Background
Gemstone Foods, a Mississippi food processor, sent wire transfers from its account at Regions Bank to pay vendors. Unknown parties diverted both transfers into accounts they had opened at JPMorgan Chase Bank. Gemstone, which had no banking relationship with Chase, sued Chase for negligence and gross negligence, alleging the bank failed to verify account holders and violated industry standards. The district court dismissed all claims, holding Chase owed no duty to Gemstone as a non-customer.
The court’s reasoning
The court applied Mississippi substantive law and relied on its prior decision in Midwest Feeders, Inc. v. Bank of Franklin. That precedent controls and forecloses claims by non-customers against banks for third-party fraud. The court rejected arguments that industry standards, internal policies, or the Bank Secrecy Act created a duty where none existed under state law. The court also declined to follow an out-of-circuit decision applying Pennsylvania law.
What it means going forward
Non-customers cannot sue banks for negligence based on third-party wire fraud under Mississippi law, even if the bank allegedly failed to follow internal procedures or federal regulations.
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