Judge: Stephen I. Goorvitch, Case: 22STCV30336, Date: 2023-07-20 Tentative Ruling

Case Number: 22STCV30336    Hearing Date: January 24, 2024    Dept: 39

Xiaoliang Liu, et al. v. Bank of America, et al.

Case No. 22STCV30336

Order #1 of 3

Demurrer by East West Bank

            Plaintiffs Xiaoliang Liu and Chuwei Zhang (collectively, “Plaintiffs”) filed this action against Bank of America, East West Bank, and Wu Di (collectively, “Defendants”).  Previously, the Court sustained East West Bank’s demurrer to the second amended complaint.  (See Court’s Minute Order, dated July 31, 2023.)  The Court granted leave to amend with respect to certain causes of action.  Now, East West Bank demurs to every cause of action as follows:

            Second COA – Negligent Hiring/Supervision

            Fifth COA – Negligent Misrepresentation

            Ninth COA – Unfair Competition under Business & Professions Code § 17200

            Tenth COA – Negligence

The Court has reviewed the redline version of the third amended complaint.  The Court sustains the demurrer largely for the reason reasons it sustained the prior demurrer, and the Court incorporates by reference its order of July 31, 2023, but also provides a brief summary in this order. 

            As an initial matter, Plaintiffs cannot assert a negligence claim against East West Bank because there is no duty under these circumstances.  The relationship of a bank and its depositor is based upon contract.  (See Chaven v. Centennial Bank (1998) 61 Cal.App.4th 532, 537.)  Under the contract, banks owe depositors only specific duties of care: “the duty to honor checks properly payable from the depositor’s account; the duty to dishonor checks lacking required signatures; and the duty to render faithful and accurate accounts under the contract of deposit . . . .”  (Kurtz-Ahlers, LLC v. Bank of America, N.A. (2020) 48 Cal.App.5th 952, 956, internal quotations and citations omitted.)  Plaintiffs cite no law making clear that a referral to “a local real estate agent who could assist [Plaintiffs] with both currency exchange and the purchase of a new home” falls within the scope of a bank’s duty. 

            Putting that aside, Plaintiffs cannot establish a breach of any duty, or the elements of their fifth cause of action, negligent misrepresentation.  The elements of negligent misrepresentation are: (1) The misrepresentation of a past or existing material fact, (2) Without reasonable ground for believing it to be true, (3) With intent to induce another’s reliance on the misrepresented fact, (4) Justifiable reliance on the misrepresentation, and (5) Damages as a result of the misrepresentation.  (See National Union Fire Company of Pittsburg, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 50.)  In this case, Plaintiffs allege no facts suggesting that Eva Zhang was, or should have been, on notice that Yolanda Lu was incompetent or corrupt, i.e., that Yolanda Lu could not or would not perform the services for which she was being recommended.  For example, Plaintiffs do not allege that Yolanda Lu had been subject to criminal investigations or lawsuits over similar issues which easily could have been discovered with a simple internet search.  Similarly, Plaintiffs do not allege that Eva Zhang represented that Yolanda Lu had successfully performed these services for others, knowing that she had not done so.  Instead, Plaintiffs make conclusory allegations.  Plaintiffs allege only that Zhang had “negative information” about Yolanda Lu but Plaintiffs do not explain what “negative information” put her on notice that Yolanda Lu was unfit.  Similarly, Plaintiffs allege that Eva Zhang’s referral and endorsement “created the impression” that Yolanda Lu was employed by East-West Bank, but Plaintiffs do not allege any misrepresentation on this issue.

            Accordingly, Plaintiffs cannot establish that East West Bank was negligent in its hiring or supervision of Eva Zhang.  In order to assert such a claim, Plaintiffs must allege: (1) Defendant hired and supervised an employee; (2) The employee was incompetent or unfit; (3) The employer had reason to believe undue risk of harm would exist because of the employment; and (4) Harm occurred.  (See Federico v. Superior Court (1997) 59 Cal.App.1207, 1213-1214.)  Because Plaintiffs cannot establish that Eva Zhang knew or should have known that Yolanda Lu was incompetent or corrupt, Plaintiffs cannot demonstrate that Zhang was incompetent or unfit for her position or that East West Bank knew or should have known that Zhang’s continued employment would post an undue risk of harm.

