Conversion – New York Appellate Digest

THE COMPLAINT STATED CAUSES OF ACTION FOR UNDUE INFLUENCE, CONVERSION AND UNJUST ENRICHMENT (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff stated causes of action for conversion, unjust enrichment and undue influence exercised by the defendant with regard to changing the beneficiary on a $6 million account:

… [T]he circumstances requiring scrutiny include the alleged facts that plaintiff was decedent’s closest living relative, that they had a continuing close relationship, and that he had been the designated beneficiary for 10 years, while defendant was a neighbor and relatively recent friend … . Moreover, plaintiff sufficiently alleges defendant’s financial motive (the $6 million-plus value of the account), opportunity (that his aunt and defendant were neighbors, and his aunt’s advanced age, fragile physical health, and inability to print the change of beneficiary form independently), and actual exercise of undue influence (the execution and mailing of the change of beneficiary form and the suspicious circumstances surrounding the writing of a $15,000 check to defendant weeks later) … . Furthermore, accepting the pleadings as true, the allegations that plaintiff’s aunt attempted to stop payment on the $15,000 check and that she complained to others that defendant had tricked her into writing the check, and changed her will to remove defendant as her executor, but did not change or revoke the beneficiary form, together support an inference that the aunt either was not aware of the form or was not aware of its effect. Salitsky v D’Attanasio, 2023 NY Slip Op 01597, First Dept 3-23-23

Practice Point: The allegation that plaintiff’s aunt changed the beneficiary on a $6 million account from plaintiff to defendant, coupled with the allegations of the aunt’s fragile health and advanced age, stated causes of action for undue influence, conversion and unjust enrichment.

March 23, 2023

Attorneys, Contract Law, Conversion, Landlord-Tenant

ALTHOUGH THE PLAINTIFFS’ $96,000, CONSTITUTING TWO MONTHS’ RENT AND A SECURITY DEPOSIT, WAS TRANSFERRED TO DEFENDANT FROM AN ATTORNEY’S IOLA ACCOUNT, THE $96,000 CONSTITUTED AN “IDENTIFIABLE FUND” WHICH DEFENDANT “CONVERTED” WHEN IT WAS NOT RETURNED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Rodriguez, over a two-justice dissent, determined the $96,000 transferred from an attorney’s IOLA account to defendant landlord was an “identifiable fund” which was a proper subject of this conversion action. The fund was for two months rent and a security deposit on a lease. But the lease was never signed. By keeping the $96,000 defendant had converted the “identified fund.” One of the points in the opinion was that the transfer of funds to an attorney’s IOLA account does not necessarily render the funds incapable of being “identified:”

… [W]e now clarify that our prior decision in SH575 Holdings [195 AD3d 429], which found that funds were not specifically identifiable by virtue of being transferred into the IOLA account of an attorney involved in a Ponzi scheme, should not be read to preclude a cause of action for conversion when funds at issue have been commingled to any extent. Here, notwithstanding the funds’ transmission through plaintiffs’ attorney’s IOLA account, the funds’ temporary presence in that account did not constitute commingling under any measure pertinent to this cause of action. While the funds were in plaintiffs’ attorneys’ IOLA account, they remained plaintiffs’ funds. Consequently, this conclusion is not at odds with this Court’s holding in SH575 Holdings. Family Health Mgt., LLC v Rohan Devs., LLC, 2022 NY Slip Op 03796, First Dept 6-9-22

Practice Point: Here the plaintiffs’ security deposit and two-months rent amounting to $96,000 were transferred to defendant landlord from an attorney’s IOLA account. However the lease was never signed and defendant did not return the money. Despite the fact that the money was deposited in the IOLA account, it remained an “identifiable fund” and was therefore a proper subject for this conversion action.

June 9, 2022

Conversion, Personal Property

DEFENDANTS’ OWN SUBMISSIONS DEMONSTRATED (1) PLAINTIFF OWNED THE PROPERTY LEFT IN THE HOUSE PURCHASED BY DEFENDANTS, (2) PLAINTIFF HAD REMOVED SOME OF THE PROPERTY, AND (3) PLAINTIFF ASKED FOR MORE TIME TO REMOVE MORE PROPERTY; THOSE FACTS NEGATED DEFENDANTS’ ALLEGATION PLAINTIFF HAD ABANDONDED THE PROPERTY; DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT DISMISSING THE CONVERSION CAUSE OF ACTION SHOULD NOT HAVE BEEN GRANTED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined defendants’ motion for summary judgment dismissing the conversion cause of action should not have been granted. Defendants’ own submissions demonstrated plaintiff’s ownership of the property, his removal of some of the property, and his request for more time to remove the rest. The property was in a house where plaintiff used to live, but which was purchased by the defendants. Defendants disposed of the remaining property, arguing plaintiff had abandoned it. Plaintiff then sued for conversion:

