Cal. Ct. of Appeals Holds Risk of Fraud in Settlement Transfers Falls on Paying Party

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On May 27, 2025, in Thomas v. Corbyn Restaurant Development Corp., the California Court of Appeal addressed, for the first time in the state, which party bears the risk of loss when settlement proceeds are wired to an impostor due to fraudulent instructions. After settling a personal injury case for $475,000, defense counsel received spoofed emails purporting to be from the plaintiff’s attorney and wired the funds to a fraudulent account. When the fraud came to light, the defendants refused to reissue the payment, prompting the plaintiff to move to enforce the settlement.

Citing persuasive federal authority, including Beau Townsend Ford and Ostrich Int’l Co., the trial court concluded that the loss should fall on the party best positioned to prevent the fraud, in this case, the defendants. The Court of Appeal affirmed, emphasizing that red flags in the spoofed communication chain should have alerted defendants, while there was no evidence plaintiff contributed to the misdirection. This holding has broad implications across all settlement contexts, reinforcing the need for rigorous verification of wire instructions.

https://www4.courts.ca.gov/opinions/documents/D083655.PDF 

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