Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-06059/USCOURTS-ca8-04-06059-0/pdf.json

Parties Involved:
Louise M. Litzinger
Appellant
The Estate of Victor Litzinger
Appellee

Document Text:

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

________

04-6059EM

________

In re: *

*

Louise M. Litzinger, *

*

Debtor. *

*

Louise M. Litzinger, *

 * Appeal from the United States

Debtor-Appellant, * Bankruptcy Court for the

 * Eastern District of Missouri

v. *

*

The Estate of Victor Litzinger, *

*

Claimant-Appellee. *

________

Submitted: February 8, 2005

Filed: March 15, 2005 (Corrected March 25, 2005)

________

Before KRESSEL, Chief Judge, DREHER, and MAHONEY, Bankruptcy Judges.

________

DREHER, Bankruptcy Judge.

This is an appeal from an order of the bankruptcy court allowing a claim by

The Estate of Victor Litzinger in the amount of $130,553.38. In allowing the claim

the bankruptcy court held that debtor had participated in the conversion of at least

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that amount of probate estate assets. We remand with instructions to the bankruptcy

court to address a jurisdictional issue which was never raised or briefed before the

bankruptcy court or this Bankruptcy Appellate Panel.

BACKGROUND AND FACTS

Victor Litzinger (Victor) had two heirs, his nephews Guy Litzinger (Guy) and

Warren Rosenfelder (Warren). Debtor, Louise Litzinger (Louise), was Guy's wife.

Victor was an elderly man when, on July 7, 1997, he signed a durable power of

attorney naming Guy his attorney-in-fact. The power of attorney gave Guy full

authority, in his sole discretion, to deal with Victor's assets without limitation, except

those imposed by statute. Only a few months later, on October 16, 1997, Victor

executed a Last and Will and Testament which named Guy as Personal

Representative of Victor's estate. After making a few special bequests, the will left

all assets which Victor owned at the time of his death to Guy and Warren equally.

Using Victor's assets, on March 19, 1998, Guy opened a brokerage account

(Victor/Guy account) at a brokerage company where Guy and Louise also had a joint

account (Guy/Louise account). No one could find any documents evidencing the

opening of this account. Guy did sign a Substitute W-9 which indicated that the

account was opened as a joint account and the evidence showed that the brokerage

company considered the account a joint account with right of survivorship. The

parties further stipulated that Victor signed no document in connection with the

opening of the Victor/Guy account.

Between July 1997 and Victor's death, Guy paid all of Victor's living expenses

out of a separate checking account which Victor owned. No draws were made on the

Victor/Guy account between the time it was opened and Victor's death.

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On January 7, 2000, Victor died. Shortly thereafter, on February 9, 2000, Guy

signed a Letter of Authorization closing the Victor/Guy account. Pursuant to

instructions from Guy, the assets in the Victor/Guy account, valued on January 1,

2000, at $219,392.86, were transferred to the Guy/Louise account. Immediately prior

to the transfer, the Guy/Louise Account had a balance of $51,367.83. The only

evidence of Louise's complicity in this transfer was the testimony of both Guy and

Louise that, at Guy's direction, she called the broker to find out what steps needed to

be taken to effect a transfer and then conveyed that information to Guy. Guy was the

only person legally authorized to effect the transfer. Louise testified she thought the

transfer was perfectly proper because Victor wanted Guy to receive the account and

Warren to receive his real estate.

In March 2000 Guy, as Personal Representative of Victor's estate, opened

Victor's probate estate in Michigan. On November 6, 2001, Guy filed an inventory

in the Michigan probate proceedings which listed a parcel of real estate in Michigan

and the Guy/Louise Account as Victor's only assets. This is apparently the first and

only time until the claim was filed in this case that Guy took the position that the

money in the Guy/Louise account was an asset of Victor's estate. On March 14, 2003,

Guy resigned as Personal Representative of the probate estate and Warren was

substituted in his place. The record does not indicate whether there has been any

other activity in the Michigan probate proceeding. 

