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SB 1 Federal Credit Union v. Finsecure LLC

United States District Court, E.D. Pennsylvania

April 9, 2014

SB 1 FEDERAL CREDIT UNION
v.
FINSECURE LLC, ET AL

Decided: April 8, 2014.

For SB1 FEDERAL CREDIT UNION, Plaintiff: FRANK R. EMMERICH, JR., LEAD ATTORNEY, SARAH DAMIANI, CONRAD O'BRIEN, PHILADELPHIA, PA.

For FINSECURE LLC, BERKLEY REGIONAL INSURANCE COMPANY, Defendants: JOSEPH A. OLIVA, PRO HAC VICE, GOLDBERG SEGALLA LLP, WHITE PLAINS, NY; MICHAEL P. LUONGO, GOLDBERG SEGALLA LLP, PHILADELPHIA, PA.

OPINION

Page 652

MEMORANDUM

Padova, J.

Plaintiff Sb1 Federal Credit Union (" Sb1" ) commenced this action against Defendants FinSecure LLC and Berkley Regional Insurance Company after Defendants denied coverage for damages that Plaintiff sustained as a result of fraudulent wire transfers. Defendants have filed a Motion to Dismiss Plaintiff's Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, we grant the Motion.

I. BACKGROUND

The Complaint alleges that Sb1 is a registered credit union serving members in the United States and abroad. (Compl. ¶ ¶ 1-2.) Defendant Berkley Regional Insurance Company issued a Credit Union Bond (the " Policy" ) to Sb1. (Id. ¶ 51.) The Policy was effective from February 11, 2013 to February 11, 2016 (the " Policy Period" ), and provided $1,000,000 in coverage for " Forgery or Alteration of an Instrument" ; $5,000,000 in " Funds Transfer" coverage; $5,000,000 in " Faithful Performance" coverage; and $6,000,000 in " Employee or Director Dishonesty" coverage. (Id. ¶ ¶ 51-52.) Defendant FinSecure is the underwriter for the Policy, and the Policy requires FinSecure to pay for covered losses incurred by Sb1 during the Policy Period. (Id. ¶ ¶ 8, 53.)

A. The Underlying Fraud

In December 1988, an individual (" Member" ) applied for membership with Sb1. (Id. ¶ 11.) In doing so, Member provided Sb1 with his address, telephone number, social security number, date of birth, and other identifying information. (Id.) Member also opened a checking account with Sb1 and provided a specimen of his signature. (Id. ¶ 13.) Member authorized Sb1 to recognize any of the signatures subscribed

Page 653

to the account in payment of funds or in the transaction of business for the account. (Id. ¶ 14.) Member also regularly managed his accounts with Sb1 electronically. (Id. ¶ 15.)

On July 2, 2013, an Sb1 employee received an email from Member's email address, from an individual purporting to be Member. (Id. ¶ 21.) The individual requested that Sb1 wire $70,000 from Member's checking account to another account in Thailand pursuant to instructions attached to the email. (Id. ¶ 22.) The Sb1 employee filled out a wire request form and emailed the form to the individual, instructing him to sign the form and send it back with a copy of his driver's license or passport. (Id. ¶ 23.) Shortly before the close of business that day, the individual purporting to be Member faxed the completed form back to Sb1, but also sent an e-mail stating that he did not have the ability to make and provide a copy of his driver's license or passport because he was travelling. (Id. ¶ 24.) The Sb1 employee was aware of Sb1's wire transfer policy (the " Wire Transfer Policy" ), which requires telephone verification on a recorded line, in a call initiated by the credit union, for all wire transactions of credit union funds to a non-credit union account.[1] (Id. ¶ ¶ 16-17, 25.) However, the Sb1 employee did not perform the required callback procedure. (Id. ¶ 25.) Instead, based on her past experience with Member and relying on Sb1's signature verification procedure, the employee responded that the transfer request could be processed, noting that Sb1 had Member's signature on file and Member had authorized Sb1 in his membership agreement to recognize his signature in the transaction of any business for his account. (Id. ¶ 26.) The transfer request was processed that same day. (Id. ¶ 27.)

On July 9, 2013, the Sb1 employee again received an email from Member's email, from an individual purporting to be Member. (Id. ¶ 28.) The individual stated that he expected a large deposit into his checking account that week and asked to be advised of the balances in his account. (Id. ¶ 29.) In an email response, the Sb1 employee advised the individual of the current balances in Member's accounts. (Id. ¶ 30.) About an hour later, the employee received another email from Member's email account. (Id. ¶ 31.) In that email, the individual purporting to be Member stated that he had an ongoing business deal in Thailand that he needed to complete that week, and he asked that Sb1 wire him $128,000 from his savings account to a different bank in Thailand. (Id. ¶ 32.) The employee again filled out a wire request form and sent it via email to the individual purporting to be Member for his signature. (Id. ¶ 33.) The individual returned the signed form and the employee processed the wire request, again without following Sb1's Wire Transfer Policy. (Id. ¶ ¶ 34-35.)

On July 15, 2013, the Sb1 employee received a third email from Member's email, again from the individual purporting to be Member. (Id. ΒΆ 36.) The individual ...


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