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Dervin Corp. v. Banco Bilbao Vizcaya Argentaria, S.A.

United States District Court, S.D. New York
Aug 27, 2004
No. 03 Civ. 9141 (PKL) (S.D.N.Y. Aug. 27, 2004)


No. 03 Civ. 9141 (PKL).

August 27, 2004

Bryan L. Rozencwaig, Esq., New York, NY, Attorney for Plaintiff Dervin Corp.

Jonathan A. Willens, Esq., JONATHAN A WILLENS, LLC, Brooklyn, NY, Attorney for Defendant Banco Bilbao Vizcaya Argentaria, S.A.


Plaintiff, Dervin Corp. ("Dervin"), a resident and citizen of New Jersey, brings this diversity action against defendant, Banco Bilbao Vizcaya Argentaria, S.A. ("BBVA"), a global financial company based in Spain that operates bank branches in New York, New York and Miami, Florida. Plaintiff seeks to recover $211,662.93 in interest payments, which allegedly accumulated on its account at defendant's New York branch between October 1999 and July of 2001. Defendant now moves to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and, in the alternative, for summary judgment pursuant to Rule 56.


The Complaint alleges that, in or about 1994, plaintiff opened a bank account at BBVA's New York branch. (Compl. ¶ 7.) From 1994 to 1999 the account did not earn interest. (Id. ¶ 8.) Plaintiff claims, however, that in or about October 1999 it sought interest payments from BBVA on the account, which at that point contained large deposits, and that, in response, a BBVA employee named Juliette Portello offered to add interest payments to the account. (Id. ¶¶ 8-9, 15.) Plaintiff alleges that it accepted this offer and that "in consideration of and in reliance upon BBVA's offer of interest, Dervin kept its bank account with BBVA and ceased any exploration of other financial institutions or interest bearing vehicles." (Id. ¶¶ 16-17.) Thereafter, plaintiff claims that its account accumulated interest totaling $211,662.93 through July of 2001, at which point BBVA stopped paying interest and unilaterally removed $211,662.93 from the account. (Id. ¶¶ 10-11.) Plaintiff asserts that, in spite of its demands, BBVA has refused to return the $211,662.93, (id. ¶¶ 12-13), and that it is entitled to recover this money, plus interest, under five causes of action: Count I — Breach of Contract; Count II — Specific Performance; Count III — Misrepresentation; Count IV — Conversion; and Count V — Unjust Enrichment.

BBVA responds to the Complaint with the instant motion to dismiss and motion for summary judgment. In moving for dismissal pursuant to Rule 12(b)(6) plaintiff argues (1) that Counts I and II must be dismissed as a matter of law because the alleged offer to pay interest, even if it occurred, was unlawful under federal and state banking laws, which prohibit the payment of interest on demand deposits; (2) that Counts III and IV must be dismissed because they are duplicative of plaintiff's contract claims; and (3) that Count V must be dismissed because plaintiff had no legal right to the accrued interest. Alternatively, BBVA moves for summary judgment on the grounds that no offer to pay interest was, in fact, ever made to Dervin and that the interest was added to Dervin's account as the result of a clerical error.

As discussed below, in resolving the merits of defendant's motion to dismiss, the Court must accept the facts as alleged by plaintiff in its Complaint. As a result, defendant's Rule 12(b)(6) motion to dismiss is only successful as to Counts III and IV. The materials submitted by defendant in support of its alternative motion for summary judgment make clear, however, that plaintiff's allegations are completely without merit. Accordingly, defendant's motion for summary judgment is granted in full and the case is dismissed in its entirety.


A. Defendant's Motion to Dismiss

Rule 12(b)(6) of the Federal Rules of Civil Procedure provides for dismissal of a complaint that fails to state a claim upon which relief can be granted. A movant is entitled to dismissal under Rule 12(b)(6) only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see also Lipsky v. Commonwealth United Corp., 551 F.2d 887, 894-95 (2d Cir. 1976). Nevertheless, the complaint "must contain allegations concerning each of the material elements necessary to sustain recovery under a viable legal theory." Huntington Dental Med. Co. v. Minnesota Mining Mfg. Co., No. 95 Civ. 10959 (JFK), 1998 WL 60954, at *3 (S.D.N.Y. Feb. 13, 1998). The Court must read the complaint generously and draw all reasonable inferences in favor of plaintiff, accepting the complaint's allegations as true. Conley, 355 U.S. at 46;Hosp. Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 740 (1976). Accordingly, the factual allegations set forth in the complaint do not constitute findings of fact by the Court, but rather are presumed to be true for the purpose of deciding the motion to dismiss. See Emergent Capital Inv. Mgmt. v. Stonepath Group, Inc., 165 F. Supp. 2d 615, 625 (S.D.N.Y. 2001). "The issue is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).

