1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 JOHN MCCRANER, SHARON Case No.: 21-cv-1246-LAB-WVG STIANSEN, JANET POLLARD, 12 MICHAEL DARLINGTON, ORDER: 13 SUSAN R. LANDREAU, JOHN N. TUFFIELD, individually and on 1) DENYING IN PART AND 14 behalf of all others similarly situated, GRANTING IN PART MOTION 15 TO DISMISS FIRST AMENDED Plaintiffs, COMPLAINT, [Dkt. 26]; 16 v. 17 2) DENYING MOTION TO WELLS FARGO & COMPANY, a STRIKE CLASS 18 corporation, WELLS FARGO BANK, ALLEGATIONS, [Dkt. 28]; and N.A., a national banking 19 association, 3) GRANTING REQUEST FOR 20 Defendants. JUDICIAL NOTICE, [Dkt. 29] 21
22 Plaintiffs John McCraner, Sharon Stiansen, Janet Pollard, Michael 23 Darlington, Susan R. Landreau, and John N. Tuffield (collectively, “Plaintiffs”) filed 24 this putative class action against Defendants Wells Fargo & Company and Wells 25 Fargo, N.A. (collectively, “Wells Fargo”) for providing banking services to three 26 separate fraudulent marketing schemes. Phillip Peikos, David Barnett, Brian 27 Phillips, Richard Fowler, Ryan Fowler, and Nathan Martinez (collectively, the 28 “Principals”) operated three online subscription scams through their companies 1 Apex Capital Group, LLC (“Apex”), controlled by Peikos and Barnett, Triangle 2 Media Corporation (“Triangle”), controlled by Phillips, and Tarr Inc. (“Tarr,” and, 3 together with Apex and Triangle, the “Enterprises”), controlled by the Fowlers and 4 Martinez. Each of the Enterprises relied on banking services from Wells Fargo to 5 effect its fraudulent scheme. 6 Plaintiffs assert four claims against Wells Fargo: aiding and abetting fraud; 7 conspiracy to commit fraud; violation of California Penal Code § 496; and violation 8 of California’s Unfair Competition Law (“UCL”). Wells Fargo moves to dismiss 9 each claim, (Dkt. 26), and to strike Plaintiffs’ class allegations, (Dkt. 28). Having 10 reviewed the parties’ filings and the relevant law, the Court GRANTS IN PART 11 and DENIES IN PART the motion to dismiss, and DENIES the motion to strike. 12 I. BACKGROUND 13 Wells Fargo provided the Enterprises with banking services between 2009 14 and 2018.1 (Dkt. 23, First Amended Complaint (“FAC”) ¶¶ 8, 153, 165, 169–70, 15 201). Each Enterprise operated online “free trial” scams, promising customers 16 risk-free trials while actually signing them up for expensive subscriptions that 17 would automatically charge their accounts at regular intervals unless affirmatively 18 cancelled. (Id. ¶ 2). To run these scams, the Enterprises relied on merchant 19 processing services to charge customers’ credit cards. (Id. ¶ 3). But the nature of 20 the schemes made continued access to legitimate banking services difficult: as 21 customers challenged the Enterprises’ charges at higher than average rates, 22 merchant processors would be unwilling to work with them. (Id. ¶¶ 69–72). 23 To conceal their fraudulent activities, the Enterprises created numerous 24 25 1 The FAC’s non-conclusory allegations specific to Tarr are limited and include 26 broad assertions that Tarr was engaged in conduct similar to that of the other 27 Enterprises and that Wells Fargo provided Tarr with similar services. (See FAC ¶¶ 207–14). For the purposes of this order only, the Court will credit those 28 1 shell companies and opened merchant accounts in these companies’ names. (Id. 2 ¶ 71). The Enterprises routed transactions through these shell accounts and 3 cycled funds between accounts if one was shut down, a scheme known as “credit 4 card laundering.” (See, e.g., id. ¶¶71–73). To ensure continued access to 5 merchant processing services, the Principals hid their personal involvement with 6 the shell companies by recruiting straw owners. (Id. ¶¶ 77, 84, 106, 121–22, 157). 7 Wells Fargo complied with the Enterprises’ requests that that the Principals retain 8 control over the accounts even though they weren’t listed as the account owners. 9 (Id. ¶¶ 125, 159). 10 During Wells Fargo’s extended relationship with the Enterprises, it received 11 signals that the Enterprises were engaging in misconduct. Monthly account 12 statements reflected chargeback rates much higher than the industry standard. 13 (Id. ¶¶ 98, 111–13, 192, 228). And when certain Apex-affiliated accounts lost 14 merchant processing services due to high chargeback rates, Apex closed them 15 and opened new ones with new shell companies and new straw owners. (Id. 16 ¶¶ 97–99). 17 Wells Fargo knew that the shell companies and straw owners weren’t the 18 true account owners. (Id. ¶ 81). When Apex applied for merchant processing 19 services with Wells Fargo for two shell companies, Wells Fargo noticed that one 20 company’s accounts listed Barnett as owner, but its application listed different 21 owners. (Id. ¶¶ 126, 128). Apex directed Wells Fargo to change the ownership of 22 the account without Barnett’s involvement. (Id. ¶ 127). When that change wasn’t 23 possible, Apex instead applied on behalf of another pair of shell companies with 24 the same address, purportedly owned by Apex’s CFO. (Id. ¶¶ 128, 133). Apex had 25 told Wells Fargo only days before that such accounts should remain under 26 Peikos’s control. (Id. ¶ 122). Wells Fargo ultimately rejected the application for 27 merchant processing services, explaining Apex’s “high-risk” business selling 28 supplements was an “unqualified business model.” (Id. ¶¶ 140–41). 