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My partner is stealing from the business: Can I sue for treble damages and attorneys’ fees for conversion of money?
by H. Joel Newman, Business Litigation Attorney
It is all too common for a partner to steal from a business. Unfortunately, conversion of money is a factor in many of our cases. The other partner(s), shareholder(s) or Member(s) typically can sue for breach of fiduciary duty, shareholder oppression or member oppression, unjust enrichment and other causes of action. But can they sue for statutory conversion, which is basically the civil equivalent of the crime of theft? This is an important issue because a Plaintiff prevailing on conversion, as opposed to other causes of action, may be entitled to treble damages and attorney's fees. The problem is that the law doesn’t historically recognize a conversion claim where it is money rather than another form of property that has been stolen.
However, at least one unreported Michigan Court of Appeals opinion states that the Michigan conversion statute, MCL 600.2919a, provides for an award of treble damages plus attorneys’ fees against a defendant for embezzlement of money.
The Michigan Conversion Statute provides:
- 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:
- • Another person's stealing or embezzling property or converting property to the other person's own use.
- • 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.
- The remedy provided by this section is in addition to any other right or remedy the person may have at law or otherwise. [Emphasis added.]
Historically, one would not have an action for conversion of money unless the Defendant “had an obligation to return the specific money entrusted to his care.” Head v Phillips Camper Sale and Rental, Inc., 234 Mich App 94, 111-112 (1999). "Common law conversion . . . consists of any 'distinct act of domain wrongfully exerted over another's personal property in denial of or inconsistent with the rights therein.'" Dep't of Agriculture v Appletree Marketing, LLC, 485 Mich 1, 13-14; 779 NW2d 237 (2010), [*8] quoting Foremost Ins Co v Allstate Ins Co, 439 Mich 378, 391; 486 NW2d 600 (1992).
It is fundamental that, in construing a statute, the Court should presume that every word has some meaning and should avoid construction which would render any part of the statute surplusage or nugatory. People v Borchard-Ruhland 460 Mich 278 (1999). The word “embezzlement” in the statute adds nothing to the statute and is rendered nugatory unless it was inserted in the revisions to extend relief for embezzlement of money. With one exception, Michigan appellate decisions we find have not analyzed the reason the term “embezzlement” was added to the conversion statute. The Court of Appeals has ruled in an unreported opinion, that “the plain language of MCL 600.2919a(1)(a) indicates that the Legislature thus intended a method of recovery for a civil claim of embezzlement, albeit cloaked in the conversion statute.” Cabala v Allen, ___NW2d___; 2012 Mich. App. LEXIS 1877, at *4-6 (Ct App, Sep. 27, 2012).
The Cabala Court ruled, alternatively, that if the conversion statute was not interpreted as applicable to a civil remedy for embezzlement, a civil remedy could be inferred from the criminal embezzlement statute. “Michigan law provides that a private right of recovery may be read into a criminal statute,” citing Gardner v Wood, 429 Mich 290, 301-302; 414 NW2d 706 (1987)(a new cause of action can be inferred from a criminal statute where there is no civil established civil action to protect the victim).
MCL 750.174, defines embezzlement as conversion of money or other personal property:
A person who as the agent, servant, or employee of another person, governmental entity within this state, or other legal entity or who as the trustee, bailee, or custodian of the property of another person, governmental entity within this state, or other legal entity fraudulently disposes of or converts to his or her own use, or takes or secretes with the intent to convert to his or her own use without the consent of his or her principal, any money or other personal property of his or her principal that has come to that person's possession or that is under his or her charge or control by virtue of his or her being an agent, servant, employee, trustee, bailee, or custodian, is guilty of embezzlement. [Emphasis added]
Theft by a partner or officer in a business meets all of the element os embezzlement under the statute.
Conclusion: Common law conversion did not, historically, apply to conversion of money unless the defendant had an obligation to return the specific money entrusted to his care. It is not clear why the Legislature added the word “embezzlement” to the conversion statute, unless it intended to include money.
In Cabala, the Court of Appeals took the position that embezzlement of money is included in the conversion statute: “The plain language of MCL 600.2919a(1)(a) indicates that the Legislature thus intended a method of recovery for a civil claim of embezzlement, albeit cloaked in the conversion statute.” Accordingly, notwithstanding the numerous appellate cases limiting conversion claims to personal property as opposed to money, it appears that, under the proper circumstances, one could bring a good faith embezzlement claim under the conversion statute for treble damages and attorneys’ fees based on embezzlement of money.
H. Joel Newman is an attorney specializing in business litigation, commercial litigation and shareholder disputes. Practicing in Oakland County Michigan, Wayne County Michigan and Macomb County Michigan.