Aresty International Law Firm, P.C. v. Citibank, N.A.

United States Court of Appeals
For the First Circuit
No. 11-2257

ARESTY INTERNATIONAL LAW FIRM, P.C.,

Plaintiff, Appellant,

v.

CITIBANK, N.A.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. George A. O'Toole, U.S. District Judge]

Before

Boudin, Circuit Judge,
Souter, Associate Justice,*
and Thompson, Circuit Judge.

James T. Hargrove, with whom Deutsch, Williams, Brooks,
DeRensis & Holland, P.C., were on brief, for appellant.
John A. Houlihan, with whom Elizabeth H. Kelly and Edwards
Wildman Palmer LLP were on brief, for appellee.

April 27, 2012

*
The Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
 THOMPSON, Circuit Judge. Aresty International Law Firm

deposited a check for $197,750.00 from a Citibank1-held account

into a Citizens Bank2-held account, received clearance to transfer

the funds from Citizens soon after, and instructed Citizens to wire

the funds from the account. Citizens did so, only to find later

that the check had been fraudulent. Citizens sued Aresty and ended

up with a judgment for a bit less than the amount of the check.

Aresty now looks to hold Citibank liable for the lost funds because

of its alleged failure to abide by certain provisions of federal

and state law. Agreeing with the district judge that Aresty's

federal claim came too late and cannot benefit from equitable

tolling, and that its state claim is preempted by federal law, we

affirm the judge's dismissal of the complaint.

Because this case comes to us on appeal from a dismissal under

Rule 12(b)(6), we present the facts as alleged in the complaint.

Aresty, a Massachusetts law firm and professional corporation,

received a check purportedly from Irwin International Global Trade

& Logistics, which Aresty thought was a customer of one of its

clients. The check apparently authorized the withdrawal of

$197,750.00 from a Citibank account.

1
Citibank is "Citibank, N.A." officially but just "Citibank"
here for convenience.
2
Citizens Bank is "RBS Citizens, N.A." officially but just
"Citizens" for the remainder of this opinion, again for
convenience.

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 On "30, 2007" — apparently October 30, 2007 — Aresty deposited

the check in an Interest-on-Lawyers-Trust-Account (commonly called

an IOLTA account) it maintained with Citizens. Citizens presented

the check to Citibank, which received it "no later than November 1,

2007." On November 2, 2007, Aresty was "assured" by Citizens that

it "could wire the funds" from the check "without liability for

dishonor or loss of any nature" and therefore "instructed Citizens

to wire the funds."

Citibank, however, "elected not to pay the check," instead

returning it to Citizens unpaid and marked with the words "Sent

Wrong."

Having wired the funds represented by the check, Citizens went

after Aresty for the missing money. It charged back the amount of

the check to Aresty's accounts and, on January 26, 2009, filed suit

in U.S. District Court in Massachusetts.

Over a year and a half later, on October 29, 2010, Aresty

filed this suit against Citibank.3 Aresty claimed first that

Citibank had violated 12 C.F.R. § 229.33 (part of "Regulation CC,"

which we will refer to using that shorthand from now on) by failing

to notify Citizens in a timely manner that it would not honor the

check, and second that Citibank had negligently breached a duty it

3
It is not clear why neither Aresty nor Citizens brought
Citibank in as a party to the original case.

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owed Aresty under Regulation CC.4 Citibank responded with a motion

to dismiss the complaint, alleging that the entire complaint was

time-barred and that the negligence claim was preempted by federal

law and barred by the economic loss doctrine. Aresty fought the

preemption and economic-loss arguments on legal grounds, among

other things trying to spin the negligence claim as one under the

Uniform Commercial Code ("UCC"),5 but acknowledged the applicable

deadlines and asked that they be equitably tolled.

None of this went well for Aresty. In the present case, the

district judge granted Citibank's dismissal motion on September 29,

2011. The judge said that Aresty plainly knew the check had been

dishonored within days of its deposit and well before Aresty filed

suit against Citibank, and therefore that Aresty had not been

sufficiently diligent to warrant tolling. The judge then rejected

Aresty's negligence claim on the grounds that Regulation CC does

not impose any duty for state-tort-law purposes, that any duty it

does impose is to a bank on the receiving end of check funds but

not to that bank's customers, and, finally, that any state law

4
Regulation CC is part of the implementation of the Expedited
Funds Availability Act (EFAA), 12 U.S.C. §§ 4001-4010, by the Board
of Governors of the Federal Reserve System. The regulation
requires a paying bank that "determines not to pay a check in the
amount of $2,500 or more" to "provide notice of nonpayment" to a
receiving bank within two business days, among other requirements.
5
Chapter 106, section 4-202 of the Massachusetts General Laws
— part of Massachusetts's enactment of the UCC — requires banks to
"exercise ordinary care in . . . sending notice of dishonor or
nonpayment" of a check.

