Law Firm Fox v. Chase Bank, N.A.

• Docket Number: B319265
• Decision Date: 05 September 2023
• Citation: 313 Cal.Rptr.3d 244,95 Cal. App. 5th 182
• Parties: The LAW FIRM OF FOX AND FOX, Plaintiff and Appellant, v. CHASE BANK, N.A., Defendant and Respondent.
• Court: California Court of Appeals

95 Cal.App.5th 182

313 Cal.Rptr.3d 244

The LAW FIRM OF FOX AND FOX, Plaintiff and Appellant,

v.CHASE BANK, N.A., Defendant and Respondent.

B319265

Court of Appeal, Second District, Division 7, California.

Filed September 5, 2023

The Law Firm of Fox and Fox and Frank O. Fox for Plaintiff and Appellant.

Cozen O'Connor and Brett D. Watson, Santa Monica, for Defendant and Respondent.

FEUER, J.

The Law Firm of Fox and Fox (Law Firm) appeals from a judgment entered after the trial court granted summary judgment in favor of Chase Bank, N.A.In 2020 the Law Firm filed this action against Chase alleging negligence in the disbursement of funds from a blocked account containing estate funds to the sole signatory on the account (as administrator of the estate), Jazzmen Brumfield (Brumfield).The Law Firm represented Brumfield as the administrator in the probate proceedings following the death of her father.The Law Firm alleged Chase was negligent in disbursing the entirety of the estate funds to Brumfield despite a probate court order specifying that Brumfield would receive at most $16,000 from the account, with most of the remaining funds to be paid to the Law Firm (and then to other beneficiaries as funds became available).On January 13, 2022the trial court granted Chase's motion for summary judgment, concluding Chase owed no duty of care to the Law Firm and had complied with the probate court order.

On appeal, the Law Firm contends it raised triable issues of fact with respect to whether Chase owed a duty to the Law Firm, whether Chase breached any such duty, and whether Chase's conduct in distributing the funds to Brumfield (who absconded with the funds) was the proximate cause of the Law Firm's damages.We conclude Chase owed the Law Firm a duty of care based on the special relationship it had with the Law Firm as an intended beneficiary of the probate court's order directing that the estate funds be deposited into a blocked account from which withdrawals could only be made "on court order"(blocked account order) and Chase's acceptance of that order by executing the "receipt and acknowledgment of order for the deposit of money into blocked account"(acknowledgment)(capitalization omitted).Chase certified in the acknowledgment that "no withdrawal of principal or interest from this account will be permitted without a signed court order."

In finding a duty, we consider the factors first articulated by the Supreme Court in Biakanja v. Irving(1958)49 Cal.2d 647, 320 P.2d 16( Biakanja ).Although banks do not generally have a duty to police customer accounts for suspicious activity, Chase owed the Law Firm, as an intended beneficiary of the blocked account order and acknowledgment, a duty to act with reasonable care in limiting distributions from the blocked account to those authorized by court order.

Chase contends it properly distributed all of the blocked funds pursuant to the probate court's order approving final account and report of administrator in the matter of In re Estate of Lamont Brumfield(the final probate order), which approved the final account and set the amounts Brumfield and the Law Firm were "authorized" to receive before payment of the beneficiaries.However, the order did not direct Chase to pay specific amounts to Brumfield or the Law Firm, and therefore, distribution of all the funds (or any funds) in the blocked account to Brumfield was unauthorized absent a further court order.Accordingly, there were triable issues of fact whether Chase breached its duty and whether that breach caused the Law Firm harm by allowing Brumfield to withdraw all the funds in the account.We reverse.

FACTUAL AND PROCEDURAL BACKGROUND

A.The Disbursement of Funds in the Probate Case¹

Brumfield hired the Law Firm² to represent her as the administrator of the estate of Lamont Brumfield in the probate case, In re Estate of Lamont Brumfield(Super. Ct. L.A. County, 2017, No. 17STPB05296).On June 25, 2018 the probate court entered the blocked account order, which confirmed the sale of real property belonging to the estate and directed the establishment of a blocked account with Chase.The order specified: "Net sale proceeds must be deposited by escrow holder in a blocked account to be withdrawn only on court order.Receipts must be filed."

