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Giron v. Hong Kong and Shanghai Bank Co.

United States District Court, C.D. California

November 15, 2017

RAMIRO GIRON, NICOLAS J. HERRERA, ORLANDO ANTONIO MENDEZ Plaintiffs,
v.
HONG KONG AND SHANGHAI BANK COMPANY, LTD., a foreign company, HSBC BANK USA, N.A., a national banking association; and DOES 1-100, inclusive Defendants.

          ORDER DENYING PLAINTIFFS' MOTION TO CERTIFY CLASS [126]; DENYING, AS MOOT, DEFENDANT'S MOTION FOR SANCTIONS [135]; GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [137]; & DENYING, AS MOOT, PLAINTIFFS' MOTION TO STRIKE & EXCLUDE [142]

          OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Plaintiffs Ramiro Giron, Nicholas J. Herrera, and Orlando Antonio Mendez (“Plaintiffs”) allege that they wired money to the bank accounts of a Ponzi scheme they refer to as “WCM777.” WCM777 held accounts at Hong Kong and Shanghai Bank Company, Ltd. (“HSBC Hong Kong”). The Court previously dismissed HSBC Hong Kong from this action for lack of personal jurisdiction. (ECF No. 72.) The only remaining defendant is HSBC Bank USA, N.A. (“HSBC USA”).

         Plaintiffs seek to represent a putative class of individuals who “invested and lost money with any of the WCM777 entities by transferring or having their money transferred to one of the WCM777 accounts at HSBC Hong Kong.” (Third Amended Complaint (“TAC”) ¶ 80, ECF No. 54.) The named plaintiffs did not own an account with HSBC USA, and did not wire transfer any money through HSBC USA. Instead, they allege HSBC USA is liable because it wire transferred other people's money to WCM777's HSBC Hong Kong bank accounts. Plaintiffs argue that because HSBC USA provided a way for other victims to wire money to the fraudulent scheme, they aided and abetted WCM777's fraudulent activities.

         Before the Court are four motions: Plaintiffs' Motion to Certify Class (ECF No. 126); Defendant's Motion to Strike and Exclude Evidence in support of Plaintiffs' Motion to Certify Class (ECF No. 135); Defendant's Motion for Summary Judgment (ECF No. 137); Plaintiffs' Motion to Strike & Exclude Evidence in support of Defendant's Motion for Summary Judgment.[1] (ECF No. 147.) For the reasons set forth below, the Court DENIES Plaintiffs' Motion to Certify Class (ECF No. 126), DENIES, AS MOOT, Plaintiffs' and Defendant's motions to exclude evidence (ECF Nos. 135, 147), and GRANTS Defendant's Motion for Summary Judgment. (ECF No. 137.)

         II. FACTUAL BACKGROUND

         Plaintiffs Giron, Herrera, and Orlando Mendez[2] wired money to the Hong Kong bank accounts of a Ponzi scheme they refer to as “WCM777.” (HSBC USA's Separate Statement of Uncontroverted Facts (“UF”) 1, ECF No. 137.) Plaintiffs claim that HSBC USA “served as the intermediary bank for numerous wire transfers from investor-victims of WCM777 to accounts at HSBC Hong Kong.” (UF 2.) Plaintiffs' theory of liability is that by wiring money that supported WCM777's fraudulent operations to HSBC Hong Kong, HSBC USA aided and abetted WCM777 in perpetuating its scheme, and should be held liable for Plaintiffs' losses, even if they did not have any direct contact with HSBC USA. (UF 3; Opp'n 16-17 “Plaintiffs argue that the law allows for causation as to any victim who invested after [HSBC USA allegedly knew of the scheme], not just those whose money flowed through HSBC USA.”)

         Plaintiffs do not hold accounts with HSBC USA, and none of them wired money through HSBC USA. (UF 64-67.)[3]

         A. Procedural Background

         On January 11, 2016, Plaintiffs filed an Amended Class Action Complaint alleging five claims for relief against HSBC USA and HSBC Hong Kong, including: (1) aiding and abetting fraud; (2) aiding and abetting breach of fiduciary duty; (3) aiding and abetting an endless chain scheme; (4) violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c); and (5) violations of California's Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200, et seq. (Amended Complaint (“AC”) ¶¶ 88-129, ECF No. 15.) Plaintiffs subsequently filed additional amended complaints, and Defendants filed responsive pleadings challenging the sufficiency of Plaintiffs' allegations. (ECF Nos. 25, 34.)

         On June 29, 2016, the Court granted HSBC USA's Motion to Dismiss, with prejudice, as to Plaintiffs' claims for aiding and abetting an endless chain scheme and RICO violations. (ECF No. 46.) The Court also dismissed Plaintiffs' UCL claim with leave to amend, and held that Plaintiffs had sufficiently alleged claims for aiding and abetting fraud and breach of fiduciary duty. (Id.)

