Theft of Funds in Lawyer's Trust Account Insufficient Basis for a Claim for Conversion

On June 1, 2021, the First Department issued a decision in SH575 Holdings LLC v. Reliable Abstract Co., L.L.C., 2021 NY Slip Op. 03427, holding that the theft of funds from a lawyer's trust account was an insufficient basis for a conversion claim, explaining:

The court properly dismissed the claims for conversion. Where a conversion claim is asserted with respect to money, the funds must be specifically identifiable and be subject to an obligation to be returned or to be otherwise treated in a particular manner. Plaintiff failed to show that the funds at issue were specifically identifiable. An IOLA account is an unsegregated interest-bearing deposit account with a banking institution for the deposit by an attorney of qualified funds. As the account is unsegregated, plaintiff's funds, upon their transfer therein, became commingled with monies that were already in it, rendering them no longer specifically identifiable.

Even if the funds were specifically identifiable, plaintiff still failed to plead a claim. It is undisputed that plaintiff has not made demands for return of the funds upon the moving defendants.

(Internal quotations and citations omitted).

Commercial litigation often involves conversion claims. As this decision shows, conversion can involve much more than physical objects. It can involve money (in certain circumstances) as well as intangible property. As this decision shows, there are limits to the law of conversion. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding one person depriving another of her property, whether that property is tangible or intangible, or even involves a discrete fund of money.