Sarrouf Law LLP v. First Republic Bank
| Decision Date | 20 May 2020 |
| Docket Number | No. 19-P-31,19-P-31 |
| Citation | 148 N.E.3d 1243,97 Mass.App.Ct. 467 |
| Court | Appeals Court of Massachusetts |
| Parties | SARROUF LAW LLP v. FIRST REPUBLIC BANK & another. |
John B. Flemming, Andover, for the plaintiff.
Douglas S. Brooks, Boston, for First Republic Bank.
Present: Hanlon, Lemire, & Shin, JJ.
The plaintiff, Sarrouf Law LLP (Sarrouf), was the victim of a fraud perpetrated by a person posing as a client trying to sell a piece of heavy construction equipment to a buyer in Quincy. A check, ostensibly from the buyer's agent, was delivered to H. Glenn Alberich, a lawyer who was "of counsel" to Sarrouf and in communication with the purported client. After the check was deposited in Sarrouf's account at First Republic Bank (First Republic or bank), the "client" sent Alberich instructions requiring that most of the check's proceeds be sent by wire transfer to two recipients, one in Cambodia and the other in Hong Kong. After the transfers had been made irretrievably, the check was revealed to be counterfeit; that amount was charged back to Sarrouf's account, resulting in a large deficit. As a result, Sarrouf sued First Republic and Alberich. A Superior Court judge allowed First Republic's motion for summary judgment and ordered entry of separate and final judgment, dismissing Sarrouf's claims against the bank. See Mass. R. Civ. P. 54 (b), 365 Mass. 820 (1974).2 We affirm.
Background. In January 2012, Sarrouf opened an interest on lawyers trust account (IOLTA) with First Republic. On September 23, 2015, Alberich received an e-mail through his webpage from a person identifying himself as "Henny Biggelaar." The message stated, In a subsequent e-mail, the person seeking Alberich's assistance identified himself as "Henny van den Biggelaar," the chief executive officer of a company called "Big Machinery" in the Netherlands. Van den Biggelaar later wrote that he was "negotiating a transaction about selling a crawler crane to a purchaser living in Massachusetts" and that he needed assistance to draft a sales contract. Van den Biggelaar stated that the total sales price was more than $1.6 million, and he attached a six-page term sheet. On September 29, 2015, Alberich spoke on the telephone with van den Biggelaar, who told him that the buyer, a Quincy company, would be represented by a broker in the transaction. Alberich sent van den Biggelaar a fee agreement. Van den Biggelaar returned the signed fee agreement, stating in his e-mail that the buyer would be represented by its broker and the buyer's initial deposit would cover Alberich's retainer of $3,000.
On October 5, 2015, Alberich received at his home office a "letter of intent" and two checks purportedly sent by the buyer's insurance broker, Zurich North America. One of the checks was in the amount of $3,000 and was made payable to Alberich (retainer check). The other check was in the amount of $337,044 and appeared to represent the initial deposit for the transaction (deposit check). The deposit check was made payable to Sarrouf.3 The deposit check's maker appeared to be the Royal Bank of Canada, and the drawee bank was JPMorgan Chase Bank, N.A. (JPMorgan).
Alberich presented the retainer check for deposit into his account at Santander Bank. He sent the deposit check to Sarrouf by overnight mail, with a handwritten note to one of the firm's principals, Camille Sarrouf, Jr., asking him to deposit the check in the firm's IOLTA. The next morning, on October 6, 2015, Alberich sent an e-mail to Sarrouf's bookkeeper, Mary Bono, with a copy to Sarrouf, Jr., asking that Bono deposit the check into Sarrouf's IOLTA and that she scan and e-mail to him a copy of the deposit slip for the check. Later that day, Bono brought the deposit check to First Republic's branch in Post Office Square, Boston, for deposit. A bank representative accepted the check, gave Bono a receipt, and told her the funds from the check would be immediately available because First Republic does not put a "hold" on funds deposited into an IOLTA. The deposit receipt stated, Alberich forwarded a copy of the deposit slip to van den Biggelaar via e-mail.
On October 8, 2015, at 6:07 A.M. , van den Biggelaar sent Alberich an e-mail requesting that Alberich make transfers of the proceeds from the deposit check on that day by 11 A.M. The e-mail instructed Alberich to wire $192,900 to "Kim Sreylot's" account at Union Commercial Bank PLC in Cambodia, and $118,650 to Odika Holding International Resources Co. Ltd.'s account at HSBC Bank in Hong Kong.4
At 11:27 A.M. on that same day, Alberich sent an e-mail to van den Biggelaar informing him that he had just emerged from two meetings and that the $3,000 retainer check had been returned as nonpayable. Notwithstanding the fact that the retainer check had been returned, Alberich forwarded van den Biggelaar's e-mail with the wire instructions to Sarrouf, Jr., asking him to instruct Bono to "take care of the transfers described below as quickly as possible." Sarrouf, Jr., forwarded the e-mail to Bono without comment; he and Bono both understood that as an instruction that she should place the wire transfer orders.
