Opinion
NOT TO BE PUBLISHED
APPEAL following remand from the Supreme Court of California., Los Angeles County Super. Ct. No. BC290637 Teresa Sanchez-Gordon, Judge.
Burton V. McCullough for Plaintiff and Appellant.
Buchalter Nemer, Jeffrey S. Wruble and Robert S. Addison, Jr., for Defendant and Respondent.
MOSK, J.
In this case, here on remand from the Supreme Court, we must determine whether there is a triable issue of fact regarding whether plaintiff Zengen, Inc. "objected to the payment" to defendant Comerica Bank with respect to certain fraudulent and unauthorized payment orders, within the meaning of California Uniform Commercial Code ("UCC") section 11505. That section reads: "If a receiving bank has received payment from its customer with respect to a payment order issued in the name of the customer as sender and accepted by the bank, and the customer received notification reasonably identifying the order, the customer is precluded from asserting that the bank is not entitled to retain the payment unless the customer notifies the bank of the customer's objection to the payment within one year after the notification was received by the customer." The Supreme Court granted review to decide whether "(1) it suffices for the customer to notify the bank that the payment orders were unauthorized or fraudulent (Zengen's position), or (2) the customer must object to the bank's action in debiting the customer's account or otherwise receiving payment from the customer (the Bank's position)." (Zengen, Inc. v. Comerica Bank (2007) 41 Cal.4th 239, 256.)
Further statutory references are to this code.
The Supreme Court concluded that "the Bank's legal position is correct. The customer need not precisely state in so many words that it objects to the debiting of its account, but it must inform the bank in some fashion it believes the bank should not have accepted the payment order or otherwise is liable for the loss. Under the California Uniform Commercial Code, a bank is not necessarily liable for accepting an unauthorized, or even fraudulent, payment order. Accordingly, merely informing the bank the payment order was fraudulent does not inform it that the customer considers it liable for the loss." (41 Cal.4th at p. 256.)
The Supreme Court further explained that "[t]he customer does not have to state specifically that it objects to the debiting or otherwise use any particular words. While it would certainly be preferable and clearer, and might avoid unnecessary litigation, for the customer to tell the bank expressly that the bank erred in processing the payment orders, or that it is liable for the loss, or use some other clear language, such specific words are not always necessary. What is necessary is that the customer convey to the bank in some way that it objects to what the bank did or, stated slightly differently, it must in some way assert a claim against the bank. Whether the notification is sufficient in a given case depends on the overall circumstances." (41 Cal.4that p. 259.)
The Supreme Court articulated the following test for determining whether the customer has satisfied the section 11505 objection requirement: "[W]hether, under all of the relevant circumstances, a reasonable bank would understand from the customer's communication that the customer was objecting to what the bank had done in accepting the payment orders or otherwise considered the bank liable for the loss." (41 Cal.4th at p. 259.) The case was remanded to this court for us to apply the foregoing test to the facts of this case. We earlier determined that Zengen did not communicate to the Bank that it objected to what the Bank had done or otherwise asserted a claim against the Bank within one year after receiving notification of the payments, but simply, albeit repeatedly, remarked that the subject payment orders were "fraudulent" and "unauthorized." We conclude that a reasonable bank would not have understood from Zengen's statements and actions (that is, "under all of the relevant circumstances") that it was objecting to the Bank's conduct in accepting the payment orders and debiting its account. Consequently, Zengen may not maintain this action to recover payments made to the Bank with respect to the unauthorized payment orders.
FACTUAL AND PROCEDURAL HISTORY
Zengen is a biopharmaceutical company formed in May 1999. Shortly after its incorporation, Zengen opened several bank accounts, including money market account number 88-012-298 (the "298 Account") at Imperial Bank, which has since been acquired by the Bank. In connection with the opening of its accounts, including the 298 Account, a Business Signature Card and a Funds Transfer Authorization agreement were executed by Zengen's Chief Executive Officer, Johnson Liu, and its Chief Financial Officer, Fung Yen, the company's authorized signatories. While Liu had unlimited check signing authority, Yen's authority was limited to checks not exceeding $10,000.
