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Deutsche Bank National Trust Co. v. Buck

United States District Court, E.D. Virginia, Richmond Division

March 29, 2019

CRAIG BUCK, and THE BUCK LAW FIRM, PC, Defendants, and Third-Party Plaintiffs,


          M. Hannah Lauck, United States District Judge

         This matter comes before the Court on Third-Party Defendant Altisource Portfolio Solutions, Inc.'s ("Altisource") Motion to Dismiss the Buck Parties'[1] Third-Party Complaint (the "Motion to Dismiss"). (ECF No. 12.) The Buck Parties responded, (ECF No. 16), and Altisource replied, (ECF No. 17). This matter is ripe for disposition. The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. The Court properly exercises jurisdiction pursuant to 28 U.S.C. § 1332.[2] For the reasons that follow, the Court will grant the Motion to Dismiss and grant the Buck Parties leave to amend the Buck Third-Party Complaint.

         I. Procedural and Factual Background

         A. Procedural Background

         Deutsche filed a two-count complaint against the Buck Parties, asserting one breach of contract claim and one negligence claim. The Buck Parties timely filed an Answer to the Deutsche Complaint. (ECF No. 4.)

         Thirteen days after they filed their Answer, the Buck Parties filed their Third-Party Complaint against Altisource, alleging claims for contribution and equitable indemnification. Altisource filed the Motion to Dismiss, the Buck Parties responded in opposition, and Altisource replied.

         B. Factual Allegations[3]

         The allegations in both the Deutsche Complaint and the Buck Third-Party Complaint arise from a real estate transaction in which an unidentified, non-party hacker (the "Hacker")

         allegedly caused funds to be misdirected to the Hacker and away from the proper party, Deutsche. Deutsche had engaged the Buck Parties to perform the closing as part of the real estate transaction. Deutsche had also engaged Altisource to act on its behalf in effectuating the real estate transaction. In its role, Altisource "communicate[d] with the parties to the transaction and facilitate[d] the sale and [c]losing." (Buck Third-Party Compl. ¶ 9.) As part of its duties, Altisource communicated with the Buck Parties and "convey[ed] to the [Buck Parties] payoff instructions for the [c]losing." (Id. ¶¶ 10-11.)

         According to the Buck Parties, prior to closing the real estate transaction the Hacker obtained access to "confidential email communications containing the financial information of Altisource's customers, like Deutsche." (Id. ¶ 13.) From this breach, the Hacker learned of the upcoming funds transfer between the buyer of the real estate and Deutsche. With this knowledge, the Hacker "mimicked" the email address Altisource used and provided fraudulent wiring instructions to the Buck Parties. (Id. ¶ 16.) The Buck Parties received the transfer money from the buyer and, following the fraudulent wiring instructions, wired the money to a bank account that presumably belonged to the Hacker. At the time, the Buck Parties believed they had wired the money to a Deutsche account.

         The Buck Parties contend that "Altisource knew or should have known of the hacking that had been taking place in its email... and... failed to notify and warn its customers (like Deutsche ...) or those with whom it had business (like the [Buck Parties]...)." (Id. ¶ 18.) The Buck Parties aver that, even though the closing took place on March 15, 2016, and the Buck Parties transferred the funds on March 18, 2016, Altisource did not inquire about the transfer until "the latter part of April[] 2016." (Id. ¶¶ 17, 19.) According to the Buck Parties, Altisource's delay made it impossible to track the misdirected funds.

         II. Standard of Review: Federal Rule of Civil Procedure 12(b)(6)

         "A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint; importantly, it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (citing 5 A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1356 (1990)). To survive Rule 12(b)(6) scrutiny, a third-party complaint must contain sufficient factual information to "state a claim to relief that is plausible on its face." Bell Ail. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Fed. R. Civ. P. 8(a)(2) ("A pleading that states a claim for relief must contain... a short and plain statement of the claim showing that the pleader is entitled to relief.") Mere labels and conclusions declaring that the plaintiff is entitled to relief are not enough. Twombly, 550 U.S. at 555. Thus, "naked assertions of wrongdoing necessitate some factual enhancement within the [third-party] complaint to cross the line between possibility and plausibility of entitlement to relief." Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (internal quotation marks omitted).

         A third-party complaint achieves facial plausibility when the facts contained therein support a reasonable inference that the defendant is liable for the misconduct alleged. Twombly, 550 U.S. at 556; see also Ashcroft v. Iqbal, 556 U.S. 662 (2009). This analysis is context-specific and requires "the reviewing court to draw on its judicial experience and common sense." Francis, 588 F.3d at 193. The Court must assume all well-pleaded factual allegations to be true and determine whether, viewed in the light most favorable to the plaintiff, they "plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 678-79.

         III. Analysis:

         The Court Will Grant the Motion to Dismiss Because the Buck Third-Party Complaint Fails to Identify a Duty Altisource Owed to Deutsche

         A. Materials Beyond the Scope of the Court's Consideration

         Because briefing by all parties extends far beyond allegations in the Buck Third-Party Complaint, the Court feels constrained to clarify what allegations and arguments it will not consider in assessing the Motion to Dismiss, and why. Altisource has not demonstrated how or why the Court can incorporate the Deutsche allegations when weighing dismissal of an entirely separate Third-Party Complaint. Nor does the record reflect that the Buck Parties agree to considering such facts. Especially because the Court reviews all well-pleaded factual allegations in the Buck Third-Party Complaint favorably to the Buck Parties, the Court will not look to these allegations for purposes of the third-party Motion to Dismiss.

         1. Altisource's Argument Regarding the Source of Duty Rule Fails Because the Existence of a Contract Lies Beyond the Scope of the Court's Consideration

         First, citing both the Deutsche Complaint and the Buck Third-Party Complaint, Altisource contends that a contract governs the relationship between Altisource and Deutsche. Altisource then invokes Virginia's source-of-duty rule, which provides that "[a] tort action cannot be based solely on a negligent breach of contract." Richmond Metro. Auth. v. McDevitt St. Bovis, Inc., 507 S.E.2d 344, 347 (Va. 1998). According to Altisource, because a contract governs, the Buck Parties cannot sustain the tort-based negligence claims that stand before the Court.[4]

         Under the source-of-duty rule, the Court must determine whether the "source of the duty" originates in tort or contract. Richmond Metro. Auth., 507 S.E.2d at 347. The Supreme Court of Virginia has found that "in certain circumstances [a party can] show both a breach of contract and a tortious breach of duty," but "the duty tortiously or negligently breached must be a common law duty, not one existing between the parties solely by virtue ...

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