Judge: Frank M. Tavelman, Case: 24NNCV02578, Date: 2025-01-03 Tentative Ruling

Case Number: 24NNCV02578    Hearing Date: January 3, 2025    Dept: NCA

LOS ANGELES SUPERIOR COURT

NORTH CENTRAL DISTRICT - BURBANK

DEPARTMENT A

DEMURRER TO CROSS-COMPLAINT

NOTICE:

The Court is not requesting oral argument on this matter.  The Court is guided by California Rules of Court, Rule 3.1308(a)(1) whereby notice of intent to appear is requested.  Unless the Court directs argument in the Tentative Ruling, no argument is requested and any party seeking argument should notify all other parties and the court by 4:00 p.m. on the court day before the hearing of the party’s intention to appear and argue.  The tentative ruling will become the ruling of the court if no argument is received.  

Notice may be given either by email at BurDeptA@LACourt.org or by telephone at (818) 260-8412.

ALLEGATIONS: 

General Facts

This is an interpleader action brought by East West Bank (East West). On June 27, 2024, East West filed its interpleader Complaint naming Che-Min Kuo (Kuo), Jianhua Fu (Fu), Hua Meng (Meng), and Annie Hou (Hou) as Defendants. On September 17, 2024, East West’s proposed order to deposit interpleader funds with the Court was granted. East West subsequently deposited $1,275,047.68 in interpleader funds with the Court.

On September 16, 2024, Hou filed her Cross-Complaint against Kuo and Fu. Hou alleges in February 2024, Fu approached her, “…about needing a large amount of RMB currency in China because Fu had made an agreement with an individual who wanted to convert their US dollars situated in the United States into local RMB currency in China.” (Hou CC ¶ 17.) Hou alleges the individual Fu made the agreement with was Kuo. (Hou CC ¶ 18.)

Hou alleges that she and Fu subsequently entered into a verbal agreement whereby Hou would transfer a specific sum of RMB to Fu’s accounts in China and, in exchange, U.S. funds would be deposited in Hou’s account. (Hou CC ¶ 19.) On February 16, 2024, Hou opened an account with East West to facilitate this agreement. (Hou CC ¶ 14.)

Also on September 16, 2024, Fu and Meng filed their Cross-Complaint against Kuo, Vincent Song (Song), and East West.

Fu alleges he met Song in September 2023, during which time Fu disclosed to Song learned that Fu held RMB in Chinese bank accounts and wanted to convert this currency to US dollars. (Fu CC ¶ 9.) Fu alleges Song claimed that he could assist in the currency exchange. (Fu CC ¶ 10.) Fu initially requested that Song transfer $1.24 million to an account with East West owned by Fu’s business partner and $60,000.00 to Meng and Fu's shared account with East West. (Fu CC ¶ 11.)

Song allegedly disagreed with the instructions and instead instructed Fu to first wire the RMB to various Chinese bank accounts. (Fu CC ¶ 12.) Between February 2, 2024, and February 8, 2024, Fu instructed Hou to wire a total of 10,500,000.00 RMB to these accounts. (Fu CC ¶ 15, Hou CC ¶¶ 21-25.). Kuo then wired the following amounts to Fu and Meng's joint account with East West:

·         February 6, 2024: $650,000.00.

·         February 7, 2024: $450,000.00.

·         February 8, 2024: $200,000.00.

(Fu CC ¶ 16.)

Fu and Meng allege that Kuo then contacted East West and claimed the transfers were unauthorized. (CC ¶ 19.)  Fu and Meng allege they do not know Kuo or why the wire transfers came from his account. (CC ¶ 17.) Hou also alleges that Kuo contacted East West to dispute the wire transfers. (Hou CC ¶ 26.) As a result, East West froze the accounts of Hou, Fu, and Meng and proceeded with this interpleader action. (Hou CC ¶¶ 27-28.)

