California Cannabis Claims: Conversion

How does California define a conversion claim?

The technical definition of conversion is “the wrongful exercise of dominion over the personal property of another.” It essentially means that the defendant interfered with the plaintiff’s right to possession of tangible property (not including real property). If a conversion claim is found, the plaintiff is entitled to recover the full value of the property. The plaintiff may also be entitled to punitive and other additional damages in certain contexts (more on that below). As I mentioned above, we typically see this claim pop up when a seller provides product to a buyer but doesn’t get paid – since the seller hasn’t received the benefit of the bargain, the buyer’s continued possession of the product could form the basis of a California cannabis claim for conversion.

Statute of limitations

The statute of limitations for conversion is three years. This means the claim needs to be filed within three years of the wrongful taking. There are exceptions to this rule though. First, if the defendant’s taking was initially lawful (like someone borrowed your tools with your permission), the clock starts ticking when the defendant rejects the plaintiff’s property rights (you ask for your tools back and they refuse to give them back). Second, if the defendant fraudulently conceals the conversion, the clock starts ticking when the plaintiff discovers or should have discovered the conversion. This second scenario is commonly known as the “discovery rule.”

Elements of a conversion claim

California Civil Jury Instructions (CACI) is a helpful that shows the elements of for California claims and causes of action. The relevant CACI instruction for conversion provides that in order to establish this claim, the plaintiff must prove all of the following:

  1. That the plaintiff owned (or possessed) some item of personal property;
  2. That the defendant substantially interfered with the plaintiff’s personal property by knowingly or intentionally taking possession of the personal property (or preventing plaintiff from having access to, destroying, or refusing to return the personal property);
  3. That the plaintiff did not consent;
  4. That the plaintiff was harmed; and
  5. That the defendant’s conduct was a substantial factor in causing the plaintiff’s harm.

So what needs to be established is this: the plaintiff lawfully owned something, the defendant wrongfully interfered with that ownership, and the defendant’s interference caused the plaintiff’s harm. If a plaintiff proves all of these elements and there are no applicable defenses, they can succeed on their California cannabis claim. The issue then becomes what remedies are available.

Remedies for claims of conversion

California Civil Code sections 3336-3338 specifically address damages for conversion. The normal measure of damages is the full fair market value of the property, plus interest. The fair market value is measured at the time of conversion – so for example, if product prices rapidly fell between the time of the conversion and the time of the lawsuit, the plaintiff would be entitled to that initial, higher price.

Conversion claims are especially scary because they potentially open the door to punitive damages. Punitive damages are available where plaintiff shows by clear and convincing evidence that defendant was guilty of oppression, fraud, or malice. In a case of willful conversion – i.e., someone breaks into a California cannabis business and steals something – this may not be all that hard to prove. In most cases, this can be much more difficult to prove.

Finally, when the facts of the conversion claim also constitute receipt of stolen property under Penal Code § 496, the plaintiff may seek treble damages (damages x3), costs of suit, and reasonable attorneys’ fees. There is a line of California case law that specifically establishes that Section 496 can apply to “ordinary business disputes where traditional remedies for breach of contract, fraud, and conversion were available.”