Filed 10/27/14 Mel-Jen, Inc. v. Bank of America CA2/7
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                DIVISION SEVEN


MEL-JEN, INC.,                                                       B252165

         Plaintiff and Appellant,                                    (Los Angeles County
                                                                     Super. Ct. No. SC119922)
         v.

BANK OF AMERICA, N.A.,

         Defendant and Respondent.




                   APPEAL from a judgment of the Superior Court of Los Angeles County.
Allan J. Goodman, Judge. Affirmed.


                   Burton V. McCullough for Plaintiff and Appellant.


                   Jan T. Chilton for Defendant and Respondent.




                                   _______________________________
       Appellant Mel-Jen, Inc. doing business as Wally’s Wine and Spirits (Mel-Jen)
appeals from the judgment of dismissal entered upon the trial court’s order sustaining the
respondent Bank of America, N.A.’s (BofA) demurrer without leave to amend Mel-Jen’s
complaint. Before this court, Mel-Jen asserts that the trial court erred in dismissing its
sole claim of negligence. As we shall explain, the court did not err by sustaining BofA’s
demurrer and dismissing Mel-Jen’s negligence claim. Moreover, it does not appear that
affording Mel-Jen an opportunity to amend could cure the defects in its cause of action
against BofA. Accordingly, we affirm the judgment.
                   FACTUAL AND PROCEDURAL BACKGROUND
       Mel-Jen’s First Amended Complaint alleges that Mel-Jen is a California
corporation doing business as Wally’s Wine and Spirits with its principal location in Los
Angeles, California. It further alleges that Adilia Bermudez, Mel-Jen’s employee and
accounting controller, forged approximately 185 handwritten checks totaling
$4,692,376.75 on Mel-Jen’s checking account between August 2009 and June 2012.
Bermudez stole checks for Mel-Jen’s checking account and handwrote them payable to
“CASH” forging the signature of Steven A. Wallace, the president and CEO of Mel-Jen
and an authorized signer on the account. Bermudez did not have signing authority on the
account. Bermudez placed notations in the left hand corner of many of the checks
reading “reimb.,” “exp. reimb.,” “wine purch.,” and “wine purch. reimb.” Bermudez, and
occasionally her husband, would bring the checks into the Canyon Plaza Branch of BofA
in Sun Valley, California, endorse the checks, and have them deposited into Bermudez
and her husband’s personal joint checking account. Bermudez also had her monthly
salary directly deposited into her joint checking account, and had done so for years prior
to creating the forged checks.
       In addition to forging checks from Mel-Jen’s corporate checking account,
Bermudez also forged two checks on president and CEO Steven A. Wallace’s personal
checking account, making both checks payable to the order of “CASH” and writing the
notation “loan” in the memo line on the checks. These two checks were endorsed by
Bermudez’s husband and deposited into their joint checking account at BofA. BofA

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presented each of the checks to The Private Bank of California (PBOC), where both Mel-
Jen and Wallace maintained checking accounts, and PBOC paid the checks and charged
the amounts against Mel-Jen’s and Wallace’s accounts.
       Mel-Jen sued BofA on a sole claim of negligence.1 In its First Amended
Complaint, Mel-Jen claims that the circumstances surrounding Bermudez’s transactions
at BofA were sufficiently suspicious as to warrant an investigation. Mel-Jen alleges that
BofA’s failure to investigate makes it liable to Mel-Jen for negligence. BofA filed a
demurrer to the negligence claim, and the trial court sustained the demurrer without leave
to amend and entered an order dismissing Mel-Jen’s complaint.2 This appeal followed.
                                      DISCUSSION
I.     The Court Properly Sustained the Demurrer to Mel-Jen’s Cause of Action for
Negligence.
       Mel-Jen asserts that the trial court erred in sustaining BofA’s demurrer. Mel-Jen
argues that it may assert a common law negligence cause of action against BofA under
the principles articulated in Sun ‘n Sand v. United California Bank (1978) 21 Cal.3d 671.
As we shall explain, in view of the circumstances of this case, Mel-Jen does not have
claims against BofA under the Commercial Code or pursuant to the circumscribed



