Dog Bites Back, LLC v. JPMorgan Chase Bank, N.A.

• Court: District Court, D. Nevada
• Decided: September 24, 2021
• Docket: 2:20-cv-01459
• Status: Unknown

Opinion

1 UNITED STATES DISTRICT COURT

2 DISTRICT OF NEVADA

3 DOG BITES BACK, LLC, ) 4 ) Plaintiff, ) Case No.: 2:20-cv-01459-GMN-DJA 5 vs. ) ) ORDER 6 JPMORGAN CHASE BANK, N.A., ) 7 ) Defendant. ) 8 ) 9 Pending before the Court is the Motion to Dismiss, (ECF No. 13), filed by Defendant 10 JPMorgan Chase Bank, N.A. (“JPMorgan”). Plaintiff Dog Bites Back, LLC (“DBB”) filed a 11 Response, (ECF No. 14), to which JPMorgan filed a Reply, (ECF No. 15). For the reasons 12 discussed herein, JPMorgan’s Motion to Dismiss is GRANTED in part and DENIED in part. 13 I. BACKGROUND 14 This case arises from JPMorgan’s approval and processing of forty-three (43) counterfeit 15 checks, which were forged by Plaintiff’s employee. (See generally Compl., Ex. A to Pet. 16 Removal, ECF No. 1-1). On July 16, 2008, DBB opened a business account (the “Account”) 17 with Washington Mutual Bank. (Id. ¶ 5). DBB authorized three signatures on file. (Id. ¶ 6). 18 In September 2008, JPMorgan purchased Washington Mutual Bank. (Id. ¶ 7). From that point 19 on, DBB became a customer of JPMorgan. (Id.). 20 Between June 18, 2019 and March 24, 2020, Kimberley Howes, DBB’s accounting 21 manager, forged forty-three (43) checks, which totaled approximately $142,457.35. (Id. ¶¶ 9– 22 10). Upon discovering the discrepancies in its accounting, DBB notified JPMorgan of the 23 discovered forgeries. (Id. ¶¶ 8, 14). On April 8, 2020, JPMorgan denied DBB’s requested 24 reimbursement in its entirety. (Id. ¶ 15). DBB sent JPMorgan a demand letter on June 4, 2020. 25 (Id. ¶ 16). JPMorgan did not respond. (Id.). 1 On June 16, 2020, DBB filed a Complaint in the Eighth Judicial District Court, alleging 2 the following causes of action: (1) violation of NRS 104.3405; (2) violation of NRS 104.3406; 3 (3) breach of contract; (4) breach of the implied covenant of good faith and fair dealing; and (5) 4 negligence. (Compl. ¶¶ 17–48). JPMorgan removed the case to federal court on the basis of 5 diversity jurisdiction. (See Pet. Removal ¶ 8, ECF No. 1). On September 4, 2020, JPMorgan 6 then filed the instant Motion to Dismiss, (ECF No. 13). 7 II. LEGAL STANDARD 8 Dismissal is appropriate under Rule 12(b)(6) where a pleader fails to state a claim upon 9 which relief can be granted. Fed. R. Civ. P. 12(b)(6); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 10 555 (2007). A pleading must give fair notice of a legally cognizable claim and the grounds on 11 which it rests, and although a court must take all factual allegations as true, legal conclusions 12 couched as a factual allegations are insufficient. Twombly, 550 U.S. at 555. Accordingly, Rule 13 12(b)(6) requires “more than labels and conclusions, and a formulaic recitation of the elements 14 of a cause of action will not do.” Id. “To survive a motion to dismiss, a complaint must contain 15 sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its 16 face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A 17 claim has facial plausibility when the plaintiff pleads factual content that allows the court to

