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REPLY MEMORANDUM OF POINTS AND
AUTHORITIES ISO MOTION TO DISMISS
CASE NO. 21-MD-02992-LAB-MSB
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JAMES W. MCGARRY (pro hac vice)
JMcGarry@goodwinlaw.com
YVONNE W. CHAN (pro hac vice)
YChan@goodwinlaw.com
GOODWIN PROCTER LLP
100 Northern Avenue
Boston, MA 02210
Tel.: +1 617 570 1000
Fax: +1 617 523 1231
Attorneys for Defendant
BANK OF AMERICA, N.A.
[ADDITIONAL COUNSEL LISTED IN SIGNATURE BLOCK]
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA -
SAN DIEGO DIVISION
IN RE: BANK OF AMERICA
CALIFORNIA UNEMPLOYMENT
BENEFITS LITIGATION
Case No. 21-MD-02992-LAB-MSB
DEFENDANT BANK OF
AMERICA, N.A.’S REPLY
MEMORANDUM OF POINTS
AND AUTHORITIES IN
SUPPORT OF ITS MOTION TO
DISMISS MASTER
CONSOLIDATED COMPLAINT
PURSUANT TO FED. R. CIV. P.
12(B)(1) AND 12(B)(6)
Date:
January 31, 2022
Time:
11:30 a.m.
Ctrm:
14A - 14th Floor
Judge:
Hon. Larry Alan Burns
Filed/Lodged Concurrently with:
1. Reply in Support of
Defendant’s Request for Judicial
Notice and Opposition to Plaintiffs’
Request For Judicial Notice
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TABLE OF CONTENTS
Page
INTRODUCTION ..................................................................................................... 1
ARGUMENT ............................................................................................................. 2
I.
PLAINTIFFS HAVE NOT STATED A CLAIM UNDER ANY
CONTRACT THEORY. ................................................................................. 2
A.
Plaintiffs Have Not Stated a Claim for Breach of the Account
Agreement. ............................................................................................ 2
B.
Plaintiffs Have Not Stated a Claim Under the Implied Covenant. ....... 5
C.
Plaintiffs Have Not Alleged the Existence of an Implied
Contract. ................................................................................................ 6
II.
PLAINTIFFS FAIL TO STATE A CLAIM UNDER EFTA/REG E. ............ 7
A.
Numerous Plaintiffs Fail to Allege They Reported an “Error”
Within the Meaning of EFTA and Reg E. ............................................ 7
B.
Plaintiffs Have Not Alleged They Provided the Requisite
Notice. ................................................................................................... 8
C.
Plaintiffs Do Not Identify Specific Factual Allegations Showing
That BANA’s Investigation Violated EFTA/Reg E. ............................ 9
D.
Certain Plaintiffs’ Claims Must Be Dismissed as Moot. .................... 11
III.
PLAINTIFFS HAVE NOT STATED A CLAIM FOR BREACH OF
THE EDD AGREEMENT AS THIRD-PARTY BENEFICIARIES. ........... 12
A.
Plaintiffs Are Not Third-Party Beneficiaries. ..................................... 12
B.
Plaintiffs Fail to Allege a Breach of the EDD Agreement or Its
Implied Covenant. ............................................................................... 13
IV.
PLAINTIFFS HAVE FAILED TO STATE A CLAIM FOR
NEGLIGENCE OR NEGLIGENT SUPERVISION. ................................... 14
A.
The Economic Loss Rule Precludes Plaintiffs’ Negligence
Claims. ................................................................................................ 14
B.
As a Matter of Law, BANA Does Not Owe Tort Duties of Care. ...... 15
C.
Plaintiffs Have Not Sufficiently Alleged Causation. .......................... 16
V.
PLAINTIFFS HAVE FAILED TO ALLEGE A BREACH OF
FIDUCIARY DUTY. .................................................................................... 17
VI.
PLAINTIFFS FAIL TO STATE CLAIMS UNDER THE CCPA AND
CCRA. ........................................................................................................... 18
VII. PLAINTIFFS HAVE FAILED TO ALLEGE A VIOLATION OF
THE UCL. ..................................................................................................... 19
A.
Plaintiffs Cannot Recover Injunctive Relief or Restitution. ............... 19
B.
Plaintiffs Have Failed to Allege a Violation of the UCL. .................. 20
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VIII. PLAINTIFFS’ DUE PROCESS ARGUMENT FAILS. ............................... 22
A.
BANA Is Not a State Actor. ............................................................... 22
B.
Plaintiffs Have Not Sufficiently Alleged a Due Process
Violation. ............................................................................................. 24
CONCLUSION ........................................................................................................ 25
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TABLE OF AUTHORITIES
Cases
Page(s)
Am. Federation of Lab. v. Emp’t Dev. Dep’t,
88 Cal. App. 3d 811 (1979) ................................................................................ 25
Am. Mfrs. Mut. Ins. Co. v. Sullivan,
526 U.S. 40 (1999) ....................................................................................... 22, 23
Anthony v. Kelsey-Hayes Co.,
25 Cal. App. 3d 442 (1972) ................................................................................ 15
Ashcroft v. Iqbal,
556 U.S. 662 (2009) ........................................................................................... 17
Blum v. Yaretsky,
457 U.S. 991 (1982) ..................................................................................... 22, 24
Brown v. Stored Value Cards, Inc.,
2016 WL 4491836 (D. Or. Aug. 25, 2016) ........................................................ 23
Burton v. Wilmington Parking Authority,
365 U.S. 715 (1961) ........................................................................................... 24
Cahoo v. SAS Inst Inc.,
322 F. Supp. 3d 772 (E.D. Mich. 2018) ............................................................. 23
Carma Devs., Inc. v. Marathon Dev. Cal. Inc.,
2 Cal. 4th 342 (1992) ............................................................................................ 6
Caviness v. Horizon Cmty. Learning Ctr., Inc.,
590 F.3d 806 (9th Cir. 2010) .............................................................................. 24
In re Century Aluminum Co. Sec. Litig.,
729 F.3d 1104 (9th Cir. 2012) ............................................................................ 17
Clement v. City of Glendale,
518 F.3d 1090 (9th Cir. 2008) ............................................................................ 25
Cleveland v. Ludwig Inst. For Cancer Rsch. Ltd.,
2020 WL 3268578 (S.D. Cal. June 17, 2020) .................................................... 13
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Copesky v. Superior Court,
229 Cal. App. 3d 678 (1991) .............................................................................. 18
Corona v. Sony Pictures Entertainment, Inc.,
2015 WL 3916744 (C.D. Cal. June 15, 2015) .................................................... 16
Cortez v. Purolator Air Filtration Products Co.,
23 Cal. 4th 163 (2000) ........................................................................................ 21
Danby N.A., Inc. v. Travelers Ins. Co.,
25 F. App’x 186 (4th Cir. 2020) ........................................................................... 6
Das v. WMC Mortg. Corp.,
831 F. Supp. 2d 1147 (N.D. Cal. 2011)................................................................ 6
De La Torre v. CashCall, Inc.,
5 Cal. 5th 966 (2018) .......................................................................................... 22
In re Disney ERISA Litigation,
2017 WL 1505129 (C.D. Cal. April 21, 2017) .................................................... 9
EM Gen., LLC v. Ecommerce, LLC,
2021 WL 4497888 (C.D. Cal. July 28, 2021) ...................................................... 6
Fed. Deposit Ins. Corp. v. Mallen,
486 U.S. 230 (1988) ........................................................................................... 25
Flagg Bros., Inc. v. Brooks,
436 U.S. 149 (1978) ........................................................................................... 23
Garcia v. Ocwen Loan Servicing, LLC,
2010 WL 1881098 (N.D. Cal. May 10, 2010) ................................................... 16
Gardiner v. Walmart Inc.,
2021 WL 2520103 (N.D. Cal. Mar. 5, 2021) ..................................................... 15
Geneva Tower Tenants Org. v. Federated Mortg. Invs.,
504 F.2d 483 (9th Cir. 1974) .............................................................................. 24
Goldberg v. Kelly,
397 U.S. 254 (1970) ........................................................................................... 25
Goonewardene v. ADP, LLC,
6 Cal. 5th 817 (2019) .................................................................................... 12, 13
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Hancock v. Americo Fin. Life & Annuity Ins. Co.,
378 F. Supp. 3d 413 (E.D.N.C. 2019) .................................................................. 6
HCB Fin. Corp. v. McPherson,
8 F.4th 335 (5th Cir. 2021) ................................................................................. 12
Heflebower v. JPMorgan Chase Bank, NA,
2013 WL 5476806 (E.D. Cal. Sept. 30, 2013) ................................................... 17
Hill v. Kaiser Found. Health Plan,
2011 WL 13243748 (N.D. Cal. March 8, 2011) ...................................... 9, 10, 20
Jafari v. F.D.I.C.,
2015 WL 3604443 (S.D. Cal. June 8, 2015) ...................................................... 12
Klaehn v. Cali Bamboo, LLC,
2020 WL 3971518 (S.D. Cal. July 13, 2020) ............................................... 20, 22
Korea Supply Co. v. Lockheed Martin Corp.,
29 Cal. 4th 1134 (2003) ...................................................................................... 21
