Opinion
24-cv-00337-BLF
07-29-2024
SHIRLEY JANE LEUNG, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants.
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS [RE: ECF NO. 32, 46, 51]
BETH LABSON FREEMAN, United States District Judge
Plaintiff Shirley Jane Leung alleges that, while she worked for Silicon Valley Bank (“SVB”), she repeatedly alerted senior executives to SVB's systemic failures to manage client portfolios and to potential fraud in an ongoing audit, and she was laid off for her efforts. ECF No. 1 (“Compl.”) ¶¶ 1-2. She brought this lawsuit against the Federal Deposit Insurance Corporation, acting in its capacity as receiver for SVB (“FDIC-R”); First Citizens Bank & Trust Co. (“FCB”); SVB Investment Services, Inc.; SVB Wealth, LLC; Greg Becker; and John Longley. Id. ¶¶ 10-16.
Plaintiff originally identified the FDIC and SVB as Defendants. See Compl. ¶¶ 10-11. On May 6, 2024, the FDIC-R substituted in place and stead of the FDIC and SVB because the FDIC-R succeeded to SVB's rights, titles, powers, privileges, assets, books, and records and because Plaintiff erroneously sued the FDIC in its corporate capacity (“FDIC-C”), which is a legally distinct capacity from the FDIC-R. ECF No. 53.
Before the Court are three motions to dismiss: one motion brought by FCB, SVB Investment Services, Inc., and SVB Wealth, LLC (collectively “FCB Defendants”), ECF No. 32 (“FCB Mot.”); one motion brought by John Longley, ECF No. 46-1 (“Longley Mot.”); and one motion brought by Greg Becker, ECF No. 51 (“Becker Mot.”). Plaintiff opposes the motions. See ECF No. 37 (“Opp. to FCB”); ECF No. 59 (“Opp. to Becker”); ECF No. 60 (“Opp. to Longley”). The FCB Defendants, Becker, and Longley filed replies. See ECF No. 39 (“FCB Reply”); ECF No. 67 (“Becker Reply”); ECF No. 68 (“Longley Reply”). The Court held a hearing on the motions on July 11, 2024. ECF No. 85.
For the reasons stated below, the Court GRANTS IN PART and DENIES IN PART the motions.
I. BACKGROUND
For purposes of this motion, the Court accepts the well-pleaded facts in Plaintiff's complaint as true. See Compl.
Plaintiff joined SVB in 2020 and worked in the SVB division known as SVB Private. Compl. ¶ 9. Plaintiff also had oversight over SVB Investment Services, SVB's broker-dealer platform. Id. Defendant FDIC-R was appointed as SVB's receiver upon the bank's failure and succeeded to all of the failed bank's rights, titles, powers, privileges, assets, books, and records, including SVB's interest and status as a Defendant in this action. ECF No. 53 ¶¶ 1-2. Defendant FCB is a North Carolina state-charted commercial bank that “purchased SVB's assets and liabilities from” the FDIC-R. Compl. ¶ 14. Defendants SVB Investment Services, Inc. and SVB Wealth, LLC were divisions of SVB and are now wholly owned subsidiaries of FCB. Id. ¶¶ 1213. Defendant Greg Becker was the Chief Executive Officer (“CEO”) of SVB and SVB Financial Group. Id. ¶ 15. Defendant John Longley was the SVB Head of Private Bank, Wealth & Trust; Interim Head of SVB Private; and Leung's immediate supervisor. Id. ¶ 16.
Beginning in August 2022, Plaintiff began to alert senior executives “to SVB's systemic failures to manage client portfolios and to potential fraud in an ongoing audit, as well as other issues.” Compl. ¶¶ 2, 17. In August 2022, Plaintiff alerted SVB Private's Senior Counsel, Ajay Kattel, and SVB's Deputy Chief Compliance Officer, Jillana Downing, to problems with SVB's weak compliance culture following its acquisition of Boston Private. Id. ¶ 17. In summer and fall of 2022, Plaintiff also provided SVB Private's outside counsel, Ghillaine Reid, detailed emails and files pertaining to Plaintiff's concerns about SVB's compliance culture. Id. ¶ 18. In October 2022, Plaintiff began reporting to Longley on a regular basis. Id. ¶ 20. In doing so, Plaintiff consistently warned Longley of potential violations of fiduciary duties to clients, including inadequate processes and technology to manage customer investment portfolios and poor risk management processes and issue escalation within the investment and trading teams. Id. Plaintiff also informed internal and external counsel of these violations. Id. On October 19, 2022, Plaintiff flew from Los Angeles to San Francisco to meet with Longley and reiterate her concerns. Id. ¶¶ 21-22. In a December 2022 meeting, Plaintiff repeated her concerns to Deputy General Counsel, Chester Te. Id. ¶ 23. On December 14, 2022, Plaintiff emailed Longley to emphasize that the problems she identified were not simply operational, technological, or integration related, and that SVB's culture encouraged non-compliant behavior. Id. ¶ 24. Plaintiff also told Longley that client accounts could not be viewed properly and were potentially mismanaged. Id. On January 6, 2023, Plaintiff again warned Longley that SVB was not upholding its fiduciary duties and obligations to clients and that these failures created a risk that SVB might be shut down. Id. ¶ 26.
