A law firm’s lead bookkeeper and business manager resigned and went to work in a similar position for another law firm. A year later, her former employer discovered that she had embezzled more than $270,000 from the firm. The firm contacted the employee (without notifying her new employer). She admitted the theft and executed a promissory note requiring her to repay the $270,000 (again, without the knowledge of the second firm). The employee then embezzled money from her new employer, which she used to pay off the promissory note.
When the employee’s new employer discovered that her prior employer was the recipient of the embezzled funds, it demanded that the prior employer return the funds. When the prior employer refused to return the full amount, the new employer sued it, alleging conversion and unjust enrichment. A trial court granted summary judgment in the prior employer’s favor, dismissing the action, but New York’s Appellate Division reversed that dismissal in Simpson & Simpson, PLLC v. Lippes Mathias Wexler Friedman LLP, 2015 N.Y. App. Div. LEXIS 5934, 2015 N.Y. Slip Op. 6065 (4th Dep’t July 10, 2015), finding that triable issues of fact, precluding summary judgment, existed on both claims.
The first firm contended that it was not liable for conversion because it was unaware of how the employee had obtained the money that she had used to make the repayment. However, in the court’s view, “given the unique facts of this case,” the circumstances were “so obviously suspicious that no honest person (not just a reasonably prudent person) could turn a blind eye thereto.” This gave rise to a duty to investigate. Moreover, even if the first firm originally did not know it had been paid with stolen money, it may still have converted the new employer’s funds when it refused to return the money following the second firm’s demand for its return.
The court held that the first firm might also be liable for unjust enrichment, which exists when “the acts of the parties or others have placed in the possession of one [party] money … under circumstances [where] in equity and good conscience [that party] ought not to retain it.”