Opinion ID: 2766195
Heading Depth: 3
Heading Rank: 2

Heading: Adequacy of Conversion Allegation

Text: Trustee argues that the bankruptcy court erred in treating the complaint as if alleging only embezzlement although it also effectively pled conversion. We agree that Trustee adequately pled conversion against Pam. Under Michigan law, the tort of conversion encompasses the tort of embezzlement. The Michigan conversion statute, Mich. Comp. Laws § 600.2919(a), provides that: (1) A person damaged as a result of either or both of the following may recover 3 times the amount of actual damages sustained, plus costs and reasonable attorney fees: (a) Another person’s stealing or embezzling property or converting property to the other person’s own use. (b) Another person’s buying, receiving, possessing, concealing, or aiding in the concealment of stolen, embezzled, or converted property when the person buying, receiving, possessing, concealing, or aiding in the concealment of stolen, embezzled, or converted property knew that the property was stolen, embezzled, or converted. (2) The remedy provided by this section is in addition to any other right or remedy the person may have at law or otherwise. The Michigan Supreme Court defines conversion as “any distinct act of domain wrongfully exerted over another’s personal property in denial of or inconsistent with the rights therein.” 8 Hagan v. Baird No. 14-1060 Dep’t of Agriculture v. Appletree Mktg., L.L.C., 779 N.W.2d 237, 244 (Mich. 2010) (footnote and citations omitted). Moreover, “[c]onversion may occur when a party properly in possession of property uses it in an improper way, for an improper purpose, or by delivering it without authorization to a third party.” Id. As the bankruptcy court recognized, Trustee properly alleged a claim of conversion. The proposed amended complaint makes the following allegations in Count VI for common-law conversion: ¶ 213. Defendants’ acts as set forth above constitute, under the common law of the State of Michigan, the improper and unlawful domination and control by Defendants over the property of Debtor and its creditors, in denial of or inconsistent with the rights therein. ¶ 214. Because of their duties to the Debtor under the statutory and common law of the State of Michigan, Bill and/or Pam owed a fiduciary duty to the Debtor at the time of the distributions enumerated in Count V, above. ¶ 215. Under applicable Michigan law, “[t]he assets of a corporation are a trust fund in the hands of the board of directors.” Barden v. A. Heller Sawdust Co., 215 N.W. 364, 367 (Mich. 1927). ¶ 216. As such, the distributions were identifiable money that Bill and/or Pam had an obligation to deliver to the Debtor and its creditors, and in regard to which Bill and/or Pam had a duty to refrain from the improper and unlawful domination and control over, in denial of or inconsistent with the rights of Debtor and its creditors. ¶ 217. Pam and/or Bill are liable for conversion by aiding or abetting or assisting another in a conversion, even if acting innocently. Prime Financial Service LLC v. Vinton, 761 N.W.2d 694 (Mich. App. 2008). The tort of conversion may be committed unwittingly if a defendant comes into possession of another’s property if the defendant is unaware of the plaintiff’s property interest. Warren Tool Co. v. Stephenson, 161 N.W.2d. 133, 147-148 (Mich. App. 1968). ¶ 218. As a result of the above, it is clear that Defendants are liable to the creditors of Debtor for their conversion of the distributions. ¶ 219. Accordingly, Plaintiff Trustee is entitled to recover from Defendants the value of the converted distributions. 11 U.S.C. §544; Moore v. Bay, 284 U.S. 4 (1931). Further, pages 11 to 15 of the proposed amended complaint include a detailed accounting of the transfers from the Arvest account into Pam and Bill’s various personal accounts. Trustee thus alleges that the Bairds impermissibly appropriated OKP funds for personal use. 9 Hagan v. Baird No. 14-1060 Moreover, a cause of action for conversion under Michigan law need not necessarily include the intent element required for embezzlement and for the application of in pari delicto.11 “[I]n general, [conversion] is viewed as an intentional tort in the sense that the converter’s actions are wilful, although the tort can be committed unwittingly. . .” Foremost Ins. Co. v. Allstate Ins. Co., 486 N.W.2d 600, 606 (Mich. 1992). The Michigan Court of Appeals has described conversion as a “strict liability tort,” explaining: The foundation for the action of conversion rests neither in the knowledge nor the intent of the defendant. It rests upon the unwarranted interference by defendant with the dominion over the property of the plaintiff from which injury to the latter results. Therefore neither good nor bad faith, neither care nor negligence, neither knowledge nor ignorance, are of the gist of the action. In re Pixley, 456 B.R. 770 at 788 (quoting J. Franklin Interests, L.L.C. v. Mu Meng, No. 296525, 2011 WL 4501841, at  (Mich. Ct. App. Sept. 29, 2011) (per curiam)).