Defendant Nicholas J. Mora appeals from a judgment in favor of plaintiff Welco Electronics, Inc., and against defendant, on plaintiff's claim for conversion, and against defendant and in favor of plaintiff on defendant's cross-complaint. Defendant contends the trial court erred in denying his motion for nonsuit based on the ground of insufficient evidence to support plaintiff's cause of action for conversion.
In 1996 plaintiff employed Lidia Gimenes as a certified bookkeeper. Between 1996 and February 2010, she was not plaintiff's employee, but she made social visits at plaintiff's place of business "all the time," visiting Darrel Derouis, plaintiff's then president, and other employees of plaintiff.
In February 2010, Derouis hired Gimenes to work for plaintiff because he wanted her assistance in "find[ing] where his money went." A few weeks before Derouis hired Gimenes, plaintiff no longer employed defendant Natalie Anderson,
Gimenes conducted an investigation and noticed that there was a discrepancy between the entries on plaintiff's credit card statements and the amount of expenses. She examined plaintiff's credit card statements contained in plaintiff's files located in Anderson's office and determined that the entries on those statements did not match the total sum listed on the statements, thus suggesting that entries had somehow been deleted.
Gimenes reviewed plaintiff's credit card statements she obtained from the credit card company and determined that they contained numerous charges to "AQM," a fictitious name used by defendant for a company he had established. Plaintiff's credit card statements located in Anderson's office did not contain charges to AQM. Gimenes also found plaintiff's accounting "chart" for AQM, but, unlike the charts for all of plaintiff's other vendors, no transactions were entered on it.
Based upon her review of the records, Gimenes determined that the AQM charges made on plaintiff's credit card account from 2009 to 2010 totaled $372,039.01, the principal amount that plaintiff sought in this case against defendant. She said that based on her investigation, she determined that plaintiff made the payments for the credit card statements reflecting entries for AQM.
Gimenes said she discussed this matter with Derouis, and Derouis decided to hire counsel and proceed with a lawsuit against defendant. In December 2010, Derouis died and Gimenes became plaintiff's president.
Defendant provided an explanation for the accounting discrepancies. In 2006, defendant started a business called Nicholas Mora Property Management, a real property management company, and he operated that business from plaintiff's place of business. From 2006 to 2010 defendant also performed work for plaintiff as a quality assurance manager,
Defendant said that in June 2008, the quality assurance computer system was certified with a score of 99 percent, and Derouis agreed to compensate defendant for his prior services. According to defendant, Derouis was concerned about a garnishment of defendant's wages if plaintiff paid defendant by check; therefore, Anderson, plaintiff's accountant at the time, whose responsibilities included payment of accounts payable, suggested, and Derouis "ultimately" agreed, that defendant be paid like a vendor using plaintiff's credit card account. Defendant said he and Derouis agreed that defendant would be paid $100,000 for defendant's work the prior year. Anderson set up in her office a "swiping machine" credit card terminal. Defendant opened a bank account in his name and the name of Nicholas Mora Property Management, which did business under the name of AQM Supplies. Defendant, as owner of Nicholas Mora Property Management, doing business as AQM Supplies, leased a swiping machine credit card terminal.
Defendant said that from 2008 to January 2010, he submitted to plaintiff about 50 or 60 invoices for the work he performed, and, although he "was not the one who processed" the charges to plaintiff's credit card account, he collected money on the credit card transactions. That money was paid
Defendant stated that in 2010, he and Derouis had an argument; Derouis was angry, believing that defendant had "ripped him off" by over $300,000. Derouis asked defendant to leave the premises, would not allow defendant to return to gather his possessions, and said that everything in defendant's office belonged to plaintiff.
In its complaint against defendant and Anderson, plaintiff asserted one cause of action — conversion of money. Plaintiff alleged that from January 1, 2008, to the time the complaint was filed on March 22, 2010, defendant and Anderson took from plaintiff, without plaintiff's knowledge or consent, $376,142.70 in cash belonging to plaintiff, and converted it for their own use. Plaintiff sought judgment against defendant and Anderson for $376,142.70 as the value of the money he alleged was converted, as well as for interest, expenses, punitive damages, and costs. Because Anderson failed to file an answer to the complaint, her default was entered.
