Conversion or breach of contract?

Dickinson Law Des Moines, Iowa Iowa Commercial Litigation Mollie Pawlosky

Posted on 11/17/2016 at 12:00 AM by Mollie Pawlosky

A recent opinion by the Iowa Court of Appeals questions whether a dispute between parties to a custom farming contract was a conversion, enabling an award of punitive damages, or was merely a breach of contract, where punitive damages are not available.

The majority of the appellate court in Sheeder v. Jamison, No. 15-1120 (Sept. 28, 2016) agreed that Jamison converted grain-sale proceeds by overcharging Sheeder over $50,000 for services and products under the custom farming agreement. Even if Sheeder hadn’t proven a “master plan,” and even if the improper billing was only a small percentage of the value of the entire contract, because both Sheeder and Jamison had a possessory interest in the grain proceeds, and Jamison had deprived Sheeder of Sheeder’s possessory right, the appellate court affirmed the holding of conversion. Specifically, the conversion occurred when Jamison, after receiving multiparty checks, failed to surrender to Sheeder the amount that Sheeder was entitled to receive.

Moreover, punitive damages were appropriate.  Substantial evidence supported a finding of “legal malice”; clear and convincing evidence showed that Jamison “intentionally and systematically” took advantage of Sheeder and deprived him of his property.  The district court was particularly bothered by the repeated and intentional nature of the conduct; the repeated conduct constituted a willful and wanton disregard for Sheeder’s rights. The majority of the Court of Appeals agreed.

Evidence was lacking, however, to show that Jamison stole actual grain, as compared to proceeds from the sale of grain.  Although some of Jamison’s actions with regard to grain concerned the court, Sheeder did not have actual evidence of the conversion of grain, and the Court of Appeals agreed.

A well-reasoned dissent by a single appellate court judge, however, raised an interesting issue regarding the fundamental nature of Sheeder’s claim—an issue that the majority did not address. Judge McDonald questioned the propriety of finding a conversion, when the money at issue was not “specific chattel, specifically identifiable, or segregated.” Citing century-old Iowa Supreme Court authority, as well as authority from numerous other states, Judge McDonald concluded that the money at issue was not “specific chattel, specifically identifiable, or segregated into a separate account.” To the contrary, the proceeds were deposited into and transferred among several accounts, as well as commingled with other funds. Judge McDonald, therefore, agreed with Jamison that Sheeder’s claims were for breach of contract, which generally does not support a claim for conversion.

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