On June 20, 2018, U.S. District Court Judge Manual L. Real granted Musick Peeler’s client J.G. Boswell’s (“Boswell”) Motion to Dismiss the Plaintiff’s Complaint in Song Chuan Technology Co v. J.G. Boswell Company. Boswell was represented by partner Marc R. Greenberg.
J.G. Boswell Company is one of the nations largest growers of California tomatoes and producers of high quality tomato paste. In 2016 Boswell sold tomato paste to a company in Nigeria, Sonia Foods. A cashier’s check for $880,000 was deposited into Boswell’s Bank of America account as payment for the transaction. The remitter on the cashier’s check was Meridian Chemical Sales. Tomato paste is one of forty-five categories of goods that Nigeria restricts importation by barring payment through the Nigerian national bank. While the importation of tomato paste is not prohibited, Nigeria’s restriction required that they use an alternate banking system to pay for the tomato paste it ordered from J.G. Boswell.
Separate and unrelated to the tomato paste transaction, Plaintiff Song Chuan, as alleged in its Complaint, had contracted with Meridian Chemicals in Texas for the purchase of various chemicals. Unbeknownst to Song Chuan or Meridian Chemicals, their email account had been hacked (herein identified as “Hacker”). The Hacker sent an email to Song Chuan directing the $880,000 wire transfer payment to a new account at Bank of America in the name of “Meridian Chemical Sales.” As instructed, Song Chuan wired $880,000 to the “Meridian Chemical Sales” account. The funds were removed the next day by the Hacker. The Hacker, or their associates, then purchased a series of Bank of America cashier’s checks, two of which were later deposited in the account of Boswell as a supposed “payment” for Sonia Foods’ tomato paste order. (Some of the funds outside of the cashiers’ checks were also used to purchase jewelry and a car.) When Boswell discovered that payments made on behalf of Sonia Foods were possibly the proceeds from illegal conduct, Boswell cancelled the contract with Sonia Foods and delivered the funds still on account from Sonia Foods to the Los Angeles District Attorney.
When Song Chuan learned that some of the wired $880,000 was converted into a cashier’s check and then deposited into Boswells account, Song Chuan filed its civil action against Boswell. Song Chuan’s Complaint alleges that Boswell had a duty to investigate the source of the funds that were used to purchase the Bank of America cashiers’ checks that were deposited to Boswell’s account by Bank of America. Song Chuan asserted that because the cashiers’ check identified “Meridian Chemical Sales” as the remitter for the checks, Boswell was negligent in not investigating Meridian Chemical Sales. Song Chuan also claimed that injury to it was foreseeable because Boswell was conducting a transaction with a company in Nigeria.
Boswell filed a Motion to Dismiss the Complaint on the grounds that California law does not impose a duty on Boswell to investigate the source of funds that Bank of America used when it issued a cashier’s check in Boswell’s name. The Court found that no case law could be found to support Song Chuan’s assertion that there was a “sufficient likelihood that a business will engage in fraud based on the country it operates in.” As stated by the Court, “J.G. Boswell could not reasonably expect to receive laundered money simply as a consequence of doing business with a Nigerian company.” Moreover, there was no duty for Boswell to investigate Meridian Chemical Sales because “the burden it would impose far outweigh any benefit.” The Court agreed that it is unreasonable to assert that a business must conduct an investigation whenever a third party check is presented.
Ultimately, the Court found that while Song Chuan was a victim of an internet hacking scheme to cause the redirection of its payment, Song Chuan “could have contacted Meridian Chemicals pre-transfer to ensure the accuracy of the wiring instructions before wiring $880,000 to a wrongful account.” The Court rejected Sing Chuan’s effort to “hold all but the true culprit liable.”
The ruling highlights the need to check and re-check wire instructions in light of the proliferation of fraudulent emails. Meanwhile, the District Attorney’s investigation of the true culprits remains active.