If the property can be deemed abandoned, then plaintiff’s possessory interest was forfeited and defendants’ actions were authorized, i.e., there can be no cause of action for conversion … . “The abandonment of property is the relinquishing of all title, possession or claim to or of it—a virtual intentional throwing away of it. It is not presumed. Proof supporting it must be direct or affirmative or reasonably beget the exclusive inference of the throwing away” … . …

… [D]efendants’ … own submissions establish that plaintiff was the owner of the personal property left on the premises, that he attempted to remove some of the property during the 30-day period, and that he made requests for additional time to retrieve his property…. . Cretaro v Huntington, 2022 NY Slip Op 01935, Fourth Dept 3-18-22

Practice Point: Here defendants purchased a house formerly owned by plaintiff and gave plaintiff 30 days to remove plaintiff’s personal property from the house. Defendants’ disposed of the property, arguing that plaintiff had abandoned it. Defendants’ own submissions demonstrated plaintiff owned the property, removed some of the property and asked for time to remove more. Defendants’ own submissions, therefore, demonstrated plaintiff had not abandoned the property. Defendants’ motion to dismiss plaintiff’s conversion cause of action should not have been granted.

March 18, 2022

Civil Procedure, Conversion, Employment Law, Fiduciary Duty, Fraud

CAUSES OF ACTION ALLEGING BREACH OF FIDUCIARY DUTY DO NOT ACCRUE UNTIL THE FIDUCIARY DUTY IS OPENLY REPUDIATED; CAUSES OF ACTION FOR CONVERSION BASED UPON FRAUD ARE TIMELY SIX YEARS FROM THE CONVERSION OR TWO YEARS FROM DISCOVERY OF THE CONVERSION; THE RELEVANT CAUSES OF ACTION HERE, THEREFORE, SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined causes of action alleging defendant Filardo, plaintiff car dealership’s employee, used fraudulent schemes to steal funds from plaintiff over a period of years, should not have been dismissed on statute of limitations grounds, and/or on the ground the causes of action were not adequately pled:

The plaintiff asserted causes of action against Filardo for breach of fiduciary duty (first cause of action), breach of the duty of loyalty (second cause of action), faithless servant doctrine (third cause of action), conversion (fifth cause of action), fraudulent concealment by fiduciary (sixth cause of action), and promissory estoppel (ninth cause of action), and causes of action against both defendants for aiding and abetting fraud (fourth cause of action), civil conspiracy (seventh cause of action), fraud and deceit (eighth cause of action), unjust enrichment (tenth cause of action), money had and received (eleventh cause of action), and fraud by non-disclosure (twelfth cause of action). …

“The statute of limitations for a cause of action alleging a breach of fiduciary duty does not begin to run until the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated” … Here, the plaintiff alleged that its relationship with Filardo was not terminated until November 2017, and there is no allegation that Filardo openly repudiated his employment obligations prior to that time … .

… [W]hen the allegations of fraud are essential to a cause of action alleging conversion based upon actual fraud, the cause of action is governed by the limitations period for fraud set forth in CPLR 213(8). That statute provides that, in an action based upon fraud, “the time within which the action must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it” … .Star Auto Sales of Queens, LLC v Filardo, 2022 NY Slip Op 01476, Second Dept 3-9-22

Practice Point: The statute of limitations for breach of fiduciary duty does not start running until the fiduciary openly repudiates the duty.

Practice Point: The statute of limitations for conversion based upon fraud is six years from the conversion or two years from discovery of the conversion.

March 9, 2022

Civil Procedure, Contract Law, Conversion, Criminal Law, Fiduciary Duty, Fraud

PLAINTIFF WAS ACQUITTED OF CHARGES STEMMING FROM THE ALLEGED APPROPRIATION OF INSURANCE PROCEEDS DUE OTHER BENEFICIARIES AND THEN SUED TWO INSURANCE COMPANIES; THE CAUSES OF ACTION FOR BREACH OF CONTRACT, CONVERSION AND BREACH OF FIDUCIARY DUTY DID NOT ACCRUE UPON ACQUITTAL AND WERE THERFORE TIME-BARRED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined the causes of action that did not require plaintiff’s innocence in a criminal matter were time barred. Plaintiff was acquitted of charges stemming from the allegation she appropriated life insurance proceeds which were due to other beneficiaries. Plaintiff then sued two insurance companies alleging breach of contract, breach of fiduciary duty, conversion, and aiding and abetting breach of a fiduciary duty. None of those causes of action accrued upon plaintiff’s acquittal. All were therefore time-barred:

Contrary to … the court’s conclusion, those causes of action did not accrue at the time the criminal proceeding terminated. The termination of a criminal proceeding is relevant for claims for malicious prosecution and legal malpractice arising out of a criminal proceeding … . For those claims, a plaintiff is required to make a showing of innocence, and thus the claims do not accrue until the plaintiff can assert the element of his or her innocence on the criminal charges … . Plaintiff here does not need to assert her innocence on the criminal charges as an element of the causes of action for breach of contract, conversion, and breach of fiduciary duty … . Morrow v Brighthouse Life Ins. Co. of NY, 2021 NY Slip Op 07373, Fourth Dept 12-23-21

December 23, 2021

Conversion

A CONVERSION CAUSE OF ACTION FOR ITEMS LAWFULLY IN DEFENDANT’S POSSESSION WILL NOT LIE UNLESS PLAINTIFF FIRST DEMANDED THEIR RETURN (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined some of plaintiff’s conversion allegations did not state a cause of action. Apparently plaintiff had created a website for defendant which included photographs, design and coding. Because the website, photographs, design and coding were lawfully in the possession of defendant, and plaintiff did not demand their return, conversion will not lie. Also, a conversion action cannot be based upon damages for breach of contract. However unpaid salary may be the subject of a conversion action:

… [D]efendants had lawful possession of the website that plaintiff had created for defendant The Front Row, as well as the photographs, design, and coding used on the website. Since plaintiff did not allege that she demanded return of those items, she cannot sustain her claim for conversion of the website, the design and coding for the website, and the photographs … . Plaintiff also cannot sustain the conversion claim for a $16,000 fee purportedly owed to her, since “an action for conversion cannot be validly maintained where damages are merely being sought for breach of contract” … . Nonetheless, plaintiff has standing to assert a claim for conversion of an $8,000 monthly salary payment, because “[c]onversion is concerned with possession, not with title” … . Liegey v Gadeh, 2021 NY Slip Op 05461, First Dept 10-12-21

October 12, 2021

Conversion, Replevin

HEIRS OF A JEWISH VIENNESE ART COLLECTOR, FRITZ GRUNDBAUM, KILLED BY THE NAZIS IN 1941, DEMONSTRATED THEY WERE ENTITLED TO POSSESSION OF CERTAIN ARTWORKS IN THE GRUNDBAUM COLLECTION WHICH WERE ALLEGEDLY LOOTED BY THE NAZIS (FIRST DEPT).

The First Department, in a comprehensive opinion by Justice Singh, determined that plaintiffs, heirs of Jewish Viennese art collector, Fritz Grunbaum, who was murdered by the Nazis in 1941, demonstrated they were entitled to certain artworks collected by Grundbaum and alleged to have been looted by the Nazis. The complex history leading to this lawsuit cannot be fairly summarized here:

” A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person’s right of possession'” … . “Two key elements of conversion are (1) plaintiff’s possessory right or interest in the property; and (2) defendant’s dominion over the property or interference with it, in derogation of plaintiff’s rights” … . Where a party’s interests in property have been sold, there can be no interference with their property rights and a conversion claim may not be maintained … .

To state a cause of action for replevin, a plaintiff must establish a superior possessory right to property in a defendant’s possession … .

Here, we find that plaintiffs have made a prima facie showing of superior title to the Artworks based on evidence that establishes the following: (1) Grunbaum owned the Artworks prior to World War II; and (2) Grunbaum never voluntarily relinquished the Artworks. Reif v Nagy, 2019 NY Slip Op 05504, First Dept 7-9-19

July 9, 2019

Civil Procedure, Contract Law, Conversion, Debtor-Creditor, Foreclosure, Real Property Law

UNJUST ENRICHMENT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED, CONVERSION DOES NOT LIE WHEN PROPERTY INVOLVED IS REAL PROPERTY (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined plaintiffs’ unjust enrichment cause of action should not have been dismissed and noted that a conversion cause of action does not lie where the property involved is real property. The facts of the case are too complex to fairly summarize here. In a nutshell the plaintiffs, to avoid paying a broker’s fee, arranged to have defendants’ deceased father purchase real property on their behalf. Defendants (the Passalacquas) took out a mortgage on the property (Wells Fargo mortgage), in violation of the agreement defendants’ father had with plaintiffs, which plaintiffs paid off when they sold the property. Plaintiffs sought to recover the amount of the mortgage from the Passalacquas under unjust enrichment and conversion theories:

Here, the amended complaint sufficiently alleges that the Passalacquas were unjustly enriched, at the plaintiffs’ expense, by the plaintiffs’ payment of the Passalacquas’ debt to Wells Fargo, and that it would be against equity and good conscience to permit the Passalacquas to retain what is sought to be recovered … . To the extent that the Passalacquas contend that they used proceeds of the Wells Fargo mortgage to benefit the premises, that contention involves factual issues not properly resolved on a motion to dismiss the complaint pursuant to CPLR 3211(a)(7) … . Contrary to the determination of the Supreme Court, the plaintiffs do not have an adequate remedy at law by suing to enforce the consolidated note … . Further, even if the plaintiffs are entitled to assignment of the consolidated note from Wells Fargo, obtaining such an assignment would require an action in equity … . The unjust enrichment cause of action is also not barred by the existence of the plaintiffs’ contract of sale with the Passalacquas’ late father … .

