SUPERIOR COURT OF THE STATE OF CALIFORNIA 

FOR THE COUNTY OF LOS ANGELES 

NORTHEAST DISTRICT 

 

 

 

I. INTRODUCTION 

Defendants Edith Enterprise Ltd. and its owner Helen Young (jointly, Edith or Defendants) operate a business in Monterey Park, California. Edith had a both a checking account and a line of credit with Citibank. Edith borrowed money on the line of credit and made payments from the checking account.  

Edith alleges that in November 2020, Citibank unilaterally and without explanation closed its checking account, which had a balance of $31,396.50. The line of credit had a balance of $22,997.79. Edith alleges it believed the checking account had been closed to pay the line of credit. 

In the main action it is alleged that Citibank sold its rights in the business loan to Plaintiff Cadlerock, who filed this action in May 2022. The complaint alleges that as of November 2021 there was an outstanding balance of $22,997.79 plus interest and late charges. It further alleges that prior to filing the lawsuit, Cadlerock corresponded with Edith about the loan. The correspondence is attached as Exhibit 4 to the Complaint; Edith’s response is at Exhibit 5. Edith explains that payments were being made by autopay for over 10 years but that on November 2, 2020, Citibank took the balance from the account ($31,396.50) and left the credit balance on the loan unpaid.  

Edith initiated a cross-complaint against Citibank. The operative First Amended Cross-Complaint (FAXC) alleges the same facts as set forth in Edith’s letter to Cadlerock (Exhibit 5 to Complaint). The central contention of the FAXC is that Citibank unilaterally and without explanation closed Edith’s checking account but did not use the money to pay the line of credit.  

In the FAXC, Edith alleges that Citibank required that one condition of the business line of credit was to designate the company’s checking account to repay the line of credit. FAXC at ¶8. In documents attached as exhibits to the main action, the August 25, 2011 letter approving the line of credit affirms that this is so. “Activation of this account is subject to receipt and satisfactory review of the following: BORROWER MUST MAINTAIN A BUSINESS CHECKING ACCOUNT WITH CITIBANK FOR DIRECT WITHDRAWAL OF LOAN PAYMENTS. THIS ACCOUNT MUST BE USED AS BORROWER’S PRIMARY OPERATING ACCOUNT.”   

Before the Court is Citibank’s motion for judgment on the pleadings as to the FAXC. For the reasons that follow, the motion is granted in part and denied in part. Leave to amend is granted. 

II. LEGAL STANDARD 

Code Civ. Proc. §438 provides for a motion for judgment on the pleadings. When made by a plaintiff, a motion may be made on the ground that the complaint states facts sufficient to constitute a cause of action and the answer does not state facts sufficient to constitute a defense. When the moving party is the defendant, the motion may be made on either one of two grounds: (1) the court lacks subject matter jurisdiction; or (2) the complaint does not state facts sufficient to constitute a cause of action against that defendant.  

“A defendant may move for judgment on the pleadings on the ground that the complaint does not state facts sufficient to state a cause of action against that defendant. (Code Civ. Proc., § 438, subd. (c)(1)(B)(ii); People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777, 174 Cal.Rptr.3d 626, 329 P.3d 180.) A motion for judgment on the pleadings ‘is equivalent to a demurrer and is governed by the same de novo standard of review.’ (Kapsimallis v. Allstate Ins. Co. (2002) 104 Cal.App.4th 667, 672, 128 Cal.Rptr.2d 358.)” Templo v. State (2018) 24 Cal.App.5th 730, 735. 

 

III. ANALYSIS 

As briefly summarized in the introduction, the gist of the FAXC is that Citibank closed Edith’s checking account and left the line of credit unpaid. Based on that simple set of facts, the pleading sets forth 7 causes of action. Citibank argues that none contain sufficient facts. 

A. Breach of Contract 

Elements: (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff. Oasis West Realty LLC v. Goldman (2011) 51 Cal.4th 811, 821.  

The FAXC does not allege these elements; except, loosely, the 2nd element, Edith’s performance. Edith does not oppose the motion by arguing otherwise, but instead urges  that an implied contract (not to make a withdrawal from Edith’s account without Edith’s authorization and knowledge) is alleged. The pleading does not contain facts supporting the existence of an agreement (whether written, oral, or implied); including which terms Citibank is alleged to have breached.  

It is possible that amendment may cure these defects.  

B. Accounting 

Elements: (1) that a relationship exists between the plaintiff and defendant that requires an accounting and (2) that some balance is due the plaintiff that can only be ascertained by an accounting. Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179. 

The facts alleged here do not demonstrate that Edith cannot tell what she is owed by Citibank. Rather, the pleading sets out the exact amount it is alleged to have taken from her account. Edith has not opposed the motion as to this cause of action, seeming to concede that the motion has merit.  

C. Conversion 

Citibank cites case law holding that banks cannot be sued for conversion because, as a matter of law, they have title to deposited funds. Morse v. Crocker National Bank (1983) 142 Cal.App.3d 228, 232; Gutierrez v. Wells Fargo & Co. (2009) 622 F.Supp.2d 946, 956. 

While numerous cases speak to this topic, they generally concern situations where a third party has defrauded a bank customer and the bank is being sued for failing to notice, failing to take better care, etc. No case with similar facts (bank empties customer’s account without explanation) has been cited. Nevertheless, case law seems fairly clear that conversion is not a viable cause of action here. 

