08-4828-cv
Ma v. Merrill Lynch & Co., Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
_____________________
August Term, 2008
(Argued: June 26, 2009 Decided: March 2, 2010)
Docket No. 08-4828-cv
_____________________
YOUXIN MA ,
Plaintiff,
GEORGE BROTHERS INVESTMENT CO . LTD . AND COVINA 2000 VENTURES CORP .,
Plaintiffs-Appellants,
—v.—
MERRILL LYNCH , PIERCE , FENNER & SMITH , INC.,
Defendant-Appellee,
IRENE S. NG ,
Defendant.
___________________
Before: DENNIS JACOBS , Chief Judge, B.D. PARKER, Circuit Judge, NICHOLAS
TSOUCALAS, Judge, Court of International Trade.*
___________________
Appeal from a judgment of the United States District Court for the Southern District of
New York (Cote, J.) dismissing Plaintiffs-Appellants’ claims on the ground that they are barred
by N.Y. UCC § 4-A-505. AFFIRMED.
* The Honorable Nicholas Tsoucalas, Senior Judge of the United States Court of
International Trade, sitting by designation.
___________________
DAVID FRANCESCANI (Karolina Jesien, on the brief), Fish &
Richardson P.C., New York, New York, for
Plaintiffs-Appellants George Brothers Investment
Co. Ltd. and Covina 2000 Ventures Corp.
LAWRENCE E. FENSTER (Lawrence D. Ross and Matthew C.
Plant, on the brief), Bressler Amery & Ross, P.C.,
New York, New York, for Defendant-Appellee
Merrill Lynch, Pierce, Fenner & Smith, Inc.
___________________
BARRINGTON D. PARKER, Circuit Judge:
This appeal, arising from a judgment of the United States District Court for the Southern
District of New York (Cote, J.), requires us to consider whether the New York Uniform Commercial
Code Section 4-A-505, which imposes a one-year statute of repose on certain claims based on
electronic funds transfers, bars Plaintiffs-Appellants’ common law claims, which have longer
limitations periods. The District Court concluded that it does. Covina 2000 Ventures Corp. v.
Merrill Lynch, Pierce, Fenner & Smith, No. 06 Civ. 15497, 2008 WL 1821738 (S.D.N.Y. Apr. 21,
2008). We agree and affirm.
I. BACKGROUND
The relevant facts are undisputed unless otherwise noted. In 2000, Youxin Ma, a
businessman with substantial interests in Asia and in this country, established Covina 2000 Ventures
Corp., a British Virgin Islands-based company, and George Brothers Investment Co. Ltd., a Cayman
Islands-chartered corporation, as investment vehicles. That same year, Ma opened accounts for
Covina and George Brothers at Merrill Lynch, Pierce, Fenner & Smith, Inc. (“Merrill Lynch”).
Merrill Lynch assigned Irene Ng, a financial advisor, as the registered representative on both
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accounts. Ng was authorized to, among other things, effectuate funds transfers from the accounts
upon Ma’s request.
Ma maintains that Ng was involved in an elaborate scheme involving Rebecca and Terry
Solomon, a married couple who pled guilty to conspiracy to commit mail and wire fraud, wire fraud,
and money laundering, in connection with their perpetuation of two fraudulent investment schemes.1
See Press Release, United States Department of Justice, United States Attorney’s Office, Northern
District of California, Husband and Wife Plead Guilty to Conspiracy, Fraud, and Money Laundering
in $18 Million Investment Scheme (Sept. 26, 2008). According to Ma, Ng fraudulently, and without
his knowledge, executed a loan agreement pursuant to which George Brothers was to lend the
Solomons an unspecified amount of money. Apparently pursuant to this loan agreement, and in a
series of approximately twenty-five wire transfers occurring from June 2002 to April 2004, Ng
transferred more than $9 million from the Covina and George Brothers accounts to various accounts
controlled by Rebecca Solomon.
The record is unclear as to how much Ma knew about these transactions. Twenty-four of the
wire transfers’ letters of authorization were apparently signed by Ma. Twenty-one of these letters
contain written notations by Ng purportedly indicating that she confirmed the transactions with Ma.