Lake Almanor Assocs. L.P. v. Huffman-Broadway Grp., Inc.,
178 Cal. App. 4th 1194 (2009) ........................................................................... 13
Lit’l Pepper Gourmet, Inc. v. Airgas USA, LLC,
2019 WL 6218780 (S.D. Cal. Nov. 21, 2019).............................................. 21, 22
Martinez v. Socoma Cos., Inc.,
11 Cal. 3d 394 (1974) ......................................................................................... 13
Mathews v. Eldridge,
424 U.S. 319 (1976) ........................................................................................... 25
Moran v. Prime Healthcare Mgmt., Inc.,
3 Cal. App. 5th 1131 (2016) ............................................................................... 22
Mullins v. Premier Nutrition Corp.,
2018 WL 510139 (N.D. Cal. Jan. 23, 2018) ...................................................... 20
Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc.,
591 F.3d 250 (4th Cir. 2009) .............................................................................. 18
Pasadena Republican Club v. W. Just. Ctr.,
985 F.3d 1161 (9th Cir. 2021) ............................................................................ 24
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Price v. Grand Bank For Sav., FSB,
2018 WL 4852198 (S.D. Cal. Oct. 4, 2018) (Burns, J.) ..................................... 21
Quintero Fam. Tr. v. OneWest Bank, F.S.B.,
2010 WL 392312 (S.D. Cal. Jan. 27, 2010) ......................................................... 6
Rendell-Baker v. Kohn,
457 U.S. 830 (1982) ........................................................................................... 24
Shamiryan v. Allstate Northbrook Indem. Co.,
2021 WL 3185782 (C.D. Cal. July 26, 2021) ...................................................... 6
Stasi v. Inmediata Health Grp. Corp.,
501 F. Supp. 3d 898 (S.D. Cal. 2020) ................................................................ 15
Sukumar v. Int’l Olympic Comm.,
2021 WL 2206476 (S.D. Cal. June 1, 2021) ...................................................... 23
Summers v. Earth Island Inst.,
555 U.S. 488 (2009) ........................................................................................... 20
Swift v. Lewis,
901 F.2d 730 (9th Cir. 1990) .............................................................................. 24
Tate v. Univ. Med. Ctr. of S. Nev.,
637 F. Supp. 2d 892 (D. Nev. 2009) .................................................................. 25
B.K. ex. Rel. Tinsley v. Snyder,
922 F.3d 957 (9th Cir. 2019) (cited by Plaintiffs, Opp. ) ..................................... 3
TransUnion LLC v. Ramirez,
141 S. Ct. 2190 (2021) ................................................................................... 3, 12
Tsao v. Desert Palace, Inc.,
698 F.3d 1128 (9th Cir. 2012) ............................................................................ 24
U.S. v. Real Property Located at 1184 Drycreek Road,
Granville, Ohio 43023,
174 F.3d 720 (6th Cir. 1999) .............................................................................. 25
Vargas v. Potter,
2009 WL 10699102 (C.D. Cal. Nov. 4, 2009) ................................................... 14
Vincent v. Trend W. Tech. Corp.,
828 F.2d 563 (9th Cir. 1987) .............................................................................. 25
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Whooley v. Tamalpais Union High Sch. Dist.,
399 F. Supp. 3d 986 (N.D. Cal. 2019).......................................................... 3, 7, 8
Zigas v. Super. Ct.,
120 Cal. App. 3d 827 (1981) .............................................................................. 13
Statutes
15 U.S.C. § 1693f .................................................................................................... 11
15 U.S.C. § 1693f(d) ................................................................................................ 11
15 U.S.C. § 1693g(a) ............................................................................................... 12
Cal. Civ. Code § 1798.150(a)(1) ............................................................................. 19
Cal. Civ. Code § 3534 .............................................................................................. 14
Regulations
12 C.F.R. § 1005.10(a)(1)(iii) .................................................................................... 8
12 C.F.R. § 1005.11 ................................................................................................. 11
12 C.F.R. § 1005.11(a)(1)(vii) ................................................................................... 8
12 C.F.R. § 1005.11(a)(2)(i) ...................................................................................... 8
12 C.F.R. § 1005.11(c)(4) ........................................................................................ 10
12 C.F.R. § 1005.11(d)(1) ....................................................................................... 11
12 C.F.R. § 1005.3(c)(5)(iii) ...................................................................................... 8
Other Authorities
Christopher Weber, California’s EDD May Have Exposed
38M Social Security Numbers Despite Being Told Year Before
To Stop, NBC Los Angeles (Nov. 21, 2020), available at
https://www.nbclosangeles.com/news/california-news/california-
edd-social-security-numbers-exposed/2467756/ ................................................ 17
California State Auditor Report 2018-129 (March 2019), available at
https://www.auditor.ca.gov/pdfs/reports/2018-129.pdf ..................................... 17
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INTRODUCTION
Plaintiffs’ Opposition relies on the time honored tradition of attacking a
corporate defendant in order to divert attention from the context surrounding
Plaintiffs’ complaint and the legal insufficiency of their own allegations. For
example, Plaintiffs’ assertion that this case has nothing to do with enrollment fraud
(Opp. at 1) ignores the extraordinary amount of enrollment fraud targeting
unemployment benefits programs during the pandemic—which Plaintiffs themselves
acknowledge (MCC ¶ 79 & n.9). Plaintiffs’ allegations must be viewed in light of
these judicially cognizable facts, including the “flood of warnings” to states to “guard
against fraud and abuse of their unemployment insurance systems,” id., and the State
of California’s own estimate that this unprecedented criminal activity resulted in the
theft of up to $31 billion in fraudulently-obtained benefits (Mem. of Pts. & Auth. in
Support of Mot. to Dismiss (ECF No. 84-1) (“Mem.”) at 1, 4)—most of which
criminals routed through illegally-obtained prepaid cards. Indeed, Plaintiffs’ own
alleged experiences confirm that enrollment fraud was rampant, as several Plaintiffs’
personal information was used by unidentified criminals to obtain benefits payments
from the State. See, e.g., MCC ¶¶ 343, 346, 506, 518.
Against this backdrop, and despite their ad hominem attacks, Plaintiffs have
failed to allege that BANA’s operation of the debit card program while engaged in
these necessary efforts to prevent and counter criminal activity were in violation of
any law or other legal duty. Many of Plaintiffs’ legal claims rest on theories that
BANA did not conduct “reasonable” investigations, or has “implied duties,” or took
measures that were too severe or caused too much delay. Though these and their
other theories of recovery command detail, Plaintiffs’ MCC relies largely on general
allegations about the experiences of unidentified “Cardholders,” or generalizes from
the experience of a few Plaintiffs and asserts that all of the Plaintiffs are therefore
entitled to prevail. The MCC simply does not satisfy Plaintiffs’ obligation to plead
the basis of each individual claim for relief.
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ARGUMENT
I.
PLAINTIFFS HAVE NOT STATED A CLAIM UNDER ANY CONTRACT THEORY.
A.
Plaintiffs Have Not Stated a Claim for Breach of the Account
Agreement.
BANA argued in its Motion to Dismiss that the MCC’s claim for breach of the
Account Agreement is inadequate, because all 267 Plaintiffs seek to recover under
three different theories but do not provide factual allegations showing that every
Plaintiff had stated a claim based on his or her individual experiences. Mem. at 8-9,
12, 13. The Motion was accompanied by an Appendix that visually demonstrated
the factual deficiencies that preclude each Plaintiff from seeking recovery under the
various theories that each asserts. See App’x to Mem. Plaintiffs’ Opposition
continues to rely on broad generalizations that fail to address the specific deficiencies
in each Plaintiff’s allegations or otherwise to respond to BANA’s arguments.1
Unauthorized Transaction Claims. Plaintiffs fail to dispel any of the four
separate grounds for dismissal of their claim that BANA breached Sections 9 and 11,
which govern claims of “unauthorized” transactions or transaction “errors.”2
First, many Plaintiffs do not allege that they suffered unauthorized or
erroneous transactions, but rather claim to have experienced other issues, such as
unspecified fraud or identity theft, that are not covered by Sections 9 or 11. Mem. at
8 & n.9. The Opposition never responds to this point, and thus effectively concedes
that those Plaintiffs have no claim of this type. The MCC’s broad allegation of this
breach on behalf of every Plaintiff must be dismissed. Whooley v. Tamalpais Union
High Sch. Dist., 399 F. Supp. 3d 986, 993 (N.D. Cal. 2019).
1 Plaintiffs continue to rely on the Yick preliminary injunction without responding to
BANA’s arguments as to why the order does not save the MCC. Mem. at 12.
