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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
(Alexandria Division)
BLUE FLAME MEDICAL LLC,
Plaintiff,
v.
CHAIN BRIDGE BANK, N.A., JOHN J.
BROUGH, and DAVID M. EVINGER,
Defendants.
Civil Action No. 1:20-cv-00658
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS
July 20, 2020
ROBBINS, RUSSELL, ENGLERT, ORSECK,
UNTEREINER & SAUBER LLP
Gary A. Orseck (admitted pro hac vice)
Matthew M. Madden (admitted pro hac vice)
Donald Burke (VA Bar No. 76550)
Megan D. Browder (admitted pro hac vice)
2000 K Street, N.W., 4th Floor
Washington, D.C. 20006
Tel: (202) 775-4500
Fax: (202) 775-4510
dburke@robbinsrussell.com
Counsel for Defendants
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TABLE OF CONTENTS
Page
Introduction ..................................................................................................................................... 1
Background:
A. Michael Gula And John Thomas Form Blue Flame ................................................. 5
B. California Sends, Then Cancels, Its $456 Million Wire Transfer ............................. 6
C. Blue Flame’s Claims ................................................................................................. 8
Legal Standard ................................................................................................................................ 9
Argument:
I.
Blue Flame Does Not State A Claim For A Violation Of UCC Section 4A-404(a)
(Count I) ........................................................................................................................... 9
II. Blue Flame Does Not State A Claim For A Violation Of UCC Section 4A-204(a)
(Count II) ........................................................................................................................ 11
III. Blue Flame Does Not State A Claim For Conversion (Count III) ................................. 12
A. As A General Depositor, Blue Flame Could Not Acquire A Right To
Possession Of Particular Funds ............................................................................... 13
B. Blue Flame Had No Right To Possession Of Any Funds Because Payment
Was Not Complete .................................................................................................. 14
IV. Blue Flame Fails To State A Claim For Breach Of Contract (Count X) ....................... 15
A. Blue Flame Does Not Plead A Breach Of Any Contractual Obligation ................. 16
B. Blue Flame’s Breach Of Contract Theory Is Preempted By Federal Law .............. 17
V. Blue Flame Fails To State A Fraud Claim (Counts VI and VII) .................................... 18
VI. Blue Flame Fails To State Defamation, Tortious Interference, Or Negligence
Claims Premised On Defendants’ Alleged Statements To California Officials
(Counts IV, V, VIII, And IX) ......................................................................................... 20
A. The Allegation That Defendants Stated A Fraud Concern To California Is
Implausible And Not Supported By The Reports Blue Flame Cites ....................... 20
B. The Complaint Otherwise Fails To State A Defamation Claim .............................. 21
C. The Complaint Otherwise Fails To State Tortious Interference Claims ................. 25
D. The Complaint Otherwise Fails To State A Negligence Claim .............................. 26
Conclusion .................................................................................................................................... 28
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TABLE OF AUTHORITIES
Cases:
Page
Adler v. Virginia Commonwealth Univ., 259 F. Supp. 3d 395 (E.D. Va. 2017),
aff’d, 709 Fed. Appx. 189 (4th Cir. 2018) .........................................................................24
Airlines Reporting Corp. v. Pishvaian,
155 F. Supp. 2d 659 (E.D. Va. 2001) ................................................................................12
Ashcroft v. Iqbal,
556 U.S. 662 (2009) .............................................................................................................9
Barber & Ross Co. v. Wachovia Bank Nat’l Ass’n, Adv. No. 09-05083,
2010 Bankr. LEXIS 6293 (Bankr. W.D. Va. Apr. 5, 2010) ........................................16, 27
Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) .............................................................................................................9
Bernardini v. Central Nat’l Bank of Richmond,
290 S.E.2d 863 (Va. 1982)...........................................................................................12, 13
Blatt v. Pambakian,
432 F. Supp. 3d 1141 (C.D. Cal. 2020) ...............................................................................8
Cashion v. Smith,
749 S.E.2d 526 (Va. 2013).................................................................................................24
Commerce Funding Corp. v. Worldwide Sec. Servs. Corp.,
249 F.3d 204 (4th Cir. 2001) .......................................................................................25, 26
De Vera v. Bank of Am., N.A.,
No. 2:12cv17, 2012 WL 2400627 (E.D. Va. June 25, 2012).............................................16
Doe v. Roe,
295 F. Supp. 3d 664 (E.D. Va. 2018) ................................................................................23
Donmar Enters., Inc. v. Southern Nat’l Bank of N.C.,
64 F.3d 944 (4th Cir. 1995) .................................................................................................6
Duggin v. Adams,
360 S.E.2d 832 (Va. 1987).................................................................................................25
DurretteBradshaw, P.C. v. MRC Consulting, L.C.,
670 S.E.2d 704 (Va. 2009).................................................................................................25
Case 1:20-cv-00658-LMB-IDD Document 19 Filed 07/20/20 Page 3 of 37 PageID# 77
iii
Cases—Continued:
Page
Echtenkamp v. Loudon Cty. Pub. Schs.,
263 F. Supp. 2d 1043 (E.D. Va. 2003) ..............................................................................24
Edwards v. Schwartz,
378 F. Supp. 3d 468 (W.D. Va. 2019) ...............................................................................22
Eisenberg v. Wachovia Bank, N.A.,
301 F.3d 220 (4th Cir. 2002) .............................................................................................18
Enomoto v. Space Adventures, Ltd.,
624 F. Supp. 2d 443 (E.D. Va. 2009) ................................................................................19
Feeley v. Total Realty Mgmt.,
660 F. Supp. 2d 700 (E.D. Va. 2009) ..............................................................................8, 9
First Sec. Bank of N.M., N.A. v. Pan Am. Bank,
215 F.3d 1147 (10th Cir. 2000) .........................................................................................14
Foreign Mission Bd. of S. Baptist Convention v. Wade,
409 S.E.2d 144 (Va. 1991).................................................................................................27
Fundacion Museo de Arte Contemporaneo de Caracas v. CBI-TDB Union
Bancaire Privee, 160 F.3d 146 (2d Cir. 1998) ..................................................................13
General Prods. Co. v. Meredith Corp.,
526 F. Supp. 546 (E.D. Va. 1981) .....................................................................................26
GIV, LLC v. IBM,
No. 3:07CV067-HEH, 2007 WL 1231443 (E.D. Va. Apr. 24, 2007) ...............................19
Glaser v. Enzo Biochem, Inc.,
464 F.3d 474 (4th Cir. 2006) .............................................................................................18
Gold v. Merrill Lynch & Co.,
No. 09-318-PHX-JAT, 2009 WL 2132698 (D. Ariz. July 14, 2009) ................................11
Goulmamine v. CVS Pharmacy, Inc.,
138 F. Supp. 3d 652 (E.D. Va. 2015) ..........................................................................21, 25
Government Micro Res., Inc. v. Jackson,
624 S.E.2d 63 (Va. 2006)...................................................................................................23
Guill v. Academy Life Ins. Co.,
No. 89-1509, 1991 WL 105502 (4th Cir. June 19, 1991) ..................................................13
Jarrett v. Goldman,
67 Va. Cir. 361 (2005) .......................................................................................................24
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Cases—Continued:
Page
JTH Tax, Inc. v. Hines, No. 2:15cv558, 2018 WL 1135558 (E.D. Va. Mar. 2,
2018), aff’d, 740 Fed. Appx. 49 (4th Cir. 2018) ..........................................................15, 16
Kancor Ams., Inc. v. ATC Ingredients, Inc.,
No. 1:15-cv00589-GBL-IDD, 2016 WL 740061 (E.D. Va. Feb. 25, 2016) ......................13
Ma v. Merrill Lynch, Inc.,
597 F.3d 84 (2d Cir. 2010).................................................................................................11
Mayfield v. NASCAR, Inc.,
674 F.3d 369 (4th Cir. 2012) .......................................................................................23, 24
NationsBank of Virginia, N.A. v. Mahoney,
No. 119920, 1993 WL 946352 (Va. Cir. Ct. Dec. 6, 1993) ...............................................27
Owen v. Liberty Univ., No. 6:19-cv-00007, 2020 WL 1856798 (W.D. Va. Apr. 13,
2020), appeal pending, No. 20-1596 (4th Cir., docketed May 28, 2020) ..........................24
Papasan v. Allain,
478 U.S. 265 (1986) .............................................................................................................9
Potomac Valve & Fitting Inc. v. Crawford Fitting Co.,
829 F.2d 1280 (4th Cir. 1987) ...........................................................................................22
Professional Recovery Servs., Inc. v. General Elec. Capital Corp.,
642 F. Supp. 2d 391 (D.N.J. 2009) ....................................................................................24
Raub v. Bowen,
960 F. Supp. 2d 602 (E.D. Va. 2013) ..........................................................................20, 21
Regatos v. North Fork Bank,
838 N.E.2d 629 (N.Y. 2005) ..............................................................................................11
Richmond Metro. Auth. v. McDevitt St. Bovis, Inc.,
507 S.E. 2d 344 (Va. 1998)................................................................................................19
Sales v. Kecoughtan Hous. Co.,
690 S.E.2d 91 (Va. 2010)...................................................................................................18
