Regent Alliance v. Rabizadeh , 231 Cal. App. 4th 1177 ( 2014 )

Filed 11/25/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
REGENT ALLIANCE LTD., B244652
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC429863)
v.
ROUHOLLAH RABIZADEH et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County. Daniel
J. Buckley, Judge. Reversed.
Daar & Newman, Jeffery J. Daar and Michael R. Newman for Plaintiff and
Appellant.
Law Office of Mohammad A. Fakhreddine and Mohammad A. Fakhreddine for
Defendants and Respondents.
_________________________
Regent Alliance Ltd. (Regent) sued three purchasers of children’s clothing for
conversion, alleging that the purchasers bought, from other defendants, clothing
belonging to Regent that those other defendants had converted. The trial court granted
the purchasers’ motions for summary judgment, and Regent appeals. We reverse.
BACKGROUND
Regent, a Hong Kong corporation that manufactures children’s clothing, filed a
first amended complaint in 2010 against multiple defendants, including Rouhollah
Rabizadeh, Bahram Dahi, and his wife Farahnaz Dahi1 (the buyer defendants), all three
doing business as B&R Clothing and Kids Street. The complaint alleged in its 13th, 14th,
and 15th causes of action that Rabizadeh, Bahram, and Farahnaz purchased and resold
converted property—children’s clothing (the clothing)—from other defendants (the
warehouse defendants) including YHK Transportation, Inc., against which the complaint
also alleged conversion. YHK had agreed with Regent to store the clothing in YHK’s
warehouse facility in Carson, California, but after the clothing was delivered to the
warehouse and YHK took possession, YHK transferred the clothing without Regent’s
knowledge to another defendant’s warehouse in Commerce. The warehouse defendants,
who “had previously converted the Children’s Clothing,” then sold it to the buyer
defendants, who subsequently sold the clothing to others.
In May 2012, Rabizadeh, Bahram, and Farahnaz filed separate motions for
summary judgment. The motions argued that because each of the buyer defendants
was allegedly a “subsequent converter”—that is, a receiver or transferee of previously
converted goods—they could not be liable for conversion because they purchased the
goods for value and in good faith, without actual or constructive notice that the goods had
been converted.
The trial court granted summary judgment in favor of Rabizadeh, Bahram, and
Farahnaz after a hearing on July 25, 2012. The court agreed with the buyer defendants’
1
For ease of reference, we refer to the Dahis as Bahram and Farahnaz, intending no
disrespect.
2
reasoning that innocent purchasers of converted goods are not liable for conversion.
The court further determined that the buyer defendants’ evidence “meets the initial
burden to show that they purchased the clothing under circumstances that did not indicate
to a prudent person that the clothing had been stolen” and that Regent did not introduce
sufficient contrary evidence to create any material factual disputes. The court
accordingly entered judgment in favor of the buyer defendants, and Regent timely
appealed from the judgment.
DISCUSSION
Regent argues that the superior court erred when it agreed with the buyer
defendants that innocent purchasers of converted goods are not liable for conversion.
Reviewing de novo the court’s order granting summary judgment (Buss v. Superior Court
(1997) 16 Cal. 4th 35, 60), we agree.
I. Bona Fide Purchasers of Converted Goods Are Ordinarily Liable for
Conversion
“Conversion is generally described as the wrongful exercise of dominion over the
personal property of another. [Citation.] The basic elements of the tort are (1) the
plaintiff’s ownership or right to possession of personal property; (2) the defendant’s
disposition of the property in a manner that is inconsistent with the plaintiff’s property
rights; and (3) resulting damages. [Citation.]” (Fremont Indemnity Co. v. Fremont
General Corp. (2007) 148 Cal. App. 4th 97, 119.) “Conversion is a strict liability tort.
The foundation of the action rests neither in the knowledge nor the intent of the
defendant. Instead, the tort consists in the breach of an absolute duty; the act of
conversion itself is tortious. Therefore, questions of the defendant’s good faith, lack
of knowledge, and motive are ordinarily immaterial.” (Burlesci v. Petersen (1998)
68 Cal. App. 4th 1062, 1066.)
The rule of strict liability applies equally to purchasers of converted goods, or
more generally to purchasers from sellers who lack the power to transfer ownership of the
goods sold. (See, e.g., State Farm Mut. Auto. Ins. Co. v. Department of Motor Vehicles
(1997) 53 Cal. App. 4th 1076, 1081 [“One who buys property in good faith from a party
3
lacking title and the right to sell may be liable for conversion”]; Culp v. Signal Van &
Storage (1956) 142 Cal. App. Supp. 2d 859, 861 [“One who, though honestly and in good
faith, purchases personal property from one having no title thereto or right to sell the
same is guilty of conversion”].) That is, there is no general exception for bona fide
purchasers.