On January 18, 2023, Plaintiff attended a monthly Risk Review Meeting, during which she raised concerns regarding delays in addressing issues with trust accounts from Boston Private. Compl. ¶ 27. Plaintiff reported to the Chief Compliance Officer and internal counsel about misrepresentations in the compliance manual regarding monitoring and the responsibility to manage client portfolios against risk objectives, among other things. Id. ¶ 28. Around January 2023, on a Registered Investment Advisor Compliance Questionnaire, Plaintiff declined to certify that there were no violations of SVB's manual relative to its actual practice. Id. ¶ 29. Plaintiff also informed internal counsel that there were violations of SVB's Code of Conduct that might require disclosure. Id. On February 7, 2023, Plaintiff told SVB Private's Senior Counsel that she had received information indicating that SVB Private's Chief Investment Officer had directed her team to amend process and procedure documents to ensure that an audit would pass and to obscure the mishandling of accounts. Id. ¶ 30. Plaintiff also emailed Longley, urging him to speak with other members of the investment operations and solutions teams that were raising concerns. Id. On February 14, 2023, Plaintiff again spoke to SVB Private's Senior Counsel and expressed her concerns over the lack of integrity, tendency to ignore or hide difficult issues, and the apparent plans to manipulate the audit. Id. ¶ 31.
On February 16, 2023, Plaintiff was laid off during a Zoom call with Human Resources Director Linda Spearman-Scott and Longley. Compl. ¶ 32. Becker approved Plaintiff's layoff. Id. On February 17, 2023, Leung received a severance agreement, which reflected that her Separation Date was March 17, 2023. Id. ¶ 38. On March 10, 2023, SVB closed and was taken into receivership by the FDIC-R. See id. ¶ 39. On March 13, 2023, the FDIC-R transferred substantially all assets and certain liabilities to Silicon Valley Bridge Bank, N.A. (“SVBB”). Id. ¶ 40. The FDIC-R retained SVB's liabilities under Section 2.02 of the Transfer Agreement between the FDIC-R and SVBB. Id.
On March 27, 2023, the FDIC-R entered into a Purchase and Assumption Agreement (“P&A Agreement”) for SVBB with FCB. Compl. ¶ 42. The transaction made SVB Investment Services, Inc. and SVB Wealth, LLC wholly owned subsidiaries of FCB. Id. FCB represented to SVB's former clients that SVB's services would continue as before. Id. ¶ 45. A substantial number of SVB employees also became employees of FCB and undertook the same or similar jobs under similar conditions and in the same locations as they had worked when SVB was their employer. Id. ¶¶ 46-48.
After exhausting her administrative remedies, Leung filed this lawsuit. See Compl. ¶¶ 4950. The complaint brings the following causes of action: (1) retaliation in violation of the Sarbanes-Oxley Act (“SOX”), id. ¶¶ 53-60; (2) retaliation in violation of California Labor Code § 1102.5(b), id. ¶¶ 61-68; (3) termination in violation of public policy, id. ¶¶ 69-74; (4) retaliation in violation of California Labor Code § 232.5, id. ¶¶ 75-81; (5) intentional interference with prospective economic relations, id. ¶¶ 82-85. Count 1 is brought against all Defendants; Counts 2-4 are brought against the FDIC-R and the FCB Defendants; and Count 5 is brought against Longley and Becker.
The FDIC-R answered, ECF No. 55, and all remaining Defendants have filed motions to dismiss. See FCB Mot.; Becker Mot.; Longley Mot.
II. LEGAL STANDARD
“A Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted ‘tests the legal sufficiency of a claim.'” Conservation Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts as true all well-pled factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not “accept as true allegations that contradict matters properly subject to judicial notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations omitted). While a complaint need not contain detailed factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
In deciding whether to grant leave to amend, the Court must consider the factors set forth by the Supreme Court in Foman v. Davis, 371 U.S. 178 (1962), and discussed at length by the Ninth Circuit in Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003). A district court ordinarily must grant leave to amend unless one or more of the Foman factors is present: (1) undue delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by amendment, (4) undue prejudice to the opposing party, or (5) futility of amendment. Eminence Capital, 316 F.3d at 1052. “[I]t is the consideration of prejudice to the opposing party that carries the greatest weight.” Id. However, a strong showing with respect to one of the other factors may warrant denial of leave to amend. Id.
III. REQUEST FOR JUDICIAL NOTICE
A court generally cannot consider materials outside the pleadings on a motion to dismiss for failure to state a claim. See Fed.R.Civ.P. 12(b)(6). A court may, however, consider items of which it can take judicial notice without converting the motion to dismiss into one for summary judgment. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice of facts “not subject to reasonable dispute” because they are either “(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201. A court may additionally take judicial notice of “‘matters of public record' without converting a Motion to Dismiss into a motion for summary judgment.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (quoting MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986)). Under the incorporation by reference doctrine, courts may consider documents “whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the [plaintiff's] pleading.” In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999) (quoting Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994)) (alteration in original).
The FCB Defendants request that the Court take judicial notice of the Transfer Agreement between the FDIC-R and SVBB (“Transfer Agreement”) and the Purchase and Assumption Agreement between the FDIC-R and FCB (“P&A Agreement”) because they are public documents available on the FDIC's website and incorporated by reference in Plaintiff's Complaint. ECF No. 32-1 (“RJN”) at 2; FCB Mot. at 8. Plaintiff opposes the request, arguing that the Transfer Agreement and P&A Agreement are not public documents because only redacted versions are publicly available and that her Complaint does not incorporate the Transfer Agreement and P&A Agreement because the Complaint merely references the Transfer Agreement. Opp. to FCB at 3-5 & n.1. In reply, the FCB Defendants note that the relevant portions of the Transfer Agreement and P&A Agreement are publicly available. FCB Reply at 7-8.