Schaecher v. Bouffault,
772 S.E.2d 589 (Va. 2015).....................................................................................21, 22, 23
Sheerbonnet, Ltd. v. American Express Bank, Ltd.,
951 F. Supp. 403 (S.D.N.Y. 1995).....................................................................................17
Shirvinski v. United States Coast Guard,
673 F.3d 308 (4th Cir. 2012) .......................................................................................25, 27
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Cases—Continued:
Page
Stone Castle Fin. Inc. v. Friedman, Billings, Ramsey & Co.,
191 F. Supp. 2d 652 (E.D. Va. 2002) ................................................................................19
Sunrise Continuing Care, LLC v. Wright,
671 S.E.2d 132 (Va. 2009).................................................................................................15
SuperValu, Inc. v. Johnson,
666 S.E.2d 335 (Va. 2008).................................................................................................19
United States v. Zarrab, No. 15 CR 867 (RMB),
2016 WL 6820737 (S.D.N.Y. Oct. 17, 2016) ......................................................................4
Universal C.I.T. Credit Corp. v. Kaplan,
92 S.E.2d 359 (Va. 1956)...................................................................................................12
Van Leer v. Deutsche Bank Sec., Inc.,
479 Fed. Appx. 475 (4th Cir. 2012) ...................................................................................27
Veney v. Wyche,
293 F.3d 726 (4th Cir. 2002) .............................................................................................21
Virginia Citizens Def. League v. Couric,
910 F.3d 780 (4th Cir. 2018) .............................................................................................22
Williams v. Dickenson Cty. Bank,
7 S.E.2d 885 (Va. 1940) .....................................................................................................13
Wolf v. FNMA, 830 F. Supp. 2d 153 (W.D. Va. 2011),
aff’d, 512 Fed. Appx. 336 (4th Cir. 2013) .........................................................................16
Statutes, regulations, and rule:
12 U.S.C. § 4002(a)(1)(B) .......................................................................................................14
Uniform Commercial Code:
§ 4A-102 ............................................................................................................................18
§ 4A-102 cmt. ....................................................................................................................17
§ 4A-103(a)(1) .....................................................................................................................7
§ 4A-104(a) ..........................................................................................................................7
§ 4A-204(a) ..................................................................................................................10, 11
§ 4A-211(c) ........................................................................................................................10
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Statutes, regulations, and rule—Continued:
Page
§ 4A-211(e) ..................................................................................................................10, 18
§ 4A-404(a) ..................................................................................................................10, 14
§ 4A-405(a) ........................................................................................................................14
12 C.F.R.:
pt. 210:
subpt. B, app. A............................................................................................................17
§§ 210.25-210.32 ...........................................................................................................6
§ 210.25........................................................................................................................17
§ 210.25(b)(1) ................................................................................................................6
§ 210.25(b)(4) ..............................................................................................................14
pt. 229 ................................................................................................................................14
Fed. R. Civ. P. 9(b) ..................................................................................................................19
Miscellaneous:
California State Assembly, Accountability & Administrative Review Comm.,
Hearing Video Recording (May 11, 2020) ................................................................3, 8, 21
Dan B. Dobbs et al., The Law of Torts § 657 (2d ed. 2020) ....................................................26
In re Deutsche Bank AG, Consent Order Under N.Y. Banking Law §§ 39 and 44
(July 6, 2020), ......................................................................................................................4
FBI Press Release, FBI Warns Health Care Professionals of Increased Potential
for Fraudulent Sales of COVID-19-Related Medical Equipment (Mar. 27,
2020) ....................................................................................................................................4
81 Fed. Reg. 29,401 (2016) .......................................................................................................4
House Comm. on Energy & Commerce, Pallone & Degette: E&C Will Open
Inquiry Into Blue Flame Medical LLC (May 12, 2020),......................................................2
Kenneth P. Vogel, Firm Set Up by G.O.P. Operatives Under Scrutiny Over Virus
Contracts, N.Y. Times (May 6, 2020) .................................................................................2
Restatement (Second) of Torts (1965) ............................................................................. passim
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Miscellaneous—Continued:
Page
Tom Hamburger & Juliet Eilperin, Justice Department Investigates Blue Flame
Medical After Claims That It Failed to Provide Masks to Maryland, Wash.
Post (May 6, 2020) ...............................................................................................................2
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Defendants Chain Bridge Bank, N.A., John J. Brough, and David M. Evinger submit this
memorandum in support of their motion to dismiss Plaintiff’s Complaint.
INTRODUCTION
As the COVID-19 pandemic began to wreak havoc in mid-March 2020, states scrambled
to obtain N95 masks and other personal protective equipment (PPE). As has been widely reported,
states competed intensely to purchase scarce supplies for medical personnel, first responders, and
others on the front lines.
This case involves just such a transaction. On March 26, 2020, the state of California,
acting through its bank, JPMorgan Chase Bank, N.A. (JPMorgan), originated a wire transfer for
$456,888,600 to Chain Bride Bank, N.A (Chain Bridge, or the Bank) for the benefit of Blue Flame
Medical LLC (Blue Flame). The wire was supposed to be California’s down payment on a $609
million purchase of 100 million N95 masks. Chain Bridge knew, however, that Blue Flame had
come into existence only three days earlier and had opened its bank account just the previous day.
The Bank also understood that the brand-new company was run by a pair of political fundraisers,
not by medical supply professionals. And it knew that one of Blue Flame’s principals had been
champing at the bit to get Chain Bridge to wire California’s money back out the door just as soon
as it came in.
To say the least, receiving nearly half a billion dollars earmarked for a three-day-old
company raised concerns at Chain Bridge, as well as at California’s own bank, JPMorgan. And
so Chain Bridge officials spoke with California officials and with their counterparts at JPMorgan—
as any responsible bank would have done under the circumstances. Chain Bridge confirmed that
Blue Flame’s bank account had been opened just the day before by principals whose background
was in politics. Within hours, California officials and JPMorgan requested the return of the wired
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funds, and Chain Bridge accommodated that request. Since then, Blue Flame’s dealings with
California and other states have become the subject of a federal criminal investigation, multiple
state investigations, and an inquiry by the Oversight and Investigations Subcommittee of the House
Energy and Commerce Committee.1
Blue Flame has now filed this Complaint, hoping to extract an enormous windfall, at Chain
Bridge’s expense, by contending that Chain Bridge must pay on the wire despite having agreed to
California and JPMorgan’s request to cancel the wire and return the funds. The suggestion is that
Chain Bridge—a mere conduit for transferring payment to Blue Flame—violated the Uniform
Commercial Code (UCC) and should be held responsible for California and JPMorgan’s decision to
cancel the wire.
The Complaint further charges that Defendants’ actions—speaking with California
officials and then accommodating the request to cancel the wire transfer—“significantly harmed
Blue Flame’s business and the reputations of Blue Flame and its principals.” Compl. ¶ 7.
According to the Complaint, all of Blue Flame’s ills can be traced back to the Defendants’ actions:
By a cascading chain reaction, the failure of the transaction with California (which Blue Flame
insists would otherwise have gone off without a hitch) diminished the company’s standing with
other customers and led to adverse press and government investigations. Id. ¶ 5.
In the weeks since the Complaint’s filing, however, that narrative has unraveled.
According to Blue Flame’s own response to congressional investigators, the company consistently
1 See, e.g., Tom Hamburger & Juliet Eilperin, Justice Department Investigates Blue Flame
Medical After Claims That It Failed to Provide Masks to Maryland, Wash. Post (May 6, 2020),
https://tinyurl.com/BlueFlameWP; Kenneth P. Vogel, Firm Set Up by G.O.P. Operatives Under
Scrutiny Over Virus Contracts, N.Y. Times (May 6, 2020), https://tinyurl.com/BlueFlameNYT;
House Comm. on Energy & Commerce, Pallone & Degette: E&C Will Open Inquiry Into Blue
Flame Medical LLC (May 12, 2020), https://tinyurl.com/BlueFlameEC.
