Parents serving as custodians for their children’s UTMA accounts are not authorized to use those funds for their children’s medical expenses because parents are obligated to support their children, which includes paying for their medical care. A custodial expenditure for medical expenses therefore constitutes a wrongful taking that does not require a request that the money be returned prior to suing for conversion. As such, the Court of Appeals affirmed in part and reversed in part in Hoffenblum v. Hoffenblum, No. 317027
Plaintiffs Rachel, Robyn and Jared Hoffenblum asserted that defendant, their father, wrongfully exerted dominion over the money in their trust accounts, which were established on their behalf under the Michigan Uniform Transfer to Minors Act, MCL 554.521 et seq
. Defendant testified that his financial advisor suggested he utilize plaintiffs’ UTMA accounts to reimburse himself for plaintiffs’ medical expenses that he had previously paid. Defendant removed a total of $18,305.43 from the accounts.
Following a bench trial, the district court resolved four issues it found applicable to conversion: (1) plaintiffs had an enforceable right to the money, (2) defendant did not wrongly convert the money because medical expenses should be covered by UTMA, (3) plaintiffs failed to ask for the money back prior to filing a claim, and (4) defendant’s financial advisor opined that the withdrawals were appropriate, so plaintiffs failed to prove that defendant knew what he was doing was wrong.
Plaintiffs appealed to the circuit court, which reversed the district court’s finding that defendant did not wrongly convert the money, ruling that the amount withdrawn from the UTMA accounts did not benefit plaintiffs because they had already received the benefit of the medical services. The circuit court also reversed the district court’s ruling that scienter was required and remanded for reconsideration of the district court’s finding that plaintiffs never asked for the money to be returned in light of plaintiff’s mother’s testimony that her attorney made such a demand. On remand, the district court found that plaintiffs’ mother’s testimony did not satisfy their burden of proving that the request was made. At the plaintiffs’ request, the district court also ruled that it would not award treble damages because defendant acted on advice from his financial advisor, without malice. The circuit court affirmed, and plaintiffs appealed and defendant cross-appealed.
First, the Court of Appeals affirmed the portion of the circuit court’s order reversing the portion of the district court’s decision that defendant did not wrongfully exert dominion over the money in the UTMA accounts. Conversion is defined as any distinct act of domain wrongfully exerted over another’s personal property in denial of or inconsistent with the rights therein. Property placed in an UTMA account is indefeasibly vested in the minor. The plain language of MCL 554.539(3) requires the custodial expenditures of UTMA account funds to be “in addition to” and “not in substitution for . . . an obligation of a person to support the minor.” Because defendant had an obligation to pay for his children’s medical expenses, defendant was neither authorized to use UTMA money to satisfy those expenses nor to reimburse himself from an UTMA account for payments he made from his own separate funds.
The Court then reversed the portion of the circuit court’s order affirming the district court’s ruling regarding plaintiffs’ demand for the return of the money. Where there has been no wrongful taking, demand and refusal are necessary to a conversion claim, but where the taking itself is wrongful, demand is not required. Because defendant acquired, and did not just withhold, possession of the money in the UTMA accounts, no demand was required as a matter of law.
Finally, the Court affirmed the portion of the circuit court order regarding treble damages, finding the district court’s decision not to penalize defendant where he relied on his advisor and lacked dishonest motives to be within the range of principled outcomes.