OPINION REGARDING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

THOMAS J. TUCKER, Bankruptcy Judge.

This adversary proceeding raises collateral estoppel issues. These include the question whether, under Michigan law, a "true default" judgment (i.e., one entered without the defendant having participated in defending the case,) is entitled to any preclusive effect in a later lawsuit between the same parties. The Court answers this question "yes." The remaining issues arise in the Court's application of collateral estoppel to the default judgment in this case.

The case is before the Court on Plaintiff's motion for summary judgment. The motion seeks a determination of nondischargeability of a debt under 11 U.S.C. §§ 523(a)(2) and 523(a)(6), based on the collateral estoppel effect of a state court default judgment. For the reasons stated in this opinion, the Court cannot grant such relief, based on collateral estoppel, and must deny Plaintiff's motion.

I. Background

In this case, Plaintiff Joyce McCallum seeks a determination that Defendant Debtor Steven Pixley's judgment debt to McCallum is non-dischargeable under 11 U.S.C. § 523(a)(2) for fraud, and under 11 U.S.C. § 523(a)(6) for "willful and malicious injury." The facts relevant to McCallum's summary judgment motion are undisputed.

Eighteen months before Pixley filed his Chapter 7 bankruptcy petition, McCallum obtained a default judgment against Pixley in the Tuscola County, Michigan Circuit Court, in the amount of $157,028.03, plus costs and interest. The default judgment was entered after Pixley failed to answer McCallum's complaint. Pixley did not defend or participate in any way in the state court action, and never appealed or sought relief in the state court from the default judgment.

The default judgment granted judgment for McCallum on all counts of McCallum's state court complaint, including counts for fraud and conversion. In her summary judgment motion, McCallum argues that under the Michigan law of collateral estoppel, which applies here under the federal Full Faith and Credit Statute, 28 U.S.C. § 1738, and related case law,1 Pixley is precluded from contesting that the debt is nondischargeable under §§ 523(a)(2) and 523(a)(6). Pixley disagrees.

II. Jurisdiction

This Court has subject matter jurisdiction over this adversary proceeding under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D.Mich.). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

III. Summary judgment standard

Fed.R.Civ.P. 56(a), applicable to bankruptcy adversary proceedings under Fed.R.Bankr.P. 7056, provides that a motion for summary judgment "shall" be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." In Cox v. Kentucky Dep't of Transp., 53 F.3d 146, 149-50 (6th Cir. 1995), the court elaborated:

Id. (internal quotation marks and citations omitted). In determining whether the moving party has met its burden, a court must "believe the evidence of the nonmovant, and draw all justifiable inferences in favor of the nonmovant." Ingram v. City of Columbus, 185 F.3d 579, 586 (6th Cir. 1999) (relying on Russo v. City of Cincinnati, 953 F.2d 1036, 1041-42 (6th Cir.1992)).

IV. Discussion

A. General framework of the parties' dispute over collateral estoppel

Collateral estoppel applies in nondischargeability proceedings under the Bankruptcy Code, such as this adversary proceeding. Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). "Collateral estoppel ... prevents a party from relitigating issues of fact or law which were necessarily decided by a previous final judgment." Smith v. Sushka, 117 F.3d 965, 969 (6th Cir.1997). In determining whether a state court judgment precludes relitigation of issues under the doctrine of collateral estoppel, the Full Faith and Credit Statute, 28 U.S.C. § 1738,2 requires bankruptcy courts to "`consider first the law of the State in which the judgment was rendered to determine its preclusive effect.'" Bay Area Factors v. Calvert (In re Calvert), 105 F.3d 315, 317 (6th Cir.1997) (quoting Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 375, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985)). If the state courts would not deem the judgment binding under collateral estoppel principles, then the bankruptcy court cannot do so either. But if the state courts would give preclusive effect to the judgment, then the bankruptcy court must also give the judgment preclusive effect, "unless Congress has expressly or impliedly created an exception to § 1738 which ought to apply to the facts before the federal court." Id. (citing Marrese, 470 U.S. at 386, 105 S.Ct. 1327).

In Calvert, the Sixth Circuit held that there is no such express or implied exception under § 1738 in dischargeability actions. The court found no indication of such an exception "in the Bankruptcy Code or legislative history." And the court reasoned that there is "no principled distinction between cases where a defendant participates in part in defense of the state court suit and cases where the defendant does not respond at all." 105 F.3d at 322. The court held that "collateral estoppel applies to true default judgments in bankruptcy dischargeability proceedings in those states which would give such judgments that effect." Therefore, the Court must look to the law of Michigan to determine the collateral estoppel effect of the default judgment in this adversary proceeding.