1. The Contract Claims

Defendant BBVA moves to dismiss Dervin's contract claims (Counts I and II) on the grounds that the offer to add interest, as alleged in the Complaint, was unlawful under federal and New York state law and therefore unenforceable. BBVA argues that because the Complaint alleges that Dervin's account did not earn interest from 1994 through 1999, it is clear that the account in question was a checking account. Accordingly, because the Complaint alleges an offer to add interest to this account, BBVA argues that the offer must be construed as an offer to add interest to a checking account. Because both federal and New York state banking regulations prohibit the payment of interest on checking accounts, BBVA argues the alleged promise, if it occurred, was unlawful and therefore unenforceable.

Dervin does not dispute that its account should be classified as a checking account from 1994 through 1999. Nor does it dispute BBVA's analysis of the applicable banking laws. Rather, Dervin takes the position that it was unaware of any restrictions against earning interest on its account and that the promise to pay interest did not require BBVA to maintain the account as a checking account, per se. In other words, Dervin asserts that it was up to BBVA to take the appropriate steps to add interest to Dervin's account in a manner that complied with any applicable banking laws, including, if necessary, restructuring Dervin's account as a non-checking account.

Federal banking regulations prohibit any member bank of the Federal Reserve System from paying interest on any demand deposit. Prohibition Against the Payment of Interest on Demand Deposits (Regulation Q), 12 C.F.R. § 217.3 (2004) ("No member bank of the Federal Reserve System shall, directly or indirectly, by any device whatsoever, pay any interest on any demand deposit."); see also 12 U.S.C. § 371a (2000). A demand deposit is "a deposit that is payable on demand, or a deposit issued with an original maturity or required notice period of less than seven days, or a deposit representing funds for which the depository institution does not reserve the right to require at least seven days' written notice of an intended withdrawal." 12 C.F.R. § 204.2. Examples of demand deposits include checking accounts, certified, cashier's, teller's, and officer's checks, traveler's checks, or money orders. Id. The State of New York Banking Department has adopted a similar rule, whereby "[n]o bank, trust company, private banker, investment company or New York branch or New York agency of any foreign banking corporation shall, directly or indirectly, by any device whatsoever, pay any interest on any deposit or similar credit balance which is payable on demand" N.Y. Comp. Codes R. Regs. tit. 3, § 20.1 (2003). As a foreign banking institution that operates a branch in New York, BBVA is subject to these restrictions. 12 C.F.R. § 217.1(c); N.Y. Comp. Codes R. Regs. tit. 3, § 20.1; see also 12 U.S.C. 3105 (extending the authority of the Federal Reserve Board to federal and state branches and agencies operated by foreign banks).

If the Complaint specifically alleged that BBVA offered to pay interest to Dervin on a checking account, the Court would likely find such a promise to be illegal and unenforceable. "Under both federal and [New York] state law, illegal agreements, as well as agreements contrary to public policy, have long been held to be unenforceable and void." United States v. Bonanno Organized Crime Family of La Cosa Nostra, 879 F.2d 20, 28 (2d Cir. 1989). As this Court recently noted,

a federal court has a duty to determine whether a contract violates federal law before enforcing it. "The power of the federal courts to enforce the terms of private agreements is at all times exercised subject to the restrictions and limitations of the public policy of the United States as manifested in . . . federal statutes. . . . Where the enforcement of private agreements would be violative of that policy it is the obligation of courts to refrain from such exertions of judicial power."
Wechsler v. Hunt Health Sys., Ltd., 216 F. Supp. 2d 347, 354 (S.D.N.Y. 2002) (quoting Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 83-84 (1982)).

It appears, however, that this would present an issue of first impression for the Court as to the enforceability of a contract to provide interest on a business checking account.

