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Posts Tagged ‘Eleventh Circuit’

Eleventh Circuit Expands Insurance Coverage Under Commercial Crime Policies

Posted on: March 10th, 2020

By: Bill Buechner

In a closely-watched case involving the scope of coverage under a commercial crime policy, the Eleventh Circuit issued a decision in December holding that an insurer’s commercial crime policy provided coverage for an all-too-familiar email spoofing scheme that resulted in the loss of more than $1.7 million.

In Principle Solutions, Grp., LLC  v. Ironshore Indem., Inc., 944 F.3d 886 (11th Cir. 2019), an imposter posing as the company’s managing director (Nazarian) sent an email to the company’s controller (Lien) in July 2015 informing her that the company had been secretly working on a “key acquisition” and instructed her to wire money to consummate the transaction as soon as possible that day.  The email informed Lien that an attorney (Leach) would contact her shortly to provide additional details and instructed Lien to work with Leach to complete the wire transfer.   The email instructed Lien to “treat [the] matter with the upmost discretion and deal solely with” Leach. Id. at 889.   Sure enough, Leach, who purported to be a partner with the London-based law firm of Bird & Bird, contacted Lien via email and phone shortly thereafter.  After Lien confirmed with Leach that the company’s bank (Wells Fargo) could process an international wire transfer in different forms of currency, Leach emailed to Lien the specific wiring instructions for a bank in China providing for the wire transfer.  Leach later reiterated to Lien over the phone that Nazarian had approved the wire transfer.  With the assistance of a co-worker, Lien transmitted the wiring instructions to the company’s bank, Wells Fargo.   Lien did not any point confirm these instructions by phone with the real Nazarian, who was out of the office that day.

However, Wells Fargo’s fraud department notified Lien in two emails and by voicemail that the requested wire transfer was being put on hold as a security measure and that additional approval was required.  Lien spoke with an employee in Wells Fargo’s fraud department, who inquired into the purpose of the proposed wire transfer and asked her to confirm with Leach how he had received the wire instructions.  After additional phone calls and emails with Leach, Lien informed Wells Fargo that Leach received the wire instructions verbally from Nazarian via telephone.  Wells Fargo then approved the requested wire transfer and released the funds.   When the real Nazarian returned to the office the next day, Lien informed him that she had completed the wire transfer as requested, at which point the company discovered the fraud.  By then, however, it was too late to recover the more than $1.7 million in wired funds from the Chinese bank.

The company purchased a commercial crime policy from Ironshore Indemnity, Inc., which among other coverages, provided Computer and Funds Transfer Fraud coverage for “Loss resulting directly from a ‘fraudulent instruction’ directing a ‘financial institution’ to debit your ‘transfer account’ and transfer, pay or deliver ‘money’ or ‘securities’ from that account.”    The policy defined “fraudulent instruction” in relevant part, as an instruction “initially received by you, which instruction purports to have been issued by an ‘employee’ but which in fact was fraudulently issued by someone else without your or the ‘employee’s’ knowledge or consent.”

The initial email purportedly from Nazarian did not contain any specific wiring instructions, and the emails and phone calls purportedly from Leach did not purport to be from a company employee, but rather from an outside attorney representing the company.  Nevertheless, the Eleventh Circuit panel considered the communications purportedly from Leach and Nazarian together and construed these emails as being part of the same fraudulent instruction.  Principle Solutions, 944 F.3d at 891.

More significantly, the panel, citing several dictionary definitions, held that the phrase “resulting directly from” means proximate cause rather than an immediate link to the loss.  Principle Solutions, 944 F.3d at 891-92.   In doing so, the panel did not cite or discuss an unpublished Eleventh Circuit decision that held that “one thing results ‘directly’ from another if it follows straightaway, immediately, and without any intervention or interruption.”  Interactive Communs. Int’l, Inc. v. Great Am. Ins. Co., 731 F. App’x 929, 934 (11th Cir. 2018).   The panel noted that proximate cause is not necessarily the last or nearest act to the injury. Id. at 892.  The panel then concluded that the fraudulent instruction was the proximate cause of the loss as a matter of law because the involvement of Wells Fargo’s fraud department was foreseeable.  Principle Solutions, 944 F.3d at 892-93.   A dissenting opinion asserted that there were triable issues of fact as to whether the fraudulent instruction was the proximate cause of the loss.

As recently as 2012, a clear majority of jurisdictions held that “resulting directly from”, “direct loss” and similar policy language does not mean proximate cause, but rather requires an immediate link between the alleged fraudulent conduct and the loss.   However, along with the Eleventh Circuit’s Principle Solutions decision applying Georgia law, a growing number of more recent decisions, including a 2018 decision issued by the Second Circuit (applying New York law), have held that the broader proximate cause standard applies.  Another 2018 decision from the Sixth Circuit (applying Michigan law) declined to resolve this issue, but held that the loss was covered even though there were multiple steps between the receipt of the fraudulent emails and the wire transfers that resulted in the loss.