The case of Strasberg v. Odyssey Group, Inc. (1996) 51 Cal. App. 4th 906 provides
a good example of the recent application of these doctrines. After Marilyn Monroe’s
death, the special administrator of Monroe’s estate retained and wrongfully concealed a
number of items of value, which she later passed on to her own relatives, one of whom
consigned them to the defendant auction house for sale. (Id. at pp. 912-913.) The
evidence in the action against the auction house for conversion and return of the items
was that the auction house had obtained possession of the items without knowledge that
they were originally stolen from the estate. (Ibid.) But the Court of Appeal held that
the auction house’s knowledge and good or bad faith are irrelevant to its liability for
conversion. “The reason they are defendants in this action . . . is not because they have
committed any wrong themselves nor because [the administrator’s] wrongful intent is
imputed to them. Instead it is because they received possession of the items from one
who had no legal title and therefore no right to transfer the items.” (Id. at p. 919, citing
Harpending v. Meyer (1880) 55 Cal. 555, 560-561.) Although the defendant was a
consignee of converted goods rather than a purchaser of such goods, the case illustrates
the point that even when converted goods have changed hands multiple times, an
innocent possessor of the goods will still generally be liable for conversion.
The general rule of strict liability for purchasers of converted goods is not new—
the California Supreme Court recognized it more than 100 years ago. In Harpending v.
Meyer, supra, 55 Cal. 555, the plaintiff deposited certain jewelry with a bailee, who
pawned it to the defendants without the plaintiff’s knowledge or consent. (Id. at p. 557.)
The Court assumed throughout its analysis that the defendants were “innocent bona fide
purchaser[s]” (id. at p. 558) but still concluded that when the defendants “acquired the
possession of plaintiff’s property by and through the tortious acts of [the bailee], and not
4
otherwise, such possession was tortious from its commencement, and constituted a
conversion of the plaintiff’s property.” (Id. at p. 561; see also Swim v. Wilson (1891)
90 Cal. 126, 129 [“it is universally held that the purchaser of stolen chattels, no matter
how innocent or free from negligence in the matter, acquires no title to such property as
against the owner”].)
Nor is the rule controversial. All leading treatises are in accord: “An innocent
buyer from one without title or right to sell is ordinarily liable for conversion.”
(5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 716, p. 1039.) “[T]he receipt
of possession of converted goods by way of sale, pledge, gift, or otherwise with the
intent to acquire a proprietary interest in the goods” constitutes “an act of conversion,”
and “[t]his is true even where the person receiving possession acts innocently and in
reasonable ignorance of the owner’s interest in the property.” (1 Harper et al., Harper,
James and Gray on Torts (3d ed. 2007) § 2.15A, pp. 219, 221; see also id. § 2.17, p. 228
& fn. 22 [stating that the same rules apply to a “transferee who accepts delivery of a
chattel in consummation of a wrongful transfer by a bailee”].) “Under the traditional
common law rule, one who purchases converted goods from one who has no title is
himself a converter by the very act of purchase. The purchaser may be wholly innocent,
he may pay value for the goods and he may act in good faith. He is nevertheless a
converter.” (1 Dobbs et al., The Law of Torts (2d ed. 2011) § 72, p. 202.) “[O]ne
receiving a chattel from a third person with intent to acquire a proprietary interest in it is
liable without a demand for its return by the person entitled to possession, although he
takes possession of the chattel without knowledge or reason to know that the third person
has no power to transfer the proprietary interest. The mere receipt of the possession of
the goods under such circumstances is a conversion.” (Rest.2d, Torts, § 229, com. e,
p. 448.)
There are recognized exceptions to the general rule of strict liability. Some
exceptions are based on circumstances in which “the person transferring possession may
have the legal power to convey to a bona fide transferee a good title,” as, for example,
when “a principal has clothed an agent in apparent authority exceeding that which was
5
intended.” (1 Harper et al., Harper, James and Gray on Torts, supra, § 2.15A,
pp. 220-221.) Another exception concerns goods obtained by means of a fraudulent
misrepresentation. If the party who committed the fraud then sells the goods to “a
bona fide purchaser” who “takes for value and without notice of the fraud, then such
purchaser gets good title to the chattel and may not be held for conversion (though
the original converter may be).” (Id., § 2.16, pp. 223-224, fn. omitted; see also 5 Witkin,
Summary of Cal. Law, supra, § 716, pp. 1039-1040 [“a purchaser for value and without
notice that his or her vendor’s title to the property is voidable, such as where the vendor
obtained the property by fraud, is not liable for conversion”].)
