U.S. Fidelity and Guaranty Co. v. Bass

• Decision Date: 25 June 1980
• Docket Number: No. 77-3088,77-3088
• Parties: UNITED STATES FIDELITY AND GUARANTY COMPANY, a corporation, Plaintiff-Appellee, v. Ray D. BASS, as Highway Director, State of Alabama Highway Dept., and Mrs. Melba Till Allen, State Treasurer, State of Alabama, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1057

619 F.2d 1057

UNITED STATES FIDELITY AND GUARANTY COMPANY, a corporation, Plaintiff-Appellee, v. Ray D. BASS, as Highway Director, State of Alabama Highway

Dept., and Mrs. Melba Till Allen, State Treasurer,

State of Alabama, Defendants-Appellants.

No. 77-3088.

United States Court of Appeals, Fifth Circuit.

June 25, 1980.

Lucian L. Smith, Jr., Montgomery, Ala., for Bass and Allen.

William J. Baxley, Atty. Gen., Montgomery, Ala., for Allen.

James W. Garrett, Jr., Watkins C. Johnston, James T. Upchurch, III, Montgomery, Ala., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Alabama.

Before TUTTLE, VANCE and KRAVITCH, Circuit Judges.

VANCE, Circuit Judge:

Two state executive officials appeal adverse money judgments for tortious conversion through erroneous disbursement of state funds by other state employees without defendants' participation or knowledge. We hold that under Alabama law an action for conversion does not lie and public officials may not be held individually liable for their subordinates' unauthorized actions. We therefore reverse the district court.

I.

Cherokee Construction Co. (Cherokee) entered a contract with the state of Alabama to construct and to improve a public road. It furnished a performance bond and a payment bond for labor and materials with United States Fidelity & Guaranty Co. (USF&G), a Maryland corporation, as surety. Cherokee completed the construction, but was unable to pay some labor and material claims. USF&G paid $11,882.53 to satisfy those claims under its payment bond. ¹ Cherokee's contract provided that the state would make progress payments for the construction and would retain five percent of each progress payment until the work was completed. USF&G's surety agreement stated that "(u)pon the completion of said contract pursuant to its terms, if any funds remain due on said Contract, the same shall be paid to said Principal or Surety." Under that provision, on November 27, 1974, USF&G notified the state highway department that it claimed an interest in the progress payment balances and retained funds, and, eight days later, it instructed the department that it should not pay any funds due on the Cherokee contract without USF&G's express approval. ² On October 10, 1974, Cherokee sent one letter to the highway department instructing it to send the retainages to USF&G, and on October 24 it sent another letter countermanding the prior letter and asking the highway department to send the progress payment balances to Cherokee and the retained funds to a specified bank.

At all relevant times, appellant Ray D. Bass was the state highway director. Appellant Melba Till Allen became the state treasurer in early 1975 and held that office during the following events. On March 14, 1975, the Internal Revenue Service served on the state treasurer a notice of levy on Cherokee's next payment and the treasurer's office directed the highway department to deliver the next warrant to the treasurer's office. On August 20, the highway department transmitted to the treasurer's office one warrant to pay Cherokee $13,043.67 and another to pay the company $7,210.04. The department then notified USF&G of the transfer. On August 27, USF&G requested the highway department to pay it from Cherokee's contract balances for labor and materials claims; it did not specify or demand payment under the two warrants.

On September 3, the treasurer's office disbursed the balances due on those two warrants to the IRS. According to the parties' subsequent stipulations, Bass and Allen did not personally participate in and did not know about the disbursement. The state highway department employed more than five thousand persons during this period; its accounting division and legal division actually transferred the two payment warrants to the state treasurer. ³ The treasurer's office comprised approximately thirty-one employees in 1975; the deputy treasurer and subordinate employees actually disbursed the two warrants to the IRS. ⁴

USF&G brought this diversity action against Bass and Allen in their individual capacities ⁵ for conversion and for breach of contract based on the transfer of the $13,043.67 and $7,210.04 warrants and the contract retainages to the IRS rather than to USF&G. ⁶ The parties submitted the case to the court on the pleadings and stipulated facts. The district court concluded that Bass and Allen had converted payment warrants in which USF&G had legal title and a right to immediate possession, and entered judgment against them for $11,882.53 plus interest and costs.

II.

