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Dunham Trust Co. v. Wells Fargo Bank, N.A.

United States District Court, D. Nevada

October 31, 2019

DUNHAM TRUST CO., a Nevada corporation, as Trustee of the Darrell N. Garmann Testamentary Trust 2012, Plaintiff,
WELLS FARGO BANK, N.A., an international holding company, et al., Defendants.



         Defendants (collectively “Wells Fargo”) have filed a motion to dismiss the first amended complaint of plaintiff Dunham Trust Co. (“Dunham Trust”). (ECF No. 21). Dunham Trust responded (ECF No. 24), and Wells Fargo timely replied (ECF No. 29). For the reasons stated below, the Court grants Wells Fargo's motion to dismiss and dismisses Dunham Trust's amended complaint with prejudice.

         I. Factual Background and Procedural History

         This is the second motion to dismiss filed by Wells Fargo in this case. The Court granted Wells Fargo's first motion to dismiss on February 7, 2019, dismissing several of Dunham Trust's causes of action with prejudice. (ECF No. 19). The Court, however, allowed Dunham Trust to amend its compliant and cure the factual deficiencies as to some of its claims. Dunham Trust filed a first amended complaint on March 8, 2019, asserting two causes of action against Wells Fargo: (1) violation of the Uniform Fiduciaries Act, NRS 162.010 et seq. (“UFA”) and (2) conversion under Nevada common law. (ECF No. 20). Wells Fargo now moves to dismiss both causes of action.

         As the Court has already related the background of this case in detail in its previous order (see ECF No. 19 at 1-2), the Court will only briefly summarize the relevant facts here. Pursuant to a settlement order from Nevada state court, Rickey Garmann Sr. (“Rickey Sr.”) was appointed as trustee for a testamentary trust that was created for the benefit of his son, Rickey Garmann Jr. (“Rickey Jr.”). (Id.) The court's settlement order mandated that the financial account Rickey Sr. was to create had to be a blocked account, meaning that Rickey Sr. would need permission from the court to make trust fund disbursements in support of his son. (Id. at 2). Without the court's permission, Rickey Sr. was only supposed to be able to make withdrawals to pay the property and income taxes that the trust incurred. (Id.) Rickey Sr., however, did not set up a blocked account, and over the course of several years, misappropriated approximately $347, 000 from the trust account to pay for various personal expenses. (Id.) Once his misconduct was discovered, the state court suspended Rickey Sr. as trustee and appointed Dunham Trust in his stead. Rickey Sr. was ultimately found personally liable for the entire misappropriated amount and ordered to pay restitution. (Id.) Dunham Trust eventually sued Wells Fargo in Nevada state court, and its lawsuit was properly removed here to federal court.

         II. Legal Standard

         Wells Fargo seeks dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. To survive a motion to dismiss for failure to state a claim, a complaint must satisfy Federal Rule of Civil Procedure 8(a)(2)'s notice pleading standard. See Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1103 (9th Cir. 2008). That is, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The Rule 8(a)(2) pleading standard does not require detailed factual allegations; a pleading, however, that offers “ ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action' ” will not suffice. Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

         Furthermore, Rule 8(a)(2) requires a complaint to “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.' ” Iqbal, 556 U.S. at 667 (quoting Twombly, 550 U.S. at 570). A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference, based on the court's judicial experience and common sense, that the defendant is liable for the misconduct alleged. Id. “The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief. Id.

         In reviewing a motion to dismiss, the court accepts the facts alleged in the complaint as true. Iqbal, 556 U.S. at 667. Even so, “bare assertions. . .amount[ing] to nothing more than a formulaic recitation of the elements of a. . .claim. . .are not entitled to an assumption of truth.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quoting Iqbal, 556 U.S. at 681) (brackets in original) (internal quotation marks omitted). The court discounts these allegations because “they do nothing more than state a legal conclusion-even if that conclusion is cast in the form of a factual allegation.” Id. (citing Iqbal, 556 U.S. at 681.) “In sum, for a complaint to survive a motion to dismiss, the non-conclusory ‘factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Id.

         III. Discussion

         Wells Fargo moves to dismiss both causes of action (UFA and conversion claims) asserted against it. As it did in its previous motion to dismiss, Wells Fargo argues that absent actual knowledge of trustee fraud or bad faith on its part, it did not have any duty under the UFA to investigate Rickey Sr.'s transactions to ensure that they were conducted in compliance with the terms of the trust. (ECF No. 21 at 7). And because Dunham Trust has failed to allege any facts that raise an inference of actual knowledge or bad faith, the cause of action should be dismissed. (Id.) As to the conversion claim, Wells Fargo argues that Dunham Trust has failed to identify any specific money that was converted or that it is entitled to the return of the converted money, warranting dismissal of that claim. (Id.) The Court will address these arguments in turn.

         A. UFA Claim

         In states like Nevada that have adopted the UFA, the scope of a bank's liability to a trust is governed under the UFA's provisions, not common law principles. Guild v. First Nat. Bank of Nevada, 553 P.2d 955, 957 (Nev. 1976). A bank will only be held liable if “if it receives the deposit or pays the check by the fiduciary with [1] actual knowledge that the fiduciary is committing a breach of his obligation in making such deposit or in drawing such check or [2] with knowledge of such facts that the Bank's action in receiving the deposit or paying the check amounts to bad faith.” Id. This means that to survive a motion to dismiss, the plaintiff must show that the bank had actual knowledge that the trustee was violating a fiduciary duty or that there were facts known to the bank such that it would be bad faith for the bank not to investigate the trustee's conduct. While the UFA does not define “bad faith, ” it does define “good faith, ” which is an act “done honestly, whether it be done negligently or not.” NRS 162.020(2). In Guild, the Nevada Supreme Court interpreted “bad faith” as requiring “purposeful or motivated conduct” rather than a “lack of due care [or] negligence.” Guild, 553 P.2d at 958. Simply alleging facts indicating that a bank behaved negligently or carelessly when conducting business with a trustee is insufficient to advance a claim under the UFA.

         Dunham Trust argues that its amended complaint pleads fact sufficient to raise the inference that Wells Fargo acted in bad faith. It asserts that Wells Fargo “disregarded and refused to learn any material facts regarding Rickey Sr.'s authority to transact business on the Trust's behalf.” (ECF No. 24 at 8). Instead of requesting trust documentation or court records “[establishing] the trust or [defining] Rickey Sr.'s authority, ” Wells Fargo “stuck its head in the sand” and relied solely on a pre-filled, bank form document to verify Rickey Sr.'s authority. (Id.) Wells Fargo's ...

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