Proving Ownership in a Minnesota Conversion Claim

What ownership interest does a Minnesota conversion claim require?

A Minnesota conversion plaintiff needs either ownership of the property or a narrower legal interest in it, such as a buyer’s special property under the sales statute. In Larson v. Archer-Daniels-Midland Co., 32 N.W.2d 649 (Minn. 1948), the Minnesota Supreme Court stated: “The two essentials of a cause of action for conversion are property in the plaintiff, either general or special, and a conversion by defendant.”

The Minnesota Court of Appeals states the same element in plainer words: in Olson v. Moorhead Country Club, 568 N.W.2d 871 (Minn. App. 1997), it held that “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 interest has to be one the law lets you enforce. Olson involved a server’s claimed right to service charges, a right that existed only under a wage statute that sent such claims to an administrative process. The court affirmed the denial of her request to add a conversion claim: “Olson could not pursue a claim for conversion or money had and received if she did not have a right to gratuities.” Once the interest is established, the second element follows the usual rules, covered in my pages on the elements of conversion and on defenses to a conversion claim.

When does the plaintiff need to hold the ownership interest?

The plaintiff must hold the interest at the time the defendant took, kept, or sold the property. Larson turned on timing: “Therefore plaintiffs, lacking title to the straw at the times of the alleged conversions, cannot maintain an action therefor against defendant.”

DLH, Inc. v. Russ, 566 N.W.2d 60 (Minn. 1997) shows how this plays out with business assets. A company bought a bankruptcy estate’s claimed interest in stock and sued for conversion. Its theory depended on the debtor owning the stock on the day he filed bankruptcy. The court noted the company’s concession that if the debtor had no ownership interest then, “DLH loses.” The defendants produced a signed transfer agreement, an endorsed stock certificate, and affidavits showing delivery before the filing date, and the Minnesota Supreme Court affirmed summary judgment against the company.

A filing deadline also applies. My page on the deadline for a conversion claim explains how it works and when it can be paused.

What evidence proves ownership of personal property in Minnesota?

Ownership is proved with evidence of who held title on the date that matters, such as a bill of sale, a certificate of title, a stock register, a lease, or a written agreement between co-owners. Minnesota law treats some of these records as prima facie evidence of ownership. An oral agreement can also count: Larson states, “While the terms of an oral agreement are more difficult to prove, once its terms are established they are as binding as the terms of a written agreement.”

1. Vehicle titles. Under Minn. Stat. § 168A.05, subd. 6, “A certificate of title issued by the department is prima facie evidence of the facts appearing on it.” The title is the starting point for a vehicle dispute. Under Minn. Stat. § 168A.10, subd. 5, “Except as provided in section 168A.11 and as between the parties, a transfer by an owner is not effective until the provisions of this section have been complied with,” and subdivision 1 requires an owner who transfers interest in a vehicle “other than by the creation of a security interest” to “execute an assignment and warranty of title to the transferee” at the time of delivery.
2. Stock records. DLH restated the rule “that when an individual’s name appears on the stock books of a corporation as a stockholder, a prima facie presumption arises that such individual is the owner of the stock.” The court added that “a transfer of stock is good between the parties and that the title passes to the purchaser without the transfer being entered on the corporate books,” and it explained that “[a]ll that is required to effectuate a valid transfer of securities between the parties to the transfer is delivery with the intent to change ownership” and that “Delivery” occurs when the purchaser acquires possession of the security certificate. For shares with no certificate, under Minn. Stat. § 336.8-301(b)(1), delivery occurs when “the issuer registers the purchaser as the registered owner, upon original issue or registration of transfer,” or when “another person, other than a securities intermediary, either becomes the registered owner of the uncertificated security on behalf of the purchaser or, having previously become the registered owner, acknowledges that it holds for the purchaser” under clause (2).
3. Sale documents. For goods sold under a contract, Minn. Stat. § 336.2-401(2) provides: “Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes performance with reference to the physical delivery of the goods.” A purchase agreement that explicitly sets a different moment controls.