Defendant answered, and in a cross-complaint alleged that he and plaintiff entered into a contract pursuant to which plaintiff agreed to use defendant's services and share building space, and plaintiff breached that contract "by maliciously remov[ing] [defendant] from his place of business without compensation for over thirty (30) days and was informed by [plaintiff] that any and all of [defendant's] business records and/or materials were now the property of [plaintiff]." Defendant alleged that plaintiff removed him from his place of business "with the intent of acquiring [defendant's] computer software/hardware, quality management material, personal business records, and sensitive clientele information for [plaintiff's] personal and business gain." Plaintiff allegedly refused defendant's requests to return the items to him.
During a bench trial, defendant made a motion for nonsuit on the grounds that plaintiff failed to submit sufficient evidence to establish a cause of action for conversion. The trial court denied the motion. Following the bench trial, judgment was entered in favor of plaintiff and against defendant in the amount of $446,447.81, and against defendant and in favor of plaintiff on defendant's cross-complaint. The parties did not request a statement of decision. Defendant timely appealed.
Defendant contends that the transactions here — the use of a credit card to obtain money wrongfully from plaintiff — did not constitute the tort of conversion.
The authorities have recognized the evolution of the common law tort of conversion. The California Supreme Court in Payne v. Elliot (1880) 54 Cal. 339 observed that at common law, trover was the remedy for conversion, which was limited to tangible personal property, "capable of being identified and taken into actual possession." (Id. at p. 340.) The court said, "but the fiction on which the action of trover was founded, namely, that a defendant had found the property of another, which was lost, has become, in the progress of law, an unmeaning thing, which has been by most courts discarded; so that the action no longer exists as it did at common law, but has been developed into a remedy for the conversion of every species of personal property." (Id. at p. 341.) The court concluded that the defendant's conversion of shares of stock, an intangible property interest (Ashton v. Heydenfeldt (1899) 124 Cal. 14, 16 [56 P. 624]), without converting the share certificates, constituted an actionable conversion (Payne v. Elliot, supra, 54 Cal. at pp. 341-342).
Generally, conversion has been held to apply to the taking of intangible property rights when "represented by documents, such as bonds, notes, bills of exchange, stock certificates, and warehouse receipts." (5 Witkin, supra, Torts, § 702, p. 1026.) As one authority has written, "courts have permitted a recovery for conversion of assets reflected in such documents as accounts showing amounts owed, life insurance policies, and other evidentiary documents. These cases are far removed from the paradigm case of physical conversion; they are essentially financial or economic tort cases, not physical interference cases." (3 Dobbs, The Law of Torts (2d ed. 2011) § 710, p. 804,
As stated in the Restatement Second of Torts in section 242, comment f, page 475 "The process of extension [of the law of conversion] has not, however, necessarily terminated; and nothing that is said in this Section is intended to indicate that in a proper case liability for intentional interference with some other kind of intangible rights may not be found." There is no reason why we should be "encumbered with the incrustations of ancient lore associated with the tort of conversion." (Harper, James and Gray on Torts (3d ed. rev. 2006) § 2.13, p. 212 (Harper).)
In California, the tort of conversion has expanded well beyond its original boundaries. In holding that a misappropriation of a net operating loss without compensation constitutes conversion, the court in Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 124-125 [55 Cal.Rptr.3d 621] (Fremont) said, "We recognize that the common law of conversion, which developed initially as a remedy for the dispossession or other loss of chattel [citation], may be inappropriate for some modern intangible personal property, the unauthorized use of which can take many forms. In some circumstances, newer economic torts have developed that may better take into account the nature and uses of intangible property, the interests at stake, and the appropriate measure of damages. On the other hand, if the law of conversion can be adapted to particular types of intangible property and will not displace other, more suitable law, it may be appropriate to do so. (Payne v. Elliot, supra, 54 Cal. at pp. 340-342.) The appropriate scope of a conversion action as applied to intangible personal property has been the subject of scholarly and informative discussion. (See, e.g., Harper ..., supra, § 2.13, pp. 204-214; Comment, Analyzing the Urge to Merge: Conversion of Intangible Property and the Merger Doctrine in the Wake of Kremen v. Cohen (2005) 42 Hous. L.Rev. 489; 1 Dobbs, Law of Torts (2001) Direct and Intentional Interference with Property, § 63, pp. 132-135; Comment, The Conversion of Intangible Property: Bursting the Ancient Trover Bottle with New Wine (1991) 1991 BYU L.Rev. 1681; Prosser and Keeton, Torts, supra, § 15, pp. 90-92; see also Kremen v. Cohen (9th Cir. 2003) 337 F.3d 1024,
In A & M Records, Inc. v. Heilman (1977) 75 Cal.App.3d 554, 570 [142 Cal.Rptr. 390], the court said that the unauthorized recording and sale of recorded musical performances constituted a misappropriation of intangible property, which was a conversion. According to another court, the court in Heilman "implied conversion was a species of unfair competition." (Lone Ranger Television, Inc. v. Program Radio Corp. (9th Cir. 1984) 740 F.2d 718, 725.) Thus, the tort of conversion has been adapted to new property rights and modern means of commercial transactions.