2 Plaintiffs rely upon a version of the Account Agreement with a different governing
law provision. Opp. at 14 n.19. The Court should consider the version submitted by
BANA. See Reply ISO Request for Judicial Notice (“RJN Reply”), filed
concurrently herewith, at 1-2. In any event, there are no material differences between
California and North Carolina law for purposes of the arguments in BANA’s Motion
to Dismiss, and Plaintiffs do not contend that any exist. See, e.g., Mem. at 13-14.
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Second, Plaintiffs have not alleged that each of them provided both timely and
sufficient notice to trigger BANA’s contractual obligations under either section.
Mem. at 8. Plaintiffs attempt to defend some of their untimely reports of
unauthorized transactions by suggesting that a “reasonable time” for Section 9
purposes can exceed the EFTA/Reg E deadlines (Opp. at 15), but they ignore that
Section 9 grants BANA “sole discretion” to determine what is “reasonable” and that
Section 11 imposes reporting deadlines that several Plaintiffs’ allegations show they
did not meet. Chestnut Decl., Ex. 1, §§ 9, 11; Mem. at 8. Independently, Plaintiffs
also did not uniformly provide BANA with the contractually required information,
which further defeats the MCC’s sweeping demand. Mem. at 8; see also infra at 9.
Third, the Opposition does not deny that numerous Plaintiffs have been
reimbursed, but asserts that because “not all” of them have been, their “class-wide
claims” cannot be dismissed as moot. Opp. at 15. But BANA did not move to strike
the class allegations—Plaintiffs’ inability to satisfy Rule 23 will wait for another day
if this case survives dismissal. Fully-reimbursed Plaintiffs have no standing to bring
a contract claim because “when [a court] measure[s] a plaintiff’s standing, regardless
of whether the plaintiff sues individually or as class representative, [the court] look[s]
concretely at the facts that pertain to that plaintiff.” B.K. ex. Rel. Tinsley v. Snyder,
922 F.3d 957, 967 (9th Cir. 2019) (emphasis added) (cited by Plaintiffs, Opp. at 15);
see TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2208 (2021) (“Every class member
must have Article III standing . . . ”).3 Therefore, “Plaintiffs” have not collectively
stated a claim where many of their claims are mooted.
Finally, Plaintiffs do not respond effectively to BANA’s argument that the
3 Plaintiffs argue that fully-reimbursed Plaintiffs nevertheless have standing to sue
under Section 11 for untimely reimbursement, because the limitation of BANA’s
liability is in Section 9. Opp. at 14 n.20. But Section 9 defines the scope of BANA’s
liability for unauthorized transactions—which is limited to “the face amount of any
unauthorized card transaction.” Chestnut Decl., Ex. 1, § 9. Allowing Plaintiffs who
received “the face amount of any unauthorized card transaction” to bring an
additional claim for damages would render Section 9’s limitation meaningless.
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MCC allegations fail to state a claim for a violation of Section 9 and of Section 11
based on each Plaintiff’s individual facts. Mem. at 9-10. With respect to Section 9,
Plaintiffs ignore the express contractual language stating that transactions are not
“unauthorized” if “for any other reason [BANA] conclude[s] that the facts and
circumstances do not reasonably support a claim of unauthorized use.” Mem. at 10.
Plaintiffs allege only that the Claim Fraud Filter was “flawed,” but the MCC does
not allege any facts that would, if proven, show that the denial of each Plaintiff’s
Claim was necessarily an improper “conclu[sion] that the facts and circumstances do
not reasonably support a claim of unauthorized use,” particularly when this allegation
is viewed against the backdrop of the massive amount of (undisputed) fraud targeting
this program. Plaintiffs do not even allege that all of their Claims were denied based
on the Filter. See infra at 10. With respect to Section 11, which does not specify
how an investigation must be conducted, Plaintiffs likewise do not articulate how use
of the Claim Fraud Filter breached any contractual provision.
Account Freezes. Plaintiffs attempt to defend their account-freeze theory of
contract breach by asserting that BANA did not have a “reasonable basis” for
suspecting fraud with respect to any of their accounts because the Claim Fraud Filter
was “unreliable.” Opp. at 15-16. But “reasonable basis” is not the relevant
contractual standard; rather, Section 2 permits BANA to freeze accounts if it
“suspect[s] irregular, unauthorized, or unlawful activities.” Chestnut Decl., Ex. 1,
§ 2 (emphasis added). The MCC fails to allege any facts to show that BANA lacked
such a suspicion, based on the Claim Fraud Filter or otherwise—and particularly in
light of the overwhelming fraud targeting state benefits programs—when it froze any
Plaintiff’s account. Mem. at 12.
As for Plaintiffs’ assertion that BANA maintained freezes for longer than
necessary, they point only to general allegations that accounts belonging to
unspecified “Cardholders” were not unfrozen immediately after they re-verified their
application with EDD. Opp. at 16. As is typical of the MCC, although this theory
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seeks relief for all Plaintiffs (and is not even limited to those who allege frozen
accounts, see App’x Column 6), only two (out of 267) Plaintiffs actually allege that
they re-verified their applications and their account was not unfrozen right away, and
even these two do not allege the length of the alleged delay. MCC ¶¶ 221, 259.
Funding Instructions. In response to BANA’s argument that Plaintiffs alleged
no facts to support their claim that BANA uniformly violated contractual provisions
requiring funds to be available on the day EDD instructed BANA to fund an account,
Plaintiffs point only to a general allegation that account freezes prevent access to
continuing benefits payments. Opp. at 16. That allegation is not sufficient to support
their claim, as it fails to establish that EDD gave BANA any funding instruction.
Mem. at 13. Plaintiffs also fail to respond to the argument that the Account
Agreement’s general funding provisions cannot be used to override and nullify the
specific provisions authorizing account freezes. Id. at 13-14.
In sum, the direct contract breach claims must be dismissed because they are
brought on behalf of all Plaintiffs but the MCC does not support such a recovery. If
this was a single-plaintiff lawsuit, the claim would fail unless that plaintiff alleged
facts stating an individual claim for relief. The fact that there are 267 Plaintiffs
provides no legal or practical excuse not to apply that same principle.
B.
Plaintiffs Have Not Stated a Claim Under the Implied Covenant.
Plaintiffs’ implied covenant claim impermissibly seeks to expand the Account
Agreement. Mem. at 14-15. Plaintiffs assert that BANA breached the implied
covenant by failing to provide chip cards and “reasonably adequate customer
service.” Opp. at 18. But the Account Agreement does not address card security or
customer service, and so the claim fails because Plaintiffs have not identified any
“express terms of the contract on which to hinge the implied duty.”4 Quintero Fam.
4 Plaintiffs’ theory seemingly would imply a “good customer service” requirement
into most consumer contracts, whenever one could argue that “reasonably adequate”
customer service is needed to help them assert their rights. That is not the law.
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Tr. v. OneWest Bank, F.S.B., 2010 WL 392312, at *13 (S.D. Cal. Jan. 27, 2010); see
Das v. WMC Mortg. Corp., 831 F. Supp. 2d 1147, 1165 (N.D. Cal. 2011) (dismissing
implied covenant claim where “Plaintiffs have not stated that any of these alleged
contractual duties were incorporated into the specific terms of the loan agreement”);
Hancock v. Americo Fin. Life & Annuity Ins. Co., 378 F. Supp. 3d 413, 431-32
(E.D.N.C. 2019) (same).
As for Plaintiffs’ assertion that BANA’s denial of Claims and freezing of
accounts were contrary to Plaintiffs’ “legitimate expectations,” Opp. at 18, that
theory fails because (1) it is impermissibly duplicative of the breach of contract claim
based on the same allegations, Mem. at 15-16, and (2) the implied covenant cannot
be invoked to challenge actions permitted by express contractual terms, id. at 14-15.
See EM Gen., LLC v. Ecommerce, LLC, 2021 WL 4497888, at *4 (C.D. Cal. July 28,
2021) (freezing of plaintiff’s funds was “expressly allowed” and therefore did not
“frustrate[] Plaintiff’s right to receive benefits”); Carma Devs., Inc. v. Marathon Dev.
Cal. Inc., 2 Cal. 4th 342, 374, 376 (1992) (same).
Plaintiffs’ assertion that Claims were “arbitrarily” denied (Opp. at 18), is not
supported by the MCC, which alleges that the Claim Fraud Filter was inaccurate, not
arbitrary—an important distinction for a claim based on good faith. See Shamiryan
v. Allstate Northbrook Indem. Co., 2021 WL 3185782, at *5 (C.D. Cal. July 26, 2021)
(breach of implied covenant cannot rest on “unreasonable honest mistakes” or “bad
judgment”); Danby N.A., Inc. v. Travelers Ins. Co., 25 F. App’x 186, 194 n.9 (4th
Cir. 2020) (“honest disagreement” was not bad faith). As for Plaintiffs’ assertion that
accounts were frozen without “good cause” or investigation (Opp. at 19) that theory
is an impermissible use of the implied covenant to alter the contractual standard for
account freezes. Mem. at 14-15.
C.
Plaintiffs Have Not Alleged the Existence of An Implied Contract.
