Howard v. Wells Fargo CA4/1 (2016) · DecisionDepot
Howard v. Wells Fargo CA4/1
California Court of Appeal Sep 30, 2016 No. D068071Unpublished
Filed 9/30/16 Howard v. Wells Fargo CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
MICKEY HOWARD et al., D068071
Plaintiffs and Appellants,
v. (Super. Ct. No. 37-2014-00018390- CU-MC-CTL) WELLS FARGO, N.A.,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of San Diego County, Joan M.
Lewis, Judge. Affirmed.
Steven H. Wilhelm and Steven H. Wilhem for Plaintiffs and Appellants.
Barton, Klugman & Oetting, Tod V. Beebe and Terry L. Higham for Defendant
and Respondent Wells Fargo, N.A.
Howard Agency, LLC (Howard Agency)1 appeals a judgment of dismissal
following the sustaining of a demurrer to its first amended complaint (FAC). The FAC
asserted causes of action against Wells Fargo, N.A. (Wells Fargo) for negligence,
conversion, and aiding and abetting based on allegations Wells Fargo routinely cashed
forged checks made payable to and presented by an employee of Howard Agency. We
conclude the trial court did not err in sustaining the demurrer and affirm the judgment of
dismissal.
FACTUAL AND PROCEDURAL BACKGROUND
Because this appeal arises from the sustaining of a demurrer, we summarize the
Here, Coleman, an employee of Howard Agency, forged Howard's signature on
checks made out to herself and cashed them at a Wells Fargo branch. Wells Fargo
presented the checks to CB&T, the payor bank, and CB&T consistently paid out on the
checks. Because Howard Agency had no relationship with Wells Fargo, the collecting
bank, Wells Fargo owed no duty to Howard Agency and Howard Agency may not
maintain a cause of action for negligence against Wells Fargo.
Howard Agency's reliance on Sun 'n Sand, Inc. v. United California Bank (1978)
21 Cal.3d 671 (Sun 'n Sand) to create a duty based on suspicious circumstances is
misplaced as the duty created by Sun 'n Sand is narrowly circumscribed and
distinguishable from the present case. In Sun 'n Sand, an employee presented United
California Bank (UCB) with forged checks made payable to UCB and UCB agreed to
deposit the checks into the employee's personal account. (Id. at p. 692.) The Supreme
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Court of California concluded UCB engaged in affirmative risk-creating conduct by
allowing the employee to deposit the checks in a personal account despite not being the
payee on the checks. (Id. at p. 693.) The Court made a point to distinguish the conduct
of UCB from a bank simply failing to intervene beneficially on behalf of the issuer of a
check with whom it had no relationship. (Ibid.) Here, Coleman, the individual cashing
the checks—not Wells Fargo—was the named payee on the checks. While the number
and frequency of checks was, perhaps, suspicious, Wells Fargo had no duty to question
its own customer as to why she had received the checks.3
Howard also relies on two post Sun 'n Sand cases, each of which are similarly
distinguishable. In each, the bank accepted a check from someone that was made payable
to someone else. (See E.F. Hutton & Co. v. City National Bank (1983) 149 Cal.App.3d
60, 67-68 (E.F. Hutton) [employee forged endorsements on checks for substantial
amounts payable to various payees and deposited them into his personal account]; Joffe v.
United California Bank (1983) 141 Cal.App.3d 541, 556 [company deposited check for a
substantial amount payable to an escrow account at another bank].)
Howard Agency argues the reasoning of Sun 'n Sand should apply to the present
case even if the facts are distinguishable. We disagree. The duty to exercise reasonable
care established by Sun 'n Sand depended upon the foreseeability of the risk to the drawer
by UCB ignoring the danger signals inherent in the attempted negotiation. (E.F. Hutton,
3 One can imagine legitimate reasons for receiving multiple checks in series on a regular basis, such as an employee receiving commissions related to multiple different accounts. 8
supra, 149 Cal.App.3d at p. 67, citing Sun 'n Sand, supra, 21 Cal.3d at p. 695.) In the
present case, Wells Fargo did not engage in any analogous risk-creating behavior because
the objective indicia—checks made out to Coleman and signed by Howard Agency—
instead indicated Coleman was authorized to cash the checks.
The facts of this case are, instead, similar to Karen Kane, Inc. v. Bank of America
(1998) 67 Cal.App.4th 1192. There, an employee defrauded Kane by cashing numerous
checks, totaling approximately $760,000, endorsed by Kane and made payable to various
fictitious companies. (Id. at p. 1196.) Each check included two handwritten
endorsements—the name of the payee company and the name of the individual cashing
them—and in each instance the named payee received the proceeds. (Id. at p. 1198.) The
court concluded the check cashing service owed no duty to Kane, who was in the best
position to protect itself from the employee's scheme. (Id. at p. 1199.) Similarly, here,
Howard Agency was in the best position to police its own financial practices, to avoid
being defrauded by its employee, and to obtain insurance to protect itself. Wells Fargo
owed Howard Agency no duty.
Based on the foregoing, we conclude Howard Agency cannot assert a cause of
action for negligence against Wells Fargo.
B. The FAC Fails to State a Cause of Action for Conversion
Next, Howard Agency argues section 3420 does not preclude the asserted cause of
action for conversion because Coleman, and not Howard Agency, was the "issuer" of the
checks.
