New Properties v. Newpower
| Decision Date | 20 January 2009 |
| Docket Number | No. 280153.,280153. |
| Citation | 282 Mich. App. 120,762 N.W.2d 178 |
| Parties | NEW PROPERTIES, INC v. GEORGE D. NEWPOWER, JR, INC. |
| Court | Court of Appeal of Michigan — District of US |
Bowerman, Bowden, Ford, Clulo & Luyt, P.C. (by Gregory M. Luyt), Traverse City, for the plaintiffs.
Calcutt Rogers & Boynton, PLLC (by Jack E. Boynton), Grand Traverse, for Lakes of the North Realty, Inc.
Before: BECKERING, P.J., and WHITBECK and M.J. KELLY, JJ.
This case stems from a prior appeal in this Court, New Properties, Inc v. Newpower (New Properties I).1 This present matter is an appeal from the trial court's decision on remand from New Properties I. Defendant Lakes of the North Realty Inc., appeals as of right the trial court's judgment setting forth monetary damages payable to plaintiffs Robert W. Kitchen and Harriet Kitchen. We affirm, but remand for the entry of an amended judgment consistent with this opinion.
No further facts were entered into the record on remand to the trial court. Thus, we quote verbatim the facts as set forth in New Properties I:2
Introduction
George Newpower, Jr. (Newpower) was a prominent businessperson in the northern Michigan village of Mancelona. In 1996, Newpower embezzled $755,000.00 from plaintiffs Robert and Harriet Kitchen (the Kitchens), his business partners. In 1997, plaintiffs sued Newpower and the various recipients of the embezzled funds. Plaintiffs also sued the Bank and its Mancelona branch Manager Muriel Hart (Hart) for conversion under the Uniform Commercial Code (UCC) alleging that the Bank and Hart knowingly allowed and, in fact, facilitated the embezzlement. Newpower eventually pleaded guilty to embezzlement of over $100 and was sentenced to 6-10 years in prison.
Newpower moved to Mancelona in 1976 and purchased Hansen Realty, a local real estate agency. For the next twenty years, Newpower's agency was actively engaged in the real estate business. Newpower formed another real estate company in 1994, Lakes of the North Realty, [Inc.,] which managed vacation rental properties in the area. Newpower was the Principal Broker with Lakes of the North, served as its President, Vice President, Director, Chief Executive Officer and Chief Operating Officer and was the sole signatory of its trust accounts at the bank. Newpower kept the bank accounts for his business ventures at the Antrim County State Bank, where Muriel Hart was "his banker." Newpower helped recruit, FMB Northwestern State Bank1 ("the Bank") to Mancelona and he recommended Hart to the Bank as an experienced and well-respected banker in the community who could bring them immediate business. Hart then opened the new branch in Mancelona as its manager. Newpower then moved his personal and business accounts to the Bank.
Newpower was also president and a member of the board of directors of the Mancelona Area Health Clinic (MHC). Hart, too, was involved in the operation of the MHC, acting as the treasurer. In September 1993, Newpower suggested that $30,000 of MHC's money deposited into an account at the Bank could earn more interest in an investment account of his choosing. Upon taking the money from the MHC account, however, Newpower did not invest it but rather deposited it into his personal account at the Bank for his own uses. The money was eventually discovered to have been used by Newpower to make a $1400.74 mortgage loan payment to the Bank, a $165.30 personal loan payment to Hart, and a $91.67 personal loan payment to Hart and her mother.
In January or February 1995, Hart became suspicious of Newpower's investment of the money as she had not received any statements about its performance. As early as March 1995, she pulled copies of Newpower's accounts and determined that he had deposited the money into his personal account rather than investing it. Hart testified that she sought the advice of the Bank's Senior Lender, Daniel Spagnuolo, who told her to investigate the matter and seek the advice of Jack McKaig, an attorney on the MHC board. Spagnulo [sic] initially testified that he "may" have been told by Hart that Newpower had deposited the money in his personal account, but later testified that she did not mention this fact.
