Opinion
Civil No. 0:22-cv-02122-SAL
2023-01-19
ALPHAVETS, INC., Plaintiff, v. JPMORGAN CHASE BANK, N.A., and PNC Bank, N.A., Defendants.
Trenton Michael Grissom, McGrath and Spielberger PLLC, Charlotte, NC, for Plaintiff. Bryant S. Caldwell, Matthew Todd Carroll, Womble Bond Dickinson U.S. LLP, Columbia, SC, Shelton Sterling Laney, III, Womble Bond Dickinson U.S. LLP, Greenville, SC, for Defendant JPMorgan Chase Bank, N.A. Jasmine Kelly Gardner, McGuireWoods LLP, Charlotte, NC, for Defendant PNC Bank, N.A.
Trenton Michael Grissom, McGrath and Spielberger PLLC, Charlotte, NC, for Plaintiff. Bryant S. Caldwell, Matthew Todd Carroll, Womble Bond Dickinson U.S. LLP, Columbia, SC, Shelton Sterling Laney, III, Womble Bond Dickinson U.S. LLP, Greenville, SC, for Defendant JPMorgan Chase Bank, N.A. Jasmine Kelly Gardner, McGuireWoods LLP, Charlotte, NC, for Defendant PNC Bank, N.A.
ORDER
Sherri A. Lydon, United States District Judge
This matter is before the court on Defendant PNC Bank, N.A.'s and JPMorgan Chase Bank, N.A.'s motions to dismiss Plaintiff AlphaVets, Inc.'s Complaint. [ECF Nos. 4, 15.] After a thorough review of the relevant case law and the arguments of the parties, the court grants both motions and dismisses AlphaVets' Complaint in its entirety.
FACTUAL AND PROCEDURAL BACKGROUND
AlphaVets is a woman- and veteranowned business that provides medical and disaster relief supplies to poor, underserved areas in the country. [ECF No. 1-1, ¶¶ 7, 8.] In the normal course of its business, AlphaVets communicates, and at times contracts, with United States government entities for the sale of its products. Id. ¶¶ 9, 10. Around March 20, 2020, AlphaVets established business banking accounts with Chase. Id. ¶¶ 12, 13. AlphaVets does not have an account with PNC.
At the beginning of 2021, AlphaVets contracted with the Federal Emergency Management Agency to deliver certain products that AlphaVets planned to obtain from a supplier in Thomasville, North Carolina. Id. ¶¶ 14, 15. AlphaVets regularly communicated with its supplier via email. Id. ¶ 16. Unbeknownst to AlphaVets and its supplier, a third party intercepted some of these emails. Id. ¶ 17. Posing as AlphaVets' supplier, the third party sent a spoofed email to AlphaVets directing it to make future payment for supplies at a different bank account with PNC. Id. ¶ 19. Over the course of a few weeks, AlphaVets initiated three separate ACH transfers, directing Chase to transfer over $1 million to the PNC bank account. Id. ¶¶ 23, 24. In early April 2021, a Chase representative contacted AlphaVets to ask about a pending fourth ACH transfer. Id. ¶ 25. Following this inquiry, AlphaVets investigated its transfers and found out they had not been sent to its supplier, but to an unknown third party. Id. ¶¶ 26, 30.
After its discovery, AlphaVets alerted the fraud departments at Chase and PNC as well as law enforcement agencies. Id. ¶¶ 34, 35. Following up on its initial notification, AlphaVets contacted Chase regarding its investigation and found that the investigation had been closed, and Chase had determined no fraudulent activity occurred. Id. ¶¶ 36, 37. After AlphaVets escalated the matter, however, Chase overturned the "no fraud" determination and continued its investigation. Id. ¶ 38. Despite Chase overturning its initial determination, AlphaVets alleges Chase unduly delayed investigating the fraud and violated its own policies and procedures, as well as customary banking practices, in the process. Id. ¶¶ 39-42.
Law enforcement informed AlphaVets that the PNC account that received the funds was opened in Silver Spring, Maryland by an individual identified only as "Joyce." Id. ¶¶ 43-45. Joyce opened the PNC account under the name of T-4 Executive, LLC, which is, according to AlphaVets, a shell entity solely used to perpetrate bank fraud schemes. Id. ¶¶ 46, 47. After receiving the funds from AlphaVets, unknown individuals with access to the T4-Executive account issued at least five temporary checks to other "fictitious" entities and individuals. Id. ¶ 50. Those checks were then negotiated and cashed by several banks in the Atlanta, Georgia area. Id. ¶ 52. AlphaVets alleges that PNC violated its own terms and policies, as well as customary banking practices, by opening an account for a fraudulent entity and by allowing that entity to use temporary checks for such large sums of money. Id. ¶¶ 59, 60.
