Judge: Elaine Lu, Case: 22STCV04528, Date: 2022-10-13 Tentative Ruling

Case Number: 22STCV04528    Hearing Date: October 13, 2022    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Procedural Background

Plaintiff Tax Network USA, Inc. (“Plaintiff”) filed the instant action on February 4, 2022.  On April 22, 2022, Plaintiff filed the operative first amended complaint (“FAC”) against Defendants Terry Selb, Tyler Bennett, Geoff Plourde, Assured Tax Relief, LLC, American Tax Service, LLC, Elite Sales Solutions Inc., Getataxlawyer.com LLC, American Tax Solutions, LLC, and JPMorgan Chase Bank, N.A.[1]  The FAC asserts eight causes of action for (1) Violation of California Commercial Code, (2) Breach of Depositor Contract, (3) Unjust Enrichment, (4) Conspiracy to Convert Personal Property, (5) Breach of Contract, (6) Declaratory Relief, (7) Wrongful Interference with Contractual Relations and Prospective Economic Relationships, and (8) Conspiracy to violate Business and Professions Code § 17200.  The first and second causes of action are against JPMorgan Chase Bank, N.A.  The third and fourth causes of action are against Defendants Terry Selb, Tyler Bennett, Geoff Plourde, Assured Tax Relief, LLC, American Tax Service, LLC, Elite Sales Solutions Inc., Getataxlawyer.com LLC, American Tax Solutions, LLC.  The fifth, sixth and eighth causes of action are against Defendants Terry Selb and Tyler Bennett.  The seventh cause of action is against Defendants Terry Selb, Tyler Bennett, Geoff Plourde, Assured Tax Relief, LLC, and American Tax Service, LLC.

On June 1, 2022, Defendant JPMorgan Chase Bank, N.A. (“Chase Bank”) filed the instant demurrer to the second cause of action of the FAC.  No opposition or reply has been filed.

Allegations of the Operative Complaint

The FAC alleges in relevant part that:

            Plaintiff was a depositor customer of Chase Bank.  (FAC ¶ 16.)  “Plaintiff is informed and believes that defendant Chase Bank failed to implement a commercially reasonable security procedure and/or did not follow its own security procedure in the implementation of said security procedure for the authentication of a wire transfer transaction out of Plaintiff’s account on January 19.2022 [sic], at or about 10:23 A.M. which failure to implement and/or adhere to a commercially reasonable security procedure enabled an unauthorized wire transfer from Plaintiff[’]s account to be made by an unauthorized individual resulting in a loss to Plaintiff in the sum of $100,000.00.”  (FAC ¶ 18.)

            “[O]n January 19, 2022, at or about 9:58 A.M., defendant Geoff Plourde wrongfully, illegally and without the consent or permission of Plaintiff accessed Plaintiff’s bank account at Chase Bank.”  (FAC ¶ 26.) Defendant Geoff Plourde added and/or changed the authorized phone number for Plaintiff’s bank account with Chase Bank to include Defendant Plourde’s phone number without Plaintiff’s permission, knowledge, or consent.  (FAC ¶ 27.) 

            Upon learning of this unauthorized access to Plaintiff’s account, Plaintiff immediately notified Chase Bank to remove Defendant Geoff Plourde from having access to the account as an unauthorized person.  (FAC ¶ 28.)  In addition, “[a]t or about 10:05 A.M. one of Plaintiff[’]s officers went to the local branch of Chase Bank and informed a Chase Bank employee whom Plaintiff is informed and believes was an officer of the bank, that the account's security had been breached, that Geoff Plourde was an unauthorized person who had gained access to Plaintiff’s account and to monitor any transaction attempted by such unauthorized person.”  (FAC ¶ 29.)  Twenty minutes later after being put on notice, at about 10:23 A.M. Defendant Geoff Plourde initiated a wire transfer to transfer $100,000.00 from Plaintiff’s bank account with Chase Bank to an unauthorized Bank of America account.  (FAC ¶ 30.)  Despite having been put on notice and without securing two factor verification and authorization of the wire transfer, Chase Bank transferred the $100,000 pursuant to the wrongful wire transfer initiated by Geoff Plourde.  (FAC ¶ 30.)  Moreover, the transfer was done knowingly without authorization by Plaintiff.  (FAC ¶ 31.)