During 2000, Guy and Louise withdrew $121,616.35 from the Guy/Louise

Account for payment of their own living expenses. In an action which apparently

sparked Guy's ire, Louise herself withdrew $40,000 of that sum from the account

shortly before she filed for divorce on December 29, 2000. 

Louise testified that she believed they were entitled to the money upon Victor's

death. While Guy's current position is that the Guy/Louise account belongs to the

estate, he took multiple actions which demonstrated otherwise. For example, Guy

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and Louise filed joint income tax returns for 2000 and 2001 in which they claimed

the gains on the Guy/Louise account as theirs and paid taxes on them. Guy filed his

own separate tax returns for 2002 and 2003, claiming once again that the earnings on

the Guy/Louise account were his, and he paid taxes on them. Meanwhile, on January

6, 2003, Dorothy Litzinger, Guy's mother, obtained a judgment against Guy and

Louise for $160,625.00 she claimed they both owed her. On February 28, 2003,

Dorothy garnished the Guy/Louise account and obtained $90,553.38. Guy, who was

still the Personal Representative of Victor's estate at that time, took no steps on behalf

of Victor's estate to object to the garnishment. He testified that he failed to do so

because he thought he and Louise owed his mother the money. Shortly thereafter,

Guy resigned as Personal Representative and Warren was appointed in his place.

On August 13, 2003, Louise filed for Chapter 7 relief under the Bankruptcy

Code. On December 2, 2003, Guy, on behalf of the estate, filed a proof of claim

asserting that the estate was owed $130,553.38 ($40,000 for the amount taken by

Louise from the Guy/Louise account on the day she filed for divorce and $90,553.38

taken by the garnishment). The parties later agreed that, while the claim should have

been filed by Warren, this would not be considered a cause for objection to the claim.

The estate's theory was that the transfer of funds from the Victor/Guy account to the

Guy/Louise account was a conversion of the probate estate's property. The estate

asserted that Louise was culpable because she knowingly participated in the

conversion and took the benefit of the funds. 

After trial, the bankruptcy court allowed the estate’s claim. First, the

bankruptcy court noted that the parties had agreed that Missouri law applied to the

question of whether there had been a conversion and itself agreed that such was the

applicable law based on the quantity and quality of contacts with the State of

Missouri. The bankruptcy court went on to hold that under Missouri law conversion

consists in the wrongful unauthorized assumption of the right of ownership over

personal property of another, that the money in the Victor/Guy account was subject

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to a fiduciary duty on Guy’s part not to use it as his own, that Louise knew of the

durable power of attorney and that Guy was not authorized to use the money as his

own, and that when Guy transferred the funds from the Victor/Guy account to the

Guy/Louise account both Guy and Louise wrongfully assumed ownership of the

account. The bankruptcy court held Louise liable for conversion because she assisted

Guy in the conversion of the account and used the funds as her own. The bankruptcy

court rejected Louise’s argument that Guy’s filing of the claim on behalf of the

probate estate was a wrongful attempt to keep the money out of the divorce

proceedings which are still pending. The bankruptcy court further rejected the

argument that Guy’s actions had been inconsistent with his current claim that the

Victor/Guy account was property of Victor’s estate and he was estopped from making

that claim now. While in final argument at the conclusion of the evidence the parties

discussed Missouri law regarding who owned the Victor/Guy account when it was

transferred to the Guy/Louise account, no one raised the effect of Missouri or

Michigan probate law on the ownership issue and everyone assumed that the

bankruptcy court had subject matter jurisdiction of the dispute.

DECISION

A. STANDARD OF REVIEW

"The question of subject matter jurisdiction is subject to de novo review. When

subject matter jurisdiction is at issue, we are required to reach the jurisdictional

question before turning to the merits." United Taconite, LLC. v. Minnesota Dept. of

Rev. (In re Eveleth Mines, LLC), 318 B.R. 682, 686 (B.A.P. 8th Cir. 2004)(citing

Hoffman v. Bullmore (In re Nat'l Warranty Insurance Risk Retention Group), 384

F.3d 959, 962 (8th Cir. 2004). Even though the parties did not specifically raise a

jurisdictional issue, as with all appellate courts, we have an obligation to examine our

own jurisdiction. Vincent v. Fairbanks Capital Corp. (In re Vincent), 301 B.R. 734,

736-37 (B.A.P. 8th Cir. 2003)(citing Lewis v. United States, 992 F.2d 767, 771 (8th

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Cir. 1993)). Similarly, the trial court had an obligation to examine its own

jurisdiction even though no party raised it. Id.