The question of whether an agreement is unenforceable because it is illegal or against public policy is ordinarily determined under the state law that governs the contract in question, See Don King Prod., Inc. v. Douglas, 742 F. Supp. 741, 756-58 (S.D.N.Y. 1990); Restatement (Second) of Conflicts of Laws § 202 (1971), in this case, New York law. Where an agreement contravenes a federal statute or regulation, however, the effect of such illegality is, at least initially, a question of federal law. See Kelly v. Kosuga, 358 U.S. 516, 519 (1959) ("Obviously, state law governs in general the rights and duties of sellers and purchasers of goods, and, while the effect of illegality under a federal statute is a matter of federal law, even in diversity actions in the federal courts after Erie R. Co. v. Tompkins, still the federal courts should not be quick to create a policy of nonenforcement of contracts beyond that which is clearly the requirement of the [statute.]") (citations omitted); Sola Elec. Co. v. Jefferson Elec. Co., 317 U.S. 173, 176-77 (1942) ("When a federal statute condemns an act as unlawful the extent and nature of the legal consequences of the condemnation, though left by the statute to judicial determination, are nevertheless federal questions, the answers to which are to be derived from the statute and the federal policy which it has adopted. To the federal statute and policy, conflicting state law and policy must yield. . . . [W]hether the parties to an agreement are in pari delicto is a question of federal, not state, law."); Northern Indiana Pub. Serv. Co. v. Carbon County Coal Co., 799 F.2d 265, 273 (7th Cir. 1986);Mitchell v. Flintkote Co., 185 F.2d 1008, 1011 (2d Cir. 1951) (dismissing action because the contract sued upon contravened an executive order, noting that the executive order "states a federal rule of public policy and federal, not state, law governs its applicability," and that "[t]he 'checker-board' pattern imposed by Erie R. Co. v. Tompkins is necessarily unsuited to matters subject to federal regulation, and hence state law does not control the disposition of suits which, although they are between non-governmental parties and are brought in a federal court on the basis of diversity of citizenship, involve interpretation of application of federal law"). Even if federal law does not render unenforceable an agreement that contravenes a federal statute or regulation, however, it is still possible that an analysis under state law contract principles might require that result. See Lloyd Capital Corp. v. Pat Henchar, Inc., 80 N.Y.2d 124, 128, 603 N.E.2d 246, 248, 589 N.Y.S.2d 396, 398 (1992) (applying New York law to determine whether a loan agreement, which violated Federal Small Business Administration regulations, was unenforceable where federal law did not provide for illegality as a defense to repayment of the loan). Furthermore, where, as here, the agreement in question also potentially violates non-federal law, an analysis of whether the agreement is unenforceable under the applicable state contract law is appropriate. Accordingly, the enforceability of a promise to provide interest on a demand deposit could turn on either federal or state law.

The fact that a contract offends a federal statute or regulation does not, however automatically render it void or unenforceable. Unless the enforcement of a contract would require directing the precise conduct that a statute or regulation makes unlawful, "the courts are to be guided by the overriding general policy . . . of preventing people from getting other people's property for nothing when they are purporting to be buying it."Kaiser Steel Corp., 455 U.S. at 80 (quoting Kelly v. Kosuga, 358 U.S. 516, 520-21 (1959)) (internal quotations omitted). Thus, federal courts often look to (1) whether the statute or regulation in question explicitly provides that contracts in violation thereof are void; and if not (2) whether the interest in enforcement outweighs the public policy against enforcement.See Resolution Trust Corp. v. Home Sav. of America, 946 F.2d 93, 96-97 (8th Cir. 1991) (collecting cases); Northern Indiana Pub. Serv. Co. v. Carbon County Coal Co., 799 F.2d 265, 273 (7th Cir. 1986) ("The best generalization possible is that the defense of illegality, being in character if not origins an equitable and remedial doctrine, is not automatic but requires . . . a comparison of the pros and cons of enforcement."); cf. 8 Williston on Contracts § 19:41 (4th ed. 1993) ("If a statute directly prohibits an agreement or sale, it is clear that the courts will not lend their aid to any attempt by the parties to enforce the agreement. . . . On the other hand, the rule that the courts will not grant aid to either party to an illegal agreement need not be applied where the legislature has not prohibited a certain category of transactions, but only requires that such a transaction be conducted in a certain fashion. . . .").

