Kalbian Hagerty LLP v. Wells Fargo Bank, N.A.

• Court: District Court, District of Columbia
• Decided: March 31, 2023
• Docket: Civil Action No. 2020-1091
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

KALBIAN HAGERTY LLP,

Plaintiff, Civil Action No. 1:20-cv-1091 (JMC)

v.

WELLS FARGO BANK, N.A.,

Defendant.

MEMORANDUM OPINION

A Kalbian Hagerty LLP employee deposited a check at a local Wells Fargo, N.A. branch.1

After that check turned out to be part of a fraud scheme that cost Kalbian Hagerty more than

$80,000, the law firm sued Wells Fargo. The bank filed a Motion to Dismiss. The Court grants in

part and denies in part Wells Fargo’s Motion.

I. BACKGROUND

On December 10, 2018, Mr. John R. Lopez (or someone using that name) emailed Eric

Siegel, a lawyer at the law firm Kalbian Hagerty, representing that he had signed an engagement

letter retaining Siegel in an employment dispute against Lopez’s former employer, Sunbelt

Rentals, Inc. ECF 1-1 ¶ 8. That same day, Siegel received an email from a Mr. Rod Samples,

purportedly the Chief Financial Officer of Sunbelt Rentals, confirming Mr. Lopez’s email. Id ¶ 9.

The second email (from Mr. Samples) said that Sunbelt Rentals owed Mr. Lopez $126,000. Id.

Siegel responded and provided instructions for payment of that money. Id. The next day, Siegel

1 Unless otherwise indicated, the formatting of quoted materials has been modified throughout this opinion, for example, by omitting internal quotation marks and citations, and by incorporating emphases, changes to capitalization, and other bracketed alterations therein. All pincites to documents filed on the docket are to the automatically generated ECF Page ID number that appears at the top of each page.

1 received a cashier’s check made payable to Kalbian Hagerty for $126,000. Id. ¶ 10. The check was

a bit unusual: it displayed a variety of different fonts, and had an “HSBC” watermark but was

drawn from a Citibank account. Id. ¶¶ 36–37.

The law firm’s Office Manager deposited the check at a local Wells Fargo branch on

December 12. Id. ¶ 11. A bank teller at Wells Fargo accepted the check and provided a Transaction

Receipt indicating that the money would be available the next day. Id. ¶ 12. According to Kalbian

Hagerty, the bank teller did not examine the check for legitimacy at that time. Id. On December

14, Mr. Lopez emailed Mr. Siegel asking him to wire the money received from Sunbelt Rentals,

minus the continency fee, to Mr. Lopez’s account in Mexico. Id. ¶ 14. The law firm did so, wiring

$83,985 to Mr. Lopez’s account and withholding $42,015 as attorneys’ fees. Id.

The check turned out to be counterfeit. Id. ¶ 15. But according to Kalbian Hagerty, it was

not until December 17, five days after the initial deposit, that Wells Fargo sent it a notice that the

cashier’s check had been returned unpaid, and that $126,000 had been deducted from the law

firm’s trust account. Id. ¶ 15. Kalbian Hagerty further alleges that Wells Fargo did not attempt to

stop the law firm’s funds from being disbursed upon learning that the check was fraudulent. Id.

¶ 16. When Kalbian Hagerty asked for a refund, Wells Fargo refused. Id. ¶¶ 23–24.

Apparently, this was not the first time that this scam had been perpetrated against a law

firm with a bank account at Wells Fargo. Kalbian Hagerty alleges that a check bearing the same

account number as their fraudulent check was previously used to defraud another law firm. Id. ¶¶

35, 39 (citing Milavetz, Gallop & Milavetz, P.A. v. Wells Fargo, N.A., No. 12-cv-875, 2012 WL

4058065 (D. Minn. Aug. 22, 2012)).

After Wells Fargo declined to refund Kalbian Hagerty’s money, the law firm filed this

lawsuit in the Superior Court for the District of Columbia. See ECF 1. It filed an Amended

2 Complaint shortly thereafter. See ECF 1-1 at 3. Wells Fargo removed the case to federal court,

ECF 1, and moved to dismiss the case, ECF 8.

II. LEGAL STANDARD

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009). A complaint has facial plausibility when a plaintiff pleads all of the elements of

their claim and supports those elements with enough factual allegations to “allow[] the court to

draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

In evaluating a motion to dismiss, courts “must treat the complaint’s factual allegations as

true and must grant plaintiff the benefit of all inferences that can be derived from the facts alleged.”

Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000). But the Court is limited

to considering only the matters within the complaint: if a party presents matters outside the

pleadings and the court considers them, the motion must be converted into a motion for summary

judgment under Federal Rule of Civil Procedure 56.

