Full text
Nos. 21-2218, 21-2219
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BLUE FLAME MEDICAL LLC,
Plaintiff-Appellant,
v.
CHAIN BRIDGE BANK, N.A.,
Defendant and Third-Party Plaintiff-Appellee.
JOHN J. BROUGH; DAVID M. EVINGER,
Defendants-Appellees,
v.
JPMORGAN CHASE BANK, N.A.,
Third-Party Defendant-Appellant.
On Appeal from the United States District Court
for the Eastern District of Virginia, No. 1:20-cv-00658-LMB-IDD
Before the Honorable Judge Leonie M. Brinkema
BRIEF FOR THIRD-PARTY DEFENDANT-APPELLANT
JPMORGAN CHASE BANK, N.A.
ALBINAS J. PRIZGINTAS
WILMER CUTLER PICKERING
HALE AND DORR LLP
1875 Pennsylvania Ave. NW
Washington, DC 20006
(202) 663-6000
albinas.prizgintas@wilmerhale.com
MARGARITA BOTERO
WILMER CUTLER PICKERING
HALE AND DORR LLP
1225 Seventeenth St. Suite 2600
Denver, CO 80202
(720) 274-3135
margarita.botero@wilmerhale.com
ALAN E. SCHOENFELD
MARISSA W. MEDINE
WILMER CUTLER PICKERING
HALE AND DORR LLP
7 World Trade Center
250 Greenwich St.
New York, NY 10007
(212) 937-7518
alan.schoenfeld@wilmerhale.com
December 22, 2021
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12/01/2019 SCC
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UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
DISCLOSURE STATEMENT
x
In civil, agency, bankruptcy, and mandamus cases, a disclosure statement must be filed by all
parties, with the following exceptions: (1) the United States is not required to file a disclosure
statement; (2) an indigent party is not required to file a disclosure statement; and (3) a state
or local government is not required to file a disclosure statement in pro se cases. (All parties
to the action in the district court are considered parties to a mandamus case.)
x
In criminal and post-conviction cases, a corporate defendant must file a disclosure statement.
x
In criminal cases, the United States must file a disclosure statement if there was an
organizational victim of the alleged criminal activity. (See question 7.)
x
Any corporate amicus curiae must file a disclosure statement.
x
Counsel has a continuing duty to update the disclosure statement.
Caption: __________________________________________________
Pursuant to FRAP 26.1 and Local Rule 26.1,
______________________________________________________________________________
(name of party/amicus)
______________________________________________________________________________
who is _______________________, makes the following disclosure:
(appellant/appellee/petitioner/respondent/amicus/intervenor)
1.
Is party/amicus a publicly held corporation or other publicly held entity?
YES
NO
2.
Does party/amicus have any parent corporations?
YES
NO
If yes, identify all parent corporations, including all generations of parent corporations:
3.
Is 10% or more of the stock of a party/amicus owned by a publicly held corporation or
other publicly held entity?
YES
NO
If yes, identify all such owners:
No. __________
21-2218, 21-2219
JPMorgan Chase Bank, N.A. v. Chain Bridge Bank, N.A.
JPMorgan Chase Bank, N.A.
appellant
✔
✔
JPMorgan Chase Bank, N.A. is a wholly-owned subsidiary of JPMorgan Chase & Co., which is
a publicly held corporation. JPMorgan Chase & Co. does not have a parent corporation.
✔
No publicly held corporation owns 10% or more of JPMorgan Chase & Co.'s stock. However,
The Vanguard Group, Inc., an investment adviser which is not a publicly held corporation, has
reported that registered investment companies, other pooled investment vehicles and
institutional accounts that it or its subsidiaries sponsor, manage or advise have aggregate
ownership under certain regulations of 10% or more of the stock of JPMorgan Chase & Co.
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4.
Is there any other publicly held corporation or other publicly held entity that has a direct
financial interest in the outcome of the litigation?
YES
NO
If yes, identify entity and nature of interest:
5.
Is party a trade association? (amici curiae do not complete this question)
YES
NO
If yes, identify any publicly held member whose stock or equity value could be affected
substantially by the outcome of the proceeding or whose claims the trade association is
pursuing in a representative capacity, or state that there is no such member:
6.
Does this case arise out of a bankruptcy proceeding?
YES
NO
If yes, the debtor, the trustee, or the appellant (if neither the debtor nor the trustee is a
party) must list (1) the members of any creditors’ committee, (2) each debtor (if not in the
caption), and (3) if a debtor is a corporation, the parent corporation and any publicly held
corporation that owns 10% or more of the stock of the debtor.
7.
Is this a criminal case in which there was an organizational victim?
YES
NO
If yes, the United States, absent good cause shown, must list (1) each organizational
victim of the criminal activity and (2) if an organizational victim is a corporation, the
parent corporation and any publicly held corporation that owns 10% or more of the stock
of victim, to the extent that information can be obtained through due diligence.
Signature: ____________________________________
Date: ___________________
Counsel for: __________________________________
✔
✔
✔
✔
/s/ Alan Schoenfeld
11/10/2021
JPMorgan Chase Bank, N.A.
Print to PDF for Filing
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TABLE OF CONTENTS
Page(s)
TABLE OF AUTHORITIES ................................................................................... iii
INTRODUCTION ..................................................................................................... 1
JURISDICTION ......................................................................................................... 4
ISSUES PRESENTED ............................................................................................... 4
STATEMENT OF THE CASE .................................................................................. 5
A.
Legal Background ................................................................................. 6
B.
Factual Background ............................................................................... 8
1.
March 25, 2020: One Day Before The Wire ............................. 8
2.
March 26, 2020: The Day Of The Wire ................................... 10
a.
JPMC releases the wire to Chain Bridge ........................ 10
b.
Chain Bridge immediately holds the wire and
repeatedly contacts California ........................................ 11
c.
Chain Bridge requests and obtains the wire’s return ...... 12
d.
The parties’ agreement concerning the wire’s return ..... 16
e.
Chain Bridge severs its relationship with Blue Flame ... 18
C.
This Lawsuit ........................................................................................ 18
1.
Blue Flame’s complaint and Chain Bridge’s third-party
complaint ................................................................................... 18
2.
District court’s summary judgment opinion ............................. 19
LEGAL STANDARD .............................................................................................. 22
SUMMARY OF ARGUMENT ............................................................................... 23
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ARGUMENT ........................................................................................................... 26
I.
INDEMNIFICATION UNDER U.C.C. § 4A-211(f) IS INAPPLICABLE BECAUSE
THE RECEIVING BANK—CHAIN BRIDGE—REQUESTED AND DIRECTED
THE CANCELLATION ....................................................................................... 26
A.
Chain Bridge Canceled the Wire ......................................................... 29
B.
Chain Bridge Directed The Cancellation For Its Own Reasons ......... 32
II.
JPMC AND CHAIN BRIDGE AGREED TO THE WIRE’S RETURN WITHOUT
INDEMNITY ..................................................................................................... 37
III.
CHAIN BRIDGE CANNOT ESTABLISH CAUSATION ........................................... 46
CONCLUSION ........................................................................................................ 51
REQUEST FOR ORAL ARGUMENT ................................................................... 53
CERTIFICATE OF COMPLIANCE
ADDENDUM
CERTIFICATE OF SERVICE
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TABLE OF AUTHORITIES
CASES
Page(s)
Abbasid, Inc. v. First National Bank of Santa Fe,
2010 WL 11509114 (D.N.M. Feb. 19, 2010) ................................................ 37
Adkinson v. International Harvester Co.,
975 F.2d 208 (5th Cir. 1992) ................................................................... 28, 36
Burrage v. United States,
571 U.S. 204 (2014)................................................................................... 8, 47
Covol Fuels No. 4, LLC v. Pinnacle Mining Co., LLC,
785 F.3d 104 (4th Cir. 2015) ......................................................................... 23
Dataflow, Inc. v. Peerless Insurance Co.,
2014 WL 148685 (N.D.N.Y. Jan. 13, 2014) ................................................. 43
Donmar Enterprises, Inc. v. Southern National Bank of North Carolina,
64 F.3d 944 (4th Cir. 1995) ........................................................................... 26
Equitable Life Assurance Society of United States v. Okey,
812 F.2d 906 (4th Cir. 1987) ......................................................................... 37
Holmes v. Securities Investor Protection Corp.,
503 U.S. 258 (1992)................................................................................... 8, 47
Horton v. United States,
622 F.2d 80 (4th Cir. 1980) ........................................................................... 29
In re Total Realty Management, LLC, 706 F.3d 245 (4th Cir. 2013) ...................... 38
Kunik v. New York City Department of Education,
436 F. Supp. 3d 684 (S.D.N.Y. 2020) ........................................................... 45
Mellon Investor Services, LLC v. Longwood Country Garden Centers, Inc.,
263 F. App’x 277 (4th Cir. 2008) .................................................................. 28
National Organization for Marriage, Inc. v. United States,
24 F. Supp. 3d 518 (E.D. Va. 2014) .............................................................. 47
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News & Observer Publishing Co. v. Raleigh-Durham Airport Authority,
597 F.3d 570 (4th Cir. 2010) ......................................................................... 46
Paroline v. United States,
572 U.S. 434 (2014)....................................................................................... 47
Reyazuddin v. Montgomery County,
789 F.3d 407 (4th Cir. 2015) ......................................................................... 23
Service & Training, Inc. v. Data General Corp.,
963 F.2d 680 (4th Cir. 1992) ......................................................................... 43
United States v. Seckinger,
397 U.S. 203 (1970)....................................................................................... 29
W.A. Stratton Construction v. Butler Manufacturing Co.,
1992 WL 159107 (W.D. Va. June 23, 1992) ................................................. 44
White v. Johns-Manville Corp.,
662 F.2d 243 (4th Cir. 1981) ............................................................. 28, 29, 35
STATUTES, RULES, AND REGULATIONS
28 U.S.C.
§ 1291 .............................................................................................................. 4
§ 1331 .............................................................................................................. 4
Uniform Commercial Code
§ 1-103 ................................................................................................. 8, 28, 37
§ 1-201 ..................................................................................... 7, 21, 24, 38, 39
§ 4A-105 ........................................................................................................ 31
§ 4A-106 ........................................................................................................ 32
§ 4A-210 .................................................................................................. 30, 31
§ 4A-211 .................................................................................................passim
Fed. R. App. P. 4 ........................................................................................................ 4
Fed. R. Civ. P. 56 ..................................................................................................... 22
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12 C.F.R.
§§ 210.25-210.32 ............................................................................................. 5
§ 210.25 ........................................................................................................... 5
OTHER AUTHORITIES
42 C.J.S. Indemnity § 2 (2021) ................................................................................ 29
Restatement (Second) of Contracts § 202 (1981) .................................................... 44
Webster’s Ninth New Collegiate Dictionary (1990) ................................................ 27
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INTRODUCTION
In the early days of the COVID-19 pandemic, amidst a worldwide frenzy for
personal protective equipment, Chain Bridge Bank sought reversal of a suspicious
incoming $456 million wire transfer based on concerns about the beneficiary of the
wire—its own client—and the bank’s own viability. The wire was designated for a
newly formed client of the bank, an outfit run by a pair of political lobbyists
claiming that it could source 100 million N95 masks for the State of California.
Ultimately, based on its own concerns, Chain Bridge persuaded the sending bank,
JPMorgan Chase Bank, N.A. (JPMC), to accommodate the reversal. But now,
having been sued by its client, Chain Bridge demands indemnification from JPMC
for any losses caused by Chain Bridge’s own actions. Article 4A of the Uniform
Commercial Code, which governs the wire transfer at issue in this appeal, does not
permit that result.
Article 4A’s indemnification provision, § 4A-211(f), addresses a
cancellation sought and directed by the sending bank—for example, where the
originator of the transaction (here, California) informs its sending bank (here,
JPMC) that something is wrong. Maybe the originator gave the wrong account
number or discovered that the transaction was unauthorized. The sending bank
then tries to help its client, which originated the wire, get the money back. In that
situation, the beneficiary’s bank (here, Chain Bridge) knows nothing about the
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originator’s situation and only wants to protect its client’s (here, Blue Flame’s)
money, both due to significant client-relations interests and to avoid any legal
exposure for acceding to the sender’s request. U.C.C. § 4A-211(f) provides a
reluctant receiving bank an incentive to agree to a reversal that is requested “by the
sender”—indemnification of any resulting losses.
This extraordinary case is different, and none of the circumstances providing
for indemnification under § 4A-211(f) applies. That section states the rule plainly:
“Unless otherwise provided in an agreement of the parties …, if the receiving bank
… agrees to cancellation … of the order by the sender,” the sender must indemnify
the receiving bank for “any loss and expenses … incurred … as a result of the
cancellation[.]” Here, the receiving bank did not “agree[] to cancellation … of the
order by the sender,” but rather canceled the order itself. Moreover, the parties had
an “agreement” that provided for no indemnification. And, finally, any loss or
expense to Chain Bridge did not come “as a result of the cancellation.”
Based on its own concerns about the wire, Chain Bridge took decisive steps
to halt and ultimately reverse it. The bank placed an immediate hold on the funds
so that its client, Blue Flame, could not access them. It then shared its concerns
directly with California, which was not even its customer—an extraordinary act for
a bank. And Chain Bridge engaged its internal team responsible for Bank Secrecy
Act compliance on the theory that the wire might implicate money laundering or
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other concerns. On the originating side of the transaction, JPMC undertook its
own investigation and carefully considered the information Chain Bridge shared
about Blue Flame, which JPMC had no reason to know.
Chain Bridge was so intent on returning the funds that it proposed it—twice.
Chain Bridge first raised the matter with California directly, insisting that it would
be “happy to return the wire.” The State declined. Chain Bridge then asked JPMC
to issue a recall. As JPMC explained to Chain Bridge, because the funds were
already being held safely, JPMC had no need to take them back. But JPMC
promised to consider Chain Bridge’s request further. A few minutes later, JPMC
agreed to Chain Bridge’s request and sent Chain Bridge a reversal message in
order to facilitate the proper recrediting of the funds back to California.
The discussions between the banks made clear to both sides that JPMC
would not be obligated to indemnify Chain Bridge. And that makes perfect
sense—Chain Bridge itself requested the reversal. Chain Bridge had its own
reasons for reversing the wire, calculated the risks, and decided that they were
worth it. Chain Bridge wanted nothing more to do with Blue Flame; as soon as the
reversal went through, Chain Bridge closed Blue Flame’s account. And instead of
agreeing with their wire specialist’s suggestion to secure an indemnification
guarantee from JPMC before reversing the wire, the President and CEO of Chain
Bridge told their staff to execute the reversal straight away because, “It is what it is
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… [T]his is what we have to do.” Chain Bridge and JPMC had already agreed to
return the wire without any indemnity obligation by JPMC.
