Full text
No. 23-___
IN THE
BLUE FLAME MEDICAL LLC,
Petitioner,
v.
CHAIN BRIDGE BANK, N.A., ET AL.,
Respondents.
On Petition for a Writ of Certiorari to the United
States Court of Appeals for the Fourth Circuit
PETITION FOR A WRIT OF CERTIORARI
Daniel Woofter
Counsel of Record
Kevin K. Russell
GOLDSTEIN, RUSSELL &
WOOFTER, LLC
1701 Pennsylvania Ave. NW
Suite 850
Washington, DC 20006
(202) 240-8433
dhwoofter@goldsteinrussell.com
i
QUESTION PRESENTED
Respondent Chain Bridge Bank, N.A., wired over
$456 million out of petitioner Blue Flame Medical LLC’s
account without authorization. The question is whether
petitioner’s state-law claims challenging that conduct
are preempted by the U.S. Federal Reserve Bank’s
Regulation J, Subpart B, which governs cash-equivalent
interbank payment orders over the Fedwire Funds
Transfer System, commonly known as “wire transfers.”
The Fourth Circuit recognized that once a bank
accepts a wire transfer and credits the funds to its
customer’s account, that money belongs to the customer.
That is the essential premise of a wire—it is immediate
and irrevocable. Any dispute about the funds must be
settled another way, for example, through litigation. Yet
the court held that when a bank takes money out of its
customer’s account without authorization and gives it
back to the sender, there is no remedy. Regulation J
failed to address this circumstance, the court held. And
based on circuit precedent interpreting commentary—
not Regulation J’s provisions or the enabling statute—
the Fourth Circuit gave implied field-preemptive effect
to the regulation, precluding any state law that might
fill the gap. That understanding has been adopted in
several other circuits as well. The question presented is:
Does the Federal Reserve’s Regulation J
impliedly preempt the field regarding the
conduct of parties to a Fedwire Funds Service
wire transfer, based on commentary to the
regulation and Article 4A of the Uniform
Commercial Code, as the First, Fourth, Ninth,
and Eleventh Circuits have held?
ii
PARTIES TO THE PROCEEDING
1. Petitioner Blue Flame Medical LLC was the
plaintiff in the district court and an appellant below.
2. Respondent Chain Bridge Bank, N.A., was a
defendant and the third-party plaintiff in the district
court and an appellee below.
3. Respondents John J. Brough and David M.
Evinger were defendants in the district court and
appellees below.
4. Respondent JPMorgan Chase Bank, N.A., was
the third-party defendant and an appellant below.
CORPORATE DISCLOSURE STATEMENT
Blue Flame Medical LLC has no parent company,
and no publicly held corporation owns 10% or more of
its stock.
DIRECTLY RELATED PROCEEDINGS
1. Blue Flame Med. LLC v. Chain Bridge Bank,
N.A., Nos. 21-2218, 21-2219, 2023 WL 2570971 (4th
Cir. Mar. 20, 2023).
2. Blue Flame Med. LLC v. Chain Bridge Bank,
N.A., 563 F. Supp. 3d 491 (E.D. Va. 2021) (order
granting motions for summary judgment).
3. Blue Flame Med. LLC v. Chain Bridge Bank,
N.A., No. 1:20-cv-658 (E.D. Va. Sept. 8, 2020), ECF
Nos. 31, 32 (oral ruling and order granting in part
motion to dismiss state-law claims on preemption).
iii
TABLE OF CONTENTS
QUESTION PRESENTED ........................................... i
PARTIES TO THE PROCEEDING ............................ ii
CORPORATE DISCLOSURE STATEMENT ............. ii
DIRECTLY RELATED PROCEEDINGS ................... ii
TABLE OF AUTHORITIES ........................................ v
PETITION FOR WRIT OF CERTIORARI ................. 1
OPINIONS BELOW .................................................... 1
JURISDICTION........................................................... 1
RELEVANT STATUTORY AND
REGULATORY PROVISIONS .............................. 1
INTRODUCTION ........................................................ 2
STATEMENT OF THE CASE ..................................... 4
I.
Legal Background ................................................. 4
II. Factual Background .............................................. 7
III. Procedural History .............................................. 16
REASONS TO GRANT THE PETITION ................. 20
I. The Decision Below Conflicts With This
Court’s Precedents............................................... 22
A. Except in very rare instances where
Congress has chosen to occupy a
particular field, this Court’s
preemption cases require “clear
evidence” of an “actual conflict” with
federal law. .................................................... 22
iv
B. The Fourth Circuit and other courts of
appeals found implied field preemption
in Regulation J based on commentary. ........ 25
II. This Case Is A Good Vehicle. .............................. 29
III. This Question Presented Is Important And
This Court’s Intervention Necessary. ................. 33
IV. The Court Should At Least Call For The
Views Of The Solicitor General. ......................... 35
CONCLUSION .......................................................... 37
Appendix A, Court of Appeals Decision
(Mar. 20, 2022) ..................................................... 1a
Appendix B, District Court Decision
(Sep. 23, 2021) .................................................... 33a
Appendix C, District Court Decision
(Sep. 8, 2020) ...................................................... 75a
Appendix D, District Court Order
(Sep. 8, 2020) ...................................................... 88a
Appendix E, Relevant Statutory And
Regulatory Provisions ........................................ 90a
v
TABLE OF AUTHORITIES
Cases
AmSouth Bank v. Dale,
386 F.3d 763 (6th Cir. 2004) .................................. 32
Bennett v. Spear,
520 U.S. 154 (1997) ................................................ 35
Camps Newfound/Owatonna, Inc. v. Town of
Harrison, Me., 520 U.S. 564 (1997) .................. 24, 35
Donmar Enters., Inc. v. S. Nat’l Bank of N.C.,
64 F.3d 944 (4th Cir. 1995). 19, 26, 27, 28, 29, 33, 34
Eisenberg v. Wachovia Bank, N.A.,
301 F.3d 220 (4th Cir. 2002) ...................... 19, 27, 33
Fin. Ne. Corp. v. Angelo,
116 F.3d 483 (9th Cir. 1997) (unpublished) .... 28, 29
Fla. Lime & Avocado Growers, Inc. v. Paul,
373 U.S. 132 (1963) .......................................... 21, 30
Gade v. Nat’l Solid Wastes Mgmt. Ass’n,
505 U.S. 88 (1992) .................................................. 23
Geier v. Am. Honda Motor Co.,
529 U.S. 861 (2000) .................................... 23, 27, 29
Glob. Naps, Inc. v. Verizon New England, Inc.,
444 F.3d 59 (1st Cir. 2006) ..................................... 23
Grossman v. Nationsbank, N.A.,
225 F.3d 1228 (11th Cir. 2000) .............................. 29
In re Harden,
166 F.3d 332 (4th Cir. 1998) .................................. 33
Kansas v. Garcia,
140 S. Ct. 791 (2020) .................................. 20, 24, 35
vi
Kurns v. R.R. Friction Prod. Corp.,
565 U.S. 625 (2012) .................................... 21, 24, 35
Lipschultz v. Charter Advanced Servs. (MN),
LLC, 140 S. Ct. 6 (2019) ................................... 22, 34
Medtronic, Inc. v. Lohr,
518 U.S. 470 (1996) .......................................... 23, 32
Murphy v. NCAA,
138 S. Ct. 1461 (2018) ............................................ 23
Nirav Ingredients, Inc. v. Wells Fargo Bank,
N.A., 2022 WL 3334626 (4th Cir. Aug. 12,
2022) (unreported) .................................................. 33
Patco Const. Co. v. People’s United Bank,
684 F.3d 197 (1st Cir. 2012) ................................... 28
Puerto Rico Dep’t of Consumer Affs. v. Isla
Petroleum Corp., 485 U.S. 495 (1988) .................... 25
Sprietsma v. Mercury Marine, a Div. of
Brunswick Corp., 537 U.S. 51 (2002) ..................... 25
Wyeth v. Levine,
555 U.S. 555 (2009) .................................... 20, 23, 29
Statutes
12 U.S.C. § 248(i) ....................................................... 32
12 U.S.C. § 248(j) ....................................................... 32
12 U.S.C. § 248(o) ...................................................... 32
12 U.S.C. § 342 ........................................................... 32
12 U.S.C. § 464 ........................................................... 32
28 U.S.C. § 1254(1) ...................................................... 1
Federal Reserve Act, ch. 6, Pub. L. No. 63-43,
38 State. 251 (1913) (as amended) ..... 1, 6, 25, 32, 34
vii
Regulations
12 C.F.R. § 210.25(b)(1) ............................................... 4
Funds Transfers Through Fedwire,
55 Fed. Reg. 40,791-01 (Oct. 5, 1990) .................. 4, 6
Rules
U.C.C. § 4A-102 cmt .............................. 4, 7, 19, 27, 28
U.C.C. § 4A-104 cmt. 3 .......................................... 5, 31
U.C.C. § 4A-204 ......................................... 5, 16, 17, 18
U.C.C. § 4A-204 cmt. 1 ................................................ 5
U.C.C. § 4A-211 cmt. 1 ........................................ 18, 31
U.C.C. § 4A-211 cmt. 4 .............................................. 32
U.C.C. § 4A-211(c)(2) ................................................... 5
U.C.C. § 4A-211(c)(2) cmt. 4 ........................................ 5
U.C.C. § 4A-404 ......................................................... 16
U.C.C. § 4A-404(a) ................................................. 5, 17
U.C.C. § 4A-404(c)........................................................ 5
Other Authorities
Bd. of Governors of the Fed. Resrv.,
Fedwire Funds Transfer System: Assessment
of Compliance with the Core Principles for
Systemically Important Payment Systems
(revised July 2014),
https://tinyurl.com/4mbwzd4b ................................. 4
Comment. on § 210.25, 12 C.F.R. Part 210,
Subpt. B, App. A ........................................... 6, 26, 27
viii
James Chen, Capital Requirements: Definition
and Examples,
Investopedia (Dec. 31, 2020),
https://tinyurl.com/yckn8h3u ................................. 11
Stacy Cowley, Rob Copeland & Anupreeta Das,
Regional Banks Slammed by Fear of a
Broader Financial Crisis, NY Times (Mar.
