Blue Flame v. Chain Bridge — Defendants' Opposition to Plaintiff's Partial MSJ
- Date
- 2021-05-20
Summary
Defendants' memorandum, filed May 20, 2021 as Document 140, in opposition to Blue Flame Medical LLC's motion for partial summary judgment in Blue Flame Medical LLC v. Chain Bridge Bank, N.A., John J. Brough, and David M. Evinger, Civil Action No. 1:20-cv-00658 in the U.S. District Court for the Eastern District of Virginia. The defendants argue that the cancellation of a $456 million wire transfer from California nullified Chain Bridge's acceptance, defeating Blue Flame's claims under UCC Section 4A-404 (Count I) and Section 4A-204 (Count II). They also argue that Blue Flame cannot prevail on its tortious interference claims (Counts IV and V) or establish damages. A counterstatement responds paragraph by paragraph to Blue Flame's statement of undisputed facts about a purchase order for 100 million N95 masks. The 36-page brief is signed by defense counsel.
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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
(Alexandria Division)
BLUE FLAME MEDICAL LLC,
Plaintiff,
Civil Action No. 1:20-cv-00658
v.
CHAIN BRIDGE BANK, N.A., JOHN J.
BROUGH, and DAVID M. EVINGER,
Defendants.
CHAIN BRIDGE BANK, N.A,
Third-Party Plaintiff,
v.
JPMORGAN CHASE BANK, N.A.,
Third-Party Defendant.
DEFENDANTS’ MEMORANDUM IN OPPOSITION TO
BLUE FLAME MEDICAL LLC’S MOTION FOR PARTIAL SUMMARY JUDGMENT
ROBBINS, RUSSELL, ENGLERT, ORSECK
& UNTEREINER LLP
Gary A. Orseck (admitted pro hac vice)
Matthew M. Madden (admitted pro hac vice)
Donald Burke (VA Bar No. 76550)
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
May 20, 2021
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TABLE OF CONTENTS
Page
INTRODUCTION .......................................................................................................................... 1
COUNTERSTATEMENT OF MATERIAL FACTS ..................................................................... 2
A. Responses To Blue Flame’s Statement of Undisputed Material Facts ..................... 3
B. Additional Undisputed Facts ................................................................................... 14
ARGUMENT ................................................................................................................................ 15
I. Blue Flame Is Not Entitled To Summary Judgment On Its Claim Under UCC
Section 4A-404 Of The Uniform Commercial Code (Count I) ...................................... 16
A. The Cancellation Of The Wire Transfer Nullified Chain Bridge’s Acceptance ..... 16
B. Chain Bridge Had “Reasonable Doubt” Concerning Blue Flame’s Right To
Payment ................................................................................................................... 20
C. Blue Flame’s Breach Of Its Obligation Of Good Faith Bars Its Section 4A-
404(a) Claim ............................................................................................................ 21
D. Blue Flame Cannot Establish Damages Resulting From Chain Bridge’s Refusal
To Pay ..................................................................................................................... 22
E. Blue Flame Did Not Demand Payment From Chain Bridge ................................... 23
II. Blue Flame Is Not Entitled To Summary Judgment On Its Claim Under UCC
Section 4A-204 (Count II) .............................................................................................. 23
III. Blue Flame Is Not Entitled To Summary Judgment On Its Tortious Interference
Claims (Counts IV and V) .............................................................................................. 25
A. Blue Flame Had No Valid Contract Or Business Expectancy ................................ 25
B. Defendants Did Not Act With Any Wrongful Intent To Interfere .......................... 26
C. Defendants Did Not Employ Improper Methods .................................................... 27
D. Blue Flame Cannot Establish Damages .................................................................. 30
i
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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 F. App’x 189 (4th Cir. 2018).............................................................................28
Cashion v. Smith,
749 S.E.2d 526 (Va. 2013).................................................................................................28
Commerce Funding Corp. v. Worldwide Sec. Servs. Corp.,
249 F.3d 204 (4th Cir. 2001) .............................................................................................26
Duggin v. Adams,
360 S.E.2d 832 (Va. 1987).................................................................................................29
Dunlap v. Cottman Transmission Sys., LLC,
754 S.E.2d 313 (Va. 2014).................................................................................................27
Eisenberg v. Wachovia Bank, N.A.,
301 F.3d 220 (2002) ...........................................................................................................30
Gold v. Merrill Lynch & Co.,
No. 09-318-PHX-JAT, 2009 WL 2132698 (D. Ariz. July 14, 2009) ................................24
Hunter v. Holsinger,
No. 5:15-cv-00043, 2016 WL 1169308 (W.D. Va. Feb. 19, 2016), report
and recommendation adopted, 2016 WL 1223347 (W.D. Va. Mar. 24,
2016) ..................................................................................................................................26
Ma v. Merrill Lynch, Inc.,
597 F.3d 84 (2d Cir. 2010).................................................................................................24
Professional Recovery Servs., Inc. v. General Elec. Capital Corp.,
642 F. Supp. 2d 391 (D.N.J. 2009) ....................................................................................28
Regatos v. North Fork Bank,
838 N.E.2d 629 (N.Y. 2005) ..............................................................................................24
Regions Bank v. Provident Bank, Inc.,
345 F.3d 1267 (11th Cir. 2003) .........................................................................................18
Shirvinski v. United States Coast Guard,
673 F.3d 308 (4th Cir. 2012) .............................................................................................28
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Regulations and rule: Page
Uniform Commercial Code:
§ 1-304 ...............................................................................................................................21
§ 1-304 cmt. 1 ....................................................................................................................22
§ 1-304 cmt. 2 ....................................................................................................................21
§ 4A-104(a) ........................................................................................................................17
§ 4A-204 ......................................................................................................................23, 25
§ 4A-204(a) ............................................................................................................23, 24, 25
§ 4A-209(a) ........................................................................................................................25
§ 4A-211(c) ..................................................................................................................17, 20
§ 4A-211(c)(2) .............................................................................................................16, 17
§ 4A-211(c)(2)(ii) ........................................................................................................17, 18
§ 4A-211(e) ..................................................................................................................16, 17
§ 4A-211 cmt. 4 .................................................................................................................18
§ 4A-301(a) ........................................................................................................................25
§ 4A-404(a) ................................................................................................................ passim
§ 4A-404 cmt. 3 ...........................................................................................................20, 21
Fed. R. Civ. P. 56(a) ................................................................................................................15
Other Authorities:
Certificate of Deposit Account Registry Service, https://www.cdars.com ................................8
Restatement (Third) of Torts: Liability for Economic Harm (2020) .................................26, 29
iii
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Defendants Chain Bridge Bank, N.A. (Chain Bridge), John J. Brough, and David M.
Evinger submit this memorandum in opposition to the motion for partial summary judgment filed
by Plaintiff Blue Flame Medical LLC (Blue Flame).
INTRODUCTION
In March 2020, Blue Flame fraudulently induced California to purchase 100 million N95
masks that Blue Flame had no hope of ever supplying. When California’s down payment for that
transaction arrived at Chain Bridge—in the form of an eye-popping $456 million wire transfer for
Blue Flame’s benefit—Chain Bridge naturally had concerns about the transaction. So too did
California’s own bank, JPMorgan Chase Bank, N.A. (JPMorgan). So the bankers undertook an
investigation of a transaction that was full of red flags. Before long, Brough and Evinger spoke
with officials from the State of California and shared with them indisputably true information
about Blue Flame—that the company’s bank account was just a day old and had been opened by
a political lobbyist, rather than anyone with expertise in the medical-supply field. The California
officials were alarmed because Blue Flame had concealed that basic information.
Chain Bridge immediately placed a hold on the funds, and later accommodated JPMorgan’s
cancellation of the wire transfer by returning California’s funds to JPMorgan. In the following
weeks, Blue Flame sought to convince California officials to move forward with the purchase, but
California (understandably enough) declined to do business with Blue Flame.
In this litigation, Blue Flame claims that Chain Bridge’s decision to return California’s
funds violated the Uniform Commercial Code (UCC), as incorporated into Subpart B of the
Federal Reserve’s Regulation J. Blue Flame also claims that Defendants’ interactions with
California officials amounted to defamation and tortious interference with Blue Flame’s contract
and business expectancy with California.