Chain Bridge now seeks indemnification from JPMC for any loss and
expenses it may incur in the underlying litigation initiated by Blue Flame. The
district court correctly granted Chain Bridge summary judgment against Blue
Flame, but erred granting Chain Bridge summary judgment on its indemnification
claim against JPMC. The district court’s decision granting indemnification should
be reversed. At minimum, there are genuine issues of fact that preclude judgment
in Chain Bridge’s favor and this case should proceed to trial on the indemnification
claim.
JURISDICTION
The district court had jurisdiction over Chain Bridge’s third-party
indemnification claim under 28 U.S.C. § 1331. This Court has jurisdiction under
28 U.S.C. § 1291. The district court entered final judgment on September 23,
2021, after granting Chain Bridge’s motion for summary judgment and denying
JPMC’s motion for summary judgment. JA3099. JPMC timely appealed on
October 21, 2021. JA3104-3106; see Fed. R. App. P. 4(a).
ISSUES PRESENTED
Whether, under U.C.C. § 4A-211(f), a “receiving bank” (Chain Bridge) is
entitled to indemnification from a “sender” (JPMC) of a wire transfer where:
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1.
The receiving bank requested and directed the cancellation of the wire
transfer for its own reasons.
2.
The receiving bank and the sender agreed on cancellation of the wire
transfer without indemnification, as reflected in their discussions and course of
conduct.
3.
The receiving bank would have deprived its beneficiary client of
access to the wire transfer funds regardless of the sender’s actions.
STATEMENT OF THE CASE
This case concerns a wire transfer for $456,888,600 that was sent and
reversed on March 26, 2020. The participants were the State of California, the
originator of the wire; JPMC, California’s bank; Blue Flame, the intended
beneficiary of the wire; and Chain Bridge, Blue Flame’s bank. The main events
concerning this extraordinary transaction happened quickly, over the course of
several hours.
Because the wire was processed over the Federal Reserve’s Fedwire Funds
Service, a national interbank system for processing wire transfers, it is governed by
regulations issued by the Federal Reserve Board, including Subpart B of its
Regulation J. 12 C.F.R. §§ 210.25-210.32. Subpart B of Regulation J incorporates
Article 4A of the U.C.C. Id. § 210.25(b)(1). Chain Bridge brings its
indemnification claim under U.C.C. § 4A-211(f).
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A.
Legal Background
U.C.C. § 4A-211(f) concerns the indemnification obligation that can arise
from the cancellation of a wire transfer. It states in full:
Unless otherwise provided in an agreement of the parties or in a
funds-transfer system rule, if the receiving bank, after accepting a
payment order, agrees to cancellation or amendment of the order by
the sender or is bound by a funds-transfer system rule allocating
cancellation or amendment without the bank’s agreement, the sender,
whether or not cancellation or amendment is effective, is liable to the
bank for any loss and expenses, including reasonable attorney’s fees,
incurred by the bank as a result of the cancellation or amendment or
attempted cancellation or amendment.
U.C.C. § 4A-211(f).
Three features of § 4A-211(f) are relevant here. First, indemnification is
available only “if the receiving bank” (Chain Bridge) “agrees to cancellation … of
the order by the sender” (JPMC). The text thus contemplates a cancellation sought
and obtained by “by the sender.” U.C.C. § 4A-211(f).
The official commentary explains the rationale for this requirement. A
receiving bank ordinarily faces “substantial risks in agreeing to cancellation,” and
thus is “reluctant” to do so. U.C.C. § 4A-211(f) cmt. 5. Those risks include
“alienat[ing] its customer, the beneficiary, by denying the customer the funds.” Id.
In the ordinary case, the originator of the transaction informs its sending bank of a
problem—for example, the wire was unauthorized or a mistake—and the sending
bank then tries to get its client’s money back. See U.C.C. § 4A-211(c)(2); id. cmt.
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4 (listing examples of cancellations, including where payment order “was not
authorized by the [originator] customer and was fraudulently issued”). The
receiving bank’s position is different: Knowing nothing about the originator’s
situation, it wants to protect its client’s funds. See id. cmt. 5 (recognizing that the
receiving bank “may not have any way of knowing whether the requirements” for
an effective cancellation “have been met”); see also JA1484 ¶ 51 (“[I]n the
paradigm case, the beneficiary’s bank is acting on information communicated by
the sending bank and with respect to facts and circumstances outside the
beneficiary’s bank’s knowledge.”). A reversal thus threatens a receiving bank’s
client relationship, as well as legal exposure. So when the receiving bank does
“agree[]” to cancellation “by the sender,” U.C.C. § 4A-211(f), it does so at its own
peril, “as an accommodation to the sender,” id. cmt. 5. Indemnification under
§ 4A-211(f) thus operates as an incentive for the reluctant receiving bank to
consent to the sending bank’s cancellation request.
Second, any obligation to indemnify under § 4A-211(f) is overridden by “an
agreement of the parties.” U.C.C. § 4A-211(f). An “agreement” is a defined
statutory term meaning “the bargain of the parties in fact,” as “distinguished from
‘contract,’” and it can be found in the parties’ “language or inferred from other
circumstances, including course of performance, course of dealing, or usage of
trade.” Id. § 1-201(b)(3).
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Third, § 4A-211(f) limits indemnification to the “loss and expenses …
incurred … as a result of the cancellation.” U.C.C. § 4A-211(f). The phrase “as a
result of” imposes a causal limit, requiring a showing of but-for and proximate
causation. See, e.g., Burrage v. United States, 571 U.S. 204, 210-212 (2014)
(“courts regularly read phrases like ‘results from’ to require but-for causality”);
Holmes v. Securities Inv. Prot. Corp., 503 U.S. 258, 267-268 (1992) (“by reason
of” requires both but-for and proximate cause). This means that an indemnified
party must show both that it would not have incurred its claimed “loss and
expenses” absent the indemnitor’s conduct and that its “loss and expenses” were
reasonably foreseeable consequences of the indemnitor’s conduct.
Finally, Article 4A does not exist in a legal vacuum. Unless displaced,
“principles of law and equity … supplement” the U.C.C., including Article 4A.
U.C.C. § 1-103(b); see id. cmt. 2 (“The Uniform Commercial Code was drafted
against the backdrop of existing bodies of law, including the common law and
equity, and relies on those bodies of law to supplement its provisions in many
important ways.”).
B.
Factual Background
1.
March 25, 2020: One Day Before The Wire
On the afternoon of March 25, 2020, Blue Flame’s CEO called Chain Bridge
and informed the bank that California would be sending Blue Flame “an
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unbelievably large wire transfer in the amount of $450 million.” JA139-140 ¶ 11.
Blue Flame’s CEO, Michael Gula, was a longstanding Chain Bridge client, having
been with the bank since 2010 and at the time holding many deposit accounts
there, including business and personal. JA379. As he relayed, the wire was
purportedly for personal protective equipment: “[W]e’re buying 100 million
masks for the State of California from China.” JA3142 at 0:20-0:27; JA3071. At
this early stage of the pandemic, scams related to COVID-19 transactions were
running rampant; federal regulators had warned banks that “[d]etecting,
preventing, and reporting COVID-19-related scams and illicit activity is critical to
our national security, safeguarding legitimate relief efforts, and protecting innocent
people from harm.” JA1145.
Chain Bridge employees quickly circulated the news about Blue Flame
within the bank, with dismay and concern. The manager of Chain Bridge’s
commercial banking team called the wire “massive” and warned that it could cause
“problems on our capital ratios” as it was “half our asset size.” JA167; JA170.
Within hours, top Chain Bridge executives—including the President (David
Evinger), CEO (John Brough), and Chairman of the Board of Directors (Peter
Fitzgerald)—became involved, and all expressed serious concerns about the
anticipated wire. See JA172 (email from Brough stating, “David and I are very
skeptical … Peter also thinks it is a scam.”); JA3144. They worried about the
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wire’s effect on Chain Bridge’s capital requirements. See JA3143 at 3:07-3:20;
JA3144 at 2:26-2:30. They discussed the bank’s need to get the funds off its books
quickly. JA164 (“need it off of the books asap”); JA172 (“[T]here is no way we
can hold it on our balance sheet.”). They were concerned that accepting the wire
would violate Bank Secrecy Act obligations, and, that same day, Chain Bridge
engaged its internal Bank Secrecy Act team. JA3143 at 11:51-11:54.
Most importantly, they doubted whether Blue Flame, Chain Bridge’s own
client, had a right to the funds—expressing skepticism about the transaction and
calling it a “scam.” JA172; see JA3143 at 8:23-9:45 (“Seems too good to be
true.”); JA207-208. As Chain Bridge knew based on its longstanding relationship
with Blue Flame’s CEO, he had no experience in the medical supply chain and had
never transacted in such a massive amount. See JA172; JA3143 at 8:23-9:45;
JA207-208. Chain Bridge’s internal wire transfer policy has a mandatory directive
for situations like this; with respect to incoming wires, it requires: “If there is any
question as to the beneficiary’s right to the funds … the wire will be returned.”
JA226 (emphasis added).
2.
March 26, 2020: The Day Of The Wire
a.
JPMC releases the wire to Chain Bridge
The next day, at 11:21 a.m., the California State Treasurer’s Office (STO),
through its bank, JPMC, originated the $456,888,600 wire transfer for Blue
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Flame’s benefit using the Federal Reserve’s Fedwire platform. JA140 ¶ 15;
JA231-232. Upon the wire’s arrival at JPMC, it triggered an alert in JPMC’s
suspicious-activity system. JA243. JPMC promptly called the STO to confirm
that the wire was valid; the STO confirmed that it was. Id. Thus, at 11:55 a.m.—
with confirmation from its client (California), but no knowledge of Chain Bridge’s
concerns about its own client (Blue Flame)—JPMC used Fedwire to send the funds
to Chain Bridge. JA140 ¶¶ 15-16; JA254.
b.
Chain Bridge immediately holds the wire and repeatedly
contacts California
Within minutes of the wire’s arrival at Chain Bridge—and before Chain
Bridge personnel ever spoke with JPMC—Chain Bridge placed the funds on hold.
JA256; JA260; JA185-186. That hold prevented Blue Flame from accessing the
funds (see JA185-186), which Blue Flame had insisted it needed immediately to
complete the transaction with California. See, e.g., JA30-31 ¶ 56; JA2930 (Blue
Flame principal informing Chain Bridge on March 25 that “we definitely need
same day” outbound wire transfers); JA2485 (Blue Flame attempting to coordinate
outbound wire transfer to supplier at 12:14 p.m. on March 26). After Chain Bridge
placed the hold—and, again, before speaking with JPMC—Chain Bridge made
three calls to California, a stranger to Chain Bridge, about the wire. JA281-282.
Chain Bridge told a representative from California’s Department of General
Services (DGS) that Chain Bridge needed to talk to someone from California about
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the wire to determine if it was legitimate. JA326. According to the STO, it is
extremely unusual for a counterparty bank to contact California, as a non-customer
sender, to discuss concerns about a wire. JA337-338. Expert testimony
underscored the point, explaining that such behavior is rare as a matter of industry
practice. JA1480; JA1494.
c.
Chain Bridge requests and obtains the wire’s return
At about 12:30 p.m., Tim Coffey, from the Payment Controls Team at
JPMC, called Chain Bridge and spoke with its President, Evinger. JA141 ¶ 19.
While JPMC had already released the wire to Chain Bridge, it continued to
conduct due diligence on the transaction. See JA364; see also JA2395-2396.
Evinger told Coffey that Chain Bridge suspected problems with the wire and was
holding the funds. JA364. Evinger further disclosed that Chain Bridge had
contacted California to discuss the wire. Id. Coffey shared that JPMC too had
concerns and would be in further contact with Chain Bridge. JA355-356.
At 12:44 p.m., Rakesh Korpal of JPMC, the head of the Payments Controls
Team (and Coffey’s supervisor), called Chain Bridge and spoke with Evinger and
Brough (Chain Bridge’s CEO). JA141 ¶ 20. On that call, Chain Bridge shared
information about Blue Flame: that the Blue Flame account was brand new, that it
had been opened by an existing client of about 10 years who was a lobbyist, and
that the size of the wire was unusual for this client. JA3133 at 0:39-2:40. JPMC
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knew none of that information before Chain Bridge shared it. At the end of the
call, JPMC and Chain Bridge agreed that both banks would further investigate the
wire and remain in contact. Id. at 5:57-6:23.
Meanwhile, in response to Chain Bridge’s inquiries, California and Chain
Bridge spoke further. At 12:51 p.m., a DGS representative left a voicemail for
Chain Bridge confirming that the wire was legitimate. JA3132 at 0:19-0:26.
Brough and Evinger returned the call at 12:55 p.m. and requested to be put in
contact with the STO. JA3134 at 0:42-0:47. Two representatives of the STO then
called Chain Bridge at 1:19 p.m. and spoke with Brough and Evinger about the
wire. JA141 ¶ 23. The STO representatives confirmed that Blue Flame was the
intended beneficiary. JA214. Evinger, however, shared information similar to
what he had conveyed to JPMC: that the Blue Flame account had been opened the
day before the wire and that the client who opened the account was a lobbyist.
JA335-336. Chain Bridge then—independently and without having discussed the
matter with JPMC—offered to return the wire to California, declaring that Chain
Bridge would be “happy to return [it].” JA383. California declined. The STO
representatives responded that “they did not want [Chain Bridge] to return the
money at that stage.” JA215.
About 15 minutes later, at 1:34 p.m., Brough and Evinger called Korpal.
JA141 ¶ 24. Despite the fact that California had just advised that it did not want a
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return of the money at that time, Chain Bridge continued to press for the wire’s
return—and more directly. Specifically, Evinger asked Korpal if there was “any
way for JPMorgan to issue a recall for the wire.” JA3135 at 0:04-0:09. Korpal
said he felt “comfortable” with Chain Bridge’s continued “holding” of the funds
but asked for a “few more minutes” to consider the request. Id. at 0:14-0:33.
Had Chain Bridge not requested the recall, JPMC “would not have issued
the recall request because [Chain Bridge] said they were holding the funds.”