From mid-2000 to early 2001, Yen embezzled $4.6 million from Zengen by directing four funds transfers from the 298 Account to an account Yen opened in the name of Zengen at Chinatrust Bank. To accomplish this feat, Yen formed a British Virgin Islands corporation which he named Zengen, Inc. He then opened an account at Chinatrust Bank in the name of this new corporation with an initial deposit of $1,000, with himself as the sole authorized signatory. Between July 11, 2000 and February 5, 2001, the Bank processed four payment orders, which facially appeared to be signed and authorized by Johnson Liu (as was customary, they were faxed to the Bank for processing and payment), and which are the subject of this lawsuit. These four payment orders requested the Bank to draw funds out of the 298 Account and to wire them to Zengen's account at Chinatrust Bank in the amounts and on the dates as follows: $185,000 on July 11, 2000; $550,000 on September 11, 2000; $1,500,000 on November 22, 2000; and $1,700,000 on February 5, 2001 (collectively, the "Payment Orders"). These transactions appeared on Zengen's monthly bank statements, which Zengen acknowledges it received.
Presumably because Zengen's account statements and transaction notices were addressed to Yen as the company's Chief Financial Officer, the latter's defalcation was not discovered immediately. Zengen first learned that something was amiss on June 13, 2001. Zengen's Office Manager, Regina Samuel-Ramcharitar, worked with Tony Galvez of the Bank to uncover the unauthorized activity concerning the 298 Account. According to Zengen, "By July 12, 2001, Samuel-Ramcharitar had specifically told Galvez that Zengen did not authorize the four wire transfers [at issue] and that it appeared that Yen had fraudulently transferred the money." By no later than August of 2001, when Zengen filed a report with the Los Angeles District Attorney's Office which included details of the four Payment Orders, Zengen had concluded that Yen had stolen money from the company via the wire transfers from the 298 Account to Chinatrust Bank. By that time, Yen had disappeared with all of the company's financial records, and could not be located.
DISCUSSION
The sole issue on remand is whether there is a triable issue of fact concerning whether Zengen "objected to the payment" with respect to the four unauthorized Payment Orders.
As the Official Comment to section 11204 explains, "The bank normally debits the customer's account or otherwise receives payment from the customer shortly after acceptance of the payment order. Subsection (a) of section 11204 states that the bank must recredit the account or refund payment to the extent the bank is not entitled to enforce payment." This language suggests several methods of objecting to the payment; for instance, one could point out to the bank that it is not entitled to enforce payment, or request the bank to redeposit the funds into the customer's account. Of course, the Supreme Court made clear that no precise formulation of the objection is necessary. Presumably "why did you honor an obviously fraudulent funds transfer order?" or "why did you not follow established security procedures?" or a simple "give me back my money" would work as well.
Zengen did none of the foregoing. It made no demand for refund of the money. It did not accuse the Bank of violating the agreed upon security procedures. It did not utter, orally or in writing, any words which a reasonable bank would understand to mean that Zengen believed that the Bank had erred in processing the payment orders and that Zengen expected to be compensated therefore.
In his dissent to our earlier opinion, Justice Mosk concluded that Zengen had satisfied the notice requirements of UCC section 11505: "Within the required one-year period, Zengen specifically informed Imperial Bank, the predecessor of defendant Comerica Bank (Bank), that the transfers in issue were fraudulent and unauthorized. Having been so informed, the Bank was on notice that the payment orders were fraudulent and the transfers unauthorized. Thus, the Bank had knowledge that it had exceeded its authorization by Zengen." (Slip opn., p. x.)
Zengen argues on remand that it met the test posited by the Supreme Court: "Would not a reasonable bank officer know that if Comerica failed to follow the security procedures put in place to safeguard the acceptance of fraudulent and unauthorized payment orders, and as a result of that failure Comerica wrongfully transferred millions of dollars from Zengen's account to someone Zengen identified to Comerica as a thief, that Comerica was at risk and Zengen was putting Comerica on notice of that fact by communicating these facts to Comerica?" And further, "How better to inform Comerica that it should not have accepted the payment order than to inform Comerica that the order was not signed by Liu, the person required to sign the order, and that Comerica failed to call and obtain the verbal confirmation of the order from Liu, the person required to be called by the security procedure adopted by the parties?"