III. ANALYSIS

Kalbian Hagerty brought four claims in its Amended Complaint: breach of fiduciary duty,

breach of contract, negligence, and failure to provide timely notice of dishonor in violation of D.C.

Code § 28:3-503. Wells Fargo’s Motion seeks to dismiss all four claims. The Court grants Wells

Fargo’s Motion as to the breach of fiduciary duty and the negligence claims, but denies it with

regards to the breach of contract and failure to provide timely notice of dishonor claims.

A. Breach of Fiduciary Duty

Kalbian Hagerty alleges that Wells Fargo breached its fiduciary duty by failing to exercise

ordinary care in accepting the fraudulent check. ECF 1-1 ¶¶ 68–73. A breach of fiduciary duty

claim must allege facts sufficient to show (1) the defendant owed the plaintiff a fiduciary duty; (2)

3 the defendant breached that duty; and (3) the plaintiff suffered an injury that was proximately

caused by that breach. Xereas v. Heiss, 987 F.3d 1124, 1130 (D.C. Cir. 2021).

Wells Fargo argues this claim should be dismissed because the bank did not owe Kalbian

Hagerty a fiduciary duty. ECF 8-9 at 21–22. “A fiduciary relationship is founded upon trust or

confidence reposed by one person in the integrity and fidelity of another.” Xereas, 987 F.3d at

1131. Some relationships, like the attorney-client relationship, necessitate this type of trust and

therefore automatically impose a fiduciary duty. Krukas v. AARP, Inc., 458 F. Supp. 3d 1, 7

(D.D.C. 2020). But District of Columbia law is clear that no per se fiduciary relationship between

a bank and its depositors exists: generally, the bank-depositor relationship is governed only by the

terms of the contractual agreement. Geiger v. Crestar Bank, 778 A.2d 1085, 1090–91 (D.C. 2001).

Even though the nature of Wells Fargo’s relationship with Kalbian Hagerty did not

automatically establish a fiduciary relationship, the Parties could have developed one by

“extend[ing their] relationship beyond the limits of the contractual obligations.” MobilizeGreen,

Inc. v. Cmty. Found. for the Cap. Region, 267 A.3d 1019, 1026 (D.C. 2022). Determining whether

this occurred requires a “fact-intensive” inquiry into “the nature of the relationship, the promises

made, the type of services or advice given and the legitimate expectations of the parties.” Xereas,

987 F.3d at 1131.

Kalbian Hagerty alleges that the Parties developed the sort of “relationship founded upon

trust and confidence” that would impose fiduciary duties. ECF 1-1 ¶ 69. To support this assertion,

Kalbian Hagerty points to its nearly twenty-year banking relationship with Wells Fargo, as well as

the fact that it maintains an Interest on Lawyers Trust Account (IOLTA) at the bank. ECF 1-1 ¶¶

46–47, 68–73; ECF 13 at 18–19. But these facts, on their own, do not differentiate the Parties’

relationship from any other bank-depositor relationship. Kalbian Hagerty does not include any

4 allegations in its Amended Complaint that give the Court reason to think that the services it has

received for the past twenty or so years are different from those of any other depositor. Although

the IOLTA account might differ from accounts maintained by some (but likely not all) other

depositors, Kalbian Hagerty does not allege that the account imposes the sort of obligations that

would trigger a fiduciary duty. In fact, Kalbian Hagerty alleges that its entire “banking relationship

with Wells Fargo” has been “subject to the terms and conditions of a Deposit Account Agreement.”

ECF 1-1 ¶ 6. Kalbian Hagerty notes that the IOLTA account incurs extra fees to compensate for

its additional regulatory requirements, ECF 13 at 19, but the Amended Complaint does not allege

that anything beyond the terms of the Parties’ contract governs the calculation of those fees or the

bank’s obligations.

Whether a fiduciary duty exists is a factual question generally left to be resolved later in

litigation. E.g., Council on Am.-Islamic Rels. Action Network, Inc. v. Gaubatz, 793 F. Supp. 2d

311, 341 (D.D.C. 2011). However, a claim alleging breach of fiduciary duty should be dismissed

when a plaintiff’s complaint does not include enough factual allegations to make it plausible that

a fiduciary relationship exists. See Henok v. Chase Home Fin., LLC, 915 F. Supp. 2d 162, 168–69

(D.D.C. 2013) (dismissing breach of fiduciary duty claim because the parties’ relationship did not

automatically trigger fiduciary duties, and the complaint did not plead facts showing a special

relationship); Paul v. Judicial Watch, Inc., 543 F. Supp. 2d 1, 6 (D.D.C. 2008) (dismissing breach

of fiduciary duty claim because plaintiff’s complaint did not show that the parties extended their

relationship beyond contractual terms). Such is the case here. The sparse and conclusory

allegations set forth by Kalbian Hagerty do not suggest that it has anything but a bank-depositor

relationship with Wells Fargo. Given the background assumption that a bank and its depositors do

not share a fiduciary relationship, Kalbian Hagerty’s claim is dismissed at this juncture. If Kalbian

5 Hagerty has, or amasses, additional allegations to support this claim, it may seek leave to further

amend its complaint.

