IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
October 4, 2011
ULLA LUNDGREN, DBA A STEP FORWARD SHOES,
BANK OF AMERICA, N.A., A NATIONAL (DOCKET NO. 4) BANKING ASSOCIATION; BANK OF AMERICA CORPORATION, A DELAWARE CORPORATION,
The opinion of the court was delivered by: Claudia Wilken United States District Judge
ORDER GRANTING IN PART BANK OF AMERICA'S MOTION TO DISMISS AND DENYING IT IN PART
Defendants Bank of America, N.A. and Bank of America Corporation (collectively, Bank of America) move pursuant to 14 Federal Rule of Civil Procedure 12(b)(6) to dismiss Plaintiff Ulla 15 Lundgren's complaint. Docket No. 4. Plaintiff opposes the 16 motion. Having considered all of the parties' submissions and 17 18 oral argument, the Court GRANTS IN PART Bank of America's motion 19 to dismiss, and DENIES IT IN PART. 20
Plaintiff has alleged causes of action based on the
In 2003, Plaintiff opened a checking account at a branch of Bank of America located in Oakland, California. The deposits in 25 26 the account stood to Plaintiff's credit, for her use and benefit, and were governed by the terms and conditions set forth in the 28 passbook and a signature card contract. Withdrawals were permitted from the account only by check or other order bearing 1 2 Plaintiff's signature. Also in 2003, Plaintiff hired Catherine Bullard as a bookkeeper for her business. From about 2005 through 4 2010, Bullard prepared checks without Plaintiff's knowledge and 5 authorization payable to various vendors from which Plaintiff 6 purchased inventory. The checks were not made in response to 7 invoices from said vendors and were not intended by Bullard to be 8 paid to the vendors. The checks were never tendered to the 9 10 vendors. Instead, Bullard deposited the checks into her own personal account or that of others, using Bank of America's ATM machines. Many of these forged checks lacked an endorsement. The 13 forged checks, including those without endorsements, were paid by 14
Bank of America. Although the number of forged checks and their 15 total amount is not alleged, Plaintiff believes that she was 16 defrauded of at least $250,000. Plaintiff alleges that Bank of 17
America acted both as the payor and depositary bank*fn1 with respect 18 19 to the forged checks. 20
In or about early 2009, Plaintiff discovered the forged 21 checks and demanded that Bank of America replace and re-credit to 22 her account the total sum of all of the forged checks. Bank of 23 America, however, credited to Plaintiff's account only certain 24 checks, totaling $2,300, and refused to restore the remaining 1 2 amount. Plaintiff does not specifically allege the date when she reported the forged checks to Bank of America, but the Court 4 assumes that she reported them in early 2009, when she discovered 5 them. 6
On or about May 31, 2009, Plaintiff submitted a complaint against Bullard, although not against Bank of America, to the 8 Comptroller of the Currency, Administrator of National Banks, 9 10 regarding the forged checks. The Comptroller assigned a case number, but, as of the date this action was filed, the administrative complaint had not been resolved. 13
On December 30, 2010, Plaintiff filed this suit in Alameda County Superior Court. Bank of America removed the action to 15 federal court on February 18, 2011. Essentially, through this 16 action, Plaintiff seeks to recover from Bank of America the 17 amounts Bullard allegedly stole from her. Plaintiff seeks to 18 19 recover the amounts paid through the forged checks, as well as general damages, not less than $1,000,000, resulting from her 21 inability to pay her creditors, injury to her reputation and 22 difficulty in obtaining credit. 23
Plaintiff's complaint alleges four causes of action. The 4 first cause of action is asserted against the Bank of America, as 25 payor bank, to recover payments charged to Plaintiff's account 26 27 based on the forged checks. The first cause of action refers to California Uniform Commercial Code sections 3401, 3403 and 4401.