18 draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. This 19 standard “asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. 20 “Generally, a district court may not consider any material beyond the pleadings in ruling 21 on a Rule 12(b)(6) motion.” Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 22 1555 n.19 (9th Cir. 1990). “However, material which is properly submitted as part of the 23 complaint may be considered.” Id. Similarly, “documents whose contents are alleged in a 24 complaint and whose authenticity no party questions, but which are not physically attached to 25 the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss.” Branch v. 1 Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). On a motion to dismiss, a court may also take 2 judicial notice of “matters of public record.” Mack v. S. Bay Beer Distrib., 798 F.2d 1279, 1282 3 (9th Cir. 1986). Otherwise, if a court considers materials outside of the pleadings, the motion 4 to dismiss is converted into a motion for summary judgment. Fed. R. Civ. P. 12(d). 5 If the court grants a motion to dismiss for failure to state a claim, leave to amend should 6 be granted unless it is clear that the deficiencies of the complaint cannot be cured by 7 amendment. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992). Pursuant 8 to Rule 15(a), the court should “freely” give leave to amend “when justice so requires,” and in 9 the absence of a reason such as “undue delay, bad faith or dilatory motive on the part of the 10 movant, repeated failure to cure deficiencies by amendments previously allowed, undue 11 prejudice to the opposing party by virtue of allowance of the amendment, futility of the 12 amendment, etc.” Foman v. Davis, 371 U.S. 178, 182 (1962). 13 III. DISCUSSION 14 JPMorgan moves to dismiss DBB’s claims, arguing that: (1) DBB fails to plausibly 15 allege that JPMorgan failed to exercise ordinary care under NRS 104; (2) DBB fails to identify 16 the alleged contract; (3) DBB is precluded from bringing a common law claim of negligence 17 because the UCC displaces common law claims; and (4) DBB fails to state a plausible claim of

18 negligence. (JPMorgan’s Mot. Dismiss (“MTD”) at 4–8). Plaintiff opposes dismissal of all its 19 claims except for the breach of contract claim. (See Resp. to MTD at 4–9, ECF No. 14). 20 Accordingly, the Court dismisses Plaintiff’s breach of contract claim without prejudice1 and 21 limits its below discussion to the remaining claims—namely, violation of NRS 104.3405, 22 violation of NRS 104.3406, breach of the implied covenant of good faith and fair dealing, and 23 negligence. 24

25 1 Plaintiff stipulates to dismissing the breach of contract claim without prejudice. (Resp. to MTD 7:26–8:6). 1 A. Violations of NRS 104.3405 and NRS 104.3406 2 DBB, in its Complaint, alleges that JPMorgan failed to exercise ordinary care in 3 violation of NRS 104.3405(2) and 104.3406. (Compl. ¶¶ 17–30). JPMorgan argues that DBB’s 4 claims under NRS 104 fail because DBB has not sufficiently alleged how JPMorgan failed to 5 exercise ordinary care as defined by the statute. (MTD 4:1–6:22). 6 In Nevada, there are two UCC provisions that create causes of action by an employer 7 against a depositary bank to recover instruments fraudulently endorsed by an employee. NRS 8 104.3405 creates a cause of action in negligence against a depositary bank wherein an 9 employee entrusted with responsibility over the instrument fraudulently endorses the 10 instrument. See NRS 104.3405(2) and cmt. 1. Relatedly, NRS 104.3406 imposes liability on a 11 person who negligently contributes to altering or forging an instrument. See NRS 104.3406(1). 12 Both statutes impose liability if a person fails to exercise ordinary care. 13 NRS 104.3103 defines ordinary care as the “observance of reasonable commercial 14 standards, prevailing in the area in which the person is located, with respect to the business in 15 which the person is engaged.” NRS 104.3103(1)(f). Specifically, “[i]n the case of a bank that 16 takes an instrument for processing for collection or payment by automated means, reasonable 17 commercial standards do not require the bank to examine the instrument if the failure to

18 examine does not violate its prescribed procedures and its procedures do not vary unreasonably 19 from general banking usage not disapproved by this Article or Article 4.” Id. 20 As applied to the present case, DBB does not identify any JPMorgan procedures 21 concerning check forgery. DBB also does not allege how JPMorgan’s failure to compare the 22 signatures on the forty-three (43) checks violated the non-alleged policies, or even general 23 banking usage. Though DBB articulates the specific ways in which JPMorgan lacked ordinary 24 care (i.e., failure to examine the forged checks and flag the irregularities in the signatures), 25 DBB fatally fails to allege how JPMorgan’s actions violated its prescribed procedures under 1 NRS 104.3103’s definition of “ordinary care.” Accordingly, the Court grants JPMorgan’s 2 Motion to Dismiss and dismisses DBB’s claims under NRS 104.3405 and 104.3406. 3 B. Breach of the Implied Covenant of Good Faith and Fair Dealing 4 DBB also alleges that JPMorgan breached the implied covenant of good faith and fair 5 dealing when it failed to monitor the checks and compare the signatures on the checks to the 6 authorized signatures on file for the Account. (Compl. ¶¶ 37–43). In its Motion to Dismiss, 7 JPMorgan argues that DBB fails to allege sufficient facts to demonstrate that the parties had a 8 contractual relationship—the first requirement for demonstrating a breach of the implied 9 covenant of good faith and fair dealing. (Reply 6:17–26, ECF No. 15). 10 Under Nevada law, “[e]very contract imposes upon each party a duty of good faith and 11 fair dealing in its performance and execution.” A.C. Shaw Constr. v. Washoe Cty., 105 Nev. 12 913, 784 P.2d 9, 9 (Nev. 1989) (quoting Restatement (Second) of Contracts § 205). To 13 establish a claim for breach of the implied covenant of good faith and fair dealing, a plaintiff 14 must prove: (1) the existence of a contract between the parties; (2) that the defendant breached 15 its duty of good faith and fair dealing by acting in a manner unfaithful to the purpose of the 16 contract; and (3) the plaintiff’s justified expectations under the contract were denied. See Perry 17 v. Jordan, 111 Nev. 943, 900 P.2d 335, 338 (Nev. 1995) (citing Hilton Hotels Corp. v. Butch

