Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_03-cv-05474/USCOURTS-cand-5_03-cv-05474-1/pdf.json

Nature of Suit Code: 380
Nature of Suit: Other Personal Property Damage
Cause of Action: 28:1332 Diversity-Property Damage

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ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT—No. C-03-05474 RMW

JAH

E-FILED on 11/7/05

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

CHANCE WORLD TRADING E.C.,

Plaintiff,

v.

HERITAGE BANK OF COMMERCE; and

DOES ONE through TEN, inclusive,

Defendants.

No. C-03-05474 RMW

ORDER GRANTING DEFENDANT'S

MOTION FOR SUMMARY JUDGMENT

Re Docket Nos. 52, 56, 59]

Defendant Heritage Bank of Commerce moves for summary judgment on plaintiff Chance World

Trading's sole remaining cause of action, aiding and abetting a fraud. For the reasons set forth below, the

court grants the motion. 

I. FACTUAL BACKGROUND

Except where otherwise noted, the following facts are undisputed: Distant relatives Rajeev

Sawhney and Rani Yadav-Ranjan embarked together on a business venture. Mr. Sawhney agreed that his

company, Chance World Trading E.C., would finance technical testing of Ms. Yadav-Ranjan's product

idea. Construction Navigator, Inc., of which Ms. Yadav-Ranjan was the president, was to be the vehicle

for this venture. Chance World agreed to invest an intial $200,000 in Construction Navigator. The
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1 The parties disagree as to whether the two-signature requirement applied to all transfers out

of the account of over $10,000 (Chance World's position), or only checks drawn on the account for more

than $10,000 (Heritage Bank's position). Heritage Bank claims that the initial account paperwork includes

a notation of "2 sigs over $10,000." Decl. of Joan Leis, Ex. A. The court must consider the evidence in the

light most favorable to the non-movant on a motion for summary judgment, and the notation is susceptible

of Chance World's interpretation. For the purposes of this motion, the court will assume that two

signatures were required for any sort of transfer out of the account of over $10,000.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT—No. C-03-05474 RMW

JAH 2

investment agreement was memorialized in a term sheet, which specified that the $200,000 was to be used

solely for the limited purposes of technical development and testing of Ms. Yadav-Ranjan's idea. 

Construction Navigator opened a checking account with Heritage Bank of Commerce. There

were three designated signors on the account: Rani Yadav-Ranjan, Rajeev Sawhney, and Poonam

Sawhney (Mr. Sawhney's wife). The New Account Client Worksheet indicates that the account required

two signatures to authorize any transfer1 out of the account over $10,000. Signature cards were never

signed by the Sawhneys. On October 1, 2002, Chance World wired its initial investment of $200,000 to

the Construction Navigator account at Heritage Bank. 

Despite the terms of the investment agreement limiting use of the funds to technical development

and testing, Ms. Yadav-Ranjan used these funds to pay her personal salary, office rent, and other general

corporate expenses not related to the technical testing. To accomplish the alleged misappropriation of the

invested funds, Ms. Yadav-Ranjan opened a second Construction Navigator account at Heritage Bank. 

She presented Heritage Bank's employees with a “Corporate Resolution to Open a Bank Account” signed

by “President/Secretary Rani Yadav-Ranjan.” This permitted the opening of another account which, unlike

the first account, authorized checks signed solely by Rani Yadav-Ranjan. Subsequently, Ms. YadavRanjan transferred funds from the original Construction Navigator account into the newer account, without

ever acquiring the authorization of Mr. or Mrs. Sawhney. 

On January 19, 2003, plaintiff sent an e-mail stating that Ms. Yadav-Ranjan was misappropriating

the $200,000 plaintiff had invested and requesting a cessation of all activities in the original Construction

Navigator bank account. Decl. of Breck E. Milde, Ex. C. The email purported to be from Mr. Sawhney

and was addressed to several Construction Navigator personnel and "heritage@herbank.com." Id. 

