In the May 22, 2023 opinion issued in Hoffman v. Atlas Title Sols., Ltd., 2023-Ohio-1706 (Ct. App. 2023), the Ohio Third Appellate District Court of Appeals (“the Court”) addressed the issue of what parties could potentially be held liable for as escrow fraud perpetrated upon a property purchaser by an unidentified outside party, holding that the escrow agent to the transaction could possibly face liability despite the absence of a written escrow agreement or the identification of any specific obligation the escrow agent had breached.

Background

This matter commenced when Plaintiff Conor Hoffman (“Plaintiff”) contracted to purchase a Marysville, Ohio property (“the Property”) from Richard and Stephanie Little (“the Littles”) for $290,000 cash.  Both Plaintiff and the Littles were represented by respective real estate agents and, as the purchase was a cash transaction, no bank was involved.  Plaintiff and the Littles cooperatively selected and split the cost of engaging Defendant Atlas Title Solutions (“Atlas Title”) to serve as the escrow and title agent for the transaction.  Specifically, Plaintiff alone paid the recording fee, wire fee, and cost of title insurance, while both Plaintiff and the Littles shared the cost of the title binder and settlement fee.  Despite the agreement, no written contract was ever executed between the parties.

On April 13, 2021, Plaintiff’s real estate agent informed him via email that he would need to wire $289,722.19 to Atlas Title at least one day prior to the closing, which had been scheduled for April 22, 2021.  Two Atlas Title employees, Melonie McCaulley and Alice Elliott, were copied on both this email and a follow-up calendar invite, which provided their email addresses as “melonie@atlastitlesoulutions.com” and “alice@atlastitlesoulutions.com” respectively.

On April 20, 2021, Plaintiff received an email from someone claiming to be Alice Elliott, but which had been sent from the email address “titleclosingagent101@gmail.com.”  This email contained the correct time and date of the closing, the correct names of the parties to the deal, and an accurate replica of Atlas Title’s wire transfer form and logo, and instructed Plaintiff to wire the purchase funds to a specific account allegedly belonging to Atlas Title.  Believing this email to be authentic, Plaintiff completed the wire transfer as instructed, using the contact number and account information from the email.  That same day the Littles also received a similar email, however, they ignored it.

While Plaintiff did not know it at the time, this email was fake and was not sent from anyone employed by or affiliated with Atlas Title, and thus he had wired his funds to an account belonging to an unidentified fraudster.  Prior to this transaction, in early February 2021, Atlas Title had been alerted that its email system had been hacked and that fraudsters were using the hacked information to engage in “email-spoofing efforts.”  However, Atlas Title had never alerted Plaintiff or the Littles of this fact.

On April 21, 2021, Atlas Title emailed Plaintiff the genuine settlement statement and wire instructions.  In a twist of irony, this authentic email was intercepted by Plaintiff’s email-spam filter and he never saw it.  Still unaware of the fraud, on April 22, 2021, the parties closed on the Property, with Atlas Title first informing Plaintiff it had not received his wire transfer on April 23, 2021.  Plaintiff was never able to recover the wired funds, but did secure a family loan and complete the purchase of the Property on April 27, 2021.

On July 28, 2021 Plaintiff filed suit against Atlas Title and the involved real estate agents, specifically levying breach of fiduciary duty and breach of contract claims against Atlas Title.  On August 31, 2022, Atlas Title moved for summary judgment, contending that it did not owe a duty to protect Plaintiff from third-parties, that it had never agreed to act as Plaintiff’s fiduciary, and that no contractual privity existed between itself and Plaintiff.  The trial court ultimately granted Atlas Title’s motion, dismissing both of Plaintiff’s claims and finding that “there was no contract by which Atlas [Title] agreed to insure or otherwise guarantee that [Plaintiff] would successfully fund his purchase” and that no fiduciary duty existed between the parties.

The Appeal

On December 19, 2022, Plaintiff appealed this outcome before the Court, arguing that the trial court had erred in dismissing both of his claims.  The Court agreed, first addressing Plaintiff’s breach of contract claim and explaining that under Ohio precedent “escrow agreements do not have to be in writing,” as an “implied escrow agreement” can be imposed even where the term “escrow” was never used or explicitly discussed between the parties.  Thus, the Court held that “based on the circumstances surrounding the transaction at issue in this case, a triable issue remain[ed] as to whether an escrow agreement exist[ed] as a matter of tacit understanding,” making the lower court’s dismissal of this cause of action erroneous.  For these same reasons the Court also held that no issues of contractual privity existed, as it was undisputed that Plaintiff and the Littles had both “contracted directly with Atlas Title,” and therefore if an implied agreement were found to exist it would necessarily bind these parties.

As to the breach of fiduciary duty, the Court observed that under Ohio law, all escrow agents are presumed to owe a fiduciary obligation to their clients.  Accordingly, as the Court had concluded that a triable issue was presented as “to the existence of an escrow agreement,” a second “triable issue as to the existence of a fiduciary duty remain[ed],” and Plaintiff should have been permitted to proceed with his claim and attempt to prove “whether Atlas Title [had] breached that duty.”

Takeaways

This decision underscores the importance of all escrow agents ensuring they execute a written contract specifically defining the scope of their duties and obligations.  By failing to do so, Atlas Title exposed itself to increased liability, as the Court and the parties were both free to speculate as to what potential terms would have comprised the theoretical “implied” escrow agreement.  It also demonstrates that the prevention of fraud by outside parties may potentially fall within an escrow agent’s fiduciary obligation even where the fraud was committed without any direct wrongdoing or error by the escrow agent.