         On July 28, 2016, Plaintiffs filed their Third Amended Complaint (“TAC”), which is the operative complaint. (ECF No. 54.) Plaintiffs moved for leave to file a fourth amended complaint on November 23, 2016. (ECF No. 82.) Plaintiffs did not seek to replace the class representatives at this time.[4] (Id.) Instead, they sought to add a claim for violation of California Penal Code section 496, which they had “recently learned, allows any person who has been injured by a violation of section 496(a) to recover three times the amount of actual damages, costs of suit and attorney's fees in a civil suit.” (Not. of Mot. 2, ECF No. 82.) The Court denied Plaintiffs' request on January 31, 2017. (ECF No. 90.)

         On August 18, 2016, HSBC Hong Kong moved to dismiss Plaintiffs' TAC for insufficient service of process, and lack of personal jurisdiction. (See generally ECF No. 34.) After the parties briefed the motion, the Court dismissed HSBC Hong Kong, and held that Plaintiffs had not established HSBC Hong Kong was subject to personal jurisdiction, and denied Plaintiffs leave to conduct jurisdictional discovery. (ECF No. 72.) Accordingly, HSBC USA is the only defendant. (Id.)

         Plaintiffs' only remaining claims against HSBC USA are: 1) aiding and abetting fraud (TAC ¶¶ 89-95); 2) aiding and abetting breach of fiduciary duty (Id. ¶¶ 96-105); and 3) violation of California Business & Professions Code § 17200 et seq. (Id. ¶¶ 106-15.)

         B. WCM777's Ponzi Scheme & Plaintiffs' Roles

         WCM777 represented itself as a highly profitable multi-level marketing platform based on “cloud” services. (Plaintiff's Additional Material Facts “PAMF” 1, ECF No. 143-1.) WCM777 claimed that investors could earn exorbitant rates of return by referring new members, or by earning passive income based on the purchase of “units.” (See UF 10.) Plaintiffs claim that WCM777 targeted individuals using “Christian imagery and high-tech buzzwords.” (Opp'n 2, ECF No. 143.) In March 2014, the Securities Exchange Commission filed an action in federal court against WCM777 and related companies, which ultimately led to the downfall of the WCM777 Ponzi scheme. (See Plaintiffs' Request for Judicial Notice (“PRJN”) ¶¶ 1- 3, Exs. 1-3, ECF No. 143-3, 143-4, 143-5.)[5]

         While the three named Plaintiffs all came to invest in WCM777 in slightly different ways, there are a few important and undisputed facts that they all have in common:

         Ramiro Giron:

         After deciding to invest in WCM777, Giron “wired from [his] Bank of America account $8, 000 to WCM777's bank account held at HSBC Bank Hong Kong, account number 817677826838.” (Decl. of Ramiro Giron (“Giron Decl.”) ¶ 5, ECF No. 143-29 (emphasis added).) Giron received a remittance transfer receipt that identified Bank of America, N.A. as the transferring institution, WCM777 as the recipient, and HSBC Hong Kong as the recipient bank. (Id. Ex. A.) When Giron went to his bank to wire the money, his personal banker asked him “[i]f [he] was sure [he] wanted to send the money, because once the money was sent [Bank of America was] not responsible.” (UF 16.[6]) He wired the money despite his suspicions, and the banker's warning, because he had been shown earnings related to a WCM777 investment by the individuals who introduced WCM777 to him weeks earlier in a bar. (See UF 4-10, [7] 17.)

         Giron does not have an account with HSBC USA, and there are no records of him ever transferring any money to WCM777 from HSBC USA. (UF 64-66.)

         Nicolas Herrera:

         Herrera decided to invest $2, 000 with WMC777, and “wire transferred the money through [his] account with Wells Fargo bank on or about November 12, 2013[, ] to HSBC Hong Kong account 817697832838.” (Decl. of Nicolas Herrera (“Herrera Decl.”) ¶¶ 2, 5, 7, ECF No. 143-30 (emphasis added); UF 55.) He also received a “Combined Disclosure for Outgoing Consumer International Wire Transfers” form that identified Wells Fargo as the transferring bank, Agape Technology Limited as the recipient, [8] and HSBC Hong Kong as the beneficiary bank. (Herrera Decl. ¶ 7, Ex. A.) When wiring the money, Herrera's banker asked him things like, “Where are you sending the money?” and “What is this? Do you know what it is?” (UF 56.)

         Herrera admits to not having any contact with HSBC USA in the past ten years. (UF 62.)

         Orlando Antonio Mendez:

         Orlando invested $10, 000 of his own money, and $30, 000 of his father's savings (collectively “Family Money”), in WCM777, after being convinced by his father, Demetrio Mendez, to invest.[9] (Decl. of Orlando Mendez (“Orlando Decl.”) ¶ 2, ECF No. 143-31.) Demetrio also “convinced [Orlando] to be a named Plaintiff in this matter because [he] spoke good English and introduced [him] to his lawyer Julio J. Ramos.” (Id.) Orlando “wire transferred the [F]amily [M]oney through [his] account with Tri-counties bank on or about December 11, 2013[, ] to HSBC Hong Kong account 817677826838.” (Id. (emphasis added); UF 33.) Orlando received an “Outgoing FED Message” that memorialized the transfer, and identified WCM777 as the beneficiary, and HSBC Hong Kong as the beneficiary bank. (Orlando Decl. ¶ 8, Ex. A.)

