The Kentucky Court of Appeals has issued a “To Be Published” opinion ruling in favor of MPM’s client, Citizens Bank of Kentucky, Inc., in a dispute over misconduct by the property manager hired by a real estate rental business. When the real estate rental business, Cubby Angel Properties, LLC (“Cubby Angel”), discovered that its property manager was allegedly misappropriating the company’s assets, the company sued not only the property manager but also the bank where he had opened a checking account in Cubby Angel’s name. The bank was the “deep pocket” defendant, but both the trial court and the Court of Appeals found the bank did nothing wrong.
Cubby Angel had argued that the bank had been negligent in opening the account and allowing the property manager to use the account for his personal business. Cubby Angel also alleged that the bank had wrongfully assisted the property manager in converting Cubby Angel’s money allegedly in violation of both the common law conversion doctrine and a provision of the Uniform Commercial Code (“UCC”) involving conversion of negotiable instruments, KRS 355.3-420(1).
Following longstanding Kentucky law pointed out by MPM, the Court of Appeals ruled “the UCC preempts [common law] claims regarding authorization to open an account.” Moreover, the court ruled that Cubby Angel had given its property manager the actual authority to open the account under the UCC rules governing when a signature is or is not authorized. Finding that the property manager had full authority to act for Cubby Angel, the Court of Appeals ruled in favor of the bank under the UCC conversion claim as well.
A copy of the Opinion rendered October 27 is available here. Cubby Angel could seek review by the Kentucky Supreme Court or ask the Court of Appeals to reconsider its decision.