Plaintiff's second cause of action, alleged against Bank of 1 2 America as depositary bank, seeks recovery based on the bank's failure to exercise ordinary care in accepting for deposit into 4 Bullard's account checks that were not made out to her and were 5 not endorsed. This cause of action cites California Uniform 6 Commercial Code sections 3103(a)(7), 3404(d), 3405(b) and 4401. 7
Plaintiff's third cause of action is for "negligence per se" 8 against Bank of America, both as the payor and the depositary 9 10 bank. The claim cites California Evidence Code section 669 and incorporates the provisions of the California Uniform Commercial Code referred to in the first and second causes of action. 13
Finally, Plaintiff alleges a fourth cause of action for a 14 constructive trust. 15
claim showing that the pleader is entitled to relief." Fed. R. 18 Civ. P. 8(a). On a motion to dismiss under Rule 12(b)(6) for A complaint must contain a "short and plain statement of the failure to state a claim, dismissal is appropriate only when the 21 complaint does not give the defendant fair notice of a legally 22 cognizable claim and the grounds on which it rests. Bell Atlantic 23 Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering 24 whether the complaint is sufficient to state a claim, the court 25 will take all material allegations as true and construe them in 26 27 the light most favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). However, this principle is inapplicable to legal conclusions; "threadbare 1 2 recitals of the elements of a cause of action, supported by mere conclusory statements," are not taken as true. Ashcroft v. Iqbal, 4 129 S.Ct. 1937, 1949-50 (2009) (citing Twombly, 550 U.S. at 555). 5
I. Untimeliness and Preclusion of Plaintiff's Claims 7
Bank of America argues that two statutory provisions bar Plaintiff's claims based on untimeliness and issue preclusion. 9 10
A. California Code of Civil Procedure § 340(c) First, Bank of America contends that the statute of limitations set forth in California Code of Civil Procedure 13 section 340(c) applies to all of Plaintiff's claims. Section 14 340(c) establishes a one year statute of limitations for an action 15 by a depositor against a bank for the payment of a forged check. 16
The one year limitations period under section 340(c) begins to run 17 when the bank furnishes to its customer a bank statement 18 19 addressing the check at issue and the cancelled check. Mac v. Bank of America, 76 Cal. App. 4th 562, 565 (1992). 21
Plaintiff counters that the three year statute of limitations 22 period established by California Uniform Commercial Code § 4111 23 applies to all of her claims. Section 4111 applies to disputes 24 between banks and their depositors in connection with the 25 collection and payment of items. 26 27
Whether the enactment of section 4111 abrogated the earlier established one year limitations period set forth in section 340(c) is addressed in Chatsky and Associates v. Superior Court, 1 2 117 Cal. App. 4th 873, 880 (2004). Chatsky reasoned that nothing in the language or history of section 4111 indicated that the 4 legislature intended to repeal section 340(c), and the provisions 5 were reconcilable because section 4111 generally applies to 6 actions arising between banks or a bank and its customers "to 7 enforce an obligation, duty, or right," whereas section 340(c) 8 expressly concerns an action by a depositor against its bank for 9 10 the payment of a forged check. Id. at 878-879.
Plaintiff also asserts the doctrine of equitable tolling to argue that the statute of limitations on her claims should be 13 tolled as of May 31, 2009, the approximate date when she initiated 14 her administrative complaint against Bullard with the 15 Comptroller's office. Plaintiff represents that the Comptroller 16 advised her not to file a civil action during the administrative 17 investigation because the administrative complaint would enable 18 19 her to seek restitution from Bullard. She does not represent that the Comptroller advised her not to file suit against the bank. 21
The doctrine of equitable tolling generally focuses on a 22 plaintiff's excusable ignorance of the limitations period and on a 23 lack of prejudice to the defendant. Naton v. Bank of California, 24 649 F.2d 691, 696 (9th Cir. 1981). Equitable tolling may also 25 apply "'[w]hen an injured person has several legal remedies and, 26 27 reasonably and in good faith, pursues one.'" Daviton v. Columbia/HCA Healthcare Corp., 241 F.3d 1131, 1136 (9th Cir. 2001) (citing Elkins v. Derby, 12 Cal. 3d 410, 414 (1974)). Bank of 1 2 America responds that equitable tolling is unwarranted in the present case. It contends that equitable tolling for pursuit of 4 an alternative remedy requires that the plaintiff seek the 5 alternative remedy against the same defendant as named in the 6 second proceeding. In Cervantes v. City of San Diego, 5 F.3d 7 1273, 1276 n.3 (1993), the Ninth Circuit stated that, although 8 several of the defendants in the federal action were not parties 9 10 to the plaintiff's prior administrative proceeding, there was a sufficiently close relationship between them and the party named in the prior proceeding that a "kind of evidentiary privity would 13 justify overlooking their nominal absence" for purposes of 14 determining whether equitable tolling was warranted. Id. Here, 15 however, there does not appear to be a close relationship between 16 Bullard and the Bank of America. Equitable tolling does not 17 apply.
