Echelon Homes, LLC v. Carter Lumber Co.

Michigan Supreme Court
Lansing, Michigan
Chief Justice: Justices:

Opinion Clifford W. Taylor Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman

FILED APRIL 12, 2005

ECHELON HOMES, L.L.C.,

Plaintiff/Counter-Defendant-Appellee,

v Nos. 125994, 125995

CARTER LUMBER COMPANY,

Defendant/Counter-Plaintiff-Appellant.

_______________________________

BEFORE THE ENTIRE BENCH

WEAVER, J.

MCL 600.2919a provides that a person who buys,

receives, or aids in concealing stolen, embezzled, or

converted property can be held liable for treble damages if

he knew that the property was stolen, embezzled, or

converted. The sole issue before this Court is whether

constructive knowledge that property is stolen, embezzled,

or converted is sufficient to impose liability under MCL

600.2919a. We hold that under the plain language of the

statute, constructive knowledge is not sufficient to impose

liability under MCL 600.2919a.
 Therefore, we reverse the judgment of the Court of

Appeals and hold that the statute requires exactly what it

says—that the person knew that the property had been

stolen, embezzled, or converted.

We remand this case to the trial court for a hearing

on whether there is a material issue of fact regarding

whether there is sufficient circumstantial evidence to

establish that defendant knew the property was stolen,

embezzled, or converted.

FACTS and PROCEDURAL HISTORY

Plaintiff Echelon Homes, L.L.C., employed Carmella

Wood as its bookkeeper and office manager from 1997 to

2000. During her employment, Wood engaged in fraudulent

schemes against Echelon, including, but not limited to,

forging company checks to herself, opening company credit

cards in her name, and opening lines of credit to herself

in Echelon’s name. During this time, Wood opened an

unauthorized account with defendant Carter Lumber Company

and purchased approximately $87,000 in materials used to

remodel her home and her brother’s home. Echelon did not

discover Wood’s fraudulent activity until June 2000, when

it learned that Wood had embezzled over $500,000. When

Wood’s embezzlement was discovered, Echelon had an

outstanding invoice from Carter for approximately $27,000.

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 Carter had extended a line of credit to Wood under

Echelon’s company name. Wood forged the credit application

to initially obtain the account. Subsequently, Carter

continued to increase the line of credit to Wood, to the

point that Echelon became one of its largest credit

customers. Carter never verified that Echelon had in fact

authorized the credit account, nor did it ever verify that

Wood had the authority to receive credit increases. Carter

delivered goods to Wood’s relatives and allowed her

relatives to pick up goods without verifying that they were

authorized by Echelon. Carter signed lien waivers for

goods purportedly delivered to Echelon for specific jobs

when Carter knew it had never delivered goods for those

jobs. Wood has testified that she was not working with

Carter, or any of Carter’s agents, and that she was

“scamming” Carter as well.

Echelon filed suit against Carter under various

theories, including MCL 600.2919a, aiding and abetting

conversion. Carter filed a counterclaim against Echelon

for the $27,000 outstanding invoice. The trial court

granted both parties’ motions for summary disposition.

Both parties appealed. The Court of Appeals affirmed the

summary dismissal of Carter’s claims against Echelon, but

reversed the summary dismissal of two of Echelon’s claims

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against Carter. Echelon Homes, LLC v Carter Lumber Co, 261

Mich App 424; 683 NW2d 171 (2004).

Carter filed an application for leave to appeal with

this Court. This Court scheduled oral argument on the

application for leave to appeal, limited to whether the

Court of Appeals correctly held that constructive knowledge

was sufficient to impose liability under MCL 600.2919a.

Echelon Homes, LLC v Carter Lumber Co, 471 Mich 916 (2004).

ANALYSIS

The issue before us is whether constructive knowledge

is sufficient to impose liability under MCL 600.2919a,

which requires that a person “knew” that property was

stolen, embezzled, or converted in order to be held liable

for aiding and abetting.

