Opinion
CV 22-03090 DSF (PVCx)
2023-03-13
Douglas G. GRAY, et al., Plaintiffs, v. JPMORGAN CHASE BANK, N.A., Defendant.
Courtney A. Overland, Mark E. Overland, Overland and Overland, Santa Monica, CA, for Plaintiffs. Alina Edep, Arjun P. Rao, Ryan S. Nelson, Stroock and Stroock and Lavan LLP, Los Angeles, CA, for Defendant.
Courtney A. Overland, Mark E. Overland, Overland and Overland, Santa Monica, CA, for Plaintiffs. Alina Edep, Arjun P. Rao, Ryan S. Nelson, Stroock and Stroock and Lavan LLP, Los Angeles, CA, for Defendant. Order GRANTING Motion to Dismiss (Dkt. 41) Dale S. Fischer, United States District Judge
Defendant JPMorgan Chase Bank, N.A. moves to dismiss Plaintiffs Douglas G. Gray and Arlene Gray's Second Amended Complaint for failure to state a claim. Dkt. 37 (SAC); dkt. 41 (Mot.). The Grays oppose. Dkt. 43 (Opp'n.). The Court deems this matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78; Local Rule 7-15.
I. BACKGROUND
The Grays were victims of wire fraud. SAC ¶¶ 11-28. On November 30, 2020, an individual who identified himself as Jonathan from Amazon contacted Mrs. Gray by telephone informing her that a fraudulent charge of $349.99 had been made to her Amazon account and that Amazon intended to refund that amount. Id. ¶ 11. The individual gained remote access to Mrs. Gray's computer so she could observe him filling out a refund form. Id. ¶ 12. The individual stated that he erroneously processed a refund of $35,000 to her Chase checking account. Id. ¶¶ 12-13. Mrs. Gray then received instructions to wire funds to the Bangkok Bank in Thailand in order to "correct the mistake." Id. ¶¶ 13-14.
On November 30, Mrs. Gray wire transferred $34,650 to Bangkok Bank from the Chase branch in Woodland Hills. Id. ¶ 15. She interacted with a bank teller determined to be Azadeh Arashvand, and Kristine Ben, the branch manager of Chase's Woodland Hills branch approved the wire transfer. Id. Ben never spoke to Mrs. Gray prior to the approval of the wire transfer, and at no time did any Chase employee ask Mrs. Gray questions about the purpose of the wire transfer. Id. ¶¶ 15-16. On December 3, after receiving a telephone call asserting that another mistake had been made, Mrs. Gray wire transferred $35,000 to Bangkok Bank from Chase's West Hills branch. Id. ¶¶ 18-21.
On December 4, Mrs. Gray visited Chase's Woodland Hills branch to relay her suspicions about the wire transfers. Id. ¶¶ 23-25. A male bank employee, "Serge (LNU)," informed her that it was an "elder scam." Id. ¶ 25. The Grays allege that Serge made a telephone call to an unknown person and Mrs. Gray recalled hearing the words "involved thousands of dollars" and "draining account." Id. Serge instructed Mrs. Gray to disable her computer and get it "scrubbed." Id.
On December 5, the Grays returned to the Woodland Hills branch with their daughter, Stephanie, and grandson, Trevor, and met with Ben, and Chase employee Kristie Hunt to discuss how to respond to the theft. Id. ¶ 26. Ben suggested that the Grays close their Chase bank accounts and open new accounts, which Hunt did. Id. Ben did not say anything about how Chase would respond to the potential fraud. Id. Mr. Gray asked Ben to contact the recipient bank concerning the wire transfers, and Ben responded, "We don't do that." Id. ¶ 27. During a telephone conversation on December 8, 2020, Ben informed the Grays that the funds were gone, and Chase could do nothing. Id. ¶ 28.
The Grays' FAC asserted claims against Ben and Chase for negligence under California law and financial elder abuse pursuant to Cal. Welf. & Inst. Code §§ 15610.30 and 15657.5. Dkt. 1, Ex. A (FAC) ¶¶ 30-38. The SAC now asserts negligence and financial elder abuse claims against Chase only. SAC ¶¶ 29-41.