Because Plaintiff concedes that her first cause of action is a claim to recover for the bank's payment of forged checks, under 21 Chatsky, the one year limitations period in section 340(c) governs 22 that cause of action. Accordingly, Plaintiff may not recover on 23 her first cause of action for checks which Bank of America 24 included in a statement before December 30, 2009, one year before 25 the date she filed this lawsuit. 26 27
As noted above, Bank of America also contends that section 340(c) applies to Plaintiff's second cause of action against it as depositary bank, for accepting for deposit checks not made out to 1 2 Bullard and unendorsed. The Bank relies on Mac, 76 Cal. App. 4th at 565; Roy Supply, Inc. v. Wells Fargo Bank, 39 Cal. App. 1051, 4 1064, 1065 (1995); and Union Tool Company v. Farmers' & Merchants' 5 National Bank, 192 Cal. 40, 51 (1923). The Bank's authorities are 6 unavailing because these cases involved claims against payor banks 7 for payment of checks on forged signatures and endorsements, as 8 opposed to claims for depositing checks with no endorsement. 9 10
Bank of America argues that forgery is defined to include checks deposited without endorsements. It cites Uniform Commercial Code sections 1-201(41) and 3-403(b), and comment ¶ 4 13 to § 3-403(b), in support of this proposition. The California 14 Uniform Commercial Code sections analogous to these provisions do 15 not define forgery, but rather establish that forgeries are 16 included within the California Uniform Commercial Code's 17 definition of unauthorized signature, and address authorized 18 19 signatures in the context of checks requiring more than one signature to authorize payment. These sections do not define 21 unendorsed checks as forgeries. 22
Bank of America also relies on California Uniform Commercial Code section 3404, which assigns liability to payor and depositary 24 banks that fail to exercise ordinary care with respect to a check 25 issued to a fictitious payee. This provision likewise does not 26 27 define an unendorsed check as a forgery for purposes of bringing it within the scope of section 340(c).
negligence in accepting for deposit checks without an endorsement
Thus, section 340(c) does not apply to a claim for a bank's into an account held by a person or entity other than the payee 4 named on the check. Instead, the three year statute of 5 limitations of California Uniform Commercial Code section 4111 6 applies to Plaintiff's second cause of action for negligence.*fn2 7
Section 4111 bars Plaintiff's second claim with respect to checks 8 negligently deposited by Bank of America where the checks were 9 10 deposited, and the claim accrued, more than three years prior to the date this lawsuit was filed, that is, December 30, 2007.
B. California Uniform Commercial Code § 4406
Bank of America also argues that California Uniform Commercial Code sections 4406 (d) and (f) preclude Plaintiff's 15 first and second causes of action. Section 4406, under certain 16 circumstances, bars a customer's assertion of claims against a 17 18 bank for payment of an unauthorized item. Section 4406(a) provides that a bank issuing an account statement to a customer 20 showing items paid from the account shall provide information in 21 the statement sufficient to allow the customer reasonably to 22 identify the items paid. Cal. Com. Code. § 4406(a). Section 23 25 of limitations period applies based on section 338 of the California Code of Civil Procedure. Plaintiff relies on Sun 'n 26 Sand v. United California Bank, 21 Cal. 3d 671 (1978). However, that case is not authority establishing that the limitations 27 period in section 338 governs Plaintiff's negligence claim. Roy Supply, 39 Cal. App. at 1070 n.20. 28
4406(c) states that, if a bank issues an account statement 1 2 pursuant to subdivision (a), the customer is obliged to examine the statement promptly to determine whether any payment was not 4 actually authorized. Cal. Com. Code § 4406(c). In the event that 5 a customer fails to comply with subdivision (c), the customer is 6 precluded by section 4406(d)(2) from asserting against the bank 7
[t]he customer's unauthorized signature or alteration . . . on any item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.
