United States District Court, E.D. California
RONALD C. EVANS, an individual; JOAN M. EVANS, an individual; DENNIS TREADAWAY, an individual; and all others similarly situated, Plaintiffs,
ZB, N.A., a national banking association, dba California Bank & Trust, Defendant.
MEMORANDUM AND ORDER RE: MOTION TO DISMISS
WILLIAM B. SHUBB, UNITED STATES DISTRICT JUDGE
C. Evans, Joan M. Evans, and Dennis Treadaway (collectively
“plaintiffs”) initiated this action on behalf of
over fifty people against defendant ZB, N.A., a national
banking association, doing business as California Bank &
Trust (“CB&T”), for allegedly knowingly
providing substantial assistance to a fraudulent scheme
initiated by International Manufacturing Group, Inc.
(“IMG”). Presently before the court is
defendant's Motion to Dismiss plaintiffs' First
Amended Complaint. (Docket No. 44).
Relevant Allegations and Procedural Background
a California corporation allegedly created to import latex
surgical gloves and related medical products manufactured in
Asia for resale in the United States. (Compl. ¶ 1
(Docket No. 42).) As has since been determined, IMG was
operating a Ponzi scheme directed by its Chief Executive
Officer, Deepal Wannakuwatte (“Wannakuwatte”),
who has pled guilty to federal fraud charges and is serving
twenty years in prison. (Compl. ¶¶ 78, 85.) IMG
solicited investors by telling them their money would be used
to purchase latex gloves from Asian manufacturers that would
then be sold to IMG's purported customers. (Compl. ¶
1.) In exchange for the money, IMG issued promissory notes.
(Compl. ¶ 91.) The investors' funds were not,
however, used for the intended purpose. (Compl. ¶ 6.)
Instead, the funds were deposited at CB&T and used to pay
back prior investors. (Compl. ¶ 24.)
October 2009, CB&T made nine loans to IMG. (Compl. ¶
95.) CB&T monitored, on a daily basis, the deposits of
investor money into IMG's accounts. (Compl. ¶ 24.)
At the inception of the loans, the monthly interest was to be
paid out of the IMG General Account #7631 with automatic
debits. (Compl. ¶ 25.) However, the automatic debit
process did not work because there were insufficient funds.
(Id.) IMG accrued millions of dollars in overdraft
fees at CB&T. (Id.)
being aware of IMG's insufficient cashflow, over the
course of their lending relationship, CB&T ignored
IMG's defaults and waived late charges and interest
penalties, granted 20 maturity date extensions and 21
collateral swaps, adjusted loan rates of interest over 20
times, and accepted personal guarantees from Wannakuwatte at
least 7 times. (Compl. ¶¶ 58, 62, 100.)
both cash investors as well as investors who provided Standby
Letters of Credit (“SLOC's”) in favor of
CB&T. (Compl. ¶ 16). The purpose of each SLOC was
for CB&T to finance and thereby monitor the manufacturing
of medical gloves in Asia being purchased by IMG as part of
IMG's business. (Compl. ¶ 19.) SLOCs were not
intended to be direct loan payments to IMG. (Id.)
After continued defaults by IMG, CB&T foreclosed on the
SLOC pledged by a non-local investor. (Id.)
CB&T, however, refused to foreclose on the security
pledged by eight local Sacramento area SLOC investors.
in 2009, but prior to October 2009, CB&T submitted
“bogus” sales invoices to draw upon a $9 million
SLOC obtained by applicant Jamestown Health & Medical
Supply, LLC from Bank of America for CB&T. (Compl.
¶¶ 63, 121.) In October 2009, CB&T gave notice
to IMG that it was terminating further secured lending but
would still allow IMG to deposit new investors' money
into IMG's Wholesale Account #4841. (Compl. ¶ 29.)
CB&T was repaid in full by February 2011. (Compl. ¶
January 21, 2014, one day after IMG filed for bankruptcy
protection, Ronald Evans and his wife, Joan Evans, each
invested $50, 000 with IMG. (Compl. ¶¶ 40, 48.)