In response to BANA’s argument that Plaintiffs failed to allege facts to show
an “implied” contract (Mem. at 16-17), Plaintiffs recast their claim as one based on
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“implied contractual duties” arising out of the Account Agreement. Opp. at 16-18.
This theory was not pled in the complaint and therefore cannot be considered.
Whooley, 399 F. Supp. 3d at 993. Further, none of the cases that Plaintiffs cite stand
for the proposition that a separate “implied contract” exists on top of an express,
written contract. This claim is simply duplicative of Plaintiffs’ implied covenant
claim, and must be dismissed. See supra at 5-6.
II.
PLAINTIFFS FAIL TO STATE A CLAIM UNDER EFTA/REG E.
As explained in BANA’s opening brief, each Plaintiff’s EFTA/Reg E claim
fails for one or more of the following reasons: (1) many Plaintiffs do not allege that
they reported any “error” under EFTA/Reg E; (2) many Plaintiffs fail to allege that
they provided the requisite notice; (3) conclusory allegations about BANA’s
processes do not establish that BANA failed to investigate any individual Plaintiff’s
Claim; (4) a substantial number of Plaintiffs were fully reimbursed; and
(5) EFTA/Reg E cannot be expanded to impose obligations that appear nowhere in
the statute or regulation, such as limitations on account freezes.5 Mem. at 17-20. As
with the contract claim, the MCC seeks to hide its numerous pleading defects by
asserting that “Plaintiffs” have claims, and Plaintiffs’ Opposition again relies largely
on sweeping generalizations that ignore both the deficiencies in their own allegations
and the plain language of EFTA and Reg E.
A.
Numerous Plaintiffs Fail To Allege They Reported An “Error”
Within the Meaning of EFTA and Reg E.
Plaintiffs contend that they each adequately alleged that they reported an
5 With respect to this last argument, Plaintiffs merely assert, without explanation, that
BANA’s freezing or blocking of an account was an “unlawful effort to circumvent
EFTA and gives rise to treble damages” (Opp. at 9 n.12), but the treble damages
provision says nothing about frozen or blocked accounts. Nowhere does EFTA or
Reg E prohibit or regulate frozen or blocked accounts. Mem. at 20. Nor do Plaintiffs
attempt to defend their allegation that inadequate customer service can form the basis
of an EFTA claim, which is presumably what they meant when they alleged that
BANA adopted policies and practices to “frustrat[e] and obstruct[] [their] efforts to
submit unauthorized transaction claims.” MCC ¶ 536(a); see Mem. at 20.
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“error” under EFTA and Reg E, because, they say, the term “error” includes not just
an unauthorized or erroneous transaction, but also a mere request for information or
clarification. Opp. at 13.6 But such a request falls within Reg E’s definition of
“error” only if it “concern[s] an electronic fund transfer” (“EFT”). 12 C.F.R.
§ 1005.11(a)(1)(vii). A number of Plaintiffs allege only that they called BANA about
frozen accounts or “issues related to their accounts” (Opp. at 13 n.18), which are not
“errors” triggering the statute or regulation. Mem. at 17; App’x Columns 1 & 2.
Plaintiffs suggest that “error” nevertheless covers inquiries about frozen accounts, on
the theory that future benefits cannot be deposited and previously-deposited benefits
cannot be accessed when an account is frozen. Opp. at 13. This attempt to expand
EFTA and Reg E fails because (1) inquiries about the absence of an EFT do not
“concern[]” an EFT;7 (2) Plaintiffs allege that BANA funds their accounts (MCC
¶ 606), and therefore do not allege that deposits made to the accounts are EFTs;8 and
(3) even if an account was at one point funded by an EFT, subsequent account
inquiries do not “concern[]” that EFT9—indeed, inquiries about account access do
not appear anywhere on Reg E’s long list of “errors.”
B.
Plaintiffs Do Not Allege That They Uniformly Provided Requisite
Notice.
EFTA and Reg E require cardholders making an error claim to provide certain
information to the card issuer, including the reason why they “believe[] an error
exists.” Mem. at 18. Plaintiffs claim that they met this requirement universally, but
6 This theory must be disregarded as the EFTA/Reg E claim was pled based on reports
of “unauthorized transactions.” MCC ¶ 535; Whooley, 399 F. Supp. 3d at 993.
7 Reg E has another provision, separate and apart from the error resolution provision,
addressing requests about “whether [an EFT] occurred.” 12 C.F.R.
§ 1005.10(a)(1)(iii).
8 Intra-bank transfers are excluded from the definition of “electronic fund transfer.”
See 12 C.F.R. § 1005.3(c)(5)(iii).
9 See, e.g., 12 C.F.R. § 1005.11(a)(2)(i) (“The term ‘error’ does not include: (i) A
routine inquiry about the consumer’s account balance”) (emphasis added).
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rely only on the assertion that 25 of them (out of 267) alleged in the MCC why they
believed the disputed transactions to be unauthorized. Opp. at 6. But EFTA/Reg E
require those reasons to be reported to the financial institution—and the Federal
Rules require the remaining 242 Plaintiffs satisfy this requirement too. Mem. at 18.
Indeed, Plaintiffs’ acknowledgment that many of them merely allege that they
“reported the fraud to Bank of America via phone” (Opp. at 7 n.9) confirms their
failure to allege facts showing that each Plaintiff provided sufficient notice. Hill v.
Kaiser Found. Health Plan, 2011 WL 13243748, at *3 (N.D. Cal. March 8, 2011)
(requiring facts “specific to each plaintiff”). Alternatively, Plaintiffs argue that their
reporting must have been sufficient because BANA acted on many of their Claims.
Opp. at 7. But BANA’s voluntary decision to investigate and credit Claims does not
mean it was legally required to do so, nor does it mean that those Claims were
adequately reported.10 Finally, Plaintiffs’ request to amend to remedy insufficient
allegations should be rejected, as every Plaintiff has already amended their complaint
(in some cases, more than once), and they have not identified what, if any, facts they
would include in yet another amendment. In re Disney ERISA Litigation, 2017 WL
1505129, at *7 (C.D. Cal. April 21, 2017) (dismissing amended complaint where
plaintiffs “have not identified what additional facts they would allege if given the
opportunity to do so”).
C.
Plaintiffs Do Not Identify Specific Factual Allegations Showing
That BANA’s Investigation Violated EFTA/Reg E.
In defending their allegation that BANA did not conduct reasonable
investigations of their claims, Plaintiffs once again rely on generalizations to gloss
over the many deficiencies in individual Plaintiffs’ claims. They assert, for example,
that “Plaintiffs allege in detail” that their Claims were valid and BANA should have
concluded as such (Opp. at 8), ignoring the fact that the vast majority of them offer
10 Plaintiffs do not address BANA’s timeliness argument, which is another pleading
deficiency that warrants dismissal. See Mem. at 18.
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no facts whatsoever regarding their disputed transactions. Plaintiffs’ arguments do
not save their sweeping EFTA/Reg E claim, for two independent reasons.
First, Plaintiffs have offered no facts whatsoever to demonstrate that every one
of the investigations into their particular Claims was inadequate and unreasonable
given their individual facts. Hill, 2011 WL 13243748, at *2-3. In particular,
Plaintiffs do not allege that all of their Claims were denied based on the Claim Fraud
Filter—just those that were “flagged” (MCC ¶ 108)—and their assertion that Claims
were “often” (but not always) summarily denied (Opp. at 8) does not establish that
any particular Plaintiff’s Claim was denied either summarily or based on the Claim
Fraud Filter, or that the investigation into any particular Claim was inadequate. See,
e.g., App’x Column 5. The single example cited by Plaintiffs (that BANA failed to
contact a Walgreens store for video footage) is insufficient, as a matter of law, to
establish an EFTA/Reg E violation (Opp. at 8).11 The vast majority of Plaintiffs do
not even attempt to offer facts to support their assertion that BANA should have done
more to investigate their particular Claims, nor do they identify any facts that should
have distinguished them from fraudsters in BANA’s eyes. Plaintiffs’ sweeping
characterizations are not sufficient to show an EFTA or Reg E violation as to any
particular Plaintiff, Hill, 2011 WL 13243748, at *2-3, which means the MCC’s
allegations about an across-the-board violation cannot stand.
Second, even as to those Claims that may have been investigated with use of
this Filter, Plaintiffs acknowledge that EFTA does not prohibit automated
investigation measures; they simply assert, in a conclusory manner, that BANA’s
alleged “exclusive reliance” on its Claim Fraud Filter was nevertheless an EFTA
violation. Opp. at 9. But Plaintiffs offer no factual or legal support for the notion
that EFTA requires at least a portion of each investigation to be conducted manually,
11 See 12 C.F.R. § 1005.11(c)(4) (“[A] financial institution’s review of its own records
regarding an alleged error satisfies the requirements of this section if: (i) The alleged
error concerns a transfer to or from a third party; and (ii) There is no agreement
between the institution and the third party for the type of electronic fund transfer
involved.”) (emphasis added).
