Judge: Yolanda Orozco, Case: 21STCV38508, Date: 2022-08-22 Tentative Ruling
Case Number: 21STCV38508 Hearing Date: August 22, 2022 Dept: 31
DEMURRER IS SUSTAINED IN PART
Background
On October 10, 2021, Plaintiffs Jordan Young and Laura
Valdivia filed a Complaint against U.S. Bank N.A; Chartwell Escrow, Inc.
(“CEI”); Coldwell Banker Realty, and Does 1 to 20. The operative First Amended
Complaint (“FAC”) alleges:
1)
Breach of Escrow Contract
against CEI and Does 1 through 20
2)
Breach of Implied
Covenant in Escrow Contract against CEI and Does 1 through 20
3)
Money had and Received
Common Counts against U.S. Bank
4)
Breach of Fiduciary
Duty against CEI and Does 1 to 20
5)
Negligence against CEI
and Does 1 through 20
6)
Negligence against
Coldwell Banker Realty and Does 1 to 20
7)
Conversion against
U.S. Bank and Does 1 to 20
8)
Preliminary and
Permanent Injunction against US Bank and CEI
On January 03, 2022, U.S. Bank N.A. was dismissed as a
Defendant, as well as all causes of action alleged against U.S. Bank N.A.
On January 13, 2022, U.S. Bank filed a Notice of Settlement
and Application for Determination of Good Faith Settlement, which Coldwell
contested. (Min. Or. 04/28/22.) The Court denied U.S. Bank’s Application
for Determination of Good Faith Settlement. (Id.)
On March 11, 2022, Defendant Coldwell Banker Realty filed a
Cross-Complaint against U.S. Bank N.A.
On January 10, 2022, Defendant CEI filed this Demurrer as to
Plaintiff’s FAC.
On June 15, 2022, Plaintiff filed Opposition papers. On August 05, 2022, Defendant CEI, filed a
Reply.
Meet and Confer
Requirement
Before filing a demurrer, the demurring
party is required to meet and confer with the party who filed the pleading
demurred, in person or telephonically, to determine 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. (CCP) § 430.41.)
Defense counsel declares he
corresponded with Plaintiff’s counsel over various emails and telephone calls
to resolve the issues raised in the demurrer, but no agreement was reached.
(Wilson Decl. ¶¶ 3,4.) Therefore, the meet and confer requirement is met.
Legal Standard
A demurrer can be used only to challenge defects that
appear on the face of the pleading under attack or from matters outside the
pleading that are judicially noticeable. (Blank v. Kirwan (1985)
39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only
allege facts sufficient to state a cause of action; each evidentiary fact that
might eventually form part of the plaintiff’s proof need not be
alleged.” (C.A. v. William S. Hart Union High School Dist. (2012)
53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the
cause of action, the demurrer admits the truth of all material facts properly
pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962,
966-967.) A demurrer “does not admit contentions, deductions or conclusions of
fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)
Leave to amend must be allowed where there is a reasonable
possibility of successful amendment. (Goodman v. Kennedy (1976) 18
Cal.3d 335, 348.)¿ The burden is on the complainant to show the Court that a
pleading can be amended successfully. (Id.)
Request for Judicial
Notice
Defendants CEI’s request for
Judicial Notice of Plaintiffs First Amended Complaint (FAC) is GRANTED pursuant
to Evidence Code sections 452 and 453.
Discussion
1.
Summary of
Case
In September of 2021, Plaintiffs opened escrow with
Defendant CEI. (FAC ¶ 7.) The escrow officer assigned was Maria Namba, whom
Plaintiffs assert was held out to be the Branch Manager for Defendant CEI. (Id.)
Escrow instructions were signed by Plaintiffs, attached as Exhibit 1 to
Plaintiffs’ FAC. (Id. ¶ 11, Ex. 1.)
Plaintiffs successfully completed their first deposit into
an escrow trust maintained by Defendant CEI. (FAC ¶ 14.) On October 6, 2021,
the day escrow was to close, Plaintiffs allege they received an email
from someone purporting to be Maria Namba of Defendant CEI advising that the
remainder of the funds were to be wired to a U.S. Bank account, account number
157528947862. (Id.) Between October 6, 2021, and October 8, 2021,
Plaintiffs wired funds from various bank accounts totaling $920,000.09. (Id.
at 15.) Plaintiffs immediately informed
their realtor at Coldwell Banker Realty that the wires were being sent. (Id.)
