Phillips v. Bank of Am.

236 Cal.App.4th 217

186 Cal.Rptr.3d 434

Jasmine PHILLIPS, as trustee etc. et al., Plaintiffs and Appellants

v.BANK OF AMERICA, Defendant and Respondent.

B251836

Court of Appeal, Second District, Division 5, California.

Filed April 27, 2015

Markun Zusman Freniere & Compton, David S. Markun, Daria Dub Carlson, Pacific Palisades, for Plaintiffs and Appellants.

Reed Smith, James C. Martin, Marc A. Lackner, San Francisco, Peter J. Kennedy, Los Angeles, for Defendant and Respondent.

MOSK, J.

INTRODUCTION

We hold that a bank may not for account service fees debit a so-called Coogan Trust Account—a statutorily required account to preserve 15 percent of a minor's gross earnings for artistic or creative services for the benefit of the minor until the minor turns 18 or is emancipated (Fam.Code, § 6750 et seq. ) (Coogan Law¹ )—because of the statutory ban on withdrawals from a Coogan Trust Account without court approval (§ 6753, subd. (b)). Such a debit, without court approval, is a prohibited withdrawal under the applicable state statute, and that state law prohibition on a debit by a national bank is not preempted by federal law. We therefore reverse the judgment entered on a demurrer sustained without leave to amend.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs and appellants Jasmine Phillips also known as Jasmine Gonzales, as trustee for Alex Gonzales, and Anesha L. Colemen, as trustee for Jadon I. Monroe, filed a class action lawsuit on behalf of themselves and all others similarly situated against defendant and respondent Bank of America, N.A., a national bank association. Plaintiffs in their operative first amended complaint (FAC) alleged causes of action for breach of written contract, breach of the implied covenant of good faith and fair dealing, conversion, and unlawful and unfair business practices. Plaintiffs alleged that they were “the parents or guardians of unemancipated minors who have been paid for performing artistic or creative services.”

Plaintiffs alleged that, as trustees for their minor children, they “opened accounts entitled ‘Coogan Trust’ Accounts for the[ ] minors at [defendant] in full compliance with ... [section] 6750 et seq. From time to time, wages or other monies earned by the minors for performing artistic services were deposited into Plaintiffs' Coogan Trust Accounts for the benefit of the minors.... [¶] During the four years preceding the filing of the initial Complaint in this action, defendant[ ] ha[s] made withdrawals from Plaintiffs' Cogan Trust Accounts, including but not limited to withdrawals for monthly service fees, without court approval.”

In their causes of action for breach of contract and breach of the covenant of good faith and fair dealing, plaintiffs alleged that they entered into written agreements² with defendant “pursuant to which defendant[ ] agreed to open and maintain ... Coogan Trust Account[s].... [¶] Notwithstanding these written agreements ... defendant[ ] regularly and systematically breached [these agreements] by making withdrawals from [the] Coogan Trust Accounts, including but not limited to monthly service charges, without court approval.”

In plaintiffs' cause of action for conversion, they alleged that “[d]espite defendant['s] representations that defendant[ ] would open and maintain the subject accounts as Coogan Trust Accounts, defendant[ ] unlawfully took and converted monies from the Coogan Trust Accounts for defendant['s] own use.” In their cause of action for unlawful and unfair business practices under the unfair competition law (Bus. & Prof.Code, § 17200 et seq. ), plaintiffs alleged that “[n]otwithstanding applicable California Family Code sections as well as other provisions of California law, defendant[ ] regularly and systematically made withdrawals from the Coogan Trust Accounts ..., including but not limited to ‘monthly service charges.’ [¶] In addition, defendant[ ] represented ... that defendant[ ] would open and maintain the subject accounts as Coogan Trust Accounts. Despite these representations, defendant[ ] failed to maintain the accounts as Coogan Trust Accounts and instead regularly and systematically made withdrawals from these accounts, including but not limited to ‘monthly service charges.’ ” Plaintiffs sought as relief compensatory damages, issuance of a temporary restraining order and a preliminary and permanent injunction, disgorgement of all profits resulting, punitive damages, costs of suit, attorney fees, and such other and further relief as the trial court might deem just and proper.