As a result, AlphaVets filed suit against Chase and PNC in the York County Court of Common Pleas on May 31, 2022. Id. AlphaVets brings four causes of action against Chase: (1) breach of contract, (2) breach of fiduciary duty, (3) negligent misrepresentation, and (4) negligence. Id. ¶¶ 67-88. AlphaVets only brings a claim of negligence against PNC. Id. ¶¶ 95-101. With Chase's consent, PNC timely removed the action to this court on July 5, 2022. [ECF No. 1.] The court finds the motions are ripe for review.
LEGAL STANDARD
"A motion filed under Rule 12(b)(6) challenges the legal sufficiency of a complaint[.]" Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). To survive a Rule 12(b)(6) motion to dismiss, the "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. In reviewing the complaint, the court accepts all well-pleaded allegations as true and construes the facts and reasonable inferences derived from them in the light most favorable to the plaintiff. Venkatraman v. REI Sys., Inc., 417 F.3d 418, 420 (4th Cir. 2005); Ashcroft, 556 U.S. at 662, 129 S.Ct. 1937 ("When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief."). But "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft, 556 U.S. at 678, 129 S.Ct. 1937.
DISCUSSION
At bottom, this case is about fraud, but not of PNC nor Chase. The case is also about banking operations, including funds transfers and fraud protection measures, that PNC and Chase routinely undertake. Arguing that AlphaVets' claims are preempted or legally insufficient, both PNC and Chase move to dismiss AlphaVets' entire Complaint. [ECF Nos. 4, 15.] The court first addresses PNC's motion and then turns to Chase's motion. I. PNC does not owe AlphaVets, a non-customer, a duty of care.
AlphaVets alleges PNC acted negligently by failing to take certain anti-fraud actions which caused AlphaVets harm. PNC purportedly breached its alleged duty of care in five distinct ways: (1) by failing to monitor its accounts for fraud, (2) by failing to verify the supporting identification documents used to open the fraudulent account, (3) by failing to flag or prevent third parties from using temporary checks to negotiate and cash large sums of money, (4) by failing to immediately open an investigation following AlphaVets' suspicious transfers, and (5) by failing to protect AlphaVets' assets from online, criminal banking schemes. [ECF No. 1-1, ¶ 99.] PNC argues AlphaVets' negligence claim fails for two reasons. First, Article 4A of the Uniform Commercial Code preempts AlphaVets' claim. [ECF No. 4-1, at 1.] Second, even if AlphaVets' claim were not preempted, PNC does not owe noncustomers a duty of care. Id. at 2. The court agrees with PNC and finds some of AlphaVets' allegations are preempted by Article 4A and the rest fail as a matter of law because PNC does not owe AlphaVets a duty of care.
Before the court reviews the sufficiency of AlphaVets' claim, it must determine whether Article 4A of the UCC preempts the claim as a whole. The Fourth Circuit has provided that Subpart B of the Federal Reserve Board's Regulation J "incorporates Article 4A of the Uniform Commercial Code to provide rules to govern funds transfers through Fedwire." Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220, 223 (4th Cir. 2002) (citing 12 C.F.R. § 210.25(a) (2002)) (cleaned up). Subpart B of Regulation J preempts state law "because the Federal Reserve sought 'a uniform and comprehensive national regulation of Fedwire transfers.' " Nirav Ingredients, Inc. v. Wells Fargo Bank, N.A., No. 21-1893, 2022 WL 3334626, at *1 (4th Cir. Aug. 12, 2022) (citations omitted). "Determining if a state law claim is preempted by Regulation J turns on whether the challenged conduct in the state claim would be covered under Subpart B as well." Eisenberg, 301 F.3d at 223. To be preempted, a claim must directly relate to the transfer itself and cannot be only incidental to the transfer. Id.
