Judge: Theresa M. Traber, Case: 22STCV21527, Date: 2023-10-24 Tentative Ruling

Case Number: 22STCV21527    Hearing Date: October 24, 2023    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     October 24, 2023                   TRIAL DATE: February 6, 2024

CASE:                         STP Inc. v. City National Bank

CASE NO.:                 22STCV21527           

MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION

MOVING PARTY:               Defendant City National Bank

RESPONDING PARTY(S): Plaintiff STP Inc.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

            This is a tort case that was filed on July 1, 2022.  In its First Amended Complaint, filed on October 7, 2022, Plaintiff alleges that Defendant knowingly cashed a check from Plaintiff to the IRS that was intercepted and forged to direct payment to a third party.

            Defendant moves for summary judgment or, in the alternative, summary adjudication of all causes of action.

TENTATIVE RULING:

Defendant’s Motion for Summary Judgment is DENIED.

Defendants’ Motion in the Alternative for Summary Adjudication is GRANTED as to the third cause of action for negligence and otherwise DENIED.

DISCUSSION:

Motion for Summary Judgment

Defendant moves for summary judgment of Plaintiff’s claims against it. As Defendant is not entitled to summary adjudication of all causes of action asserted against it for the reasons stated herein, Defendant’s Motion for Summary Judgment is DENIED.

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Motion for Summary Adjudication

            Defendant moves in the alternative for summary adjudication of each cause of action asserted against it.

Legal Standard

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party can show evidentiary support for a pleading or claim and, if not, to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) Code of Civil Procedure Section 437c(c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”  (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)  “The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues; the function of the affidavits or declarations is to disclose whether there is any triable issue of fact within the issues delimited by the pleadings.” (Juge v. County of Sacramento (1993) 12 Cal.App.4th 59, 67, citing FPI Development, Inc. v. Nakashima (1991) 231 Cal. App. 3d 367, 381-82.)

As to each claim as framed by the complaint, the defendant moving for summary judgment must satisfy the initial burden of proof by presenting facts to negate an essential element, or to establish a defense. (Code Civ Proc. § 437c(p)(2); Scalf v. D. B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1520.) Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.” (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.) The lack of opposition by a plaintiff is not grounds to grant a motion for summary judgment if a defendant cannot meet their initial burden of proof. (See Thatcher v. Lucy Stores, Inc. (2000) 79 Cal.App.4th 1081, 1087.)

            Once the defendant has met that burden, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

Defective Separate Statement

            Both Defendant’s Notice of Motion and its Separate Statement improperly identify the issues to be adjudicated by the claimed legal theory, rather than by separately identifying each cause of action at issue in the motion and separately setting forth each material fact as to each cause of action. (Cal Rules of Court Rule 3.1350(d)(1).) As Plaintiff has not objected to the defects in the Separate Statement, however, and Defendant’s contention is that each theory is equally applicable to all causes of action, the Court will address the merits of Defendant’s Motion.

Plaintiff’s Evidentiary Objections

            Plaintiff objects to portions of the declarations of Kristina Biles and Bradley Jewett filed in support of this motion. As neither declaration is material to the Court’s ruling, the Court declines to rule on these objections. (Code Civ. Proc. § 437c(q).)

            Plaintiff also asserts evidentiary objections in the body of the Separate Statement of Material Facts offered in opposition. Objections must be served and filed separately from other papers to be considered. (Cal. Rules of Court Rule 3.1354(b).) As they were not separately filed, the Court refuses to consider these objections.

First Cause of Action: Conversion

            Defendant moves for summary adjudication of the first cause of action for conversion. Defendant offers three arguments in support of this position: first, that this cause of action is barred by the statute of limitations set forth in Code of Civil Procedure section 340(c); second, that Plaintiff’s claims based on payment of a forged check are precluded under section 4406(f) of the Commercial Code; and third, that Plaintiff waived all claims based on the forged check under the terms of the operative Business Account Agreement.