The foregoing legal principles apply straightforwardly to the buyer defendants’
motions for summary judgment. The buyer defendants concede for purposes of
the motions that they purchased converted goods, of which Regent was the true owner.
The buyer defendants do not argue that any exception to the general rule of strict liability
applies. Rather, they contend that the general rule of strict liability does not exist and
that, to the contrary, innocent purchasers of converted goods cannot be held liable for
conversion. That is not correct. The superior court therefore erred when it agreed with
the buyer defendants’ legal contentions, and the summary judgment motions should have
been denied.
II. The Cases Cited by the Buyer Defendants and the Superior Court Do Not
Hold to the Contrary
In support of their position, both in the trial court and on appeal, the buyer
defendants rely chiefly on two relatively recent decisions of the Court of Appeal,
Oakdale Village Group v. Fong (1996) 43 Cal. App. 4th 539 (Oakdale Village) and Irving
Nelkin & Co. v. South Beverly Hills Wilshire Jewelry & Loan (2005) 129 Cal. App. 4th
692 (Irving Nelkin). In agreeing with the buyer defendants’ reasoning, the trial court
relied on the same cases. Properly understood, however, the recent cases do not deviate
from the well-established common law principles described in Part I, ante.
The relevant passage of Oakdale Village is merely a statement of the fraud
exception to the general rule of strict liability for purchasers of converted property.
6
In that passage, Oakdale Village quotes from a treatise as follows: “‘Although there are
many cases in which a person who obtains possession of goods by fraud is regarded
as liable for conversion thereof, it does not follow that every other person into whose
hands the goods have come may be sued for conversion. Thus, it is a general rule
that an innocent purchaser for value and without notice, actual or constructive, that
his vendor had secured the goods by a fraudulent purchase, is not liable for conversion.
[¶] A different result has been reached, however, where the goods are taken from the
fraudulent possessor with knowledge of the fraud, or with knowledge of such facts and
circumstances as would have put cautious and prudent men on inquiry, even though full
value has been paid for the property, or where, in general, the transactions involved do
not operate to transfer the title to the goods.’ (7 Speiser et al., The American Law of
Torts (1990) § 24.8, pp. 729-730, fns. omitted; see also 1 Harper et al., The Law of Torts
(2d ed. 1986) § 2.16, pp. 189-190; Prosser & Keeton, Torts (5th ed. 1984) § 15, p. 94.)”
(Oakdale Village, supra, 43 Cal.App.4th at p. 546, italics added.) The italicized phrases
show that the quotation is merely a description of the fraud exception to the general rule
of strict liability for purchasers of converted goods—an innocent purchaser who buys
from a seller who acquired title to the goods by fraudulent means is not liable for
conversion. And the final clause of the quotation—stating that a purchaser of converted
goods is ordinarily liable for conversion if the transactions involved did not operate
to transfer title to the goods—is essentially a statement of the general rule, because a
purchaser of converted goods ordinarily acquires no title and consequently is strictly
liable.
The additional treatise citations in Oakdale Village further confirm our
interpretation. The cited treatise sections concern only the fraud exception to the
general rule of strict liability, and each of the cited treatises acknowledges the existence
and validity of the general rule. (See 1 Harper et al., The Law of Torts (2d ed. 1986)
§ 2.16, pp. 189-190 [describing the exception for goods obtained “by fraudulent
misrepresentation”]; id. § 2.15A & § 2.17, pp. 186-193 & fn. 21 [describing the general
rule of strict liability for transferees of converted goods, including goods converted by a
7
bailee]; Prosser & Keeton, Torts (5th ed. 1984) § 15, pp. 93-94 [acknowledging that “a
bona fide purchaser of goods from one who has stolen them, or who merely has no power
to transfer them, becomes a converter when the purchaser takes possession to complete
the transaction,” but also recognizing an exception for a bona fide purchaser “of goods
which the true owner was originally induced to sell by fraud”].)
We conclude that Oakdale Village provides no support for the buyer defendants’
contention that there is no general rule (subject to exceptions) of strict liability for
purchasers of converted goods. The relevant portion of Oakdale Village expressly relates
only to the fraud exception, and nothing in the opinion suggests that the court intended a
holding that was contrary to the very treatises that the court quoted and cited.
