By D. Carlos Kaslow
According to an article that appeared in the July/August 1997 issue of The Self Storage Legal Review, the tort of conversion is the most dangerous claim storage operators face. It can be likened to civil theft of property and is the one tort claim in which storage operators face a realistic likelihood of punitive damages. Understanding this tort and how it can be avoided is important for both the storage- facility owner and site personnel.
The legal definition of conversion is fairly straightforward. A conversion is "Any distinct unauthorized act of dominion or ownership exercised by one person over personal property belonging to another" (7A Am. Jur 2d. Pleading and Practice Forms 164).
Self-storage operators become vulnerable to allegations of conversion when they exercise their remedies against customers who fail to pay rent by the due date. Whenever a self-storage operator interferes with a customer's access to his property, the specter of conversion materializes.
When a space is overlocked or a customer is denied access to the premises, conversion becomes a possibility. A wrongful sale of tenant property is a classic example of the conversion of goods. A storage operator's primary defense to an allegation of conversion is compliance with rights granted by state law or contract. However, the law generally requires strict compliance with the law for these protections to apply.
A Strict Liability Tort
Conversion is a tort of strict liability. Unlike criminal theft, where intent is an element of the crime, intent is irrelevant in the tort of conversion. The fact that the storage operator had reason to believe he had a right to take control of the property does not matter. If the belief was wrong, a conversion has taken place.
This makes strict compliance with the law very important. Under the self-storage lien law enacted in most states, the storage operator is permitted to deny a delinquent customer access to his goods. However, the states vary as to when this right occurs. For instance, in Florida and New Mexico the lien law specifically authorizes denial of access when rent is six days past due. California and Nevada permit denial of access 14 days after sending a notice to the customer that such action will be taken. This translates into 30 or more days after the customer misses a rental payment. Jumping the gun can lead to a successful conversion claim.
Storage operators in states that do not permit denial of access for 30 or more days frequently ask, "Can we code them out of the gate just to get them in the office so we can discuss the rent situation with them?"
The answer depends on your risk tolerance. The lien laws in states like California and Nevada are quite specific as to when you are legally permitted to deny access. A court could conclude that any interference not authorized by the statute is a conversion. This suggests that if the storage operator permits access to the property after "getting the customer's attention" about the payment problem, a conversion has not occurred.
A policy of denying your customers access before it is permitted by statute, even if it is simply to get the customer's attention, can still be dangerous. It is unlikely that the self-storage operator will ever be sued for merely denying a customer access to the storage unit. Early overlocking becomes a problem when a suit for wrongful sale is brought. The plaintiff attorney will closely examine your delinquent tenant procedures. Early overlocking may seem rather trivial to you, but it will be used at trial to show your craven disregard for the rights of your customers.
What makes conversion claims especially difficult for storage operators are the damages that are typically available to successful claimants. Under most state laws, the customer can recover the full value of the property. Even with items that have little market value, courts are very liberal in valuing converted property, interest and in many states, punitive damages that can make conversion suits especially risky for storage operators.
Tenant Can Collect Punitive Damages
Punitive damages are available when the storage operator's conduct is "outrageous because of defendant's evil motives or his reckless indifference to the rights of others" (Restatement 2d. Of Torts ß 980(2) (1977)). While this may appear to be a very high standard that no responsible self-storage operator would ever breach, experience demonstrates otherwise. Juries have shown a willingness to find landlords' behavior outrageous when they have made technical errors in implementing their legal remedies for failure to pay rent. Appellate courts will give great deference to jury findings and frequently affirm such awards.
Nearly every self-storage operator will face claims of conversion at some point., so a working understanding of its consequences are vital to the development of operating procedures that will make missteps less likely. It usually becomes an issue when customers fail to pay rent and a storage operator begins to exercise his legal remedies. If you strictly comply with the law, a customer's conversion claims generally fail. A successful claim requires the storage operator to forget that the property in "his" storage unit belongs to someone else and cavalierly disregards the legal rights of his customer.
The following article was excerpted from The Self Storage Legal Review, a bimonthly newsletter on legal issues pertaining to the self-storage industry. For more information or to obtain a subscription, contact D. Carlos Kaslow at 2203 Los Angeles Ave., Berkeley, CA 94707; (510) 528-0630.
Opinions on legal matters are those of the editors and others; professional counsel should be sought before any action based on this material is taken.