1 After declining to offer Apex merchant processing services, Wells Fargo 2 helped Apex secure those services elsewhere by providing reference letters. A 3 year before rejecting Apex’s application, Wells Fargo removed Barnett’s name 4 from ten reference letters for various shell companies at his request, concealing 5 Barnett and Apex’s association with the shells. (Id. ¶ 101). Wells Fargo continued 6 supplying anonymized reference letters even after it determined that the Apex 7 shell companies weren’t qualified for Wells Fargo’s own merchant processing 8 services. (See id. ¶¶ 149, 152). 9 Wells Fargo also knew that Triangle was using straw owners. Wells Fargo 10 granted Phillips’s request that other individuals be listed as “100% owners” of the 11 accounts he opened, but also gave him immediate access to and full control of 12 the accounts. (Id. ¶ 159). Wells Fargo also sent Phillips pre-filled paperwork 13 identifying him as the owner of Triangle-affiliated shell companies’ accounts, 14 instead of those companies’ purported owners. (Id. ¶ 182). 15 The FAC’s factual allegations regarding Tarr are more limited. Tarr had a 16 P.O. Box address and a young manager, (Id. ¶ 207), and was engaged in a 17 business that generated “an unusually high volume of chargebacks,” (id. ¶ 208). 18 In a separate action, the FTC alleges that Tarr diverted funds from shell 19 companies to other Tarr entities. (Id. ¶ 209). Online reviews and “television 20 personality Dr. Oz” claimed that Tarr was a scam. (Id. ¶¶ 210–11). 21 During the relevant period, Wells Fargo opened more than 150 accounts for 22 shell companies and straw owners associated with Apex and Triangle. (Id. ¶ 6). 23 Millions of dollars passed through these accounts, and these funds were 24 transferred to accounts belonging to Apex, Triangle, Tarr, or the Principals. (Id. 25 ¶¶ 6, 85). 26 In 2017 and 2018, the Federal Trade Commission (“FTC”) brought separate 27 actions against each of the Enterprises. (Id. ¶¶ 17–18, 23, 28); FTC v. Apex Cap. 28 Grp. LLC (FTC v. Apex), No. 18-cv-9573-JFW-JPR (C.D. Cal.); FTC v. Triangle 1 Media Corp. (FTC v. Triangle), No. 18-cv-1388-LAB-WVG (S.D. Cal.); FTC v. Tarr 2 Inc., No. 17-cv-2024-LAB-KSC (S.D. Cal.). Subsequently, Thomas W. McNamara 3 (the “Receiver”) was appointed as receiver for Apex and Triangle. (FAC ¶¶ 18, 4 23); FTC v. Apex, ECF Nos. 40–41; FTC v. Triangle, ECF No. 11. As relevant 5 here, the Receiver received court approval to bring claims against Wells Fargo 6 stemming from the Triangle Receivership, FTC v. Triangle, ECF No. 142, and filed 7 a companion case against Wells Fargo in this Court the same day this action was 8 filed, McNamara v. Wells Fargo & Co., No. 21-cv-1245-LAB-DDL (S.D. Cal. July 8, 9 2021), ECF No. 1. Plaintiffs here share counsel with the Receiver. (FAC ¶ 5). 10 Plaintiffs filed their original Complaint on July 8, 2021, alleging that each of 11 them was defrauded by one of the Enterprises. (Dkt. 1). The Court dismissed the 12 Complaint for failing to allege facts sufficient to demonstrate that Wells Fargo had 13 actual knowledge the Enterprises were defrauding consumers. (Dkt. 22). Plaintiffs 14 subsequently filed the FAC, which added new allegations in an attempt to remedy 15 the shortcomings in the original Complaint. (See FAC ¶¶ 215–42). Wells Fargo 16 now moves to dismiss the FAC’s four claims, (Dkt. 26), and to strike the FAC’s 17 class allegations, (Dkt. 27). 18 II. RULE 12(b)(6) MOTION TO DISMISS 19 A. Legal Standard 20 A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. 21 Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “To survive a motion to 22 dismiss, a complaint must contain sufficient factual matter, accepted as true, to 23 ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 24 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007)). A claim 25 is plausible if the factual allegations supporting it permit “the court to draw the 26 reasonable inference that the defendant is liable for the misconduct alleged.” Id. 27 The factual allegations need not be detailed; instead, the plaintiff must plead 28 sufficient facts that, if true, “raise a right to relief above the speculative level.” 1 Twombly, 550 U.S. at 545. The plausibility standard isn’t a “‘probability 2 requirement,’ but it asks for more than a sheer possibility that a defendant has 3 acted unlawfully.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556). 4 Courts aren’t required to accept legal conclusions couched as factual allegations 5 and “formulaic recitation[s] of the elements of a cause of action” aren’t sufficient. 6 Twombly, 550 U.S. at 555. The Court accepts as true all facts alleged in the 7 complaint and draws all reasonable inferences in favor of the plaintiff. al-Kidd v. 8 Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). Ultimately, a court must determine 9 whether the plaintiff’s alleged facts, if proven, permit the court to grant the 10 requested relief. See Iqbal, 556 U.S. at 666; Fed. R. Civ. P. 8(a)(2). 11 Where a plaintiff’s claims sound in fraud, Rule 9(b)’s heightened standard 12 applies. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1102 (9th Cir. 2003). 