S&S Worldwide, Inc. v. Wells Fargo Bank, N.A.

Background

S&S Worldwide, Inc. alleged that, in October 2017, hackers impersonated one of its vendors and caused S&S to wire approximately $1.3 million to an account at Wells Fargo Bank, N.A. held by Ronald L. Kuntz. S&S alleged that Kuntz then made six transfers over roughly two weeks, including transfers to accounts in the United States and Cambodia, and that Wells Fargo continued allowing transfers after bank employees determined that Kuntz’s account and activities appeared to involve an illegitimate or fraudulent scheme.

S&S alleged that it notified Wells Fargo on November 6, 2017, after learning that its vendor had not received payment. S&S asked Wells Fargo to freeze Kuntz’s account and recall the transfers. According to the complaint, Wells Fargo refused to help unless S&S released the bank from liability, and S&S refused. S&S asserted six state-law causes of action: negligence; breach of contract and breach of the implied covenant of good faith and fair dealing; aiding and abetting conversion; aiding and abetting fraud; unjust enrichment or constructive trust; and violation of California’s unfair-competition law. S&S also asserted the claims against Wells Fargo & Company under an alter-ego theory. Wells Fargo & Company did not respond to the complaint or join the motion to dismiss.

Legal standard and governing law

Wells Fargo moved to dismiss under Rule 12(b)(6), which permits dismissal when a complaint lacks a legally recognized claim or does not allege enough facts to make the claim plausible. For this motion, the court treated the complaint’s material factual allegations as true but did not accept unsupported legal conclusions as facts.

The court held that California law governed because S&S did not show that another state’s law should apply. The court also considered California Commercial Code division 11, which adopts Article 4A of the Uniform Commercial Code and governs funds transfers.

Article 4A displacement

The court held that S&S’s claims were displaced by Article 4A to the extent they were based on Wells Fargo’s processing of the initial wire. The court reasoned that California Commercial Code section 11207 addresses situations in which the name and account number in a payment order identify different people and determines who bears the loss. Because S&S alleged that it intended to pay its vendor but provided an account number associated with Kuntz, Article 4A covered that part of the dispute.

The court rejected Wells Fargo’s argument that Article 4A displaced all of S&S’s claims. It held that the claims were not displaced to the extent they relied on Wells Fargo’s allowing Kuntz to open and maintain the account, allowing him to transfer the funds after the initial wire, or refusing to help S&S freeze the account and recall the transfers. The court then considered Wells Fargo’s other arguments as to those allegations.

Individual claims

Negligence. The court dismissed the negligence claim because S&S did not adequately allege that Wells Fargo owed it a duty to investigate Kuntz’s activity, report suspicious activity, prevent the transfers, or assist S&S in recovering its funds. S&S was not a depositor for purposes of the initial wire because the wire was not sent from an account S&S held at Wells Fargo. The court also found that S&S did not allege facts showing that Wells Fargo voluntarily assumed a duty on which S&S relied. The Bank Secrecy Act and related regulations did not establish the claimed duty on the allegations presented, and S&S did not identify the specific law Wells Fargo allegedly violated.

Contract and implied covenant. The court dismissed the contract-related claim because S&S did not identify a contractual promise requiring Wells Fargo to investigate suspicious activity by its customers or assist S&S after an alleged fraud by a Wells Fargo customer. S&S also did not allege facts showing that Kuntz’s agreement with Wells Fargo was intended to benefit S&S.

Aiding and abetting conversion. The court dismissed this claim because S&S did not allege sufficient facts showing that Wells Fargo had actual knowledge of Kuntz’s specific scheme to take S&S’s money. The allegation that a branch manager knew the account involved something “illegitimate and fraudulent” showed, at most, general suspicion rather than knowledge of the specific wrongdoing.

Aiding and abetting fraud. The court dismissed this claim for the same basic reason. The complaint did not allege facts showing that Wells Fargo knew, before or during the initial wire, that Kuntz and the hacker were tricking S&S into sending money to Kuntz’s account. The allegations that Wells Fargo should have recognized the fraud were not enough to establish actual knowledge.

Unjust enrichment and constructive trust. The court dismissed this claim because California does not recognize unjust enrichment as an independent cause of action. The court also found that S&S did not allege facts showing that Kuntz used S&S’s money to pay Wells Fargo’s fees, that money remained in Kuntz’s account, or that any remaining money belonged to Wells Fargo. S&S also cited no authority supporting restitution without a contractual or similar relationship between S&S and Wells Fargo.

Unfair competition. The court dismissed the claim under California Business and Professions Code section 17200. S&S did not identify the specific Bank Secrecy Act provision, regulation, or other law Wells Fargo allegedly violated. S&S also did not allege that Wells Fargo, rather than Kuntz, opened the account, and therefore did not connect the alleged unauthorized-account theory to Kuntz’s account. The court found that the related unfair and fraudulent-practice theories failed for the same reasons.

Disposition

Judge Maxine M. Chesney granted Wells Fargo Bank, N.A.’s motion to dismiss and dismissed the complaint. The court also dismissed the claims against Wells Fargo & Company because the same deficiencies applied to that nonmoving defendant. The court gave S&S leave to amend and permitted it to add a claim under California Commercial Code division 11. The amended complaint was due January 22, 2021, and the court continued the case-management conference to April 16, 2021.