Defendant wrongfully caused a charge to plaintiff's credit card account by having a specific sum of money paid through defendant's credit card terminal into defendant's bank account. Plaintiff had a property right in its credit card account because plaintiff's interest was specific, control over its credit card account, and an exclusive claim to the balance. (See Kremen v. Cohen, supra, 337 F.3d at p. 1030.) Defendant obtained the money from the credit card company. As a result, plaintiff became indebted to the credit card company. Thus, when defendant, or codefendant Anderson for defendant's benefit, misappropriated plaintiff's credit card and used it, part of plaintiff's credit balance with the credit card company was taken by defendant and what resulted was an "unauthorized transfer" to defendant of plaintiff's property rights — i.e., money from the available credit line belonging to plaintiff with the credit card company. (5 Witkin, supra, Torts, § 711, subd. (2), p. 1035
In Acme Paper Co. v. Goffstein (1954) 125 Cal.App.2d 175 [270 P.2d 505], the defendant was given checks drawn by the plaintiff and then signed or had a third person sign the payee's name, and took or shared the proceeds with that third person rather than delivering the checks to the payee in accordance with the defendant's representations upon being given the checks. The plaintiff filed a complaint against the defendant. Judgment was entered in favor of the plaintiff, and the defendant appealed. The court held that, "although technical words of conversion are not used, in stating the second cause of action there are assuredly facts alleging a conversion. There are allegations of fraud on the part of [the defendant] in that he obtained certain checks of [the plaintiff] and exercised dominion over them in a manner not contemplated by [the plaintiff]. By either signing or having [a third person] sign the [payee's] name ... thereto and sharing the proceeds with [the third person], rather than delivering the checks to [the payee] in accordance with his representation to [the plaintiff], [the defendant] clearly converted the checks." (Id. at p. 179.) The court observed that, "The subject matter of the conversion is the checks received by [the defendant] and applied to his own use or that of [the third person]." (Id. at p. 181.) As here, the actual money taken came from a third party — there the bank and here the credit card company.
Defendant, or Anderson on defendant's behalf, had to take plaintiff's credit card or its information in order to obtain the money from the credit card company, resulting in charges showing up on the statement for which plaintiff
As the court in Fremont, supra, 148 Cal.App.4th at page 125, in another context, said, "A net operating loss is a definite amount (see 26 U.S.C. § 172(c)) that can be recorded in tax and accounting records. The significance of this, in our view, is not that the intangible right is somehow merged or reflected in a document, but that both the property and the owner's rights of possession and exclusive use are sufficiently definite and certain. The misappropriation of a net operating loss without compensation in the manner alleged in the complaint, causing damage to Indemnity as alleged, is comparable to the misappropriation of tangible personal property or shares of stock for purposes relevant here. We see no sound basis in reason to allow recovery in tort for one but not the other." (Fn. omitted.) A net operating loss that can be used by a taxpayer is analogous to a credit card balance that can be used by the cardholder. In both instances, parties are deprived ultimately of money. By, in effect, taking from plaintiff, or without authorization transferring plaintiff's rights in, a certain identifiable sum equivalent to money, defendant has converted an intangible property right.
