Filner v. Shapiro

• Decision Date: 29 December 1980
• Docket Number: No. 25,D,25
• Citation: 633 F.2d 139
• Parties: Doris FILNER, Plaintiff-Appellant, v. Samuel SHAPIRO and Southwestern Alloys Corporation, Defendants-Appellees. ocket 79-7815.
• Court: U.S. Court of Appeals — Second Circuit

Page 139

633 F.2d 139

Doris FILNER, Plaintiff-Appellant, v. Samuel SHAPIRO and Southwestern Alloys Corporation,

Defendants-Appellees.

No. 25, Docket 79-7815.

United States Court of Appeals, Second Circuit.

Argued Sept. 3, 1980.

Decided Dec. 29, 1980.

Jerry L. Siegal, New York City (Coudert Brothers, Mark D. Lebow and Lynn M. Barry, New York City, on brief), for plaintiff-appellant.

William A. Austin, New York City (Hertzog, Calamari & Gleason, Peter E. Calamari, New York City, on brief), for defendants-appellees.

Before TIMBERS, VAN GRAAFEILAND and NEWMAN, Circuit Judges.

VAN GRAAFEILAND, Circuit Judge:

On February 13, 1975, appellant Doris Filner entered into a letter agreement with Samuel Shapiro, president of Southwestern Alloys Corporation (Southwestern). The letter, dated February 9, 1975, was prepared on Shapiro's stationery and read as follows:

Dear Doris,

In accordance with our understanding, upon your wiring me funds in the amount of $200,000.00, I will act as your agent to purchase in your name a time certificate of deposit from the Southern Arizona Bank and Trust Company. This TCD shall thereafter be pledged to collateralize either a loan or letter of credit from the Southern Arizona Bank to Southwestern Alloys Corporation.

If the above is in keeping with your understanding, would you please signify by signing in the appropriate place below and transferring the $200,000.00 to my account number 328-4678 at the West Van Buren Branch of the Valley National Bank of Arizona in Phoenix.

Sincerely,

/s/ S. Shapiro

By February 13, appellant had transferred $200,000 to Shapiro's account.

On February 14, a Southwestern employee, under Shapiro's direction, used appellant's money to purchase a ninety-day time certificate of deposit from the Southern Arizona Bank and Trust Company (the Bank). However, on Shapiro's instructions the certificate was issued in Southwestern's name instead of Doris Filner's.

Southwestern borrowed $1,000,000 from the Bank and gave in return four promissory notes, three for $200,000 and one for $400,000. It pledged the certificate of deposit as collateral for note number 1196 which was for $200,000. Two of the other notes were secured by Southwestern's own money. The fourth was unsecured but guaranteed by Southwestern's chief operating officer, Ben Klimist.

On February 18, 1975, Southwestern loaned $1,000,000 to HRP Hotel Company (HRP), a limited partnership formed for the purpose of constructing a Hyatt Regency Hotel in Phoenix, Arizona. On May 13, 1975, when Southwestern's notes from the Bank became due, HRP was unable to repay its loan from Southwestern. Southwestern renewed its Bank notes until August 13, 1975, but found HRP in equally straitened circumstances on that day. Without waiting for the Bank to declare its notes in default, Southwestern paid them, using the proceeds of the certificate of deposit, which also had been renewed for ninety days, to pay note 1196. HRP never repaid Southwestern. ¹

Appellant demanded the return of her money. When it was not forthcoming, she commenced this action, alleging conversion, breach of contract, unjust enrichment, and fraud. After a two-day trial, the district court, sitting without a jury, held that appellant had failed to prove that the loss of her money had resulted from appellees' wrongful use of it and that therefore appellant could not recover in either tort or contract. The court also held that appellees had substantially performed their contractual obligations. Finally, the district court held that appellant had abandoned the causes of action for fraud and unjust enrichment. It dismissed the complaint. We reverse.

Under the law of New York, which all parties cite as controlling, an agent who intermeddles with the property of his principal beyond the extent of his authority, with the intent to use or dispose of it so as to alter its condition or interfere with the owner's dominion, is guilty of conversion. Kittredge v. Grannis, 244 N.Y. 168, 176, 155 N.E. 88 (1926); Laverty v. Snethen, 68 N.Y. 522, 524 (1877); Fisher v. Title Guarantee and Trust Co., 262 App.Div. 293, 299, 28 N.Y.S.2d 410 (1941), aff'd, 287 N.Y. 275, 39 N.E.2d 237 (1942). Wrongful intent is unnecessary. All that the owner need show is that he has been deprived of his property by the defendant's unauthorized exercise of dominion and control over it. Brown v Garey, 267 N.Y. 167, 170, 196 N.E. 12 (1935); Suzuki v. Small, 214 App.Div. 541, 556-58, 212 N.Y.S. 589 (1925), aff'd, 243 N.Y. 590, 154 N.E. 618 (1926).

