The Third Appellate District Court of Appeals of Ohio reversed a lower court ruling in a case brought by a homebuyer who had sent money to scammers instead of an escrow agent after receiving fraudulent wire instructions. It said the lower court was wrong to dismiss the breach of contract and breach of fiduciary duty claims against the escrow agent because genuine issues of material fact remain as to whether an implied agreement for escrow services exists.
The case is Conor Hoffman v. Atlas Title Solutions LTD (Court of Appeals of Ohio, Third Appellate District, Union County, No. 14-23-04).
The case stems from an April 22, 2021, real estate closing where Conor Hoffman and his fiancé Macie McMahon were defrauded of $289.722.19. Hoffman contracted to purchase real estate in Marysville, Ohio, for $290,000 from Richard and Stephanie Little. Tamie Gordon, a real estate agent with Big Hill Realty, d/b/a Better Homes and Gardens Big Hill, represented the Littles. Jasmine McKenzie, a real estate agent with Consultants Realty LLC d/b/a Keller Williams Consultants Realty, represented Hoffman and McMahon.
Hoffman and the Littles engaged Atlas Title Solutions LTD as the escrow agent and title agent, at Gordon’s suggestion. Melonie McCaulley of Atlas Title served as escrow agent and closing official for the transaction, with Hoffman and the Littles sharing the cost of Atlas Title’s services. Hoffman paid the recording fee, wire fee and cost of title insurance. Hoffman and the Littles shared the cost of the title binder and Atlas Title’s settlement fee.
On April 13, 2021, a representative from Keller Williams told Hoffman and McMahon they needed to wire $289,722.19 to Atlas Title at least one day before the April 22, 2021, closing. McCaulley and her assistant, Alice Elliot, were copied on that email. The email informed Hoffman and McMahon that the title company would send the wire instructions in a secure email and to contact the title company to confirm the wiring instructions. Additionally, McKenzie told Hoffman via text that the title company would provide wiring instructions and to call them to confirm the amount to wire and instructions before wiring any money.
On April 20, 2021, Hoffman and McMahon received an email that appeared to be legitimate from someone claiming to be Elliot. The email instructed Hoffman and McMahon to wire $289,772.19 to an account purporting to belong to Atlas Title. Believing the email was authentic, Hoffman completed the wire transfer the same day. He used the contact number provided in that email to confirm the transaction. The email was not from Elliot or anyone at Atlas Title; Hoffman wired the funds to an account belonging to an unidentified person.
Prior to this transaction, Atlas Title had been notified of a prior hacking incident that compromised its email system in February 2021, as well as prior email-spoofing efforts, including incidents involving the same fraudster as the one who defrauded Hoffman and McMahon. That fraudster attempted to spoof the Littles on April 20, 2021, in conjunction with the closing on the house they were purchasing.
McCaulley said Atlas Title alerted Mark Milliron of Kloud9, Atlas Title’s internet-technology security provider, of the hacking and spoofing incidence. Milliron reported the system had been hacked and that the hacker was in an Atlas Title’s employee’s email for about an hour. However, McCaulley said, Milliron told Atlas Title the hacker did not obtain any information from Atlas Title. Atlas Title did not inform Hoffman, McMahon or McKenzie of the occurrences.
Atlas Title emailed the settlement statement and real wiring instructions using an unencrypted email on April 21, 2021, to Hoffman and McMahon. That email was intercepted by Hoffman’s email-spam filter.
Hoffman and McMahon closed on the property on April 22, 2021, and were not aware of the legitimate email and that Atlas Title had not received the purchase funds until April 23. Atlas Title did not alert Hoffman or McMahon that it hadn’t received the wire transfer before April 23, 2021. Hoffman and McMahon were unable to recover the funds through the banking channels and had to secure a loan from Hoffman’s grandmother to complete the purchase on April 27, 2021.
Hoffman and McMahon filed suit against Atlas Title, Keller Williams, Better Homes and Gardens, McKenzie, and Gordon on July 28, 2021. They alleged claims for negligence, breach of fiduciary duty, and breach of contract. On Aug. 31, 2022, Atlas Title filed a motion for summary judgment, arguing it did not owe a legally recognized duty to protect Hoffman from third-parties; that Atlas Title never agreed to act in a fiduciary capacity for the benefit of Hoffman or McMahon; Hoffman and McMahon are barred by the economic loss rule; and that there was no contract.
