In $39M Fraud Case, Bank of America Appeals for Arbitration

It was a case that rocked the local Washington political scene in 2008 - a mid-level manager in the District of Columbia's Office of Tax and Revenue was accused of masterminding a tax refund check-cashing scheme to the tune of more than $39 million.

The manager, Harriette Walters, pleaded guilty and is serving a 17-year jail sentence. But the city's quest to hold Bank of America N.A. responsible for allegedly failing to catch or report the fraud has stalled on a dispute over where the case should play out.

In oral arguments before the District of Columbia Court of Appeals on Wednesday morning, attorneys for Bank of America argued that a trial judge erred in finding that the city wasn’t bound to a 2000 agreement that required disputes to be resolved in arbitration. The city’s Office of the Attorney General wants to keep the case in court.

Walters orchestrated a plot that allowed her to cash fraudulent tax refund checks from a city-controlled account with Bank of America. The city filed an eight-count civil lawsuit against Bank of America in late 2008, including claims of negligence, fraud and a violation of the local False Claims Act, seeking at least $105 million in damages.

Bank of America had argued that under a 2000 agreement known as a Treasury Service Booklet, the city agreed to resolve disputes in arbitration. Although the bank and the city entered into a more formal contract in 2005 that didn’t mention arbitration, the bank argued that didn’t mean the 2000 agreement was void.

The city countered that under the local Procurement Practices Act of 1985, contracting employees in the Office of the Chief Financial Officer didn’t have authority to agree to any contract that included an arbitration clause. That meant that the arbitration clause in the 2000 agreement couldn’t be enforced, the city claimed.

District of Columbia Superior Court Judge Joan Zeldon agreed with the city that the arbitration clause wasn’t enforceable. The judge also dismissed all but one of the city’s claims (the False Claims Act claim survived), finding that the other claims fell outside of the court’s jurisdiction. Bank of America appealed.

Ava Lias-Booker, a partner in McGuireWoods’ Baltimore office, argued for Bank of America. She said that under the city’s 2006 Appropriations Act passed by Congress, the Chief Financial Officer became exempt from the Procurement Practices Act. This exemption was retroactive, Lias-Booker, argued, meaning the Chief Financial Officer wasn’t bound to any rule that prevented that office from agreeing to an arbitration clause.

Lias-Booker also argued that because the city entered into agreements with Bank of America after 2005 that referenced earlier arbitration clauses, those documents should support the bank’s claim that the arbitration clause was still in play.

Assistant Attorney General Stacy Anderson argued that the exemption in the Appropriations Act only applied to the procurement process and didn’t meant that the Chief Financial Officer’s office suddenly gained statutory authority to agree to arbitration clauses in contracts.

Anderson also made a case for the reinstatement of the claims that Zeldon dismissed, arguing that they all centered on the allegations of fraud, which is a cause of action within the jurisdiction of Superior Court.

Associates Judges Anna Blackburne-Rigsby and Phyllis Thompson and Senior Judge Annice Wagner heard the case.

Comments

[Guy Chamberlain]

Journalist’s Civil Rights Complaint Names Bank of America, CA State Bar, CA Attorney General for Violating 1st Amendment Freedom
http://cacorruptionwatch.wordpress.com/2011/11/19/journalists-civil-rights-complaint-names-bank-of-america-ca-state-bar-ca-attorney-general-for-violating-1st-amendment-freedom/

[Spencer Hale]

It is pretty questionable that a $39 million dollar fruad went without notice. Perhaps thats because it was so well executed, but either way, with that much money involved people take notice.