People of Michigan v. Jay Dee Spencer

STATE OF MICHIGAN
COURT OF APPEALS
PEOPLE OF THE STATE OF MICHIGAN, FOR PUBLICATION
August 10, 2017
Plaintiff-Appellant, 9:10 a.m.
v No. 337045
Kent Circuit Court
JAY DEE SPENCER, LC No. 16-008983-FH
Defendant-Appellee.
Before: HOEKSTRA, P.J., and MURPHY and K. F. KELLY, JJ.
MURPHY, J.
The prosecution appeals by leave granted1 the circuit court’s order denying its motion to
amend the information to reinstate a count of larceny by conversion of $20,000 or more, MCL
750.362; MCL 750.356(2)(a), which count the district court had dismissed following defendant’s
preliminary examination. The district court did bind defendant over to the circuit court on
charges of obtaining money by false pretenses in the amount of $20,000 or more but less than
$50,000, MCL 750.218(5)(a), and embezzlement by an agent or trustee of $20,000 or more but
less than $50,000, MCL 750.174(5)(a). The false pretenses and embezzlement counts are not at
issue on appeal. We hold that the circuit court abused its discretion when it denied the
prosecution’s motion to amend the information, where there was sufficient evidence establishing
probable cause to believe that defendant committed the offense of larceny by conversion, and
where amendment of the information would not have unfairly surprised or prejudiced defendant.
Accordingly, we reverse and remand for further proceedings.
I. FACTUAL BACKGROUND
Our summarization of the case is based on evidence presented by the prosecution at
defendant’s preliminary examination, which evidence defendant is of course free to challenge at
trial. Using funds held in his IRA, the complainant, through a trust company acting as custodian
of the IRA, loaned $241,000 to Mackinac Advisory Services, LLC (MAS), pursuant to an
agreement specifying that all of the funds were to be used by MAS for the acquisition and
rehabilitation of six identified real properties in the Grand Rapids area, with MAS promising in
1
People v Spencer, unpublished order of the Court of Appeals, entered March 9, 2017 (Docket
No. 337045).
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return to pay the complainant $257,870 within 120 days of the loan disbursement. The
repayment obligation in the amount of $257,870 was not dependent on the success of the
business venture. The agreement was reflected in a direction-of-investment letter signed by the
complainant, a promissory note executed by defendant on behalf of MAS, and a mortgage on the
properties given by MAS to secure the note, which was also signed by defendant. Defendant
held no ownership interest in or employment position with MAS; however, the individual who
formed and owned MAS testified that defendant facilitated MAS’s transactions as its real estate
agent and was authorized to direct the disbursement of funds on behalf of MAS for purposes of
purchasing properties and construction projects.2
While the details are confusing regarding the particular flow and use of the $241,000
after being transferred from the IRA under the loan agreement, we need not concern ourselves
with most of these intricacies. Pertinent here is evidence that defendant eventually directed the
movement of at least $20,000 of the $241,000 into accounts held by Mackinac Realty Group, a
company solely owned and managed by defendant, and that defendant then used these funds to
pay for personal items and expenses unassociated with the acquisition and rehabilitation of real
estate as contemplated in the underlying agreement. Although some of the IRA money lent to
MAS was actually used for its designated purpose, no payment was made to the complainant or
his IRA upon expiration of the 120-day period. The complainant did obtain a civil judgment
against his financial advisor who orchestrated the loan and transaction, against MAS’s owner,
and against defendant.
II. PROCEDURAL HISTORY
In February 2016, the prosecution charged defendant with larceny by conversion over
$20,000, and he was bound over to the circuit court after waiving his right to a preliminary
examination. However, the circuit court later granted defendant’s motion to dismiss the charge,
concluding that the charge was not viable under the caselaw and the factual circumstances. The
circuit court next denied the prosecution’s motion for reconsideration, but it did indicate that the
prosecution could refile the charge in the future if new evidence came to light supporting the
offense of larceny by conversion. The prosecution did not appeal the circuit court’s ruling to this
Court.
Although no new evidence was truly developed, in July 2016, the prosecution filed a
three-count complaint, once again charging defendant with larceny by conversion, along with the
false pretenses and embezzlement charges. Following a preliminary examination, the district
court bound defendant over to the circuit court on the offenses of embezzlement and false
pretenses, but not on the crime of larceny by conversion, expressing deference to the circuit
court’s previous ruling on the charge. In a motion to amend the information, see People v
2
The note and the mortgage documents did indicate that defendant was MAS’s CEO, which was
untrue, but MAS’s owner did not have any qualms about defendant executing the documents on
behalf of MAS.