David Brooks, [an] MHC Board member, also was concerned with the whereabouts of the money. He was told by Newpower that the investment was made with "Munson & Madison Financial Service Corp.," a Chicago investment firm, because they had a "means of pooling moneys" to get better interest rates. The Munson & Madison investment firm was fictitiously created by Newpower to attempt to hide his embezzlement. Thus, when Brooks inquired with Munson Hospital, he was unsuccessful in discovering the location of the funds. The first mention of the "investment" in MHC's records was not until February 16, 1995, when Hart recorded that Newpower had invested the money at Munson & Madison Financial Service Corp. and that Newpower reported the account was paying 8.65% and he had given instructions for the investment firm to send Hart statements and tax information. The only statement ever received was fraudulently created by Newpower, and Hart never received any tax information regarding the investment.
The money mysteriously reappeared after this series of inquiries. A check was issued from Munson & Madison to refund the investment; however, the check was not written on a Chicago investment firm account but rather [an] NBD Bank in Traverse City. Newpower created the NBD account solely to deposit embezzled money and to subsequently issue the fraudulent Munson & Madison check. The account at NBD was only open for five days. When MHC was made whole, all other inquiries into the use of the money were dropped.
Newpower and the Kim Biehl scandal
Kim Biehl was Newpower's secretary at Lakes of the North. Her husband, James Biehl, worked for Newpower at Hansen Realty. In August 1994, Mrs. Biehl discovered that checks she had written were bouncing because a check that Newpower had given to her husband for a commission had been dishonored. Mrs. Biehl went to the small Mancelona branch of the Bank and complained loudly, asserting that the only way Newpower's check could have bounced from the trust account it was written on was if he was "cooking the books." This information was apparently communicated to Hart, although she was not in the Bank at the time. Hart later stated that she regarded the accusation as "hearsay."
Newpower and Muriel Hart's banking relationship
Muriel Hart had 26 years of banking experience. Hart was Newpower's banker for both his business endeavors[,] as well as his personal finances. When Newpower recruited the Bank to come to Mancelona, he personally recommended Hart as a qualified manager to run the new business. Hart continually practiced lenient banking procedures with regards to Newpower's various accounts. Hart often held checks to prevent overdrafts from occurring in Newpower's accounts until he could deposit funds to cover the check. More than once, Hart sat down and went extensively through Newpower's accounts to determine why his balance showed different amounts than the Bank's balance of his accounts. When Hart inquired as to why certain deposits were made to certain accounts, Newpower often replied that the secretary must have deposited into the wrong account, yet Hart never fixed such errors.
In addition to this banking relationship, Newpower and Hart had been friends for many years. Hart had personally loaned $12,000.00 to Newpower and had also arranged for her mother to loan him $10,000.00. Additionally, Hart lent approximately $28,800.00 to the corporation Newpower ran with Jerry [sic] Biehl, Mancelona Properties, Inc. [MPI] Personally, financially and professionally, Hart and Newpower were closely connected.
Newpower and his other accounts at the Bank
Newpower had eight other accounts at the Bank for his own personal finances, as well as for his real estate business ventures with Lakes of the North, Hansen Real Estate[sic], and MPI. Each of these accounts experienced significant overdrafts from 1993 to 1996. In particular, the trust accounts for the Mancelona trailer park that Newpower managed through Hansen Realty, as well as the trust accounts for Lakes of the North, experienced overdrafts despite the fact that they should not have been used to withdraw monies. In total, there were approximately 288 overdrafts in these accounts in this short three year period.
Newpower also had a $42,000.00 line of credit with the Bank. When Dan Spagnuolo took his position as Senior Lender at the Bank, one of his jobs was to reduce the outstanding debts of its customers. In 1994, Spagnuolo met with Newpower and reviewed his overdraft history with him. Spagnuolo advised Newpower that unless he paid in full his great debts to the Bank, his line of credit would not be renewed because of Newpower's breach of both trust and contractual agreements. Without explanation, Newpower paid off this large debt to the Bank within a month of this correspondence with Spagnuolo.
Overdraft review responsibilities
As manager of the Bank, Hart's job included ensuring that the bank's financial security controls were implemented to protect the bank from fraudulent and criminal activity. Specifically, Hart was responsible for reviewing the daily overdraft report and deciding which overdrafts to pay and which ones to refuse. Despite Newpower's extensive overdraft history, Hart continually paid out his checks when his funds were insufficient. In particular, in March 1996, three of Newpower's checks were returned for insufficient funds. After Newpower transferred the majority of a wire transfer from plaintiffs from the NPI [New Properties, Inc.] account into his personal account, the...
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