Full text
No. 21-2218 (L), 21-2219
IN THE 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.
(Caption continued on inside cover)
Appeals from the United States District Court
for the Eastern District of Virginia (No. 1:20-cv-00658-LMB-IDD)
RESPONSE BRIEF FOR THE APPELLEES
Gary A. Orseck
Matthew M. Madden
Donald Burke
ROBBINS, RUSSELL, ENGLERT, ORSECK,
& UNTEREINER LLP
2000 K Street NW, 4th Floor
Washington, D.C. 20006
Telephone: (202) 775-4500
Facsimile: (202) 775-4510
gorseck@robbinsrussell.com
Counsel for Appellees
USCA4 Appeal: 21-2218 Doc: 37 Filed: 02/07/2022 Pg: 1 of 96
BLUE FLAME MEDICAL LLC,
Plaintiff,
v.
CHAIN BRIDGE BANK, N.A.,
Defendant and Third-Party Plaintiff – Appellee,
JOHN J. BROUGH; DAVID M. EVINGER,
Defendants,
v.
JPMORGAN CHASE BANK, N.A.,
Third Party Defendant – Appellant.
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12/01/2019 SCC
- 1 -
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.
No. __________
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:
Chain Bridge Bank, N.A., John J. Brough, and David M. Evinger
Appellee
✔
✔
Chain Bridge Bancorp, Inc. (Chain Bridge Bank, N.A. only)
✔
%OXH)ODPH0HGLFDO//&Y&KDLQ%ULGJH%DQN1$HWDOY
-30RUJDQ&KDVH%DQN1$
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- 2 -
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: __________________________________
✔
✔
✔
✔
Chain Bridge Bank, N.A., et al.
Print to PDF for Filing
/s/ Gary A. Orseck
Feb. 7, 2022
USCA4 Appeal: 21-2218 Doc: 37 Filed: 02/07/2022 Pg: 4 of 96
i
TABLE OF CONTENTS
Page
Introduction ................................................................................................................ 1
Issues Presented ......................................................................................................... 6
Statement Of The Case .............................................................................................. 6
I. Factual Background ....................................................................................... 6
A. Blue Flame Procures California’s Order For 100 Million N95
Masks Through Misrepresentations And Concealment .......................... 6
B. Blue Flame Opens Its Account With Chain Bridge Without
Disclosing The Incoming Wire Transfer ............................................... 12
C. California’s Wire Transfer And The Banks’ Investigations ................. 14
D. JPMorgan Cancels The Wire Transfer And Chain Bridge Agrees
To Return California’s Funds ................................................................ 16
E. California Decides Not To Do Business With Blue Flame .................. 18
F. Blue Flame Fails To Fulfill Other Orders For N95 Masks ................... 20
II. Proceedings Below ...................................................................................... 20
Summary of Argument............................................................................................. 26
Argument.................................................................................................................. 29
I. The District Court’s Judgment Dismissing Blue Flame’s Claims Should
Be Affirmed ................................................................................................. 30
A. The District Court Correctly Entered Summary Judgment For
Chain Bridge on Blue Flame’s Claim Under UCC Section 4A-
204(a) Because Chain Bridge Did Not Accept A Payment Order
“Issued In The Name Of Its Customer As Sender” ............................... 30
B. The District Court Correctly Entered Summary Judgment In Chain
Bridge’s Favor On Blue Flame’s Claim Under UCC Section 4A-
404(a) Because Blue Flame Has No Evidence Of Damages
Resulting From Chain Bridge’s Refusal To Pay ................................... 38
1. Upon Learning The Truth About Blue Flame, California
Determined Not To Move Forward With Its Order ........................ 39
2. Blue Flame Proffered No Evidence That It Could Have
Fulfilled California’s Order ............................................................. 42
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ii
Table of Contents—Continued:
Page
3. Blue Flame Was Required To Establish Damages Resulting
From Chain Bridge’s Refusal To Pay ............................................. 50
C. Blue Flame’s Failure To Act In Good Faith Independently Bars
Blue Flame’s UCC Claims .................................................................... 52
D. The District Court Correctly Held That Blue Flame’s State Law
Claims Fail As A Matter Of Law .......................................................... 57
1. The District Court Correctly Dismissed Blue Flame’s Claims
For Conversion, Fraud, Constructive Fraud, Negligence, And
Breach Of Contract ......................................................................... 57
2. Summary Judgment Was Proper On Blue Flame’s Tortious
Interference Claims ......................................................................... 61
II. The District Court Correctly Held That Chain Bridge Is Indemnified By
JPMorgan ..................................................................................................... 63
A. JPMorgan’s Liability For Indemnification Is Established By
Undisputed Facts And The Plain Text Of UCC Section 4A-211(f) ..... 63
B. The District Court Correctly Rejected JPMorgan’s Attempts To
Evade Its Indemnification Obligation ................................................... 68
1. JPMorgan’s Argument That Chain Bridge “Requested And
Directed” The Cancellation Is Both Irrelevant And Without
Support In The Record .................................................................... 69
2. Chain Bridge And JPMorgan Did Not Agree To Displace
Section 211(f)’s Indemnification Provision .................................... 76
3. Chain Bridge’s Loss And Expenses Resulted From
JPMorgan’s Cancellation ................................................................ 80
Conclusion ............................................................................................................... 83
Statement Regarding Oral Argument ...................................................................... 84
Certificate of Compliance ........................................................................................ 85
Certificate of Service ............................................................................................... 86
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iii
TABLE OF AUTHORITIES
Cases:
Page
Anderson v. Liberty Lobby, Inc.,
477 U.S. 242 (1986)....................................................................................... 29
Ash v. United Parcel Serv., Inc.,
800 F.2d 409 (4th Cir. 1986) (per curiam) .................................................... 49
Ballengee v. CBS Broad., Inc.,
968 F.3d 344 (4th Cir. 2020) ......................................................................... 51
Banca Commerciale Italiana, N.Y. Branch v. Northern Tr. Int’l
Banking Corp., 160 F.3d 90 (2d Cir. 1998) ................................. 65, 66, 72, 74
Belville v. Ford Motor Co.,
919 F.3d 224 (4th Cir. 2019) ......................................................................... 60
Bumpas v. Ryan, No. 3:07-cv-0766,
2013 WL 2418258 (M.D. Tenn. June 3, 2013) ............................................. 45
Cambridge Literary Props., Ltd. v. W. Goebel Porzellanfabrik
G.m.b.H. & Co. Kg., No. CV 00-10343-NG, 2006 WL 8458370
(D. Mass. Mar. 14, 2006) ............................................................................... 45
Celotex Corp. v. Catrett,
477 U.S. 317 (1986)....................................................................................... 49
Commerce Funding Corp. v. Worldwide Sec. Servs. Corp.,
249 F.3d 204 (4th Cir. 2001) ......................................................................... 62
Cumis Ins. Soc’y, Inc. v. Citibank, N.A.,
921 F. Supp. 1100 (S.D.N.Y. 1996) .............................................................. 67
Dedvukaj v. Equilon Enters., L.L.C., 301 F. Supp. 2d 664
(E.D. Mich. 2004), aff’d, 132 F. App’x 582 (6th Cir. 2005) ................... 44, 46
Donmar Enters., Inc. v. Southern Nat’l Bank of N.C.,
64 F.3d 944 (4th Cir. 1995) ........................................................................... 73
Eisenberg v. Wachovia Bank, N.A.,
301 F.3d 220 (4th Cir. 2002) ....................................................... 27, 57, 58, 59
Evans v. Technologies Applications & Serv. Co.,
80 F.3d 954 (4th Cir. 1996) ........................................................................... 47
USCA4 Appeal: 21-2218 Doc: 37 Filed: 02/07/2022 Pg: 7 of 96
iv
Cases—Continued:
Page
Henry v. Outback Steakhouse of Fla., LLC, No. 15-cv-10755,
2017 WL 1382292 (E.D. Mich. Apr. 18, 2017) ............................................ 45
Hodgin v. UTC Fire & Sec. Americas Corp.,
885 F.3d 243 (4th Cir. 2018) ......................................................................... 52
Jackson v. Kimel,
992 F.2d 1318 (4th Cir. 1993) ....................................................................... 52
JKC Holding Co. LLC v. Washington Sports Ventures, Inc.,
264 F.3d 459 (4th Cir. 2001) ................................................................... 40, 49
Knox Energy, LLC v. Gasco Drilling, Inc.,
738 F. App’x 122 (4th Cir. 2018) .................................................................. 79
Lucas v. Jolin, No. 1:15-cv-108,
2016 WL 2853576 (S.D. Ohio May 16, 2016) .............................................. 45
Lujan v. National Wildlife Fed’n,
497 U.S. 871 (1990)....................................................................................... 49
Maryland Highways Contractors Ass’n v. Maryland,
933 F.2d 1246 (4th Cir. 1991) ....................................................................... 44
McKellar v. State Farm Fire & Cas. Co., No. 14-cv-13730,
2016 WL 304759 (E.D. Mich. Jan. 26, 2016) ............................................... 45
Muth v. United States,
1 F.3d 246 (4th Cir. 1993) ............................................................................. 51
Paradise Wire & Cable Defined Benefit Pension Plan v. Weil,
918 F.3d 312 (4th Cir. 2019) ......................................................................... 56
Ray Commc’ns, Inc. v. Clear Channel Commc’ns, Inc.,
673 F.3d 294 (4th Cir. 2012) ......................................................................... 29
Ray v. Roane,
948 F.3d 222 (4th Cir. 2020) ......................................................................... 29
Regions Bank v. Provident Bank, Inc.,
345 F.3d 1267 (11th Cir. 2003) ............................................................... 54, 68
Stanciel v. Gramley,
267 F.3d 575 (7th Cir. 2001) ......................................................................... 60
Synovus Bank v. Tracy,
603 F. App’x 121 (4th Cir. 2015) .................................................................. 53
USCA4 Appeal: 21-2218 Doc: 37 Filed: 02/07/2022 Pg: 8 of 96
v
Cases—Continued:
Page
Tavery v. United States,
32 F.3d 1423 (10th Cir. 1994) ....................................................................... 47
Terry v. Perdue, No. 20-2016,
2021 WL 3418124 (4th Cir. Aug. 5, 2021) (per curiam) .............................. 60
United States v. $3,000 in Cash,
906 F. Supp. 1061 (E.D. Va. 1995) ............................................................... 54
United States v. Al-Hamdi,
356 F.3d 564 (4th Cir. 2004) ......................................................................... 24
Statutes, Regulations, and Rules:
Uniform Commercial Code:
§ 1-201(b)(3) .................................................................................................. 77
§ 1-201(b)(20) ................................................................................................ 53
§ 1-304 ................................................................................................. 5, 27, 52
§ 1-304 cmt. 1 .......................................................................................... 27, 52
§ 1-304 cmt. 2 ................................................................................................ 52
§ 4A-103(a)(1) ......................................................................................... 30, 31
§ 4A-103(a)(4) ............................................................................................... 30
§ 4A-103(a)(5) ............................................................................................... 30
§ 4A-105 cmt. 2 ............................................................................................. 71
§ 4A-107 ........................................................................................................ 77
§ 4A-204(a) .............................................................................................passim
§ 4A-209(a) .............................................................................................. 30, 36
§ 4A-209(b)(2) ............................................................................................... 65
§ 4A-209 cmt. 3 ............................................................................................. 41
§ 4A-211(a) .............................................................................................. 66, 71
§ 4A-211(b) ............................................................................................. 63, 70
§ 4A-211(c) .............................................................................................. 64, 74
§ 4A-211(c)(2) ......................................................................................... 37, 38
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vi
Statutes, Regulations, and Rules—Continued:
Page
§ 4A-211 cmt. 5 ................................................................................. 64, 73, 81
§ 4A-211(f) .......................................................................................... 6, 28, 64
§ 4A-301(a) .............................................................................................. 31, 36
§ 4A-403(a)(1) ............................................................................................... 65
§ 4A-404(a) .............................................................................................passim
12 C.F.R.:
§ 210.25 ......................................................................................................... 57
pt. 210, subpt. B, app. A, cmt. to § 210.25 .................................................... 57
Fed. R. Civ. P.:
Rule 56(a) ...................................................................................................... 29
Rule 56(c)(1)(A) ............................................................................................ 44
Rule 56(c)(1)(B) ............................................................................................ 44
Rule 56(c)(4) ............................................................................................ 47, 48
Fed. R. Evid. 602 ................................................................................................ 44
Miscellaneous:
Federal Reserve Banks Operating Circular No. 6 (2019) ................................... 31
Restatement (Third) of Torts: Liability for Economic Harm (2020) ..... 28, 56, 62
Reuters, UPDATE 1-Electric Car Maker BYD Says Profits Up as
Becomes Leading Mask Maker, Aug. 28, 2020 ............................................. 49
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1
INTRODUCTION
When the COVID-19 pandemic descended in March 2020, two political
consultants—John Thomas and Mike Gula—devised a plan to spin their Rolodexes
into gold. Amid a global scramble to secure scarce supplies of N95 face masks and
other personal protective equipment (PPE), Thomas and Gula launched Blue Flame
Medical LLC and began promising states and localities that Blue Flame had
hundreds of millions of N95 masks available for immediate purchase and delivery.
In reality, Blue Flame had no mask inventory to sell, and its principals had zero
experience procuring and delivering PPE (or anything else, for that matter).
Blue Flame’s get-rich-quick scheme unraveled quickly and predictably. The
new company took in millions of dollars of N95 mask orders and prepayments from
desperate customers, but was able to deliver (belatedly) only a handful of masks. As
Blue Flame later admitted to congressional investigators, it had to cancel and refund
nearly every order because its brokers were unable to deliver the promised product.
This case is about one of Blue Flame’s unhappy customers that—thankfully—
managed to get its money back. Just two days after Thomas and Gula incorporated
Blue Flame, and only one day after Blue Flame opened its bank account, Blue Flame
was able to convince the State of California to place a $609 million order for 100
million non-existent N95 masks, and to immediately wire it a $456.8 million prepaid
deposit.
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2
How did a two-day-old company with zero experience in the medical supply
business talk the Nation’s largest state government into sending it nearly half a
billion dollars? Through a series of flagrant falsehoods and by concealing the basic
facts about its operations. Blue Flame told state officials that it had 100 million 3M
N95 masks sitting at the Port of Long Beach available for immediate delivery. That
was untrue. Then Blue Flame claimed to have, alas, sold and successfully delivered
those 100 million masks to other buyers. Also untrue. Blue Flame further assured
California officials, not to worry, it would have another 100 million masks arriving
on the West Coast every week. Extremely untrue. Blue Flame then produced an
utterly fictitious delivery schedule pledging to put 100 million masks in the State’s
warehouses within 30 days. All the while, Blue Flame never told California officials
that Blue Flame’s existence could be measured in mere hours, or that its principals’
relevant experience could not be measured at all.
But in the chaotic days of March 2020, desperation crowded out diligence,
and so California plowed ahead. Fortunately, California’s massive wire transfer to
Blue Flame immediately aroused suspicion at California’s bank, JPMorgan Chase
Bank, N.A., and at Blue Flame’s bank, Chain Bridge Bank, N.A. The banks talked
with each other, and also with California officials who were shocked to learn that
Blue Flame was not what it had led them to believe. As a result, JPMorgan canceled
California’s wire just two hours after sending it, and recalled the State’s funds.
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3
Chain Bridge promptly agreed to that cancellation by returning California’s money,
which JPMorgan immediately restored to California’s account. California, now
aware of the truth about Blue Flame, broke off talks with Blue Flame—and began
forwarding Blue Flame’s communications to the FBI.
This lawsuit is Blue Flame’s last-ditch attempt to snatch a huge payday from
the ruins of its failed scheme. It alleges that Chain Bridge’s decision to honor
JPMorgan’s wire cancellation violated Uniform Commercial Code provisions
governing wire transfers and state law. Blue Flame claims that Chain Bridge must
pay it every penny of the $456.8 million canceled wire, plus damages for Blue
Flame’s supposed lost profits and business opportunities. That is, having never
delivered a single N95 mask to California, Blue Flame wants to invoke the UCC to
force Chain Bridge to hand over to Thomas and Gula more than half a billion dollars.
