The District of Columbia can move forward with a $117 million lawsuit against Bank of America N.A. in connection with an embezzlement scheme carried out by a former city employee, the D.C. Court of Appeals ruled last week.
Harriette Walters, a former manager in the city's tax office, is serving more than 17 years in jail after pleading guilty to issuing $48 million in fraudulent property tax refunds. The District sued Bank of America in 2008, accusing it of failing to take steps to protect the city's money.
Bank of America argued its contract with the city required the dispute to go to arbitration in North Carolina. A trial judge disagreed, and on Nov. 27, the appeals court found the city wasn't bound by any arbitration or forum-selection clauses. The court released the opinion yesterday.
Under a trebling provision of the D.C. False Claims Act, the city is seeking $117 million–triple the $39 million the city says it's still trying to recover.
In a statement, D.C. Attorney General Irvin Nathan called the ruling a "significant victory."
"We intend to move expeditiously and to do all we can to bring to an end the delaying tactics of the bank," he said.
A Bank of America spokesman declined to comment, citing the pending litigation. Ava Lias-Booker, a partner at McGuireWoods, argued for the bank. She could not immediately be reached.
In arguing for arbitration, Bank of America cited an internal terms and services document referenced when city officials signed agreements with the bank in 2000. But the city argued that a 2005 contract, which didn't have an arbitration provision, should apply.
A D.C. Superior Court judge found officials in the Office of the Chief Financial Officer lacked authority to agree to arbitrate contract claims or fraud claims, and that the 2005 contract replaced any previous agreements the city had with the bank. Bank of America appealed.
Court of Appeals Senior Judge Annice Wagner, writing for the three-judge panel, said Bank of America was bound by the city's Procurement Practices Act, which prevented officials in the Office of the Chief Financial Officer from agreeing to arbitrate contract claims. The procurement law was incorporated into the 2005 contract, according to the opinion.
"The general rule is that persons contracting with a municipal corporation must take notice of the nature and extent of its agent’s authority," Wagner wrote. The appeals court rejected Bank of America's arguments that the Office of the Chief Financial Officer was exempt from sections of the procurement law that addressed contracting authority.
The court noted that the procurement law barred contracting officials from agreeing to settle fraud claims, which the judges said would prohibit them from agreeing to arbitrate those claims.
Wagner wrote that the 2005 contract superseded any previous agreements city officials signed. Previous agreements that included arbitration clauses were not compatible with the 2005 contract, she said.
Under the 2005 contract, the court found the Contracting Officer and Contract Appeals Board would decide non-fraud claims related to the contract, and the city could pursue fraud claims in court. "These provisions are entirely inconsistent with any prior agreements to arbitrate claims in North Carolina or elsewhere," Wagner wrote.
Judges Anna Blackburne-Rigsby and Phyllis Thompson also heard the case.