Under Michigan law, the following requirements must be met in order for collateral estoppel to apply:

Phillips v. Weissert (In re Phillips), 434 B.R. 475, 485 (6th Cir. BAP 2010) (citation omitted).

The parties do not dispute that the first, second, and fourth of these requirements are met in this case. Their dispute concerns both components of the third requirement. Pixley argues first that no issues were "actually litigated" in the state court case, because he did not participate in that case before the default judgment was entered. And even if the Court rejects this first argument, Pixley argues, not all of the necessary elements for non-dischargeability under §§ 523(a)(2) and 523(a)(6) were both "actually litigated and necessarily determined" by the state court default judgment.

B. The "true default" issue: was anything "actually litigated" in state court?

Courts considering the "actually litigated" element in this context often use the phrase "true default" judgment to refer to a judgment entered by default after "there was no appearance and absolutely no participation in the state court action" by the defendant debtor. See Vogel v. Kalita (In re Kalita), 202 B.R. 889, 891 (Bankr.W.D.Mich.1996). This is in contrast to a default judgment entered after the defendant has participated in the defense of the action. Examples of this latter type of default judgment would be where the default judgment was entered as a sanction for a discovery violation, or because the defendant failed to appear for trial, rather than because the defendant failed even to answer the complaint.

The Court must decide whether under Michigan law a "true default" judgment meets the "actually litigated" requirement, so that it must be given preclusive effect under the doctrine of collateral estoppel.

The appellate courts of Michigan have not expressly answered this question. Nor has the United States Court of Appeals for the Sixth Circuit answered this question. The federal court cases that have opined on this question have not been unanimous. The most recent court to address the question is the Bankruptcy Appellate Panel for the Sixth Circuit ("B.A.P."), in Phillips v. Weissert, cited above.

In a majority opinion and a concurring opinion, the B.A.P. judges in Phillips debated this question at length. Two of the three judges held that under Michigan law, no preclusive effect may be given to a default judgment unless there was "substantial participation" by the defendant in the state court case. See Phillips, 434 B.R. at 486 (citing six cases decided by the United States Bankruptcy Courts and the United States District Courts from the Eastern and Western Districts of Michigan, but no Michigan state court cases).

In a concurring opinion, the third B.A.P. judge in Phillips disagreed, and concluded that Michigan law does give preclusive effect to "true default" judgments. See id. at 487, 489-92 (Rhodes, J., concurring).

It is not necessary to repeat here the thorough discussion of Michigan case law presented by the B.A.P. judges in Phillips. Having carefully considered that discussion, and the relevant Michigan cases on the subject, this Court concludes that the minority view in Phillips is correct.3 The Court holds that under Michigan law a "true default" judgment, like the one in this case, meets Michigan's "actually litigated" requirement, and must be given preclusive effect under the doctrine of collateral estoppel. "Substantial participation" by the defendant in the state court case is not necessary in order for collateral estoppel to apply. No participation is necessary.

The Court concludes that this is how the Michigan Supreme Court would rule on the question. The Court reaches this conclusion based on the arguments and authorities presented in Judge Rhodes's concurring opinion in Phillips, which the Court finds persuasive, and also based on the following two points.

First, at least two published Michigan Court of Appeals cases have applied collateral estoppel based on a "true default" judgment (i.e., a default judgment entered after the defendant did not answer, defend, or participate in any way in the case). See Sahn v. Estate of Brisson, 43 Mich.App. 666, 204 N.W.2d 692, 693-94 (1973); Braxton v. Litchalk, 55 Mich.App. 708, 223 N.W.2d 316, 318, 320 (1974).4

Second, the Court is not aware of any published Michigan appellate decision that has refused to apply collateral estoppel to a default judgment for the reason that it was entered without participation in the case by the defaulted defendant.

For these reasons, the Court must give collateral estoppel effect to the state court default judgment in this case. This means that Pixley is precluded from contesting any issue that was both "actually litigated and necessarily determined" by the state court default judgment.

C. Were all the nondischargeability elements both "actually litigated and necessarily determined" by the state court default judgment?