Similarly, under New York law, as a general rule, illegal contracts are unenforceable. Benjamin v. Koeppel, 85 N.Y.2d 549, 553, 650 N.E.2d 829, 830, 626 N.Y.S.2d 982, 983 (1995);Lloyd Capital Corp. v. Pat Henchar, Inc., 80 N.Y.2d 124, 127, 603 N.E.2d 246, 247, 589 N.Y.S.2d 396, 397 (1992); 22 N.Y. Jur. 2d, Contracts § 162 (1996). "However, the violation of a statute that is merely malum prohibitum [as opposed to malum in se] will not necessarily render a contract illegal and unenforceable. 'If the statute does not provide expressly that its violation will deprive the parties of their right to sue on the contract, and the denial of relief is wholly out of proportion to the requirements of public policy . . . the right to recover will not be denied.'" Benjamin, 85 N.Y.2d at 553, 650 N.E.2d at 830, 626 N.Y.S.2d at 983 (quoting Rosasco Creameries v. Cohen 276 N.Y. 274, 278, 11 N.E.2d 908, 909 (1937)); Lloyd Capital, 80 N.Y.2d at 127, 603 N.E.2d at 247, 589 N.Y.S.2d at 397; see also United States Small Bus. Admin. v. Citibank, N.A., 94 Civ. 4259 (PKL), 1997 WL 45514 at *9-10 (S.D.N.Y. Feb. 4, 1997). In balancing the requirements of public policy with the right to recover on a contract, New York law recognizes the principal that "forfeitures by operation of law are disfavored, particularly where the defaulting party seeks to raise illegality as 'a sword for personal gain rather than a shield for the public good.'"Lloyd Capital, 80 N.Y.2d at 128, 603 N.E.2d at 248, 589 N.Y.S.2d at 398 (quoting Charlebois v. J.M. Weller Assocs., Inc., 72 N.Y.2d 587 at 595, 531 N.E.2d 1288 at 1292, 535 N.Y.S.2d 356 at 360 (1988)). Furthermore, "[a]llowing parties to avoid their contractual obligations is especially inappropriate where there are regulatory sanctions and statutory penalties in place to redress violations of the law." Id.; see also IHS Acquisition XV, Inc. v. Kings Harbor Care Ctr., 98 Civ. 7621 (LBS), 1999 WL 223152 at *3 (S.D.N.Y. April 16, 1999) ("The matter of the enforceability of contracts that do not adhere to all regulations and statutes is a complicated issue [under New York law] that involves a multi-factor analysis [including] whether the statute in question is malum prohibitum or malum in se; what the underlying purpose of the statute is and for whose benefit it was passed, including what the legislative history reveals; whether the statute contains a criminal penalty or other sanction for violation of the law; whether the legislature envisioned that the contract would be null as a result of a violation of the statute; whether voiding the contract is out of proportion with the requirements of public policy; and whether the illegality defense is being used as a 'sword for personal gain' or a 'shield for the public good.'") (internal citations omitted).

The Court need not undertake this analysis, however, because the Complaint merely alleges that BBVA offered to add interest to Dervin's account; it does not allege that BBVA offered to provide Dervin with a checking account or demand deposit that would earn interest. BBVA's argument to the contrary fails for two reasons: First, the mere fact, alleged in the Complaint, that Dervin's account did not earn interest for five years does not necessarily establish that the account was a checking account. Second, and more importantly, the offer to add interest alleged in the Complaint does not specify or require that the account retain its status as a checking account. Cf. Frouge Corp. v. Chase Manhattan Bank, N.A., 426 F. Supp. 794, 796-97 (S.D.N.Y. 1976) (determining on summary judgment that the account sued upon was a checking account based on the parties' use of standardized form documents designed for checking accounts as well as the fact that no agreement to pay interest was made and no interest was paid on the account for ten years). There are any number of ways this alleged promise could have been performed legally, that is, without violating banking provisions discussed above, and there is no information in the Complaint that necessitates the reading advanced by defendant.

Because the Court is limited on a Rule 12(b)(6) motion to dismiss to considering the law in light of the facts alleged in the Complaint, and because the Court must construe the Complaint in the light most favorable to the plaintiff, adopting defendant's interpretation of the Complaint would be inappropriate at this point. Furthermore, defendant's argument that illegality bars enforcement of the alleged agreement is properly regarded as an affirmative defense, which ordinarily would be pleaded in an answer, not a pre-answer motion to dismiss. See Fed.R.Civ.P. 8(c). A pre-answer motion to dismiss based upon an affirmative defense may be granted only where the facts giving rise to the defense are clearly apparent on the face of the complaint. Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 74 (2d Cir. 1998); IHS Acquisition XV, 1999 WL 223152 at *2; 5 Wright Miller, Federal Practice and Procedure § 1277, at 468 (1990) ("When there is no disputed issue of fact raised by an affirmative defense, or the facts are completely disclosed on the face of the pleadings, and nothing further can be developed by pretrial discovery or a trial on the issue, the recent cases seem to agree that the matter may be disposed of by a motion to dismiss."). This is not the case here, thus defendant's Rule 12(b)(6) motion to dismiss the contract claims is denied.

