Judge: Mel Red Recana, Case: 22STCV32196, Date: 2024-05-07 Tentative Ruling
All rulings shown here are TENTATIVE ONLY, and thus oral argument WILL be heard. All Counsel are still required to attend.
Case Number: 22STCV32196 Hearing Date: May 7, 2024 Dept: 45
Hearing date: May 7, 2024
Moving Party: Defendant JP Morgan Chase Bank, N.A.
Responding
Party: Plaintiff AC Floor Covering
Company, Inc.
Demurrer to Plaintiff’s First Amended Complaint
The court has
considered the moving papers and opposition. No reply brief was filed.
The demurrer
filed by Defendant JP Morgan Chase Bank, N.A. is SUSTAINED with 20 days leave
to amend.
Background
This
is an action arising from fraudulent actions pertaining to Plaintiff’s business
checking account. On September 30, 2022, Plaintiff AC Floor Covering Company,
Inc. (“Plaintiff”) filed a Complaint against Defendants JP Morgan Chase Bank,
N.A. (“Defendant”) and DOES 1 to 20, inclusive, alleging causes of action for:
(1) breach of contract; (2) tortious breach of the covenant of good faith and
fair dealing; (3) accounting and breach of fiduciary duties; (4) negligence;
and (5) unfair and unlawful business practice.
On
January 20, 2023, Defendant filed a demurrer and motion to strike as to the
Complaint.
Prior
to the October 25, 2023 hearing on the demurrer and motion to strike, Plaintiff
filed the operative First Amended Complaint (“FAC”) against Defendant on
October 13, 2023.
The
FAC alleges the following causes of action against Defendant: (1) breach of
contract; (2) violation of the Uniform Commercial Code section 4401(1); (3) money
damages pursuant to Civ. Code § 1714(a) and Com. Code § 3401(1); (4)
negligence; and (5) unlawful and unfair business practices.
On
December 23, 2023, Defendant filed and served the instant demurrer to the FAC.
Defendant demurs to the first, third, fourth, and fifth causes of action in the
FAC.
On
April 26, 2024, Plaintiff filed its opposition to the demurrer. As of May 3,
2024, no reply brief has been filed. Any reply brief was required to have been
filed and served at least five court days prior to the hearing pursuant to CCP
§ 1005(b).
Meet and Confer
Before
filing a demurrer, the demurring party is required to meet and confer with the
party who filed the pleading sought to be demurred to, in person or
telephonically or by video conference, for the purposes of determining whether
an agreement can be reached through a filing of an amended pleading that would
resolve the objections to be raised in the demurrer. (Code Civ. Proc., §
430.41, subd. (a).) An insufficient meet and confer process concerning a
demurrer is not grounds to sustain or overrule a demurrer. (Code Civ. Proc., §
430.41, subd. (a)(4).)
Counsel
for Defendant, Stephanie Jones Nojima, Esq. (“Nojima”), declares that on
December 4, 2023, Defendant’s counsel and Plaintiff’s counsel had a telephonic
meet and confer; however, the parties did not resolve the issues presented in
the instant demurrer. (Nojima Decl., ¶ 5.)
The Court finds that the meet and
confer requirement has been met.
Legal
Standard
“A demurrer tests the sufficiency of a
complaint as a matter of law.” (Durell v. Sharp Healthcare (2010) 183
Cal.App.4th 1350, 1358.) “[T]he court gives the complaint a reasonable
interpretation, and treats the demurrer as admitting all material facts
properly pleaded.” (Ibid.) In
testing the sufficiency of the complaint, the court must assume the truth of
(1) the properly pleaded factual allegations; (2) facts that can be reasonably
inferred from those expressly pleaded; and (3) judicially noticed matters. (Blank
v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer tests the pleadings alone
and not the evidence or other extrinsic matters. (SKF Farms v. Superior
Court (1984) 153 Cal. App. 3d 902, 905.) In assessing a demurrer, a court
can consider facts in exhibits attached to the complaint. (Picton v.
Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.) Accordingly,
“[w]hether the plaintiff will be able to prove the pleaded facts is irrelevant
to ruling upon the demurrer.” (Stevens v. Superior Court (1986) 180
Cal.App.3d 605, 609-10.) A general demurrer may be taken to a complaint where
“[t]he pleading does not state facts sufficient to constitute a cause of
action.” (Code Civ. Proc. § 430.10(e).) Although courts construe pleadings
liberally, sufficient facts must be alleged to support the allegations plead to
survive a demurrer. (Rakestraw v. California Physicians' Serv. (2000) 81
Cal.App.4th 39, 43.)
Where a
demurrer is sustained, leave to amend must be allowed where there is a
reasonable possibility of successful amendment. (Goodman
v. Kennedy (1976) 18 Cal.3d 335, 349.) The burden is on the plaintiff
to show the court that a pleading can be amended successfully. (Ibid.)
