A law firm that fell victim to a scam by a purported overseas client can’t pursue federal wire fraud and RICO claims against its attorney trust depository, Bank of America, a judge says.
Borenstein McConnell & Calpin, a six-lawyer firm in Springfield, accused BofA of wiring $264,100 from its attorney trust account to a “client” in South Korea after assuring the firm that it would not send the money until a check deposited on the client’s behalf cleared.
The account did not have sufficient funds to cover the sum, resulting in an overdraft, which the bank promptly reported to the Office of Attorney Ethics. The firm sued on multiple claims.
U.S. District Judge William Walls in Newark on Tuesday threw out the wire fraud and racketeering counts in Borenstein McConnell & Calpin v. Bank of America and said the remaining claims belong in state court.
They included negligence, breach of fiduciary duty, fraudulent and negligent misrepresentation and other torts.
The firm seeks $5 million for the loss of the funds in the account, for defamation damages and for expenses and fees incurred in dealing with the situation.
BofA denies any fault and has counterclaimed for negligence and breach of Uniform Commercial Code warranties because the firm presented a fraudulent check.
The bank claims the firm is liable to it for any amount it is found to owe.
According to the suit, someone purporting to be Michelle Seung from South Korea emailed the firm on April 11 asking for assistance in collecting support, equitable distribution and other amounts owed by her ex-husband, Hadrian Seung, for whom she gave a Springfield address.
Seung followed up with another email five days later, providing details and documents.
On April 17, managing partner Abraham Borenstein replied that the firm would take the case on receipt of $25,000 and an executed retainer agreement. The executed agreement was returned on April 20.
There arrived on April 25 a FedEx envelope, purporting to be from Hadrian Seung, with a $289,100 cashier’s check that appeared to be drawn on PNC Bank in partial payment of what Seung owed his former wife and for her legal fees.
The firm deposited the check into its trust account. Later that day, Michelle Seung requested that the money, minus the retainer, be wired to a bank in Japan. She claimed she needed it by the next morning to pay for surgery her son was having on April 26.
Borenstein went to the bank on April 26 to arrange for the money to be sent.
Bank personnel allegedly informed him the check had not cleared and the wire transfer system had flagged the funds as not available.
The suit claims the bank also told Borenstein the transfer could not and would not be processed until the check cleared. The firm says it relied on the bank not to wire the money until the check cleared and the funds were liquid.
The firm says that on April 29, the bank called saying the clearance had occurred and that it had transferred the $264,100 to Seung.
But around May 3, the bank allegedly called again, saying the check was fraudulent and froze the firm’s trust and business accounts, interrupting its business and causing “severe monetary losses.”
The bank says the check was returned to it unpaid on April 29 and the next day it notified the firm and charged back to the account the $289,100 check amount.
That created an overdraft and the bank notified the OAE on May 7.
The suit, filed May 10, alleges the bank knew or should have known the check was fake and that it has a practice of misadvising customers in order to maximize overdraft fees while leaving customers to bear the losses.
The bank answered on June 10 and moved for summary judgment on Sept. 16.
Walls found no private right of action for wire fraud and no pattern of racketeering activity.
In declining to hear the remaining claims, he noted they had the potential to raise novel issues of state law.
“New Jersey’s highest court has not squarely addressed whether the UCC preempts misrepresentation claims based on statements made by employees during the check collection process,” he wrote.
Borenstein calls the ruling “a bump in the road” and says he will refile in state court.
He says the firm immediately opened a new account at another bank and repaid clients. He believes the OAE was satisfied and will not pursue the matter.
BofA’s lawyer, Eric Evans, of Wilson Elser Moskowitz Edelman & Dicker in Florham Park, did not return a call.
At least two other similarly victimized New Jersey firms have sued banks.
In August 2011, a state judge dismissed Levitan & Friedland’s suit against Valley National Bank, finding the Florham Park firm was itself to blame for its $96,410 loss.
Freedman Gersten in Hasbrouck Heights settled with BofA in December 2011 on undisclosed terms over a $274,705 loss.■