ECHELON HOMES, L.L.C., Plaintiff-Counterdefendant-Appellee,
v.
CARTER LUMBER COMPANY, Defendant-Counterplaintiff-Appellant.
Echelon Homes, L.L.C., Plaintiff-Counterdefendant-Appellant,
v.
Carter Lumber Company, Defendant-Counterplaintiff-Appellee.
Court of Appeals of Michigan.
*174 Wasinger Kickham and Hanley (by Stephen Wasinger and Timothy O. McMahon), Royal Oak, for Echelon Homes, L.L.C.
Russell & Stoychoff, P.C. (by Paul M. Stoychoff), Troy, for Carter Lumber Company.
Before: HOEKSTRA, P.J., and SAWYER and GAGE, JJ.
PER CURIAM.
In Docket No. 243180, plaintiff-counterdefendant-appellant Echelon Homes, L.L.C. (Echelon), appeals as of right from an order granting defendant-counterplaintiff-appellee Carter Lumber Company's (Carter) motion for summary disposition regarding Echelon's complaint. In Docket No. 243112, defendant-counterplaintiff-appellant Carter appeals as of right from an order denying its motion for summary disposition and granting Echelon's motion for summary disposition regarding Carter's counterclaim. The appeals were consolidated. We affirm in part, reverse in part, and remand for further proceedings.
I. Factual History
Echelon, a limited liability company with two members, James T. Hysen and Carroll Strange, builds and develops residential housing. Carter, a corporation headquartered in Kent, Ohio, operates a chain of retail stores selling building supplies.
The events giving rise to the instant case center on the acts of a former Echelon employee, Carmella Wood. Echelon hired Wood as a secretary, administrative assistant, and bookkeeper in 1997. In July of 2000, Strange and Hysen discovered that Wood had engaged in a scheme with several members of her family to embezzle from Echelon. The scheme included fraudulently obtaining credit accounts with several vendors, including Carter, and then using those accounts for their own personal use, including purchasing building supplies for Wood's residence. Echelon reported Wood's actions to the Michigan State Police and terminated her employment. *175 Wood pleaded guilty to one count of embezzlement of more than $20,000 and four counts of uttering and publishing a forged instrument.
On February 7, 2001, Echelon commenced an action against Carter. Its complaint alleged that Carter (1) aided and abetted Wood in the conversion of Echelon's assets by knowingly or recklessly allowing Wood to charge tens of thousands of dollars to unauthorized accounts; (2) aided and abetted Wood's breach of her fiduciary duties to Echelon; (3) converted Echelon's assets and property to its own use; and (4) committed fraud by sending Echelon invoices for goods and services that were not provided to it. In response, Carter filed a counterclaim alleging that between March 1999 and January 2000, it sold goods to Echelon on credit. Carter alleged the existence of an account stated between the parties and that Echelon owes Carter $26,987.82.
At a hearing held on March 27, 2002, the circuit court found that Echelon had not provided any information to show that Carter had acted intentionally, and granted Carter's motion for summary disposition with regard to Echelon's complaint. In a second hearing held on July 10, 2002, the court denied Carter's motion for summary disposition on its counterclaim and granted summary disposition in favor of Echelon.
II. Standard of Review
We review de novo decisions to grant or deny summary disposition. Veenstra v. Washtenaw Country Club,
III. Analysis
Docket No. 243112
Carter first asserts that, in denying its motion for summary disposition, the court ignored unrebutted evidence that Wood was Echelon's agent with the apparent authority to open a credit account and that Echelon is therefore bound by her actions and is liable for the balance due on the account.
Carter's claim is premised on the existence of an account stated between itself and Echelon. An account stated consists of a "`balance struck between the parties on a settlement....'" Keywell & Rosenfeld v. Bithell,
*176 "The conversion of an open account into an account stated, is an operation by which the parties assent to the sum as the correct balance due from one to the other; and whether this operation has been performed or not, in any instance, must depend upon the facts. That it has taken place, may appear by evidence of an express understanding, or of words and acts, and the necessary and proper inferences from them. When accomplished, it does not necessarily exclude all inquiry into the rectitude of the account." [Emphasis in original.]
In the instant case, the trial court found that there was no question of material fact regarding the existence of an account stated. Carter failed to present any evidence of an agreement between itself and Echelon. But Carter argues that an account stated arose because of its agreement with Wood. It further asserts that, because Wood acted with apparent authority, her dealings with Carter bind Echelon and satisfy the requirement that the parties assent to an account stated.