“If there is any reasonable possibility that the plaintiff can state a good
cause of action, it is error to sustain a demurrer without leave to amend.” (Youngman
v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245.)
Discussion
Pertinent
Allegations of the FAC
The Court finds it necessary to
set forth the pertinent allegations of the FAC. Plaintiff alleges the
following: Plaintiff is a registered California business entity. (FAC, ¶ 1.) In
or around February 2018, Plaintiff opened a business checking account, designated
as No.: 000000235729073, with Defendant at its branch located in San Fernando
Valley, Los Angeles County, and the deposit account was governed by the terms
and conditions set forth in the passbook and a signature card contract. (FAC, ¶
6.) Pursuant to the terms of the agreement entered into between the Plaintiff
and Defendant, that if Plaintiff issued checks containing the proper signature
on file, Defendant would honor the payment on the check. (FAC, ¶ 5.) If forged
checks and unauthorized instruments are presented to Defendant for payment out
of Plaintiff’s account, the Defendant is to make sure it pays all items
properly payable in compliance with depositor’s instructions. (FAC, ¶ 5.)
Within the last five years from the date of this action, Plaintiff has
deposited, or has authorized third parties to deposit funds in the subject
account. (FAC, ¶ 6.) For the several years that Plaintiff had its bank accounts
opened with Defendant, Plaintiff rarely issued checks from the bank accounts
opened with Defendant. (FAC, ¶ 7.)
For
a period between November 22, 2021 through November 30, 2021, Defendant paid
out a total amount of $44,404.99 from Plaintiff’s bank account. (FAC, ¶ 8.)
Majority of the funds paid out during these periods were unlawfully paid out by
Defendant even though Defendant knew or should have known that forged and
unauthorized signatures on checks were being used without sufficient authorized
drawee’s signatures on the checks. (FAC, ¶ 8.) In the month of December 2021, a
total of 17 unauthorized transactions were approved for payments by Defendant
even though the Defendant knew or should have known that forged and
unauthorized signatures were being used without sufficient authorized
signatures on the checks. (FAC, ¶ 9.) In the month of January 2021, a total of
22 unauthorized transactions were again approved for payments by Defendant even
though Defendant knew or should have known that forged signatures and
unauthorized checks were being used without sufficient authorized signatures on
the checks. (FAC, ¶ 10.) Defendant has admitted liability when it reimbursed
Plaintiff some of the money unlawfully paid out of Plaintiff’s bank account
when forged and fraudulent signatures were used to withdraw thousands of
dollars from Plaintiff’s account. (FAC, ¶ 11.)
Defendant
is liable for its duties to Plaintiff when Defendant paid on the checks on
which Plaintiff’s signatures were not authorized on all the transactions
Defendant made payments upon. (FAC, ¶ 12.) Checks with forged endorsements
should not be payable by Plaintiff’s bank when Defendant at all times knew or
should have known that Plaintiff did not conduct the transactions based on
forged drawer’s signature that did not match Plaintiff’s signature. (FAC, ¶
12.) The FAC is made against Defendant for the recovery of the deposit of funds
on deposit with Defendant. (FAC, ¶ 13.) Plaintiff has made a demand for the
reimbursement of funds that were fraudulently stolen from Plaintiff’s bank
account when Defendant paid out the funds from Plaintiff’s bank account even
though Defendant knew or should have known that forged signatures and forged
checks were being used to withdraw the funds from Defendant’s possession. (FAC,
¶ 13.)
Within
a period of three months, Plaintiff’s bank account was drained of thousands
when a person made several unauthorized withdrawals from the account exceeding
over $100,000. (FAC, ¶ 14.) These withdrawals were done through the use of
forged signatures and forged checks that were used to withdraw the money from
Plaintiff’s bank account. (FAC, ¶ 14.) Based on the agreement entered into with
Defendant, it was agreed that Defendant would monitor Plaintiff’s bank activity
for fraudulent transactions and alerts would be issued and Plaintiff would be
notified of any irregularities. (FAC, ¶ 15.) When Plaintiff discovered these
unlawful and unauthorized withdrawals, Plaintiff immediately notified Defendant
who blocked the account. (FAC, ¶ 16.) Plaintiff alleges and believes that
Defendant should have detected the fraudulent activities from the moment they occurred
because facts will show that Plaintiff never made such rapid and successive
withdrawals from the bank account in the past. (FAC, ¶ 16.) At no time did
Plaintiff ever consent to the unauthorized withdrawals of the funds from its
bank account. (FAC, ¶ 17.)