13 Rule 9(b) requires that “[i]n alleging fraud or mistake, a party must state with 14 particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b); 15 see also Vess, 317 F.3d at 1106 (holding allegations of fraud must identify “the 16 who, what, when, where, and how of the misconduct charged”) (internal quotation 17 marks and citation omitted). The knowledge required to support a fraud claim, 18 however, “may be alleged generally, ” Fed. R. Civ. P. 9(b), so the plaintiff must 19 plead only sufficient facts to plausibly support an inference of knowledge, see 20 United States v. Corinthian Colls., 655 F.3d 984, 997 (9th Cir. 2011) (affirming 21 dismissal under Rule 9(b) where pleading didn’t “clearly allege sufficient facts to 22 support an inference or render plausible that [the defendant] acted [with requisite 23 knowledge]”). 24 B. Statute of Limitations 25 Wells Fargo first argues Plaintiffs’ claims should be dismissed because they 26 are time barred. (Dkt. 26-1 at 6–8). The statute of limitations for claims for 27 conspiracy to commit fraud and aiding and abetting fraud is three years. Cal. Civ. 28 Proc. Code § 338(d) (three-year statute of limitations for “[a]n action for relief on 1 the ground of fraud”); Aaroe v. First Am. Title Ins. Co., 222 Cal. App. 3d 124, 128 2 (1990) (recognizing § 338(d) governs fraud claims and applying § 338(d) to 3 conspiracy to defraud claims). Similarly, the statute of limitations for a claim for 4 violation of California Penal Code § 496 is three years. Cal. Civ. Proc. Code 5 § 338(c), (d); Evans v. ZB, N.A., 17-cv-1123 WBS DB, 2019 WL 6918278, at *6 6 (E.D. Cal. Dec. 19, 2019). And the limitations period for a UCL claim is four years. 7 Cal. Bus. & Prof. Code § 17208. Under California law, a cause of action accrues, 8 and the statute of limitations begins to run, “when the cause of action is complete 9 with all of its elements.” Norgart v. Upjohn Co., 21 Cal. 4th 383, 397 (1999). 10 The discovery rule “postpones accrual of a cause of action until the plaintiff 11 discovers, or has reason to discover, the cause of action.” Fox v. Ethicon 12 Endo-Surgery, Inc., 35 Cal. 4th 797, 807 (2005) (internal citation omitted). “In 13 order to rely on the discovery rule for delayed accrual of a cause of action, ‘[a] 14 plaintiff whose complaint shows on its face that his claim would be barred without 15 the benefit of the discovery rule must specifically plead facts to show (1) the time 16 and manner of discovery and (2) the inability to have made earlier discovery 17 despite reasonable diligence.’” Id. at 808 (emphasis in original) (quoting McKelvey 18 v. Boeing N. Am., Inc., 74 Cal. App. 4th 151, 160 (1999)). 19 The FAC alleges that Plaintiffs first learned of Wells Fargo’s alleged conduct 20 in June 2019 and July 2019 when the Receiver obtained discovery materials from 21 Wells Fargo in response to a subpoena. (FAC ¶ 269). The FAC further alleges 22 that “[d]espite diligent investigation of the circumstances of the injury, . . . it was 23 not reasonably possible for the Plaintiffs to obtain facts relating to Wells Fargo’s 24 participation in the frauds” prior to the production of the discovery materials. (Id.). 25 Once Plaintiffs’ counsel received the production materials in his role as counsel 26 for the Receiver, he was able to establish the alleged conspiracy, Wells Fargo’s 27 alleged knowledge of the Enterprises’ frauds, and Wells Fargo’s alleged 28 assistance. (Id.). The Courts finds the FAC sufficiently pleads specific facts 1 showing “(1) the time and manner of [Plaintiffs’] discovery and (2) [their] inability 2 to have made earlier discovery despite reasonable diligence.” Fox, 35 Cal. 4th 3 at 808, see also Evans, 2019 WL 6918278, at *6 (holding that the discovery rule 4 tolled the statute of limitations when the plaintiffs didn’t learn of the defendant 5 bank’s knowledge of the fraud until a bankruptcy trustee filed a complaint detailing 6 the bank’s relationship with the fraudulent enterprise, including its use of “atypical 7 banking procedures”). 8 The allegations in the FAC indicate that the earliest date Plaintiffs could 9 have learned of Wells Fargo’s alleged misconduct was after the first document 10 production in June 2019. (FAC ¶ 269). Assuming, for the purpose of this Order 11 only, that these materials were produced on June 1, 2019, the limitations period 12 for Plaintiffs’ claims expired on June 1, 2022—three years later. The original 13 Complaint was filed on July 8, 2021, (Dkt. 1), within the limitations period. 14 Plaintiffs’ claims are timely. Wells Fargo’s motion to dismiss the FAC’s 15 claims as time barred is DENIED. 16 C. Aiding and Abetting 17 The FAC’s first claim alleges Wells Fargo aided and abetted the Enterprises’ 18 frauds. (FAC ¶¶ 281–86). To state a claim for aiding and abetting, the FAC must 19 allege that Wells Fargo: (1) actually knew the Enterprises were defrauding 20 consumers; and (2) provided substantial assistance in that fraud. See In re First 21 All. Mortg. Co., 471 F.3d 977, 992–93 (9th Cir. 2006) (quoting Casey v. U.S. Bank 22 Nat’l Ass’n, 127 Cal. App. 4th 1138, 1144 (2005)). Wells Fargo contends the FAC 23 doesn’t allege sufficient facts to support an inference that Wells Fargo actually 24 knew about the Enterprises’ fraud, (Dkt. 26-1 at 9–13), or that Wells Fargo 25 provided substantial assistance to the fraud, (id. at 13–15). 