Fourth Circuit rejects aiding-and-abetting finding on third loan

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The 4th U.S. Circuit Court of Appeals held that a federal trial court committed material factual and legal errors when it found the defendant liable for aiding and abetting fraud in connection with a 2017 loan secured by a Maryland residence. While the court upheld judgments for the defendant on two earlier loans, it ruled that the record did not support transforming what it described as, at most, simple negligence into a basis for fraud liability.

The dispute arose after the plaintiff—who believed she was investing in real estate—sent millions of dollars to an associate who instead diverted the funds to properties he controlled. The plaintiff later sued him for fraud in the U.S. District Court for the District of Maryland and learned during discovery that the defendant had funded three loans secured by properties purchased with the misappropriated funds.

The trial court found the defendant liable only on the third loan, concluding it was willfully blind to the associate’s conduct and substantially assisted the scheme. It awarded the plaintiff compensatory and punitive damages tied to the Pikesville home that secured the loan.

On appeal, the 4th Circuit determined that the trial court’s analysis of the third loan overstated the defendant’s knowledge and involvement. The panel rejected the view that the lending decisions amounted to willful blindness and said the evidence reflected, at most, negligence—not the heightened misconduct necessary to prove aiding and abetting fraud. The court therefore reversed the judgment on the third loan and directed entry of judgment for the defendant on all claims.

The 29-page opinion is Al-Sabah v. World Business Lenders LLC, Lawyers Weekly No. 001-187-25.