On October 16, 2024, Kuo filed his Cross-Complaint as against Fu, Meng, and YQW Invest, LLC. Kuo alleges that he was incarcerated in Taipei at the time of the alleged transactions and that the wire transfers to East West were the result of identity theft. (Kuo CC ¶¶ 18-28.)    

Motions Before the Court

Before the Court are:

(1)   East West’s demurrer to the cause of action for Negligence in Fu and Meng’s Cross-Complaint

(2)   Fu and Meng’s demurrer to causes of action for Injunctive Relief, Intentional Misrepresentation, and Negligent Misrepresentation in Kuo’s Cross-Complaint.

Fu and Meng oppose the demurrer of East West and East West replies. Kuo has not opposed the demurrer of Fu and Weng, though this is likely because they were never served with notice.

ANALYSIS: 

I.                    LEGAL STANDARD 

The grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. (C.C.P. § 430.30(a); Blank v. Kirwan (1985) 39 Cal. 3d 311, 318.) A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) The only issue involved in a demurrer hearing is whether the complaint states a cause of action. (Id.)

A demurrer assumes the truth of all factual, material allegations properly pled in the challenged pleading. (Blank v. Kirwan, supra, 39 Cal. 3d at p. 318.) No matter how unlikely or improbable, the plaintiff’s allegations must be accepted as true for the purpose of ruling on the demurrer. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.  App. 3d 593, 604.) But this does not include contentions; deductions; conclusions of fact or law alleged in the complaint; facts impossible in law; or allegations contrary to facts of which a court may take judicial notice.  (Blank, supra, 39 Cal. 3d at 318.)

Pursuant to C.C.P. §§ 430.10(e) and (f), the party against whom a complaint has been filed may demur to the pleading on the grounds that the pleading does not state facts sufficient to constitute a cause of action, or that the pleading is uncertain, ambiguous and/or unintelligible. It is an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable probability that the defect can be cured by amendment. (Schifando v. City of Los Angeles (2003) 31 Cal. 4th 1074, 1082.)

II.                 MERITS

Fu and Meng’s Demurrer to Kuo’s Cross-Complaint

C.C.P. § 1005 requires that a moving party serve notice of their motion and the motion on the opposing party no later than 16 court days prior to the scheduled hearing. Fu and Meng’s demurrer to Kuo’s Cross-Complaint contains no proof of service upon Kuo or his attorney of record. Despite attempting to meet and confer with Kuo’s counsel (Frank S. Hwu) it does not appear that Fu and Meng’s counsel ever served him with the demurrer. (Li Decl. Exhs. A-B.) The proof of service, attached to the Demurrer itself, shows the notice was only served on counsel for East West and Hou.

Accordingly, Fu and Meng’s demurrer is OVERRULED for failure to provide the statutorily required notice.

East West’s Demurrer to Fu and Meng’s Cross-Complaint

As a preliminary matter, the Court finds East West has complied with the meet and confer requirements set forth in C.C.P. §§ 430.41(a). (Jung Decl. ¶ 4, Exh. A.)

East West demurs to the fourth cause of action for Negligence, the only one stated against it, on grounds that the Cross-Complaint fails to allege sufficient facts. Specifically, East West argues that Fu and Weng have pled insufficient facts as to the existence of a duty which East West owed them.

In stating their claim for Negligence against East West, Fu and Meng allege the following:

·         The relationship between a bank and its depositor is founded on contract, and it is an implied contractual duty of a bank to act with reasonable care in its transactions with its depositors. This includes adherence to Know Your Customer practices. (Fu CC ¶ 34.)

·         East West holds all of the defendants’ deposit accounts and handled wire transfers to and from the parties. (Fu CC ¶ 35.)

·         All of the wire transfers challenged by cross-defendant Kou as being unauthorized originated in East West. (Fu CC ¶ 36.)

·         East West breached its duty of care by not following appropriate Know Your Customer procedures. (Fu CC ¶ 37.)

