If a firm falls for a business email compromise or fraud and wires payment to a fraudster, it will still have to pay the correct party. From the Proskauer law firm, a post about a recent case:
A case of first impression decided by the California Court of Appeal, Fourth Appellate District demonstrates the high stakes for victims of this crime. Specifically, on May 27, 2025, the Court of Appeal released an opinion addressing the issue of who bears the loss when settlement funds are fraudulently diverted via a wire transfer scam.
The case originated when Plaintiff Brian Thomas sued Defendants Corbyn Restaurant Development Corp. and two of its employees for personal injuries allegedly sustained during an altercation. Following mediation, Defendants agreed to pay a total of $475,000 to Plaintiff in full settlement and release of all Plaintiff’s claims. The agreement stipulated payment to Plaintiff’s attorney’s client trust account by check.
One week after the agreement was reached, however, an imposter posing as Plaintiff’s counsel requested by email that payment be sent via wire transfer, and it provided wire instructions to Defendants’ counsel. After Defendants’ counsel communicated telephonically with the imposter’s associate–who posed as the purported “Head of Finance” at Plaintiff’s firm–it proceeded to electronically transfer the funds in accordance with the provided instructions.
The fraud remained undiscovered until Plaintiff’s counsel contacted Defendants’ counsel to follow-up regarding payment, after which Plaintiff filed ex parte for an order enforcing the settlement agreement.
The trial court applied federal case law, which generally shifts the risk of loss to the party in the best position to prevent the fraud.
Read more about the decision and appeal on Proskauer.
