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Sarrouf Law, LLP v. First Republic Bank

Superior Court of Massachusetts, Suffolk

August 2, 2018

SARROUF LAW, LLP
v.
FIRST REPUBLIC BANK et al.[1]

          File Date: August 6, 2018

          MEMORANDUM OF DECISION AND ORDER ON DEFENDANT FIRST REPUBLIC BANK’S MOTION FOR SUMMARY JUDGMENT

          Mitchell H. Kaplan, Justice of the Superior Court

          The plaintiff, the law firm Sarrouf Law, LLP (Sarrouf), was the victim of a classic internet scam. Defendant, H. Glenn Alberich, of counsel to Sarrouf, responded to an email from a self-identified international businessman seeking legal assistance in the sale of heavy equipment to a Massachusetts customer. Alberich had no prior relationship with this individual, nor was he referred by anyone that Alberich knew. Through communications with his potential client, Alberich learned that as part of the engagement, Alberich would be called upon to receive a check allegedly representing a substantial down payment on the sale price of the equipment-$337, 044-deposit it, and then distribute nearly all of it to foreign recipients. Alberich accepted the engagement and caused, what turned out to be, a counterfeit check to be deposited in Sarrouf’s IOLTA account with defendant, First Republic Bank (FRB). Alberich then caused those funds to be wire transferred to recipients in Asia and Southeast Asia, before the check was returned to FRB as uncollectable. FRB charged back to the Sarrouf IOLTA the amount of the wires. In this action, Sarrouf seeks to recover its loss from Alberich and FRB. Count I of Sarrouf’s Complaint asserts a claim of negligence against FRB, and Count II a claim for breach of the California Uniform Commercial Code (CUCC), Sections 1304 and 4103.

         The case is presently before the court on FRB’s motion for summary judgment seeking dismissal of the claims against it. For the following reasons, FRB’s motion for summary judgment is ALLOWED.

         BACKGROUND

         The facts revealed by the summary judgment record, viewed in the light most favorable to Sarrouf, are as follows.

         Sarrouf is a law firm based in Boston, Massachusetts. The firm’s principals are Camille Sarrouf, Sr. and Camille Sarrouf, Jr.; the bookkeeper is Mary Bono; and the legal secretary is Karen Beaudoin. In 2006 or 2007, H. Glenn Alberich became "of counsel" to Sarrouf, although he did not work on cases with either of the principals in the firm.

         FRB is a California state-chartered bank with branch offices in Boston.

         Sarrouf’s Accounts at FRB

         In June 2011, Sarrouf opened a client funds account with FRB. As part of the process of establishing this account, FRB provided Sarrouf with a number of documents that Sarrouf was required to execute, including: a Business Account & Disclosure Agreement dated May 2010; a Master Signature Card & Agreement to Open Accounts signed June 7, 2011; a Funds Transfer Agreement & Client Authorization signed June 7, 2011; a Multi-Client Management Master Account Application signed June 7, 2011; and a Partnership Authorization to Open Accounts signed June 7, 2011. The Funds Transfer Agreement & Client Authorization provided, in relevant part:

We may, in our sole discretion, execute a Funds Transfer which causes an overdraft to your account, in which case you are liable for the overdraft and any related fees, as stated in the Disclosure.
...
We are authorized to execute Funds Transfers issued by you or any Authorized Person, without inquiry into the circumstances of the transaction, even if a Funds Transfer benefits the Authorized Person.
...
We may, at our sole discretion, accept your cancellation or amendment to a Funds Transfer. We have no liability if a cancellation or amendment is not affected [sic].
...
All Funds Transfers are subject to verification by us pursuant to the following security procedure, which you agree is a commercially reasonable security procedure.
CALL BACK: If you or an Authorized Person gives Funds Transfer instructions by any method other than in person, we may telephone you or the Authorized Person at one of the telephone numbers listed in our records, or another telephone number as we and you agree upon.
...
You agree that we are liable to you only for our negligent performance or nonperformance of the services provided under his Agreement.
...
All Funds Transfers are governed by federal law and the laws of the state of California, including the Bank Secrecy Act, the Office of Foreign Assets Control (OFAC), the USA PATRIOT Act, and the Uniform Commercial Code as enacted in California ...

         FRB sent Sarrouf an updated Business Account Disclosure & Agreement in June 2014.

         It explained that:

Our policy is to make funds from your check deposits available to you on the first business day after the day we receive your deposit ... Please keep in mind, however, that after we make funds available to you, and you have withdrawn the funds, you are still responsible for checks you deposit that are returned to us unpaid and for any other problems involving your deposit.

