Update: On August 13, 2019, the Supreme Court of Ohio dismissed this appeal as improvidently accepted.

Read an analysis of the oral argument here.

On July 9, 2019, the Supreme Court of Ohio will hear oral argument in the case of Irene Danopulos v. Am. Trading II, LLC, 2018-1157. The issue in the case is whether a pawnbroker’s compliance with R.C. 4227.09 and R.C. 4727.12 in the purchase and resale of property provides it with lawful possession of the property in defense to a plaintiff’s conversion claim. Justice DeWine has recused himself from the case, and Judge Jennifer Hensal of the Ninth District Court of Appeals will sit for him.

Case Background

Round One

This case involves jewelry worth over $39,000 stolen from Irene Danopulos’ home, which American Trading, a pawnbroker, allegedly unknowingly purchased from a burglar’s accomplice. After the purchase, American Trading held on to the items for fifteen days and reported its purchase to the Hamilton County Sheriff’s Office. By the time detectives investigating the theft learned that the jewelry had been stolen and that Danopulos wanted it back, American Trading had already sold the jewelry and no longer had possession of it.

Danopulos filed a conversion action against American Trading, which she lost at summary judgment, as Hamilton County Common Pleas Court Judge Beth Myers determined that American Trading complied with the relevant portions of Ohio’s pawnbroker laws, R.C. 4727, and therefore had superior ownership rights in the stolen property. On appeal, the First District reversed the trial court’s grant of summary judgment, holding that R.C. 4727 served a regulatory function and did not alter the common law rule that thieves do not acquire good title to stolen property against the true owner. The First District remanded the case for further proceedings.

Round Two

On remand, the case went to trial on the conversion claim. Hamilton County Common Pleas Court Judge Curt Hartman found that although American Trading had sold the stolen jewelry as scrap, Danopulos could not win without evidence that she made a demand for the property while American Trading still possessed the jewelry. Because no demand was made until after American Trading sold the jewelry, the court again entered judgment for American Trading. Danopulos appealed.

The Second Appeal

In a unanimous opinion by Judge Penelope Cunningham, with Judges Marilyn Zayas and Dennis Deters concurring, the First District Court of Appeals again found for Danopulos. The court held that the lack of a demand was irrelevant to this conversion action. Because American Trading intentionally disassembled and sold stolen property after acquiring it from a person who lacked power to transfer an ownership interest in it, Danopulos established a conversion claim against American Trading.

The appeals court reasoned that because wrongful intent is not an element of conversion, American Trading could still be liable even if acting under a mistake. While demand and refusal may be necessary in conversion cases involving a defendant who lawfully came into possession of the property, it is not in cases like this where “an act of dominion or control” was inconsistent with the true owner’s ownership.

The court further found that the trial court incorrectly applied a negligence rule to American Trading’s actions. Although lawful possessors may be liable in negligence for accidental loss or destruction of legally acquired property, that rule has no application here where American Trading intentionally disassembled the jewelry and sold the parts. The trial court was instructed to enter judgment for Danopulos on the issue of liability and to determine her damages.

American Trading appealed.

Votes to Accept the Case

Yes: Chief Justice O’Connor, Justices French, Kennedy, and former Justice DeGenaro.

No: Justice Fischer and former Justice O’Donnell.

Justice DeWine did not participate.

Key Statutes and Precedent

R.C. 4727.09 (“A person licensed as a pawnbroker shall . . . furnish the following information to the chief of police of the municipal corporation . . . in which the licensee’s place of business is located []: A description of all property pledged with or purchased by the licensee.”)

R.C. 4727.12 (“A person licensed as a pawnbroker shall retain any goods or articles purchased by the licensee until the expiration of fifteen days after the purchase is made.”)

R.C. 2913.51 (“No person shall receive, retain, or dispose of property of another knowing or having reasonable cause to believe that the property has been obtained through commission of a theft offense.”)

 Fidelity Deposit Co. v. F. C. Bank, 72 Ohio App. 432 (5th Dist. 1943) (“If possession be lawfully acquired then demand is necessary, unless dispensable because of the possessor’s acts of dominion thereover.”)

Ohio Tel. Equip. & Sales, Inc. v. Hadler Realty Co., 24 Ohio App.3d 91 (10th Dist. 1985) (plaintiff may need to make a demand to prove elements of conversion when the defendant lawfully acquired the property in dispute.)

Wolf v. Lakewood Hosp., 73 Ohio App.3d 709 (8th Dist.1991) (“Not every failure to deliver upon demand, however, will constitute a conversion . . . when the goods are no longer in [the defendant’s] possession or control.”)