The Court will consider the Transfer Agreement and P&A Agreement because both documents are judicially noticeable as matters of public record not subject to reasonable dispute and because these documents are incorporated by reference in Plaintiff's Complaint. First, the Transfer Agreement and P&A Agreement are government records that are available on the FDIC's website. As such, they are matters of public record and not subject to reasonable dispute. See First-Citizens Bank & Tr. Co. v. HSBC Holdings plc, No. 23-CV-02483-LB, 2024 WL 115933, at *3 (N.D. Cal. Jan. 10, 2024) (taking judicial notice of the Transfer Agreement and the P&A Agreement); United States v. Venture One Mortg. Corp., No. 13-CV-1872 W (JLB), 2016 WL 4768875, at *3 (S.D. Cal. June 10, 2016) (taking judicial notice of an FDIC purchase agreement because it is a government record available on the FDIC's website); McCann v. Quality Loan Serv. Corp., 729 F.Supp.2d 1238, 1241 (W.D. Wash. 2010) (taking judicial notice of an FDIC purchase agreement because it is a public record). To the extent that Plaintiff argues that the Court should not take judicial notice of these documents because the versions published on the FDIC's website are redacted, this argument is unavailing because Plaintiff points to redacted portions that are irrelevant to this motion-the FCB Defendants rely only on publicly available portions of the Transfer Agreement and P&A Agreement.
Second, the Court will consider the Transfer Agreement and P&A Agreement as incorporated by reference in the Complaint. A document “may be incorporated by reference into a complaint if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). “[A] court may consider evidence on which the complaint necessarily relies if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion.” Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010). The Court finds that the Transfer Agreement and P&A Agreement form the basis of Plaintiff's claims. The Complaint refers to the Transfer Agreement at ¶ 40 and the Purchase Agreement at ¶ 42. Importantly, both Agreements are necessary conditions for Plaintiff to bring her claims against the FDIC-R and the FCB Defendants. Plaintiff alleges that the FDIC-R and the FCB Defendants are successors-in-interest to SVB, and the basis for such an allegation and any alleged liability for Plaintiff's claims is the assumption of SVB's liability by the FDIC-R pursuant to the Transfer Agreement and the assumption of liability by FCB under the P&A Agreement. Compl. ¶ 44. Finally, no party has questioned the authenticity of the copies of the Transfer Agreement and P&A Agreement attached to the FCB Defendants' request for judicial notice.
Accordingly, the FCB Defendants' request for judicial notice (ECF No. 32-1) is GRANTED.
IV. DISCUSSION
A. The FCB Defendants' Motion
The FCB Defendants argue that Plaintiff's claims against them should be dismissed because FCB did not assume any of SVB's liabilities that would pertain to Plaintiff's claims. FCB Mot. at 8-11. The FCB Defendants point to the Transfer Agreement between the FDIC-R and SVBB, which agreed that “claims or litigation” would be retained by the FDIC-R and not transferred to SVBB, and the P&A Agreement that transferred certain SVBB assets to FCB, which expressly identified the liabilities that FCB assumed. Id. at 10. Plaintiff argues that FCB's assumption of liability for “the Failed Bank Records,” includes the assumption of liability for her claims. Opp. to FCB at 1-2. Plaintiff also argues that FCB is liable under principles of successor liability under federal common law and California law. Id. at 5-12.
Under the Federal Deposit Insurance Act, the FDIC may accept appointment as a receiver for any closed insured depository institution. See 12 U.S.C. § 1821(c). As receiver, the FDIC “succeed[s] to-all rights, titles, powers, and privileges of the insured depository institution” and may “take over the assets of and operate the insured depository institution.” Id. § 1821(d)(1)(A)(i), (B)(i). “The FDIC as receiver ‘steps into the shoes' of the failed [financial institution]” and operates as its successor. O'Melveny & Myers v. F.D.I.C., 512 U.S. 79, 86 (1994) (citation omitted). “The FDIC also ha[s] broad powers to allocate assets and liabilities in order to effect a P & A Agreement.” W. Park Assocs. v. Butterfield Sav. & Loan Ass'n, 60 F.3d 1452, 1459 (9th Cir. 1995). “Absent an express transfer of liability, no liability is transferred from a failed bank to an assuming bank.” Mobine v. OneWest Bank, FSB, No. 11-CV-2550-IEG BGS, 2012 WL 243351, at *4 (S.D. Cal. Jan. 24, 2012); see also Kennedy v. Mainland Sav. Ass'n, 41 F.3d 986, 990 (5th Cir. 1994) (“The purchaser of an asset from a failed institution is not liable for the conduct of the receiver or [failed] institution unless the liability is transferred and assumed.” (alteration in original) (quoting Nashville Lodging, Inc. v. RTC, 839 F.Supp. 58, 62 (D.D.C.1993))); Payne v. Sec. Sav. & Loan Ass'n, F.A., 924 F.2d 109, 111 (7th Cir. 1991) (noting that, under the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”), all liabilities remain the responsibility of the Resolution Trust Corporation (“RTC”) unless RTC expressly transferred a liability and an assuming thrift institution expressly assumed that liability). “The reason for this rule is clear-‘an assuming bank would rarely be inclined to enter a P & A agreement with the FDIC knowing that it could be taking on unidentified liabilities of undefined dimensions that could arise at some uncertain date in the future.'” Williams v. F.D.I.C., No. CIV 2:07-2418 WBS GGH, 2009 WL 5199237, at *5 (E.D. Cal. Dec. 23, 2009) (quoting Vill. of Oakwood v. State Bank & Tr. Co., 519 F.Supp.2d 730, 738 (N.D. Ohio 2007), aff'd, 539 F.3d 373 (6th Cir. 2008)); see also Vernon v. Resol. Tr. Corp., 907 F.2d 1101, 1109 (11th Cir. 1990) (“Undoubtedly very few, if any, banks would enter into purchase and assumption agreements with a federal receiver if the successor banks had to assume the latent claims of unknown magnitude of shareholders like appellants.”).
