Judge Thomas D. Long, Case Number: 24STCV15138, Date: 2024-10-22 Tentative Ruling

On June 17, 2024, Plaintiff Alben B. Xhidija filed this action against Defendants Bank of Montreal and Bank of the West. The Complaint alleges (1) negligence; (2) breach of contract; (3) promissory estoppel; (4) breach of implied duty of good faith and fair dealing; (5) negligent interference with prospective economic advantage; (6) negligent interference with contractual relations; (7) fraudulent misrepresentation and deceit; (8) negligent misrepresentation; (9) violation of Business and Professions Code section 17200; (10) violation of the Rosenthal Fair Debt Collection Act; (11) intentional infliction of emotional distress (“IIED”); and (12) negligent infliction of emotional distress (“NIED”). (The body of the Complaint switches the order of the ninth and tenth causes of action. The Court will address the causes of action as stated on the caption page.)

Defendants ask the Court to take judicial notice of the Signature Card dated August 21, 2023 for AX Capital Group LLC (Exhibit 1) and Deposit Account Disclosure Agreement effective February 2, 2023 (Exhibit 2). Because the Complaint refers to the terms and conditions in respective account agreements (e.g., Complaint ¶ 39), they are appropriate matters for judicial notice. (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 956 fn. 6.) Additionally, Plaintiff admits that these are the contract terms. (See Opposition at p. 5.) The request is granted.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context, accepting the alleged facts as true. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.) “Because a demurrer challenges defects on the face of the complaint, it can only refer to matters outside the pleading that are subject to judicial notice.” (Arce ex rel. Arce v. Kaiser Found. Health Plan, Inc. (2010) 181 Cal.App.4th 471, 556.)

Defendants argue that a depository institution does not owe a customer a legal duty of care that is completely untethered to the contractual relationship, and the UCC precludes negligence claims. (Demurrer at pp. 15-17.) Plaintiff alleges that Defendants owed him “a duty of ordinary commercial banking care in the management and handling of his banking transactions, specifically the processing and depositing of checks, as well as providing accurate account information and warnings regarding overdrafts and potential fraudulent activities.” (Complaint ¶ 33.) A customer may have a right to recover damages to the extent that the bank’s negligence caused the customer to suffer losses. (Wells Fargo Bank, N.A. v. FSI, Financial Solutions, Inc. (2011) 196 Cal.App.4th 1559, 1571.) Even under the UCC, a bank may be liable for harm caused by its own negligence in handling checks and chargebacks. (Chino Commercial Bank, N.A. v. Peters (2010) 190 Cal.App.4th 1163, 1170-1172.)

Defendants also argue that Plaintiff’s claim for negligence is barred by the economic loss rule. (Demurrer at pp. 15-16.) “In general, 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 (Sheen).) “[T]he rule functions to bar claims in negligence for pure economic losses in deference to a contract between litigating parties.” (Ibid.) Claims for monetary losses “are barred when they arise from—or are not independent of—the parties’ underlying contracts.” (Id. at p. 923.)

Plaintiff holds two deposit accounts with Defendants. (Complaint ¶ 12.) Plaintiff alleges that Defendants flagged two deposited checks for being altered or fictitious and issued a chargeback, which resulted in Plaintiff’s account being overdrawn and disrupted. (Complaint ¶¶ 13-17, 25-26.) As a result of Defendants executing a setoff, Plaintiff suffered financial damage and “significant stress, anxiety, and damage to Plaintiff’s reputation.” (Complaint ¶¶ 26-27; see Complaint ¶ 36.) Although Plaintiff alleges some non-economic harm, it arises from (and is not independent of) the parties’ banking contract.

B. Plaintiff Does Not Allege Breach of Contract (Second and Fourth Causes of Action).

Plaintiff alleges that Defendants breached their contractual obligations by improperly handling Plaintiff’s checks, unilaterally reversing transactions, and closing his accounts. (Complaint ¶ 41.) Defendants argue that the alleged breaches are agreed-upon terms in the parties’ agreements. (Demurrer at pp. 17-18.)

Under the terms of the contract, (1) Defendants had the right to “accept or reject deposits” in their sole discretion; (2) checks are “subject to reversal and chargeback to your Account whenever the Bank is unable to collect the funds from the drawee/issuer institution”; (3) if any check “you deposit is returned unpaid . . . the Bank is authorized to reverse the deposit to your Account (or debit your Account for checks cashed or paid), to reverse any related interest, and to pursue a collection action against you if necessary”; (4) Defendants have the right to “close your Account at any time, with or without cause, with or without prior notice to you and tender of the Account balance (including any accrued and payable interest if applicable, subject to any agreement concerning maturity or the Bank’s Right of Set-off)”; (5) Defendants can close or freeze any account if the Bank suspects fraudulent activity with or without notice, and BMO will “not be liable for any losses incurred or any Items that are dishonored as a consequence of placing a hold on funds in your Account for these reasons”; and (6) Plaintiff would reimburse BMO if there was an overdraft on this account. (RJN, Ex. 2; Opposition at pp. 17-18.)