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Those claims suffer from a raft of flaws, as we have explained in Defendants’ motion for
summary judgment. California’s wire transfer was cancelled, so it cannot support Blue Flame’s
claims under the UCC. Chain Bridge agreed to that cancellation under circumstances presenting
numerous red flags of suspicious and potentially fraudulent activity. Blue Flame’s own bad faith
also precludes it from availing itself of any UCC remedies. And as for Blue Flame’s state-law
claims, Defendants cannot be held liable for sharing indisputably true information with the
responsible California officials. Doing so was rightful, not tortious.
Those are all reasons that Defendants, not Blue Flame, are entitled to summary judgment
as to liability on all of Blue Flame’s claims. To make matters worse for Blue Flame, there is no
evidence that Blue Flame ever could have fulfilled California’s order for 100 million N95 masks.
Blue Flame’s inability to establish any damages resulting from Defendants’ conduct provides an
independent basis for granting summary judgment in Defendants’ favor.
In its motion for partial summary judgment, Blue Flame attempts to sidestep the latter
problem, at least, by requesting judgment only as to liability. But, of course, Blue Flame’s failure
of proof on causation and damages would be sufficient for this Court to enter judgment in
Defendants’ favor without considering any of Blue Flame’s liability arguments. And if the Court
does reach Blue Flame’s liability arguments, it will find them sorely wanting. Either way, Blue
Flame’s motion should be denied.
COUNTERSTATEMENT OF MATERIAL FACTS
There is no dispute as to the facts that are material to Blue Flame’s claims against
Defendants. See Opening Memo. 3-15. Defendants are nevertheless constrained, by Local Rule
56(B), to respond to Blue Flame’s mischaracterization and selective recitation of those undisputed
facts. To the extent that Defendants do not here dispute a particular factual assertion, that is for
purposes of this motion only. Defendants do not concede that Blue Flame’s factual assertions are
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material to the disposition of any of Blue Flame’s claims.1
A. Responses To Blue Flame’s Statement of Undisputed Material Facts
1. Defendants dispute Blue Flame’s assertion that Blue Flame was founded to provide
PPE “at fair prices,” which is unsupported by the cited deposition testimony. Defendants dispute
Blue Flame’s assertion here and in all subsequent paragraphs that Gula and Thomas had
relationships with “suppliers” of PPE, insofar as that term is used to refer to PPE manufacturers.
The cited materials do not support that assertion, and there is no evidence that Gula or Thomas
had any relationships with any PPE manufacturers, as opposed to companies that purported to act
as PPE brokers. See Ex. 2 (Thomas Tr.) at 51, 155.
2. Defendants do not dispute that Thomas began discussing Blue Flame’s ability to
deliver N95 masks and other PPE with California officials, including State Controller Betty Yee,
on March 20. As an additional material fact, Defendants state that Thomas was able to connect
with State Controller Betty Yee and other officials at the highest levels of California government
by falsely representing that Blue Flame had an immediately available supply of 100 million 3M
N95 masks at the Port of Long Beach. Ex. 13 at 200058; Ex. 14; Ex. 15; Ex. 12 at 200119.2 Thomas
1
Blue Flame’s statement of undisputed facts violates this Court’s Rule 16(b) Scheduling Order
because it is not presented in “numbered-paragraph form.” Dkt. No. 37, at ¶ 10.f. To facilitate
Defendants’ response, we have prepared an annotated version of Blue Flame’s memorandum with
paragraph numbering added. That version is attached hereto as Appendix A. Blue Flame’s
statement of undisputed facts also contains a series of argumentative point headings, which are not
supported by record citation as required by Local Civil Rule 56, and which, for the most part, are
not supported by the assertedly undisputed facts. Although Defendants do not separately respond
to these headings, Defendants should not be understood as agreeing with any of the headings.
Finally, we note that Blue Flame’s statement of undisputed facts frequently misattributes
statements made by Brough to Evinger, and vice versa. We do not note those errors individually
because they are not material to the issues presented for decision by Blue Flame’s motion.
2
Exhibits cited as Ex. 1 through Ex. 99 refer to exhibits to the Declaration of Donald Burke in
support of Defendants’/Third-Party Plaintiff’s motions for summary judgment, at Dkt. Nos. 130
and 131. Exhibits cited as Ex. 100 through Ex. 112 refer to exhibits to the Declaration of Donald
Burke filed in support of this memorandum.
3
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made those same misrepresentations to Controller Yee herself and they “put[] pressure on the state
to get a deal done as soon as possible.” Ex. 12 at 200119; Ex. 16 (Chivaro Tr.) at 73.
3. Defendants do not dispute that Thomas told Wong on March 22 that “everyone
requires prepayment.” Ex. 17 at 200135. As an additional material fact, Defendants state that the
day after the reversal of California’s wire transfer, Blue Flame informed officials at the Department
of General Services (DGS) that Blue Flame did not require pre-payment for the purchase of N95
masks after all, Ex. 12 at 200132; Ex. 2 (Thomas Tr.) at 240-41; and that Controller Yee told
Thomas that the conflicting information on prepayment created a “credibility issue” for Blue
Flame, Ex. 12 at 200133. Defendants do not dispute that Thomas provided Wong with an inventory
sheet for “Allocatable Inventory” from Great Health Companion (Great Health). Compare White
Ex. 9, with Ex. 20. Defendants dispute that Blue Flame could deliver any of the products or
inventory listed in the inventory sheet. Of orders for 2.82 million N95 masks that Blue Flame
received between March 30 and April 16, 2020, Blue Flame was able to fulfill only a single order
for 96,000 N95 masks (paid for by an anonymous donor), and even that was delayed and fulfilled
40 days after purchase. Ex. 73 at 163508-13; Ex. 22 (Faulkner Rep.) ¶¶ 72-73; see also Opening
Memo. 24-26 (collecting evidence that Blue Flame could not have fulfilled California’s order).
4. Defendants do not dispute that Thomas inquired of Great Health and Suuchi Inc.
about supplying N95 masks. Defendants dispute Blue Flame’s implication that Thomas inquired
of other potential vendors, which is not supported by record citations. Defendants do not dispute
that Great Health and Suuchi stated they could supply N95 masks in connection with California’s
order, but dispute Blue Flame’s implication that Great Health and Suuchi stated they could supply
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masks before Thomas responded to Wong on March 24.3
5. Defendants do not dispute that DGS signed a purchase order agreeing to purchase
100 million N95 masks from Blue Flame. Ex. 7. That purchase order contained California’s
standard procurement terms allowing California to suspend the order at any time or terminate the
order if in the State’s interest. Ex. 79 §§ 23(a), 39(a).4 Defendants do not dispute that California
prepared a wire transfer to Blue Flame as pre-payment of 75% of California’s order. Defendants
dispute Blue Flame’s implication that pre-payment was required to secure the allocation of N95
masks from Blue Flame’s suppliers. The day after the reversal of California’s wire transfer, Blue
Flame informed officials at the Department of General Services that Blue Flame did not require
pre-payment after all, undermining Blue Flame’s claim that pre-payment was ever necessary. Ex.
12 at 200132; Ex. 2 (Thomas Tr.) at 240-41.
Defendants dispute that Blue Flame “received confirmation on March 25” from Great
Health’s CEO, Henry Huang, that Great Health could deliver 100 million masks of the four specific
models California requested within 30 days, which is unsupported by the cited documents. On
March 26, in response to Thomas’s statement “Henry, Mike said you can get us 100m n95 over a
30 day period of time,” Huang responded that “we will give it all our efforts here to fight for the
3
Blue Flame cites evidence that Great Health and Suuchi responded to Blue Flame about their
supply on March 26, well after Thomas responded to Wong about Blue Flame’s capacity on March
24. Ex. 10 at 110970-71. The evidence Blue Flame cites in support of its statement that Thomas
told Wong that Blue Flame “could deliver at least 63 million units within 30 days” also
demonstrates that an hour prior to that, Thomas told Wong that Blue Flame could supply only “25
million a month” but that he could “huddle with my team and crunch the math super fast.” White
Ex. 5 at 200139. There is no record evidence that Thomas communicated with any of Blue Flame’s
putative suppliers before telling Wong that Blue Flame could deliver 63 million N95 masks within
30 days.