This Court reviews the bankruptcy court’s conclusions of law de novo and its

findings of fact for clear error. Tax 58 v. Froehle (In re Froehle), 286 B.R. 94, 96

(B.A.P. 8th Cir. 2002). “A finding [of fact] is ‘clearly erroneous’ when although

there is evidence to support it, the reviewing court on the entire evidence is left with

the definite and firm conviction that a mistake has been committed.” Waterman v.

Ditto (In re Waterman), 248 B.R. 567, 570 (B.A.P. 8th Cir. 2000)(citing Anderson v.

City of Bessemer City, 470 U.S. 564, 573 (1985)). 

B. THE ISSUES RAISED ON APPEAL

Louise raises three issues on appeal. First, she argues there was inadequate

evidence to support the finding that she participated in the conversion. Second, she

argues that, because the probate estate was making a claim for money owed, a general

debt arising out of her $40,000 withdrawal and the $90,553.38 garnishment, it was

required to trace the commingled assets. Third, she argues that Guy was estopped

from arguing that the Guy/Louise account was an asset of Victor's estate because he

took numerous steps which evidenced his belief that the account belonged to him,

including failing to object on behalf of the probate estate when his mother garnished

the account to pay his personal obligation to her. In response, the estate argues that

the bankruptcy court was not clearly erroneous in finding that Louise participated in

the conversion; that under Missouri Revised Statute section 473.340 if money is

placed in trust and wrongfully transferred there is no need to trace; and that Victor's

self interested and wrongful actions cannot be attributed to the estate for estoppel

purposes.

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C. THE JURISDICTIONAL ISSUE

We think these arguments miss the mark. The important question is whether

resolution of this dispute lies exclusively within the jurisdiction of the Michigan

probate court. This jurisdictional question was not raised by the parties or considered

by the bankruptcy court. Since the issue of ownership of the Victor/Guy account was

the centerpiece of resolving this claim dispute, we think the bankruptcy court must

first determine its own jurisdiction before the bankruptcy court resolves the claim

dispute. We have reached this conclusion based upon the following discussion of the

law.

1. CONVERSION

Conversion is the "unauthorized assumption of the right of ownership over the

personal property of another to the exclusion of the owner's rights." Mertz v.

Blockbuster, Inc., 32 S.W.3d 130, 133 (Mo. App. 2000)(quoting Colton, McMichael,

Lester, Auman, Visnovske, Inc. v. Mueller, 896 S.W.2d 741, 742 (Mo. App. 1995)).

Under Missouri law, which we will assume applies for purposes of determining

whether a conversion occurred, conversion can occur in one of three ways: 

1) by tortious taking; 2) by any use or appropriation to the use of the

person in possession, indicating a claim of right in opposition to [the]

owner's rights; or 3) by refusal to give up possession to the owner on

demand, even though the defendant's original possession of the property

was proper.

Walker v. Henke, 992 S.W.2d 925, 930 (Mo. App. 1999)(quoting Collins v.

Trammell, 911 S.W.2d 635, 637 (Mo. App. 1995)). All three types of conversion

require proof that the property alleged to have been converted was owned by

someone other than the alleged converter because you cannot steal from yourself.

Here, the question of who owned the Guy/Victor account on the date of the alleged

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conversion when that account was rolled into the Guy/Louise account was an

essential element of the bankruptcy court's findings, but one that the bankruptcy court

may have been without jurisdiction to make. 