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failed to fulfill orders for PPE placed in late March and early April. See Letter from Howard
Waltzman to Hon. Frank Pallone, Jr. & Hon. Diana DeGette 4-9 (June 22, 2020) (attached hereto
as Exhibit A). Blue Flame attributes those failures to Chinese export restrictions, to Blue Flame’s
China-based supplier, and to other market and supply-chain disruptions—not anything to do with
Defendants. Id. at 2, 4-9. For eighteen such transactions, Blue Flame was forced to issue a full
refund after failing to meet its customers’ requirements, and Blue Flame issued a partial refund in
three other cases. Id. Blue Flame also remains mired in a dispute with Maryland after failing to
deliver a single one of the 1.55 million N95 masks that Maryland ordered on April 1. Id. at 4-5.
Under these circumstances, the notion that the cancellation of California’s wire transfer was what
prevented Blue Flame from fulfilling an order that was more than 6000 percent larger is incredible,
to put it mildly.2
But all of that is beside the point for present purposes, because Blue Flame’s Complaint is
dismissible on its face. Blue Flame’s primary theory, advanced in Count I of the Complaint, is
that Chain Bridge remains liable to pay on California’s wire transfer. That claim fails as a matter
of law because the wire transfer was cancelled, and Blue Flame thus has no right to demand
payment. Nor is there any merit to Blue Flame’s motley collection of tacked-on counts. The
Complaint does not plausibly state a claim that Chain Bridge accepted an unauthorized instruction
to transfer funds from Blue Flame’s account (Count II), and it does not state a claim for conversion
2 In testimony before the California legislature, the Director of California’s Office of
Emergency Services explained that Blue Flame had “indicated that they had 100 million N95
masks in the port of Long Beach.” California State Assembly, Accountability & Administrative
Review Comm., Hearing Video Recording (May 11, 2020), https://tinyurl.com/CalTestimony (at
1:01). That claim cannot be squared with Blue Flame’s inability to supply Maryland with a single
N95 mask, as well as with Blue Flame’s own acknowledgement that its anticipated primary
supplier of PPE “would not have the capacity to fulfill California’s mask order on its own.” Exhibit
A at 3-4.
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or breach of contract (Counts III and X), tortious interference, negligence or defamation (Counts
IV, V, VIII, IX), or fraud (Counts VI and VII). Each of Blue Flame’s claims should be dismissed.
The FBI has warned “of an increased potential for fraudulent activity dealing with the
purchase of COVID-19-related medical equipment” in which “scammers may promise equipment
they do not have access to.” FBI Press Release, FBI Warns Health Care Professionals of Increased
Potential for Fraudulent Sales of COVID-19-Related Medical Equipment (Mar. 27, 2020),
https://tinyurl.com/FBI-PPE. The FBI urged “due diligence and appropriate caution” in
transactions with counterparties “with whom [customers] have never worked and/or of which
they’ve never heard.” Id. Among other things, the FBI advised “to be on the lookout for any
suspicious activity,” including “[u]nusual payment terms” (such as a “supplier asking for up-front
payments”) or a supplier’s “[u]nexplained source of bulk supply.” Id.
In our financial system, “[b]anks are the first layer of defense against” suspicious
transactions. United States v. Zarrab, No. 15 CR 867 (RMB), 2016 WL 6820737, at *14 (S.D.N.Y.
Oct. 17, 2016). The Treasury Department’s Financial Crimes Enforcement Network has
explained, moreover, that “[c]ustomer due diligence is universally recognized as fundamental to
mitigating illicit finance risk.” 81 Fed. Reg. 29,401 (2016). And, as participants in a heavily
regulated industry, banks face the possibility of substantial fines and other enforcement actions if
they fail to discharge their responsibilities appropriately.3 In this case, Blue Flame seeks to put
Chain Bridge on the horns of a dilemma, by imposing punitive liability against the Bank for taking
reasonable steps when it identified exactly what the FBI has described as “suspicious activity.”
That misguided effort should be rejected.
3 See, e.g., In re Deutsche Bank AG, Consent Order Under N.Y. Banking Law §§ 39 and 44
(July 6, 2020), https://tinyurl.com/DBdecree (imposing $150 million penalty based on bank’s
compliance failures in its relationships with Jeffrey Epstein and related individuals and entities).
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BACKGROUND
Because this case is before the Court on a motion to dismiss, we narrate the factual
background according to the Complaint’s allegations, as supplemented by materials that are
incorporated by reference into the Complaint or otherwise subject to judicial notice at this stage of
the proceedings.
A.
Michael Gula And John Thomas Form Blue Flame
Before the COVID-19 pandemic, Michael Gula and John Thomas were political operatives.
Compl. ¶ 22. Gula and Thomas each ran “political consulting,” “communications,” or “opinion
research” firms. Id. Neither had any prior experience managing medical supply sales and logistics.
See id. But eager to seize the opportunity presented by desperate shortages of PPE, Gula and
Thomas began negotiating with California on March 20, 2020, to supply the state “hundreds of
millions” of N95 masks and other PPE. Id. ¶ 19.
At the time, Blue Flame did not even exist. Gula and Thomas formed the Delaware
corporation the following Monday, March 23. Compl. ¶ 23. The newly formed company
approached Chain Bridge about opening a checking account that could receive wire transfers, and
completed an account agreement on March 25. Id. ¶¶ 26, 30. A copy of Blue Flame’s account
agreement, executed by Gula, is attached hereto as Exhibit B. See Compl. ¶ 4 (invoking the
account agreement). The account agreement expressly provides that Blue Flame’s rights were
qualified by, among other additional documents, the “Funds Availability” policy attached hereto
as Exhibit C. Under that policy, as a new customer, funds that Blue Flame received via wire
transfer would be made available for withdrawal on the next business day after deposit. See
Exhibit C.
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Meanwhile, Blue Flame was busy negotiating with California for a staggering $609 million
purchase of 100 million N95 masks. Compl. ¶ 25. The arrangement required California to pay
75% of the price—more than $456 million—up-front before Blue Flame delivered any masks. Id.
Blue Flame alleges that Gula discussed the anticipated wire transfer from California with
the Bank on March 25, including the wire’s expected size and Blue Flame’s need for “immediate
email notification” as soon as it arrived. Compl. ¶¶ 32, 35-37. Defendants Brough and Evinger
called Gula to discuss Blue Flame’s business and the incoming wire. Id. ¶ 38. Gula described the
California transaction, Blue Flame’s medical supply sources, the wire size, and Blue Flame’s
intention to “immediately” wire all of the money to mask manufacturers at their bank accounts in
the United States. Id. ¶ 39. Gula also told Brough and Evinger that the California transaction was
going to be life-changing for him; he would “shut down” his political business and “exit the world
of politics” as soon the transaction was underway. Id. ¶ 41.
According to the Complaint, Defendants Brough and Evinger “indicated to Mr. Gula that
the bank would accept the wire transfer for Blue Flame’s account” and could resolve any
regulatory challenges posed by a wire transfer of that size. Compl. ¶¶ 42-43.
B.
California Sends, Then Cancels, Its $456 Million Wire Transfer
The next day, March 26, at 11:20 a.m. eastern time, California’s bank, JPMorgan, sent the
wire transfer to Chain Bridge. Compl. ¶ 59; see also Exhibit D (notification of incoming wire
transfer). The transfer was sent over the Federal Reserve’s Fedwire Funds Service. Compl. ¶ 89.
Fedwire transactions are subject to Federal Reserve Board regulations and guidance, including
Subpart B of its Regulation J. 12 C.F.R. §§ 210.25-210.32. Subpart B of Regulation J, in turn,
incorporates Article 4A of the UCC. Id. § 210.25(b)(1); 12 C.F.R. pt. 210, subpt. B, app. B; see
also Donmar Enters., Inc. v. Southern Nat’l Bank of N.C., 64 F.3d 944, 948 (4th Cir. 1995). Article
4A treats Fedwire transfers as a form of “funds transfer”—that is, a series of transactions by which
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the “originator” causes a “beneficiary” to receive payment through instructions to one or more
banks. UCC § 4A-104(a).4 Those instructions, which form the individual steps of a funds transfer,
are known as “payment orders.” Id. § 4A-103(a)(1).
Blue Flame alleges that, at 11:57 a.m. eastern time, Chain Bridge issued a notice indicating
that it had received the wire transfer from California and, two minutes later, sent Gula an email
containing a link to the notice. Compl. ¶ 61. According to the Complaint, Thomas immediately
got to work arranging for wire transfers from Blue Flame’s account at Chain Bridge to putative
PPE manufacturers but, because the account was so new and did not yet have electronic wire
initiation functionality, Chain Bridge required Thomas to complete paperwork to initiate the
outbound wire transfers. Id. ¶ 63. Before completing the paperwork, Gula emailed every client
of his political consulting business to announce that he “had built another business outside politics
and would be no longer be [sic] reachable.” Id. ¶ 66. He “wished his former clients the best of
luck in politics and life.” Id.