26 1. Actual Knowledge 27 A complaint doesn’t need to directly allege a defendant’s knowledge to 28 survive a motion to dismiss. At trial, “actual knowledge can be inferred from . . . 1 circumstances . . . such that the defendant ‘must have known.’” RSB Vineyards, 2 LLC v. ORSI, 15 Cal. App. 5th 1089, 1097–98 (2017). Similarly, a plaintiff states 3 a claim sufficient to survive a motion to dismiss by alleging circumstantial facts 4 that, if proven, support the same inference. See Corinthian Colls., 655 F.3d at 997. 5 But allegations that only support an inference that the defendant “should have 6 known” aren’t enough. See RSB Vineyards, 15 Cal. App. 5th at 1098. 7 The FAC, like the original Complaint, alleges that “Wells Fargo bankers 8 were aware of the [Enterprises’] risk-free trial schemes, understood the people 9 listed as ‘owners’ of the Wells Fargo accounts did not actually own or control them, 10 and knew the [Enterprises] were engaged in credit card laundering.” (FAC ¶ 6). 11 For the first time, the FAC alleges that “Wells Fargo knew that the Enterprises 12 were defrauding not only merchant processing services, but also the Enterprises’ 13 own consumer customers.” (Id. ¶ 215). Plaintiffs allege Wells Fargo knew that the 14 Enterprises were opening accounts for shell companies with straw owners, (id. 15 ¶¶ 91–94); these accounts had high chargeback rates and other “indicia of fraud” 16 and would eventually be closed in favor of new accounts belonging to new shell 17 companies with new straw owners, (id. ¶¶ 86, 88, 97, 99, 101–06, 122, 125–36, 18 151, 154–82); the Enterprises were engaged in businesses that posed a high risk 19 of loss to merchant processing services, (id. ¶¶ 141, 183–90); and the shell 20 companies’ assets were transferred in round number amounts (e.g., $100,000) to 21 accounts belonging to the Principals or Enterprises, (id. ¶¶ 195–96, 209, 255). In 22 its Order dismissing the original Complaint, the Court found that “[t]hese 23 allegations establish an inference that Wells Fargo knew that the Enterprises were 24 defrauding merchant processing services, but they can’t establish a similar 25 inference as to the Enterprises actions toward their customers.” (Dkt. 22 at 7 26 (emphasis in original)). 27 The FAC also realleges that Wells Fargo rejected Apex’s application for 28 merchant processing services because Apex had an “unqualified business model” 1 because it was selling supplements. (See FAC ¶ 140–41). In dismissing the 2 Complaint, the Court found that allegation “too vague to draw the inference that . 3 . . Apex was ‘unqualified’ because their industry was ‘rife with consumer 4 deception’ with ‘the potential for high chargebacks and losses for Wells Fargo 5 caused by fraudulent activity.’” (Dkt. 22 at 8 (quoting Dkt. 1, Compl. ¶ 141)). The 6 Court also found that “Wells Fargo’s knowledge that Apex operated in an industry 7 with the potential for fraudulent activity toward customers isn’t the same as 8 knowledge that Apex itself must have been defrauding its customers.” (Id.). 9 The FAC adds new allegations that Plaintiffs assert are sufficient to support 10 an inference that Wells Fargo must have known the Enterprises were defrauding 11 their customers. Specifically, the FAC alleges Wells Fargo knew that the 12 Enterprises employed “extremely troubling direct-to-consumer sales tactics, 13 including negative option sales, free trial offers, and automatic periodic billing,” 14 (FAC ¶¶ 217–28); and the Enterprises’ accounts generated an unusually high 15 number of chargeback requests, (id. ¶¶ 230–42). 16 The FAC includes specific factual allegations demonstrating that Wells 17 Fargo actually knew that the Enterprises were utilizing deceptive sales tactics and 18 recurring billing. (See, e.g., FAC ¶ 219 (email to Phillips stating “we need to close 19 [a Triangle-affiliated] account as Wells stated it was a prohibited business type 20 (negative option followed by a free or low cost trial)”); ¶ 220 (email from Phillips to 21 a Wells Fargo banker stating “we specialize in high risk continuity business. I’m 22 pretty sure Wells doesn’t provide processing for those business types.”); ¶ 228 23 (emails between Apex personnel discussing Wells Fargo’s revocation of an 24 Apex-affiliated merchant processing account because Well Fargo “found the 25 recurring billing model too risky”) (emphasis added to all)). These newly pleaded 26 facts are sufficient to plausibly allege that Wells Fargo had actual knowledge that 27 the Enterprises were engaging in fraudulent sales practices. Compare In re First 28 All., 471 F.3d at 993 (holding a jury could reasonably find that the defendant bank 1 had actual knowledge of the fraud when it received reports detailing the fraudulent 2 practices its client was engaged in), with Paskenta Band of Nomlaki Indians v. 3 Umpqua Bank, 846 F. App’x 589, 590 (9th Cir. 2021) (holding allegations the 4 defendant bank knew of “various irregularities” were insufficient to establish actual 5 knowledge), and Diaz v. Intuit, Inc., No. 15-cv-1778-EJD, 2018 WL 2215790, at *6 6 (N.D. Cal. May 15, 2018) (“Although Plaintiffs’ allegations may support an 7 inference that Intuit was suspicious of potential fraud or knew that there was a risk 8 of fraud, the allegations are insufficient to show that Intuit had ‘actual knowledge’ 9 of fraud.”). 