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Bank isn’t liable for returning $456 million to sender

Where the state of California sent $456 million to the bank of a company from which it ordered 100 million N95 masks, but the state reversed the transaction after learning the company was only recently formed and its owners were lobbyists, the bank was not liable for returning the funds to California.


On March 25, 2020, California contracted with Blue Flame Medical LLC, a company formed two days earlier, to pay over $609 million in exchange for 100 million N95 masks, with 75% of the purchase price to be prepaid. On March 26, 2020, California sent a wire transfer of $456,888,600 through California’s bank, JPMorgan Chase Bank NA, to Blue Flame’s bank, Chain Bridge Bank NA. Later that same day, after concerns were raised about the purchase and Blue Flame, the funds were returned by Chain Bridge to California via JP Morgan.

Blue Flame filed a multicount complaint against Chain Bridge. Chain Bridge filed a third-party complaint against JPMorgan, seeking indemnification. After engaging in discovery, each party has filed one or more motions for summary judgment.

Blue Flame’s claims

Blue Flame alleges that Chain Bridge violated UCC § 4A-404(a) by returning the wired funds to JPMorgan after crediting the funds to plaintiff’s account. Defendants argue that although the payment was initially accepted, they should not face liability for its return because JPMorgan canceled the payment.

To effectively cancel after accepting the order: (1) Chain Bridge must agree to the cancellation and (2) the cancellation must be made to correct for a duplicate order, a misstated beneficiary or an erroneous amount. Although Chain Bridge did agree to return the funds, none of the specified mistakes applies. Therefore, Chain Bridge’s obligation to Blue Flame cannot be nullified through the cancellation process.

Despite this, summary judgment is appropriate in defendant’s favor because plaintiff cannot establish that it sustained any damage from that return. There is unrebutted evidence in this record that, independent of any action by any defendant, JPMorgan began a fraud investigation concerning the wire transfer within minutes of Chain Bridge’s receipt of the wire, and once California officials became aware of Blue Flame’s recent creation and the fact that its owners were lobbyists, it immediately asked for the wire transfer to be canceled and the funds returned, and was no longer interested in dealing with Blue Flame.

Chain Bridge’s second persuasive argument concerning damages is that “there is no record evidence that Blue Flame would have successfully fulfilled California’s order even if Blue Flame had received California’s funds.” According to Blue Flame’s own representations to Congress, it was able to fill only two orders for N95 masks, both much smaller than the order placed by California and neither within the time frame that Blue Flame provided to California.

Blue Flame next alleges that Chain Bridge violated UCC § 4A-204(a) because “in complying with California’s request to return the funds, the Bank issued a new payment order on behalf of Blue Flame which was neither authorized by Blue Flame nor effective as Blue Flame’s order.” Because § 4A-204 does not apply to the reversal of funds, summary judgment will be granted in defendant’s favor on Count Two.

Blue Flame next alleges that all defendants tortiously interfered with Blue Flame’s contract and business expectancy. First, there are issues with the validity of the contractual relationship and business expectancy between Blue Flame and California given Blue Flame’s apparent initial misrepresentations to California authorities. Second, there is insufficient evidence upon which a reasonable factfinder could conclude that Chain Bridge had an “intent to disturb” the business relationship. And for the same reasons explained above, Blue Flame cannot show any damages.

Finally defendants are entitled to summary judgment on the defamation claim because there is no evidence in the record that defendants made any false statements regarding Blue Flame or its principals.

Chain Bridge’s claims

Chain Bridge seeks indemnification from JPMorgan under UCC § 4A-211(f) for any damages awarded against it, as well as for the attorneys’ fees and costs it incurred in defending this litigation. Although granting Chain Bridge’s motion for summary judgment moots its claim for reimbursement of any damages, there remains the issue of whether JPMorgan must reimburse Chain Bridge for its attorneys’ fees and expenses incurred in this litigation.

JPMorgan advances several arguments to support its claim that it does not have to indemnify Chain Bridge: (1) Chain Bridge “sought and obtained the wire’s cancellation” and Chain Bridge should not be allowed to “insur[e] itself for its own conduct,” (2) “the parties’ discussions and course of conduct” evidenced an agreement between the parties that JPMorgan would not be liable for indemnification and (3) Chain Bridge cannot prove that its “loss and expenses” were incurred “as a result” of JPMorgan’s cancellation. The court rejects each argument. Chain Bridge and JPMorgan are directed to submit a briefing schedule regarding the amount of attorneys’ fees and expenses to be awarded to Chain Bridge if they are unable to resolve the issue within 14 days.

Plaintiff’s motion for summary judgment denied. Chain Bridge’s motion for summary judgment against plaintiff’s claims granted. Chain Bridge’s motion for summary judgment against JPMorgan granted. JPMorgan’s motion for summary judgment denied.

Blue Flame Medical LLC v. Chain Bridge Bank NA, Case No. 1:20-cv-658, Sept. 23, 2021. EDVA at Alexandria (Brinkema). VLW 021-3-460. 31 pp.

VLW 021-3-460