The court finds the Fourth Circuit's recent opinion in Nirav instructive on the issue of whether or not a claim is preempted by Regulation J. In Nirav—a case also involving fraudulent email spoofing and mistaken funds transfers—the plaintiff similarly alleged Wells Fargo failed to prevent fraudsters from opening an account, to monitor the suspect account, to freeze the account after the wire transfer, to conduct any investigation following the fraud, and otherwise failed to protect Nirav's assets. Complaint & Demand for Jury Trial, Nirav Ingredients, Inc. v. Wells Fargo Bank, N.A., No. 3:20-cv-00366-FDW (W.D.N.C. July 9, 2020), ECF No. 1-1. Like PNC (and Chase), Wells Fargo argued Nirav Ingredient's entire negligence claim was preempted by Article 4A of the UCC.
Despite Wells Fargo's arguments, the Western District of North Carolina determined that Nirav Ingredient's claims were only partially preempted. Specifically, the allegations related to the purported failure to prevent the fraudulent account from being opened and the subsequent failure to monitor the account were not preempted by Regulation J as they fell under the exception established by Eisenberg. Nirav Ingredients, Inc. v. Wells Fargo Bank, N.A., 516 F. Supp. 3d 535, 540 (W.D.N.C. 2021), aff'd, No. 21-1893, 2022 WL 3334626 (4th Cir. Aug. 12, 2022). At the same time, the other claims relating to Wells Fargo's conduct after the transfers were, in fact, preempted. See id. ("All other allegations in Nirav's state law negligence claim, including those allegations concerning wire fund transfers and the resulting conduct . . . are preempted by Article 4A of the UCC and are dismissed.") (emphasis added). The Fourth Circuit affirmed the district court's dismissal of the negligence claims as preempted by Regulation J. See Nirav, 2022 WL 3334626, at *2 ("Accordingly, the district court correctly rejected any state law claim based on the wires.").
With that in mind, the court turns to AlphaVets' allegations against PNC to determine whether they relate to, or are incidental to, the transfers at issue. The first two allegations against PNC—that PNC failed to monitor its accounts and verify the identity of the T-4 Executive account holder—relate to pre-transfer conduct. These allegations only incidentally relate to the funds transfers and thus are not preempted by Regulation J. See Eisenberg, 301 F.3d at 223-24 ("Subpart B does not address the duties, obligations and liabilities applicable to bank functions having nothing to do with a Fedwire transfer.").
By contrast, PNC's alleged failure to prevent the fraudsters from using temporary checks to siphon the transferred money, failure to investigate AlphaVets' "suspicious" transfers, and failure to protect AlphaVets from fraud directly relates to the funds transfers themselves. These allegations are nearly identical to the ones made in Nirav, that the Fourth Circuit asserted were appropriately dismissed as preempted by Regulation J. See Nirav, 2022 WL 3334626, at *2. Accordingly, the court finds AlphaVets' allegations that PNC acted negligently following the funds transfers are preempted by Regulation J and the court dismisses them.
And so all that remains of AlphaVets' negligence claim against PNC are the allegations that PNC negligently maintained its accounts and allowed the fraudster to open an account. But PNC argues any non-preempted claim must fail as a matter of law because it does not owe AlphaVets a duty of care. PNC is correct. In South Carolina, banks "neither owe[ ] a duty of care to customers or non-customers[.]" Midland Mortg. Corp. v. Wells Fargo Bank, N.A., 926 F. Supp. 2d 780, 792 (D.S.C.), aff'd sub nom. Midland Mortg. Co. v. Wells Fargo Bank NA, 545 F. App'x 194 (4th Cir. 2013) (emphasis added); see Order on Defendant's Motion to Dismiss at 8-9, Perdicho v. Wells Fargo Bank, N.A., No. 3:18-cv-02394-JFA (D.S.C. Nov. 13, 2018), ECF No. 18 (finding it likely South Carolina law does not impose a duty of care onto banks for noncustomers and so dismissing negligence claim); see also Pulliam v. Clark, No. 4:11-CV-03047-RBH, 2012 WL 1835717, at *4 (D.S.C. May 21, 2012) (finding that South Carolina law does not recognize a special duty of care between banks and ordinary customers in the normal creditor/debtor relationship).
Because PNC does not owe AlphaVets a duty of care under South Carolina law, AlphaVets' negligence claim necessarily fails. See Charleston Elec. Servs., Inc. v. Rahall, 427 S.C. 317, 831 S.E.2d 122, 125 (S.C. Ct. App. 2019) (quoting Huggins v. Citibank, N.A., 355 S.C. 329, 585 S.E.2d 275, 276 (2003)) ("An essential element in a cause of action for negligence is the existence of a legal duty owed by the defendant to the plaintiff. In the absence of a duty there can be no negligence."). Thus, the court dismisses AlphaVets' negligence claim against PNC with prejudice and PNC is terminated as a party to this case.