According to uncontradicted testimony, heritage@herbank.com is "not a valid email address" for Heritage

Bank. Dep. of Joan Leis 67:14. 
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ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT—No. C-03-05474 RMW

JAH 3

Eventually, Ms. Yadav-Ranjan misappropriated the entire $200,000. None of the withdrawals of

this money was authorized by more than one signature. Chance World sued Ms. Yadav-Ranjan to recover

the money and eventually settled for $100,000.

Chance World filed suit against Heritage Bank for allowing this misappropriation to occur. The

court granted defendant's motion to dismiss the original complaint because plaintiff had not adequately pled

the existence of a contractual, statutory, or tort duty owed by defendant to plaintiff Chance World that had

been breached. Subsequently, plaintiff filed an amended complaint adding new causes of action, including

aiding and abetting a fraud. Only the aiding-and-abetting cause of action survived the defendant's second

motion to dismiss. 

II. LEGAL ANALYSIS

A. Legal standard

Summary judgment is proper when the pleadings, discovery and affidavits show that there is "no

genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." 

FRCivP 56(c). Material facts are those which may affect the outcome of the case. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient

evidence for a reasonable jury to return a verdict for the non-moving party. Id. A party moving for

summary judgment who does not have the ultimate burden of persuasion at trial has the initial burden of

producing evidence negating an essential element of the non-moving party's claims or showing that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of

persuasion at trial. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000).

Jurisdiction in this case is based on diversity of citizenship, see 28 U.S.C. § 1332(a)(2), and this

court must therefore use California law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). The Ninth

Circuit has explained courts are to determine state law thusly: 

When interpreting state law, federal courts are bound by decisions of the state's highest

court. In the absence of such a decision, a federal court must predict how the highest state

court would decide the issue using intermediate appellate court decisions, decisions from

other jurisdictions, statutes, treatises, and restatements as guidance. However, where there
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2 This section generally requires a bank to ignore all demands made upon an account by

anyone other than an account holder. There are exceptions for actions compelled by court order, and for

account freezes of up to three days demanded by an adverse claimant who presents the bank with an

affidavit. Cal. Fin. Code § 952(a), (b). Neither of these exceptions apply to the instant case.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT—No. C-03-05474 RMW

JAH 4

is no convincing evidence that the state supreme court would decide differently, a federal

court is obligated to follow the decisions of the state's intermediate appellate courts. 

Lewis v. Tel. Employees Credit Union, 87 F.3d 1537, 1545 (1996) (internal quotation marks and

citations omitted); see also Vestar Dev. II, LLC v. Gen. Dynamics Corp., 249 F.3d 958, 960 (9th Cir.

2001). 

In California, a claim for aiding and abetting a tort requires two things: knowledge of the underlying

tort, and substantial assistance in its commission. The law pertinent to plaintiff's claim is most clearly stated

in Saunders v. Superior Court: "Liability may . . . be imposed on one who aids and abets the commission

of an intentional tort if the person . . . knows the other's conduct constitutes a breach of duty and gives

substantial assistance or encouragement to the other to so act." 27 Cal. App. 4th 832, 846 (1994). A

later court emphasized that "California courts have long held that liability for aiding and abetting depends on

proof the defendant had actual knowledge of the specific primary wrong the defendant substantially

assisted." Casey v. U.S. Bank Nat'l Ass'n, 127 Cal. App. 4th 1138, 1147 (2005). California courts have

acknowledged that the tort of aiding and abetting is at odds with statutory limitations on bank liability, see

Cal. Fin. Code § 952,2 but the court in Casey nonetheless held that a bank can be liable for aiding and

abetting if it had "actual knowledge" of the underlying wrong. Id. at 1152-53.

However, on the specific facts in Casey, the court held that allegations that the defendant banks

allowed officers of a group of investment companies to engage in "skullduggery" was insufficient as an

allegation the banks had knowledge that the officers were breaching fiduciary duties, and thus aiding-andabetting liability could not attach to the banks. 127 Cal. App. 4th at 1151. Specifically, the plaintiff had

alleged that

the banks aided and abetted the [officers] in this money laundering scheme by allowing

them to open accounts with invalid tax identification numbers, which accounts were then

used to drain funds from the Estate to the accounts of individual directors, officers, their

families and affiliated companies; allowing large sums of cash, often in excess of $250,000

at a time and aggregating some $6 million, to be removed from [the banks'] cash vaults (in

unmarked duffel bags); violating banking regulations and the [banks'] own internal policies

and procedures; allowing obviously forged negotiable instruments to be paid; and, ignoring
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3 The evidence presented does not support all these purported facts.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT—No. C-03-05474 RMW

JAH 5

monetary restrictions ('not to exceed' limits) appearing on the face of individual checks by

paying sums in excess of such limits.

