Aresty International Law Firm, P.c. v. Citibank, N.a.

United States Court of Appeals
For the First Circuit
No. 11-2257
ARESTY INTERNATIONAL LAW FIRM, P.C.,
Plaintiff, Appellant,
v.
CITIBANK, N.A.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, U.S. District Judge]
Before
Boudin, Circuit Judge,
Souter, Associate Justice,*
and Thompson, Circuit Judge.
James T. Hargrove, with whom Deutsch, Williams, Brooks,
DeRensis & Holland, P.C., were on brief, for appellant.
John A. Houlihan, with whom Elizabeth H. Kelly and Edwards
Wildman Palmer LLP were on brief, for appellee.
April 27, 2012
* The Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.

-- 1 of 11 --

THOMPSON, Circuit Judge. Aresty International Law Firm
deposited a check for $197,750.00 from a Citibank 1-held account
into a Citizens Bank 2-held account, received clearance to transfer
the funds from Citizens soon after, and instructed Citizens to wire
the funds from the account. Citizens did so, only to find later
that the check had been fraudulent. Citizens sued Aresty and ended
up with a judgment for a bit less than the amount of the check.
Aresty now looks to hold Citibank liable for the lost funds because
of its alleged failure to abide by certain provisions of federal
and state law. Agreeing with the district judge that Aresty's
federal claim came too late and cannot benefit from equitable
tolling, and that its state claim is preempted by federal law, we
affirm the judge's dismissal of the complaint.
Because this case comes to us on appeal from a dismissal under
Rule 12(b)(6), we present the facts as alleged in the complaint.
Aresty, a Massachusetts law firm and professional corporation,
received a check purportedly from Irwin International Global Trade
& Logistics, which Aresty thought was a customer of one of its
clients. The check apparently authorized the withdrawal of
$197,750.00 from a Citibank account.
1 Citibank is "Citibank, N.A." officially but just "Citibank"
here for convenience.
2 Citizens Bank is "RBS Citizens, N.A." officially but just
"Citizens" for the remainder of this opinion, again for
convenience.
-2-

-- 2 of 11 --

On "30, 2007" — apparently October 30, 2007 — Aresty deposited
the check in an Interest-on-Lawyers-Trust-Account (commonly called
an IOLTA account) it maintained with Citizens. Citizens presented
the check to Citibank, which received it "no later than November 1,
2007." On November 2, 2007, Aresty was "assured" by Citizens that
it "could wire the funds" from the check "without liability for
dishonor or loss of any nature" and therefore "instructed Citizens
to wire the funds."
Citibank, however, "elected not to pay the check," instead
returning it to Citizens unpaid and marked with the words "Sent
Wrong."
Having wired the funds represented by the check, Citizens went
after Aresty for the missing money. It charged back the amount of
the check to Aresty's accounts and, on January 26, 2009, filed suit
in U.S. District Court in Massachusetts.
Over a year and a half later, on October 29, 2010, Aresty
filed this suit against Citibank. 3 Aresty claimed first that
Citibank had violated 12 C.F.R. § 229.33 (part of "Regulation CC,"
which we will refer to using that shorthand from now on) by failing
to notify Citizens in a timely manner that it would not honor the
check, and second that Citibank had negligently breached a duty it
3 It is not clear why neither Aresty nor Citizens brought
Citibank in as a party to the original case.
-3-

-- 3 of 11 --

owed Aresty under Regulation CC. 4 Citibank responded with a motion
to dismiss the complaint, alleging that the entire complaint was
time-barred and that the negligence claim was preempted by federal
law and barred by the economic loss doctrine. Aresty fought the
preemption and economic-loss arguments on legal grounds, among
other things trying to spin the negligence claim as one under the
Uniform Commercial Code ("UCC"), 5 but acknowledged the applicable
deadlines and asked that they be equitably tolled.
None of this went well for Aresty. In the present case, the
district judge granted Citibank's dismissal motion on September 29,
2011. The judge said that Aresty plainly knew the check had been
dishonored within days of its deposit and well before Aresty filed
suit against Citibank, and therefore that Aresty had not been
sufficiently diligent to warrant tolling. The judge then rejected
Aresty's negligence claim on the grounds that Regulation CC does
not impose any duty for state-tort-law purposes, that any duty it
does impose is to a bank on the receiving end of check funds but
not to that bank's customers, and, finally, that any state law
4 Regulation CC is part of the implementation of the Expedited
Funds Availability Act (EFAA), 12 U.S.C. §§ 4001-4010, by the Board
of Governors of the Federal Reserve System. The regulation
requires a paying bank that "determines not to pay a check in the
amount of $2,500 or more" to "provide notice of nonpayment" to a
receiving bank within two business days, among other requirements.
5 Chapter 106, section 4-202 of the Massachusetts General Laws
— part of Massachusetts's enactment of the UCC — requires banks to
"exercise ordinary care in . . . sending notice of dishonor or
nonpayment" of a check.
-4-

