Judge Sarah J. Heidel, Case Number: 23BBCV029789, Date: 2024-02-23 Tentative Ruling

Judge: Sarah J. Heidel, Case: 23BBCV029789, Date: 2024-02-23 Tentative Ruling

Case Number: 23BBCV029789 Hearing Date: February 23, 2024 Dept: V

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES – NORTHEAST DISTRICT

DEPARTMENT V

POBEDA SERVICES INC,; Plaintiff, vs. US BANK, et al., Defendants. Case No.: 23BBCV02978 Hearing Date: February 23, 2024 Time: 8:30 a.m. [TENTATIVE] ORDER RE: DEFENDANT U.S. BANK’S DEMURRER TO COMPLAINT AND MOTION TO STRIKE PORTION OF THE COMPLAINT

MOVING PARTIES: Defendant U.S. BANK

RESPONDING PARTY: Plaintiff Pobeda Services Inc.

Motion for Demurrer with Motion to Strike

BACKGROUND

Plaintiff Pobeda Services Inc. (“Plaintiff”) is a corporation doing business in the County of Los Angeles. (Complaint ¶ 18.) In approximately 2014, Pobeda opened an account with defendant U.S. Bank. (“U.S. Bank”). (Id. ¶ 19.) Plaintiff alleges that in or around April 11, 2023, it became aware of multiple fraudulent charges to its account. (Id. ¶ 21). Plaintiff notified U.S. Bank and followed U.S. Bank’s instructions “to change their account in order to protect them for any further unauthorized transactions.” (Id. ¶ 27.) Plaintiff alleges that even after following those instructions, an additional unauthorized transaction was made from its account. In total, Plaintiff alleges financial losses of $37, 768.10. (Id. ¶ 28.)

On December 14, 2023, Plaintiff filed the operative complaint against U.S. Bank; Gevorg Khachatryan; Harvard Building LLC; Aram Shorvoghlian; Aida Shorvoghlian; and DOES 1 through 50 (collectively, “Defendants”) alleging (1) general negligence, (2) fraud and intentional misrepresentation, (3) conversion, (4) trespass to chattels, (5) breach of contract, and (6) bad faith.

On January 24, 2024, Defendant U.S. Bank (“Defendant”) filed this Demurrer with a Motion to Strike. On February 7, 2024, Plaintiff filed its opposition. On February 14, 2024, Defendant filed its reply. The court has considered the moving papers, opposition, and reply papers filed in connection with this motion.

LEGAL STANDARD

Pursuant to Code Civ. Proc., § 430.010 (e), the party against whom a complaint or cross-complaint has been filed may object by demurrer to the pleading on several grounds, including that the pleading “does not state facts sufficient to constitute a cause of action.” “In determining whether or not the complaint is sufficient, as against the demurrer upon the ground that it does not state facts sufficient to constitute a cause of action, the rule is that if, upon a consideration of all the facts stated, it appears that the plaintiff is entitled to any relief at the hands of the court against the defendants, the complaint will be held good . . . .” (Matteson v. Wagoner (1905) 147 Cal. 739, 742.) No matter the likelihood of the plaintiff’s ability to prove them, "a general demurrer admits the truth of all material factual allegations in the complaint . . . .” (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496.)

"To the extent there are factual issues in dispute . . . this court must assume the truth not only of all facts properly pled, but also of those facts that may be implied or inferred from those expressly alleged in the complaint.” (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith,

Inc. (1998) 68 Cal.App.4th 445, 459.) "[Q]uestions of fact may be resolved [at the pleadings stage] only when there is only one legitimate inference to be drawn from the allegations of the complaint.” (Tracfone Wireless, Inc. v. County of Los Angeles (2008) 163 Cal.App.4th 1359, 1368.)