Cases holding that a conversion claim "fails because the simple failure to pay money owed does not constitute conversion" (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 284 [133 Cal.Rptr.3d 774]), or because there was an overcharge (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1467 [49 Cal.Rptr.3d 227]) are not applicable here, because in those cases, there was no taking of intangible property. Also inapplicable is Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4th 472 [56 Cal.Rptr.2d 756] (Software Design) (plaintiff sought to recover from brokerage firms money the wrongdoers deposited and withdrew from the different firms) because it simply held that "[a] bailee who receives bailed property from a thief, without notice of the true owner's claim and returns the property to the bailor according to the terms of the bailment, is not liable for conversion." (Id. at p. 485.)
Defendant cites Moore v. Regents of University of California (1990) 51 Cal.3d 120 [271 Cal.Rptr. 146, 793 P.2d 479] (Moore) to support his contention that the appropriation and unauthorized use of a credit card and its information does not constitute conversion. In Moore, the plaintiff alleged
Without citing to legal authority, defendant contends that if the misappropriation of a credit card that occurred here constitutes a conversion, then any transaction involving a credit card that leads to a dispute is subject to a cause of action for conversion. Defendant gives examples of what might be conversions under this hypothesis: persons using a credit card to purchase or pay for goods, medical bills, or lawyer bills, and disputes later arise regarding the quality of the goods, fault concerning the medical treatment, or the appropriateness of the legal bills. This argument lacks merit. A person's willing use of a credit card to pay for goods or services has no relationship to what occurred here. Plaintiff did not consent to its credit card or its information being used by or on behalf of defendant. This case does not involve "the simple failure to pay money owed[, which] does not constitute conversion" (Kim v. Westmoore Partners, Inc., supra, 201 Cal.App.4th at p. 284), nor does it concern a simple overcharge, which also does not constitute a conversion (McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th at p. 1467).
Although the parties have not cited any authority that expressly covers the facts here, our application of the tort of conversion in this case is consistent with existing legal principles.
Defendant contends that the trial court erred in denying his motion for nonsuit, arguing that there was insufficient evidence that a specific sum of money was entrusted to defendant, and the taking of "various amounts of money over time" is not conversion.
A plaintiff must specifically identify the amount of money converted, not that a specific, identifiable amount of money has been entrusted to the defendant. Here, plaintiff's agents have misappropriated a specific sum of money from plaintiff. There is no requirement that the money have been held in trust — only that it be misappropriated. The court in McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th 1457 reversed an order of dismissal following the trial court's order sustaining a demurrer to the operative complaint, stating, inter alia, without citation that "plaintiffs did not allege
Citing Software Design, supra, 49 Cal.App.4th 472, defendant states that a claim for conversion is not stated when money is allegedly misappropriated "over time, in various sums, without any indication that it was held in trust for [plaintiff]." Defendant takes that quote from Software Design out of context. In that case, McDonald was hired to manage the investments of the appellants, Software Design and Application, Ltd., a foreign corporation (SDA), and SDA's sole owner. (Id. at p. 476.) McDonald and his sister opened brokerage accounts with banks, but instead of putting the accounts in the name of SDA, the foreign corporation, McDonald opened them in the name of a nonexistent limited partnership, called "`Software Design & Application, Ltd.'" (Id. at pp. 476-478.) SDA's owner transferred funds into the accounts, and over the course of two years, McDonald systematically "sacked" the brokerage accounts. (Id. at p. 477.)
Although in Software Design, supra, 49 Cal.App.4th 472, the plaintiffs were not customers of the banks, the plaintiffs brought suit against them for, inter alia, conversion. In affirming the trial court's dismissal of the complaint on demurrer, the court stated that the plaintiffs "cannot state a common law count for conversion of money. Conversion is any act of dominion wrongfully exerted over the personal property of another. [Citation.] However, money cannot be the subject of a conversion action unless a specific sum capable of identification is involved. [Citation.] As to the banks there are no allegations that as money in varying amounts was wired into the accounts, it was held in escrow or in some otherwise segregated fund for the benefit of [plaintiff] SDA. Rather, it came into the partnership accounts over time, in various sums, without any indication that it was held in trust for [plaintiff] SDA." (Id. at p. 485, italics added.) That is, the defendant banks were not liable to the plaintiffs because the accounts into which the defendants transferred their money were in the name of a nonexistent partnership, not plaintiff SDA. The court noted that the wire transfers in that case were not "instruments" for purposes of California Uniform Commercial Code section 3420, and therefore the plaintiffs could not maintain an action for conversion based on that statute. (49 Cal.App.4th at p. 485.) Here, plaintiff was, in effect, the owner of the credit card that was misappropriated, as well as of the account that defendant improperly charged.