2. Counts III, IV and V: Fraudulent Misrepresentation, Conversion, and Unjust Enrichment

Based on essentially the same facts alleged in its breach of contract claims, Dervin seeks recovery on the alternative grounds of fraudulent misrepresentation, conversion, and unjust enrichment. With regard to Dervin's unjust enrichment claim, defendant argues that this claim must be dismissed because Dervin had no legal right to the accrued interest. This position relies on the argument, rejected by the Court, that the offer to apply interest to Dervin's account alleged in the Complaint was illegal and therefore unenforceable. Accordingly, BBVA's motion to dismiss Count V pursuant to Rule 12(b)(6) must also be denied. The Court need not, however, look beyond the four corners of the Complaint to determine that Count III, fraudulent misrepresentation, and Count IV, conversion, are without merit. Therefore, defendant's Rule 12(b)(6) motion to dismiss is granted as to Counts III and IV.

Defendant argues that plaintiff's fraudulent misrepresentation and conversion claims must be dismissed as a matter of law because they are duplicative of plaintiff's breach of contract claims. In general, to make out a claim of fraudulent misrepresentation, a plaintiff must show "(1) that [the defendant] made a misrepresentation (2) as to a material fact (3) which was false (4) and known to be false by [the defendant] (5) that was made for the purpose of inducing [the plaintiff] to rely on it (6) that [the plaintiff] rightfully did so rely (7) in ignorance of its falsity (8) to his injury." Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994) (quoting Murray v. Xerox Corp., 811 F.2d 118, 121 (2d Cir. 1987)). It is well settled under New York law, however, that "a cause of action for fraud will not arise when the only fraud charged relates to a breach of contract." Airlines Reporting Corp. v. Aero Voyagers, Inc., 721 F. Supp. 579, 582 (S.D.N.Y. 1989) (quoting Trusthouse Forte (Garden City) Mgt., Inc. v. Garden City Hotel, Inc., 106 A.D.2d 271, 272, 483 N.Y.S.2d 216, 218 (1st Dep't 1984)). Thus, a fraud claim based solely on the failure to perform a contractual promise fails to state a cause of action. MCI Worldcom Communications, Inc. v. North American Communications Control, Inc., 98 Civ. 6818 (LTS) 2003 WL 21279446 at *8 (S.D.N.Y. June 4, 2003); Rotter v. Institutional Brokerage Corp., 93 Civ. 3578 (JFK), 1994 WL 389083 at *3 (S.D.N.Y. July 22, 1994); Airlines Reporting Corp. v. Aero Voyagers, Inc., 721 F. Supp. 579, 582 (S.D.N.Y. 1989); Cranston Print Works Co. v. Brockmann Int'l A.G., 521 F. Supp. 609, 614 (S.D.N.Y. 1981). To maintain a distinct claim for fraud, "a plaintiff must allege: (1) a legal duty separate and apart from the contractual duty to perform, (2) a fraudulent representation collateral or extraneous to the contract, or (3) special damages proximately caused by the fraudulent representation that are not recoverable under the contract measure of damages." Papa's-June Music, Inc. v. McLean, 921 F. Supp. 1154, 1161 (S.D.N.Y. 1996) (citations omitted).

In response to defendant's argument on this point, plaintiff blithely states that it has a right to pursue alternative theories of liability in its Complaint. As the above case law makes clear, however, no such right exists for a redundant claim of fraud based solely on the breach of an alleged promise to perform future acts. Because Dervin's fraudulent misrepresentation claim does little more than reiterate its breach of contract claim and seeks the same $211,662.93 that is allegedly owed under the agreement to pay interest, it clearly fails under New York law.

In a footnote, defendant argues that because plaintiff's fraudulent misrepresentation claim seeks only economic damages, it is also barred by New York's economic loss rule. This rule restricts plaintiffs "who have suffered 'economic loss,' but not personal or property injury, to an action for the benefit of their bargain. If the damages are the type remedial in contract, a plaintiff may not recover in tort." Carmania Corp., N.V. v. Hambrecht Terrell Int'l, 705 F. Supp. 936, 938 (S.D.N.Y. 1989). Thus, even where a plaintiff has alleged a breach of duty by the defendant separate and distinct from the duty to perform a contract, a tort claim will nevertheless fail if the damages sought are recoverable in contract. Id. As recently noted by Judge Sweet, however, "'[t]he general rule under New York law is that economic loss is not recoverable under a theory of negligence or strict liability,' it is not clear that this same rule extends to tort claims sounding in fraud brought under New York law. The parties have not cited to any case in the New York courts applying the economic loss doctrine to an intentional tort, nor has one been found by the Court." Computech Intern., Inc. v. Compaq Computer Corp., 02 Civ. 2628 (RWS), 2004 WL 1126320 at *10 (S.D.N.Y. May 21, 2004) (quoting American Tel. Tel., Co. v. New York Human Res. Admin., 833 F. Supp. 962, 982 (S.D.N.Y. 1993)). But cf. Shred-It USA, Inc. v. Mobile Data Shred, 222 F. Supp. 2d 376, 379 (S.D.N.Y. 2002) (dismissing fraud claim based on the economic loss doctrine but citing only to authority applying the doctrine to strict liability and negligence); Orlando v. Novurania of America, Inc., 162 F. Supp. 2d 220, 226 n. 2 (S.D.N.Y. 2001). Given the paucity of briefing by the parties on the issue and the absence of a definitive statement from the New York courts extending the doctrine to fraud claims, the Court declines to adopt the economic loss rule as an additional ground for dismissing Count III.