1
       Mel-Jen’s complaint also contained causes of action against its bank, PBOC,
alleging claims for violation of Commercial Code section 4401 [unauthorized
withdrawals], and common law claims for negligence, misrepresentation, breach of
fiduciary duty and the duty to act in good faith, and unjust enrichment.
2
        PBOC filed a demurrer to the complaint. The trial court sustained the demurrer
without leave to amend as to the common law causes of action, finding that the
Commercial Code section 4401 “displaces the common law claims” and was intended to
be the “exclusive means for determining the rights, duties and liabilities” of the affected
parties in the case. The trial court also granted PBOC’s motion to strike portions of the
complaint—specifically certain factual allegations in the Commercial Code section 4401
cause of action which pertained to the unauthorized withdrawals that fell outside the
statute of limitations period contained in Commercial Code section 4406. The court
required Mel-Jen to file a second amended complaint against PBOC alleging a violation
of Commercial Code section 4401 consistent with the court’s rulings.

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holding of Sun ‘n Sand. Therefore, the trial court properly sustained BofA’s demurrer to
Mel-Jen’s cause of action for negligence.
       A.     Standard of Review
       When a party files a demurrer, the court considers the sufficiency of the plaintiff’s
claims as a matter of law. (Trader Sports, Inc. v. City of San Leandro (2001) 93
Cal.App.4th 37, 43-44.) At the appellate level, we review de novo the ruling on a
demurrer, exercising our independent judgment to determine whether a cause of action
has been stated. (People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 300;
Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 1115.) “‘We treat the
demurrer as admitting all material facts properly pleaded, but not contentions, deductions
or conclusions of fact or law. We also consider matters which may be judicially noticed.’
Further, we give the complaint a reasonable interpretation, reading it as a whole and its
parts in their context.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “We do not,
however, assume the truth of the legal contentions, deductions or conclusions.
[Q]uestions of law . . . are reviewed de novo.” (Caliber Bodyworks, Inc. v. Superior
Court (2005) 134 Cal.App.4th 365, 373.)
       When a demurrer is sustained, we determine whether the complaint states facts
sufficient to constitute a cause of action. (Trader Sports, Inc. v. City of San Leandro,
supra, 93 Cal.App.4th at pp. 43-44.) If no liability exists as a matter of law, we must
affirm the judgment. (Ibid.) The appellant bears the burden of proving the trial court
erred in sustaining the demurrer. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318; Coutin v.
Lucas (1990) 220 Cal.App.3d 1016, 1020.)
       B.     Analysis
       In general, a bank does not owe a duty of care to noncustomers. (Rodriguez v.
Bank of The West (2008) 162 Cal.App.4th 454, 460.) “A bank’s duty of care—to act with
reasonable care in its transactions with its customers—arises out of the bank’s contract
with its customer,” and thus banks generally do not owe a duty of care to others. (Ibid.)
“[A]bsent extraordinary and specific facts, a bank does not owe a duty of care to a



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noncustomer.” (Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49
Cal.App.4th 472, 479.)
       The Commercial Code provides a comprehensive statutory scheme for allocating
losses resulting from fraudulent financial instruments such as checks. Commercial Code
section 3405 addresses fraudulent endorsements and allocates responsibility for any
losses resulting from such endorsements between the account holder (whose endorsement
was forged) and the bank (i.e. collecting bank). (Cal. U. Com. Code, § 3405.)
Commercial Code sections 4401 and 4406 address fraudulent bank account holder
signatures and liability for unauthorized withdrawals; these statutes allocate
responsibility for any losses resulting from an unauthorized or altered signature
between the account holder and his or her bank (i.e., the payor bank). (Cal. U. Com.
Code, §§ 4401 and 4406.) The loss distribution scheme in the Commercial Code
displaces nearly all common law claims against financial institutions like BofA. Mel-Jen
properly concedes that these statutes do not apply to its claims against BofA. It,
nonetheless, asserts it may maintain a common law negligence claim against BofA,
notwithstanding the Commercial Code and notwithstanding the general rule that BofA
owes no duties to a non-customer, like Mel-Jen.
       In arguing that it can maintain a common law negligence claim against BofA,
Mel-Jen relies on the Supreme Court’s decision in Sun’n Sand, which found a bank liable
for negligence to a noncustomer. In Sun ‘n Sand, an employee told her supervisor that
the company owed minor amounts of money to the bank and requested the supervisor
write checks payable to the bank. (Sun ‘n Sand v. United California Bank, supra, 21
Cal.3d at p. 678.) The employee then altered the checks to increase the amounts and had
the checks deposited into her personal account at the same bank. (Ibid.) The bank
deposited the checks even though they were made payable to the bank itself and not the
employee. (Ibid.) The Court held that the bank had a duty of care to the noncustomer
company. (Id. at p. 695.) However, the Court specifically noted that the “duty is
narrowly circumscribed: it is activated only when checks, not insignificant in amount, are



