Lee v. Foris Dax, Inc.

Background

Jung Min Lee alleged that internet scammers persuaded her husband, Donald Patz, to invest money in fraudulent cryptocurrency ventures. According to the complaint, money was transferred from First Republic Bank accounts to Crypto.com, where Foris DAX allegedly converted the funds into Tether and allowed transactions to proceed despite warning signs of fraud. Lee asserted claims under California’s Elder Abuse and Dependent Adult Civil Protection Act, California’s Unfair Competition Law, aiding and abetting, and negligence and gross negligence.

First Republic Bank was closed on May 1, 2023, and the Federal Deposit Insurance Corporation became its receiver. Lee filed the lawsuit in California state court on July 1, 2024. The receiver substituted itself as a party and removed the case to federal court. Lee moved to remand, and the defendants moved to dismiss.

Removal and Motion to Remand

The court denied Lee’s motion to remand. It found that the receiver properly filed its notice of substitution and that federal law gave the receiver authority to remove the case. Although Lee pleaded only state-law claims, the court held that the state-action exception did not apply because the receiver’s defense based on the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 required consideration of federal law.

Claims Against the Receiver and Evans

The court held that the Financial Institutions Reform, Recovery, and Enforcement Act requires claimants to complete the Federal Deposit Insurance Corporation’s administrative process before bringing claims relating to a failed bank’s acts or omissions. This exhaustion requirement is jurisdictional, meaning that a court lacks subject-matter jurisdiction until the requirement is satisfied.

The court concluded that Lee’s claims against the receiver arose from alleged conduct by First Republic before the receiver took control. Lee had not completed the administrative process when she filed suit, although she later filed an administrative claim. The court therefore granted the receiver’s motion to dismiss and dismissed Lee’s claims against the receiver without prejudice. It also stayed those claims until the 180-day administrative review period ended or the receiver issued a formal determination, whichever occurred first.

The court applied the same exhaustion analysis to Evans because the complaint alleged that she acted as a First Republic employee and did not allege that she acted independently or in her individual capacity. The court’s conclusion stayed Lee’s claims against Evans pending the administrative review process.

Claims Against Foris DAX

The court granted Foris DAX’s motion to dismiss on standing and real-party-in-interest grounds. A real party in interest is the person who has the legal right to bring the claim. The court found that the complaint repeatedly treated Lee and Patz as though they were the same person, while identifying Patz as the alleged scam victim and Crypto.com account holder. The complaint did not clearly identify whose money was transferred or plausibly allege that the lost funds came from accounts jointly held by Lee and Patz.

The court also found that Lee had not shown the special status required to bring an Elder Abuse Act claim on behalf of Patz. Lee alleged that Patz was old enough to qualify as an elder, but she did not allege that he lacked capacity or that she was his conservator, trustee, estate representative, or attorney-in-fact. The court noted that Lee was not herself an elder and had not shown a legally recognized relationship to Patz or the property that would allow her to bring the claim.

The court allowed Lee to amend her claims against Foris DAX if she could plead facts showing that she was the real party in interest and had a legally sufficient relationship to Patz or the property at issue. The court stated that it would not reach the merits of whether the claims were plausibly alleged because Lee had not first shown that she had standing to bring them.

Disposition

The motions to dismiss were granted. The motion to remand was denied. Lee’s claims against the receiver and Evans were stayed pending the Federal Deposit Insurance Corporation’s administrative review process, and the receiver-related claims were dismissed without prejudice. Lee was permitted to file an amended complaint concerning Foris DAX within 20 days.