Id. at 1142 (internal quotation marks omitted; second and third alterations in original). In spite of this

egregious conduct, the court in Casey held that knowledge of such atypical banking procedures did not

constitute actual knowledge of the "underlying tort" required in a claim for aiding and abetting. Id. at 1151. 

The court held that "the banks' alleged knowledge of . . . suspicious account activities—even money

laundering—without more, does not give rise to tort liability for the banks." Id. (emphasis in original). 

B. Application 

In its motion for summary judgment, Heritage Bank does not deny that Chance World has evidence

that Heritage Bank provided substantial assistance to Ms. Yadav-Ranjan's transfer and withdrawal of the

funds originally deposited in the Construction Navigator account, which required two signatures for the

transfer or withdrawal of sums over $10,000. The disposition of Heritage Bank's motion instead hinges on

whether Chance World has raised a triable issue of material fact on the issue of whether Heritage Bank had

actual knowledge of Ms. Yadav-Ranjan's fraud. Chance World has not.

Chance World argues that from some combination of the following list of facts3 an inference can be

drawn that Heritage Bank knew Ms. Yadav-Ranjan was fraudulently misappropriating the $200,000

investment: 

(1) Heritage Bank knew Construction Navigator was a start-up company funded by a venture

capital firm, Chance World; 

(2) Heritage Bank knew that the initial $200,000 deposit into the Construction Navigator money

market account came from Chance World;

(3) Heritage Bank had a copy of the "term sheet" between Chance World and Construction

Navigator;

(4) Heritage Bank knew that Chance World was purchasing 51 percent of the Construction

Navigator stock;
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ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT—No. C-03-05474 RMW

JAH 6

(5) withdrawals for more than $10,000 authorized solely by Ms. Yadav-Ranjan were forbidden by

the terms of the bank account, the Construction Navigator corporate charter, and California

corporate law; and

(6) Heritage Bank allowed Construction Navigator to open a corporate banking account before

receiving a corporate resolution authorizing the opening of a bank account, which was against

Heritage Bank's policy.

Even assuming, for the sake of argument, that all of the above statements are supported by admissible

evidence, Chance World's contentions are unavailing. 

That Chance World was a venture capitalist or funded Construction Navigator does not compel the

inference that Ms. Yadav-Ranjan was misusing funds. (Otherwise, venture capital firms would never fund

start-up companies.) The term sheet contains in very general terms the substance of the agreement

between Chance World and Construction Navigator; it contains no restrictions on Construction Navigator's

use of funds. That Chance World was acquiring a majority interest in Construction Navigator does not

imply Heritage Bank knew of Ms. Yadav-Ranjan's misdealings. 

Even if the transfers out of Construction Navigator's accounts did not comport with Heritage Bank

rules or California corporate law, that alone is insufficient to show that Heritage Bank was aware of Ms.

Yadav-Ranjan's misuse of funds. Plaintiff, citing Casey and Neilson v. Union Bank of California, 290 F.

Supp. 2d 1101 (C.D. Cal. 2003), claims that such "atypical banking procedures" are, as a matter of

California law, evidence that a bank knows of the fraudulent behavior of a client. Plaintiff has misapplied

these two cases to the instant situation. The alleged irregularities in this case, considered in the light most

favorable to Chance World, pale in comparison to the activities alleged in Casey. The court in Casey

specifically held that allegations that the defendant banks violated their "own internal policies and

procedures" were insufficient as allegations the banks were aware of fiduciary breaches committed by

customers. 127 Cal. App. 4th at 1142, 1151. As a matter of California law, Heritage Bank's failure to

adhere to a two-signature requirement or follow other internal policies regarding the documents required for
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4 Heritage Bank's alleged mishandling of the Construction Navigator account seems even

more innocuous in light of California corporations law, which gives "the chairman of the board, the president

or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant

treasurer of such corporation" apparent authority to execute any written instrument. Cal. Corp. Code §