However, Ma maintains that Ng forged his signature on the letters of authorization and falsely noted
1
The first complaint filed in this action named Ma, George Brothers, and Covina as plaintiffs.
Pursuant to a Stipulation and Order dated March 14, 2007, George Brothers and Covina filed an amended
complaint removing Ma as a plaintiff. However, we refer to Ma throughout this Opinion, as he is the
principal officer of Covina and George Brothers, the owner of all of the funds in the Covina and George
Brothers accounts, and the individual authorized to request the transfer of funds from the accounts to
third party beneficiaries.
3
that she had confirmed the transfers with Ma. We assume, for purposes of this appeal, that, as Ma
contends, the transactions were unauthorized.
The account agreements required Merrill Lynch to send Ma monthly statements summarizing
the accounts’ activity, such as any wire transfers executed from the accounts. The parties do not
dispute that Merrill Lynch generated these statements in the ordinary course of business, that Merrill
Lynch mailed them to Ma at the address he provided, and that Ma received at least some of them.
None of the statements was returned as undeliverable by the post office. It is also not disputed that
the Covina and George Brothers monthly account statements listed the date and amount of each wire
transfer, though the statements did not identify the wire transfers’ beneficiaries.
Ma’s position is somewhat inconsistent. He concedes that he received some account
statements during the June 2002 to April 2004 period, but maintains that he did not receive the
statements on a regular basis. He also contends that he did not review any of the statements that he
did receive. Instead, he relied on Ng to update him on the state of the accounts while his secretary
placed the unopened statements in a storage room in his office. Ma did not notify Merrill Lynch that
he believed he was not receiving his statements on a regular basis until November 2006, when he was
preparing to sue. Ma also admits that, prior to that time, he was not aware that any of the statements
was missing. As he put it: “[b]ecause I never reviewed a statement, therefore, I don’t know whether
I received it or not.”
Ma sued Merrill Lynch in December 2006 (more than two years after the last allegedly
fraudulent wire transfer), alleging various common law claims, including breach of contract, breach
of fiduciary duty, fraud, conversion, negligence, and breach of the covenant of good faith and fair
4
dealing.2 Merrill Lynch moved for summary judgment on the ground that the one-year statute of
repose in Section 4-A-505 of the New York Uniform Commercial Code bars all of Ma’s claims. The
District Court granted Merrill Lynch’s motion. This appeal followed. We review de novo the District
Court’s grant of summary judgment. See Arbitron, Inc. v. Tralyn Broad., Inc., 400 F.3d 130, 134 (2d
Cir. 2005).
II. DISCUSSION
Article 4A of the New York Uniform Commercial Code governs electronic funds transfers,
commonly known as wholesale wire transfers. N.Y. UCC § 4-A-102 & cmt. Funds transfers are
“series of transactions, beginning with the originator’s payment order, made for the purpose of making
payment to the beneficiary of the order” and are completed “by acceptance by the beneficiary’s bank
of a payment order for the benefit of the beneficiary of the originator’s payment order.” Id. § 4-A-104.
A payment order is “an instruction of a sender to a receiving bank, transmitted orally, electronically,
or in writing, to pay . . . a fixed or determinable amount of money to a beneficiary [where] the
receiving bank is to be reimbursed by debiting an account of . . . the sender.” Id. § 4-A-103. The
“sender” is “the person giving instruction to the receiving bank.” The “receiving bank” is “the bank
to which the sender’s instruction is addressed.” Id. The “beneficiary” is “the person to be paid by the
beneficiary’s bank” and the beneficiary’s bank is “the bank identified in a payment order in which an
2
On May 15, 2008, Covina and George Brothers voluntarily dismissed Ng from the litigation
pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i).