“If a demurrer is sustained, the court may grant leave to amend the pleading upon any terms as may be just and shall fix the time within which the amendment or amended pleading shall be filed.” (Code Civ. Proc., § 472a, subd. (c).) “The basic principle governing the privilege of amendment is clear enough: amending of the pleading should be allowed if it appears likely the pleader has, and can state, a recognizable legal claim[.]” (Hills Transp. Co. v. Southwest Forest Industries, Inc. (1968) 266 Cal.App.2d 702, 709.)

DISCUSSION

A. Meet and Confer

Before filing a demurrer, the demurring party shall meet and confer in person or by telephone with the party who has filed the pleading subject to the demurrer and file a declaration detailing their meet and confer efforts.¿ (Code Civ. Proc., § 430.41(a).) However, an insufficient meet and confer process is not grounds to¿overrule or sustain a demurrer.¿ (Code Civ. Proc., § 430.41(a)(4).) Here counsel for U.S. Bank states that he sent a meet and confer email on January 8, 2024, but Plaintiff’s counsel failed to respond. (Declaration of Beebe ¶¶ 3-4.) The meet and confer is plainly deficient because it was not in the manner proscribed by the section 430.41(a). Nevertheless, because it does not appear that a further meet and confer will be helpful in assessing the adequacy of the pleading, the Court addresses the merits below.

B. Demurrer

First Cause of Action (General Negligence) SUSTAIN WITH LEAVE TO AMEND

U.S. Bank argues that Plaintiff’s cause of action for negligence fails because it is displaced by the California Commercial Code. (Motion at 6). U.S. Bank points to no specific section of the Commercial Code that displaces Plaintiff’s cause of action, but cites to Lee Newman, M.D., Inc. v. Wells Fargo Bank, (2001) 87 Cal. App. 4th 73 for the blanket proposition

that negligence causes of action against banks are displaced by the Commercial Code. In Lee Newman, M.D., the court held that a negligence cause of action against a bank involving fraudulent indorsements by employees was displaced by section 3405 of the California Commercial Code. Lee Newman, M.D. is inapposite because it does not involve the type of transaction asserted by Plaintiff.

“The California Commercial Code does not automatically displace all other legal principles.” (Zengen, Inc. v. Comerica Bank (2007) 41 Cal.4th 239, 247). Indeed, the general rule stated in the California Uniform Commercial Code Section 1103(b) is that:

Unless displaced by the particular provisions of this code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions.

“Thus, other principles of law will apply here unless some particular provisions of the California Uniform Commercial Code have displaced them.” (Zengen, 41 Cal. 4th 239 at 251).

Although not cited by defendant, courts have held that the California Uniform Commercial Code displaces causes of action for certain unauthorized transfers from customer’s accounts. For example, in Roy Supply, Inc. v. Wells Fargo Bank the court held that “that the statutory provisions of the California Uniform Commercial Code preclude the depositors from asserting the forged checks against the bank and this preclusion is fatal to their claims for the negligent payment of forged checks not timely reported to the bank.” (Id. at 1058.) And in Zengen our Supreme Court explained that where “the basis of the [plaintiff's] common-law claims—that [the Bank] made an improper funds transfer—[was] 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.” (41 Cal.4th at 254-255.) The fund transfers alleged by Plaintiff appear to be of the same nature as those at issue in Zengen, namely that U.S. Bank should not have accepted and executed the fraudulent payment orders. Such transfers implicate “the rights, duties and liabilities of banks and their customers in connection with the authorization and verification of payment orders” and are accordingly displaced by the Commercial Code. (41 Cal.4th at 252.)

Although Plaintiff’s claim for negligence is displaced, the parties have not addressed with any substance whether Plaintiff may state a claim under the California Commercial Code. Plaintiff has requested leave to amend if the court determines its negligence claim is displaced. The Court accordingly sustains with leave to amend to state a cause of action under the California Commercial Code.

