Opinion ID: 2971579
Heading Depth: 4
Heading Rank: 1

Heading: Conversion Under Kentucky Law

Text: In a diversity action such as this, the Court applies the substantive law of the forum state, in this case Kentucky law. Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). To establish a claim for conversion under Kentucky law, the plaintiff has the burden of establishing that (1) he had “ownership rights at the time of the conversion,” (2) the defendant obtained the plaintiff’s property “by a wrongful act or dispossession of the plaintiff’s property rights, and (3) the plaintiff suffered harm.” Anderson v. Pine South Capital, LLC, 177 F. Supp.2d 591, 603 (W.D. Ky. 2001). Further, “Kentucky law recognizes that when a plaintiff consents to a transfer of property, he no longer has a cause of action for conversion.” Id. (citing Gross v. Citizens Fidelity Bank Winchester, 867 S.W.2d 212, 214 (Ky. Ct. App. 1993)). The district court’s decision to grant summary judgment in favor of Mr. Adkins was premised on its erroneous conclusion that the funds in Century Auto’s dealer account belonged to him and not Century Auto. The undisputed evidence shows otherwise. 2. Mr. Adkins Failed to Establish the First Element of His Conversion Claim Mr. Adkins failed to meet his burden by establishing the first element of his conversion claim. The deposits at issue took place beginning in 1998. Mr. Adkins does not recall the precise date in 1998 that he first wrote a check to Century Auto, but he testified that it was about the same time that he sold his shares in Century Holding back to that company. The undisputed evidence in the record shows an initial investment on February 5, 1998, of $50,000 and a balance of $225,000 as of December 31, 2000. On February 5, 1998, Mr. Adkins was no longer a stockholder in Century Holding and thus no longer had an ownership interest in Century Auto. Nonetheless, Mr. Adkins continued to write checks to Century Auto with the understanding and 10 consent that Century Auto would deposit his check into its own account and then electronically transfer its own funds for deposit into its dealer account. Mr. Adkins described this arrangement with Century Auto as a “gentlemen’s agreement.” Mr. Perry confirmed that there was no written agreement with Mr. Adkins covering any of these transactions between Century Auto and Mr. Adkins. Mr. Adkins later successfully sued Century Auto, obtaining a judgment where Century Auto agreed to reimburse him for the $225,000 he provided to Century Auto under this arrangement. Regardless of the arrangement between Century Auto and Mr. Adkins, it is undisputed that all funds deposited into Century Auto’s dealer account with Chrysler Financial came from Century Auto, not Mr. Adkins. Cash is a fungible commodity. Mr. Adkins failed to establish how he maintained ownership over funds he gave to Century Auto, rather than Chrysler Financial. The following facts are also undisputed. All of the funds in Century Auto’s dealer account are regarded by Chrysler Financial as the property of the dealer, Century Auto. Every dealer was told that any money deposited into a dealer account became the dealer’s money, and every withdrawal had to be made in the dealer’s name. Chrysler Financial was not concerned with how the dealer’s money got disbursed after it was withdrawn from the dealer account. All interest checks Mr. Adkins received came from Century Auto, not Chrysler Financial. Mr. Adkins received an IRS Form 1099 reporting interest paid to him from Century Auto, not Chrysler Financial. Mr. Adkins received no documents concerning these transactions directly from Chrysler Financial. The only documents Mr. Adkins received were Century Auto’s monthly Statement of Wholesale Account. Those documents were provided to Mr. Adkins by Century Auto and contained information generated electronically by Century Auto, not Chrysler Financial. 11 Based on these undisputed facts, Mr. Adkins failed to establish that the funds in Century Auto’s dealer account in December 2000 were his personal property and not the property of Century Auto. The district court erroneously assumed that Mr. Adkins had established this essential element of his conversion claim and erroneously granted his motion for summary judgment and denied Chrysler Financial’s cross-motion. It was also error for the district court to conclude, as a matter of law, that Chrysler Financial knew that the money in Century Auto’s dealer account belonged to Mr. Adkins, that Chrysler had the opportunity and duty to warn Mr. Adkins about the risks of “his investment” in the dealer account but failed to do so and thus it would be inequitable for Chrysler Financial to retain or use the funds in Century Auto’s dealer account. The district court should have granted Chrysler Financial’s cross-motion for summary judgment on Mr. Adkins’ conversion claim. The undisputed facts establish that the funds in Century Auto’s dealer account belong to Century Auto. Because these funds belong to Century Auto, they are subject to the terms and conditions of the Dealer Cash Management Agreement, including those terms that grant Chrysler Financial a security interest in any funds deposited into the dealer account.1 1 Adkins is not without a remedy. He has successfully obtained a judgment against Century Auto allowing him to recover from Century Auto the $225,000 he paid it starting in 1998. 12 3. The Second Element of Mr. Adkins’ Conversion Claim Chrysler Financial also asserts that, even if Mr. Adkins had established the first essential element of his conversion claim, he cannot prove the second – that it was wrong for Chrysler Financial to retain and use the funds in Century Auto’s dealer account to offset Century Auto’s debt to Chrysler Financial. Chrysler Financial presents several arguments supporting this contention. The first – that the challenged funds were deposited into Century Auto’s dealer account with Mr. Adkins’ consent – is persuasive.2 Because Mr. Adkins’ consented to the transfer of his property to Century Auto’s dealer account, he cannot state a conversion claim against Chrysler Financial under Kentucky law. Anderson, 177 F. Supp.2d at 603.