10 As for the new allegations regarding chargebacks, the FAC alleges that 11 because of the number of chargebacks generated by the Enterprises, Wells Fargo 12 must have known that “at least some portion of consumers were being defrauded 13 by the Enterprises.” (FAC ¶ 229). In support of this conclusory allegation, Plaintiffs 14 allege Wells Fargo placed a hold on the account of an Apex-affiliated LLC due to 15 a high volume of chargebacks. (Id. ¶ 232). The FAC includes communications 16 stemming from that hold which highlight the number of chargebacks that Wells 17 Fargo, as a credit card issuer, was processing from the LLC’s account. (Id. 18 ¶¶ 233–38). The most common reasons consumers requested chargebacks 19 were: “fraudulent transaction,” “unauthorized transactions,” “cancelled recurring” 20 transaction, and “refund not processed.”2 (Id. ¶¶ 235–36). As the FAC notes, “a 21 high level of chargeback rates in a high-risk industry known to be rife with fraud 22 did not put Wells Fargo on notice of the consumer fraud in and of itself.” (Id. ¶ 239). 23 Thus, knowledge of high chargeback rates can’t, of itself, support the inference 24 that Wells Fargo must have known of the Enterprises’ consumer fraud. 25 However, the FAC’s allegations about Wells Fargo’s knowledge of the 26
27 2 When a credit card issuing bank initiates a chargeback on behalf of a consumer, it assigns a standardized “reason code” to the request which identifies the reason 28 1 chargeback rates and the Enterprises’ sales tactics, together with the allegations 2 made in the original Complaint, support an inference that Wells Fargo “must have 3 known” that the Enterprises were defrauding consumers. RSB Vineyards, 15 Cal. 4 App. 5th at 1097–98. The Court finds the FAC sufficiently alleges Wells Fargo’s 5 knew the Enterprises were defrauding consumers. 6 2. Substantial Assistance 7 “‘[O]rdinary business transactions’ a bank performs for a customer can 8 satisfy the substantial assistance element of an aiding and abetting claim if the 9 bank actually knew those transactions were assisting the customer in committing 10 a specific tort.” See In re First All., 471 F.3d at 995 (quoting Casey, 127 Cal. App. 11 4th at 1145). However, when a bank “utilize[s] atypical banking procedures to 12 service [a bad actor’s] accounts,” it “rais[es] an inference that [the bank] knew of 13 the [fraudulent] scheme and sought to accommodate it by altering [its] normal 14 ways of doing business.” Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 15 1101, 1120 (C.D. Cal. 2003). 16 Here, the FAC includes numerous allegations that Wells Fargo used atypical 17 banking procedures to accommodate the Enterprises that the Court finds 18 sufficiently plead the substantial assistance element of Plaintiffs’ aiding and 19 abetting claim. For example, Wells Fargo helped Apex-affiliated shell companies 20 secure merchant processing services from other banks by providing reference 21 letters with Barnett’s name removed, concealing Barnett and Apex’s association 22 with the shells. (FAC ¶ 101). Wells Fargo continued supplying reference letters 23 even after determining that Apex shell companies weren’t qualified for Wells 24 Fargo’s own merchant processing services. (See id. ¶¶ 149, 152). Additionally, 25 Wells Fargo gave Phillips immediate access to and full control of 26 Triangle-affiliated accounts, even though the accounts listed known straw 27 owners—not Phillips—as “100% owners.” (Id. ¶ 159; see also, e.g., id. ¶¶ 101–08, 28 126, 145–47, 168, 171, 180–81 (additional allegations describing atypical banking 1 procedures)). The Court finds the FAC sufficiently alleges that Wells Fargo 2 provided substantial assistance to the fraud. 3 * * * 4 The FAC makes sufficient factual allegations to plausibly state an aiding and 5 abetting claim. Wells Fargo’s motion to dismiss that claim is DENIED. 6 D. Conspiracy 7 The FAC’s second claim alleges Wells Fargo entered into a conspiracy with 8 the Principals to commit fraud. (id. ¶¶ 287–90). Wells Fargo contends the FAC 9 doesn’t allege sufficient facts to demonstrate any agreement between Wells Fargo 10 and the Enterprises. (Dkt. 26-1 at 15–16). 11 To state a plausible claim for civil conspiracy, a plaintiff must allege sufficient 12 facts to support an inference that “two or more persons . . . agreed to a common 13 plan or design to commit a tortious act.” See Kidron v. Movie Acquisition Corp., 14 40 Cal. App. 4th 1571, 1582 (1995). While an agreement must be pled with 15 particularity where the object of the conspiracy was fraud, Wasco Prods., Inc. v. 16 Southwall Techs., Inc., 435 F.3d 989, 990–91 (9th Cir. 2006) (citing Alfus v. 17 Pyramid Tech. Corp., 745 F. Supp. 1511, 1521 (N.D. Cal. 1990)), that agreement 18 “may be tacit as well as express. A conspirator’s concurrence in the scheme may 19 be inferred from the nature of the acts done, the relation of the parties, the 20 interests of the alleged conspirators, and other circumstances.” Navarrete v. 21 Meyer, 237 Cal. App. 4th 1276, 1292 (2015). 