It is clear, and undisputed, that the existence and amount of Pixley's debt to McCallum were both "actually litigated and necessarily determined" by the default judgment. But as to both § 523(a)(2)(A) and § 523(a)(6), the parties dispute whether all of the elements of non-dischargeability were both "actually litigated and necessarily determined" by the default judgment.

Under Michigan law, an issue is "actually litigated" if it is "put into issue by the pleadings, submitted to the trier of fact for determination, and is thereafter determined." Phillips, 434 B.R. at 486 (majority opinion) (quoting Latimer v. William Mueller & Son, Inc., 149 Mich.App. 620, 386 N.W.2d 618, 627 (1986)); Phillips, 434 B.R. at 490 (Rhodes, J., concurring) (same). This Court agrees with the concurring opinion in Phillips that "[a]n issue may be actually litigated without a trial;" id., and that:

Id. at 492 (Rhodes, J., concurring) (emphasis added).

An issue that is "actually litigated" is also considered to be "necessarily determined" if "it is necessary to the judgment." See id. at 493; see also Rohe Scientific Corp. v. Nat'l Bank of Detroit, 133 Mich.App. 462, 350 N.W.2d 280, 282 (1984) (citation omitted) ("Collateral estoppel applies to default judgments; however the default judgment is conclusive only as to those matters essential to support the judgment."); Detroit Automobile Inter-Insurance Exchange v. Higginbotham, 95 Mich.App. 213, 290 N.W.2d 414, 418 (1980)(same). Whether an "actually litigated" issue is also "necessary to the judgment," or "essential to the judgment," in turn, depends on the elements of the claim or defense involved.

1. Section 523(a)(2)(A) and the state court fraud judgment

Applying these principles to McCallum's fraud claim, to determine what was "actually litigated" by the default judgment, the Court must examine what was alleged in McCallum's state court complaint. To determine what was "necessarily determined" by the default judgment, the Court must examine the necessary elements of fraud under Michigan law. Pixley is deemed to have admitted all allegations in the complaint that are necessary to a judgment for fraud under Michigan law. All such allegations are deemed to have been "actually litigated and necessarily determined" in McCallum's favor by the default judgment. On the other hand, all other allegations are deemed not to have been admitted by Pixley, and are deemed not to have been "actually litigated and necessarily determined" by the default judgment, insofar as fraud is concerned.

The Court will begin by comparing the elements of fraud under § 523(a)(2)(A) with the elements of fraud under Michigan law. The parties disagree about the elements of fraud under Michigan law. The parties agree that actual reliance on an allegedly fraudulent misrepresentation is an element of fraud. But Pixley argues that there is no requirement under Michigan law that such actual reliance be either justifiable or reasonable. McCallum, on the other hand, argues that reasonableness of the reliance is a necessary element for fraud under Michigan law.

a. The elements of nondischargeability under § 523(a)(2)(A)

Resolving this dispute is important because "justifiable reliance" is an element of nondischargeability for fraud under § 523(a)(2)(A). Section 523(a)(2)(A) makes nondischargeable:

11 U.S.C. § 523(a)(2)(A). The Sixth Circuit has described the elements of nondischargeability under § 523(a)(2)(A) in this way:

Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 280-81 (6th Cir. 1998) (footnote and citation omitted) (emphasis added).

b. The elements of fraud under Michigan law

Under Michigan law, the necessity of proving justifiable or reasonable reliance to establish fraud has not been so clear. At least before 2008, there was some reason to question whether Michigan law includes, as an element of proving fraud, that the claimant's actual reliance on a false representation must be reasonable or justifiable. Many Michigan cases stated the elements of fraud in a way that included actual reliance, but did not expressly require that the actual reliance be reasonable or justifiable. In an often-cited case from 1976, for example, the Michigan Supreme Court listed the elements of fraud this way:

Hi-Way Motor Co. v. Int'l Harvester Co., 398 Mich. 330, 247 N.W.2d 813, 815-16 (1976). As late as January 2008, one federal district court decision described the uncertainty on this point of Michigan law this way:

Inland Waters Pollution Control, Inc. v. Jigawon, Inc., No. 05-74785, 2008 WL 205209, at *14-15 (E.D.Mich. Jan. 22, 2008) (emphasis added).

