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

On July 9, 2019, the Supreme Court of Ohio heard 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 sat for him.

Case Background

Round One

This case involves jewelry worth over $39,000 stolen from Irene Danopulos’ house in Montgomery County, which American Trading, a pawnbroker in Cheviot, Ohio, allegedly unknowingly purchased from the burglar’s accomplice. After the purchase, American Trading held on to the items for fifteen days and reported the 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. The trial court 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 proceeded to a bench trial on the conversion claim. The trial court found that although American Trading had sold the stolen jewelry, 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 a second time.

The Second Appeal

In a unanimous opinion, 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.

Read the oral argument preview here.

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.)

Molk v. Gold Star Pawn Shop, L.L.C., 2011-Ohio-2454 (11th Dist.) (a pawnbroker is not liable for conversion when it does not have actual knowledge that the pawned goods are stolen, complies with the relevant waiting period before selling the goods, is not informed by the police of a true owner’s existence, and otherwise follows the proper procedure pursuant to R.C. 4727.12.)

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 Proposition of Law Accepted for Review

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.

At Oral Argument

Arguing Counsel

Robert J. Thumann, Crehan & Thumann, LLC, Cincinnati, for Appellant American Trading II, LLC

W. Michael Conway, Kettering, for Appellee Irene Danopulos

American Trading’s Argument

American Trading is not liable for conversion in this case. Compliance with the statutory lawful retention period provided the pawnbroker with lawful, but not superior, possession of the jewelry.

A pawnbroker never has superior rights to that of a true owner. So if the true owner makes a demand for the return of that property at any time, the pawnbroker must give it back if the pawnbroker still has it.  Only then, if there is a demand and refusal, is there a conversion. In this case, there was absolutely no notification to the pawnbroker while the pawnbroker still had possession, that the jewelry was stolen.

There is no dispute in this case that the jewelry was stolen and was sold after the requisite 15-day retention period. While there wasn’t a lot of evidence in the record about when the jewelry was disassembled, it was after the 15-day period, but before the sale. This just wasn’t a significant factor in this case. The trial court correctly followed Ohio law and found that since American Trading was in lawful possession of the jewelry after the 15 day waiting period, American Trading was entitled to dispose of the jewelry, alter the jewelry, or transfer the jewelry.

In the first appeal of this case, the appeals court found that the record wasn’t clear about whether or not there was a demand and a refusal in this case. At the bench trial, it was established that there was a demand, but only after the property had been sold. But there could not be a refusal, because American Trading no longer had possession of the property. So, no conversion. Both the possession and the transfer were lawful. This appeal should not be about re-litigating the facts of the case.

The reason that American Trading gave the required statutory notification to the Hamilton County Sheriff rather than to the Cheviot police was that in the past, the Cheviot police had requested that the pawnbroker just report directly to the Hamilton County Sheriff’s Department because that’s all the City of Cheviot would have done. And the trial court correctly found substantial compliance with this requirement.

The plaintiff is not without a remedy here. She has a remedy in negligence. If Danopulos felt American Trading was negligent in the handling of the jewelry, whether in the disassembly, disposal, transfer or sale of it, she can pursue a negligence claim.

Danopulos’ Argument

If the Court were to adopt American Trading’s proposition of law, it would certainly make life easier for pawnbrokers, but would create legalized fence operations for stolen property. If a pawnshop purchases property from the true owner, there would be no conversion action.  The rule requested only applies to stolen property. And the rule requested is that if the pawnshop complies with the pawnbroker act –reports it to the proper authority and holds it for the proper time period–then it has the right to sell and has absolute immunity from suit after that. In this case, however, the pawnbroker did not report to the proper authority.

The rule in a conversion action is that only if the converter acquires the property legally does the notice requirement kick in. There’s no notice requirement if the property isn’t acquired legally. In this case, the property was not required legally because the pawnbroker did not report to the proper authorities and because there is no evidence in the record that the property was held for the requisite 15 days. In this case there was also no need for a demand, because that requirement also only applies when the property is lawfully acquired. Here it wasn’t. Furthermore, if a pawnbroker reasonably suspects the goods were stolen, then the pawnbroker violates the statute against receiving stolen property.

In this case, if the jewelry had just been sold rather than disassembled, it’s possible that the owner could have tracked it down and re-acquired it from whoever got it.  Now it is just gone, lost.

The detective from Montgomery County who investigated the case said that in Montgomery County the pawnshop that bought other pieces of jewelry from this burglary used an interstate online reporting program and that’s how the Montgomery County Deputy Sheriff found the other jewelry. Maybe the City of Cheviot uses that.

