F. Supp. 102, 106 (S.D.N.Y. 1979), aff'd, 633 F.2d 207 (2d Cir. 1980). The Act "represent[ed] an attempt by Congress to establish a system of electronic surveillance subject to rigorous safeguards." Clemente, 482 F. Supp. at 106; see also United States v. Tortorello, 480 F.2d 764, 773 (2d Cir.) ("The Act represents an attempt by Congress to establish a limited system of electronic surveillance . . . ."), cert. denied, 414 U.S. 866, 38 L. Ed. 2d 86, 94 S. Ct. 63 91973).
The Eleventh Circuit in United States v. Herring, 933 F.2d 932 (11th Cir. 1991), in a case interpreting another section of the statute which describes prohibited devices, addressed the question whether the 1986 amendments "changed the nature of the statute." Id. at 934. At issue were the convictions of defendants in the district court for selling devices that unscramble satellite pay-television transmissions. Noting that the 1986 amendments simply substituted "intentionally" for "willfully" and added "or electronic" to the list of kinds of communications, the court concluded that the amendments effected no other change in the statute's scope. Id. at 934-35; see also Christopher J. Seline, Eavesdropping on the Compromising Emanations of Electronic Equipment: The Laws of England and the United States, 23 Case W. Res. J. Int'l L. 359, 375 (1991) ("[the 1986] Act did not modify the main concerns of Title III"). The statute continues to be directed at regulating surveillance through prohibiting the interception of the contents of communications by any electronic, mechanical, or other device. 18 U.S.C. § 2510(4) (1988 & Supp. III 1991).
The seizure of electronic funds transfers by banks following government and court instructions in forfeiture proceedings is not within the ambit of the wiretap statute. Forfeiture proceedings are not surveillance. In these Bank Cases, since the funds and the transfers were being claimed in good faith as belonging to the government, obtaining information on their destination and taking them into government possession was not a violation of the statute.
There is little doubt that the war on drugs, including the skirmishes around forfeitures, has reduced the law's privacy protections. See generally United States v. Glover, 957 F.2d 1004, (2d Cir. 1992) (Oakes, C.J., dissenting) ("One would hope that the war on drugs does not make for a police state."); United States v. Hooper, 935 F.2d 484, 500 (2d Cir.) (Pratt, J., dissenting) ("It appears that the [law enforcement agents] have sacrificed the fourth amendment by detaining 590 innocent people in order to arrest ten who are not--all in the name of the "war on drugs". When, pray tell, will it end? Where are we going?"), cert. denied, 116 L. Ed. 2d 754, 112 S. Ct. 663 (1991); United States v. Monsanto, 924 F.2d 1186, 1204 (2d Cir.) (Oakes, C.J., dissenting) (disagreeing with majority's decision in light of "the squeeze already exerted on prosecutorial and judicial resources by the flood of narcotics cases inundating the federal courts"), cert. denied, 116 L. Ed. 2d 333, 112 S. Ct. 382 (1991); United States v. Riley, 906 F.2d 841, 850 (2d Cir. 1990) (Weinstein, J., dissenting) ("Precisely because the need for action against the drug scourge is manifest, the need for vigilance against unconstitutional excess is great.") (citing Skinner v. Railway Labor Executives' Ass'n, 489 U.S. 602, 103 L. Ed. 2d 639, 109 S. Ct. 1402 91989) (Marshall, J., dissenting)). Nevertheless, there is no warrant in the wiretapping or electronic eavesdropping provisions to protect those claiming forfeited funds. If there is any conflict between the Omnibus Crime Control and Safe Streets Act as amended and the forfeiture statutes, Congress will have to act to provide further protection to claimants.
The wiretap act has no application because funds in forfeiture proceedings are deemed to belong to the government at the time of their criminal use. The statute cannot apply where, as here, the government reasonably viewed the funds as its own. The concept that ownership of the object is transferred instantaneously at the time of criminality provides a conceptual distinction making the laws governing wiretapping and interference with communications irrelevant.
Even if the statute applied, the banks would not be subject to liability. As noted above, the 1986 amendments substituted "intentionally" for "willfully." Since the instant funds were already forfeited to the government as a result of their illegal genesis, the government's intent was to seize its own funds. The banks had no independent intention other than to follow the directions of the United States Attorney. The banks should face no liability where they intentionally acted within their perceived legal obligations by following the instructions of the United States Attorney and the court.
