Jung v. Discover Bank

Background

Jonathan Jung and his wife, Karen Chiu, had a joint online savings account with Discover. According to the amended complaint, the account had been breached several times between October 2023 and December 2024. On December 5, 2024, a fraudster who appeared to be calling from Discover’s official phone number persuaded Chiu to verify her identity through Socure, a third-party vendor used by Discover. Jung then received notice that a $110,000 wire transfer had been initiated from the account.

Jung promptly disputed the transfer. Discover closed the account, opened a replacement account, investigated, and determined that the wire was sent to a Bank of America account. Discover refused to reimburse Jung, stating that the transaction had passed its internal security measures. Jung filed a proposed class action alleging violations of the Electronic Funds Transfer Act (EFTA), California’s Commercial Code, and California’s Unfair Competition Law (UCL). After Jung amended his complaint in response to Discover’s first dismissal motion, Discover filed another motion under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim.

EFTA claim

Jung alleged that the wire transfer was an unauthorized electronic fund transfer under the EFTA. The court held that the EFTA does not apply to consumer wire transfers. It relied on the statute’s exclusion of certain transfers made through services transferring funds held at banks and on the implementing regulation’s exclusion of wire and similar transfers. The court therefore dismissed the EFTA claim without leave to amend.

California Commercial Code claim

Jung alleged that the wire transfer was a payment order that Discover had to refund. Under the California Commercial Code, a bank generally bears the loss if a payment order was unauthorized and was not verified through a commercially reasonable security procedure that the bank followed in good faith.

The court found Jung’s allegation that the payment order was unauthorized adequate at the motion-to-dismiss stage. It distinguished a case in which an employee knowingly confirmed a transfer after being deceived by a fraudster; here, Jung did not know about the wire transfer, and Chiu did not think she was authorizing one.

However, the court found Jung’s allegation that Discover did not maintain or apply a reasonable security procedure conclusory and insufficient. Jung did not provide enough information about the customer’s usual payment activity, Discover’s security measures, alternative procedures, or comparable security practices to support an inference that Discover’s procedures were commercially unreasonable. The court dismissed the Commercial Code claim with leave to amend if Jung could add allegations explaining why Discover’s security procedures were unreasonable under the statute.

Unfair Competition Law claim

Jung alleged that Discover violated both the unlawful and unfair prongs of California’s Unfair Competition Law. The court addressed only Discover’s argument that Jung was not entitled to equitable relief. Because the UCL provides equitable remedies, the court said Jung had to plead that he lacked an adequate legal remedy. The complaint alleged economic harm but did not explain why legal remedies were inadequate. The court dismissed the UCL claim with leave to amend if Jung could add those allegations and directed him to consider Discover’s other dismissal arguments.

Disposition

The court granted Discover’s motion to dismiss. It dismissed the EFTA claim without leave to amend and dismissed the Commercial Code and UCL claims with leave to amend. Jung had 30 days to amend the complaint if he wished to do so. The order states that failure to amend on time could result in dismissal with prejudice.