either, both of their email accounts had been compromised. The fraudster then sent an email to Arrow asking to have the wire payment sent to a different bank account, one controlled by the fraudster. Both parties admitted that the new bank account was different than the bank account in the prior emails. The court, while holding for Top Quality, stated: “Simply put, [Arrow] should have exercised reasonable care after receiving conflicting emails containing conflicting wire instructions by calling [Top Quality] to confirm or verify the correct wire instructions prior to sending the $570,000. As such, Arrow should suffer the loss associated with the fraud.”8 Although the judge noted that both parties had their email accounts compromised, the court held that neither party was negligent in their manner of maintaining their email accounts. The court then discussed their relative due diligence and duty of ordinary care in terms of the “imposter rule” under the UCC. The imposter rule allows the court to determine liability based on which party is in the best position to prevent the forgery by exercising reasonable care.9 The Arrow case was discussed at length by the court in Beau Townsend Ford Lincoln, Inc., v. Don Hinds Ford, Inc.10 In Townsend, Don Hinds Ford had agreed to purchase approximately $736,225 worth of Ford Explorers. Beau Townsend Ford Lincoln’s email had been hacked, however, and the request for the wire transfer of the money was changed by the hacker to an alternate bank account. In the Townsend case, the court discussed the issue of fault based on the trial court’s finding for the plaintiff. The trial court stated that “[i]t was not Beau Townsend that instructed Don Hinds to send funds to ‘K.B. KEY LOGISTICS, L.L.C.’ in Missouri City, Texas.”11 However, the appellate court opined that in order to determine who was in the best position to prevent the fraud, the trial court must conduct a trial to determine the facts based on the case and determine to what degree, if any, each party is responsible. The appellate court stated: “[I]f principles taken from UCC Article 3 are applied, the court would have to determine whether either Beau Townsend’s or Don Hinds’ failure to exercise ordinary care contributed to the hacker’s success, and would then have to apportion the loss according to their comparative fault.”12 A trial on the negligence of both parties as to the loss would allow the court to determine if a company with a hacked email account is primarily at fault or whether the payor who paid the money based on an email without further confirmation or due diligence would be primarily at fault. A number of other courts have considered the imposter rule in non-BEC-related cases. Based on the reasoning in those cases and the types of issues in BEC cases, the following types of 21 Nebraska Banker nedcoloans.org WE PARTNER WITH BANKS TO HELP BUSINESSES THRIVE IN NEBRASKA. • Partner with NEDCO to provide your customers with down payments as low as 10%. • Lower your exposure while participating in larger projects. • Unlike SBA 7a loans, NEDCO handles all paperwork and processing with the SBA. • NEDCO’s long-term fixed rate helps you compete with other lenders only offering conventional financing. • NEDCO 504 loans provide the bank with a 1st lien at a 50% LTV. JASON CULVER Chief Credit Officer 402-483-4651 jason@nedcoloans.org WILL SAILORS Vice President Lending 402-483-4622 will@nedcoloans.org
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