After a couple’s closing funds were stolen by a phishing scam, the couple sued their closing firm for malpractice, arguing the firm should have done more to protect their funds. The case eventually went before the Supreme Court of Appeals of West Virginia.
The case is Richard Otto and Patricia Otto v. Catrow Law PLLC (Supreme Court of Appeals of West Virginia, No. 19-0361).
In 2015, Richard and Patricia Otto sought to move to the Eastern Panhandle of West Virginia from Wisconsin. They hired Lynn Frum to be their real estate agent. They found a home in the Falling Waters area of Berkeley County, W.Va. Their offer was accepted and Catrow Law PLLC was hired as the closing firm.
Leading up to the Oct. 26, 2015, closing, Catrow Law sent wiring instructions for the settlement funds to Frum via encrypted email. The Ottos were instructed to wire the funds to Catrow Law PLLC Real Estate Trust Account at MVB Bank Inc. in Fairmont, W.Va. Frum printed out the wiring instructions, scanned them and sent them to the Ottos via unencrypted email.
On Oct. 20, 2015, the Ottos received an email purportedly from Frum’s email asking the Ottos to wire the funds ahead of closing to ensure a smooth closing. This began a series of emails between the scammer and the Ottos that led the Ottos to wire the funds to an account for DRC Global Services Inc. at a bank in Albany, N.Y.
On the day of the closing, Catrow Law revealed that it had not received the funds and it became apparent the Ottos were the victims of fraud and law enforcement was contacted.
The Ottos filed suit in state court against Frum, her employer Coldwell Banker Innovations, and Catrow Law. The Ottos settled with Frum and Coldwell Banker Innovations, then filed an amended complaint. The amended complaint alleged Catrow Law breached its duties by: not contacting the Ottos or advising the Ottos to contact her prior to wiring funds to confirm the instructions; not taking precautions to determine of Coldwells’ and the Ottos’ emails were encrypted and secured; and not informing the Ottos as to the prevalence of wire fraud schemes.
Catrow Law sought summary judgment, arguing that the Ottos had not established the elements of legal malpractice. It specifically argued it had not neglected a legal duty and was not the proximate cause of the Ottos’ damages. The Ottos argued they could offer two ways in which Catrow Law had neglected its duty. First, it offered the expert opinion of T. Summers Gwynn on the applicable standard of care. Second, it argued that bulletins sent to Catrow Law as an agent/attorney for Old Republic Title Insurance Co. warning of phishing scams gave rise to a duty for Catrow Law to warn the Ottos against someone substituting fake wiring instructions.
The lower court found that Gwynn was not competent to give an opinion as to the standard of care under West Virginia law. It also held the bulletins and notices from Old Republic do not prove Catrow Law breached any duty of care it owed the Ottos. Based on these holdings, the lower court found that the Ottos did not establish Catrow Law breached a reasonable duty and granted summary judgment in favor of Catrow Law. The Ottos timely appealed.
The Supreme Court of Appeals of West Virginia affirmed the trial court’s decision, with two justices dissenting and reserving the right to file a dissenting opinion.
“Sadly, the petitioners in this action were clearly victims of a phishing/spoofing scheme,” the court stated. “An unidentified scammer was able to impersonate the petitioner’s real estate agent and the petitioners wired to the scammer a total sum of $266,069.22, which has never been recovered. We sympathize with the petitioners. However, under the facts of this case, they were unable to establish that the respondent breached any duty owed to them. Therefore, for the reasons stated herein, we affirm the circuit court’s denial of the petitioners’ motion to alter or amend the judgment.”
Turning first to the lower court’s ruling on the Ottos’ expert, it noted the lower court based its ruling on Gwynn’s testimony, who said he did not have any opinion about what should be done in West Virginia, and the disclosure Gwynn placed in his written retention agreement that his opinions and testimony are not represented to be expert opinions of West Virginia law.
“We have held that the standard of care required by an attorney is ‘to exercise the knowledge, skill and ability ordinarily possessed and exercised by members of the legal profession in similar circumstances,” the court stated. “Based upon the limitations contained in Gwynn’s retention agreement and his own testimony, we agree that he was not a competent expert witness to testify as to the applicable standard of care under West Virginia law. Accordingly, given the standard of review, our prior law, and the clear limitations contained in the expert report, we cannot say that the circuit court abused its discretion in disregarding Gwynn’s expert opinion on the applicable standard of care.”
In addressing the Ottos’ argument Catrow Law breached its reasonable duty, the court noted when Catrow Law provided wiring instructions to Frum, it took steps to encrypt its email. The Ottos argue Catrow also had a duty to warn them of phishing schemes that could target the Ottos.
“To demonstrate that duty, the petitioners aver that the respondent was a title agent for Old Republic, and point to bulletins that were issued by that company warning of phishing schemes targeting closing funds,” the court stated. “On this issue, the circuit court found that the petitioners ‘failed to present any genuine issue of material fact which would demonstrate the respondent breached a duty of care owed to them associated with the conveyance of the wiring instructions.’ We agree.”
It pointed out that the Ottos had to demonstrate Catrow Law knew of Old Republic’s bulletins in order to create a reasonable duty.
“The evidence the petitioners presented to the circuit court about these bulletins consisted of the following uncontested facts: The respondent was a title agent for Old Republic; The respondent admitted to receiving updates from Old Republic from time to time regarding ‘important information and events in the real estate industry;’ Old Republic sent out bulletins that warned of the potential phishing scheme targeting real estate closings,” the court stated. “Yet, the petitioners did not take the extra step to produce any evidence that the respondent actually knew about these specific bulletins warning of phishing schemes.
“To overcome the respondent’s motion for summary judgment, the petitioners had the burden of establishing the existence of a question of fact as to whether the respondent had neglected a reasonable duty,” the court continued. “They intended to show such question with evidence that these bulletins created that duty. However, they produced no evidence in response to the summary judgment motion supporting the essential element that the respondent received or saw these bulletins. Simply stated, the petitioners did not present evidence demonstrating the existence of a material question of fact regarding the respondent’s knowledge of the bulletin. Thus, they failed to overcome the respondent’s motion for summary judgment on the essential element of duty.”