22 In the companion case brought by the Receiver, the Court found the 23 complaint sufficiently plead a specific tacit agreement when it alleged that Wells 24 Fargo: (1) “knew that the Principals intended to engage in fraud by cycling through 25 shell companies and bank accounts with straw owners”; (2) “had an interest in the 26 scheme, as it had implemented policies designed to encourage employees to 27 open more accounts”; and (3) “engaged in unorthodox practices to further the 28 fraud while coaching the Principals through their end of it.” McNamara v. Wells 1 Fargo & Co., No. 21-cv-1245-LAB-DDL, slip op. at 17–18 (S.D. Cal. Mar. 30, 2 2022), ECF No. 20. By comparison, Plaintiffs here allege that Wells Fargo knew 3 the Enterprises cycled through shell companies and straw owners, (see, e.g., FAC 4 ¶¶ 71–73, 81, 125–28, 159); had an interest in opening new accounts due to a 5 high pressure sales culture, (id. ¶¶ 8–10), and used atypical banking procedures 6 to accommodate the Enterprises’ fraud, including coaching the Principals, (id 7 ¶¶ 101, 149, 152, 159). 8 The FAC’s allegations are sufficient to allege Wells Fargo’s knowledge of 9 and concurrence in the Enterprises’ schemes. Wells Fargo’s motion to dismiss 10 Plaintiff’s civil conspiracy claim is DENIED. 11 E. California Penal Code § 496 12 The FAC’s third claim alleges Wells Fargo received stolen property from the 13 Enterprises in violation of California Penal Code § 496. (Id. ¶¶ 291–297). Wells 14 Fargo contends the FAC doesn’t state a claim under § 496 because the case 15 doesn’t involve “stolen” property within the meaning of the statute, (Dkt. 26-1 16 at 17–18), and the FAC fails to allege that Wells Fargo actually knew it received 17 stolen property, (id. at 18–19). 18 California Penal Code § 496 defines the criminal offense commonly referred 19 to as receiving stolen property. Switzer v. Wood, 35 Cal. App. 5th 116, 125–26 20 (2019); Cal. Penal Code § 496(a). The statute also provides that a plaintiff may 21 recover treble damages from any person who knowingly receives stolen property. 22 § 496(c). Treble damages are available even when the defendant hasn’t been 23 criminally convicted under the statute. Switzer, 35 Cal. App. 5th at 126 (citing Bell 24 v. Feibush, 212 Cal. App. 4th 1041, 1045–1047 (2013)). To establish a violation, 25 a plaintiff must show: “(i) property was stolen or obtained in a manner constituting 26 theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the 27 defendant received or had possession of the stolen property.” Id. (citing Lacagnina 28 v. Comprehend Sys., Inc., 25 Cal. App. 5th 955, 970 (2018)). Money obtained 1 through false representations or fraud can constitute theft within the meaning of 2 § 496. See, e.g., id. at 126–30 (holding money obtained by fraud can constitute 3 theft within the meaning of § 496); Bell, 212 Cal. App. 4th at 1048 (holding theft 4 by false pretenses constituted a violation of § 496); see also Siry Inv., L.P. v. 5 Farkhondehpour, 13 Cal. 5th 333, 361–62 (2022) (noting that to prove money 6 obtained by fraud to constitute a theft, “a plaintiff must establish criminal intent on 7 the part of the defendant beyond ‘mere proof of nonperformance or actual falsity’” 8 (citation omitted));3 Switzer, 35 Cal. App. 5th at 126 (“[W]hether a wrongdoer’s 9 conduct in any manner constituted a ‘theft’ is elucidated by other provisions of the 10 Penal Code defining theft, such as Penal Code § 484.”); Cal. Penal Code § 484(a) 11 (“Every person . . . who shall knowingly and designedly, by any false or fraudulent 12 representation or pretense, defraud any other person of money . . . is guilty of 13 theft.”). 14 Here, the FAC alleges that the money Wells Fargo received from the 15 Enterprises was obtained through fraud and false pretenses, (FAC ¶ 294), which 16 is sufficient to allege a theft within the meaning of Penal Code § 496. Because the 17 Court has also determined that the FAC sufficiently alleges that Wells Fargo knew 18 the Enterprises were defrauding consumers, (see, e.g., id. ¶¶ 68–69, 74–81, 83, 19 97–100, 105, 110–15, 141–44, 160, 184, 192, 218–28, 230–42, 256–61), the FAC 20 21 3 Wells Fargo’s motion to dismiss and reply in support of its motion cite Siry 22 Investment, L.P. v. Farkhondehpour, 45 Cal. App. 5th 1098 (2020), a case which 23 was recently reversed in part by the California Supreme Court. See Siry, 13 Cal. 5th 333 (2022). The Supreme Court issued its opinion on July 21, 2022, see id., 24 and Wells Fargo filed its reply on August 1, 2022, (Dkt. 33). The reply cited the 25 Court of Appeal’s opinion in Siry, but didn’t inform the Court of the Supreme Court’s decision on July 21. Further, when responding to Plaintiffs’ statement of 26 recent authority identifying the Supreme Court’s decision in Siry, (Dkt. 37), Wells 27 Fargo omitted relevant and, arguably, adverse language when quoting the opinion, (Dkt. 39 at 2). Counsel is reminded the duty of candor toward the tribunal 28 1 plausibly states a claim for receiving stolen property in violation of California Penal 2 Code § 496. Wells Fargo’s motion to dismiss that claim is DENIED. 3 F. UCL 4 The FAC’s fourth claim alleges Wells Fargo violated the UCL, Cal. Bus. & 5 Prof. Code §§ 17200, et seq, (FAC ¶¶ 298–304), and seeks “equitable relief in the 6 form of full restitution,” (id. ¶ 304). The UCL is a consumer protection statute that 7 broadly prohibits “any unlawful, unfair or fraudulent business act or practice.” 