2. THE DURABLE POWER OF ATTORNEY

The durable power of attorney, as the bankruptcy court seemed to have

concluded, did not allow Guy to take Victor's funds and make them his own before

Victor's death. If Missouri law applies, the duties of attorney in fact are set forth in

Missouri Revised Statute section 404.714, which states, in part, that:

An attorney in fact who elects to act under a power of attorney is under

a duty to act in the interest of the principal and to avoid conflicts of

interest that impair the ability of the attorney in fact so to act. A person

who is appointed an attorney in fact under a power of attorney, either

durable or not durable, who undertakes to exercise the authority

conferred in the power of attorney, has a fiduciary obligation to exercise

the powers conferred in the best interests of the principal, and to avoid

self-dealing and conflicts of interest, as in the case of a trustee with

respect to the trustee's beneficiary or beneficiaries; and in the absence

of explicit authorization, the attorney in fact shall exercise a high degree

of care in maintaining, without modification, any estate plan which the

principal may have in place, including, but not limited to, arrangements

made by the principal for disposition of assets at death through

beneficiary designations, ownership by joint tenancy or tenancy by the

entirety, trust arrangements or by will or codicil.

MO. REV. STAT. § 404.714. This statute prohibited Guy from commingling the

accounts or making a gift to himself. See In re the Estate of Herbert, 2004 WL

2282143 (Mo. App. 2004)(unpublished). Further, section 404.710.6(3) requires that

written authorization would have been required by Victor prior to Guy making any

gift to himself. See Id. at *12. 

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1

The Michigan probate code was revised effective April 1, 2000, after the

date of Victor's death. The revised act, however, is applicable "to a proceeding in

court pending on that date or commenced after that date regardless of the time of

the decedent's death" unless the court decides that "former procedure should be

made applicable in a particular case in the interest of justice or because of the

-9-

If Michigan law applies the result would be the same. Under Michigan law,

the grant of a power of attorney "forms a fiduciary relationship between the grantor

and grantee." Kegerreis v. Smit (In re Harrington), 2000 WL 33421289 *3 (Mich.

App. 2000)(unpublished)(citing In re Conant Estate, 343 N.W.2d 593, 595 (Mich.

1984)). A fiduciary is precluded from creating a joint account, without the express

consent of the grantor, because "[a] fiduciary in his personal capacity shall not

personally derive any profit from the purchase, sale, or transfer of any property of the

estate." MICH.STAT.ANN. § 561(1)(1999); see also Harrington, 2000 WL 33421289

*3 (holding that § 561(1) fiduciary duties apply to an attorney-in-fact).

Thus, the bankruptcy court’s assumption that the funds in the Victor/Guy

account were Victor’s property on the date of his death, in spite of Guy's transfer of

Victor's assets into a joint account using the durable power of attorney, was correct.

Guy had no right to transfer Victor's money to himself or into a joint account with

right of survivorship prior to Victor's death. The transfer to the Victor/Guy account

was a breach of fiduciary duty and void. The real issue, however, is whether

ownership devolved to Guy and Warren on the date of death so that Guy was free to

pass that interest to Louise by depositing the proceeds into the Guy/Louise joint

account. 

3. MICHIGAN AND MISSOURI PROBATE LAW

It appears from our initial analysis that in both Michigan and Missouri, the

beneficiaries under a will become the owner of the property bequeathed to them on

the date of the decedent's death.1

 

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infeasibility of applying this act's procedure." MICH. COMP. LAWS §

700.8101(2)(b).

2

We should also note that Guy, not Louise, was responsible to the estate on

Victor's death with settling and distributing assets of the estate and that Guy was

liable to the estate for any losses suffered. "The personal representative is a

-10-

Pursuant to Michigan law:

An individual's power to leave property by will, and the rights of

creditors, devisees, and heirs to his or her property, are subject to the

restrictions and limitations contained in this act to facilitate the prompt

settlement of estates. Upon an individual's death, the decedent's property

devolves to the persons to whom the property is devised by the

decedent's last will or to those indicated as substitutes for them in cases

involving lapse, disclaimer, or other circumstances affecting devolution

of a testate estate, or in the absence of testamentary disposition, to the

decedent's heirs or to those indicated as substitutes for them in cases

involving disclaimer or other circumstances affecting devolution of an

intestate estate, subject to homestead allowance, family allowance, and

exempt property, to rights of creditors, to the surviving spouse's elective

share, and to administration.

MICH. COMP. LAWS § 700.3101(2002).

