The transferor attempted to send over a million dollars to the intended recipient through an intermediary’s account, unaware that the intermediary’s account had been closed and had ceased money transmission activities. The bank processed the wire transfer and noted the intended recipient’s account was closed, but did not return the funds to the transferor. The bank instead applied the funds to an outstanding debt of the account holder. In response, the transferor demanded the return of the funds. The bank then filed suit seeking a declaratory judgment of its right to the funds. The transferor counterclaimed for: (1) declaratory judgment, (2) conversion, (3) unjust enrichment, (4) money had and received, (5) violation of California’s Money Transmission Act, (6) violation of California’s Commercial Code, (7) violation of California's Unfair Competition Law (UCL), Business and Professions Code, (8) imposition of a constructive trust, and (9) injunctive relief.
In Preferred Bank v. RBC Royal Bank (Bahamas) Ltd., No. 2:25-cv-00619-SB-JCx, 2025 WL 3456144, 2025 U.S. Dist. LEXIS 234838 (C.D. Cal. Nov. 25, 2025) (unpublished opinion), the court held that the bank wrongfully withheld funds from the transferor. The court explained that, under California common law, the bank could not use the funds to offset the debt and was required to return them to the transferor. Under the common law, when funds are deposited into an account for another, and the bank knows or has knowledge that the funds are held by the depositor, the bank may not apply those funds to the depositor’s individual debt. Chang v. Redding Bank of Com., 29 Cal. App. 4th (1994). Therefore, the court analyzed whether the funds belonged to the account holder, because if they did, the bank could have applied the funds to the debt. The court concluded that the transferor’s wire transfer gave the account holder only the right to possess the funds in trust, not ownership of them. Furthermore, the court looked to the history of previous transfers involving both parties and found that the account holder would promptly transfer the funds to the intended transferee. The court also analyzed whether the bank had actual or constructive notice of any third-party interest in the funds. If the bank had notice, it could not have applied the funds to the debt. The court held that the bank had at least inquiry notice that the funds were held in trust for the intended transferee, in the form of an instruction attached to the wire transfer. The instruction informed the bank that the funds belonged to a client of the account holder. The bank’s argument against the inquiry notice was that it did not review the wire instructions, but the court rejected this argument and stated that the bank “cannot claim ignorance of the details.” Additionally, the court rejected the bank’s argument that the UCC displaced California common law and solely governed the transaction. The court held that the UCC did not create setoff rights and did not displace common law. In addition, the court rejected the transferor’s separate claim under California Commercial Code § 11402(c), concluding that the provision did not apply. The transferor prevailed on summary judgment for declaratory relief, constructive trust, conversion, and money had and received. The statutes that the bank cited, the court held, only regulated the application of the setoff rights and were therefore inapplicable. The court granted the transferor summary judgment on its claim that it had a right to receive the funds. Next, the transferor sought summary judgment for a constructive trust and had to show: “(1) the existence of a res (property or some interest in property); (2) the right to that res; and (3) the wrongful acquisition or detention of the res by another party who is not entitled to it.” Mattel, Inc. v. MGA Ent., Inc., 616 F.3d 904 (9th Cir. 2010). Despite the bank’s argument that the transferor’s gross negligence precluded equitable relief, the court concluded that the transferor established the three elements necessary for a constructive trust. To obtain summary judgment for unjust enrichment, California law requires a showing that a benefit was conferred by “mistake, fraud, coercion, or request.” The court held that the transferor failed to satisfy those requirements and denied summary judgment. The court also concluded that the transferor met the elements for conversion: (1) plaintiff must plead a right to possession of the money at the time of the conversion, (2) wrongful acts or disposition of the money, and (3) resulting damages. Additionally, the court held that the transferor was entitled to prevail on a claim of money had and received by construing the cause of action broadly and concluding that it was not limited to instances of fraud. The transferor was not entitled to summary judgment under the unfair competition law because a violation of the common law, by itself, was not sufficient to support a claim. Furthermore, the court granted prejudgment interest to fully compensate the transferor for its loss at a rate of seven percent because the bank had wrongfully withheld the funds. The court also granted postjudgment interest. Therefore, the transferor’s motion for summary judgment was granted for declaratory relief, constructive trust, conversion, and money had and received, and prejudgment and postjudgment interest, and the bank’s competing declaratory-relief claim was dismissed with prejudice.
By Olivia Lewis [email protected]
Edited By Landon Womack [email protected]
Edited By Callighan Ard [email protected]
Edited By Hayden Mariott [email protected]