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Keppler v. RBS Citizens N.A.

United States District Court, D. Massachusetts

June 24, 2014

PATRICIA M. KEPPLER, Plaintiff,
v.
RBS CITIZENS N.A., Defendant.

MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO STRIKE

F. DENNIS SAYLOR, IV, District Judge.

This is a banking law dispute arising out of a series of transfers of stolen funds. Plaintiff Patricia Keppler was, apparently, a victim of a fraud involving one or more persons in Ghana, who persuaded her to allow the use of her bank accounts to launder and transfer funds, using her home-equity line of credit account. She has brought suit against defendant RBS Citizens, N.A., contending that it illegally charged her for losses to her account.

Defendant has moved to strike the testimony of plaintiff's expert, Marie Kerr, under Fed.R.Evid. 702 and the principles of Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). For the following reasons, the motion will be granted in part and denied in part.

I. Background

A. Factual Background

1. Keppler's Financial Transfers

In 2005, Patricia Keppler opened a home-equity line of credit account ("HELOC account") with RBS Citizens, N.A. The HELOC account provided her a line of credit up to $200, 000, secured by an "open end" mortgage on a property in Barnstable County, Massachusetts. ( See Manufacturing Issue Reporting & Escalation for Business Units, Docket No. 72, Ex. 4) ("Fraud Report"). Keppler also had a personal checking account with Citizens. ( See id. ).

In 2010, Keppler apparently became involved in an online "romance fraud" with one or more persons from Ghana. ( See Keppler Dep. at 14-18). At some point, she gave her personal identifying and banking information to those persons, who were otherwise strangers to her. (Keppler Dep. at 71-74).[1] Between December 23, 2010, and January 11, 2011, fifteen transfers of funds were made from an account at Citibank into Keppler's HELOC account. (Compl. ¶ 15).[2] Keppler did not make those transfers.

The apparent purpose of the arrangement, from the standpoint of the Ghanaian perpetrators, was to launder stolen funds. ( See, e.g., id. at 14-18, 28, 34, 36-37, 46-47). The scheme was that stolen money would be transferred into Keppler's HELOC account. ( See id. ). She would then draw on the HELOC account and deposit the funds in her checking account at Citizens. ( See id. ). She would then wire the money to a bank account in Ghana. ( See id. ).

The transfers to the HELOC account were made through Citizens's automated telephone system, which permits customers to transfer money from other bank accounts to their Citizens banks accounts by telephone. (Kerr Dep. at 63-64).[3] To use the system, a customer calls the automated system's telephone number and provides a Citizens billing-account number. (Meyer Dep. at 45-46). The customer must then enter a security code chosen by Citizens; the code is often a zip code or the last four digits of the customer's social security number. ( Id. at 45-47). The customer provides the billing and routing numbers of the account the money is to be paid from, the amount of the payment, and the payment date. ( Id. at 47-48). After receipt of the proper information, the system will automatically transfer the requested money into the account. ( See id. at 48-50).

The system uses an electronic funds transfer network known as the Automated Clearing House ("ACH"). (Meyer Dep. at 31). The ACH network is governed by rules promulgated by the Electronic Payments Association ("NACHA"). ( See 2011 NACHA Operating Rules, Docket No. 72, Ex. 20 at 2).[4]

Between December 24, 2010, and January 11, 2011, someone transferred a total of $289, 732 from an account at Citibank into Keppler's HELOC account. (Compl. ¶ 15). Keppler then transferred a total of $280, 136.30 from her HELOC account into her personal checking account. ( Id. ). She then made three wire transfers from her checking account to a bank account in Ghana totaling $165, 000. ( Id. ).[5]

In January 2011, the Citibank customer from whose account the funds had been drawn reported that the transactions were unauthorized - in other words, that the money had been stolen. (DeLuca Dep., Ex. 23). Citizens notified Keppler that the bank suspected fraud. (Compl. ¶ 17). It blocked the HELOC account from originating any further transactions. (DeLuca Dep. at 72-77). It also froze Keppler's personal checking account. ( Id. at 25).

Citizens reversed the payments and sent funds back to Citibank. (Meyer Dep. at 90). The transfers to Ghana could not, however, be reversed. As a result, Citizens faced approximately $219, 000 in losses. ( See Fraud Report). After Keppler refused to refinance the mortgage on her property to cover the losses, Citizens charged the loss to her account by adding it to the principal of her loan. ( See e-mails, Docket No. 72, Exs. 5-7).

Keppler contends that the fifteen payments into her HELOC account were unauthorized because she did not initiate them. She also contends that Citizens illegally charged her for the losses because it did not more quickly identify and respond to the fraudulent activity. Citizens contends, among other things, that Keppler authorized those transfers by giving her personal identifying and banking information to the individuals who did initiate the transfers, and therefore bears responsibility for the losses.

2. Marie Kerr's Testimony

Marie Kerr is the president and founder of Shamrock Consulting Group, a professional consulting firm in the field of money laundering and financial crime. (Kerr Report, Docket No. 72, Ex. 1 at 2). According to Kerr, Shamrock provides consulting services to a wide range of clients on implementation and enhancement of anti-fraud software systems, forensic financial analysis, and risk-management procedures. ( Id. ).

Kerr has worked in the banking industry for more than thirty years, primarily in the area of designing and developing systems for monitoring electronic banking transactions to detect fraud and financial crime. (Kerr Aff. ¶ 2). She earned a Bachelor of Science in economics from Cornell University and attended one year of classes in the graduate school of management at Northwestern University. (Kerr Report at 22; Kerr Aff. ¶ 8).

Kerr is a Certified Financial Crime Specialist, a certification earned from the Association of Certified Financial Crime Specialists that requires training in detecting and dealing with financial crime. (Kerr Report at 22). She also was a Certified Anti-Money Laundering Specialist, but allowed her certification to lapse in 2012. (Kerr Aff. at 10). Kerr is not an Accredited ACH Professional, a certification provided by NACHA that requires training in ACH transactions. (Kerr Dep. at 25).

In her expert report, Kerr opined that Citizens failed to comply with the NACHA Operating Rules concerning the fifteen payments into Keppler's account and should not have allowed them to occur. (Kerr Report at 17). She also concluded that Citizens's authentication procedures for verifying the identity of an individual who is transferring money into a HELOC account over the telephone were commercially unreasonable. ( Id. ). Finally, she ...


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