While the personal representative is entitled to exercise the "same power over

the title to estate property that an absolute owner would have, in trust, however, for

the benefit of creditors or others interested in the estate," MICH. COMP. LAWS §

700.3711, "tangible personal property may be left with or surrendered to the person

presumptively entitled to that property unless or until, in the personal representative's

judgment, possession of the property will be necessary for purposes of

administration." MICH. COMP. LAWS § 700.3709. If the bankruptcy court lacks

jurisdiction, however, all of these issues should be left to the Michigan probate court

to unwind and should not involve the bankruptcy court until the probate estate is

administered.2

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fiduciary of the estate who is charged with settling and distributing the estate. The

personal representative must use his authority in the best interest of the estate and

in the interests of the parties." McTaggart v. Lindsey, 509 N.W.2d 881, 884 (Mich.

App. 1993)(citing Steinway v. Bolden, 460 N.W.2d 306 (1990)). "A fiduciary is

liable for a loss to an estate that arises from embezzlement by the fiduciary [or] for

a loss through commingling estate money with the fiduciary's money[.]" MICH.

COMP. LAWS § 700.1308. (same under the prior statute MICH. COMP. LAWS

700.544(1999)).

-11-

Missouri law is comparable. Pursuant to Missouri Revised Statute section

473.260 entitled "Devolution of Estate at Death," Guy and Warren became the legal

owners of all of Victor's property on the date of his death, except for any special

bequests made in the will that are not at issue in this case. The section states:

When a person dies, his real and personal property, except exempt

property, passes to the persons to whom it is devised by his last will, or,

in the absence of such disposition, to the persons who succeed to his

estate as his heirs; but it is subject to the possession of the executor or

administrator and to the election of the surviving spouse and is

chargeable with the expenses of administering the estate, the payment

of other claims and allowances to the family, except as otherwise

provided in this law.

MO.REV. ST. § 473.260. Thus, under Missouri law, if it applies, at the time that Guy

transferred the property from his joint account with Victor to his joint account with

Louise, he may have been the legal owner of the asset, subject to Warren's interest

and to payment of the expenses of administration of the estate. See State v. Cox, 784

S.W.2d 244, 245 (Mo. Ct. App. 1989) (stating that, according to § 473.260, title to

property passes to the beneficiaries of a will at the testator's death); Basler v.

Delassus, 690 S.W.2d 791, 795 (Mo. 1985) (stating that § 473.260 does not

distinguish between real and personal property). In addition, under section 473.260

Guy, as the executor of the estate, also had a right of possession to the property. 

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3

We assume that jurisdiction is determined as of the date of death, however,

the revised statute, MICH. COMP. LAWS § 700.1302(2002), is essentially the same.

-12-

Thus, in applying either Michigan or Missouri law, in our reading of the law,

Guy was the likely owner of the Guy/Victor account, along with Warren, upon

Victor's death, subject to specific requests and claims of administration. But, because

ownership of the account was a cornerstone of the bankruptcy claims resolution

process and of the probate administration process, the bankruptcy court must first

determine if it had jurisdiction to determine that the estate had any interest in the

property.

4. THE PROBATE EXCEPTION TO BANKRUPTCY COURT JURISDICTION

The parties agree that the bankruptcy court had jurisdiction over the allowance

or disallowance of claims against the estate. 28 U.S.C. § 157(b)(2)(B). The claim

objection, however, raised an issue that relates to the settlement of the estate of a

deceased person. In Michigan, probate courts have exclusive jurisdiction, including

but not limited to the following proceedings:

(a) Matters relating to the settlement of the estate of a deceased person,

whether testate or intestate, who was at the time of death domiciled in

the county or was at the time of death domiciled out of state leaving an

estate within the county to be administered, including, but not limited to,

the following proceedings:

(i) The internal affairs of the estate.

(ii) Estate administration, settlement, and distribution.

(iii) Declaration of rights involving estates, devisees, heirs, and

fiduciaries.

(iv) The construction of a will.

(v) The determination of heirs.