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or that it was unreasonable, as a matter of fact or law, for BANA to allegedly have
relied on the Filter—particularly when BANA was facing an avalanche of fraudulent
Claims from the individuals who defrauded the State out of billions of benefit dollars.
Plaintiffs’ assertions that the Claim Fraud Filter had a high false positive rate or that
BANA reached the wrong conclusion (Opp. at 8-9) are also insufficient to state a
claim standing on their own, as neither EFTA nor Reg E requires that an institution
reach the correct result in every instance. See 15 U.S.C. § 1693f; 12 C.F.R.
§ 1005.11. The use of “substantively identical” denial letters likewise fails to
establish that no reasonable investigation was conducted, as EFTA and Reg E do not
require that institutions provide every detail of their investigations, but only a
“written explanation” of the findings12—as is contained in the letters informing
cardholders that their Claims were closed “because [BANA] believe[s] the account
or the claim have been the subject of fraud or suspicious activity.” MCC ¶ 89.13
D.
Certain Plaintiffs’ Claims Are Moot.
Plaintiffs’ argument that they assert “class claims” (Opp. at 10-11) does not
save the fully-reimbursed Plaintiffs’ individual claims from dismissal. See supra at
3. Nor do Plaintiffs’ purported claims for statutory or treble damages (Opp. at 11),
since (1) claims for statutory damages do not create standing in the absence of
concrete injury (Ramirez, 141 S. Ct. at 2204-07), and (2) a treble damages claim
cannot confer standing, as “[t]here must be independent damages to treble” (HCB
Fin. Corp. v. McPherson, 8 F.4th 335, 344 (5th Cir. 2021)). Plaintiffs’ argument that
they were not reimbursed for the “time value of money” (Opp. at 11-12) fails because
fully-reimbursed Plaintiffs received more than required under EFTA, under which
they could have been held liable for up to $50 for each transaction (see 15 U.S.C.
12 15 U.S.C. § 1693f(d); 12 C.F.R. § 1005.11(d)(1).
13 This language directly contradicts Plaintiffs’ assertion that they did not receive a
“written explanation” of BANA’s findings. Opp. at 10. No further detail or
disclosure was required, as information about the specific reasons BANA suspected
fraud could be used by criminals to circumvent BANA’s anti-fraud measures.
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§ 1693g(a)), and the MCC does not allege that the “time value of money” from any
temporary delay was more than $50 for any transaction.
III.
PLAINTIFFS HAVE NOT STATED A CLAIM FOR BREACH OF THE EDD
AGREEMENT AS THIRD-PARTY BENEFICIARIES.
Plaintiffs’ Opposition fails to dispel either of the reasons as to why their claims
for breach of the EDD Agreement and its implied covenant fail: (1) Plaintiffs are not
third-party beneficiaries of the EDD Agreement; and (2) Plaintiffs have failed to
sufficiently allege any breach. Mem. at 20-23.
A.
Plaintiffs Are Not Third-Party Beneficiaries.
Under Goonewardene v. ADP, LLC, 6 Cal. 5th 817, 830 (2019), it is clear that
the “motivating purpose” of the EDD Agreement is to assist EDD in carrying out its
required payment responsibilities. Mem. at 22. Plaintiffs nevertheless argue that
they should be considered third-party beneficiaries because some contract provisions
benefit cardholders, and therefore, they speculate that EDD and BANA “plainly
intended” those provisions to benefit “only” cardholders and “not EDD.” Opp. at 20.
But the agreement clearly states that services are provided “for the EDD.” Mem. at
22. Further, “even a showing that the contract operates to the third parties’ benefit
and was entered into with them in mind” is not sufficient. Jafari v. F.D.I.C., 2015
WL 3604443, at *6 (S.D. Cal. June 8, 2015) (Burns, J.); Cleveland v. Ludwig Inst.
For Cancer Rsch. Ltd., 2020 WL 3268578, at *4, *7-10 (S.D. Cal. June 17, 2020).14
14 The cases Plaintiffs point to (Opp. at 20) do not state otherwise. For instance, Zigas
v. Superior Court, 120 Cal. App. 3d 827, 835 (1981), decided decades before
Goonewardene, involved a provision requiring HUD approval of rent increases,
which the court held could only benefit the tenants. Here, however, the fraud
protection and customer service provisions are part and parcel of the services
provided by BANA to EDD, in assisting EDD with the distribution of benefits. If
BANA did not provide these services, EDD would have to distribute benefits and
provide services itself, and therefore EDD also benefits from all of BANA’s services.
Plaintiffs’ argument that they can enforce the EDD Agreement because it contains
provisions not in the Account Agreement (Opp. at 21 n.27) would essentially allow
any third-party to claim beneficiary status despite the contracting parties’ intent to
limit the third-party to a separate and narrower agreement.
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Further, under California law, government contracts do not create third-party
beneficiaries unless the “contracts manifest [an] intent that the defendants pay
damages to compensate plaintiffs or other members of the public for their
nonperformance.” Martinez v. Socoma Cos., Inc., 11 Cal. 3d 394, 402 (1974); Lake
Almanor Assocs. L.P. v. Huffman-Broadway Grp., Inc., 178 Cal. App. 4th 1194,
1200-01 (2009). Plaintiffs allege no facts to satisfy that requirement or otherwise
show that their enforcement of the EDD Agreement is consistent with the contracting
parties’ objectives and “reasonable expectations.” Goonewardene, 6 Cal. 5th at 836.
To the contrary, allowing millions of benefits recipients to enforce the EDD
Agreement would wreak havoc on EDD’s own ability to administer its benefits
program, directly contradicting the contract’s goal of aiding in EDD’s distribution of
benefits. Mem. at 21; see Goonewardene, 6 Cal. 5th at 836 (considering “the
potential effect that permitting third party enforcement would have on the parties’
contracting goals”); Cleveland, 2020 WL 3268578, at *10. Doing so would also
impede the State’s future ability to seek assistance from vendors, if the specter of
enforcement by millions of individuals hangs over every private company that
contracts to provide services that in some way benefit State citizens, whether it is the
distribution of State benefits, payroll assistance, or disaster response.
B.
Plaintiffs Fail To Allege A Breach Of The EDD Agreement Or Its
Implied Covenant.
Plaintiffs also fail to allege that BANA breached the EDD Agreement or its
implied covenant.15 Plaintiffs do not and cannot dispute that EDD explicitly required
the use of magnetic strips and did not require chips. Chestnut Decl., Ex. 2, at 5 (Req.
#323). Plaintiffs assert that the Agreement does not “prohibit” chip cards (Opp. at
23), but the failure to perform an action not required by a contract is not a breach of
15 To the extent Plaintiffs assert a breach of the EDD Agreement or the implied
covenant based on a violation of EFTA, Regulation E, or the Account Agreement,
that claim fails for the reasons stated above. See supra Section II.
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that contract. Vargas v. Potter, 2009 WL 10699102, at *3 (C.D. Cal. Nov. 4, 2009).
As for Plaintiffs’ attempt to infer a chip-card obligation from the contract’s general
security provisions (Opp. at 23), that also fails because the contract contains a specific
provision about card technology—which does not require chips. See Cal. Civ. Code
§ 3534 (“Particular expressions qualify those which are general.”).
Plaintiffs argue that BANA breached the customer service requirements in the
EDD Agreement even in light of the Letter Agreement modifying those requirements
(Mem. at 23; Chestnut Decl., Ex. 316), because, they say, BANA failed to use
“commercially reasonable” efforts as required by the Letter Agreement. Opp. at 24-
25. But Plaintiffs assert only that long wait times are not reasonable, and offer no
facts to show that BANA made unreasonable efforts to provide customer service,
particularly in light of skyrocketing unemployment rates. See, e.g., MCC ¶¶ 74-75.17
Finally, Plaintiffs offer only a conclusory assertion that BANA “exercised [its]
discretion in objectively unreasonable ways” in support of their implied covenant
claim. Opp. at 25. But an implied covenant cannot be used to expand or contradict
obligations in the written contract (such as by requiring chip cards) (Mem. at 23) and
Plaintiffs’ failure to tie an allegedly implied duty to any express contractual terms
provides an additional reason to dismiss this claim. See supra at 5-6.
IV.
PLAINTIFFS HAVE FAILED TO STATE A CLAIM FOR NEGLIGENCE OR
NEGLIGENT SUPERVISION.
Plaintiffs fail to rebut the three separate grounds for dismissal of their
negligence claims: the economic loss rule, the law that banks do not owe tort duties
of care, and the absence of factual allegations to establish causation. Mem. at 24-27.
A.
The Economic Loss Rule Precludes Plaintiffs’ Negligence Claims.
Although courts routinely dismiss economic loss claims in cases against a bank
16 Plaintiffs’ attempt to disregard the Letter Agreement fails, as that document amends
the EDD Agreement on which Plaintiffs’ claims are based. See RJN Reply at 4-5.
17 Further, most Plaintiffs offer no facts about their customer service experiences and
therefore have not stated a claim for relief based on their own individual situation.
