## Facts

- Carolyn Gilson retained Edward Stein to assist her with various financial transactions.
- G & C Investment Joint Venture (G&C) and LAZ Development Corporation (LAZ) were investment entities established by Gilson’s late father.
- In November 2008, Stein opened two accounts at TD Bank, N.A. in G&C’s name and one account in LAZ’s name.
- Gilson allegedly did not authorize Stein to be a signatory on any of the G&C or LAZ accounts, but TD opened the accounts listing Stein as an authorized signatory.
- TD’s standard commercial account-opening process called for documentation such as a filing receipt and entity governing documents (for example, a partnership agreement).
- TD’s account files for G&C allegedly lacked required documents (including a filing receipt and partnership agreement), and TD allegedly failed to detect inconsistencies within the account-opening materials.
- Over the following months, Stein used wire transfers through the G&C and LAZ accounts and allegedly stole approximately $3.5 million of Gilson’s money.
- Gilson, G&C, and LAZ sued TD, asserting claims tied to wire transfers under UCC Article 4A and Federal Reserve Regulation J, and alleging TD’s negligence in allowing Stein to open and use the accounts.
- TD moved for summary judgment, arguing that Article 4A and Regulation J displaced (or otherwise barred) the plaintiffs’ common-law negligence theory.

## Issues

1. Do UCC Article 4A and Federal Reserve Regulation J displace a common-law negligence claim against a bank when the loss is tied to fraudulent wire transfers?
2. Is a negligence theory based on allegedly improper account opening and failure to verify a purported agent’s authority “inconsistent” with Article 4A’s rights, duties, and liabilities such that it is barred?

## Decision

- The court denied TD Bank’s motion for summary judgment on the argument that Article 4A and Regulation J displaced the negligence claim.
- The court treated a claim premised on the allegedly negligent opening of unauthorized accounts and related authority-verification failures as not inconsistent with Article 4A’s allocation of rights and liabilities for funds transfers.

## Legal Principles

- UCC Article 4A supplies a detailed set of rules governing covered funds transfers and allocates responsibility for certain types of loss arising from payment orders.
- Common-law claims are displaced only to the extent they would impose duties or liabilities that conflict with Article 4A’s provisions for funds transfers.
- A negligence claim focused on a bank’s conduct in opening accounts and confirming signatory authority can fall outside the conduct Article 4A specifically regulates, and therefore may coexist with Article 4A.
- Regulation J applies Article 4A to certain transfers made through the Federal Reserve’s wire-transfer system, but does not broaden displacement beyond what Article 4A itself requires.

## Conclusion

The court declined to grant TD Bank summary judgment based on Article 4A/Regulation J displacement, allowing the plaintiffs’ negligence theory to proceed where it was based on TD’s alleged failures in commercial account opening and verification of Stein’s authority, even though the resulting loss was carried out through wire transfers.


Gilson v. TD Bank, N.A., 2011 WL 2914447 (2011)