Accordingly, Plaintiff has not alleged a breach of the terms. Instead, he has alleged that Defendants performed according to the terms.

Plaintiff also alleges breach of the implied covenant of good faith and fair dealing. “[T]ort recovery for breach of the covenant [of good faith and fair dealing] is available only in limited circumstances, generally involving a special relationship between the contracting parties, such as the relationship between an insured and its insurer.” (Bionghi v. Metropolitan Water Dist. of So. California (1999) 70 Cal.App.4th 1358, 1370.) “Because the covenant of good faith and fair dealing essentially is a contract term that aims to effectuate the contractual intentions of the parties, ‘compensation for its breach has almost always been limited to contract rather than tort remedies.’ ” (Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43.) “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.) That is the case here. (See Complaint ¶ 56.)

Defendants argue that Plaintiff does not allege a clear and unambiguous promise supporting a claim for promissory estoppel. (Demurrer at pp. 19-20.)

“The elements of promissory estoppel are (1) a promise, (2) the promisor should reasonably expect the promise to induce action or forbearance on the part of the promisee or a third person, (3) the promise induces action or forbearance by the promisee or a third person, and (4) injustice can be avoided only by enforcement of the promise.” (Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2016) 6 Cal.App.5th 1207, 1225.)

Plaintiff alleges that Defendant promised “that they would handle his financial transactions with due care, particularly the processing of checks and management of his accounts, which are typical promises in a banking relationship.” (Complaint ¶ 46.) This does not allege any specific terms of a promise. Additionally, Plaintiff has not alleged reasonable reliance in light of the parties’ contracts containing the terms of the management of accounts.

D. Plaintiff Does Not Allege Interference With Economic Advantage or Contractual Relations (Fifth and Sixth Causes of Action).

“The elements of a claim of interference with economic advantage and prospective economic advantage are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional [or negligent] acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Crown Imports, LLC v. Superior Court (2014) 223 Cal.App.4th 1395, 1404, quotation marks and citations omitted.) “[C]ourts require an additional element, that the alleged interference must have been wrongful by some measure beyond the fact of the interference itself.” (Ibid.) “For an act to be sufficiently independently wrongful, it must be ‘unlawful, that is, . . . it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.’” (Ibid.) “The independently wrongful act must be the act of interference itself, but such act must itself be independently wrongful.” (Ibid.)

Defendants argue that they only exercised their contractual right to issue chargebacks, institute an investigative freeze, and close the account. (Demurrer at pp. 20-21.)

Plaintiff alleges that Defendants interfered with his economic relationships with his tenants, including the one whose check was rejected. (Complaint ¶¶ 61, 69.) Defendants’ wrongful conduct included “erroneously reversing transactions and freezing accounts without substantial justification, actions that deviated significantly from the standards of care in the banking industry and directly impacted Plaintiff's ability to maintain smooth financial operations.” (Complaint ¶ 72.) Defendants also “proceed[ed] with account closures and transaction reversals without properly investigating the legitimacy of the transactions or the potential impact on Plaintiff’s business relationships.” (Complaint ¶ 73.) This does not allege any independently wrongful conduct. Instead, it alleges that Defendants acted in accordance with the contract terms.

“The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage. [Citations.] The essential elements of a count for negligent misrepresentation are the same except that it does not require knowledge of falsity but instead requires a misrepresentation of fact by a person who has no reasonable grounds for believing it to be true. [Citations.]” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230-231.)

Fraud must be pleaded with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “‘This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.] A plaintiff’s burden in asserting a fraud claim against a corporate employer is even greater. In such a case, the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’ [Citation.]” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

Plaintiff does not allege any fraud with specificity. (See Demurrer at pp. 21-23.) Plaintiff alleges that Defendants “committed misrepresentation by incorrectly asserting that the checks provided by Plaintiff’s tenant were altered or fictitious.” (Complaint ¶ 81; see Complaint ¶ 89.) Plaintiff alleges that he spoke with Ms. Natalie Russels on March 6, 2024, but she only “reiterated the possibility of the checks being fraudulent.” (Complaint ¶ 19.) This is after “a banker” “accused [Plaintiff] of potentially having forged documents” between March 1 and 12, 2024. (Complaint ¶ 18.) Additionally, through “conversations with bank representatives,” it was “insinuated that Plaintiff should not trust his tenants and suggested that the rental checks might have been fictitious.” (Complaint ¶ 20.) None of this is alleged with the required specificity.