Cal. Com. Code § 4406(d)(2).
Plaintiff argues that her claims are not precluded by section 4406(d)(2) due to section 4406(e). Section 4406(e) 16 states,
If subdivision (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with subdivision (c) and the failure of the bank to exercise ordinary care contributed to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under subdivision (d) does not apply.
Cal. Com. Code § 4406(e). Espresso Roma Corporation v. Bank of 25 America explained that preclusion under section 4406(d) may be 26 avoided "by establishing that the bank failed to exercise ordinary 27 care in paying the item and that the failure contributed to the 28 loss." 100 Cal. App. 4th 525, 528 (2002) (internal quotation 1 2 marks and alterations omitted). Although Plaintiff received regular monthly statements and failed to detect the fraud for over 4 six years, Bank of America would still be liable for a portion of 5 the loss if it also failed to exercise ordinary care in making 6 payment and that failure contributed to Plaintiff's loss. 7
Plaintiff's complaint alleges that Bank of America's payment of 8 the checks was contrary to the duty of care it owed to her.
Compl. at ¶¶ 15, 22 & 28. Therefore, section 4406(d) does not preclude any of Plaintiff's claims at the pleading stage.
Bank of America also cites section 4406(f) for its preclusive effect. In contrast to subdivision (d), section 4406(f) states, 14 "Without regard to the care or lack of care of either the customer 15 or the bank," a customer who does not, within one year after the 16 statement is issued pursuant to subdivision (a), discover and 17 report the unauthorized signature is precluded from asserting the 18 19 signature against the bank. Cal. Com. Code § 4406(f).
Plaintiff first appears to argue that Espresso Roma Corp. 21 stands for the proposition that section 4406(e) trumps section 22 4406(f). This is unpersuasive given the plain language of both 23 provisions. In addition, Espresso Roma Corp. did not address the 24 defendant bank's section 4406(f) arguments because the court 25 resolved the appeal based on sections 4406(d) and (e). 100 Cal. 26 27 App. 4th at 528 n.2.
Plaintiff also appears to rely upon Sun 'n Sand v. United California Bank, 21 Cal. 3d 671 (1978), for the proposition that section 4406(f) does not apply to her claims. Indeed, Sun 'n Sand 4 held that section 4406(4), the precursor to section 4406(f),*fn3 "did 5 not suffice to displace the three-year statute of limitations 6 ordinarily applicable" to the plaintiff's negligence claim.
Cal. 3d at 700. The court in Roy Supply agreed with this holding, 8 39 Cal. App. 4th at 1069, but distinguished the negligence claim 9 10 against the depositary bank in Sun 'n Sand from the negligence claim before it, which alleged that the payor bank had negligently made payment of certain checks over a forged signature, id. at 13
1068-70. Although Roy Supply did not decide the applicability of 14 section 4406(f) to claims based on missing endorsements, it noted 15 that "any claim that is not dependent upon proof of forgery will 16 not be precluded by section 4406[f], although the customer will 17 18 still be precluded from asserting forgery in pursuing that claim."