The problem with Zengen's argument is that it relies on facts not in the record. It is undisputed that Liu did not sign the payment orders, and they were therefore unauthorized. However, the Supreme Court made clear that that fact alone does not resolve the issue. If Zengen had in fact confronted Comerica with its alleged failure to call and obtain verbal confirmation of the Payment Orders from Liu, then indeed, it would have "objected to the payment." But there is no evidence to support the factual underpinnings of Zengen's argument. Indeed, the record does not reveal whether the Bank failed to confirm by telephone Liu's approval of the Payment Orders, or whether the thief intercepted the confirmatory telephone calls.
Not only did Zengen fail to voice any objection to the Bank's debiting of its account, but it pursued a course of conduct inconsistent with its assertion that it considered the Bank liable for the loss. The company hired outside legal counsel to assist it in its attempt to recover its losses; made written demand to Chinatrust Bank to turn over its account records, close the account and return all money in the account to Zengen; hired a second law firm to file a written criminal report with the Los Angeles District Attorney's Office and to investigate Yen's whereabouts; filed a lawsuit against Yen in federal district court seeking recovery of the $4.6 million; and, although Zengen's lawyers corresponded with the Bank requesting copies of its account records, they did not demand that the Bank refund the money wired out of the 298 Account by means of the four Payments Orders, or otherwise object to the Bank's actions in accepting the executing the Payment Orders and in debiting the 298 Account. That Zengen took the foregoing actions in aggressive pursuit of the recovery of the stolen funds without ever making demand of any kind on the Bank is simply inconsistent with its position in this lawsuit that the Bank was required to refund to it the $4.6 million stolen by Yen, and that it notified the Bank of that fact within one year of its discovery of the theft.
In sum, the only evidence that Zengen "objected to the payment" within the meaning of section 11505 were its statements to the Bank that the Payment Orders at issue were "fraudulent" and "unauthorized." The Supreme Court ruled that these communications, standing alone, did not satisfy the notification requirement of section 11505. Taking into account all of the circumstances of this case, we conclude that a reasonable bank would not have understood from Zengen's statements and conduct that its customer was objecting to the Bank's actions in accepting the Payment Orders, or that Zengen considered the Bank liable for the loss, until February 2003, when Zengen filed its complaint in this lawsuit. Because this notification occurred more than one year after Zengen learned of Yen's unauthorized transactions, it cannot recover under the Commercial Code.
DISPOSITION
The judgment is affirmed.
I concur: KRIEGLER, J.
MOSK, J., Dissenting
I dissent.
I concluded in my dissent in this case that the communications by plaintiff to defendant constituted a “customer’s objection to the payment within one year after notification was received by the customer.” (Cal. U. Com. Code, § 11505.) The Supreme Court reversed and said that the test for whether the customer satisfies the objective requirement under the section is “whether, under all of the relevant circumstances, a reasonable bank would understand from the customer’s communication that the customer was objecting to what the bank had done in accepting the payment orders or otherwise considered the bank liable for the loss.” (Zengen, Inc. v. Comerica Bank (2007) 41 Cal.4th 239, 259 (Zengen).)
I adhere to my earlier view express in my dissenting opinion, especially as this case is here on summary judgment. At the very least, there is a factual issue as to whether there was the necessary objection. The facts as to the communications may be undisputed, but the inferences to be drawn from those facts and what the bank should reasonably have understood are not.
As stated by the court in Lacy v. California Unemployment Ins. Appeals Bd. (1971) 17 Cal.App.3d 1128, 1135 in another context: “‘“Where the reasonableness of the master’s order depends upon undisputed facts, and the inferences from the facts found or admitted all point one way, the question as to the reasonableness of the order or rule is one of law for the court and not a question of fact for the jury. [¶] Where, however, the reasonableness of the order does not rest wholly upon undisputed facts, or its reasonableness is not so apparent that but one inference can reasonably be deduced from the proved or admitted facts, it is for the jury [in this case, the trial judge as the trier of fact] to determine whether the order is reasonable or not.”’”
