United States: Scam Targeting Attorneys Causes Big Loss To Bank

Last Updated: December 12 2016
Article by Stephen M. Proctor

As many attorneys know, attorneys have been the frequent target of scams, such as those promising a big fee to assist in transferring funds to or from overseas or to assist in a collection case. Bar associations have cautioned attorneys about these scams. Sometimes they are so obviously scams as to be comical. But they must be taken seriously, as they have succeeded in stinging attorneys and banks.

A recent case out of the 7th Circuit Court of Appeals illustrates how these scams work and who takes the loss. (First American Bank v. Federal Reserve Bank of Atlanta, Citizens Bank, NA, and David M. Goodson, 7th Circuit Court of Appeals, No. 16-1122, November 22, 2016).

Judge Posner, who wrote the opinion, described it as a "complicated case." But, as he tends to do, he simplified by boiling it down to a six page decision, suggesting the case was not hard to decide.

The facts are common to these types of scams. David Goodson was an Illinois attorney with nearly 40 years of practice. In 2013, he received an e-mail from "Fumiko Anderson." Fumiko is a Japanese woman's name. Fumiko wanted to hire Goodson to help her recover money that she claimed to be owed in a divorce proceeding. Later Fumiko gave Goodson the good news that her use of, or threat to use, an attorney had persuaded her ex-husband to settle. And it got better. Goodson should expect a check in a large amount, she said. He could use the check to pay his fee and pass on the rest to her. But Fumiko really needed the money quickly and asked Goodson to get her the funds as soon as possible.

Sure enough, Goodson received a check payable to "Law Office David M. Goodson" for $486,750.33. The check was drawn on the account of First Aid Corporation, an Elgin, Illinois company selling maintenance and sanitation supplies. First Aid Corporation's account was at its bank, First American Bank. Unfortunately, unknown to Goodson, the check was totally bogus. Although looking real, it was counterfeit and First Aid had no connection with Fumiko or her supposed ex-husband.

Goodson deposited the check in his client trust account in Citizens Bank, N.A. Honoring Fumiko's request for quick access to the funds, Goodson directed Citizens Bank, N.A. to transfer the entire amount to a Japanese entity which Goodson believed to be Fumiko. But, Judge Posner noted, the entity was part of an Internet-based fraudulent check scheme known as the "Fumiko Bandit." First Aid lost all of the $486,750.33 that was moved out of its account by the fraudulent check. The Fumiko Bandit had struck again, leaving several victims in its wake.

First American reimbursed its customer, First Aid, the most obviously innocent party. At that point, the loss was on First American.

But who would ultimately bear the loss – the attorney victimized by the scam, Citizens Bank, First American Bank or even the Federal Reserve Bank of Atlanta, peripherally involved in the transaction? First American did not think it should bear the loss, so it sued Goodson, Citizens Bank and the Federal Reserve Bank of Atlanta. Unfortunately, the district court did not agree with the claims made by First American Bank and dismissed First American's lawsuit. Judge Posner affirmed.

First American's first claim was breach of warranty against Citizens Bank, alleging that when Citizens deposited the $486,750.33 in Goodson's account, Citizens warranted the information on the check. Actually, the deposit was by an electronic image of the check that was sent by Citizens Bank to First American through the Federal Reserve Bank of Atlanta and, in the process, some information was unavoidably missing, including physical security features (such as watermarks and microprinting) and a warning box on the back of the check, designed as an additional security feature. But this missing information gave no benefit to First American Bank, as federal regulations recognized that losing the information was unavoidable.

So what could have First American done? This was the problem, as there were steps First American could have taken to protect itself, but failed to take. First American could have demanded a "substitute check", which is a paper printout that is deemed the legal equivalent of the original paper check. This would have given First American the warranties and indemnification that it wanted. Another option to First American was to simply dishonor the check. It took none of these steps, so it's claim for breach of warranty against Citizens Bank failed.

First American wasn't done. It claimed to be a victim of a "mistake" and sought restitution. But Illinois law provided no remedy for the victim of such a mistake. Here Judge Posner credited Goodson and the two banks with a good faith, reasonable belief that "they were engaged in the innocent, commonplace banking activity of forwarding a check to its intended final recipient on behalf of their clients. There is no claim or evidence that they knew they were siphoning money to criminals."

First American even accused Citizens Bank of "negligent spoliation of evidence" when Citizens Bank destroyed the original paper check after Citizens Bank transmitted the electronic copy to the Federal Reserve Bank of Atlanta. But, as Judge Posner noted, there is no duty to retain the paper copy. Requiring retention of the paper copy would defeat the purpose of permitting electronic images of checks for speed and efficiency.

Finally, First American sought to shift the loss to Goodson based on "professional negligence." But neither the district court nor Judge Posner was convinced.

"[Goodson] had received the $486,750.33 check from First Aid believing it was part or all of the money that his client, Fumiko Anderson, had asked him to recover for her. The fact that the check came from Canada, from a company he didn't recognize, rather than from an individual (Fumiko's ex-husband), may have been suspicious circumstances, but maybe not, and in any event 'the traditional, general rule has been that the attorney is liable only to his client, not to third persons'."

First American was clearly not Goodson's client.

So, as often happens, the party bearing the loss, First American, may be innocent, in the sense First American acted honestly and in good faith. First American's mistake was in failing to take the steps necessary that would have protected it, and protected the other victims to this fraudulent scheme.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.