II. LEGAL STANDARD
Rule 12(b)(6) allows an attack on the pleadings for failure to state a claim on which relief can be granted. "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007). However, a court is "not bound to accept as true a legal conclusion couched as a factual allegation." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.' " Id. (alteration in original) (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955). A complaint must "state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955. This means that the complaint must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. There must be "sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively . . . and factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
Ruling on a motion to dismiss will be "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 'show[n]' - 'that the pleader is entitled to relief.' " Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 (alteration in original) (citation omitted).
As a general rule, leave to amend a claim that has been dismissed should be freely granted. Fed. R. Civ. P. 15(a). However, district courts have "wide discretion in granting or refusing leave to amend after the first amendment." See Rich v. Shrader, 823 F.3d 1205, 1209 (9th Cir. 2016) (internal quotation marks omitted).
III. DISCUSSION
A. Negligence
The Court previously granted Defendants' motion to dismiss the Grays' negligence claim because they failed to allege that Chase owed them a legal duty to use due care. Dkt. 36 (Order) at 9. The elements of a negligence claim under California law are duty, breach, causation, and injury. Vasilenko v. Grace Family Church, 3 Cal. 5th 1077, 1083, 224 Cal.Rptr.3d 846, 404 P.3d 1196 (2017). To establish negligence, a plaintiff must prove (1) a legal duty to use due care, (2) a breach of the legal duty, and (3) the breach is the proximate or legal cause of the resulting injury. Beacon Residential Cmty. Ass'n v. Skidmore, Owings & Merrill LLP, 59 Cal. 4th 568, 573, 173 Cal.Rptr.3d 752, 327 P.3d 850 (2014). "Duty is not universal; not every defendant owes every plaintiff a duty of care. A duty exists only if the plaintiff's interests are entitled to legal protection against the defendant's conduct . . . . A duty of care may arise through statute or by operation of the common law." Sheen v. Wells Fargo Bank, N.A., 12 Cal. 5th 905, 920, 290 Cal.Rptr.3d 834, 505 P.3d 625 (2022) (internal quotation marks omitted). "Whether a duty of care exists is a question of law to be determined on a case-by-case basis." Lueras v. BAC Home Loans Servicing, LP, 221 Cal. App. 4th 49, 62, 163 Cal.Rptr.3d 804 (2013).
The Grays now allege that Chase has a statutory duty under 31 U.S.C. § 5311 et seq. and 12 C.F.R. § 21.11(4)(iii) to report transactions aggregating $5,000 or more if the "bank knows, suspects, or has reason to suspect" that any transaction "has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction." SAC ¶ 7. They allege that Chase "failed to exercise reasonable care in preventing the loss" of their funds and harm to them, "in violation of Cal. Civ. Code § 1714(a) and Kesner v. Superior Court, 1 Cal.5th 1132, 1143-44, 210 Cal. Rptr.3d 283, 384 P.3d 283 (2016)." Id. ¶ 29. They allege that Chase was aware of the duties imposed on it by 31 U.S.C. § 5311 et seq. and 12 C.F.R. § 21.11(4)(iii) to file suspicious activity reports, and suspicious activity included the wire transfers requested by Mrs. Gray if Chase knew or suspected the transaction "ha[d] no business or apparent lawful purpose or [was] not the sort of banking activity that Mrs. Gray would normally be expected to engage in, and [Chase could not] find a reasonable explanation for the transaction after examining the available facts including the background and possible purpose of the transaction." Id. ¶ 30. The Grays also allege as part of their negligence claim that Chase knew that Cal. Welf. & Inst. Code §§ 15630.1 required Chase to report suspected financial abuse, and "had policies and procedures relating to the prevention of elder financial abuse and the authorization of wire transfers which could easily be procured by fraud." Id. ¶¶ 31-32.