Plaintiff also does not allege reasonable reliance on the misrepresentations. (See Demurrer at p. 22.) Plaintiff alleges that Defendants intended to “induc[e] reliance by Plaintiff on their banking services, under the pretext of providing secure and reliable financial management” and “intended that Plaintiff rely on this misinformation to take action or refrain from action regarding his banking transactions and handling of his financial affairs.” (Complaint ¶¶ 83, 92.) Plaintiff did rely on “Defendants’ representations of their banking services and the handling of his transactions.” (Complaint ¶ 84.) Plaintiff’s reliance on Defendants’ representations about their banking services is not reliance on a misrepresentation that the checks were altered or fictitious. (See Complaint ¶¶ 81, 89.)

F. Plaintiff Does Not Allege Violation of the Rosenthal Act (Tenth Cause of Action).

Plaintiff asserts that “accusations were made suggesting that Plaintiff might have engaged in fraudulent activities related to his banking transactions.” (Complaint ¶ 98.) Plaintiff alleges that “[t]hese accusations amounted to a threat that non-payment of an alleged debt, specifically related to the overdraft that had arisen due to Defendants’ mishandling of the checks, would result in criminal allegations against Plaintiff. Such threats were not only unfounded but also unlawful under the Rosenthal Fair Debt Collection Act, as they implied criminal conduct on the part of Plaintiff without any factual basis, solely to pressure him into resolving the financial discrepancies caused by Defendants’ own errors.” (Complaint ¶ 100.)

The overdraft of Plaintiff’s account is not consumer debt because it is not owed by a natural person because of a consumer credit transaction. (Civ. Code, § 1788.2; see Demurrer at p. 23.) Plaintiff alleges that the bank accounts “are crucial for the day-to-day operations of his business, handling transactions ranging from maintenance payments to tenant rents.” (Complaint ¶ 12.) The allegations that Defendants attempted to collect the overdraft through force or falsely accusing him of a crime are also insufficient. (Civ. Code, § 1788.10; see Demurrer at p. 23.)

G. Plaintiff Does Not Allege IIED or NIED (Eleventh and Twelfth Causes of Action).

“‘[T]o state a cause of action for intentional infliction of emotional distress a plaintiff must show: (1) outrageous conduct by the defendant; (2) the defendant’s intention of causing or reckless disregard of the probability of causing emotional distress; (3) the plaintiff’s suffering severe or extreme emotional distress; and (4) actual and proximate causation of the emotional distress by the defendant’s outrageous conduct.’ [Citation.] ‘Conduct, to be ‘outrageous’ must be so extreme as to exceed all bounds of that usually tolerated in a civilized society.’ [Citation.]” (Huntingdon Life Sciences, Inc. v. Stop Huntingdon Animal Cruelty USA, Inc. (2005) 129 Cal.App.4th 1228, 1259.) When a plaintiff does not suffer physical injury, the conduct must involve “extreme and outrageous intentional invasions of one’s mental and emotional tranquility.” (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 498.)

“[T]here is no independent tort of negligent infliction of emotional distress. [Citation.] The tort is negligence, a cause of action in which a duty to the plaintiff is an essential element. [Citations.] That duty may be imposed by law, be assumed by the defendant, or exist by virtue of a special relationship. [Citation.]” (Potter v. Firestone Tire &Rubber Co. (1993) 6 Cal.4th 965, 984-985.)

Plaintiff alleges that Defendants “repeatedly accus[ed] Plaintiff of fraudulent activities without any factual basis.” (Complaint ¶ 113.) These accusations, made in the context of processing Plaintiff’s tenant’s checks, are not extreme and outrageous. (See Complaint ¶¶ 18-20, 113.)

Plaintiff also alleges that Defendants “failed to exercise ordinary commercial banking care in the handling and depositing of Plaintiff's checks” and wrongfully froze his funds. (Complaint ¶¶ 114, 121.) Defendants’ actions are not so extreme as to exceed all bounds of what a civilized society usually tolerates. (See Sheen, supra, 12 Cal.5th at p. 922.)

California’s Unfair Competition Law (“UCL”) includes any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising. (Bus. & Prof. Code, § 17200.) The UCL embraces “anything that can properly be called a business practice and that at the same time is forbidden by law.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) “By proscribing any unlawful business practice, section 17200 borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.” (Ibid.; see Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969 [“Virtually any law can serve as the predicate for a section 17200 action.”].)

Plaintiff alleges that Defendants engaged in unlawful business practices through “the wrongful freezing and subsequent closure of Plaintiff’s accounts, as well as the incorrect and damaging assertions regarding the legitimacy of Plaintiff’s transactions.” (Complaint ¶ 106.) This does not allege an unlawful basis for a UCL claim.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. If all parties in the case submit on the tentative ruling, no appearances before the Court are required unless a companion hearing (for example, a Case Management Conference) is also on calendar.

Hon. Thomas D. Long

Judge of the Superior Court