Many commercial crime policies and similar policies provide computer fraud and funds transfer fraud coverage for losses “resulting directly from” a covered event, or similar language.  Insurers providing such coverages should recognize that the case law is sharply divided as to whether this policy language is triggered when the loss is the proximate cause of the covered event, or if a more immediate link is required.   Insurers who receive these claims should confer with their coverage counsel regarding the developing law on this question in the jurisdiction in which the policy was delivered.

If you have questions or would like more information, please contact Bill Buechner at [email protected].

Section 1983 First Amendment Retaliation by Litigation: SOL without PC

Posted on: January 14th, 2020

By: Brent Bean

“When angry count to ten before you speak.  If very angry, count to one hundred.”  – Thomas Jefferson

In a case of first impression in the Eleventh Circuit, the Court held that in a Section 1983 First Amendment retaliation claim premised on the filing of a civil lawsuit, probable cause will generally defeat the claim as a matter of law.  See DeMartini v. Town of Gulf Stream, Case No. 17-14177 (11th Cir., Nov. 21, 2019).

A Section 1983 First Amendment retaliation claim requires the plaintiff to show (1) she engaged in protected speech, (2) the government’s retaliatory conduct adversely affected that speech and (3) a causal link exists between the conduct and the adverse effect.  As the Supreme Court observed, retaliatory animus is “easy to allege and hard to disprove.”  Nieves v. Bartlett, 587 U.S. ___, ___, 139 S.Ct. 1715, 1725, (2019).

There are two accepted methods of showing causation.  The first, typically used in the employment setting, is whether the retaliatory motivation was the but-for cause of the adverse action.  If not, or if the government would have taken the same action regardless of retaliatory animus, the defendant is not liable.  The second, typically used when the government uses the legal system to arrest or prosecute a plaintiff, is to ask whether there was probable cause for the arrest or prosecution.  If so, this will destroy the casual link.

In DeMartini, the plaintiff sued the Town of Gulf Stream, Florida (population 2000), for filing a civil RICO action against DeMartini and her business, CAFI.  The Town filed the lawsuit because CAFI had made thousands of public records requests designed to overwhelm the small town’s staff and lead to the recovery of attorney’s fees for non-compliance.

In the face of these requests, the Town received a sworn statement from an insider at CAFI attesting the requests were bogus and designed to lead to monetary recovery. The Town then engaged outside counsel to advise on merits of a lawsuit to stop the abuse.  The Town filed the RICO case, which was dismissed because the Town could show no predicate act.

DeMartini then sued the Town under Section 1983 for First Amendment retaliation, claiming the RICO lawsuit was unlawful retaliation designed to silence her right to seek redress, a First Amendment right.  She claimed public statements made at Town meetings confirmed the retaliatory animus for the lawsuit and the RICO lawsuit had no merit, as it was dismissed and affirmed on appeal.

The Eleventh Circuit considered whether a plaintiff asserting a claim for Section 1983 First Amendment retaliation based on the filing of a civil lawsuit is required to plead and prove an absence of probable cause for the civil lawsuit and whether the Town in fact lacked such probable cause.

The Court held that while the RICO lawsuit was ultimately dismissed, it was not without probable cause because the Town had sworn facts from an insider and had hired a lawyer who advised them on the law. So, the Court concluded the Town had a reasonable belief in the validity of the RICO claim.  The Court then held for retaliatory claims based on a civil lawsuit DeMartini had to show an absence of probable cause in the filing of the RICO lawsuit, which DeMartini could not do.

Governments seeking to take affirmative steps through civil litigation will be one-hundred times better served to first confirm their claims are supported by probable cause prior to filing a civil lawsuit.

If you have any questions or would like more information, please contact Brent Bean at [email protected]

Open Government, Retaliation and Redress: Case Study from Florida

Posted on: December 6th, 2019

By: Michael Kouskoutis

Florida is well known for its robust public records law, where, upon receipt of a public records request, custodians of public records are required to promptly acknowledge the request, then permit the requested records to be inspected within a reasonable time. Unfortunately for custodians, Florida law does not define “reasonable time,” and awards attorney’s fees for unjustified delays or failures to respond. The 11th Circuit recently examined an interesting case involving a local government’s effort to protect itself against a devious scheme created to take advantage of these open government laws.

In DeMartini v. Town of Gulf Stream, et al., a not-for-profit corporation worked with a law firm to issue nearly 2,000 deliberately vague public records requests to a small Florida town, and then, when the town didn’t promptly or adequately respond, filed or threatened to file lawsuits against the town, demanding attorney’s fees and costs. The town, hemorrhaging attorney’s fees in defending against this scheme, decided to file a RICO action against the corporation. The RICO action made its way up to the 11th Circuit, where the Court, while troubled by the corporation’s scheme, denied the town’s motion for summary judgment on the basis that threatening to file litigation against a government could not trigger liability under RICO.

Soon after, the corporation’s director filed a § 1983 claim against the town, alleging that the town unlawfully retaliated against her when it filed the RICO suit to stop the records requests. In particular, the director argued that filing public records requests is a form of constitutionally protected speech. The trial court granted the town’s motion for summary judgment on the § 1983 claim, which after appeal, also made it to the Eleventh Circuit.