State Farm Mut. Auto Ins. Co. v. Loken, 2004-Ohio-5074 (5th Dist.) (a wrongful purpose or intent is not a necessary element of conversion.)

R&S Distribution, Inc. v. Hartge Smith Nonwovens, LLC, 2010-Ohio-3992 (1st. Dist.) (When a defendant comes into possession of property lawfully, the plaintiff must establish a demand and refusal to return as a part of a conversion claim.)

Semco, Inc. v. Sims Bros. Inc., 2013-Ohio-4109 (3rd Dist.) (A plaintiff must show a demand and refusal when there is no factual dispute as to whether the defendant knew or should have known the property in question was stolen.)

American Trading’s Argument

In a conversion claim, the demand and refusal requirements apply when the defendant has obtained the property lawfully and innocently—as American Trading did in this case. When it purchased the jewelry, American Trading complied with R.C. 4727.09, which requires pawnbrokers to report and describe their purchases to local authorities. American Trading notified the Hamilton County Sheriff’s office, and the trial court determined that this complied with the statute. Compliance with the statute made American Trading’s possession lawful, and thus Danopulos needed to prove the additional elements of demand and refusal.

Additionally, because American Trading held the jewelry lawfully, it cannot be liable for conversion because it no longer had control of the jewelry when the demand was made. Defendants who lawfully transfer property out of their possession cannot be converters of that property. American Trading acted lawfully in its sale of the jewelry by complying with R.C. 4727.12, which requires a fifteen-day holding period for pawnbrokers. American Trading waited the appropriate period and made the proper notifications before selling the items.

The appeals court’s finding that American Trading’s actions were intentional was erroneous. It is not clear from the decision whether it was the disassembly, sale, or both that constituted intentional conduct. In any event, the trial court made no factual finding that American Trading disassembled the jewelry, and that finding must be afforded deference. Even assuming a finding of disassembly, the decision was still erroneous. Other Ohio courts have found that defendants are not liable in conversion even though they caused property to be transferred out of their possession. In this case, since the sale was lawful, American Trading is not liable in conversion for refusing to return the jewelry on demand.

Lastly, the appeals court’s reasoning would cause great uncertainty in for Ohio pawnbrokers. The Pawnbrokers statute provides guidance and consistency for pawnbrokers, and pawnbrokers now face a possible future of unknown conversion claims for selling property which they never knew was stolen.

Danopulos’ Argument

American Trading knew or should have known that the jewelry was stolen. Facially complying with the Pawnbrokers statute does not absolve all of a pawnbroker’s obligations to not purchase or sell obviously stolen property. Because American Trading violated R.C. 2913.51, Danopulos did not need to demand return to state a conversion claim.

Additionally, American Trading did not comply with the Pawnbrokers statute because it did not report the jewelry to the proper authority. The statute requires pawnbrokers to report to the chief of police of the municipality in which the business is located. American Trading informally reported to the Hamilton County Sheriff’s department, not its local police chief. Allowing pawnbrokers to report to the authority of their choosing subverts the legislature’s intent to protect property owners from unscrupulous pawnbroking practices.

Therefore, American Trading acquired the jewelry unlawfully, and Danopulos was not required to make a demand. The only three elements she must prove are (1) American Trading’s exercise of dominion or control (2) over her property (3) in a manner inconsistent with her right of ownership. She has done so, and is thus entitled to judgment as a matter of law.

American Trading’s Proposed Proposition of Law

A pawn broker’s compliance with R.C. 4227.09 and R.C. 4727.12 in the purchase and resale of property provides it with lawful possession of the property in defense to a plaintiff’s conversion claim.

Amici In Support Of American Trading

The Ohio Pawnbrokers Association (“OPA”), the Ohio Council of Retail Merchants (“Council”), the Jeweler’ Security Alliance (“Alliance”), and the Mid-America Jewelers Association (“MAJA”) filed an amicus brief in support of American Trading. Each of these organizations represents pawn and jewelry retailers in Ohio and elsewhere in state and local government affairs and advocacy.

The appeals court’s decision creates instability and uncertainty for pawnbrokers and others who deal in pre-owned merchandise throughout Ohio. It disregards Ohio common law on conversion, which requires additional findings of demand and refusal when the defendant obtained the property lawfully. The decision threatens the pawnbroker industry as a whole, leaving it at risk of liability despite compliance with statute.

The appeals court’s reasoning would make any intentional act regarding lawfully obtained property an intentional invasion of the true owner’s right to possession, despite a complete lack of knowledge that a true owner exists. This is at odds with the elements of conversion.

Amici support American Trading’s proposed proposition of law.

Student Contributor: Carson Miller