This audacious theory is as baseless as it sounds. The district court correctly
granted Chain Bridge summary judgment on those claims, which fail both on the
law and on the undisputed evidence. The court also correctly granted summary
judgment to Chain Bridge on its third-party claim for indemnification from
JPMorgan, as provided for in the UCC.
First, the district court correctly concluded that Chain Bridge’s return of
California’s funds, in response to JPMorgan’s wire cancellation, did not involve
Chain Bridge’s acceptance of an unauthorized payment order under Section 4A-
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4
204(a) of the UCC. Blue Flame’s complaint is not that Chain Bridge impermissibly
accepted a payment order issued by someone pretending to be Blue Flame. Rather,
Blue Flame’s complaint is that Chain Bridge should not itself have issued a payment
order to honor JPMorgan’s wire cancellation. Section 4A-204(a) thus has nothing
to do with the undisputed facts of this case.
Second, the district court correctly rejected Blue Flame’s claim to damages,
under Section 4A-404(a) of the UCC, based on Chain Bridge’s decision to honor
JPMorgan’s wire cancellation request rather than pay Blue Flame. The court
reached that conclusion for two independently sufficient reasons: To begin with,
California had an unfettered, unilateral right to cancel its order with Blue Flame—
at any time, and for its own reasons and convenience. And as soon as California
discovered the truth about Blue Flame, it pulled the plug. There is no evidence that
California’s decision was prompted by the cancellation of the wire, and so Blue
Flame’s claim that it sustained damages “resulting from” Chain Bridge’s
determination to honor the cancellation request fails as a matter of law. Moreover,
the district court correctly held that nothing but “rank speculation” supports Blue
Flame’s protestations that, but for the wire cancellation, it would have timely
delivered California’s 100 million masks.
Third, Blue Flame’s UCC claims also fail on the independent and alternative
ground that Blue Flame did not act in good faith. Blue Flame tries to cast its
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5
principals and their egregious misconduct as merely “distasteful” and not
“particularly likeable.” But those euphemisms cannot obscure that Blue Flame
procured California’s wire transfer with blatant misstatements of fact to state
officials. Section 1-304 of the UCC imposes “an obligation of good faith” in the
“performance and enforcement” of every “contract or duty” subject to the UCC.
Blue Flame’s breach of that obligation precludes it from invoking the UCC’s
remedies against Chain Bridge.
Fourth, Blue Flame seeks to revive state law claims that the district court
either dismissed as preempted by the UCC regulations on wire transfers or held
meritless on the undisputed facts. Blue Flame’s arguments are baseless.
Finally, the district court correctly applied the unambiguous text of UCC
Section 4A-211(f) to hold that JPMorgan must indemnify Chain Bridge for any
losses it incurs in this case, including attorney’s fees. Under the straightforward
language of Section 4A-211(f), JPMorgan “is liable to [Chain Bridge] for any loss
and expenses . . . incurred by [Chain Bridge] as a result of the cancellation.” The
district court rejected JPMorgan’s contrary arguments, reprised here on appeal, as
“weak” and “unpersuasive” “attempts to sidestep the text of the regulation.”
The district court’s careful decision to grant Chain Bridge summary judgment
on Blue Flame’s claims, and on Chain Bridge’s third-party indemnification claim,
should be affirmed.
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6
ISSUES PRESENTED
1.
Whether the district court erred in concluding that Blue Flame’s claims
against Chain Bridge and its officers fail as a matter of law.
2.
Whether the district court erred in granting summary judgment for
Chain Bridge on its claim for indemnification from JPMorgan, where the undisputed
evidence shows that Chain Bridge, “the receiving bank” for California’s wire
transfer, “agree[d] to cancellation . . . by the sender,” and no displacement of the
default rule in favor of indemnification was “otherwise provided in an agreement of
the parties.” UCC § 4A-211(f).
STATEMENT OF THE CASE
I.
FACTUAL BACKGROUND
A.
Blue Flame Procures California’s Order For 100 Million N95
Masks Through Misrepresentations And Concealment
1. Blue Flame’s principals, John Thomas and Mike Gula, are political
consultants. JA3067. When the COVID-19 pandemic began, neither one had “any
experience in the field of medical supplies,” the “healthcare industry,” or “supply
chain management.” JA527; see also JA24; JA539, 542, 559; JA3067.
Nevertheless, they concluded that there might be ways to profit from the urgent
demand for personal protective equipment (PPE). Thomas and Gula reached out to
their network of political contacts and offered referral fees for steering public
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7
contracts to them. E.g., JA568. On March 23, 2020, they formed Blue Flame.
JA576.
Despite their lack of experience—and their lack of any actual inventory—on
March 25, 2020, John Thomas persuaded California’s Department of General
Services (DGS) to purchase 100 million N95 masks from Blue Flame, in exchange
for hundreds of millions of dollars in public funds. California agreed to the
transaction having not asked, and having not been told, what Thomas and Gula
actually did for a living.
The terms of this extraordinary transaction were memorialized in California’s
purchase order and Blue Flame’s invoice, which provided a total purchase price of
$609.16 million and for pre-payment of 75 percent of that total. JA579; JA581. The
purchase order and invoice designated four specific models of N95 masks, each of
which is manufactured in China. Id. The purchase order also incorporated a set of
standard procurement terms set out in a DGS form. JA581. Those standard terms
permitted California to issue a “Stop Work Order” requiring Blue Flame to
immediately suspend its work on the purchase order. JA1170-71. In addition,
California could terminate the purchase order “for the convenience of the State”—
that is, based upon a determination that “termination is in the State’s interest.”
JA1165.
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California’s purchase order specified a delivery date of April 3, 2020,
although the parties understood that to be a deadline for an initial shipment of masks,
rather than the full quantity. JA581; JA597. During the parties’ negotiations, Blue
Flame had provided DGS officials with a delivery schedule that contemplated
delivery of all 100 million masks by April 24, 2020. JA609. At a minimum, DGS
understood Blue Flame to have guaranteed delivery of 63 million masks within 30
days and expected delivery of all 100 million masks in “days or weeks.” JA592;
JA615-16; JA634.
2. Blue Flame procured California’s purchase order by misrepresenting its
own capabilities and concealing material facts that, once discovered, alarmed
California officials and dissuaded them from moving forward with the order.
Blue Flame grabbed California’s attention when John Thomas told California
State Controller Betty Yee that Blue Flame held 100 million 3M N95 masks at the
Port of Long Beach. JA640. Thomas represented that Blue Flame had “almost sold
all” of that shipment and was “delivering another 100m units of n95 mask” to
“hospitals and a private buyer” in Florida (customers, he said, that “nda’s” prevented
him from identifying). JA640, 642, 645. But Thomas assured Yee that Blue Flame
would have “100m units every week” available for sale to California. JA640. These
representations were “important” to Controller Yee, as Blue Flame’s purported
supply and delivery history went “to the credibility of the vendor.” JA667-68. And
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Thomas’s representations that Blue Flame was “selling so many masks so quickly
. . . put[] pressure on the state to get a deal done as soon as possible.” JA666.
As the district court observed, not a word of this was true. See JA3068.
Thomas grudgingly acknowledged at his deposition that Blue Flame never owned or
sold any 3M masks stored at the Port of Long Beach, and never delivered 100 million
N95 masks to Florida (or anywhere else). JA548, 551.1
Thomas made equally brazen misrepresentations to the DGS officials who
ultimately approved the transaction. Thomas told DGS Director Daniel Kim and
Michael Wong, a DGS contract administrator, that he had “direct access to
manufacturers in China,” JA633, and referred to his contact, Henry Huang, as his
“preferred manufacturer,” JA678. As Director Kim explained, he understood that
Blue Flame was “operating with a supplier who could manufacture directly as
opposed to some middleman.” JA637. But that too was false: On Thomas’s own
1 Thomas’s misrepresentation about Blue Flame’s supply of 100 million N95
masks at the Port of Long Beach allowed him to access the highest levels of
California’s government with remarkable speed. On March 20, 2020, he related this
falsehood to Matthew Littman, one of Blue Flame’s “referral partners.” JA545;
JA656. Littman then enlisted his associate, Stephanie Daily Smith, who had worked
as a political fundraiser for Controller Yee. Littman told Smith that Blue Flame had
100 million N95 masks at the Port of Long Beach to sell to California. JA658.
Smith immediately contacted Yee and the California Governor’s Office, urging them
to contact Thomas about his supposed supply of 100 million masks. JA661. Yee
personally texted Thomas about the masks, and then—in reliance on what he had
hold her—intervened with other California officials to facilitate the transaction.
JA646; JA670-72.
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account, Huang and his company, Great Health Companion Group (Great Health),
did not manufacture N95s themselves, but rather—according to Thomas at least—
“contract[ed] out with manufacturers’ facilities.” JA556. (In fact, there is no
admissible evidence that Great Health ever supplied N95 masks to anyone, let alone
to Blue Flame.)
Blue Flame concealed from California officials other key facts about its
operations. Thomas never mentioned to Controller Yee, DGS officials Kim and
Wong, or any other California official (1) that Blue Flame was organized only on
March 23; (2) that Blue Flame had no bank account until the morning of March 25;
(3) that Blue Flame had never delivered a single N95 mask to anyone; or (4) that
neither Thomas nor Gula had any experience in medical supply logistics. JA600-
01; JA637; JA671-72; JA689.2 Those omissions were critical: The undisputed
evidence is that if “the controller had thought that [Blue Flame] was not legit, she
would not have spent a moment further on this matter.” JA671-72. And as DGS
Director Kim explained, this information “would have raised alarm bells” if it had
been disclosed to DGS. JA637.
3. Blue Flame closed the deal with California on March 25 by sending DGS
a delivery schedule purporting to show that Blue Flame would supply 100 million
2 None of these critical facts appears in Blue Flame’s brief, either.
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N95 masks to California by April 24, 2020. JA609. The schedule stated that those
masks would come from two putative suppliers: 6 million from Suuchi, Inc., a supply
chain software, operations, marketing, and sales company that claimed to have
recently entered the market to broker for PPE; and the remainder from Great Health,
a Chinese company. JA693; see also JA696; JA705-06; JA716-17.
Blue Flame’s delivery schedule was a work of fiction. The morning of March
25, Thomas told his team that Blue Flame still needed to “source inventory amounts
to tell California what we’ll be sending them” and needed to “figure out how to write
the invoice with flexibility.” JA769. That night, Blue Flame’s attorney, Ethan
Bearman, drew up an initial version of the delivery schedule, using “placeholders”
for delivery quantities. JA702; JA772-73. Even those placeholders showed Blue
Flame delivering just 58 million masks by April 30—42 million shy of California’s
order. JA773. But ten minutes later, after speaking with Thomas, Bearman
circulated to his colleagues a souped-up version—attached to an email titled “To get
to 100MM”—this time showing 100 million masks arriving by April 24. JA775-76;
see also D. Ct. Doc. 119, at 7; D. Ct. Doc. 149, at 4-5.
Less than two hours after that, Bearman circulated yet another version that
listed dramatically different daily delivery quantities. JA692-93. This version was
even more fantastical. Indeed, the schedule’s daily delivery figures frequently
exceeded the monthly production capacity figures for the manufacturers of the four
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specific models specified in California’s order, according to the product catalog Blue
Flame had received from Great Health. JA695-97; JA746-47. Thomas nonetheless
forwarded the last of Bearman’s made-up schedules to DGS Director Kim, to “instill
[in him] a level of trust and confidence” in Blue Flame’s “ability to deliver.” JA778.
In fact, Blue Flame had no ability to fulfill California’s order, as the district
court correctly concluded. JA3085-88. Blue Flame had no inventory of N95 masks
at the time it accepted the order. JA532. After accepting California’s order, Blue
Flame placed purchase orders for N95 masks with Great Health and Suuchi, Inc.
But there is no evidence that either purported broker could have supplied any N95
masks to Blue Flame. See JA3085; pp. 42-50, infra.
B.
Blue Flame Opens Its Account With Chain Bridge Without
Disclosing The Incoming Wire Transfer
On the evening of March 24, Michael Wong of California’s DGS informed
Thomas that California “would like a PO for 100M” N95 masks. JA612. Thomas
alerted his Blue Flame colleagues, with evident surprise, and Bearman immediately
observed that Blue Flame did not even “have a bank account for sending [Wong]
wiring instructions.” JA784-85.
The next day, March 25, Thomas and Gula scrambled to set up their two-day-
old business. Gula visited Chain Bridge Bank’s office in McLean, Virginia, to open
an account for Blue Flame. JA813; JA792-93. Gula, who by then knew of the
incoming $456.8 million wire, was warned by Blue Flame’s own attorney to alert
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Chain Bridge because “[o]dd money moves raise red flags and can hold up
transactions.” JA822. Ignoring his attorney’s advice, Gula did not tell Chain Bridge
when opening Blue Flame’s account that Blue Flame was expecting an immediate
incoming wire of nearly half a billion dollars. Instead, in response to account-
opening diligence questions, Gula falsely reported that Blue Flame expected 25
incoming domestic wires per month totaling only $75 million. See JA816.
Chain Bridge did not learn about the massive incoming wire until after it had
opened Blue Flame’s account and given Blue Flame wiring instructions, which Blue
Flame then promptly provided to California. JA828-31; JA833-35. Only then did
Gula call Chain Bridge and advise that “California is sending an unbelievably large
wire transfer in the amount of $450 million.” JA3141 [00:15-00:23]. Gula later
shared that the purpose of the transfer was to “buy[] 100 million masks from China.”
JA3143 [12:50-12:55].
Chain Bridge was concerned when it learned of an undisclosed wire transfer
of nearly half a billion dollars, earmarked for a days-old enterprise. So Chain
Bridge’s Chief Executive Officer, John Brough, and its President, David Evinger,
called Gula to learn more about the transaction. See JA531; JA798. Gula told them
that the California deal was his “pay day” and that he would be “unreachable” after
the transaction. JA871; JA875; JA2863-64. Brough and Evinger asked Gula to
provide documentation about his new business, including contracts that Blue Flame
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had with purchasers or sellers of PPE. JA799; JA851; JA884; JA899; JA905. But
neither Gula nor Thomas ever sent the requested contracts. JA3072.
C.
California’s Wire Transfer And The Banks’ Investigations
On the morning of March 26, 2020, California initiated a wire transfer for
more than $456 million to Blue Flame’s one-day-old account at Chain Bridge.
Within two hours, both JPMorgan and California were pressing for the prompt return
of the funds. JPMorgan formally requested a cancellation of the wire transfer, and
Chain Bridge accommodated that request by returning the funds to JPMorgan.
1. At 11:21 AM ET, a representative from the California State Treasurer’s
Office (STO) originated a wire transfer in the amount of $456,888,600, for Blue
Flame’s benefit, through California’s bank, JPMorgan. JA140. The wire tripped
JPMorgan’s automated payment-control system, on multiple grounds, for suspicious
transaction activity. JA920; JA931-33. But JPMorgan nevertheless approved the
transfer shortly thereafter. JA935.
At 11:55 AM, Chain Bridge received JPMorgan’s payment order transmitting
California’s wire transfer over the Federal Reserve’s Fedwire system. JA937.
Minutes later, Gula received an automated email notification that the funds had been
received. JA945.
2. Faced with multiple indicia of suspicious activity associated with the wire
transfer, Chain Bridge placed a hold on California’s funds while it continued to
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investigate. JA1017. As part of that investigation, Brough and Evinger spoke with
officials from the California STO, who were “surprised” to learn that Blue Flame’s
founder was a political lobbyist who had opened Blue Flame’s account the previous
day. JA807, 864. Indeed, they were so surprised by the truth of the matter that they
asked Chain Bridge to “wait” to “credit[] . . . the client account” until they could
“find out additional information.” JA1054.
At the same time, JPMorgan was growing increasingly alarmed about the half-
billion-dollar wire it had just released on its customer’s behalf. Minutes after the
wire left JPMorgan, Rakesh Korpal, a JPMorgan Executive Director who led
JPMorgan’s Fraud Payments Control Team, opened his own investigation based on
concerns of suspicious activity. JA924-25. As part of that investigation, Korpal
directed his colleague, Tim Coffey, to “engage Chain Bridge Bank to . . . hold on to
those funds . . . as there was concerns about the validity of the transaction.” JA1031.
