American Liberty Ins. Co. v. AmSouth Bank

• Decision Date: 18 January 2002
• Citation: 825 So.2d 786
• Parties: AMERICAN LIBERTY INSURANCE COMPANY v. AmSOUTH BANK.
• Court: Alabama Supreme Court

825 So.2d 786

AMERICAN LIBERTY INSURANCE COMPANY v. AmSOUTH BANK.

1001641.

Supreme Court of Alabama.

January 18, 2002.

Thomas L. Selden and Elise Frohsin of Starnes & Atchison, Birmingham, for appellant.

Henry E. Simpson and Robert D. Eckinger of Lange, Simpson, Robinson & Somerville, L.L.P., Birmingham; and William H. Hardie of Johnstone, Adams, Bailey, Gordon & Harris, L.L.C., Mobile, for appellee.

HOUSTON, Justice.

This case involves the right of a surety of an estate to sue to recover funds from a bank that paid a check made out to the estate and endorsed by the person who was appointed conservator of the estate before that person's appointment as conservator. American Liberty Insurance Company ("ALIC"), as surety for the conservator of the estate of Mathe Bernard Sumrall, appeals the Mobile Circuit Court's summary judgment in favor of AmSouth Bank, and the trial court's denial of ALIC's motion for a summary judgment, as to ALIC's claims of conversion against AmSouth. We affirm.

The seeds of this case were planted in January 1994, when Mathe Sumrall received a settlement for injuries that he had sustained in an automobile accident. Out of concern for Sumrall's ability to handle his finances, Sumrall's attorneys filed a motion in the Mobile Circuit Court asking the court to approve the settlement and to appoint Thomas E. Bryant, Jr., as guardian ad litem. The motion also represented that an application seeking to have a permanent guardianship established would be made to the Mobile County Probate Court after the settlement was approved. On January 26, 1994, the court granted the motion.

On February 2, 1994, Bryant, as General Guardian and Conservator of Mobile County, filed a petition for letters of conservatorship on behalf of Sumrall. On that same day, the probate court set Bryant's petition for a hearing, which was to take place in March, and appointed Cheryl Eubanks, a local attorney, as Sumrall's guardian ad litem.

On February 7, 1994, Sumrall's attorneys issued a check, drawn on their attorney trust account at AmSouth, in the amount of $378,546.09, representing the net proceeds of Sumrall's settlement. The check was made payable to "The Estate of Mathe Sumrall." On the same day, while Bryant's petition for letters of conservatorship was pending, Sumrall's attorneys delivered the check to Bryant. Bryant indorsed the check with his own name and trust-account number and then deposited it into his attorney trust account at Regions Bank.¹ The check was eventually presented to AmSouth, and, on February 11, 1994, AmSouth paid the check.

On June 20, 1994, the court granted Bryant's petition for letters of conservatorship, contingent upon the filing of a bond in the amount of $415,000. At Bryant's request, ALIC issued a bond in the required amount on Bryant's behalf as conservator of the Sumrall estate. Accordingly, on July 15, 1994, the probate court issued letters of conservatorship to Bryant.

On August 25, 1994, Bryant, as conservator of the Sumrall estate, filed an inventory with the probate court acknowledging receipt of the proceeds of the check paid by AmSouth. Bryant also maintained a ledger showing the balance held for Sumrall's benefit. Between July 1994 and May 1995, Bryant disbursed $28,505.97 from his attorney trust account for Sumrall's benefit.

In June 1995, it was discovered that Bryant had misappropriated the Sumrall estate funds. On June 8, 1995, the probate court removed Bryant as conservator and ordered ALIC, as surety for Bryant, to file a settlement with regard to the Sumrall estate. ALIC complied with the order, and, on July 11, 1996, the probate court entered a judgment finding ALIC, as surety, liable to the Sumrall estate in the amount of $405,024.80, for funds misappropriated by Bryant. This amount included the $378,546.09 from the check paid by AmSouth. ALIC subsequently paid into the probate court $405,024.80, plus $323 in court costs.

On March 26, 1997, ALIC filed a motion in the probate court seeking relief from the judgment. In the motion ALIC asserted that it was entitled to a refund of the amounts paid under the judgment because the Sumrall estate funds were misappropriated before Bryant became the conservator. The probate court denied ALIC's motion on April 7, 1997.

In August 1997, ALIC filed an action in the United States District Court for the Southern District of Alabama, seeking a refund, on unjust-enrichment grounds, of the amounts it had paid in the probate court. ALIC also sought a judgment from the court declaring that it was not liable to the estate with respect to any losses incurred before Bryant's appointment as conservator. The federal district court entered a summary judgment against ALIC, holding that the order of the probate court barred ALIC's federal action under the principles of res judicata.