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drawn payable to the order of a bank and are presented to the payee bank by a third party
seeking to negotiate the checks for his own benefit.” (Ibid.)
       It is clear that the facts alleged by Mel-Jen do not fit within Sun ‘n Sand’s narrow
holding, nor do the facts fit within any of the additional exceptions created by post-Sun ‘n
Sand case law. 3
       Cases after Sun ‘n Sand that have recognized new exceptions to the general rule
have only done so when the transactions were suspicious on their face because “the
person attempting to negotiate the check is not the payee.” (Software Design &
Application, Ltd. v. Hoefer & Arnett, Inc., supra, 49 Cal.App.4th at pp. 480-481.) For
example, in Joffe v. United California Bank (1983) 141 Cal.App.3d 541, the court held
that the transaction was sufficiently suspicious to justify a duty of care when a company
named “Continental” attempted to deposit a check made payable to “Continental Finance
Systems-Wells Fargo Escrow Trust Account” into its account at Bank of America. The
court reasoned that “the face of the check itself [did] not provide sufficient ‘objective
indicia from which the bank could reasonably conclude that the party presenting the
check [was] authorized to transact in the manner proposed.’” (Id. at p. 556.)
       Similarly, in E. F. Hutton & Co. v. City National Bank (1983) 149 Cal.App.3d 60,
the court held that the plaintiff alleged facts sufficient to state a cause of action for
negligence when an employee presented checks made payable to 18 different named
individual payees to a bank, which then accepted the checks and deposited them into the
employee’s personal account. The court based its decision on the fact that the checks



3
       The parties dispute whether the Sun ‘n Sand case is even precedential authority.
We recognize that courts have questioned the precedential authority of Sun ‘n Sand’s
holding on the negligence claim because although “all five of the justices who considered
the case agreed that the negligence causes of action could proceed,” only two justices
signed onto the reasoning of the majority opinion. (Roy Supply, Inc. v. Wells Fargo Bank
(1995) 39 Cal.App.4th 1051, 1069, fn. 18; accord: Mac v. Bank of America (1999) 76
Cal.App.4th 562, 565, fn. 1.) However, we need not reach that issue because even
assuming that Sun ‘n Sand is precedential authority, the facts Mel-Jen alleges do not fit
within the specifically narrow exception articulated in Sun ‘n Sand.