Blue Flame alleges that at approximately 1:20 p.m. eastern time, Gula discovered he was
no longer able to electronically access Blue Flame’s account. Compl. ¶ 68. He reached out to
Brough and Evinger, requesting that someone call him. Id. ¶ 69. Approximately 20 minutes later,
Brough emailed Gula stating that Chain Bridge “received official notice from the sending bank to
return the wire,” and that Gula should “resolve directly with the state of California.” Id. ¶ 70. As
the Complaint alleges, “California officials [had] requested the return of the funds wired by
California.” Id. ¶ 77; see also Exhibit E (Fedwire transmission memorializing cancellation
request). The “Defendants agreed to the California officials’ request immediately, and the funds
4 Unless otherwise indicated, all references in this brief to provisions of Article 4A of the UCC
are to the version of that law incorporated by reference in Subpart B of Regulation J and reprinted
as an appendix to Subpart B.
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wired by California were returned to” JPMorgan, California’s bank. Compl. ¶ 78. Chain Bridge
then sent Gula voided copies of Blue Flame’s account opening documents and closed Blue Flame’s
account. Id. ¶ 71.
Blue Flame alleges that after Chain Bridge accepted the wire transfer, but before California
asked that the funds be returned, Chain Bridge contacted the California State Treasurer’s Office
and shared that “the Bank was not comfortable with the transaction and was concerned it was
fraudulent because Blue Flame’s bank account had been opened the previous day by a ‘political
operative.’” Compl. ¶ 73. Blue Flame predicates this allegation on “public statements by the
California State Treasurer, Fiona Ma.” Id. In the very same statement that Blue Flame cites,
however, Ma explained that it was “one of [California’s] depository banks who flagged the
transaction with concerns about possible fraudulent activity,” not Chain Bridge. See California
State Assembly, Accountability & Administrative Review Comm., Hearing Video Recording
(May 11, 2020), https://tinyurl.com/CalTestimony (at 2:17).5 According to Blue Flame, Chain
Bridge’s alleged fraud concerns were but a fig leaf for Chain Bridge’s ulterior motive in seeking
to cancel the transfer: to avoid any additional reserve requirements associated with accepting such
a large deposit. Compl. ¶ 76.
C.
Blue Flame’s Claims
On June 12, 2020, Blue Flame filed this suit. Blue Flame asserts two claims under the
UCC, as incorporated into Regulation J: that Chain Bridge violated UCC Section 4A-404 by
5 Because Ma’s statements are “incorporated into the complaint by reference,” this Court may
examine them in considering Defendants’ 12(b)(6) motion. See Feeley v. Total Realty Mgmt., 660
F. Supp. 2d 700, 707 (E.D. Va. 2009). In the alternative, because they are contained in a video
hosted by a government website, Ma’s statements are subject to judicial notice. See, e.g., Blatt v.
Pambakian, 432 F. Supp. 3d 1141, 1165 (C.D. Cal. 2020) (taking judicial notice of a video
interview posted by CNN because it was “referenced in the Complaint,” “publicly available,” and
“from a source whose authenticity cannot be questioned”).
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refusing to pay Blue Flame after accepting a payment order for Blue Flame’s benefit (Count I);
and that Chain Bridge violated UCC Section 4A-204 by returning the wired funds at California’s
request (Count II). Blue Flame also asserts eight claims under Virginia common law: conversion
(Count III), tortious interference with contract and tortious interference with business expectancy
(Counts IV and V), actual fraud and constructive fraud (Count VI and VII), negligence (Count
VIII), defamation (Count IX), and breach of contract (Count X). Blue Flame demands judgment
for compensatory and punitive damages, as well as interest, costs, and attorneys’ fees.
LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) should be granted if
the complaint does not “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 (2009) (quoting Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007)). In addition to the allegations of the complaint itself, the
court may consider “documents incorporated into the complaint by reference,” Feeley v. Total
Realty Mgmt., 660 F. Supp. 2d 700, 707 (E.D. Va. 2009), and “relevant facts obtained from the
public record,” Papasan v. Allain, 478 U.S. 265, 283 (1986).
ARGUMENT
I.
Blue Flame Does Not State A Claim For A Violation Of UCC Section 4A-404(a)
(Count I)
In Count I of the Complaint, Blue Flame alleges that Chain Bridge breached an obligation
under UCC Section 4A-404(a), as incorporated into Subpart B of Federal Reserve Regulation J,
because Chain Bridge accepted a payment order for California’s wire transfer but then did not
complete payment to Blue Flame. See Compl. ¶ 96. That theory fails to state a claim because the
payment order at issue was cancelled. Thus, even assuming for the sake of argument that the
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Complaint validly alleges acceptance of the payment order by Chain Bridge, Blue Flame has no
right to demand payment.
Section 4A-404(a) of the UCC provides that, as a general matter, “if a beneficiary’s bank
accepts a payment order, the bank is obliged to pay the amount of the order to the beneficiary of
the order.” UCC § 4A-404(a). But that general rule is expressly “[s]ubject to Section[] 4A-
211(e).” Id. And Section 4A-211(e) provides, in turn, that “[i]f an accepted payment order is
canceled, the acceptance is nullified, and no person has any right or obligation based on the
acceptance.” Id. § 4A-211(e).
Here, the Complaint alleges cancellation of the payment order: Blue Flame alleges that
“California officials requested the return of the funds wired by California.” Compl. ¶ 77; see also
Exhibit E. Blue Flame further alleges that “Defendants agreed to the California officials’ request
immediately.” Compl. ¶ 78. As a result of that cancellation, any acceptance of the payment order
was “nullified,” Chain Bridge has no “obligation” to pay under Section 4A-404(a), and Blue Flame
has no corresponding “right” to receive payment. UCC § 4A-211(e). Because Chain Bridge is
not liable under Section 4A-404(a), Count I should be dismissed.6
6 The Complaint alleges, in conclusory fashion, that “under these circumstances the Bank could
not cancel or amend the payment order after it had been accepted, and the Bank had no basis to
agree to cancel or amend the payment order or to otherwise return the transferred funds.” Compl.
¶ 93. But Section 4A-211(e) makes clear that a cancellation can occur after acceptance of a
payment order. Insofar as Blue Flame means to rely on the rules set forth in Section 4A-211(c)
governing when a post-acceptance cancellation is “effective,” UCC § 4A-211(c), that reliance is
misplaced. Section 4A-211(e), the provision to which a bank’s Section 4A-404(a) payment
obligation is expressly “[s]ubject,” UCC § 4A-404(a), provides that no rights or obligation arise
from any payment order that is “canceled,” UCC § 4A-211(e). It does not require that the
cancellation be “effective” within the meaning of Section 4A-211(c).
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II.
Blue Flame Does Not State A Claim For A Violation Of UCC Section 4A-204(a)
(Count II)
Blue Flame alleges, “[u]pon information and belief,” that Chain Bridge violated UCC
Section 4A-204(a) because, when it returned funds to California, it “issued a new payment order
on behalf of Blue Flame, which was neither authorized by Blue Flame nor effective as Blue
Flame’s order.” Compl. ¶ 110. According to Blue Flame, Section 4A-204(a) “provides a private
right of action to a bank customer whose bank issues a payment order that purports to be on behalf
of the customer but in fact is not authorized and not effective as the order of the customer.”
Id. ¶ 109 (emphasis added).
That is not what Section 4A-204(a) says. Rather, Section 4A-204(a) requires a “receiving
bank”—here Chain Bridge—to refund its customer when the bank “accepts a payment order issued
in the name of its customer as sender” that is either unauthorized and not effective (under Section
4A-202) or unenforceable against the customer (under Section 4A-203). UCC § 4A-204(a)
(emphasis added). But the Complaint does not allege that the Bank ever received or accepted an
instruction “in the name of” Blue Flame to return the funds to California. What the Complaint
alleges is that the Bank accommodated California’s request that the funds be returned to it. Section
4A-204(a) does not apply here.
The reported cases addressing Section 4A-204(a) are consistent with its plain text. They
uniformly address unauthorized payment orders that a bank accepts from someone—usually a
person purporting to be the bank’s customer or the customer’s agent. See, e.g., Gold v. Merrill
Lynch & Co., No. 09-318-PHX-JAT, 2009 WL 2132698, at *1 (D. Ariz. July 14, 2009) (payment
orders from plaintiff’s retirement account that his wife “had completed . . . by forging [plaintiff’s]
signature”); Regatos v. North Fork Bank, 838 N.E.2d 629, 630-31 (N.Y. 2005) (payment order
“from someone [the receiving bank] believed to be [its customer], but failed to follow agreed
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security procedures to confirm” (footnote omitted)); see also Ma v. Merrill Lynch, Inc., 597 F.3d
84, 86-87 (2d Cir. 2010) (payment orders for which financial advisor assigned by bank “forged
[the customer’s] signature . . . and falsely noted that she had confirmed the transfers with [the
customer]”).