On December 15, 1998, ALIC filed the present action in the Jefferson Circuit Court, naming AmSouth as a defendant.² ALIC alleged that it was subrogated to, and was the equitable assignee of, all rights and claims of the Sumrall estate by virtue of ALIC's payment as surety for Bryant, as the conservator of the estate. ALIC further alleged that Bryant had no authority to indorse the check and therefore that AmSouth's payment of the check was wrongful and constituted a conversion of the funds of the Sumrall estate.

On July 2, 1999, AmSouth filed a motion to transfer the case to the Mobile Circuit Court on forum non conveniens grounds, representing that discovery would be needed from many important witnesses who reside in Mobile County. On July 13, 1999, ALIC filed a motion for a summary judgment. However, the trial judge did not rule on ALIC's motion and instead granted AmSouth's motion to transfer the case to Mobile County on September 28, 1999.

On October 29, 1999, AmSouth filed in the Mobile Circuit Court a cross-motion for a summary judgment. On May 8, 2001, the trial court granted AmSouth's motion for a summary judgment, denied ALIC's motion, and dismissed the case with prejudice. ALIC appeals both the summary judgment in favor of AmSouth, and the denial of ALIC's motion for a summary judgment.

We review this case de novo, applying the oft-stated principles governing appellate review of a trial court's grant or denial of a summary-judgment motion:

"We apply the same standard of review the trial court used in determining whether the evidence presented to the trial court created a genuine issue of material fact. Once a party moving for a summary judgment establishes that no genuine issue of material fact exists, the burden shifts to the nonmovant to present substantial evidence creating a genuine issue of material fact. `Substantial evidence' is `evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.' In reviewing a summary judgment, we view the evidence in the light most favorable to the nonmovant and entertain such reasonable inferences as the jury would have been free to draw."

Nationwide Prop. & Cas. Ins. Co. v. DPF Architects, P.C., 792 So.2d 369, 372 (Ala. 2001) (citations omitted).

ALIC contends that AmSouth was not entitled to a summary judgment because, ALIC argues, the Sumrall estate would have a valid claim against AmSouth for conversion and ALIC, by virtue of its subrogation rights, can pursue that claim. Because it appears that the material facts are not in dispute, we examine whether AmSouth was entitled to a judgment as a matter of law.

A. Subrogation

There is no doubt that ALIC is subrogated to all of the rights and remedies of the Sumrall estate, so that ALIC may pursue an action against Bryant to recover the amounts paid by ALIC as a result of Bryant's misappropriation. Ala. Code 1975, §§ 8-3-2 & 8-3-11; see Firemen's Ins. Co. v. Pugh, 686 So.2d 281, 284 (Ala.Civ.App.1996) (noting that a surety forced to pay on a bond, after funds being held for an incapacitated person were misappropriated, had a right of subrogation under § 8-3-2). The initial question before us is whether ALIC may pursue an action against AmSouth.

AmSouth contends that ALIC's right to pursue claims based on subrogation is generally limited to claims that might be brought against Bryant, and that in order to be subrogated so that it might bring a claim against AmSouth, ALIC would have to demonstrate that it has "superior equities" than AmSouth. We disagree.

Alabama has long recognized that a surety who pays the debt of his principal "stands in the shoes" of the payee and may enforce the payee's rights in order to seek reimbursement. See Lloyd Wood Constr. Co. v. Con-Serv, Inc., 285 Ala. 409, 414, 232 So.2d 649, 654 (1970) ("As to subrogation rights, a surety ... takes the position of the creditor who has been satisfied by the surety."). This policy is currently reflected in Ala.Code 1975, §§ 8-3-2 and 8-3-11, which provide:

"A surety who has paid his principal's debt is entitled to a transfer of the original and collateral security which the creditor holds; he has all the rights to realize thereon and to reimburse himself to the same extent as the creditor might have done before the surety paid him, whether paid before or after judgment; and he shall be substituted for the creditor and subrogated to all his rights and remedies; in effect, he shall be a purchaser of the debt and all its incidents.

Ala.Code 1975, § 8-3-2 (emphasis added).

"A surety who has paid the debt of his principal is subrogated to all the rights of the creditor and, in a controversy with other creditors, ranks in dignity the same as the creditor whose claim is paid."

Ala.Code 1975, § 8-3-11 (emphasis added).

These statutes are broadly written; they transfer to a surety all of the rights and remedies of the creditor that are even incidentally related to the underlying debt. In other words, if a creditor had a right or remedy that is in some concrete way related to the...