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Gilbert Tuscany Lender, LLC, v. Wells Fargo Bank

Court of Appeals of Arizona, First Division, Department D

August 29, 2013

GILBERT TUSCANY LENDER, LLC, an Arizona corporation; and CHANDLER HEIGHTS MCQUEEN LENDER, LLC, an Arizona corporation, Plaintiffs/Appellants,
v.
WELLS FARGO BANK, a foreign corporation, Defendant/Appellee.

Appeal from the Superior Court in Maricopa County Cause No. CV2009-035873 The Honorable Michael J. Herrod, Judge

Law Offices of Richard L. Strohm, PC Phoenix By Richard L. Strohm Attorneys for Plaintiffs/Appellants

Snell & Wilmer, LLP Phoenix By Robert M. Kort And Martha E. Gibbs Julie E. Maurer Attorneys for Defendant/Appellee

OPINION

OROZCO, Judge

¶1 Gilbert Tuscany Lender, LLC (GT Lender) and Chandler Heights McQueen Lender, LLC (CHM Lender) (collectively, the Lenders) appeal the trial court's order granting the motion for summary judgment filed by Wells Fargo Bank (Wells Fargo). The Lenders alleged that Wells Fargo acted negligently by allowing an individual to open a corporate bank account without determining whether he was authorized to act on behalf of a limited liability company and by failing to obtain documentation that demonstrated that the limited liability company existed. The court found, as a matter of law, that Wells Fargo owed no duty of care to non-customers. For the following reasons, we affirm.

FACTUAL AND PROCEDURAL HISTORY[1]

¶2 In 2005, GT Lender entered into an agreement to loan funds for the development of a shopping center in Gilbert, Arizona to Vision Financial, LLC (Vision) and Gilbert Tuscany Village, LLC (Village). Later that year, CHM Lender agreed to loan The Reserve at Chandler Heights, LLC (Reserve) funds to develop a residential subdivision in Chandler, Arizona. Chad Kennedy and two other individuals were members of Vision, Village, and Reserve (collectively, the Borrowing Entities).

¶3 Pursuant to the agreements between the Lenders and the Borrowing Entities, the Lenders deposited funds into a construction escrow account that was administered by Chicago Title Insurance Company (Chicago Title). When the Borrowing Entities needed additional funds for the subdivision and shopping center projects, they submitted draw requests and supporting documentation to the Lenders. The Borrowing Entities typically requested disbursements payable to specified subcontractors or suppliers. If the Lenders approved the draw, Chicago Title would disburse funds from the Lenders' construction escrow account to the specified payee.

¶4 One of the Borrowing Entities' subcontractors, Sun West Builders, Inc. (Sun West), completed framing work on the shopping center project at a contract price of approximately $720, 000. Without Sun West's knowledge, the Borrowing Entities submitted numerous falsified invoices and fraudulent draw requests to the Lenders for work purportedly completed by Sun West. Because of these falsified invoices, GT Lender and CHM Lender authorized disbursements to Sun West totaling approximately $1.3 million and $50, 000, respectively.

¶5 Although he had no authority to act on behalf of Sun West, Kennedy opened a corporate checking account under the name Sun West Builders at a Wells Fargo branch in March 2006. In order to open the account, Kennedy completed and signed a business account application, in which he certified that he was the owner of Sun West Builders, a limited liability company (Sun West Builders, LLC). Kennedy deposited checks payable to Sun West that had been issued from the Lenders' construction escrow account with Chicago Title into the Wells Fargo account. Using this account, Kennedy misappropriated over $600, 000 from GT Lender and almost $50, 000 from CHM Lender -- the difference between the amount disbursed to the Borrowing Entities for the benefit of Sun West and the amount the Borrowing Entities paid to the real Sun West for the work it performed.

¶6 The Borrowing Entities defaulted on the loans in March 2007. The Lenders subsequently discovered that Kennedy had submitted fraudulent draw requests and had opened the corporate bank account at Wells Fargo in Sun West's name. In November 2009, the Lenders filed a complaint against Kennedy and his wife (Caree), alleging that they had engaged in fraud.[2] They also sued Wells Fargo and alleged it had acted negligently by allowing Kennedy to open the corporate bank account without determining whether Kennedy was authorized to act on behalf of Sun West Builders, LLC and by failing to obtain documentation that proved that Sun West Builders, LLC existed.[3]

¶7 Wells Fargo moved for summary judgment, asserting it was entitled to judgment as a matter of law because it owed no duty of care to the Lenders, "who were not customers of Wells Fargo and had no relation to the Wells Fargo bank account at issue."

¶8 The trial court held oral argument on Wells Fargo's motion. It granted the motion, finding that Wells Fargo owed no duty of care to non-customers as a matter of law. Although the Lenders argued the Bank Secrecy Act, 31 U.S.C. §§ 5311-5332 (2012), imposed a duty on banks to verify the identity of depositors, the trial court stated that the "Act is not intended for the benefit of the general public in negligence actions, [and] it creates no duty as described by [the Lenders]."

¶9 The Lenders timely appealed. We have jurisdiction pursuant to Arizona Revised Statutes (A.R.S.) sections 12- 120.21.A.1 (2003) ...


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