13, 2023), https://tinyurl.com/52mcnnaj ................ 36
Telis Demos, Banks Are in the Grips of Investor
Crisis of Confidence, Wall St. J. (May 7,
2023), https://tinyurl.com/yc82nkuh ...................... 36
Fed. Deposit Ins. Co., Failed Bank List,
https://tinyurl.com/4r4rcf6w (last visited
Aug. 10, 2023) ......................................................... 36
PETITION FOR WRIT OF CERTIORARI
Petitioner Blue Flame Medical LLC respectfully
petitions this Court for a writ of certiorari to review
the judgment of the U.S. Court of Appeals for the
Fourth Circuit.
OPINIONS BELOW
The opinion of the court of appeals (Pet. App.
1a-32a) is unreported but available at 2023 WL
2570971. The district court’s 2021 order (Pet. App.
33a-74a) is reported at 563 F. Supp. 3d 491. The
district court’s 2020 oral ruling and order (Pet. App.
75a-89a) are unreported.
JURISDICTION
The Fourth Circuit issued its opinion on March 20,
2023. Pet. App. 2a. On June 14, 2023, Chief Justice
Roberts extended the deadline for filing this petition
through August 17, 2023. 22A1072. This Court has
jurisdiction under 28 U.S.C. § 1254(1).
RELEVANT STATUTORY AND
REGULATORY PROVISIONS
Relevant provisions of the Federal Reserve Act
and Regulation J are reproduced in Appendix E to this
petition (Pet. App. 90a-103a).
2
INTRODUCTION
This case asks whether a bank can take money out
of a customer’s account without authorization and face
no consequences for doing so.
Petitioner Blue Flame Medical LLC was created
in March 2020 by two former political consultants and
fundraisers who left successful careers at the outset of
the COVID-19 pandemic when they saw the pressing
need for personal protective equipment (PPE) as a
lucrative business opportunity. Hoping to create a
multibillion-dollar company, they leveraged their
business contacts to find suppliers that could deliver
millions of N95 masks. Relying on their connections
and government experience—developed over decades
working with campaigns for the likes of Marco Rubio
and Donald Trump and raising over a billion dollars to
help finance the races of more than half the
Republican members sitting in Congress today—they
entered a $609 million contract with the State of
California, which had an urgent need for the masks
petitioner could supply.
The deal was efficient and responsive to the forces
of supply and demand, built in reliance on the legal
and regulatory foundation that structures modern
commerce. But everything collapsed when the bank
petitioner trusted with its account, respondent Chain
Bridge Bank, N.A., placed its own interests above its
customer’s. Concerned that California’s $456 million
wire transfer (a 75% prepayment on the parties’
$609 million contract) would impair its capital ratios,
Chain Bridge withheld the funds from petitioner after
accepting the wire transfer and crediting the funds to
3
petitioner’s account, and then forged a wire transfer in
petitioner’s name to send the money back.
Petitioner sued, but the Fourth Circuit held the
law provides petitioner no remedy. Although the court
recognized that the money had been credited to
petitioner and thus the initial wire could not be
undone, it held that the bank’s conduct returning the
money to California did not technically violate federal
regulations governing wire transfers over the Fedwire
system. And because the bank’s conduct involved a
wire over the Fedwire system, any state-law claim
based on that conduct is preempted, according to the
court, whether it would be possible to comply with both
federal and state law or not. The court’s ruling thus
allows banks to wire money out of their customers’
accounts free of consequence any time they wish.
The Fourth Circuit seems to have reached this
implausible result in part because it believed that
California independently would have reneged on its
agreement after completing the initial wire and then
getting cold feet—a counterfactual the truth of which
we will never really know. But nothing in the rule of
law it applied turns on those facts, so any ordinary
American who has completed a run-of-the-mill wire
transfer over the Fedwire system stands without a
remedy if her bank decides to take matters into its own
hands and redistribute her money to serve the bank’s
own interests or sense of justice.
4
STATEMENT OF THE CASE
I.
Legal Background
1. The U.S. Federal Reserve Bank created the
Fedwire Funds Transfer System so that “interbank
payment obligations” could be settled without “the
physical delivery of cash or gold … , which was both
risky and costly.” Bd. of Governors of the Fed. Resrv.,
Fedwire Funds Transfer System: Assessment of
Compliance with the Core Principles for Systemically
Important Payment Systems (revised July 2014),
https://tinyurl.com/4mbwzd4b. Today, the Fedwire
Funds Service is routinely used for “time-critical
payments such as the settlement of commercial
payments and financial market transactions” between
banks and bank customers largely because it settles
each transaction on a real-time basis. See ibid. This is
what everyone calls a “wire transfer.” Such transfer “to
the receiving participant over the Fedwire Funds
Service is final and irrevocable when the amount of the
payment order is credited to the receiving participant’s
account.” Ibid.
Despite the Fedwire’s benefits, major economic
actors still lacked the certainty that inhered in cash
transactions because, for a long time, only state law
governed what happened if a wire transfer went
wrong. See U.C.C. § 4A-102 cmt. The solution was
Article 4A of the Uniform Commercial Code, which the
Board of Governors of the Federal Reserve System
incorporated into “Subpart B to Regulation J to make
it consistent with the new Article 4A.” Funds
Transfers Through Fedwire, 55 Fed. Reg. 40,791-01
(Oct. 5, 1990); 12 C.F.R. § 210.25(b)(1).
5
Article 4A assigns the risk of loss in various
circumstances, including when banks make transfers
that do not follow its “precise and detailed rules” for
determining whether a wire is authorized. E.g., U.C.C.
§ 4A-204 & cmt. 1 (explaining when the “bank takes
the risk of loss with respect to an unauthorized
payment order”). For example, once a transferee’s
bank has accepted a wire, the rules firmly require the
bank to give the funds to the intended recipient. See
id. § 4A-404(a). Article 4A does not permit this
requirement to be altered by agreement, id. § 4A-
404(c), while making it virtually impossible to cancel a
wire once the transferee’s bank has accepted it, see id.
