Venture General Agency, LLC v. Wells Fargo Bank, N.A.

Background

Venture General Agency, LLC and Old American County Mutual Fire Insurance Co. alleged that an unknown third-party fraudster induced Venture to transfer $1,708,112.86 of Old American’s funds into a fraudulent account opened at Wells Fargo in Old American’s name. The plaintiffs asserted negligence claims against Wells Fargo.

In an earlier order, the court dismissed the original negligence claim because the complaint did not allege that the plaintiffs were Wells Fargo customers or otherwise show that Wells Fargo owed them a duty of care. The court dismissed the original negligence-per-se claim without leave to amend because the Bank Secrecy Act and the USA PATRIOT Act do not provide a private right of action. The plaintiffs then filed a First Amended Complaint.

The amended complaint added allegations that Old American and its managing general agents maintained two premium trust accounts with Wells Fargo. One account ended in 7076 and was opened in or about August 2012; the other ended in 3430 and was opened in or about September 2015. The opinion states that those accounts remained open and active.

Parties’ Arguments

Wells Fargo argued that Old American’s customer relationship was insufficient because the plaintiffs did not allege that they were parties to the agreement for the account involved in the fraudulent transfers. Wells Fargo also argued that the plaintiffs did not connect their separate accounts to the third-party account that received the funds.

The plaintiffs argued that Wells Fargo owed them a duty to cooperate after learning that Old American had been defrauded. They also sought discovery concerning their account agreements with Wells Fargo and argued that the facts supported relief even if their legal theories were imperfectly pleaded. In briefing, they alternatively referred to an aiding-and-abetting fraud theory.

Court’s Analysis

Under California law, the court explained, a bank’s ordinary duty of care arises from its contract with its customer and generally concerns the customer’s account. The plaintiffs did not allege that they were parties to the agreement underlying the account involved in the fraudulent transfers, that they had an interest in that account, or that Wells Fargo had taken any action concerning Old American’s separate accounts.

The court therefore held that any duties Wells Fargo owed concerning the third-party account were owed to that account holder, not to Old American merely because Old American held separate, unrelated accounts at Wells Fargo. The court also rejected the claimed duty to investigate or disclose suspicious activity after the fraud. It cited California authority stating that a bank generally owes no duty to nondepositors to investigate or disclose suspicious activity involving an account holder.

The court distinguished the California Supreme Court decision relied on by the plaintiffs because that case involved a narrowly defined duty to inquire into suspicious circumstances before a transaction was completed, not a duty arising after a fraud had already occurred. The court also cited California Financial Code section 1450, which generally requires a bank to disregard notice of an adverse claim to an account, subject to exceptions the court found inapplicable to the alleged facts.

The court rejected the plaintiffs’ request for discovery because the existing allegations did not connect the separate Old American accounts to the transactions at issue. It also stated that the aiding-and-abetting theory had not been pleaded in the complaint and, in any event, was not plausibly alleged because the complaint stated that Wells Fargo learned of the fraud only after it had occurred.

Disposition

The court granted Wells Fargo’s motion to dismiss the First Amended Complaint. It dismissed the plaintiffs’ negligence claim without leave to amend, finding that they could not amend sufficiently to state a valid negligence cause of action. The opinion also states that the earlier negligence-per-se claim had already been dismissed without leave to amend.