            At heart, Plaintiffs’ claims against East West Bank are based upon a strict liability theory: The bank referred Plaintiffs to a real estate professional, Yolanda Lu; Plaintiffs allege that Yolanda Lu stole their money; and as a result East West Bank is liable.  In the absence of facts suggesting that Eva Zhang knew or should have known that Yolanda Lu was incompetent or corrupt, there is no basis to find any breach of duty (assuming there was a duty), any negligent misrepresentation by East West Bank, or any negligent supervision of Eva Zhang.  Accordingly, the Court also sustains the demurrer to the ninth cause of action against East West Bank.

CONCLUSION AND ORDER

            Based upon the foregoing, the Court orders as follows:

            1.         East West Bank’s demurrer is sustained.

            2.         The Court denies leave to amend.  Plaintiffs have filed four complaints already.  The Court previously granted leave to amend, and Plaintiffs filed largely the same complaint with the same defects. 

3.         Counsel for East West Bank shall provide notice and file proof of such with the Court.

Order #2 of 3

Demurrer by Bank of America

Plaintiffs Xiaoliang Liu and Chuwei Zhang (collectively, “Plaintiffs”) filed this action against Bank of America, East West Bank, and Wu Di (collectively, “Defendants”).  Previously, the Court sustained Bank of America’s demurrer to the second amended complaint.  (See Court’s Minute Order, dated July 31, 2023.)  The Court granted leave to amend with respect to certain causes of action.  Now, Bank of America demurs to every cause of action as follows:

            First COA – Breach of Contract

            Second COA – Negligent Hiring/Supervision

            Sixth COA – Breach of Covenant of Good Faith & Fair Dealing

            Seventh COA – Violation of UCC Article 4A

            Eighth COA – Violation of Electronic Funds Transfer Act, 15 U.S.C. § 1693

            Ninth COA – Unfair Competition under Business & Professions Code § 17200

            Tenth COA – Negligence

The Court has reviewed the redline version of the third amended complaint.  The Court incorporates by reference its order of July 31, 2023, and rules as follows:

A.        First Cause of Action – Breach of Contract

The Court previously sustained the demurrer to the first cause of action with leave to amend.  In the second amended complaint, Plaintiff alleged that there was an “express and implied” contract that Bank of America would “implement and utilize the most effective security measures available to prevent fraudulent transactions or account takeovers.” (Second Amended Complaint, ¶ 45.) The Court found that is not sufficient for a breach of an “express” contract.  (See Court’s Minute Order, dated July 31, 2023.)  The Court ruled: “Plaintiffs must attach a copy of the contract or cite the relevant terms in the body of the complaint.  If the breach of contract is based only on ‘implied’ terms, the complaint must make that clear, as those allegations usually form the basis of a cause of action for breach of the implied covenant of good faith and fair dealing.”  (Ibid.)

The third amended complaint does not correct this issue because Plaintiffs’ counsel still does not attach a copy of the contract or quote the terms verbatim, as required: “If the action is based on an 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 instrument must be attached and incorporated by reference.”  (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307, citing Otworth v. Southern Pacific Transportation Company (1985) 166 Cal.App.3d 452, 459.)  This is especially important in cases against banks because the relationship of a bank and its depositor is strictly prescribed by contract.  (See Chaven v. Centennial Bank (1998) 61 Cal.App.4th 532, 537.)  Under the contract, banks owe depositors only specific duties of care: “the duty to honor checks properly payable from the depositor’s account; the duty to dishonor checks lacking required signatures; and the duty to render faithful and accurate accounts under the contract of deposit . . . .”  (Kurtz-Ahlers, LLC v. Bank of America, N.A. (2020) 48 Cal.App.5th 952, 956, internal quotations and citations omitted.)  Plaintiffs do not attach a copy of the contract.  Plaintiffs do not cite the relevant provisions of the contract, instead making generalized allegations concerning the terms of the contract.  Most important, Plaintiffs still allege that the terms may only be “implied.” 

Based upon the foregoing, the Court sustains the demurrer to the first cause of action.  The Court declines to grant leave to amend.  Plaintiffs are on the third amended complaint, and the Court previously granted leave to amend to no avail.

B.        Seventh Cause of Action – Violation of UCC Article 4A

            Plaintiffs’ seventh cause of action alleges a violation of the Uniform Commercial Code, Article 4a, reflected in Commercial Code section 11101 et seq.  The third amended complaint alleges that Bank of America violated Commercial Code section 11202 because “transfers were made without BOA following appropriate and reasonable security precautions to ensure that the funds being transferred had not been illegal obtained by the transferor, in defiance of significant ‘red flags’ that warned BOA that the transfers consisted of funds that had only recently been transferred into the sending accounts by reason of highly suspicious activities . . . and by ignoring BOA’s own procedures requiring compliance with reasonable security procedures associated with such wire transfers.”  (Third Amended Complaint, ¶ 102.) 