§ 4A-211(c)(2). Indeed, because the cash belongs to the
transferee as soon as it arrives, such transfer cannot
be undone even if the beneficiary’s bank agrees,
“except in unusual cases” involving either the consent
of all affected parties or specific technical mistakes.
See id. § 4A-211(c)(2) & cmt. 4. It is thus clear what
banks must do to avoid liabilities for procedural
missteps in funds transfers and what liability they
face if they violate their role in the machine.
But Article 4A’s provisions only govern the
technical requirements banks must follow when
executing wire transfers over the Fedwire system.
U.C.C. § 4A-104 cmt. 3 (“The function of banks in a
funds transfer under Article 4A is … essentially
mechanical in nature.”). Article 4A does not purport to
govern, for example, intentionally tortious conduct
related in some way to a wire transfer but falling
outside the scope of the wire-transfer rules.
6
2. There is no express preemption provision in the
Federal Reserve Act, nor is there any preemption
provision in Regulation J.
Instead, the Federal Reserve Board explained in
official commentary accompanying Regulation J that
the regulation has the preemptive effect that
ordinarily accompanies federal regulations, displacing
state laws only to the extent they are in conflict. As the
commentary explains: “[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 ….” Comment. on § 210.25, 12 C.F.R. Part
210, Subpt. B, App. A. The Board included this
commentary to “provide[] background material to
explain the intent of the Board … in adopting a
particular provision in the subpart and to help readers
interpret that provision.” Ibid. And while its
commentary
“constitutes
an
official
Board
interpretation of subpart B,” the comments were not
subject to notice-and-comment rulemaking. See ibid.
Meanwhile, the Board made clear that while it
was adopting Article 4A’s rules, it was not adopting
the U.C.C.’s commentary “in subpart B of this part” or
even as part of the Board’s own official commentary.
Comment. on § 210.25, 12 C.F.R. Part 210, Subpt. B,
App. A. That decision was significant, for unlike the
Board’s own commentary, which intended the federal
wire rules to have only conflict-preemptive effect, the
U.C.C.’s commentary has been read by courts to
7
contemplate much broader field preemption. The
U.C.C. commentary thus state’s that Article 4A’s rules
“are intended to be the exclusive means of determining
the rights, duties and liabilities of the affected parties
in any situation covered by particular provisions of the
Article.” U.C.C. § 4A-102 cmt.
II. Factual Background
1. When COVID-19 began spreading rapidly
across the country in early 2020, supplies of PPE
lagged well behind need, leaving healthcare workers
and others vulnerable. Believing they could help
governmental clients navigate the worldwide scramble
for PPE, and sensing a tremendous business
opportunity, John Thomas and Michael Gula set aside
their work as political operatives to form Blue Flame
Strategies in February 2020. See Pet. App. 34a-35a.
They intended to leverage their connections to find
suppliers and win government contracts, allowing
them to capitalize on the moment to create a
“multibillion dollar company.” See C.A. J.A. 1520-23.
In so doing, they took a big risk, leaving behind stable
work in lucrative careers to pursue their goals. See
C.A. J.A. 525-28.
Thomas and Gula incorporated petitioner Blue
Flame Medical LLC on March 23, 2020. Pet. App. 35a.
Even before petitioner’s formal incorporation, its
principals had landed an enormous opportunity. On
March 20, Thomas was already discussing a deal with
the State of California to deliver N95 masks and other
PPE. Pet. App. 35a-36a. Two days later, Thomas made
direct contact with Michael Wong, California’s
8
Contracts Administrator, to negotiate a deal to benefit
both petitioner and California. Ibid.
Wong
and
Thomas
quickly
reached
an
understanding that petitioner would “shoot for”
100 million masks (Wong’s words). C.A. J.A. 1591.
They negotiated an agreement where petitioner would
deliver two million N95 masks by the end of the first
week, six million would ship right after, and another
50 to 55 million would be delivered “within 30 days.”
C.A. J.A. 1686-87; see Pet. App. 36a-37a. California
was eager to move forward on those terms. Thus, on
March 25, California’s Department of General
Services formally agreed to purchase 100 million N95
masks for a total of $609,161,000, and to prepay 75%
of the total amount. Pet. App. 36a.
During this same time, petitioner executed an
agreement with a PPE supplier on March 25 to buy
six million masks, which were available to ship
immediately. C.A. J.A. 1557, 1767-68. Petitioner
executed a substantively identical agreement that
same day with another PPE supplier to provide
20 million masks “shipped in tranches as often and as
soon as available,” by no later than 40 days after
receipt of payment. C.A. J.A. 1770-71. That supplier
further estimated that for the next two months, it
would ship about 40 million masks-per-month. See
ibid.; C.A. J.A. 1733, 1737.
2. The morning of March 23, 2020, Gula visited
respondent Chain Bridge Bank, N.A. and applied to
open a business checking account in petitioner’s name.
Pet. App. 38a.
9
Given the transaction’s time-sensitivity and
importance, petitioner did everything it could to
prepare Chain Bridge to receive the funds on its
behalf.
Gula
spoke
to
Senior
Vice
President
(SVP)/Branch Manager Heather Schoeppe, informing
her that petitioner expected a wire transfer of roughly
$450 million from California and needed notice “‘the
second’” the transfer “hit [the] account.” See Pet.
App. 38a-39a (citation omitted). Later that day, Gula
explained to Schoeppe that the wire’s purpose was to
purchase 100 million masks for California and that
petitioner would need to wire the money out quickly.
See Pet. App. 39a. Taking no chances, Gula also
informed Chain Bridge’s Assistant Vice President (VP)
Maria Cole of the wire’s size, C.A. J.A. 1826, and that
petitioner “definitely” needed same-day access to the
incoming funds, C.A. J.A. 1806.
That afternoon, Chain Bridge’s CEO John Brough
and its president David Evinger called Gula. Pet.
App. 40a. Gula told them, too, about petitioner’s
California contract, the incoming wire amount, and its
need to move money out quickly to buy the PPE. See
Pet. App. 40a-41a. Evinger and Brough assured Gula
that Chain Bridge could handle the operational
challenges posed by the wire’s size. See C.A. J.A. 1912,
2337-38.
Knowing the wire would be executed on March 26,
Thomas followed up with Chain Bridge Assistant VP
Cole that morning, noting “a lot [was] at stake” and
that he needed to know “the second that wire lands,”
because he had “a bunch of manufacturers held up”
waiting for confirmation that petitioner had the
10
requisite funds. C.A. J.A. 3138 2:30-2:44. This was “the
initial wire,” Thomas explained, that “empowers us to
go fill the other orders.” C.A. J.A. 3138 4:19-4:33.
There was no pushback whatsoever. Indeed, at no
point before Chain Bridge received the wire did any
Chain Bridge employee tell Thomas or Gula that the
bank had concerns about the transaction’s legitimacy,
or that petitioner would be unable to make the
immediate outgoing transfers to its suppliers that
Gula had previewed for the bank’s senior executives.
See C.A. J.A. 1534-35.
3. The morning of March 26, as expected, the
California State Treasurer’s Office wired $456,888,600
from its account with JPMorgan Chase Bank, N.A. to
petitioner’s account with Chain Bridge. Pet. App. 42a.
JPMorgan contacted its California clients to verify
approval for the transaction, which the State
confirmed. Ibid. And at 11:55 AM, Chain Bridge
“received the incoming wire, which was credited to
Blue Flame’s account.” Ibid.
This transaction settled almost instantly. See
supra p.4 (wires accepted by the beneficiary’s bank are
final and irrevocable). Thus, at 11:57 AM, Gula
received an “Incoming Wire Confirmation” email
containing a link to a secure message reflecting Chain
Bridge’s acceptance of the funds transfer. Pet.
App. 42a (citation omitted). Thomas and Assistant VP
Cole then discussed petitioner’s need to quickly send
outgoing wires to its suppliers. C.A. J.A. 1555,
1560-62. Cole confirmed that Chain Bridge could
process those wires manually, and Thomas agreed to
send
her
the
wire
instruction
details.
