In this probate case involving three jointly owned bank accounts, the Michigan Court of Appeals held that a co-owner of the account who unlawfully transferred nearly all the funds to her personal account must return one-half of the funds that were taken.
The Montcalm County Probate Court ruled in In re Estate of Lewis (Docket No. 343765) that Carol Rosebrook, as co-owner of three bank accounts with Robert Lewis, had the right to transfer $255,000 before Lewis died to her own personal accounts and keep all of it.
Although the Court of Appeals agreed that Rosebrook had the right to withdraw funds from the joint accounts, the panel said the probate court “erred by conflating the right to withdraw with the right to retain and use the funds for her own benefit.” Because Rosebrook was an equal owner but disregarded Lewis’s ownership rights by appropriating substantially all the funds, “she is liable under a conversion theory to return the funds taken in excess of her 50% proportional share.”
Accordingly, the Court of Appeals reversed the probate court’s ruling in favor of Rosebrook “to the extent that it concluded that [she] could retain 100% of the funds.” The Court of Appeals also vacated the dismissal of the conversion claim brought by the plaintiff-estate and remanded the matter to determine the value of the plaintiff-estate’s share of the funds, “as well as any other applicable damages.”
Judge Brock A. Swartzle wrote the published opinion, joined by Judges Michael J. Kelly and Jonathan Tukel.
Joint Bank Accounts
Carol Rosebrook and Robert Lewis were a couple for about 24 years but never married. They had several joint and individual bank accounts. This case involved three bank accounts jointly owned by Rosebrook and Lewis, who had equal ownership of the accounts and had equal rights to access and use the funds.
Lewis became seriously ill in October 2016 and was transferred to a healthcare facility. In January 2017, Rosebrook and Lewis ended their relationship and agreed to a 30-day period to sort their affairs. Lewis and his daughter, Kathy, immediately asked the bank to “freeze” the three accounts that were jointly owned by Lewis and Rosebrook. The bank indicated that it could not do so. Thereafter, during a period of several weeks, Rosebrook transferred substantially all the funds – approximately $255,000 – from the three accounts into her own personal accounts.
In May 2017, the Montcalm County Probate Court appointed Kathy as her father’s conservator. Kathy filed this action against Rosebrook on her father’s behalf, asserting claims of conversion, breach of fiduciary duty, constructive trust and oral trust over the funds that Rosebrook had transferred. The lawsuit alleged the accounts had been established for Lewis’s convenience or, at most, for the payment of household expenses and that Lewis did not intend to gift all the funds to Rosebrook. It was further alleged that the statutory authority to withdraw funds as a joint account holder did not necessarily give Rosebrook the right to retain the funds. Rosebrook, however, claimed that as a joint account holder, she had “complete and unlimited rights” to all the funds, even to the exclusion of Lewis while he was living. When Lewis died in October 2017, his estate, with Kathy as the personal representative, became the plaintiff in the case.
After a bench trial, the Montcalm County Probate Court ruled in favor of Rosebrook. The probate court reasoned that because Rosebrook had the right to withdraw and transfer funds, and these rights were not limited, she had the absolute right to retain all the funds from the accounts, notwithstanding any right that Lewis had to the funds as a joint account holder.
The plaintiff appealed.
Equal Access And Use
On appeal, the plaintiff first argued that Rosebrook’s right to the funds was limited to matters of convenience, such as paying Lewis’s bills.
The Court of Appeals disagreed, looking to MCL 487.703 for guidance. “Broadly speaking, a joint account under MCL 487.703 provides two primary rights – a right of proportional share of the funds in the account and a right of survivorship. … [T]he law presumes that joint tenants are equal contributors, have equal ownership shares, and have equal rights to access and use the funds.”
The Court of Appeals also considered the inter vivos rights of the parties, noting that Rosebrook had transferred nearly all the funds while Lewis was alive and that she was sued for their return before he died. “Lewis testified that Rosebrook’s actions were contrary to his ownership and use rights. Thus, this is not a survivorship dispute. Instead, the probate court concluded that Rosebrook was entitled to substantially all of the funds during Lewis’s lifetime. This is a dispute … about the respective inter vivos rights of parties to a financial account held as a joint tenancy with the right of survivorship under MCL 487.703.”