East West argues the above facts are insufficient to establish the existence of a duty they owed to Fu and Meng. For reasons stated below, the Court agrees.

While a bank has a duty to act with reasonable care in transactions with its depositors, the bank is not a fiduciary and owes no duty to supervise account activity. (Kurtz-Ahlers, LLC v. Bank of America, N.A. (2020) 48 Cal.App.5th 952, 956. [citations omitted].) A bank's duties to its depositor under the account agreement are narrow in scope, including wrongful dishonor of checks, duty to dishonor checks lacking required signatures, and rendering accurate account statements. (Id. at 956.)

There is no duty to “supervise account activity or to inquire into the purpose for which funds are being used.” (Id. quoting Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 537.) Further, a bank has no legal duty to, “…supervise account activity or otherwise track frequent and/or large dollar transactions…” (Software Design & Application, Ltd. (1996) 49 Cal.App.4th 472, 481.) Nor does a bank have a duty to “…inquire into the purpose for which funds are being used…” (Keeney v. Bank of Italy (1917) 33 Cal.App. 515, 518.)

Here, the Cross-Complaint contains insufficient facts to establish that East West owed Fu and Meng a duty of care. It is readily apparent from the Cross-Complaint that Fu and Meng’s Negligence cause of action is premised on East West’s alleged failure to adhere it its “Know Your Customer” procedures. (CC ¶¶ 36-38.) The Cross-Complaint makes no effort to explain what these procedures are, or how East West failed to adhere to them. Regardless, it is clear that Fu and Meng allege East West was negligent for failing to sufficiently vet the wire transfers. This is insufficient because the law is clear that banks do not owe a duty to their customers to conduct such preliminary investigations.

In opposing this demurrer, Fu and Meng rely primarily on Basch v. Bank of America (1943) 22 Cal.2d 316, 321. The Court notes that Basch was superseded by statute, specifically the enactment of California Uniform Commercial Code § 4-401, as noted in Chino Commercial Bank, N.A. v. Peters (2010) 190 Cal.App.4th 1163, 1173. Fu and Meng’s briefing does not mention that the holding on which it primarily relies was superseded. In any event, Chino Commercial makes clear that Basch no longer governs the viability of Negligence claims against a bank. (Chino Commercial supra, 190 Cal.App.4th at 1173. [“This provision displaces a common law claim for negligent payment of an ‘item’ on a customer's account.”].)

In short, Fu and Meng have not sufficiently pleaded their cause of action for Negligence. The factual allegations of the Cross-Complaint do not support any duty owed by East West to Fu and Meng. In fact, the factual allegations make clear that this cause of action is premised on actions which case law has disavowed as a basis for duty. As such, the Court does not see a way in which Fu and Meng could amend to cure this deficiency without running afoul of the sham pleading doctrine. Accordingly, East West’s demurrer to the cause of action for Negligence is SUSTAINED without leave to amend.

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RULING:

In the event the parties submit on this tentative ruling, or a party requests a signed order or the court in its discretion elects to sign a formal order, the following form will be either electronically signed or signed in hard copy and entered into the court’s records. 

ORDER 

East West Bank and Jianhua Fu & Hua Meng’s Demurrers came on regularly for hearing on January 3, 2025, with appearances/submissions as noted in the minute order for said hearing, and the court, being fully advised in the premises, did then and there rule as follows: 

FU AND MENG’S DEMURRER TO THE CROSS-COMPLAINT OF KUO IS OVERRULED FOR FAILURE TO PROVIDE NOTICE PURSUANT TO C.C.P. § 1005.

EAST WEST’S DEMURRER TO THE CROSS-COMPLAINT OF FU AND MENG IS SUSTAINED WITHOUT LEAVE TO AMEND.

EAST WEST TO PROVIDE NOTICE.

IT IS SO ORDERED. 

DATE:  January 3, 2025                            _______________________________ 

                                                                        F.M. TAVELMAN, Judge 

Superior Court of California 

County of Los Angeles