PITTSBURGH – A federal judge has remanded litigation brought by a senior citizen to state court, a case which alleges the bank failed to protect her and her sizable accounts from fraud and resulted in her losing millions of dollars to con artists.
Mary Clayton of South Park first filed suit in the Allegheny County Court of Common Pleas on May 25 versus Dollar Bank, of Pittsburgh.
Mary Clayton, 79, and her husband John Clayton had been longtime account holders at the bank and after her husband’s death in January 2017, the suit said the plaintiff retained control of the accounts, which contained significant amounts of money.
“In June 2019, Mary Clayton received a telephone call from an individual identifying himself as Jaison Smith, a purported agent with the United States Drug Enforcement Agency,” the suit said.
“The individual who identified himself as Smith, advised Clayton that her identity had been stolen and that she was inadvertently involved in a massive drug trafficking/money laundering scheme involving international drug traffickers. The individual who identified himself as Smith was not in fact an agent of the DEA and was, instead, a scam artist, seeking to bilk Clayton out of her money.”
Smith told Clayton she needed to send money to a purported DEA Agent in Indianapolis, Ind. and advised her that if she did not send the money, she would be investigated by the DEA and would lose her Social Security number. As a result, Clayton sent a $10,000 check to an individual in Valparaiso, Ind. at Smith’s direction.
Smith then contacted Clayton a second time and asked her to wire money to Silvergate Bank in La Jolla, Calif., to an account owned by New York-based Paxos Trust Company.
On four occasions in the summer in 2019, Clayton visited Dollar Bank for assistance in completing the wire transfer, which totaled $1 million, and spoke with employees named Shannon Carl, Anthony DeAngelis and Christian Marshall.
The employees collectively created an ITBIT Wallet Deposit ID for Clayton and filled out Wire Transfer Authorizations for Clayton to wire transfer $4,300,000 in total to Silvergate Bank, to the account of Paxos Trust Company, LLC.
“[The employees], despite filling-out the Wire Transfer Authorization, acquiring Clayton’s ITBIT Wallet Deposit ID, knowing the name of Silvergate Bank and the name Paxon Trust Company, LLC, never inquired of Clayton as to the purpose of the wire transfer, the recipient of the wire transfer, or whether Clayton was, in fact, interested in or investing in crypto currency or even knew that the wire transfer to Paxos Trust Company, LLC was being made through a crypto currency bank to a crypto currency trust company.”
Clayton argued the bank did not do its duty to protect her from fraud.
“Plaintiff Clayton believed that Dollar Bank was protecting her accounts and protecting her from fraud, scams, identity theft, phishing and/or other telephone and online scams perpetrated by wrongdoers against her and her money. Clayton believed that it was a Dollar Bank priority to afford protection to her and her funds from such illegal and fraudulent activities,” per the suit.
“In obtaining or creating the ITBIT Wallet Deposit ID and initiating wire transfers without inquiry as to the purpose and explanation of a potential fraudulent scheme, as above set forth, for Clayton, Dollar Bank did not make it a priority to protect Clayton’s account from fraud or theft and did not protect the customer, Clayton, from such activity, contrary to its express promise.”
The defendant filed a notice of removal on June 30, charging that the wire transactions in question fell under federal purview and thus, were the domain of the federal court system.
“As a federally chartered savings bank, Dollar Bank is overseen and regulated by the Office of the Comptroller of Currency. The wire transfers at issue were conducted via the Federal Reserve Wire Transfer Network. Federal Reserve Board Regulation J, 12 C.F.R. Section 210.25 et seq. (Regulation J) ‘governs wire transfers that involve a Federal Reserve Bank or a FedWire transfer,” the notice stated.
“All wire transfers that Dollar Bank effectuated from Plaintiff’s account pursuant to her instructions occurred through FedWire. Thus, plaintiff necessarily asserts a federal claim by virtue of Regulation J’s exclusive governance of the FedWire system and wire transfer instructions because all wire transfers conducted through FedWire are exclusively governed by Regulation J.”
UPDATE
However, U.S. District Court for the Western District of Pennsylvania Judge Joy Flowers Conti disagreed, and remanded the case to the Allegheny County Court of Common Pleas on Oct. 5.
In part, Conti cited a ruling from Hutchins v. Modern Woodmen Fraternal Financial, a 2013 case from the U.S. District Court for the Southern District of Mississippi, in her reasoning.
“The Court [in Hutchins] addressed a factual situation similar to this case, involving a victim of a fraud scheme who sued a bank in state court for negligence and negligence per se relating to a wire transfer, and the bank sought removal arguing that the claims were completely pre-empted by Regulation J. The parties agreed that the relevant wire transfer occurred via the FedWire,” Conti said.
“The Court reviewed the general principles for removing a case and emphasized the important distinction between defensive pre-emption and the complete pre-emption necessary to create removal jurisdiction. In Hutchins, the Court concluded that the bank failed to meet its burden to demonstrate a basis for removal and remanded the case to the state court.”
According to Conti, in the instant matter, only Congress can create the type of removal jurisdiction sought by the defense and “even if the Court considered the regulatory intent with respect to Regulation J, it would reach the same result.”
“Dollar seeks to create federal jurisdiction based on an allegation that its compliance with the federal standard is a defense to a negligence claim. There is no discrete or important federal question of law and no federal actor; rather, this is a fact-bound, individualized dispute, perhaps implicating a federal pre-emption defense. Here, Dollar did not meet its burden to justify removal jurisdiction,” Conti concluded, and remanded the case to state court.
For counts of negligence and violation of the Unfair Trade Practices and Consumer Protection Law, the plaintiff is seeking total damages of $17,200,000, plus reasonable attorney’s fees to be determined by the Court and costs of suit.
The plaintiff is represented by John Linkosky of John Linkosky & Associates, in Carnegie.
The defendant is represented by Roy W. Arnold of Blank Rome, in Pittsburgh.
U.S. District Court for the Western District of Pennsylvania case 2:21-cv-00843
Allegheny County Court of Common Pleas case GD-21-005849
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com