            Previously, the Court sustained Bank of America’s demurrer.  This article applies to “fund transfers,” and Plaintiffs did not allege that there were “fund transfers” from their accounts.  Instead, Plaintiffs allege only that unknown persons engaged in “account takeover” and had money “wrongfully extracted” from their accounts, or that there were “unauthorized transfers” of funds.  (See Second Amended Complaint, ¶ 39(a).)  The Court granted leave to amend, and Plaintiffs now allege that Bank of America “carried out wire transfers to third party bank accounts belonging to individuals or entities presumably affiliated and/or acting in concert with the criminals who had stolen the money from [Plaintiff’s] account.”  (Third Amended Complaint, ¶ 101.) 

            Bank of America demurs to the third amended complaint, arguing that there was no wire transfer from Plaintiff Zhang’s account.  Rather, Plaintiffs allege that there were electronic transfers from Plaintiff Zhang’s account to another Bank of America account.  (See Third Amended Complaint, ¶ 105.)  Therefore, the Court sustains the demurrer to the seventh cause of action without leave to amend.

C.        Eighth Cause of Action – Violation of Electronic Funds Transfer Act, 15 U.S.C. § 1693

            Plaintiffs’ eighth cause of action is for violation of the Electronic Funds Transfer Act, 15 U.S.C. § 1693, for “wrongful and fraudulent internal electronic transfer of funds from plaintiffs’ accounts.”  (Third Amended Complaint, ¶ 104.)  The Court previously sustained Bank of America’s demurrer on this cause of action because the second amended complaint did not clear allege an electronic transfer.  (See Court’s Minute Order, dated July 31, 2023.)  The third amended complaint now details a series of electronic transfers but it omits the dates.  (See Third Amended Complaint, ¶ 105.) 

            This cause of action has a one-year statute of limitations, which begins running from “the date of the occurrence of the violation.”  (See 15 U.S.C. § 1693m(g).)  This is a jurisdictional deadline.  (Ibid.)  It is Plaintiffs’ burden to allege facts sufficient to demonstrate that the claims are timely, and Plaintiffs fail to do so.  Previously, Plaintiffs’ counsel admitted that these transfers occurred on October 21, 2020.  (See Request for Judicial Notice, p. 63.)  The Court grants Bank of America’s request for judicial notice, and its contents constitute judicial admissions.  This action was filed on September 16, 2022, almost one year after the statute of limitations ran.

            Plaintiffs’ counsel argues that there is equitable tolling because Bank of America was required to investigate the claim.  There are two problems with this argument.  First, Plaintiffs’ counsel cites no federal law authorizing tolling of this cause of action, especially in light that the statute of limitations is titled as being a jurisdictional issue.  Second, Plaintiffs allege no facts in the third amended complaint suggesting that equitable tolling would apply.  Under federal law, equitable tolling is appropriate in situations where the defendant misleads the plaintiff or when the plaintiff has no reasonable way of discovering the wrong perpetrated against her.  (See, e.g., Cabello v. Fernandez-Larios, 402 F.3d 1148, 1155 (11th Cir. 2005).)  The Ninth Circuit has formulated the elements of equitable tolling more succinctly: (1) Fraudulent conduct by the defendant resulting in concealment of operative facts; (2) Failure of the plaintiff to discovery the operative facts that are the basis of the cause of action within the limitations period; and (3) Due diligence by the plaintiff until discovery of those facts.  (See Federal Election Commission v. Williams, 104 F.3d 237, 240-241 (9th Cir. 1996).)  Plaintiffs allege no facts demonstrating that equitable tolling applies.  It is difficult to envision a circumstance that would have permitted Plaintiffs to wait almost one year to conclude that a fraud had been perpetrated (and then wait another year to file the case).   

            Based upon the foregoing, the Court sustains Bank of America’s demurrer to the eighth cause of action.  The Court denies leave to amend.  The Court declines to grant leave to amend.  Plaintiffs are on the third amended complaint, and the Court previously granted leave to amend to no avail.  The Court is not persuaded that Plaintiffs’ counsel could allege any facts to demonstrate that this claim is timely or that equitable tolling should apply.

