A federal judge has dismissed the lawsuit that a Bucks County real estate firm brought against Bank of America for failing to stop a more than $500,000 wire transfer that happened after one of the firm’s principals was hacked.
U.S. District Judge Harvey Bartle of the Eastern District of Pennsylvania on Tuesday dismissed the lawsuit that O’Neill, Bragg & Staffin brought against Bank of America, finding that the firm failed to show that the banking institution breached any agreement, violated federal regulations or breached the Pennsylvania Commercial Code.
“What is alleged to have happened to the law firm here is indeed unfortunate. The computer hacker, of course, is the real culprit, but is not a party to this lawsuit,” Bartle said. “For the reasons stated above, as between the law firm and the bank, the law firm must bear the loss on the facts set forth in the amended complaint.”
Warminster-based O’Neill Bragg and its principals filed a lawsuit in federal court in Philadelphia against Bank of America, claiming the bank was responsible for the damage done after hackers used deceptive emails to dupe a member of the firm into transferring more than a half-million dollars to the Bank of China.
The hacker posed as a partner of the firm, Gary Bragg, according to the complaint, and emails involved a loan transaction of which the hacker seemed to have intimate knowledge.
In the correspondence, the hacker addressed partner Alvin Staffin by his nickname, Mel, making the ruse even more convincing, and asked for a $580,000 transfer from the firm’s IOLTA sub-account to the Bank of China.
Bank of America made the transfer at Staffin’s request. After the transfer was made, Staffin called Bragg to discuss it, finding out only then that Bragg had no knowledge of the $580,000 request.
“Staffin realized OBS had been victimized by a computer hacker, and immediately notified defendant bank of the fraud,” the complaint said.
Staffin spoke to a Bank of America wire transfer specialist named Jason, who did not give a last name, and requested that the transfer be stopped. Jason said the bank was powerless to do anything until the funds had reached China.
The firm’s client’s account had insufficient funds to cover the transfer, only $1,900, according to the complaint. However, Bank of America drew from the firm’s other IOLTA sub-accounts belonging to other clients to cover the fraudulent transfer, the plaintiffs claimed.
Efforts to recall the wire transfer proved insufficient, according to the complaint, and, at the suggestion of the FBI, the firm contacted the Hong Kong police to report a cybercrime. A Hong Kong court eventually froze the hacker’s accounts.
However, to date, the firm has recovered only $58,000, according to the complaint.
The plaintiffs alleged that Bank of America failed to stop the transfer despite its legal duty to do so, and demanded that the bank repay the $580,000 that was drawn from the other IOLTA accounts.
Bartle, however, determined that the request to cancel the transfer, which came just over an hour after the transfer was confirmed, did not qualify as a “valid and timely stop payment order,” and that nothing in the deposit agreement and disclosures barred the bank from taking funds from the IOLTA sub-accounts, since they were all technically the same account.
Bartle further disagreed with the plaintiffs’ argument that, since Staffin issued the payment order due to a mistake, the transfer had to be canceled under the Pennsylvania Commerce Code.
“While the PCC rule limiting cancellation after receipt to situations where the bank has explicitly agreed or where a funds-transfer system rule permits cancellation may at times lead to harsh results, as is the case here, it ultimately serves the greater good by facilitating commercial transactions involving large sums of money,” Bartle said. “Interpreting Section 4A211(c) in this manner helps to allocate responsibility and risk, rather than permitting cancellation after receipt merely due to a mistake by the sender that could be neither known nor anticipated by the bank before it sent the wire instructions to the beneficiary.”
Philip Rosenzweig of Silverang, Donohoe, Rosenzweig & Haltzman, who represented the plaintiffs, said he and his client were assessing the court’s opinion and are planning to appeal.
“We believe that Bank of America is liable for the events complained of,” Rosenzweig said.
McGuireWoods attorney Jarrod Shaw represented Bank of America. A spokesman for Bank of America declined to comment.