But in Cooper v. Auto Club Ins. Ass'n, 481 Mich. 399, 751 N.W.2d 443, 451-52 (2008), the Michigan Supreme Court held that "reasonable" reliance is a necessary element of fraud. Cooper involved a claim of fraud by an insured against the insurer under an auto insurance policy. Initially, the court stated the elements of fraud in the same way the Hi-Way Motor Co. case did—i.e., without expressly stating that reliance must be reasonable—and cited Hi-Way Motor Co. But then immediately after that, the court added the following:

Id. (emphasis added). Thus, the Cooper case clearly held that "reasonable" reliance is necessary for fraud.

It is not clear why Cooper did not include that requirement in initially listing the elements of fraud, and why other Michigan cases, such as the Hi-Way Motor Co. case, did not explicitly list reasonable reliance as an element. One way to explain this, perhaps, is to view reasonableness of reliance as an implicit part of the "reliance" element. The first sentence in the excerpt quoted above from Cooper at least hints at this. But the statement of the "reliance" element in both Hi-Way Motor Co. and Cooper seems clearly to refer only to actual reliance, without including a requirement that the actual reliance be reasonable—the "reliance" element is stated this way in Hi-Way Motor Co.: "(5) that plaintiff acted in reliance upon [the material misrepresentation];" and this way in Cooper: "(5) that the [plaintiffs] acted in reliance upon the statement." Hi-Way Motor Co., 247 N.W.2d at 815-16; Cooper, 751 N.W.2d at 451.

Alternatively, the reasonableness-of-reliance requirement may be an implicit part of the "materiality" element—i.e., the first element stated in both Hi-Way Motor Co. and Cooper, that the defendant "made a material representation." It may be that under Michigan law, a representation cannot be deemed to be "material" unless reliance on it was reasonable. There is some support for this view in the Michigan Standard Civil Jury Instructions. Those jury instructions state the elements of fraud using the Hi-Way Motor Co. formulation, including the elements that "Defendant made a representation of [a material fact/material facts]," and that "Plaintiff relied on the representation." Michigan Standard Civil Jury Instruction 128.01. The jury instructions do not explicitly include reasonableness of the reliance in the list of elements. See id. But the instruction that defines what a "material fact" is states, in pertinent part, that the "[a] material fact must be of enough importance in the matter that a reasonable person would be likely to rely on it." Michigan Standard Civil Jury Instruction 128.10. Arguably, at least, this indicates that the reasonableness-of-reliance requirement is part of the materiality element for fraud.

The Court concludes that the reasonableness-of-reliance requirement for fraud is either a separate element, or is part of the "materiality" element, rather than just an unstated part of the "actual reliance" element. In any case, based on the Cooper case, the Court must agree with McCallum that under Michigan law, fraud requires proof of actual reliance that is "reasonable."

The element of "justifiable" reliance under § 523(a)(2)(A) is a less demanding requirement than "reasonable" reliance, which is an element of fraud under § 523(a)(2)(B). See Willens v. Bones (In re Bones), 395 B.R. 407, 431-32 (Bankr.E.D.Mich.2008). So establishing that reliance was reasonable, as Michigan law requires for fraud, necessarily also establishes that such reliance was "justifiable" as required under § 523(a)(2)(A).

For these reasons, the Court agrees with the conclusions of those federal cases that have held, without much discussion, that establishing the elements of fraud under Michigan law also establishes the elements of fraud under § 523(a)(2)(A). See, e.g., Transnation Title Ins. Co. v. Livingston (In re Livingston), 389 B.R. 1, 5 (E.D.Mich.2008); Wellinger v. Borton (In re Wellinger), 371 B.R. 249, 253 (E.D.Mich.2007); Bldg. Comm'ns, Inc. v. Rahaim (In re Rahaim), 324 B.R. 29, 36 (Bankr.E.D.Mich.2005); Robinson v. Callender (In re Callender), 212 B.R. 276, 281 (Bankr.W.D.Mich.1997).

c. The allegations in McCallum's state court complaint

With this legal backdrop, the Court now must examine the fraud allegations in McCallum's state court complaint. That complaint named as defendants Steven Pixley and Wolverine Coach Builders, LLC.5 McCallum alleged that she made an agreement with the Defendants in August 2007, that Defendants would convert a Dodge Charger automobile into a limousine for McCallum's business and sell it to McCallum for the price of $59,000.00, payable in monthly installments. But the Defendants sold "Plaintiff's Dodge Charger limousine" to another customer, and then told McCallum of this.6 In December 2007, the parties modified their contract to provide that Defendants would convert a Chrysler 300 automobile into a limousine for McCallum, in place of the Dodge Charger, for the same contact price of $59,000.00. McCallum made her required monthly payments to the Defendants, toward the $59,000.00 contract price, through March 2008, at which point Defendants had 14 days under the contract to complete the conversion of the Chrysler 300 automobile into a limousine. Under the contract, McCallum was to make a final payment of $10,000.00 upon completion of the limousine and her receipt of a clear title to the vehicle.7