D.        Second Cause of Action – Negligent Hiring/Supervision

            Seventh Cause of Action – Breach of the Implied Covenant of Good Faith & Fair Dealing

Tenth Cause of Action – Negligence

            A bank has “a duty to act with reasonable care in its transactions with its depositors,” but this duty “is an implied term in the contract between the bank and its depositor.” (Kurtz-Ahlers, LLC v. Bank of America, N.A. (2020) 48 Cal.App.5th 952, 956.) However, this is a narrow duty and encompasses the duty to honor checks properly payable from the depositor’s account, the duty to dishonor checks lacking required signatures, and the duty to render faithful and accurate accounts under the contract of deposit. (Ibid.)  Moreover, a bank has a duty of inquiry “when checks, not insignificant in amount, are drawn payable to the order of a bank and are presented to the payee bank by a third party seeking to negotiate the checks for his own benefit.” (Ibid., citing Sun ‘n Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671, 695.)  This may encompass transfers of the nature alleged by Plaintiffs.  Therefore, the Court has no tentative order on Bank of America’s demurrer to the second, seventh, and tenth causes of action.    

E.         Ninth Cause of Action – Unfair Competition

            The Court’s tentative order is to sustain the demurrer to the ninth cause of action without leave to amend. 

Order #3 of 3

Demurrer and Motion to Strike by Wu Di

            Plaintiffs Xiaoliang Liu and Chuwei Zhang (collectively, “Plaintiffs”) filed this action against Bank of America, East West Bank, and Wu Di (collectively, “Defendants”).  Previously, the Court sustained Wu Di’s demurrer to the second amended complaint.  (See Court’s Minute Order, dated July 31, 2023.)  The Court granted leave to amend with respect to certain causes of action.  Now, Plaintiffs assert the following causes of action against Wu Di:

            First COA – Breach of Contract

            Second COA – Negligent Hiring/Supervision

            Third COA – Conversion

            Fourth COA – Fraud

            Fifth COA – Negligent Misrepresentation

            Eleventh COA – Breach of Fiduciary Duty

            As an initial matter, counsel for Wu Di argues that Plaintiffs are acting with unclean hands because “Plaintiffs seek to enforce what appears to be an illegal foreign currency exchange, or money laundering,” given China’s controls on foreign exchange and transferring money to the United States.  Wu Di does not clearly raise this as a basis for sustaining the demurrer, and the Court likely would not do so anyway, as this requires consideration of the underlying facts.  The parties are free to raise this issue on a motion for summary judgment or summary adjudication.

            Wu Di demurs to the second, third, fourth, fifth, and eleventh causes of action.  The Court has reviewed the redline version of the third amended complaint.  The Court incorporates by reference its order of July 31, 2023, and rules as follows:

A.        Second Cause of Action – Negligent Hiring/Supervision

Plaintiffs’ second cause of action is negligent hiring/supervision.  The elements are as follows: (1) Defendant hired and supervised an employee; (2) The employee was incompetent or unfit; (3) The employer had reason to believe undue risk of harm would exist because of the employment; and (4) Harm occurred.  (See Federico v. Superior Court (1997) 59 Cal.App.1207, 1213-1214.)  Plaintiffs do not allege that Wu Di employed or supervised anyone.  Therefore, the Court sustains Wu Di’s demurrer to the second cause of action.  The Court declines to grant leave to amend.  Plaintiffs are on the third amended complaint, and the Court previously granted leave to amend to no avail.

B.        Third Cause of Action – Conversion

The Court has no tentative order on Wu Di’s demurrer to the third cause of action. 

C.        Fourth Cause of Action – Fraud

            The Court has no tentative order on Wu Di’s demurrer to the fourth cause of action.

D.        Fifth Cause of Action – Negligent Misrepresentation

            Plaintiffs allege that Wu Di negligently made misrepresentations.  Plaintiffs’ third amended complaint does not clearly allege that Wu Di made any representations to Plaintiffs, let alone any representation “without any reasonable ground for believing it to be true,” which is an element.  Therefore, the Court sustains the demurrer to the fifth cause of action.   

E.         Eleventh Cause of Action – Breach of Fiduciary Duty

Plaintiffs assert a cause of action for breach of fiduciary duty against Wu Di.  The third amended complaint does not clearly allege that Wu Di owed a fiduciary duty to Plaintiffs.  Yolanda Lu was their agent, not Wu Di, and the mere fact that Wu Di worked for the agency is not sufficient.  (See Second Amended Complaint, ¶ 142; see also Skopp v. Weaver (1976) 16 Cal.3d 432, 439.)  The third amended complaint does not allege any direct relationship between Wu Di and Plaintiffs.  Therefore, the Court sustains the demurrer to the eleventh cause of action.  The Court declines to grant leave to amend.  Plaintiffs are on the third amended complaint, and the Court previously granted leave to amend to no avail.

F.         Motion to Strike

            The Court has no tentative order on Wu Di’s motion to strike.