-- 4 of 11 --

claim is preempted by federal law. As for the separate suit by
Citizens against Aresty, on November 16, 2011, it ended in an
agreed-upon judgment against Aresty for $192,334.91.
Aresty has appealed the dismissal of its case against
Citibank, reprising its arguments that the limitations period
should be equitably tolled and that the negligence claim — now
definitively labeled as one under the UCC — survives Citibank's
various legal assaults. We will address the arguments, sticking
mostly to the material in the complaint but occasionally noting
facts argued by the parties (none of which we rely on in the end).
Equitable Tolling
The first hurdle Aresty must overcome is the seemingly
time-barred nature of its federal claim. Summed up briefly,
Aresty's claim is that Citibank is liable for the amount lost in
the wire transfer because Regulation CC required Citibank to notify
Citizens within two business days that it would not honor the
fraudulent check. Had Citibank complied with Regulation CC, Aresty
claims, Citizens could have halted the wire transfer. But suits
under Regulation CC "shall be brought within one year after the
date of the occurrence of the violation involved," 12 C.F.R. §
229.38(g), and Aresty did not meet this deadline. Nevertheless,
Aresty argues that the district court should have equitably tolled
its claim because the one-year filing period had already passed
-5-

-- 5 of 11 --

before Aresty discovered that Citizens would hold it liable for the
lost funds.
To begin, we review a district court's decision to grant or
deny equitable relief only for abuse of discretion. Ortega
Candelaria v. Orthobiologics, LLC, 661 F.3d 675, 678 (1st Cir.
2011). This deferential standard applies even if the district
court granted or denied relief when ruling on a motion that would
otherwise warrant de novo review. See id. Tolling is a form of
equitable relief that temporarily suspends a statute of limitations
for a period in which the plaintiff demonstrates that, "'in the
exercise of reasonable diligence, [he] could not have discovered
information essential to [his claim].'" 6 Ramirez-Carlo v. United
States, 496 F.3d 41, 48 n.3 (1st Cir. 2007) (quoting Gonzalez v.
United States, 284 F.3d 281, 291 (1st Cir. 2002)). "We apply
equitable tolling on a case-by-case basis, avoiding mechanical
6 Aresty and Citibank disagree about whether the time to file
suit set forth in Regulation CC is a limitations period or a repose
period. A limitations period "normally begins to run at the point
of accrual of the plaintiff's claim" and "may be interrupted and
postponed by such phenomena as estoppel or tolling"; in contrast,
"a repose period is fixed and its expiration will not be delayed by
estoppel or tolling." 4 Charles A. Wright & Arthur R. Miller,
Federal Practice & Procedure § 1056, at 239, 240 (3d ed. 2002). If
Regulation CC establishes a repose period then Aresty cannot invoke
equitable tolling. See Lampf, Pleva, Lipkind, Prupis & Petigrow v.
Gilbertson, 501 U.S. 350, 363 (1991). But because we ultimately
decide that Aresty's claim is time-barred even if the time to file
were a limitations period and even if we were to apply tolling, we
need not resolve this issue. Cf. Jobe v. I.N.S., 238 F.3d 96,
100-01 (1st Cir. 2001) (declining to decide whether equitable
tolling may apply to an immigration statute because the
petitioner's claim would not merit tolling in any event).
-6-

-- 6 of 11 --

rules and favoring flexibility." Ortega Candelaria, 661 F.3d at
680. However, we invoke tolling sparingly; only particularly
extraordinary circumstances beyond the plaintiff's control can
justify ignoring an otherwise clear time limitation. See Irwin v.
Dep't of Vets. Affairs, 498 U.S. 89, 96 (1990) ("Federal courts
have typically extended equitable relief only sparingly."); Ortega
Candelaria, 661 F.3d at 680 ("The tolling proponent must establish
that extraordinary circumstances beyond his control prevented a
timely filing or that he was materially misled into missing the
deadline."); Neverson v. Farquharson, 366 F.3d 32, 40 (1st Cir.
2004) ("The doctrine of equitable tolling [applies] in exceptional
circumstances . . . .").
Even if we grant Aresty the lofty benefit of tolling, its
federal claim is still time-barred. Citizens sued Aresty to
recover the lost funds on January 26, 2009. Aresty was then on
notice of its potential liability for the lost funds, and reason
dictates that the limitations period should begin on that date at
the latest. Aresty might not have known then whether Citizens's
claim had merit, but one year was plenty of time to probe its
liability and use its evaluation to decide whether it should sue
Citibank. Despite all this time, Aresty did not sue Citibank until
October 29, 2010, and it has provided only a vague and unpersuasive
-7-

