Thursday, July 30, 2026
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Conversion Is Strict Liability Tort for Which Apportionment Is Available—Ninth Circuit
Opinion Says California Law Does Not Require Showing of Bad Faith That Would Foreclose Defendant’s Ability to Seek Partial Equitable Indemnity From Concurrent Tortfeasors
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals held yesterday that conversion under California law is a strict liability tort for which apportionment of fault with other tortfeasors is available, reviving a third-party complaint by defendants who were accused of keeping stock certificates that were wrongly transferred to them after they paused a deal without paying and who asserted equitable indemnity claims against the agents purportedly responsible for the transfer.
Circuit Judge Gabriel P. Sanchez authored the opinion, joined in by Circuit Judge Jacqueline H. Nguyen and Senior Circuit Judge N. Randy Smith, saying:
“Two strands of California caselaw guide our analysis. The first concerns the state’s equitable indemnity doctrine and the second the common law development of the tort of conversion. California’s common law equitable indemnity doctrine enables ‘a concurrent tortfeasor [to] obtain partial indemnity from cotortfeasors on a comparative fault basis.’ ”
Pointing out that a right of partial indemnity exists as to defendants in negligence and strict liability actions but that intentional tortfeasors are foreclosed from reducing their liability based on the careless actions of others, he added:
“In this appeal we resolve a question of California law: whether conversion is an intentional tort that precludes the recovery of equitable indemnity from joint tortfeasors. Guided by recent precedent from the California Supreme Court, we hold that the tort of conversion is a strict liability offense that does not depend on the wrongful intent of the defendant, and therefore a conversion tortfeasor may seek partial equitable indemnity from concurrent negligent tortfeasors.”
Botched Stock Deal
Seeking to share responsibility for the botched stock deal was Sun Hung Kai Strategic Capital Ltd. (“SHK”), a firm that agreed to purchase 101,640 shares of Social Finance Inc. (“SoFi”) from Serenity Investments LLC and the Daniel V. Tierney 2011 Trust for more than $1.6 million in August 2017. Orrick, Herrington & Sutcliffe LLP was charged with transferring the stock certificates, and Scenic Advisement served as the broker.
In the wake of allegations that SoFi’s Co-Founder Mike Cagney had enabled a climate of sexual harassment at the company that erupted in September 2017, SHK informed Scenic that it was placing the transaction “on hold” and did not make any payments. Even though Scenic promptly relayed that information to Orrick, the firm transferred stock certificates for the shares to SHK as planned.
After SHK representatives made the transfer known, Orrick asked the company to return the certificates, emailed SoFi with instructions to “roll back” the transaction, and informed Scenic of the problem. SoFi failed to reverse the transfer, and SHK did not take any steps to rectify the error.
In 2021, following an announcement by SoFi of plans to go public via a special purpose acquisition company (“SPAC”), SHK executed an affidavit in which it declared it was the owner of the stock after it confirmed with SoFi that the company’s records reflected the transfer. SoFi then converted the shares into ones reflecting an interest in the SPAC.
Complaint Filed
Serenity, a citizen of Illinois with headquarters in Palo Alto, filed a complaint against SHK, which is based in Hong Kong, in Santa Clara Superior Court in November 2021, after receiving no response to a demand to return the shares, asserting conversion and related causes of action. SHK returned the shares in January 2022 and removed the matter to federal court a few months later.
When the shares were returned, they were worth approximately $2.4 million, down from a valuation of $4.2 million at the time Serenity made its initial demand in October 2021. In April 2022, SHK filed a third-party complaint against Orrick and Scenic, seeking equitable indemnity for their part in the debacle.
In July 2024, District Court Judge Yvonne Gonzalez Rogers of the Northern District of California granted Orrick and Scenic’s joint motion for summary judgment, ruling that conversion is an intentional tort for which equitable indemnity is unavailable. The original parties settled their claims in September 2024.
Sanchez noted that California law, which the parties agree governs the dispute, has been inconsistent on the mental state required for conversion, saying:
“California courts have at times described conversion as both an intentional tort and a strict liability tort in different contexts.”
However, he opined that “California Supreme Court has consistently held that conversion does not require proof of wrongful knowledge or intent, and more recently described conversion as a strict liability tort” in the 2019 decision in Voris v. Lampert.
In that decision, the high court said that conversion has only three elements—a plaintiff’s ownership of personal property, a defendant’s disposition of it in a manner inconsistent with those rights, and damages—none of which involve wrongful intent.
Acknowledging that the cause of action has sometimes been characterized by courts as an “intentional tort,” Sanchez opined that the description comes from the idea that the tort requires that the defendant have intentionally done the act that deprived the plaintiff of possession. He remarked:
“But conversion is a ‘strict liability’ tort because it does not require ‘bad faith, knowledge, or even negligence’ by the defendant for the plaintiff to recover.”
The jurist recognized that “[t]he rule that an intentional tortfeasor may not seek indemnity from another negligent tortfeasor arises out of ‘the common sense notion that a more culpable party should bear the financial burden caused by its intentional act,’ ” but he rejected the view that SHK’s conduct in the case should preclude it from apportioning fault. He commented:
“[C]ase law does] not carve out a different rule for product liability defendants who intentionally produced a defective product….Instead, California prescribe[s] the availability of equitable indemnity in categorical terms based on the type of tort at issue.”
The case is Serenity Investments LLC v. SHK Strategic Capital Ltd., 24-6686.
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