The Court finds that the Transfer Agreement and P&A Agreement are clear that FCB did not assume SVB's liability for Plaintiff's claims. The Transfer Agreement states that the FDIC-R expressly retained liability for
any (A) Claims or Litigation related to (1) the Retained Assets or any other asset, liability or obligation not assumed by the Bridge Bank pursuant to this Agreement, (2) the Receiver's exercise of any of its statutory powers and rights, or (3) this Agreement; and (B) Litigation to the extent that either the Receiver or the Failed Bank is a defendant or defending a claim or counter-claim.RJN Ex. 1 art. 2, § 2.02(b)(i). Under the P&A Agreement, FCB expressly assumed a list of certain liabilities that does not include Plaintiff's claims or any employment claims of the type being asserted by Plaintiff. See RJN Ex. 2 art. II, § 2.1. The P&A Agreement also states which liabilities were not assumed by FCB:
Except for the Liabilities Assumed expressly set forth above, the Assuming Institution shall not assume any claims, debts, obligations or liabilities (whether known or unknown, contingent or unasserted, matured or unmatured), however they may be characterized, that the Failed Bank has, or may now or in the future have ....Id. § 2.2. Plaintiff's claims arise from employment actions taken by SVB and its employees prior to the FDIC-R's appointment as receiver and FCB's purchase of certain assets of the failed bank. See Compl. ¶¶ 17-33 (describing events from August 2022 to February 2023); Id. ¶¶ 39-42 (noting that SVB was taken into receivership on March 10, 2023, its assets were transferred to SVBB on March 13, 2023, and FCB and the FDIC-R entered into the P&A Agreement on March 27, 2023). Thus, Plaintiff's claims clearly fall under the litigation claims retained by the FDIC-R under § 2.02 of the Transfer Agreement. Indeed, Plaintiff alleges this in her Complaint as the basis for the FDIC-R's retention of SVB's liabilities. See Compl. ¶ 40. However, the language of the P&A Agreement is clear that the FDIC-R did not expressly transfer liability for Plaintiff's claims to FCB, nor did FCB expressly assume any such liability. Absent an express assumption of liability for Plaintiff's claims, she cannot bring her claims against the FCB Defendants. See Mobine, 2012 WL 243351, at *4 (“Courts have uniformly held that absent an express transfer of liability, no liability is transferred from a failed bank to an assuming bank.”); Williams, 2009 WL 5199237, at *5 (“[G]iven that no section of the P & A Agreement explicitly transfers liability for claims related to Washington Mutual's credit card business to Chase, any liability for such claims remained with the FDIC receiver.”); In re Shirk, 437 B.R. 592, 600 (Bankr. S.D. Ohio 2010) (“The FDIC has the power ‘to sell an asset . . . while retaining a related liability, and no liability is transferred to an assuming institution . . . absent an express transfer.” (quoting Vill. of Oakwood, 519 F.Supp.2d at 739)).
Plaintiff's arguments to the contrary are unavailing. First, Plaintiff argues that FCB assumed liability for her claims because FCB expressly assumed liability for “Failed Bank Records.” Opp. to FCB at 1-2. Under the P&A Agreement, FCB expressly assumed liability for “duties and obligations assumed pursuant to this Agreement including those relating to the Failed Bank Records.” RJN Ex. 2 art. II, § 2.1(i). “‘Failed Bank Records' means records as defined in 12 C.F.R. § 360.11(a)(3).” Id. art. 1. Section 360.11(a)(3)(i) lists examples of records, including “employee and employee benefits information.” The duties and obligations assumed pursuant to the P&A Agreement relating to Failed Bank Records are described in Article VI, which sets terms for the ownership of, custody of, and access to SVB's records. RJN Ex. 2 art. VI, §§ 6.1, 6.3, 6.4.
The Court finds that the relevant language in § 2.1(i) of the P&A Agreement is not ambiguous, and Plaintiff's interpretation of that language is unreasonable. The P&A Agreement states that it is governed by federal law, and in the absence of controlling federal law, in accordance with the law of the state in which the main office of the Failed Bank is located. See RJN Ex. 2, art. XIII, § 13.9. There is no federal law governing contracts, so the interpretation of the P&A Agreement is controlled by California law, where SVB's main office was located. See Compl. ¶ 11 (noting that SVB was headquartered in Santa Clara, California). Under California law, “[t]he fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.... If contractual language is clear and explicit, it governs.” Apex Sols., Inc. v. Falls Lake Ins. Mgmt. Co., 100 Cal.App.5th 1249, 1257 (2024) (internal quotation marks and citations omitted) (quoting Pep Boys Manny Moe & Jack of California v. Old Republic Ins. Co., 98 Cal.App.5th 329, 335 (2023)). “When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is ‘reasonably susceptible' to the interpretation urged by the party. If it is not, the case is over.” Mondragon v. Sunrun Inc., 101 Cal.App.5th 592, 612 (2024) (quoting Horath v. Hess, 225 Cal.App.4th 456, 464 (2014)).