Interpretation of Irving Nelkin is somewhat more complex but leads to the same
result. Irving Nelkin must be read in light of an earlier decision by the same panel,
South Beverly Wilshire Jewelry & Loan v. Superior Court (2004) 121 Cal. App. 4th 74
(South Beverly), which concerned related litigation that arose from the same facts.
(See Irving Nelkin, supra, 129 Cal.App.4th at p. 695.) “In both actions, the plaintiffs
[were] wholesale jewelry dealers, who . . . sued both Richard Maslan & Co., to whom
they had consigned jewelry and gems (the goods), and Richard Maslan the individual,
the person they alleged to be the sole shareholder, officer and director of Richard
Maslan & Co. . . . Also sued were an individual and four businesses, to whom Richard
Maslan had pledged the consigned goods as collateral for loans made to him by such
defendants (the lending defendants). The pledges were made despite the fact that written
consignment agreements (consignment memoranda) entered into between the plaintiffs
and Maslan & Co. prohibited pledging the goods. In both cases, when the consignor
plaintiffs learned of the pledging of their goods, they demanded that Maslan return the
goods or pay for them, but Maslan refused or was unable to do so. Richard Maslan was
ultimately convicted of grand theft by embezzlement for the use he made of the goods.
In each case, the plaintiffs sued Maslan for breach of contract and fraud, and sued Maslan
and the lending defendants for recovery of personal property and conversion.” (Ibid.)
8
The first appellate decision in the two related actions was South Beverly. In that
case, the plaintiff had prevailed on summary adjudication against the lending defendants,
and two of the lending defendants petitioned for a writ of mandate directing the trial court
to vacate the summary adjudication order. (South Beverly, supra, 121 Cal.App.4th
at p. 77.) In support of the summary adjudication motion, the plaintiff had successfully
argued that because of “the common law rule that a thief cannot pass title to stolen
property, . . . [the lending defendants] never gained title to the goods that Maslan
pawned with them and therefore they are liable to plaintiff for the return of such goods
or payment of their value.” (Id. at p. 79.)
The Court of Appeal did not question the existence or validity of that common
law rule. The court did, however, create an exception to that rule, deriving it from
certain provisions of the California Uniform Commercial Code (Commercial Code).
(See South Beverly, supra, 121 Cal.App.4th at p. 80.) Under the then-existing version
of the statutes, “[h]ad plaintiff filed a Commercial Code financing statement, then for
purposes of Maslan’s creditors, such as petitioners, title to the goods would have stayed
with plaintiff and as between him and those creditors, he would be entitled to possession
of the goods. Because of his failure to file the financing statement, and unless he can
establish that Maslan was known generally by his (Maslan’s) creditors to be substantially
engaged in selling goods that belong to others, the effect of the former Commercial Code
provisions is that title to the pledged goods passed to Maslan Company, and when
Maslan failed to redeem such pledged goods, title passed to the lending defendants,
including petitioners. The applicable Commercial Code provisions did not make an
exception for circumstances where third parties take for value and without notice in cases
involving theft.” (South Beverly, supra, 121 Cal.App.4th at pp. 80-81, italics omitted.)
Accordingly, the court held that “a person who voluntarily relinquishes possession
of his property to another in a consignment, and who has the ability to protect his title by
means of a Commercial Code filing but does not do so, will not be entitled to the benefit
of the common law rule that a thief cannot pass title to stolen property where an innocent
third party has taken possession of the property from the consignee for value and without
9
notice. This would be so even when the consignment was made with the directive that
the consigned goods not be pledged.” (South Beverly, supra, 121 Cal.App.4th at p. 80.)
South Beverly therefore did not reject the common law rule of strict liability for
purchasers of converted goods. On the contrary, South Beverly expressly recognized
the validity of “the common law rule that a thief cannot pass title to stolen property.”
(South Beverly, supra, 121 Cal.App.4th at p. 80.) While acknowledging that rule,
however, South Beverly identified a specific exception to it, based on the Commercial
Code. Under that exception, because the plaintiff failed to utilize the available
Commercial Code provisions to protect the plaintiff’s title to the property, the innocent
third parties that purchased the converted goods from the plaintiff’s consignee were not
liable for conversion.