Moreover, under the statute there is no liability where a party to the transfer intercepts the communication by consent or under color of law:
It shall not be unlawful under this chapter for a person acting under color of law to intercept a wire, oral, or electronic communication, where such person is a party to the communication or one of the parties to the communication has given prior consent to such interception.
18 U.S.C. § 2511(2)(c) (1988 & Supp. III 1991). No cause of action may be maintained against private actors where they are ordered by government authorities to intercept communications. See Camacho v. Autoridad de Telefonos, 868 F.2d 482, 489-90 (1st Cir. 1989) (telephone companies entitled to immunity under that section when acting at the direction of federal officers). Nor is there liability for the interception of electronic communications in transit or in electronic storage where one party to the communication consented to access. See American Computer Trust Leasing v. Jack Farrell Implement Co., 763 F. Supp. 1473, 1494-95 (D. Mn. 1991). The banks, and not the beneficiaries, were parties to the communication and consented to the interception. They acted at the direction of the United States Attorney as to funds the government claimed as its own.
Another provision of the statute specifically exempts from liability the providers of an electronic communication service who act at the direction of a court order:
Notwithstanding any other law, providers of wire or electronic communication service, their officers, employees, and agents, landlords, custodians, or other persons, are authorized to provide information, facilities, or technical assistance to persons authorized by law to intercept wire, oral, or electronic communications . . . if [the above enumerated persons have] been provided with--
(A) a court order directing such assistance signed by the authorizing judge . . . .
18 U.S.C. § 2511(2)(a)(ii) (1988 & Supp. III 1991). The banks, as providers of an electronic communication service, are authorized under the statute to assist the law enforcement agents in the interception of communications.
Good faith reliance on a court warrant or order is also a complete defense under the statute. 18 U.S.C. § 2520(d) (1988 & Supp. III 1991); see also id. § 2707(d)(1) (same defense for interception of stored electronic communications). These Bank Cases are analogous to Jacobson v. Rose, 592 F.2d 515 (9th Cir. 1978), cert. denied, 442 U.S. 930, 61 L. Ed. 2d 298, 99 S. Ct. 2861 91979), where a telephone company received a court order requesting it to assist county officials with a wiretap. The telephone company asked the officials to redraft the order to ensure that no law was being violated. Similarly, in these Bank Cases, the banks received the complaints and warrants and they requested assistance from the United States Attorney to clarify the instructions. One bank employee declared: "we talked to [the United States Attorney] in order to have a clarification of the text of the subpoena."
The banks, like the telephone company in Rose, are protected because of their reasonable belief that they were acting in compliance with a lawfully issued court order. 592 F.2d at 523-24; see also Smith v. Nixon, 196 U.S. App. D.C. 276, 606 F.2d 1183, 1191 (D.C. Cir. 1979) (telephone company's reasonable expectation of legality when acting pursuant to Executive direction prevented any liability for alleged Constitutional or statutory violation), cert. denied, 453 U.S. 912, 69 L. Ed. 2d 997, 101 S. Ct. 3147 91981); Citron v. Citron, 539 F. Supp. 621 (S.D.N.Y. 1982), aff'd, 722 F.2d 14 (2d Cir. 1983) (same under wiretap statute before amendment), cert. denied, 466 U.S. 973, 80 L. Ed. 2d 823, 104 S. Ct. 2350 (1984); Wright v. State of Florida, 495 F.2d 1086, 1090 (5th Cir. 1974) (dicta) (good faith reliance on a court order is a defense under the Fourth Amendment and under the wiretap statute); cf. Kratz v. Kratz, 477 F. Supp. 463, 479-80 (E.D. Pa. 1979) (dicta) (reasonable reliance on an opinion of a United States Court of Appeals may be proper basis for good faith defense).
It is unnecessary to address the defendants' remaining argument, that they could not have "intercepted" the electronic communications since they were in fact the intended recipients.