Plaintiff interprets “relating to Failed Bank Records” to be an assumption of liability for any claim about which SVB kept records. She argues that because SVB must have made some internal assessment of her claims in terminating her and calculating and offering her a severance package, any such assessment would have been written down and included in SVB's records. Opp. to FCB at 2. Thus, Plaintiff argues that FCB must have assumed liability for her claims because it assumed liability for Failed Bank Records. This interpretation is implausible because it contrary to the clear language of the P&A Agreement, under which FCB did not assume liability for any claims relating to Failed Bank Records, but rather for specific “duties and obligations assumed pursuant to this Agreement including those relating to the Failed Bank Records.” RJN Ex. 2 art. II, § 2.1(i) (emphasis added); see also RJN Ex. 2 art. VI, §§ 6.1, 6.3, 6.4 (identifying the duties and obligations relating to Failed Bank Records assumed by FCB); Another Planet Ent., LLC v. Vigilant Ins. Co., 15 Cal.5th 1106 (2024) (“[L]anguage in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract. Courts will not strain to create an ambiguity where none exists.” (quoting Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 18-19 (1995))). Plaintiff's claim does not fall under any of FCB's duties and obligations relating to Failed Bank Records because her claim has nothing to do with the ownership of, custody of, or access to SVB's records. See RJN Ex. 2 art. VI, §§ 6.1, 6.3, 6.4. Instead, Plaintiff's claims arise out of SVB's and its employees' actions relating to her employment. Thus, Plaintiff's claims do not fall under FCB's assumption of liability for “duties and obligations assumed pursuant to this Agreement including those relating to the Failed Bank Records,” RJN Ex. 2 art. II, § 2.1(i), but rather under the provision of the P&A Agreement expressly disclaiming an assumption of liability, see id. § 2.2. To the extent that Plaintiff believes that “evidence of [her] protected activity is plausibly among these records,” then she may seek to receive this evidence during discovery. The fact that the FCB Defendants may hold such records does not, as Plaintiff erroneously suggests, make the FCB Defendants liable for her claims.
Second, Plaintiff argues that the FCB Defendants are liable for her claims under principles of successor liability. Opp. to FCB at 5-12. However, Plaintiff offers no authority for the assertion that successor liability principles may apply where a financial institution fails, is taken into receivership by the FDIC-R, and its assets are sold to an assuming financial institution. In fact, the only case cited by the parties that addresses this issue, Holman v. Downey Savings and Loan Association, rejects the argument that common law successor liability applies in this context. See Holman v. Downey Sav. & Loan Ass'n, No. CV 09-03121 DMG (AGRx), 2010 WL 11597286, at *10 (C.D. Cal. Apr. 21, 2010). Moreover, the Court agrees with the FCB Defendants that to apply the equitable doctrine of successor liability in this context would undermine FIRREA and the FDIC's authority under that statute. Under FIRREA, the FDIC, rather than an assuming financial institution, becomes the successor of a failed financial institution. See O'Melveny & Myers, 512 U.S. at 86. Additionally, the FDIC in its role as receiver has broad authority to allocate assets and liabilities, and absent an express transfer and assumption of liability, the FDIC does not transfer liabilities to an assuming financial institution. See Mobine, 2012 WL 243351, at *4. Thus, the application of successor liability to an assuming financial institution is not only contrary to FIRREA, but it would hamstring the FDIC's ability to enter into a P&A Agreement with an assuming financial institution. Cf. Williams, 2009 WL 5199237, at *5 (observing that an assuming bank would be disincentivized from entering into a P&A Agreement if it would risk taking on unidentified liabilities); Vernon, 907 F.2d at 1109 (same). Thus, the Court declines to extend common law successor liability principles to this context.
Accordingly, the Court GRANTS the FCB Defendants' motion to dismiss Plaintiff's claims against them. The Court further finds that any amendment would be futile and DISMISSES Plaintiff's claims against the FCB Defendants WITH PREJUDICE.
B. Longley's Motion i. SOX Claim
Longley argues that Plaintiff's allegations in support of her SOX claim are conclusory and fail to support the conclusion that she was terminated because of any whistleblowing or that she suffered damages. Longley Mot. at 12-13. Plaintiff responds that she has adequately alleged facts showing that she engaged in protected activities, that Longley knew of her protected activities, and that her termination was because of her protected activity. Opp. to Longley at 2-5.
“SOX grants ‘whistleblower' protection to employees of publicly traded companies by prohibiting employers from retaliating against employees for reporting certain potentially unlawful conduct.” Coppinger-Martin v. Solis, 627 F.3d 745, 748-49 (9th Cir. 2010) (citing 18 U.S.C. § 1514A). In order to state a claim for a violation of SOX, an employee must allege that “(1) the employee engaged in protected activity; (2) the employer knew, actually or constructively, of the protected activity; (3) the employee suffered an unfavorable personnel action; and (4) the circumstances raise an inference that the protected activity was a contributing factor in the personnel action.” Id. at 750 (citing 29 C.F.R. § 1980.104(b)(1)).
Longley does not dispute the first three elements of a prima facie SOX claim, and the Court finds that Plaintiff has adequately alleged these elements. Plaintiff has adequately alleged that she engaged in protected activity because her Complaint identifies specific instances in which she reported issues with noncompliance, violations of fiduciary duties to clients, and efforts to cover up violations. See Compl. ¶¶ 17-31; see also 18 U.S.C. § 1514A(a)(1) (noting that protected activity includes “provid[ing] information . . . regarding any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders”). Plaintiff has adequately alleged that Longley had knowledge of her protected activities because she made several of these reports directly to Longley. See Compl. ¶¶ 20-22, 24-26, 30. Finally, Plaintiff has adequately alleged that she suffered an adverse personnel action because she alleged that she was laid off. See id. ¶ 32.