Weak ownership evidence can lose on summary judgment. In DLH, the plaintiff relied on a personal tax return listing an acquisition date before the company existed, and the court held that the return was not probative of ownership. It held more broadly 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 ownership record you assemble before suing is the record a judge reads on that motion. If you need the property itself back rather than its value, the same proof supports a claim for replevin.

How do leases, liens, and security interests give a business the right to sue?

A business that leased equipment out, financed it, or sold it on credit can hold an interest that supports a conversion claim against a third party who sells the property. A repair shop’s lien works differently, because it limits the owner’s right to take the property back. The document creating each interest, and any public filing of it, is the proof.

Lessors. In Dairy Farm Leasing Co. v. Haas Livestock Selling Agency, Inc., 458 N.W.2d 417 (Minn. App. 1990), a company leased cows to a farm “with DFLC retaining ownership of the cattle.” The farm consigned them to a selling agent, which sold them for slaughter. The agent admitted it knew the lessor owned 18 of the cattle. The court explained that the lessor’s filed notice of the lease “gave Haas constructive notice of this agreement and that the Johnsons did not have the right to sell these cattle without DFLC’s consent.” The Minnesota Court of Appeals reversed a judgment for the agent, but because the cattle had been enrolled in a federal dairy termination program, it held: “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 limited recovery to “the difference between the cattle’s export value and the slaughter value received if the export value is greater.”

Secured lenders and credit sellers. Under Minn. Stat. § 336.9-315(a), “a security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien.” That rule applies “Except as otherwise provided in this article and in section 336.2-403(2),” so a secured party should check those provisions before relying on it against a particular buyer. One of them, Minn. Stat. § 336.9-320(a), provides: “Except as otherwise provided in subsection (e), a buyer in ordinary course of business, other than a person buying farm products from a person engaged in farming operations, takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.” For farm products, the federal Food Security Act, 7 U.S.C. § 1631(d), provides: “Except as provided in subsection (e) and notwithstanding any other provision of Federal, State, or local law, a buyer who in the ordinary course of business buys a farm product from a seller engaged in farming operations shall take free of a security interest created by the seller, even though the security interest is perfected; and the buyer knows of the existence of such interest,” and § 1631(g)(1) provides that “a commission merchant or selling agent who sells, in the ordinary course of business, a farm product for others, shall not be subject to a security interest created by the seller in such farm product even though the security interest is perfected and even though the commission merchant or selling agent knows of the existence of such interest,” except as provided in its paragraph (2). Wangen v. Swanson Meats, Inc., 541 N.W.2d 1 (Minn. App. 1995) did not involve farm products or the federal rule. It applied the earlier version of § 336.9-315(a), former section 336.9-306(2), under which “a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party.” A secured party had a filed financing statement covering the inventory of the debtor, a food-service company. A buyer that knew of his interest bought the inventory without his authorization and resold it, and the court held: “Swanson then sold the inventory and retained the proceeds in violation of Wangen’s security interest; this constituted a conversion.” A seller that keeps title to goods it has shipped or delivered holds only a security interest, because under Minn. Stat. § 336.2-401(1), “Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest.”

Repair and storage liens. Under Minn. Stat. § 514.18, subd. 1, a shop that repairs or stores property at the request of the owner or legal possessor has a lien. It also has “the right to retain possession of the property until such lien is lawfully discharged.” For an owner, this means that title alone does not entitle you to take equipment back from the shop while its lien is unpaid.

How do the sale rules decide who owns goods after a transfer?

After goods change hands, Minnesota’s version of the Uniform Commercial Code (UCC) decides whether the buyer received title, and so whether the original owner can still sue. The basic rule is that a buyer gets only what the seller had, with exceptions that protect good-faith buyers.

Minn. Stat. § 336.2-403(1) provides: “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. A person with voidable title has power to transfer a good title to a good faith purchaser for value.” The same subsection gives a buyer that power “When goods have been delivered under a transaction of purchase,” even if “the transferor was deceived as to the identity of the purchaser,” “the delivery was in exchange for a check which is later dishonored,” “the delivery was procured through fraud punishable as larcenous under the criminal law,” or the parties agreed to a cash sale. Under § 336.2-403(2), “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.” An owner who leaves goods with a dealer that sells that kind of goods can lose them to a buyer in ordinary course of business from that dealer.