What Was On Their Minds

The Fifteen Day Holding Period

Is there any dispute in this record that the jewelry was stolen property, asked Justice Fischer? (answer: no) Does the record show anything as to when the jewelry was altered?

Isn’t the purpose of the 15 day waiting period to give the detectives investigating the burglaries time to go to the pawnshops and see if the stolen property has been sold there, asked Justice Donnelly?

Notice Requirement: Cheviot Police versus Hamilton County Sheriff

The statute requires a pawnbroker to furnish the information to the local police, but American Trading didn’t do that, did it, asked Chief Justice O’Connor, commenting that the sheriff’s department is not the local police. Is that compliance? What difference did this make?

If this had been reported to Cheviot would anything different have happened, asked Justice Stewart? What would that department have done? Report to the sheriff’s office?  If the court were to decide reporting to the sheriff’s office was equivalent, then does the plaintiff’s argument fail?

If pawnbrokers are able to circumvent the notice requirement by choosing which law enforcement agency they want to report it to, doesn’t that give them a way to circumvent this, asked Justice Donnelly?

Demand and Refusal

Was there a demand for the return of the jewelry, asked Justice Stewart? Was the demand made after 15 days? Regardless of whether there is any record demonstrating how long the pawnbroker held it, the demand was made after the 15 days, she noted, so if the pawnbroker didn’t have it, how is there prima facie evidence of conversion? She got into quite a back-and-forth with Mr. Conway about whether the record did or did not show the jewelry was held for 15 days, concluding that there was no evidence either way on this point.

The Disassembly of the Jewelry

Was there a finding by the trial court the second time, after remand, regarding the disassembly of the jewelry, asked Judge Hensal?

Didn’t the pawnbroker get $7000 for the disassembled jewelry, asked Justice Stewart? How is disassembly any different from a straight out sale?

Suspicion of Stolen Property

Is it really accidental when a teenager walks in with nearly $40,000 of jewelry, asked Justice Donnelly? Doesn’t that raise the standard a little higher than negligence and perhaps impose upon the pawnbroker the duty to perhaps suspect that this is actually stolen goods we are dealing with?

What if the pawnbroker did reasonably suspect the jewelry was stolen, asked Justice Stewart?

Res Judicata

Why isn’t the pawnbroker’s proposition of law res judicata, asked Justice Stewart?  Wasn’t it decided in the first appeal? How would the law be different from Danopulos II to I? Did the second appellate decision mimic the first?

What Was Argued Below and What Was Not

Was the failure to report to the Cheviot police raised below, asked Justice French? Was suspicion of receiving stolen goods raised? Later, she really got into it with Mr. Conway about why the trial court found substantial compliance on the reporting issue, and commented she was struggling a bit with all these issues he was bringing up when there were specific findings by the trial court.

Did a representative of the sheriff’s department testify at trial, asked Chief Justice O’Connor?

How it Looks From the Bleachers

To Professor Emerita Bettman

Despite something fishy about a teenager from out-of-state coming into the pawnshop with what clearly looked like expensive estate-type jewelry, I predict a win for American Trading, on the grounds that since it did comply with the statute, and there was then no demand and refusal when the jewelry was still in American Trading’s possession, it could not be held liable for conversion.

I didn’t find either argument terribly effective. Mr. Conway in particular seemed to want to re-litigate the trial, which is never an effective appellate strategy.  He seemed particularly to exasperate the normally-patient Justice French with issues not even raised below.  Technically, if the court wanted to go his way I suppose the justices could find that American Trading did not report to the proper authority, but I don’t think there was proof that made a whit of difference, as several justices suggested or asked about. They could also find res judicata, although no one other than Justice Stewart seemed bent on that.

I can’t say I understood Mr. Thumann’s argument about Danopulos still having a negligence claim. There was no accidental loss or destruction of this jewelry here.

Interestingly, Justice DeWine was on the first appeal of the case, which is undoubtedly why he was recused here.

To Student Contributor Carson Miller

Even though American Trading’s conduct in this case might not pass the smell test, I think that the Court will hesitate to hold pawnbrokers liable for conversion when they comply with Ohio’s Pawnbrokers’ Act. As much as Danopulos would like to re-litigate the facts on appeal, it still remains that no demand was made until after the fifteen-day waiting period—something that Justices French and Donnelly noted.

Further, as much as Danopulos’ counsel argued that American Trading did not comply with the statute’s reporting requirements, the Court seemed amenable to American Trading’s argument that reporting to the county sheriff substantially complied. Therefore, unless more of the justices agree with Justice Stewart’s concerns about possible res judicata issues on the second appeal, or finds the underlying facts too concerning, American Trading should win here.