The Court also finds that Plaintiff has adequately alleged that her protected activity was a contributing factor in her termination. The Ninth Circuit has acknowledged that “causation can be inferred from timing alone where an adverse employment action follows on the heels of protected activity.” Van Asdale v. Int'l Game Tech., 577 F.3d 989, 1003 (9th Cir. 2009) (quoting Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1065 (9th Cir. 2002)). In this case, the Complaint states that Plaintiff was laid off two days after her last protected activity (i.e., a report to an SVB senior executive) and nine days after her last protected activity with respect to Longley. See Compl. ¶¶ 30-32. Plaintiff also alleges that, despite her layoff, she was “highly rated as an SVB Private executive with decades of industry experience at the largest, most respected firms. Her skills, including deep experience in risk management and investment platform construction, certifications, and licenses, were needed to operate SVB Private's wealth and investment management operations.” Id. ¶ 35. When accepted as true and construed in the light most favorable to Plaintiff, the Court finds that these facts are sufficient to reasonably infer that Plaintiff's protected activity was a contributing factor to her termination. See Coppinger-Martin, 627 F.3d at 751 (noting that the timing of a plaintiff's termination and allegations about her good evaluations prior to engaging in protected activity and unfavorable evaluations following her protected activity were sufficient to raise an inference that her protected activity was a contributing factor for a prima facie showing of a SOX claim); see also Van Asdale, 577 F.3d at 1003 (finding a dispute of material fact with respect to whether protected activity was a contributing factor in a termination where one plaintiff was terminated two and a half months after engaging in protected activity).
Longley's argument that Plaintiff failed to allege the type and amount of her economic and non-economic harm is unavailing. Perhaps Plaintiff's complaint could be clearer about the type and amount of damages she is seeking, but Longley has failed to demonstrate why a failure to make such allegations is a basis for dismissing a SOX claim, especially where damages are not an element of a prima facie SOX claim.
Accordingly, Longley's motion to dismiss Plaintiff's SOX claim is DENIED.
ii. Intentional Interference with Prospective Economic Relations
Longley argues that Plaintiff has failed to adequately allege facts to support any of the elements of a claim for intentional interference with prospective economic relations because she has not alleged that she had any probability of future economic relationship, Longley's knowledge of any future relationship, that Longley engaged in wrongful conduct, that Longley acted with the requisite intent, or that she suffered economic harm. Longley Mot. at 10-12. Plaintiff argues that Longley intentionally interfered with her relationship with SVB and that his actions violated state and federal law as well as SVB's Code of Conduct. Opp. to Longley at 5-6. Longley responds that the Complaint alleges that he was acting as an agent of SVB and thus was not a third-party with respect to SVB. Longley Reply at 2-3.
In order to state a claim for intentional interference with prospective economic relations under California law, the plaintiff must allege:
(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.Youst v. Longo, 43 Cal.3d 64, 71 n.6 (1987). A plaintiff seeking to recover damages for intentional interference with prospective economic relations must also “plead as an element of the claim that the defendant's conduct was ‘wrongful by some legal measure other than the fact of interference itself.'” Ixchel Pharma, LLC v. Biogen, Inc., 9 Cal.5th 1130, 1142 (2020) (quoting Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal.4th 376, 393 (1995)).
As an initial matter, the Court notes that the Complaint is not clear about the exact economic relationship with which Longley purportedly interfered. On one hand, Plaintiff appears to allege that Longley interfered with her relationship with SVB. See Compl. ¶ 83 (“Leung was in a productive economic relationship with the SVB Defendants before Defendants Longley and Becker intentionally interfered and caused her business relationship with the SVB Defendants to come to an end.”). On the other hand, Plaintiff also contemplates a future employment relationship with FCB. See id. ¶ 86 (“Their actions caused Leung not only to lose her job but prevented her from being rehired by the SVB Defendants and FCB after SVB's collapse.”). To the extent that Plaintiff relies on the latter theory, the Court finds that Plaintiff fails to state a claim. California courts generally agree that the first element of the tort of intentional interference with prospective economic relations is a “threshold” determination that requires the Plaintiff to allege a reasonable probability that “the prospective economic advantage would have been realized but for defendant's interference.” Youst, 43 Cal.3d at 71. Plaintiff has failed to meet this threshold requirement because her theory that she would have been hired by FCB after SVB's collapse is speculative. Plaintiff's theory relies on multiple key assumptions, including that SVB would be taken into receivership, that the FDIC-R would sell SVB's assets to FCB, and that FCB would decide to rehire most of SVB's staff. All of these assumptions must be true for Plaintiff's theory to be plausible, and none of them is supported by any facts. Moreover, Plaintiff would also have to show that these assumptions were known by Longley at the time of Plaintiff's termination in order to meet the second element of the tort of intentional interference with prospective economic relations, and she fails to allege any facts supporting such an inference. Accordingly, Plaintiff has failed to establish the first two elements of a claim for intentional interference with prospective economic relations based on a theory that she would have been rehired by FCB.