Upon
filing a claim with Defendant, Defendant has only paid Plaintiff the amount of
$91,291.28 and refused to pay the rest of the funds stolen. (FAC, ¶ 19.) The
balance of the funds owed and due to Plaintiff is $42,744.33. (FAC, ¶ 19.)
Based on the fact that Defendant paid Plaintiff some of the funds it paid out
of Plaintiff’s bank account when forged and fraudulent signatures were used to
withdraw thousands of dollars from Plaintiff’s account, Defendant has admitted
fault for its negligent duty owed to Plaintiff arising from the incidents.
(FAC, ¶ 20.) Plaintiff alleges and believes that Defendant knew of the alleged
fraudulent activities from the first transaction of November 16, 2021 when
Defendant honored the forged check with forged signature on the check when it
was presented to Defendant for payment. (FAC, ¶ 21.) Subsequently, Defendant
has paid over 30 plus checks that were presented to it even though Defendant
knew that forged signatures and unauthorized checks were being used without
sufficient authorized signatures on the checks. (FAC, ¶ 22.)
Plaintiff
alleges that Defendant is liable for its breach of duty when it failed to
safeguard Plaintiff’s funds and should have known that the signatures on the
forged checks did not match the signature on record. (FAC, ¶ 24.) Defendant is
charged with knowledge of the depositor’s signature. (FAC, ¶ 24.) Plaintiff has
demanded that Defendant pay back the funds taken but Defendant has refused even
though Defendant had a duty to protect Plaintiff’s money lawfully placed in
Defendant’s trust. (FAC, ¶ 25.) Despite Plaintiff’s demands that Defendant pay
back the money wrongfully taken from the account, Defendant refused, and has
not paid Plaintiff the monies in the account, and there is now due, owing, and
unpaid an undetermined amount in said account, with interest. (FAC, ¶ 26.)
Plaintiff alleges that it was at all times entitled to the immediate and
exclusive possession of the entire contents in bank account No. 000000235729073
with Defendant. (FAC, ¶ 27.)
First Cause of Action for Breach of
Contract
Defendant
contends that the first cause of action for breach of contract is insufficient
because it does not adequately plead the terms of the contract or Plaintiff’s
own performance. Plaintiff asserts that its breach of contract claim is proper.
To state a cause
of action for breach of contract, Plaintiff must be able to establish “(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.)
If a breach of
contract claim “is based on alleged breach of a written contract, the terms
must be set out verbatim in the body of the complaint or a copy of the written
agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999)
74 Cal.App.4th 299, 307.) In some circumstances, a plaintiff may also “plead
the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v.
TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.)
The Court finds
that the first cause of action is insufficiently alleged. While the first cause
of action incorporates the preceding allegations of the FAC, Plaintiff has not
set forth the terms of the contract in the body of the complaint or attached a
written copy of the contract. (FAC, ¶¶ 28-57.) The first cause of action merely
recites the preceding allegations of the FAC. (See FAC, ¶¶ 6-27; see also FAC,
¶¶ 28-57.) Pursuant to the first cause of action, Plaintiff has also failed to
allege that it performed under the contract or was excused from performance.
(FAC, ¶¶ 28-57.)
As such, the
first cause of action for breach of contract is insufficiently alleged. The
Court therefore SUSTAINS the demurrer of Defendant to the first cause of action
in the FAC with 20 days leave to amend.
Third Cause of Action for Money Damages
Defendant asserts that the third cause of
action is barred by the economic loss rule. Plaintiff contends that its third
cause of action pleads sufficient facts to overcome Defendant’s demurrer.
“[T]he economic loss rule prevent[s] the
law of contract and the law of tort from dissolving into one another.” (Robinson
Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) The
economic loss rule provides that “there is no recovery in tort for negligently
inflicted purely economic losses, meaning financial harm unaccompanied by
physical or property damage.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12
Cal.5th 905, 922.) The economic loss rule “functions to bar claims in
negligence for pure economic losses in deference to a contract between
litigating parties.” (Ibid.) “[T]here is no liability in tort for
economic loss caused by negligence in the performance or negotiation of a
contract between the parties.” (Id. at p. 923.) The economic loss rule
bars claims “when they arise from—or are not independent of—the parties’
underlying contracts.” (Ibid.)
Initially, the Court notes that
Plaintiff’s third cause of action for money damages is brought pursuant to Civ.
Code sections 1714(a) and Commercial Code section 3401(1). Civ. Code § 1714(a)
provides that “[e]veryone is responsible, not only for the result of his or her
willful acts, but also for an injury occasioned to another by his or her want
of ordinary care or skill in the management of his or her property or person,
except so far as the latter has, willfully or by want of ordinary care, brought
the injury upon himself or herself.” (Civ. Code, § 1714, subd. (a).) Commercial
Code section 3401 provides that “[a] person is not liable on an instrument
unless (a) the person signed the instrument, or (b) the person is represented
by an agent or representative who signed the instrument and the signature is
binding on the represented person under Section 3402.” (Com. Code § 3401.)
