TBA Law Blog


Posted by: Darald Schaffer on Jul 22, 2019

Journal Issue Date: Aug 2019

Journal Name: Vol 55 No 8

The Discovery Rule in Conversion of Personal Property Cases

For centuries statutes of limitation have been an integral part of our laws. They are designed to accomplish the public policy of preventing undue delay in bringing claims so that risks of injustice caused by missing evidence and faded memories can be averted.

Over the years, the Tennessee General Assembly and the courts have carved out various exceptions to statutes of limitation to prevent unduly harsh or unjust results. One such exception is the discovery rule, which is employed to prevent the accrual of the statute of limitations until a plaintiff discovers a cause of action exists. Cases involving conversion of personal property often present a battleground for dueling public policies where the statute of limitations is at issue.

 
This is a photo of the actual 1929 Gibson Mastertone “RB6” banjo, the subject of this article. Provided by Ken Orban.
 


‘The Banjo Case’

One such case involved the theft of a valuable antique Gibson banjo in Nashville and its recovery more than 30 years later. On the late autumn evening of Oct. 9, 1986, the Wildwood Girls bluegrass band had finished a performance at the Grand Ole Opry in Nashville and left their instruments in their tour van so they could visit a local music venue in the city where several other bands were playing that evening. When the Wildwood Girls returned to their van after the show, they discovered that the van had been broken into and that their instruments had been stolen. Among the instruments that were taken was a rare and valuable 1929 Gibson Mastertone “RB6” banjo that belonged to band member Kim Koskella.

An acquaintance of the band that helped drive the van on their tour reported the theft to the local authorities. The serial number of the Gibson banjo was included in the police report. Although at least one of the other instruments was eventually recovered, the Gibson Mastertone banjo was not found. It had vanished along with Ms. Koskella’s hopes of ever finding it.

Twenty-six years later, on Sept. 25, 2013, the Gibson banjo showed up on a Facebook post made by professional banjo musician Charlie Cushman. Mr. Cushman had agreed to help a long-time acquaintance sell the banjo along with its Mark Leaf case in exchange for a commission and they agreed on a sales price of $16,000. Given Mr. Cushman’s excellent reputation in the music industry, he agreed to serve as a broker for the sale because he had no reason to suspect that the current owner of the banjo — a professional stage hand whom Mr. Cushman had known for years — was not its true owner. The banjo’s current owner at that time, Mr. Doug Brown, had purchased the banjo in 1989 from a fellow stagehand, who told him — falsely as it turned out — that he received the banjo from his deceased grandfather from Washington, D.C.

A banjo aficionado, Ken Orban, came across Charlie Cushman’s Facebook post and became interested in purchasing the banjo. To get feedback as to value of the banjo, on Oct. 15, 2013, Mr. Orban posted pictures of the banjo and its serial number on a website used by banjo enthusiasts called “banjohangout.org.” Three days later, Mr. Cushman made another Facebook post stating that the banjo was still available for sale and posted a picture of the banjo.

On Nov. 3, 2013, the owner of the banjo at the time of its theft, Ms. Kim Terpening (formerly Koskella), became Facebook “friends” with Charlie Cushman. At that time, the banjo was still being offered for sale on Mr. Cushman’s Facebook page. Probably because she had despaired of any hope that the intact banjo could be found, Ms. Terpening did not notice the photographs and description of the banjo posted on Mr. Cushman’s Facebook page. She was only a couple of clicks away from finding her long-lost Gibson banjo, but ironically, she did not look through the listings and photographs of high-value banjos on Mr. Cushman’s page.

After negotiating with Mr. Cushman on the price, Mr. Orban purchased the banjo from Mr. Cushman on Nov. 21, 2013. Mr. Orban was proud of his new banjo, because it was such a rare find. In addition to posting photographs of the banjo on the banjohangout.org website, he frequently played the banjo at public events and even displayed the banjo at an annual banjo festival called “Banjothon” every year. Although Ms. Terpening could have located the Facebook posts of the banjo on Mr. Cushman’s page or the posts from Ken Orban on the banjohangout.org site, it was not until over three years later on July 22, 2017, that Ms. Terpening found Mr. Orban’s Oct. 15, 2013, post on banjohangout.org after searching archived threads on the website.