Coffey called Chain Bridge and immediately volunteered that JPMorgan had
“concerns of fraud” regarding the California wire transfer. JA3137 [00:36-00:38].
In light of those concerns—which JPMorgan had formed independently, before any
discussions with Chain Bridge—Coffey sought and obtained confirmation that
Chain Bridge would hold the funds pending further investigation. JA1034-35.
The two banks cooperated as they investigated the California wire transfer.
Within minutes of JPMorgan’s first call to Chain Bridge, Korpal called back and
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told Brough and Evinger that JPMorgan’s “global security investigations team is
coming back to me and saying that this does not look right,” and that his own
research was “all leading to not-good places.” JA3133 [02:42-02:50 & 03:13-
03:16]. Brough and Evinger answered a series of questions from Korpal about Blue
Flame and its account. JA3133 [00:10-02:10, 2:30-02:41, & 04:26-04:31]. And
Korpal told them that he would contact the JPMorgan banker who worked with
California to discuss further. JA3133 [02:12-02:30].
Korpal shared an update from California an hour later, when he spoke again
with Brough and Evinger. By that point, California was clued in to what Blue Flame
was (and was not), and Korpal explained that California was “unsure” about the
transaction. JA3155 [00:00-00:04]. In response, Evinger asked whether JPMorgan
wanted to “issue a recall for the wire, so that while you intervene in this you have
the funds and feel more comfortable?” JA3135 [00:05-00:14]. Korpal responded
that he was comfortable with Chain Bridge “holding the money right now,” JA3135
[00:15-00:18], but asked for “a few more minutes” to determine JPMorgan’s next
steps, JA3135 [00:30-00:32].
D.
JPMorgan Cancels The Wire Transfer And Chain Bridge Agrees
To Return California’s Funds
With its investigation “leading to not-good places,” JA3133 [03:13-03:16],
JPMorgan, in plain English, canceled California’s wire transfer. Korpal instructed
Coffey to “call Chain Bridge Bank and confirm that we’re going to recall the funds.”
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JA245. Coffey did so at 1:37 PM, telling Brough and Evinger:
We’re going to be recalling those funds, okay? We have enough
concerns that we feel we need to claw those funds back. Do you need a
recall message from us, or what are you looking for from us?
JA3136 [00:06-00:17]. Evinger responded that Chain Bridge would like “official
communication from JPMorgan to us to recall the funds.” JA3136 [00:18-00:21].
Coffey said he would send a Fedwire message “in the next couple of minutes” and
thanked Chain Bridge for a “great job.” JA3136 [00:30-00:38]. Coffey asked Chain
Bridge to return the wire “as quickly as you can,” JA3136 [00:47-00:49], because,
as he explained later, he “need[ed] to get word out to senior management that the
situation has been taken control of,” JA1040.
JPMorgan followed up with the official communication Chain Bridge had
required to formally confirm JPMorgan’s cancellation of California’s wire transfer.
At 2:05 PM, JPMorgan sent a Fedwire service message to Chain Bridge requesting
reversal of the California wire transfer. JA1065. The message was coded in the
Fedwire system as a “request for reversal”—that is, a request by JPMorgan to
“reverse a Fedwire funds transfer.” JA1354. In the next hour, JPMorgan twice
called Chain Bridge to make sure the recall was in progress. JA928.
At 3:21 PM, Chain Bridge honored JPMorgan’s cancellation request by
returning $456,888,600 to JPMorgan, noting that the return was being done “PER
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YOUR REQUEST.” JA1076. By 4:02 PM, JPMorgan had posted the amount of
the wire transfer to California’s account at JPMorgan. JA142.
E.
California Decides Not To Do Business With Blue Flame
While Chain Bridge and JPMorgan were discussing the legitimacy of the wire
transfer, California officials independently “requested the funds be recalled,” telling
JPMorgan that they “were not comfortable with the due diligence” conducted on the
Blue Flame transaction. JA916. The California officials delivered that request by
approximately 2:00 PM. JA917.3 A representative from STO asked JPMorgan to
reach out to the bank and check on the recall, and she followed up with Chain Bridge
as well. JA141-42; JA1070.
California officials later conveyed their appreciation for JPMorgan’s quick
action in obtaining the return of California’s funds. Once the funds were transferred
back to California’s account at JPMorgan, STO officials told JPMorgan that they
were “extremely grateful for [JPMorgan’s] intervention,” “leadership,” and the
“steps [it] took to get this money recovered.” JA1371-72. California State Treasurer
Fiona Ma wrote directly to JPMorgan’s Chairman and CEO, Jamie Dimon, to offer
her “personal thanks for the bank’s efforts and the dedication of” the JPMorgan
3 Blue Flame now contends (Br. 23) that no non-hearsay evidence “indicate[s]
that California was involved in this recall request at all.” In the district court,
however, Blue Flame agreed that California “STO officials informed [JPMorgan]
. . . that they were not comfortable with the diligence completed on Blue Flame and
that they wished to recall the funds.” D. Ct. Doc. 149, at 11.
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employees involved in “assist[ing] us in reversing the payment and protecting public
money.” JA1374. JPMorgan has since filed an official claim for indemnification
from California, explaining that JPMorgan had acted “on behalf of, at the direction
of, and/or for the benefit of” California after California “decided to reverse the
payment.” JA1380, 1384. As JPMorgan described, California had “concerns about
the vendor” and was “eager to obtain a return of the funds in full.” JA1380, 1383.
In the weeks following the wire’s reversal, Blue Flame repeatedly tried to
entice California to move forward with a purchase of N95 masks, this time without
requiring prepayment. JA562; JA653-54; JA1105-06; JA1108-12; JA1116-18. On
March 27, Controller Yee told Thomas that his multiple deceptions had created a
“credibility issue” for him and Blue Flame. JA654.4 California officials began
forwarding Blue Flame’s communications to the FBI. E.g., JA2713; JA2716. The
State’s procurement official, Michael Wong, testified that he broke off discussions
with Blue Flame because Blue Flame had provided unreliable information. JA604.
California thus reaffirmed the State’s decision not to purchase from Blue Flame. Id.
4 Even at this point, Blue Flame did not come clean with California. On March
27, Thomas told Yee that he had “come up with a work around for the product I have
in route.” JA653. He also told Kim that “[o]ur product is on its way to you.”
JA1117. As the district court observed, “[t]here is no evidence in the record that any
product was actually en route at that time.” JA3078 n.13.
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F.
Blue Flame Fails To Fulfill Other Orders For N95 Masks
Between March 30 and April 9, 2020, by its own account, Blue Flame
obtained at least 13 orders from other federal, state, or local governments for a total
quantity of 2.82 million N95 masks (and a variety of other PPE items). JA1123-28;
see also JA749-50. As Blue Flame acknowledged in a response to congressional
investigators, it was able to fulfill only a single order for 96,000 N95 masks
(purchased for Chicago by an anonymous buyer) by June 22, 2020. JA1128.5
Before Congress, Blue Flame ascribed its failure to fulfill these orders to the
fact that the Chinese government had, by then, severely restricted the export of N95
masks. JA1121. Blue Flame further explained that supply-chain disruptions,
including “evolving market conditions” and “product shortages,” were at fault for
its inability to deliver masks to its customers—not anything to do with Chain
Bridge’s actions. Id.; see also JA749-50, 766-67.
II.
PROCEEDINGS BELOW
A. Blue Flame filed a ten-count complaint against defendants Chain Bridge,
Brough, and Evinger on June 12, 2020. JA19-53. Blue Flame asserted two claims
5 Blue Flame notes (Br. 24) that it ultimately delivered 1.55 million N95 masks
to Maryland. But Blue Flame did not deliver a single mask to Maryland until
October 2020—months after the June 30, 2020, delivery deadline for that
transaction. JA1123; JA2726. That belated delivery thus offers no evidence that
Blue Flame could have delivered masks to California on the expedited timeline it
had promised.
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alleging violations of the UCC provisions governing Fedwire transfers, as well as a
series of state law claims.
The district court, Leonie M. Brinkema, J., granted in part defendants’ motion
to dismiss Blue Flame’s complaint. In particular, the district court dismissed five of
Blue Flame’s state law claims on preemption grounds. See JA54 (dismissing claims
for conversion, fraud, constructive fraud, negligence, and breach of contract); see
also JA43-52.
Chain Bridge thereafter filed a third-party complaint against JPMorgan,
asserting claims for indemnification under UCC Section 4A-211(f) and, in the
alternative, a claim for unjust enrichment. JA113-21.
B. Following fact and expert discovery, all parties filed cross-motions for
summary judgment. The district court entered summary judgment in defendants’
favor on each of Blue Flame’s claims and entered summary judgment in favor of
Chain Bridge on its Section 4A-211(f) claim for indemnification from JPMorgan.
1. With respect to Blue Flame’s claim under UCC Section 4A-404(a), the
district court began by rejecting Chain Bridge’s argument that it was not required to
release California’s funds to Blue Flame because JPMorgan had canceled its
payment order upon discovering California’s mistake in having ordered it. JA3081-
83. The district court concluded that any fraud by Blue Flame in the underlying
transaction with California was not the sort of “mistake” that would make
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JPMorgan’s cancellation effective under UCC Section 4A-211(c), which governs
cancellation of a payment order. See JA3082-83.6
The district court held that Blue Flame’s Section 4A-404(a) claim fails as a
matter of law because Blue Flame could not “establish that it sustained any damage”
from the return of California’s funds. JA3083. As the district court explained, that
conclusion is supported by “two equally compelling arguments.” Id. First, the
“unrebutted evidence” established that, “once California officials became aware of
Blue Flame’s recent creation and the fact that its owners were lobbyists, [California]
immediately asked for the wire transfer to be cancelled and the funds returned, and
was no longer interested in dealing with Blue Flame.” JA3084. As the district court
observed, there was no reason that California’s decision not to move forward with
Blue Flame would have been different “even if the funds were held in Blue Flame’s
account instead of being returned promptly to California’s bank.” Id. There was
simply no “evidence that California, which was equipped with the power to
terminate work on its contract with Blue Flame at any time, would have continued
to do business with the plaintiff had Chain Bridge not reversed the payment.”
JA3088.
6 Although Chain Bridge respectfully disagrees with the district court’s reading
of UCC Section 4A-211(c), it does not challenge that conclusion on appeal.
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Second, the district court held that there was “no basis beyond rank
speculation on which a reasonable factfinder could find that Blue Flame was capable
of fulfilling its order to California.” JA3088. The court noted that Blue Flame’s
track record with other customers offered no evidence that it could have fulfilled
California’s gargantuan order, and that Blue Flame’s purchase orders and reseller
agreements with its “purported suppliers” were not evidence “that the orders would
have been, or could have been, filled by the suppliers.” JA3085. Nor did those
suppliers even propose to provide masks on “schedules suggesting that the products
would arrive in time to satisfy the representations that Blue Flame made to
California.” Id. In sum, the district court concluded, the “uncontested facts establish
that Chain Bridge’s return of the wire transfer did not damage plaintiff in any
respect.” JA3088.
The district court then held that Blue Flame’s claim under UCC Section 4A-
204(a) fails as a matter of law. JA3088-89. The court noted that Blue Flame sought
to premise liability on the payment order that Chain Bridge had generated to
accomplish the return of California’s funds to JPMorgan. JA3089. But Section 4A-
204(a) is inapplicable to that transaction, the court held, because “that payment
ordered was ‘issued’ by Chain Bridge, not ‘accepted’ by Chain Bridge, which is the
conduct that the regulation covers.” JA3089; see UCC § 4A-204(a) (imposing
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liability when a bank “accepts a payment order issued in the name of its customer as
sender,” under specified circumstances).
Finally, the district court held Blue Flame’s claims for tortious interference
with contract and business expectancy fail as a matter of law. JA3090-91. The court
held that Blue Flame’s failure to proffer evidence of damages dooms those claims.
JA3091. In addition, the court held that they fail because of “issues with the validity
of the contractual relationship and business expectancy between Blue Flame and
California given Blue Flame’s apparent initial misrepresentations to California
authorities,” and because there is insufficient evidence for a jury to find that
defendants had an “intent to disturb” Blue Flame’s business relationships. JA3090.7
2. After resolving Blue Flame’s claims, the court turned to Chain Bridge’s
motion for summary judgment on its claims for indemnification from JPMorgan
under UCC Section 4A-211(f). As the court observed, its rejection of Blue Flame’s
claims “moots [Chain Bridge’s] claim for reimbursement of any damages,” but there
“remain[ed] the issue of whether JPMorgan must reimburse Chain Bridge for its
attorney’s fees and expenses incurred in this litigation.” JA3092.
7 In a ruling that Blue Flame does not challenge on appeal, the district court
granted summary judgment on Blue Flame’s defamation claim because there was no
evidence that defendants made any false statements to California officials. JA3091-
92. That claim has been abandoned. See, e.g., United States v. Al-Hamdi, 356 F.3d
564, 571 n.8 (4th Cir. 2004).
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The district court held that the undisputed facts establish JPMorgan’s liability
to indemnify Chain Bridge for losses and expenses resulting from the cancellation,
including those attorney’s fees and litigation expenses.8 The court rejected as
“unpersuasive” JPMorgan’s argument that Section 4A-211(f) is inapplicable
because, in JPMorgan’s view, Chain Bridge had sought cancellation of the wire
transfer. JA3093. As the court explained, “the regulation does not impose any
requirements regarding the receiving bank’s motivations at all.” JA3093-94. The
court also rejected JPMorgan’s argument that the parties had reached an agreement
to exclude indemnification, explaining that JPMorgan’s argument “incorrectly
reverses the requirements of the regulation” by “suggest[ing] that the parties needed
to have agreed upon indemnification.” JA3094. Indemnification is available, the
court held, because there is “no evidence in the record of a communication between
Chain Bridge and JPMorgan indicating an agreement to displace the default rule of
automatic indemnity.” JA3095. Finally, the district court dismissed as “weak”
JPMorgan’s argument that Chain Bridge’s litigation expenses did not result from
JPMorgan’s cancellation, noting that “this civil action undoubtedly resulted from the
8 The district court ordered additional briefing on the amount of indemnified fees
and expenses to be awarded to Chain Bridge from JPMorgan. JA3096. As Chain
Bridge and JPMorgan recently reported to the district court, their dispute as to the
amount of JPMorgan’s indemnification obligation has now been resolved through a
negotiated settlement. See D. Ct. Doc. 219.
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reversal of the wire transfer” and there is no evidence that Chain Bridge would have
returned California’s funds without JPMorgan’s cancellation. JA3096.
SUMMARY OF ARGUMENT
I. A. Summary judgment was proper on Blue Flame’s claim under UCC
Section 4A-204(a) because Chain Bridge did not “accept[] a payment order issued
in the name of [Blue Flame] as sender.” UCC § 4A-204(a). Instead, Chain Bridge
returned California’s wire transfer in response to JPMorgan’s cancellation request,
which was not a payment order and was not issued in Blue Flame’s name.
B. The district court correctly granted summary judgment on Blue Flame’s
claim under Section 4A-404(a) because, for two independent reasons, Blue Flame
fails to proffer evidence from which a reasonable jury could find that it suffered
“damages resulting from [Chain Bridge’s] refusal to pay.” UCC § 4A-404(a). The
district court correctly concluded that Blue Flame had no proof of damages resulting
from the reversal of the wire transfer because California officials decided not to
move forward with the transaction immediately when they learned the basic facts
that Blue Flame had concealed from them, and then did not waver from that decision.
JA3084-85, 3088. The district court was also correct that Blue Flame offered “no
basis beyond rank speculation on which a reasonable factfinder could find that Blue
Flame was capable of fulfilling its order to California.” JA3088. Blue Flame cannot
demonstrate error in either conclusion, and Blue Flame’s newly minted argument
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that it was not required to demonstrate damages after all should be rejected because
it was not raised below and is foreclosed by Section 4A-404(a)’s plain text in any
event.