Because Blue Flame does not allege that Chain Bridge acted as a “receiving bank” by
“accepted[ing]” a payment order from anyone—let alone a payment order “issued in the name of
its customer”—Section 4A-204 provides no cause of action here.7
III.
Blue Flame Does Not State A Claim For Conversion (Count III)
In Count III, Blue Flame alleges that Chain Bridge’s return of the wired funds to California
was a conversion of those funds. To state a conversion claim, Blue Flame must allege “(i) the
ownership or right to possession of the property at the time of the conversion and (ii) the wrongful
exercise of dominion or control by defendant over the plaintiff’s property, thus depriving plaintiff
of possession.” Airlines Reporting Corp. v. Pishvaian, 155 F. Supp. 2d 659, 664 (E.D. Va. 2001)
(citing Universal C.I.T. Credit Corp. v. Kaplan, 92 S.E.2d 359, 365 (Va. 1956)). Blue Flame
alleges that Defendants, by removing funds from Blue Flame’s bank account, “exercised dominion
and control over those funds and thereby deprived Blue Flame of their possession.” Compl. ¶ 123.
But the conversion claim fails because Blue Flame had no such right to possession.
7 In Count II, Blue Flame strains to establish that Chain Bridge had completed payment to Blue
Flame at the time the funds were returned to California. See Compl. ¶¶ 104-05. As we explain
below in connection with Blue Flame’s conversion claim, the Complaint’s allegations do not
establish completed payment. See pp. 14-15, infra. That dispute is irrelevant for purposes of
Count II, however, because Section 4A-204 does not provide a cause of action here for the reasons
stated in the text—whether or not Blue Flame ever received payment.
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A.
As A General Depositor, Blue Flame Could Not Acquire A Right To Possession
Of Particular Funds
Blue Flame’s conversion theory is foreclosed by settled law about rights to bank deposits.
In general, a bank customer does not have a property right in funds deposited with a bank. Rather,
“the relation between a general depositor and the bank in which his deposit is made is simply that
of debtor and creditor.” Bernardini v. Central Nat’l Bank of Richmond, 290 S.E.2d 863, 864 (Va.
1982). “[M]oneys deposited immediately become the property of the bank, and the [bank]
becomes debtor of the depositor.” Id.8 By the same token, a depositor has no right to possession
of particular funds that are “sufficiently specific and identifiable, in relation to the bank’s other
funds, to support a claim for conversion against the bank.” Fundacion Museo de Arte
Contemporaneo de Caracas v. CBI-TDB Union Bancaire Privee, 160 F.3d 146, 148 (2d Cir. 1998)
(per curiam).
Blue Flame thus fails to plead any interference with an ownership or possessory right that
Blue Flame had over the funds at issue. A “claim for conversion of funds will not lie when,” as in
this case, the plaintiff alleges only “failure to repay by the defendant and the relationship between
the parties is one of a debtor-creditor.” Kancor Ams., Inc. v. ATC Ingredients, Inc., No. 1:15-
cv00589-GBL-IDD, 2016 WL 740061, at *9 (E.D. Va. Feb. 25, 2016); see also, e.g., Guill v.
Academy Life Ins. Co., No. 89-1509, 1991 WL 105502, at *3 (4th Cir. June 19, 1991) (South
Carolina law); Restatement (Second) of Torts § 242 cmt. f (1965). Count III therefore should be
dismissed.
8 The general rule is qualified by an exception for “special deposits,” where there is “a clear
agreement” between the “depositor and the bank . . . that the bank [is] to have no right to use the
funds but should hold them for specific repayment to the depositor.” Williams v. Dickenson Cty.
Bank, 7 S.E.2d 885, 887 (Va. 1940). That exception is inapplicable here.
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B.
Blue Flame Had No Right To Possession Of Any Funds Because Payment Was
Not Complete
Blue Flame’s conversion theory should be dismissed for the additional reason that it
proceeds from the incorrect premise that Chain Bridge had completed payment to Blue Flame
when the funds at issue were returned to California. Compl. ¶ 117. Blue Flame reasons that
payment was complete because Blue Flame’s account received credit for the amount of
California’s wire transfer and those funds appeared in Blue Flame’s online access portal. Id.
¶¶ 115-16. But those allegations are insufficient to support a conclusion that Blue Flame had
received payment. Thus, even aside from the basic principles of Virginia banking law just
discussed, Blue Flame could not have acquired any property or possessory right in the funds.
Whether a beneficiary’s bank has made payment to the beneficiary of a wire transfer is
governed by Section 4A-405 of the UCC, as incorporated into Subpart B of Regulation J. As is
pertinent here, that provision states that, “[i]f the beneficiary’s bank credits an account of the
beneficiary,” payment “occurs when and to the extent that (i) the beneficiary is notified of the right
to withdraw the credit, (ii) the bank lawfully applies the credit to a debt of the beneficiary, or (iii)
funds with respect to the order are otherwise made available to the beneficiary by the bank.” UCC
§ 4A-405(a).
None of those potential methods of payment are alleged here. In particular, the appearance
of funds in Blue Flame’s online account portal was not a notification that the funds were available
to be withdrawn. To the contrary, as a new customer, Blue Flame’s account was subject to a funds
availability policy providing that “[f]unds from wire[] transfers . . . will be available on the first
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business day after the day of your deposit.” Exhibit C (emphasis added).9 Blue Flame thus had
no right to withdraw any funds upon their appearance in its online account portal. And it likewise
follows that the funds were not “otherwise made available” to Blue Flame, UCC § 4A-405(a)(iii),
even on the most expansive understanding of that phrase. See First Sec. Bank of N.M., N.A. v. Pan
Am. Bank, 215 F.3d 1147, 1157 (10th Cir. 2000) (holding that payment does not occur when a
bank “credits a beneficiary’s account but holds withdrawal of funds”).10
In short, at the time Chain Bridge agreed to cancellation of California’s wire transfer and
returned the funds at issue, the funds had not been paid to Blue Flame under the governing federal
regulations. It therefore follows that Chain Bridge could not have converted the funds in violation
of any property or possessory right that Blue Flame held in them.11
IV.
Blue Flame Fails To State A Claim For Breach Of Contract (Count X)
Count X of the Complaint seeks to impose liability for returning the funds based on the
alternative theory that Chain Bridge breached its Account Agreement with Blue Flame by
accommodating the cancellation of California’s wire transfer. That claim fails as a matter of law
9 The UCC provides that, in general, payment to a beneficiary “is due on the payment date of
the order.” UCC § 4A-404(a). Under the Expedited Funds Availability Act (EFAA), however,
the deadline for making funds received by a bank by wire transfer available for withdrawal is the
business day after the business day on which such funds are received. 12 U.S.C. § 4002(a)(1)(B);
see also 12 C.F.R. pt. 229 (Federal Reserve’s implementing regulations). Chain Bridge’s funds
availability policy for new customers is consistent with that rule. See also 12 C.F.R. § 210.25(b)(4)
(providing that the UCC provisions incorporated by reference in Regulation J do not displace the
EFAA’s rules with respect to the availability of funds).
10 There is no suggestion that Chain Bridge applied the funds to a debt owed by Blue Flame.
11 The Complaint does not appear to assert that any contrary, common-law definition of
payment governs Blue Flame’s conversion claim, and the Complaint elsewhere acknowledges that
“Section 4A-405 of the [UCC] . . . governs . . . which actions by the beneficiary’s bank constitute
payment of the bank’s obligation to the beneficiary.” Compl. ¶ 100. In any event, any attempt to
impose liability under state law based on a contrary definition of payment would be preempted by
the governing federal regulations. See pp. 17-18, infra.
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because Blue Flame does not plead a breach of any contractual duty and because the theory Blue
Flame does plead is preempted by the governing federal regulations.
A.
Blue Flame Does Not Plead A Breach Of Any Contractual Obligation
To state a claim for breach of contract, a plaintiff must plead “(1) a legally enforceable
obligation of a defendant . . . ; (2) the defendant’s violation or breach of that obligation; and
(3) injury or damage to the plaintiff caused by the breach of obligation.” Sunrise Continuing Care,
LLC v. Wright, 671 S.E.2d 132, 135 (Va. 2009). It is incumbent upon the plaintiff to identify a
particular contractual obligation that the defendant is alleged to have breached. JTH Tax, Inc. v.
