Conversion as a Strict Liability Tort: Implications for Construction Disputes

In a decision published on July 29, 2026, the Ninth Circuit issued an important ruling interpreting California law in Serenity Investments, LLC v. Sun Hung Kai Strategic Capital, Ltd. Applying California precedent, the court held that conversion is a strict liability tort under California law, and that a defendant found liable for conversion may seek partial equitable indemnity from concurrent negligent tortfeasors. Although the Ninth Circuit’s interpretation of state law is persuasive rather than binding on California state courts, the decision provides significant guidance. For parties involved in construction and commercial disputes, this ruling clarifies how liability can be allocated when multiple parties contribute to a loss.

What Is “Conversion”?

In everyday terms, conversion is the legal name for wrongfully taking, keeping, or using someone else’s property as if it were your own. It is essentially the civil law version of theft, but it does not require a thief’s motive: a person or company can be liable even if they acted by mistake or in good faith. Common examples include refusing to return equipment after a rental ends or keeping materials another party paid for. When someone commits conversion, the law generally requires them to pay the owner the full value of the property they wrongfully controlled.

What Is “Equitable Indemnity”?

Equitable indemnity is a fairness-based rule that lets someone who gets stuck paying for a loss ask others who helped cause it to pitch in. “Equitable” simply means based on fairness, and “indemnity” means being paid back. “Partial” equitable indemnity divides the cost based on how much each party was actually at fault: if a jury finds one party seventy percent responsible and another thirty percent, the loss is split in those proportions. For example, if a contractor is sued over water damage caused by a plumber’s faulty pipe, the contractor may seek equitable indemnity so the plumber covers a fair share of the cost.

Factual Background of the Serenity Case

The dispute arose out of a stock transfer gone wrong. The plaintiffs entered into an agreement to sell 101,640 shares of SoFi preferred stock to Sun Hung Kai Strategic Capital (SHK), with an outside law firm serving as administrative agent and a broker serving as placement agent. Although SHK placed the transaction on hold before paying, the shares were nonetheless transferred to SHK, and efforts to reverse the transfer failed. Years later, after SoFi went public, SHK ended up holding shares worth several million dollars that it had never paid for, and it did not promptly return them upon demand. The plaintiffs sued SHK for conversion. SHK, in turn, filed a third-party complaint against the law firm and the broker, seeking equitable indemnity based on their alleged negligence in handling the transaction. The district court dismissed that indemnity claim, reasoning that conversion is an intentional tort, and that intentional tortfeasors cannot shift any portion of their liability onto merely negligent parties.

The Ninth Circuit Decision

The Ninth Circuit reversed the district court’s dismissal of SHK’s equitable indemnity claim. The court reaffirmed that conversion is “the wrongful exercise of dominion over the personal property of another” and comprises three elements: (a) the plaintiff’s ownership or right to possession of the personal property; (b) the defendant’s disposition of the property in a manner inconsistent with the plaintiff’s property rights; and (c) resulting damages. Relying on California Supreme Court precedent, including Voris v. Lampert (2019) and B.B. v. County of Los Angeles (2020), the panel held that conversion does not depend on the wrongful intent of the defendant. Conversion requires only that the defendant intentionally performed the act that deprived the plaintiff of possession; it does not require bad faith, knowledge, or even negligence. In that sense, the court explained, conversion is more like strict product liability than an intentional tort such as battery or fraud. Because California allows a right of partial indemnity in actions based on negligence and strict liability, the court concluded that a party liable for conversion may seek to apportion the loss among other, more culpable parties. The extent to which any defendant is actually at fault can then be resolved through a jury's comparative fault determination.

Implications for Construction Disputes

Construction projects are multi-party endeavors. Owners, general contractors, subcontractors, suppliers, architects, engineers, lenders, and sureties all interact, and a single loss often results from the combined conduct of several of them. Although the Serenity decision arose from a securities transaction, its holding on the strict liability nature of conversion and the availability of equitable indemnity applies broadly. For construction, the practical effects are meaningful. A party accused of conversion may be able to spread the risk of loss: a contractor or supplier held strictly liable for converting materials, equipment, or funds may have a strong argument that it is not automatically barred from seeking indemnity simply because the claim sounds in conversion, and if another party's negligence contributed to the loss, that fault may be brought into the case. The decision also reinforces that liability should track relative culpability, since the court grounded its holding in equity and fairness and emphasized that loss should be apportioned among wrongdoers in proportion to their responsibility. Finally, it is a reminder that good faith is generally not a defense to conversion. A party who innocently takes or withholds property belonging to another may still be liable, even absent any intent to do wrong, so prompt investigation and return of misdirected materials, equipment, or payments remains the most effective safeguard.

Common Conversion Claims in Construction

Conversion claims surface across a wide range of construction contexts. They frequently involve building materials, fixtures, tools, or heavy equipment that are taken, retained, or used by a party without the right to do so, such as a contractor who removes materials from a site, keeps materials paid for by another party, or refuses to return leased or rented equipment after the rental term ends. They also arise when a general contractor receives funds earmarked for subcontractors or suppliers and diverts them, or wrongfully withholds retention, which can give rise to a conversion claim alongside claims under California’s prompt payment and retention statutes. Conversion disputes might also follow termination of a contract, when one party keeps or refuses to return equipment, materials, plans, or documents left on site. Improperly selling, scrapping, or repurposing salvage, demolition materials, or fixtures belonging to the owner or another party is another recurring source of conversion claims, as is the failure to return a deposit, overpayment, or advance once the basis for holding it has ended.

Conclusion and Key Considerations

The Serenity decision provides strong support for the position that conversion is a strict liability tort and that a defendant found liable for conversion may seek partial equitable indemnity from concurrent negligent parties, subject to the usual requirements and limitations on such claims. As a Ninth Circuit interpretation of California law, the decision is persuasive rather than binding on California state courts, but it offers meaningful guidance. At the same time, the decision reaffirms that innocent mistakes are generally not a defense to conversion liability. If you are involved in a construction or commercial dispute involving the wrongful taking, withholding, or misapplication of property or funds, Katbi Law PC can help you evaluate your exposure and your options. Contact our office to discuss your matter.