Conversion under Alabama law is "a wrongful taking or a wrongful detention or interference, or an illegal assumption of ownership, or an illegal use or misuse" of another person's property. Ott v. Fox, 362 So.2d 836, 839 (Ala.1978). Accord, State Farm Mutual Automobile Insurance Co. v. Wagnon, 53 Ala.App. 712, 717, 304 So.2d 216, 219 (1974). "To sustain an allegation of conversion in Alabama the plaintiff must be able to show legal title and the immediate right of possession to the property in question" at the time of the alleged conversion. Thompson v. Ford Motor Credit Co., 550 F.2d 256, 258 (5th Cir. 1977). Accord, Ott v. Fox, 362 So.2d at 839. Conversion generally does not lie for money such as general funds in the state's hands, although a cause of action may arise from conversion of specific money capable of identification. Russell v. The Praetorians, Inc., 248 Ala. 576, 580, 28 So.2d 786, 789 (1947); Hunnicutt v. Higginbotham, 138 Ala. 472, 475, 35 So. 469, 470 (1903); see Lyxell v. Vautrin, 604 F.2d 18, 21 (5th Cir. 1979). ⁷ USF&G thus could not maintain an action for conversion of nonidentifiable funds in state accounts for progress payments and retainages. USF&G argues, however, that the two payment warrants and apparently the retained fund account were identified property to which it had legal title and a right of possession. ⁸ We disagree.

The district court found "sufficient legal title" in the subrogation of USF& G to the state's rights, the assignment of Cherokee's rights under the surety agreement, Cherokee's letter to the highway department ordering payment to USF& G, USF&G's letter to that department claiming payments to Cherokee, and several sections of the Code of Alabama. The letters and statutes do not in any sense confer legal title. The district court's conclusion that USF&G was subrogated to the state's rights in the progress payments and retained funds followed from the erroneous finding that USF&G met Cherokee's unpaid obligations under the performance bond rather than under the payment bond. Because USF&G acted under the payment bond, it was a creditor rather than a subrogee with respect to the state's rights in the progress payments and retainages. ⁹ See Aetna Casualty & Surety Co. v. United States, 435 F.2d 1082, 1084 (5th Cir. 1970); Trinity Universal Insurance Co. v. United States, 382 F.2d 317, 320 (5th Cir. 1967), cert. denied, 390 U.S. 906, 88 S.Ct. 820, 19 L.Ed.2d 873 (1968). ¹⁰ We are not now concerned with the superiority of USF&G's interest as to third parties. The critical point in an action for conversion is that USF&G did not acquire legal title and a right to immediate possession when a nonidentified fund account was merely changed into specific payment warrants or was merely credited to a particular retainage account. "When there is no obligation to return the identical money, but only a relationship of debtor or creditor, an action for conversion of the funds representing the indebtedness will not lie against the debtor." Lyxell v. Vautrin, 604 F.2d at 21. ¹¹ USF&G also did not make the required demand for identifiable money or other property. ¹² Under Alabama law,

(A) demand in an action of trover (and conversion) is only necessary where the taking was rightful, and where a demand and refusal are necessary to constitute a conversion. . . . (W)here there has been a wrongful assumption of property by the defendant which is of itself a conversion, no demand is necessary before the suit is brought.

Dixie v. Harrison, 163 Ala. 304, 312, 50 So. 284, 286 (1909). Compare McRae v. Bandy, 270 Ala. 12, 17, 115 So.2d 479, 483 (1959) (wrongful acquisition) with Clay County Abstract Co. v. McKay, 226 Ala. 394, 397, 147 So. 407, 410 (1933) (rightful acquisition). The state rightfully acquired the funds that it owed to Cherokee and other claimants. USF&G, therefore, was required to make a demand for identifiable money or specific property before conversion could occur. USF&G's request for Cherokee's contract balances on August 27, 1975, was not such a demand.

III.

A state officer is not officially or individually liable under Alabama law for the performance or nonperformance of discretionary, or judicial, acts. "Under Alabama law, an official is liable only for malfeasance and misfeasance in the performance of his ministerial duties, and is not liable in a civil action for performance of his judicial acts, even if he acts corruptly." Continental Bank & Trust Co. v. Brandon, 297 F.2d 928, 932 (5th Cir. 1962). Accord, Scott v. Ryan, 115 Ala. 587, 589, 22 So. 284, 285 (1897); see Hometrust Life Insurance Co. v. United States Fidelity & Guaranty Co., 298 F.2d 379, 385 (5th Cir. 1962). We cannot easily apply that test to the state treasurer and highway director because the fifth circuit reached contradictory conclusions as to the liability of the Alabama treasurer in two cases decided on the same day, compare Continental Bank & Trust Co. v. Brandon, 297 F.2d at 932-33, with Hometrust Life Insurance Co. v. United States Fidelity & Guaranty Co., 298 F.2d at 384, 386, and the Alabama courts have not clarified the law on that point. We need not reach the issues whether Bass and Allen acted judicially or ministerially and whether they exercised the requisite degree of care, however, because we conclude that USF&G has not proved that they...