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Goecke, 457 Mich 442, 455-456; 579 NW2d 868 (1998),3 the prosecution asked the circuit court
to reinstate the charge of larceny by conversion. The circuit court, consistent with its earlier
ruling in the initial prosecution of defendant, denied the prosecution’s motion, finding that the
facts simply did not support a charge of larceny by conversion under the caselaw construing the
statutory offense. The prosecution appeals by leave granted.
III. ANALYSIS
A. STANDARDS OF REVIEW
This Court reviews for an abuse of discretion a trial court’s decision to grant or deny a
motion to amend an information. People v McGee, 258 Mich App 683, 686-687; 672 NW2d 191
(2003). And a trial court abuses its discretion when it “chooses an outcome that falls outside the
range of reasonable and principled outcomes.” People v Unger, 278 Mich App 210, 217; 749
NW2d 272 (2008) (citation omitted). “A trial court . . . necessarily abuses its discretion when it
makes an error of law.” People v Al-Shara, 311 Mich App 560, 566; 876 NW2d 826 (2015)
(citation omitted). “In addition, because the standard of review is abuse of discretion, the
defendant is protected by the time-honored principle that the circuit court may not substitute its
judgment for that of the magistrate.” Goecke, 457 Mich at 462. Insofar as the circuit court’s
decision involves the interpretation of a statute, this Court’s review is de novo. People v Chavis,
468 Mich 84, 91; 658 NW2d 469 (2003).
B. STATUTORY CONSTRUCTION PRINCIPLES
With respect to the principles that govern our interpretation of a statute, in People v Flick,
487 Mich 1, 10-11; 790 NW2d 295 (2010), the Michigan Supreme Court observed:
The overriding goal of statutory interpretation is to ascertain and give
effect to the Legislature's intent. The touchstone of legislative intent is the
statute's language. The words of a statute provide the most reliable indicator of
the Legislature's intent and should be interpreted on the basis of their ordinary
meaning and the overall context in which they are used. An undefined statutory
word or phrase must be accorded its plain and ordinary meaning, unless the
undefined word or phrase is a “term of art” with a unique legal meaning.
[Citations and some quotation marks omitted.]
And in regard to construing statutory offenses contained in the Penal Code, such as,
under MCL 750.362, larceny by conversion, MCL 750.2 provides:
The rule that a penal statute is to be strictly construed shall not apply to
this act or any of the provisions thereof. All provisions of this act shall be
3
The Goecke Court agreed with the argument “that where a district court binds a defendant over
on one of two counts, review of the dismissed count is obtainable by a motion to amend the
information [filed in the circuit court.]” Goecke, 457 Mich at 455-456.
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construed according to the fair import of their terms, to promote justice and to
effect the objects of the law.
C. AMENDING AN INFORMATION AND PRELIMINARY EXAMINATIONS
“The court before, during, or after trial may permit the prosecutor to amend the
information . . . unless the proposed amendment would unfairly surprise or prejudice the
defendant.” MCR 6.112(H). “Where a preliminary examination is held on the very charge that
the prosecution seeks to have reinstated, the defendant is not unfairly surprised or deprived of
adequate notice or a sufficient opportunity to defend at trial[.]” Goecke, 457 Mich at 462.
In Goecke, id. at 469-470, our Supreme Court explained the general nature of a
preliminary examination:
For purposes of preliminary examination, the proofs adduced must only
establish probable cause to believe that a crime was committed and probable
cause to believe that the defendant committed it. If the district court determines
that “probable cause exists to believe both that an offense not cognizable by the
district court has been committed and that the defendant committed it,” the
defendant must be bound over for trial. MCR 6.110(E). Some evidence must be
presented regarding each element of the crime or from which those elements may
be inferred. It is not, however, the function of the examining magistrate to
discharge the accused when the evidence conflicts or raises a reasonable doubt of
the defendant's guilt; that is the province of the jury. [Citations omitted.]
D. DISCUSSION AND HOLDING
The crux of the dispute in this case is whether a person commits the crime of larceny by
conversion when the person, as the recipient of a loan, converts the loan proceeds to his or her
own use and employs them in a manner that is inconsistent or conflicts with specific restrictions
or conditions demanded by the lender in the underlying loan agreement regarding how the loan
proceeds are to be used upon disbursement. MCL 750.362 provides:
Any person to whom any money, goods or other property, which may be
the subject of larceny, shall have been delivered, who shall embezzle or
fraudulently convert to his own use, or shall secrete with the intent to embezzle,
or fraudulently use such goods, money or other property, or any part thereof, shall
be deemed by so doing to have committed the crime of larceny and shall be
punished as provided in the first section of this chapter.[4]
4
MCL 750.356 provides, in relevant part:
(2) If any of the following apply, the person is guilty of a felony
punishable by imprisonment for not more than 10 years or a fine of not more than
$15,000.00 or 3 times the value of the property stolen, whichever is greater, or
both imprisonment and a fine:
(a) The property stolen has a value of $20,000.00 or more.
