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Prima Donna Development Corp. v. Wells Fargo Bank, N.A.

California Court of Appeals, Sixth District

November 13, 2019

WELLS FARGO BANK, N.A., Defendant and Respondent.

         [255 Cal.Rptr.3d 179] Trial Court: Santa Clara County Superior Court, Superior Court No. 1-15-CV-276708, Trial Judge: Hon. Maureen A. Folan.

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[Copyrighted Material Omitted]

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         Counsel for Plaintiff/Appellant Prima Donna Development Corporation, Dincel Law Group, Kim Omer Dincel, San Jose.

         Counsel for Defendant/Respondent Wells Fargo Bank, N.A., Severson & Werson, Jan T. Chilton, San Francisco, Marquis I. Wraight.


         DANNER, J.

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          Plaintiff and appellant Prima Donna Development Corporation appeals from a judgment confirming an arbitration award in favor of

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defendant Wells Fargo Bank, N.A. Prima Donna challenges both the order compelling arbitration and the denial of its motion to vacate the arbitration award. We conclude the trial court properly ordered the matter to arbitration and confirmed the arbitration award. Accordingly, we affirm the judgment.


          Appellant Prima Donna Development Corporation (Prima Donna) is a California corporation that develops, builds, and manages hotel properties in California and Oregon. Michael Chiu is Prima Donna’s president. In March 2007, Chiu opened several commercial bank accounts on behalf of Prima Donna at respondent Wells Fargo Bank, N.A. (Wells Fargo).

         As part of the paperwork for opening the accounts, Chiu either signed or agreed to be bound by a number of agreements. One of these agreements, the commercial account agreement, contained an arbitration agreement, which stated, "Except as stated in ‘No Waiver of Self-Help or Provisional Remedies’ below,[2] Company and Bank agree, at Company’s or Bank’s request, to submit to binding arbitration all claims, disputes and controversies, between or among Company and Bank ... whether in tort, contract or otherwise arising out of or relating in any way to Company’s Account(s) and/or Service(s) and their negotiation, execution, administration, modification, substitution, formation, inducement, enforcement, default or termination."

          Under a section entitled "Governing Rules," the arbitration agreement stated "Any arbitration proceeding will (i) proceed in a location selected by the American Arbitration Association (‘AAA’) in the state whose laws govern Company’s Account; (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between [255 Cal.Rptr.3d 180] Company and Bank; and (iii) be conducted by the AAA, or such other administrator as Company and Bank shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures."

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          The arbitration agreement also provided that "[t]he arbitrator[ ] shall resolve all Disputes in accordance with the substantive law of the state whose laws govern Company’s Account and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award."

         In opening the commercial bank accounts for Prima Donna at Wells Fargo, Chiu also signed a wire transfer services security procedures agreement (wire transfer agreement) for each account he opened. In each wire transfer agreement, Prima Donna "agree[d] that it is bound by any Order, whether or not authorized, issued in its name and accepted by Bank in compliance with the security procedure selected by Company."[3] The wire transfer agreement specified security procedures for transfers initiated by "voice-initiated transfers" (presumably by phone) and security procedures applicable to transfers initiated through the Internet.

          For voice-initiated wire transfers, the wire transfer agreement provided that Wells Fargo would call Chiu by telephone to verify the order and, if Wells Fargo was unable to reach Chiu, it would not process the wire transfer. Wells Fargo also allowed for wire transfers initiated through the Internet, using Wells Fargo’s "commercial electronic office portal" (CEO). In the case of an Internet transfer, a "company administrator" selected by Prima Donna could initiate a wire transfer through CEO. The wires at issue in this appeal were initiated through Wells Fargo’s CEO portal.

          As described in the arbitration award, for wire transfer orders placed through CEO, "[t]he Bank gives each Company Administrator a token card and a PIN. The token card generates a random security code every minute, which combines with the PIN to create a unique Passcode. This Passcode is used by the Bank to authenticate the identity of the Company and/or person initiating the request. The purpose of all this is to verify that the person initiating the transfer is authorized by the Company to do so. Unlike the procedure for transfer initiated by phone, this procedure does not require that the specific transfer be confirmed by a phone call to Chiu."