JA246-247. JPMC had no need to recall the funds; they were secure in Chain
Bridge’s possession. JA2464 (“There was not a need for [JPMC] to call the funds
back” because the “funds were being held by Chain Bridge Bank”). On further
consideration of Chain Bridge’s request for reversal, however, Korpal instructed
Coffey to contact Chain Bridge and to accommodate it. JA364. Korpal was the
one who made the decision to accommodate the request; Coffey, as a subordinate,
just executed Korpal’s instruction. JA359; see also JA2453 (Coffey explaining
that he “was not privy to any of the conversations that drove the decision for the
funds to be returned”).
Following Korpal’s instructions, at 1:37 p.m., Coffey spoke with Brough
and Evinger. JA141 ¶ 26. Coffey stated: “We’re going to be recalling those
funds, okay? We have enough concerns that we feel we need to call those funds
back.” JA3136 at 0:06-0:14. He then asked Chain Bridge, “What are you looking
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for from us?” Id. at 0:14-0:18. Chain Bridge responded that they would “like
official communication from JPMorgan to us to recall the funds,” and also
requested that JPMC “send it over the Fedline platform.” Id. at 0:18-0:26. Coffey
agreed to do so: “Yup, that’s not a problem.” Id. at 0:26-0:30.
At 2:05 p.m., in response to Chain Bridge’s reversal request, JPMC sent
Chain Bridge a Fedwire service message bearing the Fedwire “Type/Subtype
Code” “1001,” which, per the Fedwire Format Reference Guide, refers to a
“Request for Reversal.” JA142 ¶ 29; JA390; JA467. The message stated: “AS
PER REM REQ PLS RETURN FUNDS QUOTING OUR REF. PLS TAKE
CARE TO AVOID DUPLICATION.” JA468. Reversal messages operate “to
reverse the accounting entries effected to accounts at the Federal Reserve.”
JA2476. JPMC’s reversal message both “tied the reversal to the original [w]ire
[t]ransfer,” an “important” “housekeeping and accounting matter,” and also
eliminated the potential for human error in returning the funds. Id.; see also
JA2483 (Brough testifying that the requested reversal message was the “neater and
tidier” form of returning the funds).
At 3:21 p.m., Chain Bridge returned the wire to JPMC via Fedwire message.
JA142 ¶ 32; JA412. JPMC then returned the wire to California’s account at JPMC
by 4:02 p.m. JA142 ¶ 34; JA467. California decided not to reissue the wire or
move forward with the Blue Flame transaction. JA481; JA507.
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d.
The parties’ agreement concerning the wire’s return
The arrangement between Chain Bridge and JPMC to return the wire was
made pursuant to certain conditions, including, by Chain Bridge’s express request
and JPMC’s express acquiescence, that JPMC send a request in writing via
Fedwire. JA3136 at 0:18-0:26. During their interactions, JPMC and Chain Bridge
never explicitly addressed indemnity. But the parties’ discussions and course of
conduct confirmed that indemnification was not necessary, appropriate, sought, or
expected to facilitate the return. See supra pp.12-15. Chain Bridge’s actions and
substantive concerns about the wire made clear to JPMC that Chain Bridge wanted
the wire returned for its own reasons and concerns. See id. So when Chain Bridge
called JPMC and asked that JPMC “issue a recall for the wire,” JPMC agreed to do
that without providing indemnification, as both Chain Bridge and JPMC
understood.
Reflecting that mutual understanding, Chain Bridge’s President and CEO
disclaimed the need for indemnification upon inquiry from the bank’s own wire-
transfer specialist (Claudia Mojica-Guadron), an operations technician with more
than two decades’ experience handling wire transfers. Specifically, on a call
ending at about 1:43 p.m.—before Chain Bridge had seen JPMC’s reversal
message—the following conversation took place:
Operations Technician (Mojica-Guadron): Are we getting an
indemnity letter from Chase?
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President (Evinger): You’re going to get a Service Bureau message
through Fedline. … Just return it to the same place it came from. …
So, you will be getting something from Chase imminently on Fed line.
We asked for it to go back through Fed line. …
Director of Operations (Thais Ribeiro): Claudia, you mentioned the
indemnity letter. Is that part of the procedures usually?
Operations Technician (Mojica-Guadron): Normally, you want to
get that from the other bank just because—and in this case because we
credited the customer’s account.
President (Evinger): It’s okay. Don’t worry about it. … It is what it
is. It’s—
CEO (Brough): David and I have been working on this with both the
State of California and JPMorgan and this is what we have to do. …
JA3140 at 1:20-2:50.
Chain Bridge has insisted in this litigation that it is “customary” for reversal
messages to include the text “No Indemnity” in order to disclaim an existing
indemnification obligation. Chain Bridge Mem. Supp. Mot. Summ. J. 15 (Chain
Bridge Mem.), Dist. Ct. Dkt. 123. On this call, however, Chain Bridge’s principals
insisted on the return without asking for indemnification, at a time that—according
to their own representations in this case—they had every reason to believe that the
incoming reversal request would specify “No Indemnity.” As Chain Bridge’s
principals put it at the time: “It is what it is,” and, “[T]his is what we have to do.”
JA3140 at 2:30-2:50. Then at 1:54 p.m.—still before Chain Bridge had seen
JPMC’s reversal message—Chain Bridge’s CEO emailed numerous senior Chain
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Bridge personnel with the subject line, “Wire is being returned.” JA421. Again,
Chain Bridge was unequivocal and expressed no caveats; there was no mention of
any indemnification by JPMC.
e.
Chain Bridge severs its relationship with Blue Flame
Minutes after Chain Bridge received the wire and before speaking with
JPMC, Chain Bridge instructed employees to cease communications with its client,
Blue Flame. JA414; JA259. Next, at 2:36 p.m., before Chain Bridge returned the
wire to JPMC, Brough directed Chain Bridge personnel to close the “BlueFlame
[a]ccounts,” including Blue Flame’s account as well as the accounts for previous
companies owned by the Blue Flame principals. JA142 ¶ 31; JA416-418. By 2:53
p.m., Chain Bridge had closed the accounts for two such companies. JA418-420.
Chain Bridge could not close the Blue Flame account until the wire had been
reversed. JA418; JA427; JA429. But at 3:26 p.m.—just five minutes after Chain
Bridge returned the wire to JPMC—Chain Bridge closed Blue Flame’s account.
JA142 ¶ 33. Chain Bridge subsequently cut all ties with Blue Flame. See, e.g.,
JA433; JA435; JA420; JA384.
C.
This Lawsuit
1.
Blue Flame’s complaint and Chain Bridge’s third-party
complaint
Three months after the wire’s reversal, Blue Flame commenced this lawsuit
against Chain Bridge and its President (Evinger) and CEO (Brough). Blue Flame
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asserted claims under Article 4A of the U.C.C. (see JA38-40 ¶¶ 86-97 (Count I:
violation of U.C.C. § 4A-404A); JA41-43 ¶¶ 98-112 (Count II: violation of U.C.C.
§ 4A-204)), and a variety of state-law claims (JA43-52 ¶¶ 113-179 (Counts III-X)).
The district court granted Chain Bridge’s motion to dismiss in part because certain
state-law claims were preempted by Article 4A. See JA54. But the court allowed
five claims to proceed: the two U.C.C. claims and the state-law claims for tortious
interference with contract and business expectancy, and defamation. Id.
One month later, Chain Bridge filed its third-party complaint against JPMC,
seeking indemnification under § 4A-211(f). See generally JA113-128.1
2.
District court’s summary judgment opinion
Following discovery, all parties moved for summary judgment. On the
underlying claims, the district court granted Chain Bridge’s motion and denied
Blue Flame’s, entering judgment against Blue Flame. JA3066-3067. As for the
third-party complaint at issue here, the district court granted Chain Bridge’s
motion and denied JPMC’s, entering judgment against JPMC. Id.2
1
Chain Bridge also asserted an alternative claim for unjust enrichment, but
that claim is not at issue in this appeal.
2
As the district court explained, its ruling on the underlying Blue Flame
claims mooted Chain Bridge’s third-party claim for reimbursement of any damages
(subject to Blue Flame’s appeal), but there remained the issue of whether JPMC
must reimburse Chain Bridge for its attorneys’ fees and expenses incurred in the
litigation. JA3092. As for the amount of attorneys’ fees and expenses to be
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In both its moving papers and opposition to Chain Bridge’s motion, JPMC
set out three independent reasons why Chain Bridge was not entitled to
indemnification. See JPMC Mem. Supp. Mot. Summ. J. 14-26 (JPMC Mem.),
Dist. Ct. Dkt. 113; JPMC Mem. Opp. to Chain Bridge Mot. Summ. J. (JPMC Opp.)
1-16, Dist. Ct. Dkt. 145; JPMC Reply Supp. Mot. Summ. J. (JPMC Reply) 10-20,
Dist. Ct. Dkt. 158. First, JPMC explained, § 4A-211(f) only provides for
indemnification where the sending bank (JPMC) seeks cancellation, and the
receiving bank (Chain Bridge) accommodates the request. Here, however, the
facts showed that Chain Bridge both expressly requested and directed the
cancellation for its own reasons. Second, Chain Bridge and JPMC agreed, through
their discussions and course of conduct, that there would be no indemnity, thereby
overriding any potential indemnification obligation under § 4A-211(f). Third,
Chain Bridge could not establish causation because any loss or expenses incurred
were not “a result of” the cancellation, but rather resulted from other circumstances
including Chain Bridge’s independent actions.
The district court disagreed. First, the court concluded that Chain Bridge’s
“interests” and “motivations” were irrelevant. JA3093-3094. “Even if
cancellation serves the receiving bank’s own interests,” the court stated, all that
awarded, the district court ordered additional briefing (JA3096), which is now
complete with a hearing set for January 7, 2022.
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mattered under § 4A-211(f) was that JPMC sent the reversal message and that
Chain Bridge then returned the funds. JA3094. According to the court, neither the
official commentary, nor the cases JPMC cited, supported a different
interpretation. The commentary, the court wrote, had little import; it simply stated
a universal reality that all receiving banks in all cases will always be
accommodating a sender’s request because a receiving bank is never required to
consent to such a request, regardless of the circumstances. Id. And common law
had no bearing because, according to the court, § 4A-211(f) “clearly displace[d]
it.” Id. The district court did not address JPMC’s argument that Chain Bridge’s
express oral request for reversal constituted a cancellation under Article 4A.
Second, the district court concluded that JPMC and Chain Bridge had not
reached any agreement to return the wire without indemnity. The court initially
acknowledged that “[s]uch an agreement could include a ‘bargain of the parties in
fact, as found in their language or inferred from other circumstances, including
course of performance, course of dealing, or usage of trade[.]’” JA3094 (quoting
U.C.C. § 1-201(b)(3)). But then it faulted JPMC for failing to provide a certain
kind of evidence—a “communication” or an “execut[ed] agreement[]”—as
between Chain Bridge and JPMC. JA3095; id. (stating that JPMC is capable of
“executing agreements to reallocate risk,” but “did not do so in this case”). As for
the Chain Bridge phone call where its principals disclaimed the need for
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indemnification, the court disregarded it as “simply an internal discussion at Chain
Bridge bank about potential liabilities.” Id.
Third, on causation, the district court found that “this civil action
undoubtedly resulted from the reversal of the wire transfer,” and that there was
“zero evidentiary basis for JPMorgan’s speculation that Chain Bridge would have
returned the funds without a cancellation by JPMorgan.” JA3096. In so doing, the
district court did not address several material facts that JPMC had invoked—
including that Chain Bridge placed the funds on hold without ever speaking to
JPMC, that Chain Bridge believed giving Blue Flame access to the funds might
violate its Bank Secrecy Act obligations, that Chain Bridge’s own wire transfer
policy required the return of funds to California, and that Chain Bridge
immediately closed Blue Flame account after the reversal. See JPMC Mem. 25-26;
JPMC Opp. 18-20; JPMC Reply 7-9.
The district court took care to note that it did not mean to “punish or criticize
JPMorgan,” and that “JPMorgan’s quick and thorough investigation of potential
fraud [was] commendable.” JA3095.
LEGAL STANDARD
Summary judgment is appropriate only if “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. 56(a). This Court “review[s] de novo a district court’s grant of summary
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judgment.” Covol Fuels No. 4, LLC v. Pinnacle Mining Co., LLC, 785 F.3d 104,
111 (4th Cir. 2015). “In so doing, ‘it is elementary that ... [t]he evidence of the
non-movant is to be believed, and all justifiable inferences are to be drawn in [its]
favor.’” Id. (alterations in original). “[T]he judge’s function is not … to weigh the
evidence and determine the truth of the matter but to determine whether there is a
genuine issue for trial.” Reyazuddin v. Montgomery Cnty., 789 F.3d 407, 417 (4th
Cir. 2015).
SUMMARY OF ARGUMENT
The district court erred in granting summary judgment to Chain Bridge. For
three independent reasons, Chain Bridge is not entitled to indemnification under
§ 4A-211(f).
First, indemnification is available only “if the receiving bank,” “agrees to
cancellation … of the order by the sender.” U.C.C. § 4A-211(f). Where, as here, a
cancellation is requested and directed by the receiving bank—Chain Bridge—then
indemnification is inapplicable. The Chain Bridge President’s oral request to
reverse the wire constituted the cancellation request, to which JPMC agreed. Thus,
the reversal here was not a “cancellation … by the sender,” but was instead a
cancellation by the receiving bank. The district court did not address this
argument, which presents a threshold ground to reject Chain Bridge’s claim. The
court further misinterpreted the importance of Chain Bridge’s independent
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decision-making and motivations in effecting the reversal of the wire, deeming
those all irrelevant. Under the text, commentary, and common law, Chain Bridge’s
actions and motivations remove this case from § 4A-211(f)’s ambit.
Second, U.C.C. § 4A-211(f) disallows indemnification if “otherwise
provided in an agreement of the parties,” and there was such an agreement here.
The U.C.C. defines “agreement” to mean a “bargain of the parties in fact,” and
instructs that such an “agreement” can be found in the parties “language or inferred
from other circumstances.” U.C.C. § 1-201(b)(3) (emphasis added). Here, “other
circumstances” included a sustained course of information-sharing and strategy-
making between JPMC and Chain Bridge. The purpose of those discussions was
to determine how to handle the wire. The only plausible interpretation of the
cooperative, consensus-seeking behavior between JPMC and Chain Bridge is that
it formed an “agreement.” Under that agreement, as the banks’ discussions and
conduct made clear, Chain Bridge would not be indemnified for any fallout from
the reversal that Chain Bridge itself requested. The high-level internal phone call
at Chain Bridge confirms the point beyond any dispute: Chain Bridge’s senior-
most executives told their wire-transfer specialist that the bank should not seek an
indemnity letter from JPMC because Chain Bridge had already agreed to effectuate
the reversal without indemnification.
