Hagan v. Baird

• Decision Date: 19 January 2018
• Docket Number: No. 1:15–cv–1103,1:15–cv–1103
• Citation: 288 F.Supp.3d 803
• Parties: Kelly HAGAN, Chapter 7 Trustee, Plaintiff, v. Pamela BAIRD, Defendant.
• Court: U.S. District Court — Western District of Michigan

288 F.Supp.3d 803

Kelly HAGAN, Chapter 7 Trustee, Plaintiff,

v.Pamela BAIRD, Defendant.

No. 1:15–cv–1103

United States District Court, W.D. Michigan, Southern Division.

Signed January 19, 2018

Jonathan R. Moothart, Moothart & Sarafa, PLC, Williamsburg, MI, for Appellant.

Michael D. Almassian, Nicholas Scott Laue, Keller & Almassian PLC, Grand Rapids, MI, for Appellee.

Daniel M. LaVille, Grand Rapids, MI, pro se.

Michelle Marie Wilson, U.S. Trustee (Grand Rapids), Grand Rapids, MI, for Interested Party.

Kelly M. Hagan, Traverse City, MI, pro se.

OPINION AND ORDER AFFIRMING DECISION OF THE BANKRUPTY COURT

Paul L. Maloney, United States District Judge

As a common practice, parties will plead legal claims in the alternative. This lawsuit demonstrates a potential problem with that practice. When a party prevails on one claim, the claims that are brought in the alternative are foreclosed. In this adversary proceeding in the bankruptcy court, the Trustee pled that a transfer of funds should be avoided as a fraudulent transfer.¹ Trustee also pled that the debtor, Pamela Baird, converted the funds which, under Michigan law, would entitled the estate to treble damages. Trustee prevailed on a motion for summary judgment on the fraudulent transfer theory. Trustee and Pamela Baird subsequently filed cross motions for summary judgment on the conversion claim. The Bankruptcy Court denied Trustee's motion and granted Pamela's motion, relying on facts that had been previously established in the resolution of the fraudulent transfer claim. The Court finds no errors in the reasoning of the Bankruptcy Court and affirms its decision.

I.

A brief history is necessary for context.² William Baird owned and operated King Par, a company that made and distributed golf-related products. Pamela Baird was married to William, but the two are now divorced. In 2002, Izzo Golf sued King Par for patent infringement, and ultimately prevailed. While the patent infringement lawsuit was still in progress, William Baird arranged to sell King Par's assets to KP Acquisition Company (KPAC) and, in 2009, executed an Asset Purchase Agreement (APA). William Baird directed KPAC to deposit approximately $4,000,000 into a joint personal bank account owned by William and Pamela at the Arvest Bank in Tulsa, Oklahoma. After KPAC sent the money to the Arvest account, King Par changed its name to B & P Baird Holdings (B & P).

Under the terms of the APA, King Par, now B & P, retained specifically enumerated assets, debts, and liabilities, which included the liabilities arising from the patent litigation involving Izzo Golf. In June 2010, a jury returned a verdict against King Par in favor of Izzo Golf for approximately $3,280,000. On September 7, 2010, Izzo Golf filed a second lawsuit, naming King Par, B & P, William Baird, Pamela Baird, and others. The next day, September 8, 2010, B & P filed for Chapter 7 bankruptcy protection in the Western District of Michigan. In re B & P Baird Holdings, Inc. , 10–10941 (Bankr. W.D. Mich.). B & P identified six unsecured creditors, including Izzo Golf, with claims against B & P totaling more than $3,600,000.

On August 23, 2011, an adversary proceeding was commenced against King Par, William Baird, and Pamela Baird. Among the claims advanced in the amended complaint filed in January 2012, Trustee alleged that the transfers of funds into the Arvest account were fraudulent under the Bankruptcy Code and under Michigan law. Trustee also asserted that the transfers constituted common law conversion and conversion under the Michigan statute.

Pamela Baird filed a motion to dismiss the two conversion claims brought against her. The bankruptcy court granted Pamela's motion in March 2012. Trustee then filed a motion to amend the complaint to overcome the pleading deficiencies, which was denied. Trustee appealed, first to this district court and then to the Sixth Circuit. The Sixth Circuit found that Trustee had adequately pled the conversion claims and rejected the defense on which the bankruptcy court relied to deny leave to amend the complaint.