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account of the beneficiary is to be credited pursuant to the order.” Id. Under these definitions, the
Merrill Lynch wire transfers constitute electronic funds transfers governed by Article 4A.3
Sections 4-A-202, 4-A-203, and 4-A-204 of the N.Y. UCC govern liability for unauthorized
funds transfers. If a receiving bank accepts a payment order issued in its customer’s name, and the
customer did not authorize the payment order, the bank is obligated to refund any payment made
pursuant to that payment order. Id. §§ 4-A-202, 203, 204. In other words, under the N.Y. UCC, banks
bear the risk of loss from unauthorized wire transfers (if certain conditions discussed below are met).
See id. However, Section 4-A-505 contains a one-year statute of repose4 pursuant to which a bank is
not required to reimburse its customer for a wire transfer processed pursuant to an unauthorized
payment order if the bank’s customer did not object within one year of receiving notice of the
account’s debit:
If a receiving bank has received payment from its customer with respect to a payment
order issued in the name of the customer as sender and accepted by the bank, and the
customer received notification reasonably identifying the order, the customer is
precluded from asserting that the bank is not entitled to retain the payment unless the
customer notifies the bank of the customer’s objection within one year after the
notification was received by the customer.
3
The definition of “bank” for Article 4A purposes encompasses Merrill Lynch. N.Y. UCC § 4-
A-105 (defining “bank” as “a person engaged in the business of banking and includes a savings bank,
savings and loan association, credit union, and trust company”); see also Woods v. MONY Legacy Life
Ins. Co., 641 N.E.2d 1070, 1072 (N.Y. 1994) (construing liberally the UCC’s definition of “bank” to
“promote the underlying purposes and policies of the UCC”).
4
Statutes of repose and statutes of limitations are often confused, though they are distinct. A
statute of limitations creates an affirmative defense where plaintiff failed to bring suit within a specified
period of time after his cause of action accrued, often subject to tolling principles. Stuart v. Am.
Cyanamid Co., 158 F.3d 622, 627 (2d Cir. 1998); see also P. Stolz Family P’ship v. Daum, 355 F.3d 92,
102-03 (2d Cir. 2004). By contrast, a statute of repose extinguishes a plaintiff’s cause of action after the
passage of a fixed period of time, usually measured from one of the defendant’s acts. See P. Stolz Family
P’Ship, 355 F.3d at 102-03.
6
Id. § 4-A-505; see id. cmt.
Section 4-A-505’s text appears to bar Ma’s claims: they are based on electronic funds transfers
and he failed to notify Merrill Lynch of his objections within one year. Undeterred, Ma claims that
his common law claims—all having limitations periods well in excess of one year—remain viable for
three reasons. First, he contends that the transfers are “only incidental” to the common law claims,
and, consequently, are not controlled by Article 4A. Second, though he concedes that “common law
claims that are either inconsistent with Article 4-A or covered by its provisions are preempted,” he
maintains that his common law claims fall into neither category. He contends that, because Article
4A contains no direct reference to claims such as those for breach of fiduciary duty, conversion, or
fraud, the Article, presumably, was not intended to reach them and, in any event, his common law
claims do not impose liabilities inconsistent with the rights and liabilities created by Article 4A. Third,
Ma contends that because the account statements he received did not identify the beneficiary of the
funds transfers, they failed to comply with Section 4-A-505’s limitation of its one-year period of
repose to bank customers who received notification “reasonably identifying” the payment order at
issue. We are not persuaded.
Prior to Article 4A’s adoption by the New York State Legislature in 1990, “existing rules of
law did not adequately address the problems presented by” the widespread use of electronic funds
transfers. Banque Worms v. BankAmer. Int’l, 570 N.E.2d 189, 194 (N.Y. 1991). Article 4A was
enacted to create a “comprehensive body of law” that “use[s] precise and detailed rules to assign
responsibility.” N.Y. UCC § 4-A-102 cmt.; see Grain Traders, Inc. v. Citibank, N.A., 160 F.3d 97,
102-03 (2d Cir. 1998).
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The drafters made clear that Article 4A reflects “a deliberate decision . . . to write on a clean
slate and to treat a funds transfer as a unique method of payment to be governed by unique rules that
address the particular issues raised by this method of payment.” N.Y. UCC § 4-A-102 cmt. The
statute of repose in N.Y. UCC Section 4-A-505 is one such “unique rule.” See id. Prior to Article
4A’s adoption, courts resolved disputes over funds transfers in part by “referring to general principles
of common law or equity.” Id. Article 4A rejected this piecemeal approach in favor of a more
disciplined regime under which common law claims at odds with Article 4A are no longer permitted.