C.A.
11
J.A. 1560-62. At 12:10 PM, Cole emailed Thomas a
form for the outgoing wire transfers. C.A. J.A. 2071-
72. And at 12:12 PM, Cole informed Chain Bridge’s
operations staff that petitioner “will wire out today 2
wires totaling $22,680,000.00” and asked to confirm
that the “[f]unds are available.” C.A. J.A. 2074.
Minutes later, petitioner’s in-house counsel
emailed Cole to provide instructions for wiring
$22,680,000 to its first supplier, which had agreed to
ship six million N95 masks immediately upon receipt
of the funds. C.A. J.A. 2085. Thomas confirmed
petitioner’s authorization and requested that the wire
be prepared “asap.” C.A. J.A. 2087. But that wire never
went out, with disastrous consequences for petitioner’s
business with California and beyond.
Though it had given petitioner no hint of concern
(and no opportunity to decide to bank elsewhere),
Chain Bridge had grown worried, starting the day
before, about how the transfer would affect the bank.
On March 25, bank CFO Joanna Williamson told SVP
Schoeppe she was worried the wire “would have a
really big impact on [Chain Bridge’s] capital ratios,”1
C.A. J.A. 3144 2:26-2:30; C.A. J.A. 3071; see Pet.
App. 39a, which would be calculated just days after the
$456 million transfer, C.A. J.A. 1840.
1 “Capital requirements are set …. by regulatory agencies, such
as the Bank for International Settlements (BIS), the Federal
Deposit Insurance Corporation (FDIC), or the Federal Reserve
Board” to “ensure bank and depository institution holdings are
not dominated by investments that increase the risk of default.”
James Chen, Capital Requirements: Definition and Examples,
Investopedia (Dec. 31, 2020), https://tinyurl.com/yckn8h3u.
12
That
same
day,
bank
president
Evinger
independently suggested “‘we can’t hold that money on
our balance sheet,’ and Gula would need to agree to an
arrangement that would spread the funds out over
various accounts.” Pet. App. 40a (citation omitted).
CEO Brough echoed Evinger’s concern, adding an
unrelated note of worry about the transaction’s
legitimacy, saying “this was ‘kind of a weird
transaction.’” Ibid. (citation omitted).
While Chain Bridge’s motivations are disputed,
what happened is not. At 12:25 PM on March 26, about
thirty minutes after California’s wire transfer had
been accepted into petitioner’s account, the bank
placed a “hold” on the funds at Evinger’s direction. Pet.
App. 42a-43a. Four minutes later, bank SVP Mike
Richardson emailed Williamson, Brough, Evinger,
Schoeppe, and Cole, informing them that Evinger’s
idea to avoid the capital-ratio problem by spreading
the funds out over various accounts was not going to
work because the program permitting that maneuver
“has a maximum limit of $125 mil[lion].” C.A.
J.A. 2096-97. Richardson thus asked for “clarity
around how long these funds would be on deposit.”
Ibid.
Rather than seeking clarity or notifying its
customer about its concerns, Chain Bridge ceased all
communication with petitioner. Brough directed
Chain Bridge employees: “Do not contact the client
about this wire.” C.A. J.A. 2109. Accordingly, Chain
Bridge employees did not answer Gula’s call to the
bank’s main number, C.A. J.A. 2096, and Cole—
despite having spoken with petitioner when the wire
13
landed—did not answer her cellphone when Gula
called her directly, C.A. J.A. 2095. In both instances,
Brough commended his employees for avoiding the
bank’s own customer. Ibid. (“Continue to hold him
off.”); ibid. (“That was the right thing to do.”).
Evinger placed several calls over the next hour
with multiple California state offices, which confirmed
to Evinger and Brough that California had indeed
originated the transfer, intended it for petitioner, and
had sent the money to buy 100 million N95 masks.
C.A. J.A. 1891-92, 1930. Chain Bridge’s president had
thus personally confirmed the wire’s legitimacy with
separate California offices, even though the header
data on the payment order was exactly as expected.
Still, Evinger and Brough took it upon themselves to
tell California’s officials “the account had just been
opened the day previously by a lobbyist.” Pet.
App. 45a; see also C.A. J.A. 1977-78 (State Treasurer’s
Office official confirming that “the conversation was
not about whether the wire amount was right” or
“whether it was actually credited to the right
account”).
While Evinger and Brough were talking to
California’s officials, a JPMorgan employee called
Chain Bridge at 12:44 PM to share his own suspicions
about the wire. Pet. App. 44a. Evinger responded by
noting Chain Bridge’s concerns and confirmed that a
hold had been placed on the funds. Pet. App. 43a-44a
& n.6. Evinger later misrepresented to California’s
State Treasurer’s Office “that the funds had not been
credited to [petitioner]’s account.” Pet. App. 44a n.6.
Evinger and Brough knew this wasn’t true. See C.A.
14
J.A. 2096-98. And the bank’s systems reflected that
the money had been credited to petitioner’s account.
Supra p.10.
There is no dispute in the case that the funds
could not actually be recalled at that point without
petitioner’s consent. Evinger and Brough were even
warned by the Chain Bridge employees who would
eventually be tasked with returning the funds that the
bank had already “credited the customer’s account.”
Pet. App. 71a-72a (“‘Normally, you want to get [an
indemnity letter] from the other bank, just because,
and in this case because we credited the customer’s
account.’” (citation omitted)). Evinger responded: “‘It’s
okay, don’t worry about it. … It is what it is.’” Pet.
App. 72a (ellipses in original; citation omitted). He
went to extraordinary lengths to get this wire off
Chain Bridge’s books anyway.
At 1:34 PM, Evinger suggested to JPMorgan’s
Rakesh Korpal that JPMorgan take the money back by
issuing a recall. Pet. App. 46a. Korpal understood the
risks involved in trying to unwind a valid Fedwire
funds transfer, given that Regulation J prohibits
undoing a wire transfer after the funds are accepted
by the receiving bank and credited to the beneficiary,
so he responded: “‘I don’t think you and I want to get
onto the front page of the Wall Street Journal,
especially if this is a legitimate transaction.’” See ibid.
(citation omitted). But believing that the funds had not
yet been credited to petitioner’s account, Korpal
ultimately acceded to Chain Bridge’s invitation for an
official communication from JPMorgan, over the
Fedline platform, requesting a recall of the funds. Pet.
15
App. 46a-47a. JPMorgan sent that recall request at
1:45 PM. C.A. J.A. 2197-98. The message was
transmitted over Fedwire at 2:05 PM. C.A. J.A. 1065.
Petitioner did not initiate, consent to, or authorize
Chain Bridge to transfer these critical funds out of its
account. Instead, Chain Bridge drew up its own
payment order in petitioner’s name. Pet. App. 64a
(“that payment order was ‘issued’ by Chain Bridge”).
Then, knowing it had not been authorized by
petitioner, Chain Bridge processed the payment order
it issued in petitioner’s name and debited petitioner’s
account at 2:59 PM. C.A. J.A. 2216-17. A funds
transfer of $456,888,600 from petitioner to the
California State Treasurer was then completed over
Fedwire at 3:21 PM, Pet. App. 48a, taking the amount
off Chain Bridge’s balance sheet, repairing its capital
ratios, and leaving petitioner without any funds for the
suppliers it had lined up.
4. After Chain Bridge executed the unauthorized
wire
to
return
California’s
deposit,
petitioner
attempted to continue negotiating with the State but
was rebuffed. Pet. App. 48a-49a. Wong, the California
Contracts Administrator who negotiated the original
deal with Thomas, even began forwarding petitioner’s
correspondence to the FBI. Ibid. But since Thomas and
Gula had not engaged in any criminal wrongdoing,
nothing came of it.
U.S. Congressional Representative Katie Porter of
the 45th District of California initiated her own
investigations into “‘potential price gouging regarding
[PPE] during the COVID pandemic,’ identifying
[petitioner] as a ‘potential costly and burdensome
16
middleman.’” Pet. App. 49a (citation omitted). In
response to congressional inquiries, petitioner showed
that it had, in fact, completed PPE orders for N95
masks under contracts with Maryland and Chicago.
