Gregory A. Neibarger: High court ruling rethinks criminal conversion of money

The Indiana Supreme Court’s recent unanimous opinion in Harper v. S&H Leasing LLC significantly changes the landscape for statutory conversion claims involving money in Indiana. The justices eliminated the longstanding judicial requirement that money must be “special chattel” — meaning a determinate sum entrusted for a specific purpose and kept segregated — for a plaintiff to prevail on a criminal conversion claim under the Indiana Crime Victims Relief Act. This decision has important implications for businesses, LLC members and anyone who controls or manages another party’s funds.

Keith Harper was the sole manager of two LLCs: S&H Leasing LLC (a used-vehicle dealer) and K&K Real Estate Holdings LLC. In 2017, Harper leveraged K&K’s real estate to borrow $275,000 in cash from a third party, then transferred the loan proceeds — approximately $273,787 after fees — into his personal line of credit and personal accounts over time. He never disclosed the loan to K&K’s other members, never signed a promissory note and never recorded the loan on the LLCs’ books. The trial court found Harper used the funds to pay personal debts, including substantial gambling obligations.

The trial court characterized Harper’s conduct as criminal conversion and awarded treble damages of $821,361 under the CVRA. On appeal, the Court of Appeals majority reversed the conversion finding, reasoning that because Harper commingled the funds with his own money, they were not separately identifiable “special chattel.” The court, however, affirmed treble damages on a theft theory. The Indiana Supreme Court granted transfer and vacated the appellate opinion.

Supreme Court decision

The Supreme Court held that money need not be “special chattel” — that is, a determinate sum entrusted to the defendant for a certain purpose and kept segregated — to support a claim for criminal conversion under the CVRA. In so ruling, the court emphasized that the criminal conversion statute simply requires that a person “knowingly or intentionally exerts unauthorized control over property of another person,” and does not differentiate between types of property or require that funds be segregated.

The Supreme Court drew a clear distinction between the common-law tort of conversion, which historically required “special chattel,” and the statutory crime of criminal conversion, which the legislature modeled after the crime of theft. The court noted that the old rule produced “perverse outcomes,” including rewarding wrongdoers who commingled stolen funds to avoid liability.

Critically, the court made clear that this change does not open the door to treble damages for ordinary contract disputes or debtor-creditor disagreements. The limiting principle is now the statutory mens rea: The plaintiff must prove the defendant acted “knowingly” or “intentionally” in exerting unauthorized control over another’s property. Good faith is a defense, and a mere failure to pay a debt does not constitute criminal conversion as a matter of law.

Key takeaways for businesses

Commingling funds is no longer a shield. Under the prior framework, a defendant who mixed misappropriated funds with personal money could argue the funds were not “special chattel” and avoid treble damages. That defense is now gone. The focus going forward is on criminal intent, not the location or segregation of the funds.

Treble damages exposure is broader. Any person who knowingly or intentionally exerts unauthorized control over another’s money — regardless of whether those funds were earmarked, segregated or held in a separate account — may be subject to treble damages and attorneys’ fees under the CVRA.

Mens rea is the critical dividing line. The Supreme Court emphasized that criminal intent separates actionable conversion from an ordinary contract dispute. A defendant who genuinely believed it was entitled to retain or use disputed funds may have a viable good-faith defense.

Claims must be attributed to the correct victim. The Supreme Court remanded the case to correct the treble damages award, directing it to K&K (whose funds were actually converted) rather than S&H. Practitioners should ensure that CVRA claims are asserted by the proper party — the entity or person whose property was actually taken.

A cautionary note

While this opinion broadens the ability to bring conversion claims, business owners considering such a claim should proceed carefully. A partner, member or shareholder who alleges that another owner “converted” company funds is effectively accusing that person of committing a criminal act and inviting the court to impose treble damages and attorneys’ fees as a consequence. This is a powerful tool, but it carries meaningful strategic risk.

First, the CVRA requires the plaintiff to prove every element of the criminal offense by a preponderance of the evidence, including the defendant’s knowing or intentional criminal intent. If the court finds the dispute is really an ordinary business disagreement — for instance, a good-faith difference of opinion over the use of company funds — the conversion claim will fail, potentially undermining the plaintiff’s credibility and overall case. Courts remain wary of litigants who try to “shoehorn a garden-variety civil dispute into a criminal offense under the CVRA.”

Second, alleging conversion in a closely held business dispute escalates the stakes for all parties. A defendant facing treble damages and criminal-conduct allegations has every incentive to fight aggressively and may assert counterclaims. Members and shareholders should weigh the litigation costs and relationship consequences before framing a financial dispute as a criminal act, particularly where the underlying facts may support a more conventional breach-of-fiduciary-duty or breach-of-contract theory.

Conclusion

Harper v. S&H Leasing LLC is a significant development in Indiana business litigation. By removing the “special chattel” requirement for criminal conversion of money, the Indiana Supreme Court has made it easier for victims of genuine misconduct to recover treble damages under the CVRA while reaffirming that the statute’s mens rea requirement guards against its misuse in ordinary commercial disputes. Businesses, LLC managers and fiduciaries who handle other parties’ funds should take note: The defense of commingling is no longer available, and the consequences of unauthorized use of another’s money are now even more severe.•

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Neibarger is a partner in Dentons’ Indianapolis office and a co-chair of the Fiduciary Litigation practice group.