647 B.R. 897
Bankr. E.D. Mich.2022Background
- Silver’s Jewelry and Loan (a pawnshop wholly owned by Jason M. Silver) had a $1,150,000 line of credit from Great Lakes secured by “all personal property,” including pawn tickets/chattel paper; Great Lakes perfected by UCC‑1 and audited collateral.
- Gold (L&L Gold/American Jewelry and Loan) funded and later purchased many pawn loans from Silver’s, sometimes via an Asset Purchase Agreement (APA) in March 2016 that forgave ~$433,090 in exchange for transferred pawn loans and their collateral.
- Jason Silver filed bankruptcy (converted to Chapter 7); the Chapter 7 Trustee revoked his revocable trust, claimed control of Silver’s Jewelry shares, and initiated this adversary proceeding (later prosecuted by assignee Great Lakes).
- Trustee/Great Lakes asserted multiple counts (fraudulent transfer under Michigan UVTA, common‑law and statutory conversion, and an alter‑ego/declaratory claim); several counts were dismissed or voluntarily dropped before the summary judgment ruling.
- Court held: summary judgment for Gold on Count III (Michigan UVTA fraudulent transfer) and Count VII (alter‑ego/declaratory); summary judgment for Great Lakes on Count VI (common‑law conversion) as to liability only — damages for Counts V and VI reserved for trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trustee can avoid transfers under Michigan UVTA (§544(b)) based on transfers by non‑debtor Silver’s Jewelry and Loan | Reverse veil‑piercing/alter‑ego: Silver’s assets should be treated as debtor’s assets so trustee can assert Silver’s UVTA claims | UVTA/§544(b) applies only to transfers made by the debtor; veil‑piercing under Michigan is vicarious (doesn’t convert alter‑ego property into debtor’s assets) and reverse piercing is improper here | Grant summary judgment to Gold on Count III — trustee cannot pursue Silver’s company’s UVTA claims through Jason’s estate |
| Whether the court should declare Jason Silver alter ego of Silver’s Jewelry and Loan and treat Silver’s assets as estate property (Count VII) | Trustee seeks declaratory relief to pierce veil and include Silver’s assets in the estate | Alter‑ego/veil piercing unavailable to create assets for the shareholder; Michigan law disfavors using veil‑piercing to consolidate assets (and a party cannot commit fraud against itself) | Grant summary judgment to Gold on Count VII — alter‑ego relief denied |
| Whether Gold is liable for common‑law conversion of Great Lakes’ collateral (Count VI) | Great Lakes: its perfected Article 9 security interest covered pawn loans/chattel paper, interest and proceeds; sales/transfers to Gold without authorization converted Great Lakes’ collateral | Gold: claimed it paid face value, acted in ordinary course as purchaser of chattel paper/possessory lien or as bailee/loan originator/agent of Gold; Article 9 defenses | Grant summary judgment to Great Lakes on conversion liability — Gold converted collateral; damages remain for trial |
| Damages and remaining issues | Great Lakes seeks recovery for converted collateral and proceeds | Gold disputes amount/extent; asserts defenses bearing on damages | Liability for conversion resolved for Great Lakes; damages and Count V (statutory conversion) remain for trial |
Key Cases Cited
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (summary‑judgment standard)
- Celotex Corp. v. Catrett, 477 U.S. 317 (movant’s burden on summary judgment)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (nonmovant must present specific facts)
- Butner v. United States, 440 U.S. 48 (state law defines property rights in bankruptcy)
- Spradlin v. Beads and Steads Inn, LLC (In re Howland), [citation="674 F. App'x 482"] (6th Cir. 2017) (Michigan veil‑piercing does not expand debtor estate to include alter‑ego assets)
- Spartan Tube & Steel, Inc. v. Himmelspach (In re RCS Engineered Prods. Co.), 102 F.3d 223 (6th Cir. 1996) (a subsidiary/related entity cannot pierce veil to sue parent for harms it inflicted on itself)
- Foremost Ins. Co. v. Allstate Ins. Co., 486 N.W.2d 600 (Mich. 1992) (definition and intent element of conversion under Michigan law)
- Alisa A. Peskin‑Shepherd, PLLC v. Blume, 974 N.W.2d 835 (Mich. 2022) (distinguishing conversion of a lien instrument from conversion of underlying personal property; money conversion requires a duty to pay specific funds)