8 § 17200. “Each of these three adjectives captures ‘a separate and distinct theory 9 of liability.’” Rubio v. Cap. One Bank, 613 F.3d 1195, 1203 (9th Cir. 2010) (quoting 10 Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009)). The FAC alleges 11 that Wells Fargo is liable under the UCL because of its “substantial assistance 12 in . . . unlawful business acts and practices” including “aiding and abetting fraud, 13 conspiring to commit fraud, and violating California Penal Code § 496.” (FAC 14 ¶¶ 300, 303). This assistance, Plaintiffs allege, amounts to “aid[ing] and abet[ting]” 15 a UCL violation. (Id. ¶ 304). In the alternative, Plaintiffs allege Wells Fargo is liable 16 under the UCL for knowingly aiding and abetting the Enterprises’ unlawful or unfair 17 conduct. (Id. ¶¶ 301–02). Wells Fargo argues Plaintiffs’ UCL claim should be 18 dismissed for four reasons, including for failing to establish the inadequacy of legal 19 remedies. (Dkt. 26-1 at 20–22). 20 A plaintiff may seek equitable relief only if she lacks an adequate legal 21 remedy, such as money damages. See Mort v. United States, 86 F.3d 890, 892 22 (9th Cir. 1996) (quoting Morales v. Trans World Airlines, Inc., 504 U.S. 374, 381 23 (1992)) (“It is a basic doctrine of equity jurisprudence that courts of equity should 24 not act . . . when the moving party has an adequate remedy at law.” (ellipsis in 25 original)); see also, e.g., Schroeder v. United States, 569 F.3d 956, 963 (9th Cir. 26 2009) (“[E]quitable relief is not appropriate where an adequate remedy exists at 27 law.”). A plaintiff “must establish that she lacks an adequate remedy at law before 28 securing equitable restitution for past harm under the UCL.” Sonner v. Premier 1 Nutrition Corp., 971 F.3d 834, 844 (9th Cir. 2020). 2 Plaintiffs argue that the Court should permit them to plead a UCL claim in 3 the alternative because this case is in a different procedural posture than Sonner. 4 (Dkt. 30 at 23 (citing Krause-Pettai v. Unilever U.S., Inc., No. 20-cv-1672-DMS- 5 BLM, 2021 WL 1597931, at *4 (S.D. Cal. April 23, 2021); Rothman v. Equinox 6 Holdings, Inc., No. 20-cv-9760-CAS-MRWx, 2021 WL 1627490 at *12 (C.D. Cal. 7 Apr. 27, 2021)). But Sonner’s holding applies regardless of a case’s procedural 8 posture. See Rivera v. Jeld-Wen, Inc., No. 21-cv-1816-AJB-AHG, 2022 WL 9 3702934, at *12 (S.D. Cal. Feb. 4, 2022) (collecting cases rejecting arguments 10 distinguishing Sonner based on procedural posture); see also Lisner v. Sparc Grp. 11 LLC, No. 21-cv-5713-AB (GJSx), 2021 WL 6284158, at *8 (C.D. Cal. Dec. 29, 12 2021) (collecting cases and holding that “Sonner’s reasoning applies at the 13 pleading stage”). And, under Sonner, “[t]he issue is not whether a pleading may 14 seek distinct forms of relief in the alternative, but rather whether a prayer for 15 equitable relief states a claim if the pleading does not demonstrate the inadequacy 16 of a legal remedy. On that point, Sonner holds that it does not.” Sharma v. 17 Volkswagen AG, 524 F. Supp. 3d 891, 907 (N.D. Cal. 2021) (citing Sonner, 971 18 F.3d at 844). 19 Here, the FAC pleads claims for equitable relief under the UCL but doesn’t 20 plead inadequate legal remedies. (See FAC ¶¶ 300–04). As Plaintiffs 21 acknowledge, (see Dkt. 30 at 23 n.7), the Court dismissed the Receiver’s UCL 22 claim against Wells Fargo for failing to allege inadequate legal remedies. See 23 McNamara, No. 21-cv-1245-LAB-DDL, slip op. at 17–18, ECF No. 20. The same 24 result obtains here. 25 Wells Fargo’s motion to dismiss the FAC’s UCL claim is GRANTED. That 26 claim is DISMISSED WITHOUT PREJUDICE. 27 // 28 // 1 III. RULE 12(b)(1) MOTION TO DISMISS 2 Wells Fargo moves to dismiss Plaintiffs John McCraner, Sharon Stiansen, 3 and Janet Pollard for lack of Article III standing because they already received 4 refunds of the amounts they paid in connection with the Enterprises’ schemes. 5 (Dkt. 26-1 at 24–25). A motion to dismiss for lack of standing is “properly raised 6 in a Rule 12(b)(1) motion to dismiss.” Chandler v. State Farm Mut. Auto. Ins. Co., 7 598 F.3d 1115, 1122 (9th Cir. 2010) (“[S]tanding . . . pertain[s] to federal courts’ 8 subject matter jurisdiction.”). Although the Wells Fargo doesn’t invoke 9 Rule 12(b)(1), the Court construes this argument as a motion to dismiss for lack 10 of subject matter jurisdiction under that rule. 11 To have standing to bring a suit in federal court, a plaintiff must show: 12 (1) injury in fact, (2) causation, and (3) redressability. Lujan v. Defenders of 13 Wildlife, 504 U.S. 555, 560–61 (1992). Wells Fargo challenges only injury in fact, 14 arguing that McCraner, Stiansen, and Pollard lack standing because they can’t 15 show the requisite injury. (Dkt. 26-1 at 25). To establish injury in fact, a plaintiff 16 must show she suffered “an invasion of a legally protected interest which is 17 (a) concrete and particularized. . . and (b) actual or imminent, not conjectural or 18 hypothetical.” Lujan, 504 U.S. at 560 (internal marks and citations omitted). 19 Here, McCraner, Stiansen, and Pollard each received full refunds of the 20 amounts they paid in connection with the Enterprises’ fraudulent schemes. 21 (Dkt. 29, Ex. A ¶ 11; Ex. B ¶ 14; Ex. C ¶ 19).4 Plaintiffs argue that McCraner, 22