Chase asserts that the SAC alleges no new factual allegations with respect to the Grays' negligence claim. Mot. at 15. It argues again that the Grays' negligence claim should be dismissed because it is displaced by Division 11 of the California UCC. Id. at 15-16. Chase contends that the negligence claim is expressly predicated on Chase's alleged failure to prevent loss and harm resulting from its approval of Mrs. Gray's request to send two wire transfers. Id. at 15-16. It argues that although the Court noted that the "claim would not be displaced if based on conduct separate from Chase's authorizing and processing of the wire transfers," "Plaintiffs removed the only factual allegations which involved acts or omissions separate from the authorizing and processing of the wire transfers: Chase's alleged failure to timely recall the wire transfers after being advised of the scam." Id. at 16.
The Court agrees. It previously held that "to the extent the Grays' negligence claim is based on Defendants' authorizing and processing the wire transfers at issue, the claim is displaced. To the extent the Grays' claim is based on other acts or omissions, the claim is not precluded by Division 11 of the UCC." Order at 6. "[D]ivision 11 provides that common law causes of action based on allegedly unauthorized funds transfers are preempted in two specific areas: (1) where the common law claims would create rights, duties, or liabilities inconsistent with division 11; and (2) where the circumstances giving rise to the common law claims are specifically covered by the provisions of division 11." Zengen, Inc. v. Comerica Bank, 41 Cal. 4th 239, 249, 59 Cal.Rptr.3d 240, 158 P.3d 800 (2007). The Court explained that "the gravamen of each of Zengen's causes of action against the Bank" was that "[t]he Bank should not have accepted and executed the fraudulent payment orders," and determined that these facts fell squarely within the provisions of division 11 of the UCC. Id. at 250-51, 59 Cal.Rptr.3d 240, 158 P.3d 800. The court concluded that the UCC preempted the common law causes of action alleged by Zengen. Id. at 251, 59 Cal.Rptr.3d 240, 158 P.3d 800. The SAC now alleges that "Defendant failed to exercise reasonable care in preventing loss of Plaintiffs' funds, and in preventing harm to Plaintiffs resulting from its approval of Mrs. Gray's request to send the two wire transfers described above to Thailand." SAC ¶ 29. The negligence claim is displaced by Division 11 of the UCC.
Chase also argues that the negligence claim fails because it does not owe a general legal duty of care to the Grays. Mot. at 17. First, Chase asserts that Cal. Civ. Code § 1714(a) has never been applied "where a depository institution processes a customer's valid request to transfer funds." Id. at 18. Next it argues that the requirements of 31 U.S.C. § 5311 et seq. and 12 C.F.R. § 21.11(c)(4)(iii) do not create a private right of action or legal duty owed by a bank to a customer. Id. at 19. And finally, Chase argues that Cal. Welf. & Inst. Code § 15630.1 does not create either a private right of action or a legal duty owed by a financial institution to a consumer. Id. at 21.
The Court agrees that the statutes and provisions the Grays cite in the SAC do not establish that Chase owed them a legal duty of care. Cal. Civ. Code § 1714(a) provides in relevant part: "Everyone is responsible, not only for the result of his or her willful acts, but also for an injury occasioned to another by his or her want of ordinary care or skill in the management of his or her property or person, except so far as the latter has, willfully or by want of ordinary care, brought the injury upon himself or herself." Cal. Civ. Code § 1714(a). "Section 1714(a) establishes a general duty of each person to exercise, in his or her activities, reasonable care for the safety of others." Mayall on Behalf of H.C. v. USA Water Polo, Inc., 909 F.3d 1055, 1060 (9th Cir. 2018) (internal quotation marks and citation omitted). "Liability under § 1714(a) is the general rule. [I]n the absence of a statutory provision establishing an exception to the general rule of Civil Code section 1714, courts should create one only where clearly supported by public policy." Id. (internal quotation marks and citation omitted). The Grays argue that Chase fails to identify a statutory exception to a duty of care to protect elders like plaintiffs from financial abuse, and that the application of section 1714(a) to this case is supported by the public policy considerations enumerated in Kesner v. Superior Court, 1 Cal.5th 1132, 1143, 210 Cal.Rptr.3d 283, 384 P.3d 283 (2016). Opp'n at 13-14. However, as Chase points out, the provision has not been applied in situations similar to the one at hand, and the Grays do not cite any caselaw applying section 1714(a) to banks or other financial institutions. And in its prior Order, the Court thoroughly examined California caselaw on the duty of care banks owe to their depositors. See Order at 7-11. The Court declines to now extend Cal. Civ. Code § 1714(a) to create liability for Chase. Moreover, 31 U.S.C. § 5311 et seq., 12 C.F.R. § 21.11(c)(4)(iii), and Cal. Welf. & Inst. Code § 15630.1 impose certain reporting requirements on Chase, but do not establish a duty of care to bank customers.