On October 8, 2021, the Plaintiffs’ realtor received an
email from Maria Namba asserting that she had not received the wire transfers.
(FAC ¶ 18.) Plaintiffs were subsequently informed that they were the victims of
wire fraud.
Defendant CEI demurs to Plaintiffs first, second, fourth,
and fifth causes of action.
2.
First COA: Breach of Escrow Contract
The
elements of a claim for breach of contract are: "(1) the existence of the
contract, (2) plaintiffs 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.)
Defendant
CEI does not dispute that an Escrow Contract existed between CEI and
Plaintiffs, but it asserts that Plaintiffs breached the Escrow Contract (aka
“Escrow Instructions”) by not following the instructions in the Escrow
agreement. Moreover, CEI asserts that the Escrow
Instructions take precedence over any allegations made by Plaintiff if the FAC.
“[Del E. Webb Corp. v. Structural Materials Co. (1981) [“exhibits
attached to the complaint will also be accepted as true and, if contrary to the
allegations in the pleading, will be given precedence.”].)
The
Escrow Instructions expressly state that if the funds are to be transferred by
wire, then the funds should only be transferred “to the bank and account
detailed below” and not to the bank Plaintiffs transferred their funds. (FAC
Ex. 1.) The Escrow Instructions go on to state:
“Escrow
Holder has no duty regarding funds until its bank confirms deposit and credit.
The parties to this escrow and depositors must independently confirm wire
account details of Escrow Holder by telephone with Escrow Holder’s employee
assigned to the transaction before initiating any wire transfer to
Escrow Holder’s bank. Failure to verify wire transfer information with
Escrow Holder shall bar any party or third-party depositor from claiming
liability against the Escrow Holder should the funds be erroneously
transmitted.” (Id. [emphasis added].)
Accordingly,
Plaintiffs’ damages were caused by their explicit breach of the Escrow
Instructions, such that their claim for breach of contract should be barred.
Plaintiffs
do not dispute that they breached the Escrow Instructions but assert they can
still allege a cause of action for breach of contract against CEI because “a
finding that each party breached the contract, and that each party is entitled
to damages for the other's breach, is legally permissible.” (Brawley v. J.C.
Interiors, Inc., 161 Cal. App. 4th 1126, 1134, 74.)
Plaintiffs
specifically allege that they relied on CEI’s “heightened skill and knowledge
to successfully conclude the transaction.” (FAC ¶ 9.) Plaintiffs further allege
that “Ms. Namba exercised substantial discretionary authority over significant
aspects of Defendant CEI’s business, including responsibility for setting and
maintaining proper methodologies and business fail-safes to protect against
residential wire fraud.” (Id. ¶ 8.) Plaintiffs allege CEI breached the
Escrow Contract “by failing to confirm the authenticity of the wiring
instructions purportedly sent by CEI by one or more fictitiously named
defendants, and specifically by failing to review and confirm the wiring
instructions contained the proper routing information for disbursement; by
failing to contact the Plaintiffs to confirm they had authorized the wiring
instruction before disbursement; and by failing to supervise and audit the
escrow transaction.” (FAC ¶ 21.)
Here,
Plaintiffs failed to state facts to show what specific representations Ms.
Namba made that reasonably and justifiably induced Plaintiffs to breach the
Escrow Instructions. Moreover, the Escrow Instructions specifically place the
duty on Plaintiffs to contact that Escrow Holder before commencing the wire
transfer in order to confirm the account details. Plaintiffs seek to place more
duties and obligations on CEI than are outlined in the Escrow Instructions and
are beyond the scope of the agreement.
The
Escrow Instructions further provide:
“NO
AMENDMENT OR INSTRUCTION TO AMEND THE ABOVE WIRE DETAILS FOR ESCROW HOLDER’S
BANK AND ACCOUNT NUMBER WILL HAVE ANY FORCE, EFFECT, OR VALIDITY UNLESS SIGNED
AND NOTARIZED BY THE ESCROW HOLDER.”
(FAC
Ex. 1.)
“An integrated agreement is a writing or
writings constituting a final expression of one or more terms of an agreement.”
(Riverisland Cold Storage, Inc. v.