Similarly, plaintiff's conversion claim, predicated on defendant's allegedly wrongful seizure and possession of the accrued interest is merely duplicative of defendant's contract claim. See Richbell Information Services, Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288, 306, 765 N.Y.S.2d 575, 590 (1st Dep't 2003) ("We are not persuaded by [the] argument that conversion is a wrong qualitatively different from a mere breach of contract, so that it is not duplicative; such reasoning would resuscitate every redundant tort claim, regardless of its theory."); Wolf v. National Council of Young Israel, 264 A.D.2d 416, 417, 694 N.Y.S.2d 424, 425 (2d Dep't 1999) (dismissing conversion counterclaim based upon allegations that the plaintiff improperly deducted late fees from defendant's monthly mortgage payments in a manner not authorized by the mortgage agreements because the counterclaim did not stem from a wrong independent of the alleged breach of the mortgage agreements); see also Wechsler v. Hunt Health Sys., Ltd., 94 Civ. 8294 (PKL), 2004 WL 1801318 at *3 (S.D.N.Y. Aug. 11, 2004). Accordingly, Counts III and IV are dismissed for failure to state a claim.

Defendant also argues that the conversion claim must be dismissed under Rule 12(b)(6) because Dervin lacked any right to the accrued interest. Because this argument also rests on plaintiff's contention that the alleged agreement to apply interest to Dervin's account was illegal and therefore unenforceable, it fails as an additional ground for dismissal at the 12(b)(6) stage.

B. Defendant's Motion for Summary Judgment

Although defendant's Rule 12(b)(6) motion for dismissal only succeeds as to Counts III and IV, its motion for summary judgment provides grounds for dismissing the Complaint in its entirety. Defendant's Local Civil Rule 56.1 Statement together with defendant's supporting declarations and documentary evidence establish that no promise to pay interest was, in fact, ever made to Dervin and that the addition of interest to the account was the result of a clerical error. Dervin's response fails to raise any doubt as to these facts, and accordingly, BBVA is entitled to judgment as a matter of law absolving it of liability on all counts contained in the Complaint.

1. The Summary Judgment Standard

"A party against whom a claim . . . is asserted . . . may, at any time, move with or without supporting affidavits for a summary judgment in the party's favor. . . ." Fed.R.Civ.P. 56(b). A moving party is entitled to summary judgment if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Holt v. KMI-Continental Inc., 95 F.3d 123, 128 (2d Cir. 1996). The substantive law underlying a claim determines if a fact is material and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted."Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When considering the motion, "the judge's function is not himself to weigh the evidence and determine truth of the matter but to determine whether there is a genuine issue for trial." Id. at 249; see also Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986).

In determining whether genuine issues of material fact exist, the Court must resolve all ambiguities and draw all justifiable inferences in favor of the nonmoving party. See Anderson, 477 U.S. at 255; Holt, 95 F.3d at 129. The moving party bears the burden of demonstrating that no genuine issue of material fact exists. See Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970); Gallo v. Prudential Residential Serv. L.P., 22 F.3d 1219, 1223-24 (2d Cir. 1994). "[T]he movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim." Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995). Once the moving party discharges his burden of demonstrating that no genuine issue of material fact exists, the burden shifts to the nonmoving party to offer specific evidence showing that a genuine issue for trial exists. See Celotex, 477 U.S. at 324. "Conclusory allegations will not suffice to create a genuine issue. There must be more than a 'scintilla of evidence,' and more than 'some metaphysical doubt as to the material facts.'" Delaware Hudson Ry. Co. v. Conrail, 902 F.2d 174, 178 (2d Cir. 1990) (quoting Anderson, 477 U.S. at 252, and Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). In other words, "[t]he non-movant cannot escape summary judgment merely by vaguely asserting the existence of some unspecified disputed material facts, or defeat the motion through mere speculation of conjecture." Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990) (quotations omitted). "A 'genuine' dispute over a material fact only arises if the evidence would allow a reasonable jury to return a verdict for the nonmoving party." Dister v. Cont'l Group, 859 F.2d 1108, 1114 (2d Cir. 1988) (citing Anderson, 477 U.S. at 248).

