Friday, March 31, 2023

Bank Error

A defrauded law firm sued Wells Fargo for its role in honoring a check that turned out to be fraudulent.

Two counts were dismissed and two survived, according to a decision of the United States District Court for the District of Columbia

the Court grants Wells Fargo’s Motion to Dismiss as to the breach of fiduciary duty and the negligence claims, but denies it with regards to the breach of contract and failure to provide timely notice of dishonor claims.

Fiduciary relationship

The sparse and conclusory allegations set forth by Kalbian Hagerty do not suggest that it has anything but a bank depositor relationship with Wells Fargo. Given the background assumption that a bank and its depositors do not share a fiduciary relationship, Kalbian Hagerty’s claim is dismissed at this juncture. If Kalbian Hagerty has, or amasses, additional allegations to support this claim, it may seek leave to further amend its complaint.

The breach of contract claim turns on the question of the exercise of "ordinary care" in collecting on the check.

The sad tale

On December 10, 2018, Mr. John R. Lopez (or someone using that name) emailed Eric Siegel, a lawyer at the law firm Kalbian Hagerty, representing that he had signed an engagement letter retaining Siegel in an employment dispute against Lopez’s former employer, Sunbelt Rentals, Inc. ECF 1-1 ¶ 8. That same day, Siegel received an email from a Mr. Rod Samples, purportedly the Chief Financial Officer of Sunbelt Rentals, confirming Mr. Lopez’s email. Id ¶ 9. The second email (from Mr. Samples) said that Sunbelt Rentals owed Mr. Lopez $126,000. Id. Siegel responded and provided instructions for payment of that money. Id. The next day, Siegel received a cashier’s check made payable to Kalbian Hagerty for $126,000. Id. ¶ 10. The check was a bit unusual: it displayed a variety of different fonts, and had an “HSBC” watermark but was drawn from a Citibank account. Id. ¶¶ 36–37.

The law firm’s Office Manager deposited the check at a local Wells Fargo branch on December 12. Id. ¶ 11. A bank teller at Wells Fargo accepted the check and provided a Transaction Receipt indicating that the money would be available the next day. Id. ¶ 12. According to Kalbian Hagerty, the bank teller did not examine the check for legitimacy at that time. Id. On December 14, Mr. Lopez emailed Mr. Siegel asking him to wire the money received from Sunbelt Rentals, minus the continency fee, to Mr. Lopez’s account in Mexico. Id. ¶ 14. The law firm did so, wiring $83,985 to Mr. Lopez’s account and withholding $42,015 as attorneys’ fees. Id.

The check turned out to be counterfeit. Id. ¶ 15. But according to Kalbian Hagerty, it was not until December 17, five days after the initial deposit, that Wells Fargo sent it a notice that the cashier’s check had been returned unpaid, and that $126,000 had been deducted from the law firm’s trust account. Id. ¶ 15. Kalbian Hagerty further alleges that Wells Fargo did not attempt to stop the law firm’s funds from being disbursed upon learning that the check was fraudulent. Id. ¶ 16. When Kalbian Hagerty asked for a refund, Wells Fargo refused. Id. ¶¶ 23–24.

Apparently, this was not the first time that this scam had been perpetrated against a law firm with a bank account at Wells Fargo. Kalbian Hagerty alleges that a check bearing the same account number as their fraudulent check was previously used to defraud another law firm. Id. ¶¶ 35, 39 (citing Milavetz, Gallop & Milavetz, P.A. v. Wells Fargo, N.A., No. 12-cv-875, 2012 WL 4058065 (D. Minn. Aug. 22, 2012))

(Mike Frisch)

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