18 Lewis Prod., Inc., 107 Nev. 226, 808 P.2d 919, 922-23 (Nev. 1991)). 19 Here, DBB states a plausible claim that JPMorgan breached the implied covenant of 20 good faith and fair dealing. DBB, in its Complaint, alleges that it contracted with Washington 21 Mutual Bank in 2008 when DBB opened a bank account with Washington Mutual Bank. 22 (Compl. ¶ 5). DBB later formed a contract with JPMorgan “when the Account was assumed by 23 Chase in September 2008, after Chase’s purchase of Washington Mutual Bank.” (Id. ¶ 32). 24 Though JPMorgan argues that it never conceded to a contractual relationship with DBB, the 25 allegations show that a contract likely existed between DBB and JPMorgan. Construing the 1 evidence in favor of the plaintiff, as is required at the pleading stage, DBB has plausibly 2 alleged that a contract existed between DBB and JPMorgan. Twombly, 550 U.S. at 555. DBB 3 further alleges that JPMorgan owed it a duty of good faith to appropriately monitor and 4 safeguard DBB’s assets entrusted to JPMorgan. (Compl. ¶ 39). Therefore, DBB has plausibly 5 alleged that JPMorgan breached the implied covenant of good faith and fair dealing.2 The 6 Court accordingly denies JPMorgan’s Motion to Dismiss as to the breach of implied covenant 7 of good faith and fair dealing. 8 C. Negligence 9 Lastly, DBB alleges that JPMorgan owed it a duty to appropriately monitor and 10 safeguard its account and breached such duty by failing to appropriately monitor Plaintiff’s 11 Account. (Compl. ¶¶ 44–48). Defendant asserts that Plaintiff cannot seek relief under the UCC 12 while simultaneously seeking relief under common law negligence. (MTD 7:13–24). 13 There is little caselaw on whether NRS 104 displaces common law causes of action.3 14 However, the Commentary to NRS 104.1103 provides illuminating insight, explaining: 15 [W]hile principles of common law and equity may supplement provisions of the Uniform Commercial Code, they may not be used to supplant its provisions, 16 including the purposes and policies those provisions reflect, unless a specific provision of the Code provides otherwise. In the absence of such a provision, the 17 Uniform Commercial Code preempts principles of common law and equity that 18 are inconsistent with either its provisions, or its purposes and policies. 19 20 2 The fact that DBB stipulated to dismissing its breach of contract claim has no bearing on its claim for breach of the implied covenant of good faith and fair dealing. Both claims require a plaintiff to demonstrate the existence 21 of a contract. See Perry v. Jordan, 111 Nev. 943, 900 P.2d 335, 338 (Nev. 1995) (listing the elements for a breach of implied covenant of good faith claim); Calloway v. City of Reno, 116 Nev. 250, 993 P.2d 1259, 1263 22 (Nev. 2000) (outlining the elements for a breach of contract claim). DBB explains, in its Response, that it stipulates to dismissing its breach of contract claim because it does not have a copy of the Agreement. (Resp. to 23 MTD 7:28–8:6). This implies that an Agreement exists; however, DBB is unable to properly allege breach of contract without the terms of the Agreement. Construing all factual inferences in the plaintiff’s favor, DBB has 24 plausibly alleged that the parties formed an agreement when JPMorgan purchased Washington Mutual Bank and assumed its account with DBB. (Compl. ¶ 7). 25 3 Indeed, the parties note that NRS 104 does not have a provision specifically displacing common law causes of action. (See Reply to MTD 3:9–12). 1 Nev. Rev. Stat. Ann. § 104.1103 cmt. 2. In other words, the UCC preempts causes of action 2 “displaced by provisions of this code.” See id. Plaintiff, in this case, alleges two causes of 3 action based on NRS 104.3405 and 104.3406. (Compl. ¶¶ 17–30). The negligence claim is 4 based on the same factual scenario, namely that Defendant breached its duty by failing to 5 appropriately monitor Plaintiff’s account and to properly review the authorized signatures on 6 file with the forged checks. (Id. ¶ 46). Given that two specific UCC provisions apply, the UCC 7 preempts DBB’s common law negligence claim. See NRS 104.1103(2). California courts have 8 similarly held that “[t]he UCC displaces common law claims based on ‘any situation covered 9 by particular provisions of the [UCC].’” Evans Tire & Serv. Ctrs. v. Bank of Am., No. 10 11cv2128 WQH (WVG), 2012 U.S. Dist. LEXIS 35295, at *18 (S.D. Cal. Mar. 14, 2012) 11 (citing Zengen, Inc. v. Comerica Bank, 41 Cal. 4th 239, 254, 59 Cal. Rptr. 3d 240, 158 P.3d 800 12 (2007) (quotation omitted); see also Comm. Standard Ins. Co. v. Tab Constr., Inc., 94 Nev. 13 536, 583 P.2d 449, 451 (Nev. 1978) (explaining that Nevada courts look to California law 14 where Nevada case law is silent). 15 Plaintiff cites another sister court’s decision in 24-7 Grp. of Cos., Inc. v. Roberts, in 16 support of its assertion that both contract and negligence claims may proceed under NRS 104. 17 24-7 Grp. of Cos., Inc. v. Roberts, No. 3:13-cv-00211-MMD-WGC, 2014 U.S. Dist. LEXIS

