301 F.3d 220 (4th Cir. 2002)
Eric Eisenberg was the victim of a fraudulent investment scheme perpetrated by Douglas Walter Reid.1
Reid falsely represented to Eisenberg that he was a senior vice president of Bear Stearns Companies and convinced Eisenberg to make a putative investment.2 At Reid’s direction, Eisenberg transferred $1,000,000 via electronic wire to a Wachovia branch bank in North Carolina for deposit in an account bearing the name “Douglas Walter Reid dba Bear Stearns,” “For Further Credit to BEAR STEARNS.”3 The electronic transfer was made through the Fedwire wire service operated by the Federal Reserve Bank.4 Wachovia accepted the transfer and deposited the funds to the credit of the specified account, which had been opened by and was under the control of Reid.5 Reid withdrew almost all of Eisenberg’s funds and converted them to his own use.6
Wachovia’s customer agreements do not restrict the name under which a new customer may open a bank account.7 The Wachovia employee who opened Reid’s account did not verify that Reid was authorized to operate under the name Bear Stearns.8 Reid possessed no such authority and was not in any way affiliated with Bear Stearns.9
Eisenberg filed a complaint against Wachovia in federal court on the basis of diversity jurisdiction, asserting two claims of negligence.10 The first claim alleged that Wachovia negligently allowed Reid to establish and operate a fraudulent bank account and negligently failed to train its employees to detect fraud.11 The second claim alleged that Wachovia was vicariously liable for its employee’s negligence in allowing Reid to open the bank account without proper verification.12 Wachovia moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).13 The district court granted the motion and dismissed the complaint with prejudice.14 Eisenberg appealed to the Fourth Circuit.15
Whether Regulation J preempts Eisenberg's negligence claims challenging the opening and management of the account?16
Regulation J supersedes or preempts inconsistent provisions of state law.17 Subpart B of Regulation J incorporates Article 4A of the Uniform Commercial Code to provide rules to govern funds transfers through Fedwire.18 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.19 Subpart B governs only Fedwire funds transfers and does not address the duties, obligations and liabilities applicable to bank functions having nothing to do with a Fedwire transfer.20
No. Eisenberg's negligence claims focus on Wachovia's conduct in allowing Reid to open and operate the bank account under the name dba Bear Stearns.21 Subpart B has no application to Wachovia's conduct in opening the account and failing to train employees to detect fraud.22 A finding that Wachovia is negligent in opening Reid's account would not conflict with a finding that Wachovia properly credited the Fedwire transfer under Subpart B.23 The two findings would touch on distinct and independent conduct by Wachovia.24
Regulation J does not preempt Eisenberg's negligence claims challenging the opening and management of the account.25
Whether Wachovia owed a duty of care to noncustomer Eisenberg under the facts alleged?26
Under North Carolina law, negligence requires the existence of a legal duty of care owed by the defendant to the plaintiff, which arises from a relationship between the parties.27 A bank does not owe a duty of care to a noncustomer with whom the bank has no direct relationship, even when the noncustomer is defrauded by the bank's customer through use of its services.28
No. Eisenberg had no direct relationship with Wachovia, as he was not a Wachovia bank customer and has never conducted business with Wachovia.29 Eisenberg instead transacted with Reid, a Wachovia bank customer.30 Courts in numerous jurisdictions have held that a bank does not owe a duty of care to a noncustomer with whom the bank has no direct relationship.31 The reasoning in McCallum v. Rizzo is particularly persuasive as the facts are indistinguishable from the facts of this case.32 Extending a duty of care to strangers like Eisenberg would expose banks to unlimited liability for unforeseeable frauds.33
A North Carolina Court of Appeals decision in Carlson v. Branch Banking & Trust Co. supports this view by denying a duty of care absent a contractual obligation or direct relationship between the bank and the plaintiffs.34
Wachovia did not owe Eisenberg a duty of care under the facts alleged.35