The Court finds that the third cause
of action is barred by the economic loss rule. (FAC, ¶¶ 81-104.) The third
cause of action merely recites the allegations set forth in the factual
allegations section of the FAC. (See FAC, ¶¶ 6-27.) The third cause of action
is premised on a breach of the parties’ agreement concerning the withdrawal of
funds concerning forged checks and unauthorized instruments. (FAC, ¶ 82.)
Plaintiff has not alleged any wrongful acts of Defendant that are independent
of the parties’ agreement. Plaintiff alleges pure economic losses.
The Court therefore SUSTAINS the
demurrer of Defendant to the third cause of action in the FAC with 20 days
leave to amend.
Fourth Cause of Action for
Negligence
Initially, the Court references its
analysis pursuant to the third cause of action for money damages and
incorporates it herein. Under Sheen v. Wells Fargo Bank, N.A., supra¸12
Cal.5th 905, 923, the Court finds that Plaintiff’s cause of action for
negligence is barred by the economic loss rule. (FAC, ¶¶ 105-125.) The fourth cause
of action is premised on a breach of the parties’ agreement concerning the
withdrawal of funds concerning forged checks and unauthorized instruments.
(FAC, ¶ 106.) Plaintiff alleges pure economic losses and does not allege any
actions arising independently from the underlying agreement between the
parties. (Id.) Moreover, the Court notes that Uniform Commercial Code
section 4406 controls and displaces “common law negligence principles with
respect to the payment of forged checks by a payor bank.” (Roy Supply, Inc.
v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1067.) As such, the fourth
cause of action for negligence is insufficiently alleged.
The Court therefore SUSTAINS the
demurrer of Defendant to the fourth cause of action in the FAC with 20 days
leave to amend.
Fifth Cause of Action for
Unfair and Unlawful Business Practice
Defendant contends that Plaintiff’s
fifth cause of action is precluded because Plaintiff is neither a consumer nor
a competition of Defendant and does not allege harm to the general public. Plaintiff
asserts that the fifth cause of action sufficiently states a cause of action.
“Business and Professions Code
section 17200 et seq. prohibits unfair competition, including unlawful, unfair,
and fraudulent business acts.” (Korea Supply Co. v. Lockheed Martin Corp. (2003)
29 Cal.4th 1134, 1143.) “The UCL covers a wide range of conduct. It embraces .
. . anything that can properly be called a business practice and that at the
same time is forbidden by law.” (Ibid.) “Section 17200 borrows
violations from other laws by making them independently actionable as unfair
competitive practices.” (Ibid.) A plaintiff asserting a claim for
violation of Bus. & Prof. Code § 17200, et seq. must allege “lost
money or property to have standing to sue.” (Kwikset Corp. v. Superior Court
(2011) 51 Cal.4th 310, 323.) There must also be some “reliance on the
alleged misrepresentation.” (Id. at p. 326.) “[T]he UCL imposes an
actual reliance requirement on plaintiffs prosecuting a private enforcement
action under the UCL’s fraud prong.” (Graham v. Bank of America, N.A. (2014)
226 Cal.App.4th 594, 614.) A plaintiff must also allege that members of the
public are likely to be deceived to state a cause of action for violation of
Bus. & Prof. Code § 17200, et seq. (Bank of the West v. Superior
Court (1992) 2 Cal.4th 1254, 1267.) Generally, statutory causes of action
must be pleaded with particularity. (Perez v. Golden Empire Transit Dist. (2012)
209 Cal.App.4th 1228, 1237, fn. 3.)
The Court finds that the fifth cause
of action in the FAC is insufficiently pleaded. (FAC, ¶¶ 126-154.) Plaintiff
has failed to allege that members of the public are likely to be deceived by
Defendant’s purported actions. (Id.) Moreover, the Court finds that the
fifth cause of action is premised on the breach of the agreement between the
parties. (FAC, ¶ 127.) “[A] UCL action based on contract is not appropriate
where the public in general is not harmed by the defendant’s alleged unlawful
practices.” (Rosenbluth Internat., Inc. v. Superior Court (2002) 101
Cal.App.4th 1073, 1077.) Here, Plaintiff does not allege any harm to the
public.
As such, the Court finds that the
fifth cause of action is insufficiently alleged. The Court therefore SUSTAINS
Defendant’s demurrer to the fifth cause of action in the FAC with 20 days leave
to amend.
It is so
ordered.
Dated:
May 7, 2024
_______________________
MEL RED RECANA
Judge of the
Superior Court