Pet. App. 49a-50a.
Still, the unauthorized return of petitioner’s funds
scuttled not only the California contract, but much of
petitioner’s other business as well. Deprived of cash,
and with its supplier relationships severely damaged,
petitioner inevitably struggled to secure product
orders in the global scrum for PPE. See Pet. App.
49a-50a.
III. Procedural History
Petitioner filed a complaint against Chain Bridge,
Evinger, and Brough in the Eastern District of
Virginia. Petitioner asserted U.C.C. §§ 4A-204 and
4A-404 claims against Chain Bridge under Regulation
J, and brought state-law claims against all defendants
for conversion, fraud, constructive fraud, negligence,
breach of contract (between the bank and petitioner),
tortious interference with a contract (petitioner’s
contract with California), tortious interference with a
business expectancy, and defamation. See Pet. App.
50a, 81a.
1. During an oral hearing on Chain Bridge’s
motion to dismiss, the district court eliminated
petitioner’s state-law claims for conversion, fraud,
constructive fraud, negligence, and breach of contract,
finding them “definitely preempted” by Regulation J.
Pet. App. 81a. It did not explain its reasoning but had
noted to petitioner’s counsel earlier in the hearing that
17
“the defendant has correctly argued that there is a
strong doctrine of preemption where there are state
causes of action that essentially overlap or dovetail the
U.C.C. claims, and that would affect several of your
state causes of action.” Pet. App. 80a.
On
subsequent
cross-motions
for
summary
judgment, however, the district court seemed to adopt
the opposite view, holding that U.C.C. § 4A-204(a) does
not in fact reach Chain Bridge’s conduct in wiring
money out of petitioner’s account without authority.
Pet. App. 63a-64a. The court accepted that the funds
had been credited to petitioner’s account. Pet.
App. 56a.2 But the court held that § 4A-204(a) covers
only third-party fraud by someone “pretending to be
the bank’s customer,” Pet. App. 63a-64a, and not a
bank’s own fraudulent payment order to wire money
out of its customer’s account.
As to the U.C.C. § 4A-404(a) claim, the court
concluded that Chain Bridge failed to give petitioner
access to the funds after accepting California’s wire
transfer from JPMorgan and crediting petitioner’s
account. Pet. App. 52a-56a. But the district court
granted summary judgment to Chain Bridge, anyway,
holding that petitioner “cannot establish that it
sustained any damage” from the violation. Pet.
App. 56a. The court predicted “that even if Chain
Bridge had released the disputed funds to [petitioner]
2 The court had to reach that conclusion to hold that JPMorgan
must pay for Chain Bridge’s reasonable expenses and attorney’s
fees resulting from this litigation. Pet. App. 68a-73a. In turn,
Chain Bridge had to rely on its acceptance of the funds into
petitioner’s account to seek indemnification. Pet. App. 69a.
18
on March 26, 2020, California would have ended its
relationship
with
[petitioner]”
by
unilaterally
cancelling the contract, “resulting in the return of the
funds.” Pet. App. 56a-58a. The court then dismissed
petitioner’s state-law claims for tortiously interfering
with petitioner’s contract and business expectancy
with California for the same reason, and dismissed the
defamation claim as well. See Pet. App. 65a-68a.
2. The Fourth Circuit affirmed. The court did not
dispute that Chain Bridge had accepted the wire from
California
and
credited
over
$456
million
to
petitioner’s account. But the court agreed with the
district court that U.C.C. § 4A-204(a) “is simply
inapplicable to this situation.” Pet. App. 17a n.2.
“What occurred here” instead, the court reasoned,
“was not a funds transfer” that implicated § 4A-204(a),
“but a cancellation.” Ibid. The court acknowledged,
though, that JPMorgan’s “cancellation” of the already-
accepted wire was “an ineffective one” under the
regulation. Ibid. But see U.C.C. § 4A-211 cmt. 1
(“There is no concept of wrongful cancellation or
amendment of a payment order. If the conditions
stated in this section are not met the attempted
cancellation or amendment is not effective.”).
Having held that Article 4A did not apply to the
unauthorized transfer here, the Fourth Circuit
proceeded to still hold that Article 4A, which Subpart
B to Regulation J “expressly incorporates,” preempted
the state-law claims that did apply in this scenario.
Pet. App. 17a-18a. Petitioner explained that if Article
4A does not apply to Chain Bridge’s conduct, then it
could not preempt petitioner’s state-law claims based
19
on that conduct. But the Fourth Circuit gave field-
preemptive effect to the regulation, holding that the
“district court appropriately dismissed these claims,
because they are foreclosed by the ‘strong doctrine of
preemption’ for ‘state causes of action that essentially
overlap or dovetail’ with the provisions of Article 4A.”
Pet. App. 17a-18a (quoting Pet. App. 80a).
Bound by long-settled circuit precedent, the court
reasoned “that Regulation J preempts any state law
cause of action premised on conduct falling within the
scope of Subpart B, whether the state law conflicts
with, or is duplicative of, Subpart B.” Pet. App. 19a
(citing Donmar Enters., Inc. v. S. Nat’l Bank of N.C.,
64 F.3d 944, 949-50 (4th Cir. 1995)). Having held that
Regulation J did not apply to the bank’s conduct, the
court did not doubt that it was possible to comply with
both the federal regulation and any state law
forbidding a bank from converting a customer’s funds
and sending them to someone else. Instead, the court
quoted U.C.C. commentary the Federal Reserve Board
expressly declined to adopt, reasoning that “Article 4A
preempts other law ‘in any situation covered by [its]
particular provisions.’” Pet. App. 20a (quoting U.C.C.
§ 4A-102 cmt.) (brackets in original). Any claims that
“relate to conduct that falls within the scope of Subpart
B,” the court concluded, “are, therefore, preempted.”
Ibid. (citing Eisenberg v. Wachovia Bank, N.A., 301
F.3d 220, 223 (4th Cir. 2002)).3
3 The court also held that petitioner “could not establish that it
sustained any damages from the return of [the] funds” because
the court similarly predicted that “California would have canceled
its contract with [petitioner]” unilaterally, “even if its funds had
20
This petition follows.
REASONS TO GRANT THE PETITION
The Fourth Circuit recognized that once money is
wired to a bank customer’s account, that money
belongs to them, and no one can undo the transaction.
That is the essential premise of a wire—it is
immediate and irrevocable. Any dispute about the
funds must be settled some other way, for example,
through litigation. Yet the Fourth Circuit held that
when a bank decides to take money out of its
customer’s account and send it elsewhere, there is no
remedy.
Federal
banking
rules
governing
the
mechanics of wire transfers failed to address this
circumstance, the court held, even while preempting
any state law that might fill the gap. It would be
shocking if this were true, and it is not.
First, the Fourth Circuit’s decision conflicts with
this Court’s preemption precedents. The background
“presumption” is “against pre-emption.” Wyeth v.
Levine, 555 U.S. 555, 563-64, 575 (2009). So, in
general, federal law preempts state laws only to the
extent they “conflict” such that it would be
“impossible” to comply with both. Id. at 571-72. Field
preemption, on the other hand, is found only in “rare
cases” where “Congress legislated so comprehensively
in a particular field that it left no room for
supplementary state legislation.” Kansas v. Garcia,
140 S. Ct. 791, 804 (2020) (quotation marks omitted).
not been returned to JPMorgan via the Fedwire transfer.” Pet.
App. 20a-21a. The court affirmed the dismissal of petitioner’s
remaining state-law claims as well. Pet. App. 25a-27a.
21
And this Court has been especially reluctant to find
implied field preemption. See id. at 808 n.* (Thomas,
J., joined by Gorsuch, J., concurring); Kurns v. R.R.
Friction Prod. Corp., 565 U.S. 625, 638 (2012) (Kagan,
J., concurring); id. at 640-41 (Sotomayor, J., joined by
Ginsburg, J., and Breyer, J., concurring in part and
dissenting in part).