Fresno-Madera Production Credit Assn. (2013)
55 Cal.4th 1169, 1174.) In their moving papers, CEI does not argue that the
Escrow agreement was a fully integrated contract or that the above provision
should be read as an integration clause. There is no clause or provision
expressly stating that the Escrow Instructions are the “final expression” of
the Parties’ intent. Accordingly, Plaintiffs are permitted to introduce facts
regarding contemporaneous agreements that induced Plaintiffs to breach the
Escrow Instructions. However, Plaintiffs have not presented sufficient facts to
show what those contemporaneous agreements were, what Ms. Namba’s alleged representations
were or how they induced Plaintiffs to deviate from the Escrow Instructions.
Therefore, Defendant CEI’s Demurrer
to the first cause of action is SUSTAINED with leave to amend.
3.
Second COA:
Breach of the Implied Covenant of Good Faith and Fair Dealing
In
every contract there is an implied covenant of good faith and fair dealing to
prevent one contracting party from unfairly frustrating the other party's right
to receive the benefits of the agreement actually made. (Guz v. Bechtel Nat. Inc.(2000)
24 Cal.4th 317, 349–350.) The covenant thus cannot “be endowed with an
existence independent of its contractual underpinnings.” (Love v. Fire Ins. Exchange (1990) 221
Cal.App.3d 1136, 1153.) “It cannot impose substantive duties or limits on the
contracting parties beyond those incorporated in the specific terms of their
agreement.” (Guz, supra, 24 Cal.4th 317
at 350.)
Plaintiffs allege that Defendant CEI breached the covenant
of good faith and fair dealing because: “Defendants denied Plaintiffs
the benefits of the contract by failing to confirm the wiring instructions when
received, by immediately contacting the Plaintiffs and the sender, but relied
on the same to disburse funds without confirmation; and failed to account for
more than $920,000.09 delivered to Defendants in accordance with the wiring
instructions purportedly sent by Defendant CEI and DOES 1 through 20 issued to
Plaintiffs.” (FAC ¶ 25.)
Plaintiffs
admit that they did not contact Ms. Namba about the wire transfer but instead
contacted their realtor at Coldwell Banker Realty via text message on October
6, 2021, when the first fraudulent wire transfer was sent. (FAC ¶ 16.) Another
text message to their realtor was sent on October 7, 2021, when their realtor
confirmed he would call escrow and confirm. (Id. at ¶ 17.) In fact, it
was Ms. Namba who contacted Plaintiffs’ realtor and informed him that she had
not received the wire transfers. (Id. at ¶ 18.)
Accordingly, Plaintiffs fail to allege any facts to show
how Defendant CEI’s actions deprived Plaintiffs of the right to receive the
benefits of the contract. Furthermore, Plaintiffs cannot impose obligations on
CEI “beyond those incorporated in the specific terms of their
agreement.” (Guz, supra, 24 Cal.4th 317
at 350.) The Escrow Instructions do not support Plaintiffs’ contention that CEI
had the obligation to contact Plaintiffs before the wire transfer took place,
and Ms. Namba did subsequently notify Plaintiffs that the transfer was not
received. (FAC ¶ 18) The Escrow Instructions specifically state: “Escrow
Holder has no duty regarding funds until its bank confirms deposit and credit.”
(FAC Ex. 1.)
Moreover, CEI asserts that Plaintiffs’
claim for breach of the implied convent of good faith and fair dealing and
breach of contract claims are duplicative because the claims seek the same
remedies and are based on the same conduct such that the claim for breach of
the implied covenant should “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, 1394.)
Therefore, Defendant CEI’s Demurrer as to the second cause
of action is SUSTAINED with leave to amend.
4.
Fourth COA:
Breach of Fiduciary Duty
“The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. “In order to plead a cause of action for breach of fiduciary duty, there must be an adequate showing of each of these elements.” (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 483.) An escrow holder is a fiduciary. (See Amen v. Merced County Title Co., 58 Cal. 2d 528, 534.) “An act such as breach of fiduciary duty may be both a breach of contract and a tort.” (Kangarlou v. Progressive Title Co., Inc. (2005) 128 Cal.App.4th 1174, 1178.)
Defendant CEI asserts that because
it did not breach the Escrow Instructions, Plaintiffs’ claim for breach of
fiduciary duty also fails. Some authority exits for holding that if “the
fiduciary claims arise out of the same facts that underlie the contract obligations”
it would foreclose the fiduciary claim as “superfluous.” (Colaco v. Cavotec SA (2018) 25 Cal.App.5th 1172,
1197 [refereeing to Delaware Law].” However, both Colaco and Kangarlou support the proposition that a breach of
fiduciary duty may exist that is independent of a contract claim.