Less than one year after deciding South Beverly, the same panel decided Irving
Nelkin. The Irving Nelkin opinion refers to the prior South Beverly opinion and states
that the two cases arose from related facts, as set forth above. (See Irving Nelkin, supra,
129 Cal.App.4th at p. 695.) Again, the defendants included the third party to whom the
consigned jewelry was pledged. The key factual difference between the two cases was
that, unlike the plaintiff in South Beverly, the plaintiff in Irving Nelkin did protect its
ownership interest in the goods by filing the necessary Commercial Code financing
statements. (Id. at pp. 695-696.) The court described that factual distinction and stated,
“As we explained in South Beverly, this circumstance is critical to the viability of
plaintiff’s conversion claim.” (Id. at p. 696.) Accordingly, the court briefly explained
that the filing of the financing statements rendered the defendant liable for conversion
(id. at pp. 699-700), and the court then turned to an extended discussion of the two
“primary issues” that were presented on appeal, which concerned prejudgment interest
and are not relevant here. (Id. at pp. 694, 700-704.)
Irving Nelkin consequently was not a repudiation of South Beverly—it was an
application of South Beverly. That is, Irving Nelkin merely applied the doctrine
articulated in South Beverly concerning consignments, Commercial Code financing
statements, and “the common law rule that a thief cannot pass title to stolen property.”
10
(South Beverly, supra, 121 Cal.App.4th at p. 80.) Accordingly, Irving Nelkin too
provides no support for the buyer defendants’ view that a bona fide purchaser of
converted goods cannot be liable for conversion.
The buyer defendants base their contrary contention on the following sentence
in Irving Nelkin: “In cases where the property changes possession more than once, a
plaintiff has a cause of action for conversion if the defendant who is sued for conversion
took the property from another converter, and took it with actual or constructive notice
that the prior conversion took place.” (Irving Nelkin, supra, 129 Cal.App.4th at p. 699.)
The buyer defendants interpret that sentence as a rejection of the general rule of strict
liability for purchasers of converted goods. The buyer defendants’ interpretation is
mistaken for three independent reasons.
First, contrary to the buyer defendants’ interpretation, the quoted sentence from
Irving Nelkin is fully consistent with the general rule (subject to exceptions) of strict
liability for purchasers of converted property. Again, the sentence reads as follows:
“In cases where the property changes possession more than once, a plaintiff has a cause
of action for conversion if the defendant who is sued for conversion took the property
from another converter, and took it with actual or constructive notice that the prior
conversion took place.” (Irving Nelkin, supra, 129 Cal.App.4th at p. 699.) The sentence
says that if the purchaser of converted goods does have notice of the conversion, then the
purchaser is liable. That is correct. Either the case falls under the general rule of strict
liability, so the purchaser is liable regardless of notice, or the case falls under one of the
exceptions to the general rule, in which case the purchaser is liable because the purchaser
had notice. Thus, either way, a purchaser of converted goods who has notice of the
conversion is liable. If Irving Nelkin said that a purchaser of converted goods is liable
only if the purchaser had notice of the conversion, then that would be a rejection of the
general common law rule of strict liability. But that is not what Irving Nelkin says.2
2
For identical reasons, DVD Copy Control Assn., Inc. v. Bunner (2003) 31 Cal. 4th
864 (DVD Copy Control), which the purchasers also cite, is fully consistent with the
general rule (subject to exceptions) of strict liability for purchasers of stolen property.
11
Second, Irving Nelkin was decided less than one year after South Beverly
and by the same panel, and it arose from the same facts. In South Beverly, the panel
acknowledged the general common law rule of strict liability for purchasers of converted
property but identified a specific exception to that rule. That was the only issue in the
case, and all of the analysis in the opinion was devoted to explaining and justifying the
exception. (See South Beverly, supra, 121 Cal.App.4th at pp. 79-84.) It would be
unreasonable to infer that, less than one year later, the same panel repudiated the same
common law rule that it had accepted in South Beverly, and moreover repudiated it in a
single sentence with no supporting analysis and in an appeal in which the defendant’s
liability does not even appear to have been contested. On the issue of liability, Irving
Nelkin is nothing more than a straightforward application of South Beverly. It is not a
wholesale departure from the very common law principles on which South Beverly was
based.
Third, if the court in Irving Nelkin did intend to reject the general rule of strict
liability for purchasers of converted property, then the decision would be contrary to
California Supreme Court authority. The Supreme Court adopted the general rule of
strict liability more than 100 years ago and has never deviated from it. (Harpending v.
Meyer, supra, 55 Cal. at pp. 558, 561; Swim v. Wilson, supra, 90 Cal. at p. 129.)