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arising from fraudulent activity (Mem. at 24-25), Plaintiffs suggest that their harms
are not purely economic, pointing to the alleged “denial of access to necessary
information and wasted time caused by grossly inadequate customer service.” Opp.
at 29. But those harms are also precluded as they are predicated on alleged economic
losses. See Anthony v. Kelsey-Hayes Co., 25 Cal. App. 3d 442, 446 (1972) (“loss of
use” is “incidental damage” that is “properly classified” as “economic loss” due to
“the nature of the damage of which it is an incident”); Gardiner v. Walmart Inc.,
2021 WL 2520103, at *8 (N.D. Cal. Mar. 5, 2021) (“the cost of lost time is an
economic harm not recoverable under the economic loss doctrine”).18
B.
As A Matter Of Law, BANA Does Not Owe Tort Duties Of Care.
Plaintiffs’ assertions that BANA owed “extracontractual duties,” “independent
of any contract,” arising from a “special relationship” or from a statute (Opp. at 29),
fail to establish that BANA owed any tort duty of care supporting a negligence claim.
First, California courts have repeatedly held that banks do not have a “special
relationship” with their depositors. Mem. at 25. Plaintiffs cite a handful of data-
breach cases (Opp. at 31), but those cases involved a narrow duty to safeguard
personal information entrusted to an employer or retailer and do not support the broad
duties Plaintiffs seek to impose here, such as a duty to provide a certain level of
customer service staffing.19 MCC ¶ 586. Plaintiffs’ suggestion that possession of
personal and account information gives rise to such broad tort duties directly
contradicts the case law that banks do not owe separate tort duties. Mem. at 30-32.
Plaintiffs’ special relationship theory also fails, as it hinges on the assertion
that BANA was the “exclusive” distributor of EDD benefits (Opp. at 33), which is
18 While a handful of courts have suggested that loss of time can form the basis of a
negligence claim, those decisions involved “time spent responding to a data breach,”
a privacy injury distinct from time spent responding to an alleged loss of funds. Stasi
v. Inmediata Health Grp. Corp., 501 F. Supp. 3d 898, 913 (S.D. Cal. 2020).
19 Plaintiffs cite Garcia v. Ocwen Loan Servicing, LLC, 2010 WL 1881098, at *3
(N.D. Cal. May 10, 2010), but that case involved a loan modification and in no way
undermines the bedrock principle that banks do not owe depositors a tort duty of care.
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contradicted by their own allegations that checks were available. E.g., MCC ¶ 100;
infra at 23. Plaintiffs’ allegations establish that their relationship with BANA was a
typical bank-depositor one that they were free to forgo, unlike in cases like Corona
v. Sony Pictures Entertainment, Inc., 2015 WL 3916744, at *5 (C.D. Cal. June 15,
2015), where the plaintiffs were required to provide personal information in order to
receive compensation. Plaintiffs’ assertion that a special relationship existed because
BANA was motivated by financial interests would render any action by a commercial
entity “morally condemnable.” Opp. at 31-32. Plaintiffs’ “special relationship”
theory also means the existence of a duty would vary depending on the individual
cardholder—there certainly is no “moral blame” or likelihood of injury in denying a
Claim, for example, if that cardholder has committed fraud, whether by fraudulently
obtaining benefits, or submitting false Claims to BANA, or both.20
Finally, Plaintiffs rely on assertions about “unreasonable data security
practices” to support a statute-based tort duty of care (Opp. at 29-30) but they still
identify no facts to support this theory, such as how data was actually stored. Mem.
at 26. Their single conclusory assertion that they “plausibly allege” a tort duty to
use EMV chips based on four statutes (GLBA, CFIPA, CCPA, and CCRA) is also
insufficient. Opp. at 34. Plaintiffs do not plead any provision of the CCRA, GLBA,
or CFIPA that require the use of chips; their CCRA claim is not even based on the
use of magnetic strip cards. MCC ¶¶ 562-574. There is also no duty to use chips
under the CCPA. See infra Section 19-20.21
C.
Plaintiffs Have Not Sufficiently Alleged Causation.
In response to BANA’s argument that Plaintiffs have alleged no facts to show
20 It is worth noting that Plaintiffs’ proposed class definition does not exclude all such
fraudsters, nor could it, given the impossibility of identifying every single fraudster
in a population of millions. MCC ¶ 527.
21 Plaintiffs also have no response to BANA’s argument that negligence per se is
inapposite here. Mem. at 25. “Negligence per se delineates a specific manner, based
upon statute or regulation, in which a breach of duty may be identified.” Heflebower
v. JPMorgan Chase Bank, NA, 2013 WL 5476806, at *11 (E.D. Cal. Sept. 30, 2013).
But “a breach is irrelevant” where, as here, “no duty has first been established.” Id.
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that BANA caused the fraudulent transactions (Mem. at 26-27), Plaintiffs assert that
some Plaintiffs experienced fraud after using their cards, and point to one plaintiff
(out of 267) who speculates that her card was “skimmed.” MCC ¶ 187; Opp. at 34.
Such speculation does not provide a plausible basis for concluding that Plaintiffs’
information was compromised because of BANA’s alleged conduct, particularly in
light of publicly-available information about EDD’s own security breaches, and
Plaintiffs’ own allegations about massive data breaches in recent years that have
nothing to do with BANA.22 E.g., MCC ¶ 62. The existence of so many other logical
(and documented) explanations for Plaintiffs’ asserted losses makes their single
asserted explanation insufficiently plausible. See, e.g., Ashcroft v. Iqbal, 556 U.S.
662, 681 (2009); In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104, 1108 (9th
Cir. 2012) (requiring “facts tending to exclude the possibility that the alternative
explanation is true”). Plaintiffs’ cited cases are inapposite, as they involved actual
evidence that hackers had stolen information (Opp. at 36); here, Plaintiffs provide no
concrete factual allegations to show any breach or theft. See supra at 2.
Plaintiffs’ claim of negligent supervision suffers from the same lack of factual
support for their “internal breach” theory. Plaintiffs merely assume that, because
they were the victims of a fraudulent transaction, someone inside the Bank must have
stolen their information. See, e.g., MCC ¶ 58. The Rule 12(b)(6) plausibility
threshold requires more than rank speculation. See Nemet Chevrolet, Ltd. v.
Consumeraffairs.com, Inc., 591 F.3d 250, 259 (4th Cir. 2009); supra at 17.23
V.
PLAINTIFFS HAVE FAILED TO ALLEGE A BREACH OF FIDUCIARY DUTY.
Despite acknowledging that a bank generally owes no fiduciary duty to its
22 See, e.g., California State Auditor Report 2018-129 (March 2019), at 9-14,
available at https://www.auditor.ca.gov/pdfs/reports/2018-129.pdf.
23 For this same reason, Plaintiffs have failed to establish a risk of future injury, as
necessary to support their request for injunctive relief. See Mem. at 27. Plaintiffs
object that they have standing because the alleged theft of their card information has
already led to unauthorized transactions (Opp. at 36), but, as discussed, Plaintiffs
have failed to sufficiently allege that the Bank’s practices were the cause of their
injuries or that any injury is “certainly impending.” See Mem. at 27.
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depositors, Plaintiffs nevertheless argue that BANA owes such a duty here, citing
Copesky v. Superior Court, 229 Cal. App. 3d 678 (1991). Opp. at 38. But Copesky
makes clear that the bank-depositor relationship is not “fiduciary, quasi-fiduciary or
fiduciary-like” and noted only that there might “special circumstances” where “banks
affirmatively offer trust and other specifically fiduciary services.” Id. at 691 n.12,
693 n. 14, 694. There are no such “special circumstances” here. There was no
“monopoly power” (Opp. at 38), as Plaintiffs were free to forgo the EDD Debit Card.
See infra at 23. That Plaintiffs may have been swayed by the convenience of the
EDD Debit Card did not “force[]” them to accept it nor put them in a “grossly unequal
bargaining position[].” Opp. at 38. As for Plaintiffs’ assertion that unemployment
benefits recipients are “uniquely vulnerable” such that a financial institution holding
their funds automatically becomes their fiduciary (Opp. at 39), that argument would
impose fiduciary duties with respect to some depositors but not others based solely
on individual economic circumstances (and could result in a disincentive for some
banks to provide services to the economically disadvantaged). Plaintiffs’ argument
would also apply to any bank accepting direct deposits: as unemployment benefits
are not need-based but act as a substitute for income, it necessarily follows that if a
bank holding unemployment benefits is a fiduciary, then so is an institution that holds
paychecks. That is not the law. See supra at 18.24
VI.
PLAINTIFFS FAIL TO STATE CLAIMS UNDER THE CCPA AND CCRA.