Courts have stated that “the question of reasonableness is ordinarily one of fact.” (Elgin Capital Corp. v. County of Santa Clara (1975) 57 Cal.App.3d 687, 692 [whether public agency’s delay in acquiring property was “unreasonable” for purposes of inverse condemnation action]; see also Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239 [whether plaintiff’s reliance on misrepresentation was reasonable]; Brasher’s Cascade Auto Auction v. Valley Auto Sales and Leasing (2004) 119 Cal.App.4th 1038, 1059 [whether conduct was commercially reasonable under California Uniform Commercial Code]; County of San Luis Obispo v. Workers’ Comp. Appeals Bd. (2001) 92 Cal.App.4th 869, 874[whether delay in paying workers’ compensation benefits was unreasonable]); Chateau Chamberay Homeowners Assn. v. Associated International Ins. Co. (2001) 90 Cal.App.4th 335, 346 [reasonableness of an insurer’s claims-handling conduct].)
An issue of fact must be resolved by the trier of fact “‘[e]ven in cases where the evidence is undisputed or uncontradicted, if two or more different inferences can reasonably be drawn from the evidence . . . .’” (Jonkey v. Carignan Construction Co. (2006) 139 Cal.App.4th 20, 24 [describing substantial evidence standard of review].) “‘Only when the inferences are indisputable may the court decide the issues as a matter of law.’” (Hernandez v. Department of Transportation (2003) 114 Cal.App.4th 376, 382; see Islas v. D & G Manufacturing Co. (2004) 120 Cal.App.4th 571, 579-580 [issue whether machine’s blades constituted a “die” was a jury question when undisputed facts regarding the blades' configuration and operation gave rise to conflicting inferences regarding whether machine sheared metal by exerting pressure against the metal (as a die) or by cutting along the metal (as a lathe)].)
In the summary judgment context, “if an inference is controverted by other . . . inferences, there is a triable issue of fact and the motion must be denied.” (6 Witkin, California Procedure (4th ed. 1997) Proceedings Without Trial, § 219, p. 631; see also Code of Civ. Proc., section 437c, subd. (c) [“summary judgment may not be granted by the court based on inferences reasonably deducible from the evidence, if contradicted by other inferences or evidence, which raise a triable issue as to any material fact”]; Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 154-155 [conflicting inferences regarding existence and terms of stock option agreement precluded summary judgment].) Statute of limitations issues such as whether a reasonable person is on notice, raise questions of fact, except if the uncontradicted facts are susceptible of only one legitimate inference. (Jolly v. Eli Lilly (1988) 44 Cal.3d 1103, 1112; Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1120 [“indulge in all reasonable and legitimate inferences in order to uphold the verdict . . . when two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court”].)
There is more than one legitimate inference here, and thus the determination shall be left to the fact-finder. Only full evidentiary presentations will show what a reasonable bank should understand under these circumstances. It would seem that had the Supreme Court believed that the facts were such that there was no objection under California Uniform Commercial Code section 11505, it would have affirmed the summary judgment before it.
The Supreme Court stated, “[i]n this case, Zengen arguably did more than just inform the Bank the payment orders were unauthorized. Liu testified that he told Julie Yen he had not authorized the transactions, testimony that might be significant in light of the provisions of the funds transfer authorization agreement. Additionally, Liu testified that, at some uncertain time, he and Julie Yen had engaged in a ‘very general discussion . . . about bank being sued.’” (Zengen, supra, 41 Cal.4th at p. 254.)
I would reverse the judgment.
The Supreme Court found wanting the inference upon which Justice Mosk relied in his earlier dissent: "Under the California Uniform Commercial Code, a bank is not necessarily liable for accepting an unauthorized, or even fraudulent, payment order. Accordingly, merely informing the bank the payment order was fraudulent does not inform it that the customer considers it liable for the loss." (41 Cal.4th at p. 256.) Rather, "Section 11505 requires notice in some form that the bank may be liable for the loss; . . ." (Id. at p. 259.)
Aside from Zengen's statements to the Bank to the effect that the Payment Orders were "unauthorized" and "fraudulent," the only evidence that Zengen can point to in support of its position that it objected to the payment within the meaning of section 11505 is Liu's testimony that, "at some uncertain time, he and Julie Yen had engaged in a 'very general discussion . . . about bank being sued.'" (41 Cal.4th at p. 259.) No inference can be drawn from this statement; it either constitutes adequate notice, or it does not. To conclude from this evidence that Zengen notified the Bank of its claims within the one year limitation period, one would have to invent facts: that the term "at some uncertain time" means "before a certain time," and that the phrase "a very general discussion . . . about bank being sued" means a discussion about a specific matter – the bank's liability for the loss.