1.      Statute of Limitations

Defendant first argues that all causes of action in this case, all of which are based on payment of a forged check, are barred by the one-year statute of limitations under Code of Civil Procedure section 340(c).

Code of Civil Procedure section 458 requires that a party pleading a statute of limitations defense need not state the facts showing the defense but must plead the section number and relevant subdivision. (Code Civ. Proc. § 458.) A failure to properly plead the statute of limitations “raise[s] no issue and present[s] no defense.” (Davenport v. Stratton (1944) 24 Cal.2d 232, 247.) However, "[t]he rule as to the proper plea of the statute of limitations is not self-operating but depends for its enforcement on the diligence of the plaintiff in objecting to the insufficiency of the plea either by demurrer to the answer or by timely objection at the trial." (Id. at 248.)

Defendant asserted a non-specific statute of limitations defense as the Third Affirmative Defense in its Answer to the First Amended Complaint. (Answer ¶ 3.) No specific statute of limitations was specified, and nothing in the answer nor any other filing by Defendant provides any indication that Code of Civil Procedure section 340(c) was the operative provision. Plaintiff did not demur to the answer but has raised objections to this defense by asserting in its opposition that the statute of limitations defense was waived by Defendant’s failure to properly plead it. As the Third Affirmative Defense is not compliant with Code of Civil Procedure section 458 on its face, the Court finds that Defendant has failed to adequately plead that section 340(c) is a bar to Plaintiff’s claims and is therefore not entitled to summary adjudication on this basis.

2.      Preclusion By Commercial Code Section 4406(f)

Defendant next argues that each cause of action is precluded by Commercial Code section 4406(f).  Commercial Code section 4406(f) provides:

Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer (subdivision (a)) discover and report the customer’s unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration.

(Comm. Code § 4406(f).) Subdivision (a) states:

A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer to reasonably identify the items paid. The statement of account provides sufficient information if the item is described by item number, amount, and date of payment. If the bank does not return the items, it shall provide in the statement of account the telephone number that the customer may call to request an item, a substitute check, or a legible copy thereof pursuant to subdivision (b).

(Comm. Code § 4406(a).) The one-year time limit under section 4406 begins to run at the same time as the one-year statute of limitations under Code of Civil Procedure section 340(c). (Roy Supply, Inc. v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1074 fn. 25.) Thus, opinions addressing either statute concerning commencement of the one-year period are read together. (See Mac v. Bank of America (1999) 76 Cal.App.4th 562, 565.)

            In explaining the motivation of these statutes, our Supreme Court stated:

The whole purpose of submitting monthly or regular statements to depositors, together with canceled checks as vouchers in support of them, is to direct the attention of the depositor to the state of his account, to the credits in his favor, the charges against it, and to the vouchers supporting these charges. It is his duty to examine the statement and the vouchers, and to report at once any error in the one and any forgeries or alterations of the other. If he does not do this within a reasonable time, the account as rendered becomes an account stated between the bank and him.

(Union Tool Co. v. Farmers & Merchants’ Nat. Bank of Los Angeles (1923) 192 Cal.40, 53.) The Court stated that “the statute begins to run from the time the alleged ‘forged or raised’ check was delivered to the depositor as a voucher supporting the payment made by the bank.” (Id. at 52-53.) The Court of Appeal for the First District in Kiernan v. Union Bank construed the time limit under section 4406 as commencing from the date of deposit of the statement in the mail. (Kiernan v. Union Bank (1976) 55 Cal.App.3d 111, 114.) However, that opinion relied on a previous version of section 4406 that expressly stated the time limit began when the statement was sent. (See Comm. Code § 4406(1), 1963 Cal.Stats Ch. 819.) Subsequent opinions applying the modern statute instead apply the Union Tool holding that the time to assert the claim begins to run from the date of delivery of the statement, not its deposit in the mail. (See, e.g., Mac, supra, 76 Cal.App.4th at 566, fn. 4, Roy Supply Inc., supra, 39 Cal.App.4th at 1074 fn. 25.) Thus, it appears under controlling precedent that the relevant question is when Plaintiff received the statement showing the allegedly forged check.