Second Cause of Action (Fraud and Intentional Misrepresentation) – SUSTAIN WITH LEAVE TO AMEND

The elements of a cause of action for fraud and intentional misrepresentation are: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal. 4th 631, 638.) “[F]raud must be pled specifically; general and conclusory allegations do not suffice. . . .This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Id. at 645 [internal quotation marks and ellipses omitted).]

The complaint alleges that “DEFENDANT U.S. BANK intentionally and knowingly advised PLAINTIFF to move them to a [new] bank account number. However, a short while thereafter, the PLAINTIFF was again defrauded from his personal property and was denied their request to return their property. DEFENDANT, till this date refuses to return and refund the PLAINTIFF property.” (Complaint ¶ 53.) The complaint further alleges, “PLAINTIFF, by DEFENDANT US BANKs instruction, was put in an even more vulnerable situation. Thus, the fraudulent activity within PLAINTIFF account was oversighted and verified by DEFENDANT US BANK, which further allowed the other DEFENDANTS (named above) to continuously withdraw from PLAINTIFF’s account.” (Id. at ¶ 54.)

These facts are insufficient to state a cause of action for fraud and intentional misrepresentation. Plaintiff fails to identify that the person who told gave the alleged advice to move to a new account number. (Wald v. TruSpeed Motorcars, LLC (2010) 184 Cal.App.4th 378 [applying the heightened corporate pleading standing to an LLC].) Plaintiff further fails to

allege facts that any statements made by anyone at U.S. Bank were misrepresentations, made with knowledge of the falsity and intent to defraud.

The Court sustains with leave to amend the demurrer to the cause of action for Fraud and Intentional Misrepresentation.

Third Cause of Action (Conversion) and Fourth Cause of Action (Trespass to Chattels)- SUSTAIN WITHOUT LEAVE TO AMEND

Defendant argues that Plaintiff fails to state a cause of action for any further unauthorized transactions.” (Id. ¶ 27.) Plaintiff alleges that even after following those instructions, an additional unauthorized transaction was made from its account. In total, Plaintiff alleges financial losses of $37, 768.10. (Id. ¶ 28.)

LEGAL STANDARD

DISCUSSION

A. Meet and Confer

B. Demurrer

First Cause of Action (General Negligence) SUSTAIN WITH LEAVE TO AMEND

“Thus, other principles of law will apply here unless some particular provisions of the California Uniform Commercial Code have displaced them.” (Zengen, 41 Cal. 4th 239 at 251).

Second Cause of Action (Fraud and Intentional Misrepresentation) – SUSTAIN WITH LEAVE TO AMEND

The Court sustains with leave to amend the demurrer to the cause of action for Fraud and Intentional Misrepresentation.

Third Cause of Action (Conversion) and Fourth Cause of Action (Trespass to Chattels)- SUSTAIN WITHOUT LEAVE TO AMEND

Defendant argues that Plaintiff fails to allege facts sufficient to state a cause of action for conversion because U.S. Bank’s relationship with Plaintiff was contractual and did not involve “property of the depositor which could be subject to a claim for conversion.” (Demurrer at 8.)

The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240; see also Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451. “[C]onversion is a strict liability tort. It does not require bad faith, knowledge, or even negligence; it requires only that the defendant have intentionally done the act depriving the plaintiff of his or her rightful possession.” (Voris v. Lampert (2019) 7 Cal. 5th 1141, 1158.) A claim for trespass to chattels “‘lies where an intentional interference with the possession of personal property has proximately caused injury’ but the interference is ‘not sufficiently important to be classed as conversion.’” (Berry v. Frazier (2023) 90 Cal. App. 5th 1258, 1271).

The complaint alleges Plaintiff “has ownership of their respective bank accounts located within US BANK” and the “ownership and control of their own personal property was compromised as a result of DEFENDANT intentional and knowing significant interference.” (Complaint ¶¶ 67-68.) The complaint further alleges, Defendant’s “wrongful actions caused a substantial disposition to PLAINTIFF personal property. On the date of this complaint, PLAINTIFF has not been returned their personal property. Thus, the interference has been substantial, unconsented, and caused diminution to the personal property of the PLAINTIFFs.” (Complaint ¶69.) Additionally, the complaint alleges that Defendant “substantially interfered with PLAINTIFF property by knowingly and intentionally removing the monies from the Bank account and paying off their debt.”