The actions of an agent bind a principal where the agent acts with either actual or apparent authority. Meretta v. Peach,
The evidence shows that Carter relied solely on Wood's acts and conduct in forming the belief that Wood had the authority to open an account. Wood opened the account with Carter by forging the signature of one of Echelon's owners, James Hysen. The manager of the store at which Wood opened the account admitted that he had never done business with or even heard of Echelon before receiving the credit application prepared by Wood. He did not attempt to investigate further or determine what type of business Echelon conducted. Furthermore, in arguing that Echelon failed to properly supervise Wood, Carter admits that Echelon was unaware of the credit account until the summer of 2000. The evidence shows that the only contact between Echelon and Carter took place through Wood. Any acts or appearances that might reasonably have led Carter to believe that Wood had authority to open the account cannot be traced to Echelon as required by Meretta.
Even when viewed in the light most favorable to Carter, the evidence shows that Echelon did not grant Wood the authority to open a credit account. Because Wood did not have the authority to act on Echelon's behalf in this matter, no binding agreement exists between Echelon and Carter. Under Kaunitz, there can be no account stated because Echelon never assented to the creation of the account. Therefore, Echelon is not liable for the outstanding balance and the trial court did not err in denying Carter's motion for summary disposition.
Carter next asserts that, even if Wood did not act with apparent authority, the agreements she entered into with Carter are binding because they were ratified by Echelon. The Supreme Court in David v. Serges,
"Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him."
"Affirmance is either
"(a) a manifestation of an election by one on whose account an unauthorized act has been done to treat the act as authorized, or
"(b) conduct by him justifiable only if there were such an election."
Further, this Court has stated that "[u]nauthorized acts of an agent are ratified if a principal accepts the benefits of the unauthorized acts with knowledge of the material facts." Bruno v. Zwirkoski,
The facts of David Stott Flour Mills, supra at 659,
"[R]atification of an antecedent act of an agent which was unauthorized cannot be held valid and binding where the person sought to be charged had misapprehended; or mistaken material facts, although he may have wholly omitted to make inquiries of other persons concerning them, and his ignorance and misapprehension might have been enlightened and corrected by the use of diligence on his part to ascertain them."
On that basis, the Court held that "there was no sufficient proof to justify the submission of this question to the jury." David Stott Flour Mills, supra at 664,
In the instant case, Carter asserts that Echelon ratified Wood's action of opening the credit account with Carter when it admitted that it owed Carter an outstanding balance of $26,987.82. It first argues that one of Echelon's owners, Jim Hysen, admitted that Echelon owed this amount. However, what Hysen actually said was that according to Carter's paperwork, this amount was outstanding. This does not constitute an affirmance under the definition adopted by the Michigan Supreme Court in Serges, supra at 443-444,
Carter next contends that Echelon admitted its liability through the testimony of Danielle Domanik, an Echelon employee. At Wood's restitution hearing, Domanik testified that "Echelon, Echelon's owners, and some other people lost money due to Wood's conduct." Among the evidence she presented at the hearing were invoices and an account statement from Carter showing an outstanding balance of $26,232.70. As with Hysen's testimony, *178 this does not constitute an election by Echelon to authorize or accept benefits from Wood's actions.
Finally, Carter argues that Echelon ratified Wood's actions by accepting some of the materials that Wood obtained from Carter. A portion of the materials that Wood obtained was recovered by the Michigan State Police. These materials were then given to Echelon. Hysen admitted that Echelon then traded these items to some of its creditors in order to reduce the company's debt.
Although Echelon admits that it accepted and made use of the materials recovered by the state police, Carter has not shown the existence of a genuine issue of material fact concerning ratification. Echelon was the victim of theft, and it accepted some items, purchased with its own stolen funds, from the state police. Carter has only shown that Wood obtained a portion of these recovered materials from one of its stores. It has failed to provide any evidence that this constituted an affirmance in that Echelon's actions could only be justified if Echelon were electing to authorize Wood's actions. Serges, supra at 444,
In its final claim, Carter asserts that the trial court erred in granting Echelon's motion for summary disposition because a genuine issue of material fact existed with regard to the scope of Wood's agency relationship with Echelon. Carter correctly asserts that questions "relating to the existence and scope of an agency relationship" are questions of fact. Hertz Corp. v. Volvo Truck Corp.,
The creation of an account stated requires the assent of both parties to the account. Kaunitz, supra at 185,
Carter previously argued that Wood acted with apparent authority when she opened an account in Echelon's name. Therefore, concludes Carter, Echelon assented to the creation of the account and is liable to Carter for the outstanding balance under M.C.L. §600.2145. But, as noted above, Carter presented no evidence that Wood had actual or apparent authority from Echelon to open this account, and no account stated exists.