            Defendant argues that Plaintiff cannot prevail on this claim because the April 2021 statement showing the allegedly forged check, cleared on April 19, 2021, was mailed to Plaintiff’s business address in the ordinary course of business on April 30, 2021. Defendant also contends that the statement was available through Defendant’s online portal or at any of its branch offices. Defendant does not set forth these contentions anywhere in its Separate Statement, however, nor is the evidence cited by Defendant in support of these contentions referenced therein. (See generally SSUMF.) The Golden Rule of Summary Adjudication is “if it is not set forth in the separate statement, it does not exist.” (United Community Church v. Garcin (1991) 231 Cal.App.3d 327, 337 [italics in original].) Defendant has thus failed to carry its burden to demonstrate that Plaintiff cannot prevail on this cause of action, or, consequently, on any other cause of action based on this argument. Defendant is therefore not entitled to summary adjudication on this basis.

3.      Waiver by Contract

            Defendant's final argument is that each cause of action is barred because the Business Account Agreement between the parties expressly disclaims any liability on Defendant’s part for a forged check if Plaintiff does not report it within 60 days of the date on the statement or when the statement was made available, whichever is earlier. Defendant offers no authority standing for the position that the terms of a contract between it and Plaintiff are of any consequence to Defendant’s liability for tortious conversion or statutory violations. Even Das v. Bank of America, N.A., which Defendant cites for the principle that the relationship between a bank and its depositors is based in contract, expressly states that a bank can be subject to tort liability to a depositor. (Das v. Bank of Am., N.A. (2010) 186 Cal. App. 4th 727, 741.) Moreover, a contract which purports to relieve Defendant from responsibility for fraud, willful injury of another, or violation of law is void as contrary to public policy. (See Civ. Code § 1668.) Thus, at best, such a provision would serve as a waiver of Plaintiff’s claim for negligence in the third cause of action only. In any event, Defendant has not demonstrated that it is entitled to summary adjudication of this cause of action based on the Business Account Agreement.

            Accordingly, Defendant’s Motion for Summary Adjudication of the first cause of action is DENIED.

Second Cause of Action: Violation of Penal Code section 496

            Defendant contends that the second cause of action for violation of Penal Code section 496 fails for the reasons stated above in connection with the first cause of action. As the Court has rejected Defendant’s arguments in totality with respect to Plaintiff’s statutory claims, Defendant is likewise not entitled to summary adjudication on this claim.

            Accordingly, Defendant’s Motion for Summary Adjudication of the second cause of action is DENIED.

Third Cause of Action: Negligence

            Defendant contends that the third cause of action for negligence fails for the reasons stated above in connection with the first cause of action. For the reasons stated above, Defendant has not demonstrated that it is entitled to summary adjudication under Code of Civil Procedure section 340(c) or Commercial Code section 4406(f).

            With respect to this cause of action, Defendant again claims that it is shielded from liability by the terms of its Business Account Agreement with Plaintiff. The Account Agreement and Disclosures section states that:

You [Plaintiff] must review each statement we [Defendant] make available to you within 14 calendar days from the time we make it available and notify us if the statement reflects a forged or unauthorized item or transaction as stated above.

. . .

Without regard to lack of care of either you or us, if you do not report an error or unauthorized signature, alteration, forgery, counterfeit check, or other unauthorized debit to your account within 60 days after the date of your statement or the date the information about the item or transaction is made available to you, whichever is earlier, you are precluded from asserting the error or unauthorized transaction against us.

