Thomas v. Corbyn Restaurant Development Corp.
After parties in a personal injury action agreed to a settlement, an imposter began sending spoofed emails to the defendant requesting payment of the settlement through a different method than originally agreed upon. Defendant did not realize these emails were fake and wired the money to the fraudulent third party. When the fraud was discovered, plaintiff requested the settlement money but defendant refused to pay.
The trial court granted plaintiff’s application to enforce the settlement. The court applied federal law which shifts the risk of loss to the party best situated to prevent the fraud. The trial court noted defendant received spoofed emails containing various red flags including: (a) the spoofed emails were sent from a slightly different address, (b) the phone number listed in the email was inoperable, and (c) the payment instructions changed the method of payment from check to wire and changed the name of the payee. In contrast, plaintiff did not receive any spoofed emails until after the fraudulent wire was completed. Thus, the trial court concluded defendant was best situated to prevent the fraud and plaintiff did not bear any comparative fault.
The Court of Appeal affirmed in this matter of first impression. The court observed that California has adopted the Uniform Commercial Code (UCC) and the imposter rule which states “the person bearing the loss may recover from the person failing to exercise ordinary care to extent the failure to exercise ordinary care contributed to the loss.” (Com. Code, § 3404, subd. (d).) The court concluded that because California has adopted the UCC, California courts may look for guidance to the decisions of other courts, that have interpreted the imposter rule including federal court decisions. The court found that substantial evidence supported the trial court’s allocation of the risk of loss. Defendant was best situated to discover the fraud because defendant received the spoofed emails and there were numerous warning signs that put defendant on notice. Moreover, there was no evidence plaintiff was aware of the scheme until after it was completed.
