Defenses to a Conversion Claim in Minnesota

What does a plaintiff have to prove in a Minnesota conversion claim?

A Minnesota conversion plaintiff must prove that it has a property interest in personal property and that the defendant deprived it of that interest without lawful justification. In Olson v. Moorhead Country Club, 568 N.W.2d 871 (Minn. App. 1997), the Minnesota Court of Appeals put it this way: “The elements of common law conversion are (1) the plaintiff has a property interest and (2) the defendant deprives the plaintiff of that interest.”

The Minnesota Supreme Court’s older formulation in Larson v. Archer-Daniels-Midland Co., 32 N.W.2d 649 (Minn. 1948) adds the justification piece: “Conversion has been defined as an act of wilful interference with a chattel, done without lawful justification, by which any person entitled thereto is deprived of use and possession.” The court restated that definition in DLH, Inc. v. Russ, 566 N.W.2d 60 (Minn. 1997).

Each phrase in that definition is a place to defend. “Chattel” means personal property, so a claim about money or account balances faces its own problem. “Without lawful justification” opens consent, liens, and court orders. “Deprived of use and possession” excludes brief or minor interference. My page on what a plaintiff must prove for conversion covers the plaintiff’s side of the same elements.

How does a lack of ownership or right to possession defeat the claim?

A conversion claim fails if the plaintiff did not own or have a right to possess the property when the defendant acted. In Larson, landowners sued a flax processor that bought straw from their tenant. The Minnesota Supreme Court reversed the landowners’ judgment because the tenant held title to the crop under the lease: “Therefore plaintiffs, lacking title to the straw at the times of the alleged conversions, cannot maintain an action therefor against defendant.” Any claim the landowners had for rent ran against the tenant.

DLH shows how this defense works on a summary judgment motion. The plaintiff bought a bankruptcy estate’s claimed interest in stock and sued for conversion, but the defendants produced the signed transfer, the endorsed certificate, and affidavits showing the stock had been sold before the bankruptcy. The Minnesota Supreme Court affirmed summary judgment for the defendants, holding that “there is no genuine issue of material fact for trial when the nonmoving party presents evidence which merely creates a metaphysical doubt as to a factual issue and which is not sufficiently probative with respect to an essential element of the nonmoving party’s case to permit reasonable persons to draw different conclusions.”

The practical lesson for a defendant is to build the ownership record early: the contract, lease, bill of sale, title, or transfer document that shows who held the property on the date that matters. The reverse also holds. In Rudnitski v. Seely, 452 N.W.2d 664 (Minn. 1990), the court sent a claim over auctioned farm equipment to trial, stating: “If appellant sold goods to which respondent had a right, respondent has a valid action in conversion.” My page on how ownership is proved in conversion cases goes deeper on that record.

When do consent and lawful justification defeat a conversion claim?

Consent from the owner and a legal right to act both defeat conversion, because the definition requires an interference “done without lawful justification.” Larson recognized “the rule that conversion does not lie where the taking is with the knowledge and consent of the owner.”

Lawful justification can come from public authority. In Herrmann v. Fossum, 364 N.W.2d 501 (Minn. App. 1985), a city removed garbage and debris from a home under an oral court order after the owners pled guilty to health code violations and were given time to retrieve valuables. The Minnesota Court of Appeals affirmed a directed verdict for the city: “There was no conversion since the city had legal justification to clean out the hazardous property.”

Three statutes supply justifications a business is likely to rely on:

1. Repair and storage liens. Under Minn. Stat. § 514.18, subd. 1, a person who stores, cares for, or contributes to personal property “at the request of the owner or legal possessor” has a lien for that work “and the right to retain possession of the property until such lien is lawfully discharged.” Minn. Stat. § 514.19 lists the covered work, including “making, altering or repairing any article, other than livestock,” and “keeping or storing property, other than harvested crops or livestock, as a bailee.” The same section adds: “If the property subject to the lien is a motor vehicle registered in this state and subject to a certificate of title and one or more secured creditors is listed on the certificate of title, a lien for storage charges for a period greater than 15 days accrues only after written notice is sent by certified mail to all listed secured creditors.”
2. Repossession after default. Under Minn. Stat. § 336.9-609, after default a secured party “may take possession of the collateral,” and it may do so without going to court only “if it proceeds without breach of the peace,” as subsection (b) provides. For a manufactured home that is the occupant’s principal residence, Minn. Stat. § 327.63, subd. 1 provides that, to the extent their procedures differ from the Uniform Commercial Code, sections 327.61 to 327.67 “shall supersede the code and shall govern the repossession of the manufactured home,” and Minn. Stat. § 327.65 provides that, “Except in cases of voluntary repossession,” a secured party “must apply to the district court” for “an order pursuant to chapter 565 directing the seizure and delivery of the manufactured home.” Under 50 U.S.C. § 3952, when a servicemember paid “a deposit or installment” before entering military service on a contract for “the purchase of real or personal property (including a motor vehicle)” or “the lease or bailment of such property,” the property may not be repossessed for “a breach of terms of the contract occurring before or during that person’s military service” without “a court order.”
3. Court orders. An order protects only what it authorizes. In Molenaar v. United Cattle Co., 553 N.W.2d 424 (Minn. App. 1996), a replevin order let a company take its own cattle, and it took another farmer’s heifers too. The court held the order did not shield the company from punitive damages for taking cattle it knew were not its own.

What role does intent play in a conversion defense?

A Minnesota conversion defendant cannot escape liability by showing it acted in good faith, but the plaintiff still must show an intentional act toward the property rather than an accident. Larson stated the first half: “As a general rule, the intent, knowledge, or motive of the converter is immaterial except as affecting damages.” The Court of Appeals has repeated that “Good faith is not a defense to a claim of conversion” in Dairy Farm Leasing Co. v. Haas Livestock Selling Agency, Inc., 458 N.W.2d 417 (Minn. App. 1990) and Williamson v. Prasciunas, 661 N.W.2d 645 (Minn. App. 2003).

The second half comes from Christensen v. Milbank Insurance Co., 658 N.W.2d 580 (Minn. 2003). That case decided whether a driver’s use of a school van fell within the “theft or conversion” exception to the rule that keeps a vehicle’s permissive users insured. The Minnesota Supreme Court found the Restatement’s intent test instructive, quoted its statement that “[m]ere nonfeasance or negligence, without such an intent, is not sufficient for conversion,” and held that accidentally destroying the van in a collision was not conversion.

The Court of Appeals applied that intent test to an ordinary conversion claim in TCI Business Capital, Inc. v. Five Star American Die Casting, LLC, 890 N.W.2d 423 (Minn. App. 2017): “The intention necessary to subject to liability one who deprives another of the possession of his chattel is merely the intention to deal with the chattel so that such dispossession results.” For a defendant, the useful question is whether it chose to take, keep, sell, or use the property. If it did, a belief that it had the right to do so is no defense to liability.

Why are money and account balances hard to convert under Minnesota law?

The Minnesota Court of Appeals has treated money as convertible only when it is identifiable as a specific thing, which gives a defendant accused of converting funds or account balances an argument against the claim itself. In Halla v. Norwest Bank Minnesota, N.A., 601 N.W.2d 449 (Minn. App. 1999), an employee stole rent payments and deposited them in her own bank account. The Court of Appeals held that the bank could not be liable for converting the deposited cash because the cash “became the property of Norwest as a matter of law.” It added that other courts reach the same result on the theory that cash is “a subject of conversion only when it is capable of being identified, and described as a specific chattel,” and it stated: “Unless the deposited cash is segregated, there is no action for conversion.”

TCI went further. A company sued its former officer for conversion over wire transfers and accounting entries, and the Court of Appeals observed that the premise that money in intangible form is property “is without precedent in Minnesota law.” It read Halla to mean “a conversion claim is viable with respect to money only if the money is in a tangible form (such as a particular roll of coins or a particular stack of bills) and is kept separate from other money.” The court did not decide the question, because it affirmed on intent instead. It also left the company’s fraud and fiduciary duty claims alive for trial on damages.