Carter now argues that the trial court erred in granting Echelon's motion for summary disposition because Carter created a genuine issue of material fact regarding the scope of Wood's agency by filing an affidavit of account stated. We find Carter's logic on this point unsound. An assertion that an account stated exists cannot create a question of fact regarding the existence of the apparent authority needed *179 to create it. In the instant case, a finding that Wood acted with apparent authority is a prerequisite to a finding that an account stated was created. Therefore, Carter's affidavit does not create a genuine issue of material fact concerning the scope of the agency relationship between Wood and Echelon and the trial court did not err in granting Echelon's motion for summary disposition.
Docket No. 243180
Echelon first claims that the trial court erred in granting Carter's motion for summary disposition because a genuine issue of material fact existed concerning its claim that Carter aided and abetted Wood's conversion of Echelon's property. This issue actually consists of two distinct claims. First, Echelon asserts that Carter assisted Wood in the commission of common-law conversion. Second, Echelon argues that Carter is liable to Echelon for statutory conversion pursuant to M.C.L. § 600.2919a.
The common-law tort of conversion consists of "any distinct act of dominion wrongfully exerted over another person's personal property." Pamar Enterprises, Inc. v. Huntington Banks of Michigan,
[A] person may be guilty of a conversion by actively aiding or abetting or conniving with another in such an act. Indeed, one may be liable for assisting another in a conversion though acting innocently. These rules are especially applicable where the defendant received benefit from the conversion and subsequently approved and adopted it.
In the instant case, Echelon cannot sustain a common-law claim of aiding and abetting conversion against Carter. Unlike the situation in Trail Clinic, PC, here there is no underlying conversion. The property allegedly converted by Wood must consist of either the checks that were issued by American Title Company on Echelon's behalf or the underlying funds in Echelon's escrow account with American Title.
In Trail Clinic, PC, supra at 707,
A similar result occurs if Echelon asserts that Wood converted the funds in Echelon's account with American Title. "To support an action for conversion of money, the defendant must have an obligation to return the specific money entrusted to his care." Head v. Phillips Camper Sales & Rental, Inc.,
In the instant case, Wood admits embezzling funds from Echelon and may be liable for restitution. But she is not obligated to return the "specific or identical moneys" taken from Echelon's account with American Title. Garras, supra at 147,
Regardless of whether Carter actively participated in Wood's scheme, Echelon fails to state a claim on which relief can be granted. The trial court granted Carter's motion for summary disposition on the ground that Echelon had not presented any evidence that Carter acted intentionally. That it granted Carter's motion under MCR 2.116(C)(10) rather than MCR 2.116(C)(8) makes no difference. Wickings v. Arctic Enterprises, Inc.,
In addition to the common-law claim, Michigan provides a statutory cause of action against those who aid in the conversion of property. Statutory conversion under M.C.L. § 600.2919a" `consists of knowingly "buying, receiving, or aiding in the concealment of any stolen, embezzled, or converted property."'" Campbell v. Sullins,
In the instant case, Wood pleaded guilty to a charge of embezzling funds from Echelon, and Carter received payment from American Title as a result of this embezzlement. The only question concerns whether Carter acted with knowledge of Wood's scheme when Carter accepted these payments. In Upjohn Co. v. New Hampshire Ins. Co.,
In the instant case, Echelon has produced little evidence from which it can be inferred that Carter or any of Carter's employees had actual knowledge of Wood's scheme to embezzle funds from Echelon. Wood initially obtained the account with Carter by forging the name of one of Echelon's owners on the application form. The manager of the store where Wood obtained the account testified that he did not realize that Wood lacked the authority to open the account until after Echelon *181 discovered her scheme and contacted Carter. Wood herself testified that neither the manager of the store nor anyone else at Carter had any knowledge of what she was doing.
