Lee v. Foris Dax, Inc.

Background

Jung Min Lee sued Foris DAX, Inc., doing business as Crypto.com, and other defendants. Lee alleged that unknown cryptocurrency scammers contacted her husband, Donald Patz, through Instagram and WhatsApp and persuaded him to invest in fraudulent cryptocurrency schemes. According to the First Amended Complaint, Patz transferred money from First Republic Bank accounts holding the couple’s community property. The funds were sent through Crypto.com and eventually transferred to the scammers.

Lee alleged that Crypto.com helped process and convert the transactions despite warning signs that Patz was being defrauded. She also alleged that Crypto.com collected transaction fees. Lee never created or used a Crypto.com account, and the opinion states that the complaint did not allege Crypto.com knew that Lee existed or that she had a financial connection to Patz.

Lee asserted four claims against Crypto.com: violation of California’s Elder Abuse and Dependent Adult Civil Protection Act; violation of California’s Unfair Competition Law, which addresses unlawful, unfair, or fraudulent business practices; aiding and abetting an intentional tort; and negligence, including gross negligence and negligence based on alleged statutory violations.

Standing

The court assumed without deciding that Lee had general Article III standing. Article III standing requires a concrete injury, a connection between the injury and the defendant’s conduct, and a likelihood that a court decision could remedy the injury. The court concluded that Lee plausibly alleged an injury to her community-property interest and a sufficient causal connection at the motion-to-dismiss stage.

The court separately held that Lee lacked the special standing required for her Elder Abuse Act claim. Lee is not an elder and did not claim to be Patz’s personal representative. Because she sued on her own behalf rather than as Patz’s representative, the court held that she could not bring the claim based only on her alleged loss of community property.

Claims Against Crypto.com

The court dismissed the Elder Abuse Act claim with prejudice. It found that neither the statutory text nor the cited California cases supported allowing a non-elder who is not the elder’s representative to bring that claim on her own behalf.

The court dismissed the Unfair Competition Law claim with prejudice under its unfair and fraudulent prongs. A private plaintiff must show injury, loss of money or property, and—when the claim is based on misleading statements—personal reliance on those statements. Lee alleged that Patz, not Lee, relied on Crypto.com’s representations. The court held that her community-property injury did not substitute for her own reliance.

The court dismissed the Unfair Competition Law claim under its unlawful prong with leave to amend. That part of Lee’s claim was based on the alleged Elder Abuse Act violation, and the court held that because Lee failed to state the underlying Elder Abuse Act claim, she could not maintain the unlawful-prong claim on that basis. The court noted that Lee could amend this theory.

The court dismissed the aiding-and-abetting claim with leave to amend. Aiding and abetting requires an underlying tort, knowledge that the other party’s conduct breaches a duty, and substantial assistance or encouragement. The court found that the claim as pleaded was unclear about which tort Crypto.com allegedly aided and abetted. The court stated that it could not evaluate a theory that had not been adequately pleaded and allowed Lee to amend it.

The court dismissed the negligence claim with prejudice. Negligence requires a duty, breach, causation, and injury. The court held that the complaint did not plausibly allege that Crypto.com owed Lee a duty because she was not a customer, did not use Patz’s account, and Crypto.com allegedly had no reason to know of her existence or her interest in the funds. The court also rejected Lee’s negligence-per-se theory, noting that the Elder Abuse Act bars private actions based on failure to report financial abuse.

Disposition

Judge William H. Orrick granted Crypto.com’s motion to dismiss. Lee may amend only her aiding-and-abetting claim and the unlawful prong of her Unfair Competition Law claim. The other causes of action against Crypto.com were dismissed with prejudice. The opinion states that claims against the FDIC as receiver for First Republic Bank and an individual First Republic defendant were stayed pending administrative review; this order addressed Crypto.com’s motion.