This is a question of statutory interpretation, which

this Court reviews de novo. Stozicki v Allied Paper Co,

Inc, 464 Mich 257, 263; 627 NW2d 293 (2001). In reviewing

questions of statutory construction, our purpose is to

discern and give effect to the Legislature's intent. People

v Morey, 461 Mich 325, 329-330; 603 NW2d 250 (1999). “We

begin by examining the plain language of the statute; where

that language is unambiguous, we presume that the

Legislature intended the meaning clearly expressed—no

further judicial construction is required or permitted, and

the statute must be enforced as written.” Id. at 330. “We
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must give the words of a statute their plain and ordinary

meaning . . . .” Id. The plain and ordinary meaning of

words can be ascertained by looking at dictionary

definitions. Koontz v Ameritech Services, Inc, 466 Mich

304, 312; 645 NW2d 34 (2002).

A

MCL 600.2919a states:

A person damaged as a result of another
person's buying, receiving, or aiding in the
concealment of any stolen, embezzled, or
converted property when the person buying,
receiving, or aiding in the concealment of any
stolen, embezzled, or converted property knew
that the property was stolen, embezzled, or
converted may recover 3 times the amount of
actual damages sustained, plus costs and
reasonable attorney's fees. [Emphasis added.]

A plain reading of this statute indicates that a person

must know that the property was stolen, embezzled, or

converted in order to be held liable. That the person

“should have known” is not sufficient to impose liability

under the statute.

The term “know” does not encompass constructive

knowledge, that one “should have known.” Black’s Law

Dictionary (8th ed) defines “knowledge” as “[a]n awareness

or understanding of a fact or circumstance; a state of mind

in which a person has no substantial doubt about the

existence of a fact.” “Constructive knowledge,” on the

other hand, is defined as “[k]nowledge that one using
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reasonable care or diligence should have, and therefore

that is attributed by law to a given person.” Id.

Constructive knowledge is a distinct concept from

knowledge, and cannot replace the requirement of knowledge

in a statute. The Legislature uses the terms “knew” and

“should have known” to indicate a difference between

knowledge and constructive knowledge.1 We found thirty-

eight statutes that refer to constructive knowledge, using

a variation of the phrase “knew or should have known.” See

MCL 205.14(2)(d) (a tobacco seller or distributor can be

1
The dissent argues that the Legislature’s frequent
use of the term “actual knowledge” refutes our position
that the term “knew,” as used in this statute, is not
satisfied by constructive knowledge. But the dissent
overlooks the fact that the Legislature uses the terms
“knowledge” and “knew” very differently.

There are some thirty-eight statutes that use a
variation of the phrase “knew or should have known”; for
those statutes constructive knowledge is sufficient. By
contrast, there is only one statute, MCL 554.636, that uses
the phrase “actually knew.” (Ten statutes, including this
one, use the bare word “knew.”) The Legislature’s ability
to denote the type of knowledge required is better
evidenced by the thirty-eight statutes in which it
explicitly called for constructive knowledge than by the
one occasion in which it used the term “actually.”

The dissent cites forty-eight statutes in which the
Legislature uses the phrase “actual knowledge.” By
contrast, there are only seven statutes that refer to
“actual or constructive knowledge.”

The multiple citations to statutes referencing “actual
knowledge” do not affect the correct interpretation of the
statute at issue here, which uses the term “knew.”

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held liable for illegally selling tobacco products if it

“knew or should have known that the manufacturer intended

the tobacco product to be sold or distributed” outside the

prescribed area); MCL 691.1417(3)(c) (to receive

compensation for property damage or physical injury from a

governmental agency the claimant must show that “[t]e

governmental agency knew, or in the exercise of reasonable

diligence should have known, about the defect”); MCL

565.831(4) (a person who provides a statement used in an

application for registration or property report is liable

only for false statements and omissions in his statement

and only “if it is proved he knew or reasonably should have

known of the existence of the true facts by reason of which

the liability is alleged to exist”); MCL 445.1902(b)(ii)(B)

(misappropriation of a trade secret includes one who

disclosed or used a trade secret of another when, at the

time of disclosure or use, the person “knew or had reason

to know that his or her knowledge of the trade secret was

derived from or through a person who had utilized improper

means to acquire it”).

Relying on People v Tantenella, 212 Mich 614; 180 NW

474 (1920), Echelon argues that this Court has historically

used constructive knowledge to impose liability under a

criminal aiding and abetting statute.

