Angela Ford v. Faisal Shah
2016 SC 000136
| Ky. | Nov 29, 2017Background
- Angela Ford, a lawyer, placed large fen-phen settlement fees into two LLCs (Villa Paridisio and ATI Ventures). She appointed attorney Seth Johnston as sole signatory on both LLC bank accounts.
- Johnston secretly operated a fraud/theft scheme and also represented Harold and Kathleen Baerg in a §1031 exchange; he used funds from Ford’s LLC accounts to advance the Baergs’ transaction and to purchase a cashier’s check later negotiated to Faisal Shah.
- Ford sued Johnston, the Baergs, and Shah for conversion. The trial court granted Ford summary judgment against all defendants.
- The Court of Appeals reversed as to the Baergs and Shah, holding Ford lacked legal title and possessory rights at the time of the transfers. The Supreme Court granted discretionary review.
- The Supreme Court affirmed the Court of Appeals: Johnston had apparent authority as signatory, valid transfers (wire and negotiated cashier’s check) passed title to recipients, and Ford therefore lacked the first two elements of conversion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Ford have legal title to the funds at time of transfer? | Ford: she retained title; Johnston stole funds so title never passed. | Defendants: Johnston was a signatory with apparent authority; transfers validly passed title to recipients. | Held: No — title passed on valid wire/payment orders and negotiation of cashier’s check. |
| Did Ford have the right to possess the funds when defendants received them? | Ford: she retained possessory rights despite Johnston’s misconduct. | Defendants: Ford’s appointing Johnston as signatory divested her of possessory control when transfers occurred. | Held: No — Ford lacked possessory rights at the time of the transfers. |
| Can a principal treat an agent who misappropriates funds as a thief so as to prevent title transfer to third parties? | Ford: thief rule prevents thief from passing title to others. | Defendants: Johnston had apparent authority; his acts bind principal for purposes of transfer—he isn’t treated as a thief here. | Held: Johnston’s apparent authority means he is not treated as a thief for these transfers; title passed. |
| Who bore the risk of loss (economic/avoidance principle)? | Ford: loss should be borne by recipients or Johnston. | Defendants: Ford entrusted Johnston and was best positioned to prevent loss. | Held: Ford was the cheapest-cost avoider; responsibility to prevent loss favored placing risk on her. |
Key Cases Cited
- Kentucky Ass'n of Ctys. All Lines Fund Trust v. McClendon, 157 S.W.3d 626 (Ky. 2005) (sets out elements of conversion)
- Caniff v. CSX Transp., Inc., 438 S.W.3d 368 (Ky. 2014) (summary judgment standard citation)
- Mark D. Dean, P.S.C. v. Commonwealth Bank & Trust Co., 434 S.W.3d 489 (Ky. 2014) (discusses apparent authority and bank reliance)
- Regions Bank v. Provident Bank, Inc., 345 F.3d 1267 (11th Cir. 2003) (wire transfers — title passes to beneficiary bank on acceptance absent knowledge of theft)
- Wachovia Bank, N.A. v. Foster Bancshares, Inc., 457 F.3d 619 (7th Cir. 2006) (discusses transfer of title and negotiable instruments)
- Dean Witter Reynolds, Inc. v. Variable Annuity Life Ins. Co., 373 F.3d 1100 (10th Cir. 2004) (banking deposit and title/passage principles)