Email Scam Ensnarls Dallas Lawyer and Houston Bank

by Jessica Huseman, Staff Writer 

DECEMBER 19 — The State Bar of Texas and the Texas Department of Banking issued dozens of notices during the past few years about scams that target lawyers and financial institutions.

Despite those warnings, Houston-based Prosperity Bank and Dallas family lawyer J. Durrell Padgitt are pointing fingers of blame at each other in a $300,000 dispute over who is most responsible for losses incurred when the attorney fell for an international fraud scheme perpetrated in the spring of 2010. The case is quickly becoming the poster child for what can go wrong when the warnings are not heeded.

The trend of fraudulent schemes targeting lawyers continues to rise. The FBI and the Texas Bar have issued warnings, but lawyers still fall victim to the countless emails and phone calls requesting help from fraudulent clients. Just last week, thousands of lawyers across Texas received an email addressed to “Counsel” from a client purporting to be in Asia seeking help in collection of funds.

A small handful of Texas lawyers have fallen for the scams. Most have kept them confidential by settling with their banks privately for fear of public embarrassment, according to lawyers.

The difference in the Padgitt v. Prosperity case is that it is playing out publicly in Dallas County’s 116th District Court. The two sides have sued and countersued, claiming the other is responsible for the lost money.

Prosperity is a $9.6 billion financial institution with 176 offices across Texas. Forbes magazine recently designated it as “America’s Best Bank.”

Padgitt is a Dallas-based family lawyer whose practice focuses on nuts-and-bolts divorces, child custody disputes, adoptions, and divorce agreement modifications. He emphasizes his ability to “resolve cases without going to trial.”

Most of the facts in the case are not in dispute.

Padgitt was contacted in mid-May 2010 by a woman living in Japan who claimed she was a divorcee who needed to hire a lawyer to help her obtain money owed to her by her ex-husband. Neither Padgitt nor his lawyers will confirm if all of the communications between the lawyer and the client were via email.

For a $10,000 fee, Padgitt agreed to represent the woman. The lawyer contacted the ex-husband, who quickly agreed to pay. The husband provided a cashier’s check for $298,600 supposedly issued by Canadian-based TD Bank. On May 20, Padgitt deposited the check into his IOLTA account at a Prosperity branch bank.

According to court documents, Padgitt sent his client’s wire transfer instructions to Prosperity Bank officials on May 24, but was informed by the bank that the money was not available because the check had not yet cleared.

The communications between the bank and Padgitt on June 1 are at the heart of the case pending in Dallas District Court. Prosperity Bank officials told Padgitt they could proceed with the wire transfer.

But bank officials say they told Padgitt that this was a “provisional credit until final payment” for the check.

Padgitt claims bank officials told him the check had “cleared.”

The day after the money was transferred, Padgitt received a forwarded email from a friend warning him of “a fraudulent scheme involving counterfeit official checks and targeting attorneys.” Padgitt called the bank to request the money be stopped due to possible fraud, but the bank informed him it was “difficult to stop wire transfers to Japan.”

Court documents say that Padgitt called Prosperity Bank President Thomas K. Wilds several times over the next few days, but his calls were “all likewise met with equally vague and unhelpful responses.”

On June 8, Wilds personally appeared in Padgitt’s office recommending a meeting with the bank “to discuss some amicable resolution.” Padgitt agreed. Three days later, however, Padgitt was informed he needed to return the money within five days.

Padgitt sued the bank over their failure to warn him of the potential fraud, as he says they had access to the warnings issued, and their failure to retrieve the money in a timely manner.

“But for the bank’s breaches of its duties of care in detecting the fraudulent instrument, processing the instrument, determining and properly representing the actual status of the funds (‘collected’ vs. ‘non collected’), the outgoing wire would not have occurred,” say court documents filed by Padgitt’s lawyer, John Schorsch of Mastrogiovanni Schorsch & Mersky.

Prosperity Bank denied all charges, and filed a counter claim against Padgitt, asserting breach of contract, as the terms of the account agreed to by Padgitt held him responsible “for any account deficit resulting from charges or overdrafts occurring in the account.” The bank claims that the credit given to Padgitt was provisional and could be charged back.

The bank also claims that Padgitt, by depositing the check, ensured that the signatures were “authentic and authorized.” Bank lawyers contend that Padgitt is liable as the “indorser of the fraudulent instrument.”

“They’re just wrong,” said Schorsch. “They represented expressly that the money had cleared.”

In an interview, Schorsch said the bank’s argument that his client should have seen the “red flags” of fraud and that his client’s failure to identify the scam is a “red herring.”

“The bank has an obligation to do their job reasonably well and has an obligation to tell you the truth,” he said. “They have failed to meet that standard of acceptability.”

Counsel for the bank, Gerald Siegmyer of Siegmyer, Oshman & Bissinger, was contacted for comment, but declined due to a “policy of not commenting publicly on pending cases.”

The case is scheduled to go to trial in April.

John Sirman, an attorney and webmaster for the State Bar of Texas, said he receives emails requesting services similar to the request Padgitt received several times a week. The Texas Bar has issued several warnings about the scam, most recently in the form of a blog last updated Nov. 15.

The blog asks attorneys to be “extra vigilant” when dealing with cases involving fraudulent checks and wire transfers. “These scams are increasing in sophistication, sometimes involving innocent third parties who seek legal services at the request of a scam artist,” it says.

“The important message is, don’t disperse funds from your trust account until the underlying funds have cleared,” Sirman said. This advice may not have helped Padgitt, who maintains that the bank assured him the money had gone through.

While these scams are not new, Sirman said they have been increasing in frequency in the last several months, and speculated it may be due to the downturn in the economy.

The Texas Bar recommends that lawyers contacted with similar scams should contact the Secret Service, as they are responsible for investigating bank fraud.

Jessica Huseman is a staff writer for The Texas Lawbook. Her email is jessica.huseman@texaslawbook.net.