AlphaVets' argument that the USA Patriot Act imposes a duty upon PNC is wrong. [ECF No. 19, at 6-8.] Courts have unanimously held that neither the Bank Secrecy Act nor the Patriot Act create private causes of action. See Venture Gen. Agency, LLC v. Wells Fargo Bank, N.A., No. 19-CV-02778-TSH, 2019 WL 3503109, at *7 (N.D. Cal. Aug. 1, 2019) (collecting cases). Further, because the acts do not create a private cause of action, they do not create a duty of care. Id.
II. AlphaVets fails to plausibly plead its four claims against Chase.
Now the court turns to Chase's dismissal motion. Although AlphaVets brings four separate claims against Chase, the essence of each claim is the same: Chase allegedly did not follow its fraud-protection measures which resulted in AlphaVets' loss of assets. [ECF No. 1-1, ¶¶ 69, 78, 83, 92.] The specific allegations are nearly identical to those made against PNC and run into the same preemption problem identified above. At any rate, the court addresses AlphaVets' claims in the order in which they appear in the Complaint. As detailed below, the court finds that AlphaVets' claims are partially preempted and otherwise legally insufficient.
The court notes that in its dismissal motion, Chase does not argue that AlphaVets' breach of contract and negligent misrepresentation claims are preempted by Article 4A of the UCC. Even though there is case law suggesting any state-law claim raising inconsistencies with Article 4A is preempted, the court will address the question of preemption only with respect to AlphaVets' negligence claim. While Chase does argue that AlphaVets' breach of fiduciary duty claim is preempted by Article 4A, the court resolves the claim on the sufficiency of the pleadings, as primarily argued by Chase.
A. AlphaVets fails to plausibly allege a breach of contract.
To start, AlphaVets fails to plausibly allege Chase breached any of its contractual obligations. According to AlphaVets, Chase breached the contract by failing to monitor AlphaVets' business accounts for fraud, failing to warn AlphaVets of suspicious account activity, failing to immediately investigate suspicious account activity, and otherwise failing to protect AlphaVets' assets from an online, fraudulent banking scheme. [ECF No. 1-1, ¶ 69.] In contrast, Chase argues AlphaVets fails to point out a provision of the pair's contract that Chase has breached and that the contract expressly insulates Chase from any liability when acting at AlphaVets' direction. [ECF No. 15, at 3-5.] Covering all its bases, AlphaVets then changes course and argues that Chase violated the implied covenant of good faith and fair dealing and a purported oral contract in which Case agreed to investigate the fraudulent activity. [ECF No. 22, at 4, 5.] Despite its efforts to save its breach of contract claim, the court agrees with Chase and finds dismissal appropriate.
Under South Carolina law, "[t]he elements for a breach of contract are the existence of a contract, its breach, and damages caused by such breach." Hotel and Motel Holdings, LLC v. BJC Enters., LLC, 414 S.C. 635, 780 S.E.2d 263, 272 (S.C. Ct. App. 2015) (citations omitted). Chase does not deny the existence of the contract, so the court turns to examine the breach elements and finds that AlphaVets does not allege which provision of the contract Chase supposedly breached. And after reviewing the contract, the court can identify no provision imposing any of the obligations AlphaVets claims Chase breached. See generally [ECF No. 15-1.] In fact, the contract specifies that when an account holder directs Chase to send a funds transfer, Chase may rely exclusively on the account number provided and has no duty to detect inconsistency between the account number and the account name. Id. at 16. Further, under the contract, Chase will not be liable for anything it does when following the account holder's instructions. Id. at 22. Accordingly, AlphaVets fails to plausibly allege a breach, so the court dismisses this claim.
Courts are normally limited to reviewing just the allegations of a complaint when resolving a dismissal motion made pursuant to Fed. R. Civ. P. 12(b)(6). Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016) (citations omitted). But courts may consider documents not included in a complaint but attached to a motion to dismiss "when the document is 'integral to and explicitly relied on in the complaint,' and when 'the plaintiffs do not challenge [the document's] authenticity.' " Zak v. Chelsea Therapeutics Int'l, Ltd., 780 F.3d 597, 606-07 (4th Cir. 2015) (quoting Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004)). Because AlphaVets explicitly references its contract with Chase, and does not dispute the authenticity of Chase's attached copy, the court can properly consider the contract as attached to Chase's dismissal motion. See [ECF No. 15-1.]