C. Even if this Court were to disagree with the district court’s rationale for
rejecting the UCC claims, Blue Flame’s bad-faith misconduct in procuring
California’s order supplies an alternative ground for affirmance. Blue Flame’s
fraudulent inducement is plainly inconsistent with the UCC’s “obligation of good
faith.” UCC § 1-304. Blue Flame’s breach of that obligation thus “makes
unavailable” the alleged payment rights that Blue Flame seeks to enforce against
Chain Bridge here. Id. § 1-304 cmt. 1.
D. The district court correctly concluded that Blue Flame’s state law claims
fail as a matter of law.
1. The district court correctly held that several of Blue Flame’s state law
claims are preempted by Subpart B. Blue Flame’s challenge to the cancellation of
California’s wire transfer is governed by UCC Sections 4A-211 and 4A-404(a); it
thus plainly implicates “conduct falling within the scope of Subpart B,” and any
“conflict[ing]” or “duplicative” state law claims cannot be maintained. Eisenberg v.
Wachovia Bank, N.A., 301 F.3d 220, 223 (4th Cir. 2002). Moreover, Blue Flame’s
inability to prove damages provides an alternative ground for affirmance even if this
Court were to disagree with the district court’s preemption ruling.
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2. The district court correctly granted summary judgment on Blue Flame’s
tortious interference claims. First, those claims are foreclosed by Blue Flame’s
inability to prove damages. See JA3091. In addition, Blue Flame’s fraud in
procuring California’s order means that its contractual rights and business
expectancies were not “valid in substance,” and hence could not support claims for
tortious inference. Restatement (Third) of Torts: Liability for Economic Harm § 17
cmt. k (2020). The district court was also correct that a reasonable jury could not
find that defendants had any intent to disturb Blue Flame’s business relationship
with California by sharing indisputably true information with California officials.
See JA3090-91.
II. The district court correctly granted summary judgment for Chain Bridge
on its claim for indemnification from JPMorgan under UCC Section 4A-211(f).
Chain Bridge was “the receiving bank” for California’s wire transfer, and it
“agree[d] to cancellation . . . by the sender,” JPMorgan. UCC § 4A-211(f). The
parties did not agree to depart from the default statutory rule of indemnification, so
JPMorgan “is liable to [Chain Bridge] for any loss and expenses . . . incurred by
[Chain Bridge] as a result of the cancellation.” Id. The district court correctly
rejected JPMorgan’s attempts to sidestep Section 4A-211(f)’s plain text as legally
meritless and unsupported by the record.
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ARGUMENT
This Court reviews the district court’s grant of summary judgment de novo.
Ray Commc’ns, Inc. v. Clear Channel Commc’ns, Inc., 673 F.3d 294, 299 (4th Cir.
2012). It asks whether, in light of the record adduced by the parties in the district
court, “there is no genuine dispute as to any material fact” and the moving party is
“entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A genuine issue of
material fact exists only “if the evidence is such that a reasonable jury could return
a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986); see also id. at 247-48 (“[T]he mere existence of some alleged factual
dispute between the parties will not defeat an otherwise properly supported motion
for summary judgment; the requirement is that there be no genuine issue of material
fact.”). The district court’s dismissal of Blue Flame’s state law claims is likewise
reviewed de novo. Ray v. Roane, 948 F.3d 222, 226 (4th Cir. 2020).
As demonstrated below, Blue Flame’s challenges to the district court’s
decision are without merit. The district court correctly concluded that Blue Flame’s
claims fail as a matter of law. The district court also correctly held that Chain Bridge
is entitled to judgment as a matter of law on its claim for indemnification from
JPMorgan. The district court’s judgment should accordingly be affirmed.
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I.
THE DISTRICT COURT’S JUDGMENT DISMISSING BLUE
FLAME’S CLAIMS SHOULD BE AFFIRMED
A.
The District Court Correctly Entered Summary Judgment For
Chain Bridge on Blue Flame’s Claim Under UCC Section 4A-
204(a) Because Chain Bridge Did Not Accept A Payment Order
“Issued In The Name Of Its Customer As Sender”
1. Count II of Blue Flame’s complaint asserts a claim against Chain Bridge
under UCC Section 4A-204, which requires a “receiving bank” to refund its
customer when the bank “accepts a payment order issued in the name of its customer
as sender” that is either unauthorized and not effective (under Section 4A-202) or
unenforceable against the customer (under Section 4A-203). UCC § 4A-204(a). As
the district court correctly concluded, that provision is inapplicable here because
there is no evidence that Chain Bridge ever received a payment order purporting to
come from Blue Flame, let alone accepted such a payment order. See JA3088-89.
The UCC defines a “payment order” as “an instruction of a sender to a
receiving bank transmitted orally, electronically, or in writing, to pay, or to cause
another bank to pay, a fixed or determinable amount of money to a beneficiary,”
with certain additional qualifications. UCC § 4A-103(a)(1). A “receiving bank” is
“the bank to which the sender’s instruction is addressed,” and the “sender” is “the
person giving the instruction to the receiving bank.” Id. § 4A-103(a)(4), (5). A
receiving bank “accepts a payment order when it executes the order,” id. § 4A-
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209(a), which it does by issuing a separate payment order “intended to carry out the
payment order received by the bank,” id. § 4A-301(a).
These definitions demarcate Section 4A-204(a)’s limited scope. Because the
statute applies only when a bank “accepts a payment order issued in the name of its
customer as sender,” UCC § 4A-204(a), to recover under Section 4A-204(a) a
plaintiff must demonstrate that the defendant bank effectuated a funds transfer in
response to an instruction that purported to come from the bank’s customer, see id.
§ 4A-103(a)(1). Here, as the district court correctly concluded, there is no evidence
that Chain Bridge ever received any such instruction.
The historical record on this point is entirely undisputed: Chain Bridge
returned the California wire transfer to JPMorgan in response to JPMorgan’s
cancellation request. That request was transmitted via a Fedwire “nonvalue
message” (not a payment order) that came from JPMorgan (not from Blue Flame).
See JA1065.9 Chain Bridge decided to accommodate JPMorgan’s request, and it did
so by initiating a new wire transfer to accomplish the return of California’s funds to
JPMorgan. The payment order that Chain Bridge issued to JPMorgan clearly stated
9 In the Fedwire system, messages bearing the subtype code “01” for “request for
reversal,” as JPMorgan’s message did here, are treated as “Nonvalue Messages”
because they “do not generate an accounting entry by the Fedwire Funds Service
system.” Federal Reserve Banks Operating Circular No. 6, at ¶ 13.1 (2019)
(reprinted at JA1288). Nonvalue Messages “are not Payment Orders.” Id.
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that Chain Bridge was returning California’s funds “PER YOUR REQUEST,”
JA2214—that is, per JPMorgan’s request—not in response to an instruction from
Blue Flame.10 Indeed, Blue Flame does not contend that, when Chain Bridge
initiated the new wire transfer to return California’s funds, it was acting on any
instruction purporting to come from Blue Flame. Chain Bridge thus did not
“accept[] a payment order issued in the name of its customer as sender,” UCC § 4A-
204(a), and it is not liable under Section 4A-204(a)’s plain text.
2. Blue Flame’s contrary argument rests on a baffling mischaracterization of
the undisputed facts. The lynchpin of Blue Flame’s argument is an internal Chain
Bridge record of the wire transfer returning the funds to JPMorgan, which Blue
Flame declares to be a “payment order, in the name of Blue Flame as sender.” Blue
Flame Br. 22; see also id. at 34. But that is simply not what the cited record says, as
is evident from the portion that Blue Flame reprints at page 22 of its brief. The
record lists Blue Flame as the originator of the funds transfer, not as the sender of
the payment order. JA2216. Moreover, the record lists JPMorgan as the “Receiving
Bank”— not Chain Bridge, as would necessarily have been the case if it reflected a
payment order from Blue Flame (as sender) to Chain Bridge (as a receiving bank).
10 Chain Bridge’s payment order also used an “02” subtype code, reflecting a
“reversal” of California’s wire transfer in response to JPMorgan’s “request for
reversal.” JA2214; see also JA1343-44.
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Id. And although it does not expressly designate a sender, Chain Bridge’s role as
the sender of the payment order is obvious from the designation of the record as an
“Outgoing” wire transfer. Id.11
The record of the same payment order from the Fedwire system confirms the
parties’ roles. The Fedwire record, excerpted below, lists Chain Bridge as the
“Sender” and JPMorgan Chase as the “Receiver.” Again, Blue Flame is listed as the
originator—not as the sender of the payment order.
11 Blue Flame was more forthright in its district court briefing, where it described
the very same document as “a payment order identifying Blue Flame as the
‘originator.’” D. Ct. Doc. 149, at 26 (emphasis added). Blue Flame has abandoned
that characterization on appeal, presumably because it is incompatible with Blue
Flame’s theory that Chain Bridge “accept[ed] a payment order issued in the name of
its customer as sender.” UCC § 4A-204(a) (emphasis added).
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JA2214.
In sum, the discovery materials merely confirm the undisputed point that
Chain Bridge accomplished the return of California’s funds by sending a payment
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order to JPMorgan in response to JPMorgan’s cancellation request. There is no
evidence of what would actually be required to establish liability under Section 4A-
204(a)—namely, that Chain Bridge took that step in response to an instruction
purporting to come from its customer, Blue Flame. See UCC § 4A-204(a).
3. Blue Flame’s attacks on the district court’s reasoning are misplaced.
First, Blue Flame insists (Br. 36) that the district court engrafted an atextual
limitation on Section 4A-204(a)’s scope by stating that the statute “actually covers
payment orders that a bank accepts from a third party pretending to be the bank’s
customer.” JA3089. But that observation merely summarizes the logical import of
Section 4A-204(a)’s text, which imposes liability only when the bank “accepts a
payment order issued in the name of its customer as sender.” UCC § 4A-204(a). The
statute is implicated only when the bank acts on an instruction purporting to come
from its customer. Section 4A-204(a) does not apply when a bank generates its own
payment order to initiate a wire transfer, without receiving instructions from another
party purporting to be its customer.12
12 The district court cited defendants’ motion to dismiss, which observed that the
reported cases addressing Section 4A-204(a) are consistent with the statute’s text
because they “uniformly address unauthorized payment orders that a bank accepts
from someone—usually a person purporting to be the bank’s customer or the
customer’s agent.” D. Ct. Doc. 19, at 11 (second emphasis added). It is difficult to
hypothesize such a scenario that would not involve “a third party pretending to be
the bank’s customer,” JA3089, but if one were to arise the district court’s observation
should not be read as foreclosing liability. The key point, for present purposes, is
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Second, Blue Flame contends (Br. 36-37) that the district court erred in
concluding that Chain Bridge did not “accept” the very payment order that Chain
Bridge issued to JPMorgan to effectuate the return of California’s funds. But there
is no basis in Article 4A for Blue Flame’s unexplained suggestion that Chain Bridge
could “accept” its own payment order by sending it to JPMorgan. “[A] receiving
bank other than the beneficiary’s bank accepts a payment order when it executes the
order.” UCC § 4A-209(a). And “[a] payment order is ‘executed’ by the receiving
bank when it issues a payment order intended to carry out the payment order
received by the bank.” UCC § 4A-301(a) (emphasis added). In other words, a bank
does not execute the payment order that it issues to the next bank in the funds
transfer; rather, the issuance of that conforming payment order to the next bank
constitutes execution of the prior “payment order received by the bank.” Id.
(emphasis added). Here, as just explained, there was no such prior payment order:
Chain Bridge did not receive any payment order in connection with the cancellation
of California’s wire transfer that it could have accepted, which means that Section
4A-204(a) is inapplicable by its terms.13
that Section 4A-204(a) is not applicable when a bank has not accepted any
instruction purporting to come from its customer.
13 Blue Flame conceded this straightforward point in its brief at the motion to
dismiss stage: “If discovery establishes that Defendants accomplished their
unauthorized return of the funds by accepting a cancellation request made by
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Contrary to Blue Flame’s contention (Br. 37), there is no logical inconsistency
between the district court’s observation that Chain Bridge returned California’s
funds in response to JPMorgan’s cancellation request and the district court’s
conclusion that California’s wire transfer could not be effectively canceled under
UCC Section 4A-211. Whether or not the cancellation was effective, it is beyond
dispute that Chain Bridge returned California’s funds in response in JPMorgan’s
cancellation request. That request from JPMorgan was not an instruction that
purported to come from Blue Flame, as would be required to establish liability under
Section 4A-204(a). See pp. 30-32, supra.
Moreover, Blue Flame’s reading of Section 4A-204(a) makes no sense
because it would impose liability on a receiving bank even when it agrees to an
effective cancellation under UCC Section 4A-211, which may occur after the bank
has released payment to the beneficiary. See UCC § 4A-211(c)(2).14 If Blue Flame
California’s bank, Blue Flame agrees that this Count would not survive upon a
motion for summary judgment.” D. Ct. Doc. 27, at 15 n.8. As the district court
observed, “[t]hat is precisely what the evidence in the record shows: that JPMorgan
sent a ‘request for reversal’ asking Chain Bridge to ‘PLS RETURN FUNDS[.]’”
JA3089 (second alteration in original).
14 Blue Flame incorrectly suggests (Br. 37) that the district court held that
California’s wire could not be effectively canceled because the funds had already
been credited to Blue Flame’s account. Rather, the court held that Blue Flame’s
misrepresentations to California did not lead to a “mistake” permitting effective
cancellation. See JA3082-83; pp. 21-22, supra. Chain Bridge respectfully disagrees
with the district court’s conclusion that Chain Bridge credited the wire transfer to
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were correct that reversing a wire transfer in response to a cancellation request
amounts to the acceptance of an unauthorized payment order in violation of Section
4A-204(a), then the beneficiary would be entitled to a refund in every such case,
making it impossible for a bank ever to accommodate a cancellation request. That
untenable result is avoided, however, by recognizing that a bank that issues a
payment order in response to a cancellation request is not liable under Section 4A-
204(a) because it has not accepted a payment order issued in the name of its customer
as sender. See pp. 30-32, supra.
B.
The District Court Correctly Entered Summary Judgment In
Chain Bridge’s Favor On Blue Flame’s Claim Under UCC Section
4A-404(a) Because Blue Flame Has No Evidence Of Damages
Resulting From Chain Bridge’s Refusal To Pay
Blue Flame separately challenges (Br. 40-55) the district court’s grant of
summary judgment on Blue Flame’s claim under UCC Section 4A-404(a). That
provision states that, if a “beneficiary’s bank accepts a payment order,” but “refuses
to pay after demand by the beneficiary and receipt of notice of particular
circumstances that will give rise to consequential damages as a result of
nonpayment, the beneficiary may recover damages resulting from the refusal to pay
to the extent the bank had notice of the damages.” UCC § 4A-404(a).
Blue Flame’s account, but that conclusion is irrelevant because the UCC plainly
contemplates cancellation even after payment to a beneficiary, let alone the
preliminary step of crediting an account. See UCC § 4A-211(c)(2).
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The district court held that summary judgment was warranted because Blue
Flame fails, for two separate reasons, to establish damages, as Section 4A-404(a)
requires. Blue Flame has no persuasive response to either point, each of which
independently supports summary judgment in Chain Bridge’s favor.
1.
Upon Learning The Truth About Blue Flame, California
Determined Not To Move Forward With Its Order
Blue Flame’s attempt to establish damages founders on the undisputed point
that, within hours of initiating the wire transfer, California officials decided not to
proceed with the transaction. Indeed, as the district court observed, California
officials reached that conclusion immediately when they first “became aware of Blue
Flame’s recent creation and the fact that its owners were lobbyists.” JA3084. At
that point, they asked Chain Bridge not to release the funds to Blue Flame. JA803-
04; JA1054. Later on March 26, California officials eagerly supported reversal of
the wire transfer, urging JPMorgan “to reach out to the Chain Bridge Bank and see
where the wire-recall is in the process.” JA1070. California repeatedly reaffirmed
its decision “not to deal further with” Blue Flame. JA3084; see pp. 18-19, supra.