Between 2007 and 2014, and presumably before IMG filed for
bankruptcy on May 30, 2014, Dennis Treadaway invested more
than $2 million with IMG. (Compl. ¶ 49.) On May 8, 2014,
Wannakuwatte pled guilty to federal fraud
charges. On May 30, 2014, IMG and Wannakuwatte both
declared bankruptcy. (Compl. ¶ 78.) On May 6, 2016,
IMG's bankruptcy trustee filed a fraudulent conveyance
action in the IMG Bankruptcy Proceeding against CB&T
seeking to avoid and recover IMG's loan repayments on the
loans. (Compl. ¶ 77, 84.) The trustee's complaint
revealed facts about CB&T's confidential relationship
with IMG. (Compl. ¶ 84.)
26, 2017, plaintiffs filed this action against CB&T for
allegedly aiding and abetting the torts of IMG. This court
dismissed plaintiffs' complaint because it found that
CB&T did not owe a duty to plaintiffs that would give
rise to tort liability. (Mem. & Order at 2-3 (Docket No.
28).) Further, this court found that plaintiffs did not plead
sufficient facts to give rise to a plausible inference that
defendant knew IMG was misappropriating funds. (Id.
Ninth Circuit reversed. The court first found that, under
California law, if a bank knowingly takes part in a fraud, it
has a duty to “make good the loss that results from the
misappropriation.” (Mem., No. 18-15094, at 3 (Docket
No. 37).) The court then found plausible plaintiffs'
allegations that CB&T knew IMG's business “was
a sham” because through its monitoring of the account,
CB&T knew that IMG had “virtually no income from
its latex glove import business.” (Id. at 4.)
It is also plausible, the court continued, that CB&T knew
it IMG was misappropriating funds because CB&T knew it
was being repaid with investor funds and not revenue.
(Id. at 5.) Plaintiffs' allegations of
CB&T's “atypical banking procedures”
while IMG was in default were sufficient to allege that
CB&T helped facilitate IMG's solicitation of cash.
(Id. at 6.) The court thus found that plaintiffs
plausibly stated three claims for relief: (1) aiding and
abetting fraud; (2) breach of fiduciary duty; (3) conspiracy
to commit fraud. (Id. at 8-9.) Because the question
of whether the statute of limitations bars these claims
“involve[s] factual determinations, ” the Ninth
Circuit left it for this court to consider on remand.
(Id. at 11.)
filed a First Amended Complaint alleging six claims: (1)
Aiding and Abetting Fraud; (2) Securities Fraud pursuant to
California Corporations Code §§ 25110, 25401,
25504.1; (3) Conspiracy to Commit Fraud; (4) Aiding and
Abetting Breach of Fiduciary Duty; (5) Intentional
Interference with Contract; and (6) violation of California
Penal Code § 496. (Docket No. 42.) Defendant moves to
dismiss all claims. (Docket No. 44.)
Request to Seal
preliminary matter, the court considers defendant's
Request to Seal Ronald Evans and Treadaway's Victim
Impact Statements (Ex. H), submitted on November 15, 2019.
Pursuant to Local Rule 141(a), “[d]ocuments may be
sealed only by written order of the Court, upon the showing
required by applicable law.” E.D. Cal. L.R. 141(a).
documents at issue here appear to contain information which
is sensitive and confidential. (See Declaration of
Jarrett Osborne-Revis, Req. to Seal, Ex. H, at ¶ 8.)
This information was designated “Confidential” in
the accompanying criminal action. (Id. ¶ 6.)
The information is not publicly available. (Id.
¶ 7.) Further, his information would invade the privacy
of the individuals if this request to seal were not granted.
(Req. to Seal at 4.) Accordingly, the court concludes that
CB&T has presented “good cause” to rebut the
presumption in favor of public access. See Kamakana v.
City & Cty. of Honolulu, 447 F.3d 1172, 1189 (9th
Rule 12(b)(6) motion, the inquiry before the court is
whether, accepting the well-pleaded allegations in the
complaint as true and drawing all reasonable inferences in
the plaintiff's favor, the plaintiff has stated a claim
to relief that is plausible on its face. See Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). The court, however, is
“not required to accept as true allegations . . . that
are merely conclusory, unwarranted deductions of fact, or
unreasonable inferences.” Seven Arts Filmed
Entm't, Ltd. v. Content Media Corp. PLC, 733 F.3d
1251, 1254 (9th Cir. 2013). “The ...