Article 4A precludes customers from bringing common law claims inconsistent with the statute:
“[R]esort to principles of law or equity outside of Article 4A is not appropriate to create rights, duties
and liabilities inconsistent with those stated in this Article." Id. (emphasis added); see also Grain
Traders, 160 F.3d at 102-03.
Not all common law claims are per se inconsistent with this regime. See Regions Bank v.
Provident Bank, Inc., 345 F.3d 1267, 1275-76 (11th Cir. 2003); Sheerbonnet, Ltd. v. Am. Express
Bank, Ltd., 951 F. Supp. 403, 407-09 (S.D.N.Y. 1995); Regions Bank v. Wieder & Mastroianni, P.C.,
423 F. Supp. 2d 265, 268-69 (S.D.N.Y. 2006). Practically speaking, Article 4A controls how
electronic funds transfers are conducted and specifies certain rights and duties related to the execution
of such transactions. It calls for banks to adopt certain security procedures (§§ 4-A-201, 202), controls
the timing for executing payments (§ 4-A-301), and assigns responsibility for reporting erroneous
electronic debits (§§ 4-A-304, 505). Claims that, for example, are not about the mechanics of how a
funds transfer was conducted may fall outside of this regime. Because Article 4A’s statute of repose
only applies to claims that are “inconsistent” with the Article, we do not believe that it was intended
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to shield banks from all fraud claims—or other common law claims raised more than a year after an
electronic transfer occurred. See Regions Bank v. Provident Bank, Inc., 345 F.3d 1267, 1276 (11th Cir.
2003) (“Interpreting Article 4A in a manner that would allow a beneficiary bank to accept funds when
it knows or should know that they were fraudulently obtained, would allow banks to use Article 4A
as a shield for fraudulent activity.”). For Article 4A purposes, the critical inquiry is whether its
provisions protect against the type of underlying injury or misconduct alleged in a claim.
Two of Article 4A’s principal purposes are to protect against erroneous and unauthorized
electronic funds transfers and to cabin banks’ liability for unreported errors. See N.Y. UCC §§ 4-A-
303, 304, 305, 505. Ma’s various claims concern alleged misconduct by Merrill Lynch with respect
to its execution of electronic transfers. For instance, Ma alleges that “Defendants . . . breached their
fiduciary obligations by . . . failing to contact Plaintiffs about the transactions taking place in their
account, and allowing funds to be removed from the accounts without proper authorization.”
Additionally, Ma alleges “Defendants [committed conversion by] wrongfully and without
authorization exercis[ing] dominion and control over [Plaintiffs’] property by taking it out of
Plaintiffs’ accounts and giving it to a third party, to the exclusion of Plaintiffs’ rights of possession.”
Importantly, Ma does not allege, for example, that he authorized the electronic funds transfers in
reliance on promises concerning returns on his investments, or that the funds transfers he approved
were secretly misdirected. Nor, for that matter, does he allege that the bank violated the federal
securities laws by inducing him to transfer funds. See, e.g., Employment of Manipulative and
Deceptive Devices (Rule 10b-5), 17 C.F.R. § 240.10b-5 (prohibiting, among other things, “any act,
practice, or course of business which operates or would operate as a fraud or deceit upon any person,
9
in connection with the purchase or sale of any security”); see also Securities Exchange Act of 1934,
15 U.S.C. § 78j(b). Rather, he claims that the funds transfers were altogether unauthorized. Since all
of Ma’s claims are, at their core, assertions that he did not order or approve any of the disputed
electronic transfers of funds from his accounts, we are bound to recognize the rights and duties New
York law provides for precisely these circumstances. See N.Y. UCC § 4-A-102 cmt. As a result,
resort to Article 4A and its statute of repose is unavoidable.