            In addition, Defendant Chase Bank failed to use two factor authentication “which is the commercially reasonable security procedure any reasonable banking institution would have implemented and utilized, and that the failure to implement or follow said ‘two factor’ verification and authorization procedure was the proximate and legal cause of the loss to Plaintiff as alleged herein.”  (FAC ¶ 32.)  Plaintiff notified Defendant Chase Bank of its breach in security and unauthorized transfer of funds, but Chase Bank has refused to credit Plaintiff’s amount for the wrongfully transferred funds.  (FAC ¶ 35.)

Legal Standard

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal 3d 311, 318.) No other extrinsic evidence can be considered (i.e., no “speaking demurrers”). (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.)

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.)  When considering demurrers, courts read the allegations liberally and in context.  (Taylor v. City of Los Angeles Dep’t of Water & Power (2006) 144 Cal. App. 4th 1216, 1228.)  In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice.  (Donabedian v. Mercury Ins. Co. (2004) 116 Cal. App. 4th 968, 994.)  “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters.  Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.”  (SKF Farms v. Superior Ct. (1984) 153 Cal. App. 3d 902, 905.)  “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.”  (Hahn, supra, 147 Cal.App.4th at 747.) 

A special demurrer for uncertainty, Code of Civil Procedure §430.10(f), is disfavored and will only be sustained where the pleading is so bad that defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her.  (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.)  Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Ibid.) 

Meet and Confer Requirement

Code of Civil Procedure section 430.41, subdivision (a) requires that “[b]efore filing a demurrer pursuant to this chapter, the demurring party shall meet and confer¿in person or by telephone¿with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” The parties are to meet and confer at least five days before the date the responsive pleading is due and if they are unable to meet the demurring party shall be granted an automatic 30-day extension.  (CCP § 430.41(a)(2).)  The demurring party must also file and serve a declaration detailing the meet and confer efforts.  (Id.¿at (a)(3).)¿ If an amended pleading is filed, the parties must meet and confer again before a demurrer may be filed to the amended pleading.  (Id.¿at (a).) 

Defendant Chase Bank has fulfilled the meet and confer requirement.  (Stephanyan Decl. ¶¶ 3-4.)

Discussion

Second Cause of Action: Breach of Depositor Contract

            Defendant Chase Bank asserts that the second cause of action fails because (1) Plaintiff’s claim is wholly displaced by the California Uniform Commercial Code, and (2) the second cause of action fails to state sufficient facts to state a claim.

            “The California Supreme Court's leading decision on the law in California governing wire transfers is Zengen Inc. v. Comerica Bank, supra, 41 Cal. 4th 239.”  (Prima Donna Development Corp. v. Wells Fargo Bank, N.A. (2019) 42 Cal.App.5th 22, 38.)  As the Supreme Court noted in Zengen, “‘The 1990 Legislature enacted Article 4A of the Uniform Commercial Code as Division 11 of the California Uniform Commercial Code (U.C.C. 11101 et seq.), entitled “Funds Transfers.” ’ (4 Witkin, Summary of Cal. Law (10th ed. 2005) Negotiable Instruments, § 132, p. 505.)”  (Zengen, Inc. v. Comerica Bank (2007) 41 Cal.4th 239, 247.)  This section covers wire transfers.  (Id. at p.249.)

