In February 2016 Jerry Bain was
looking to purchase investment real estate. Kathryn Sylvia Coleman and her
broker, Platinum Realty, LLC, represented the seller. When the deal was ready
to close, Jerry alleges that Coleman instructed him to wire almost $200,000 in
closing proceeds.
Jerry followed the instructions
furnished to him.
Unfortunately,
however, the amount wired was sent to the wrong account, with the result that
Jerry lost it all. It appears that a hacker gained knowledge of the pending
transaction, and inserted wire transfer account data that dumped the funds
directly into the control of the hacker instead of the title company.
Jerry
sued Coleman and Platinum Realty to recover the amounts lost, claiming that they
were negligent in their misrepresentation of the bank account data to him. The
jury agreed, and found that Coleman and Platinum were 85% responsible for
Jerry’s loss. Jerry was responsible for the balance.
Accordingly,
the Court entered Judgment against Coleman and Platinum for $167,000. Defendants
then filed a Motion with the Court claiming that the evidence is insufficient
to support the jury’s finding of negligent misrepresentation.
The
first test of negligent misrepresentation is a failure to exercise reasonable
care or competence in obtaining or communicating the false information.
Platinum and Coleman responded by claiming that Coleman did not send the email
with the false data, inducing Jerry to wire funds to a third-party criminal’s
account.
Coleman
admitted that she had received the fake wiring instructions and attempted to
forward them to Jerry. That email from Coleman to Jerry, however, was sent not
to Jerry’s correct email address, but instead was sent to a very similar
address from which Coleman had received a prior communication.
Presumably
the hacker had created the similar address. And regardless, Jerry received the
email with the hacker’s account number a few minutes after Coleman sent it.
To
be sure he was wiring funds properly, Jerry then called Coleman, who confirmed
by phone that the funds must be wired prior to closing. And so the funds were
wired . . . to the hacker.
Once
Coleman conceded that she did not confirm that she had sent correct wire
instructions or that she had the responsibility to make sure the instructions
were correct, the jury could safely conclude that Coleman failed to act with
reasonable care.
And
from there it was no stretch to impose liability upon Coleman and Platinum
Realty for innocently participating in wire transfer fraud. See Jerry Bain v. Platinum Realty, LLC and
Kathryn Sylvia Coleman; US District Court; District of Kansas; Case
16-2326-JWL; June 25, 2018; https://casetext.com/case/bain-v-platinum-realty-llc-1.
Lessons
Learned / Questions Asked:
1. Neither
Coleman nor Platinum Realty represented Jerry Bain. And yet the Court still
imposed liability on both without a fiduciary duty analysis.
2. This
Court is telegraphing the message that brokers and agents must exercise extreme
caution not only with their principals, but also with other parties in their
transactions.
3. There’s
at least one more point worthy of mention (besides the obvious which is that
every email from a broker or agent to every party in every deal should state “We
don’t send wire transfer information; contact the wire recipient to verify data
before you send funds” or similar) – note that the jury found Jerry only
15% responsible for wiring funds to the wrong party. And this is after
testimony that Jerry was an experienced commercial real estate investor. And
that evidently Jerry never called the title agent to verify.
Stuart A. Lautin, Esq.*
* Board Certified,
Commercial (1989) and Residential (1988) Real Estate Law,
Texas
Board of Legal Specialization
Licensed
in the States of Texas and New York
Higier
Allen & Lautin, PC
2711
N. Haskell Avenue, Suite 2400
Dallas
Texas 75204
P:
972.716.1888
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