Note: In February 2011, David Odom (Producer) of CityScope, a film production company, contacted Mark Campbell (Campbell) seeking to involve him in producing a movie to be called Season Tickets. Producer told Campbell that Harbor Bank Maryland (Bank) held funds in escrow to obtain short term financing for the project and invited Campbell to verify this information. When Campbell telephoned Bank requesting to speak with someone regarding the escrow funds, Rodney Dunn (Dunn), then Vice President at Bank, returned his call and orally confirmed that Bank held USD 13 million in escrow, USD 8 million from Bridge Capital Corporation (BCC) and USD 5 million from Shah Group, to finance Season Tickets.

Producer was also seeking a short-term bridge loan to secure acting talent for the movie, pending closing of permanent financing for the project. He attempted to obtain the bridge loan from Quick Draw LP, a U.K. based finance firm, and in so doing offered documents including a standby letter of credit issued on Bank stationary signed by Dunn as proof of escrow security. Quick Draw hired a Maryland firm to represent them in its dealings with Bank in March 2011. Its attorneys became suspicious of the documents Producer had provided and investigated further. During that investigation, Quick Draw's attorneys' contacted Bank and communicated to Quick Draw that the Letter of Credit, Escrow Agreement and Confirmation of Funds documents were fraudulent, that the letterhead used for the letter of credit was fake, that Bank held no escrow funds, that they had never heard of Shah Group, that the loan numbers provided did not match any in Bank's system and that, while Dunn was an officer at Bank, the signature on the documents was forged.

Producer told Campbell that he was frustrated in his attempts to obtain short term funding from Quick Draw. Unaware of the interaction between Quick Draw, its lawyers and Bank; Campbell sought and obtained financing for a bridge loan from Blue Rider Finance, Inc. (Lender). In attempting to obtain financing, Campbell passed on to Lender what Producer had told him and what Dunn had confirmed regarding escrow funds held by Bank for financing Season Tickets. Campbell also introduced Lender's Officers to Producer, who stated that Bank had USD 13 million in escrow available as collateral.

Throughout the preparation, lending and repayment period of the USD 2.5 million bridge loan from Lender, Dunn repeatedly assured Lender that the escrow funds were available. Acting as Vice President for Bank, Dunn signed two escrow agreements prepared by Lender asserting that there was USD 8 million in escrow from BCC and USD 5 million from Shah. On May 6th and 9th, Dunn, again in his capacity as Vice President of Bank, signed "Available Funds Verification" documents providing additional specifics about both escrow accounts. The BCC agreement provided for repayment through releasing funds to Lender "if within 45 days drawing documents confirming that certain producer and director agreements had been concluded were presented to [Bank]." The Shah agreement provided that funds from the USD 5 million in escrow would be released to Lender if the USD 2.5 million bridge loan had not been repaid from the BCC account or elsewhere.

Before making the loan, Lender attempted to verify that the escrow accounts were available as collateral. Dunn initiated contact with them from Bank and gave several verbal assurances about the USD 13 million in the BCC and Shah accounts, confirmed the details of each agreement and emphasized that he had signed the escrow documents in his capacity as Vice President. Lender decided to move ahead and made the loan on 9 May 2011, expecting repayment in full by 24 June 2011.

During the term of the loan, Dunn continued to assure Lender that escrow funds were available for repayment, including in a phone conversation on 15 June 2011, with Lender's Chief Financial Officer, Walter Josten (Josten). On 22 June 2011, Dunn again spoke with Josten, informing him that "[Dunn] would be wiring [Lender] the money from [Bank] tomorrow." On 23 June 2011, Dunn provided transfer confirmation information, but Lender never received the funds. On 24 June 2011, Josten contacted Bank and spoke with Daryl Banks (Manager), the Riverdale Branch Manager. Only a week prior, Manager had acknowledged the BCC and Shah accounts to Josten but asserted that only Dunn could handle them. However, during his second conversation with Josten, Banks said that the accounts did not exist.

Lender sued Bank and Dunn, asserting four common law counts in its operative pleading; fraud, negligence, negligent misrepresentation, and negligent retention and supervision. Lender directed the fourth count only against Bank, whereas it directed counts one through three against Bank based on vicarious liability for Dunn's torts under respondeat superior. Lender alleged that Dunn and Bank had colluded to commit fraud, and that Bank was aware that the BCC and Shah accounts purportedly holding a combined USD 13 million in escrow did not exist as of 13 April 2011 but failed to notify Lender of such. Bank responded that the complaint failed to state a claim on which relief could be granted and moved to dismiss. The U.S. District Court of Maryland, Hollander, J., denied the motion.

The Judge ruled that the complaint contained a sufficiently plain statement showing entitlement to relief. The Judge noted that respondeat superior allows for holding an employer liable for acts of its employees committed within the scope of the employment relationship. Bank argued that the complaint failed plausibly to allege that Dunn's conduct was within that scope, but the Judge disagreed. The Judge noted that Dunn's conduct was not personal or outside the normal duties of his position, as he acted in his capacity as Bank Vice President conducting business from Bank offices during operating hours, signing escrow agreements and fund verification forms, and providing assurance to Lender in many different forms. Dunn was only able to do harm through his position with Bank, and the actions he took - as an escrow agent - were not a departure from his daily work at Bank.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.