            “‘Funds transfers involve competing interests—those of the banks that provide funds transfer services and the commercial and financial organizations that use the services, as well as the public interest. These competing interests were represented in the drafting process and they were thoroughly considered. The rules that emerged represent a careful and delicate balancing of those interests and are intended to be the exclusive means of determining the rights, duties and liabilities of the affected parties in any situation covered by particular provisions of the Article. Consequently, resort to principles of law or equity outside of Article 4A is not appropriate to create rights, duties and liabilities inconsistent with those stated in this Article.’ (Code Com., reprinted at 23D West's Ann. Cal. U. Com.Code (2002) foll. § 11102, pp. 27–28, italics added.)”  (Zengen, Inc., supra, 41 Cal.4th at p.252.)

            Accordingly, the Supreme Court concluded that “‘division 11 [of the California Commercial Code] provides that common law causes of action based on allegedly unauthorized funds transfers are preempted in two specific areas: (1) where the common law claims would create rights, duties, or liabilities inconsistent with division 11; and (2) where the circumstances giving rise to the common law claims are specifically covered by the provisions of division 11.’”  (Id. at p.253.) 

            Here, as in Zengen, Plaintiff has brought both common law claims for breach of contract as well as claims under the California Uniform Commercial Code (UCC) against Chase Bank.  The gravamen of both the California Uniform Commercial Code cause of action and the breach of contract cause of action is the same -- that Defendant Chase Bank should not have accepted and executed the wire transfer instructions from Defendant Geoff Plourde.  (FAC ¶¶ 21-43; Zengen, Inc., supra, 41 Cal.4th at p.254, [“Here, the gravamen of each of Zengen's causes of action against the Bank, including the one based on the California Uniform Commercial Code, is the same: The Bank should not have accepted and executed the fraudulent payment orders . . . the Bank violated the funds transfer authorization agreement by not obtaining verbal authorization from Liu.”].)  “The California Code squarely covers the question who should bear the loss when a bank executes an unauthorized payment order.”  (Zengen, Inc., supra, 41 Cal.4th at p.254.)  “‘Although the California Uniform Commercial Code does not catalog all the ways in which a bank may execute an unauthorized wire transfer, it certainly specifies the consequences for doing so. Section 11201 et seq. sets forth the respective rights, duties and liabilities of the parties upon the issuance and acceptance of a payment order under division 11.’ To adapt the conclusion of one court to this case, ‘[b]ecause the situation made the basis of the [plaintiff's] common-law claims—that [the Bank] made an improper funds transfer—is unequivocally addressed in the particular provisions of Article 4A, we conclude that those common-law claims are displaced by Article 4A and that the [plaintiff's] exclusive remedy for that claim must be found in Article 4A.’ [Citation.]” (Zengen, Inc., supra, 41 Cal.4th at pp.254-255.) 

Accordingly, the second cause of action for breach of contract is displaced by division 11 of the California Uniform Commercial Code.  Therefore, Plaintiff’s sole remedy is through the California Uniform Commercial code – i.e., the first cause of action against Defendant Chase Bank.  Accordingly, Defendant Chase Bank’s demurrer to the second cause of action is SUSTAINED.  As the second cause of action is clearly displaced by Division 11 of the California Uniform Commercial Code, the Court need not consider whether FAC adequately pleads a claim for breach of contract.

Leave to Amend

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the plaintiff to show the court that a pleading can be amended successfully. (Goodman v. Kennedy, supra, 18 Cal.3d at p. 348; Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) 

Here, there is no reasonable possibility of amendment as the claim is clearly barred by Division 11 of the California Uniform Commercial Code and clear Supreme Court precedence.  Accordingly, as leave would be futile, leave to amend is DENIED.

CONCLUSION AND ORDER

            Based on the foregoing, Defendant JPMorgan Chase Bank, N.A.’s demurrer to the second cause of action of the First Amended Complaint is SUSTAINED WITHOUT LEAVE.

            Defendant JPMorgan Chase Bank, N.A. is to file an answer as to the remaining claim no later than November 14, 2022.

            The case management conference is continued to November 22, 2022 at 8:30 am.

            Moving Party is to give notice and file proof of service of such.

DATED:  October 13, 2022                                                    _____________________________

                                                                                                  Elaine Lu

                                                                                                  Judge of the Superior Court