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CENTRE-POINT MERCHANT BANK v. AMERICAN EXPRESS BAN

January 9, 1996

CENTRE-POINT MERCHANT BANK LIMITED, Plaintiff, against AMERICAN EXPRESS BANK LIMITED, Defendant.


The opinion of the court was delivered by: MCKENNA

 McKENNA, D.J.

 Defendant American Express Bank Ltd. ("Amex") moves to dismiss counts I, II, IV, V, VI and VII of Plaintiff Centre-Point Merchant Bank Limited's ("Centre-Point's") Complaint pursuant to Fed. R. Civ. P. 12(b)(6). Centre-Point brings a number of common law tort and contract claims, as well as a claim under New York's Uniform Commercial Code ("UCC") (count III). The claims arise from Amex' failure to debit Centre-Point's account and reinvest the funds, as instructed by telex, and Amex' wire transfer of $ 702,976.63 from Centre-Point's account at Amex, pursuant to a fraudulent payment order. Amex argues that only the UCC claim is legally cognizable. At issue is whether UCC Article 4-A provides Plaintiff's exclusive remedy, pre-empting Centre-Point's other common law claims. Alternatively, Amex argues that the negligence counts and the breach of good faith and fair dealing claim should be dismissed as duplicative. The Court grants Defendant's motion to dismiss in part and denies it in part. The motion to dismiss is granted as to counts II, IV, VII and as to the portions of counts V and VI which concern Amex' alleged security breach (PP 64-66, 70-72). The motion to dismiss is denied as to count I and as to the remaining portions of counts V and VI.

 I. Background

 In March of 1989, Centre-Point, a Nigerian bank, entered into a Telegraphic Test Key Agreement (the "Agreement") with Amex, a New York bank. The agreement addressed security precautions required for the handling of financial transactions by telex. (Compl. at PP 1-2, 5.) Roughly three years later, in April of 1992, Centre-Point opened an investment account with Amex. The account required Centre-Point to telex rollover instructions at regular intervals, initially every 30 days, but eventually every 90 days, indicating whether and how the money should be reinvested. (Compl. at P 6.)

 On August 18, 1993, Centre-Point instructed Amex by telex to debit its account in the sum of $ 1,598,226.93 and to invest the same on a 90-day fixed deposit. (Compl. at P 10.) Amex confirmed by telex that it had received and complied with this direction the following day, August 19, 1993, at approximately 5:00 P.M. (Compl. at P 11.) Upon examining the confirmation, Centre-Point realized that Amex had incorrectly stated the maturity date as December 20, rather than November 20, and by telex dated August 20, 1993, at approximately 3:15 P.M., advised Amex of the discrepancy. (Compl. at P 12.) Amex acknowledged the error by telex on August 21, 1993, at approximately 2:00 P.M., and confirmed that the investment would mature on November 20, 1993. (Compl. at P 13.) Centre-Point now alleges that contrary to the confirmatory representations, Amex never debited the account on August 19 and never reinvested the money. (Compl. at P 14.)

 Centre-Point subsequently learned that two fraudulent payment orders were made against its account following its reinvestment order of August 18. (Compl. at P 17.) Allegedly, Amex received a fraudulent telex at 4:58 P.M. on August 19, purportedly canceling Centre-Point's investment order of the previous day and advising Amex to await further instruction. (Compl. at P 25.) This telex arrived two minutes before Amex sent its telex confirming receipt and compliance with the rollover instructions. The first fraudulent payment order arrived later that day and was honored, but subsequently returned due to deficiencies in the alpha-numeric account number provided. (Compl. at PP 18, 26.) Amex, however, paid the second fraudulent order to an off-shore account on August 20, in the amount of $ 702,976.63. (Compl. at PP 19, 27.) Centre-Point argues that if Amex had properly debited its account pursuant to its August 18 instruction, there would not have been funds available in the account to be drawn upon by the fraudulent payment order.

 Centre-Point further asserts that Amex knew or should have known that its security procedures were susceptible to such a breach, particularly since Amex knew that others of its Nigerian bank customers had been victimized in a similar manner. Amex failed to advise Centre-Point of these security concerns and, in addition, failed to follow its customary practice of contacting Centre-Point by telephone to confirm its instructions, despite having received contradictory instructions by telex. Amex also allegedly failed to confirm the fraudulent debits by telephone or telex, despite having already sent notice to Centre-Point that it had reinvested the funds in the account.

 As a consequence of these transactions, Centre-Point has brought a seven count complaint against Amex. It charges Amex with breach of contract (count I) and negligence (count II) for failing to debit its account and reinvest the funds as instructed and agreed. It also brings charges alleging breach of the UCC (count III) and negligence (count IV) for failing to provide a commercially reasonable security procedure given all of the relevant factors. In addition, it alleges fraud and fraudulent concealment (count V) and negligent misrepresentation (count VI) for falsely stating that AMEX had debited Centre-Point's account and for failing to state that it had received contradictory telexes and had paid on subsequent payment orders. Finally, Centre-Point charges that all of these events amounted to a breach of duty of good faith and fair dealing (count VII).

 Amex seeks to dismiss all but the UCC count, asserting that the dispute involves a wire transfer, and that UCC Article 4-A provides the exclusive remedy for such disputes. Alternatively, Amex contends that the negligence counts and the breach of duty of good faith and fair dealing count are duplicative.

 II. Discussion

 Defendants move to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), which provides that a complaint will be dismissed if there is a "failure to state a claim upon which relief can be granted." In the course of resolving a motion to dismiss pursuant to Rule 12(b)(6), the Court reads the complaint generously, accepting the truth of, and drawing all reasonable inferences from, the well-pleaded factual allegations. Brass v. American Film Technologies, Inc., 987 F.2d 142, 150 (2d Cir. 1993); accord California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 515, 30 L. Ed. 2d 642, 92 S. Ct. 609 (1972); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993); Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991), cert. denied, 118 L. Ed. 2d 208, 112 S. Ct. 1561 (1992); Frasier v. General Elec. Co., 930 F.2d 1004, 1007 (2d Cir. 1991).

 
When determining the sufficiency of plaintiff[s] claim for Rule 12(b)(6) purposes, consideration is limited to the factual allegations in . . . [the] complaint, which are accepted as true, to documents attached to the complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiff['s] possession or of which plaintiff[] had knowledge and relied on in bringing suit. Brass, 987 F.2d at 150 (citing Cortec, 949 F.2d at 47-48).

 The Court will only dismiss a complaint for failure to state a claim when the Court finds beyond a reasonable doubt that Plaintiff "can prove no set of facts" to support the claim that Plaintiff is entitled to relief. Conley v. ...


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