Thomas v. Corbyn Restaurant Development Corp.

Summary

The California Court of Appeal affirmed a $475,000 judgment enforcing a personal-injury settlement after defense counsel wired the settlement funds to an imposter using fraudulent email and wire instructions. Applying persuasive federal authority and California’s Uniform Commercial Code imposter rule by analogy, the court held that the defendants were in the best position to prevent the fraud and bore the resulting loss. The court reviewed the trial court’s factual findings for substantial evidence and found that multiple red flags supported the allocation of loss to defendants.

Holdings

1. The risk of loss from an imposter's fraudulent diversion of a wire transfer shall be borne by the party in the best position to prevent the fraud. Trial courts must consider the extent to which each party exercised ordinary care and may apportion the loss accordingly.
2. Substantial evidence supported the trial court's finding that defendants were in the best position to prevent the fraud and that plaintiff bore no comparative fault; defendants therefore were responsible for the entire $475,000 loss.
3. A finding of negligence is neither necessary to, nor dispositive of, determining which party was best positioned to prevent the fraud.
4. The judgment did not improperly alter the settlement agreement. The trial court required payment of the agreed-upon $475,000 because defendants bore the risk of loss from the erroneous wire transfer, and the court did not award prejudgment interest but merely directed that any request be made by noticed motion.

Questions Presented

1. What legal standard governs allocation of the risk of loss when an imposter fraudulently diverts settlement funds through a wire transfer?
2. Whether substantial evidence supported the trial court's finding that defendants were in the best position to prevent the fraud and bore the entire loss.
3. Whether the judgment improperly altered the settlement agreement by requiring defendants to pay the settlement amount after the erroneous wire transfer and by allowing plaintiff to seek prejudgment interest.

Disposition

affirmed