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In People v Mason, 247 Mich App 64, 72; 634 NW2d 382 (2001), this Court recited the
following elements of larceny by conversion:
(1) the property at issue must have some value, (2) the property belonged
to someone other than the defendant, (3) someone delivered the property to the
defendant, irrespective of whether that delivery was by legal or illegal means, (4)
the defendant embezzled, converted to his own use, or hid the property with the
intent to embezzle or fraudulently use it, and (5) at the time the property was
embezzled, converted, or hidden, the defendant intended to defraud or cheat the
owner permanently of that property. [Quotation marks and citation omitted.]
“The purpose of the larceny by conversion statute is to cover one of the situations left
unaccounted for by common-law larceny, that is, where a person obtains possession of another's
property with lawful intent, but subsequently converts the other's property to his own use.”
People v Christenson, 412 Mich 81, 86; 312 NW2d 618 (1981); see also Mason, 247 Mich App
at 72. Larceny by conversion constitutes “a crime against possession and not against title; one
cannot convert his own funds.” Christenson, 412 Mich at 87 (citations omitted). Accordingly,
when an owner intends to part with his or her title to property as well as possession, a charge of
larceny by conversion is not viable. Id. Here, there is no dispute that the complainant intended
to pass possession of the $241,000 in IRA funds to MAS. The question is whether there was an
intent to part with title to the money when the loan was disbursed.
The principal cases discussed by the parties are Christenson, 412 Mich 81, People v
Franz, 321 Mich 379; 32 NW2d 533 (1948), Mason, 247 Mich App 64, and People v O’Shea,
149 Mich App 268; 385 NW2d 768 (1986). In Franz, Mason, and O’Shea, this Court and our
Supreme Court held that the evidence supported a charge of or conviction for larceny by
conversion. “In Franz, . . . there was an oral contract whereby the defendant agreed to purchase
iron for the complainant who had given to the defendant the sum of $4,080[,]” but “[n]o delivery
of iron was made . . . .” O’Shea, 149 Mich App at 273 (concisely summarizing the facts in
Franz). In O’Shea itself, id. at 270-272, the complainant and the defendant had entered into a
written contract pursuant to which the defendant accepted a $125 check, which was later
deposited by the defendant, as a down payment for upholstering fabric; however, neither fabric
nor a refund was ever delivered to the complainant. Mason involved five transactions, evidenced
by written contracts, wherein the defendant failed to refund money that the complainants had
given him as down payments on the purchase of mobile homes that were never delivered to the
complainants. These cases stand for the proposition that the offense of larceny by conversion
may be committed when a defendant fails to use money delivered by a complainant for an
agreed-upon designated purpose in the context of the complainant’s purchase of goods or
property, with the defendant also failing to refund the money to the complainant.
The instant case does not involve a sales or purchase agreement, but rather a loan
agreement. However, just like in Franz, Mason, and O’Shea, there was evidence that, pursuant
to an agreement, money was delivered by our complainant, reaching the hands of defendant, and
that the money was designated for a specific purpose or use that was not fulfilled, at least in part,
absent any refund of the money. We find the following passage from Mason instructive on the
issue of intent to pass title:
We gather from the O'Shea Court's emphasis on the facts of the case
before it as well as the facts of the contrary cases that we must look at the facts
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surrounding each complainant's transfer of money to Mason to determine whether
they each intended to retain title to the money. As in O'Shea, we think it plain
under the circumstances of the five cases being appealed, including the contracts
for sale, that each complainant intended to retain legal title to the down payment
money, though not possession of it, until each complainant received the home
each sought to purchase. It would make little sense for each of these complainants
to intend to give their hard-earned money to Mason to keep irrespective of
whether they ever received the home for which they bargained, especially with no
contractual provision to that effect. [Mason, 247 Mich App at 74-75.]
By analogy, we hold that there was evidence that complainant intended to retain legal
title to the loan proceeds, though not possession of the funds, until such time that the loan
proceeds were actually used to pay for the acquisition and rehabilitation of the six properties. As
reflected in the direction-of-investment letter signed by complainant and his testimony at the
preliminary examination, it was his intent that the money from his IRA that was loaned to MAS
and disbursed by or at the behest of defendant was specifically to be used to purchase and
rehabilitate the six identified Grand Rapids properties.
