Little Seeds Children's Center, Inc., et al. v. Citibank, N.A.

Background

Little Seeds Children’s Center, Inc. (LSCC), its chief executive officer Mahvash Kamrani, and its chief financial officer Hossein Kamrani sued Citibank, N.A. over allegedly fraudulent wire transfers. The Kamranis had held accounts with Citibank since 1999, and those accounts were used to manage LSCC’s funds. The plaintiffs alleged that Citibank had historically contacted them about unusual account activity and transactions.

In July 2024, Citibank employees at an Alameda branch allegedly persuaded the plaintiffs to begin scanning checks and using a security key for remote transactions. The plaintiffs alleged that the employees represented that the key would add protection to the existing account-monitoring and telephone-confirmation procedures. On October 1, 2024, a person identified as “Jason B.” allegedly called from a Citibank phone number while pretending to work in Citibank’s fraud department. The plaintiffs alleged that he tricked them into using the security key, causing nearly twenty wire transfers to go through. They alleged that $717,293.08 was stolen, including twelve transfers completed within about an hour.

The complaint asserted seven claims: negligent misrepresentation, intentional misrepresentation, violations of the California Commercial Code, a claim under the California Consumer Privacy Act, a claim under the California Consumer Records Act, a claim under California’s Unfair Competition Law, and negligent hiring. Citibank moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim.

Court’s analysis

Negligent misrepresentation

The court dismissed LSCC’s negligent-misrepresentation claim with leave to amend. The court applied the California Supreme Court’s framework requiring analysis of the parties’ contract, any independent duty outside the contract, and whether the alleged harm was beyond what the parties reasonably contemplated. The court concluded that the complaint alleged only a purely economic loss—the stolen funds—and did not allege the additional reputational, regulatory, personal, or property-related harms that the plaintiffs argued could result from Citibank’s conduct.

Intentional misrepresentation

The court denied Citibank’s motion as to LSCC’s intentional-misrepresentation claim. The court held that the complaint described who allegedly made the statements, what was said about the security key, where the statements were made, and why the statements were allegedly false. It also found that the plaintiffs adequately alleged intent, reliance, and causation at the pleading stage. Whether the alleged change in Citibank’s security procedures legally caused LSCC’s injuries was left for a later stage.

California Commercial Code

The court dismissed without leave to amend the portion of LSCC’s Commercial Code claim relying on section 11201(b), which the plaintiffs conceded was a typographical error because that provision does not exist. The court also dismissed without leave to amend the portion relying on section 11205 because that section addresses different types of payment-order errors, including misdescribed beneficiaries, incorrect transfer amounts, and duplicate transfers.

The court denied the motion as to the remaining portion of the Commercial Code claim under section 11204, which concerns repayment of unauthorized payment orders. The plaintiffs alleged that they did not authorize the transfers and that Citibank’s security procedures were not commercially reasonable. The court found those allegations sufficient to support an inference that the security procedures were commercially unreasonable at the pleading stage. Whether the allegations would ultimately be proven was left for a later stage.

California Consumer Privacy Act

The court dismissed the California Consumer Privacy Act claim with leave to amend. The plaintiffs adequately identified types of personal information that could have been accessed, and the allegations allowed an inference that “Jason B.” or his associates possessed information about their accounts. But the complaint did not sufficiently allege that the information was accessed from Citibank or that the access resulted from Citibank’s failure to maintain reasonable security procedures. The court found that the complaint largely restated the statute’s requirements without enough supporting facts.

California Consumer Records Act

The court dismissed without leave to amend the claim under California Civil Code section 1798.81.5 because the plaintiffs conceded that Citibank, as a financial institution covered by the statutory exemption, was exempt from that provision.

The court dismissed with leave to amend the separate claim under section 1798.82(a), which concerns notice of a security breach. The plaintiffs did not adequately allege that a qualifying breach occurred or when Citibank learned of it. The court noted that the complaint and the plaintiffs’ opposition appeared to describe different theories about whether the wire transfers or an earlier access to personal information constituted the relevant breach.

Unfair Competition Law

The court dismissed the Unfair Competition Law claim with leave to amend. The plaintiffs sought only injunctive relief and alleged that they lacked an adequate remedy at law, but they based that allegation on the assertion that actual damages could not be recovered under the Unfair Competition Law. The court held that the relevant question was whether the plaintiffs had an adequate remedy under their other claims. The court also found that the plaintiffs had not alleged facts showing a real and immediate threat of future injury or specified the requested injunction sufficiently to establish standing.

Negligent hiring

The court dismissed the negligent-hiring claim with leave to amend. The plaintiffs conceded that they had not adequately stated this claim.

Disposition

Judge Haywood S. Gilliam, Jr. granted in part and denied in part Citibank’s motion to dismiss. The court denied the motion as to intentional misrepresentation and the remaining California Commercial Code section 11204 claim. It granted the motion as to the other claims. All dismissed claims were dismissed with leave to amend except the claims under California Civil Code section 1798.81.5 and California Commercial Code sections 11201(b) and 11205, which were dismissed without leave to amend. Any amended complaint had to be filed within 21 days and could not add new claims or defendants.