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The district court failed to consider the course-of-conduct evidence. As for
the phone call, the court erroneously held as a matter of law that an internal
discussion cannot serve as evidence of an external agreement and found as a matter
of fact that it merely concerned discussion of “potential liabilities.”
Third, U.C.C. § 4A-211(f) limits indemnification to “loss and expenses …
incurred … as a result of the cancellation” (emphasis added), and Chain Bridge did
not and cannot make the requisite causal showing. Concluding otherwise, the
district court found no evidence that Chain Bridge “would have returned the funds”
absent JPMC’s conduct. But that finding misses the point and is incorrect in any
event. The dispositive point on causation is that Chain Bridge, regardless of
JPMC’s conduct, never would have allowed Blue Flame to access the funds within
the very short time Blue Flame supposedly needed them. As a result, JPMC was
not the cause of any damages incurred by Blue Flame because any such damages
would have accrued by virtue of Chain Bridge’s independent actions.
The district court’s judgment should therefore be reversed and judgment
should be rendered in favor of JPMC. At minimum, there are genuine issues of
fact that preclude judgment in Chain Bridge’s favor.
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ARGUMENT
I.
INDEMNIFICATION UNDER U.C.C. § 4A-211(f) IS INAPPLICABLE BECAUSE
THE RECEIVING BANK—CHAIN BRIDGE—REQUESTED AND DIRECTED
THE CANCELLATION
As the record here shows, Chain Bridge canceled the wire for its own
reasons. Focusing narrowly on Chain Bridge’s “interests” and “motivations” and
finding those irrelevant, however, the district court held that Chain Bridge still was
entitled to indemnification under § 4A-211(f). JA3094. That conclusion was
incorrect and conflicts with the statute’s text and commentary, and indemnification
at common law. At bottom, the court’s decision distorts § 4A-211(f)’s
indemnification regime into a limitless insurance policy for receiving banks’
independent conduct—an outcome inconsistent with the drafters’ intent, and
inconsistent with common law.
Under § 4A-211(f), indemnification applies only “if the receiving bank …
agrees to cancellation … of the order by the sender.” The text of the statute thus
addresses one specific scenario: a cancellation sought and obtained “by the
sender,” not the receiving bank. It does not cover cancellation sought by a
receiving bank. Nor, for the same reason, does it cover cancellation achieved as a
joint decision between two banks. Article 4A’s official commentary confirms this
interpretation of the text—with emphasis on a receiving bank’s motivations against
agreeing to a cancellation. See Donmar Enters., Inc. v. Southern Nat’l Bank of
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N.C., 64 F.3d 944, 948 (4th Cir. 1995) (official comments to Article 4A “may …
‘be useful in interpreting Article 4A’”).
As discussed (supra pp.6-7), a receiving bank ordinarily faces “substantial
risks in agreeing to cancellation.” U.C.C. § 4A-211 cmt. 5. Most immediately, the
risk is “alienat[ing] its customer, the beneficiary, by denying the customer the
funds.” Id. But there is also legal exposure. See id. Thus, far from a situation
where a receiving bank advocates for reversal, the commentary explains that a
receiving bank is likely “reluctant” to agree to cancellation—“[e]ven with
indemnity.” U.C.C. § 4A-211 cmt. 5; see also JA1484 ¶ 51. Where a receiving
bank does agree, it is doing so “as an accommodation to the sender” (U.C.C. § 4A-
211 cmt. 5)—that is, “for convenience or to satisfy a need” of the “sender,”
Webster’s Ninth New Collegiate Dictionary 49 (1990) (defining
“accommodation”). Where, conversely, a receiving bank itself seeks to reverse a
wire, the receiving bank is not “accommodating” the request of a “sender”; instead,
the receiving bank is satisfying its own self-interested needs, and indemnification
under § 4A-211(f) does not apply. The commentary thus outlines the bounds of
the scenario that § 4A-211(f) covers: a cancellation sought and obtained by the
sender, where the reluctant receiving bank acts on information outside its
knowledge as an accommodation to the sender.
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Indemnification at common law reaffirms this straightforward interpretation
of § 4A-211(f), and the U.C.C. expressly incorporates common law principles:
“Unless displaced by the particular provisions of [this Act], the principles of law
and equity … supplement its provisions.” U.C.C. § 1-103(b); see id. cmt. 2 (“The
Uniform Commercial Code was drafted against the backdrop of existing bodies of
law, including the common law and equity, and relies on those bodies of law to
supplement it provisions in many important ways.”); see also, e.g., Mellon Inv.
Servs., LLC v. Longwood Country Garden Centers, Inc., 263 F. App’x 277, 283
(4th Cir. 2008) (“there is a presumption that the U.C.C. does not displace claims
based in equity”); Adkinson v. International Harvester Co., 975 F.2d 208, 215 (5th
Cir. 1992) (“[E]quitable principles of contribution and indemnity” “have not been
displaced by” Mississippi’s Uniform Commercial Code, but rather “supplement”
the Code.).
As this Court has explained, indemnification “applies a restitutionary
principle” that allows an indemnitee whose liability is merely “technical, passive
or secondary” to “shift[]” “the burden for the entire loss … to the indemnitor
whose actual fault caused the injury.” White v. Johns-Manville Corp., 662 F.2d
243, 249-250 (4th Cir. 1981). Thus, common-law indemnification applies where,
for example, “the indemnitee has been held absolutely liable for the wrongful acts
of another,” “the indemnitee was induced to act by … the indemnitor,” or “where
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the indemnitee acted pursuant to directions of the indemnitor.” Id. at 249. Where,
by contrast, a purported indemnitee “active[ly]” caused the injury to the plaintiff,
“an essential predicate to [indemnitee’s] right to indemnification is necessarily
missing.” Id. at 250.3 “The rationale behind indemnification is to ensure that the
losses are borne by the party responsible for the damages. … The right to
indemnity stands upon the principle that everyone is responsible for the
consequences of his or her own acts[.]” 42 C.J.S. Indemnity § 2 (2021).
Consistent with the text of the statute and its common law roots,
indemnification under § 4A-211(f) does not apply where the receiving bank
requests the cancellation or otherwise directs the cancellation by its own actions.
Chain Bridge’s indemnification claim therefore fails because that is what happened
here.
A.
Chain Bridge Canceled the Wire
At 1:34 p.m., Chain Bridge’s President (Evinger) called JPMC and asked:
“Is there any way for JPMorgan to issue a recall for the wire?” JA3135 at 0:04-
0:09. Chain Bridge’s oral request to reverse the wire constitutes a cancellation
3
See also United States v. Seckinger, 397 U.S. 203, 210-211 (1970)
(declining to allow an indemnitee to recover losses caused by his own actions; “a
contractual provision should not be construed to permit an indemnitee to recover
for his own negligence unless the court is firmly convinced that such an
interpretation reflects the intention of the parties”); Horton v. United States, 622
F.2d 80, 82 (4th Cir. 1980) (relying on Seckinger to reverse the district court’s
grant of indemnification because the indemnitee “was a joint tortfeasor”).
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request under Article 4A. See U.C.C. § 4A-211(a) (“A communication of the
sender of a payment order cancelling … the order may be transmitted to the
receiving bank orally, electronically, or in writing.”); id. § 4A-210(a) (“A payment
order is rejected by the receiving bank by a notice of rejection transmitted to the
sender orally, electronically, or in writing.”). The reversal in this case was not a
“cancellation … by the sender,” JPMC, but rather one by the receiving bank, Chain
Bridge.
JPMC’s statements and actions in accommodation of Chain Bridge’s
reversal request do not alter the legal import of Chain Bridge’s original action.
Coffey’s responsive call to Evinger and JPMC’s subsequent Fedwire reversal
message were an accommodation to Chain Bridge’s oral request: within minutes
of the 1:34 p.m. call, Korpal instructed Coffey to accommodate Evinger’s request.
JA364. Coffey immediately followed his supervisor’s instructions when he called
Evinger at 1:37 p.m.—within two minutes of Evinger’s request—to indicate that
JPMC would “be recalling those funds,” at which point Chain Bridge’s CEO
(Brough) asked “if [JPMC] could send [the reversal message] over the Fedline
platform,” to which Coffey agreed. JA3136 at 0:06-0:30. Coffey’s statements
during the 1:37 p.m. call and the Fedwire reversal message were therefore
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statements and actions by JPMC, the sender, to “agree” to and “accommodat[e]”
Evinger’s oral cancellation. U.C.C. § 4A-211 cmt. 5.4
The district court did not address this argument. See JA3092-3095. Chain
Bridge argued that the reversal of “every” wire “results from” a sender’s
cancellation, and that, as a receiving bank, Chain Bridge was “powerless” to do
what JPMC says it did. Chain Bridge Opp. JPMC Mot. for Summ. J. (Chain
Bridge Opp.) 14, Dist. Ct. Dkt. 141. To the extent Chain Bridge reprises these
points on appeal, it is wrong on both.
Article 4A recognizes that a receiving bank can effect a cancellation. For
example, § 4A-210 provides for the “rejection” of a payment order “by the
receiving bank.” A rejection is just another form of cancellation, both of which
result in the reversal of the wire. See U.C.C. §§ 4A-210, 211. Article 4A
elsewhere identifies the “functions of [a] receiving bank” as “receipt, processing,
and transmittal of payment orders, cancellations and amendments,” U.C.C. § 4A-
105 cmt. 2 (emphasis added), and also speaks to a receiving bank’s “processing of
payment orders and communications cancelling or amending payment orders,” id.
4
As explained (supra p.15), there was good reason for Chain Bridge to
request a formal Fedwire reversal message from JPMC. See JA3136 at 0:18-0:27
(asking JPMC to “send it over the Fedline Platform”). JPMC’s reversal message
“not only tied the reversal to the original [w]ire [t]ransfer,” but also eliminated the
potential for human error in returning the funds. JA2476 ¶ 46.
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§ 106(a) (emphasis added). Whatever the label—“cancellation,” “rejection,” or
otherwise—a receiving bank can seek and obtain a wire’s reversal under Article
4A, just as Chain Bridge did here.
Nor was Chain Bridge “powerless” to act. To the contrary, by using
Fedwire, Chain Bridge could have reversed the wire without first receiving
JPMC’s reversal message. See JA408; JA2940-2941. And that fact highlights the
absurdity of Chain Bridge’s position. If, as Chain Bridge has claimed, “every
cancellation of a payment order result from” a sender (Chain Bridge Opp. 14), then
§ 4A-211(f) would entitle a receiving bank to indemnification even when it returns
the funds without the sender’s advance knowledge. The sending bank—the party
that did not even know the reversal was coming—would be on the hook for any
loss and expenses (resulting from the reversal) incurred by the receiving bank—the
only party responsible for the reversal. That absurd result cannot be correct.
B.
Chain Bridge Directed The Cancellation For Its Own Reasons
The evidentiary record makes clear that Chain Bridge not only requested the
cancellation of the wire, but also—skeptical from the start—directed the
cancellation at every material turn.
The day before receiving the wire, top Chain Bridge executives called the
wire a “scam” (JA172; see JA3143 at 8:23-9:45; JA207-208) and engaged the
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bank’s BSA team (JA3143 at 11:51-11:54) because they were suspicious of Blue
Flame.
Upon receipt of the wire and before ever speaking to JPMC, Chain Bridge
immediately placed the funds on hold (JA256; JA 260; JA185-186), and then
repeatedly called California to raise concerns about Blue Flame and the legitimacy
of the transaction (JA281-282). Chain Bridge’s repeated calls to California were
an extraordinary act for a counterparty bank. JA337-338; JA1480; JA1494. As a
California representative testified, she was not aware of “any other instance” where
a counterparty bank sought to contact California about a wire’s return. JA338.
Chain Bridge then pushed the reversal of the wire—twice. It did so first
with California, saying that it would be “happy to return the wire.” JA383.
Undeterred by California’s response that it “did not want [Chain Bridge] to return
the money at that stage” (JA215), minutes later Chain Bridge asked JPMC to
“issue a recall for the wire” (JA3135 at 0:04-0:09).
Chain Bridge had powerful incentives to seek the reversal it requested.
Chain Bridge worried that a wire that “massive” could pose “problems on [its]
capital ratios.” JA167; JA170. And Chain Bridge determined that it needed the
wire “off of the books asap.” JA164. Chain Bridge also continued to worry that
the wire would threaten its compliance with obligations under the BSA, along with
anti-money laundering (AML) rules and regulations. JA2913. Chain Bridge called
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the transaction a “scam” based on what it knew about its client and the
circumstances—Blue Flame’s account was opened the day before the wire, Blue
Flame’s principals were political lobbyists with no experience in the medical
supply chain, and the wire was massively larger than anything the Blue Flame
principals had received before. See JA172; JA3143 at 8:23-9:45; JA207-208.
Indeed, Chain Bridge’s President and CEO made clear in their testimony that
BSA/AML risk was a central concern with the wire. See, e.g., JA2913; JA2916.
Finally, Chain Bridge’s own wire transfer policy for incoming wires
provides: “If there is any question as to the beneficiary’s right to the funds … the
wire will be returned.” JA226 (emphasis added). In language virtually parroting
that policy, Chain Bridge’s own expert concluded that “Chain Bridge [had]
reasonable doubt concerning whether Blue Flame Medical had a right to the
payment sent by the State of California.” JA343. The bank was thus required by
its own policy to return the wire to California.
In sum, the undisputed facts show that Chain Bridge took independent and
unilateral actions that laid the foundation for the cancellation, and then Chain
Bridge directed its ultimate execution. Indemnification under § 4A-211(f) is thus
inapplicable.5
5
Even if, counterfactually, the cancellation was a joint decision of the two
banks, Chain Bridge’s claim would still fail. For the same reasons stated above, a
joint decision by two banks does not constitute a cancellation request “by the
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The district court deemed the evidence of Chain Bridge’s interests and
motivations irrelevant because, it concluded, “the regulation does not impose any
requirements regarding the receiving bank’s motivations at all.” JA3093-3094.
That is incorrect. As explained, § 4A-211(f) is meant to address only one specific
scenario: a cancellation sought and obtained “by the sender,” not the receiving
bank. Chain Bridge’s actions and motivations not only demonstrate that the
reversal request was not “by the sender,” but they also show that Chain Bridge did
not “agree” to the cancellation in any sense of the word; rather, it directed the
cancellation.6
Moreover, the commentary underscores that § 4A-211(f) does indeed view a
bank’s motivations to be relevant to statutory indemnification. The drafters of
sender” and an “accommodation” by the receiving bank. Assuming such a joint-
decision scenario, “an essential predicate” for Chain Bridge’s indemnification
would still be “necessarily missing” because Chain Bridge would have played an
“active” role in the cancellation. White, 662 F.2d at 250.