2. Defendant's Uncontroverted Rule 56.1 Statement

In support of its motion, defendant has properly submitted a statement of the allegedly undisputed facts on which it relies in accordance with the Local Civil Rules of the United States Courts for the Southern and Eastern Districts of New York. See Local Civ. R. 56.1. Defendant's Rule 56.1 Statement sets forth, inter alia, the following material facts: In December 1994, Dervin opened a business checking account at the New York branch of BBVA; this account did not earn interest from December 1994 through September 1999. (Def.'s 56.1 Statement ¶ 1-2.) In or about October 1999, BBVA transferred this account from its Private Banking Department ("Private Banking") to its Corporate Banking Department ("Corporate Banking"), (Id. ¶ 4); however, there was no oral or written agreement between BBVA and Dervin providing for the payment of interest on the Dervin Account. (Id. ¶¶ 7-8.) Rather, interest credits were added to Dervin's account as the result of a computer-entry error made by BBVA personnel in the course of transferring Dervin's account from Private Banking to Corporate Banking. (Id. ¶ 11.) This error led to BBVA crediting monthly interest payments to Dervin's account calculated at the rate of three percent over the Federal Reserve's Prime Rate, totaling $211,662.93 from October 1999 through July 2001. (Id. ¶¶ 9-10.) As of August 2001, Dervin had not withdrawn any of the interest from the account nor had it transferred any of the interest to a third party. (Id. ¶ 13.) At that time, BBVA deducted the interest credits from Dervin's account and notified Dervin that the interest credits had been added by mistake. (Id. ¶¶ 12, 14.)

Dervin disputes several of these assertions in its Memorandum of Law. In particular, it claims that the interest credits were not a mistake but, rather, were agreed upon by the parties, (Pl.'s Opp. at 10); however, it has failed to include its own counter statement of material facts as required by Local Civil Rule 56.1(b). Furthermore, Dervin has not submitted any affidavits or documentary evidence supporting its opposition; nor has it asserted a need for discovery in order to contest defendant's motion.

Local Civil Rule 56.1(b) requires a party opposing summary judgment to "include a separate, short and concise statement of the material facts as to which it is contended that there exists a genuine issue to be tried." Importantly, if such a counter statement is not filed, the facts in the moving parties Rule 56.1 statement are deemed admitted by the opposing party. Local Civ. R. 56.1(c); see Gubitosi v. Kapica, 154 F.3d 30, 31 n. 1 (2d Cir. 1998) (stating that because of non-movant's failure to file a counter Rule 56.1 statement, material facts in movant's Rule 56.1 statement are deemed admitted); Maresco v. Evans Chemetics Div., 964 F.2d 106, 111 (2d Cir. 1992) ("Because [non-movant] did not respond to [movant's Rule 56.1 statement], [Rule 56.1] requires that they be deemed to be admitted for purposes of summary judgment.") (footnote and internal quotations omitted);Dusanenko v. Maloney, 726 F.2d 82, 84 (2d Cir. 1984); Beckman v. United States Postal Service, 79 F. Supp. 2d 394, 396 n. 2 (S.D.N.Y. 2000); see also Fed R. Civ. P. 56(e) ("When a motion for summary judgment is made and supported as provided for in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party."). The Second Circuit, however, recently made it clear in Giannullo v. City of New York, 322 F.3d 139, 140-43 (2d Cir. 2003), that a district court must ensure that there is support in the record for unopposed Rule 56.1 statements before accepting them as true. "[U]nsupported assertions must . . . be disregarded and the record independently reviewed." Id. at 140; see also Vermont Teddy Bear Co., Inc. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir. 2004) (McLaughlin, J.) ("[I]n determining whether the moving party has met [its] burden of showing the absence of a genuine issue for trial, the district court may not rely solely on the statement of undisputed facts contained in the moving party's Rule 56.1 statement. It must be satisfied that the citation to evidence in the record supports the assertion.").

There is ample support in the record for BBVA's Rule 56.1 Statement. In particular, Juliet Portela, the BBVA employee allegedly responsible for the promise to pay interest on Dervin's account, states in her declaration:

Dervin Corporation held an account in BBVA's Private Banking Department from 1994 until October 1999. I occasionally spoke to representatives of Dervin about their business checking account, number 9000001019. However, I never had any conversations or negotiations with Dervin concerning the terms and conditions of their account, including credit or debit interest. They never asked me to "add interest" to the account or to make any arrangements for the payment of interest. If they had made such a request, I would have referred them to my supervisors, because I did not have the authority to make any changes to customers' accounts.