4
In a footnote (Memo. 4 n.3), Blue Flame describes California’s purchase order as “an internal
DGS purchase order.” Defendants dispute that characterization, which is not supported by the cited
evidence.
5
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most scarce resources during crazy times.” White Ex. 15 at 212725-26. As an additional material
fact, Defendants state that the initial version of Great Health’s purchase order sent to Thomas the
morning of March 26 did not list the four specific mask models that California required. Ex. 80.
In response, Blue Flame’s counsel stated he was “very concerned” that Great Health “doesn’t have
access to the masks we need.” Ex. 27 at 202859. The purchase order was modified shortly
thereafter to list the four models that California ordered, without any adjustments to the
contemplated delivery timeline. Ex. 81.
Defendants do not dispute that Thomas provided DGS Director Daniel Kim with a
spreadsheet listing delivery dates and quantities for the shipment of 100 million N95 masks the
evening of March 25. As an additional material fact, Defendants state that the delivery schedule
was fictitious. Blue Flame counsel Ethan Bearman circulated an initial version of the same
spreadsheet using “placeholders” for delivery quantities that showed a delivery of only 58 million
masks by April 30. Ex. 24; Ex. 21 (Bearman Tr.) at 192. Just ten minutes later, after conferring
with Thomas, Bearman circulated a revised version attached to an email titled “To get to 100MM,”
showing 100 million masks arriving by April 24. Ex. 25. Less than two hours after that, Bearman
circulated yet another version showing dramatically different delivery quantities for the 100
million masks. Ex. 19. Each schedule pretended that millions of N95 masks would arrive from
Great Health day after day—amounts that far exceeded those indicated in the “Products Catalogue”
that Blue Flame had received from Great Health, which showed an “Allocatable Inventory” of
only 470,000 N95 masks and a total “Monthly Capacity” of only 3.5 million N95 masks for the
manufacturers of the four specific models specified in California’s order. Ex. 20; Ex. 22 (Faulkner
Rep.) ¶ 67.
Defendants also dispute Blue Flame’s characterization of its delivery schedule insofar as
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Blue Flame suggests that there was nothing more than a “goal . . . to deliver the masks as soon as
possible.” DGS understood Blue Flame to have guaranteed delivery of 63 million masks within 30
days and expected delivery of all 100 million masks in “days or weeks.” Ex. 8 (Wong Tr.) at 71-
72; Ex. 10 at 110970-71; Ex. 11 (Kim Tr.) at 39. Blue Flame’s counsel understood that “Blue
Flame had until the end of April” to deliver masks to California. Ex. 106 (Bearman Tr.) at 209.
Defendants do not dispute that Blue Flame placed orders with Great Health and Suuchi for
N95 masks (for 100 million and 6 million masks, respectively), but Defendants dispute that those
orders provide evidence that Great Health or Suuchi could have supplied N95 masks to Blue
Flame. See ¶ 3, supra. Defendants further note that Blue Flame’s order with Great Health
contemplated delivery of only 20 million N95 masks in the first month. White Ex. 20. Even if
Great Health could have delivered on that schedule, that would have been well short of what was
required to fulfill California’s order on the agreed schedule.
7. Defendants dispute Blue Flame’s characterization of Gula’s call to Chain Bridge at
3:27 PM on March 25 to the extent it implies that Chain Bridge already had knowledge of the
amount of Blue Flame’s incoming wire transfer from California. There is no evidence that Blue
Flame informed Chain Bridge prior to that call that it would be receiving a wire transfer in excess
of $450 million.
8. Defendants dispute that Williamson intended to limit the California wire’s impact
on Chain Bridge’s capital ratios. Williamson testified that she was “trying to get a handle on what
might be the impact” of the incoming wire, but that she “hadn’t actually done any calculations or
had an opportunity to really analyze any of the impacts,” and “after further reflection” she did not
“believe it would have had a significant impact.” Ex. 101 (Williamson Tr.) at 98. Defendants do
not dispute that Brough stated to Schoeppe that “if this is true, we can’t hold that money on our
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balance sheet. He’s going to have to agree to have it go into a CDARS account or to an ICS
account.” White Ex. 32 at 3:08-3:19.5 As an additional material fact, Defendants state that Brough
made that statement “thinking in the interest of the client” because a client “should want FDIC
insurance” “for a sum of that size,” and CDARS and ICS are “full FDIC insurance options.” Ex.
100 (Brough Tr.) at 104-05.
9. Defendants dispute Blue Flame’s characterization that Gula “explained the relevant
details concerning the California transaction” to the extent it implies that Gula provided sufficient
information for Chain Bridge to complete its due diligence on the transaction. After their call with
Gula, Brough and Evinger continued to have “many unanswered questions” about the “legitimacy
of the wire.” Ex. 100 (Brough Tr.) at 125-26; see also Ex. 28 (Evinger Tr.) at 201. Brough and
Evinger also on the call requested documentation to support the transaction that was important to
verify the transaction’s legitimacy, which they never received. Ex. 107 (Evinger Tr.) at 194-95,
202; Ex. 100 (Brough Tr.) at 355. Defendants dispute that Brough and Evinger indicated that the
wire’s size would pose operational challenges for Chain Bridge, which is not supported by the
documents Blue Flame cites. Brough told Gula “[w]ell, we can handle this. We need to make sure
that we put you into fully FDIC insured product.” Ex. 100 (Brough Tr.) at 244.
10. Defendants do not dispute that Gula attached wire instructions to his email of 6:18
PM ET on March 25. Defendants state that the wire instructions were for “Wingar Industrial Inc.,”
with a line at the top stating “Great Health Companion Group Ltd Co.,” but without any
explanation of a relationship between the two entities. White Ex. 37. As an additional material
fact, Defendants state that Evinger searched online for Wingar Industrial and learned that the
5
CDARS refers to the Certificate of Deposit Account Registry Service. See
https://www.cdars.com/.
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company was a cutlery and flatware wholesaler. Ex. 40 (Brough Tr.) at 159-61; see Ex. 111
(www.wingar.com). There is no record evidence that Wingar Industrial is affiliated with Great
Health.
Defendants dispute that Gula forwarded Evinger and Brough a text message from Wong to
Thomas “confirming” that California would be paying Blue Flame in the morning. The document
Blue Flame cites is an email with an attached screenshot from John Thomas’s cell phone of an
email from “Wong, Michael@DGS” that says “Hi John, CA State Controller’s Office will be
paying you via wire transfer first thing in the morning.” It contains no identification of what “DGS”
refers to or who Michael Wong was. There was no official insignia designating the email as one
sent from the State of California. There was no date on the email to identify the time periods
referenced therein. See White Ex. 38.
11. Defendants dispute that they did not advise Gula during the call that Blue Flame
had provided insufficient information about the transaction with California. Brough and Evinger
asked Gula for “further documentation” on Gula’s new business, including copies “of any
contracts [Gula] had in place with purchasers or sellers.” Ex. 42; Ex. 44 at 4464; Ex. 28 (Evinger
Tr.) at 202; Ex. 40 (Brough Tr.) at 142-43. Evinger subsequently sent Gula an email stating that
Chain Bridge “look[ed] forward to receiving your information related to these contracts.” Ex. 45
at 13446. Defendants further state that Brough emailed others at the Bank and said the funds would
need to be moved off the balance sheet to “mak[e] sure that we do the right thing for the client”
and find an “FDIC insured” option. Ex. 100 (Brough Tr.) at 167.
12. Defendants do not dispute that Thomas told Cole he needed to confirm with
manufacturers that he had the funds from California and that the wire transfer was the “initial wire
that gets us so we can fill those other orders.” As an additional material fact, Defendants state that
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Thomas also told Cole on the call that he “kn[e]w this is extraordinary,” that he was “dying to
know when the wire lands in our account,” and that “confidentially, [Blue Flame] ha[s] several
billion dollars that we’re going to move through over the next like, few weeks,” White Ex. 40, all
of which raised additional red flags with Chain Bridge. Ex. 103 (Grice I Tr.) at 276; Ex. 53 (Grice
Rep.) ¶¶ 93-99.