In Lee v. Bank of America, the court of appeals held that “‘[t]he relationship between a bank and its depositor is that of debtor and creditor. Title to the deposited funds passes immediately to the bank which may use the funds for its own business purposes. [Citations.] The bank does not thereby act as trustee and cannot be charged with converting the deposit to its own use.’” (Lee v. Bank of Am., (1990) 218 Cal. App. 3d 914, 919 (internal citations and quotations omitted). Plaintiff’s claim for trespass to chattels fails for the same reason. The Court sustains without leave to amend the demurrer to the cause of action for conversion and trespass to chattels.

Sixth Cause of Action – Bad Faith -SUSTAINED WITHOUT LEAVE TO AMEND

Defendant argues that Plaintiff fails to allege facts sufficient to state a cause of action for bad faith because Insurance Code 790.03 (h) applies to insurance companies and not banks. (Demurrer at 9.) Plaintiff argues that US BANK has a quasi-fiduciary relationship and acts as an insurer. (Opp. p.9.)

The complaint alleges “PLAINTIFF contends, that even if the CA code mentioned above, is tailored only towards insurance companies, the bank serves as an insured because financial institutions insure the plaintiff’s property, and there is similar relationship between a depositor and a bank, compared to an insurer and an insured.” (Complaint ¶ 88.) The complaint further alleges, “PLAINTIFF opened a claim within the bank’s investigation department, and this led to no avail, without any reasonable justification, and without any reasonable investigation. PLAINTIFF, constantly contacted the DEFENDANT throughout the process of their communications, and DEFENDANT left PLAINTIFF in the dark, without any updates, or without any reasonable investigation, or explanation.” (Complaint ¶ 90.)

Defendant U.S. Bank is not an insurance company and Plaintiff cites no authority that the insurance code can be applied by analogy to a bank. The Court sustains without leave to amend the demurrer to the cause of action for bad faith.

C. Motion to Strike

U.S. Bank moved to strike paragraphs 61, 101 and 104-107 from the complaint and item 4 of the prayer for relief. The court may strike out any “irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc. §437.) Motions may also target pleadings or parts of pleadings that are not filed or drawn in conformity with applicable laws, rules, or orders. (Code Civ. Proc. §437(b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Code Civ. Proc. §437.) “When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend.” (Vaccaro v. Kaiman (1998) 63 Cal.App.4th 761, 768.)

Defendant’s motion to strike portions of the complaint paragraphs 61, 101 and 104-107 is moot because the court sustains the demurrer for the causes of action for fraud and bad faith causes of action. The motion to strike item 4 of the prayer for relief is granted with leave to amend.

Based on the foregoing, the Court rules as follows:

First Cause of Action - General Negligence is SUSTAINED WITHOUT LEAVE TO AMEND. Second Cause of Action – Fraud and Intentional Misrepresentation – SUSTAINED WITH LEAVE TO AMEND. Third Cause of Action – Conversion- SUSTAINED WITHOUT LEAVE TO AMEND. Fourth Cause of Action – Trespass to Chattels -SUSTAINED WITHOUT LEAVE TO AMEND. Sixth Cause of Action – Bad Faith -SUSTAINED WITHOUT LEAVE TO AMEND. Motion to Strike is MOOT with respect to paragraphs 61, 101, and 104-107 and is granted as to paragraph 4 of the prayer for relief.

Moving Party is ordered to give notice of this ruling.

IT IS SO ORDERED.

DATED: February 23, 2024

___________/s/__________________

Sarah J. Heidel

Judge of the Superior Court