On July 24, 2017, Mr. Orban received a Facebook “friend request” from Kim Terpening. At that time he did not know that Ms. Terpening was the owner of the banjo at one time or that the banjo had been stolen from the Wildwood Girls tour van in 1986. Ms. Terpening’s friend request was accompanied by a message that stated “I am having a Gibson banjo reproduction made and was wondering if I could get some photos of your RB6 for my luthier to work with.” Mr. Orban openly shared details about the banjo with Ms. Terpening and told her that he was having it serviced at a banjo shop in Kentucky, but Ms. Terpening kept quiet about her ownership interest in the banjo.

On Aug. 10, 2017, Ms. Terpening traveled to the shop where Mr. Orban was having the banjo serviced. The owner of the banjo shop allowed Ms. Terpening to see the banjo after she told him that she was a prior owner of the banjo. More than 30 years after the banjo was stolen from the Wildwood Girls’ tour van, Ms. Terpening finally found the long-lost banjo and she was determined to get it back, so she filed an action to recover personal property and obtained an ex parte writ of possession against Mr. Orban on Aug. 24, 2017.

Mr. Orban was shocked when he learned that he was required to turn over the banjo because an ex parte writ of possession had been entered against him. After all, Mr. Orban had owned the banjo for nearly four years by that time and had no clue that there was any outstanding claim of ownership to the banjo when he purchased it. Not even Kim Terpening had told him that she owned the banjo.1

The Statute of Limitations, the Discovery Rule and Fraudulent Concealment

Tennessee has a three-year statute of limitations that governs claims for the conversion of personal property.2 Strong public policies underlie statutes of limitation. The Tennessee Supreme Court has explained that “[a]ll statutes of limitations are intended to ensure fairness and justice. Such statutes prevent undue delay in filing lawsuits and thereby ensure that evidence is preserved and facts are not obscured by the lapse of time or the defective memory or death of a witness.”3 Accordingly, there is a substantial risk of injustice where a plaintiff unduly delays in bringing its claims. Essentially, the evidentiary reliability of the claims is diminished to the prejudice of a defendant. However, the strict application of statutes of limitations can also impose harsh and oppressive results upon plaintiffs whose delay was not occasioned by their own inattention.4 This led to the adoption of the discovery rule by the Tennessee Supreme Court in the 1974 case of Teeters v. Currey.5 Although the court in Teeters limited the application of the discovery rule to medical malpractice cases, since that time the doctrine has been employed by Tennessee courts in a variety of causes of action. In the 2002 case of Pero’s Steak & Spaghetti House v. Lee, the Tennessee Supreme Court proclaimed that “[i]t is now well-established that, where applicable, the discovery rule is an equitable exception that tolls the running of the statute of limitations until the plaintiff knows, or in the exercise of reasonable care and diligence, should know that an injury has been sustained.”6

The discovery rule relates to the core operation of a statute of limitations because it prevents the accrual of the cause of action that starts the running of the clock for the limitations period. The Tennessee Supreme Court has recently explained that “[u]nder the current discovery rule, a cause of action accrues … not only when the plaintiff has actual knowledge of a claim, but also when the plaintiff has actual knowledge of facts sufficient to put a reasonable person on notice that he [or she] has suffered an injury as a result of wrongful conduct.”7

A related doctrine is tolling of the statute of limitations based on a defendant’s fraudulent concealment of the cause of action. The Tennessee Supreme Court has explained that the following elements must be proven by a plaintiff who seeks to toll the statute of limitations based on fraudulent concealment:

[T]o establish fraudulent concealment, a plaintiff must prove the following:
(1) that the defendant took affirmative action to conceal the cause of action or remained silent and failed to disclose material facts despite a duty to do so;
(2) that the plaintiff could not have discovered the cause of action despite exercising reasonable care and diligence;
(3) that the defendant had knowledge of the facts giving rise to the cause of action; and
(4) that the defendant concealed material facts from the plaintiff by withholding information or making use of some device to mislead the plaintiff, or by failing to disclose information when he or she had a duty to do so.8

In order to successfully toll the statute of limitations, the plaintiff must prove each of the above elements. It is worth noting that the fraudulent concealment rule includes a discovery rule element: “that the plaintiff could not have discovered the cause of action despite exercising reasonable care and diligence.” Accordingly, to avail themselves of the benefit of tolling the statute of limitations, plaintiffs relying on the fraudulent concealment doctrine must show that their cause of action passes muster under the discovery rule in addition to the remaining elements. Therefore, it would seem that if a plaintiff needs only to rely on the discovery rule to prevent the accrual of the statute of limitations, then it would seldom be necessary to rely upon tolling based on fraudulent concealment — rendering the remaining elements of the rule mere surplusage.

The discovery rule is not universally applicable and its application has been excluded in certain types of cases. For example, in Pero’s Steak and Spaghetti House v. Lee, the Tennessee Supreme Court declined to apply the discovery rule to a claim of conversion involving negotiable instruments. The court in Pero’s ruled that “the nature of the tort of conversion militates against application of the discovery rule” and that “[a]bsent fraudulent concealment, three years should be more than ample time for a plaintiff to discover a conversion claim. Extending the statute by application of the discovery rule would place defendants in the untenable position of having to defend against stale claims.”9 Although the court’s ruling in Pero’s was limited to cases of conversion involving negotiable instruments, the court’s ruling could find application in other types of conversion cases.

In the wake of the court’s ruling in Pero’s, the learned Donald F. Paine perceived the potentially broad application of the court’s ruling to other conversion cases in his Paine on Procedure column, “The Statute of Limitations for Conversion of Personal Property.”10 Mr. Paine concluded that “the three-year limitations period begins to run at the time of the defendant’s conversion rather than the time of plaintiff’s discovery unless the plaintiff can prove defendant’s fraudulent concealment.”

Since the time of Don Paine’s 2009 article on the application of the discovery rule to conversion cases, the Tennessee Supreme Court has not ruled on the application of the doctrine in another conversion case; however, the court in the January 2019 case of Individual Healthcare Specialists Inc. v. BlueCross BlueShield of Tenn. Inc. may have signaled that the application of the Pero’s ruling is limited to claims for conversion of negotiable instruments.11

What about the Gibson Banjo?

Mr. Orban and Ms. Terpening’s duel for the Gibson banjo was fought vigorously through the General Sessions Court and on appeal in Hamilton County Circuit Court where Mr. Orban filed a motion for summary judgment requesting that the court dismiss Ms. Terpening’s claim of conversion based on the application of the three-year statute of limitations and laches.12 The key summary judgment evidence before the court included among other items, Charlie Cushman’s Facebook posts showing detailed photographs of the Gibson banjo and its detailed description, and Mr. Orban’s public posts about the banjo on banjohangout.org, which also included photographs of the banjo and its serial number.

Mr. Orban argued that more than 30 years had passed by the time Ms. Terpening filed suit and that the very nature of the tort of conversion required a strict application of the statute of limitations as indicated by the Tennessee Supreme Court in Pero’s. Mr. Orban further argued that even if the discovery rule were applied, Ms. Terpening with the exercise of reasonable diligence could have easily discovered her cause of action within the three-year limitations period based on the public posts made online by her Facebook friend Charlie Cushman and the posts made on the internet by Mr. Orban, which included photographs and detailed information about the banjo, including its serial number. Applying the discovery rule to the case, the trial court allowed Ms. Terpening’s claim to survive summary judgment.13 Ultimately, Mr. Orban decided to voluntarily dismiss his appeal. The duel was over and Mr. Orban and Ms. Terpening struck a truce as fellow banjo musicians.