39 Cal. App. 4th at 1073. 20
Bank of America incorrectly asserts that all of Plaintiff's 21 claims rely on the existence of a forgery, and that checks 22 deposited with missing endorsements should be treated as forged or 23 otherwise unauthorized checks. However, as noted earlier, the 24 provisions cited by Bank of America, California Uniform Commercial 25 Code sections 1201(b)(41) and 3403(b), do not establish a broad 1 2 enough definition of forgery or unauthorized signature to encompass Plaintiff's claims against Bank of America as a 4 depositary bank for depositing checks without endorsements. 5
Thus, section 4406(f) precludes Plaintiff from asserting 6 against Bank of America forgeries which were not discovered and 7 reported to the bank within one year after the bank statement or 8 items were otherwise made available to Plaintiff. As noted 9 10 earlier, Plaintiff has not alleged the precise date when she reported the forged checks to Bank of America, but presumably she reported them in early 2009 when she discovered them. Thus, 13 section 4406(f) precludes Plaintiff from asserting forged checks 14 paid by Bank of America prior to early 2008. This preclusion is 15 likely moot in light of the one year statute of limitations 16 addressed above. 17
12 cause of action alleging negligence independent of the bank's
However, section 4406(f) does not apply to Plaintiff's second payment of forged checks and based instead on the bank's deposit 21 of checks without any endorsement.
II. Negligence Per Se
Plaintiff's third cause of action alleges a claim for
"negligence per se." Bank of America argues that the California 25 Uniform Commercial Code broadly precludes common law claims for 26 27 negligence per se alleged against banks in relation to payment and collection of fraudulent checks.
section 669. Under section 669, it is presumed that a person has
The third cause of action cites California Evidence Code failed to exercise due care if he or she has violated a statute, 4 ordinance or regulation. Cal. Evid. Code § 669(a)(1). 5
Plaintiff's claim incorporates citations to California Uniform 6 Commercial Code sections 3401, 3403, 3404 and 3405. Plaintiff 7 invokes the evidentiary presumption to establish negligence based 8 on Bank of America's alleged statutory violations--specifically, 9 10 its payment of Bullard's forged checks, and its failure to exercise ordinary care in accepting for deposit checks without 12 endorsements that were not made out to Bullard. 13
The California Uniform Commercial Code does preempt claims 14 for negligence against Bank of America as a payor bank for paying 15 forged checks. Roy Supply held that the California Uniform 16 Commercial Code precluded common law claims for negligent payment 17 of forged checks, brought in that case against the payor bank by 18 19 owners of the account from which the payments were drawn. 39 Cal. App. 4th at 1058. 21
To the extent Bank of America argues that the California Uniform Commercial Code preempts Plaintiff's negligence claim in 23 her second cause of action, that argument fails. The bank cites 24 Gil v. Bank of America, N.A., 138 Cal. App. 4th 1371, 1377-78 25 (2006). Gil does not apply to Plaintiff's claim. There the court 26 27 found that California Uniform Commercial Code section 3420, authorizing a claim for conversion, preempted a negligence claim by a payee against a depositary bank for accepting a check without 1 2 an endorsement. However, Plaintiff in this case was not the payee on the checks; she is the owner of the account from which the 4 checks were drawn. 5
Instead, this case is analogous to Joffe v. United California Bank, 141 Cal. App. 3d 541 (1993). In Joffe, the California Court 7 of Appeal reversed the trial court's dismissal of the plaintiffs' 8 cause of action for negligence. The plaintiffs were owners of the 9 10 account from which the check at issue was drawn, and alleged their negligence claim against the depositary bank for acceptance of a check in which the named payee on the check differed from the 13 endorsement and name of the account into which the check was 14 deposited. The court held that sections 1103 and 3406 of the 15 California Uniform Commercial Code did not preempt the claims, and 16 that the claim was cognizable. Id. at 556-57. See also E.F. 17 Hutton & Co. v. City Nat. Bank, 149 Cal. App. 3d 60, 69 (1982) 18 19 (holding that plaintiff's claim for negligence against a collecting bank was not preempted by California Uniform Commercial 21 Code section 3405). 22
Plaintiff's third cause of action is dismissed and leave to 23 amend is unwarranted. A negligence claim as to the forged checks 24 paid by Bank of America is statutorily preempted, and a claim as 25 to the negligent deposit of the unendorsed checks, although not 26 27 preempted, is duplicative of Plaintiff's second cause of action.