According to the Court of Appeals, the probate court correctly held that Lewis did not establish the joint accounts for mere convenience. “Lewis admitted during his deposition that, when he set up the accounts, he intended to take care of Rosebrook financially. … [W]e conclude that the probate court did not clearly err in finding that Lewis did not establish the accounts for his own convenience but instead intended to convey a right in the funds to Rosebrook as a joint tenant with the right of survivorship under MCL 487.703.”
“With that said,” the Court of Appeals continued, “the probate court did not conclude – and the record does not support – that Lewis intended to convey a 100% interest in the funds to Rosebrook or that he intended to divest himself of all ownership interest in the funds during his lifetime. Indeed, on this record it would be absurd to suggest that … Lewis intended to divest himself of all ownership interests during his own lifetime and to make an absolute transfer of all of the funds, to take immediate effect, to Rosebrook.”
The Court of Appeals also agreed with the probate court that the accounts were held and used equally by both parties. “This … factual finding accords with the presumption under state law that joint account holders are equal owners of the funds. … Given the record evidence, the probate court did not clearly err by concluding that [Lewis] and Rosebrook were co-owners of the funds in the accounts and that they had equal access to and use of the funds.”
Disregard Of Co-Owner’s Rights
Next, the Court of Appeals turned to the plaintiff’s second argument: that even if Rosebrook was a co-owner of the funds, her right to access the funds did not give her the independent right to appropriate all the funds for her own use, and that she should have been ordered to return at least 50 percent of the funds.
Addressing these arguments, the Court of Appeals noted that Lewis and Rosebrook had not agreed, either verbally or in writing, that one party could transfer and appropriate all the funds for that party’s own use without any concern for the other party. As a result, the Court of Appeals said if Rosebrook had the right to transfer all the funds for her personal use without considering Lewis as the co-owner of the account, then this right had to exist solely by operation of statute or common law.
“With regard to the express language in MCL 487.703, it is clear that the Legislature intended to provide a liability shield to banking institutions with respect to withdrawals from this type of account,” the Court of Appeals wrote. In other words, “nothing in the statute indicates that a banking institution’s payment of funds to one co-owner divests the other then-living co-owner of rights in the funds or otherwise vests property exclusively in the withdrawing co-owner without regard to the realities of ownership. … Had the Legislature intended to provide a shield from liability for co-owners as it did for banking institutions, it could have done so easily by adding language to that effect. It did not, and we will not read into the statute something that the Legislature did not see fit to include.”
The Court of Appeals further said it was unaware of any Michigan common law supporting the proposition that a co-owner of a joint account with right of survivorship can appropriate all the funds without regard to, “and in direction contravention of,” the ownership interest of the other co-owner. “[T]he mere act of accessing the funds by one co-owner does not destroy all of the rights of the other co-owner.” The Court of Appeals pointed out that when Lewis or Rosebrook had previously withdrawn funds to pay expenses, they did so in their capacities as co-owners. “When Rosebrook transferred substantially all of the funds from the three accounts in early 2017, she was required to do so in her capacity as … a co-owner. But, as Lewis and his daughter quickly made clear, the transfers were not done with Lewis’s authority or acquiescence.”
Moreover, the probate court “relied critically” on the fact that Lewis did not give prior written notice to the banking institutions to block Rosebrook’s future withdrawals, the Court of Appeals observed. “While doing so may have been advisable in retrospect, the lack of written notice did not somehow dissolve Lewis’s co-ownership interests in the funds.”
In sum, the Court of Appeals explained that Michigan law permits two or more parties to establish and deposit funds in a joint account with the right of survivorship. “Under MCL 487.703, the banking institution is shielded from liability for any withdrawal of funds made by a co-owner of the account, at least in the absence of prior written notice that withdrawals are not permitted. This statutory shield does not, however, also serve as a sword for the withdrawing co-owner to pierce the non-withdrawing co-owner’s rights. Instead, the withdrawing co-owner must take the funds from the account as a co-owner and, therefore, must use the funds in a manner consistent with the other co-owner’s rights.”
The Court of Appeals concluded, “While living and in the absence of sufficient evidence to the contrary, parties to a joint banking account with the right of survivorship hold their interests as co-owners and must act consistent with that co-ownership. Rosebrook seized substantially all of the funds from the parties’ three accounts and appropriated the funds for her own personal use, in contravention of the realities of her co-ownership with Lewis. … [T]he probate court erred as a matter of law when it held that Rosebrook could lawfully retain and use the funds.”