The district court’s rejection of Blue Flame’s damages theory thus does not
rest on “a chain of inferences against Blue Flame” or “a supposition that a particular
series of events would have taken place.” Blue Flame Br. 46. Nor did it somehow
implicate “a complex web of hypothetical future events.” Id. at 48. It merely
required the district court to examine the undisputed historical facts: When
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California learned the truth about Blue Flame, it declined to move forward with its
order, and then it never wavered from that decision. Because California had an
unfettered contractual right to terminate its contract with Blue Flame—a conclusion
that Blue Flame does not challenge on appeal—there is no basis to conclude that
anything would have been different if Chain Bridge had released California’s funds
to Blue Flame, rather than returning them to JPMorgan.
In fact, it is Blue Flame’s contrary argument (Br. 46-48) that proceeds from a
chain of “speculation” and “conjecture” of the sort that is insufficient to avoid
summary judgment. JKC Holding Co. LLC v. Washington Sports Ventures, Inc.,
264 F.3d 459, 465 (4th Cir. 2001). For instance, Blue Flame posits (Br. 47) that
California might have agreed to move forward if, by the time California learned the
true facts that Blue Flame had concealed, Chain Bridge had already wired a portion
of California’s funds to Blue Flame’s purported mask brokers. In other words, Blue
Flame suggests that, by the time its concealment came to light, the ball would have
been rolling—and Blue Flame could have demonstrated progress towards fulfilling
the order that might have dissuaded California from refusing to move forward. But
Blue Flame points to nothing in the record to support that speculation.
In any event, Blue Flame’s speculation is logically irrelevant, because Chain
Bridge was under no obligation to facilitate an immediate wire transfer at Blue
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Flame’s direction.15 Indeed, Blue Flame acknowledged in the district court that
Chain Bridge was not required to wire California’s funds out to Blue Flame’s
supposed brokers immediately, and thus before California learned the truth about
Blue Flame. As a new customer, Blue Flame was subject to Chain Bridge’s Funds
Availability Disclosure providing that “[f]unds from wire[] transfers . . . will be
available on the first business day after the day of your deposit.” JA2839 (emphasis
added). Blue Flame also conceded (D. Ct. Doc. 149, at 21) that Chain Bridge could
have continued to hold California’s funds while conducting additional due diligence,
and was under no obligation to wire any of those funds to Blue Flame’s mask
brokers. As Blue Flame acknowledged (id. at 21 & n.18), a “receiving bank”
generally “has no duty to accept a payment order,” UCC § 4A-209 cmt. 3, meaning
that Chain Bridge was not required to accept a payment order from Blue Flame
directing a wire transfer to either of its supposed brokers.
The district court was therefore correct in holding that, for purposes of Blue
Flame’s damages theory, the relevant counterfactual was one in which “the funds
were held in Blue Flame’s account instead of being returned promptly to California’s
bank,” JA3084 (emphasis added), not one in which Chain Bridge immediately
15 Blue Flame’s speculation is also factually unsupportable, since Blue Flame
presented no evidence that it ever could have supplied California’s order, let alone
evidence that Suuchi could have shipped masks to California immediately upon
receipt of payment. See pp. 42-50, infra.
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processed Blue Flame’s request for an outgoing wire transfer. And that holding, in
turn, dooms Blue Flame’s damages theory. California had already learned the truth
about Blue Flame—and decided not to proceed with the transaction—well before
there was any basis for Blue Flame to insist that California’s funds had to be released
to it or to its brokers. Because any resulting damages arose before a payment right
could have ripened, Blue Flame adduced no evidence of “damages resulting from
[Chain Bridge’s] refusal to pay.” UCC § 4A-404(a).
2.
Blue Flame Proffered No Evidence That It Could Have
Fulfilled California’s Order
Blue Flame likewise fails to identify any error in the district court’s conclusion
that Blue Flame offered “no basis beyond rank speculation on which a reasonable
factfinder could find that Blue Flame was capable of fulfilling its order to
California.” JA3088.
1. Blue Flame first observes (Br. 50-51) that it had placed purchase orders
with two purported mask brokers, Suuchi and Great Health. As the district court
correctly explained, however, the fact that Blue Flame had placed those orders was
not evidence “that the orders would have been, or could have been, fulfilled by the
suppliers.” JA3085.
As Blue Flame acknowledges, it faced a “global scrum for PPE” in March
2020. Blue Flame Br. 2; see also id. at 11 (“demand was rising and supply was
uncertain”). Under the extraordinarily chaotic conditions that prevailed at the time,
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a vendor’s willingness to accept an order for a certain quantity of N95 masks
conveyed little more than a hope that it would actually have the masks available to
supply. Indeed, Blue Flame’s own experience after the California transaction
confirms that proposition: Blue Flame was consistently unable to fulfill other
customers’ orders for N95 masks, despite placing its own orders with its supposed
supply chain. As Blue Flame acknowledged to congressional investigators, its
failures to fulfill other orders were caused by Great Health’s inability to supply the
masks that Blue Flame had ordered, as well as by Chinese export restrictions and
other market and supply-chain disruptions. See p. 20, supra.16
Blue Flame nonetheless insists (Br. 50) that Suuchi had a supply of six million
N95 masks that were ready to ship immediately. But the only evidence Blue Flame
cites for that proposition is its purchase order and reseller agreement with Suuchi,
see id. at 11, 50, which say nothing about any masks being available to ship
immediately, and the deposition testimony of John Thomas, see id. at 11, who could
16 Blue Flame contends (Br. 52) that the failure of the California transaction
caused Blue Flame’s inability to fulfill other orders, by depriving it of working
capital and by damaging its reputation. But there is no evidence to support that
assertion. Blue Flame repeatedly failed to fulfill orders even when its customers had
fully prepaid (so that a supposed lack of “working capital” was irrelevant), and Blue
Flame was forced to refund multiple orders before the failure of the California
transaction became public (demonstrating that “reputational damage” played no
role). E.g., JA37; JA1123-28; JA1255-56. The truth is that, as Blue Flame told
Congress, Blue Flame was simply unable to secure the supply it needed to fulfill its
customers’ orders. JA1123-28.
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articulate no basis in his own personal knowledge to support his assertion that
“Suuchi had six million masks in live inventory available to ship immediately.”
JA1557. There was thus no admissible evidence from which a jury could find that
Suuchi was prepared to fulfill Blue Flame’s order. See Fed. R. Evid. 602.
Blue Flame’s reliance (Br. 51) on supposed assurances about Great Health’s
supply capacity that it received from Henry Huang, Great Health’s CEO, shortly
before California’s order is also misplaced. Whatever assurances Blue Flame claims
to have received from Huang are inadmissible hearsay, which is insufficient to avoid
summary judgment. See Fed. R. Civ. P. 56(c)(1)(B); Maryland Highways
Contractors Ass’n v. Maryland, 933 F.2d 1246, 1251 (4th Cir. 1991).
2. Contrary to Blue Flame’s contentions (Br. 53-54), the district court did not
err in excluding the thirteenth-hour declaration from Huang that Blue Flame filed
with its summary judgment opposition or in concluding, in the alternative, that the
declaration did not support Blue Flame’s damages case.
a. Blue Flame argues (Br. 53) that the district court was obliged to consider
Huang’s declaration because Rule 56 provides that a party may rely on “affidavits
or declarations” at summary judgment. Fed. R. Civ. P. 56(c)(1)(A). But courts
retain authority to reject a party’s attempts to end-run the ordinary discovery process
by securing a declaration from a witness who has chosen to “ma[ke] himself
unavailable for discovery.” Dedvukaj v. Equilon Enters., L.L.C., 301 F. Supp. 2d
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664, 668 (E.D. Mich. 2004), aff’d, 132 F. App’x 582 (6th Cir. 2005). As courts have
recognized, it is inherently unfair when “one party has been in continued contact
with non-party affiants but the other party has been denied the ability to question
their statements.” Henry v. Outback Steakhouse of Fla., LLC, No. 15-cv-10755, 2017
WL 1382292, at *2 (E.D. Mich. Apr. 18, 2017).17 Indeed, allowing a witness who
has refused to participate in discovery to parachute into a case only at summary
judgment, in order to “give unchallenged affidavit testimony[,] . . . would clearly
violate the purpose of discovery.” McKellar v. State Farm Fire & Cas. Co., No. 14-
cv-13730, 2016 WL 304759, at *8 (E.D. Mich. Jan. 26, 2016).
The district court was therefore correct in concluding that “basic fairness”
(JA3086 n.11) precludes any consideration of Huang’s declaration. Defendants had
subpoenaed Huang’s deposition in December 2020, but Huang refused, citing
limitations imposed by Chinese law. JA2844-45. At the end of discovery,
defendants learned that Blue Flame’s John Thomas had been in contact with
Huang—his “very good friend[],” JA2853—and that as a result Huang was
considering traveling outside of China to give testimony at Blue Flame’s request.
17 See also, e.g., Cambridge Literary Props., Ltd. v. W. Goebel Porzellanfabrik
G.m.b.H. & Co. Kg., No. CV 00-10343-NG, 2006 WL 8458370, at *1 (D. Mass.
Mar. 14, 2006); Bumpas v. Ryan, No. 3:07-cv-0766, 2013 WL 2418258, at *2 (M.D.
Tenn. June 3, 2013); Lucas v. Jolin, No. 1:15-cv-108, 2016 WL 2853576, at *8 (S.D.
Ohio May 16, 2016).
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JA2843. Defendants repeatedly asked to be included in any discussions regarding
Huang’s potential deposition, and followed up with a further subpoena to Huang for
the production of relevant documents, which were never provided. JA2841-43.
When Huang responded, he advised that he was “currently still in China and will be
for the near future.” JA2841.
Huang’s declaration confirms that he chose not to participate in discovery: As
Huang acknowledged, he could have left China to attend a deposition, and he would
have been permitted to return. JA2607. He did not do so (according to his untested
declaration, at least) because of the quarantine restrictions he would have
encountered upon returning to China. Id.18 Moreover, Huang’s declaration fails to
explain why he was willing and able to provide a declaration to assist Blue Flame,
but refused defendants’ document subpoena. Huang’s evident partisanship thus
further confirms that any consideration of his untested declaration by the district
court would have been profoundly unfair.
18 In some cases, courts have observed that the declarant was not only absent
during the discovery period but also was unlikely to be available for trial. E.g.,
Dedvukaj, 301 F. Supp. 2d at 668. Here, Huang’s declaration asserted that he
“intend[s] to testify at the trial of this action, if needed.” JA2607. But that assertion
makes no difference, given that Huang attributed his choice not to make himself
available to quarantine restrictions in China and his own work responsibilities. Id.
There were (and are) no assurances as to when the Chinese government might loosen
those restrictions or when Huang’s responsibilities might change in a way that would
lead Huang to choose to attend trial.
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b. Even setting aside the procedural irregularities that justified the district
court’s exclusion of Huang’s declaration, the declaration would still fail to advance
Blue Flame’s case because it did not “set out facts that would be admissible in
evidence.” Fed. R. Civ. P. 56(c)(4) (emphasis added). It is well settled that
“summary judgment affidavits cannot be conclusory.” Evans v. Technologies
Applications & Serv. Co., 80 F.3d 954, 962 (4th Cir. 1996). Thus, a declarant’s
“unsupported assertions” will not be considered, id., and “statements of mere belief
must be disregarded,” Tavery v. United States, 32 F.3d 1423, 1426 n.4 (10th Cir.
1994).
Yet that is all Huang offered here. For example, Huang asserted that Great
Health “had the ability to obtain 100 million units of the N95 mask models specified
by California as they were manufactured.” JA2609.19 But Huang offered no facts as
to how Great Health would have accomplished this massive task. He did not identify
any source of supply for the masks he claims he would have found. Nor did he
19 Even Huang could not bring himself to endorse Blue Flame’s farfetched tale
that it would have fulfilled California’s order within 30 days. Instead, Huang’s
declaration claims that Great Health could have supplied 100 million N95 masks to
Blue Flame within three months. JA2611-12. In real time Huang had advised Blue
Flame that it “would be impossible to fulfill” an order for more than 10 million masks
“given the number of people that all want it.” JA1218 (emphasis added). Huang
noted that “most” of China’s limited supply was consumed by “existing long term
contracts dating back to February”—that is, well before California’s late-March
order. Id.
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articulate any plan for the massive increase in production that would have been
required to fulfill California’s order. In short, Huang’s declaration offered only
unsupported assertions of Huang’s own views about Great Health’s capabilities.
Because the declaration did not “set out facts that would be admissible in evidence,”
Fed. R. Civ. P. 56(c)(4), it was not entitled to any weight at summary judgment.
3. On appeal, Blue Flame hardly defends the outlandish proposition that it
could have fulfilled California’s order for 100 million N95 masks on anything like
the expedited timeline contemplated by the parties’ agreement. Instead, Blue Flame
argues (Br. 50) that the real question, for purposes of summary judgment, was
whether Blue Flame could have delivered just one N95 mask to California, which
Blue Flame suggests would establish that it suffered at least some damages from
Chain Bridge’s refusal to pay. But that argument was not pressed below in
opposition to defendants’ summary judgment motion, and it was made only in
passing in Blue Flame’s reply in support of its own motion for summary judgment.
See D. Ct. Doc. 159, at 20 & n.33. Having failed to develop any partial-performance
argument below, Blue Flame can hardly fault the district court for focusing its
attention on Blue Flame’s patent inability to supply the 100 million N95 masks that
it promised to deliver to California. 20
20 Blue Flame contends (Br. 24-25, 47) that California’s willingness to extend
certain deadlines in a different mask-supply contract, with BYD, suggests that
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In any event, Blue Flame’s argument misunderstands the parties’ respective
burdens at summary judgment. Chain Bridge was not required to establish that Blue
Flame could not conceivably have suffered any damages at all. See Lujan v.
National Wildlife Fed’n, 497 U.S. 871, 885 (1990) (“Rule 56 does not require the
moving party to negate the elements of the nonmoving party’s case.”). Rather, once
Chain Bridge had “discharged” its summary judgment burden by “pointing out to
the district court . . . that there is an absence of evidence to support the nonmoving
party’s case,” it was Blue Flame’s burden, as the plaintiff, to proffer evidence from
which a reasonable jury could find that it suffered damages. Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986). And Blue Flame could not meet that summary
judgment burden by relying only on bare “speculation or conjecture.” JKC Holding
Co., 264 F.3d at 465; see also Ash v. United Parcel Serv., Inc., 800 F.2d 409, 411-
California would have accepted a partial or belated delivery from Blue Flame. But
Blue Flame did not invoke California’s supposedly “accommodating approach” with
BYD (Br. 47) until its reply brief in support of a post-argument motion to file
supplemental authorities regarding Henry Huang’s declaration—and even then, only
in a footnote. See D. Ct. Doc. 174, at 5 n.4. The district court rejected Blue Flame’s
motion—declining to “reopen[] the issue for further argument,” JA3086 n.11—in a
ruling that Blue Flame does not challenge on appeal. Accordingly, Blue Flame’s
contention is not preserved. In any event, Blue Flame fails to explain how
California’s willingness to accept certain delays from BYD, a global manufacturing
conglomerate, would bear on California’s disposition toward Blue Flame, a two-
day-old company without any manufacturing capabilities or source of supply. See,
e.g., Reuters, UPDATE 1-Electric Car Maker BYD Says Profits Up as Becomes
Leading Mask Maker, Aug. 28, 2020, https://perma.cc/APZ3-6FU3 (describing
BYD’s operations).
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12 (4th Cir. 1986) (per curiam) (“[S]peculation is not sufficient to defeat a summary
judgment motion.”).
But Blue Flame offered nothing more than “rank speculation.” JA3088. As
explained above, there was no admissible evidence that Blue Flame’s purported
supply partners actually had any N95s available from which Blue Flame could have
fulfilled even a portion of California’s order. There was accordingly no basis on
which a reasonable jury could find that Blue Flame suffered damages “resulting from
[Chain Bridge’s] refusal to pay.” UCC § 4A-404(a).
3.
Blue Flame Was Required To Establish Damages Resulting
From Chain Bridge’s Refusal To Pay
After devoting page after page of its brief to an (unsuccessful) attempt to
establish damages “resulting from [Chain Bridge’s] refusal to pay,” UCC § 4A-
404(a), Blue Flame closes with the puzzling assertion (Br. 54-55) that no such proof
was required after all, because the district court should have required Chain Bridge
to pay the amount of the wire transfer to Blue Flame even if Blue Flame suffered no
damages.
