Chapter 21: Conversion

§21.1 Generally

The Case: H & M Enterprises, Inc. v. Murray, No. M1999-02073-COA-R3-CV, 2002 WL 598556 (Tenn. Ct. App. 2002).

The Basic Facts: Plaintiff filed suit to recover damages from former employee’s embezzlement. The embezzler’s spouse appealed, asserting that he should not be deemed jointly and severally liable for his wife’s conversion.

The Bottom Line:

• “Conversion is the appropriation of tangible property to a party’s own use in exclusion or defiance of the owner’s rights. Barger v. Webb, [391 S.W.2d 664, 665 (Tenn. 1965)]; Lance Prods., Inc. v. Commerce Union Bank, 764 S.W.2d 207, 211 (Tenn. Ct. App. 1988). Conversion is an intentional tort, and a party seeking to make out a prima facie case of conversion must prove (1) the appropriation of another’s property to one’s own use and benefit, (2) by the intentional exercise of dominion over it, (3) in defiance of the true owner’s rights. Kinnard v. Shoney’s, Inc., 100 F. Supp. 2d 781, 797 (M.D. Tenn. 2000); Mammoth Cave Prod. Credit Ass’n v. Oldham, 569 S.W.2d 833, 836 (Tenn. Ct. App. 1977).” 2002 WL 598556 at *3.
• “Property may be converted in three ways. First, a person may personally dispossess^FN1 another of tangible personalty. [RESTATEMENT (SECOND) OF TORTS] § 223(a) (1965).

  FN1 ^‘Dispossess’ means to intentionally take tangible personal property without the owner’s consent and includes obtaining possession by fraud. [RESTATEMENT (SECOND) OF TORTS] § 221.”

  Id .
• “Second, a person may dispossess another of tangible property through the active use of an agent. See, e.g., McCall v. Owens, 820 S.W.2d 748, 751 (Tenn. Ct. App. 1991); [1 STUART M. SPEISER ET AL., THE AMERICAN LAW OF TORTS § 3.4 (1983)] (“The American Law of Torts“) (stating that ‘those who ratify and adopt acts of a wrongdoer done for their benefit’ may be liable).” Id.
• “Third, under certain circumstances, a person who played no direct part in dispossessing another of property, may nevertheless be liable for conversion for ‘receiving a chattel.’^FN2 [RESTATEMENT (SECOND) OF TORTS] § 223(d).

  FN2 Receiving a chattel means to accept it from an intermediary, who is not an agent, with the intent to acquire it away from the owner. [RESTATEMENT (SECOND) OF TORTS] § 229; see, e.g., Huffman v. Hughlett, 79 Tenn. 549, 555 (1883).”

  Id .
• “With the evidence insufficient to hold Mr. Murray liable on an agency theory, the only remaining theory for holding him liable for his wife’s embezzlement is that he received the money from his wife with an intent to acquire it away from its true owner. [RESTATEMENT (SECOND) OF TORTS] § 229. This species of conversion imposes liability irrespective of good faith. Mammoth Cave Prod. Credit Ass’n v. Oldham, 569 S.W.2d at 836; see also [1 Dan B. Dodds, The Law of Torts § 62 (2001)]. It has been characterized as strict liability for conversion where legal culpability does not depend on fault. [1 FOWLER HARPER ET AL., THE LAW OF TORTS § 2.10 (3rd ed. 1996)]; George Clark, The Test of Conversion, [21 Harv. L. Rev. 408, 409 (1908).]” Id. at *4.
• “For Mr. Murray to be liable under this species of conversion, there must be some evidence that he knew or reasonably should have known that he was receiving and spending money that was not rightfully his to spend. Colonia Ins. Co. v. City Nat’l Bank, 988 F. Supp. 1242, 1252 (W.D. Ark. 1997); Zell & Ettinger v. Berglas, 690 N.Y.S.2d 721, 721 (App. Div. 1999) (refusing to impose liability for conversion just because a married couple shared a joint bank account). While Ms. Murray deposited the embezzled funds in the parties’ joint bank account, there is little evidence that Mr. Murray spent any of these funds,^FN3 and there is no evidence that he knew or suspected that the money in the parties’ joint account might belong to another. Proof that Mr. Murray used or spent some of the money in the bank account he owned jointly with Ms. Murray does not give rise to liability for conversion without some evidence that Mr. Murray knew or should have known that the money he was spending or using was not rightfully his or his wife’s. There is simply no evidence that Mr. Murray had this knowledge and without it, there is no factual basis for finding him liable to H & M Enterprises using this theory of conversion.”

  FN3 Despite having eighteen months to prepare its case against Mr. Murray, H & M Enterprises could present no direct evidence that Mr. Murray spent or benefited directly from the embezzled money. The best that the company could do was wring a concession from Mr. Murray that he must have helped spend some of the embezzled money because it was in the Murrays’ joint account.”

  Id .

Recent Cases:

Sanford v. Waugh , No. M2007-02528-COA-R3-CV, 2009 WL 1910957 (Tenn. Ct. App. June 30, 2009) (upholding dismissal of conversion claim on summary judgment); Ralston v. Hobbs, No. 2008-01637-COA-R3-CV, 2009 WL 1564798 (Tenn. Ct. App. June 4, 2009) (finding genuine issue of material fact on statute of limitations defense to conversion claim); Ferrell v. Long, No. M2008-02232-COA-R3-CV, 2009 WL 1362321 (Tenn. Ct. App. May 14, 2009) (upholding dismissal of conversion claim based on statute of limitations); Thompson v. Thompson, No. W2008-00489-COA-R3-CV, 2009 WL 3448748 (Tenn. Ct. App. Mar. 12, 2009) (affirming trial court’s finding of no conversion); Saroff v. Cohen, No. E2008-00612-COA-R3-CV, 2009 WL 482498 (Tenn. Ct. App. Feb. 25, 2009) (upholding summary judgment on conversion claim where legal invoice were found to be property of law firm and not plaintiff former client); Shomo v. City of Franklin, No. M2006-00319-COA-R3-CV, 2008 WL 490646 (Tenn. Ct. App. Feb. 2, 2008) (upholding dismissal of claim of conversion because complaint failed to allege existence of contract).