Judge: Mark H. Epstein, Case: 24SMCV03904, Date: 2025-04-21 Tentative Ruling

Case Number: 24SMCV03904    Hearing Date: April 21, 2025    Dept: I

The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND as to causes of action seven, eight, and nine.  It is OVERRULED as to cause of action ten.  The motion to strike is GRANTED. 

Plaintiff alleges conversion against various entities including the demurring party, Wells Fargo Bank (WFB).  The theory is as follows.  Plaintiff is a law firm.  Plaintiff claims that one of its employees, Makarian, had a tendency to intercept settlement checks made out to the client and the law firm.  Makarian would then falsely endorse the check and deposit the money into an account Makarian had at WFB under the name Exotic Motors.  Wells Fargo in fact deposited those checks into that account.  Plaintiff discovered the fraud eventually and fired Makarian, but not before Makarian had allegedly misappropriated over $360,000.  The suit against Makarian is easy to understand.  As to WFB it is more subtle.  The argument is that WFB was negligent in negotiating those checks.  It should have seen that the transactions were suspect and refused to cash the checks or seek payment on them or deposit the money into Exotic Motors.  WFB demurs and moves to strike.  Plaintiff does not oppose the motion to strike and does not oppose the demurrer as to the seventh and eighth causes of action.

The ninth cause of action is based on Commercial Code section 4401, which is based on the Uniform Code.  That statute provides that a “bank may charge against the account of a customer an item that is properly payable from that account . . . .  An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and the bank.”  The problem is that plaintiff is not a customer of WFB.  The statute is really one that goes to what a bank can do when it is taking money from a customer’s account and paying it over to the bank of another.  But WFB did not take money out of a customer’s account.  In fact, it put money into a customer’s account.  The statute just does not apply here, and the demurrer is SUSTAINED WITHOUT LEAVE TO AMEND.

The tenth cause of action is negligence per se.   The claim is that by negotiating the check, WFB violated 12 C.F.R. sections 229.34 and 229.38.  These regulations require a bank to exercise ordinary care and act in good faith.  But those regulations do not set forth detailed requirements that would trigger the per se doctrine.  Negligence per se is a breed of negligence.  In fact, it is no different than negligence at all.  The “per se” aspect is that the legal requirement substitutes for the standard of care.  In other words, if the law states that a floor must have footings every “x” feet, then that is the standard of care.  The defendant cannot argue that it was not negligent because the “industry standard” is really every “2x” feet or that 2x feet is just as good.  Here, the regulations do not seem to have the level of precision needed to trigger the doctrine.  Saying that a bank must exercise ordinary care does not become negligence per se.  Rather, it all devolves to ordinary negligence.  That said, because the court believes that this becomes just ordinary negligence, the court will construe it as more of a claim of general negligence.  While the particular CFR regulations are cited, they just refer back to ordinary care.  Construing this as a claim of negligence—in whatever form—the court believes it survives.  The demurrer is, for that reason, OVERRULED.

Because leave to amend is not being granted (at least unless plaintiff explains how it can plead around these problems), the court will require defendant to answer within 30 days.