Contrary to the Passalacquas’ contention, advanced as an alternative ground for affirmance … , the unjust enrichment cause of action was timely asserted. The parties agree that the unjust enrichment cause of action is subject to a six-year statute of limitations (see CPLR 213[1]). Such a cause of action accrues “upon the occurrence of the alleged wrongful act giving rise to the duty of restitution” … . Here, the amended complaint alleges that the plaintiffs’ payment to Wells Fargo was necessitated by the Passalacquas’ default in making payments on the consolidated note, which resulted in Wells Fargo’s acceleration of the debt and the threat of a foreclosure action. Accordingly, this cause of action accrued, at the earliest, in late 2010, when the Passalacquas stopped making payments on the Wells Fargo consolidated mortgage. Mannino v Passalacqua, 2019 NY Slip Op 03961, Second Dept 5-22-19

May 22, 2019

Banking Law, Conversion, Fraud

COMPLAINT ALLEGED VALID CAUSES OF ACTION FOR AIDING AND ABETTING FRAUD AND AIDING AND ABETTING CONVERSION AGAINST A BANK WHICH PROVIDED A LETTER TO PLAINTIFF STATING DEFENDANT MAINTAINED ENOUGH IN HIS BANK ACCOUNTS TO COVER A POST-DATED CHECK FOR OVER $400,000 (FIRST DEPT).

The First Department, reversing Supreme Court, over a dissent, determined that plaintiff auction house stated causes of action for aiding and abetting fraud and aiding and abetting conversion against defendant bank HSBC. Defendant Stettner bid over $425,000 for antique jewelry and sought to pay with a post-dated check. At plaintiff’s request HSBC provided a letter attesting to Stettner’s good standing at the bank and stating that Stettner maintained a balance of between $1 and $20 million. Stettner’s check bounced. The dissent argued that the complaint did not allege the bank’s knowledge of the fraud and conversion:

“A plaintiff alleging an aiding-and-abetting fraud claim must allege the existence of the underlying fraud, actual knowledge, and substantial assistance” … . In turn, the elements of an underlying fraud are “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” … . …

Aiding and abetting conversion requires the existence of a conversion by the primary tortfeasor, actual knowledge, and substantial assistance… . “A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person’s right of possession” … . William Doyle Galleries, Inc. v Stettner, 2018 NY Slip Op 08743, First Dept 12-20-18

December 20, 2018

Civil Procedure, Conversion

PLAINTIFF ENTITLED TO PREJUDGMENT INTEREST AT THE STATUTORY RATE IN THIS CONVERSION ACTION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff was entitled to interest at the statutory rate based on the value of the property at the time and place of conversion:

On a prior appeal in this action, this Court awarded summary judgment to the plaintiff, inter alia, on the cause of action to recover damages for conversion in the sum of $69,500, representing the amount of estate funds that were wrongfully converted by the defendant Rick Barrett. The Supreme Court subsequently entered an amended judgment that awarded the plaintiff the sum of $69,500 but failed to award prejudgment interest at the statutory rate of 9% per annum on that sum. The plaintiff appeals from so much of the amended judgment as failed to award prejudgment interest at the statutory rate on the $69,500 damages award.

“The usual measure of damages for conversion is the value of the property at the time and place of conversion, plus interest” … . Indeed, CPLR 5001(a) provides for the award of prejudgment interest upon sums awarded for the deprivation of or interference with another’s property, and relevant case law clearly establishes that such interest is properly awarded as part of the recovery on a cause of action sounding in conversion … . Moreover, interest is to be awarded at the statutory rate of 9% per annum … . Scotti v Barrett, 2018 NY Slip Op 07477, Second Dept 11-7-18

CONVERSION (PLAINTIFF ENTITLED TO PREJUDGMENT INTEREST AT THE STATUTORY RATE IN THIS CONVERSION ACTION (SECOND DEPT))/INTEREST (CONVERSION, PLAINTIFF ENTITLED TO PREJUDGMENT INTEREST AT THE STATUTORY RATE IN THIS CONVERSION ACTION (SECOND DEPT))/CPLR 5001 (PLAINTIFF ENTITLED TO PREJUDGMENT INTEREST AT THE STATUTORY RATE IN THIS CONVERSION ACTION (SECOND DEPT))

November 7, 2018