(Decl. of Juliet Portela of Jan. 14, 2004 ¶ 3.). Furthermore, the source of the interest payments to Dervin is explained in the declaration of Ignacio Garijo-Garde, the Chief Operating office for BBVA's New York branch. Mr. Garijo-Garde states that in reassigning Dervin's account to Corporate Banking, the computer code for interest payable by the account holder for account overdrafts, or "debit interest," and the code for interest payable to the account holder for account deposits, or "credit interest," were mistakenly reversed. Thus, Dervin's account was assigned a debit interest rate of zero percent, which would ordinarily be the credit interest rate for a business checking account, and a credit interest rate of prime plus three percent, which would ordinarily be the debit interest rate for a business checking account. As a result, beginning in October 1999, the computer system at BBVA generated account statements reflecting interest payments to Dervin at a rate of approximately eleven percent. (Decl. of Ignacio Garijo-Garde of Jan. 14, 2004 ¶¶ 8-9.) In contrast, during the period in question from 1999 through 2001, interest-bearing money market accounts for comparable customers paid at a rate of approximately five percent. (Id. ¶ 10.) These declarations, along with the documentary evidence submitted by BBVA, including bank records, account statements, and correspondence between the parties, provide overwhelming support for the statements in Defendant's 56.1 statement.

Accordingly, BBVA has met its burden of establishing that there is no genuine issue of material fact to be tried in this case. It is clear from BBVA's submissions that there was no offer or agreement by BBVA to pay interest on Dervin's account; the account remained a business checking account throughout its existence; and the interest payments on the account resulted from a clerical error. Plaintiff, in response, has failed to raise any genuine issue of material fact, and, indeed, by failing to file a Rule 56.1 statement, has admitted the facts put forth by defendant's statement. Because there was no agreement or representation that interest would accrue on the account, and because, as discussed above, interest may not lawfully be paid on a checking account, Dervin has no legal interest in the accrued interest payments. Furthermore, under New York law a bank is entitled to recover credits mistakenly applied to an account, provided the payee has not changed position in detrimental reliance upon the mistaken credit. See Bank Saderat Iran v. Amin Beydoun, Inc., 555 F. Supp. 770, 773-74 (1983) ("Under New York law, a party who has made a mistaken payment to another based upon a unilateral mistake of fact may recover the payment unless the payee has changed his position to his detriment in reliance upon the mistaken payment."); Mfrs. Trust Co. v. Diamond, 17 Misc. 2d 909, 909-10, 186 N.Y.S.2d 917, 919 (1st Dep't 1959); Turetsky v. Morris Plan Indus. Bank of New York, 22 N.Y.S.2d 514, 515 (2d Dep't 1936); Citibank, N.A. v. Warner, 113 Misc. 2d 748, 750, 449 N.Y.S.2d 822, 823-24 (Sup.Ct. 1981). There has been no such detrimental change of position by Dervin. Compare Bank Saderat Iran, 555 F. Supp. at 774 (finding detrimental reliance where payee, after receiving a mistaken payment of $24,950 from bank, sent $24,950 in merchandise to a customer that subsequently went out of business and could not pay for the goods), with Citibank, 113 Misc. 2d at 750, 449 N.Y.S.2d at 824 (no detrimental reliance where payee wrote multiple checks to her relatives drawing on mistakenly credited funds). As a result, defendant is entitled to summary judgment as to each of the counts in the Complaint.


For the foregoing reasons, defendant's Rule 12(b)(6) motion to dismiss is GRANTED as to Counts III and IV of the Complaint and DENIED as to Counts I, II and V. Defendant's motion for summary judgment, however, is HEREBY GRANTED as to ALL COUNTS in the Complaint so that the action is HEREBY DISMISSED in its ENTIRETY.


Summaries of

Dervin Corp. v. Banco Bilbao Vizcaya Argentaria, S.A.

United States District Court, S.D. New York
Aug 27, 2004
No. 03 Civ. 9141 (PKL) (S.D.N.Y. Aug. 27, 2004)
Case details for

Dervin Corp. v. Banco Bilbao Vizcaya Argentaria, S.A.

Case Details


Court:United States District Court, S.D. New York

Date published: Aug 27, 2004


No. 03 Civ. 9141 (PKL) (S.D.N.Y. Aug. 27, 2004)

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