Plaintiffs allege that CEI breached a fiduciary to act with reasonable skill and ordinary diligence by:
“(a) Failing to secure its bank
accounts, databases, email systems and other electronic and physical business
data against intrusion by unauthorized personnel;
Failing to warn Plaintiffs of the risk
of theft of wired funds, and to incorporate systems and checkpoints in the
escrow wiring process to ensure the funds are delivered to Defendant U.S. Bank
for the benefit of Defendant CEI; and
Failing to promptly confirm the wire transfer information and destination for the wires with Plaintiffs upon being advised that Plaintiffs sent wire transfers relating to the closing of the transaction.”
(FAC ¶ 34.)
Taking Plaintiffs’ facts as true for purposes of a demurrer, Plaintiffs have articulated sufficient facts that Defendant CEI owed Plaintiffs a fiduciary duty outside of the Escrow Instructions, including the duty to safeguard Plaintiffs information, including email systems, that allowed a hacker to access Plaintiffs email and request that the wire funds be sent to a different account.
Therefore, Defendants’ demurrer is
OVERRULED as to Plaintiffs’ fourth cause of action.
5.
Fifth COA:
Negligence
The elements for negligence are: (1) a legal
duty owed to the plaintiff to use due care; (2) breach of duty; (3) causation;
and (4) damage to the plaintiff. (County of Santa Clara v. Atlantic
Richfield Co. (2006) 137 Cal.App.4th 292, 318.) “The threshold element of a
cause of action for negligence is the existence of a duty to use due care
toward an interest of another that enjoys legal protection against
unintentional invasion.” (Paz v. State of California (2000) 22 Cal.4th 550,
559 [internal citations omitted].)
Defendant CEI argues that because the Plaintiffs failed to
follow the Escrow Instructions, it owed no duty to Plaintiffs outside of the
Escrow Instructions. However, as explained above, CEI may owe a separate duty
that exists outside of the Escrow agreement.
In their FAC, Plaintiffs, among other things, allege:
·
“Defendants failed to comply with the standard
of practice in the community for real estate licensees - whether agents or
escrow companies - by failing to maintain data security and prevent
unauthorized access, phishing attempts, and the like, and by reason thereof,
created the risk resulting in the loss of the Plaintiffs’ funds. In so doing,
the Defendants failed to reasonably enact and enforce safety and confidential
information protocols to prevent these loopholes being exploited as was done in
this case.” (FAC ¶ 39.)
·
“It is common knowledge within the greater Los
Angeles real estate lending and escrow industry that escrow and wire fraud has
greatly increased in recent years, and so the employees of these Defendants
should have undergone periodic and frequent training to spot the red flags or
badges of wire fraud.” (Id. at 41.)
·
“Plaintiffs are informed and believe Defendants’
employees, were not equipped with sufficient training, or their employees were
working with other actors outside the escrow process, to procure and then
disseminate information from Plaintiffs’ confidential escrow account that would
facilitate the theft of the Plaintiffs’ funds. This information included their
down payment, sales price, loan amount (if any), and escrow identification
information, all or some of which was used to facilitate the theft of Plaintiffs’
funds in this case.” (FAC ¶ 42.)
·
“Plaintiffs are further informed and believe
that the Defendants failed to recognize, for example, the significance of the
unsolicited payoff information, despite training available to Defendants to
identify these red flags of attempted wire fraud.” (FAC ¶ 43.)
Taking Plaintiffs’ facts as true for purposes of a demurrer, Plaintiffs have articulated that Defendant CEI owed Plaintiffs a duty of care that existed beyond what was articulated in the Escrow Instructions. Accordingly, Defendant CEI’s Demurrer to the fifth cause of action is OVERRULED.
Conclusion
Defendant Chartwell Escrow Inc.’s Demurrer to Plaintiff’s First Amended Complaint is:
SUSTAINED WITH 20 DAYS LEAVE TO AMEND as to the first cause of action;
SUSTAINED WITH 20 DAYS LEAVE TO AMEND as to the second cause of action; and
OVERRULED as to the fourth and fifth cause of action.
Moving party to give notice.
The
parties are strongly encouraged to attend all scheduled hearings virtually or
by audio. Effective July 20, 2020, all matters will be scheduled virtually
and/or with audio through the Court’s LACourtConnect technology. The parties
are strongly encouraged to use LACourtConnect for all their matters. All masking
protocols will be observed at the Courthouse and in the courtrooms.