14. Defendants do not dispute that Claburn emailed Chain Bridge personnel and stated
that the wire had been “received and credited to the client’s account,” but Defendants dispute any
implication that the funds were in fact credited to Blue Flame’s account. The funds were “memo
credited” to Blue Flame’s account, reflecting a pending transaction that would not become an
actual credit until the memo posting was processed overnight during Chain Bridge’s nightly batch
data processing. Ex. 101 (Williamson Tr.) at 101-02. There is no evidence that funds were ever
credited to or deposited into Blue Flame’s account.6
15. Defendants dispute that funds were “displayed” in Blue Flame’s account, which is
not supported by the cited deposition testimony or any documentary evidence. Defendants further
dispute any implication that the funds were credited to Blue Flame’s account. See ¶ 14, supra.
16. Defendants dispute Blue Flame’s description of a 12:02 PM ET call between Cole
and Thomas because the cited materials do not support that description. Defendants do not dispute
that Cole emailed other Chain Bridge employees, stating that Blue Flame would send out two wires
6
The activity report for Blue Flame’s account shows no history of any credits or debits to Blue
Flame’s account. Ex. 108. Chain Bridge’s general ledger for March 26 shows the funds associated
with California’s wire transfer deposited into Chain Bridge’s Federal Reserve account and leaving
that same account when returned to JPMorgan. Ex. 109; Ex. 100 (Brough Tr.) at 319-20; Ex. 101
(Williamson Tr.) at 154-58. The general ledger shows no funds deposited in Blue Flame’s
checking account on March 26, and “[i]f money was to be deposited into a client’s account, it
would be reflected on the general ledger” as a credit “to a liability account at the bank.” Ex. 100
(Brough Tr.) at 37, 320; see also Ex. 101 (Williamson Tr.) at 154-58.
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that day. Defendants state that Cole asked whether “[f]unds are available?” White Ex. 55 at 971.
Defendants do not dispute that Bearman emailed Cole at Thomas’s request. Defendants dispute
that Thomas could “confirm Blue Flame’s authorization” of outgoing wire instruction. Thomas
lacked authority to do so because he never executed Blue Flame’s account agreement. Ex. 31 at
555. As an additional material fact, Defendants state that the outgoing wire instructions Bearman
provided did not match the outgoing wire instructions that Gula had provided to Brough and
Evinger the evening of March 25. Compare White Ex. 56, with Ex. 45.
17. Defendants dispute Blue Flame’s assertion that Chain Bridge’s software system
showed a “Credit” to Blue Flame’s account, because the cited email shows that the “Transaction
Description” was “Memo Credit.” White Ex. 48 at 2673 (emphasis added). Defendants dispute that
there were concerns regarding how long California’s funds would be on deposit and dispute that
the ICS program had a maximum limit of less than one-third the amount of California’s wire
transfer. As Brough testified based on experience, ICS has a higher limit and is “very flexible with
clients” and will “give you far more than that.” Ex. 100 (Brough Tr.) at 255. In addition, if
necessary, Chain Bridge could have put funds in a CDARS account up to “50 million,” or could
have “purchased treasury bills, short-term treasury bills, and held them in custody” for Blue Flame.
Id. at 255-56. Finally, as Blue Flame’s own banking expert acknowledged, if Chain Bridge
nonetheless had concerns about the wire transfer having an impact on Chain Bridge’s balance
sheet, Chain Bridge could have simply closed Blue Flame’s account and issued Blue Flame a
cashier’s check for the balance. See Ex. 105 (O’Malley Tr.) at 68-69.
18. Defendants do not dispute that at 12:31 PM ET on March 26, Tim Coffey contacted
Chain Bridge and informed Evinger that JPMorgan was investigating the wire transfer. As an
additional material fact, Defendants state that Coffey told Chain Bridge that JPMorgan had
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“concerns of fraud engaged in” California’s wire transfer. Ex. 57; Ex. 58 (Coffey Tr.) at 64.
Defendants further do not dispute that Evinger told Coffey that Chain Bridge had already placed a
hold on the funds. As an additional material fact, Defendants state that Coffey was calling to ask
“Chain Bridge to hold on to the funds as there w[ere] concerns about the transaction,” Ex. 58
(Coffey Tr.) at 61, and that he asked Evinger “if they could either restrict or hold the funds,” id. at
66. Defendants dispute that Chain Bridge “falsely stated” that Blue Flame’s account had not been
credited. See ¶ 14, supra. Defendants dispute Blue Flame’s statement about what information was
significant to JPMorgan as not supported by the evidence that Blue Flame cites.
Defendants do not dispute that, at 12:44 PM ET, Rakesh Korpal, an Executive Director of
JPMorgan who led JPMorgan’s Fraud Payments Control Team (Ex. 47 (Korpal Tr.) at 26), called
Chain Bridge and spoke with Evinger and Brough. As an additional material fact, Defendants state
that during that call, Korpal told Evinger and Brough that JPMorgan’s Global Security and
Investigations Team was investigating the wire transfer and had reported that the transaction “does
not look right” and that JPMorgan’s research was “all leading to not-good places.” Ex. 59.
19. Defendants do not dispute that Fee Chang left a voicemail for Evinger in which she
stated that the wire transfer was “legitimate.” In that call, Chang requested that Evinger call her
back to verify the amount of the wire. Ex. 60. Defendants do not dispute that Chang told Brough
and Evinger that the wire transfer was a “good transfer.” Ex. 61. Evinger asked Chang for
“documentation” to support the transfer and told Chang that Chain Bridge wanted to “mak[e] sure
that [the] funds were transferred properly” because it was “obviously a sizable amount.” Id. Chang
asked if Evinger wanted to “reach out to our State Treasurer’s Office,” and Evinger accepted the
offer. Id. Defendants dispute Blue Flame’s argumentative characterization that Chang’s statements
were sufficient to “confirm[] the legitimacy” of the wire transfer.
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20. Defendants do not dispute that Natalie Gonzales and Mark Hariri from the State
Treasurer’s Office called Evinger and Brough, but Defendants dispute Blue Flame’s argumentative
characterization of that conversation. Evinger and Brough spoke with the State Treasurer’s Office
to “confirm that the wire was properly authorized” and that the funds “were intended to go to Blue
Flame,” Ex. 28 (Evinger Tr.) at 250-51; as part of their due diligence, they “wanted to make sure
that [Gonzales and Hariri] were comfortable wiring in the money to the account that had just been
opened,” Ex. 62 (Gonzales Tr.) at 50-51, 130; Ex. 28 (Evinger Tr.) at 252; see Ex. 28 (Evinger
Tr.) at 282; Ex. 40 (Brough Tr.) at 283-84. As an additional material fact, Defendants state that
Gonzales and Hariri were “surprised” to learn additional facts about Blue Flame, Ex. 28 (Evinger
Tr.) at 282; Ex. 40 (Brough Tr.) at 283, and asked Chain Bridge to “wait” to “credit[] the client
account” until they could “find out additional information.” Ex. 62 (Gonzales Tr.) at 50.
Defendants dispute Blue Flame’s assertion that Evinger falsely stated that the funds had not been
credited to Blue Flame’s account. See ¶ 14, supra.
21. Defendants dispute that JPMorgan requested a recall of the wire transfer based on
Korpal’s belief that Blue Flame’s account had not been credited, because that assertion is not
supported by Blue Flame’s cited evidence. Defendants dispute Blue Flame’s assertion that
JPMorgan sent a recall notice based on a request from Chain Bridge. Among other things. Coffey
told Chain Bridge at 1:37 PM ET that JPMorgan was “going to be recalling those funds” because
JPMorgan had “enough concerns that we feel we need to claw those funds back.” Ex. 64.
23. Defendants dispute Blue Flame’s argumentative characterization that Brough
“finally responded” to Gula’s email. Blue Flame is wrong to imply that Chain Bridge did not act
responsibly in its investigation of the wire transfer or its communications with Gula. Chain Bridge
took a “few hours” to “perform the necessary diligence” on the wire transfer and responded to
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Gula’s 1:34 PM ET email 20 minutes after it was sent. White Ex. 71; Ex. 103 (Grice I Tr.) at 271-
72.
24. & 25. Defendants dispute that Chain Bridge processed “a new payment order on Blue
Flame’s behalf” to return California’s funds to JPMorgan. Chain Bridge returned the California
wire transfer in response to JPMorgan’s cancellation request. That request was a Fedwire
“nonvalue message,” which are “not payment orders,” and originated with JPMorgan. Ex. 65; Ex.