In Christenson, the case upon which defendant mainly relies, the Supreme Court reversed
the defendant’s convictions on three counts of larceny by conversion. The defendant in
Christenson sold and erected modular homes, and he had entered into written contracts with
three complainants who made progress payments to the defendant under the contracts as he
delivered and erected their modular homes. However, certain progress payments were not
specifically forwarded to the manufacturer of the modular homes. Instead, the defendant, who
eventually filed for bankruptcy, used those progress payments to pay other debts. Christenson,
412 Mich at 85-86. The Court held that there was no evidence that the complainants had
intended to retain title to the progress payments made to the defendant, and therefore, title passed
to the defendant, making it impossible for him to have committed the crime of larceny by
conversion. Id. at 88. The Court did not stop there, and proceeded to state:
Even if we were to accept the argument that defendant was not the
intended owner of the progress payments and that he was merely a trustee of the
funds, we do not find that the element of conversion has been established. The
prosecutor contends that conversion is established by the fact that the
complainants gave the money to defendant for a specific purpose, i.e., to pay
for the home or for site preparation, but defendant did not use it for that purpose.
***
It is clear in this case that defendant used partial payments for work in
place to pay debts that were not the specific debts incurred in construction of the
work in place. He subsequently was unable to pay the latter debts because of his
impending bankruptcy. However, there was no agreement that defendant apply
the specific funds he received from complainants for particular work to pay the
laborers and materialmen responsible for that work. There was no requirement
that defendant establish a separate trust account for each complainant in which he
would deposit that particular complainant's funds.
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It is beyond dispute that defendant had the contractual obligation to pay
the debts of the work in place for which he received progress payments from the
complainants. However, there was nothing to preclude defendant from paying for
those debts with funds other than the identical moneys he received from
complainants. The fact that defendant's bankruptcy intervened to preclude such
payment does not render defendant guilty of larceny by conversion. [Id. at 88-
90.]
The Mason panel, distinguishing Christenson, stated that “[i]n Christenson, the
homeowners who made progress payments to the defendant did so because the defendant had, in
fact, made progress on the construction project and, therefore, was entitled to this partial
payment” under the contracts. Mason, 247 Mich App at 76. This Court further observed that the
defendant in Christenson would have been guilty of larceny by conversion had he specifically
agreed to use the progress payments to pay certain debts, including the one owed to the
manufacturer of the modular homes. Id. The Mason panel explained that such would be the case
because “[t]he defendant, though in actual possession of the money, never would have obtained
legal title to the money under those facts because he could not do with it as he wished, a
limitation that generally does not exist for title owners of property.” Id. at 76-77 (emphasis
added). Instead, “because the homeowners and the defendant agreed neither that the defendant
would use the progress payments only to satisfy the particular debts at issue nor that he would
keep the money for that purpose in a special account, the Supreme Court was compelled to
reverse the defendant's conviction.” Id. at 78-79.
The present case is distinguishable from Christenson for the very same reason, i.e., there
was evidence of an agreement that did not allow MAS to do whatever it wished with the loan
proceeds. Rather, the loan was specifically conditioned on the agreement that it would be used
to acquire and rehabilitate the six identified properties. Thus, title would not have passed unless
and until the loan was used for its intended purpose. Because there was evidence that title to at
least $20,000 of the $241,000 loan did not pass to MAS or defendant, as it was not used as
intended and directed under the loan agreement, and that defendant converted that $20,000 or
more to his own use contrary to the loan agreement, there was sufficient evidence establishing
probable cause to believe that defendant committed the crime of larceny by conversion. And
considering that the preliminary examination was held on the very charge that the prosecution
sought to have reinstated in its motion to amend the information, we cannot find that defendant
would be unfairly surprised or prejudiced by allowing the requested amendment. Goecke, 457
Mich at 462. Accordingly, the circuit court abused its discretion in denying the prosecution’s
motion to amend the information to reinstate the charge of larceny by conversion, mainly
because the court committed an error of law relative to its construction of MCL 750.362 and the
caselaw interpreting the statute.
Reversed and remanded for entry of an order granting the prosecution’s motion to amend
the information so as to reinstate the charge of larceny by conversion. We do not retain
jurisdiction.
/s/ William B. Murphy
/s/ Joel P. Hoekstra
/s/ Kirsten Frank Kelly
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