III. Constructive Trust 1 2
Plaintiff's fourth cause of action seeks to impose a constructive trust on Bullard's account. "A constructive trust is 4 an equitable remedy to compel a person who has property to which 5 he is not justly entitled to transfer it to the person entitled 6 thereto." Weiss v. Marcus, 51 Cal. App. 3d 590, 600 (1975). 7
California Code of Civil Procedure section 2223 provides, "One who 8 wrongfully detains a thing is an involuntary trustee thereof, for 9 10 the benefit of the owner." Cal. Code Civ. Proc. § 2223.
Originally Plaintiff alleged that Bullard had an account at Bank of America. At the hearing on the present motion, Bank of 13 America represented that Bullard's account had been closed. 14
Accordingly, Plaintiff withdrew her constructive trust claim 15 because it was apparently moot. 16
Plaintiff seeks to add a claim for conversion against Bank of America. Gil, 138 Cal. App. 4th at 1377, addresses a 20 negligence claim by the payee against a depositary bank for 21 acceptance of checks with missing endorsements. After ruling that 22 the common law claim was precluded by the California Uniform 23 Commercial Code, Gil held that section 3420 of the Code, providing 24 that the law applicable to conversion of personal property also 25 applies to negotiable instruments, permits an action for 26 27 conversion based on the acceptance for deposit of checks without endorsements. In addition, In re McMullen Oil Co., 251 B.R. 558, 569 (C.D. Cal. 2000), states, "A bank may be liable for conversion 1 2 when it permits the deposit of a check into a third party's account without the endorsement of the payee." Bank of America 4 does not object to allowing Plaintiff to amend her complaint to 5 add a cause of action for conversion. 6
Bank of America's motion to dismiss is GRANTED in part.
Plaintiff's first claim, to the extent that it is based on Bank of 9 America's payment of forged checks, is barred under section 340(c) 10 with respect to forged checks which were furnished and reported in 11 a bank statement before December 30, 2009, one year prior to the 12 date this lawsuit was filed. Further, section 4406(f) precludes 13 Plaintiff from asserting forged checks paid by Bank of America, 14 where Plaintiff did not discover and report the forgeries to the 15 bank within one year after the related bank statement was issued. 16
Cal. Com. Code § 4406(f). 17
Plaintiff's second claim, alleging Bank of America's 18 negligent deposit of checks without endorsements, is subject to a 19 three-year statute of limitations. Accordingly, Plaintiff may not 20 recover on her second cause of action for checks negligently 21 deposited by Bank of America where the claim accrued more than 22 three years prior to the date this lawsuit was filed, that is, 23 prior to December 30, 2007. Section 4406(f) does not preclude 24 this claim. 25
26 extent the third cause of action is a common law negligence claim 27 against Bank of America as a payor bank for paying forged checks, 28
The third claim, for negligence per se, is dismissed. To the
the claim is preempted by the California Uniform Commercial Code. 2
To the extent that the cause of action is a common law claim 3 against Bank of America for negligently accepting for deposit 4 checks missing endorsements and payable to payees other than 5
Bullard, the claim is dismissed because it is duplicative of 6
Plaintiff's second cause of action. 7
Plaintiff's fourth cause of action, for constructive trust, 8 is dismissed as moot. Pursuant to the parties' agreement, 9 Plaintiff may amend her complaint to state a claim for conversion. 10
Plaintiff must file her amended complaint within fourteen days from the date of this order. Bank of America shall submit an answer or motion to dismiss within twenty-one days from the date Plaintiff files her amended complaint. In the event a second 14 motion to dismiss is filed, the hearing shall be noticed for the 15 first Thursday the Court is available, at least thirty-five days 16 after the opening brief has been submitted. The Clerk will 17 schedule a case management conference for the date the motion is 18 heard. The parties shall appear for a case management conference 19 on November 29, 2011 at 2:00 pm if no further motion to dismiss is 20 filed. A joint case management statement is due seven days prior 21 to the case management conference. 22 23
IT IS SO ORDERED.