B.-D.
The judgment is affirmed. Plaintiff is awarded its costs on appeal.
Turner, P. J., concurred.
KRIEGLER, J., Concurring.
I concur in the result, but not the reasoning, of the majority opinion. The appellate record conclusively demonstrates that defendant Nicholas J. Mora misappropriated $372,039.01 from plaintiff Welco Electronics, Inc. The trial court characterized Mora's version of events as "absolutely nonsense," "difficult to listen to," and "absolutely ludicrous." But the ultimate conclusion articulated by the court was not that there was a conversion of the balance of a credit card account; instead, the court quite accurately described Mora's conduct as a "theft," finding that Mora "stole the money," and he conspired with codefendant Natalie Anderson "in committing theft and committed a theft in the amount of $372,039.01." I would affirm the judgment on the basis of the trial court's finding of theft.
This case was tried on the straightforward theory that Mora committed a series of thefts, in differing amounts and at various times, from Welco. Although labeled a cause of action for conversion, Welco alleged in part that Mora and Anderson "took the property described above from plaintiff's possession without its consent or knowledge ...." It was alleged that Welco "was, and still is, the owner, and was and is, entitled to possession of the following personal property, namely, cash in the sum of $376,142.70." In closing argument, Welco's counsel stated: "The long and short of it is the
We are required to liberally construe Welco's complaint to effect substantial justice. (Code Civ. Proc., § 452.) Regardless of the label attached to a pleading, "`[a] party is entitled to any and all relief which may be appropriate under the scope of his pleadings and within the facts alleged and proved, irrespective of the theory upon which the facts were pleaded, [or] the title of the pleading ....'" (Cooper v. State Farm Mutual Automobile Ins. Co. (2009) 177 Cal.App.4th 876, 904 [99 Cal.Rptr.3d 870], quoting Potrero Homes v. Western Orbis Co. (1972) 28 Cal.App.3d 450, 456 [104 Cal.Rptr. 633].) "We have the power, as a reviewing court, to disregard the `mislabeling' of causes of action, where supported by the record. (Thrifty-Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559, 1566 [54 Cal.Rptr.2d 468] ....)" (Hernandez v. Lopez (2009) 180 Cal.App.4th 932, 938 [103 Cal.Rptr.3d 376] (Hernandez).)
My colleagues go to great lengths to conclude Mora's conduct constituted a conversion based on the theory — not alleged in the complaint or asserted on appeal until prompted by a letter from the court — that a conversion occurred because Mora took Welco's right to a balance in its credit card. I see no need to engage in that analysis. "Suffice it to say, defendants may not appropriate" Welco's property by engaging in 50 to 60 unauthorized credit card transactions "without having to answer legally ...." (Hernandez, supra, 180 Cal.App.4th at p. 940.) The record establishes that Mora stole money using Welco's credit card account, and his conduct "amounted to the embezzlement thereof." (Vujacich v. Southern Commercial Co. (1913) 21 Cal.App. 439, 442 [132 P. 80].) I would affirm the judgment on this basis — Welco effectively alleged and proved, and the trial court found, that Mora committed theft of $372,039.01.
Treating Welco's claim as one of theft of money avoids the further problem created by the majority's analysis of the requirement that conversion of money requires the identification of a sum certain. California law has recognized liability for conversion of money in limited circumstances: there must be a sum certain and the holder of the money must do so in trust, for the benefit or another, or for his principal's account. (Haigler v. Donnelly (1941) 18 Cal.2d 674, 681 [117 P.2d 331].) "A cause of action for conversion of money can be stated only where a defendant interferes with the plaintiff's possessory interest in a specific, identifiable sum, such as when a trustee or agent misappropriates the money entrusted to him." (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 284 [133 Cal.Rptr.3d 774].)
Mora did not receive a fixed sum of money in an agency, fiduciary, or trust relationship with Welco. Mora took a variety of sums, over a period of time, by use of multiple larcenous transactions. I would affirm the judgment on that basis.