Bono did so, and the wire transfer orders triggered a "call back" procedure: a First Republic representative called Bono and confirmed the amount of the wires, the fact that they were to be sent from the IOLTA, and the identity of the receiving banks. The bank representative then processed the orders, which triggered a "red flag" procedure: bank representatives reviewed the transaction for certain indicia of fraud, performed an Internet search, which did not reveal any information suggesting Sreylot was not a real person, and verified that Odika Holdings was a registered entity in Hong Kong. The wire transfers were then approved for release.
The wire transfer in the amount of $192,900 was released at 2:20 P.M. and the wire transfer in the amount of $118,650 was released at 2:23 P.M. on October 8, 2015. The transfers were credited to the recipients' accounts on the following day.
At 8:23 P.M. on October 8, 2015, First Republic received an electronic advance return notification system message stating that JPMorgan had returned the deposit check to First Republic as "Refer to Maker." Ultimately, the check was revealed to be counterfeit. At 12:03 P.M. on October 9, 2015, Sarrouf's "preferred banker" at First Republic e-mailed Sarrouf, Jr., Camille Sarrouf, Sr., Bono, and Sarrouf's legal secretary, Karen Beaudoin, about the returned check. At 1:51 P.M. that day, a different First Republic representative returned calls Beaudoin had made to the bank after receiving the e-mail. Bono joined the call and asked whether the wire transfers could be recalled. Beaudoin was asked to e-mail the recall request to First Republic, which she did. Ultimately, however, the recall efforts were not successful.
Sarrouf was charged back the amount of the counterfeit check, resulting in its IOLTA being overdrawn by $259,312. On October 23, 2015, Sarrouf deposited $311,550 into its IOLTA to restore its previous balance of $52,238.5 Approximately one year later, Sarrouf sued First Republic and Alberich, alleging two counts against First Republic -- count one for negligence, and count two for breach of the good faith and ordinary care provisions of California's Uniform Commercial Code (C.U.C.C.).6 See Cal. Com. Code §§ 1304 and 4103 ; Uniform Commercial Code (U.C.C. or code) §§ 1-304 and 4-103. Sarrouf's claims against First Republic sought repayment of the $311,550 Sarrouf had deposited to restore the prior balance to its IOLTA.
Discussion. 1. Negligence. Sarrouf's first count against First Republic asserts that the bank was negligent in (1) failing to inspect the deposit check for signs that it was counterfeit and accepting it for collection; (2) informing Sarrouf that the proceeds from that check were immediately available for withdrawal; and (3) processing the wire transfer requests. "An order granting ... summary judgment will be upheld if the trial judge ruled on undisputed material facts and his ruling was correct as a matter of law." Commonwealth v. One 1987 Mercury Cougar Auto., 413 Mass. 534, 536, 600 N.E.2d 571 (1992).
Under California law, "[a] plaintiff in a negligence suit must demonstrate ‘a legal duty to use due care, a breach of such legal duty, and the breach as the proximate or legal cause of the resulting injury.’ " Vasilenko v. Grace Family Church, 3 Cal. 5th 1077, 1083, 224 Cal.Rptr.3d 846, 404 P.3d 1196 (2017), quoting Beacon Residential Community Ass'n v. Skidmore, Owings & Merrill LLP, 59 Cal. 4th 568, 573, 173 Cal.Rptr.3d 752, 327 P.3d 850 (2014). Here, Sarrouf's negligence claim was properly dismissed for three reasons.
First, Sarrouf identified no source of any relevant duty of First Republic based on the common law of California or based on the parties' contractual arrangements. "The existence of a duty is a question of law, which we review de novo." Vasilenko, 3 Cal. 5th at 1083, 224 Cal.Rptr.3d 846, 404 P.3d 1196. Sarrouf points to no common-law principle or contract term that required First Republic to (1) discover that the deposit check was counterfeit, (2) refrain from making a true statement to Sarrouf that the check proceeds were immediately available,7 or (3) refuse to execute Sarrouf's valid and duly authorized wire transfer instructions.8 Moreover, First Republic had no special duty to Sarrouf based on the parties' relationship. See Copesky v. Superior Court, 229 Cal. App. 3d 678, 694, 280 Cal.Rptr. 338 (1991) (...
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