On Nov. 17, 2022, the trial court granted summary judgment in favor of Atlas Title as to Hoffman’s breach of fiduciary duty and breach of contract claims, finding that no fiduciary duty nor privity of contract existed.
Hoffman filed a notice of appeal on Dec. 19, 2022, arguing the trial court erred in dismissing Hoffman’s breach of contract claim against Atlas and the trial court erred in dismissing Hoffman’s breach of fiduciary duty claim against Atlas Title. He argued the trial court erred by concluding that a written contract is necessary for Atlas Title to be in contractual privity with him and that genuine issues of material fact remain as to whether an implied in fact contract for escrow services existed. He also argued that genuine issues of material fact remain as to whether Atlas Title breached its fiduciary duty.
The appellate court reversed the lower court’s decision.
“This case presents a novel issue requiring the analysis of who bears the responsibility for the escrow fraud that took place in this case,” the court stated. “Even though we ultimately conclude that the trial court improperly granted summary judgment in favor of Atlas Title as to Hoffman’s breach-of-contract and breach-of-fiduciary-duty claims because (at a minimum) genuine issues of material fact remain as to whether an implied agreement for escrow services exists, we acknowledge that more percolating issues exist in this case. Importantly, we agree that triable issues remain as to whether (at the very least) Atlas Title implemented ‘proper’ security measures to prevent Hoffman’s personal information from being ‘phished’ to precipitate the ‘spoofed’ email or whether Hoffman should have recognized that the email was ‘spoofed.’”
It found that, at minimum, a genuine issue of material fact existed as to whether Hoffman and Atlas Title entered into an escrow agreement.
“Here, the record reveals that Hoffman and the Littles requested that Atlas Title serve as the escrow agent and title agent for their real estate transactions,” the court stated. “Further, the record reveals that Atlas Title agreed to perform as the escrow agent and title agent and that Hoffman and the Littles promised to pay Atlas Title for those services. Critically, the record reveals that Hoffman promised to pay the recording fee, the wire fee, and the cost of title insurance, while Hoffman and the Littles promised to share the cost of the title binder and Atlas Title’s settlement fee.
“Moreover, Hoffman provided evidence in opposition to Atlas Title’s motion for summary judgment that an ‘escrow agreement to act as a settlement or escrow agent for the buyers and/or sellers’ is typically not required. According to [an expert’s] affidavit (supplied by Hoffman), such agreements are required only ‘when a settlement/escrow agent needs direction on how to disburse funds held when there are potential liens against the property or if there is a disagreement as to whom the funds should be paid.’”
It found that the trial court erroneously concluded Hoffman and Atlas Title lacked contractual privity.
“Since the transaction at issue in this case was a cash transaction, Hoffman and the Littles contracted directly with Atlas Title to serve as the escrow agent and title agent for the transaction,” the court stated. “Thus, genuine issues of material fact remain as to whether an implied contract for escrow services exists in this case. Consequently, we conclude that the trial court erred by granting summary judgment in favor of Atlas Title as to Hoffman’s breach of contract claim.”
It then turned to Hoffman’s breach of fiduciary duty claim.
“Based on our resolution of Hoffman’s first assignment of error, we conclude that (at minimum) a genuine issue of material fact exists as to whether an implied contract for escrow services exists,” the court stated. “Importantly, the record reveals that Atlas Title agreed to act as the escrow agent and title agent in this case. Indeed, the record reflects that Hoffman was a party to the transaction and that the parties promised to pay Atlas Title the fees for its escrow services as listed in the settlement agreement. Thus, because we conclude that a triable issue as to the existence of an escrow agreement exists, a triable issue as to the existence of a fiduciary duty remains and, consequently, whether Atlas Title breached that duty.
“Furthermore, contrary to Atlas Title’s contention that the economic loss rule precludes Hoffman’s recovery for economic damages for any alleged breach of a fiduciary duty, Atlas Title’s argument is misplaced,” the court continued. “Generally, ‘absent tangible physical harm to persons or tangible things, there is generally no duty to exercise reasonable care to avoid economic losses to others.’
“Although the economic loss rule sweeps widely, it does not preclude all tort claims for economic damages,” the court stated. “Importantly, ‘a plaintiff may pursue such a tort claim if it is based exclusively upon a discrete, preexisting duty in tort and not upon any terms of a contract or rights accompanying privity.’ Exempt claims include, as relevant here, a breach of fiduciary duty claim. Therefore, Atlas Title’s argument regarding the application of the economic loss rule as to Hoffman’s breach of fiduciary duty claim fails.”