Chicago Title Ins. Co. v. Superior Court

In Chicago Title Ins. Co. v. Superior Court (1985) 174 Cal. App. 3d 1142, a con artist (Benny) worked with a mortgage broker (Robert Dean Financial or RDF) to run a check kiting scheme that victimized their escrow agent (Chicago Title Insurance Company or CTI). CTI was defrauded to believe that Benny, who was selling condominium units (Benny received a 30-year prison sentence for mail fraud in connection with those sales), was receiving RDF loan proceeds in connection with those sales. RDF wrote checks, drawn on nonexistent funds at RDF's bank (California Canadian Bank), made payable to CTI for deposit in escrow. CTI, in return, was defrauded to "issue and deliver to Benny checks made payable to Benny equal to the amount of the RDF checks less escrow charges. As part of the fraud and in order to conceal it from CTI, Benny, in most cases, endorsed the CTI checks to RDF, which deposited them in its accounts at Bank to cover the checks drawn on nonexistent funds." ( Id. at p. 1145.) Over five months, CTI transferred $ 320 million to Benny, who recycled all but about $ 17 million back to RDF to cover the checks RDF had written to CTI. After the scheme collapsed, CTI sued RDF's bank (California Canadian Bank) for fraud, conspiracy to defraud, breach of duty of good faith, wrongful dishonor of checks, and money had and received. CTI alleged that RDF's bank knew of the check kiting scheme but had failed to warn CTI or close RDF's account because the bank wanted to collect overdraft charges from RDF. According to CTI's complaint, the bank's internal auditors had recommended in December 1981 that the bank close RDF's account because a kite was occurring. Allegedly, the bank ignored that recommenda-tion in favor of assisting "RDF and Benny in perpetrating the fraud on CTI through January 1982 by improperly providing special treatment of RDF checks drawn on nonexistent funds and by informing RDF on a daily basis of the amount needed to cover said checks. As a result of this assistance, the Bank received in excess of $ 150,000 from RDF in overdraft charges." ( Chicago Title Ins. Co. v. Superior Court, supra, 174 Cal. App. 3d at pp. 1146-1147.) The trial court granted the bank's motion for summary adjudication of the fraud, bad faith, and money had and received causes of action. CTI petitioned for writ of mandate, which the appellate court denied, stating "the trial court was correct in its determination that no representation had been made by the bank to CTI and that the bank owed neither a common law nor statutory duty of disclosure to CTI." ( Chicago Title Ins. Co. v. Superior Court, supra, 174 Cal. App. 3d at p. 1159.) The appellate court in Chicago Title rejected CTI's contention "that when the Bank repeatedly honored RDF's checks, it was impliedly representing that RDF had sufficient funds to cover the checks. The argument is without merit. . . . It is clear that RDF, rather than the Bank, was responsible for whatever representations were presented through uttering checks." ( Chicago Title Ins. Co. v. Superior Court, supra, 174 Cal. App. 3d at p. 1156.) As for the bank's duty of disclosure, the court in Chicago Title concluded there was no contractual relationship between the bank and CTI giving rise to a contractual or statutory duty of disclosure. ( Chicago Title Ins. Co. v. Superior Court, supra, 174 Cal. App. 3d at pp. 1156-1160.)