Conclusion

The Terpening v. Orban case shows that in conversion claims involving an innocent purchaser of converted property it is possible to have two innocent parties before the court and that in those cases the court is faced with the very difficult task of deciding who gets to keep the property. It remains to be seen whether Don Paine’s prediction of a general prohibition of the discovery rule in conversion cases (other than where fraudulent concealment is shown) will become settled law in Tennessee. However, the Terpening v. Orban case also illustrates how broadly the discovery rule can be applied by courts to the detriment of persons who purchase property without notice of any inadequacy of title in the seller. It is the author’s opinion that in conversion of personal property cases, the discovery rule can undermine the important public policy objectives embodied by statutes of limitation. The dueling public policies of statutes of limitation and claimants’ rights to recovery are more fairly balanced with the application of the fraudulent concealment rule, which includes the discovery rule as one of its elements.

In addition, a statute of repose to govern conversion of personal property claims would prevent long delays by plaintiffs in bringing their causes of action, incentivize claimants to diligently investigate their causes of action and clear title to personal property where property is purchased by an innocent party. The Tennessee Supreme Court has explained that statutes of repose are distinguishable from statutes of limitation because “statutes of repose are substantive and extinguish both the right and the remedy while statutes of limitation are procedural, extinguishing only the remedy.”14 Tennessee does not currently have a statute of repose that applies to claims involving the conversion of personal property. A statute of repose that limits causes of action for conversion of personal property after ten years from the date that the property was converted would provide a substantial period of time for plaintiffs to discover their cause of action. And to protect plaintiffs from defendants who conceal the property (or the cause of action) during the limitations period, the statute could include a tolling exception for fraudulent concealment that embodies the elements set forth by the Tennessee Supreme Court.

Darald J. Schaffer is an attorney at Wooden Law Firm PC in Chattanooga. His practice areas include business law, civil litigation, estate planning and estate administration. He earned his undergraduate degree in accounting from Lee University and is a graduate of Regent University School of Law.  He can be contacted at daraldschaffer@woodenlaw.com.


NOTES

1. The author’s firm, Wooden Law Firm PC in Chattanooga, had the opportunity to represent Mr. Orban to defend his rights to the ownership of the banjo.
2. Tenn. Code Ann. § 28-3-105(2).
3. Pero’s Steak & Spaghetti House v. Lee, 90 S.W.3d 614, 621 (Tenn. 2002).
4. See Individual Healthcare Specialists Inc. v. BlueCross BlueShield of Tenn. Inc., 566 S.W.3d 671, 709-10 (Tenn. 2019) (discussing the adoption of the discovery rule in Tennessee “in response to the ‘harsh and oppressive’ results of the traditional accrual rule in circumstances in which the injured party was unaware of the injury”).
5. Teeters v. Currey, 518 S.W.2d 512, 516-17 (Tenn. 1974).
6. Pero’s, 90 S.W.3d at 621.
7. Smith v. Tenn. Nat’l Guard, 551 S.W.3d 702, 710 (Tenn. 2018).
8. Pero’s, 90 S.W.3d at 625.
9. Id. at 624.
10. “The Statute of Limitations for Conversion of Personal Property,” by Donald F. Paine, February 2009 Tennessee Bar Journal, www.tba.org/journal/the-statute-of-limitations-for-
conversion-of-personal-property.
11. Individual Healthcare Specialists Inc., 566 S.W.3d at 710 (stating “[t]his Court has declined to apply the discovery rule to actions for defamation, or to claims for conversion of negotiable instruments, despite the fact that ‘[n]ot applying the discovery rule may very well be harsh in certain cases’”) (internal citations omitted).
12. Def.’s Mot. Summ. J. (Oct. 12, 2018), Terpening v. Orban, No. 17C1292 (Cir. Ct. Hamilton Co. Tenn.).
13. Mem. Order (Jan. 8, 2019), Terpening v. Orban, No. 17C1292 (Cir. Ct. Hamilton Co. Tenn.).
14. In re Estate of Davis, 308 S.W.3d 832, 838 (Tenn. 2010).