A buyer can also hold an interest before delivery. Under § 336.2-401(1), “unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this chapter.” The statute calls that interest a “special property,” the same term Larson uses.

Cancelling a land contract that never mentioned the equipment did not end a seller’s conversion claim over it. In Rudnitski v. Seely, 452 N.W.2d 664 (Minn. 1990), sellers of a farm cancelled the contract for deed and claimed the buyer converted farm equipment by auctioning it. The contract described only the land, and the court explained, “Because it is not mentioned, the contract for deed does not cover personal property, and its statutory cancellation cannot be said to constitute an election of remedies with respect to the personal property allegedly converted.” It sent the conversion claim to trial, stating: “If appellant sold goods to which respondent had a right, respondent has a valid action in conversion.” I suggest listing equipment and inventory in any sale or lease document, because an unlisted item leaves ownership to be proved later by other evidence.

How does a company’s separate ownership affect who can sue over its property?

When property belongs to a corporation, LLC, or partnership, the company is the owner, and the company is ordinarily the party with the conversion claim. For corporations and LLCs, an owner can sue in his or her own name only by showing an injury that is not just the company’s injury.

The statutes are direct. Minn. Stat. § 322C.0104, subd. 1 provides: “A limited liability company is an entity distinct from its members.” For partnerships, Minn. Stat. § 323A.0203 provides: “Property acquired by a partnership is property of the partnership and not of the partners individually,” and Minn. Stat. § 323A.0501 adds that “A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred, either voluntarily or involuntarily.”

For corporations, In re Medtronic, Inc. Shareholder Litigation, 900 N.W.2d 401 (Minn. 2017) states that “Minnesota has long adhered to the general principle that an individual shareholder may not assert a cause of action that belongs to” the corporation. The test asks who suffered the injury and who would receive the recovery: “Put more simply, when shareholders are injured only indirectly, the action is derivative; when shareholders show an injury that is not shared with the corporation, the action is direct.” The court described an early decision holding that claims over diverted corporate funds were derivative because the “funds diverted should be restored to the corporation.”

For LLC members, Minn. Stat. § 322C.0901, subd. 2 requires a member suing directly to “plead and prove an actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the limited liability company.” A member may instead bring a derivative action to enforce the company’s right under Minn. Stat. § 322C.0902. The member first makes a demand “on the other members in a member-managed limited liability company, the managers of a manager-managed limited liability company, or the board of governors of a board-managed limited liability company requesting that they cause the company to bring an action to enforce the right,” and may sue if they do not bring it within a reasonable time. No demand is needed where “a demand under clause (1) would be futile.” My page on the derivative lawsuit process covers those steps.

What kinds of property can support a Minnesota conversion claim?

Minnesota conversion protects tangible personal property, such as equipment, inventory, vehicles, and cash in a tangible form kept separate from other money, plus checks under the UCC. No published Minnesota decision has extended it to money moved electronically or to business relationships, and confidential information that qualifies as a trade secret falls under the trade-secret statutes.