The reason seems to stem from the fact that conversion does not lie as to money unless a specific corpus can be identified. Shahood v. Cavin (1957) 154 Cal.App.2d 745, 747. In Metropolitan Life Ins. Co. v. San Francisco Bank (1943) 58 Cal.App.2d 528, the court explained why a conversion does not lie as to banks: 

“Plaintiff, after depositing its money with The Bank of California, was no longer the owner or entitled to the possession of any specific money which was the subject of conversion and when The Bank of California paid the amount appearing on the face of the checks to The San Francisco Bank, it paid out its own money and not that of plaintiff. (9 C.J.S. 735) The suggested theory that The San Francisco Bank converted ‘plaintiff’s money’ violates ‘the elemental principle that a depositor has no claim to any specific assets in his bank ...’ (36 Har.L.Rev. 879.)” Id. at 534.  

Edith does not oppose this portion of the motion.  

D. Negligence 

Elements: duty; breach; causation; damages. Thomas v. Stenberg (2012) 206 Cal.App.4th 654, 662.  

These elements are alleged and Citibank does not argue otherwise. It raises other arguments, including that this cause of action is barred by the “economic loss” rule. “We begin with a review of the contours of the economic loss rule. The rule itself is deceptively easy to state: In general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage. (Gas Leak Cases, supra, 7 Cal.5th at p. 400, 247 Cal.Rptr.3d 632, 441 P.3d 881; see also Aas, supra, 24 Cal.4th at p. 636, 101 Cal.Rptr.2d 718, 12 P.3d 1125 [‘In actions for negligence, a manufacturer’s liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone. [Citation.] This general principle [is] the so-called economic loss rule’]; Seely v. White Motor Co. (1965) 63 Cal.2d 9, 18, 45 Cal.Rptr. 17, 403 P.2d 145 (Seely) [similar]; Rest., § 1 [‘An actor has no general duty to avoid the unintentional infliction of economic loss on another’].)” Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922.  

This argument is well taken. Edith alleges only economic harm and thus the claim is barred by the economic loss rule. The motion is granted on this basis. The other arguments Citibank raises are discussed briefly. 

Citibank urges that this cause of action is barred by Code Civ. Proc. §339’s two-year statute of limitations. “Code of Civil Procedure section 339, subdivision (1) has been consistently applied to a range of professional negligence actions from those against accountants to those against real estate appraisers.” Thompson v. Canyon (2011) 198 Cal.App.4th 594, 606. Edith has argued delayed discovery, which may be a viable explanation for the later filing against Citibank.  

Citibank also argues that this cause of action fails because the duty owed is only contractual, and not founded in tort. As breach of contract is not at this point sufficiently alleged, it is not clear that the alleged conduct breached a contract term. And banks do owe duties of care to their customers. “It is well established that a bank has ‘a duty to act with reasonable care in its transactions with its depositors....’ (Bullis v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801, 808, 148 Cal.Rptr. 22, 582 P.2d 109.) The duty is an implied term in the contract between the bank and its depositor. (See Barclay Kitchen, Inc. v. California Bank, supra, 208 Cal.App.2d at p. 353, 25 Cal.Rptr. 383.)” Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 543.  

E. Fraudulent Transfer 

It is not clear what the basis is for this claim. To the extent Edith was intending to allege a fraudulent conveyance pursuant to Civ. Code §§ 3439 et seq., it fails as the facts do not indicate a transfer to avoid a creditor. Edith does not defend this cause of action in its opposition. The motion is granted. 

F. Unfair Competition, Bus. & Prof. Code §17200 

Unfair competition means any “unlawful, unfair or fraudulent business act or practice.” B&P Code §17500.  

Citibank argues Edith cannot meet the standing requirement. B&P Code §17204 requires that a plaintiff have suffered “injury in fact and has lost money or property as a result of the unfair competition.” This argument lacks merit, since the central contention of the pleading is that Citibank emptied Edith’s account.  

Citibank argues the alleged violation of the statute is not alleged with sufficient particularity, citing Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619. Here, rather than vague allegations about misleading customers, Edith alleges that Citibank emptied its account without explanation. That is sufficiently particular to allege a violation under either the unfair, or fraudulent prongs of the statute. It may also be unlawful but the pleading does not identify a law on which the violation is based.  

While there has been some disagreement as to what constitutes “unfair” conduct, in the consumer context the trend is to apply the unfairness factors found in section 5 of the  Federal Trade Commission Act: (1) The consumer injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided. Davis v. Ford Motor Credit Co., LLC (2009) 179 Cal.App.4th 581, 597. The allegations here meet that standard. The consumer injury is substantial when a financial institution empties a customer’s account. The injury is not outweighed by any countervailing benefit to consumers. And the consumer could not reasonably avoid the injury.  

In sum, a claim under the UCL is adequately alleged. 

G. Common Count – Account Stated 

Citibank urges that a claim for money had and received fails because there is an express contract covering the same transaction. At this point, it is not clear whether an agreement exists. Citibank also urges that this claim fails for the same reason as conversion, namely that once funds are deposited banks may use them for their own purposes. Conversion is different because of the requirement that specific money be identified. Depositors are not entitled to claim the exact funds they deposited but they may reasonably expect that banks will not empty their accounts without explanation.  

 

IV. ORDER 

Citibank’s motion for judgment on the pleadings is denied as to the 6th cause of action for unfair competition and the 7th cause of action for money had and received. The motion is otherwise granted with 20 days’ leave to amend. Citibank to give notice. 

 

Dated: _______________________________ 

      MARGARET L. OLDENDORF 

         JUDGE OF THE SUPERIOR COURT