But Blue Flame never presented that theory to the district court. To the
contrary, Blue Flame’s complaint sought lost profits and reputational damages
“caused” by Chain Bridge’s alleged violation of Section 4A-404(a); it did not seek
to recover the amount of California’s wire transfer. JA40; compare with JA43
(seeking “a refund of the full amount of the payment order” under Section 4A-
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204(a)). Indeed, Blue Flame expressly disclaimed any argument that the amount of
the wire transfer supplied the measure of damages under Section 4A-404(a). At oral
argument on the parties’ summary judgment motions, Blue Flame’s counsel
explained that “the measure of damages for Count 1 [under Section 4A-404(a)] is
foreseeable damages,” and argued that Blue Flame could recover only for “lost profit
and . . . lost business opportunity.” JA3034, 3036. Blue Flame’s counsel contrasted
that theory with Blue Flame’s claim under Section 4A-204(a), as to which the
“measure of damages” was “return of th[e] money,” that is, “rescission back to the
customer of that amount that the bank improperly took.” JA3034-35. Particularly
in light of Blue Flame’s express waiver before the district court, there would be no
justification for this Court to depart from its usual rule that “issues raised for the first
time on appeal generally will not be considered.” Muth v. United States, 1 F.3d 246,
250 (4th Cir. 1993) (collecting cases); see also Ballengee v. CBS Broad., Inc., 968
F.3d 344, 351 (4th Cir. 2020) (same).
In any event, Blue Flame’s new reading of Section 4A-404(a) is wrong. By
its plain terms, Section 4A-404(a) limits a plaintiff’s recovery to “damages resulting
from the refusal to pay.” UCC § 4A-404(a). Blue Flame points to nothing in the
text of the statute that would authorize additional recovery—beyond any damages
resulting from the refusal to pay—for the amount of the wire transfer itself.
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C.
Blue Flame’s Failure To Act In Good Faith Independently Bars
Blue Flame’s UCC Claims
Blue Flame’s claims under Sections 4A-204(a) and 4A-404(a) of the UCC are
also barred because of Blue Flame’s breach of its obligation, under Section 1-304 of
the UCC, to act in good faith in connection with the wire transfer. Chain Bridge
advanced that argument below (see D. Ct. Doc. 119, at 21-22, 28 n.17), but the
district court did not reach it because the court rejected Blue Flame’s UCC claims
on other grounds. If this Court were to disagree with the district court’s rationale
for dismissing the UCC claims, however, Blue Flame’s bad-faith misconduct here
(which its counsel coyly refers to as “American capitalism in its rawest form,” Blue
Flame Br. 2) would supply an alternative ground for affirmance. E.g., Hodgin v.
UTC Fire & Sec. Americas Corp., 885 F.3d 243, 251 (4th Cir. 2018); Jackson v.
Kimel, 992 F.2d 1318, 1322 (4th Cir. 1993).
1. Section 1-304 provides that “[e]very contract or duty within the [Uniform
Commercial Code] imposes an obligation of good faith in its performance and
enforcement.” UCC § 1-304. The ‘“[p]erformance and enforcement’ of contracts
and duties within the Uniform Commercial Code include the exercise of rights
created by the Uniform Commercial Code.” Id. § 1-304 cmt. 2. Accordingly, a party
that has breached its obligation of good faith cannot enforce rights created by the
UCC, including the alleged obligations under Sections 4A-204(a) and 4A-404(a)
that Blue Flame has sought to enforce against Chain Bridge. See id. § 1-304 cmt. 1
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(breach of good faith obligation will “make[] unavailable, under the particular
circumstances, a remedial right or power”).
Here, Blue Flame’s lack of good faith is evident from the misrepresentations
and concealment it used to procure California’s order. See pp. 8-12, supra. Blue
Flame’s fraudulent inducement is incompatible with the concept of good faith, which
requires “honesty in fact and the observance of reasonable commercial standards of
fair dealing.” UCC § 1-201(b)(20).
In the district court, Blue Flame sought to avoid that straightforward
conclusion by arguing that its fraud in the underlying transaction with California did
not demonstrate any breach of its “obligation of good faith in . . . enforcement” of
rights created by the UCC. See D. Ct. Doc. 149, at 23-24, 25 n.23. But that argument
ignores the undeniable linkage between Blue Flame’s fraud and the UCC payment
right it sought to enforce against Chain Bridge. Indeed, Blue Flame’s lawsuit seeks
to enforce a payment right against Chain Bridge that is attributable to its fraudulent
transaction with California, even though the underlying fraud would provide a
defense to a claim brought against California.21 Section 1-304’s requirement of good
21 In its briefing below, Blue Flame invoked this Court’s non-precedential, per
curiam decision in Synovus Bank v. Tracy, 603 F. App’x 121 (2015), but that
decision is inapt. There, this Court concluded that the plaintiff bank had not engaged
in fraud. See id. at 125-26. Thus, it had no occasion to decide whether a plaintiff can
insist on literal compliance with the UCC when the result would be to give effect to
the plaintiff’s own fraud.
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faith precludes exactly this sort of bad-faith opportunism, where a party asserts that
wooden, literal compliance with Article 4A requires a court to give effect to a fraud.
As the Eleventh Circuit has emphasized—in specific reliance on the UCC’s good-
faith obligation—“[i]t could hardly have been the intent of the drafters to enable a
party to succeed in engaging in fraudulent activity, so long as it complied with the
provisions of Article 4A.” Regions Bank v. Provident Bank, Inc., 345 F.3d 1267,
1276 (11th Cir. 2003).22
2. In the district court, Blue Flame also made a token effort to dispute Chain
Bridge’s argument that it had failed to act in good faith. See D. Ct. Doc. 149, at 25.
And here, Blue Flame tries to spin all of this as nothing more than rough-and-tumble
commerce—“not necessarily pretty”—as practiced by a couple of plucky upstarts.
Blue Flame Br. 2. But Blue Flame’s version bears no resemblance to the undisputed
record.
22 Blue Flame attempted to distinguish Regions Bank on the ground that it
involved preemption of a state law claim, rather than a claim for violating the UCC.
See D. Ct. Doc. 149, at 23 n.20. But that was simply a result of the case’s procedural
posture: The defrauded party brought a claim to recover funds from the bank that
had received a wire transfer, and the court held that Article 4A could not serve “as a
shield for fraudulent activity.” 345 F.3d at 1276. If anything, the principle
announced in Regions Bank applies with added force here because Blue Flame asked
the district court to put its imprimatur on Blue Flame’s own fraud. Cf. United States
v. $3,000 in Cash, 906 F. Supp. 1061, 1066-67 (E.D. Va. 1995) (“It is well settled
that courts will not permit anyone to reap the benefits of a contract or an agreement,
the carrying out of which involves his complicity in any fraudulent act[.]”) (internal
quotation marks omitted).
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First, Blue Flame cannot explain away Thomas’s repeated misrepresentations
to Controller Yee. Thomas told Yee that Blue Flame (i) had 100M N95 masks;
(ii) had “almost sold all” of them; (iii) was “delivering another 100m units of n95
mask[s]” to additional customers; and (iv) would have “100m units every week”
available for sale. JA640, 642, 645. Not a word of that was true. See JA548, 551.
Those misrepresentations were critical to Yee, JA666-68, who then interceded with
the Governor’s office to promote Blue Flame, referred Blue Flame to California’s
DGS, and expedited and facilitated the State’s warrants authorizing an
unprecedented prepayment wire to Blue Flame. JA2872-73; see also JA2881-82
(describing coordination between DGS and Controller’s Office regarding payment
to Blue Flame). Approval from the Governor’s office—not just DGS—was
ultimately required for the wire transfer to proceed. See JA2886.
Thomas also made false representations directly to the DGS personnel who
were negotiating with Blue Flame regarding California’s order. He falsely claimed
that Blue Flame had connections with “manufacturers” in China, and DGS relied on
that misstatement. See pp. 9-10, supra; JA2889; JA2892. He sent DGS a fictitious
delivery schedule that contemplated delivery of 100 million N95 masks within 30
days. See pp. 10-12, supra. And he told DGS that Blue Flame “cages the money”
for PPE transactions, JA2879, conveying the false impression that Blue Flame had
held money to pay manufacturers on behalf of other customers. In fact, there were
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no other customers, and Blue Flame did not yet even have a bank account in which
to “cage” money.
Finally, Blue Flame argued that it had no obligation to volunteer basic
information regarding its own background and experience to California—including
the fact that the company was formed only days earlier, had no relevant expertise,
and had never delivered a single N95 mask to anyone. See D. Ct. Doc. 149, at 4.
But it was surely a “basic assumption” of the transaction that Blue Flame was a bona
fide vendor of PPE, and because Thomas knew that California was mistaken on this
point, he had a duty to correct that mistake. See Restatement (Third) of Torts:
Liability for Economic Harm § 13(c) (2020). Indeed, Blue Flame effectively
conceded the point below, by arguing that Chain Bridge’s informing California
officials of these very facts “was reasonably calculated to cause California to re-
think its transaction with Blue Flame.” D. Ct. Doc. 128, at 28. It cannot be that the
omission was immaterial, but the disclosure was significant. Moreover, Thomas
was under an obligation to disclose these facts to correct the misleading impression
created by his own statements that depicted Blue Flame as an experienced PPE
vendor. See Restatement (Third) of Torts: Liability for Economic Harm § 13(c)
(2020); Paradise Wire & Cable Defined Benefit Pension Plan v. Weil, 918 F.3d 312,
318 (4th Cir. 2019).
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D.
The District Court Correctly Held That Blue Flame’s State Law
Claims Fail As A Matter Of Law
1.
The District Court Correctly Dismissed Blue Flame’s Claims
For Conversion, Fraud, Constructive Fraud, Negligence, And
Breach Of Contract
a. The district court dismissed Blue Flame’s claims for conversion, fraud,
constructive fraud, negligence, and breach of contract at the pleading stage, holding
that those claims are foreclosed by the “strong doctrine of preemption” that this
Court has announced for “state causes of action that essentially overlap or dovetail”
with the provisions of Article 4A that govern Fedwire transfers. JA60. Article 4A
is expressly incorporated into federal law through Subpart B of Regulation J to
“provide[] rules to govern funds transfers through . . . Fedwire.” 12 C.F.R. § 210.25.
The Federal Reserve’s official commentary to Subpart B explicitly addresses
preemption:
[R]egulations of the Board may preempt inconsistent provisions of state
law. Accordingly, subpart B of this part supersedes or preempts
inconsistent provisions of state law. It does not affect state law
governing funds transfers that does not conflict with the provisions of
subpart B of this part, such as Article 4A, as enacted in any state, as it
applies to parties to funds transfers through Fedwire whose rights are
not governed by subpart B of this part.
12 C.F.R. pt. 210, subpt. B, app. A, cmt. to § 210.25. And this Court has
emphatically held that Subpart B “preempts any state law cause of action premised
on conduct falling within the scope of Subpart B, whether the state law conflicts with
or is duplicative of Subpart B.” Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220,
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223 (4th Cir. 2002) (emphasis added). Thus, whether “a state law claim is preempted
by Regulation J turns on whether the challenged conduct in the state claim would be
covered under Subpart B as well.” Id.
On appeal, Blue Flame challenges the district court’s preemption ruling,
arguing that the dismissed state law claims should have been allowed to proceed on
the theory that a bank’s issuance of a payment order that its customer has not
authorized is not conduct governed by Article 4A and so is not subject to preemption.
See Blue Flame Br. 39-40. Blue Flame predicts (Br. 40) that the “upshot” of the
district court’s preemption ruling “will be that banks can wire money out of their
customers’ accounts willy-nilly by drawing up their own unauthorized payment
orders.” But that concern would have force only if the district court’s ruling were
extended to cases, unlike this one, where a bank wired money out of a customer’s
account without having received a cancellation request. Here, Chain Bridge’s
decision to withhold payment from Blue Flame and accommodate JPMorgan’s
cancellation request was governed by Sections 4A-211 and 4A-404(a) of the UCC.
See pp. 21-23, 38-51, supra. It thus plainly implicates “conduct falling within the
scope of Subpart B,” and any “conflict[ing]” or “duplicative” state law claims were
properly held preempted. Eisenberg, 301 F.3d at 223.
The district court never suggested that preemption would immunize a bank
from state law liability for initiating a wire transfer from its customer’s account
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under circumstances that do not involve conduct—such as cancellation of a wire
transfer—that is governed by, and potentially subject to liability under, Article 4A.
And in this case, the district court’s preemption ruling plainly did not license any
“willy-nilly” escape from consequences for Chain Bridge. Chain Bridge’s conduct
was subjected to searching inquiry under Section 4A-404(a). The district court held
(correctly) that Blue Flame cannot establish liability under that provision, but Blue
Flame’s failure of proof under Article 4A’s standards offers no basis to conclude
that state law may augment liability for “conduct falling within the scope of Subpart
B.” Eisenberg, 301 F.3d at 223.
b. Even if the district court’s preemption analysis was erroneous, moreover,
that conclusion would not justify reversal of the district court’s judgment because
Blue Flame’s failure to establish damages furnishes an alternative ground for
affirmance. For each of the state law claims at issue, Blue Flame’s complaint
articulated the same theory of damages that Blue Flame asserted under UCC Section
4A-404(a)—viz, that the defendants’ allegedly improper conduct had caused
damages “including, among other harms, [Blue Flame’s] lost profits for the
transaction with California, lost future business opportunities with California and
other customers, and reputational damage as a result of the subsequent media
coverage of the incident.” JA40 (Section 4A-404(a) claim); JA44-45 (conversion);
JA50 (negligence); JA52 (breach of contract); see also JA48 (tying damages for
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alleged fraud to “loss of all profits associated with the transaction with California
and other lost business”); JA50 (same for constructive fraud).
In other words, the state law claims that were dismissed on the pleadings were
“based on the same unsubstantiated theory and suffer from the same lack of proof”
as Blue Flame’s claim under Section 4A-404(a), which was properly dismissed at
summary judgment. Belville v. Ford Motor Co., 919 F.3d 224, 236 n.9 (4th Cir.
2019). Thus, even if those state law claims “had survived the Rule 12(b)(6)
challenge, they would not have survived the district court’s summary judgment
rulings because all contain the same failure of proof.” Id. The judgment may be
affirmed on that basis, without reaching the merits of the district court’s preemption
ruling. See id.; see also Terry v. Perdue, No. 20-2016, 2021 WL 3418124, at *2 n.2
(4th Cir. Aug. 5, 2021) (per curiam) (dismissal of claim under Rule 12(b)(6) could
be affirmed based on plaintiff’s deposition testimony in connection with other
claims); Stanciel v. Gramley, 267 F.3d 575, 579-80 (7th Cir. 2001) (allegedly
erroneous pre-trial dismissal of defendants was harmless, within the meaning of
Civil Rule 61, where the plaintiff could not “point to any relevant legal or factual
differences” between dismissed defendants and other defendants who were found
not liable at trial).
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2.
Summary Judgment Was Proper On Blue Flame’s Tortious
Interference Claims
Blue Flame briefly contends (Br. 55-56) that the district court erred in granting
summary judgment on Blue Flame’s claims for tortious interference with contract
and business expectancy. That contention is incorrect.
As Blue Flame acknowledges (Br. 55), the district court held that Blue
Flame’s tortious interference claims fail because the undisputed facts demonstrate
that Blue Flame could not establish damages. JA3091. Because the district court’s
conclusion that Blue Flame fails to establish damages was correct, see pp. 39-50,
supra, summary judgment was properly granted on the tortious inference counts.
Indeed, Blue Flame does not articulate any separate theory of damages for its tortious
interference claims, and it appears to concede that rejection of its challenge to the
district court’s damages ruling would require affirmance. See Blue Flame Br. 55.
Blue Flame’s challenges to the district court’s additional reasons for rejecting
the tortious interference claims also lack merit. Blue Flame contends (Br. 55) that
the district court erred in holding that the claims fail because of “issues with the
validity of the contractual relationship and business expectancy between Blue Flame
and California.” JA3090. But that holding was manifestly correct. As the district
court observed, Blue Flame’s relationship with California was based on “apparent
initial misrepresentations to California authorities” regarding Blue Flame’s ability
to supply 100 million 3M N95 masks from the Port of Long Beach. Id. More
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broadly,
Blue
Flame
procured
California’s
order
through
fraudulent
misrepresentations and concealment of material facts. See pp. 8-12, 54-56, supra.
