Smith v. Wells Fargo Bank, N.A.

Background

Faye Smith alleged that her stepson, Robert Jr., and his wife, Camille, used a forged power of attorney and a forged resignation of trustee to obtain control over Smith’s accounts. Smith alleged that they transferred money for their own expenses and that Wells Fargo and JPMorgan Chase Bank allowed them access to her accounts. She further alleged that she notified the banks of the fraud, but they did not investigate it, return the funds, or remove the two people’s access. Smith separately sued Robert Jr. and Camille in state court and obtained a judgment of $908,194.37.

Smith asserted ten claims against Wells Fargo and Chase: aiding and abetting breach of fiduciary duty; constructive fraud; financial abuse of an elder under the California Elder Abuse and Dependent Adult Civil Protection Act; violations of California’s Unfair Competition Law; breach of contract; breach of the implied covenant of good faith and fair dealing; conversion; aiding and abetting conversion; negligence; and an unauthorized-payment-order claim under California Commercial Code section 11204.

Judicial Notice

The court granted Wells Fargo’s request in part and denied it in part. It treated the exhibits that Smith had attached to or incorporated into her complaint as part of the complaint. It took judicial notice of state-court filings only to establish the existence of the allegations and issues litigated in those proceedings, not to establish the truth of disputed facts in those filings.

Rule 12(b)(7) Motion

Wells Fargo argued that Smith’s stepson and his wife were required parties under Federal Rule of Civil Procedure 19 and that the case should be dismissed because they could not be joined. The court denied this motion. It held that Wells Fargo had not shown why complete relief could not be provided between Smith and the defendants already in the case. It also found no indication that Robert Jr. or Camille had claimed a legally protected interest in this litigation that required their participation.

Rule 12(b)(6) Motion and California Probate Code Section 4303

The defendants argued that California Probate Code section 4303 protected them from Smith’s claims because they had relied in good faith on a power of attorney that appeared valid on its face and included a notary’s acknowledgment. The court agreed that Smith’s complaint did not plausibly allege that the banks knew the power of attorney was forged when it was presented. The document attached to the complaint appeared to contain Smith’s signature, a date, and a facially valid notary certification.

The court also rejected Smith’s argument that the banks had a duty to independently investigate the document or stop following it after she reported the alleged fraud. The court stated that section 4303 provided a clear rule protecting a bank that relies on a qualifying power of attorney. However, the court granted leave to amend because Smith might be able to allege that she revoked the power of attorney and notified the banks of the revocation.

Individual Claims

Claim One: Aiding and Abetting Breach of Fiduciary Duty

The court held that Smith had not adequately alleged that the banks had actual knowledge of the specific wrongdoing by Robert Jr. and Camille. Her allegations that the documents were obviously forged were conclusory, and her later notice to the banks showed only that she reported what she believed was fraud. The claim was dismissed with leave to amend.

Claim Two: Constructive Fraud

The court held that Smith had not alleged a fiduciary or confidential relationship with either bank. Under California law, the relationship between a bank and its depositor is not ordinarily a fiduciary or special relationship. The constructive-fraud claim was dismissed without leave to amend.

Claim Three: Financial Abuse of an Elder

The court held that Smith had not adequately alleged that the banks had actual knowledge of the underlying financial abuse, which the court determined was required to plead that the banks assisted in the abuse. This claim was dismissed with leave to amend.

Claim Four: Unfair Competition

Smith sought restitution under California’s Unfair Competition Law. The court held that she had not alleged that either bank acquired the money at issue. Her allegations identified Robert Jr. and Camille, rather than the banks, as the people who took the money. The claim was dismissed with leave to amend.

Claim Five: Breach of Contract

The court held that Smith’s allegations about her contracts with the banks were too general. She did not identify specific contractual terms or attach the alleged contracts. The claim was dismissed with leave to amend.

Claim Six: Breach of the Implied Covenant of Good Faith and Fair Dealing

The court held that Smith had not adequately pleaded a contract or specific contractual terms. It also held that the bank-depositor relationship was not a special relationship supporting tort damages for breach of the implied covenant. The claim was dismissed without leave to amend.

Claim Seven: Conversion

The court held that Smith could not sue the banks for conversion of deposited funds under California law because title to deposited money passes to the bank, leaving the depositor with a contractual right to demand payment. The conversion claim was dismissed without leave to amend.

Claim Eight: Aiding and Abetting Conversion

The court held that Smith had not adequately alleged that the banks had actual knowledge of the specific conversion. This claim was dismissed with leave to amend.

Claim Nine: Negligence

The court held that Smith had not identified a controlling California authority imposing the claimed duty of care beyond the parties’ contractual relationship. It concluded that the economic-loss rule barred the negligence claim. The claim was dismissed without leave to amend.

Claim Ten: Unauthorized Payment Order

The court explained that California Commercial Code section 11204 concerns unauthorized payment orders, including wire transfers. Even assuming Smith adequately alleged that the defendants processed wire transfers, she did not adequately allege facts about whether the banks used commercially reasonable security procedures or complied with those procedures. The claim was dismissed with leave to amend.

Disposition

Judge Haywood S. Gilliam, Jr. granted the defendants’ motions to dismiss with leave to amend. Smith was permitted to file an amended complaint within 21 days of the order. The order separately denied Wells Fargo’s motion under Rule 12(b)(7), and it dismissed the individual claims with the specific amendment permissions described above.