The legal framework of many client trust accounts is being scammed. The following reconstructs one such deceit recently attempted in Honolulu, Hawaii.
Your inbox dings, and an email from a Mr. Bryce Burberry bears the subject line, “arbitration.” You read:
Dear Counsel,
I am writing to let you know that I am interested in your services to arbitrate a sales and purchase dispute. The dispute stems from a recent transaction of construction equipment supply in Hawaii. I am of the firm belief that arbitration presents the most efficacious and judicious route to resolving this matter based on the clause in our SPA. So, I would like to secure your legal representation of both parties and guidance throughout the arbitration process.
You respond to this email by asking for more information, and shortly thereafter, a second email from Mr. Burberry (copied to the seller) arrives:
Many thanks for your interest in this case, here is the background of the dispute and the sales and purchase agreement. I work with a construction Equipment Supply outlet in California; Los Angeles Equipment, Inc., to which I have devoted my time and hard-earned resources to grow over the years. I have been in business for the past 5 years and still growing. A supply vendor in Hawaii, Aloha Construction LLC agreed to supply 10 pieces of fairly used 2003 John Deere 310SG 4x4 Backhoe Loaders, with half delivered within six months after signature of the Sales and Purchase agreement on 8th September 2022 and the remainder delivered within one year of that date. I paid 50% of the contract price ($201,255.00) on the 9th of September 2022 and delivery was made. I paid the remaining $201,255.00 on the 9th of January 2023, but no delivery has been made. Since January 2023 I have sought delivery or explanation from the seller to no avail.
The seller and I have agreed that since there is already a breach and I cannot wait till the next 12 months to receive my money or the balance items purchases, that we should secure the services of an Arbitrator for them to release the funds in trust [emphasis added] since Paragraph 20 of the Sales Purchase Agreement and paragraph 22 of the Contract Addendum mandates either parties to do so in event of any breach as this.
Both parties are open to discussion on your dates of availability, and I can forward you the sales purchase agreement we both signed and all other relevant documents about this purchase for your review and advice. I have also cc’d Aloha Construction LLC in this email as an arbitration notice to retain your office. You can reach me by phone at (337) XXX-XXXX.
Almost immediately thereafter, Aloha Construction joins the conversation with an email accepting the arbitration and stressing that it should be quick and streamlined. To that email is attached a case management guidance note with these instructions, again emphasizing the release of the funds:
9. Award. The award will be rendered by the arbitrator within 3 weeks from the date of hearing, and will contain concise written reasons for the award.
10. Parties Waiver. The parties waive any claim they have at this time that the arbitrator is not independent or impartial and waive any claim in contract or tort against the arbitrator arising out of the arbitration or the award.
11. Arbitrator Compensation. The parties agree to cover arbitration compensation and any arbitration expenses ten days after the signing of engagement letter with the Arbitrator. The arbitrator will agree to send an invoice after the award, detailing time spent and charging his normal rate or a rate of $500 an hour. The arbitrator will refund at that time any excess remaining from the initial wires.
12. 50% of the Amount in Dispute. Per the Contract Addenda, dated September 8, 2022, both parties agreed that according to the terms of the Arbitration clause, the management and release of dispute funds should and must go through the arbitrator for fairness and transparent during and after hearing [emphasis added].
Despite not providing a good explanation for the 12-month delay in delivery, the seller expresses a great willingness to work with the buyer to engage your services. You note that the purchase is between merchants and contains a “time is of the essence” clause. The case does not appear to present any complexity and offers a generous fee and a broad waiver of liability.
The contract indeed requires Hawaii law and arbitration, although it contains no mention of “releasing” any funds from trust, but when you look into the parties for any connection or conflict that could impair independence, you note that Bryce Burberry provided a Louisiana phone number for a Los Angeles business. The business in question is indeed listed on both Google Maps and with the California Secretary of State and has existed for about 80 years, slightly longer than the five years Mr. Burberry claimed. Aloha Construction is also a registered Hawaii LLC and in good standing. Further verification of the facts brings greater discrepancies.
The nice people you speak with at Los Angeles Equipment explain that they have heard neither of Bryce Burberry nor a supply contract with a Hawaii firm. A phone call to Burberry himself triggers a voicemail message in broken English, merely declaring, “Not here, leave message.” You phone Aloha Construction and quickly receive a text message: “Hi, this is Ed. If you need your kitchen remodeled, you’re in the right place. Just text me your number, and I’ll get right back to you.”
With no record of Bryce Burberry at Los Angeles Equipment and tractor reconditioning work unlikely at Aloha Construction, you now have a few options: You might decide to give the purported clients one more chance. You ask both the buyer and seller to provide evidence of power ad litem to represent their respective companies in arbitration, such as a power of attorney, a board resolution, the articles of association, or an operating agreement. While waiting for a response (which, spoiler alert, never arrives), you begin searching the Internet for this type of scam.
A Google search for “lawyer client trust account scam” reveals a number of articles roughly describing your case. The scam’s key is to convince a lawyer to disburse funds from a client trust account before the check deposited by the purported clients actually clears. The perpetrators often use real names and contractual scenarios to lend credibility to their plot. The lawyer’s generous fee is often included in the same check to create additional incentive. Everything hinges on convincing the attorney to take funds out of the client trust account when the bank makes them available for use but before the bank can discover that the check will not clear. If the lawyer pays out the arbitration award before the check’s flaws are known, the bank’s client trust fund agreement will, in many cases, allow the bank to claw back funds from the lawyer.
In case you are wondering, yes, I know about this scam because I received these emails myself. So did a colleague of mine in Honolulu. In both our cases, the sender used a name drawn from classic golf clothing; if you are targeted by someone working a similar scam, you can expect the language of the correspondence to closely track that provided above.
Needless to say, neither I nor my colleague took the “client.” But please do give our greetings to Mr. Burberry should you hear from him.