Here, though, the Fourth Circuit found implied
field preemption not based on anything Congress said
or any implication from the enabling statute; not based
on anything the Federal Reserve Board said (it
embraced only conflict preemption); but by relying on
the policy preferences expressed by a private body in
commentary the Board expressly declined to adopt as
its own. This Court has never countenanced field
preemption for a regulation based on commentary,
much less anything like the U.C.C. commentary here.
But this result was required by settled circuit
precedent that has been adopted in the First, Ninth,
and Eleventh Circuits as well.
Second, this case is a good vehicle to decide the
question. The Fourth Circuit found Regulation J
inapplicable to the bank’s conduct underlying
petitioner’s state-law claims, so it would not be “a
physical impossibility” to comply with both state and
federal
law
as
required
to
establish
conflict
preemption. See Fla. Lime & Avocado Growers, Inc. v.
Paul, 373 U.S. 132, 142-43 (1963). Thus, if this Court
agrees that the regulation cannot have implied field-
preemptive reach based on commentary outside its
four corners, petitioner’s state-law claims can proceed
22
on remand as they are not otherwise conflict-
preempted.
Third, the issue is important, and the lower courts
are unlikely to change their views without the Court’s
intervention. Members of this Court have already cast
doubt on the preemptive effect of a regulatory policy,
where that preemption is not rooted in a statute
passed by Congress. See, e.g., Lipschultz v. Charter
Advanced Servs. (MN), LLC, 140 S. Ct. 6, 7 (2019)
(Thomas, J., joined by Gorsuch, J., concurring in the
denial of certiorari). The Court should decide whether
commentary that has not gone through notice-and-
comment rulemaking and is not based in the enabling
statute has preemptive effect beyond the default rule.
Fourth, at the very least, the Court should call for
the views of the Solicitor General. The Federal Reserve
Board should have a strong interest in the case, given
that the Fourth Circuit reached its result based on the
Board’s purported intent. And the case comes at a time
when trust in banks and the banking system is in
rapid decline.
I. The Decision Below Conflicts With This
Court’s Precedents.
A. Except in very rare instances where
Congress
has
chosen
to
occupy
a
particular field, this Court’s preemption
cases require “clear evidence” of an
“actual conflict” with federal law.
Preemption, which is based on the Supremacy
Clause, “specifies that federal law is supreme in case
of a conflict with state law.” Murphy v. NCAA, 138 S.
23
Ct. 1461, 1479 (2018). Because preemption is based on
the Supremacy Clause, “Congress is the ultimate
touchstone in every pre-emption case,” and there is a
default presumption that the legislature does not
intend to displace “the historic police powers of the
States” unless Congress made that “clear and
manifest” in the statute. See Medtronic, Inc. v. Lohr,
518 U.S. 470, 485 (1996) (quotation marks omitted).
“Absent explicit pre-emptive language,” this Court
recognizes “two types of implied pre-emption:” “conflict
pre-emption, where compliance with both federal and
state regulations is a physical impossibility,” and “field
pre-emption, where the scheme of federal regulation is
so pervasive as to make reasonable the inference that
Congress left no room for the States to supplement it.”
Gade v. Nat’l Solid Wastes Mgmt. Ass’n, 505 U.S. 88,
98 (1992) (plurality opinion) (quotation marks omitted;
collecting cases).
While this court has held that both federal
statutes and federal regulations can have preemptive
effect, the Court will not find that agency regulations
preempt state law under conflict-preemption absent
“clear evidence of a conflict.” Geier v. Am. Honda Motor
Co., 529 U.S. 861, 885 (2000). This “clear evidence”
standard requires courts to look to the agency’s
existing policies to assess whether it would be
“impossible … to comply with both federal and state
requirements.” See Wyeth, 555 U.S. at 571. If it would
not be impossible to comply with both, this Court will
not find preemption. Ibid.; see also Glob. Naps, Inc. v.
Verizon New England, Inc., 444 F.3d 59, 72 (1st Cir.
2006) (holding that agency order “does not clearly
24
preempt state authority” when it is, “at best,
ambiguous on the question, and ambiguity is not
enough to preempt state regulation”).
Implied field preemption is an even higher bar.
Only in “rare cases” has this Court “found that
Congress legislated so comprehensively in a particular
field that it left no room for supplementary state
legislation.” Kansas, 140 S. Ct. at 804 (quotation
marks omitted). And members of this Court are
“skeptical of field pre-emption, at least as applied in
the absence of a congressional command that a
particular field be pre-empted.” Id. at 808 n.* (Thomas,
J., joined by Gorsuch, J., concurring) (quotation marks
omitted); Kurns, 565 U.S. at 638 (Kagan, J.,
concurring) (“Under our more recent cases, Congress
must do much more to oust all of state law from a
field.”), id. at 640-41 (Sotomayor, J., joined by
Ginsburg, J., and Breyer, J., concurring in part and
dissenting in part) (this Court’s “‘recent cases have
frequently rejected field pre-emption in the absence of
statutory language expressly requiring it’” (quoting
Camps
Newfound/Owatonna,
Inc.
v.
Town
of
Harrison, Me., 520 U.S. 564, 617 (1997) (Thomas, J.,
joined by Rehnquist, C.J., and Scalia, J., dissenting))).
Indeed, as far as petitioner is aware, this Court
has never inferred field preemption based on federal
regulations alone, much less commentary outside the
regulations. Cf. Hillsborough Cty. v. Automated Med.
Labs., Inc., 471 U.S. 707, 717-18 (1985) (Court “will
seldom infer, solely from the comprehensiveness of
federal regulations, an intent to pre-empt in its
entirety a field” traditionally regulated by States); e.g.,
25
Sprietsma v. Mercury Marine, a Div. of Brunswick
Corp., 537 U.S. 51, 65 (2002) (rejecting argument that
agency’s “decision not to adopt a regulation” was
“functional equivalent of a regulation prohibiting all
States and their political subdivisions from adopting
such a regulation”). Rather, this Court will not infer
field preemption without the clearest indication that
Congress intended conduct to be unregulated. Puerto
Rico Dep’t of Consumer Affs. v. Isla Petroleum Corp.,
485 U.S. 495, 504 (1988) (“There being no extant action
that can create an inference of pre-emption in an
unregulated segment of an otherwise regulated field,
pre-emption, if it is intended, must be explicitly
stated.”).
B. The Fourth Circuit and other courts of
appeals found implied field preemption
in Regulation J based on commentary.
1. The decision below held that Regulation J
preempts the field regarding the conduct of parties to
a transfer over the Fedwire system. Pet. App. 19a-20a.
The court was bound by, and thus relied on, well-
established circuit precedent going back nearly thirty
years. In 1995, the Fourth Circuit took an expansive
view of preemption based not on any provision of the
Federal Reserve Act or the actual text of Regulation J,
or even the Board’s own commentary interpreting the
regulation, but based on U.C.C. commentary the
Board chose not to adopt. In Donmar Enterprises, Inc.
v. Southern National Bank of North Carolina, the
Fourth Circuit began by noting that “Regulation J
itself contains a preemption standard,” quoting the
part of the Board’s official commentary that merely
26
states the default rule: “‘[S]ubpart B of this part
supersedes or pre-empts 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.’” 64 F.3d at 949 (quoting
Comment. on § 210.25, 12 C.F.R. Part 210, Subpt. B,
App. A).
The Fourth Circuit did not stop there, though. And
it did not proceed to conduct a conflict-preemption
analysis. Instead, the Donmar court then quoted the
U.C.C.’s commentary despite acknowledging that it is
“not incorporated in Subpart B or [the Board’s] official
commentary,” because the panel believed it “provides
insight as to the objectives of the Federal Reserve
Board in adopting Article 4A.” 64 F.3d at 948-49. “It is
apparent from the U.C.C. commentary,” the court
reasoned, “that a uniform and comprehensive national
regulation of Fedwire transfers was the goal of the
Board in adopting Article 4A.” Id. at 949. Based on its
understanding of the Board’s “goal,” the Fourth
Circuit held that any claims involving conduct by
parties to a transfer over the Fedwire system are
preempted, whether that conduct violates the
regulation or not. Ibid. Thus, because the court
concluded that the defendant bank “complied with and
therefore has no liability under Subpart B,” it found
that “any liability founded on state law of negligence
or wrongful payment would necessarily be in conflict
with the federal regulations and is pre-empted.” Ibid.