The blocked account order was presented to Chase on October 31, 2018.The same day, Chase opened a blocked account and deposited into the account the net proceeds from the sale in the amount of $63,383.47.On November 7, 2018 an attorney-in-fact for Chase executed the acknowledgment using Judicial Council Form MC-356.By signing the form, Chase (through its attorney-in-fact) acknowledged receipt of the blocked account order and certified that no withdrawal from the blocked account would be permitted "without a signed court order under this case name and number, bearing the seal of this court."Brumfield was designated as the administrator and only authorized signatory on the account.Brumfield signed a personal signature card that also identified her as the only authorized signatory on the account.

On December 20, 2019 the probate court issued the final probate order closing administration of the estate.The order provided in paragraph 2 that Brumfield was "authorized and directed to receive statutory compensation for services rendered, in the sum of $16,000.00."Paragraph 3 provided the Law Firm was "authorized and directed to receive: [¶] a. Statutory compensation for services rendered, in the sum of $16,000.00; [¶] b. Extraordinary compensation for legal services rendered, in the sum of $44,151.25; and [¶] c. Costs, in the sum of $6,173.39."The order specified that "[t]he amounts detailed in paragraphs 2 and 3, above, shall be paid from the balance of the funds remaining ($47,383.47) and the unpaid balance, from any currently unknown assets of the Decedent later discovered."

The final probate order also provided for distribution of the balance of the funds remaining in the account to pay creditor's claims by the California Department of Child Support Services in specific amounts, and if there were any remaining assets, distribution in equal shares to Brumfield and minors Nehemiah Brumfield and Chaz Brumfield.Finally, the order closed the administration of the estate.

Fox drafted and lodged with the probate court the final probate order.Only Fox appeared at the hearing for the final account and report of administrator.³

On January 14, 2020 Fox and Brumfield brought the final probate order to a Chase branch and presented it to Sergio Chun, a private client banker.According to Fox, he advised Chun that no funds could be distributed from the blocked account without both Fox and Brumfield being physically present.Fox further instructed Chun that the funds were to be paid separately to Fox and Brumfield directly from the account.Fox stated in his declaration that Chun agreed to these terms, but Chase disputed that Chun agreed (or had authority to agree).Chun stated in his declaration that he informed Fox and Brumfield that no one at the branch level was authorized to review court documents or release funds held in blocked accounts.He said he would forward the final probate order to the appropriate Chase department and offered to call Fox and Brumfield when a decision was made regarding the final probate order and the blocked account.

According to a declaration from John M. Chiavacci, a Chase transaction specialist, Brumfield made a "series of withdrawals from the [b]locked [a]ccount" from January 21 to January 23, 2020.⁴It is undisputed that Brumfield withdrew the entirety of the funds in the blocked account.

B.This Lawsuit, the Demurrers, and the Grant of Summary Judgment in Favor of Chase

On April 14, 2020 the Law Firm filed this action alleging a single cause of action for negligence against Chase.After Chase filed a demurrer, the Law Firm filed a verified first amended complaint on September 15, 2020.The first amended complaint identified Brumfield as Doe 1.Chase demurred again, and on January 22, 2021the trial court overruled the demurrer and denied Chase's accompanying request for judicial notice, reasoning Chase's arguments "go outside the pleading."

Chase filed its motion for summary judgment on October 12, 2021.Chase primarily argued, as it does on appeal, that it owed no duty to the Law Firm.Chase asserted seven arguments: (1) banks have limited general duties toward their depositors; (2) banks have limited general duties to noncustomers; (3) the economic loss rule barred recovery; (4) Chase and the Law Firm did not have a fiduciary relationship; (5) there was a lack of foreseeability of harm; (6) the narrow duty placed on banks to guard against specific types of check fraud did not apply; and (7) Chase had only a limited duty "to keep the funds frozen in the [b]locked [a]ccount until the court determined that the funds could be released," and it satisfied this duty by waiting to release the funds until the final probate order unblocked the account.⁵Chase also asserted the Law Firm could not show causation because once the funds were unblocked pursuant to the court order, Chase had no choice but to disburse them to Brumfield, and it was Brumfield who caused the injury.

In its opposition the Law Firm argued Chase owed the Law Firm a duty based on a special relationship arising from the probate proceedings that required Chase to exercise due care in distributing funds from the blocked account.The Law Firm further asserted that the factors set forth in Biakanja, supra , 49 Cal.2d 647, 320 P.2d 16 supported imposition of a duty.Moreover, the final probate order did not direct Brumfield to withdraw money to pay the Law Firm, but rather, directed Chase to pay the specified funds directly to the named recipients.

In its reply, Chase reiterated the seven theories it had advanced in its opening memorandum without addressing the Biakanja factors.Chase also submitted...