APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 76-1985)
Before Aldisert and Weis, Circuit Judges, and Diamond, District Judge.*fn*
In this age of space travel and computer technology, a horse named Foxey Toni requires us to return to a more tranquil era and examine elements of trover and conversion under Pennsylvania common law. We must decide in this diversity case whether payment of the horse's full value to the owner by one converter precludes recovery by the original owner in a conversion action against persons who received possession from the original converter. We hold that recovery from the first converter precludes further recovery of compensatory or punitive damages for subsequent conversions, and we reverse the judgment of the district court.
Dr. Joseph Baram, appellee, acquired legal title to Foxey Toni, a bay filly race horse, for $3,000 in a claiming race at the Keystone Race Track, Bucks County, Pennsylvania. Dennis Fredella became the trainer for Foxey Toni and was given authority to enter her in races in Dr. Baram's name. Foxey Toni raced under Dr. Baram's name on October 11, October 17, and November 8, 1975. Thereafter, a Certificate of Foal Registration for the horse, issued by the Jockey Club of America, came into Fredella's possession at a time when he was indebted to appellant Robert Farugia. Without the knowledge or consent of Dr. Baram, Farugia obtained possession of the horse from Fredella and was given the foal certificate bearing the forged signature of Dr. Baram. The district court found that both Fredella and Farugia knew or should have known that the signature on the foal certificate had been forged and that Fredella had no authority to transfer Foxey Toni. Record at 2-88 to 2-89.
Farugia first dated the certificate, transferring the horse to himself, and then transferred her to appellant Glenn Hackett and himself. Foxey Toni was subsequently raced in Canada by the putative new owners without the knowledge or consent of Dr. Baram. After Dr. Baram learned of these events, he met with Farugia and demanded the return of Foxey Toni. Farugia refused to return the horse or pay her value of $3,000, but offered instead a modest cash settlement. Dr. Baram rejected the settlement offer and initiated litigation.
Dr. Baram filed a complaint sounding in "Trespass for Conversion," Appendix at II, in the district court against Farugia, Hackett, and Fredella. A default judgment for failure to appear was entered against Fredella. Dr. Baram acknowledged at trial that, as a result of previous criminal proceedings against Fredella in state court, he had been paid $3,000 by Fredella covering Dr. Baram's claim "for the value of the horse, Foxey Toni," and that he "agreed to accept that." Record at 72, 73. This case then proceeded as a bench trial for compensatory and punitive damages for conversion against Farugia and Hackett. The court awarded compensatory damages of $3,000 against both defendants for the value of Foxey Toni and assessed punitive damages of $5,000 against Farugia. The court dismissed the complaint against Fredella with prejudice. This appeal by Farugia and Hackett followed.
Appellants argue that the judgment must be reversed because the $3,000 payment by the converter Fredella for the value of the horse extinguished any further claim in conversion by Dr. Baram. We agree with appellants' argument and are satisfied that conversion under the common law of Pennsylvania may be conceptualized as follows. Conversion is an act of willful interference with the dominion or control over a chattel, done without lawful justification, by which any person entitled to the chattel is deprived of its use and possession. The tort is predicated on interference with dominion or control over the chattel incident to some general or special ownership rather than on damage to the physical condition of the chattel.*fn1 A person not in lawful possession of a chattel may commit conversion by intentionally dispossessing the lawful possessor of the chattel, by intentionally using a chattel in his possession without authority so to use it, by receiving a chattel pursuant to an unauthorized sale with intent to acquire for himself or for another a proprietary interest in it, by disposing of a chattel by an unauthorized sale with intent to transfer a proprietary interest in it, or by refusing to surrender a chattel on demand to a person entitled to lawful possession.*fn2
The modern law remedy for conversion has emerged from the common law action of trover, which was premised on the theory that the defendant had appropriated the plaintiff's chattel, for which he must pay. Pearl Assurance Co., Ltd. v. National Ins. Agency, Inc., 150 Pa.Super. 265, 270-71, 28 A.2d 334, 337 (1942) (per curiam), Aff'd on reargument, 151 Pa.Super. 146, 30 A.2d 333 (1943). A plaintiff who proved conversion in a common law trover action was entitled to damages equal to the full value of the chattel at the time and place of conversion. Berry v. Heinel Motors, Inc., 162 Pa.Super. 52, 58, 56 A.2d 374, 377 (1948). According to Professor Prosser,
(w)hen the defendant satisfied the judgment in trover, the title to the chattel passed to him, and the plaintiff had nothing more to do with it. The effect was that the defendant was compelled, because of his wrongful appropriation, to buy the chattel at a forced sale, of which the action of trover was the judicial instrument.*fn3
Pennsylvania courts have long recognized the forced sale aspect of conversion actions. Singer Sewing Machine Co. v. Yaduskie, 26 Pa. Co. Ct. Rep. 298, 300 (1902).
The title-passing and forced-sale concepts distinguished trover from the common law action of trespass, which was premised on the theory that the plaintiff remained the owner of the chattel and was entitled only to the damages he had sustained through loss of possession, and from the action of replevin, which also left title in the plaintiff and returned the chattel to his possession. See id. at 299. The modern day tort of conversion retains the conceptual underpinnings of trover and is generally applicable only to cases such as this one in which there has been a major or serious interference with a chattel or with the plaintiff's right in it.*fn4 It is the seriousness of the interference that justifies the forced judicial sale to the defendant, described by Prosser as "the distinguishing feature of the action."*fn5 The Restatement (Second) of Torts preserves this conceptual basis:
When the defendant satisfies the judgment in the action for conversion, title to the chattel passes to him, so that he is in effect required to buy it at a forced judicial sale. Conversion is therefore properly limited, and has been limited by the courts, to those serious, major, and important interferences with the right to control the chattel which justify requiring the defendant to pay its full value.
s 222A, Comment c (1965). Although Pennsylvania law is unclear about whether title passes on entry of judgment against the converter or only when the converter satisfies the judgment,*fn6 the rule recognized in most states is that title to the chattel passes only when the judgment against the converter is satisfied.*fn7 We need not venture our opinion on how the Pennsylvania courts would resolve this question, however, because in this case both the judicial order that Fredella pay the value as a condition of his probation and actual payment of $3,000 to Dr. Baram, events related to the first conversion, preceded judgment on the second claim. This sequence indicates that title passed to Fredella at ...