Hines, No. 2:15cv558, 2018 WL 1135558, at *2 n.3 (E.D. Va. Mar. 2, 2018), aff’d, 740 Fed. Appx.
49 (4th Cir. 2018).
Blue Flame does not meet that pleading obligation. The Complaint does not identify any
specific contractual restriction that the Bank allegedly breached or any duty that the Bank failed
to perform. Blue Flame instead makes the puzzling assertion that “the Bank had no contractual
right to return the funds paid to Blue Flame by California.” Compl. ¶ 173. But that is backwards:
A breach of contract does not arise because the defendant cannot demonstrate that his contract did
not affirmatively give him the right to do something he did. Rather, a contract claim arises only
when a plaintiff plausibly alleges that the defendant violated some duty it owed to its counterparty
under the contract. Because Blue Flame does not plead that Chain Bridge violated any relevant
contractual duty, its claim for breach of contract should be dismissed. See, e.g, JTH Tax, Inc.,
2018 WL 1135558, at *2 n.3; Barber & Ross Co. v. Wachovia Bank Nat’l Ass’n, Adv. No. 09-
05083, 2010 Bankr. LEXIS 6293, at *52-54 (Bankr. W.D. Va. Apr. 5, 2010).
Resort to the implied covenant of good faith and fair dealing (see Compl. ¶¶ 175-78) does
not cure Blue Flame’s pleading deficiency. The implied covenant does not “establish new and
independent rights or duties” apart from the terms of the contract. De Vera v. Bank of Am., N.A.,
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No. 2:12cv17, 2012 WL 2400627, at *3 (E.D. Va. June 25, 2012); see also Wolf v. FNMA, 830 F.
Supp. 2d 153, 169 (W.D. Va. 2011), aff’d, 512 Fed. Appx. 336 (4th Cir. 2013). Yet that is
necessarily how Blue Flame seeks to deploy the implied covenant here, by pursuing a theory that
is untethered to any term of the parties’ contract. Blue Flame does not contend, for example, that
the Bank abused discretion afforded to it under some provision of the parties’ contract. See Wolf,
830 F. Supp. 2d at 169. Instead, Blue Flame’s premise is that the implied covenant can supply a
freestanding contractual duty. Because that assumption is incorrect, Blue Flame’s implied
covenant theory fails.
B.
Blue Flame’s Breach Of Contract Theory Is Preempted By Federal Law
Even if it were otherwise sufficient to state a claim for breach of contract under Virginia
law, Blue Flame’s theory that Chain Bridge “had no contractual right to return the funds paid to
Blue Flame by California” (Compl. ¶ 173) would still fail because it is preempted by federal law.
1. Because this “conflict arises out of a funds transfer,” the court must “look first and
foremost to [UCC] Article 4–A,” Sheerbonnet, Ltd. v. American Express Bank, Ltd., 951 F. Supp.
403, 407 (S.D.N.Y. 1995), which is expressly incorporated into Subpart B of Regulation J to
“provide[] rules to govern funds transfers through . . . Fedwire,” 12 C.F.R. § 210.25. The Federal
Reserve’s official commentary to Subpart B explicitly addresses preemption:
[R]egulations of the Board may preempt inconsistent provisions of state law. Accordingly,
subpart B of this part supersedes or preempts inconsistent provisions of state law. It does
not affect state law governing funds transfers that does not conflict with the provisions of
subpart B of this part, such as Article 4A, as enacted in any state, as it applies to parties to
funds transfers through Fedwire whose rights are not governed by subpart B of this part.
12 C.F.R. pt. 210, subpt. B, app. A, cmt. to § 210.25.
UCC Article 4A’s commentary also addresses the role of common law claims when a
dispute arises from a funds transfer. The UCC recognizes that the provisions of Article 4A were
the result of a “deliberate decision . . . to treat a funds transfer as a unique method of payment to
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be governed by unique rules that address the particular issues raised by this method of payment.”
UCC § 4A-102 cmt. The rules of Article 4A, therefore, “are intended to be the exclusive means
of determining the rights, duties and liabilities of the affected parties in any situation covered by
particular provisions of the Article.” Id.
Relying on the standards set out in Subpart B and the UCC, the Fourth Circuit has held that
Subpart B “preempts any state law cause of action premised on conduct falling within the scope
of Subpart B, whether the state law conflicts with or is duplicative of Subpart B.” Eisenberg v.
Wachovia Bank, N.A., 301 F.3d 220, 223 (4th Cir. 2002). Thus, whether “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.” Id.
2. Those well-settled preemption standards mean that Chain Bridge cannot be required to
demonstrate a “contractual right” (Compl. ¶ 173) to agree to California’s cancellation of its wire
transfer. Section 4A-211 of the UCC, as incorporated into Regulation J, provides that a bank may
agree to cancel a payment order. See UCC § 4A-211(e). Cancellation of a payment order is thus
a “situation covered by particular provisions” of Article 4A (UCC § 4A-102 cmt.) and “conduct
. . . covered under Subpart B” (Eisenberg, 301 F.3d at 223). It follows that state contract law
cannot be employed to engraft an additional requirement onto Chain Bridge’s right, under Subpart
B, to agree to the requested cancellation of California’s wire transfer.
V.
Blue Flame Fails To State A Fraud Claim (Counts VI and VII)
Blue Flame’s claims of actual fraud (Count VI) and constructive fraud (Count VII) are
premised on allegations that (i) Blue Flame disclosed “all relevant details” about the California
transaction and wire to Chain Bridge (Compl. ¶¶ 144, 153), (ii) “[a]t no point did Defendants
indicate in response to those details any concern regarding the legitimacy of the transaction or
indicate that the Bank might not wish to complete the transaction (id. ¶¶ 145, 154), and
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(iii) “Defendants reversed course and decided to take action to undo the transaction” (id. ¶¶ 146,
155).
That is not an actual or constructive fraud claim. The elements of both fraud claims include
that the defendant made a “false representation” to the plaintiff. Glaser v. Enzo Biochem, Inc.,
464 F.3d 474, 476 (4th Cir. 2006) (actual fraud); see also Sales v. Kecoughtan Hous. Co., 690
S.E.2d 91, 94 (Va. 2010) (constructive fraud). The misrepresentation must be a statement “of a
present or pre-existing fact” that is false at the time it is made. SuperValu, Inc. v. Johnson, 666
S.E.2d 335, 342 (Va. 2008). Federal Rule of Civil Procedure 9(b) requires Blue Flame to “state
with particularity the circumstances constituting fraud.”
The Complaint does not identify any actionable statements that were false when they were
made—let alone identify them with the particularity Rule 9(b) demands. The supposed
misrepresentations, according to Blue Flame, came on a phone call the day before the wire transfer.
See Compl. ¶¶ 38-45. After that, according to the Complaint, Defendants “reversed course” and
allegedly intervened to “undo the transaction.” Id. ¶¶ 146, 155. But such a change of heart would
not make prior, contrary statements actionable. When someone changes her mind about
something, that does not make everything she previously said about it a lie. Mere “unfulfilled
promises or statements of future events” are not actionable as fraud. Stone Castle Fin. Inc. v.
Friedman, Billings, Ramsey & Co., 191 F. Supp. 2d 652, 663 (E.D. Va. 2002). Because the
Complaint does not identify any false statement “of a present or pre-existing fact” or assert that
the Bank made the alleged misrepresentations “with the present intention of never fulfilling” them,
Blue Flame’s fraud claims should be dismissed. Enomoto v. Space Adventures, Ltd., 624 F. Supp.
2d 443, 455 (E.D. Va. 2009); see also, e.g., SuperValu, Inc., 666 S.E.2d at 342; GIV, LLC v. IBM,
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No. 3:07CV067-HEH, 2007 WL 1231443, at *5 (E.D. Va. Apr. 24, 2007); Richmond Metro. Auth.
v. McDevitt St. Bovis, Inc., 507 S.E. 2d 344, 348 (Va. 1998).
VI.
Blue Flame Fails To State Defamation, Tortious Interference, Or Negligence Claims
Premised On Defendants’ Alleged Statements To California Officials (Counts IV, V,
VIII, And IX)
Blue Flame’s claims of defamation (Count IX), tortious interference with contract and
business expectancy (Counts IV & V), and negligence (Count VIII) are all premised on this
allegation, in Paragraph 73:
Upon information and belief, in the minutes following the Bank’s acceptance of the wire
transfer on March 26, Mr. Brough and/or Mr. Evinger contacted the California State
Treasurer’s Office regarding the transaction. According to multiple news reports and
public statements by the California State Treasurer, Fiona Ma, an “executive of the Bank”
stated that the Bank was not comfortable with the transaction and was concerned it was
fraudulent because Blue Flame’s bank account had been opened the previous day by a
“political operative.”