B. Breach of Contract

As noted earlier, Kalbian Hagerty alleges that its banking relationship with Wells Fargo is

“subject to the terms and conditions of a Deposit Account Agreement.” ECF 1-1 ¶ 6. Under this

contract, Wells Fargo is “responsible for exercising ordinary care when collecting a deposited

item.” Id. ¶ 65. Kalbian Hagerty alleges that Wells Fargo violated this contractual term in eight

different ways, including by failing to visually inspect the deposited check at issue and by failing

to comply with federal regulations. Id. ¶ 66. The law firm lost $83,985 due to this alleged breach

of contract. Id. ¶ 67.

To prevail on their breach of contract claim, Kalbian Hagerty must establish (1) a valid

contract between the parties; (2) an obligation arising out of the contract; (3) a breach of that

obligation; and (4) damages caused by breach. Tsintolas Realty Co. v. Mendez, 984 A.2d 181, 187

(D.C. 2009). The Parties agree that they are part of a valid contract. ECF 1-1 ¶ 63; ECF 8-9 at 20.

Wells Fargo also does not dispute that the Deposit Account Agreement requires the bank to

exercise ordinary care when collecting a deposited check, or that Kalbian Hagerty lost money. See

ECF 8-9 at 20–21. However, Wells Fargo argues that the Amended Complaint should be dismissed

because Kalbian Hagerty did not properly allege that a breach occurred: because the contract did

not expressly state any of the eight obligations referenced by Kalbian Hagerty in its Amended

Complaint, the bank believes that it could not have violated any contractual terms. Id.

Wells Fargo misstates the premise of Kalbian Hagerty’s claim. The textual source of the

obligation owed by Wells Fargo is the contractual provision requiring the bank to “exercis[e]

ordinary care when collecting a deposited item.” ECF 1-1 ¶ 65. What that broad standard demands,

and whether Wells Fargo satisfied those expectations, are questions reserved for later in litigation.

6 At this juncture, the only question is whether Kalbian Hagerty’s Amended Complaint states a

“claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678; see also Francis v. Rehman,

110 A.3d 615, 620 (D.C. 2015) (“[T]o state a claim for breach of contract so as to survive a Rule

12(b)(6) motion to dismiss, it is enough for the plaintiff to describe the terms of the alleged contract

and the nature of the defendant’s breach.”). The Amended Complaint accomplishes this task. It

identifies a contractual provision that imposes an obligation on Wells Fargo, and it alleges—with

enough supporting factual assertions to make the allegation plausible—that the bank violated that

contractual obligation. Accordingly, Wells Fargo’s motion is denied as to the breach of contract

claim.

C. Negligence

Kalbian Hagerty also brings a negligence claim against Wells Fargo. “A claim alleging the

tort of negligence must show: (1) that the defendant owed a duty to the plaintiff, (2) breach of that

duty, and (3) injury to the plaintiff that was proximately caused by the breach.” Poola v. Howard

Univ., 147 A.3d 267, 289 (D.C. 2016). According to Kalbian Hagerty, the bank breached its duty

of ordinary care in multiple ways, resulting in the law firm losing $83,985. ECF 1-1 ¶¶ 49–53.

Wells Fargo contends that this claim should be dismissed because the bank does not owe a duty to

Kalbian Hagerty. ECF 8-9 at 17–18. Whether a duty exists is a legal question that can be resolved

at this stage. Hedgepeth v. Whitman Walker Clinic, 22 A.3d 789, 811 (D.C. 2011).

The Parties agree that they share a nearly twenty-year banking relationship that is “subject

to the terms and conditions” of the Deposit Account Agreement. ECF 1-1 ¶ 6; ECF 8-9 at 7. This

contract cannot generate the duty underlying Kalbian Hagerty’s negligence claim, though, because

a tort claim “must exist in its own right independent of the contract, and any duty upon which the

tort is based must flow from considerations other than the contractual relationship.” Choharis v.

State Farm Fire and Casualty Co., 961 A.2d 1080, 1089 (D.C. 2008). The viability of Kalbian

7 Hagerty’s negligence claim depends on whether the Amended Complaint includes enough factual

allegations to plausibly allege a duty of care that is distinct from the contractual obligations.