Echelon argues that a question of material fact exists concerning Carter's actual knowledge. It further asserts that the trial court should not have relied on Wood's testimony to defeat its claims because she is a convicted felon. At most, Echelon contends, this testimony should be a matter for a jury's consideration.
Echelon's argument misstates the standard for deciding motions brought pursuant to MCR 2.116(C)(10). Courts may not make findings of fact or weigh credibility in deciding a summary disposition motion. Skinner v. Square D Co.,
Regardless, Echelon further argues that, even if Carter had no actual knowledge, sufficient circumstantial evidence exists to create a question of fact regarding whether Carter had constructive knowledge. With this, we agree.
Echelon claims that Wood's actions placed Carter's employees on "inquiry notice" and required them to investigate the extent of her authority. Echelon contends that a jury could find that, because of Carter's employees' willful blindness, Carter had knowledge of Wood's embezzlement. In support of this argument Echelon quotes the following language from Deputy Comm'r of Agriculture v. O & A Electric Co-op., Inc.,
A person is chargeable with constructive notice when, having the means of knowledge, he does not use them. If he has knowledge of such facts as would lead any honest man, using ordinary caution, to make further inquiries and does not make, but studiously avoids making, the obvious inquiries, he must be taken to have notice of those facts which, had he used ordinary diligence, would have been readily ascertained.
Additionally, Echelon draws an analogy between the facts of the instant case and those in In re Thomas Estate,
The most relevant point from Thomas Estate is that this Court required the bank to act with reasonable diligence. On the basis of this standard, the inference could be drawn that Carter had constructive knowledge that the funds used to pay it were embezzled as required by M.C.L. §600.2919a. Some of the factors cited by Echelon include that Wood opened an unauthorized account, listed the billing address on the account as a post office box, had Carter deliver building materials directly to her personal home, and convinced *182 Carter's employees to sign lien waivers for addresses to which Carter never delivered goods.
This is not a case in which a person goes into a store, opens an account, and buys a few supplies on credit. In this case, Wood went into Carter's store, opened a company account, and bought thousands of dollars in supplies. Carter's store manager admitted that he had never heard of plaintiff company, yet he was willing to accept Wood's credit application without question. While companies often receive mail at post office boxes for legitimate purposes, in this case, Echelon is a company in Brighton and the address Wood used was a post office box in Highland. Carter's employees allowed plaintiff to very quickly become one of its largest credit customers and never once investigated the situation. Carter's manager testified that it was his standard practice to sign lien waivers for customers without checking the address of the job site. While there may be no reason for Carter to verify the delivery address each time a customer wished to make a payment for materials delivered, in this case, the customer was a new, very high credit customer with whom Carter was unfamiliar. Carter's employees also allowed other individuals to buy merchandise on Echelon's credit without questioning the individuals and allowed unknown persons to pick up purchased supplies without question. All this evidence, taken into account with the fact that Echelon very quickly became one of Carter's largest customers, may have been sufficient to put Carter on notice that it should inquire into the matter.
Under the circumstances, plaintiff presented sufficient evidence to create a question of fact concerning whether an honest person, using ordinary caution, would have made further inquiries into the matter. We find that a rational jury could conclude that the information possessed by Carter through its employees amounted to knowledge that Wood was paying it with embezzled funds. Because a question of material fact existed regarding Carter's knowledge, the trial court erred in dismissing Echelon's statutory conversion claim pursuant to MCR 2.116(C)(10).[1]
In its next argument, Echelon asserts that the trial court erred in dismissing its fraud claim. In Kassab v. Michigan Basic Prop. Ins. Ass'n,
"(1) That defendant made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury."
In the instant case, Carter made a representation when it signed lien waivers asserting that it had delivered building materials to certain locations. The representation was false in that Carter did not deliver supplies to the stated addresses. Carter made the representation with the intent that Echelon's title company would rely on it, because Carter's store manager admitted that he signed lien waivers so *183 that Carter could receive payment on Echelon's account. Echelon relied on this representation in that its title company issued checks to Carter on the basis of the lien waivers. Thus, the only remaining question is whether Carter made the representation knowing that it was false or made it recklessly, without any knowledge of its truth.