We recognize that a number of Ma’s claims, such as his claim for breach of fiduciary duty,
have six-year limitations periods. But we have little difficulty concluding that when a legislature
imposes a one-year statute of repose on claims alleging injury by an unauthorized electronic transfer,
permitting the customer to bring common law claims within a longer limitations period is inconsistent
with the legislature’s intent. See Id. § 4-A-505 cmt. The fact that Article 4A does not expressly refer
to common law claims such as fraud or breach of fiduciary duty is not dispositive. Article 4A’s text
strongly suggests that it applies to claims asserting the existence of unauthorized wire transfers
regardless of what the claims may be called and, in any event, the accompanying commentary is
pellucid on the issue. See id.
ReAmerica, S.A. v. Wells Fargo Bank International, 577 F.3d 102, 106-07 (2d Cir. 2009), is
instructive. There, ReAmerica, a reinsurance company, opened an account with Wells Fargo’s
predecessor-in-interest. Minnesota law, which includes Article 4A of the UCC, governed the parties’
wire transfer agreement. Id. at 104-05; see Minnesota Statute § 336.4A-505 (providing a one-year
statute of repose for disputed funds transfers). A ReAmerica consultant forged the signature of
ReAmerica’s chief executive officer on numerous payment orders in order to divert ReAmerica’s funds
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to a personal account. ReAm., 577 F.3d at 104. Nearly two years after Wells Fargo transmitted the
funds to the account, ReAmerica notified Wells Fargo that it was disputing the forged payment orders.
Wells Fargo declined to refund ReAmerica for the transactions, citing the one-year period of repose
specified in Minnesota Statute Section 336.4A-505.
We interpreted Minnesota Statute Section 336.4A-505, which is identical to N.Y. UCC Section
4-A-404, to time-bar Re-America’s common law negligence claim, which had a six-year statute of
limitations. We reasoned that permitting ReAmerica’s negligence claim to proceed despite the
expiration of Section 336.4A-505’s one-year period of repose would “impose liability inconsistent
with the liabilities created by Article 4A,” id. at 106, and therefore concluded that ReAmerica was
barred from raising its negligence claim nearly two years after the date its alleged injury occurred, id.
at 107.
Ma further contends that the account statements he received were inadequate to alert him to
the fraud he alleges. Section 4-A-505’s one-year period of repose applies only where “a payment order
[has been] issued in the name of the customer as sender and accepted by the bank, and the customer
received notification reasonably identifying the order.” N.Y. UCC § 4-A-505 (emphasis added).
Pointing out that a payment order is defined as “an instruction of a sender . . . to pay . . . a fixed or
determinable amount of money to a beneficiary,” id. § 4-A-103, Ma contends that in order for any
notice to “reasonably identify” a particular payment order, that notice must, in addition to identifying
the amount transferred, also identify the beneficiary of the transfer, something Merrill Lynch’s
statements failed to do. Ma contends that “[unless] a customer knows the beneficiary of a particular
11
payment order . . . a bank customer is not in a position to ascertain whether the payment order was
authorized.”
The UCC’s drafters declined to define the term “reasonably identify” and we have not done
so. Thus, the District Court turned for guidance to Sections 9-108 and 9-504 of the N.Y. UCC, which
relate to secured transactions.5 Under these sections, collateral is reasonably identified if it is
“objectively determinable.” Id. § 9-108. The District Court was correct to use this objective standard
and we agree with its conclusion that the account statements reasonably identified the payment orders
underlying the wire transfers at issue. Each of the monthly statements provided the dollar amount of
the transfer, the date of the transfer, the total dollar amount transferred out of the account for that
month, the account’s total value at the end of that month, and the total dollar amount transferred out
of the account for the year-to-date. In addition, Merrill Lynch assigned a unique identification number
to every wire transfer listed on the statements.
