Statutory Conversion Creativity

Michigan’s statutory conversion statute (MCLA 600.2919a) used to confine its enhanced remedy to those who were wrongfully in receipt of converted assets. However, as it didn’t make sense to treat the person receiving the assets more harshly than the converter, the Michigan Legislature expanded the statute in 2005 to also charge the converter with treble damages and attorney fees.

Since that time, I’ve seen more and more creativity used in trying to take advantage of the enhanced remedy. In my view, one of the more creative uses was set forth in the recent Michigan Court of Appeals case of Junge v Bartles and Burrell, (Docket No. 285035, released October 20, 2009). There, the plaintiff alleged that the defendants had converted his membership interest in a limited liability company by opening an identical competing company. The Court of Appeals impliedly accepted the theory based on the fact that a person’s membership interest in a LLC is personal property.

I previously raised the possibility of using MCLA 600.2919a in conjunction with the Builders Trust Fund Act (See 06/20/2009 blog post). I know that at least once Court has subsequently accepted this theory to provide the enhanced remedy to a BTFA claim.

The Powerful Remedies of the Builders Trust Fund Act

It’s a typical scenario- a subcontractor or supplier is owed money from a contractor but hasn’t perfected a right to a construction lien. The subcontractor or supplier think they are out of luck and are stuck with an uncollectable breach of contract claim against an empty corporation. However, the Builders Trust Fund Act (“BTFA”), MCLA 570.151 et. seq. can provide an extremely powerful remedy for the unpaid client.

In general, the BTFA makes it illegal for a contractor to take money from an owner of a project and use it for other purposes than first paying subcontractors, suppliers and laborers on the project. In addition to potential criminal liability, a civil claim under the BTFA can provide for:
1. Individual liability of participating corporate officers;

2. A debt that is non-dischargeable in bankruptcy; and

3. At least a decent argument for treble damages under Michigan’s conversion statute.
A very good discussion of individual liability and non-dischargeability is set forth in the recent case of In re Patel, 565 F3d 963 (CA 6 2009).