23 4 The Court GRANTS Wells Fargo’s request for judicial notice of the: (1) Declaration of John McCraner in FTC v. Triangle, ECF No. 5-1, (Dkt. 29, 24 Ex. A); (2) Declaration of Sharon Stiansen in FTC v. Apex, ECF No. 2, (Dkt. 29, 25 Ex. B); and (3) Declaration of Janet Pollard in FTC v. Triangle, ECF No. 5-1, (Dkt. 29, Ex. C). (Dkt. 29). Courts may “judicially notice a fact that is not subject 26 to reasonable dispute because it . . . can be accurately and readily determined 27 from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). Proper subjects for judicial notice include “undisputed matters of public 28 1 Stiansen, and Pollard have standing notwithstanding their refunds because they 2 weren’t compensated for the loss of the use of their money with interest. (Dkt. 30 3 at 6) Wells Fargo argues that any claimed interest is too de minimis to confer 4 standing. (Dkt. 33 at 11). Binding Supreme Court and Ninth Circuit precedent 5 clearly demonstrate Plaintiffs are correct. 6 “For standing purposes, a loss of even a small amount of money is ordinarily 7 an ‘injury.’” Czyzewski v. Jevic Holding Corp., 580 U.S. 451, 464 (2017); see, e.g., 8 Sprint Commc’ns Co. v. APCC Servs., Inc., 554 U.S. 269, 289 (2008) (noting that 9 the loss of “a dollar or two” is sufficient to confer standing); Van v. LLR, Inc., 962 10 F.3d 1160, 1162 (9th Cir. 2020) (holding the loss of $3.76 in interest was sufficient 11 to confer standing). And the Ninth Circuit has held that when a plaintiff “receive[s] 12 a full refund, less interest, on the money she was wrongfully charged,” the 13 “temporary loss of use of one’s money constitutes an injury in fact for purposes of 14 Article III.” Van, 962 F.3d at 1162, 1164. 15 McCraner, Stiansen, and Pollard each received full refunds, but didn’t 16 receive compensation for the loss of their money with a payment of interest. 17 (Dkt. 29, Ex. A ¶ 11; Ex. B ¶ 14; Ex. C ¶ 19). The Court finds these Plaintiffs have 18 suffered an injury in fact sufficient to confer Article III standing. Wells Fargo’s 19 motion to dismiss McCraner, Stiansen, and Pollard for lack of standing is DENIED. 20 IV. RULE 12(f) MOTION TO STRIKE 21 Wells Fargo separately moves to strike the FAC’s class allegations, arguing 22 that they don’t sufficiently allege commonality, adequacy of representation, 23 predominance, typicality, and superiority of class resolution. (Dkt. 28). Plaintiffs 24 25 record, . . . including documents on file in federal or state courts.” Harris v. County 26 of Orange, 682 F.3d 1126, 1132 (9th Cir. 2012) (internal citations omitted). 27 Plaintiffs oppose Wells Fargo’s request for judicial notice, (see Dkt. 32), but don’t dispute the declarations’ accuracy. The Court finds the declarations to be proper 28 1 oppose Wells Fargo’s motion, arguing it is premature at this time. (Dkt. 31 at 3–4). 2 Under Rule 12(f), the court may strike “any insufficient defense or any 3 redundant, immaterial, impertinent or scandalous matter.” Fed. R. Civ. P. 12(f). 4 Class allegations can be stricken at the pleading stage. See Guzman v. 5 Bridgepoint Educ., Inc., No. 11-cv-69-WQH-WVG, 2013 WL 593431, at *7 6 (S.D. Cal. Feb. 13, 2013) (citing Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 7 160 (1982)). However, courts typically review class allegations through a motion 8 for class certification. See Silcox v. State Farm Mut. Auto. Ins. Co., No. 14-cv- 9 2345-AJB-MDD, 2014 WL 7335741, at *8 (S.D. Cal. Dec. 22, 2014) (collecting 10 cases). It is rare and generally disfavored to strike class allegations prior to 11 discovery and a motion for class certification. See, e.g., Miholich v. Senior Life 12 Ins. Co., No. 21-cv-1123-WQH-AGS, 2022 WL 410945, at *6 (S.D. Cal. Feb. 10, 13 2022); Sousa v. 7-Eleven, Inc., No. 19-cv-2142-JLS-RBB, 2020 WL 6399595, 14 at *4 (S.D. Cal. Nov. 2, 2020); see also Cholakyan v. Mercedes-Benz USA, LLC, 15 796 F. Supp. 2d 1220, 1245 (C.D. Cal. 2011) (“[I]t is in fact rare to [strike class 16 allegations] in advance of a motion for class certification.”); In re Wal-Mart Stores, 17 Inc. Wage & Hour Litig., 505 F. Supp. 2d 609, 615 (N.D. Cal. 2007) (“[T]he 18 granting of motions to dismiss class allegations before discovery has commenced 19 is rare.”). 20 Here, Wells Fargo “has not filed an answer, the Court has not issued a 21 scheduling order for discovery or class certification purposes, the Parties have not 22 conducted any class-related discovery, and a motion for class certification is not 23 presently before the Court.” Sousa, 2020 WL 6399595, at *5. Given the early 24 stage of the case, the Court finds that Wells Fargo’s motion to strike is premature. 25 See, e.g., id. (denying motion to strike class allegations as premature); see also 26 Sutcliffe v. Wells Fargo Bank, N.A., No. C-11-06595 JCS, 2012 WL 4835325, at *4 27 (N.D. Cal. Oct. 9, 2012) (“[T]he district court has broad discretion as to when to 28 address whether a class should be certified and the adequacy of a class 1 || definition.” (emphasis in original)). Wells Fargo’s motion to strike is DENIED. 2 CONCLUSION 3 With the exception of Wells Fargo’s motion to dismiss the FAC’s UCL claim, 4 which is GRANTED, the Court otherwise DENIES Wells Fargo’s motion to dismiss 5 ||and DENIES Wells Fargo’s motion to strike. Wells Fargo must file an Answer to 6 FAC by April 13, 2023. 7 IT IS SO ORDERED. 8 ||Dated: March 30, 2023 Wy 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28