6
Reprising a point that Chain Bridge briefly advanced, the district court
suggested in a footnote that JPMC’s argument here “appear[s] to be in tension”
with the administrative claim that it filed against California for indemnification.
JA3093 n.13; see JPMC Opp. 15-16 (addressing Chain Bridge’s argument); JPMC
Reply 15-16 (same). That is incorrect, and the administrative claim—which
California has denied—is immaterial here. First, the claim was contingent,
preserving JPMC’s rights in the event it is found liable for indemnification.
Second, the indemnification issue here concerns the interactions and relationship
between JPMC and Chain Bridge, not California. And as between Chain Bridge
and JPMC, there is no question that Chain Bridge directed the cancellation, as the
material facts stated above make clear.
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Article 4A provided for indemnification where a receiving bank is “reluctant” to
agree to the reversal of funds due in large part to the risk of “alienat[ing]” its
customer. U.C.C. § 4A-211 cmt. 5; see also id. § 4A-211 cmt. 4; JA1477-1478
¶ 36; supra pp.6-7. The drafters never intended to give receiving banks a windfall
for their independent decision-making. The commentary thus speaks of “an
accommodation to the sender”—not a cancellation for the receiving bank’s own
self-interested reasons. And contrary to the district court’s conclusion (JA3094),
not every cancellation will be an “accommodation” to the sender. As explained
(supra p.32), receiving banks can cancel wires even without a sender’s advance
knowledge. It thus cannot be that every cancellation accommodates a sender.
The district court also disregarded the common law JPMC cited, concluding
that “Section 4A-211(f) clearly displaces a traditional common law analysis by
creating a default rule for risk allocation which parties can only alter through
agreement.” JA3094. That too was error. As explained, the U.C.C. not only
allows but requires court to develop the meaning of the U.C.C.’s text by express
incorporation of common law principles—“[u]nless displaced” by the statutory
text. See supra pp.8, 28. There was no such displacement here.
The displacement question is not whether the Code “create[s] a default rule”
(JA3094), but rather “whether any of the provisions or policies of the commercial
code conflict with [common law] principles,” Adkinson, 975 F.2d at 214 (emphasis
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added); see also Equitable Life Assurance Soc’y of U.S. v. Okey, 812 F.2d 906, 909
(4th Cir. 1987) (Code’s “allocation of the burden of proof of [an] element …
differs from that in common law negligence,” which “demonstrate[s] an intended
displacement”). Thus, there is displacement, for example, where parties attempt to
hold counterparties liable by bringing a common-law claim that conflicts with the
liability regime of the U.C.C. See id. at 908 (“common law negligence claim”).
Here, however, JPMC simply maintains, in accordance with § 1-103, that
common-law understandings of the same type of liability created by § 4A-211(f)
should inform the bounds and application of that provision, and that common-law
indemnification precludes recovery where an indemnitee actively undertook the
conduct that caused its own loss. See Abbasid, Inc. v. First Nat’l Bank of Santa Fe,
2010 WL 11509114, at *5 (D.N.M. Feb. 19, 2010) (“Although the UCC displaces
common law claims for conversion with respect to negotiable instruments, that
displacement does not necessarily vitiate all common law principles relating to
conversion.”). The Code’s funds-transfer provisions do not blind courts to
considerations of equity.
II.
JPMC AND CHAIN BRIDGE AGREED TO THE WIRE’S RETURN WITHOUT
INDEMNITY
Assuming the statutory requirements for indemnification were satisfied (they
were not), Chain Bridge’s indemnification claim fails for a second, independent
reason. An indemnification obligation is overridden if “otherwise provided in an
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agreement of the parties.” U.C.C. § 4A-211(f). Here, there was such an agreement
providing otherwise—i.e., an agreement to return the wire without indemnification
by JPMC—as reflected by the parties’ discussions and course of conduct. At
minimum, the evidence JPMC introduced raises a genuine issue for trial.
A.
The district court concluded there was no agreement based on its
determination that JPMC failed to introduce evidence of a “communication” or an
“execut[ed] agreement” between Chain Bridge and JPMC. JA3095. That analysis
was incorrect.
Under Article 4A, an “agreement” can be found in the parties’ “language or
inferred from other circumstances, including course of performance, course of
dealing, or usage of trade.” U.C.C. § 1-201(b)(3) (emphasis added). The statutory
terms thus make clear that an “agreement” may exist in the absence of a formal
contract (written or oral) or explicit inter-bank negotiation of indemnity. See id.
(defining “agreement” as “distinguished from ‘contract’”). The district court
recognized as much (JA3094 (quoting U.C.C. § 1-201(b)(3)), but then contravened
the statutory text it quoted by requiring more: evidence of a “communication”
between the banks discussing indemnity or an “execut[ed] agreement.” JA3095.
If explicit “language” were required, then the phrase “or inferred from other
circumstances,” U.C.C. § 1-201(b)(3), would be rendered meaningless. See In re
Total Realty Mgmt., LLC, 706 F.3d 245, 254 (4th Cir. 2013) (“In construing a
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statute, to the extent possible, we seek to give meaning to every word and ‘reject
constructions that render a term redundant.’”). So too if an “execut[ed]
agreement” were required (JA3093), where the statute specifically
“distinguishe[s]” an “agreement” from a “contract” (U.C.C. § 1-201(b)(3)).
The district court was also incorrect in reading JPMC’s interpretation of
§ 4A-211(f) to “suggest[] that the parties needed to have agreed upon
indemnification,” where the statute provides for indemnification “as a default.”
JA3094; see also id. (“JPMorgan incorrectly reverses the requirements of the
regulation[.]”). Assuming the statutory requirements for indemnification are
satisfied, there is no dispute § 4A-211(f) allows indemnification “[u]nless
otherwise provided in an agreement of the parties”; thus, indemnification is the
“default” (id.). JPMC has never argued otherwise. On the law, JPMC’s point is
only the unremarkable one that a default can be displaced, just as the statute
provides.
B.
Assessed under the correct legal standard, JPMC identified “other
circumstances” establishing the existence of a “bargain of the parties in fact,”
U.C.C. 1-201(b)(3)—or, at the very least, raising a genuine issue whether there
was one.
The parties’ agreement to return the wire without indemnity developed out
of discussions between JPMC and Chain Bridge about how to handle the
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transaction—discussions beginning with, and focused on, Chain Bridge’s concerns
about its client, Blue Flame. Thus, when the banks first spoke, Chain Bridge told
JPMC it had placed a hold on the funds and had called California to raise concerns
about Blue Flame. JA364. Chain Bridge also told JPMC it did not “like the smell”
of the transaction because, among other things, Blue Flame’s account was “brand
new,” the account had been opened by “a lobbyist,” and the account holder did not
“maintain[] that kind of money.” JA3133 at 0:39-3:22. For JPMC, these concerns
were informative and worthy of serious consideration—Chain Bridge was the bank
that had close visibility into Blue Flame, including by means of a longstanding
relationship with one of Blue Flame’s principals (see JA379), and Chain Bridge
was the one advocating for reversal. JPMC shared its own concerns about the
wire, but explained that it supported Chain Bridge’s decision to hold the funds and
did not see a need to do anything else when Chain Bridge first requested the recall.
JA3135 at 0:04-0:33. The bankers from both institutions agreed to keep each other
apprised of their respective investigations, and they did just that. Both Chain
Bridge and JPMC understood that the purpose of their discussions was to reach an
agreement as to how to proceed with the wire.
The concerns that Chain Bridge articulated to JPMC, Chain Bridge’s
independent decision to continue holding the wire even after California confirmed
its legitimacy, and Chain Bridge’s subsequent advocacy for reversal with JPMC all
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made clear to JPMC that Chain Bridge had its own strong motivations for
preventing Blue Flame from accessing the funds. So after Chain Bridge called
JPMC to request a recall, after further consideration, JPMC agreed to do that
without any express discussion of indemnity. The reason is plain: It was readily
apparent from the parties’ communications and course of conduct that no
indemnification was necessary, appropriate, sought, or expected to facilitate the
reversal that Chain Bridge itself requested.
If there were any doubt on that, a high-level Chain Bridge phone call
resolves it. This call took place at 1:43 p.m. on March 26—before JPMC sent
Chain Bridge the reversal message in response to Chain Bridge’s request. With a
concerned tone and nervous laughter, Chain Bridge’s wire transfer specialist asked
her supervisors, including Chain Bridge’s President and CEO: “Are we getting an
indemnity letter from Chase?” JA3140 at 1:19-1:26. She advised, “Normally, you
want to get that from the other bank,” and particularly “in this case” where the
client’s account had been credited. Id. at 2:16-2:27. But Chain Bridge’s President
and CEO waved away her concern, with resignation: “It’s okay,” “Don’t worry
about it,” and, “It is what it is.” Id. at 2:27-2:36. They explained: “David and I
have been working on this with both the State of California and J.P. Morgan and
this is what we have to do.” Id. at 2:36-2:49. With no caveats or exceptions, they
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gave the specialist clear and equivocal instructions: “just return [the wire] to the
same place it came from.” Id. at 1:37-1:41.
The call by itself is critical evidence, but even more so given Chain Bridge’s
position in this litigation. When Chain Bridge’s principals were on that call, they
did not know what JPMC’s reversal message would say; it had not arrived yet.
Chain Bridge has insisted, however, that it was (and is) “customary” (e.g., Chain
Bridge Mem. 15) for reversal messages to disclaim indemnity by stating the
phrase, “No Indemnity.” So, according to Chain Bridge, Chain Bridge’s principals
would have had every reason to expect that JPMC would include that no-indemnity
text on its reversal message but still told their staff to reverse the wire.
Under Chain Bridge’s own theory, Chain Bridge’s principals certainly
would have taken up the wire specialist’s proposal to ask JPMC to ask for an
indemnity letter. At minimum, if Chain Bridge were proceeding without any pre-
existing agreement disclaiming indemnity, Chain Bridge’s principals would have
warned the wire specialist: “Just return [the wire], unless the recall message
includes the phrase ‘No Indemnity.’” The principals would have directed that the
wire specialist wait to process the wire’s return unless and until she confirmed to a
half-billion-dollar certainty that the no-indemnity language was absent.
That is not what happened. No one at Chain Bridge took up the wire
specialist’s proposal to get an indemnity letter. No one stated any caveat. The
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directive from the top of the organization was clear, unequivocal, and without
exception: “Just return [the wire] to the same place it came from” (JA3140 at
1:37-1:41), and “[d]on’t worry about [the indemnity letter]. … [T]his is what we
have to do” (id. at 2:27-2:49). Chain Bridge’s complete comfort with—and
insistence upon—reversing the wire before seeing JPMC’s message underscores
that there was already an agreement between Chain Bridge and JPMC for a wire
reversal that did not include indemnity.
Of all the evidence JPMC identified in support of an agreement here, this
phone call was the only piece that the district court addressed, and the court
rejected it as legally and factually insufficient. The court characterized the
conversation as mere “internal discussion” that could not shed light on whether
there was a “meeting of the minds” between Chain Bridge and JPMC. JA3095.
That conclusion fails as a matter of both law and fact.
First, a party’s internal communications can be evidence of an external
agreement, and the conversation here was. See, e.g., Dataflow, Inc. v. Peerless Ins.
Co., 2014 WL 148685, at *4 (N.D.N.Y. Jan. 13, 2014) (“[A party’s] internal
communications evincing its interpretation of … [an] agreement are relevant to …
[the] interpretation of” that agreement.); Service & Training, Inc. v. Data Gen.
Corp., 963 F.2d 680, 689 (4th Cir. 1992) (“Circumstantial evidence of appellants’
behavior after the signing of the … agreement confirms [how] they interpreted the
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agreement.”); W.A. Stratton Constr. v. Butler Mfg. Co., 1992 WL 159107, at *8
(W.D. Va. June 23, 1992) (party’s post-agreement conduct “indicate[d] strongly
that it never understood the terms of the agreement to forbid such conduct”);
Restatement (Second) of Contracts § 202(1) (1981) (“Words and other conduct are
interpreted in the light of all the circumstances, and if the principal purpose of the
parties is ascertainable it is given great weight.”).
Second, this was no mere “internal discussion” about “potential liabilities.”
JA3094. To cast it aside as such was unfounded, and certainly improper at
summary judgment. The conversation plainly referenced Chain Bridge “working
on this with both the State of California and J.P. Morgan.” JA3140 at 2:36-2:44.
And there is simply no way to listen to that phone call and understand it as
anything other than Chain Bridge’s clear and obvious recognition that
indemnification was off the table in light of those interactions. Chain Bridge had
agreed with JPMC that it would return the wire at its own peril of the
consequences.
Chain Bridge has never offered a coherent counter explanation, and it
cannot. The only argument Chain Bridge has ever advanced is the claim that its
principals knew—in their minute-to-minute thinking about a franchise-threatening
wire—that the bank was already protected, fully and unconditionally, as a matter
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of law under § 4A-211(f), even though their wire specialist thought otherwise. See
Chain Bridge Opp. 21. That claim strains credulity.
Chain Bridge has never pointed to any contemporaneous record evidence in
support of that position, and there is none. Rather, Chain Bridge’s only support
was its President’s deposition testimony, where he said: “We didn’t view there
was a need for an indemnification based on the recall because the recall had that
indemnification built in.” JA804. This post-hoc deposition testimony squarely
conflicts with the contemporaneous factual record. See, e.g., Kunik v. New York
City Dep’t of Educ., 436 F. Supp. 3d 684, 695 (S.D.N.Y. 2020) (“In the face of
contemporaneous evidence in Plaintiff’s own words, her self-serving comments
from her deposition after the filing of this lawsuit cannot create an issue of
fact[.]”), aff’d, 842 F. App’x 668 (2d Cir. 2021). Not once did anyone from Chain
Bridge mention even the possibility of the “built[-]in” indemnification that Chain
Bridge’s President claimed, 10 months later in litigation, to have been relying on.
JA804. To the contrary, the bank’s wire specialist—an employee with more than
two decades of experience in handling wire transfers—proposed that Chain Bridge
should get an “indemnity letter” before proceeding. See JA3140 at 1:19-2:27. It
both defies reason and contradicts the contemporaneous record evidence to believe
that the Chain Bridge principals were silently familiar enough with § 4A-211(f)
that they had full confidence in its indemnification regime. Cf. News & Observer
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Publ’g Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 580 n.7 (4th Cir.