The trial court sustained defendant's demurrer to the FAC without leave to amend, finding that the term “withdrawal” as used in the Coogan Law did not include the debiting of an account by a financial institution for service charges. The trial court thereafter entered a final judgment of dismissal, and plaintiffs filed a timely notice of appeal.

The parties have confirmed that the issue on appeal is whether the Coogan Law precludes defendant from debiting the Coogan Trust Accounts for account service fees, including whether the debits by defendant are withdrawals under the Coogan Law and if so whether the state law that has the effect of banning such debits by a national bank is preempted by federal law. The parties agree that whether plaintiffs have alleged facts sufficient to state the specific causes of action asserted in the FAC is not an issue in this appeal.

DISCUSSION

A. Standard of Review and Rules of Interpretation

We review de novo a judgment based on an order sustaining a demurrer. (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42, [105 Cal.Rptr.3d 181, 224 P.3d 920] ; Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75, 81, .) “As the Supreme Court has observed, ‘In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]’ [Citation.]” (Los Angeles Memorial Coliseum Com. v. Insomniac, Inc. (2015) 233 Cal.App.4th 803, 819, .) In addition, “Whether a law is preempted is an issue of law, reviewed de novo. (Farm Raised Salmon Cases (2008) 42 Cal.4th 1077, 1089, fn. 10 [72 Cal.Rptr.3d 112, 175 P.3d 1170] [‘federal preemption presents a pure question of law’]....)” (Zubarau v. City of Palmdale (2011) 192 Cal.App.4th 289, 305, .)

The California Supreme Court stated the rules of statutory interpretation as follows: “Our fundamental task ... is to determine the Legislature's intent so as to effectuate the law's purpose. We first examine the statutory language, giving it a plain and commonsense meaning. We do not examine that language in isolation, but in the context of the statutory framework as a whole in order to determine its scope and purpose and to harmonize the various parts of the enactment. If the language is clear, courts must generally follow its plain meaning unless a literal interpretation would result in absurd consequences the Legislature did not intend. If the statutory language permits more than one reasonable interpretation, courts may consider other aids, such as the statute's purpose, legislative history, and public policy. [Citations.]” (Coalition of Concerned Communities, Inc. v. City of Los Angeles (2004) 34 Cal.4th 733, 737, [21 Cal.Rptr.3d 676, 101 P.3d 563].) The California Supreme Court also has said “ ‘we consider portions of a statute in the context of the entire statute and the statutory scheme of which it is a part, giving significance to every word, phrase, sentence, and part of an act in pursuance of the legislative purpose.’ [Citation.]” (Sierra Club v. Superior Court (2013) 57 Cal.4th 157, 166, [158 Cal.Rptr.3d 639, 302 P.3d 1026].)

B. Applicable Law

The history of the Coogan Law has been summarized in legislative documents. “The Coogan Law was enacted [as former Civil Code sections 36.1 and 36.2 ] in 1938 in response to childhood star Jackie Coogan's plight. Even though he earned millions as a child, Coogan was surprised to find out when he reached adulthood that he was flat broke, because his mother and stepfather spent all his money—legally.... Thus, the Coogan Law was passed in order to preserve a portion of the minor's earnings for the minor's use when he or she reaches the age of majority.” (Sen. Rules Com., Off. of Sen. Floor Analyses, Analysis of Sen. Bill No. 1162 (1999–2000 Reg. Sess.) as amended Aug. 18, 1999, pp. 6–7.) Inadequacies in the statutory scheme, however, resulted in additional abuses of the finances of such child-actors as Shirley Temple, Macauly Culkin, Lee Aaker, and Gary Coleman—all of whose parents left the minors with at best only a small percentage of what they earned during their careers. (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 1162 (1999–2000 Reg. Sess.) as amended Aug. 18, 1999, p. 3.) The Legislature amended the Coogan Law in 1999, 2003, and 2013. (Stats. 1999, ch. 940, §§ 2, 3, 5 pp. 6859, 6860; Stats. 2003, ch. 667, §§ 1–3, pp. 5137-5144; Stats. 2013, ch. 102, § 1; see generally Din, Chapter 667: Instituting Proper Trust Funds and Safeguarding the Earnings of Child Performers...