When a plaintiff has “procured the counterparty’s consent to the contract by fraud,”
the contract is not “valid in substance” and the plaintiff accordingly has no
“legitimate contractual expectations” warranting protection through a tort claim.
Restatement (Third) of Torts: Liability for Economic Harm § 17 cmt. k (2020). And
although Blue Flame observes (Br. 55) that the parties stipulated that California had
“agreed to purchase 100 million N95 masks from Blue Flame,” JA139, there was no
stipulation that this agreement was “valid in substance,” as would be required to
support Blue Flame’s tortious inference claims.
Blue Flame separately contends (Br. 56) that the district court erred in holding
that a reasonable jury could not find that defendants had acted with an intent to
disturb Blue Flame’s business relationship with California. See JA3090-91. But the
premise of that argument—which Blue Flame glosses over on appeal, but made
explicit below—is that defendants acted with a wrongful intent because their
statements to California officials were “substantially certain” to lead California to
revisit its decision to purchase from Blue Flame. D. Ct. Doc. 128, at 28-29 (quoting
Commerce Funding Corp. v. Worldwide Sec. Servs. Corp., 249 F.3d 204, 212 (4th
Cir. 2001)). That argument is the definition of chutzpah: If sharing indisputably
true facts about Blue Flame was “substantially certain” to cause California to revisit
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its decision to do business with Blue Flame, that is so only because Blue Flame had
withheld that information from California. To state the obvious, no principle of law
required defendants to assume that Blue Flame was perpetrating a fraud on
California that their truthful statements would reveal.
II.
THE DISTRICT COURT CORRECTLY HELD THAT CHAIN
BRIDGE IS INDEMNIFIED BY JPMORGAN
The district court correctly held that JPMorgan must indemnify Chain
Bridge’s losses and expenses, including attorney’s fees, resulting from JPMorgan’s
cancellation of its payment order to Chain Bridge. As the court explained, that
outcome follows from a straightforward application of UCC Section 4A-211(f) to
undisputed facts. The court thus rejected JPMorgan’s “attempts to sidestep the text
of the regulation” as being “weak,” “unpersuasive,” and “incorrect[].” JA3093-94,
3096.
A.
JPMorgan’s Liability For Indemnification Is Established By
Undisputed Facts And The Plain Text Of UCC Section 4A-211(f)
1. Section 4A-211 of the UCC governs the cancellation of wire transfers. It
sets rules for what happens when a sender (here, JPMorgan) cancels its payment
order to a receiving bank (here, Chain Bridge), either before or after the receiving
bank has accepted the sender’s payment order. Prior to a receiving bank’s
acceptance, the sender generally has a unilateral right to cancel its payment order.
UCC § 4A-211(b). After acceptance, by contrast, the sender’s “cancellation . . . is
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not effective unless the receiving bank agrees or a funds-transfer system rule allows
cancellation or amendment without agreement of the bank.” Id. § 4A-211(c).
When cancellation occurs after acceptance, as happened here, Section 4A-
211(f) provides the receiving bank a right to indemnification by the sender:
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.
The UCC’s official commentary underscores that a receiving bank that honors the
sender’s cancellation request is entitled to indemnification without regard for the
circumstances that underlie the sender’s cancellation request: “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).”
UCC § 4A-211 cmt. 5 (emphasis added). This “indemnification provision
recognizes that a sender has no right to cancel a payment order after it is accepted
by the receiving bank,” and that, as a consequence, “[i]f the receiving bank agrees
to cancellation, it is doing so as an accommodation to the sender and should not incur
a risk of loss in doing so.” Id.; see JA3092-93.
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Section 4A-211(f)’s indemnification right thus marks an intentional
“depart[ure] from the common law” to afford broad and automatic protection to a
receiving bank that agrees to cancellation of a payment order following acceptance.
Banca Commerciale Italiana, N.Y. Branch v. Northern Tr. Int’l Banking Corp., 160
F.3d 90, 94 (2d Cir. 1998). It obviates any need to establish “the elements required
to establish common law fraud or unjust enrichment” by instead “impos[ing]
absolute liability on the sender of an electronic funds transfer to the receiving bank
if the sender cancels a payment order that has already been accepted, even though
the receiving bank has freely agreed to the cancellation.” Id. (emphasis added).
2. As the district court held, the undisputed facts establish Chain Bridge’s
right to indemnification as a matter of law.
First, JPMorgan sent Chain Bridge a payment order for California’s wire
transfer at 11:55 AM on March 26, 2020. JPMorgan Br. 11 (citing JA140 ¶¶ 15-16;
JA254). There is no dispute that Chain Bridge immediately accepted that payment
order. In the Fedwire system, acceptance of a wire is automatic. The transmittal of
a payment order results in an immediate credit to the receiving bank’s account at the
Federal Reserve, which causes the receiving bank’s near-instantaneous, automatic
acceptance of the payment order. See UCC §§ 4A-209(b)(2), 4A-403(a)(1).
Second, after JPMorgan and Chain Bridge officials discussed the concerns
identified by their respective investigations, JPMorgan’s Tim Coffey reached out to
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Chain Bridge, at 1:37 PM, and told it that JPMorgan would be “recalling those
funds” because “[w]e have enough concerns that we feel we need to call those funds
back.” JPMorgan Br. 14 (citing JA3136 at 0:06-0:14). Coffey asked Chain Bridge
what it needed from JPMorgan to make that happen, and Chain Bridge said that it
required an “official communication from JPMorgan to us [i.e., Chain Bridge] to
recall the funds” sent “over the Fedline platform.” Id. at 15 (citing JA3136 at 0:18-
0:26).
Soon after, at 2:05 PM, JPMorgan sent Chain Bridge a Fedwire message that
JPMorgan coded as its “request for reversal.” JPMorgan Br. 15 (citing JA142 ¶ 29;
JA390; JA467). The message stated “PER REM REQ PLS RETURN FUNDS”—
meaning “per remitter’s request please return funds.” JA1065; see also JA1343;
JA1354-55. JPMorgan’s recall message referenced JPMorgan’s 11:55 AM payment
order, by that order’s unique system identifier, as the one that JPMorgan was asking
Chain Bridge to return. Id.
JPMorgan’s 2:05 PM Fedwire message can be understood only as a
“communication of the sender of a payment order cancelling . . . the order.” UCC
§ 4A-211(a). The message requested that Chain Bridge return the wired funds rather
than pay them to Blue Flame as JPMorgan’s original payment order had directed.
Under Section 4A-211(a), that is a cancellation. See Banca Commerciale Italiana,
N.Y. Branch v. Northern Tr. Int’l Banking Corp., 160 F.3d 90, 92-93 (2d Cir. 1998)
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(request that a receiving bank “refund” funds is a cancellation of payment order);
Cumis Ins. Soc’y, Inc. v. Citibank, N.A., 921 F. Supp. 1100, 1103, 1105 (S.D.N.Y.
1996) (request for return of funds). Indeed, JPMorgan’s own wire-transfer expert
agreed that JPMorgan’s 2:05 PM message was a communication cancelling a
payment order “of the type described in 4A-211(a).” JA1357.
Third, Chain Bridge agreed to JPMorgan’s cancellation request by returning
the funds to JPMorgan via a 3:21 PM Fedwire message. JPMorgan Br. 15 (citing
JA142 ¶ 32; JA412); JA1076. Chain Bridge’s message was unmistakably clear that
it was returning the funds in response to JPMorgan’s cancellation. Chain Bridge
stated that it was “RTNG YR IMAD”—meaning “returning your IMAD,” with
“IMAD” referring to the 11:55 AM payment order’s unique identifier, and that
Chain Bridge was doing so “PER YOUR REQUEST”—meaning in response to
JPMorgan’s 2:05 PM request for reversal. Id.; see also JA1344.
Finally, the parties made no agreement to displace Section 4A-211(f)’s default
indemnification obligation. As JPMorgan’s Tim Coffey testified, “[t]he word
‘indemnity’ was never mentioned by either party, be it [JPMorgan] or Chain
Bridge,” JA1044, and JPMorgan concedes (Br. 41) that the cancellation proceeded
“without any express discussion of indemnity.” Nor did JPMorgan’s 2:05 PM
cancellation message state the phrase “NO INDEMNITY,” which payment-order
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senders ordinarily include in cancellation messages if they intend to disclaim indem-
nification liability. See, e.g., Regions Bank v. Provident Bank, Inc., 345 F.3d 1267,
1272 (11th Cir. 2003) (sender’s recall message to beneficiary’s bank expressly
specified “no indemnity”). The Federal Reserve’s official guidance for Fedwire
transfers, Federal Reserve Banks Operating Circular No. 6, expressly warns banks
that “[b]y requesting cancellation or amendment of a Payment Order, the sender may
be liable under Section 4A-211 of Article 4A unless the request states ‘NO
INDEMNITY.’” JA1288 (emphasis added).
These facts were undisputed in the district court, and are each recited in
JPMorgan’s brief. They conclusively demonstrate every element of Section 4A-
211(f): JPMorgan’s cancellation of its payment order after Chain Bridge’s
acceptance; Chain Bridge’s agreement to return funds in response to that
cancellation; and the lack of any “agreement of the parties” that “otherwise
provided” for indemnification. The district court thus correctly held that JPMorgan
is liable to Chain Bridge under Section 4A-211(f). JA3096.
B.
The District Court Correctly Rejected JPMorgan’s Attempts To
Evade Its Indemnification Obligation
JPMorgan reprises here the same three arguments it made below. First, it
contends that Section 4A-211(f) does not apply here because Chain Bridge, not
JPMorgan, canceled JPMorgan’s payment order because (JPMorgan says) Chain
Bridge “requested,” “sought,” and “directed” that cancellation. The district court
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correctly held that argument to be foreclosed by Section 4A-211(f)’s clear text.
Second, JPMorgan contends that although the subject of indemnification was never
discussed, Chain Bridge silently reached an agreement with JPMorgan to abandon
its automatic indemnification right. But the district court found no evidence—and
there is none—that the parties came to such an agreement, whether by speech,
conduct, or otherwise. Finally, JPMorgan contends that Chain Bridge’s loss and
expenses from this litigation did not result from its cancellation. The district court
appropriately dispensed with that “weak” and unsupported speculation as blinking
the reality that “this civil action undoubtedly resulted from the reversal of the wire
transfer.” JA3096.
1.
JPMorgan’s Argument That Chain Bridge “Requested And
Directed” The Cancellation Is Both Irrelevant And Without
Support In The Record
a. JPMorgan tries to avoid indemnification principally by arguing the up-is-
down premise that “Chain Bridge canceled the wire,” not JPMorgan. JPMorgan Br.
26 (emphasis added); see also id. at 2 (Chain Bridge “canceled the order itself”). It
contends that Section 4A-211(f) does not apply to a cancellation that is in any way
“sought,” “requested,” or “directed” by a receiving bank, because such a cancellation
is done “by the receiving bank” and not “by the sender.” Br. 30.
But there is no such thing as the receiving bank cancelling the sender’s
payment order; only the sender can cancel its own payment order. Section 4A-
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211(a) explicitly defines “cancellation” as “[a] communication of the sender of a
payment order . . . transmitted to the receiving bank” (emphasis added); see also
UCC § 4A-211(b) (addressing when “a communication by the sender cancelling or
amending a payment order” is effective prior to the order’s acceptance) (emphasis
added). In other words, every cancellation of a payment order is done by “the sender
of a payment order.”
JPMorgan tries (Br. 31-32) to avoid Section 4A-211’s dispositive language by
pointing instead to Section 4A-210, which allows a receiving bank to “reject” a
payment order. “A rejection,” JPMorgan suggests, “is just another form of
cancellation.” Id. That is flat wrong. A receiving bank can reject a payment order
only before it is accepted. Though JPMorgan omits to mention it in its brief, Section
4A-210(d) is explicit that a receiving bank’s “[a]cceptance of a payment order
precludes a later rejection of the order.” There is no dispute that Chain Bridge
immediately and automatically accepted JPMorgan’s payment order the moment the
wired funds arrived in Chain Bridge’s account at the Federal Reserve. It could not
have rejected JPMorgan’s payment order, let alone “canceled” it.23
23 JPMorgan also looks for support (Br. 31-32) in Section 4A-106(a)’s provision
that receiving banks may set cut-off times for their “receipt and processing of
payment orders and communications cancelling or amending payment orders.” But
that provision just confirms that receiving banks only receive and process senders’
“communications cancelling or amending payment orders.” JPMorgan also points
to a comment on the UCC’s definition of a receiving bank’s “funds-transfer business
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JPMorgan also argues—counterfactually—that Chain Bridge “could have”
reversed JPMorgan’s payment order over Fedwire unilaterally even if JPMorgan had
not sent its 2:05 PM cancellation message. JPMorgan Br. 32. Even if that were
possible (and there is considerable doubt about that24), it would not invite the “absurd
result” that a sender would have to indemnify a receiving bank that initiates a wire
reversal over Fedwire that the sender “did not even know . . . was coming.” Id.
Again, Section 4A-211(a) is clear that a cancellation is always “[a] communication
of the sender of a payment order.” So whatever JPMorgan’s hypothetical
contemplates, it is not a cancellation and so could not trigger the receiving bank’s
automatic indemnification.
b. The district court correctly rejected JPMorgan’s related, fallback argument
that Chain Bridge’s alleged subjective motivations for honoring JPMorgan’s
day,” in which the commentors explain 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.”
UCC § 4A-105 cmt. 2. That commentary, which clarifies that a receiving bank must
be open for all funds-transfer business to be deemed open for any of it, cannot
plausibly be understood to contradict Section 4A-211(a)’s explicit language that a
cancellation is conveyed only by “[a] communication of the sender of a payment
order.”
24 To argue for the possibility of receiving bank’s unilateral wire reversal,
JPMorgan’s cites, without explanation, a table of Fedwire message codes in a 2011
reference guide, and a training manual for a 2002 version of Fedwire’s software
program. JPMorgan Br. 32. Those sources do not appear to support JPMorgan’s
unilateral-reversal hypothetical, and in any event they provide no support for
JPMorgan’s interpretation of Article 4A.
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cancellation removed these circumstances from Section 4A-211(f)’s ambit. JA3093.
Contrary to JPMorgan’s repeated assertions (Br. 2, 6, 7, 27, 36) nothing in the UCC
even hints at JPMorgan’s proposed rule that a receiving bank must prove it was a
“reluctant” participant in the cancellation in order to be indemnified. Section 4A-
211(f), the district court observed, “does not impose any requirement that the
receiving bank accommodate the sender’s cancellation request solely to benefit the
sender.” JA3093. “In fact, the regulation does not impose any requirements
regarding the receiving bank’s motivations at all.” JA3093-94. JPMorgan’s
contrary arguments are just “attempts to sidestep the text of the regulation.” JA3094.
The district court was correct. As the Second Circuit has explained, Section
4A-211(f) “imposes absolute liability on the sender of an electronic funds transfer
to the receiving bank if the sender cancels a payment order that has already been
accepted, even though the receiving bank has freely agreed to the cancellation.”
Banca Commerciale, 160 F.3d at 94 (emphasis added).
JPMorgan wants none of this. According to its proposed reading of Section
211(f), courts must instead engage in a case-by-case examination of the receiving
bank’s subjective motivations to determine whether Section 211(f) applies. The
proffered support for that a-textual (and a-sensible) proposition? The official
commentary to Section 211, which observes that “a sender has no right to cancel a
payment order after it is accepted by the receiving bank,” such that “[i]f the receiving
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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.” UCC § 4A-211 cmt. 5. According to
JPMorgan, that comment means that the receiving bank is indemnified only if the
court finds, as a factual matter, that the receiving bank honored the cancellation
request solely to “accommodate” the sender’s interest, rather than its own.
But that is not what the comment says. It simply makes the point that
receiving banks are under no obligation to return accepted funds to senders, and so
their agreement to do so always amounts to an accommodation to the sender. As the
district court recognized, “a receiving bank will still be ‘accommodating’ a sending
bank, even if cancellation serves the receiving bank’s own interests.” JA3094.