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 In Tantenella, the defendant was charged with

receiving a stolen car. The defendant claimed that he did

not know that the car was stolen. However, the Court

determined that the defendant had sufficient guilty

knowledge to be guilty of the crime. Id. at 620. The

Tantenella Court stated, “Guilty knowledge means not only

actual knowledge, but constructive knowledge, through

notice of facts and circumstances from which guilty

knowledge may fairly be inferred.” Id. at 621. The Court

went on to list facts that implied the guilty knowledge of

the defendant: receiving possession of the car hours after

it had been stolen, driving to Chicago with the suspected

thief, changing the motor number and license number,

claiming ownership, producing a fraudulent bill of sale,

and giving authorities conflicting names. Id. All these

facts were used by the Court to determine that the

defendant was guilty of receiving stolen property.

Although the Tantenella Court characterized its

analysis of these facts as examining the defendant’s

constructive knowledge, the Court was, in fact, determining

that the defendant had knowledge, proven by circumstantial

evidence, that the car was stolen. This is shown by the

Court’s extensive analysis of the facts that led it to

believe that the defendant had knowledge. The Tantenella

Court used the term “constructive knowledge” synonymously
8

with knowledge proven through circumstantial evidence.

Thus, the Court’s use of the term “constructive knowledge”

is a misnomer; what the Court really meant was knowledge

proven by circumstantial evidence.

The Tantenella Court’s holding regarding “constructive

knowledge” has correctly been interpreted by subsequent

courts to mean actual knowledge proven by circumstantial

evidence. See, e.g., People v Westerfield, 71 Mich App 618;

248 NW2d 641 (1976)(the defendant was found guilty of

receiving a stolen car on the basis of suspicious

circumstances surrounding his purchase); People v

Blackwell, 61 Mich App 236, 240-241; 232 NW2d 368 (1975)

(“although the term may convey a special meaning to

lawyers, it is apparent that the Tantenella Court and the

others which have used the identical instructions since

Tantenella used the term “constructive knowledge” as a

shorthand way of saying that this element of the charge may

be proven circumstantially”); People v White, 22 Mich App

65, 68; 176 NW2d 723 (1970) (the defendant was charged with

knowingly concealing stolen property on the basis of

circumstantial evidence); People v Keshishian, 45 Mich App

51, 53; 205 NW2d 818 (1973) (circumstantial evidence

sufficient to make prima facie showing of guilty

knowledge).

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 We hold that, under MCL 600.2919a, constructive

knowledge is not sufficient; a defendant must know that the

property was stolen, embezzled, or converted. To the

extent that Tantenella stated otherwise, it is overruled.

But consistent with the actual holding in Tantenella, a

defendant’s knowledge that the property was stolen,

embezzled, or converted can be established by

circumstantial evidence.

B

Echelon also argues, and the Court of Appeals agreed,

that Carter was required to make a reasonably diligent

inquiry into whether Wood was authorized to open credit

accounts and conduct transactions in Echelon’s name. In

support of this argument Echelon relies on In re Thomas

Estate, 211 Mich App 594; 536 NW2d 579 (1995). In Thomas,

a bank improperly released funds to the former guardian of

a minor, despite the fact that her guardianship had been

terminated. At the time of the transaction, the bank had

in its possession a letter that explicitly stated that the

guardianship had been terminated. The bank was found

liable for the improper release, and was required to

compensate the estate of the minor for the loss.

The Court of Appeals in the present case reasoned that

just as the bank in Thomas was required to make a diligent

inquiry about the authority of the guardian, Carter was
10

required to inquire about Wood’s authority concerning

Echelon. We disagree.

Thomas dealt with MCL 700.483, which in relevant part

before its repeal stated: “The fact that a person knowingly

deals with a conservator does not alone require the person

to inquire into the existence of a power or the propriety

of its exercise, except that restrictions on powers of

conservators which are indorsed on letters as provided in

section 485 are effective as to third persons.” (Emphasis

added.) This statute explicitly stated that a bank does

not need to make further inquiry into the powers of a

conservator except when there are letters that restrict the

conservator’s powers. In Thomas, there were letters—

letters that explicitly stated the date when the

guardianship was to terminate. The bank did not consult

these letters when it statutorily had an affirmative duty

to do so. As a result, the bank was held liable for

improper disbursement of funds.

But the statute in the present case, MCL 600.2919a,

imposes no duty on the defendant to make an inquiry.

Therefore, Carter was not statutorily bound to make an

inquiry into Wood’s authority, and Echelon’s analogy to

Thomas is misplaced.