18 5358 (D. Nev. Jan. 13, 2014). The Court in 24-7 Grp. of Cos., Inc., however, did not discuss 19 whether the UCC precluded a common law negligence claim. Id. at 11–12. There, the bank 20 argued that the plaintiff cannot recover economic losses under a negligence theory absent 21 personal injury or damage to the property. Id. Analyzing the economic loss doctrine under 22 Nevada state law, the Court ultimately determined that the plaintiff could bring a common law 23 negligence claim against the bank for an otherwise purely economic loss. Id. Unlike 24-7 Grp. 24 of Cos., Inc., neither party in the instant case applies the economic loss doctrine. In light of 25 1 NRS 104.1103 and Plaintiff’s failure to rebut Defendant’s argument, the Court thus grants 2 Defendant’s Motion to Dismiss as to the negligence claim. 3 D. Leave to Amend 4 If the Court grants a motion to dismiss, it must then decide whether to grant leave to 5 amend. The Court will “freely give” leave to amend when there is no “undue delay, bad faith[,] 6 dilatory motive on the part of the movant . . . undue prejudice to the opposing party by virtue of 7 . . . the amendment, [or] futility of the amendment . . . .” Fed. R. Civ. P. 15(a); Foman v. Davis, 8 371 U.S. 178, 182 (1962). Generally, leave to amend is only denied when it is clear that the 9 deficiencies of the complaint cannot be cured by amendment. See DeSoto v. Yellow Freight 10 Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992). 11 As explained above, the Court dismisses the following claims: (1) violation of NRS 12 104.3405; (2) violation of NRS 104.3406; (3) breach of contract; and (4) negligence. As to 13 DBB’s violations under NRS 104, the Court grants DBB leave to amend. However, as to 14 DBB’s negligence cause of action, the Court will not provide DBB leave to amend given that 15 the UCC displaces common law claims under NRS 104.3405 and 104.3406. In short, 16 amendment is futile regarding DBB’s negligence claim. 17 ///

18 19 20 21 22 23 24 25 1 IV. CONCLUSION 2 IT IS HEREBY ORDERED that Defendant JPMorgan’s Motion to Dismiss, (ECF No. 3 13), is GRANTED in part and DENIED in part. Plaintiff DBB has plausibly alleged a claim 4 for breach of the implied covenant of good faith and fair dealing. In contrast, DBB has not 5 plausibly alleged claims under under NRS 104.3405 and 104.3406, and they are dismissed 6 without prejudice with leave to amend. DBB’s claim for breach of contract is also dismissed 7 without prejudice. Lastly, DBB’s claim for negligence is dismissed with prejudice. 8 IT IS FURTHER ORDERED that if DBB elects to amend its claims that are dismissed 9 without prejudice, DBB shall have twenty-one days from the date of this Order to do so. 10 DATED this __2_3__ day of September, 2021. 11 12 ___________________________________ Gloria M. Navarro, District Judge 13 UNITED STATES DISTRICT COURT 14 15 16 17 18 19 20 21 22 23 24 25