86, Federal Reserve Operating Circular 6, at ¶ 13.1 (2019). Defendants dispute that Chain Bridge
returned (or was preparing to return) funds “in” Blue Flame’s account. See ¶ 14, supra.
B. Additional Undisputed Facts
The following additional facts are not in dispute.7
1. Blue Flame procured California’s order by misrepresenting its capabilities and
concealing material facts. Thomas told Yee that Blue Flame had 100 million 3M-manufactured
N95 masks immediately available at the Port of Long Beach, that Blue Flame had “almost sold
all” of that shipment but was “delivering another 100m units of n95 mask” to “hospitals and a
private buyer” in Florida, that Blue Flame would have “100m units every week,” and that Blue
Flame had direct access to “manufacturers in China.” Ex. 12 at 200119, 200121, 200124; Ex. 11
(Kim Tr.) at 36-37. None of those representations were true. Ex. 2 (Thomas Tr.) at 101, 103-04,
119-20, 155.
2. Blue Flame omitted or concealed other key details about its operations from the
State of California. It failed to disclose that Blue Flame was incorporated on March 23, that it had
no bank account until March 25, that Blue Flame had not delivered any N95 masks to any
7
For a fuller account of the material undisputed facts demonstrating Defendants’ entitlement
to summary judgment, Defendants refer to their memorandum in support of their motion for
summary judgment against Blue Flame. See Opening Memo. 3-15.
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customer, that neither principal of Blue Flame had any experience in medical supply importation,
and that Blue Flame did not have an office in California. Ex. 11 (Kim Tr.) at 82-84; Ex. 18
(Sturmfels Tr.) at 210-13; Ex. 8 (Wong Tr.) at 120-22; Ex. 16 (Chivaro Tr.) at 127-31.
3. Blue Flame’s misrepresentations and omissions were critical to California’s
decision to do business with Blue Flame. See, e.g., Ex. 16 (Chivaro Tr.) at 73-74, 78, 128, 130;
Ex. 11 (Kim. Tr.) at 85.
4. When Gula came to Chain Bridge on March 25 to open an account for Blue Flame,
he ignored warnings from Blue Flame’s counsel to disclose California’s incoming wire (see Ex.
32) and instead falsely reported to Chain Bridge that Blue Flame expected 25 incoming domestic
wires per month totaling only $75 million, and that Blue Flame was in the “[m]edical consulting”
business, rather than an import/export company. Ex. 30; Ex. 31. If Chain Bridge had known that
Blue Flame expected a $456 million wire transfer that same day from the State of California, or
that Blue Flame’s business was the importation and sale of N95 masks, Chain Bridge would not
have opened Blue Flame’s account without conducting additional due diligence. Ex. 33.
5. After Brough informed Gula by email that Chain Bridge had “received official
notice from the sending bank to return the wire” and told Gula to “[p]lease resolve directly with
the state of California,” Ex. 67 at 650, but before Chain Bridge had returned the funds to JPMorgan,
Gula went to Chain Bridge and met with Brough and Evinger around 2:30 PM. Gula apologized
for the transaction and did not object to the return of the funds to JPMorgan. Ex. 40 (Brough Tr.)
at 305-06; Ex. 110 (Gula Tr.) at 207.
ARGUMENT
Summary judgment is appropriate when the “movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
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56(a). As we have previously explained (Opening Memo. 14-30), the undisputed evidence
demonstrates that each of Blue Flame’s claims fails as a matter of law. Thus, Defendants are
entitled to summary judgment in their favor, and Blue Flame’s motion should be denied.
I. Blue Flame Is Not Entitled To Summary Judgment On Its Claim Under UCC Section
4A-404 Of The Uniform Commercial Code (Count I)
Blue Flame contends (Memo. 14) that Chain Bridge is “liable for consequential damages”
under UCC Section 4A-404(a) because it “accepted the payment order [JPMorgan] sent on behalf
of California but ultimately prevented Blue Flame from accessing the funds despite the
impossibility of cancellation.” That claim fails—and Chain Bridge is entitled to summary
judgment—for each of the reasons explained in our memorandum in support of Defendant’ motion
for summary judgment. In addition, Blue Flame fails to establish that it ever made a demand for
payment from Chain Bridge.
A. The Cancellation Of The Wire Transfer Nullified Chain Bridge’s Acceptance
The premise underlying Blue Flame’s Section 4A-404(a) claim is that, because Chain
Bridge accepted JPMorgan’s payment order transmitting California’s wire transfer, Chain Bridge
was required to pay California’s funds to Blue Flame. See Blue Flame Memo. 14-19. But that
premise does not support liability against Chain Bridge, because the wire transfer was cancelled.
As Blue Flame appears to acknowledge (Memo. 14-19), the cancellation of a payment order
nullifies the consequences of acceptance, UCC § 4A-211(e), thereby eliminating the obligation of
a beneficiary’s bank (here, Chain Bridge) to pay its customer under Section 4A-404(a). Blue Flame
nonetheless contends that cancellation of California’s wire transfer was not possible under the
circumstances of this case. That contention is incorrect.
1. Blue Flame argues that California’s wire transfer could not be cancelled because, it says,
none of the circumstances for an effective cancellation set forth in UCC Section 4A-211(c)(2) were
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present. As noted above, however, “[i]f an accepted payment order is canceled, the acceptance is
nullified and no person has any right or obligation based on the acceptance.” UCC § 4A-211(e).
Under the plain text of that rule, any cancellation of a payment order nullifies the consequences of
acceptance—whether or not the conditions for effective cancellation are satisfied.
But even if cancellation must be “effective” within the meaning of UCC Section 4A-211(c)
to nullify the consequences of acceptance, that requirement is satisfied here as well. First, Chain
Bridge plainly agreed to JPMorgan’s cancellation by returning the funds in response to
JPMorgan’s service message, as was required to make JPMorgan’s post-acceptance cancellation
effective. See UCC § 4A-211(c). Second, the payment order was eligible for effective cancellation
because there was “a mistake by a sender in the funds transfer which resulted in the issuance of a
payment order . . . that order[ed] payment to a beneficiary not entitled to receive payment from the
originator.” Id. § 4A-211(c)(2)(ii). As we have previously explained, the undisputed evidence
establishes both of these requirements as a matter of law: California’s wire transfer was sent by
“mistake,” because California originated the transfer only as a result of having been misled about
Blue Flame’s bona fides as a PPE supplier, and Blue Flame was “not entitled to receive payment
from” California, id., because Blue Flame fraudulently procured California’s order. See Opening
Memo. 16-17.8
2. Blue Flame conspicuously makes no effort to refute that California originated the wire
8
Section 4A-211(c)(2) provides for effective cancellation based on “a mistake by a sender in
the funds transfer,” UCC § 4A-211(c)(2) (emphasis added), and does not require a mistake by the
sender of the particular payment order that is sought to be cancelled. A “funds transfer” is “the
series of transactions, beginning with the originator’s payment order, made for the purpose of
making payment to the beneficiary of the order.” Id. § 4A-104(a). Here, California was the sender
of the payment order to JPMorgan that initiated the wire transfer. Thus, although JPMorgan (rather
that California) was the sender of the payment order that Chain Bridge received and which
JPMorgan cancelled, California’s mistake was a basis for effective cancellation under Section 4A-
211(c)(2).
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transfer only because it was misled by Blue Flame, or to show that Blue Flame was entitled to
receive payment from California despite Blue Flame’s misrepresentations and concealment of
material facts. Instead, Blue Flame’s position is that neither point matters: According to Blue
Flame (Memo. 15-16), a post-acceptance cancellation can never be effective if “the sender has
intentionally sent a payment order containing accurate payment and beneficiary information.”
Blue Flame thus argues that Section 4A-211(c)(2)(ii) is limited to cases of mistaken
identity, where a payment order “mistakenly orders payment to a beneficiary different from the
one the originator intended to pay.” Blue Flame Memo. 15 n.6. The only authority Blue Flame can
marshal for that atextual limitation on Section 4A-211(c)(2)(ii)’s scope is “Case #3” set forth in
the Official Comment to Section 4A-211, which addresses a case of mistaken identity. But the
cited comment is clear that this is merely an “example[]” to “illustrate subsection (c)(2).” UCC
§ 4A-211 cmt. 4. That does not suggest that Section 4A-211(c)(2)(ii)’s generic reference to
“mistake” is limited to mistaken identity.