The Court grants Chase's motion to dismiss the negligence claim.
B. Financial Elder Abuse
" 'Financial abuse' of an elder . . . occurs when a person or entity . . . [a]ssists in taking, secreting, appropriating, obtaining, or retaining real or personal property of an elder . . . for a wrongful use or with intent to defraud, or both." See Cal. Welf. & Inst. Code § 15610.30(a)(2). Under California law, liability may be imposed for assisting in financial elder abuse under an aiding and abetting standard. Millare v. Bank of America, N.A, No. CV 21-8398 PA (KESx), 2022 WL 1843133, at *3 (C.D. Cal. Jan. 25, 2022) (citing Bortz v. JPMorgan Chase Bank, N.A., No. 21-CV-618 TWR, 2021 WL 4819575, at *3 S.D. Cal. Oct. 15, 2021). A plaintiff must plead that the defendant "knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act." Id. (citing Das v. Bank of America, N.A., 186 Cal. App. 4th 727, 744, 112 Cal.Rptr.3d 439 (2010)); Bortz, 2021 WL 4819575, at *3 (citing Casey v. U.S. Bank Nat'l Ass'n, 127 Cal. App. 4th 1138, 1144, 26 Cal.Rptr.3d 401 (2005)). "[W]hen, as here, a bank provides ordinary services that effectuate financial abuse by a third party, the bank may be found to have 'assisted' the financial abuse only if it knew of the third party's wrongful conduct." Das, 186 Cal. App. 4th at 745, 112 Cal.Rptr.3d 439.
Other courts have applied the same actual knowledge standard articulated in Das. See Cork v. CC-Palo Alto, Inc., 534 F. Supp. 3d 1156, 1190 (N.D. Cal. 2021); Mackintosh v. JPMorgan Chase Bank, No. 18-cv-03348-SK, 2018 WL 3913791, at *3 (N. D Cal. July 13, 2018) ("A bank may be liable for aiding and abetting a tort when it renders 'substantial assistance' to a tortfeasor during a business transaction and 'knowingly aids the commission of the tort.' ") (citation omitted); Lintz v. Bank of America, N.A., No. 5:13-CV-01757-EJD, 2013 WL 5423873, at *9 (N.D. Cal. Sept. 27, 2013) ("[T]his case more closely resembles Das - there is nothing in this Complaint which supports some improper or fraudulent motive on the part of Defendant. Although Plaintiff alleges that ORM 'knew or should have known' that Lynne was committing financial elder abuse of Robert, this contention is merely an unsupported legal conclusion unentitled to an assumption of truth."). Further, in Mackintosh, the court noted, "California courts have long held that liability for aiding and abetting depends on proof the defendant had actual knowledge of the specific primary wrong the defendant substantially assisted." 2018 WL 3913791, at *3 (quoting Casey, 127 Cal. App. 4th at 1145, 26 Cal. Rptr.3d 401).
The SAC now alleges that Chase knowingly assisted or facilitated in the fraudulent taking, appropriation, or retention of funds belonging to the Grays. SAC ¶ 35. It alleges that Chase knew or should have known its conduct would harm the Grays. Id. ¶ 36. The SAC alleges that "[h]ad Chase Bank conducted a reasonable inquiry, including an examination of the background and the possible purpose of the transactions, as required by Calif. Civil Code § 1714(a), 31 USC § 5311 et seq., and 12 C.F.R. § 21.11(4)(iii), it would have known that Mrs. Gray had been the victim of third party elder financial abuse," id. ¶ 37, and Chase's failure to do so is a violation of Cal. Welf. & Inst. Code §§ 15610.30, id. ¶ 38.