Meanwhile, Trustee filed a motion for partial summary judgment. On August 8, 2012, the bankruptcy court granted Trustee's motion as to the fraudulent transfer claims. The bankruptcy court concluded that the transfers from King Par to the Baird's Arvest account in June 2009 constituted fraudulent transfers under § 548(a)(1)(B) and left King Par with an unreasonably small capital reserve. (ECF No. 2–10 Hrg. Trans. at 64 PageID.1190.) The remedy provided by the Bankruptcy Court was avoidance of the transfers. (Id. at 66 PageID.1192.) The Bankruptcy Court acknowledged that Trustee reserved the right to bring an action for recovery of the transfers that were now voided. (Id. )

After these motions and appeals, the only claims that remained in the adversary proceeding were the conversion claims against Pamela Baird. The Bankruptcy Court's resolution of the fraudulent transfer claims was not appealed and the parties settled all of the claims, except for the conversion claims against Pamela Baird.

After remand from the Sixth Circuit, Trustee filed an amended complaint asserting the conversion claims. Trustee and Pamela Baird filed cross motions for summary judgment. The Bankruptcy Court granted Pamela Baird's motion and denied Trustee's motion. Trustee then filed this appeal.

II.

Because a decision to grant summary judgment is a question of law, a district court reviews the bankruptcy court's grant of summary judgment under the de novo standard. In re Morris , 260 F.3d 654, 663 (6th Cir. 2001) ; In re Markowitz , 190 F.3d 455, 463 (6th Cir. 1999).

Summary judgment is appropriate only if the pleadings, depositions, answers to interrogatories and admissions, together with the affidavits, show there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(a) and (c) ; Payne v. Novartis Pharms. Corp. , 767 F.3d 526, 530 (6th Cir. 2014). The burden is on the moving party to show that no genuine issue of material fact exists, but that burden may be discharged by pointing out the absence of evidence to support the nonmoving party's case. Fed. R. Civ. P. 56(c)(1) ; Hollis v. Chestnut Bend Homeowners Ass'n , 760 F.3d 531, 543 (6th Cir. 2014). The facts, and the inferences drawn from them, must be viewed in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quoting Matsushita Elec. Indust. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). Once the moving party has carried its burden, the nonmoving party must set forth specific facts in the record showing there is a genuine issue for trial. Matsushita , 475 U.S. at 574, 106 S.Ct. 1348 ; Jakubowski v. Christ Hosp., Inc. , 627 F.3d 195, 200 (6th Cir. 2010) ("After the moving party has met its burden, the burden shifts to the nonmoving party, who must present some ‘specific facts showing that there is a genuine issue for trial.’ ") (quoting Anderson , 477 U.S. at 248, 106 S.Ct. 2505 ).

III.

A.

The Court begins with a review of Michigan's law of conversion. In Michigan, common-law conversion occurs with "any ‘distinct act of domain wrongfully exerted over another's personal property in denial of or inconsistent with the rights therein." Dep't of Agric. v. Appletree Mtkg., LLC , 485 Mich. 1, 779 N.W.2d 237, 244 (2010) (citation omitted) (collecting cases); see Aroma Wines & Equip, Inc. v. Columbian Distrib. Servs., Inc. , 497 Mich. 337, 871 N.W.2d 136, 141 (2015) (same). "Conversion 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." Appletree Mktg. , 779 N.W.2d at 244–44 (citations omitted). "Conversion is an intentional act in that the defendant's action must be willful, but one can commit the tort unwillingly if unaware of the plaintiff's outstanding property interest." Citizens Ins. Co. of America v. Delcamp Truck Ctr., Inc. , 178 Mich.App. 570, 444 N.W.2d 210, 213 (1989).

In addition to a cause of action under common law, Michigan has a statutory provision defining conversion.

(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 is 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 in addition to any other right or remedy the person may have at law or otherwise.

Mich. Comp. Laws § 600.2919a.

For conversion of money to occur, the defendant must have an obligation to return the specific money entrusted to his or her care, and the defendant must have obtained the money without the owner's consent to the creation of a debtor and creditor relationship. Head v. Phillips Camper Sales & Rental, Inc. , 234 Mich.App. 94, 593 N.W.2d 595, 603 (1999) ; Citizens Ins. Co. , 444 N.W.2d at 213 ; see Lawsuit Fin., LLC v. Curry , 261 Mich.App. 579, 683 N.W.2d 233, 241 (2004) (per curiam) (finding that the complaint failed to state a claim for conversion because the plaintiff did not allege that the defendant obtained litigation proceeds without consent). Examining Michigan law, the Sixth Circuit explained that the conversion tort requires the plaintiff to have "a property interest to distinguish it from a contractual obligation, which will not support a conversion claim by itself." In re Schwartz , 622 Fed.Appx. 485, 491 (6th Cir. 2015). Following these...