Reported / Citable
Background
A failed stock transaction left Sun Hung Kai Strategic Capital with 101,640 SoFi shares that it had never paid for. Orrick, acting as the sellers’ administrative agent, transferred the certificates even though the deal had been placed on hold. The parties initially recognized the mistake and believed SoFi would reverse it, but the transfer remained on SoFi’s books.
Years later, as SoFi prepared to go public through a special-purpose acquisition company, Sun Hung Kai confirmed the extra shares, signed a lost-certificate affidavit claiming ownership, and received converted public-company shares. When the original owners demanded their return, Sun Hung Kai proposed paying the old contract price instead. It eventually returned the shares after their market value had fallen substantially. The owners sued for conversion and other torts, and Sun Hung Kai sought equitable indemnity from Orrick and broker Scenic Advisement, alleging their negligence helped cause the loss.
The district court granted summary judgment to Orrick and Scenic. It reasoned that conversion was intentional misconduct and that an intentional tortfeasor could not shift responsibility to negligent actors.
The Court’s Holding
The Ninth Circuit reversed, predicting how the California Supreme Court would answer the unresolved state-law question. Conversion protects a person’s right to possess property, but liability does not require wrongful knowledge, bad faith, or an intent to injure. Even an innocent purchaser can be liable. The panel therefore classified conversion as a strict-liability tort for this purpose, not an intentional tort categorically barred from equitable indemnity.
Equitable indemnity allows joint tortfeasors to divide a loss according to comparative fault. Because California permits indemnity for negligence and strict liability, a conversion defendant may seek partial indemnity from negligent actors who concurrently caused the injury. Sun Hung Kai’s particular conduct may affect the jury’s allocation of fault, but it does not eliminate the remedy at the threshold. The panel left other asserted grounds for summary judgment for the district court to address on remand.
Key Takeaways
- Under the Ninth Circuit’s prediction of California law, conversion is strict liability because it does not require wrongful intent or an intent to injure.
- A defendant facing conversion liability may pursue partial equitable indemnity against negligent joint tortfeasors who helped cause the same loss.
- The intentional act of exercising control over property is not the same as an intentional tort committed with an intent to injure.
- A defendant’s blameworthy facts remain relevant to comparative-fault allocation even when they do not bar indemnity altogether.
- The ruling reverses only the categorical bar; Orrick and Scenic may still pursue other defenses on remand.
Why It Matters
The ruling matters in commercial disputes where multiple professionals, brokers, custodians, or counterparties contribute to a mistaken transfer. A party technically liable for conversion is no longer necessarily left bearing the entire loss merely because another participant was negligent rather than intentional. Third-party claims and comparative-fault evidence may now become central to case strategy.
California practitioners should remember that this is a federal court’s Erie prediction, not a California Supreme Court holding. Still, as published Ninth Circuit authority, it will strongly shape federal cases applying California law. Plead the common injury, the concurrent wrongdoing, and a basis for joint liability with care; equitable indemnity does not apply simply because another participant behaved badly in a separate transaction.