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claim is preempted by federal law. As for the separate suit by

Citizens against Aresty, on November 16, 2011, it ended in an

agreed-upon judgment against Aresty for $192,334.91.

Aresty has appealed the dismissal of its case against

Citibank, reprising its arguments that the limitations period

should be equitably tolled and that the negligence claim — now

definitively labeled as one under the UCC — survives Citibank's

various legal assaults. We will address the arguments, sticking

mostly to the material in the complaint but occasionally noting

facts argued by the parties (none of which we rely on in the end).

Equitable Tolling

The first hurdle Aresty must overcome is the seemingly

time-barred nature of its federal claim. Summed up briefly,

Aresty's claim is that Citibank is liable for the amount lost in

the wire transfer because Regulation CC required Citibank to notify

Citizens within two business days that it would not honor the

fraudulent check. Had Citibank complied with Regulation CC, Aresty

claims, Citizens could have halted the wire transfer. But suits

under Regulation CC "shall be brought within one year after the

date of the occurrence of the violation involved," 12 C.F.R. §

229.38(g), and Aresty did not meet this deadline. Nevertheless,

Aresty argues that the district court should have equitably tolled

its claim because the one-year filing period had already passed

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before Aresty discovered that Citizens would hold it liable for the

lost funds.

To begin, we review a district court's decision to grant or

deny equitable relief only for abuse of discretion. Ortega

Candelaria v. Orthobiologics, LLC, 661 F.3d 675, 678 (1st Cir.

2011). This deferential standard applies even if the district

court granted or denied relief when ruling on a motion that would

otherwise warrant de novo review. See id. Tolling is a form of

equitable relief that temporarily suspends a statute of limitations

for a period in which the plaintiff demonstrates that, "'in the

exercise of reasonable diligence, [he] could not have discovered

information essential to [his claim].'"6 Ramirez-Carlo v. United

States, 496 F.3d 41, 48 n.3 (1st Cir. 2007) (quoting Gonzalez v.

United States, 284 F.3d 281, 291 (1st Cir. 2002)). "We apply

equitable tolling on a case-by-case basis, avoiding mechanical

6
Aresty and Citibank disagree about whether the time to file
suit set forth in Regulation CC is a limitations period or a repose
period. A limitations period "normally begins to run at the point
of accrual of the plaintiff's claim" and "may be interrupted and
postponed by such phenomena as estoppel or tolling"; in contrast,
"a repose period is fixed and its expiration will not be delayed by
estoppel or tolling." 4 Charles A. Wright & Arthur R. Miller,
Federal Practice & Procedure § 1056, at 239, 240 (3d ed. 2002). If
Regulation CC establishes a repose period then Aresty cannot invoke
equitable tolling. See Lampf, Pleva, Lipkind, Prupis & Petigrow v.
Gilbertson, 501 U.S. 350, 363 (1991). But because we ultimately
decide that Aresty's claim is time-barred even if the time to file
were a limitations period and even if we were to apply tolling, we
need not resolve this issue. Cf. Jobe v. I.N.S., 238 F.3d 96,
100-01 (1st Cir. 2001) (declining to decide whether equitable
tolling may apply to an immigration statute because the
petitioner's claim would not merit tolling in any event).

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rules and favoring flexibility." Ortega Candelaria, 661 F.3d at

680. However, we invoke tolling sparingly; only particularly

extraordinary circumstances beyond the plaintiff's control can

justify ignoring an otherwise clear time limitation. See Irwin v.

Dep't of Vets. Affairs, 498 U.S. 89, 96 (1990) ("Federal courts

have typically extended equitable relief only sparingly."); Ortega

Candelaria, 661 F.3d at 680 ("The tolling proponent must establish

that extraordinary circumstances beyond his control prevented a

timely filing or that he was materially misled into missing the

deadline."); Neverson v. Farquharson, 366 F.3d 32, 40 (1st Cir.

2004) ("The doctrine of equitable tolling [applies] in exceptional

circumstances . . . .").

Even if we grant Aresty the lofty benefit of tolling, its

federal claim is still time-barred. Citizens sued Aresty to

recover the lost funds on January 26, 2009. Aresty was then on

notice of its potential liability for the lost funds, and reason

dictates that the limitations period should begin on that date at

the latest. Aresty might not have known then whether Citizens's

claim had merit, but one year was plenty of time to probe its

liability and use its evaluation to decide whether it should sue

Citibank. Despite all this time, Aresty did not sue Citibank until

October 29, 2010, and it has provided only a vague and unpersuasive

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explanation for why it waited so long.7 Thus, because Aresty sat

on its metaphorical hands for another twenty-one months past the

date when it discovered its potential liability for the wired

funds, even equitable tolling cannot save its claim under

Regulation CC.8

Preemption

Aresty presents several arguments in an attempt to save its

state claim, but we will begin and end with federal preemption.