Whether Plaintiff can state a claim for intentional interference with prospective economic relations turns on whether she can allege that Longley interfered with her relationship with SVB. The first element of the tort of intentional interference with prospective economic relations requires Plaintiff to allege “an economic relationship between the plaintiff and some third party.” Youst, 43 Cal.3d at 71 n.6 (emphasis added). A third party is necessarily a “stranger” to the economic relationship. See Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 514 (1994) (“The tort duty not to interfere with the contract falls only on strangers-interlopers who have no legitimate interest in the scope or course of the contract's performance.”); see also Ixchel Pharma, 9 Cal.5th at 1141 (noting that intentional interference with contractual relations and intentional interference with prospective economic relations are related, but intentional interference with prospective economic relations does not require a contract and thus requires that the defendant's conduct be wrongful by some additional legal measure). A person acting on behalf of an interested party to the economic relationship is not a stranger to the economic relationship. In this case, Plaintiff alleges that Longley “was the SVB Head of Private Bank, Wealth & Trust; Interim Head of SVB Private; and Leung's immediate supervisor,” that she reported issues to Longley, and that Longley terminated her. Compl. ¶¶ 16, 20-32. Although Plaintiff also alleges that “Longley and Becker acted outside the scope of their employment as senior executives,” Compl. ¶ 85; see also id. ¶ 36 (similar), Plaintiff does not identify any facts to support this allegation. See Marin v. Jacuzzi, 224 Cal.App.2d 549, 552 (1964) (affirming dismissal of claims against the vice president and board of directors for claims related to plaintiff's termination for whistleblowing because the plaintiff failed to allege conspiracy or ultra vires acts); cf. O'Brien as Tr. of Raymond F. O'Brien Revocable Tr. v. XPO CNW, Inc., 362 F.Supp.3d 778, 785 (N.D. Cal. 2018) (finding that the plaintiff could bring a claim for intentional interference with contract against an individual defendant who acted as an officer and director of the company when deciding to cut off payments from the company to the plaintiff because the plaintiff presented evidence creating a dispute of material fact regarding whether the defendant was acting as a stranger to the contract or on behalf of the interested party); Kozlowsky v. Westminster Nat. Bank, 6 Cal.App.3d 593, 600 (1970) (rejecting cases applying a “manager's privilege” because “[t]here is no allegation that [the individual defendant] is the general manager, or that he was otherwise authorized to act on behalf of the Bank in discharging its president”). Thus, the Court finds that Plaintiff has failed to adequately allege facts to support a reasonable inference that SVB was a third party with respect to Longley.
To the extent that Longley argues that Plaintiff has failed to allege the other elements of a claim for intentional interference with prospective economic relations, the Court disagrees. Plaintiff alleges that Longley was her supervisor at SVB and that he was responsible for her termination, which is sufficient for the Court to infer that Longley was aware of her relationship to SVB, that Longley acted intentionally, and that her relationship was actually disrupted. See Compl. ¶¶ 16, 20, 32. The Court may also reasonably infer that Plaintiff lost her salary and stock options when she was terminated. See id. ¶¶ 51-52. Finally, Plaintiff alleges that Longley's conduct was wrongful by some legal measure other than the conduct itself because she alleges that it violated SOX. See id. ¶¶ 53-60. Although Plaintiff also argues that Longley's conduct violated SVB's Code of Conduct, Id. ¶ 85, the Court finds that this allegation lacks factual support- Plaintiff has not identified which provisions of SVB's Code of Conduct Longley purported violated.
Accordingly, Longley's motion to dismiss Plaintiff's claim for intentional interference with prospective economic relations is GRANTED. Because the Court finds that amendment may not be futile, the claim is DISMISSED WITH LEAVE TO AMEND.
iii. Punitive Damages
Longley argues that Plaintiff has failed to allege that his actions were malicious, oppressive, or reckless to support a request for punitive damages. Longley Mot. at 14. Plaintiff responds that she need only plead simple averments of malice or fraudulent intent and that she has alleged that Longley acted illegally, engaged in a coverup, violated SVB's Code of Conduct, and/or exceeded his authority in terminating Plaintiff. Opp. to Longley at 6-7.
“In federal court, plaintiffs simply need to include a short and plain prayer for punitive damages that relies entirely on unsupported and conclusory averments of malice or fraudulent intent.” Waddell v. Trek Bicycle Corp., No. SACV152082DOCJCGX, 2016 WL 7507770, at *3 (C.D. Cal. Apr. 7, 2016) (quotation marks omitted) (quoting Alejandro v. ST Micro Elecs., Inc, 129 F.Supp.3d 898, 918 (N.D. Cal. 2015)). Plaintiff has satisfied this standard by alleging that Longley “acted with malice and implemented Leung's termination to hide and cover up the risk, compliance, and fiduciary duty violations Leung was raising.” Compl. ¶ 37. To the extent that Longley argues that Plaintiff must identify more facts to support her claim for punitive damages, the Court disagrees. Plaintiff alleges that she was a highly skilled and valuable employee who was terminated after repeatedly reporting serious violations of law and SEC regulations and a potential coverup. See Compl. ¶¶ 33-37. The Court takes these allegations as true and construes them in the light most favorable to Plaintiff. After doing so, the Court finds that it may draw a reasonable inference that Longley acted maliciously or oppressively. Although the Court observes that Plaintiff's request for punitive damages is adequately pled, the request for relief with respect to Longley will fail if Plaintiff cannot state a claim for intentional interference with prospective economic relations. See Erhart v. Bof I Fed. Bank, No. 15-CV-02287-BAS-NLS, 2022 WL 3160730, at *1 (S.D. Cal. Aug. 8, 2022) (“Punitive damages are not available under Sarbanes-Oxley.”); Focal Point Films, LLC v. Sandhu, No. 19-CV-02898-JCS, 2019 WL 7020209, at *12 (N.D. Cal. Dec. 20, 2019) (noting that punitive damages may be awarded for the tort of intentional interference with prospective economic relations).
Accordingly, Longley's motion to dismiss Plaintiff's request for punitive damages is DENIED.