3. There is likewise no merit to Blue Flame’s suggestion (Memo. 16-18) that permitting
cancellation of California’s wire transfer would undermine Article 4A’s policy goals of finality in
funds transfers and avoiding disruption of the contractual obligations of the originator and
beneficiary. Whatever the force of those policy interests as a general matter, they have no
application in a case like this one, where the beneficiary is not entitled to receive payment because
of its own fraud. Under these circumstances, there was no valid contractual obligation to “disrupt,”
and a misguided focus on “finality” would disserve public policy by leaving a wrongdoer with the
fruits of its own misconduct. Article 4A cannot be used as “a shield for fraudulent activity” in this
manner. Regions Bank v. Provident Bank, Inc., 345 F.3d 1267, 1276 (11th Cir. 2003).
Blue Flame also overlooks critical policy interests that cut overwhelmingly in the opposite
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direction, not the least of which is that “[d]etecting, preventing, and reporting COVID-19-related
scams and illicit activity is critical to our national security . . . and protecting innocent people from
harm.” Ex. 77 at 1 (FinCEN Notice). As we have explained (Opening Memo. 18-20), the policy
interests at stake were so substantial that Chain Bridge may well have faced regulatory jeopardy if
it had refused JPMorgan’s cancellation request and had instead paid Blue Flame, in the face of
multiple red flags of potential illegality. The fact that Chain Bridge’s agreement to honor
JPMorgan’s cancellation request furthered critical public policies provides additional grounds to
conclude that cancellation was permissible under these circumstances.
4. Even Blue Flame does not believe its own wooden account of Chain Bridge’s obligations
under Section 4A-404(a). While much of Blue Flame’s brief proceeds on the assumption that
Chain Bridge was required to blind itself to all of the red flags of potential fraud and simply release
California’s funds to Blue Flame, Blue Flame ultimately concedes that Chain Bridge “could have
held the funds while completing its due diligence on Blue Flame’s transaction with California.”
Blue Flame Memo. 26. That concession is fatal to Blue Flame’s claim because it demonstrates that
Chain Bridge did not act unlawfully in refusing to pay Blue Flame. After all, it is a bank’s refusal
to pay that triggers liability for damages under Section 4A-404(a). If that decision was lawful, then
there is no basis for an award of damages against Chain Bridge.
Blue Flame appears to contend (Memo. 26) that while continuing to hold the funds would
have been lawful, returning them to JPMorgan was an independent violation of Section 4A-404(a).
But Blue Flame offers no argument in support of that contention, and there is no textual or logical
basis for treating a bank’s holding versus returning the funds differently under a statute that permits
recovery only for “damages resulting from the refusal to pay.” UCC § 4A-404(a).
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B. Chain Bridge Had “Reasonable Doubt” Concerning Blue Flame’s Right To
Payment
Blue Flame also asserts (Memo. 22-23) that the undisputed facts negate Chain Bridge’s
defense that it had “a reasonable doubt concerning the right of [Blue Flame] to payment.” UCC
§ 4A-404(a). Blue Flame has it backwards. The same red flags that triggered Chain Bridge’s
concerns about potential fraud were sufficient grounds (to say the least) for “reasonable doubt”
concerning Blue Flame’s right to payment. Thus, Chain Bridge, rather than Blue Flame, is entitled
to summary judgment on the “reasonable doubt” defense. See Opening Memo. 20 n.10.
Once again, Blue Flame makes no effort to refute that the wire transfer gave rise to multiple
substantial red flags of suspicious and potentially fraudulent activity. Nor could it, given that the
undisputed evidence shows they were not just red, but crimson. See Opening Memo. 18-20.
Instead, Blue Flame insists that those red flags are irrelevant because the “reasonable
doubt” defense “does not apply where the beneficiary’s bank refuses to make payment due to
concerns that its customer is engaged in fraud.” Blue Flame Memo. 22. That argument rests
entirely on the Official Comment to Section 4A-404(a), which states that the defense “does not
apply to cases in which a funds transfer is being used to pay an obligation and a dispute arises
between the originator and the beneficiary concerning whether the obligation is in fact owed,”
including a scenario in which the originator alleges “that the beneficiary is not entitled to payment
because of fraud against the originator.” UCC § 4A-404 cmt. 3. The comment also states that
“[u]nless the payment order has been cancelled pursuant to Section 4A-211(c), there is no excuse
for refusing to pay the beneficiary.” Id.
Blue Flame’s reliance on comment 3 is misplaced for at least two reasons. First, the
comment’s conclusion rests on the premise that “the originator of a funds transfer cannot cancel a
payment order to the beneficiary’s bank . . . because the originator is not the sender of that order.”
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UCC § 4A-404 cmt. 3. That rationale is inapplicable here. Chain Bridge received a cancellation
request from JPMorgan, the sender of the relevant payment order that Chain Bridge had received.
Even if this Court ultimately concludes that Chain Bridge’s agreement to honor that cancellation
request was not effective to nullify Chain Bridge’s acceptance of the payment order, there is no
question that JPMorgan was the proper party to seek cancellation of the payment order. The
cancellation thus supplied grounds for reasonable doubt as to Blue Flame’s right to the funds—in
a way that an attempted cancellation by the originator of a funds transfer would not.
Second, comment 3 focuses on disputes between “the originator and the beneficiary,” and
states that the reasonable doubt defense does not apply in the context of “fraud or breach of contract
claim[s] of the originator.” UCC § 4A-404 cmt. 3 (emphasis added). Here, however, Chain Bridge
harbored reasonable doubts as to Blue Flame’s right to payment based on its own suspicions of
fraud (informed, in part, by the information Chain Bridge received from JPMorgan and from
California officials). In light of specific warnings from regulators about potential fraud related to
COVID-19, the multiple red flags presented by the transaction, Blue Flame’s misrepresentations
to Chain Bridge during account opening, JPMorgan’s own concerns of fraud, and JPMorgan’s
cancellation request, Chain Bridge had ample reason to doubt the legitimacy of the transaction.
That, in turn, establishes Chain Bridge’s “reasonable doubt” defense under Section 4A-404(a).
C. Blue Flame’s Breach Of Its Obligation Of Good Faith Bars Its Section 4A-
404(a) Claim
Blue Flame’s claim under UCC Section 4A-404(a) is also independently barred by its
failure to act in good faith. As we have previously explained (Opening Memo. 21-22), “[e]very
contract or duty within the [UCC] imposes an obligation of good faith in its performance and
enforcement,” UCC § 1-304, “includ[ing] the exercise of rights created by the [UCC],” id. § 1-304
cmt. 2. Accordingly, a party that has breached its obligation of good faith cannot enforce rights
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created by the UCC, including the alleged obligation under Section 4A-404(a) that Blue Flame
seeks to enforce against Chain Bridge here. See id. § 1-304 cmt. 1.
Blue Flame failed to act in good faith in at least two ways. See Opening Memo. 21-22.
First, Blue Flame misrepresented and concealed material aspects of its business, experience, and
relationships in procuring an order from California. See pp. 14-15, supra. Second, Blue Flame
misrepresented its anticipated account activity and the nature of its business to Chain Bridge when
it sought to open an account, thereby leading Chain Bridge to open an account that it otherwise
would not have opened without additional investigation. See p. 15, supra; Opening Memo. 21-22.
Those breaches of Blue Flame’s obligation to act in good faith justify summary judgment for Chain
Bridge, not Blue Flame, on Count I.
D. Blue Flame Cannot Establish Damages Resulting From Chain Bridge’s
Refusal To Pay
As we have previously explained (Opening Memo. 22-27), summary judgment for Chain
Bridge is also warranted because Blue Flame has no evidence of damages resulting from Chain
Bridge’s refusal to pay. California had an unfettered right to terminate its order from Blue Flame,
as Blue Flame appears to acknowledge by conceding (Memo. 29) that its contract with California
was terminable at will. Thus, Blue Flame could not have forced California to proceed with the
transaction over California’s objection—and that was true whether or not Blue Flame received
California’s funds. See Opening Memo. 22-24. Moreover, there is no record evidence that Blue
Flame would have successfully fulfilled California’s order even if Blue Flame had received
California’s funds. There is no evidence that Blue Flame had any source of supply to fulfill
California’s order, and Blue Flame’s consistent failures to fulfill other customers’ orders for N95
masks demonstrate that it could not have fulfilled California’s order. See id. at 24-26.