The Eleventh Circuit recently affirmed the grant of summary judgment. The Court reiterated that requesting public records and seeking redress from government is an activity protected by the First Amendment, but that because the town had probable cause to initiate the civil RICO case, the director’s § 1983 claim failed. The Court recognized that the town “had a legitimate interest and motivation in protecting itself, its coffers, and its taxpaying citizens.”

Robust open government laws maybe vulnerable to abuse, but as DeMartini illustrates, courts recognize a government’s ability to protect itself.

If you have any questions or would like more information, please contact Michael Kouskoutis at [email protected].

Breaking – Eleventh Circuit Holds No TCPA Standing For Receipt of Single Unsolicited Text Message

Posted on: August 29th, 2019

By: Matthew Foree

In Salcedo v. Alex Hanna, the U.S. Court of Appeals for the Eleventh Circuit has just issued a major decision holding that receipt of a single unsolicited text message does not establish standing under the Telephone Consumer Protection Act (“TCPA”). A copy of the opinion is available here.

In this case, the plaintiff, who was a former client of the defendant law firm, received a multimedia text message from the defendant offering a 10% discount on his services. Plaintiff filed suit as a representative of a putative class of former clients who received unsolicited text messages from the defendant in the past four years alleging violations of the TCPA.

In reaching its decision, the court considered Eleventh Circuit precedent in the Palm Beach Golf Center-Boca, Inc. v. John G. Sarris, D. D. S., P. A. case, in which it found standing for a plaintiff who alleged that receiving a junk fax in violation of the TCPA harmed him because, during the time that it took to process the fax message, his fax machine was unavailable for legitimate business. The court distinguished that case based on differences between faxes and text messages.  Among other things, it found that a fax message consumed the fax machine entirely while a text does not consume a cellular phone.  It noted that, unlike a cellular phone, a fax machine is unable to receive another message while processing.

The court also looked to the judgment of Congress as to whether plaintiff’s allegations were treated as a concrete injury-in-fact. Among other things, the court recognized that “Congress’s legislative findings about telemarketing suggest that the receipt of a single text message is qualitatively different from the kinds of things Congress was concerned about when it enacted the TCPA. In particular, the findings in the TCPA show a concern for privacy within the sanctity of the home that do not necessarily apply to text messaging.” The court determined that Congress’s “privacy and nuisance concerns about residential telemarketing are less clearly applicable to text messaging.” Significantly, it noted that a single unwelcome text message will not always involve intrusion into the privacy of the home in the same way that a voice call to a residential line necessarily does.  As part of its analysis, the court also found the Ninth Circuit decision in the Van Patten v. Vertical Fitness Group, LLC case, which dealt with the same issue, unpersuasive.  It distinguished that case by noting that it stopped short of examining whether isolated text messages not received at home come within the judgment of Congress.

The Eleventh Circuit also found that history and the judgment of Congress do not support finding concrete injury in plaintiff’s allegations. It noted that the plaintiff did not allege “anything like enjoying dinner at home with his family and having the domestic peace shattered by the ringing of the telephone.” The court  summed up its position by stating that the “chirp, buzz, or blink of a cell phone receiving a single text message is more akin to walking down a busy sidewalk and having a flyer briefly waved in one’s face. Annoying, perhaps, but not a basis for invoking the jurisdiction of the federal courts.”

Judge Pryor concurred in judgment only and noted that the majority opinion appropriately, and her view, leaves unaddressed whether a plaintiff who allege that he had received multiple unwanted and unsolicited text messages may have standing to sue under the TCPA. With this understanding, she concurred in the majority’s judgment.

It remains to be seen how this case will be used to defeat standing in future cases, including how it is applied to cases involving multiple text messages and calls to cellular telephones.  This is a major decision that will have a drastic effect on standing in TCPA class action cases. If you have any questions about this decision, please do not hesitate to contact Matt Foree at [email protected].

McKinney Due Process Analysis Alive and Well in the Eleventh Circuit

Posted on: April 9th, 2019

By: Dana Maine

This will be a short blog: “The question before us is whether a litigant in this Circuit has a substantive-due-process claim under the Due Process Clause of the Fourteenth Amendment when the alleged conduct is the unlawful application of a land-use ordinance. The answer to that question is a resounding ‘no’ – an answer that this Court delivered in McKinney v. Pate, 20 F.3d 1550 (11th Cir. 1994), 24 years ago and has affirmed ever since.”  Hillcrest Property, LLP v. Pasco County, 915 F.3d 1292 (11th Cir. 2019).  The opinion is a good read for land use practitioners in all circuits.

As for people interested in Georgia law, note that the Georgia Supreme Court has followed the legislative vs. administrative/adjudicative distinction from the federal law in the 2017 trilogy of land use cases – City of Cumming v. Flowers, 300 Ga. 820 (2017), Schumacher v. City of Roswell, 301 Ga. 635 (2017), Diversified Holdings, LLP v. City of Suwanee, 302 Ga. 597 (2017).

For assistance with this or any other local government matter, please contact Dana Maine, [email protected], or any other member of our National Government Practice Group, a list of which can be found on our website –