1. Cash. In Halla v. Norwest Bank Minnesota, N.A., 601 N.W.2d 449 (Minn. App. 1999), an employee deposited stolen rent checks and cash in her own account, and the owner sued the bank that accepted the deposits. The court held that “when a person makes a deposit, the bank becomes the depositor’s debtor for the amount deposited and acquires title to the money deposited,” and that “Unless the deposited cash is segregated, there is no action for conversion.” Because the bank acquired title to the deposited cash, the bank was not liable for converting it.
2. Money in electronic form. In TCI Business Capital, Inc. v. Five Star American Die Casting, LLC, 890 N.W.2d 423 (Minn. App. 2017), the company’s conversion claim rested on wire transfers and accounting entries. The court said the premise that money in intangible form is property is “without precedent in Minnesota law” and added: “As far as our research reveals, all the opinions of the supreme court on the subject of conversion are concerned with tangible personal property, i.e., items that can be seen and touched.” It read Halla “to mean that 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 noted that other states have expanded the tort, and it decided the case on lack of intent instead. My page on employee embezzlement covers the other claims a business uses to trace diverted funds.
3. Checks. Under Minn. Stat. § 336.3-420(a), “The law applicable to conversion of personal property applies to instruments,” but the issuer of a check cannot sue for its conversion, and neither can a payee “who did not receive delivery of the instrument either directly or through delivery to an agent or a co-payee.” Recovery “may not exceed the amount of the plaintiff’s interest in the instrument” under § 336.3-420(b). Minn. Stat. § 336.3-405(b) provides that “if an employer entrusted an employee with responsibility with respect to the instrument and the employee or a person acting in concert with the employee makes a fraudulent endorsement of the instrument, the endorsement is effective as the endorsement of the person to whom the instrument is payable if it is made in the name of that person,” as to a person who in good faith pays the check or takes it for value or for collection. The employer recovers from a bank that failed to exercise ordinary care only “to the extent the failure to exercise ordinary care contributed to the loss,” and Halla applied that rule to hold that the business owner “bears the risk of loss associated with” the stolen checks.
4. Business relationships. In H.J., Inc. v. International Telephone & Telegraph Corp., 867 F.2d 1531 (8th Cir. 1989), a federal appeals court predicting Minnesota law found “no Minnesota cases which define the bounds of ‘personal property’ subject to conversion” and applied “the general rule” that conversion “only applies to tangible property, or intangible property customarily merged in, or identified with, some document.” It reversed a jury’s award for a dealer network. This is a federal court’s prediction of Minnesota law, not a Minnesota decision.
5. Trade secrets. Under Minn. Stat. § 325C.07(a), the Minnesota Uniform Trade Secrets Act displaces “conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.” The federal Defend Trade Secrets Act, 18 U.S.C. § 1836(b)(1), gives “An owner of a trade secret that is misappropriated” a federal claim “if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” My page on a trade secret misappropriation lawsuit covers both.

How does conversion work between co-owners of the same property?

A co-owner who sells or pledges shared property without the other owner’s permission can be liable for converting the other owner’s share. When the record title is in one name only, the agreement between the owners shows each person’s share, and it need not be written: under Larson, once an oral agreement’s terms are established, “they are as binding as the terms of a written agreement.”

In Fawcett v. Heimbach, 591 N.W.2d 516 (Minn. App. 1999), two investors signed a letter of understanding to buy stock together and hold equal and undivided interests in it. The certificate “was purchased and held in Heimbach’s name for the benefit of both parties.” Heimbach later sold some shares and pledged the rest in his own margin account without telling his co-owner. The trial court found that he converted his co-owner’s shares on three occasions, and on appeal he challenged only the damages and a fee award. The Minnesota Court of Appeals affirmed damages measured at the stock’s value when each conversion occurred, because the stock was worth less by the time the co-owner learned what had happened.

Larson shows the other side of this. The landowners argued they co-owned the straw with their tenant, but the court read the parties’ arrangement as a lease, which gave the tenant title. Whether property is shared depends on what the owners agreed, so I suggest putting co-ownership of valuable property in a signed writing. My page on conversion damages covers how Minnesota courts measure the recovery.

Building the Ownership Record Before You Demand the Property Back

Because the ownership element decides whether you can sue at all, I suggest assembling the ownership record before sending a demand. The questions that record should answer are:

1. Who held the interest on the date of the taking? Gather the bill of sale, title, lease, stock register, or co-owner agreement for that date.
2. What kind of interest is it? Full ownership, a lessor’s retained ownership, a security interest, or a lien each comes with its own documents and limits.
3. Does the company, or do you, own it? If a corporation, LLC, or partnership owns the property, the claim is ordinarily the company’s.
4. Is the property the kind conversion protects? Equipment, goods, and cash in a tangible form kept separate from other money fit, and a theft of them may also support a claim under the Minnesota civil theft statute. Funds moved electronically and business relationships call for other claims, such as fraud, breach of fiduciary duty, or trade-secret claims.

I handle these questions as part of my business tort matters. If you would like me to analyze the documents showing who owns disputed property and tell you whether they support a conversion claim, email [email protected] with a brief description and copies of the records you have.