-- 7 of 11 --

explanation for why it waited so long. 7 Thus, because Aresty sat
on its metaphorical hands for another twenty-one months past the
date when it discovered its potential liability for the wired
funds, even equitable tolling cannot save its claim under
Regulation CC. 8
Preemption
Aresty presents several arguments in an attempt to save its
state claim, but we will begin and end with federal preemption.
Aresty says its state claim survives the EFAA's express preemption
provision because the claim is supplemental to rather than
inconsistent with the EFAA. Considering the issue de novo, IOM
Corp. v. Brown Forman Corp., 627 F.3d 440, 446 (1st Cir. 2010), we
disagree.
The EFAA (which, again, is the source of statutory authority
for Regulation CC), provides at 12 U.S.C. § 4007(b) that its terms
and regulations "shall supersede any provision of the law of any
State, including the Uniform Commercial Code as in effect in such
State, which is inconsistent with this chapter or [its]
7 In its opposition to Citibank's motion to dismiss below,
Aresty claimed that tolling to October 18, 2010 would be
appropriate because that was the date when it "first learned of the
efforts undertaken by Citizens to recover the funds represented by
the check." But Citizens sued Aresty twenty-one months before that
date, and Aresty does not explain why the filing of the suit did
not provide notice of Citizens's efforts.
8 Because Aresty did not timely file its federal claim, we do
not have occasion to consider the claim on the merits.
-8-

-- 8 of 11 --

regulations." See also 12 C.F.R. § 229.41 (providing that EFAA
regulations supersede any inconsistent state law). Section 4007(a)
creates only one exception to this express preemption provision:
"[a]ny law or regulation of any State" may survive if it "requires
that funds deposited or received for deposit . . . be made
available for withdrawal in a shorter period of time" than the EFAA
calls for; Aresty does not argue that this exception applies here.
Instead, Aresty argues that Regulation CC imposes a duty
enforceable via a "supplemental" claim under state tort law.
However, Aresty's purported state claim is not actually
supplemental to but instead entirely dependent on Regulation CC:
Aresty refers either to Regulation CC or to Citibank's failure to
notify Citizens of nonpayment (the exact omission that Regulation
CC addresses) in every relevant paragraph of its state-law claim.
The claim is in fact nothing more than a transparent attempt to
bypass Regulation CC's limitation on Aresty's time to file suit. 9
Indeed, Aresty's attempt to bypass Regulation CC's time limit
highlights the inconsistency between Regulation CC and Aresty's
state-law claim: Massachusetts law provides a significantly longer
filing period than federal law does. Compare 12 C.F.R. § 229.38(g)
(one year) with Mass. Gen. Laws ch. 106, § 4-111 (three years) and
9 Aresty does argue that its state negligence claim is founded
on a breach of some broader duty than the ones prescribed by the
EFAA; however, it does not say in either its complaint or its brief
how Citibank might have breached any other identifiable duty.
-9-

-- 9 of 11 --

Mass. Gen. Laws ch. 260, § 2A (three years). The district court
therefore disposed of this claim using plain language that we
explicitly endorse: where a state-law negligence claim is based on
the breach of a duty established by the EFAA, "[p]ermitting an
action for negligence to be brought under general state-law tort
principles and within time limits set by state law would expand the
remedies possible against banks and thus would be inconsistent with
the limitations provided in federal law." This reasoning applies
with equal force whether Aresty frames its claim as common-law
negligence or negligence under the UCC. Either way, the
inconsistency pointed out by the district court brings Aresty's
state-law claim squarely within the terms of the EFAA's express
preemption provision and therefore is fatal to the claim. 10 See 12
U.S.C. § 4007(b). And because the state-law claim fails on
preemption grounds, we need not and do not consider Aresty's other
arguments.
10 The cases Aresty cites also support our holding that the
state-law claim here is preempted because it is (1) based on the
EFAA and Regulation CC but (2) inconsistent with them in that it
would allow Aresty to avoid some of their limitations. See, e.g.,
NBT Bank, N.A. v. First Nat. Cmty. Bank, 393 F.3d 404, 417 (3d Cir.
2004) (holding that a plaintiff cannot avoid Regulation CC's
limitation on damages "merely by characterizing its claim as an
effort to hold [a defendant bank] accountable under the UCC");
Beffa v. Bank of the West, 152 F.3d 1174, 1177-78 (9th Cir. 1998)
(holding that the plaintiff's negligence claims were not preempted
because they were not based on the EFAA but instead "addresse[d] a
separate wrong, negligent deposit to the wrong account . . . [and]
involve[d] elements that are beyond the scope of [the] EFAA" —
specifically, "erroneous representations by the bank").
-10-

-- 10 of 11 --

Apparently the scam Aresty succumbed to is very sophisticated
and difficult to detect until it is too late. And we do not
downplay in the slightest the significant dent this scam made in
Aresty's finances. Nevertheless, because Aresty has not shown that
the district court abused its discretion in declining to find
Aresty's federal claim timely on equitable-tolling grounds, and
because Aresty's state claim is preempted by federal law, we affirm
the dismissal of Aresty's complaint. So ordered.
-11-

-- 11 of 11 --