McCallum alleged that Defendants never delivered the limousine or title to the limousine to her, despite the fact that McCallum "was and remains ready to tender payment to Defendants in the amount of $10,900.00 to satisfy her financial obligations pursuant to the parties['] contract."8 McCallum alleged that Defendants breached the contract by failing to deliver the limousine and clear title to the limousine, and that Defendants failed to return any of the money paid by McCallum under the contract, in the amount of $50,600.00.9

McCallum alleged that she later discovered "that a lien encumbers the title of the Chrysler 300 automobile which is held by Wells Fargo Bank in the amount of $15,190.03 as creditor, with Defendant Stephen Pixley named as the Debtor thereof."10

Next, McCallum alleged that Defendants "at all times were aware of the said lien but refused to inform [McCallum] of the presence of the lien while receiving payments for the conversion of the Chrysler 300," and that Defendants "intentionally misled [McCallum] with respect to the vehicle title."11

The State Court Complaint then contains six counts, beginning with "Count I— Breach of Contract." Two of the counts allege fraud, Counts II and VI. Count II, labeled "Fraud/Misrepresentation," incorporates by reference the previous paragraphs of the complaint, and alleges the following:

Count VI, labeled "Constructive Fraud," incorporates by reference the previous paragraphs of the complaint, and alleges the following:

It is unclear what Count VI of the State Court Complaint adds to McCallum's fraud claim in Count II, or what is meant by the label "constructive fraud" in this context. But nowhere in Count II, Count VI, or anywhere else in the State Court Complaint did McCallum allege that her reliance on Pixley's alleged misrepresentation, regarding the title to the Chrysler 300 automobile, was reasonable.

d. Reasonable reliance was not "actually litigated" in the default judgment.

The Complaint alleges actual reliance, in Count II at ¶ 30, in that McCallum relied on the misrepresentation of the vehicle title to her detriment by paying the Defendants "about $50,600.00 for the converted vehicle with a clear title." But there is no allegation that this actual reliance was reasonable. Nor do the allegations in the State Court Complaint imply reasonableness of McCallum's reliance. Rather, McCallum alleged at ¶ 18 of her State Court Complaint that after she "inquired and/or investigated the state of the Chrysler 300 automobile," she discovered the Wells Fargo lien. If anything, this implies that McCallum's reliance may not have been reasonable. The reasonableness of a creditor's reliance on a misrepresentation tends to be negated if "there were any `red flags' that would have alerted an ordinarily prudent lender to the possibility that the representations relied upon were not accurate;" and if "even minimal investigation would have revealed the inaccuracy of the debtor's representations." BancBoston Mortgage Corp. v. Ledford (In re Ledford), 970 F.2d 1556, 1560 (6th Cir.1992) (citations omitted).

Even if one assumes that the reasonableness-of-reliance requirement under Michigan law is an implied part of the "materiality" element, as discussed above, McCallum's State Court Complaint does not expressly or impliedly allege reasonableness of reliance in this way. Rather, it nowhere alleges that Pixley's misrepresentation regarding the title to the Chrysler 300 vehicle was a "material" representation.14

Because McCallum's State Court Complaint did not plead reasonableness of her reliance on Pixley's alleged misrepresentation, that fraud requirement cannot be said to have been "actually litigated" by the default judgment against Pixley. Similarly, the issue whether McCallum's reliance upon Pixley's misrepresentation was "justifiable," as required for non-dischargeability under 11 U.S.C. § 523(a)(2)(A), was not "actually litigated," because that less-demanding standard was not pled in McCallum's State Court Complaint either.

For these reasons, the Court cannot grant summary judgment for McCallum on her non-dischargeability fraud claim under § 523(a)(2), based on collateral estoppel.

