Law Firm Not Liable For Phishing Theft

The West Virginia Supreme Court of Appeals held that a law firm did not breach the standard of care in a real estate transaction where the funds transferred were stolen by a phishing scheme

Sadly, Petitioners in this action were clearly victims of a phishing/spoofing scheme. An unidentified scammer was able to impersonate Petitioners’ real estate agent and Petitioners wired to the scammer a total sum of $266,069.22, which has never been recovered. We sympathize with Petitioners. However, under the facts of this case, they were unable to establish that Respondent breached any duty owed to them. Therefore, for the reasons stated herein, we affirm the circuit court’s denial of Petitioners’ motion to alter or amend that judgment.

The transaction

Petitioners located a home in the Falling Waters area of Berkeley County that they desired to purchase. An offer on this home was made and accepted in the amount of $265,000.00, which amount Petitioners intended to pay in cash. To handle the closing, Respondent Catrow Law PLLC was retained. Thereafter, Respondent set the closing for October 26, 2015.

Falling Waters West Virginia sits on the southern side of the Potomac River across from Falling Waters Maryland. It is where the Army of Northern Virginia crossed in its retreat after the defeat at Gettysburg. 

The details of the phish are set forth in the opinion. 

Frum (the real estate broker) communicated with the victim by unencrypted emails. 

The phish purported to be from Frum

Petitioner Richard Otto responded to this email. However, the email address to which the response was sent (lfrurn@gmail.com) was not the same email address from which the initial email purportedly from Ms. Frum was sent that day (lfrum@cbimove.com). Indeed, every email from the scammer appeared on its face to be from lfrum@cbimove.com, but when a reply was generated to each email, such replies went to lfrurn@gmail.com. This went unnoticed by Petitioners.

When closing time arrived , Respondent advised that the funds had not been received. 

The crime thus came to light. 

Frum and Coldwell Banker settled. 

Standard of care

When Respondent provided the wiring instructions to Frum, Respondent took steps to encrypt its email containing that information. The contents of that email were highly sensitive and Respondent reasonably expected the information to remain confidential by use of encryption technology. Indeed, Petitioners concede that Respondent was not responsible for the hack because they pled in their amended complaint that “the money was diverted when the hacker was able to intervene in email correspondences between” Frum and Coldwell. Petitioners, however, contend that in addition to the encryption precautions it undertook, Respondent had a duty to warn Petitioners of phishing schemes that could target Petitioners.

To demonstrate that duty, Petitioners aver that Respondent was a title agent for Old Republic and point to bulletins that were issued by that company warning of phishing schemes targeting closing funds. On this issue, the circuit court found that Petitioners “failed to present any genuine issue of material fact which would demonstrate [Respondent] breached a duty of care owed to them associated with the conveyance of the wiring instructions.” We agree.

The court majority affirmed the trial court’s exercise of discretion to exclude a proffered expert on standard of care because he was not versed in West Virginia law.

Conclusion

we conclude that the circuit court was correct in granting summary judgment on this issue because Petitioners did not meet their burden of production. The failure of Petitioners to do so – when the evidence they should have submitted was available to them when they filed their response to the motion for summary judgment – renders the circuit court’s denial of relief under West Virginia Rule of Civil Procedure 59(e) justified.

For the reasons set forth below, the case may have little impact on the emerging law of liability for transactional theft.

There is a dissent  on the exclusion of expert testimony

the court cited Mr. Gwynn’s representation that he was not purporting to provide expert opinion as to West Virginia law – a fact of absolutely no consequence, because even the respondent’s expert agreed that the duty of care owed by a settlement attorney is “a very general legal standard,” one not based on any specific West Virginia law or case or rule of professional responsibility.

Thus, with the stroke of a pen, the circuit court denied petitioners the right to put their case before a jury, finding that because petitioners’ expert practiced law ninety miles away from Martinsburg, West Virginia, his forty-five years of experience meant nothing and his opinions would all be discounted. In short, the court applied an antiquated doctrine known as the “locality rule” to bar testimony that was clearly and unequivocally admissible under Rule 702 of the West Virginia Rules of Evidence.

The expert is from College Park, Maryland. 

The dissent decries the application of the “locality” rule

More than thirty years ago, this Court dealt a death blow to an ill-conceived doctrine that had for decades made it  difficult – indeed, virtually impossible — for victims of medical malpractice to seek redress for their injuries. In the single syllabus point in Paintiff v. City of Parkersburg, 176 W. Va. 469, 345 S.E.2d 564 (1986), we held that “[t]he ‘locality rule’ in medical malpractice cases is abolished,” adding in the text of the decision that “we shall not miss it.” Id. at 472, 345 S.E.2d at 567. In today’s decision, the majority has breathed new life into Frankenstein’s monster, tacitly approving the application of a locality rule in legal malpractice cases. In my view, it is an insult to every member of the West Virginia Bar that in the absence of specific evidence to the contrary, it will be assumed that the professional standard of care for West Virginia attorneys is lower than the standard for attorneys in other states, and that West Virginia attorneys may not follow best practices.

And the grant to summary judgment.

First, let me state in the clearest terms: I defy anyone to argue that West Virginia attorneys do not have the “knowledge, skill, and ability” of lawyers anywhere else in this country. This State boasts a first-class law school; admission to the Bar requires passage of a rigorous bar examination; thereafter, all lawyers are required to complete twenty-four hours of continuing legal education every two years; and in this day and age, legal research requires the touch of a computer key, as opposed to the days when it might well have required a trip to Morgantown or Charleston to search a Dicentennial Digest. In short, attorneys in West Virginia stand on equal footing with attorneys in every other state in knowledge, skill, and ability. Second, the standard of care in this case has nothing to do with any West Virginia statute, case or rule; both Mr. Gwynn and the respondent’s expert agreed on this. Therefore, the fact that Mr. Gwynn isn’t versed in West Virginia law is completely irrelevant. Third, whatever may be the “practice” of settlement lawyers in Berkeley County, West Virginia, is also irrelevant; the question is whether that practice comports with the standard of care for attorneys practicing in the same area of law.

…As acknowledged by the majority, petitioners demonstrated that respondent was a title agent for Old Republic; that it received updates from Old Republic regarding “important information and events in the real estate industry”; and that Old Republic had sent out bulletins warning of the exact phishing scheme used in this case. I believe that this evidence was sufficient to take petitioners’ case to the jury; let the respondent establish, if it could, that it did not receive the Old Republic bulletins.

There was a recent case from Massachusetts where a law firm sought but failed to hold a bank liable for funds stolen in an online transfer.

Our summary of that case is linked here. (Mike Frisch)