2010) (“[S]ummary judgment does not require ignoring logic or common
sense[.]”). Moreover, someone who knows that they have the certain security of
indemnification does not say, with resignation, “It is what it is,” and “[t]his is what
we have to do.” JA3140 at 2:27-2:49.
There is still more evidence, which JPMC invoked and the district court left
unaddressed. Still before Chain Bridge had seen JPMC’s reversal message, Chain
Bridge’s CEO emailed numerous senior personnel at Chain Bridge with the subject
line, “Wire is being returned.” JA421. The message expressed no caveats. It left
no room for the possibility that the wire might not be returned if JPMC’s message
said, “No Indemnity.” The reason is simple. The possibility of a “No Indemnity”
disclaimer did not matter because Chain Bridge and JPMC had already agreed to
return the wire without indemnity.
III.
CHAIN BRIDGE CANNOT ESTABLISH CAUSATION
Chain Bridge’s indemnification claim fails for a third, independent reason:
Chain Bridge cannot establish that its claimed “loss and expenses”—i.e., Blue
Flame’s damages, if any, and Chain Bridge’s litigation expenses—were caused by
JPMC’s conduct. The district court erred in concluding otherwise.
U.C.C. § 4A-211(f) limits indemnification to “loss and expenses … incurred
… as a result of the cancellation.” (Emphasis added.) Thus, Chain Bridge had the
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burden of showing both “but for” and proximate cause for the “loss and expenses”
it claims. See JPMC Mem. 24-25; Chain Bridge Opp. 21-23 (no dispute); Burrage
v. United States, 571 U.S. 204, 210-212 (2014); Holmes v. Securities Inv. Prot.
Corp., 503 U.S. 258, 268 (1992); National Org. for Marriage, Inc. v. United
States, 24 F. Supp. 3d 518, 529 (E.D. Va. 2014) (citing Paroline v. United States,
572 U.S. 434, 445 (2014) for the “common maxim that a plaintiff must prove both
proximate cause and actual cause to recover damages that are ‘a result of’ a
particular defendant’s conduct”). As applied here, those causation requirements
mean that a jury would need to find on this record that—absent JPMC’s
involvement—Chain Bridge would have given Blue Flame unfettered access to the
$456 million wire within enough time for Blue Flame to complete the deal with
California. The record forecloses that possibility; no reasonable jury could make
that finding.
A.
The district court held that causation existed because, it stated, “[T]his
civil action undoubtedly resulted from the reversal of the wire.” JA3096. But that
misunderstands the point. Chain Bridge’s failure on the causation element does
not depend on the proposition that “Chain Bridge would have returned the funds
without a cancellation by JPMorgan” (id.)—though, as discussed below, Chain
Bridge could have returned the funds independently and there is evidence that it
would have. Instead, as JPMC argued, the dispositive causation question is
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whether Chain Bridge would have deprived Blue Flame of access to the funds
during the time Blue Flame supposedly needed them to complete the California
transaction. See JPMC Mem. 25-26; JPMC Reply 6-7. The answer to that
question is clearly yes, and thus causation is necessarily lacking: any purported
Blue Flame damages from the failed California deal would have resulted from
Chain Bridge’s own conduct.
As explained, Chain Bridge had clear and strong incentives to prevent Blue
Flame from accessing the funds. Chain Bridge feared that giving Blue Flame
access would violate the Bank Secrecy Act and Chain Bridge never would have
risked non-compliance with, as Chain Bridge’s CEO called it, “the paramount
regulation that you are supposed to comply with”—even if Chain Bridge thought
the U.C.C. might mandate making the funds available. JA2910. Nothing that
Chain Bridge could have learned within the days, or even weeks, following its
receipt of the wire would have abated its BSA concerns. California had already
confirmed with Chain Bridge that the wire was legitimate. JA3132 at 0:19-0:26;
JA214. As Chain Bridge’s CEO testified, “what was unanswered … was whether
the State of California had done an adequate job of vetting their counterparty prior
to wiring the money.” JA2915-2916. Specifically, among other “Bank Secrecy
Act and customer due diligence questions that had not been answered” were that
“the account had been opened just the day before,” “Blue Flame was founded three
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days before,” and “the wire was for $456 million”—an amount “nowhere near” the
“average wire size” Blue Flame had previously identified (“about 5 million”).
JA2914, 2921. None of those stood to change. So by Chain Bridge’s own
explanation it had no choice but to protect itself by continuing to withhold the
funds.
Consistent with Chain Bridge’s incentives, its actions are inconsistent with
the notion that it would have ever provided the funds to Blue Flame. Before the
reversal was completed on the afternoon of March 26, Chain Bridge already had
decided to sever its ties with Blue Flame. See JA142 ¶ 31; JA416-418. As Chain
Bridge’s CEO testified, the “numerous red flags … that had popped up on this
transaction” caused Chain Bridge to close Blue Flame’s account. JA2918. Indeed,
when Chain Bridge’s President and CEO met with one of Blue Flame’s principals
on March 26, they instructed him “to not send the wire back into another account
at Chain Bridge” and “to find a bank that could handle it[.]” JA375. Those
comments and actions cannot square with Chain Bridge’s post-hoc speculation that
it might at some point have allowed Blue Flame to access the money regardless of
JPMC’s conduct. The record shows the opposite: by closing Blue Flame’s
account on March 26—just minutes after the return of the wire that Chain Bridge
pressed—Chain Bridge rendered it impossible for Blue Flame to ever complete
that transaction through Chain Bridge.
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Moreover, Chain Bridge itself has admitted that it would have continued
holding the funds until at least March 27, “the day after the wire was received.”
Chain Bridge Opp. 22-23. But Blue Flame has insisted that it “need[ed] to
immediately wire a portion of the purchase amount to an equipment manufacturer
in New Jersey to secure inventory for the first shipment due to California.” JA30
¶ 56 (emphasis added); see also JA2485; JA2930. Thus, Blue Flame’s purported
damages (if any) would have likewise resulted from Chain Bridge’s decision to
withhold the funds even temporarily, during the period when Blue Flame
purportedly needed to wire money out, regardless of any involvement from JPMC.
Under Blue Flame’s theory of damages, even March 27 would have been too late.
B.
Although JPMC need not show that Chain Bridge “would have
returned the funds without a cancellation by JPMorgan,” the district court erred by
discerning “zero evidentiary basis” for that. JA3096. As explained (supra pp.10,
34), Chain Bridge’s own wire transfer policy for incoming wires provides: “If there
is any question as to the beneficiary’s right to the funds … the wire will be
returned.” JA226 (emphasis added). There is no question that the wire here
triggered the application of that mandatory rule; Chain Bridge’s own expert
concluded that “Chain Bridge [had] reasonable doubt concerning whether Blue
Flame Medical had a right to the payment.” JA343. The bank was thus required
by its own policy to return the wire, not just to withhold the funds. Moreover, as
USCA4 Appeal: 21-2218 Doc: 26 Filed: 12/22/2021 Pg: 58 of 82
- 51 -
also explained (supra p.32), Chain Bridge could have returned the wire without
first receiving a reversal message from JPMC.
Chain Bridge’s expert agreed that “banks generally adhere to their policies,”
and one reason for doing so is “to ensure that they comply with BSA/AML laws.”
JA2928. The evidence highlighting Chain Bridge’s BSA concerns demonstrates
that Chain Bridge would not have deviated from the provision of its wire transfer
policy requiring the return of the $456 million wire. Indeed, Chain Bridge’s CEO
also testified that the bank would not have made policy exceptions for a $456
million wire. See JA188.
CONCLUSION
The order of the district court granting summary judgment to Chain Bridge
should be reversed, and judgment should be rendered in favor of JPMC. In the
alternative, the order of the district court granting summary judgment to Chain
Bridge should be reversed and the case should be remanded for further
proceedings.
USCA4 Appeal: 21-2218 Doc: 26 Filed: 12/22/2021 Pg: 59 of 82
- 52 -
Respectfully submitted.
/s/ Alan E. Schoenfeld
ALBINAS J. PRIZGINTAS
WILMER CUTLER PICKERING
HALE AND DORR LLP
1875 Pennsylvania Ave. NW
Washington, DC 20006
(202) 663-6000
albinas.prizgintas@wilmerhale.com
MARGARITA BOTERO
WILMER CUTLER PICKERING
HALE AND DORR LLP
1225 Seventeenth St.
Suite 2600
Denver, CO 80202
(720) 274-3135
margarita.botero@wilmerhale.com
ALAN E. SCHOENFELD
MARISSA W. MEDINE
WILMER CUTLER PICKERING
HALE AND DORR LLP
7 World Trade Center
250 Greenwich St.
New York, NY 10007
(212) 937-7518
alan.schoenfeld@wilmerhale.com
December 22, 2021
USCA4 Appeal: 21-2218 Doc: 26 Filed: 12/22/2021 Pg: 60 of 82
- 53 -
REQUEST FOR ORAL ARGUMENT
Under Federal Rule of Appellate Procedure 34(a) and Fourth Circuit Rule
34(a), JPMC respectfully requests that the Court hold oral argument. This appeal
involves issues of first impression regarding the interpretation of U.C.C. § 4A-
211(f), an important statute with significant consequences for the financial services
industry. JPMC respectfully submits that oral argument would aid the Court’s
decisional process.
USCA4 Appeal: 21-2218 Doc: 26 Filed: 12/22/2021 Pg: 61 of 82
CERTIFICATE OF COMPLIANCE
Pursuant to Fed. R. App. P. 32(g)(1), the undersigned hereby certifies that
this brief complies with the type-volume limitation of Fed. R. App. P.
32(a)(7)(B)(ii).
1.
Exclusive of the exempted portions of the brief, as provided in Fed. R.
App. P. 32(f), the brief contains 11,848 words.
2.
The brief has been prepared in proportionally spaced typeface using
Microsoft Word for Office 365 in 14 point Times New Roman font. As permitted
by Fed. R. App. P. 32(g)(1), the undersigned has relied upon the word count
feature of this word processing system in preparing this certificate.
/s/ Alan E. Schoenfeld
ALAN E. SCHOENFELD
December 22, 2021
USCA4 Appeal: 21-2218 Doc: 26 Filed: 12/22/2021 Pg: 62 of 82
ADDENDUM
USCA4 Appeal: 21-2218 Doc: 26 Filed: 12/22/2021 Pg: 63 of 82
ADDENDUM
STATUTES AND REGULATIONS
Page
Uniform Commercial Code
§ 1-103 ..................................................................................................... Add.1
§ 1-201 ..................................................................................................... Add.1
§ 4A-105 .................................................................................................. Add.2
§ 4A-106 .................................................................................................. Add.2
§ 4A-210 .................................................................................................. Add.3
§ 4A-211 .................................................................................................. Add.3
12 C.F.R.
§ 210.25 ................................................................................................. Add.10
§ 210.26 ................................................................................................. Add.12
§ 210.27 ................................................................................................. Add.13
§ 210.28 ................................................................................................. Add.14
§ 210.29 ................................................................................................. Add.15
§ 210.30 ................................................................................................. Add.16
§ 210.31 ................................................................................................. Add.16
§ 210.32 ................................................................................................. Add.17
USCA4 Appeal: 21-2218 Doc: 26 Filed: 12/22/2021 Pg: 64 of 82
Add.1
UNIFORM COMMERCIAL CODE
§ 1-103. Construction of [Uniform Commercial Code] to Promote its Purposes
and Policies; Applicability of Supplemental Principles of Law.
* * *
(b) Unless displaced by the particular provisions of [the Uniform Commercial Code],
the principles of law and equity, including the law merchant and the law relative to
capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress,
coercion, mistake, bankruptcy, and other validating or invalidating cause supplement
its provisions.
* * *
§ 1-201. General Definitions.
* * *
(b) Subject to definitions contained in other articles of [the Uniform Commercial
Code] that apply to particular articles or parts thereof:
* * *
(3) “Agreement”, as distinguished from “contract”, means the bargain of the
parties in fact, as found in their language or inferred from other circumstances,
including course of performance, course of dealing, or usage of trade as
provided in Section 1-303.
* * *
USCA4 Appeal: 21-2218 Doc: 26 Filed: 12/22/2021 Pg: 65 of 82
Add.2
ARTICLE 4A FUNDS TRANSFERS
§ 4A-105. Other Definitions.
* * *
Editors’ Notes
OFFICIAL COMMENT
* * *
2. Funds transfer business is frequently transacted by banks outside of general
banking hours. Thus, the definition of banking day in Section 4-104(1)(c) cannot be
used to describe when a bank is open for funds transfer business. Subsection (a)(4)
defines a new term, “funds transfer business day,” which is applicable to Article 4A.
The definition states, “is open for the receipt, processing, and transmittal of payment
orders and cancellations and amendments of payment orders.” In some cases it is
possible to electronically transmit payment orders and other communications to a
receiving bank at any time. If the receiving bank is not open for the processing of an
order when it is received, the communication is stored in the receiving bank’s
computer for retrieval when the receiving bank is open for processing. The use of
the conjunctive makes clear that the defined term is limited to the period during
which all functions of the receiving bank can be performed, i.e., receipt, processing,
and transmittal of payment orders, cancellations and amendments.
* * *
§ 4A-106. Time Payment Order is Received.
(a) The time of receipt of a payment order or communication cancelling or amending
a payment order is determined by the rules applicable to receipt of a notice stated in
Section 1-201(27) 1-202. A receiving bank may fix a cut-off time or times on a
funds-transfer business day for the receipt and processing of payment orders and
communications cancelling or amending payment orders. Different cut-off times
may apply to payment orders, cancellations, or amendments, or to different
categories of payment orders, cancellations, or amendments. A cut-off time may
apply to senders generally or different cut-off times may apply to different senders
or categories of payment orders. If a payment order or communication cancelling or
amending a payment order is received after the close of a funds-transfer business
day or after the appropriate cut-off time on a funds-transfer business day, the
receiving bank may treat the payment order or communication as received at the
opening of the next funds-transfer business day.
* * *
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Add.3
§ 4A-210. Rejection of Payment Order.
