Filing Lawsuit Doesn’t Meet Conversion Suit ‘Demand for Possession’ Requirement – 7th Cir. (applying IL law)

Conversion, or civil theft, requires a plaintiff to make a demand for possession of the converted property before suing for its return.  This pre-suit demand’s purpose is to give a defendant the opportunity to return plaintiff’s property and avoid unnecessary litigation.

What constitutes a demand though?  The easiest case is where a plaintiff serves a written demand for return of property and the defendant refuses.  But what if the plaintiff doesn’t send a demand but instead files a lawsuit.  Is the act of filing the lawsuit equivalent to sending a demand?

The Seventh Circuit recently answered that with a “no” in Stevens v. Interactive Financial Advisors, Inc., 2016 WL 4056401 (N.D.Ill. 2016)

The plaintiff there sued his former brokerage firm for tortious interference with contract and conversion when the firm blocked plaintiff’s access to client data after he was fired.

The District Court granted summary judgment for defendant on the plaintiff’s tortious interference claim and a jury later found judgment for defendant on plaintiff’s conversion suit.

At the conversion trial, the jury submitted this question to the trial judge: “Can we consider [filing] the lawsuit a demand for property?”

The trial judge answered no: under Illinois law, filing a lawsuit doesn’t qualify as a demand for possession.  The jury entered judgment for the defendant and plaintiff appealed.

Affirming the jury verdict, the Seventh Circuit addressed whether impeding a plaintiff’s access to financial data can give rise to a conversion action in light of Illinois’s pre-suit demand for possession requirement and various Federal securities laws.

To prove conversion under Illinois law, a plaintiff must show (1) he has a right to personal property, (2) he has an absolute and unconditional right to immediate possession of the property, (3) he made a demand for possession, and (4) defendant wrongfully and without authorization assumed control, dominion, or ownership over the property.

The Court held that since the firm was bound by Federal securities laws that prohibiting it from disclosing nonpublic client information to third parties, coupled with plaintiff’s firing, the plaintiff could not show a right to immediate possession of the locked out client data.

The Seventh Circuit also agreed with the jury upheld the jury verdict on the insurance clients conversion suit based on the plaintiff’s failure to make a demand for possession.  The Court noted the plaintiff failed to demand the  return of his insurance client’s data before he sued.

And since Illinois courts have never held that the act of suing was a proxy for the required demand, the Seventh Circuit affirmed the jury verdict.

The Court also nixed the plaintiff’s “demand futility” argument: that a demand for possession would have been pointless given the circumstances of the given case. (Demand futility typically applies where the property has been sold or fundamentally damaged.)

The Seventh Circuit found that the jury properly considered the demand futility question and ruled against the plaintiff and there was no basis to reverse that finding.

Afterwords:

1/ A conversion plaintiff’s right to client data will not trump a Federal securities law protecting the data.  In addition, a pre-suit demand for possession is required to make out a conversion action unless the plaintiff can show that the demand is pointless or futile;

2/ Filing a lawsuit doesn’t dispense with the conversion tort’s demand for possession.

3/ A conversion plaintiff must make a demand for possession before suing even where the demand is likely pointless. Otherwise, the risk is too great that the lack of a demand will defeat the conversion claim.

 

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.