AlphaVets' attempt to redirect its claim to an alleged breach of a purported oral contract or an alleged breach of the implied covenant of good faith and fair dealing also fails. For starters, this redirection is actually an inappropriate attempt to amend its Complaint in violation of established, contrary precedent. See S. Walk at Broadlands Homeowner's Ass'n, Inc. v. OpenBand at Broadlands, LLC, 713 F.3d 175, 184-85 (4th Cir. 2013) (citations omitted) ("It is well-established that parties cannot amend their complaints through briefing or oral advocacy."). And even if the court were to consider these new arguments, they both fail. Because the purported breach of the "new" oral contract occurred after the fraudster received the funds, Chase's allegedly deficient investigation cannot have caused AlphaVets any damages. Without plausibly alleging the element of damages, this theory of the claim fails. Likewise, because Chase complied with its obligations under contract, AlphaVets cannot sustain its claim on an alleged breach of the covenant of good faith and fair dealing and its claim still fails as a matter of law. See Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 599 (4th Cir. 2004) (quoting Adams v. G.J. Creel & Sons, Inc., 320 S.C. 274, 465 S.E.2d 84, 85 (1995)) ("In South Carolina . . . there can be no breach of an implied covenant of good faith and fair dealing where 'a party to a contract [does] what provisions of the contract expressly [give] [it] the right to do.' ").
B. AlphaVets fails to plausibly allege the existence of a fiduciary relationship.
AlphaVets also fails to plead its breach of fiduciary duty claim. In its Complaint, AlphaVets alleges Chase "owed a special duty of care to [it] as a fiduciary" and it breached that duty by failing to take adequate fraud protection measures and failing to properly investigate AlphaVets' mistaken transfers. [ECF No. 1-1, ¶¶ 74, 78.] Chase argues that no fiduciary relationship exists between it and AlphaVets. [ECF No. 15, at 5.] The court agrees.
To survive dismissal, AlphaVets must plausibly allege "(1) the existence of a fiduciary duty, (2) a breach of that duty owed to the plaintiff by the defendant, and (3) damages proximately resulting from the wrongful conduct of the defendant." RFT Mgmt. Co., L.L.C. v. Tinsley & Adams L.L.P., 399 S.C. 322, 732 S.E.2d 166, 173 (2012) (citations omitted). Despite AlphaVets' conclusory allegations to the contrary, South Carolina case law provides "[t]he normal bank-depositor arrangement creates a creditor-debtor relationship rather than a fiduciary one." Hotel and Motel Holdings, LLC v. BJC Enters., LLC, 414 S.C. 635, 780 S.E.2d 263, 273 (S.C. Ct. App. 2015) (quoting Burwell v. SC Nat'l Bank, 288 S.C. 34, 340 S.E.2d 786, 790 (1986)).
Still, AlphaVets argues in its response brief that additional facts show the existence of a fiduciary relationship. That is, Chase's assertion it would investigate the fraudulent activity. To be sure, South Carolina law does provide that a fiduciary relationship may exist between bank and customer in some cases. See id. Such a relationship may exist "if the bank undertakes to advise the customer as a part of the services the bank offers." Id. (citations omitted). Chase's assertion it would conduct a routine investigation into fraudulent activity does not rise to the level of services sufficient to create a fiduciary duty contemplated by South Carolina law. AlphaVets fails therefore to plausibly allege its breach of fiduciary duty claim and the court dismisses it with prejudice.
C. AlphaVets fails to plausibly allege a false statement.
AlphaVets' negligent misrepresentation claim fares no better than its prior two claims. According to AlphaVets, Chase "made material representations . . . as a part of [the] process of it opening its business accounts." [ECF No. 1-1, ¶ 83.] Specifically, Chase allegedly represented that AlphaVets' accounts would be safe from fraud, that it would follow its own fraud protection policies, that it would alert AlphaVets of any suspected fraud, and that it would monitor AlphaVets' accounts according to customary banking policies. Id. Chase argues this claim fails for two reasons: (1) The economic loss rule prevents AlphaVets from recovering in tort as their relationship is governed by contract, or (2) AlphaVets fails to base its claim on a false statement of then-existing fact. [ECF No. 15, at 8, 10.] The court finds the latter argument persuasive.