(a) A payment order is rejected by the receiving bank by a notice of rejection
transmitted to the sender orally, electronically, or in writing. A notice of rejection
need not use any particular words and is sufficient if it indicates that the receiving
bank is rejecting the order or will not execute or pay the order. Rejection is effective
when the notice is given if transmission is by a means that is reasonable in the
circumstances. If notice of rejection is given by a means that is not reasonable,
rejection is effective when the notice is received. If an agreement of the sender and
receiving bank establishes the means to be used to reject a payment order, (i) any
means complying with the agreement is reasonable and (ii) any means not complying
is not reasonable unless no significant delay in receipt of the notice resulted from the
use of the noncomplying means.
* * *
§ 4A-211. Cancellation and Amendment of Payment Order.
(a) A communication of the sender of a payment order cancelling or amending the
order may be transmitted to the receiving bank orally, electronically, or in writing.
If a security procedure is in effect between the sender and the receiving bank, the
communication is not effective to cancel or amend the order unless the
communication is verified pursuant to the security procedure or the bank agrees to
the cancellation or amendment.
(b) Subject to subsection (a), a communication by the sender cancelling or amending
a payment order is effective to cancel or amend the order if notice of the
communication is received at a time and in a manner affording the receiving bank a
reasonable opportunity to act on the communication before the bank accepts the
payment order.
(c) After a payment order has been accepted, cancellation or amendment of the order
is not effective unless the receiving bank agrees or a funds-transfer system rule
allows cancellation or amendment without agreement of the bank.
(1) With respect to a payment order accepted by a receiving bank other than
the beneficiary’s bank, cancellation or amendment is not effective unless a
conforming cancellation or amendment of the payment order issued by the
receiving bank is also made.
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Add.4
(2) With respect to a payment order accepted by the beneficiary’s bank,
cancellation or amendment is not effective unless the order was issued in
execution of an unauthorized payment order, or because of a mistake by a
sender in the funds transfer which resulted in the issuance of a payment order
(i) that is a duplicate of a payment order previously issued by the sender, (ii)
that orders payment to a beneficiary not entitled to receive payment from the
originator, or (iii) that orders payment in an amount greater than the amount
the beneficiary was entitled to receive from the originator. If the payment
order is canceled or amended, the beneficiary’s bank is entitled to recover
from the beneficiary any amount paid to the beneficiary to the extent allowed
by the law governing mistake and restitution.
(d) An unaccepted payment order is canceled by operation of law at the close of the
fifth funds-transfer business day of the receiving bank after the execution date or
payment date of the order.
(e) A canceled payment order cannot be accepted. If an accepted payment order is
canceled, the acceptance is nullified and no person has any right or obligation based
on the acceptance. Amendment of a payment order is deemed to be cancellation of
the original order at the time of amendment and issue of a new payment order in the
amended form at the same time.
(f) Unless otherwise provided in an agreement of the parties or in a funds-transfer
system rule, if the receiving bank, after accepting a payment order, agrees to
cancellation or amendment of the order by the sender or is bound by a funds-transfer
system rule allowing cancellation or amendment without the bank’s agreement, the
sender, whether or not cancellation or amendment is effective, is liable to the bank
for any loss and expenses, including reasonable attorney’s fees, incurred by the bank
as a result of the cancellation or amendment or attempted cancellation or
amendment.
(g) A payment order is not revoked by the death or legal incapacity of the sender
unless the receiving bank knows of the death or of an adjudication of incapacity by
a court of competent jurisdiction and has reasonable opportunity to act before
acceptance of the order.
(h) A funds-transfer system rule is not effective to the extent it conflicts with
subsection (c)(2).
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Add.5
Editors’ Notes
OFFICIAL COMMENT
* * *
1. This section deals with cancellation and amendment of payment orders. It states
the conditions under which cancellation or amendment is both effective and rightful.
There is no concept of wrongful cancellation or amendment of a payment order. If
the conditions stated in this section are not met the attempted cancellation or
amendment is not effective. If the stated conditions are met the cancellation or
amendment is effective and rightful. The sender of a payment order may want to
withdraw or change the order because the sender has had a change of mind about the
transaction or because the payment order was erroneously issued or for any other
reason. One common situation is that of multiple transmission of the same order.
The sender that mistakenly transmits the same order twice wants to correct the
mistake by cancelling the duplicate order. Or, a sender may have intended to order
a payment of $1,000,000 but mistakenly issued an order to pay $10,000,000. In this
case the sender might try to correct the mistake by cancelling the order and issuing
another order in the proper amount. Or, the mistake could be corrected by amending
the order to change it to the proper amount. Whether the error is corrected by
amendment or cancellation and reissue the net result is the same. This result is stated
in the last sentence of subsection (e).
2. Subsection (a) allows a cancellation or amendment of a payment order to be
communicated to the receiving bank “orally, electronically, or in writing.” The
quoted phrase is consistent with the language of Section 4A-103(a) applicable to
payment orders. Cancellations and amendments are normally subject to verification
pursuant to security procedures to the same extent as payment orders. Subsection (a)
recognizes this fact by providing that in cases in which there is a security procedure
in effect between the sender and the receiving bank the bank is not bound by a
communication cancelling or amending an order unless verification has been made.
This is necessary to protect the bank because under subsection (b) a cancellation or
amendment can be effective by unilateral action of the sender. Without verification
the bank cannot be sure whether the communication was or was not effective to
cancel or amend a previously verified payment order.
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Add.6
3. If the receiving bank has not yet accepted the order, there is no reason why the
sender should not be able to cancel or amend the order unilaterally so long as the
requirements of subsections (a) and (b) are met. If the receiving bank has accepted
the order, it is possible to cancel or amend but only if the requirements of subsection
(c) are met.
First consider the case of a receiving bank other than the beneficiary's bank. If the bank
has not yet accepted the order, the sender can unilaterally cancel or amend. The
communication amending or cancelling the payment order must be received in time to
allow the bank to act on it before the bank issues its payment order in execution of the
sender's order. The time that the sender's communication is received is governed by
Section 4A-106. If a payment order does not specify a delayed payment date or execution
date, the order will normally be executed shortly after receipt. Thus, as a practical matter,
the sender will have very little time in which to instruct cancellation or amendment before
acceptance. In addition, a receiving bank will normally have cut-off times for receipt of
such communications, and the receiving bank is not obliged to act on communications
received after the cut-off hour. Cancellation by the sender after execution of the order by
the receiving bank requires the agreement of the bank unless a funds transfer rule
otherwise provides. Subsection (c). Although execution of the sender's order by the
receiving bank does not itself impose liability on the receiving bank (under Section 4A-
402 no liability is incurred by the receiving bank to pay its order until it is accepted), it
would commonly be the case that acceptance follows shortly after issuance. Thus, as a
practical matter, a receiving bank that has executed a payment order will incur a liability
to the next bank in the chain before it would be able to act on the cancellation request of
its customer. It is unreasonable to impose on the receiving bank a risk of loss with respect
to a cancellation request without the consent of the receiving bank.
The statute does not state how or when the agreement of the receiving bank must be
obtained for cancellation after execution. The receiving bank's consent could be obtained
at the time cancellation occurs or it could be based on a preexisting agreement. Or, a
funds transfer system rule could provide that cancellation can be made unilaterally by the
sender. By virtue of that rule any receiving bank covered by the rule is bound. Section
4A-501. If the receiving bank has already executed the sender's order, the bank would
not consent to cancellation unless the bank to which the receiving bank has issued its
payment order consents to cancellation of that order. It makes no sense to allow
cancellation of a payment order unless all subsequent payment orders in the funds transfer
that were issued because of the cancelled payment order are also cancelled. Under
subsection (c)(1), if a receiving bank consents to cancellation of the payment order after
it is executed, the cancellation is not effective unless the receiving bank also cancels the
payment order issued by the bank.
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Add.7
4. With respect to a payment order issued to the beneficiary’s bank, acceptance is
particularly important because it creates liability to pay the beneficiary, it defines
when the originator pays its obligation to the beneficiary, and it defines when any
obligation for which the payment is made is discharged. Since acceptance affects the
rights of the originator and the beneficiary it is not appropriate to allow the
beneficiary’s bank to agree to cancellation or amendment except in unusual cases.
Except as provided in subsection (c)(2), cancellation or amendment after acceptance
by the beneficiary’s bank is not possible unless all parties affected by the order agree.
Under subsection (c)(2), cancellation or amendment is possible only in the four cases
stated. The following examples illustrate subsection (c)(2):
Case #1. Originator’s Bank executed a payment order issued in the name of its
customer as sender. The order was not authorized by the customer and was
fraudulently issued. Beneficiary’s Bank accepted the payment order issued by
Originator’s Bank. Under subsection (c)(2) Originator’s Bank can cancel the order
if Beneficiary’s Bank consents. It doesn’t make any difference whether the payment
order that Originator’s Bank accepted was or was not enforceable against the
customer under Section 4A-202(b). Verification under that provision is important in
determining whether Originator’s Bank or the customer has the risk of loss, but it
has no relevance under Section 4A-211(c)(2). Whether or not verified, the payment
order was not authorized by the customer. Cancellation of the payment order to
Beneficiary’s Bank causes the acceptance of Beneficiary’s Bank to be nullified.
Subsection (e). Beneficiary’s Bank is entitled to recover payment from the
beneficiary to the extent allowed by the law of mistake and restitution. In this kind
of case the beneficiary is usually a party to the fraud who has no right to receive or
retain payment of the order.
Case #2. Originator owed Beneficiary $1,000,000 and ordered Bank A to pay that
amount to the account of Beneficiary in Bank B. Bank A issued a complying order
to Bank B, but by mistake issued a duplicate order as well. Bank B accepted both
orders. Under subsection (c)(2)(i) cancellation of the duplicate order could be made
by Bank A with the consent of Bank B. Beneficiary has no right to receive or retain
payment of the duplicate payment order if only $1,000,000 was owed by Originator
to Beneficiary. If Originator owed $2,000,000 to Beneficiary, the law of restitution
might allow Beneficiary to retain the $1,000,000 paid by Bank B on the duplicate
order. In that case Bank B is entitled to reimbursement from Bank A under
subsection (f).
USCA4 Appeal: 21-2218 Doc: 26 Filed: 12/22/2021 Pg: 71 of 82
Add.8
Case #3. Originator owed $1,000,000 to X. Intending to pay X, Originator ordered
Bank A to pay $1,000,000 to Y's account in Bank B. Bank A issued a complying
payment order to Bank B which Bank B accepted by releasing the $1,000,000 to Y.
Under subsection (c)(2)(ii) Bank A can cancel its payment order to Bank B with the
consent of Bank B if Y was not entitled to receive payment from Originator.
Originator can also cancel its order to Bank A with Bank A's consent. Subsection
(c)(1). Bank B may recover the $1,000,000 from Y unless the law of mistake and
restitution allows Y to retain some or all of the amount paid. If no debt was owed to
Y, Bank B should have a right of recovery.
Case #4. Originator owed Beneficiary $10,000. By mistake Originator ordered Bank A
to pay $1,000,000 to the account of Beneficiary in Bank B. Bank A issued a complying
order to Bank B which accepted by notifying Beneficiary of its right to withdraw
$1,000,000. Cancellation is permitted in this case under subsection (c)(2)(iii). If Bank
B paid Beneficiary it is entitled to recover the payment except to the extent the law of
mistake and restitution allows Beneficiary to retain payment. In this case Beneficiary
might be entitled to retain $10,000, the amount of the debt owed to Beneficiary. If
Beneficiary may retain $10,000, Bank B would be entitled to $10,000 from Bank A
pursuant to subsection (f). In this case Originator also cancelled its order. Thus Bank A
would be entitled to $10,000 from Originator pursuant to subsection (f).
5. Unless constrained by a funds transfer system rule, a receiving bank may agree to
cancellation or amendment of the payment order under subsection (c) but is not required
to do so regardless of the circumstances. If the receiving bank has incurred liability as
a result of its acceptance of the sender’s order, there are substantial risks in agreeing to
cancellation or amendment. This is particularly true for a beneficiary’s bank.
Cancellation or amendment after acceptance by the beneficiary’s bank can be made
only in the four cases stated and the beneficiary’s bank may not have any way of
knowing whether the requirements of subsection (c) have been met or whether it will
be able to recover payment from the beneficiary that received payment. Even with
indemnity the beneficiary’s bank may be reluctant to alienate its customer, the
beneficiary, by denying the customer the funds. Subsection (c) leaves the decision to
the beneficiary’s bank unless the consent of the beneficiary’s bank is not required under
a funds transfer system rule or other interbank agreement. If a receiving bank agrees to
cancellation or amendment under subsection (c)(1) or (2), it is automatically entitled to
indemnification from the sender under subsection (f). The indemnification provision
recognizes that a sender has no right to cancel a payment order after it is accepted by
the receiving bank. If the receiving bank agrees to cancellation, it is doing so as an
accommodation to the sender and it should not incur a risk of loss in doing so.
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Add.9
6. Acceptance by the receiving bank of a payment order issued by the sender is
comparable to acceptance of an offer under the law of contracts. Under that law the
death or legal incapacity of an offeror terminates the offer even though the offeree
has no notice of the death or incapacity. Restatement Second, Contracts § 48.
Comment a. to that section state that the “rule seems to be a relic of the obsolete
view that a contract requires a ‘meeting of minds,’ and it is out of harmony with the
modern doctrine that a manifestation of assent is effective without regard to actual
mental assent.” Subsection (g), which reverses the Restatement rule in the case of a
payment order, is similar to Section 4-405(1) which applies to checks. Subsection
(g) does not address the effect of the bankruptcy of the sender of a payment order
before the order is accepted, but the principle of subsection (g) has been recognized
in Bank of Marin v. England, 385 U.S. 99 (1966). Although Bankruptcy Code
Section 542(c) may not have been drafted with wire transfers in mind, its language
can be read to allow the receiving bank to charge the sender's account for the amount
of the payment order if the receiving bank executed it in ignorance of the bankruptcy.
7. Subsection (d) deals with stale payment orders. Payment orders normally are
executed on the execution date or the day after. An order issued to the beneficiary's
bank is normally accepted on the payment date or the day after. If a payment order
is not accepted on its execution or payment date or shortly thereafter, it is probable
that there was some problem with the terms of the order or the sender did not have
sufficient funds or credit to cover the amount of the order. Delayed acceptance of
such an order is normally not contemplated, but the order may not have been
cancelled by the sender. Subsection (d) provides for cancellation by operation of law
to prevent an unexpected delayed acceptance.
8. A funds transfer system rule can govern rights and obligations between banks that
are parties to payment orders transmitted over the system even if the rule conflicts
with Article 4A. In some cases, however, a rule governing a transaction between two
banks can affect a third party in an unacceptable way. Subsection (h) deals with such
a case. A funds transfer system rule cannot allow cancellation of a payment order
accepted by the beneficiary's bank if the rule conflicts with subsection (c)(2).