2. Section 523(a)(6) and the state court conversion judgment

McCallum also seeks summary judgment determining that Pixley's debt to her is non-dischargeable under 11 U.S.C. § 523(a)(6), as a debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." McCallum seeks summary judgment based on the collateral estoppel effect of her default judgment against Pixley. McCallum's theory is that her State Court Complaint included a claim for conversion, and that the default judgment on that claim precludes Pixley from contesting that the debt is "for willful and malicious injury" under § 523(a)(6).

a. The elements of nondischargeability under § 523(a)(6)

In order to establish nondischargeability under § 523(a)(6), a creditor must show an injury to person or property by the debtor that is both "willful" and "malicious." "[T]o find a `willful' injury under § 523(a)(6), [the court] must determine either that (i) the actor desired to cause the consequences of the act or (ii) the actor believed that the given consequences of his act were substantially certain to result from the act." Monsanto Co. v. Trantham (In re Trantham), 304 B.R. 298, 307 (6th Cir. BAP 2004) (citing Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 464 (6th Cir.1999)). "Under § 523(a)(6), "`[m]alicious' means in conscious disregard of one's duties or without just cause or excuse; it does not require ill-will or specific intent.'" Id. at 308 (quoting Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir.1986)).

b. The allegations of McCallum's state court complaint

Count III of McCallum's State Court Complaint alleges conversion by Pixley of the money paid by McCallum under the parties' contract. After incorporating the previous paragraphs of the complaint by reference, Count III alleges:

c. The Michigan conversion statute

As noted in McCallum's State Court Complaint, the Michigan statute, Mich. Comp. Laws § 600.2919a, provides for treble damages plus costs and attorney fees, against a defendant for converting property to his or her own use. It states:

(emphasis added).

McCallum's State Court Complaint alleged, and the default judgment found Pixley liable for, conversion under subpart (1)(a) of § 600.2919a, quoted in bold above. That part of the statute applies to persons who commit conversion. Subpart (1)(b) of the statute, also quoted above, does not apply here. That provision does not apply to the actual converter, but rather applies only to other persons, who buy, receive, possess, conceal, or aid in the concealment of stolen, embezzled, or converted property, with knowledge that the property was stolen, embezzled, or converted. Subpart (1)(a) was added to § 600.2919a in 2005. Before that amendment, only language similar to what is now in subpart 1(b) was in the statute. "Before its amendment, [Mich. Comp. Laws §] 600.2919a applied only to third parties who aided another's act of conversion or embezzlement, and did not apply to the person who directly converted or embezzled, as it does now." Dep't of Agric. v. Appletree Mktg., L.L.C., 485 Mich. 1, 779 N.W.2d 237, 242 n. 16 (2010); see also Joy & Middlebelt Sunoco, Inc. v. Fushion Oil, Inc., No. 04-74870, 2008 WL 283767, at *2 n. 2 (E.D.Mich. Jan. 31, 2008) ("The old version of [Mich. Comp. Laws §] 600.2919a contained wording very similar to [Mich. Comp. Laws §] 600.2919a(1)(b) of the current statute, but did not contain any of the wording contained in [§] 600.2919a(1)(a) of the current statute."); Marshall Lasser, PC. v. George, 252 Mich.App. 104, 651 N.W.2d 158, 162-63 (2002) (The pre-amendment version of Mich. Comp. Laws § 600.2919a was "not designed to provide a remedy against the individual who has actually stolen, embezzled, or converted the property.")16 The State Court Complaint alleged that Pixley committed conversion, and did not allege that Pixley was a person other than the converter. And the default judgment did not grant judgment under subpart (1)(b) of § 600.2919a. McCallum does not contend otherwise. So only subpart (1)(a) of the statute applies.

d. McCallum's collateral estoppel argument based on conversion

McCallum's collateral estoppel argument is that her default judgment against Pixley for statutory conversion is preclusive as to all of the elements of nondischargeability under § 523(a)(6)'s "wilful and malicious injury" exception to discharge.

As McCallum's State Court Complaint noted in ¶ 34, quoted above, Mich. Comp. Laws § 600.2919a(1)(a) applies not only to conversion—i.e., "converting" another person's property to one's own use—but also to "stealing" property and to "embezzling" property. And ¶ 36 of the State Court Complaint, quoted above, refers to Pixley's conduct as both "conversion" and "embezzlement." In her summary judgment argument, however, McCallum has disclaimed any reliance of a claim or theory of "stealing" or "embezzlement" under Michigan law, as a basis for nondischargeability under § 523(a)(6). Instead, she bases her collateral estoppel argument only on a claim of conversion under the Michigan statute. At oral argument on McCallum's motion, her counsel agreed that the default judgment on Count III, under the Michigan statute, is limited to conversion, and does not include a judgment for embezzlement.17 As a result, the Court will confine itself to discussing the conversion theory.