The four claims premised on that allegation are implausible, first and foremost because the
relied-upon “news reports” and “public statements by the California State Treasurer” do not say
what Blue Flame (on “information and belief”) alleges they do. Rather, they make clear that it
was California’s bank that suggested the possibility of a fraudulent transaction to California.
What is more, none of the four claims are well-stated in any event. It does not state claims
of defamation, tortious interference, or negligence to allege that a bank in receipt of a $456 million
wire transfer to a three-day-old company confirmed with California the undisputed facts that a
political operative had opened Blue Flame’s bank account just the day before. Those facts are
fraud concerns, just as the FBI advised the nation the very next day. See p. 4, supra.
A.
The Allegation That Defendants Stated A Fraud Concern To California Is
Implausible And Not Supported By The Reports Blue Flame Cites
Blue Flame alleges that Defendants raised fraud concerns with California on “information
and belief.” Compl. ¶ 73. That form of pleading is “tenuous at best.” Raub v. Bowen, 960 F.
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Supp. 2d 602, 615 (E.D. Va. 2013). And here, Blue Flame’s “belief” about what Defendants said
is contradicted by the public “information” on which Blue Flame purports to rely.
The Complaint traces its account of the alleged statement “to multiple news reports and
public statements by the California State Treasurer, Fiona Ma.” Compl. ¶ 73. But Ma’s public
statements contradict the Complaint’s allegation that Defendants raised concerns of fraud with
California. In testimony before the California legislature, Ma explained that it was “one of
[California’s] depository banks who flagged the transaction with concerns about possible
fraudulent activity.” California State Assembly, Accountability & Administrative Review Comm.,
Hearing Video Recording (May 11, 2020), https://tinyurl.com/CalTestimony (at 2:17). She
separately stated that Chain Bridge had “called Director Mark Hariri and informed him the account
was opened a day before by a Washington, D.C. based lobbyist and the bank was not comfortable
accepting this large wire transfer.” Id. We are unaware of any news report or public statement,
by Ma or any other California official, that attributed concerns about potential fraud to Chain
Bridge rather than to California’s own bank.
A court cannot “accept as true allegations that contradict matters properly subject to
judicial notice or by exhibit.” Veney v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002). In this case,
the public record contradicts Blue Flame’s only articulated basis for its inherently “tenuous”
pronouncement that Chain Bridge raised concerns of fraud with California. Raub, 960 F. Supp.
2d at 615. There is accordingly no sound basis for this Court to accept the key allegation that is
the predicate for Blue Flame’s claims of defamation, tortious interference, and negligence.
B.
The Complaint Otherwise Fails To State A Defamation Claim
Even if the Complaint’s unsupported account of Defendants’ alleged statements to
California were accepted, it does not support a defamation claim (Count IX). Defendants’
supposed statement that Chain Bridge was “concerned” about potential fraud was a mere statement
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of opinion, not an actionable false statement of fact. Questioning possible fraud in the mask-
purchase transaction, moreover, also lacks the requisite defamatory “sting.” And, finally, a
diligence discussion among a wire transfer’s receiving bank and originator is privileged absent
allegations of malice that are not pleaded here.
1. In order to support a claim for defamation, a statement must be false and defamatory.
See Schaecher v. Bouffault, 772 S.E.2d 589, 594 (Va. 2015); Goulmamine v. CVS Pharmacy, Inc.,
138 F. Supp. 3d 652, 659 (E.D. Va. 2015) (“Whether a statement is actionable is a matter of law.”).
A statement of opinion—that is, a statement “best . . . understood from its language and context to
represent the personal view of the author or speaker who made it”—is not actionable. Potomac
Valve & Fitting Inc. v. Crawford Fitting Co., 829 F.2d 1280, 1288 (4th Cir. 1987).
Here, Defendants’ alleged statement that the Bank was “concerned” about potential fraud
in connection with California’s mask purchase was a statement of opinion. The Bank is not alleged
to have told California that Blue Flame or its principals were, in fact, crooks and fraudsters. A
statement reflecting only the speaker’s “concern” necessarily states only his “personal view,”
Potomac Valve & Fitting Inc., 829 F.2d at 1288, and not any objective fact that can falsely defame
someone. Nor are Defendants alleged to have expressed a “derogatory opinion without disclosing
the facts on which it is based.” Restatement (Second) of Torts § 566 cmt. c (1977). According to
the Complaint, the Bank said it was “concerned” that the transaction “was fraudulent because Blue
Flame’s bank account had been opened the previous day by a ‘political operative.’” Compl. ¶ 73
(emphasis added). Thus, the factual basis stated for the alleged fraud concern was both provided
to California and true, as the Complaint itself narrates. See id. ¶¶ 22, 30.
2. The alleged statement at issue here is also not actionable because it lacks “the requisite
defamatory ‘sting’ to [Blue Flame’s] reputation.” Schaecher, 772 S.E.2d at 594. That requirement
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imposes a high bar: A statement is defamatory only if it “tends to injure one’s reputation in the
common estimation of mankind, to throw contumely, shame, or disgrace upon him,” or “tends to
hold him up to scorn, ridicule, or contempt, or which is calculated to render him infamous, odious,
or ridiculous.” Id. That determination must be made by reference to the statement itself, in its
context, and without regard to the reactions of others. See Edwards v. Schwartz, 378 F. Supp. 3d
468, 508 (W.D. Va. 2019); Virginia Citizens Def. League v. Couric, 910 F.3d 780, 786 (4th Cir.
2018) (media or news impression of statement irrelevant to whether the statement is, as a matter
of law, defamatory).
Blue Flame alleges only that the Bank raised concerns that “the transaction was
fraudulent.” Compl. ¶ 74 (emphasis added). That statement, in context, does not cast any
aspersion upon Blue Flame as an organization. Indeed, it was not even the expression of a concern
that Blue Flame itself was attempting to defraud California. The alleged statement was equally
consistent with the possibility that Blue Flame was an unwitting participant in, or even the victim
of, a fraudulent scheme perpetrated by the supposed PPE supplier that was to receive payment
from Blue Flame. Under these circumstances, Defendants’ alleged statement did not subject Blue
Flame to “contumely, shame, or disgrace” or “render [it] infamous, odious, or ridiculous.”
Schaecher, 772 S.E.2d at 594.12
3. Even if the alleged statement about fraud concerns was defamatory, moreover, it is
protected by a qualified privilege that the Complaint does not allege facts to overcome. Virginia
law protects otherwise defamatory statements “made in good faith, to and by persons who have
12 The Complaint also alleges that Defendants made “other false statements casting aspersions
on the business and character of Blue Flame.” Compl. ¶ 166. That hopelessly general allegation
is insufficient because it is no more than “a mere recitation of the legal standard.” Mayfield v.
NASCAR, Inc., 674 F.3d 369, 378 (4th Cir. 2012).
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corresponding duties or interests in the subject of the communication.” Doe v. Roe, 295 F. Supp.
3d 664, 676 (E.D. Va. 2018) (quoting Government Micro Res., Inc. v. Jackson, 624 S.E.2d 63, 70
(Va. 2006)). Such interests include the financial interests of the speaker or the recipient of the
statement. Restatement (Second) of Torts §§ 594-595. Whether the privilege protects a
defendant’s statements is a question of law. Doe, 295 F. Supp. 3d at 676. Defendants’ alleged
statement to California officials that Chain Bridge “was not comfortable with the transaction and
was concerned it was fraudulent,” Compl. ¶ 73, is privileged and not subject to defamation liability
because it furthered common duties to guard against possible financial fraud. See, e.g., Adler v.
Virginia Commonwealth Univ., 259 F. Supp. 3d 395, 409-10 (E.D. Va. 2017), aff’d, 709 Fed.
Appx. 189 (4th Cir. 2018); Professional Recovery Servs., Inc. v. General Elec. Capital Corp., 642
F. Supp. 2d 391, 401 (D.N.J. 2009) (defendant’s statements to other financial institutions regarding
plaintiff debt collector were privileged because the financial institutions shared “a legitimate
interest and duty to prevent consumer fraud and . . . the theft of sensitive financial records”).
In order to overcome that qualified privilege, Blue Flame would have to allege facts that,
taken as true, would support a finding by clear and convincing evidence that Defendants acted
with malice. Echtenkamp v. Loudon Cty. Pub. Schs., 263 F. Supp. 2d 1043, 1062 (E.D. Va. 2003).
Thus, Blue Flame must allege that Defendants’ statements were “made with knowledge that they
were false or with reckless disregard for their truth.” Cashion v. Smith, 749 S.E.2d 526, 533 (Va.
2013). But the Complaint makes those allegations only in threadbare, conclusory fashion. Compl.