The Court of Appeal cannot overrule the Supreme Court. (Auto Equity Sales, Inc. v.
Superior Court (1962) 57 Cal. 2d 450, 455.)
For all of the foregoing reasons, we conclude that the cases cited by the buyer
defendants do not support the buyer defendants’ contention that innocent purchasers of
converted goods cannot be liable for conversion.
Similarly to Irving Nelkin, DVD Copy Control states that “a purchaser of stolen property
with actual or constructive notice of the true owner’s interests in that property cannot
prevail against that owner.” (DVD Copy Control, supra, 31 Cal.4th at p. 882.) Again,
that does not conflict with any part of our analysis. If the purchaser had notice, then the
purchaser will be liable, because either the purchaser will be strictly liable or, if the case
falls under one of the exceptions to strict liability, the purchaser will still be liable
because the purchaser had notice.
12
DISPOSITION
The judgment is reversed, the order granting the buyer defendants’ motions for
summary judgment is vacated, and the superior court is directed to enter a new and
different order denying those motions. Appellant shall recover its costs of appeal.
CERTIFIED FOR PUBLICATION.
ROTHSCHILD, P. J.
I concur:
CHANEY, J.
13
JOHNSON, J., Dissenting.
This case squarely presents the question of whether a bona fide purchaser for
value can be liable for conversion as a subsequent converter, when he or she had no
actual or constructive notice that the purchased goods had been previously converted by
the sellers. The majority opinion applies a rule of strict liability as articulated by our
Supreme Court in 1880 to extend liability for conversion to such bona fide purchasers
without notice. This rule subjects Rouhollah Rabizadeh, Bahram Dahi, and Farahnaz
Dahi (the buyer defendants) to tort liability despite the trial court’s conclusion that the
undisputed facts showed that they were bona fide purchasers who were blameless in their
purchase for value, and would in theory also subject to tort liability any subsequent bona
fide purchasers of the clothing from the buyer defendants. I find this result unpalatable.
The rigid and formalistic application of the law of conversion favors the original
owner, who will almost always prevail against the subsequent bona fide purchaser, and
reduces the incentive for the owner to take precautions in delivering possession of the
goods. (See Schwartz & Scott, Rethinking the Laws of Good Faith Purchase (2011) 111
Colum. L.Rev. 1332, 1339–1340, 1350.) The existence of an exception from tort liability
for those who purchase converted goods from a seller who obtained the goods by
fraudulent misrepresentation does not redress the inequity inherent in the rule. When a
bona fide purchaser makes the decision to buy, the purchaser’s good faith means he or
she does not have notice that the goods have been stolen or converted (in which case
strict liability will still apply and the original owner can prevail in a tort action) or,
alternatively, that the original owner delivered them to the seller pursuant to a fraudulent
purchase (in which case the purchaser’s good faith matters). (See id. at pp. 1352–1353.)
Further, the fraud exception is one the subsequent bona fide purchaser is unlikely
to be able to invoke. Such a subsequent bona fide purchaser, who has purchased the
goods for value with no actual or constructive notice of prior fraud or conversion, will
rarely have access to facts to show that the initial converter obtained the goods by fraud.
Fraud must be pleaded with specificity, and specific facts to prove fraud will not be
available to a subsequent buyer who purchases in good faith. This is particularly
troublesome when, as in this case, the initial alleged converter is not absent or judgment
proof. Regent Alliance Ltd. also sued YHK Transportation, Inc., and the other
warehouse defendants for conversion. Yet Regent had little incentive to allege and prove
fraud against the warehouse defendants. If it did so, it risked helping the buyer
defendants (the subsequent bona fide purchasers) to show fraud by the warehouse
defendants and thus to mount a good-faith defense to the conversion claim.
The buyer defendants here have done all they can by demonstrating with
undisputed facts that they had no actual or constructive notice of wrongdoing by the
warehouse defendants from whom they purchased the clothing. Yet the majority leaves
them “holding the bag,” held liable in tort for their good faith purchase for value. The
rule applied to reverse the summary judgment in this case “probably results from an
ineffective borrowing from English law in the early nineteenth century,” when “as an
artifact of the revolutionary period” American courts rejected an early English rule
allowing a good faith buyer purchasing in an open market to obtain good title to the
purchased goods. (Schwartz & Scott, supra, 111 Colum. L.Rev. at p. 1377 & fn. 16.) As
applied in this case, the rule raises fairness concerns that prevent me from joining the
majority’s opinion.
JOHNSON, J.
2