Because rights of the beneficiary and the originator are directly affected by
acceptance, subsection (c)(2) severely limits cancellation. These limitations cannot
be altered by funds transfer system rule.
* * *
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Add.10
CODE OF FEDERAL REGULATIONS
Title 12. Banks and Banking, Chapter II, Subchapter A, Part 210, Subpart B
12 C.F.R. § 210.25
§ 210.25 Authority, purpose, and scope.
(a) Authority and purpose. This subpart provides rules to govern funds transfers
through the Fedwire Funds Service, and has been issued pursuant to the Federal
Reserve Act—section 13 (12 U.S.C. 342), paragraph (f) of section 19 (12 U.S.C.
464), paragraph 14 of section 16 (12 U.S.C. 248(o)), and paragraphs (i) and (j) of
section 11 (12 U.S.C. 248(i) and (j))—and other laws and has the force and effect of
federal law. This subpart is not a funds-transfer system rule as defined in Section
4A–501(b) of Article 4A.
(b) Scope.
(1) This subpart incorporates the provisions of Article 4A set forth in appendix
B to this subpart. In the event of an inconsistency between the provisions of
the sections of this subpart and appendix B to this subpart, the provisions of
the sections of this subpart shall prevail. In the event of an inconsistency
between the provisions this subpart and section 919 of the Electronic Fund
Transfer Act, section 919 of the Electronic Fund Transfer Act shall prevail.
(2) Except as otherwise provided in paragraphs (b)(3) and (4) of this section,
including Article 4A as set forth in appendix B to this subpart, and operating
circulars of the Reserve Banks issued in accordance with paragraph (c) of this
section, this subpart governs the rights and obligations of:
(i) Federal Reserve Banks sending or receiving payment orders;
(ii) Senders that send payment orders directly to a Federal Reserve
Bank;
(iii) Receiving banks that receive payment orders directly from a
Federal Reserve Bank;
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Add.11
(iv) Beneficiaries that receive payment for payment orders sent to a
Federal Reserve Bank by means of credit to an account maintained or
used at a Federal Reserve Bank; and
(v) Other parties to a funds transfer any part of which is carried out
through Fedwire to the same extent as if this subpart were considered a
funds-transfer system rule under Article 4A.
(3) This subpart governs a funds transfer that is sent through the Fedwire
Funds Service, as provided in paragraph (b)(2) of this section, even though a
portion of the funds transfer is governed by the Electronic Fund Transfer Act,
but the portion of such funds transfer that is governed by the Electronic Fund
Transfer Act (other than section 919 governing remittance transfers) is not
governed by this subpart.
(4) In the event that any portion of this Subpart establishes rights or
obligations with respect to the availability of funds that are also governed by
the Expedited Funds Availability Act or the Board’s Regulation CC,
Availability of Funds and Collection of Checks, those provisions of the
Expedited Funds Availability Act or Regulation CC shall apply and the
portion of this Subpart, including Article 4A as incorporated herein, shall not
apply.
(c) Operating Circulars. Each Federal Reserve Bank shall issue an Operating
Circular consistent with this Subpart that governs the details of its funds-transfer
operations and other matters it deems appropriate. Among other things, the
Operating Circular may: set cut-off hours and funds-transfer business days; address
available security procedures; specify format and media requirements for payment
orders; identify messages that are not payment orders; and impose charges for funds-
transfer services.
(d) Government senders, receiving banks, and beneficiaries. Except as otherwise
expressly provided by the statutes of the United States, the parties specified in
paragraphs (b)(2)(ii) through (v) of this section include:
(1) A department, agency, instrumentality, independent establishment, or
office of the United States, or a wholly-owned or controlled Government
corporation;
(2) An international organization;
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(3) A foreign central bank; and
(4) A department, agency, instrumentality, independent establishment, or
office of a foreign government, or a wholly-owned or controlled corporation
of a foreign government.
(e) Financial messaging standards. Financial messaging standards (e.g., ISO 20022),
including the financial messaging components, elements, technical documentation,
tags, and terminology used to implement those standards, do not confer or connote
legal status or responsibilities. This subpart, including Article 4A as set forth in
appendix B to this subpart, and the operating circulars of the Reserve Banks issued
in accordance with paragraph (c) of this section govern the rights and obligations of
parties to funds transfers sent through the Fedwire Funds Service as provided in
paragraph (b) of this section. To the extent there is any inconsistency between a
financial messaging standard adopted by the Fedwire Funds Service and this subpart,
this subpart shall prevail.
12 C.F.R. § 210.26
§ 210.26 Definitions.
As used in this subpart, the following definitions apply:
(a) Article 4A means Article 4A of the Uniform Commercial Code as set forth in
appendix B of this subpart.
(b) [Reserved by 77 FR 21859]
(c) Automated clearing house transfer means any transfer designated as an
automated clearing house transfer in a Federal Reserve Bank Operating Circular.
(d) Beneficiary’s bank has the same meaning as in Article 4A, except that:
(1) A Federal Reserve Bank need not be identified in the payment order in
order to be the beneficiary’s bank; and
(2) The term includes a Federal Reserve Bank when that Federal Reserve
Bank is the beneficiary of a payment order.
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(e) Fedwire Funds Service and Fedwire means the funds-transfer system owned and
operated by the Federal Reserve Banks that is used primarily for the transmission
and settlement of payment orders governed by this subpart. Fedwire does not include
the system for making automated clearing house transfers.
(f) Interdistrict transfer means a funds transfer involving entries to accounts
maintained at two Federal Reserve Banks.
(g) Intradistrict transfer means a funds transfer involving entries to accounts
maintained at one Federal Reserve Bank.
(h) Off-line bank means a bank that transmits payment orders to and receives
payment orders from a Federal Reserve Bank by telephone orally or by other means
other than electronic data transmission.
(i) Payment order has the same meaning as in Article 4A, except that the term does
not include automated clearing house transfers or any communication designated in
a Federal Reserve Bank Operating Circular issued under this Subpart as not being a
payment order.
(j) Sender’s account, receiving bank’s account, and beneficiary’s account mean the
reserve, clearing, or other funds deposit account at a Federal Reserve Bank
(k) Sender’s Federal Reserve Bank and receiving bank’s Federal Reserve Bank mean
the Federal Reserve Bank at which the sender or receiving bank, respectively,
maintains or uses an account.
12 C.F.R. § 210.27
§ 210.27 Reliance on identifying number.
(a) Reliance by a Federal Reserve Bank on number to identify an intermediary bank
or beneficiary’s bank. A Federal Reserve Bank may rely on the number in a payment
order that identifies the intermediary bank or beneficiary’s bank, even if it identifies
a bank different from the bank identified by name in the payment order, if the Federal
Reserve Bank does not know of such an inconsistency in identification. A Federal
Reserve Bank has no duty to detect any such inconsistency in identification.
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(b) Reliance by a Federal Reserve Bank on number to identify beneficiary. A Federal
Reserve Bank, acting as a beneficiary’s bank, may rely on the number in a payment
order that identifies the beneficiary, even if it identifies a person different from the
person identified by name in the payment order, if the Federal Reserve Bank does
not know of such an inconsistency in identification. A Federal Reserve Bank has no
duty to detect any such inconsistency in identification.
12 C.F.R. § 210.28
§ 210.28 Agreement of sender.
(a) Payment of sender’s obligation to a Federal Reserve Bank. A sender (other than
a Federal Reserve Bank), by maintaining or using an account with a Federal Reserve
Bank, authorizes the sender’s Federal Reserve Bank to obtain payment for the
sender’s payment orders by debiting the amount of the payment order from the
sender’s account.
(b) Overdrafts.
(1) A sender does not have the right to an overdraft in the sender’s account.
In the event an overdraft is created, the overdraft shall be due and payable
immediately without the need for a demand by the Federal Reserve Bank, at
the earliest of the following times:
(i) At the end of the funds-transfer business day;
(ii) At the time the Federal Reserve Bank, in its sole discretion, deems
itself insecure and gives notice thereof to the sender; or
(iii) At the time the sender suspends payments or is closed.
(2) The sender shall have in its account, at the time the overdraft is due and
payable, a balance of actually and finally collected funds sufficient to cover
the aggregate amount of all its obligations to the Federal Reserve Bank,
whether the obligations result from the execution of a payment order or
otherwise.
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(3) To secure any overdraft, as well as any other obligation due or to become
due to its Federal Reserve Bank, each sender, by sending a payment order to
a Federal Reserve Bank that is accepted by the Federal Reserve Bank, grants
to the Federal Reserve Bank a security interest in all of the sender’s assets in
the possession of, or held for the account of, the Federal Reserve Bank. The
security interest attaches when an overdraft, or any other obligation to the
Federal Reserve Bank, becomes due and payable.
(4) A Federal Reserve Bank may take any action authorized by law to recover
the amount of an overdraft that is due and payable, including, but not limited
to, the exercise of rights of set off, the realization on any available collateral,
and any other rights it may have as a creditor under applicable law.
(5) If a sender, other than a government sender described in § 210.25(d),
incurs an overdraft in its account as a result of a debit to the account by a
Federal Reserve Bank under paragraph (a) of this section, the account will be
subject to any applicable overdraft charges, regardless of whether the
overdraft has become due and payable. A Federal Reserve Bank may debit a
sender’s account under paragraph (a) of this section immediately on
acceptance of the payment order.
(c) Review of payment orders. A sender, by sending a payment order to a Federal
Reserve Bank, agrees that for the purposes of sections 4A–204(a) and 4A–304 of
Article 4A, a reasonable time to notify a Federal Reserve Bank of the relevant facts
concerning an unauthorized or erroneously executed payment order is within 30
calendar days after the sender receives notice that the payment order was accepted
or executed, or that the sender’s account was debited with respect to the payment
order.
12 C.F.R. § 210.29
§ 210.29 Agreement of receiving bank.
(a) Payment. A receiving bank (other than a Federal Reserve Bank) that receives a
payment order from its Federal Reserve Bank authorizes that Federal Reserve Bank
to pay for the payment order by crediting the amount of the payment order to the
receiving bank’s account.
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(b) Off-line banks. An off-line bank that does not expressly notify its Federal
Reserve Bank in writing that it maintains an account for another bank warrants to
that Federal Reserve Bank that the off-line bank does not act as an intermediary bank
or a beneficiary’s bank with respect to payment orders received through the Fedwire
Funds Service for a beneficiary that is a bank.
12 C.F.R. § 210.30
§ 210.30 Payment orders.
(a) Rejection. A sender shall not send a payment order to a Federal Reserve Bank
unless authorized to do so by the Federal Reserve Bank. A Federal Reserve Bank
may reject, or impose conditions that must be satisfied before it will accept, a
payment order for any reason.
(b) Selection of an intermediary bank. For an interdistrict transfer, a Federal Reserve
Bank is authorized and directed to execute a payment order through another Federal
Reserve Bank. A sender shall not send a payment order to a Federal Reserve Bank
that requires the Federal Reserve Bank to issue a payment order to an intermediary
bank (other than a Federal Reserve Bank) unless that intermediary bank is designated
in the sender’s payment order. A sender shall not send to a Federal Reserve Bank a
payment order instructing use by a Federal Reserve Bank of a funds-transfer system
or means of transmission other than Fedwire, unless the Federal Reserve Bank
agrees with the sender in writing to follow such instructions.
(c) Same-day execution. A sender shall not issue a payment order that instructs a
Federal Reserve Bank to execute the payment order on a funds-transfer business day
that is later than the funds-transfer business day on which the order is received by
the Federal Reserve Bank, unless the Federal Reserve Bank agrees with the sender
in writing to follow such instructions.
12 C.F.R. § 210.31
§ 210.31 Payment by a Federal Reserve Bank to a receiving bank or beneficiary.
(a) Payment to a receiving bank. Payment of a Federal Reserve Bank’s obligation to
pay a receiving bank (other than a Federal Reserve Bank) occurs at the earlier of the
time when the amount of the payment order is credited to the receiving bank’s
account or when the payment order is sent to the receiving bank.
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(b) Payment to a beneficiary. Payment by a Federal Reserve Bank to a beneficiary
of a payment order, where the Federal Reserve Bank is the beneficiary’s bank, occurs
at the earlier of the time when the amount of the payment order is credited to the
beneficiary’s account or when notice of the credit is sent to the beneficiary.
12 C.F.R. § 210.32
§ 210.32 Federal Reserve Bank liability; payment of interest.
(a) Damages. In connection with its handling of a payment order under this subpart,
a Federal Reserve Bank shall not be liable to a sender, receiving bank, beneficiary,
or other Federal Reserve Bank, governed by this subpart, for any damages other than
those payable under Article 4A. A Federal Reserve Bank shall not agree to be liable
to a sender, receiving bank, beneficiary, or other Federal Reserve Bank for
consequential damages under section 4A–305(d) of Article 4A.
(b) Payment of interest.
(1) A Federal Reserve Bank shall satisfy its obligation, or that of another
Federal Reserve Bank, to pay compensation in the form of interest under
Article 4A by paying compensation in the form of interest to its sender, its
receiving bank, its beneficiary, or another party to the funds transfer that is
entitled to such payment, in an amount that is calculated in accordance with
section 4A–506 of Article 4A.
(2) If the sender or receiving bank that is the recipient of interest payment is
not the party entitled to compensation under Article 4A, the sender or
receiving bank shall pass through the benefit of the interest payment by
making an interest payment, as of the day the interest payment is effected, to
the party entitled to compensation. The interest payment that is made to the
party entitled to compensation shall not be less than the value of the interest
payment that was provided by the Federal Reserve Bank to the sender or
receiving bank. The party entitled to compensation may agree to accept
compensation in a form other than a direct interest payment, provided that
such an alternative form of compensation is not less than the value of the
interest payment that otherwise would be made.
(c) Nonwaiver of right of recovery. Nothing in this subpart or any Operating Circular
issued hereunder shall constitute, or be construed as constituting, a waiver by a
Federal Reserve Bank of a cause of action for recovery under any applicable law of
mistake and restitution.
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CERTIFICATE OF SERVICE
I hereby certify that on this 22nd day of December, 2021, I electronically
filed the foregoing with the Clerk of the Court for the United States Court of
Appeals for the Fourth Circuit using the appellate CM/ECF system. Counsel for
all parties to the case are registered CM/ECF users and will be served by the
appellate CM/ECF system.
/s/ Alan E. Schoenfeld
ALAN E. SCHOENFELD
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