funds pursuant to rollover instructions. Second, the Plaintiff alleges that Amex paid funds on a fraudulent payment order in contravention of its security agreement and in disregard for known security risks. All of Centre-Point's claims are connected to these events.
There is legal significance attached to whether or not Amex's failure to follow the rollover instructions constitutes a wrongful act independent of its execution of the fraudulent payment order. The Court holds that the two incidents should be viewed separately. The extent to which the Plaintiff's claims are pre-empted by Article 4-A depends upon their relationship to activities which fall within 4-A's scope. For the reasons stated below, the Court holds that the rollover instructions are not "payment orders" and therefore are outside of Article 4-A. The fraudulent payment order, on the other hand, falls within Article 4-A. Thus, claims relating to the failure to debit are separate from the fraudulent payment order and are not precluded. Claims relating to the fraudulent payment order must be subjected to Article 4-A's next level of inquiry, namely, whether or not the Article contains a provision specifically relating to the wrong alleged.
Amex argues that the Court should view all the events in question as interdependent, since "it is disingenuous for Plaintiff to contend its claims are unrelated to the August 20 Payment Order." (Repl. Br. at p. 3.) The Defendant bases this assertion upon the fact that the relief sought, reimbursement of the $ 702,976.63, is based on the allegedly wrongful payment of the payment order. While it may be true that "but for" the Defendant's failure to properly debit the account, there would have been no money to subsequently pay out the fraudulent order, this fact alone does not establish that the events are an integrated transaction.
The Plaintiff telexed its initial rollover instructions on August 18, 1993. The Defendant received a fraudulent notice canceling these instructions the next day, August 19, 1993, at 4:58 P.M. Amex, apparently, had been prepared to debit Centre-Point's account, as per the original instructions, two minutes later, at 5:00 P.M., when it erroneously sent out a notice confirming compliance with the request. If it had been customary for Amex to delay compliance with the rollover instruction until 5:00 P.M., then one can directly link Amex' failure to debit Centre-point's account to its receipt of the fraudulent cancellation notice. As the cancellation notice was fundamental to the subsequent fraud, a failure to debit the account, in such a case, would be dependent upon and interrelated with the subsequent fraud.
Given that this is a 12(b)(6) motion, however, the Court reads the Complaint generously, assessing whether Plaintiff could prove any set of facts upon which relief could be granted. In this case, as the Complaint does not indicate any course of dealings with regard to when Amex generally acted upon rollover instructions, the Plaintiff can argue that Amex should have debited the account prior to receiving the fraudulent cancellation notice. The wrongful conduct of failing to debit and reinvest, then, would be independent of the subsequent fraud. While there was no real injury until Amex paid the fraudulent payment order, the fact that both claims are based upon the same injury simply means that they allege different theories of the case. The claims based upon failure to debit cannot be dismissed simply because there are alternative claims, unless Article 4-A or some other legal principle requires dismissal. As discussed below, these claims do not even fall within the scope of Article 4-A, and thus cannot be preempted by the statute.
i. Rollover Instructions
The rollover instructions do not constitute a "payment order" or "funds transfer" under the statute. A payment order requires an instruction to pay a fixed amount of money "to a beneficiary." N.Y. U.C.C. Law § 4-A-103(1)(a). A "'beneficiary' means the person to be paid by the beneficiary's bank." N.Y. U.C.C. Law § 4-A-103(1)(b). In this case, Centre-Point's telex simply instructs Amex to debit its account and "invest same on a 90 day fixed deposit. Kindly advise us of the rate of investment." (Compl., Ex. 1.) The Plaintiff identifies no beneficiary, and in fact, grants Amex complete discretion to decide how the money should be invested. Amex could theoretically have transferred the money into any of several different fixed deposit accounts.
This type of discretion is inconsistent with the administrative role Article 4-A contemplates for banks in covered transactions. "The function of banks in a funds transfer under Article 4A is comparable to the role of banks in the collection and payment of checks in that it is essentially mechanical in nature." N.Y. U.C.C. Law § 4-A-104, Off. Com., at p. 563. For the same reason, the Article requires that payment orders not state conditions to payment, so as to prevent banks from engaging in inquiries as to whether conditions have been satisfied. N.Y. U.C.C. Law § 4-A-103(1)(A)(i); see also 1B James J. White & Robert S. Summers, Uniform Commercial Code § 1-2, at 143 (3d ed. 1993). The legislature envisioned that the Article would cover wire transfers in which the "originator" instructs a bank to make payment into a specific account. See N.Y. U.C.C. Law § 4-A-104, Off. Com., at p.562-63 (providing three hypothetical cases in which Article 4-A is applicable). While the originator and the beneficiary may even be the same person, for example when a corporation orders a bank to transfer money from one of its accounts to another, id., the Article does not contemplate coverage of the type of open-ended investment instruction at issue here.
Consequently, the Court finds that counts I and II of the Complaint, which relate exclusively to Amex' failure to follow rollover instructions, do not relate to funds transfers covered by Article 4-A. These claims are therefore not pre-empted by Article 4-A. To the extent that counts V, VI and VII relate to the failure to debit, they are also not precluded by Article 4-A.
ii. Fraudulent Payment Orders
The Court concludes that the fraudulent payment orders fall squarely within Article 4-A. The inquiry, then, is whether the facts in dispute are "covered by particular provisions of the Article." N.Y. U.C.C. Law § 4-A-103, Off. Com., at p. 559. New York courts have precluded common law claims in cases where Article 4-A specifically addresses the subject matter involved. See Aleo Int'l, Ltd. v. Citibank, N.A., 160 Misc. 2d 950, 612 N.Y.S.2d 540, 541 (Sup. Ct. N.Y. County 1994) (rejecting negligence claim resulting from failure to cancel payment order where two provisions specifically govern cancellation and amendment of payment orders, § 4-A-211(2), and acceptance of payment orders, § 4-A-209(2)); Southtrust Bank of Alabama, N.A. v. Turkiye Ithalat Ve Ihracat Bankasi, A.S., No. 116581/94 at pp. 7-8 (Sup. Ct. N.Y. County 1995) (dismissing negligence claim arising from a wire transfer to the wrong account number where § 4-A-207, misdescription of a beneficiary, controls); cf. Sheerbonnet, 905 F. Supp. 127, 1995 U.S. Dist. LEXIS 15703, *35, 1995 WL 625713 at *6 (denying motion to dismiss common law claims where no language in Article 4-A prevents crediting of funds to frozen account).
As regards the payment of fraudulent payment orders, allegedly in breach of a duty to provide commercially reasonable security, §§ 4-A-201 to -204, dealing with security procedures and verification of payment orders, determine the rights, duties and obligations of the parties. Since there are specific Article 4-A provisions concerning these covered transactions, common law remedies are precluded in this area. Count IV and the portions of Counts V, VI and VII dealing with the payment of the fraudulent orders are dismissed.
B. Validity of Negligence Count