In response to BANA’s argument that the CCPA does not create any duty to
issue chip cards (Mem. at 29-30), Plaintiffs assert that the statute creates a duty to
generally follow “industry standards” (Opp. at 25). But Plaintiffs overlook the fact
that the CCPA only creates a right of action for breach of an existing duty and does
not create any new duties, and Plaintiffs do not identify any existing duty to issue
24 Plaintiffs’ reliance on a provision in the EDD Agreement about a “Contractor’s
Trust Account” (Opp. 39), is also not sufficient to establish that BANA held funds in
trust or provided fiduciary services for any individual Plaintiff. This language refers
to a single account held in the Contractor’s (i.e., BANA’s) name and not to the
millions of individual EDD cardholder accounts. ECF No. 90-6 at 19.
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chip cards. Mem. at 29-30. Plaintiffs cite Dugas, 2016 WL 6523428, at *10-11
(Opp. at 25), but that case involved an alleged failure to maintain reasonable
cybersecurity practices after the plaintiff provided personal identifying information
to the defendant—it did not recognize any separate duty to issue chip cards.
Plaintiffs separately argue that the CCPA creates a duty here based on the
“heightened vulnerability” of unemployment benefits recipients (Opp. at 26), but
there is simply no support in the statute for a duty based on personal circumstances
rather than the nature of the information to be protected. See, e.g., Cal. Civ. Code
§ 1798.150(a)(1) (“duty to implement and maintain reasonable security procedures
and practices appropriate to the nature of the information”) (emphasis added).
With respect to Plaintiffs’ theory that BANA improperly “collect[ed],”
“transmitt[ed],” or “stor[ed]” information (MCC ¶¶ 57, 551, 553-54), Plaintiffs assert
that BANA failed to conduct background checks or supervise subcontractors, and
offer a conclusory assertion about “a series of internal data breache[s].” Opp. at 27.
Those allegations, and their continued reliance on allegations made “on information
and belief” (id.), fail to show that any breach actually occurred, let alone that it caused
Plaintiffs’ alleged losses. Mem. at 28. There is not a single Plaintiff—let alone a
putative class representative—who offers concrete allegations establishing that they
were the victim of an internal data breach. See Hill, 2011 WL 13243748 at *2.
Plaintiffs’ CRA claim similarly fails, as Plaintiffs have not identified a data
breach that triggered any notification requirements under the statute. Mem. at 30-31.
Plaintiffs’ contention that BANA was “on notice” of unidentified security breaches
based on knowledge of unauthorized transactions is not sufficient to allege that a
breach occurred, as a data security breach at BANA is not the only (or even the most
likely) explanation for fraudulent transactions. Supra Section IV.C.
VII. PLAINTIFFS HAVE FAILED TO ALLEGE A VIOLATION OF THE UCL.
A.
Plaintiffs Cannot Recover Injunctive Relief Or Restitution.
In response to BANA’s argument that Plaintiffs are not entitled to injunctive
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relief or restitution (Mem. at 31), Plaintiffs first assert that this argument is
“premature.” Opp. at 43. But courts “routinely” dismiss UCL claims under these
circumstances. See, e.g., Klaehn v. Cali Bamboo, LLC, 2020 WL 3971518, at *9
(S.D. Cal. July 13, 2020) (Burns, J.); Mullins v. Premier Nutrition Corp., 2018 WL
510139, at *2 (N.D. Cal. Jan. 23, 2018).
Furthermore, Plaintiffs have not pled facts that would entitle them to any
equitable remedy, and their reliance on the Yick preliminary injunction (Opp. at 43)
does not remedy this deficiency. Plaintiffs’ UCL claim seeks three forms of
injunctive relief, two of which concern changes to BANA’s practices to “prevent
future unauthorized use” of Plaintiffs’ accounts. MCC ¶ 584. But Plaintiffs lack
standing to seek relief based on a “conjectural and hypothetical” future harm that
their accounts will be compromised in the future. Summers v. Earth Island Inst., 555
U.S. 488, 493 (2009). As for their request that BANA “process[]” their Claims (MCC
¶ 584), Plaintiffs do not respond to BANA’s argument that this is merely an improper
attempt to “transform a claim for damages into an equitable action by asking for an
injunction that orders the payment of money.” Mem. at 32.
In response to the argument that restitution is not available because the alleged
theft was committed by third-party fraudsters, Plaintiffs cite Cortez v. Purolator Air
Filtration Products Co., 23 Cal. 4th 163 (2000), which held that unpaid wages are
recoverable under the UCL. Id. at 178. That case is inapposite, as an employer
clearly profits from retaining unpaid wages. Here, BANA received none of the funds
allegedly taken upon Plaintiffs. Restitution is therefore not available. Korea Supply
Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1150 (2003); Mem. at 31-33.
B.
Plaintiffs Have Failed To Allege A Violation Of The UCL.
Plaintiffs have failed to state a claim under either the “unlawful” or “unfair”
prong of the UCL. With respect to “unlawful” acts, this claim must be dismissed to
the extent it is predicated on Plaintiffs’ EFTA, CCPA, CCRA, due process, and
common law claims, as those claims also fail. See Price v. Grand Bank For Sav.,
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Plaintiffs have no response to BANA’s argument (Mem. at 33) that they failed to
plead a violation of the GLBA or the CFIPA, and therefore have “ma[de] no serious
effort to plead a violation of . . . these predicate statutes.” Lit’l Pepper Gourmet, Inc.
v. Airgas USA, LLC, 2019 WL 6218780, at *4 (S.D. Cal. Nov. 21, 2019) (Burns, J.).
As to the unfairness prong, Plaintiffs recite the legal standard but fail to
confront the fatal flaw in their theory: it cannot be “unfair,” under any test, for a
company to combat fraud targeted at a state benefits program into which the
government has infused billions of dollars to help the economy during an
unprecedented global pandemic. Plaintiffs’ conclusory assertion that BANA’s anti-
fraud practices “had little (if any) legitimate utility” (Opp. at 41), is not plausibly
supported by the facts, particularly Plaintiffs’ own allegations about the level of fraud
targeting government unemployment benefits programs. E.g., MCC ¶ 79.25
Finally, Plaintiffs acknowledge that the UCL “does not give the courts a
general license to review the fairness of contracts,” but nevertheless assert that they
can maintain a claim based on account freezes expressly permitted by the Account
Agreement because other courts have permitted UCL claims based on conduct
authorized by contract. Opp. at 42. Those cases, however, found the challenged
contractual provisions to be unconscionable, and therefore “unlawful” under the
UCL. See Moran v. Prime Healthcare Mgmt., Inc., 3 Cal. App. 5th 1131, 1148-49
(2016); De La Torre v. CashCall, Inc., 5 Cal. 5th 966, 981 (2018). Plaintiffs have
failed to allege that a contract allowing a bank to freeze an account based on suspicion
of “irregular, unauthorized, or unlawful activities” is unconscionable.
25 Plaintiffs also fail to respond to BANA’s argument that they have alleged no
“established” public policy in California requiring chip cards and that UCL claims
cannot be based on allegedly dissatisfactory customer service. Mem. at 34-35. As
for Plaintiffs’ argument that an unfairness claim cannot be resolved on a motion to
dismiss, courts routinely dismiss unfairness claims at the pleading stage where, as
here, plaintiffs have failed to plausibly allege an unfair practice. See, e.g., Klaehn,
2020 WL 3971518, at *8; Lit’l Pepper Gourmet, 2019 WL 6218780, at *4.
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VIII. PLAINTIFFS’ DUE PROCESS ARGUMENT FAILS.
A.
BANA Is Not a State Actor.
Plaintiffs fail to demonstrate that BANA—a private bank—was acting “under
color of state law” when it froze certain Plaintiffs’ accounts, such that this conduct
was “fairly attributable to the State.” Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S.
40, 49-50 (1999); see Blum v. Yaretsky, 457 U.S. 991, 1004 (1982) (critical question
is whether “it can be said that the State is responsible for the specific conduct of
which the plaintiff complains”). BANA was neither performing a public function nor
engaged in joint action with the state.
With respect to Plaintiffs’ argument that BANA engaged in the
“administration” of unemployment benefits (Opp. at 44), they do not allege that
BANA played any role in determining or revoking their benefits eligibility; to the
contrary, some allege that they continued to receive benefits even after their account
was frozen. E.g., MCC ¶¶ 100. Cahoo v. SAS Inst Inc., 322 F. Supp. 3d 772 (E.D.
Mich. 2018), is thus inapposite, as that case involved private entities operating a
process that not only detected benefits fraud, but made subsequent determinations
that claimants had acted unlawfully and assessed penalties. Id. at 785-86, 801-02.
Plaintiffs’ attempt to expand state action to cover, here, the freezing of a private bank
account simply because it holds funds that were deposited by the State—based on an
eligibility determination made by the State, not by BANA—ignores the Supreme
Court’s admonition that “very few” functions have been “exclusively reserved to the
states.” Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 158 (1978). This theory, like
many others asserted by Plaintiffs, would hamper the State’s operations by
disincentivizing private companies from providing any services to the State.