Moreover, JPMorgan’s brief nowhere even mentions—let alone grapples
with—the immediately preceding sentence in the same official comment. There, the
commentators explained that, under Section 4A-211(f), when “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).”
UCC § 4A-211 cmt. 5 (emphasis added). That automatic-ness of indemnification
cannot be squared with JPMorgan’s strained reading of either the comment or the
provision. See JPMorgan Br. 26-27 (explaining that the official comments “‘may
. . . be useful in interpreting Article 4A,’” quoting Donmar Enters., Inc. v. Southern
Nat’l Bank of N.C., 64 F.3d 944, 948 (4th Cir. 1995)). In short, nothing in Section
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4A-211(f), or its commentary, says that a receiving bank must be motivated only, or
even principally, to accommodate the sender.25
The district court also correctly rejected JPMorgan’s reliance on common-law
principles of comparative fault to excuse its indemnification obligation. It held 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. The Second Circuit has likewise concluded that Section 4A-211(f)’s
default rule purposefully “departs from the common law” and does not require the
receiving bank to make “any showing of wrongfulness on the part of the sender.”
Banca Commerciale, 160 F.3d at 94. JPMorgan is thus mistaken (Br. 28, 36-37) that
a receiving bank’s indemnification, under Section 211(f), should turn on a series of
unstated, fact-specific elements that it seeks to import from the common law but that
are nowhere found in the provision’s text.
c. Although Chain Bridge’s supposed motivations and interests have no
bearing on its indemnification right, JPMorgan also mischaracterizes the undisputed
facts when it asserts that Chain Bridge “directed the cancellation at every material
25 The result is no different where a sender’s cancellation of its payment order is
the result of what JPMorgan calls a “joint decision” between the sender and the
receiving bank. JPMorgan Br. 26, 34 n.5. Indeed, under Section 4A-211(c), every
cancellation of an accepted payment order requires a “joint decision,” because the
receiving bank must agree to it.
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turn.” Br. 32. Shortly after sending the wire transfer, JPMorgan initiated contact
with Chain Bridge to report JPMorgan’s own “concerns of fraud,” and to ask Chain
Bridge to place a temporary hold on the funds. JA3074 (citing audio recording at
JA3137). JPMorgan then warned Chain Bridge that its own investigation was “all
leading to not-good places” and that JPMorgan’s Global Investigations Team
thought the transaction “does not look right.” JA3075 (citing audio recording at
JA3133). And when JPMorgan’s Tim Coffey called Chain Bridge at 1:37 PM the
same day, he told Chain Bridge that JPMorgan was “recalling those funds” because
“we have enough concerns that we feel we need to claw those funds back.” JA3136
[00:06-00:13] (emphasis added). The notion that Chain Bridge orchestrated all of
this is baseless.26
It is also flatly contradicted by JPMorgan’s own statements in support of its
indemnification claim against California for any sums that JPMorgan pays Chain
Bridge. As the district court pointed out—with considerable understatement—
26 JPMorgan’s theory of Chain Bridge’s motive for supposedly “directing” the
cancellation is also baseless. JPMorgan obliquely contends that the wire transfer
had somehow threatened “the bank’s own viability” and caused “dismay and
concern” over the bank’s “capital ratios.” JPMorgan Br. 1, 9. But Chain Bridge
officials testified—without contradiction—that a $456 million deposit on March 26,
2020, would not have adversely affected the bank’s risk-based capital ratios (which
are unaffected by the amount of cash the bank holds at the Federal Reserve), its
leverage ratio (which is determined as a quarterly average), or any “reserve”
requirements. See JA846; JA1158; JA2347; JA2364.
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“JPMorgan’s claims in this litigation that Chain Bridge directed the cancellation
appear to be in tension with its claims in state agency proceedings in California.”
JA3093 n.13. In those proceedings, JPMorgan has emphatically asserted that
California—not Chain Bridge—“sought the reversal of the Wire Transfer.” Id.
(citing JA1386). In fact, JPMorgan’s claim against California goes on to explain
that California “decided to reverse the payment,” “decided that the Wire Transfer
should be reversed,” “request[ed] that the Wire Transfer be reversed,” and “procured
the reversal of the Wire Transfer.” JA1380, 1382-83. And JPMorgan even admits
that it acted “on behalf of, at the direction of, and/or for the benefit of” California
when it took “actions concerning the Wire Transfer, including, in particular, the
reversal.” JA1384. (emphasis added). JPMorgan brushes aside, as “immaterial,”
its contradictory admissions that it canceled the wire at California’s direction (Br.
35 n.6), but these statements were properly before the district court and reflect
JPMorgan’s own refutation of its unsupportable position in this appeal.
2.
Chain Bridge And JPMorgan Did Not Agree To Displace
Section 211(f)’s Indemnification Provision
Indemnification is automatic, under Section 4A-211(f), unless “otherwise
provided in an agreement of the parties.” The district court thus recognized that, for
JPMorgan “[t]o avoid indemnification, there would have to be an agreement to
override the default rule.” JA3094. The court correctly held that there is no evidence
that Chain Bridge and JPMorgan had any such agreement. JA3095.
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There is no dispute that Chain Bridge and JPMorgan had no discussion
whatsoever, let alone a written agreement, to override Section 4A-211(f). JPMorgan
Br. 41.27 Federal Reserve Operating Circular No. 6, the Federal Reserve’s
authoritative and legally superseding guidance on Fedwire operations, see UCC
§ 4A-107, states that, when payment order senders want to disclaim indemnification,
they are advised to do so in their cancellation message, by stating the words “NO
INDEMNITY.” JA1288. JPMorgan did no such thing. See JA1065.
JPMorgan nevertheless contends (Br. 30-46) that the district court misapplied
the law by failing to consider whether an agreement between Chain Bridge and
JPMorgan to override Section 4A-211(f) can somehow be divined from the
circumstances. Not so. The district court explicitly acknowledged that, under the
UCC, an “agreement” can be “inferred from other circumstances, including a course
of performance, course of dealing, or usage of trade.” JA3094 (quoting UCC § 1-
201(b)(3)). And it correctly held that there is no such evidence here.
JPMorgan contends (Br. 40-41) that because (1) both parties understood that
Chain Bridge “had its own strong motivations for preventing Blue Flame from
accessing the funds,” and (2) JPMorgan canceled the wire “without any express
27 JPMorgan offers that the parties “never explicitly addressed indemnity” (Br.
16, emphasis added) as if to suggest that maybe they at least implicitly addressed it.
But there is no evidence that the topic was addressed between the parties in any way,
shape, or form.
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discussion,” it therefore was “readily apparent” to both sides that “no
indemnification was necessary, appropriate, sought or expected.”
That is a non-sequitur. First, for purposes of determining whether the parties
agreed, as Section 211(f) requires, to displace the default rule of indemnification, it
is irrelevant whether Chain Bridge was itself motivated to return the funds. Second,
it makes no difference whether one or both sides subjectively believed that no
indemnification was “necessary, appropriate, sought or expected.” All that matters
is whether there was an agreement, however expressed. There is no evidence of one,
as the district court unsurprisingly concluded.
JPMorgan also emphasizes (Br. 41-42) an internal Chain Bridge phone call
as supposedly demonstrating the parties’ agreement, sub silentio, to override Section
4A-211(f). On that call, a Chain Bridge wire-operations employee asked Brough
and Evinger whether Chain Bridge would be “getting an indemnity letter from
[JPMorgan].” JA3140 [01:20-01:25]. Evinger explained that “you’re going to get
a service bureau message through Fedline . . . a recall,” and instructed the employee
to return the wire by the same means. JA3140 [01:26-01:42]. Evinger’s unrebutted
deposition testimony was that Chain Bridge “didn’t view there was a need for an
indemnification [letter] based on the recall because the recall had the
indemnification built in.” JA3095 (citing deposition testimony at JA804). That
understanding was plainly correct; Section 4A-211(f) provided indemnification to
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Chain Bridge without it needing any “indemnification guarantee from JPMC.”
JPMorgan Br. 3.28
More to the point, the district court correctly held that nothing said during this
internal phone call provides evidence that Chain Bridge and JPMorgan had reached
any “meeting of the minds” on indemnification. Contrary to JPMorgan’s argument
(Br. 43), the district court did not rule that internal discussions can never suggest the
existence of an external agreement, but rather it held that this discussion provided
no such evidence. See JA3095; see also Knox Energy, LLC v. Gasco Drilling, Inc.,
738 F. App’x 122, 124 (4th Cir. 2018) (a party attempting to “establish[] the
existence of a legally enforceable agreement” must proffer evidence of a “meeting
of the minds of the parties”).
Finally, JPMorgan asserts (Br. 42-43) that there must have been a no-
indemnity agreement between the parties because Brough and Evinger instructed
their team to return the wire before they knew whether JPMorgan’s cancellation
message would say “NO INDEMNITY.” According to JPMorgan, Chain Bridge
insists that “no indemnity” disclaimers are “customary” in all cancellation messages,
28 JPMorgan mocks Evinger’s testimony (Br. 45) that he knew, in March 2020,
that Chain Bridge was entitled to automatic indemnification. But JPMorgan’s attack
on Evinger misses the point: The UCC’s default rule applies whether or not Chain
Bridge (or JPMorgan) even knew it existed. What matters is whether the parties
agreed to displace the default rule in favor of indemnification. They did not.
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and so Brough and Evinger “had every reason to believe” (Br. 17) that JPMorgan’s
cancellation message would contain such a disclaimer. And since Brough and
Evinger did not express concern that JPMorgan’s forthcoming cancellation message
might include a “no indemnity” disclaimer, it follows (in JPMorgan’s view) that the
parties already must have agreed that there would be no indemnification.
But neither Chain Bridge, nor anyone else in the case, has ever said that “NO
INDEMNITY” disclaimers are commonplace in all Fedwire cancellation messages.
Rather, the evidence (including the Federal Reserve’s Operating Circular No. 6) is
that written, “no indemnity” disclaimers are customary only when the parties want
to override Section 4A-211(f). Brough and Evinger, after multiple calls with
JPMorgan in which indemnification was never even discussed, had absolutely no
reason to expect JPMorgan to spring a “no indemnity” disclaimer on them at the last
minute.
3.
Chain Bridge’s Loss And Expenses Resulted From
JPMorgan’s Cancellation
The district court did not err by holding that “this civil action undoubtedly
resulted from the reversal of the wire transfer,” and thus that any loss or expense
incurred by Chain Bridge, including attorney’s fees, was caused by the cancellation
and is indemnified under Section 4A-211(f). JA3096. Chain Bridge agreed to
JPMorgan’s cancellation of its payment order by returning $456.8 million to
JPMorgan instead of paying Blue Flame. And then Blue Flame promptly turned
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around and sued Chain Bridge for impermissibly agreeing to “cancel or amend the
payment order.” JA40. Such claims are squarely among the “substantial risks” that
a “beneficiary’s bank” incurs by “agreeing to cancellation,” at the expense of
“alienat[ing] its customer, the beneficiary, by denying the customer the funds.”
UCC § 4A-211 cmt. 5. And although Blue Flame’s claims have now been
dismissed, any judgment that Blue Flame could have obtained, as well as Chain
Bridge’s expenses in litigating this action, were incurred “as a result of” JPMorgan’s
cancellation.
JPMorgan responds by speculating (Br. 47-50) that Chain Bridge might have
denied payment to Blue Flame even if JPMorgan had not canceled the wire.
JPMorgan further hypothesizes that, in the counterfactual universe, Chain Bridge
would have either unilaterally returned the funds to JPMorgan, or held them
indefinitely (or, at least, long enough to allegedly interfere with Blue Flame’s
supposed supplier relationships). In this telling, Blue Flame would have sued Chain
Bridge no matter what JPMorgan did.
The district court correctly concluded that JPMorgan’s no-causation argument
is “weak” and unavailing. JA3096. As the district court observed, there is “zero
evidentiary basis for JPMorgan’s speculation that Chain Bridge would have returned
the funds without a cancellation by JPMorgan.” Id. Rather, the undisputed evidence
demonstrates that Chain Bridge insisted on receiving an official communication
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from JPMorgan cancelling its payment order, before Chain Bridge would return the
funds. JA3136 [00:18-00:22]. And although JPMorgan and Chain Bridge were both
investigating the wire transfer, consistent with their Bank Secrecy Act obligations
(see JA975-1004), there is no evidence that Chain Bridge would have sent the funds
back to JPMorgan even if JPMorgan had resolved its suspicions, stood by its
payment order, and declined to cancel it.
JPMorgan also argues (Br. 34, 50-51) that Chain Bridge’s internal wire
transfer policy “required” it to return the wire no matter what JPMorgan did or said.
That is wrong. The relevant provision, which JPMorgan never quotes in full, states:
“If the Bank notices a discrepancy between the beneficiary account number and
beneficiary name, the Bank reserves the right to return the wire although it is not
obligated to do so. If there is any question as to the beneficiary’s right to the funds,
such as a discrepancy between name and account number, the wire will be returned.”
JA226 (emphasis added). That internal guideline—which expressly disclaims the
Bank’s obligation to do anything—did not compel Chain Bridge to return the wire.
Nor is there any non-speculative basis for JPMorgan’s supposition that Chain
Bridge would have continued to withhold payment from Blue Flame in the absence
of a cancellation. In fact, Brough’s unrebutted testimony was that Chain Bridge
would have held the wired funds only until its investigation was complete, and then
consulted legal counsel to determine whether to pay Blue Flame as soon as the next
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day. JA857, 860-61. JPMorgan contends (Br. 49-50) that Chain Bridge’s
unwillingness ever to pay Blue Flame can be inferred from its closure of Blue
Flame’s account, but that happened only after JPMorgan had asserted that its own
fraud concerns about Chain Bridge’s customer merited cancelling its payment order.
JA142 (¶ 31); JA416-18.
Speculating even further, JPMorgan contends (Br. 50) that Blue Flame would
have brought this litigation even if Chain Bridge had paid Blue Flame the next day,
because Blue Flame now contends that it needed immediate access to the funds to
meet supplier requirements and fulfil California’s order. But JPMorgan cannot
explain what motivation Blue Flame would possibly have to sue Chain Bridge in the
hypothetical situation JPMorgan posits—one in which, after all, Blue Flame would
have been left in possession of more than $456 million of California’s money. In
any case, Chain Bridge’s funds availability policy, which Blue Flame received at
account opening, clearly stated that wired funds would not be available until the next
business day. JA2839.
CONCLUSION
The judgment of the district court should be affirmed.
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Dated: February 7, 2022
Respectfully submitted,
/s/ Gary A. Orseck
Gary A. Orseck
Matthew M. Madden
Donald Burke
ROBBINS, RUSSELL, ENGLERT, ORSECK,
& UNTEREINER LLP
2000 K Street NW, 4th Floor
Washington, D.C. 20006
Telephone: (202) 775-4500
Facsimile: (202) 775-4510
gorseck@robbinsrussell.com
Counsel for Appellees
STATEMENT REGARDING ORAL ARGUMENT
Under Federal Rule of Appellate Procedure 34(a) and Fourth Circuit Rule
34(a), defendants respectfully request that the Court hold oral argument in these
appeals. In light of the number of issues that have been raised by Blue Flame and
JPMorgan, defendants submit that oral argument would aid the Court in its
decisional process.
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CERTIFICATE OF COMPLIANCE
I hereby certify that, pursuant to Fed. R. App. P. 32(g)(1), this brief complies
with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B)(i) as enlarged by the
Court’s Order of January 5, 2022 (Doc. 36).
1.
Exclusive of the portions of the brief exempted by Fed. R. App. P. 32(f),
this brief contains 19,996 words.
2.
This brief has been prepared in proportionally spaced typeface using
Microsoft Word for Office 365 in 14-point Times New Roman font. I have relied
upon the word count feature of this word processing system in preparing this
certificate.
Dated: February 7, 2022
/s/ Donald Burke
Donald Burke
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CERTIFICATE OF SERVICE
I hereby certify that on February 7, 2022, I will electronically file 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.
Dated: February 7, 2022
/s/ Donald Burke
Donald Burke
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