Since Ma alleges that he did not authorize any of the funds transfers in dispute, we easily
conclude that Ma had information sufficient to timely object were he so inclined:6 If Ma had reviewed
the statements, he would have discovered that at least $9 million had been transferred out of the
accounts through numerous wire transfers that he now contends he did not authorize. A cursory review
5
Section 9-108 states “a description of personal or real property is sufficient, whether or not it is
specific, if it reasonably identifies what is described.” N.Y. UCC § 9-108 (a). Section 9-108 goes on the
state that reasonable identification occurs when the identity of the collateral is “objectively
determinable.” Id.(b)(6). Section 9-504 states that a financing statement “sufficiently indicates the
collateral that it covers” if it provides a “description of the collateral pursuant to Section 9-108.”
6
Ma’s appeal does not require us to reach the question of whether the account statements would
provide sufficient notice under N.Y. UCC Section 4-A-505 where a bank customer authorized funds
transfers for the benefit of a particular third party, but alleges that the bank fraudulently transferred the
funds to a third party different from the one specified on the customer’s payment order.
12
of the statements would have alerted Ma to the fact that the accounts’ balances had fallen sharply as
a result of these numerous, allegedly unauthorized wire transfers, regardless of Ng’s verbal assurances
to the contrary. That was all the information he needed to object. See id. § 9-108 cmt. (“The test of
sufficiency of a description under this section . . . is that the description do the job assigned to it: make
possible the identification of the collateral described.”). Since, according to Ma, he did not authorize
any funds transfers, including additional information in the account statements, such as the
beneficiaries, would not have assisted him. In any event, as we have seen, Ma concedes that he never
reviewed any of the statements until years after Merrill Lynch mailed them to him.
Section 4-A-505’s statute of repose only applies where a bank has provided its customer with
actual notice of the payment order underlying the wire transfer at issue. Regatos v. N. Fork Bank, 838
N.E.2d 29, 633-34 (N.Y. 2005) (finding Section 4-A-505 unsatisfied by an “inquiry” notice system
whereby a bank made its customer’s monthly account statements available for review but “waited for
him to request them rather than send them to him”). Ma contends that he did not receive actual notice
because Merrill Lynch did not provide him with “actual knowledge” that Ng was making unauthorized
funds transfers out of the accounts to various third parties and because he did not receive all of the
statements sent during the relevant time period.
Ma confuses actual knowledge with actual notice. Article 4A contains a notice, not a
knowledge, requirement: It requires banks that wish to avail themselves of Section 4-A-505’s period
of repose to provide their customers with actual notice of payment orders processed from their
accounts. See id. at 400-01 (defining Section 4-A-505’s notice requirement as actual notice). Since
a bank customer is in a far better position than a bank to identify unauthorized transfers, Article 4A’s
13
drafters quite sensibly did not impose on financial institutions the type of far-reaching investigation
and disclosure requirements Ma would prefer. Cf. ReAm., 577 F.3d at 106-07; Grain Traders, 160
F.3d at 102-04. In any event, the notice Merrill Lynch provided to Ma was sufficient to alert him to
the funds transfers he now contends are fraudulent.
Finally, for purposes of resolving this appeal, we are required to assume that Ma received the
statements. As the District Court correctly determined, a presumption of receipt arises where, as here,
the record establishes office procedures, followed in the regular course of business, pursuant to which
notices have been addressed and mailed. Nassau Ins. Co. v. Murray, 386 N.E.2d 1085, 108 (N.Y.
1978); see also Meckel v. Cont’l Res. Co., 758 F.2d 811, 817 (2d Cir. 1985). To rebut this
presumption, a litigant must show that “routine office practice was not followed or was so careless that
it would be unreasonable to assume that notice was mailed.” Nassau Ins. Co., 386 N.E.2d at 1086.
Mere denial of receipt is insufficient to rebut the presumption. See Akey v. Clinton County, 375 F.3d
231, 235 (2d Cir. 2004). Merrill Lynch benefits from this presumption and it is unrebutted. The
record indicates that the account statements were mailed from a central Merrill Lynch facility in
Piscataway, New Jersey, over which account representatives, such as Ng, had no control. More
importantly, the record shows that Ma received account statements that, if he had opened and
examined, would have disclosed funds transfers he now claims to have been unauthorized but that, for
whatever reason, he chose to ignore.
III. CONCLUSION
The judgment of the District Court is AFFIRMED.
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