Aresty says its state claim survives the EFAA's express preemption

provision because the claim is supplemental to rather than

inconsistent with the EFAA. Considering the issue de novo, IOM

Corp. v. Brown Forman Corp., 627 F.3d 440, 446 (1st Cir. 2010), we

disagree.

The EFAA (which, again, is the source of statutory authority

for Regulation CC), provides at 12 U.S.C. § 4007(b) that its terms

and regulations "shall supersede any provision of the law of any

State, including the Uniform Commercial Code as in effect in such

State, which is inconsistent with this chapter or [its]

7
In its opposition to Citibank's motion to dismiss below,
Aresty claimed that tolling to October 18, 2010 would be
appropriate because that was the date when it "first learned of the
efforts undertaken by Citizens to recover the funds represented by
the check." But Citizens sued Aresty twenty-one months before that
date, and Aresty does not explain why the filing of the suit did
not provide notice of Citizens's efforts.
8
Because Aresty did not timely file its federal claim, we do
not have occasion to consider the claim on the merits.

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regulations." See also 12 C.F.R. § 229.41 (providing that EFAA

regulations supersede any inconsistent state law). Section 4007(a)

creates only one exception to this express preemption provision:

"[a]ny law or regulation of any State" may survive if it "requires

that funds deposited or received for deposit . . . be made

available for withdrawal in a shorter period of time" than the EFAA

calls for; Aresty does not argue that this exception applies here.

Instead, Aresty argues that Regulation CC imposes a duty

enforceable via a "supplemental" claim under state tort law.

However, Aresty's purported state claim is not actually

supplemental to but instead entirely dependent on Regulation CC:

Aresty refers either to Regulation CC or to Citibank's failure to

notify Citizens of nonpayment (the exact omission that Regulation

CC addresses) in every relevant paragraph of its state-law claim.

The claim is in fact nothing more than a transparent attempt to

bypass Regulation CC's limitation on Aresty's time to file suit.9

Indeed, Aresty's attempt to bypass Regulation CC's time limit

highlights the inconsistency between Regulation CC and Aresty's

state-law claim: Massachusetts law provides a significantly longer

filing period than federal law does. Compare 12 C.F.R. § 229.38(g)

(one year) with Mass. Gen. Laws ch. 106, § 4-111 (three years) and

9
Aresty does argue that its state negligence claim is founded
on a breach of some broader duty than the ones prescribed by the
EFAA; however, it does not say in either its complaint or its brief
how Citibank might have breached any other identifiable duty.

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Mass. Gen. Laws ch. 260, § 2A (three years). The district court

therefore disposed of this claim using plain language that we

explicitly endorse: where a state-law negligence claim is based on

the breach of a duty established by the EFAA, "[p]ermitting an

action for negligence to be brought under general state-law tort

principles and within time limits set by state law would expand the

remedies possible against banks and thus would be inconsistent with

the limitations provided in federal law." This reasoning applies

with equal force whether Aresty frames its claim as common-law

negligence or negligence under the UCC. Either way, the

inconsistency pointed out by the district court brings Aresty's

state-law claim squarely within the terms of the EFAA's express

preemption provision and therefore is fatal to the claim.10 See 12

U.S.C. § 4007(b). And because the state-law claim fails on

preemption grounds, we need not and do not consider Aresty's other

arguments.

10
The cases Aresty cites also support our holding that the
state-law claim here is preempted because it is (1) based on the
EFAA and Regulation CC but (2) inconsistent with them in that it
would allow Aresty to avoid some of their limitations. See, e.g.,
NBT Bank, N.A. v. First Nat. Cmty. Bank, 393 F.3d 404, 417 (3d Cir.
2004) (holding that a plaintiff cannot avoid Regulation CC's
limitation on damages "merely by characterizing its claim as an
effort to hold [a defendant bank] accountable under the UCC");
Beffa v. Bank of the West, 152 F.3d 1174, 1177-78 (9th Cir. 1998)
(holding that the plaintiff's negligence claims were not preempted
because they were not based on the EFAA but instead "addresse[d] a
separate wrong, negligent deposit to the wrong account . . . [and]
involve[d] elements that are beyond the scope of [the] EFAA" —
specifically, "erroneous representations by the bank").

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 Apparently the scam Aresty succumbed to is very sophisticated

and difficult to detect until it is too late. And we do not

downplay in the slightest the significant dent this scam made in

Aresty's finances. Nevertheless, because Aresty has not shown that

the district court abused its discretion in declining to find

Aresty's federal claim timely on equitable-tolling grounds, and

because Aresty's state claim is preempted by federal law, we affirm

the dismissal of Aresty's complaint. So ordered.

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