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 CONCLUSION

Constructive knowledge is not sufficient to impose

liability under MCL 600.2919a. The term “knew” in the

statute means knowledge that the property is stolen,

embezzled, or converted.

In lieu of granting leave to appeal, we reverse the

Court of Appeals holding that constructive knowledge is

sufficient to impose liability under MCL 600.2919a.

However, the trial court did not determine whether there

was a material issue of fact concerning whether there was

sufficient circumstantial evidence to establish that Carter

knew that Wood’s transactions were fraudulent.

Accordingly, we remand this case to the trial court for a

hearing on this issue. Defendant’s application for leave

to appeal on the remaining issues is denied, because we are

not persuaded that the questions presented should be

reviewed by this Court.

Elizabeth A. Weaver
Clifford W. Taylor
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman

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 S T A T E O F M I C H I G A N

SUPREME COURT

ECHELON HOMES, LLC,

Plaintiff/Counter-Defendant/Appellee,

v Nos. 125994, 125995

CARTER LUMBER COMPANY,

Defendant/Counter-Plaintiff/Appellant.

_______________________________

CAVANAGH, J. (dissenting).

I agree with the majority that circumstantial evidence

can be sufficient to establish the knowledge requirement of

MCL 600.2919a. However, I disagree with the majority’s

contention that, as it relates to MCL 600.2919a,

constructive knowledge is a distinct concept from

knowledge.1 The word “knew” as used in MCL 600.2919a

1
MCL 600.2919a states the following:

A person damaged as a result of another
person’s buying, receiving, or aiding in the
concealment of any stolen, embezzled, or
converted property when the person buying,
receiving, or aiding in the concealment of any
stolen, embezzled, or converted property knew
that the property was stolen, embezzled, or
converted may recover 3 times the amount of
actual damages sustained, plus costs and
reasonable attorney’s fees. This remedy shall be
in addition to any other right or remedy the
person may have at law or otherwise.
encompasses actual and constructive knowledge; therefore, I

must respectfully dissent.

The Legislature knows how to use the term “actual

knowledge” and has used this term on numerous occasions.

The number of statutes in which the Legislature plainly

expresses that actual knowledge is required belies the

majority’s position that the term “knew” means only actual

knowledge.

For example, in the following statutes the Legislature

had no difficulty expressing the requirement of actual

knowledge. MCL 15.305(1) (“with actual knowledge of such

prohibited conflict”); MCL 15.325(1) (“with actual

knowledge of the prohibited activity”); MCL 28.425a(2)(c)

(“The prosecuting attorney shall disclose to the concealed

weapon licensing board any information of which he or she

has actual knowledge that bears directly on an applicant’s

suitability to carry a concealed pistol safely.”); MCL

35.501 (“without actual knowledge”); MCL 205.29(2) (“had

actual knowledge”); MCL 286.192(1) (“unless the person has

actual knowledge”); MCL 324.5531(7) (“in proving a

defendant’s possession of actual knowledge, circumstantial

evidence may be used”); MCL 324.11151(5)(b) (“in proving

the defendant’s possession of actual knowledge,

circumstantial evidence may be used”); MCL 333.2843b(1) (“a

2

physician . . . has actual knowledge”); MCL 333.5475a(1)(b)

(“the property manager, housing commission, or owner of the

rental unit had actual knowledge of the lead paint

hazard”); MCL 333.13738(5)(b) (“in proving the defendant’s

possession of actual knowledge, circumstantial evidence may

be used”); MCL 333.17015(14) (“the physician who relied

upon the certification had actual knowledge”); MCL

390.1553(3)(a) (“does not have actual knowledge”); MCL

418.131(1) (“if the employer had actual knowledge that an

injury was certain to occur”); MCL 432.207c(7) (“report all

information . . . of which it has actual knowledge”); MCL

440.1201(25) (“[a] person has ‘notice’ of a fact when he or

she has actual knowledge of it”); MCL 441.107(a) (“unless

it is shown that he acted with actual knowledge”); MCL

445.813(1) (“unless done with actual knowledge”); MCL

449.1303(a) (“with actual knowledge of the limited

partner’s participation in control”); MCL 450.1472(2)

(“with actual knowledge of the restriction”); MCL

450.4406(b) (“has actual knowledge”); MCL 487.717(1)