          The arbitrator found "[t]he procedure for voice-initiated transfers also protects [Prima Donna] against a Company Administrator who initiates such transfers against Chiu’s wishes because Chiu would have to approve the transfer. Because the CEO procedure only verifies the identity of the Company Administrator, it does not protect Chiu against a Company Administrator who initiates transfers without Chiu’s permission. However, the Bank also

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allows for ‘Dual Control.’ If the customer elects Dual Control, then the Company must name two Administrators, and any transaction initiated by one must be approved by the other before it goes through. Had Chiu elected to use Dual Control with himself as one of the Company Administrators, he would presumably have been notified before the transfers and would have declined to approve them. Prima Donna elected not to have Dual Control."

         [255 Cal.Rptr.3d 181] In January 2014, at the time of the disputed wire transfers, Prima Donna’s financial controller, Thuy Tran, served as a company administrator for Prima Donna under the wire transfer agreement. In January 2014, while Chiu was out of the country, his Yahoo e-mail account was apparently hacked. On January 23, 27, and 28, Tran received a series of e-mails from a person whom she believed was Chiu, instructing her to wire funds from Prima Donna’s Wells Fargo bank accounts to bank accounts overseas. Pursuant to these e-mails, Tran requested (through the CEO portal) that Wells Fargo make a number of wire transfers from Prima Donna’s Wells Fargo bank accounts. When Chiu returned to work on January 29, he told Tran that he had not requested that she transfer this money. Although Prima Donna called Wells Fargo to report the fraud, most of the money had already been transferred and could not be recovered. Prima Donna did not recover $638,400 that had been wired from its Wells Fargo accounts.

         Prima Donna filed suit in the Santa Clara County Superior Court (trial court) against Wells Fargo alleging two claims under Commercial Code section 11202[4] titled "Breach of Statutory Duty." In the first cause of action, Prima Donna alleged that Wells Fargo failed to follow the security procedures set out in the wire transfer agreement. (� 11202, subd. (b)(i)-(ii).) Therefore, the wire transfers were "ineffective and/or unenforceable" under section 11202, and Wells Fargo had the obligation of returning the amount of the wire transfers to Prima Donna pursuant to section 11204. In the second cause of action, Prima Donna alleged that "Wells Fargo did not employ ‘reasonable commercial standards of fair dealing’ in its acceptance and processing" of the wire transfers within the meaning of section 11202. (� 11202, subd. (c).) Therefore, Wells Fargo had the obligation of returning the amount of the wire transfers to Prima Donna pursuant to section 11204.

          Wells Fargo filed a motion to compel arbitration pursuant to the arbitration agreement contained in the commercial account agreement. Wells Fargo stated that in the arbitration agreement the parties agreed to arbitrate all "disputes arising between them." In its motion, Wells Fargo asserted that, "[b]y its terms" the arbitration agreement is governed by the Federal Arbitration Act (FAA). Wells Fargo argued that the trial

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court should order arbitration because Prima Donna and Wells Fargo had entered into an enforceable arbitration agreement, Prima Donna’s claims fell within the scope of the arbitration agreement, and public policy favors arbitration. In addition to requesting that the trial court order the parties to arbitration, Wells Fargo also requested that the trial court stay the civil action pending arbitration.

         Prima Donna filed an opposition to Wells Fargo’s motion to compel arbitration. Prima Donna did not dispute the applicability of the arbitration agreement but argued that "fraudulent wire transfers involving financial institutions in California are strictly controlled by [the] California Uniform Commercial Code (‘CUCC’) section 11101 et seq. In interpreting [CUCC] 11101 et seq., the California Supreme Court has been unequivocal about the exclusive nature of the statutory scheme controlling the procedures, rights, obligations and remedies available to the parties. (Zengen, Inc. v. Comerica Bank (2007) 41 Cal.4th 239');">41 Cal.4th 239');">41 Cal.4th 239');">41 Cal.4th 239 [59 Cal.Rptr.3d 240, 158 P.3d 800].) Common law causes of action such as negligence or breach of contract or the attempt to try and enforce a single contractual [255 Cal.Rptr.3d 182] provision between the parties such as an arbitration clause are specifically inapplicable under CUCC section 11101 et seq. "

         Prima Donna asserted that, because the Commercial Code and the California Supreme Court’s decision in Zengen require that fraudulent wire transfers be addressed only through the statutory provisions of Commercial Code section 11101 et seq., the arbitration agreement was not enforceable as to Prima Donna’s claims against Wells Fargo.