Blue Flame attempts to gloss over this failure of proof by requesting only a partial summary
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judgment that “Chain Bridge is liable for damages in an amount to be proven at trial.” Blue Flame
Memo. 19. But there is no question that Blue Flame must demonstrate “damages resulting from
the refusal to pay” as an element of its claim under Section 4A-404(a). The absence of evidence
on this element justifies summary judgment in Chain Bridge’s favor and thus requires that Blue
Flame’s motion be denied.
E. Blue Flame Did Not Demand Payment From Chain Bridge
Blue Flame is wrong to contend (Memo. 20-21) that the undisputed evidence establishes
that it demanded payment from Chain Bridge, as is required to establish liability under Section
4A-404(a). Blue Flame points to instructions that Thomas provided to Chain Bridge by email to
send an outgoing wire to Suuchi, but Thomas had no authority to deliver those instructions because
he never executed Blue Flame’s account agreement. Counterstatement of Material Facts, supra,
¶ A.16. Moreover, Thomas’s instructions to wire funds to Suuchi contradicted the wire
information that Chain Bridge had received from Gula, Blue Flame’s only authorized signer, the
previous day. Id. ¶ A.10. And when Gula learned that Chain Bridge would return California’s
funds, he did not demand payment; instead he apologized in person for the transaction and did not
object. Id. ¶ B.5. Accordingly, Blue Flame never made any demand for payment.
II. Blue Flame Is Not Entitled To Summary Judgment On Its Claim Under UCC Section
4A-204 (Count II)
Blue Flame seeks summary judgment as to liability on Count II of its Complaint, which
asserts an alternative claim under UCC Section 4A-204. That claim presumes that the wire transfer
was not canceled (Blue Flame Memo. 14), so the effective cancellation here precludes it. Count
II also fails on its own terms. Section 4A-204 requires a “receiving bank” 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 or unenforceable against the customer. UCC § 4A-204(a). It thus
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covers a situation in which a bank receives and acts on an unauthorized payment order purporting
to come from its customer.9 As we have previously explained, Section 4A-204(a) is inapplicable
here because Chain Bridge returned California’s funds to JPMorgan in response to JPMorgan’s
cancellation request. Chain Bridge never received a payment order purporting to come from Blue
Flame, so it could not—and did not—accept such a payment order. Accordingly, Chain Bridge is
entitled to summary judgment on Count II. See Opening Memo. 26-27.
At the motion to dismiss stage, Blue Flame conceded that, “[i]f discovery establishes that”
the California wire transfer was returned in response to “a cancellation request made by
California’s bank, . . . this Count would not survive upon a motion for summary judgment.” Dkt.
No. 27, at 15 n.8. In an effort to retreat from that correct concession—which plainly dooms Count
II—Blue Flame now contends (Memo. 24) that Chain Bridge is liable because it “unilaterally
created and accepted an unauthorized payment order on behalf of Blue Flame.” But Blue Flame
does not point to any payment order that listed Blue Flame as the sender or otherwise purported to
come from Blue Flame. Instead, Blue Flame cites only the payment order that Chain Bridge sent
to JPMorgan to effectuate the return of California’s funds. See White Ex. 75. That payment order
listed Chain Bridge as the sender, not Blue Flame. See Ex. 68.10 Thus, it was not “a payment order
9
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); Regatos
v. North Fork Bank, 838 N.E.2d 629, 630-31 (N.Y. 2005); 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]”).
10
Blue Flame cites a record of the payment order from Chain Bridge’s own internal systems,
which designates the transfer as “Outgoing” (meaning that Chain Bridge was the sender). White
Ex. 75. The record of the payment order from the Fedwire Funds Processor system lists Chain
Bridge as the sender. Ex. 68.
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issued in the name of [Chain Bridge’s] customer as sender,” UCC § 4A-204(a) (emphasis added),
as would be required to establish liability on Count II.
Nor could Chain Bridge “accept” its own payment order by sending it to JPMorgan. “[A]
receiving bank other than the beneficiary’s bank accepts a payment order when it executes the
order.” UCC § 4A-209(a). And “[a] payment order is ‘executed’ by the receiving bank when it
issues a payment order intended to carry out the payment order received by the bank.” UCC § 4A-
301(a). In other words, a bank does not execute the payment order that it issues to the next bank
in the funds transfer; rather, the issuance of that conforming payment order to the next bank
constitutes execution of the prior “payment order received by the bank.” Id. (emphasis added).
Here, as just explained, there was no such prior payment order: Chain Bridge did not receive any
payment order in connection with the cancellation of California’s wire transfer that it could have
accepted, which means that Section 4A-204(a) is inapplicable by its terms.11
III. Blue Flame Is Not Entitled To Summary Judgment On Its Tortious Interference
Claims (Counts IV and V)
Blue Flame also seeks summary judgment as to liability on its claims for tortious
interference with contract and tortious interference with business expectancy. See Memo. 27-30.
Summary judgment should be denied on those claims because there is no evidence that Blue Flame
had a valid contract or business expectancy with California, that Defendants acted with a wrongful
intent to interfere, or that Defendants employed any improper methods. Thus, Defendants—not
Blue Flame—are entitled to summary judgment on Blue Flame’s tortious interference claims.
A. Blue Flame Had No Valid Contract Or Business Expectancy
Blue Flame is wrong in contending (Memo. 27) that Blue Flame had a valid contract and
11
Blue Flame’s request for summary judgment on Count II is independently foreclosed by
Blue Flame’s bad faith misconduct. Compliance with the obligation of good faith is a predicate to
enforcement of any duties under the UCC, including Section 4A-204. See pp. 21-22, supra.
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business expectancy with California. As explained above (at 14-15), Blue Flame procured
California’s order through fraudulent misrepresentations and concealment of material facts. When
a plaintiff has “procured the counterparty’s consent to the contract by fraud,” the contract is not
“valid in substance” and the plaintiff accordingly has no “legitimate contractual expectations”
warranting protection through a tort claim. Restatement (Third) of Torts: Liability for Economic
Harm § 17 cmt. k (2020); see also, e.g., Hunter v. Holsinger, No. 5:15-cv-00043, 2016 WL
1169308, at *14 (W.D. Va. Feb. 19, 2016) (contract that is “unenforceable because of fraud . . .
could not form the basis of a tortious interference claim”), report and recommendation adopted,
2016 WL 1223347 (W.D. Va. Mar. 24, 2016).12
B. Defendants Did Not Act With Any Wrongful Intent To Interfere
Blue Flame contends (Memo. 28-29) that the intent element of its tortious interference
claims is established because Defendants knew that interference was “certain or substantially
certain to occur as a result” of their actions. Commerce Funding Corp. v. Worldwide Sec. Servs.
Corp., 249 F.3d 204, 212-13 (4th Cir. 2001). That is so, Blue Flame urges, because informing
California officials that Blue Flame’s bank account was a day old and that the company had been
founded by a political operative was “reasonably calculated to cause California to re-think its
transaction with Blue Flame.” Blue Flame Memo. 28.
Blue Flame’s argument is the definition of chutzpah. If sharing indisputably true facts
about Blue Flame was “substantially certain” to cause California to revisit its decision to do
business with Blue Flame, that is so only because Blue Flame had withheld that information from
California. Blue Flame cites no principle of law and nothing in the evidentiary record to support
12
Even if Blue Flame had a contract with California that was valid in substance, there is no
evidence that Defendants caused any breach of that contract, which was terminable at will by
California. See Opening Memo. 30.
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its mistaken premise that Defendants were required to assume that Blue Flame was perpetrating a
fraud on the State of California.13
C. Defendants Did Not Employ Improper Methods
As Blue Flame correctly acknowledges (Memo. 29), its tortious interference claims require
proof that Defendants employed “improper methods.” Dunlap v. Cottman Transmission Sys., LLC,
754 S.E.2d 313, 318 (Va. 2014). But Blue Flame has no proof of that element.
1. In its Complaint, Blue Flame premised its tortious interference claims on allegations that
Defendants “unilaterally contacted California officials and accused Blue Flame of fraud, without
basis.” Compl. ¶¶ 128, 137. But Blue Flame now retreats from that theory, presumably because it
is unsupported by any evidence. In particular, there is no evidence that Defendants ever accused
Blue Flame of fraud, and the information that Chain Bridge did share with California officials—
that Blue Flame’s account had been opened the previous day by a political lobbyist—was
indisputably true. See Opening Memo. 28-29.
