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 “no” to the question in Stevens v. Interactive Financial Advisors, Inc., 2016 WL 4056401 (N.D.Ill. 2016)

That case’s plaintiff sued his former brokerage firm for tortious interference and with contract and conversion based when the firm blocked plaintiff’s access to investment client data after the firm fired the plaintiff.  The District Court granted summary judgment on the plaintiff’s tortious interference claim and a jury entered judgment for the defendant on the conversion count.

At trial on the conversion count, 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 does not qualify as a demand for possession.  The jury then found for the defendant and plaintiff appealed.

Affirming the jury verdict, the Seventh Circuit addressed if and when impeding access to financial data can give rise to a conversion action in light of Illinois law’s pre-suit demand requirement and various applicable 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 Seventh Circuit affirmed summary judgment for the defendant investment firm on the plaintiff’s conversion count that sought access to client information for clients plaintiff brought to the firm.

The Court held that since the firm was bound by Federal securities laws prohibiting it from disclosing nonpublic client information to third parties, and the plaintiff had been fired, the plaintiff could not show a right to immediate possession of the client financial information.  The plaintiff did possibly have a right to insurance client information (as opposed to securities clients) and the Court denied summary judgment as to plaintiff’s insurance clients.

The Seventh Circuit upheld the jury verdict on the insurance clients conversion suit based on the plaintiff’s failure to make a demand for possession.  The Court stated the demand requirement’s purpose as trying to motivate the return of property “before a plaintiff is required to submit to unnecessary litigation.”

The plaintiff did not make a demand for return of his insurance client’s data before he filing suit.  And since Illinois courts have never held that the act of suing was tantamount to a demand for possession, the Seventh Circuit found that the District Court correctly instructed the jury that the failure to make a demand for possession before suing defeats a conversion claim.

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 that protects 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/ The act of filing a lawsuit will not serve as a proxy for a demand for possession.

3/Conversion plaintiffs should take great care to make a demand for possession before suing.

3-a/ This is true even where the demand is likely to meet resistance.  Otherwise, like the plaintiff experienced here, the risk is too great that the lack of a demand will defeat the conversion claim.

 

Voluntary Payment of Wages Sinks Transit Agency’s Conversion Counterclaim Against Ex-Employees – IL ND

In Laba v. CTA, 2016 WL 147656 (N.D.Ill. 2016), the Court considers the contours of the conversion tort in a dispute involving former Chicago Transit Authority (CTA) employees who lied about their hours worked.

The CTA claimed the employees converted or “stole” paycheck monies by falsifying employee time records in order to get paid by the agency.

The Court dismissed the CTA’s conversion claim based on the involuntary payment doctrine.  Conversion applies where a plaintiff shows (1) a defendant exercised unauthorized control over the plaintiff’s personal property; (2) plaintiff’s right to immediate possession of the property; and (3) a demand for possession of the property.  

A colorable conversion claim must involve specifically identifiable property.  Money can be the subject of  a conversion claim but it must be a specific source of funds.  A general obligation (“John owes me money and so he basically stole from me,” e.g.) isn’t enough for actionable conversion.

A well-established conversion defense is the voluntary payment rule.  This rule posits that where one party voluntarily transfers property to another, even if the transfer is mistaken, there is no conversion.  In such a case, there is a debtor-creditor relationship: the debtor would be the person to whom the funds were paid and the creditor the paying party. 

Here, since the CTA voluntarily paid money to the employees, in the form of regular paychecks, those monies could not be subject to a later conversion suit.  The CTA did not pay the ex-workers under duress.  The fact that the workers may not have earned their pay doesn’t change the analysis.  At most, according to the court, the time sheet embellishments created a “general debt arising from fraudulent conduct.”  The CTA has a remedy to recoup the funds; it’s just not one for conversion. 

Afterwords:

This case presents a creative use of the conversion tort in an unorthodox fact setting.  The case lesson is clear: where an employer pays an employee of the employer’s own volition, the payment will be considered “voluntary” even where it turns out the employee didn’t deserve the payment (i.e. by not working).  In such a case, the employer’s appropriate remedy is one for breach of contract or unjust enrichment.  A civil conversion claim will not apply to voluntarily employer-employee payments.