The court did not contemplate whether it would have
been possible to comply with both.
27
And in Eisenberg v. Wachovia Bank, N.A., the
Fourth Circuit explained the Donmar decision and
reaffirmed that “rules adopted from Article 4A serve
as the exclusive means for determining the rights,
duties and liabilities of all parties involved in a
Fedwire funds transfer.” 301 F.3d at 223 (citing
Comment. on § 210.25, 12 C.F.R. Part 210, Subpt. B,
App. A) (emphasis added). Again, the only language
even approximating that expansive understanding of
preemption is found in the U.C.C.’s unadopted
commentary: “The rules that emerged represent a
careful and delicate balancing of … interests and are
intended to be the exclusive means of determining the
rights, duties and liabilities of the affected parties in
any situation covered by particular provisions of the
Article.”
U.C.C.
§
4A-102
cmt.
With
this
understanding,
the
Eisenberg
court
held
that
“[d]etermining if a state law is preempted by
Regulation J turns on whether the challenged conduct
in the state claim would be covered under Subpart B
as well.” 301 F.3d at 223.
Based on these circuit precedents, the decision
below held that “Regulation J preempts any state law
cause of action premised on conduct falling within the
scope of Subpart B, whether the state law conflicts
with, or is duplicative of, Subpart B.” Pet. App. 19a
(citing Eisenberg, 301 F.3d at 223; Donmar, 64 F.3d at
949-50). The court of appeals did not ask whether
there was “clear evidence” that it would be
“impossible” to comply with both state and federal
requirements. Compare Geier, 529 U.S. at 873, 885.
Instead, the court only considered whether the
“challenged conduct that gives rise to [petitioner’s]
28
state law claims here falls within the scope of Article
4A and, therefore, Subpart B.” Pet. App. 19a. Because
petitioner “challenge[d] Defendants’ decision to return
California’s funds to JPMorgan via Fedwire,” the court
held that state-law claims involving that conduct are
preempted.
Pet.
App. 19a-20a.
The
unadopted
commentary to Article 4A, the court explained,
“preempts other law ‘in any situation covered by [its]
particular provisions.’” Pet. App. 20a (quoting U.C.C.
§ 4A-102 cmt.) (brackets in original).
2. Other circuits have also taken an excessively
broad view of preemption based on Donmar and its
understanding of the commentary to hold that
Regulation J preempts the field regarding “the rights
and obligations of parties to funds transfers through
Fedwire.” E.g., Fin. Ne. Corp. v. Angelo, 116 F.3d 483,
at *1 (9th Cir. 1997) (unpublished).
Citing the Fourth Circuit’s decision in Donmar, 64
F.3d at 949-50, the First Circuit has held that a
plaintiff’s negligence claims against its bank for a
series of fraudulent transfers were preempted,
because “the standard for the duty of care as to both
sides is set forth in Article 4A and its limitation of
liability.” Patco Const. Co. v. People’s United Bank, 684
F.3d 197, 216 (1st Cir. 2012).
The Ninth Circuit has also held that “Regulation
J exclusively governs the rights and obligations of
parties to funds transfers through Fedwire.” Angelo,
116 F.3d 483, at *1 (emphasis added). Citing the
Fourth Circuit’s decision in Donmar, 64 F.3d at
949-50, the Ninth Circuit believed the matter so
settled that it summarily rejected the plaintiff’s
29
“negligence claims” as “preempted by Regulation J,”
because the claims “all ha[d] to do with the rights of
the parties to the wire transfer.” Ibid.
And the Eleventh Circuit, citing the Fourth
Circuit’s decision in Donmar, 64 F.3d at 948, has
accepted “that the provisions of Regulation J
exclusively appl[ied] to the fund transfer in th[at] case
because it was effected by the use of Fedwire.”
Grossman v. Nationsbank, N.A., 225 F.3d 1228, 1232
(11th Cir. 2000).
3. Not one of these cases considered whether it
would have been “impossible” to comply with both
federal and state law. See Geier, 529 U.S. at 873.
Accordingly, none found “clear evidence of a conflict”
between the state-law claims and Regulation J. See id.
at 885; see Wyeth, 555 U.S. at 571.
II. This Case Is A Good Vehicle.
This case is an excellent vehicle for the Court to
consider whether an agency’s policy, inferred from
commentary it did not adopt, can impliedly preempt a
field of conduct traditionally regulated by the States—
as the First, Fourth, Ninth, and Eleventh Circuits
have held. Cf. U.C.C. § 4A-102 cmt. (state law
traditionally governed wire transfers now regulated
under Article 4A). Because the at-issue regulation is
“simply inapplicable to this situation,” Pet. App.
17a n.2, there is no plausible claim to conflict
preemption. If this Court resolves the question
presented in petitioner’s favor, the state-law claims
dismissed below can move forward on remand.
30
Under the proper application of this Court’s
preemption rulings, petitioner should have been
allowed to proceed on its state-law claims challenging
the defendants’ conduct in taking money out of
petitioner’s account. Petitioner would have asserted
the same state-law claims if Chain Bridge had not
executed any wire-transfer order at all. Banks stealing
money from client accounts is something left to state
law (or at least not preempted by the wire-transfer
rules). Again, conflict preemption only exists where it
is “a physical impossibility” to comply with both
federal and state requirements. Paul, 373 U.S. at
142-43.
The
Fourth
Circuit
found
no
such
impossibility. And it could not, given its conclusion
that the regulation is “simply inapplicable” here. Pet.
App. 17a n.2.
The Fourth Circuit was correct that Regulation J
governs a bank’s responsibilities when executing wire-
transfer orders. And the court correctly acknowledged
that California’s wire had been accepted into
petitioner’s account. At that point, the money was
petitioner’s as though it had been deposited through a
cashier’s check. The bank then just took it out. That
Chain Bridge wired the funds out of the account
doesn’t make this a wire-transfer case, any more than
if the bank had accomplished the same ends by issuing
a $456 million cashier’s check to California and
debiting that amount from petitioner’s account.
Properly understood, then, the wire transfers
were irrelevant except as context. The actual wrong
challenged in petitioner’s state-law claims occurred
after the initial wire transfer from California was
31
completed. “What occurred” afterward, when Chain
Bridge wired the money out of petitioner’s account,
thus “was not a funds transfer” within the meaning of
the regulation. Pet. App. 17a. And in holding that the
wire transfer was an “ineffective” attempt at a
cancellation instead, the Fourth Circuit necessarily (if
inadvertently) took the bank’s conduct entirely out of
Regulation J’s rules. See U.C.C. § 4A-211 cmt. 1
(“There is no concept of wrongful cancellation or
amendment of a payment order. If the conditions
stated in this section are not met the attempted
cancellation or amendment is not effective.”).
Thus, the only way to hold that petitioner’s state-
law claims are preempted by Regulation J was to
conclude that the regulation not only created field
preemption, but that the field extended beyond the
subjects regulated. That kind of preemption is rare,
disfavored, and requires clear proof. Supra pp.24-25.
And although the Fourth Circuit did not ask the
question, there is no evidence here of an actual conflict
between
petitioner’s
state-law
claims
for
the
defendants’ unauthorized conduct because the claims
hinge on actions that Regulation J does not purport to
regulate. Again, Article 4A, as incorporated in Subpart
B to Regulation J, merely governs the mechanics of
transferring funds over the Fedwire system. See
U.C.C. § 4A-104 cmt. 3 (“The function of banks in a
funds transfer under Article 4A … is essentially
mechanical in nature.”). Article 4A is not concerned
with what happens before and after that process.
Accordingly, Article 4A itself explains that state-law
remedies are necessary, for example, to go after
fraudsters who create unauthorized payment orders or
32
recover monies already paid out to beneficiaries. See
id. § 4A-211 cmt. 4.
And for the reasons above, there is little question
on the merits that Regulation J does not preempt the
field of conduct related to transfers over the Fedwire
system. Preemption is a question for Congress.