One possible source of an independent duty is the underlying relationship between the two

parties. For example, the innkeeper-guest relationship has traditionally imposed a special duty of

care upon innkeepers. Novak v. Cap. Mgmt. and Dev. Corp., 452 F.3d 902, 911 (D.C. Cir. 2006).

Here, the Amended Complaint suggests that the Parties’ relationship is built around the banking

services that Wells Fargo provides to Kalbian Hagerty: but for Kalbian Hagerty’s need to deposit

checks and fulfill other banking needs at Wells Fargo, the two Parties would not engage with each

other. However, this type of relationship does not impress a specific duty of care upon Wells Fargo.

“The relationship between a bank and a depositor is a contractual relationship that is governed by

the written agreement between the parties.” Geiger, 778 A.2d at 1090. Unlike other relationships

that come with an inherent duty of care, such as the innkeeper-guest relationship, there is no

background presumption based on the nature of the Parties’ relationship suggesting that Wells

Fargo owes Kalbian Hagerty a duty of care. The Parties could have extended their relationship

beyond the archetypical bank-depositor relationship, but the Amended Complaint does not allege

that Kalbian Hagerty and Wells Fargo have done so. See supra at 3–6. So as a matter of law, neither

the contract between the two parties nor their underlying relationship provides a basis for the duty

that Kalbian Hagerty claims.2

Because there is no background presumption rooted in common law establishing a duty

between banks and depositors, and the Amended Complaint does not indicate that this relationship

2 In its Opposition to Defendant’s Motion to Dismiss, Kalbian Hagerty suggests that the duty might stem from the Uniform Commercial Code (UCC). ECF 13 at 17. It is possible for a statute to generate a duty of care, see Odemns v. District of Columbia, 930 A.2d 137, 143 (D.C. 2007). However, all banks are subject to the UCC’s rules, and Kalbian Hagerty does not identify any authority stating that the UCC disrupts the common law’s background assumption that banks do not owe a special duty to their depositors.

8 is unique, the Court concludes that Wells Fargo did not owe Kalbian Hagerty the type of duty that

could form the basis of a negligence claim.3 The Court therefore grants Wells Fargo’s Motion and

dismisses this claim.

D. Failure to Provide Timely Notice of Dishonor

District of Columbia law requires banks to provide a notice of dishonor “before midnight

of the next banking day following the banking day on which the bank receives notice of dishonor

of the instrument.” D.C. Code § 28:3-503(c). Kalbian Hagerty alleges that Wells Fargo violated

this law by sending notice of dishonor of the cashier’s check on December 17, 2018, five days

after Wells Fargo allegedly received its notice of dishonor. ECF 1-1 ¶¶ 56–58. According to

Kalbian Hagerty, the failure to provide timely notice prevented the law firm from recalling its

December 14 wire transfer. Id. ¶¶ 59–61.

The only basis set forth by Wells Fargo for dismissing this claim is an affidavit submitted

by one of the bank’s Assistant Vice President and Operational Risk Consultant, who declared that

Wells Fargo received the notice of dishonor the same day that it notified Kalbian Hagerty of the

fraudulent check. ECF 8-9 at 20. However, at the motion to dismiss stage, courts can consider only

matters within the complaint. If a defendant presents matters “outside the pleadings,” the court

may convert the motion to dismiss into a motion for summary judgment under Rule 56. See Fed.

R. Civ. P. 12(d). But conversion is premature if all parties have not yet had the “opportunity to

present evidence in support of their respective positions.” Kim v. United States, 632 F.3d 713, 719

(D.C. Cir. 2011). The Court declines to convert Wells Fargo’s Motion to Dismiss into a Motion

3 The Court does not understand Kalbian Hagerty to frame its claim as one alleging negligent breach of contract, but even if Kalbian Hagerty did intend to bring that claim, it would still be dismissed because “D.C. law is clear . . . that the mere negligent breach of a contract . . . is not enough to sustain an action sounding in tort.” Islar v. Whole Foods Mkt. Grp., Inc., 217 F. Supp. 3d 261, 267 (D.D.C. 2016).

9 for Summary Judgment because Well Fargo’s Motion does propose that result, and because

Kalbian Hagerty has not yet had the opportunity to present evidence in support of their allegations.

Therefore, the Motion to Dismiss this claim is denied.

IV. CONCLUSION

For the foregoing reasons, the Court grants Wells Fargo’s Motion to Dismiss as to the

breach of fiduciary duty and the negligence claims, but denies it with regards to the breach of

contract and failure to provide timely notice of dishonor claims.

SO ORDERED.

DATE: March 31, 2023

Jia M. Cobb U.S. District Court Judge