MICH. COMP. LAWS § 700.21(1999)3

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A federal court may:

entertain suits in favor of creditors, legatees and heirs and other

claimants against a decedent's estate to establish their claims so long as

the federal court does not interfere with the probate proceedings or

assume general jurisdiction of the probate or control of the property in

custody of the state court.

Markham v. Allen, 326 U.S. 490, 494 (1946) (internal quotation marks omitted). 

A two-part inquiry has been used by the Second Circuit to determine whether a

particular lawsuit implicates "probate matters." Moser v. Pollin, 294 F.3d 335, 340

(2nd Cir. 2002). “An affirmative answer to either prong requires that the case be

dismissed from federal court for lack of subject matter jurisdiction.” Id. First, is the

bankruptcy court being asked to directly probate a will or administer an estate?

Second, does entertaining the action cause the bankruptcy court to "’interfere with the

probate proceedings or assume general jurisdiction of the probate or control of

property in the custody of the state court." Id. (citation omitted). The Second Circuit

held that the "interference prong" was in practice “the workhorse of the probate

exception” and determined that an impermissible interference may arise in one of

three ways: if, by adjudicating the complaint, the federal district court (1) "interferes

with the probate proceedings;" (2) "assumes general jurisdiction of the probate;" or

(3) asserts "control of property in the custody of the state court." Id. (quoting

Markham, 326 U.S. at 494; and citing 13B CHARLES ALAN WRIGHT, ARTHUR R.

MILLER & EDWARD H. COOPER, FEDERAL PRACTICE & PROCEDURE § 3610 (2d ed.

1984)).

The decision of the bankruptcy court may have done all three although, at least

initially, that is for the bankruptcy court to decide. We are concerned that the

bankruptcy court confirmed the statement of inventory filed by Guy and in effect

resolved to distribute the account assets already taken by Guy, back to Guy via

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Louise's bankruptcy estate. But, had the bankruptcy court ruled otherwise and

sustained the objection to the claim, the bankruptcy could have effectively removed

the asset from the probate estate. Louise would have been declared to have no

liability to the probate estate for taking an asset which may belong to the probate

estate. Moreover, were we to reverse the bankruptcy court's decision, we would, in

effect, determine that the estate had no ownership interest in the asset at Victor's

death.

Victor apparently owned two assets on the date of his death; the money in the

Victor/Guy joint account and real property located in Michigan. The record suggests

that Louise believed that the estate would be divided in just that fashion. Guy would

receive the money in the account, Warren would receive the property. Depending

upon the value of the real estate and the expenses of administration, that may have

been a reasonable assumption. Several scenarios may arise if the Michigan probate

court has exclusive jurisdiction. The probate court could decide that Guy has already

received his distribution from the estate when he transferred Victor's money into the

Guy/Louise joint account. Warren would then receive an equivalent value from the

sale of the Michigan real property, and the sale proceeds may be adequate to pay all

the administrative expenses. As a result, the estate may be settled without the

necessity to recover anything from either Guy or from Louise's bankruptcy estate.

Our concern is that the bankruptcy court’s decision to allow Victor's estate to recover

anything from Louise may impact the distribution of property of the estate by

preemptorily denying the probate court the opportunity to decide that Guy has already

received his distribution. Pursuant to Michigan law, section 700.21(a)(ii), it seems

that only the probate court has jurisdiction over the settlement and distribution over

the property of the decedent. 

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CONCLUSION

If the bankruptcy court decides it is without jurisdiction, it cannot

determine the validity or amount of the claim until the estate is settled and the

distribution determined by the probate court. Accordingly, we remand to the

bankruptcy court with instructions that it vacate its order allowing the claim and that

it consider the extent of its own jurisdiction.

______________________________

MAHONEY, Bankruptcy Judge, concurring

I concur in the result only. I agree that a determination of the bankruptcy

court’s subject matter jurisdiction needs to be made by the bankruptcy judge prior to

any determination with regard to allegations of conversion. However, I do not see

either the wisdom or the necessity for an appellate court to advise the trial court

concerning the law of Michigan or Missouri on the issue of subject matter

jurisdiction. If this case comes before us on another appeal, we will certainly have

the opportunity to discuss our understanding of Michigan and Missouri law at that

time. 

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