Imposter Rule – § 7-3-404(d), Ala. Code 1975 – Fraudulent Wiring Instructions

Mile High, LLC, et al. v. Flying M Aviation, Inc., [Ms. CL-2023-0260, Jan. 5, 2024] __ So. 3d (Ala. Civ. App. 2024). The court (Moore, J.; Thompson, P.J., and Hanson, J., concur; Edwards and Fridy, JJ., concur in the result) affirms the Jefferson Circuit Court’s order enforcing a $50,000 settlement agreement that Luther S. Pate entered into with Flying M Aviation, Inc. (“FMA”).

FMA filed suit against Pate for breach of contract and the parties settled the case for $50,000. On July 12, 2022, FMA’s counsel, Gresham, sent Pate’s counsel an email with wiring instructions; however, hours later, an imposter “spoofed” Gresham’s email, sent Pate’s counsel a duplicate email containing wiring instructions to the imposter’s bank account, and Pate wired the $50,000 to the imposter’s account. Ms. *2. FMA filed a motion to enforce the settlement agreement when Pate refused to pay FMA. On February 1, 2023, the circuit court entered a judgment enforcing the settlement agreement. Ms. *3.

The Court determined both parties were defrauded, Pate by reasonably relying on the fraudulent email and sending the wire to the imposter, and FMA by not receiving the settlement proceeds. Ms. *10. Pate, his bookkeeper, and his bank failed to confirm wiring instructions with FMA or Gresham, Ms. *6, and consequently never made FMA aware of the fraudulent activity. Ms. *11.

The circuit court applied the UCC’s “imposter rule,” codified at §7-3-404(d), Ala. Code 1975, which provides the party in the best position to prevent the fraud by exercising reasonable care should bear the loss. Ms. *3, citing Parmer v. United Bank, Inc., (No. 20-0013, Dec. 7, 2020 (W. Va. 2020) and Arrow Truck Sales, Inc. v. Top Quality Truck & Equip., Inc., (No. 8:14-cv-2052-T-30-TGW) (M.D. Fla. Aug. 18, 2015). The court affirms, concluding that even if Pate could not have reasonably “detected the signs that the mail and wiring instructions were fraudulent, it remains that Pate was wiring a large sum of money as settlement proceeds. Under the circumstances, Pate should have verified the wiring instructions before executing the wire transfer, which it easily could have done.” Ms. **12-13.

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