The opinion of the court was delivered by: RONALD WHYTE, District Judge
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Defendant Heritage Bank of Commerce moves for summary judgment
on plaintiff Chance World Trading's sole remaining cause of
action, aiding and abetting a fraud. For the reasons set forth
below, the court grants the motion.
Except where otherwise noted, the following facts are
undisputed: Distant relatives Rajeev Sawhney and Rani
Yadav-Ranjan embarked together on a business venture. Mr. Sawhney
agreed that his company, Chance World Trading E.C., would finance
technical testing of Ms. Yadav-Ranjan's product idea.
Construction Navigator, Inc., of which Ms. Yadav-Ranjan was the
president, was to be the vehicle for this venture. Chance World
agreed to invest an intial $200,000 in Construction Navigator.
The investment agreement was memorialized in a term sheet, which
specified that the $200,000 was to be used solely for the limited
purposes of technical development and testing of Ms.
Construction Navigator opened a checking account with Heritage
Bank of Commerce. There were three designated signors on the
account: Rani Yadav-Ranjan, Rajeev Sawhney, and Poonam Sawhney
(Mr. Sawhney's wife). The New Account Client Worksheet indicates
that the account required two signatures to authorize any
transfer*fn1 out of the account over $10,000. Signature
cards were never signed by the Sawhneys. On October 1, 2002,
Chance World wired its initial investment of $200,000 to the
Construction Navigator account at Heritage Bank.
Despite the terms of the investment agreement limiting use of
the funds to technical development and testing, Ms. Yadav-Ranjan
used these funds to pay her personal salary, office rent, and
other general corporate expenses not related to the technical
testing. To accomplish the alleged misappropriation of the
invested funds, Ms. Yadav-Ranjan opened a second Construction
Navigator account at Heritage Bank. She presented Heritage Bank's
employees with a "Corporate Resolution to Open a Bank Account"
signed by "President/Secretary Rani Yadav-Ranjan." This permitted
the opening of another account which, unlike the first account,
authorized checks signed solely by Rani Yadav-Ranjan.
Subsequently, Ms. Yadav-Ranjan transferred funds from the
original Construction Navigator account into the newer account,
without ever acquiring the authorization of Mr. or Mrs. Sawhney.
On January 19, 2003, plaintiff sent an e-mail stating that Ms.
Yadav-Ranjan was misappropriating the $200,000 plaintiff had
invested and requesting a cessation of all activities in the
original Construction Navigator bank account. Decl. of Breck E.
Milde, Ex. C. The email purported to be from Mr. Sawhney and was
addressed to several Construction Navigator personnel and
"firstname.lastname@example.org." Id. According to uncontradicted
testimony, email@example.com is "not a valid email address"
for Heritage Bank. Dep. of Joan Leis 67:14. Eventually, Ms. Yadav-Ranjan misappropriated the entire
$200,000. None of the withdrawals of this money was authorized by
more than one signature. Chance World sued Ms. Yadav-Ranjan to
recover the money and eventually settled for $100,000.
Chance World filed suit against Heritage Bank for allowing this
misappropriation to occur. The court granted defendant's motion
to dismiss the original complaint because plaintiff had not
adequately pled the existence of a contractual, statutory, or
tort duty owed by defendant to plaintiff Chance World that had
been breached. Subsequently, plaintiff filed an amended complaint
adding new causes of action, including aiding and abetting a
fraud. Only the aiding-and-abetting cause of action survived the
defendant's second motion to dismiss.
Summary judgment is proper when the pleadings, discovery and
affidavits show that there is "no genuine issue as to any
material fact and that the moving party is entitled to judgment
as a matter of law." FRCivP 56(c). Material facts are those which
may affect the outcome of the case. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact
is genuine if there is sufficient evidence for a reasonable jury
to return a verdict for the non-moving party. Id. A party
moving for summary judgment who does not have the ultimate burden
of persuasion at trial has the initial burden of producing
evidence negating an essential element of the non-moving party's
claims or showing that the non-moving party does not have enough
evidence of an essential element to carry its ultimate burden of
persuasion at trial. Nissan Fire & Marine Ins. Co. v. Fritz
Cos., 210 F.3d 1099, 1102 (9th Cir. 2000).
Jurisdiction in this case is based on diversity of citizenship,
see 28 U.S.C. § 1332(a)(2), and this court must therefore use
California law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64
(1938). The Ninth Circuit has explained courts are to determine
state law thusly:
When interpreting state law, federal courts are bound
by decisions of the state's highest court. In the
absence of such a decision, a federal court must
predict how the highest state court would decide the
issue using intermediate appellate court decisions,
decisions from other jurisdictions, statutes,
treatises, and restatements as guidance. However,
where there is no convincing evidence that the state supreme
court would decide differently, a federal court is
obligated to follow the decisions of the state's
intermediate appellate courts.
Lewis v. Tel. Employees Credit Union, 87 F.3d 1537
, 1545 (1996)
(internal quotation marks and citations omitted); see also
Vestar Dev. II, LLC v. Gen. Dynamics Corp., 249 F.3d 958
(9th Cir. 2001).
In California, a claim for aiding and abetting a tort requires
two things: knowledge of the underlying tort, and substantial
assistance in its commission. The law pertinent to plaintiff's
claim is most clearly stated in Saunders v. Superior Court:
"Liability may . . . be imposed on one who aids and abets the
commission of an intentional tort if the person . . . knows the
other's conduct constitutes a breach of duty and gives
substantial assistance or encouragement to the other to so act."
27 Cal. App. 4th 832, 846 (1994). A later court emphasized that
"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."
Casey v. U.S. Bank Nat'l Ass'n, 127 Cal. App. 4th 1138, 1147
(2005). California courts have acknowledged that the tort of
aiding and abetting is at odds with statutory limitations on bank
liability, see Cal. Fin. Code § 952,*fn2 but the court in
Casey nonetheless held that a bank can be liable for aiding and
abetting if it had "actual knowledge" of the underlying wrong.
Id. at 1152-53.
However, on the specific facts in Casey, the court held that
allegations that the defendant banks allowed officers of a group
of investment companies to engage in "skullduggery" was
insufficient as an allegation the banks had knowledge that the
officers were breaching fiduciary duties, and thus
aiding-and-abetting liability could not attach to the banks.
127 Cal. App. 4th at 1151. Specifically, the plaintiff had alleged
the banks aided and abetted the [officers] in this
money laundering scheme by allowing them to open
accounts with invalid tax identification numbers,
which accounts were then used to drain funds from the
Estate to the accounts of individual directors,
officers, their families and affiliated companies;
allowing large sums of cash, often in excess of
$250,000 at a time and aggregating some $6 million,
to be removed from [the banks'] cash vaults (in
unmarked duffel bags); violating banking regulations
and the [banks'] own internal policies and
procedures; allowing obviously forged negotiable
instruments to be paid; and, ignoring monetary restrictions ('not to exceed' limits)
appearing on the face of individual checks by paying
sums in excess of such limits.
Id. at 1142 (internal quotation marks omitted; second and third
alterations in original). In spite of this egregious conduct, the
court in Casey held that knowledge of such ...