Liu v. The Charles Schwab Corporation

Background

Lawrence Liu and Ling-Ling Liu alleged that an unidentified scammer impersonated a Charles Schwab representative and convinced them that their investment accounts had been compromised. The scammer directed them to liquidate investments and move their assets through other accounts. The plaintiffs alleged that approximately $18 million of their savings was taken through the scheme.

The scammer linked the plaintiffs’ accounts, including a Bank of America account, to an account they opened with Unchained Trading, LLC, a cryptocurrency exchange. From July through September 2024, Mr. Liu visited Bank of America branches nine times and requested large wire transfers to the Unchained account. He told bank employees that his Charles Schwab accounts had security problems and that he was moving funds to protect them. Bank of America refused to process only one of the requested transfers. The plaintiffs alleged that approximately $22 million moved into and out of their Bank of America account during the relevant period.

The plaintiffs asserted claims under the California Elder Abuse and Dependent Adult Civil Protection Act, the California Unfair Competition Law, and for gross negligence. Bank of America moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), or alternatively to stay the case for alternative dispute resolution.

California Uniform Commercial Code

The court held that all of the plaintiffs’ claims were displaced by Division 11 of the California Uniform Commercial Code, which regulates funds transfers. The court explained that Division 11 defines when a payment order is authorized and identifies when a bank must refund an unauthorized transfer.

According to the complaint, Mr. Liu personally authorized the wire transfers from his Bank of America account to his Unchained account. The plaintiffs’ theory was that Bank of America should have rejected those authorized requests because a third party had fraudulently induced them. The court concluded that Division 11 specifically addresses the bank’s rights, duties, and liabilities concerning those transfers, making it the exclusive basis for claims arising from the processing of the transfers.

The court rejected the plaintiffs’ arguments that Division 11 could not displace conduct occurring before or after the transfers or could not displace statutory claims. The court stated that the alleged damages depended on Bank of America’s processing of the wire transfers and concluded that the statutory and common-law claims were displaced.

Elder-Abuse Claim

The court also addressed the elder-abuse claim in case the plaintiffs amended their complaint. The plaintiffs alleged that Bank of America assisted the scammer by processing the transfers and had actual knowledge of the fraud because the transactions were unusual, several transfers occurred at the same branch, and a banker had refused one transfer.

The court held that these allegations, even viewed favorably to the plaintiffs, did not adequately plead Bank of America’s actual knowledge of the fraud. Mr. Liu had explained that he was moving money between accounts in his own name, and the complaint did not allege facts showing that Bank of America knew a third party controlled or had access to the Unchained account.

Gross-Negligence Claim

The court rejected the plaintiffs’ effort to impose a duty on Bank of America to protect them from the consequences of their own authorized transfers. It distinguished a California case involving suspicious checks presented by a third party for that third party’s benefit. Here, Mr. Liu was authorized to transfer money from his Bank of America account to his account at Unchained. The court concluded that the cited authority did not create the broader duty sought by the plaintiffs.

The court also noted that the plaintiffs did not allege specific noneconomic losses that could avoid the economic-loss rule, which generally limits recovery for purely financial losses to contract remedies.

Unfair-Competition Claim

The court found procedural and substantive problems with the unfair-competition claim. The plaintiffs did not plead that they lacked an adequate legal remedy, which prevented them from seeking equitable relief. They also did not identify a specific business practice or policy that was unlawful, unfair, or fraudulent, or provide facts addressing the relative utility of Bank of America’s practices.

Disposition

The court granted Bank of America’s motion to dismiss. The order did not state that the dismissal was with or without prejudice. The court allowed the plaintiffs to file an amended complaint within 21 days, while cautioning that it was unlikely to grant further leave to amend. The court postponed setting a case schedule until after any amended complaint and Bank of America’s response.