Checks follow their own statute. Under Minn. Stat. § 336.3-420, “The law applicable to conversion of personal property applies to instruments.” Subsection (c) adds: “A representative, other than a depositary bank, who has in good faith dealt with an instrument or its proceeds on behalf of one who was not the person entitled to enforce the instrument is not liable in conversion to that person beyond the amount of any proceeds that it has not paid out.” In that sentence, “that person” is the person entitled to enforce the instrument. Halla held that this statute leaves no separate common-law conversion claim for checks.

When is an interference too temporary or minor to be conversion?

An interference that does not deprive the owner of the property permanently or for an indefinite time can fall short of conversion. In TCI, the officer moved funds out and back intending that they return, and the Court of Appeals held that the results he intended “would not have deprived TCI of possession of a property interest” permanently or for an indefinite length of time. That lack of intent alone supported summary judgment for him on conversion.

Bates v. Armstrong, 603 N.W.2d 679 (Minn. App. 2000), another vehicle-insurance case applying conversion principles, explained why the line exists. Because conversion damages are the full value of the property, conversion is “properly limited * * * to those serious, major, and important interferences with the right to control the chattel which justify requiring the defendant to pay its full value.” Under that standard, a borrowed tool returned late or equipment moved briefly without permission may not be an interference that justifies a full-value award. My page on trespass to chattel covers that separate tort.

How do the good-faith purchaser rules protect a business that bought the goods?

A business that bought goods can defeat a conversion claim if Minnesota’s version of the Uniform Commercial Code (“UCC”) gave it good title, but good faith alone does not supply title. Under Minn. Stat. § 336.2-403, subsection (1), “A purchaser of goods acquires all title which the purchaser’s transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased.” The same subsection provides: “A person with voidable title has power to transfer a good title to a good faith purchaser for value.” That power applies “When goods have been delivered under a transaction of purchase,” including when “the transferor was deceived as to the identity of the purchaser” or the delivery was “in exchange for a check which is later dishonored.”

Subsection (2) protects a different buyer: “Any entrusting of possession of goods to a merchant who deals in goods of that kind gives the merchant power to transfer all rights of the entruster to a buyer in ordinary course of business.” Subsection (3) defines entrusting to include “any delivery and any acquiescence in retention of possession.” A business that bought equipment from a dealer that the true owner had left it with may rely on this rule.

The defense ends where the seller had nothing to pass. Larson turned on whether the seller held title at all. In Dairy Farm, a filed notice of the cattle lease gave the selling agent constructive notice that the farmer could not sell the leased cows without the owner’s consent. Before buying used equipment, vehicles, or inventory outside a dealer’s ordinary sales, I suggest checking public filings and asking for the seller’s proof of title, because those records decide whether this defense exists.

How should a business respond to a demand to return property?

A business that refuses an owner’s demand for return risks conversion liability, so the response to a demand letter matters as much as the original taking. Williamson quoted the rule: “Wrongfully refusing to deliver property on demand by the owner constitutes conversion.” Bates added a limit: “Although a refusal to deliver property upon demand is evidence of conversion, proof of conversion must also demonstrate repudiation of ownership rights by the possessor.”

In Molenaar, the company argued its refusal was conditioned on proof of ownership. The Court of Appeals rejected the argument because the company never asked for proof, never considered the invoice and photograph the owner sent, and sold the heifers three weeks after the owner first asked for them: “The facts do not demonstrate a qualified refusal; they demonstrate an absolute refusal.”

Holding property as security for a separate claim did not work in Williamson. Buyers of a home kept the seller’s jewelry, denied having it, and later said they were holding it against their own claim over the house. The court said their failure ever to sue over the house undercut that explanation, and it noted that once the time to bring their own claim had passed, “they had no lawful reason to retain possession of the jewelry.”