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Section 3420 states, in part, "[a]n action for conversion of an instrument may not
be brought by [] the issuer or acceptor of the instrument." The drafters added this clause
specifically to resolve the issue of whether the drawer of a check with a forged
indorsement can assert rights against a depositary bank that took the check. (See Official
Comments on U. Com. Code, Deering's Ann. Cal. U. Com. Code (2016 ed.) foll. § 3420.)
Because a check is an obligation of a drawer, not property of the drawer, and the drawer
has an adequate remedy against the payor bank for recredit of the drawer's account for the
unauthorized payment, the drawer may not assert a cause of action for conversion against
the depositary bank. (Ibid.) Here, Howard Agency is the drawer of the forged checks
and section 3420 therefore precludes it from asserting a cause of action for conversion
against Wells Fargo, the depositary bank that took the check. (§ 3420; see Fireman's
Fund, supra, 85 Cal.App.3d at p. 797 [finding a noncustomer drawer whose signature
was forged on a check drawn from his account was precluded from bringing a cause of
action against the collecting bank].)
Howard Agency argues that Coleman, and not Howard Agency, is the "issuer" of
the checks. To the contrary, the definition of "issuer" includes the drawer of a check
(§ 3105, subd. (c)), and the definition of "drawer" includes a person identified in the
check as the person ordering payment. (§ 3103, subd. (a)(3).) Further, the comments to
section 3420 indicate the exclusion applies equally regardless of whether the signature of
the drawer was forged as, in either case, a check is not the property of the drawer and the
drawer has an adequate remedy against the payor bank. This interpretation is also
consistent with the rule stated in Stone & Webster Engineering Corp. v. First Nat'l Bank
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& Trust Co. (Mass. 1962) 184 N.E.2d 358 (Stone), which the drafters intended to follow.
(See Official Comments on U. Com. Code, Deering's Ann. Cal. U. Com. Code, supra,
§ 3420, 487.) The court in Stone reasoned, because the collecting bank had no money
belonging to the drawer, the drawer could not assert an action for conversion against it
for accepting a check from an employee of the drawer who had forged the payee's
indorsement thereon. (Stone, at pp. 359-360.) Although Stone involved a forged
signature of the payee and not the drawer, the reasoning implores the same result—where
a collecting bank holds no money belonging to a plaintiff, a cause of action for
conversion against the bank is not proper.
Based on the foregoing, we conclude Howard Agency cannot assert a cause of
action for conversion against Wells Fargo.
C. The FAC Fails to State a Cause of Action for Aiding and Abetting
Finally, Howard Agency argues the FAC adequately alleges Wells Fargo
employees were aware of the embezzlement and intended to assist Coleman, thereby
stating a cause of action for aiding and abetting.
A cause of action for aiding and abetting "requires a defendant to reach a
conscious decision to participate in tortious activity for the purpose of assisting another in
performing a wrongful act." (Howard v. Superior Court (1992) 2 Cal.App.4th 745, 749.)
To be liable for the intentional tort of aiding and abetting, the defendant must have
actually known a specific tort had been, or was to be, committed and must have acted
with the intent of facilitating the commission of the known tort. (Casey, supra,
127 Cal.App.4th at p. 1146.)
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Here, the FAC fails to allege Wells Fargo had actual knowledge Coleman forged
the checks or was otherwise committing fraud against Howard Agency by cashing the
checks. The FAC alleges Wells Fargo "should have been alert to the risk that Coleman
was perpetuating a fraud" based on her suspicious behavior. This allegation is not
sufficient to establish actual knowledge or the intent necessary to facilitate commission of
a known tort. The FAC also alleges Wells Fargo knew Coleman's conduct was a breach
of her duties "and/or" gave substantial assistance to Coleman, thereby breaching its own
duty to Howard Agency. This statement is indefinite, conclusory and insufficient to
establish Wells Fargo had the requisite knowledge or intent. As such, Howard Agency
has not pled facts sufficient to state a cause of action for aiding and abetting against
Wells Fargo.
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D. Leave to Amend
Howard Agency has the burden on appeal to demonstrate it could have alleged
additional facts in order to state a claim if given leave to amend. (Hendy v. Losse (1991)
54 Cal.3d 723, 742.) Howard Agency concedes it could not have done so. Therefore, we
conclude the court did not err in granting the demurrer without leave to amend.
DISPOSITION
The judgment is affirmed.
BENKE, Acting P. J.
WE CONCUR:
IRION, J.
PRAGER, J.*
* Judge of the San Diego Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. 13
AI Brief
AI-generated · verify before citing
Holding. The court held that a noncustomer drawer cannot maintain an action for negligence or conversion against a collecting bank for cashing forged checks, and that the plaintiff failed to plead sufficient facts to support a claim for aiding and abetting.
Issues
Whether a collecting bank owes a duty of care to a noncustomer drawer regarding the cashing of forged checks.
Whether California Uniform Commercial Code section 3420 precludes a drawer from suing a depositary bank for conversion.
Whether the complaint sufficiently alleged actual knowledge and intent to support a claim for aiding and abetting.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“Because Howard Agency had no relationship with Wells Fargo, the collecting bank, Wells Fargo owed no duty to Howard Agency and Howard Agency may not maintain a cause of action for negligence against Wells Fargo.”
“Section 3420 states, in part, "[a]n action for conversion of an instrument may not be brought by [] the issuer or acceptor of the instrument."”
“To be liable for the intentional tort of aiding and abetting, the defendant must have actually known a specific tort had been, or was to be, committed and must have acted with the intent of facilitating the commission of the known tort.”