¶ 167. Such “unsupported and conclusory statements” cannot “satisfy [the plaintiff’s] burden.”
Adler, 259 F. Supp. 3d at 410; see also Owen v. Liberty Univ., No. 6:19-cv-00007, 2020 WL
1856798, at *14 (W.D. Va. Apr. 13, 2020), appeal pending, No. 20-1596 (4th Cir., docketed May
28, 2020). And, in fact, the FBI has identified the very things that Chain Bridge was concerned
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about as being indicia of potential fraud in PPE transactions. See p. 4, supra. Blue Flame thus
alleges no facts from which the Court can plausibly infer that the Bank’s statement was made
maliciously. Courts routinely grant motions to dismiss defamation claims when the complaint
alleges malice in such general terms, without any factual support. See, e.g., Mayfield v. NASCAR,
Inc., 674 F.3d 369, 377-78 (4th Cir. 2012); Owen, 2020 WL 1856798, at *14; Jarrett v. Goldman,
67 Va. Cir. 361, 375-76 (2005). The same result is warranted here.
C.
The Complaint Otherwise Fails To State Tortious Interference Claims
Blue Flame’s claims that Defendants tortiously interfered with its contract (Count IV) and
business expectancies (Count V) fail because privileged statements are not “improper means” and
Chain Bridge is not alleged to have acted with any intent to interfere with Blue Flame’s alleged
contract rights or business expectancy.
First, to state claims for tortious interference, Blue Flame would have to allege that
Defendants employed “improper means” to interfere with Blue Flame’s contract rights or business
prospects. DurretteBradshaw, P.C. v. MRC Consulting, L.C., 670 S.E.2d 704, 706 (Va. 2009);
Goulmamine, 138 F. Supp. 3d at 672. 13 Under Virginia law, a communication that is privileged
against a defamation claim cannot supply the wrongful means necessary to state a tortious
inference claim. Shirvinski v. United States Coast Guard, 673 F.3d 308, 322 (4th Cir. 2012).
Because Defendants’ alleged statement to California officials was privileged and Blue Flame has
not adequately pleaded abuse of that privilege, see pp. 23-24, supra, it follows that the tortious
interference claims must be dismissed.
13 The “improper means” requirement applies to Blue Flame’s claim for tortious interference
with contract because Blue Flame has not alleged that it had a contract with California that was
not terminable at will. See Duggin v. Adams, 360 S.E.2d 832, 835-36 (Va. 1987).
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Second, Blue Flame has not alleged that Defendants harbored a wrongful intent to interfere
with its contracts or business expectancy. Blue Flame does not plead that Defendants acted with
“the purpose of, or a partial desire to, interfere with the performance of” Blue Flame’s alleged
contract rights, or that Defendants acted with the knowledge that calling California was “certain
or substantially certain” to cause California to breach any contractual commitment to Blue Flame.
Commerce Funding Corp. v. Worldwide Sec. Servs. Corp., 249 F.3d 204, 212-13 (4th Cir. 2001)
(citing Restatement (Second) of Torts § 766 cmt. j); DurretteBradshaw, P.C., 670 S.E.2d at 707.
To the contrary, the Complaint alleges (albeit inaccurately) that Defendants had concluded
that “accepting a wire transfer of that size would not be in the Bank’s economic interest.” Compl.
¶ 74. The allegation that Defendants acted in pursuit of the Bank’s own economic interest thus
negates any suggestion that their purpose was to interfere with Blue Flame’s contract rights or
business expectancies. Moreover, the Complaint does not allege any basis to conclude that it was
“certain or substantially certain” that Defendants’ alleged conduct would lead California to breach
any contractual duty it owed to Blue Flame. Commerce Funding Corp., 249 F.3d at 212-13. At
most, it could be argued that raising concerns of fraud was likely to lead California to delay making
payment to Blue Flame, as it investigated Blue Flame’s bona fides. But the Complaint does not
allege any contractual deadline by which California was to pay, so there is no basis to conclude
that any delay introduced by such an investigation would lead to a breach of contract—much less
that Defendants were aware that delay would lead to a breach. As a consequence, the Complaint
fails to allege the wrongful state of mind necessary for Blue Flame’s tortious interference claims.
D.
The Complaint Otherwise Fails To State A Negligence Claim
Blue Flame’s allegation that Defendants acted negligently in raising fraud concerns with
California does not involve a violation of any cognizable legal duty owed to Blue Flame. In
substance, the closest analogy is a claim for publication of injurious falsehood—i.e., an allegation
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that Chain Bridge “publishe[d] a false statement harmful to the interests of [Blue Flame]” and is
therefore “subject to liability for pecuniary loss.” Restatement (Second) of Torts § 623A. But that
tort applies only when, among other things, the defendant “knows that the statement is false or acts
in reckless disregard of its truth or falsity.” Id.; see also General Prods. Co. v. Meredith Corp.,
526 F. Supp. 546, 554 (E.D. Va. 1981) (applying the same standard of fault to claim labeled as
“product disparagement”); Dan B. Dobbs et al., The Law of Torts § 657 (2d ed. 2020). Simple
negligence—which is all Blue Flame alleges here—does not suffice.
Moreover, as we have explained above, the statements the Complaint attributes to Chain
Bridge were protected by a privilege that Blue Flame cannot overcome. See pp. 23-24, supra. The
same privilege would preclude a claim for publication of injurious falsehood even if, contrary to
fact, Blue Flame had pleaded the required state of mind. See Restatement (Second) of Torts
§ 646A (noting that the same rules on privileges to publish defamatory matter apply to publication
of injurious falsehood); cf. Shirvinski, 673 F.3d at 322 (plaintiff cannot use a tortious interference
claim to avoid a privilege to publish a defamatory statement).
Finally, to the extent that Blue Flame’s negligence claim turns not on Defendants’
statements to California officials, but rather on their decision to close Blue Flame’s account and
void the Account Agreement (it is impossible to tell), see Compl. ¶ 163, that version of the claim
also fails. Virginia law does not permit tort claims where the relevant duty “arises solely out of
the commercial contract between the parties.” NationsBank of Virginia, N.A. v. Mahoney, No.
119920, 1993 WL 946352, at *5 n.7 (Va. Cir. Ct. Dec. 6, 1993) (citing Foreign Mission Bd. of S.
Baptist Convention v. Wade, 409 S.E.2d 144, 148 (Va. 1991)). And Blue Flame does not allege
any duty separate and apart from a contractual relationship with Chain Bridge. See Compl. ¶ 161
(“As a result of the Bank’s agreement to provide banking services to Blue Flame . . . Defendants
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undertook a duty of care in providing banking services to Blue Flame.”). Indeed, as we have
explained, see p. 13, supra, a depository bank typically has a debtor-creditor relationship with its
customer, which gives rise to only a contractual relationship. Barber & Ross Co., 2010 Bankr.
LEXIS 6293, at *52-54; cf. Van Leer v. Deutsche Bank Sec., Inc., 479 Fed. Appx. 475, 481 (4th
Cir. 2012) (bank does not owe a common law duty to its customer under Maryland law). It follows
that Blue Flame cannot bootstrap an allegation that Chain Bridge wrongfully terminated a contract
into a claim sounding in tort.
CONCLUSION
Blue Flame’s Complaint should be dismissed with prejudice.
Date: July 20, 2020
Respectfully submitted,
/s/ Donald Burke
Gary A. Orseck (admitted pro hac vice)
Matthew M. Madden (admitted pro hac vice)
Donald Burke (VA Bar No. 76550)
Megan D. Browder (admitted pro hac vice)
ROBBINS, RUSSELL, ENGLERT, ORSECK,
UNTEREINER & SAUBER LLP
2000 K Street, N.W., 4th Floor
Washington, D.C. 20006
Tel: (202) 775-4500
Fax: (202) 775-4510
dburke@robbinsrussell.com
Counsel for Defendants
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CERTIFICATE OF SERVICE
I hereby certify that on July 20, 2020, I will electronically file the foregoing with the Clerk
of Court using the CM/ECF system, which will then send a notification of such filing to the
following:
Peter H. White, Esq.
SCHULTE ROTH & ZABEL LLP
901 Fifteenth Street, NW, Suite 800
Washington, DC 20005
Tel: 202-729-7476
Fax: 202-730-4520
peter.white@srz.com
Counsel for Blue Flame Medical LLC
/s/ Donald Burke
Donald Burke (VA Bar No. 76550)
ROBBINS, RUSSELL, ENGLERT,
ORSECK,
UNTEREINER & SAUBER LLP
2000 K Street, N.W., 4th Floor
Washington, D.C. 20006
Tel: (202) 775-4500
Fax: (202) 775-4510
dburke@robbinsrussell.com
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