Plaintiffs’ attempt to characterize the EDD Debit Card as the “exclusive”
means of distributing their benefits is contradicted by their own allegations. They
acknowledge that benefits can be distributed by check, but complain only that the
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check “option is neither publicized nor easily accessed.” MCC ¶ 47 n.1.26 The
assertion that obtaining a check required “extraordinary efforts” (Opp. at 46 n.44) is
not supported by the allegations Plaintiffs cite, which simply reflect the dates on
which two Plaintiffs received checks from EDD, with no allegations about any
“efforts” involved in that process. MCC ¶¶ 172-74, 221-23. This case is therefore
entirely distinguishable from Brown v. Stored Value Cards, Inc., 2016 WL 4491836
(D. Or. Aug. 25, 2016), where formerly incarcerated individuals had “no choice on
how to retrieve” their funds. Id. at *2. That is decidedly not the case here.
As for joint action, although Plaintiffs allege that they are not challenging
State-requested account freezes (MCC ¶¶ 50, 52-53)—and in fact propose a subclass
of individuals whose accounts remained frozen in defiance of the State’s alleged
instructions (id. ¶ 528)—they now argue that EDD nevertheless “facilitate[d]”
BANA’s account freezes by “encouraging” BANA to combat fraud (including by
asking BANA to freeze other accounts, not at issue here). Opp. at 46-47. But the
specific account freezes challenged in this case were not requested or endorsed (and,
according to Plaintiffs, may even have been opposed) by the State, and therefore
cannot be “fairly treated as that of the State itself.” Sullivan, 526 U.S. at 52; Caviness
v. Horizon Cmty. Learning Ctr., Inc., 590 F.3d 806, 812 (9th Cir. 2010) (“inquiry
begins by identifying the specific conduct of which the plaintiff complains”); Blum,
457 U.S. at 1003 (analyzing the precise conduct to which “respondents objected”).27
26 Plaintiffs also offer no citation for their assertion that “class members are informed
by EDD that debit cards are the only option.” Opp. 46 n.44; Sukumar v. Int’l Olympic
Comm., 2021 WL 2206476, at *3 (S.D. Cal. June 1, 2021) (refusing to consider facts
“raise[d]” in the opposition but “not alleged in the complaint”).
27 Plaintiffs’ cited cases (Opp. at 47) are inapplicable as they involve situations where
the private entity exercised the state’s authority or acted with full government
approval. See Tsao v. Desert Palace, Inc., 698 F.3d 1128, 1140-41 (9th Cir. 2012)
(security guards had “the authority, normally reserved to the state,” to issue criminal
citations); Swift v. Lewis, 901 F.2d 730, 732 n.2 (9th Cir. 1990) (private actor
determined applicability of prison policies); Geneva Tower Tenants Org. v.
Federated Mortg. Invs., 504 F.2d 483, 487-88 (9th Cir. 1974) (rent increases could
be implemented only after approval from the federal government).
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Plaintiffs’ argument that revenue-sharing is sufficient to establish joint action
because EDD “directly benefits financially from BofA’s earnings” (Opp. at 48), is
based solely on Burton v. Wilmington Parking Authority, 365 U.S. 715, 716 (1961),
a sixty-year-old case involving racial discrimination by a restaurant in a building
“owned, “operated by,” and leased from the State. But in Burton, the discriminating
restaurant’s profits “not only contribute[d] to, but also [were] indispensable elements
in, the financial success of a government agency.” Id. at 724 (emphasis added). As
this statement suggests, and as the Supreme Court has since emphasized, mere
financial benefit is insufficient. Rendell-Baker v. Kohn, 457 U.S. 830, 842-43 (1982).
In line with this approach, the Ninth Circuit has “repeatedly distinguished Burton and
declined to expand its applicability.” Pasadena Republican Club v. W. Just. Ctr.,
985 F.3d 1161, 1168 (9th Cir. 2021). Under Ninth Circuit precedent, the conduct at
issue “must be inextricably intertwined with that of the government.” Id. (emphasis
added) Plaintiffs’ allegations do not meet that standard, as they do not establish that
the account freezes were “an indispensable element in [the state’s] financial success.”
Vincent v. Trend W. Tech. Corp., 828 F.2d 563, 569 (9th Cir. 1987).
B.
Plaintiffs Have Not Sufficiently Alleged A Due Process Violation.
Even if BANA were a state actor, Plaintiffs have not adequately alleged any
due process violation. To begin, Plaintiffs’ allegations establish that an account
freeze does not cut off eligibility or entitlement to benefits—it just requires the
benefits recipient to choose a different method of delivery. See supra at 23. Thus,
with respect to future benefits, there is no deprivation of any property interest, and
therefore no due process claim. See, e.g., Tate v. Univ. Med. Ctr. of S. Nev., 637 F.
Supp. 2d 892, 8998 (D. Nev. 2009) (no deprivation of property interest where
defendants “limited one of several avenues” by which plaintiff could exercise his
clinical privileges, but did not “limit the privilege itself”). The cases that Plaintiffs
cite about termination of benefits, which involved eligibility determinations
precluding all future benefits, are thus inapplicable. See Mathews v. Eldridge, 424
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U.S. 319, 338 (1976); Goldberg v. Kelly, 397 U.S. 254, 258 (1970); Am. Federation
of Lab. v. Emp’t Dev. Dep’t, 88 Cal. App. 3d 811, 817-19 (1979).
With respect to previously deposited funds in a frozen account, pre-deprivation
process can be suspended if “notice would defeat the entire point of the seizure.”
Clement v. City of Glendale, 518 F.3d 1090, 1094 (9th Cir. 2008). That is precisely
the case here. Requiring advance notice would allow fraudulent actors to drain their
accounts of the funds that the account freeze is intended to protect. U.S. v. Real
Property Located at 1184 Drycreek Road, Granville, Ohio 43023, 174 F.3d 720, 730
(6th Cir. 1999) (government interest in avoiding loss or destruction of property can
justify foregoing pre-deprivation process). Plaintiffs object that this principle applies
only where there is “substantial assurance that the deprivation is not baseless or
unwarranted,” Fed. Deposit Ins. Corp. v. Mallen, 486 U.S. 230, 240 (1988), but they
have not alleged facts to show that the freezes were “baseless or unwarranted,”
particularly in light of the extensive fraud targeting unemployment benefits
programs. MCC ¶ 79 & n.9.
As for post-deprivation process, Plaintiffs simply cite two general assertions
about BANA’s processes (Opp. at 50), which is not sufficient to establish a due
process violation as to any Plaintiff, particularly as Plaintiffs’ allegations make clear
that BANA provided a post-deprivation process for cardholders seeking access to
their accounts. Mem. at 40 n.22; see MCC ¶¶ 193, 340.
CONCLUSION
For the foregoing reasons, and the reasons stated in its opening brief, BANA
respectfully requests that the Court dismiss Plaintiffs’ Master Consolidated
Complaint (ECF No. 72) with prejudice.
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Dated: December 15, 2021
Respectfully submitted,
By: s/__Yvonne W. Chan_______________
JAMES W. MCGARRY (pro hac vice)
JMcGarry@goodwinlaw.com
YVONNE W. CHAN (pro hac vice)
YChan@goodwinlaw.com
GOODWIN PROCTER LLP
100 Northern Avenue Boston, MA 02210
Tel.: +1 617 570 1000
Fax: +1 617 523 1231
THOMAS M. HEFFERON (pro hac vice)
THefferon@goodwinlaw.com
GOODWIN PROCTER LLP
1900 N St. NW
Washington, DC 20036
Tel: +1 202 346 4000
Fax: +1 202 346 4444
LAURA A. STOLL (SBN 255023)
LStoll@goodwinlaw.com
GOODWIN PROCTER LLP
601 South Figueroa Street,
41st Floor Los Angeles, California 90017
Tel.: +1 213 426 2500
Fax: +1 213 623 1673
JANICE P. BROWN (SBN 114433)
jbrown@meyersnave.com
ARLENE R. YANG (SBN 297450)
ayang@meyersnave.com
MEYERS NAVE
600 B Street, Suite 1650
San Diego, CA 92101
Tel: +1 619 569 2099
Fax: +1 619 330 1701
BARRY W. LEE (SBN 088685)
bwlee@manatt.com
MANATT PHELPS & PHILLIPS LLP
One Embarcadero Center, 30th Floor
San Francisco, CA 94111
Tel.: +1 415 291 7450
Fax: +1 415 291 7474
Attorneys for Defendant
BANK OF AMERICA, N.A.
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REPLY MEMORANDUM OF POINTS AND
AUTHORITIES ISO MOTION TO DISMISS
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CASE NO. 21-MD-02992-LAB-MSB
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CERTIFICATE OF SERVICE
I hereby certify that I electronically filed the foregoing with the clerk of the
court for the United States District Court for the Southern District of California by
using the CM/ECF system on December 15, 2021. I further certify that all
participants in the case are registered CM/ECF users and that service will be
accomplished by the CM/ECF system. I certify under penalty of perjury that the
foregoing is true and correct.
Executed: December 15, 2021
s/ Yvonne W. Chan
Yvonne W. Chan
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