313.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT—No. C-03-05474 RMW

JAH 7

corporate checking accounts cannot constitute knowledge that Ms. Yadav-Ranjan was engaged in any

fraudulent activity.4

Chance World claims that Neilson stands for the proposition that "atypical banking procedures"

allow an inference that a bank had knowledge of a client's crimes. Chance World distorts Neilson. The

court in Neilson had to consider whether a plaintiff had adequately pleaded the knowledge element of an

aiding-and-abetting cause of action. 290 F. Supp. 2d at 1119-20. The court ruled that although the

plaintiff had not directly alleged that the defendant banks knew of their client's illegal activities, other

statements in the complaint were sufficient as allegations of the banks' knowledge. Id. at 1121. The court

stated: 

While it is true the complaint does not directly state that the Banks knew Slatkin was

running a Ponzi scheme and stealing investor funds, this is the net effect of allegations that

the Banks knew of Slatkin's "fraud," "actively participated" in the Ponzi scheme with

knowledge of his "crimes," and accommodated him by using atypical banking procedures to

service his accounts.

Id. Reading the phrase "atypical banking procedures" in context in the decision, it seems unlikely the

Neilson court would have found allegations of atypical banking procedures alone sufficient as an allegation

of knowledge by the banks. Even if plaintiff's reading of Neilson was correct, this court must, under Lewis,

use Casey as a source of California law. Under Casey, Chance World must produce evidence that

Heritage Bank had actual knowledge of Ms. Yadav-Ranjan's crimes; it cannot rely on inferences drawn

from sloppy work by Heritage Bank. See Casey, 127 Cal. App. 4th at 1151. 

Even though not required for Heritage Bank to succeed on its motion for summary judgment,

Heritage Bank has produced evidence that it did not know of Ms. Yadav-Ranjan's fraud. Two of Heritage

Bank's employees have testified in depositions that they were unaware that Ms. Yadav-Ranjan was

misusing Chance World's funds. From the available evidence, it appears that Chance World's only attempt

to notify Heritage Bank of Ms. Yadav-Ranjan's wrongdoing before it was completed is the e-mail

misaddressed to heritage@herbank.com. 
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ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT—No. C-03-05474 RMW

JAH 8

In short, under California law, the inference that Heritage Bank knew of Ms. Yadav-Ranjan's fraud

cannot be drawn from evidence that Heritage Bank did not follow its own internal rules, and the only other

evidence Chance World has produced that could show knowledge by Heritage Bank is an e-mail, which,

according to uncontradicted testimony, was not sent to a valid address for the bank. While there are many

facts in dispute between the parties, none are germane to what Heritage Bank knew about Ms. YadavRanjan's activities. Chance World has offered no evidence that shows Heritage Bank had the requisite

knowledge to be held liable, under California law, for aiding and abetting Ms. Yadav-Ranjan's fraud. Since

knowledge of the underlying tort is an essential element of Chance World's aiding-and-abetting cause of

action, summary judgment for Heritage Bank is appropriate.

III. ORDER

For the foregoing reasons, the court grants defendant Heritage Bank's motion for summary

judgment.

DATED: 11/4/05 /s/ Ronald M. Whyte

RONALD M. WHYTE

United States District Judge
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ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT—No. C-03-05474 RMW

JAH 9

Notice this document has been electronically sent to:

Counsel for Plaintiff:

Alan L. Martini aobey@smtlaw.com 

David Sheuerman dsheuerman@smtlaw.com

Counsel for Defendant:

Perry J. Woodward pwoodward@terra-law.com

Breck E. Milde bmilde@terra-law.com

Counsel are responsible for distributing copies of this document to co-counsel that have not registered for

e-filing under the court's CM/ECF program.

Dated: 11/7/05 /s/ JH 

Chambers of Judge Whyte