         Orlando does not know what HSBC USA is, and has never communicated with anyone at HSBC USA. (Orlando Dep. 32:22-33:11, ECF No. 137-2.)

         C. HSBC USA's Alleged Role[10]

         In December 2012, HSBC USA entered into a deferred prosecution agreement with the United States relating to its money-laundering-prevention policies. (PAMF 8.) As part of this agreement, HSBC USA implemented a computer system that monitors thousands of wire transfers a day for suspicious activity. (UF 68-69.)

         Plaintiffs contend that HSBC USA had actual knowledge of the fraudulent nature of WCM777's business as a result of HSBC USA's monitoring activities. (Opp'n 4-5.) In August 2013, HSBC USA identified a suspicious wire transfer of approximately $120, 000 from New Better Life Foundation to WCM777's account at HSBC Hong Kong. (UF 69.) The word “foundation” triggered the alert because it is often associated with money laundering activities. (UF 70.)

         As part of its investigation, HSBC USA researched both New Better Life Foundation and WCM777. (UF 71.) The investigators conducted internet research, and concluded that WCM777 had a “high risk nature.” (UF 74.) Plaintiffs point to internal documents that state that WCM777 “pretty much resembles that of your typical Ponzi scheme, ” (Decl. of Paul Khareyn (“Khareyn Decl.”) ¶ 11, Ex. 3 (Bates Stamped HBUS000648-650), ECF No. 136-3) and that it “reasonably appeared that [WCM777 is] engaged in pyramid/Ponzi scheme as they offer no concrete underlying products/services while offering guaranteed ‘daily' profit/returns by buying multilevel shares.” (Khareyn Decl. ¶ 11, Ex. 1 (Bates Stamped HBUS000615), ECF No. 136-3.) As a result of this investigation, HSBC USA determined that it acted as an intermediary bank for wire transfers to WCM777's HSBC Hong Kong account totaling approximately $15 million between October 2013 and January 2014. (PAMF 13.) None of these transfers, however, relate to Plaintiffs. (UF 64-66.)

         During this same period, the California Department of Business Oversight (the “Department”) subpoenaed HSBC USA in relation to its independent investigation of WCM777. (ECF No. 145-5.) The subpoena requested “[a]ny and all bank records concerning WCM777 and World Capital Market Inc. bank accounts with [HSBC USA]….” (ECF No. 145-5 at 9.) HSBC USA responded that it did not have any responsive documents. (Letter from HSBC Corporations Counsel 11, ECF No. 145-5.) HSBC USA claims that because WCM777 did not have any bank accounts at HSBC USA, there were no such documents. (Reply 4, ECF No. 156; Annunziata Decl. ¶ 3, ECF No. 137-3.)

         HSBC USA ultimately determined that it should not continue to act as an intermediary for wire transfers to WCM777's account at HSBC Hong Kong because it considered it too risky. (UF 77.) HSBC USA contends it did not have actual knowledge of WCM777's fraudulent scheme, however.

         D. Requests for Judicial Notice & Evidentiary Issues

         Both parties submitted voluminous objections to evidence submitted in support of, and in opposition to, the four motions at issue. The Court addresses the objections that are pertinent to its ruling below.

         1. Plaintiffs' Objections to Declaration of Nicole Annunziata (ECF No. 143-32)

         Annunziata is a Legal Paper Regulatory Specialist, and is employed by HSBC Technology & Services (USA) Inc., which is an affiliate of HSBC USA. (Annunziata Decl. ¶ 1, ECF No. 137-3.) She is familiar with HSBC USA's books and records, and regularly relies on them. (Id. ¶ 2.) She searched HSBC USA's records to determine whether Plaintiffs or WCM777 had any accounts with HSBC USA within the last five years, and did not find any such accounts. (Id. ¶ 3.) She also regularly searches and relies on records of wire transfers. (Id. ¶¶ 5-6.) She conducted searches for wire transfers involving certain account numbers provided by Plaintiffs to determine whether Plaintiffs made any wire transfers to those accounts. (Id. ¶¶ 7-15.) She did not find any records of transfers. (Id. ¶ 15.)

         Plaintiffs assert several objections to Annunziata's declaration in its entirety:

         Best Evidence Rule:

         Plaintiffs argue that because Annunziata relies on reviewing documents in coming to the conclusion that there were no wire transfer records, then she must introduce those records into evidence. (ECF No. 143-32, at ¶ 1.) The best evidence rule “applies when the contents of a writing are sought to be proved, not when records are searched and found not to contain any reference to the designated matter.” United States v. Valdovinos-Mendez, 641 F.3d 1031, 1035 (9th Cir. 2011) (citing Fed.R.Evid. 1002). The Court OVERRULES Plaintiffs' objection on these grounds.

         Relevance:

         Plaintiffs state that they “have never alleged to be customers of HSBC USA.” (ECF No. 143-32, at ¶ 4.) Whether Plaintiffs are customers of HSBC USA is probative of ...


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