By Rachel Stone

Law360 (May 7, 2021, 7:09 PM EDT) -- Bank of America shouldn't have to face a proposed class action over its alleged failure to protect California unemployment benefit recipients from fraud, the bank told a California federal court, arguing that complaints the bank breached its contractual obligations came up short.

In a Thursday motion to dismiss lodged by customer Jennifer Yick — which was consolidated with nine related suits in March — Bank of America claimed that though it empathizes with the cardholders who had their accounts frozen, the customers' claims fail in part because some recovered their accounts.

Bank of America "is both aware of and deeply sympathetic to the plight of cardholders whose accounts were incorrectly identified as suspicious or who experienced fraudulent charges on their legitimate accounts, and remains committed to working with these cardholders to regain access to their funds. But plaintiffs have not demonstrated that they are entitled to any relief on their claims," the bank said in the motion.

The bank characterized its process of freezing accounts targeted by fraud as part of the way the bank handled the "massive surge in fraud targeting California's unemployment benefits program during the COVID-19 pandemic."

According to the motion, "legions of criminals were exploiting this unprecedented crisis to target the state entity providing [unemployment benefits], the California Employment Development Department."

Included in Bank of America's attempts to curb this pervasive exploitation were measures that "had an unintended but regrettably unavoidable impact on some legitimate EDD cardholders," the bank said in its motion, citing its "numerous avenues for affected cardholders to access their accounts and recover their funds."

Because some of the customers involved in the consolidated proposed class action have allegedly already used those avenues to get back into their accounts and reclaim their funds, and some never had their accounts frozen, the bank argued that those plaintiffs lacked standing to sue.

Bank of America also told the court that the customers' claims alleging the bank violated its contractual obligations to the unemployment benefits recipients also fell flat, because the account agreement allowed the bank to freeze accounts suspected of illegal activity.

The bank argued as well that the benefits recipients couldn't claim the bank violated its fiduciary duty to its customers because the bank is not a fiduciary.

"If access to [personal financial] information and the ability to control account data — which all financial institutions maintain for their customers — sufficed to create a fiduciary relationship, then all banks would be fiduciaries for all of their customers. But they are not," the bank said in the motion.

And the customers' allegations that the bank violated due process duties when it froze their accounts should also be tossed, the bank told the court, because the customers didn't properly show that the bank was operating as a state actor.

The customers had argued Bank of America was a state actor because it was doing a job distributing unemployment benefits that was historically taken on only by the government.

Bank of America pushed back, telling the court: "Even if [Bank of America] somehow were a state actor, plaintiffs have failed to adequately allege any due process violation."

Plus, the bank argued, informing account holders before freezing accounts with suspicious activity doesn't make sense from a security perspective.

"Providing advance notice under these circumstances would simply tip off fraudsters to abscond with the funds before the freeze took effect, potentially putting billions of additional dollars into the hands of criminals who have already swindled billions from the state," the bank said.

Yick first filed suit against Bank of America on behalf of a proposed class of public benefits recipients in January, court records show. She accused the bank, which was dispatched to help distribute unemployment benefits from the EDD, of being "either unwilling or unable to stop criminals from breaching Bank of America's systems and controls, and from siphoning off millions of dollars of Employment Development Department benefits one account at a time," according to her complaint.

In April, the consolidated proposed class asked U.S. District Judge Vince Chhabria to grant them immediate relief by blocking Bank of America NA from continuing its alleged "malfeasance," and to force the bank to "unfreeze the accounts and reopen the fraud claims," according to a motion.

Representatives and counsel for both parties did not immediately respond to requests for comment Friday.

The customers are represented by Brian Danitz, Andrew F. Kirtley, Joseph W. Cotchett, Anne Marie Murphy and Karin B. Swope of Cotchett Pitre & McCarthy LLP, and Michael Rubin, Stacey M. Leyton, Matthew Murray and Connie K. Chan of Altshuler Berzon LLP.

Bank of America is represented by Laura A. Stoll, James McGarry, Yvonne W. Chan, Thomas M. Hefferon, David Rossiter Callaway of Goodwin Procter LLP and Barry W. Lee of Manatt Phelps & Phillips LLP.

The case is Jennifer Yick et al. v. Bank of America NA, case number 3:21-cv-00376, in the U.S. District Court for the Northern District of California.

--Additional reporting by Emilie Ruscoe and Hannah Albarazi. Editing by Robert Rudinger.

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