          In its opposition to the motion to compel arbitration, Prima Donna did not argue that the arbitration agreement was unconscionable. Nor did Prima Donna reference the formation of the arbitration agreement, except to note in passing that Chiu had not separately signed or "acknowledged" the arbitration clause. Prima Donna did not argue in the trial court that the court should not enforce the arbitration agreement because of the circumstances under which the parties entered into it.

         The trial court conducted a hearing on Wells Fargo’s motion to compel arbitration and granted the motion. In its written order, the trial court stated "There is no reason given as to why an arbitrator cannot adjudicate a UCC claim. The fact that UCC provisions displace common law provisions and provide the law under which claims are analyzed (as Zengen v. Comerica Bank (2007) 41 Cal.4th 239');">41 Cal.4th 239');">41 Cal.4th 239');">41 Cal.4th 239 [59 Cal.Rptr.3d 240, 158 P.3d 800] makes clear) is wholly unrelated to what type of fact finder can apply that law to this dispute." The trial court concluded, "There is no legitimate reason why this dispute must be heard by a Superior

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Court Judge in civil court rather than an arbitrator through binding arbitration. This matter is to be arbitrated, and the pending civil action, including all discovery, shall be stayed until the conclusion of arbitration."

          Prima Donna filed in this court a petition for writ of mandate challenging the order compelling arbitration, which this court summarily denied.

          Wells Fargo and Prima Donna proceeded to an arbitration conducted through the AAA. The parties engaged in prehearing discovery. In the course of communications between the parties and the appointed arbitrator, Prima Donna’s counsel wrote to the arbitrator expressing concern about conduct by Wells Fargo’s counsel relating to discovery and stating that Chiu was "very concerned whether these proceedings have now been so contaminated by Wells Fargo’s inappropriate conduct that he and [Prima Donna] ma[y] not be treated fairly and objectively in this arbitration before you."

          The following day, the assigned arbitrator recused himself and resigned from the arbitration. The arbitrator wrote to counsel and stated, "A party to an arbitration should have complete confidence in the fairness and objectivity of the process and the arbitrator, in the overall integrity of the process, and confidence that each party will be treated fairly and objectively. In this case it appears that [Prima Donna] does not have that confidence. I do not reach or discuss the basis for and/or validity of [Prima Donna’s] concerns, but, rather, accept that it has concerns. I deem those concerns sufficient to justify my recusal."

          The AAA appointed retired Justice Christopher Cottle to conduct the arbitration. The parties continued to engage in discovery, including a contested proceeding after which the arbitrator granted Prima Donna’s motion to compel production of documents, broadening the relevant discovery to discovery relating "to the relationship between Wells Fargo and Prima Donna, going back to the beginning of [255 Cal.Rptr.3d 183] their relationship in 2007." The arbitrator subsequently conducted a three-day arbitration hearing, in which he heard testimony from seven witnesses and received a number of written exhibits into evidence.

          The arbitrator issued an eight-page written award finding in favor of Wells Fargo and concluding under the principles set out in sections 11201 et seq. that Wells Fargo was not liable for Prima Donna’s loss from the January 2014 wire transfers. In the award, the arbitrator described the background of the dispute and made a number of factual findings. The arbitrator found that, at the time of the wire transfers, Tran had the authority to initiate wire transfers for Prima Donna’s Wells Fargo bank accounts, either by phone or through

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Wells Fargo’s Internet portal, CEO. The arbitrator also found that Tran had made the wire transfers pursuant to Wells Fargo’s CEO portal, although Tran had called the phone number ...

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