         In January 2012, Sarrouf opened an Interest on Lawyers Trust Account (IOLTA) with FRB. The authorized signers on the IOLTA were Camille Sarrouf, Sr., Camille Sarrouf, Jr., Bono, and Beaudoin. Since joining Sarrouf as "of counsel" in 2007, Alberich, with Sarrouf’s permission, listed Sarrouf’s IOLTA information on his annual Board of Bar Overseers renewal form. Prior to October 2015, Alberich had never deposited or withdrawn funds, or requested to do so, from Sarrouf’s IOLTA.

         "Henry van den Biggelaar"

         On September 23, 2015, an individual who identified himself as "Henry van den Biggelaar" contacted Alberich through a webpage that Alberich maintained advertising his services. Biggelaar’s message read: "I request the help of an attorney to draft a sale agreement. Respond if you are able to help and schedule a time to discuss details. Thank you for your prompt response." Biggelaar’s email address was listed as, "hennyd@bigmechinery.nl." Over the next few days, Alberich and Biggelaar corresponded by email. Alberich did no research regarding either Biggelaar or "bigmechinery."

         On September 25, 2015, Biggelaar wrote that:

I am negotiating a transaction about selling a crawler crane to a purchaser living in Massachusetts. I need your firm to help me draft a sale contract for the transaction. Attached are some required details of the crane for your review. Find underneath the name of the proposed buyer for your conflict check. The manufacture and total expenditure is one million six hundred eighty-five thousand tow [sic] hundred twenty dollars (1, 685, 220.00).

          Proposed buyer:

Cashman Dredging
549 South Street
P.O. Box 692396
Quincy, MA 02269
Advice on your rate for drafting a PS agreement and forward your engagement letter for our review and signature.

         Biggelaar attached a six-page Term Sheet to the email relating to the proposed transaction.

         On September 29, 2015, Alberich spoke with Biggelaar for fifteen to twenty minutes on the phone about Biggelaar’s company and crawler cranes, among other things. Biggelaar told Alberich that Cashman Dredging would be represented by a broker in the transaction. Thereafter, Alberich sent Biggelaar a retainer agreement. The agreement was on letterhead that identified Alberich as "of counsel" to Sarrouf, required a $3, 000 retainer, and stated that Biggelaar would be billed $400.00 an hour for legal services.

         On October 1, 2015, Biggelaar emailed Alberich the signed retainer letter and explained that: "The scope of your engagement would be to draft and execute a standard Purchase& [sic] Sale agreement that would protect all parties involved ... The buyer will be represented by their broker. Existing terms are that buyer will make initial deposit that would cover attorney retainer as soon as the retainer is executed. The initial deposit will be 20% of total amount. It must be received within 5 business days of signing the retainer agreement to show commitment. Full Balance is expected before equipment is shipped ... Kindly advice [sic] on how you want the initial deposit and retainer check written out." Alberich did not know and did not ask Biggelaar why signing the retainer agreement triggered the buyer’s obligation to pay the deposit.

         Later in the morning on October 1, 2015, Alberich responded that the checks should be made out as follows: the Deposit Check payable to "H. Glenn Alberich, as attorney for Big Machine" and the Retainer Check payable to "H. Glenn Alberich."

         On October 5, 2015, Alberich received at his home office, a "letter of intent" and two checks, which were purportedly sent by the buyer’s insurance broker, Zurich North America. The letter of intent authorized Alberich: "to release $192, 900.00 to seller for final inspection cost and insurance coverage to commence inspection and $118, 650.00 for service parts for 6 months. Balance funds should be held in trust until final closing." The deposit check was drawn in the amount of $337, 044.00, payable to "Sarrouf Law LLP." The retainer check was in the amount of $3, 000 and payable to "H. GlennAlberich, Esq. [sic]." In the upper left hand corner of both checks is: "To JP Morgan Chase Bank, N.A. Syracuse, NY 13206" and "RBC Bank." Nothing on the checks struck Alberich as concerning.

         On October 5, 2015, Alberich presented the $3, 000 retainer check to a teller at Santander Bank where he maintained an account, and the teller accepted the check for deposit. That same day, Alberich sent the $337, 044 check to Sarrouf via overnight mail. In his handwritten cover letter to Camille Sarrouf, Jr., Alberich wrote: "Camille-Please deposit the enclosed check in the firm’s IOLTA account. I am preparing a contract for the purchase of heavy equipment, and the enclosed check is a good faith down payment. The closing may not occur for 90 days."