The court notes that Chase may be correct in saying the economic loss rule, as described by South Carolina law, prohibits AlphaVets from recovering damages on this tort claim. While some states apply the economic loss rule "to prohibit all recovery of purely economic damages in tort," South Carolina applies it "where the duties are created solely by contract." Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 320 S.C. 49, 463 S.E.2d 85, 88 (1995) (citations omitted). Most of the time "negligence action[s] will not lie when the parties are in privity of contract." Id. Because the parties' relationship, according to Chase, is solely governed by contract the economic loss rule prohibits AlphaVets' negligent misrepresentation claim. Even though courts applying South Carolina law have used the economic loss rule to dismiss negligent misrepresentation claims, they are largely in the sales, rather than services, context. See [ECF No. 15, at 9 (collecting cases).] Indeed, South Carolina courts have disregarded the economic loss rule when professional services are at issue. See Tommy L. Griffin Plumbing & Heating Co., 463 S.E.2d at 89 (finding professionals sometimes owe duties to their clients, and even sometimes third parties, despite their relationships largely being governed by contract). Although it is doubtful such another duty exists here, given the parties' bank-depositor relationship, the court need not answer this novel question of South Carolina law as the court finds Chase's second argument dispositive.
To sustain its negligent misrepresentation claim under South Carolina law, AlphaVets must plausibly allege these elements:
(1) the defendant made a false representation to the plaintiff; (2) the defendant had a pecuniary interest in making the representation; (3) the defendant owed a duty of care to see that he communicated truthful information to the plaintiff; (4) the defendant breached that duty by failing to exercise due care; (5) the plaintiff justifiably relied on the representation; and (6) the plaintiff suffered a pecuniary loss as the proximate result of his reliance upon the representation.Sauner v. Pub. Serv. Auth. of SC, 354 S.C. 397, 581 S.E.2d 161, 166 (2003) (quoting AMA Mgmt. Corp. v. Strasburger, 309 S.C. 213, 420 S.E.2d 868, 874 (S.C. Ct. App. 1992)). "To be actionable, 'the representation must relate to a present or preexisting fact and be false when made.' " Sauner, 581 S.E.2d at 167 (quoting Koontz v. Thomas, 333 S.C. 702, 511 S.E.2d 407, 413 (S.C. Ct. App. 1999)). As a result, mere "unfulfilled promises or statements as to future events" cannot sustain a negligent misrepresentation claim. Turner v. Milliman, 392 S.C. 116, 708 S.E.2d 766, 770 (2011).
AlphaVets alleges Chase made material representations about future events only. The Complaint alleges Chase represented it "would" protect AlphaVets' accounts from fraud, that it "would" follow its own fraud protection policies, that it "would" quickly respond to fraud alerts, and that it "would" monitor AlphaVets' accounts according to customary banking practices. [ECF No. 1-1, ¶ 83.] Because AlphaVets fails to allege Chase made a false statement about a preexisting fact, the court finds dismissal of this claim appropriate.
AlphaVets attempts to salvage this claim in its response brief by arguing the claim is "based on [Chase's] statement that it was investigating fraud on [AlphaVets'] account that presently existed when [AlphaVets] informed [Chase] of the same." [ECF No. 22., at 10.] Yet this contradicts the allegations in AlphaVets' Complaint. AlphaVets alleges Chase made these purportedly negligent representations "as part of [the] process of [AlphaVets] opening its business accounts." [ECF No. 1-1, ¶ 83 (emphasis added).] AlphaVets opened its business accounts on March 20, 2020, but the fraud did not take place until March and April of the next year. Id. ¶¶ 12, 17, 23, 25. Yet again, AlphaVets is attempting to amend with its brief in violation of established, contrary Fourth Circuit precedent. See S. Walk, 713 F.3d at 184-85. Because AlphaVets cannot amend in its response brief, the court is left with the allegations in the complaint that insufficiently allege the existence of a false statement. Thus, the court dismisses AlphaVets' negligent misrepresentation claim without prejudice.