(“shall not be chargeable with changes in rights of

withdrawal due to death or incompetency in absence of

actual knowledge”); MCL 490.385(1) (“has actual knowledge

of a dispute”); MCL 491.422(2) (“with actual knowledge of

the restriction”); MCL 491.604 (“unless it has actual

3

knowledge that the facts set forth in the affidavit are

untrue”); MCL 500.1371(2) (“with actual knowledge”); MCL

500.8127(2)(c) (“A person having actual knowledge of the

pending rehabilitation or liquidation shall be considered

not to act in good faith.”); MCL 554.636(3)(b) (“which the

lessor actually knew was in violation”); MCL 554.636(3)(c)

(“the lessor actually knew that the provision was not

included”); MCL 557.206(d) (“without actual knowledge of

such breach”); MCL 600.1403(1) (“the seller had no actual

knowledge of the actual age”); MCL 600.2945(j) (“does not

have actual knowledge”); MCL 600.2949a (“the defendant had

actual knowledge that the product was defective”); MCL

600.2974(3)(d) (“with the actual knowledge that the conduct

was injurious to consumers”); MCL 700.2910(1)(c) (“after

actual knowledge that a property right has been

conferred”); MCL 700.3714(2) (“with actual knowledge of the

limit”); MCL 700.5318 (“has actual knowledge that the

guardian is exceeding the guardian’s powers or improperly

exercising them”); MCL 700.5504(1) (“without actual

knowledge of the principal’s death”); MCL 700.5505(1) (“the

attorney in fact did not have actual knowledge of the

principal’s death”); MCL 700.5510(2) (“did not have actual

knowledge”); MCL 700.7404 (“without actual knowledge”); MCL

750.159k(4)(a) (“did not have prior actual knowledge”); MCL

4

750.159m(4) (“did not have prior actual knowledge”); MCL

750.159q(1)(b) (“had prior actual knowledge of the

commission of an offense”); MCL 750.159r(1)(a) (“who did

not have prior actual knowledge”); MCL 750.219e(3)(a)

(“without prior actual knowledge”); MCL 750.219f(4)(a)

(“without prior actual knowledge”); MCL 750.411j(b) (“with

the approval or prior actual knowledge”); MCL 750.411k(1)

(“with prior actual knowledge”); MCL 750.540d(a) (“had

prior actual knowledge of and consented to the violation”).

I list these statutes not to overwhelm the reader, but

to show the fallacy of the majority’s position. The

Legislature is fully aware of how to ensure a statutory

requirement of actual knowledge. In MCL 600.2919a, it has

not done so. This Court does not have the authority to

impose an actual knowledge requirement when the Legislature

has not seen fit to do so. See In re MCI Telecom

Complaint, 460 Mich 396, 413; 596 NW2d 164 (1999).

The Legislature’s ability to clearly state an actual

knowledge requirement is indisputable given the number of

statutes in which it expresses this requirement.

Therefore, the Legislature’s use of the term “knew” in MCL

600.2919a must be viewed as allowing a broad range of

knowledge to meet the statutory knowledge requirement.

5

 This Court recognized the difference in specificity

between using the terms “actual knowledge” and “knowledge”

in Travis v Dreis & Krump Mfg Co, 453 Mich 149, 173; 551

NW2d 132 (1996). As this Court stated in Travis, supra at

173, “Because the Legislature was careful to use the term

‘actual knowledge,’ and not the less specific word

‘knowledge,’ we determine that the Legislature meant that

constructive, implied, or imputed knowledge is not enough.”

Logically, the opposite is also true. The Legislature’s

careful selection of the term “knew,” instead of “actually

knew,” indicates that a broad range of knowledge is

sufficient to meet the statutory requirement. Because the

Legislature’s choice of the word “knew” encompasses

constructive knowledge, defendant had a duty to make

obvious inquiries that an honest person using ordinary

caution would have made, instead of avoiding these

inquiries. See Deputy Comm’r of Agriculture v O & A

Electric Co-op, Inc, 332 Mich 713, 716-717; 52 NW2d 565

(1952).

Because this Court must follow the plain text of a

statute and because the Legislature used the term “knew,”

which encompasses actual and constructive knowledge, I

disagree with the majority’s contention that constructive

6

knowledge is insufficient to satisfy the requirement of MCL

600.2919a. Accordingly, I respectfully dissent.

Michael F. Cavanagh
Marilyn Kelly

7