* * *
The Court GRANTS IN PART and DENIES IN PART Longley's motion to dismiss Plaintiff's claims against him. Plaintiff's claim for intentional interference with prospective economic relations is DISMISSED WITH LEAVE TO AMEND. Longley's motion to dismiss Plaintiff's SOX claim and her request for punitive damages is DENIED.
C. Becker's Motion
i. SOX Claim
Becker argues that Plaintiff has failed to allege sufficient facts to show that he had knowledge of any protected activities or that protected activity was a contributing factor in his approval of Plaintiff's layoff. Becker Mot. at 9-10. Plaintiff argues that the Court can infer that Becker had knowledge of her protected activities and that she has adequately alleged that Becker was a decisionmaker regarding her termination. Opp. to Becker at 1-4. The Court identified the relevant legal standard above, in Part IV.B.i, supra.
The Court finds that Plaintiff has not adequately alleged the second and fourth elements of a SOX claim against Becker. The Complaint alleges only that Becker approved the decision to terminate Plaintiff. Compl. ¶¶ 15, 32. The remainder of Plaintiff's allegations against Becker are conclusory and without support from facts. See, e.g., Compl. ¶ 56 (“Beck[er] [was] aware of Leung's reporting of known or suspected violations prior to her termination.”); see also id. ¶¶ 36, 37, 56-58, 83-87 (similarly conclusory allegations). These allegations are insufficient for the Court to draw a reasonable inference that Becker knew of Plaintiff's protected activity or that her protected activity was a contributing factor in his decision to terminate her. Plaintiff argues that the Court may infer that Becker had knowledge of her protected activity because she reported to other senior executives at SVB, but she has alleged no facts that would allow the Court to reasonably infer that any of the senior executives to which she reported would have informed Becker of her protected activity. Because Plaintiff has failed to allege that Becker had knowledge of her protected activity, it follows that she has failed to allege that her protected activity was a contributing factor to his approval of her termination.
Accordingly, Becker's motion to dismiss Plaintiff's SOX claim is GRANTED. Because the Court finds that amendment may not be futile, the claim is DISMISSED WITH LEAVE TO AMEND.
ii. Intentional Interference with Prospective Economic Relations
Becker argues that Plaintiff fails to allege sufficient facts to state a claim against him for intentional interference with prospective economic relations and that SVB is not a third-party with respect to Becker. Becker Mot. at 11-14. Plaintiff responds that Becker acted outside the scope of his authority and that she likely would have been rehired at FCB but for her termination. Opp. to Becker at 4-5. The Court identified the relevant legal standard above, in Part IV.B.ii, supra.
For the reasons discussed above with respect to Longley, Plaintiff has failed to adequately state a claim against Becker for intentional interference with prospective economic relations. Plaintiff's theory that she would have been rehired by FCB is speculative, and Plaintiff has failed to allege how SVB is a third party with respect to Becker. See Part IV.B.ii, supra.
Accordingly, Becker's motion to dismiss Plaintiff's claim for intentional interference with prospective economic relations is GRANTED. Because the Court finds that amendment may not be futile, the claim is DISMISSED WITH LEAVE TO AMEND.
iii. Punitive Damages
Becker argues that Plaintiff's request for punitive damages should be dismissed because Plaintiff failed to allege that Becker acted maliciously, oppressively, or in reckless disregard for Plaintiff's rights. Becker Mot. at 14-15. Plaintiff responds that she need only plead simple averments of malice or fraudulent intent and that she has alleged that Becker acted illegally, engaged in a coverup, violated SVB's Code of Conduct, and/or exceeded his authority in terminating Plaintiff. Opp. to Becker at 6.
For the reasons discussed above with respect to Longley, the Court finds that Plaintiff's allegations are adequate support a request for punitive damages. See Part IV.B.iii, supra. However, the Court again observes that Plaintiff's request for relief will fail if she fails to state a claim for intentional interference with prospective economic relations.
Accordingly, Becker's motion to dismiss Plaintiff's request for punitive damages is DENIED.
* * *
The Court GRANTS IN PART and DENIES IN PART Becker's motion to dismiss Plaintiff's claims against him. Plaintiff's SOX claim and her claim for intentional interference with prospective economic relations are DISMISSED WITH LEAVE TO AMEND. Becker's motion to dismiss Plaintiff's request for punitive damages is DENIED.
V. ORDER
For the foregoing reasons, IT IS HEREBY ORDERED that:
1. Defendants First Citizens Bank & Trust Co. (“FCB”), SVB Investment Services, Inc., and SVB Wealth, LLC's motion to dismiss (ECF No. 32) is GRANTED.
a. Plaintiff's claims against Defendants FCB, SVB Investment Services, Inc., and SVB Wealth, LLC are DISMISSED WITHOUT LEAVE TO AMEND.
2. Defendant John Longley's motion to dismiss (ECF No. 46) is GRANTED IN PART and DENIED IN PART.
a. Plaintiff's claim for intentional interference with prospective economic relations against Longley is DISMISSED WITH LEAVE TO AMEND.
b. Longley's motion with respect to Plaintiff's SOX claim and her request for punitive damages is DENIED.
3. Defendant Greg Becker's motion to dismiss (ECF No. 51) is GRANTED IN PART and DENIED IN PART.
a. Plaintiff's claims under SOX and for intentional inflection with prospective economic relations against Becker are DISMISSED WITH LEAVE TO
AMEND.
b. Becker's motion with respect to Plaintiff's request for punitive damages is DENIED.
4. Plaintiff may file an amended complaint within 30 days of the date of this Order.