Central Trust Co. v. Shepard (In re Shepard)

Shepard (defendant) ran a fraudulent scheme in which he obtained credit-card authorizations for $5 for the purchase of record albums and altered those authorizations to read either $50 or $250. Shepard opened a merchant account with the Central Trust Company (plaintiff), which permitted Shepard to receive instant credit for the authorization slips delivered to Central each day. Central became suspicious because Shepard made suspiciously large withdrawals from the account, and the United States Postal Service began investigating separately. Shepard’s secretary generally made the deposits and cashed checks. Shepard disappeared and left instructions for his secretary to cash three checks in the amount of $10,000 each. The secretary was instructed to leave the money in a specific filing cabinet in Shepard’s home. Later, a United States Postal Inspector searched Shepard’s home while executing a search warrant. The inspector found $28,440 in cash inside the home, which was still wrapped in paper wrappers used by Central. The paper wrappers were also dated and stamped by Central bank tellers, and the dates aligned with the $30,000 in checks cashed by Shepard’s secretary. In total, through this scheme, Central lost $239,954.91. Shepard filed for bankruptcy, and a bankruptcy trustee was appointed. Central filed a request in the bankruptcy proceeding to impose a constructive trust on and obtain the cash found at Shepard’s home.