Instead, Blue Flame now argues for the first time (Memo. 29-30) that Defendants acted
improperly by contacting California officials at all, which Blue Flame describes as a departure
from “established standards of banking industry practice.” But Blue Flame cites no authority for
the astonishing proposition that liability for tortious interference may be premised on indisputably
true statements made to government officials to help ensure that hundreds of millions of dollars in
taxpayer funds were not diverted to a wrongdoer. It should go without saying that Defendants were
free to communicate with California officials to verify the wire transfer, and that they were under
13
On March 27, the FBI visited Dan Kim, Director of California’s DGS, “alluded to the fact
that the Chinese company was already under investigation,” and asked Kim if he “was aware that
[Thomas] just formed his company a week ago and the bank account was established two days
ago.” Ex. 112 (Kim Tr.) at 138, 140. Kim replied, “I was not aware at the time, but I am now
aware.” Id. at 138. But it was Blue Flame’s obligation not to conceal that key information.
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no obligation to assist Blue Flame in concealing material facts from the State.
Unsurprisingly, Blue Flame’s theory has no legal support. Just as communications
“between persons on a subject in which the persons have an interest or duty” are privileged against
a defamation claim, Adler v. Virginia Commonwealth Univ., 259 F. Supp. 3d 395, 409 (E.D. Va.
2017), aff’d, 709 F. App’x 189 (4th Cir. 2018), so too are they insufficient to support a claim for
tortious interference, see Shirvinski v. United States Coast Guard, 673 F.3d 308, 322 (4th Cir.
2012). Here, Defendants’ statements to California officials were privileged because both Chain
Bridge and California had a shared interest in investigating the wire transfer to verify its validity.
See Professional Recovery Servs., Inc. v. General Elec. Capital Corp., 642 F. Supp. 2d 391, 401
(D.N.J. 2009). Blue Flame cannot overcome that privilege because Defendants’ statements were
true—not knowingly or recklessly false, malicious, or made in bad faith. See Cashion v. Smith,
749 S.E.2d 526, 533 (Va. 2013). It follows that Defendants’ diligence communications with
California officials were appropriate and rightful, not tortious.
Blue Flame also fails to articulate any connection between the aspect of Defendants’
conduct that it now contends was unlawful—Defendants’ decision to contact California officials
directly—and any alleged interference with the California transaction. Critically, Blue Flame does
not contend that there was anything unusual or unlawful about Defendants’ diligence
communications with JPMorgan, in which Chain Bridge shared the very same information that it
shared with California officials. Ex. 59. And it is undisputed that the California officials were also
in close contact with JPMorgan regarding the wire transfer. E.g., Ex. 47 (Korpal Tr.) at 21-22; Ex.
66. What difference could it possibly have made whether California learned that Blue Flame was
a brand-new entity formed by political operatives from Chain Bridge, or from its own bank,
JPMorgan? Blue Flame offers not even a hint.
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Finally, Defendants’ decision to contact California officials cannot support Blue Flame’s
tortious interference claims because there is no evidence that this decision violated any
“established standard” in the banking industry. Duggin v. Adams, 360 S.E.2d 832, 837 (Va.
1987).14 Testimony by one California official that it was “not typical” or was “unusual” (White
Ex. 42 (Gonzales Tr.) at 97-98) to be contacted by a counterparty’s bank does not demonstrate an
established industry standard forbidding that practice. Testimony from Blue Flame’s Bank Secrecy
Act expert that it is “unusual” to contact a noncustomer or testimony from JPMorgan’s expert that
this was not “highly usual” also does not demonstrate such an established industry standard. White
Ex. 83 (O’Malley Tr.) at 264; White Ex. 82 (Pesce Tr.) at 27-28. By contrast, Defendants’ banking
expert testified that it is “normal for a bank to contact the counterparty to the wire transfer directly”
in circumstances like these, and that in his current role as Chief Compliance Officer at a bank in
New York he directs the bank to “call originators” to “understand what a transaction represents”
about “once [a] month.” Ex. 103 (Grice I Tr). at 291, 294; see id. at 292, 294-96. And Chain
Bridge’s Senior Vice President and Branch Manager Heather Schoeppe testified that it is “pretty
standard practice” to “reach[] out to clients on the other side of transactions to verify the details of
those transactions.” Ex. 102 (Schoeppe Tr.) at 258-59. On this evidentiary record, no reasonable
factfinder could conclude that Defendants violated any established industry standard.
14
Although Blue Flame is correct that the Virginia Supreme Court has posited that “[m]ethods
. . . may be improper because they violate an established standard of a trade or profession,” Duggin,
360 S.E.2d at 837, we are unaware of any decision of that court upholding liability for tortious
interference based on that theory. That theory has also been rejected by the Restatement (Third) of
Torts, which requires an “independent and intentional legal wrong” by the defendant to establish
liability for tortious interference with economic expectation. Restatement (Third) of Torts:
Liability for Economic Harm § 18(b) (2020); see also id. cmt. f (explaining that the rules governing
interference with economic expectation also govern interference with a contract that is terminable
at will). At a minimum, this theory would require extraordinarily compelling evidence of a clearly
established industry norm. See id. cmt. b (stressing the need to “provide[] potential defendants
with clear guidance about where their exposure to liability starts and stops”).
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2. Blue Flame briefly suggests (Memo. 30) that Defendants employed improper methods
by “actively avoid[ing] discussing” California’s wire with Blue Flame after it was received. But
Blue Flame offers no evidence of any departure from an established industry practice. Blue Flame
says only that standard practice would be to request additional information from a customer to
address concerns about a transaction. Brough and Evinger did that—and Blue Flame failed to
provide the requested documentation. Ex. 42; Ex. 44 at 4464; Ex. 28 (Evinger Tr.) at 202; Ex. 40
(Brough Tr.) at 142-43. Instructing Chain Bridge employees not to contact Blue Flame while Chain
Bridge investigated the transaction was consistent with industry standards. Ex. 103 (Grice I Tr.) at
271-72. And in all events, Blue Flame does not articulate any connection between those
instructions and any alleged interference with the California transaction.
3. Blue Flame also contends (Memo. 29) that Defendants employed improper methods
because their conduct “violated Chain Bridge’s obligations under the UCC and Regulation J.” That
premise is wrong. See Opening Memo. 16-22; pp. 16-25, supra. In any event, Blue Flame’s attempt
to bootstrap an alleged violation of Regulation J into claims for tortious interference is preempted
by federal law. As the Fourth Circuit has emphasized, Subpart B of Regulation J “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 (2002). Because Chain Bridge’s decision to honor JPMorgan’s cancellation of
California’s wire transfer is plainly “conduct . . . covered under Subpart B,” id., Blue Flame cannot
pursue common-law claims premised on that decision.
D. Blue Flame Cannot Establish Damages
Blue Flame also cannot establish damages resulting from Defendants’ alleged tortious
interference. See Opening Memo. 30. Defendants are entitled to summary judgment on that
additional ground, which also requires that Blue Flame’s motion be denied.
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Date: May 20, 2021 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)
ROBBINS, RUSSELL, ENGLERT, ORSECK
& UNTEREINER 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 May 20, 2021, 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. (VA Bar No. 32310) Meredith K. Loretta, Esq. (VA Bar No. 92369)
SCHULTE ROTH & ZABEL LLP WILMER CUTLER PICKERING HALE &
901 Fifteenth Street, NW, Suite 800 DORR LLP
Washington, DC 20005 1875 Pennsylvania Avenue NW
Phone: (202) 729-7476 Washington, DC 20006
Fax: (202) 730-4520 Phone: (212) 663-6981
Email: peter.white@srz.com Email: meredith.loretta@wilmerhale.com
Counsel for Plaintiff Counsel for Third-Party Defendant
/s/ Donald Burke
Donald Burke (VA Bar No. 76550)
ROBBINS, RUSSELL, ENGLERT,
ORSECK & UNTEREINER 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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