When a demand arrives, I suggest answering in writing, stating the basis for any claimed right to keep the property (such as a § 514.18 lien), and asking for specific proof of ownership if ownership is unclear. Under Bates, a refusal is evidence of conversion, but the owner must also prove a repudiation of ownership rights, and a written response shows exactly what the business said. The owner may otherwise seek the property itself through replevin.

How does the statute of limitations work as a conversion defense?

A conversion claim filed after the statutory deadline can be dismissed, but the defendant’s own concealment can extend the deadline. Minnesota’s general limitations statute, Minn. Stat. § 541.05, subd. 1, sets a deadline for actions “for taking, detaining, or injuring personal property, including actions for the specific recovery thereof.” That subdivision applies “Except where the Uniform Commercial Code otherwise prescribes,” as its opening words state. For a check or other instrument, the Uniform Commercial Code’s limitations provision is Minn. Stat. § 336.3-118, subsection (g), which governs “an action (i) for conversion of an instrument, for money had and received, or like action based on conversion.” For the actions it lists, section 541.05, subdivision 1 provides that they “shall be commenced within six years,” and for an action for conversion of an instrument, section 336.3-118(g) provides that it “must be commenced within three years after the cause of action accrues.” I suggest checking the current statute text and confirming when the claim accrued, because that date starts the clock.

Williamson shows the main limit on this defense. The defendants’ only defense was the statute of limitations, and they had spent years denying to the owner and to the police that they had her jewelry. The Court of Appeals affirmed the ruling that their fraudulent concealment tolled the statute, and it rejected their argument that the owner’s suspicion started the clock: “Mere suspicion, in a case of fraudulent concealment, is not sufficient to stop the tolling of the statute of limitations.” A defendant that denied having the property should expect that history to come up. My page on fraudulent concealment tolling covers the doctrine in more detail.

What damages can a conversion defendant face, and what limits them?

A conversion defendant faces the property’s market value at the time of conversion plus interest, and possibly punitive damages and civil theft penalties, but each has limits a defendant can use. Dairy Farm stated the measure: “Generally, the measure of damages in a conversion case is the market value of the property at the time of the conversion, plus interest from that time.”

The cattle in that case were enrolled in a federal program, and the court noted that enrolled cattle could be sold for export as well as for slaughter: “To the extent that DFLC has been deprived of its right to sell the cattle for export, Haas’ sale of these cattle for slaughter interfered with DFLC’s ownership rights and therefore constitutes a conversion.” It held that the owner “is entitled to recover the difference between the cattle’s export value and the slaughter value received if the export value is greater.” My page on how conversion damages are calculated covers valuation.

Punitive damages require a separate step and a higher standard. Under Minn. Stat. § 549.191, “Upon commencement of a civil action, the complaint must not seek punitive damages.” The plaintiff must move to amend with supporting affidavits, and the court grants the motion “if the court finds prima facie evidence in support of the motion.”

At trial, Minn. Stat. § 549.20, subd. 1 allows punitive damages “only upon clear and convincing evidence that the acts of the defendant show deliberate disregard for the rights or safety of others.” Molenaar held punitive damages available for a deliberate conversion and remanded for the findings the statute requires.

A plaintiff may also plead the Minnesota civil theft statute. Under Minn. Stat. § 604.14, subd. 1, “A person who steals personal property from another is civilly liable to the owner of the property for its value when stolen plus punitive damages of either $50 or up to 100 percent of its value when stolen, whichever is greater.” Subdivision 5 provides that recovering the property “does not affect liability under this section, other than liability for the value of the property.”

In TCI, the Court of Appeals read “steals” to require taking property with intent to keep it or use it wrongfully, and it affirmed judgment for the officer on that claim because he intended the money to return.

What Decides a Conversion Defense?

Conversion defenses in Minnesota turn on the record: who owned the property on the relevant date, what the owner allowed, what statute or order authorized the business to act, and what the business did after a demand. Good faith shapes the damages discussion but does not end the liability question. If you would like me to review the facts of a conversion demand or lawsuit against your business and tell you which defenses fit, email [email protected] with a brief description and the demand letter or complaint. More of my materials on Minnesota business litigation cover the rest of the lawsuit process.