Howard v. Wells Fargo CA4/1
D068071
| Cal. Ct. App. | Sep 30, 2016Background
- Howard Agency is an insurance business; employee Geraldine Coleman (administrative assistant) forged the owner’s signature and embezzled at least $787,364 by writing checks payable to herself and cashing them.
- Coleman routinely cashed the forged checks at a Wells Fargo branch; Wells Fargo presented the items for payment to the payor bank (California Bank & Trust), which paid them.
- Howard Agency had its account at CB&T and was the drawer on the forged checks; Coleman did not have authority to sign the owner’s name.
- Howard Agency sued Wells Fargo (collecting/depositary bank) for negligence, conversion, and aiding and abetting; the trial court sustained Wells Fargo’s demurrer without leave to amend and dismissed the FAC.
- On appeal, Howard Agency argued Wells Fargo had a duty to investigate suspicious circumstances, that section 3420 did not bar conversion because Coleman (not Howard Agency) was the “issuer,” and that facts supported aiding and abetting liability. The Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Negligence — duty to investigate | Suspicious cashing patterns created a duty on Wells Fargo to question and investigate Coleman. | Collecting bank owes no duty to noncustomer drawer absent extraordinary, risk-creating conduct; payor bank is responsible to know drawer’s signature. | Demurrer sustained: no duty owed by Wells Fargo to Howard Agency under these facts. |
| Conversion — plaintiff can sue depositary bank | Section 3420 doesn't apply because Coleman (not Howard Agency) was the "issuer" of the forged checks. | Section 3420 bars an issuer/drawer from conversion claims against a depositary/collecting bank; the drawer has an adequate remedy against the payor bank. | Demurrer sustained: conversion claim precluded by section 3420 because Howard Agency was the drawer/issuer. |
| Aiding and abetting — actual knowledge and intent | Wells Fargo employees were aware of suspicious conduct and intended to assist Coleman by cashing checks. | Plaintiff pleads only negligence or constructive knowledge; aiding and abetting requires actual knowledge of a specific tort and intent to facilitate. | Demurrer sustained: FAC fails to plead actual knowledge and intent necessary for aiding and abetting. |
| Leave to amend | N/A — plaintiff did not show additional facts could be pled. | Demurrer without leave to amend is appropriate if plaintiff cannot cure defects. | Affirmed: Howard Agency conceded it could not plead additional facts; no leave to amend. |
Key Cases Cited
- Sun 'n Sand, Inc. v. United California Bank, 21 Cal.3d 671 (1978) (bank’s affirmative, risk-creating conduct can create duty to drawer)
- Fireman's Fund Ins. Co. v. Security Pacific Nat. Bank, 85 Cal.App.3d 797 (1978) (collecting bank generally owes no duty to noncustomer drawer for forged signatures)
- E.F. Hutton & Co. v. City National Bank, 149 Cal.App.3d 60 (1983) (distinguishable post-Sun 'n Sand example where bank accepted items payable to others)
- Joffe v. United California Bank, 141 Cal.App.3d 541 (1983) (another post-Sun 'n Sand decision addressing bank conduct in unusual presentments)
- Karen Kane, Inc. v. Bank of America, 67 Cal.App.4th 1192 (1998) (collecting bank owed no duty where employee endorsed and cashed checks payable to named payees)
- Casey v. U.S. Bank Nat. Assn., 127 Cal.App.4th 1138 (2005) (banks owe no duty to nondepositors to investigate or warn about account holder’s suspicious activity)
- Stone & Webster Eng'g Corp. v. First Nat'l Bank & Trust Co., 184 N.E.2d 358 (Mass. 1962) (drawer cannot maintain conversion claim against collecting bank that never held drawer’s funds)