Answer: the “party in the best position to prevent the fraud.”
In the digital age, where cyber-attacks are becoming more sophisticated, all legal professionals should take heed of the recent decision in Thomas v. Corbyn Restaurants Dev. Corp., D083655, 2025 WL 1499055 (2025). In Thomas, a third party “spoofing” as Plaintiff's counsel emailed defense counsel settlement payment bank wiring instructions. Defendant sent the $475,000 payment to the “spoofer,” not Plaintiff. Plaintiff filed a motion for enforcement of the settlement.
The court affirmed defendant's responsibility to issue another $475,000 to Plaintiff, holding that the “risk of loss” shifts to the “party in the best position to prevent the fraud.”
This case underlines the importance of firms on both sides of the “v” taking extra security precautions when facilitating settlement payments. Some of these precautions may include:
- Only sharing settlement payment instructions through encrypted messages;
- Verifying payment instructions via videoconference with opposing counsel; and
- Maintaining up-to-date cybersecurity protections and practices to prevent access to unique information that will allow for more sophisticated scams.
Which party bears the risk of loss when an imposter causes one party to a settlement to wire settlement proceeds to the imposter instead of the other settling party? After plaintiff and defendants settled a personal injury lawsuit for $475,000, an unknown third party purporting to be plaintiff's counsel sent “spoofed” emails to defendants' counsel providing fraudulent wire instructions for the settlement proceeds. Defendants' counsel wired the settlement proceeds to the fraudulent account and the third party absconded with the funds. Once the fraud was discovered, plaintiff asked for the settlement money, but defendants refused to pay. Plaintiff then applied ex parte to enforce the settlement agreement. Noting the lack of California authority ... the trial court applied persuasive federal case law that uniformly shifts the risk of loss to the party in the best position to prevent the fraud.
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