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“were for a substantial amount, payable to individual payees at another bank, with
inadequate indicia on the face of the checks...regarding the authorization of [the plaintiff]
. . . to negotiate the instruments.” (Id. at p. 68.)
          Here, unlike the transactions in Joffe and E. F. Hutton, Bermudez’s transactions
were not suspicious on their face. There is no evidence that any aspect of the checks was
filled out incorrectly, and there was nothing on the face of the checks that would have
alerted BofA to the potential for fraud. Moreover, in both Joffe and E. F. Hutton, the
checks were made payable to a third party who was not physically present for the
transaction, whereas here, the checks were made payable to “CASH.” A check made
payable to “CASH” is “bearer paper” and the person in physical possession of bearer
paper is presumed to own it. (Com. Code, § 3109, subd. (a)(3); Bank of California v.
J.L. Mott Iron Works (1896) 113 Cal. 409, 412.) Therefore, when a check made payable
to “CASH” is brought in for deposit, the bank pays the named payee when they pay the
person in possession of the check.
          Moreover, cases since Sun ‘n Sand have declined to impose a duty on banks to
investigate suspicious circumstances surrounding the transactions when the transactions
were not suspicious on their face. For example, in Software Design & Application, Ltd.
v. Hoefer & Arnett, Inc., supra, 49 Cal.App.4th 472, a financial consultant hired to
manage the plaintiffs’ investments opened two brokerage accounts in the name of a
fictitious partnership, deposited the plaintiffs’ money into the accounts, and then stole the
money by transferring it into other bank accounts. The plaintiffs argued that the
frequency and the large amount of money deposited and withdrawn from the accounts
was an indication of illegal activity. (Id. at p. 481.) However, the court found no duty on
the part of the bank to investigate noting that there is “no authority for the proposition
that, in the absence of suspicious instruments, a bank has a duty to supervise account
activity or otherwise track frequent and/or large dollar transactions in deposit accounts.”
(Ibid.)
          Like Software Design, the suspicious activity Mel-Jen alleges occurred here was
not apparent from the face of the checks themselves. Nonetheless, Mel-Jen argues that

                                                7
the surrounding circumstances of the transactions were sufficiently suspicious so that
BofA had a duty to investigate. Mel-Jen cites the fact that the amount of money
Bermudez deposited from the checks greatly exceeded the amounts of her direct deposit
paychecks, and that it is unusual for an employee to make large company purchases that
require later reimbursement from the company. Mel-Jen, however, has no legal authority
which would impose a duty on a bank to investigate suspicious surrounding
circumstances when the checks are not facially suspicious and current case law does not
support Mel-Jen’s argument. Moreover, we decline to recognize a new duty of care
based on the factual situation alleged in Mel-Jen’s complaint.
       Finally in reaching our conclusion we observe, as noted elsewhere here, that Mel-
Jen is not without a potential remedy for the harm that it has suffered as a result of
Bermudez’s conduct. The trial court allowed Mel-Jen to proceed on its Commercial
Code section 4401 claim against its bank, PBOC, for the unauthorized withdrawals from
its account. Accordingly, the trial court properly sustained the demurrer on Mel-Gen’s
common law negligence claim against BofA.
II.    The Court Did Not Abuse Its Discretion in Failing to Grant Mel-Jen an
       Opportunity to Amend Its Complaint
       The trial court’s ruling sustaining a demurrer is subject to a standard of review in
which “we determine whether the complaint states facts sufficient to constitute a cause of
action.” (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126, quoting Blank v.
Kirwan, supra, 39 Cal.3d at p. 318.) “[W]hen a demurrer is sustained without leave to
amend, we decide whether there is a reasonable possibility that the defect can be cured by
amendment.” (Ibid.) If the defect can be cured, “the trial court has abused its discretion
and we reverse.” (Ibid.) However, if the defect cannot be cured, “there has been no
abuse of discretion and we affirm. The burden of proving such reasonable possibility is
squarely on the plaintiff.” (Ibid.)
       Mel-Jen has not suggested on appeal how it might amend its complaint to state a
valid cause of action against BofA. (See Rakestraw v. California Physicians’ Service
(2000) 81 Cal.App.4th 39, 44 [“The burden of showing that a reasonable possibility

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exists that amendment can cure the defects remains with the plaintiff; neither the trial
court nor this court will rewrite a complaint”].) Consequently, because Mel-Jen has not
identified any other possible factual scenario or plausible legal theory to revive its
negligence claim against BofA, we conclude the failings in Mel-Jen’s claim cannot be
cured by amendment and thus the court did not abuse its discretion when it did not give
Mel-Jen another opportunity to amend its complaint.
                                      DISPOSITION
       The judgment is affirmed. Respondent is entitled to its costs on appeal.




                                                                        WOODS, J.


We concur:




              PERLUSS, P. J.                                            ZELON, J.




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