C. FEDERAL RESERVE ACT
Plaintiffs assert in a conclusory fashion that the seizure of funds violated Regulation J of the Federal Reserve Act, which "governs the collection of checks and other cash and noncash items by Federal Reserve Banks." 12 C.F.R. § 210 et seq. (1985). Regulation J was promulgated to "define more precisely the terms and conditions under which the Reserve banks receive and handle for collection [such] items." Colonial Cadillac, Inc. v. Shawmut Merchants Bank, N.A., 488 F. Supp. 283, 284 (D. Mass. 1980) (citing 32 C.F.R. § 6210). The provisions of Regulation J serve to "limit liability of a Federal Reserve bank." Appliance Buyers Credit Corp. v. Prospect Nat'l Bank, 505 F. Supp. 163, 164 (C.D. Ill. 1981) (depositor of a sending bank is not a "sender" as defined in 12 C.F.R. § 210.2(e)), aff'd, 708 F.2d 290 (7th Cir. 1983); see also Washington Petroleum & Supply Co. v. Girard Bank, 629 F. Supp. 1224, 1229-30 (M.D. Pa. 1983) (same); Childs v. Federal Reserve Bank, 719 F.2d 812, 814 (5th Cir. 1983) ("Regulation J . . . enables the federal reserve system to perform its check collection and clearinghouse functions . . . ."); Colonial Cadillac, 488 F. Supp. at 285 (remote parties protected). Plaintiffs have failed to prove that the Federal Reserve Act has any application to the seizure of wire transfers by intermediary banks in forfeiture proceedings.
D. FOREIGN INTELLIGENCE SURVEILLANCE ACT
The Foreign Intelligence Surveillance Act of 1978, 50 U.S.C. § 1801 et seq. (1988), relied upon by the plaintiffs, has no bearing on this case. The government and banks were overseeing transfers of what the government considered its own funds.
V. STATE LAW CLAIMS
A. NEW YORK RIGHT TO PRIVACY
Plaintiffs claim that the banks' seizure of wire transfers violated their right to privacy. Whether viewed as a common law cause of action or a state statutory cause of action, plaintiffs' complaint fails to state a claim. There is no common law right to privacy in the State of New York. See Young v. United States Dep't of Justice, 882 F.2d 633, 641 (2d Cir. 1989), cert. denied, 493 U.S. 1072, 107 L. Ed. 2d 1023, 110 S. Ct. 1116 (1990) (citing New York cases); Cohen v. Hallmark Cards, 45 N.Y.2d 493, 497 n.2 ( Ct. App. 1978, 410 N.Y.S.2d 282, 382 N.E.2d 1145 ). Although there is a statutory right to privacy, it is restricted to "cases involving unauthorized use of person's name or likeness." Young, 882 F.2d at 641 (citing N.Y. Civ. Rights Law §§ 50-51).
B. U.C.C. ARTICLE 4-A
Article 4-A of the Uniform Commercial Code was enacted in the State of New York with an effective date of January 1, 1991. Article 4-A for the first time put into place specific rules for the regulation of funds transfers. It cannot be relied upon in the instant case since the wire transfers were seized in July and August of 1990. The statute does not apply retroactively. See Banque Worms v. BankAmerica Int'l, 77 N.Y.2d 362, 568 N.Y.S.2d 541, 547 ( Ct. App. 1991, 570 N.E.2d 189 ).
In any event, section 4-A-503 of the U.C.C., entitled "Injunction or Restraining Order With Respect to Funds Transfer," recognizes that banks have an obligation to respond to court orders. See Thomas J. Greco, Miscellaneous Provisions: Creditor Process, Injunction, Finality of Account Statement, and Choice of Law, in Bankers Guide, supra, at 56. The Official Comment states that "intermediary banks are protected," meaning that since the time in transit for funds transfers is brief, intermediary banks cannot be expected to comply with injunctions by creditors. Instead, creditor process should be directed at the originating and receiving banks. The Comment suggests that intermediary banks should not be exposed to liability under article 4-A for declining to stop funds transfers where creditors are seeking the funds. In the instant case, the opposite situation is presented. Plaintiffs wish to hold the intermediary banks liable for agreeing to seize the funds. No such liability is justified. Article 4-A was enacted to enable all parties to funds transfers to "predict risk with certainty, to insure against risk, to adjust operational and security procedures, and to price funds transfer services accordingly." Official Comment to U.C.C. § 4-A-102. The policies of article 4-A are served by protecting the intermediary banks in forfeiture cases. The courts should hesitate to provide restrictions on their own powers to act swiftly. Cf. Sir Nicolas Browne-Wilkinson, Territorial Jurisdiction and the New Technologies, 25 Israel L. Rev. 145, 147 (1991) ("The speed at which modern technology works is . . . threatening the roots of justice itself."). Finally, even if the U.C.C. were applicable, under the Supremacy Clause a state could not in its regulation of commercial activity inhibit federal law enforcement agencies in applying federal drug laws.