(Defendant’s SSUMF Nos. 15-16, Defendants’ Exh. 5 p.9.) As Defendant observes, it is not disputed that Plaintiff reported the check on May 11, 2022, more than 60 days after the April 2021 statement was issued, whether or not it was ever made available to Plaintiff. (See SSUMF Nos. 21, 24.) Defendant has thus offered evidence that Plaintiff is precluded from asserting a negligence claim against Defendant for the forged check under the terms of the Agreement. The burden thus shifts to Plaintiff to demonstrate a triable issue of fact in this respect.

            Plaintiff, in opposition, first argues it could not have complied with the terms of the Account Agreement because the April 2021 statement did not “reflect[ ] a forged or unauthorized item or transaction,” in that it did not identify the payee on the tax check.  (Plaintiff’s Opp, p. 9.)  Because the April 2021 statement did not disclose any forgery, it is argued, the 14-calendar-day period did not begin to run, so it cannot be contended that Plaintiff’s objection was late under the Account Agreement.  The Court agrees that this argument might raise a triable issue of fact about whether Plaintiff’s claims are barred under the first cited clause of the Account Agreement, but not under the second one.  Under the latter clause, Defendant is not liable to Plaintiff for an error or unauthorized transaction unless it is discovered and reported within 60 days of the date of the statement, even if Defendant has acted without due care in the transaction.  (Defendant’s Exh. 5. pp.9, 18.) It is undisputed that Plaintiff did not report the transaction until May 11, 2022, even though it was listed on the April 30, 2021 statement. (Plaintiff’s Separate Statement of Material Facts Nos. 21, 24.) Plaintiff has therefore not demonstrated substantial compliance, as the check was not reported within 60 days of the date of the statement, regardless of whether that statement gave adequate notice of the alleged forgery.

            Plaintiff argues in the alternative that Defendant cannot enforce the terms of the Agreement because it was itself in breach of the agreement by failing to meaningfully investigate Plaintiff’s forgery claim. Plaintiff offers no evidence of this contention other than an email from Defendant stating that it was proceeding with collection on the check as a courtesy, even though the reclamation period had expired. (See SAF No. 38; Declaration of Clay Wilkinson ISO Opp. Exh. C.) Nothing in this document speaks to Defendant’s investigation of the forgery claim. The Court is therefore not persuaded by this argument. Nor is the Court persuaded by Plaintiff’s conclusory assertion that Defendant should not be permitted to profit from its own wrongdoing because Plaintiff’s bank statements were allegedly not properly mailed to him given that the agreement expressly states that Defendant is not liable for a failure to report arising from its own lack of care.

            Finally, Plaintiff asserts that the Court should continue the hearing on this motion because there is outstanding discovery that might elicit facts essential to justify the opposition. Plaintiff’s conclusory statement offers no basis for the Court to do so, and the Court is therefore not persuaded that such a measure is warranted.

            In sum, the Court finds that Plaintiff has not carried its burden to demonstrate that there is a triable issue of fact that precludes the express terms of the Business Account Agreement from barring Plaintiff’s negligence claim. Defendant is therefore entitled to summary adjudication of this cause of action.

            Accordingly, Defendant’s Motion for Summary Adjudication of the Third Cause of Action is GRANTED.

Fourth Cause of Action: Unfair Business Practices

            Defendant contends that the Fourth Cause of Action for unfair business practices fails for the reasons stated above in connection with the first cause of action. As the Court has rejected Defendant’s arguments in totality with respect to Plaintiff’s statutory claims, Defendant is likewise not entitled to summary adjudication on this claim.

            Accordingly, Defendant’s Motion for Summary Adjudication of the fourth cause of action is DENIED.

CONCLUSION:

Accordingly, Defendant’s Motion for Summary Judgment is DENIED.

Defendants’ Motion in the Alternative for Summary Adjudication is GRANTED as to the third cause of action for negligence and otherwise DENIED.

Moving Party to give notice.

IT IS SO ORDERED.

Dated:  October 24, 2023                                ___________________________________

                                                                                    Theresa M. Traber

                                                                                    Judge of the Superior Court

            Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.