Reckless misconduct is not willful in the sense that there is actual intent to cause harm. Jennings v. Southwood,
In the instant case, Wood led Carter to believe that she was authorized to act on Echelon's behalf by forging the name of one of Echelon's owners on a credit application. Carter, without any question, delivered materials to several locations at Wood's request. Because of the transactions engineered by Wood, in a very short time, Echelon became one of the largest customers at Carter's White Lake store. The store manager knew that Echelon paid its account through checks drawn from American Title. The testimony presented by Echelon shows that Carter's employee signed a lien waiver presented by a major customer without confirming if or when Carter had shipped materials to the address listed on the document. The evidence may support an inference that Carter's employees acted with indifference regarding whether signing the lien waivers would harm Echelon. Thus, there was sufficient evidence produced to create a question of fact about whether Carter acted recklessly in regard to the lien waivers. Therefore, the trial court erred in dismissing Echelon's fraud claim.
Echelon also asserts that the trial court erred in dismissing its claim that Carter aided and abetted Wood's breach of her fiduciary duties to Echelon. Fiduciaries owe a duty of good faith to their principals. Central Cartage Co. v. Fewless,
Contrary to assertions by Carter, Michigan law does provide for a cause of action for aiding and abetting the breach of a fiduciary duty. Our Supreme Court has stated that a person who "'"knowingly joins a fiduciary in an enterprise where the personal interest of the latter is or may be antagonistic to his trust becomes jointly and severally liable with him for the profits of the enterprise."'" Hayes-Albion Corp. v. Kuberski,
"Where a person in a fiduciary relation to another violates his duty as fiduciary, a third person who participates in the violation of duty is liable to the beneficiary. If the third person makes a profit through such participation, he is chargeable as constructive trustee of the profit so made." [In re Goldman Estate,236 Mich.App. 517 , 521, 601 N.W.2d *184 126 (1999), quoting 3 Scott on Trusts, p. 2429, § 506, which was also quoted with approval in L. A. Young Spring & Wire Corp., supra at 106,11 N.W.2d 329 .]
In Hayes-Albion, supra at 186,
A situation similar to that in Hayes-Albion exists in the instant case. Like Kuberski, Wood violated her fiduciary duties to her employer. Just as the suppliers in Hayes-Albion obtained additional orders because of Kuberski's breach, Wood's fraudulent scheme resulted in more business for Carter. If Carter knowingly participated in Wood's scheme, it too was unjustly enriched and should be held liable to Echelon.
As previously noted, Echelon has presented sufficient evidence from which a jury could find Carter had knowledge of Wood's scheme. There was evidence that Carter's employees were involved and substantially assisted Wood's scheme from the beginning and that this occurred because of the negligence or other acts of Carter, such as its failure to verify whether only authorized users were using the account opened in Echelon's name and whether supplies purchased on that account were delivered to actual addresses. Carter allowed Wood to open the account and signed lien waivers. Thus, there is evidence that Carter took affirmative steps to aid Wood in her scheme and received a profit because of it. Whether Carter aided and abetted Wood in her breach of fiduciary duties depend on factual determinations for a jury to decide. While Echelon may not ultimately prevail on these facts, viewing the evidence in the light most favorable to Echelon, Carter is not entitled to summary disposition pursuant to MCR 2.116(C)(10) on Echelon's claim alleging aiding and abetting breach of fiduciary duty.
Echelon next argues that a question of material fact existed regarding its claim that Carter converted its property. A person is liable for conversion if he wrongfully exerts dominion over the personal property of another, and, as stated above, checks are the property of the payee. Pamar Enterprises, Inc., supra at 734,
Finally, Echelon raises the issue whether Carter is permitted to submit evidence of Echelon's alleged negligence. *185 However, the trial court did not directly analyze or rule on this issue. Therefore, we decline to review the issue.
IV. Conclusion
In sum, in Docket No. 243112, we affirm the trial court's grant of summary disposition to Echelon. In Docket No. 233180, we reverse the trial court's dismissal of Echelon's claims against Carter of statutory conversion, fraud, and aiding and abetting breach of fiduciary duty, but affirm the dismissal of the remaining claims.
Affirmed in part, reversed in part, and remanded to the trial court for further proceedings consistent with this opinion. We do not retain jurisdiction.
NOTES
Notes
[1] The trial court improperly analyzed only the issue of intent with regard to Carter's conduct. Because we find there is sufficient evidence to defeat a motion for summary disposition with regard to Carter's knowledge, we make no determination with regard to the trial court's finding that there was no evidence of Carter's intent.