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California Cannabis Claims: Conversion

Last year, we wrote a mini-series on the five most common causes of action we were seeing in the evolving world of cannabis litigation. Given that we’re seeing some other trends (I last wrote about defamation back in January), we’re going to continue on with another often-included cause of action: conversion.

Introduction

Conversion is defined by California case law as “the wrongful exercise of dominion over the personal property of another.” Essentially, if someone is substantially interfering with your possession or right to possession, you are entitled to recover the property or the full value of the property as a consequence. We typically see this cause of action in breach of contract actions, especially in the cannabis business purchase and sale context. For example, if a seller sells product to a buyer on terms, and the buyer ultimately ends up failing to pay the full contract price and fails to negotiate a return of the product, that seller typically has a conversion claim in addition to its breach of contract claim.

Statute of Limitations

The statute of limitations for conversion is three years under Code of Civil Procedure § 338(c). But, there are nuances here. That clock generally starts ticking on the date of the wrongful taking, even if you as the owner are unaware that the taking occurred). However, if the defendant fraudulently tries to hide the taking, then the clock starts ticking when the owner discovers or should have discovered the taking.

Also, if the taking was initially lawful (like in my above example), that clock starts ticking when you demand return of the property and its refused.

Elements of a Conversion Claim

The elements for a claim of conversion are:

  1. The plaintiff’s ownership or right to possession of the property;
  2. The defendant’s conversion by a wrongful act or disposition of property right; and
  3. Damages.

It’s not necessary that there be a physical taking of the property – a conversion cause of action can stand if it shown that there was an assumption of control or ownership over the property, or that the defendant applied the property to its own use.

Remedies

Conversion causes of action are often thrown in because they allow for both compensatory and punitive damages in certain cases:

  • Compensatory damages: Civil Code §§ 3336-3338 specifically address damages for conversion. Typically, damages is measured by the full fair market value of the property, plus interest from the date of conversion at the legal rate.
  • Punitive damages: where the plaintiff shows by clear and convincing evidence that the defendant is guilty of oppression, fraud, or malice in its conversion, punitive damages may be recovered as well.

Re-published with the permission of Harris Bricken and The Canna Law Blog

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