          On October 6, 2015 at 8:34 a.m., Alberich sent an email to Bono, with a copy to Camille Sarrouf, Jr., informing Bono that he mailed a check to Camille Sarrouf, Jr. and asking that she deposit the $337, 044 check into Sarrouf’s IOLTA. Alberich also requested that Bono scan and email him a copy of the deposit slip as soon as possible. One minute later, Camille Sarrouf, Jr. responded to Alberich’s email asking him if he was "around later for a call" concerning the check. Alberich responded that he would reach out to Camille Sarrouf, Jr. over the next two days, but he never did.

         Bono Deposits the $337, 044 Check at FRB

         Later in the day on October 6, 2015, Bono brought the $337, 044 check to FRB’s Post Office Square branch for deposit. Nothing about the check struck Bono as suspicious. She brought the check to the first representative that she saw, Gabriela Perry. Bono and Perry knew each other from previous banking transactions. Bono handed Perry the check and deposit slip. She did not say anything to Perry about the check, the circumstances under which Alberich received the check, or the circumstances under which Bono was depositing it. Bono saw Perry look at the check, turn it over, look at the endorsement, put the deposit slip back on top of the check, and enter information into her computer. Perry recalled that she looked at the check for the amount, the date, whether it was signed, the identity of the payee, whether the name of the payee matched the account, the endorsement, and the nine-digit routing number.[2]

         Perry accepted the check for deposit into Sarrouf’s IOLTA and gave Bono a deposit receipt. Bono looked on the deposit receipt to see when the deposited funds would be available, but did not see this information on the receipt. Bono asked Perry when the funds would be available, and Perry told Bono that the funds would be available immediately because FRB does not hold funds in the IOLTA.[3] Bono thought it was strange that there would be no hold, but she did not question Perry any further because she thought that the check was a cashier’s check. Bono’s interaction with Perry on October 6, 2015 lasted approximately one minute.

         At 12:47 p.m. on October 6, 2015, Alberich forwarded a copy of the $337, 044 deposit receipt to Biggelaar. The deposit receipt noted that: "Checks and other items are received for deposit subject to the provisions of the Uniform Commercial Code or any applicable collection agreement. Deposited funds may not be available for immediate withdrawal in accordance with the check hold policy stated in our Account Disclosure. All items are credited subject to final payment. Any item may be charged back at any time before final payment." At 3:37 p.m. on October 6, FRB scanned the $337, 044 check to its Image Center, and the check was processed at 4:02 p.m.

         Biggelaar Requests Wire Transfers

         At 6:07 a.m. on October 8, 2015, Biggelaar sent Alberich an email, which stated, in part:

Glenn,
Attached please find the signed Letter of Intent and instructions on our funds held in your trust account, Effect a swift wire to KIM SREYLOT and ODIKA HOLDING INTERNATIONAL RESOURCES COMPANY LIMITED for the final inspection of the equipment and service parts as agreed by both parties.
Due to the time difference between us we want you to have this transfer executed today before 11:00 a.m. your time and make the value date of the transfer 08 October 2015 in other [sic] for ODIKA HOLDING INTERNATIONAL RESOURCES COMPANY LIMITED and KIM SREYLOT to be able to update their accounts accordingly and proceed as directed.
Report back to me, copying buyer’s representative with receipt of wire transfer and swift reference numbers so we can forward same to them as soon as possible.
...
I await your acknowledgment of instructions and wire transfer updates.

         The email also instructed Alberich to wire $192, 900 to Sreylot’s account at Union Commercial Bank PLC in Cambodia and $118, 650 to Odika Holding International Resources Company Limited’s account at HSBC in Hong Kong. Alberich did not ask Biggelaar about Sreylot’s or Odika Holdings’ role in the transaction. After sending the wire instructions, Biggelaar emailed Alberich six times in twenty-four hours to confirm that Alberich received the wire instructions and to request confirmation that the wires had been sent; Alberich testified at deposition that he did not think this was unusual.

         The $3, 000 Retainer Check is Returned & the Wire Transfers

         At 11:27 a.m. on October 8, 2015, Alberich sent Biggelaar the following email:

Henry:
I just completed two meetings in preparation for a court hearing which just ended. I have forwarded your instructions to my Boston office and advised that the transfers be executed as quickly as possible. Please be advised that the $3, 000 check in payment of my retainer fee has been returned by my bank and that amount has been subtracted from my account. I am surprised and puzzled by this turn of ...

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