Plaintiffs allege a cause of action for conversion against the defendant banks. Conversion requires the intentional deprivation of the property of another with intent to retain it permanently. See In re Di Crocco's Estate, 170 Misc. 826, 12 N.Y.S.2d 276, 278 (Surr. Ct. 1939); see, e.g., Shawmut Worcester County Bank v. First Am. Bank & Trust, 731 F. Supp. 57, 59-60 (D. Mass. 1990) (conversion claim may be cognizable, but no conversion under the facts of the case, where bank refused to reverse wire funds transfer); cf. 1 W. Hawkland, F. Leary & R. Alderman, Conversion by Representatives Including Depositary and Collecting Banks, U.C.C. Series § 3-419:05 (1982-86).
No conversion by the banks took place. Although the banks did seize the wire transfers of funds, they promptly paid the moneys to the Clerk of the Court for safekeeping during the pendency of the litigation. There was never an intention by the banks to take title for themselves or on behalf of anyone else. Cf. Bradley v. Roe, 282 N.Y. 525, 532 ( Ct. App. 1940, 27 N.E.2d 35 ) ("placing property in the custody of the court is, it is plain, not an assertion of dominion over the property to the exclusion of the real owner"). In effect, there were two parties contending they owned the funds -- the government and the claimants. The banks turned the funds over to the courts in a kind of interpleader. In any event, no claim for conversion is possible in forfeiture proceedings, since the defendant property ceases to belong to the claimant at the moment the crime is committed.
D. THIRD-PARTY BENEFICIARY
Where a contract is formed for the benefit of a third person, that person should have a right of action against a promisee who fails to perform. 2 Samuel Williston, A Treatise on the Law of Contracts § 347 et seq. (3d ed. 1959). Plaintiffs claim that as third-party beneficiaries of a contract between the banks, they have a cause of action against the banks that failed to turn over the funds.
Generally, it is the originator's and not the beneficiary's claims against an intermediary bank which are allowed to stand. See, e.g., Security Funds Servs. v. American Nat'l Bank & Trust Co., 542 F. Supp. 323, 329 (N.D. Ill. 1982) (initiator of transfer could be a third-party beneficiary). But see Worldwide Sugar Co. v. Royal Bank, 609 F. Supp. 19, 25 (S.D.N.Y.) (no manifest intention to benefit third-party in letter-of-credit arrangement), aff'd, 751 F.2d 373 (2d Cir. 1984). The plaintiffs here have made no showing that they are not only the beneficiaries but also the originators of the wire transfers.
In a forfeiture proceeding, the claims of plaintiffs as beneficiaries of wire transfers are meaningless. As noted above, at the moment a crime is committed the property ceases to belong to the claimant. If it is determined at trial that the funds are traceable to narcotics trafficking, the money will be declared the property of the government ab initio. Then several defenses or excuses would nullify or bar enforcement of the contract. For example, where the subject matter of a contract is illegal, there is no enforceable contract. Where performance is impossible, it is excused. Cf. United States v. Rod & Reel Fish Camp, 660 F. Supp. 483, 487 (S.D. Miss.) (third parties cannot acquire legal interest in property after date of illegal act since forfeiture occurs as of that time), dismissed, 822 F.2d 57 (5th Cir.), remanded, 831 F.2d 566 (5th Cir. 1987).
As of this moment, probable cause having been found for the seizure of the funds, the claim of the government, not of the plaintiffs, is the only one appropriate for recognition under the third-party contract rubric.
E. NEGLIGENCE CLAIMS
Like the other causes of action, plaintiffs' negligence and gross negligence causes of action stem from the seizure of wire transfers of funds by the defendant intermediary banks. Courts have upheld negligence actions against banks for failing to effectuate electronic funds transfers. See, e.g., Bradford Trust Co. v. Texas Am. Bank-Houston, 790 F.2d 407, 411 (5th Cir. 1986) (negligence claims may stand against bank which honored fund transfer requests of imposter); Compania Anonima Venezolana de Navegacion v. American Express Int'l Banking Corp., 1985 WL 1898, at *5 (S.D.N.Y. 1985) (denying summary judgment because of possible negligence of bank in failing to transmit telex); Security Funds Servs. v. American Nat'l Bank & Trust Co., 542 F. Supp. 323, 327 (N.D. Ill. 1982); Evra Corp. v. Swiss Bank Corp., 522 F. Supp. 820, 828-29 (N.D. Ill. 1981), aff'd in part, vacated in part, rev'd in part, 673 F.2d 951 (7th Cir.), cert. denied, 459 U.S. 1017, 103 S. Ct. 377, 74 L. Ed. 2d 511 (1982); Central Coordinates, Inc. v. Morgan Guar. Trust Co., 129 Misc. 2d 804, 494 N.Y.S.2d 602, 605 (N.Y. Sup. Ct. 1985) (negligence claim cognizable, but none found where it was the plaintiff who was in a better position to avoid the consequences of nondelivery of funds or failure to notify of transfer).