e. "Actually litigated"

Pixley argues that the § 523(a)(6) elements that McCallum's injury was "willful" and "malicious" were not "actually litigated," because they were not pled in the State Court Complaint. The Court disagrees. The State Court Complaint clearly alleged that Pixley's act of conversion was "willful" (because Pixley desired to cause the consequences of his act or believed that the consequences of his act were substantially certain to result from the act) and that it was "malicious" (because it was done in conscious disregard of his duties or without just cause or excuse). Count III of the State Court Complaint alleged that in keeping all the money that McCallum paid, failing to deliver to McCallum the bargained-for vehicle and clear title to same, and failing to disclose to McCallum that the vehicle was already encumbered by a lien, Pixley:

f. "Necessarily determined" and the elements of conversion in Michigan

A more subtle question is whether the § 523(a)(6) "willful" and "malicious" elements were both "necessarily determined" by the default judgment. As discussed in Part IV-C of this opinion, under Michigan collateral estoppel law an issue is only considered to be "necessarily determined" by a judgment if "it is necessary to the judgment;" that is, if it is "essential to support the judgment." And this, in turn, depends on the elements of the claim or defense involved.

The Michigan conversion statute, Mich. Comp. Laws § 600.2919a, does not define the word "converting" or itself give elements for a conversion claim. Those are supplied by Michigan common law. The Michigan Supreme Court has defined conversion as "any distinct act of domain wrongfully exerted over another's personal property in denial of or inconsistent with the rights therein." Dep't of Agriculture v. Appletree Mktg., L.L.C., 485 Mich. 1, 779 N.W.2d 237, 244 (2010) (footnote and citations omitted); Foremost Ins. Co. v. Allstate Ins. Co., 439 Mich. 378, 486 N.W.2d 600, 606 (1992) (footnote and citations omitted). "Conversion may occur when a party properly in possession of property uses it in an improper way, for an improper purpose, or by delivering it without authorization to a third party." Appletree Mktg., L.L.C., 779 N.W.2d at 244-45 (footnote and citations omitted).

The Michigan Supreme Court also has held that the tort of conversion does not require an intent to violate the property rights of another, or knowledge that one is violating the property rights of another. Rather, the tort can be committed "unwittingly:"

Foremost Ins. Co., 486 N.W.2d at 606 (emphasis added) (footnote and citations omitted); see also Citizens Ins. Co. of Am. v. Delcamp Truck Ctr., Inc., 178 Mich.App. 570, 444 N.W.2d 210, 213 (1989); Warren Tool Co. v. Stephenson, 11 Mich.App. 274, 161 N.W.2d 133, 147-48 (1968).

In a recent decision applying § 600.2919a, the Michigan Court of Appeals described conversion as "a strict liability tort" and stated:

J. Franklin Interests, L.L.C. v. Mu Meng, No. 296525, 2011 WL 4501841, at *9 (Mich. Ct.App. Sept. 29, 2011) (per curiam) (unpublished) (citation omitted).19

The Court concludes that Pixley's liability for conversion under the Michigan conversion statute—specifically, Mich. Comp. Laws § 600.2919a(1)(a)—did not require an allegation or proof that Pixley intended to violate McCallum's property rights, or that he knowingly did so. As a result, the Court concludes that the allegations in the State Court Complaint that amount to an allegation that the injury to McCallum was "willful" within the meaning of § 523(a)(6)—i.e., that Pixley intended to cause injury to McCallum, or knew that his actions would cause injury to McCallum, or believed that his actions would cause or were substantially certain to cause injury to McCallum—were not "necessary to" or "essential to support" the default judgment for conversion under Michigan law.

g. Federal court cases on conversion and § 523(a)(6)

The Court acknowledges that there is some case law support for the general proposition that a debt for conversion necessarily is a debt for "willful and malicious injury" under § 523(a)(6). For example, in an unpublished 2004 opinion, the Sixth Circuit stated that:

Steier v. Best (In re Best), 109 Fed.Appx. 1, 4, No. 03-5098, 2004 WL 1544066, at *4 (6th Cir. June 30, 2004) (emphasis added) (footnotes and citations omitted). See also Phillips, 434 B.R. at 493 (Rhodes, J., concurring) (quoting Steier for this proposition). And recently, a bankruptcy court in Michigan held that "[c]onversion of property clearly falls within the misdeeds contemplated in [§ 523(a)(6)]—willful and malicious injury to persons or property." Kasishke v. Frank (In re Frank), 425 B.R. 435, 443 (Bankr.W.D.Mich.2010). But these cases are not determinative in this case.