The district judge concluded that the loss of appellant's money was caused by HRP's collapse rather than by appellees' conduct, and he therefore deemed it unnecessary to decide whether appellees had exercised such unauthorized dominion over appellant's property as to be guilty of conversion. This reasoning, we believe, puts the cart before the horse. The logical process would have been to decide first whether there had been a conversion and then whether damage had resulted. Analyzing the record in this manner, we are led inexorably to the conclusion that appellees converted appellant's property and caused the loss for which she sued.

The language of the parties' written contract is crystal clear. It provided:

(1) Shapiro, acting as appellant's agent, would purchase a $200,000 certificate of deposit in appellant's name.

(2) The certificate of deposit would be pledged to collateralize a loan from Southern Arizona Bank to Southwestern.

Had Shapiro performed this contract as agreed, appellant would have become a surety for payment of Southwestern's note number 1196 to the extent of her collateral, with all the legal and equitable rights inherent in such status. Rutherford National Bank v. Manniello, 240 App.Div. 506, 508, 271 N.Y.S. 69 (1934), aff'd, 266 N.Y. 568, 195 N.E. 203 (1935). Foremost among these would have been the right to expect that Southwestern would perform the duty which it owed to both appellant and the Bank, i. e., the duty of paying note 1196. Epstein v. Goldstein, 118 F.2d 73, 74 (2d Cir. 1941); Chamberlin v. First Trust and Deposit Co., 172 Misc. 472, 475, 15 N.Y.S.2d 168 (1939); Restatement of Security §§ 103, 112, Comment a (1941).

The existence of the principal's duty to pay gives a surety the equitable right to call upon the principal to exonerate him from liability by discharging the debt when it becomes due. Chicago Title & Trust Co. v. Fox Theatres Corp., 91 F.2d 907, 910 (2d Cir. 1937); Admiral Oriental Line v. United States, 86 F.2d 201, 204 (2d Cir. 1936); Continental Casualty Co. v. Milford Construction Corp., 15 Misc.2d 953, 185 N.Y.S.2d 707 (1958); Restatement of Security § 112; 57 N.Y.Jur. Suretyship and Guaranty § 307 (1967). Alternatively, the existence of this duty gives the surety, who is required to pay, the right to be subrogated to the creditor's claims against the principal. Gerseta Corp. v. Equitable Trust Co., 241 N.Y. 418, 425-26, 150 N.E. 501 (1926); National Surety Co. v. National City Bank, 184 App.Div. 771, 773-74, 172 N.Y.S. 413 (1918); Restatement of Security § 104.

The relationship between Samuel Shapiro and Doris Filner was not that of debtor and creditor. Shapiro was in possession of money that belonged to appellant Filner and was charged with the fiduciary and contractual duty of purchasing a certificate of deposit in her name. Instead, he purchased a certificate in Southwestern's name. This unauthorized exercise of dominion over appellant's funds was a conversion of property that did not belong to him. Britton v. Ferrin, 171 N.Y. 235, 242-43, 63 N.E. 954 (1902); Moffatt v. Fulton, 132 N.Y. 507, 515-16, 30 N.E. 992 (1892); AMF Inc. v. Algo Distributors, Ltd., 48 App.Div.2d 352, 355-58, 369 N.Y.S.2d 460 (1975); Matter of Riley, 266 App.Div. 160, 163, 43 N.Y.S.2d 753 (1943); Kilmer v. Hutton, 131 App.Div. 625, 636, 116 N.Y.S. 127 (1909).

Arguably, the purchase in the wrong name was only a technical conversion that gave appellant no right of action, because, standing alone, it caused her no real detriment. See Tow v. Maidman, 56 Misc.2d 468, 470, 288 N.Y.S.2d 837 (1968); Prosser, The Nature of Conversion, 42 Cornell L.Q. 168, 172-73 (1957). But see Matter of Perfection Technical Service Press, Inc., 22 App.Div.2d 352, 354, 256 N.Y.S.2d 166 (1965), aff'd, 18 N.Y.2d 644, 273 N.Y.S.2d 71, 219 N.E.2d 424 (1966). However, when appellees used the certificate purchased in Shapiro's name to pay Southwestern's note to the Bank, ...