Rhode Island Supreme Court Holds Lender Entitled to Summary Judgment in Attorney Defalcation Case

The Rhode Island Supreme Court recently affirmed the granting of a lender’s motion for summary judgment, holding that a settlement agent’s defalcation of loan funds was outside the scope of his agency and that the lender could not be held liable for the same.  See Pineda v. Chase Bank USA, N.A., 186 A.3d 1054 (R.I. 2018).  In 2008, the plaintiff borrower entered into a refinancing agreement with the defendant lender whereby the lender agreed to issue two loans that would pay off existing mortgages on the borrower’s properties.  However, the attorney acting as settlement agent absconded with the funds.  The borrower then brought this action against both the lender and the attorney, and the lender moved for summary judgment.  Although the trial court found there was an issue of fact as to whether the attorney was the lender’s agent, it found that the attorney’s conduct was outside the scope of any agency and granted the lender’s summary judgment motion. 

On appeal, the Court affirmed.  First, it agreed that there was an issue of fact regarding whether the attorney was the lender’s agent.  Although the attorney and the borrower had a preexisting relationship and the loan documents indicated that the borrower had chosen the attorney to act as the settlement agent, the borrower denied this fact at his deposition and there were other documents linking the attorney to the lender.  Nonetheless, the Court found that the attorney’s defalcation was outside the scope of his agency.  In addition to the fact that the attorney testified that the defalcation was “in no way motivated by a purpose to serve Chase,” the Court found that the attorney’s malfeasance “caused Chase to not be placed in the first lien position on the property; therefore, instead of benefiting Chase, arguably his actions injured Chase.”  Thus, the Court affirmed the grant of summary judgment dismissing the action against the lender.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Dylan Goetsch at dgoetsch@riker.com.