Several points are important about the Sixth Circuit's Steier case. First, that 2004 case was unpublished, which under the Sixth Circuit rules then in effect, meant that it was not binding precedent.20 Second, in Steier, the debt arose under Kentucky law, not Michigan law, and the debt did not involve conversion, so the statement in Steier about conversion was dictum. Third, the only authority cited by Steier for the proposition that conversion is a willful and malicious injury was an earlier unpublished Sixth Circuit case, in which the debt arose under Ohio law, and in which this issue was not actually raised on appeal. See Steier, 109 Fed.Appx. at 4 n. 2, 2004 WL 1544066, at *4 n. 2 (citing Staskus v. Gene Weiss' Place for Fitness, No. 96-4262, 1998 WL 242339 (6th Cir. May 8, 1998)).

With respect to the bankruptcy court's holding in the Kasishke case, the court cited no authority in support of its holding, and did not explain why it concluded as it did. And, of course, that bankruptcy court's holding is not binding on this Court. For the reasons explained above, this Court respectfully disagrees with Kasishke.

Lastly, there are two older cases requiring some discussion: Vulcan Coals, Inc. v. Howard, 946 F.2d 1226 (6th Cir.1991) and Bonfiglio v. Harkema Assocs. Inc., 171 B.R. 245 (E.D.Mich.1994). In Vulcan Coals, the Sixth Circuit held that "the intentional tort of conversion . . . meets the requirements of § 523(a)(6) for nondischargeability when it is alleged (or proven) that the debtor intentionally transferred property to one who is not entitled to it without the authorization or approval of the one entitled to the property." 946 F.2d at 1229 (citation omitted). While it is not entirely clear, this statement by the Sixth Circuit might mean that one who is guilty of conversion necessarily incurs a debt that is "willful" and "malicious" and therefore nondischargeable under § 523(a)(6).

If this is what this statement in Vulcan Coals means, however, it is no longer good law. That is because the statement was explicitly based on the Sixth Circuit case law at the time, which held that a "willful" injury under § 523(a)(6) does not require "an act with intent to cause injury." As Vulcan Coals discussed, that "stricter standard" had been rejected by the Sixth Circuit, in favor of a willfulness standard that only required that there be "a wrongful act done intentionally, which necessarily produces harm." See 946 F.2d at 1228-29 (citing Perkins v. Scharffe, 817 F.2d 392, 394 (6th Cir.), cert. denied, 484 U.S. 853, 108 S.Ct. 156, 98 L.Ed.2d 112 (1987)).21 But that standard was later rejected by the Supreme Court, and no longer applies. In 1998, the Supreme Court held, in Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998), that "willful" under § 523(a)(6) requires "a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." 523 U.S. at 61, 118 S.Ct. 974 (italics in original). The Sixth Circuit has interpreted Geiger to mean that "willful" under § 523(a)(6) requires "either that (i) the actor desired to cause the consequences of the act or (ii) the actor believed that the given consequences of his act were substantially certain to result from the act." Trantham, 304 B.R. at 307 (citing Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 464 (6th Cir.1999)). So Vulcan Coals is no longer good law— "willful" requires more than just an intentional act that causes injury.

In the second case noted above, Bonfiglio v. Harkema Assocs., Inc. the district court held that "[t]he intentional tort of conversion meets the requirements of 11 U.S.C. § 523(a)(6) for nondischargeability by virtue of a `willful and malicious injury.'" 171 B.R. at 248-49 (citation omitted). But the court cited only the Vulcan Coals case in support of that proposition. Vulcan Coals is no longer good law after the Supreme Court's decision in Geiger, as discussed above. And the same is true of the Bonfiglio case, decided in 1994, which also predated Geiger.

For all of these reasons, the issue of whether Pixley's injury to McCallum's property was "willful" was not "necessarily determined" by the default judgment against Pixley. As a result, the Court cannot grant summary judgment for McCallum on her non-dischargeability fraud claim under § 523(a)(6), based on collateral estoppel.

V. Conclusion

For the reasons stated in this opinion, the Court will enter an order denying Plaintiff Joyce McCallum's motion for summary judgment.