Medtronic, Inc., 518 U.S. at 485. Consequently, the
“proper inquiry” for purposes of determining the scope
of Regulation J’s preemption “is directed to the
enabling statute, here the Federal Reserve Act.”
AmSouth Bank v. Dale, 386 F.3d 763, 777 (6th Cir.
2004). In this instance, Congress didn’t decide the
preemption question in the text of the statute. Ibid.
Regulation J was “promulgated pursuant to the
authority granted by four different sections of the Act:
§ 11(i) and (j) (12 U.S.C. § 248(i) and (j)); § 13 (12
U.S.C. § 342); paragraph fourteen of § 16 (12 U.S.C.
§ 248(o)); and § 19(f) (12 U.S.C. § 464).” Dale, 386 F.3d
at 777. “None of the sections provide specific authority
for the Fedwire system—instead, they are general
provisions—and none of them reference causes of
action having to do with the Federal Reserve system,
or any of the markers associated with” an expansive
scope of “preemption.” Ibid. (no “complete preemption”
in Federal Reserve Act).
To be sure, this Court has recognized that
Congress can delegate authority to an agency to decide
whether to displace state law, and how far that should
go. Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta, 458
U.S. 141, 153-54 (1982). But the Federal Reserve Act
did not expressly delegate the question to the Federal
Reserve Board. The Board, in turn, did not expressly
33
preempt anything in Regulation J. The closest it came
was stating in the official commentary that conflict
preemption would apply. In so doing, the Board
embraced what is the normal rule for implied conflict
preemption by regulation—that any state law in
actual
conflict
with
the
regulation
would
be
preempted.
III. This Question Presented Is Important And
This Court’s Intervention Necessary.
The regime that flows from the court of appeals’
decisions finding implied field preemption permits
banks to wire money out of their customers’ accounts
free of consequence.
There is little chance that the Fourth Circuit will
reconsider Donmar. Along with the decision below, the
Fourth Circuit has reaffirmed its exceedingly broad
view of preemption for decades. See Nirav Ingredients,
Inc. v. Wells Fargo Bank, N.A., 2022 WL 3334626,
at *1 (4th Cir. Aug. 12, 2022) (unreported) (“[I]f a bank
complied with the regulation, ‘any liability founded on
state law of negligence or wrongful payment would
necessarily be in conflict with the federal regulations
and is pre-empted.’” (quoting Donmar, 64 F.3d at
949)); Eisenberg, 301 F.3d at 223 (“The rules adopted
from Article 4A serve as the exclusive means for
determining the rights, duties and liabilities of all
parties involved in a Fedwire funds transfer.” (citing
Donmar, 64 F.3d at 949)); In re Harden, 166 F.3d 332,
at *1 (4th Cir. 1998) (unpublished) (“‘Any state causes
of action based on negligence or unlawful payment
with respect to wire transfers governed by Subpart B
34
are preempted by Regulation J.’” (quoting Donmar, 64
F.3d at 949) (cleaned up)).
That decision has already spread to three other
circuits. These precedents will continue to prevent
parties like petitioner from pursuing any remedy when
their banks wire away their money without approval
in a manner that otherwise complies with the
mechanical requirements of Regulation J. This Court’s
intervention is necessary to address this important
issue.
Members of this Court have expressed that, “in an
appropriate case, we should consider whether a federal
agency’s policy can pre-empt state law.” Lipschultz,
140 S. Ct. at 7 (Thomas, J., joined by Gorsuch, J.,
concurring in the denial of certiorari). This is just such
a case. There is no express preemption in the Federal
Reserve Act or Regulation J. And there is no real claim
of a conflict with the actual regulation. There is only a
claim that allowing any state regulation in this space
conflicts with perceived agency policy to leave this
kind of bank malfeasance unregulated. See Pet.
App. 20a (state claims premised on conduct that “falls
within the scope of Subpart B” are “preempted”);
Donmar, 64 F.3d at 949 (“It is apparent from the
U.C.C. commentary that a uniform and comprehensive
national regulation of Fedwire transfers was the goal
of the Board in adopting Article 4A.”).
As Justice Thomas has written, it “is doubtful
whether a federal policy … is ‘Law’ for purposes of the
Supremacy Clause.” Lipschultz, 140 S. Ct. at 7. Under
this Court’s precedents, he explains, “such a policy
likely is not final agency action because it does not
35
mark
‘the
consummation
of
the
agency’s
decisionmaking process’ or determine [a party’s]
‘rights or obligations.’” Ibid. (quoting Bennett v. Spear,
520 U.S. 154, 177-78 (1997)). This must be especially
so for commentary that was not adopted by the agency,
from which field preemption can hardly be the implied
goal of the agency, let alone Congress. See Kansas, 140
S. Ct. at 804 (field preemption found only in “rare
cases”); id. at 808 n.* (Thomas, J., joined by Gorsuch,
J., concurring) (expressing “skeptic[ism] of field pre-
emption, at least as applied in the absence of a
congressional command” (quotation marks omitted));
Camps, 520 U.S. at 616-17 (Thomas, J., joined by
Rehnquist, C.J., and Scalia, J., dissenting) (“[F]ield
pre-emption is itself suspect, at least as applied in the
absence of a congressional command that a particular
field be pre-empted.”).
“Under [this Court’s] more recent cases, Congress
must do much more to oust all of state law from a
field.” Kurns, 565 U.S. at 638 (Kagan, J., concurring);
id. at 640-41 (Sotomayor, J., joined by Ginsburg, J.,
and Breyer, J., concurring in part and dissenting in
part) (this Court’s “‘recent cases have frequently
rejected field pre-emption in the absence of statutory
language expressly requiring it’” (quoting Camps, 520
U.S. at 617 (Thomas, J., dissenting)).
IV. The Court Should At Least Call For The
Views Of The Solicitor General.
California wired petitioner $456 million to buy
goods, and that money was sent back at the request of
neither party to the wire but because the receiving
bank was worried about its own capital ratios. We
36
emphasize: Neither party to the wire asked for this—
it was accomplished by two banks protecting their own
interests and the assumed interest of a preferred
customer (California) that didn’t ask for it. This caused
the collapse of a contract worth over $609 million,
among other potential business opportunities, and
deprived California’s first responders, among other
critical groups, of life-saving PPE during the peak of
the pandemic.
The Fourth Circuit allowed the bank’s conduct to
go unchallenged purportedly based on the Federal
Reserve Board’s policy of preemption. And the decision
allows banks to freely engage in such conduct at a time
when confidence in the banking system is in steep
decline. See Telis Demos, Banks Are in the Grips of
Investor Crisis of Confidence, Wall St. J. (May 7, 2023),
https://tinyurl.com/yc82nkuh;
Stacy
Cowley,
Rob
Copeland & Anupreeta Das, Regional Banks Slammed
by Fear of a Broader Financial Crisis, N.Y. Times
(Mar. 13, 2023), https://tinyurl.com/52mcnnaj. In the
last few months alone, several banks have had to
shutter their operations. See Fed. Deposit Ins. Co.,
Failed Bank List, https://tinyurl.com/4r4rcf6w (last
visited Aug. 17, 2023) (Heartland Tri-State Bank of
Kansas closed July 28, 2023; First Republic Bank of
California closed May 1, 2023; Signature Bank of New
York closed March 1, 2023; Silicon Valley Bank of
California closed March 10, 2023). Before this recent
run of four bank closures in six months, the last time
a bank was forced to close was nearly three years ago.
Ibid. Investors and banking customers alike need
reassurance that banks may not act above the law for
37
their own interests or the interests of preferred
customers and get away with it scot-free.
This Court should call for the views of the Solicitor
General, given the interest the Federal Reserve Board
is likely to have in the case.
CONCLUSION
The petition for certiorari should be granted.
Respectfully submitted,
Daniel Woofter
Counsel of Record
Kevin K. Russell
GOLDSTEIN, RUSSELL &
WOOFTER, LLC
1701 Pennsylvania Ave. NW
Suite 850
Washington, DC 20006
(202) 240-8433
dhwoofter@goldsteinrussell.com
August 17, 2023