In negligence actions against the banks, as in the third-party contract actions discussed above, it is the originator of the funds transfer who is permitted to maintain the cause of action. In Evra, for example, the district court held that the sending bank was under a duty to exercise ordinary care to ensure that the funds transfer was effected in a proper and timely manner. 522 F. Supp. at 829.
In the instant case, defendants were not rogue banks seizing funds carelessly or without justification. The intermediary banks were following the precise oral and written instructions of the United States Attorney and the court. Even if the banks can be considered to have a duty to the beneficiaries who were not their customers (a proposition not without controversy), they did not violate the duty of care.
The banks were directed in a showing of apparent authority to seize the funds. Cf. Clayton Brokerage Co. v. Clement, 87 F.R.D. 569, 570 (D. Md. 1980) (dicta) (bank has no justification for refusing to comply with subpoena issued in civil action). They do not have all the relevant information and cannot make an independent determination of merit.
Moreover, wire transfers occur at such speed, see Delbrueck & Co. v. Manufacturers Hanover Trust Co., 609 F.2d 1047, 1049 n.1 (2d Cir. 1979), that the banks could not, even if they wished, take the time to evaluate orders before deciding whether to comply. Courts recognize that, at least vis-a-vis government action, the nature of the property to be seized may justify swift action. See Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 679, 40 L. Ed. 2d 452, 94 S. Ct. 2080 91974); United States v. 4880 S.E. Dixie Highway, 612 F. Supp. 1492, 1498 (S.D. Fla. 1985) (government may "act first and seek judicial approval later" where movable nature of res suggests exigent circumstances). Where the property is "of a sort that could be removed to another jurisdiction, destroyed, or concealed," Calero-Toledo, 416 U.S. at 679, notice or delay would compromise the government's enforcement goals. Cf. Sir Nicolas Browne-Wilkinson, Territorial Jurisdiction and the New Technologies, 25 Israel L. Rev. 145, 149-52 (1991) (speed of electronic transfers has required the Chancery Court of the High Court in London to expand its jurisdiction over foreign funds).
Generally, it is only where a residence is at stake that courts recognize the necessity of preliminary notice and hearing before seizure. See United States v. 4492 South Livonia Rd., Livonia, N.Y., 889 F.2d 1258, 1265 (2d Cir. 1989) (contrasting proceeding against home with proceeding against funds; in the latter, government may forgo pre-seizure hearing). But see United States v. 16 Clinton Street, N.Y., N.Y., 730 F. Supp. 1265, 1271-72 (S.D.N.Y. 1990) (seizure of building that contained stores in addition to apartments valid even without notice and hearing). See generally Jack Yoskowitz, The War on the Poor: Civil Forfeiture of Private and Public Housing, 1992 Colum. J.L. & Soc. Probs. (forthcoming). By contrast, electronic funds transfers occur almost instantaneously. The government must be permitted to act swiftly. There is no time or warrant for any independent evaluation by the banks that would interfere with execution of national forfeiture policy. The claimants can and should look for protection in proceedings involving the government as they are now doing in the All Funds case.
The banks were acting as agents of the court and should be protected. Cf. K/S Norman Agathe v. Sea Trade & Constr., Ltd., 767 F. Supp. 60, 62-63 (S.D.N.Y. 1991) (bank was acting as agent of the court when it executed writ of attachment and as such should be protected); Camacho v. Autoridad de Telefonos, 868 F.2d 482, 489-90 (1st Cir. 1989) (semi-public telephone companies immune from liability where following directives of federal agents). The ability of intermediary banks to rely on court orders without risk of liability is essential to the financial health of this industry. Jeffrey S. Tallackson & Norma Vallejo, International Commercial Wire Transfers: The Lack of Standards, 11 N.C. J. Int'l L. & Com. Reg. 639, 665 (1986).
Plaintiffs have failed to state a claim under any state or federal theory. No liability can be found where the banks were in good faith following government orders respecting claimed government funds. There is not the slightest suggestion of bad faith by the banks. Summary judgment for the defendants is granted. The complaint is dismissed.
Jack B. Weinstein
United States District Judge
Dated: Brooklyn, New York
February 27, 1992
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