The Court previously determined that actual knowledge is an element of a financial elder abuse claim under section 15610.30(a)(2) and dismissed the Grays' financial elder abuse claim because they failed to allege facts showing Defendants has actual knowledge that Mrs. Gray was being defrauded. Order at 16-17.
Chase now argues that the Grays fail to allege any additional facts establishing that Chase had actual knowledge of the scam. Mot. at 22. Chase notes that "the SAC does not allege that Mrs. Gray told Chase of the alleged Amazon scam before the wire transfers were processed nor does it allege that Chase otherwise had actual knowledge that Plaintiffs were being scammed at the time both wires were processed." Id. On the contrary, there were no discussions between Chase and Mrs. Gray regarding the purpose of the transfers. Id.
The Grays argue that based on established principles of statutory construction, California Judicial Council-approved jury instructions, rulings by California Superior Court judges, and the legislative history of the elder financial abuse statute, section 15610.30 does not require actual knowledge of the underlying fraud to establish liability. Opp'n at 6. The Grays made and the Court rejected many of these arguments in their prior opposition to Defendants' motion to dismiss. See Dkt. 33 at 13-15; Order at 15. The Grays now cite a press release issued by California Senator Bill Dodd on February 1, 2023 announcing the introduction of SB 278, intended to clarify ambiguities in the elder financial abuse statute. Opp'n at 7 (citing Dkt. 43-2, Ex. 1). The press release states in relevant part:
Unfortunately, the language of California's current financial elder abuse law is unclear, leading to conflicting court rulings regarding the standard of proof for holding accountable a financial institution. Now, when victims attempt to sue their bank for assisting in a scam, the institution can avoid responsibility by claiming it did not have actual knowledge of fraud. But Sen. Dodd's legislation, Senate Bill 278, would clarify that victims of financial elder abuse can continue to hold institutions accountable when they should have known of the fraud but negligently assisted in the transfer anyway. The clarification would support victims of financial elder abuse in meeting their burden of proof.Ex. 1 at 1. They also cite to three California Superior Court decisions in which judges "overruled demurrers by defendant banks who claimed that actual knowledge was a prerequisite for establishing liability for assisting in elder financial abuse." Opp'n at 9-10 (citing Dkt. 43-2, Exs. 3A-C).
The Court sympathizes with the Grays and understands their efforts to bolster their arguments but finds that they have failed to state a claim for financial elder abuse. The legislature has not voted to pass Senator Dodd's amendment and statute has not been amended. Moreover, it remains to be seen how California courts would apply an amended statute. The three superior court decisions are not authoritative or binding on this Court, and other courts continue to rely on Das. See, e.g., Cork, 534 F. Supp. 3d at 1174; Hobbs by and through Hobbs v. Wells Fargo Bank, N.A., No. 21-cv-01700-AJB-JLB, 2022 WL 17972163, at *3 (S.D. Cal. Sept. 14, 2022). The Grays do not plead facts establishing that Chase had actual knowledge of or intentionally assisted in carrying out the fraudulent scheme.
The Court grants Chase's motion to dismiss the financial elder abuse claim.
The Court previously noted that "[a]lthough it appears unlikely, it is not obvious that pleading additional facts could not cure the deficiencies in the complaint." Order at 17. "[A] district court may exercise its discretion to deny leave to amend due to 'undue delay, bad faith or dilatory motive on part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party . . . , [and] futility of amendment.' " Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 892 (9th Cir. 2010) (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)). "Futility of amendment can, by itself, justify the denial of a motion for leave to amend." Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995). The Grays have been unable cure the deficiencies in their complaint despite being afforded the opportunity to do so, and it is unlikely they will be able to amend the deficiencies in the SAC. Therefore, the Court dismisses the SAC with prejudice.
IV. CONCLUSION
Chase's motion to dismiss is GRANTED and the Grays' SAC is dismissed with prejudice.
IT IS SO ORDERED.