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Appeals Court: BancorpSouth Can Recoup Fraud Case Legal Fees

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The United States Court of Appeals has confirmed BancorpSouth's lack of liability in an online banking fraud case, and even granted that the bank may seek to recover attorneys' fees from the victim.

The Court of Appeals for the Eighth Circuit affirmed a district court ruling that determined BancorpSouth Bank (BXS) is not liable for $440,000 Internet fraudsters stole from the bank account of one of its commercial customers, Choice Escrow and Land Title. A Choice employee had fallen prey to a phishing scam and allowed malware onto a company computer that allowed the fraudster to obtain the employee's user name and password as well as the computer's IP address and other characteristics. The cybercriminal then issued a payment order instructing the bank to transfer $440,000 from Choice's account to a bank in the Republic of Cypress, which the bank executed.

The applicable law, Article 4A of the Uniform Commercial Code, recognizes two instances when a bank is not liable in wire transfer fraud cases: If it has implemented "a commercially reasonable method" of protection against such attempts; and if it proves that it accepted the payment order in good faith and in compliance with "any written agreement or instruction of the customer." This court and two others have ruled that BancorpSouth's security procedures were commercially reasonable and executed both in good faith and in compliance with Choice's requests.

The courts all noted that, among other security measures, the bank offered Choice the use of dual control (which requires a second authorized user of an account to approve wire transfers) and the company rejected this measure.

In March, the U.S. District Court for the Western District of Missouri rejected the loss-of-funds appeal filed by Choice Escrow against BancorpSouth, as well as BancorpSouth's counterclaim against Choice requesting the company pay for BancorpSouth's attorney's fees.

However, the Court of Appeals decided to reverse the district court's dismissal of BancorpSouth's counterclaim and found that BancorpSouth "may seek attorney's fees from Choice."

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