D. AlphaVets fails to plausibly allege the elements of duty and proximate cause.
Like its other claims against Chase, AlphaVets' negligence claim fails as a matter of law. AlphaVets' negligence claim is nearly identical to the claim it brought against PNC. According to AlphaVets, Chase breached its supposed duty of care by (1) failing to properly monitor AlphaVets' account for fraud, (2) failing to flag and warn AlphaVets about suspicious account activity, (3) failing to immediately investigate suspicious account activity, and (4) failing to protect AlphaVets' assets from fraudulent banking schemes. [ECF No. 1-1, ¶ 92.] Just as PNC, Chase argues this claim is preempted by Article 4A of the UCC. [ECF No. 15, at 10.] Chase also argues the economic loss rule prohibits recovery for this action and that it does not owe a duty to AlphaVets to protect it from criminal activity. Id. at 11. As with the negligence claim against PNC, the court finds AlphaVets' negligence claim against Chase partially preempted and otherwise legally insufficient.
Again, the court declines to rule on Chase's argument about the application of the economic loss rule as it is unclear how South Carolina courts would rule on the issue and its other arguments effectively resolve the claim.
Without rehashing the court's prior discussion of Article 4A, the bottom line is that Subpart B of Federal Reserve Board Regulation J, preempts state-law claims relating to funds transfers. Donmar Enters., Inc. v. S. Nat'l Bank of N.C., 64 F.3d 944, 949 (4th Cir. 1995). While Regulation J's preemptive force is wide-sweeping, state-law claims challenging normal bank operations apart from funds transfers may survive preemption. Eisenberg, 301 F.3d at 223. Here, three of AlphaVets' four allegations against Chase relate to funds transfers, or similarly preempted post-funds transfers conduct. See [ECF No. 1-1, ¶ 92(b-d).] As a result, only AlphaVets' allegation that Chase failed to monitor its accounts survives preemption. Id. ¶ 92(a). Even though this allegation is not preempted, it still must be sufficiently pleaded.
While it is clear banks normally do not owe noncustomers a duty of care under South Carolina law, it is less clear whether banks owe their customers a duty to protect them from criminal activity. In Huggins v. Citibank, N.A., the South Carolina Supreme Court certified a question from the District of South Carolina to determine whether South Carolina "recognizes a cause of action for negligent enablement of imposter fraud." 355 S.C. 329, 585 S.E.2d 275, 276 (2003). The plaintiff in the federal case sued various banks alleging they negligently allowed an unknown individual to apply for and receive multiple credit cards using the plaintiff's name and identifying information. Id. Most of the South Carolina Supreme Court's discussion centered on whether these defendant banks had a duty to protect the plaintiff from identity fraud. Ultimately, even though injury arising from the negligent issuance of a credit card may be foreseeable, the South Carolina Supreme Court held "[t]he relationship, if any, between credit card issuers and potential victims of identity theft is far too attenuated to rise to the level of a duty between them." Id. at 277. While this answer is not directly on point, as AlphaVets is Chase's customer, the court is convinced, if faced with the present question, the South Carolina Supreme Court would find Chase does not owe AlphaVets a duty to prevent the type of fraud perpetrated by the email spoofer.
The Fourth Circuit's opinion in Nirav also helps the court to resolve Chase's motion to dismiss AlphaVets' negligence claim. See Nirav, 2022 WL 3334626, at *3. As the court noted above, Nirav also involved an unfortunate case of email spoofing in which a fraudster emailed Nirav Ingredients' business partner, Ash Ingredients, directing payment for outstanding invoices to a new account. Nirav, 516 F. Supp. 3d at 537. The only difference between Nirav and this case is that the plaintiff who sought damages in Nirav was the intended recipient of the funds and not the originator of the transfer, like AlphaVets. Id. When reviewing the district court's grant of summary judgment, the Fourth Circuit found that under North Carolina law "[t]he Hacker was an intervening cause and absolved Wells Fargo of any liability for any mishandling of [Ash's] account" because "no reasonably jury could find Wells Fargo[ ] . . . proximately caused Nirav's injuries." Nirav, 2022 WL 3334626, at *3. South Carolina and North Carolina case law are substantively the same on the matter of an intervening cause insulating the negligence of a defendant. Thus, the court finds that AlphaVets has failed to plausibly allege Chase owes it a duty of care or that Chase proximately caused AlphaVets' damages. The court thus dismisses AlphaVets' negligence claim against Chase.
CONCLUSION
For the above reasons, the court GRANTS PNC's dismissal motion, ECF No. 4, and Chase's dismissal motion, ECF No. 15, and dismisses all of AlphaVets' claims against them. The court's dismissal of AlphaVets' negligent misrepresentation claim is without prejudice and invites AlphaVets to amend its Complaint if it can remedy any defect identified by the court. The rest of the claims are dismissed with prejudice.
IT IS SO ORDERED.