Background
Fast Splash Car Wash, Inc., a corporation wholly owned by Ali Sobh, sued Eva Sobh—Ali’s former spouse—for embezzlement and conversion of corporate funds. Eva had been an authorized signatory on the corporation’s bank accounts at Flagstar Bank prior to the couple’s divorce, which was finalized on September 2, 2021. Although the corporation never removed Eva’s authorization after the divorce, she held no ownership stake and was not an officer of the company.
On June 13, 2024, Eva visited a Flagstar Bank branch and obtained two cashier’s checks totaling $68,451 drawn on the corporation’s accounts. Both checks were made payable to and endorsed by Eva. The corporation alleged that Eva represented herself as authorized to withdraw the funds and that she lacked actual authority to do so for her personal benefit.
The trial court granted Eva’s motion for summary disposition on two grounds: first, it ruled the family division of the circuit court retained exclusive jurisdiction because the dispute was fundamentally a property division matter between the former spouses arising from the divorce judgment; second, the court concluded Eva could not be liable for conversion of an account on which she was already an authorized signatory.
The Court’s Holding
The Michigan Court of Appeals reversed, holding that the trial court lacked subject-matter jurisdiction to dismiss on divorce-related grounds. The court emphasized that under Michigan law, a corporation is a separate and distinct legal entity from its owner, even when a single individual owns and operates it. Because the corporation—not Ali Sobh personally—was the plaintiff, and the corporation was not a party to the divorce proceeding, the family division of the circuit court had no authority to adjudicate the corporation’s claims. The trial court erred in suggesting the corporation functioned as the “alter ego” of Ali Sobh without applying the legal standard for piercing the corporate veil, which requires showing the owner operated the entity as a sham or mere instrumentality resulting in fraud or wrong.
On the alternative ground for dismissal, the court held that Eva’s status as an authorized signatory does not preclude liability for conversion or embezzlement as a matter of law. Under Michigan common law, conversion requires “any distinct act of dominion wrongfully exerted over another’s personal property in denial of or inconsistent with that person’s rights.” The statutory conversion remedy under MCL 600.2919a requires showing the defendant employed the property for purposes personal to the defendant’s interests. Because the corporation’s complaint alleged that Eva lacked actual authority to withdraw funds for her own use despite her signatory status, the allegations sufficiently stated a claim for conversion and embezzlement on which relief could be granted.
Key Takeaways
- A corporation remains a separate legal entity from its owner for jurisdictional purposes, and courts cannot ignore this distinction merely because a single individual owns the company.
- Divorce courts have exclusive jurisdiction only over disputes between the spouses themselves, not over claims asserted by third-party entities such as corporations.
- An authorized signatory on a corporate account can nonetheless be liable for conversion or embezzlement if the signatory lacked actual authority to withdraw funds for personal use.
- Pleadings alleging conversion must set forth facts showing the defendant wrongfully exerted dominion over property for the defendant’s own purposes; authorization alone does not defeat the claim.
Why It Matters
This decision reinforces the bedrock principle that corporate separateness is not a technicality subject to judicial discretion. Businesses cannot be easily collapsed into their owners’ personal disputes simply because inconvenient consequences follow. For practitioners, the ruling makes clear that divorce judgments awarding property to a spouse do not implicitly authorize that spouse to raid corporate accounts, even if the spouse held signatory authority before the marriage dissolved. The failure to remove signatory status after divorce creates exposure to embezzlement liability if the former spouse misuses that access.
The decision also clarifies the elements of conversion in the signatory context: access to an account does not equal authority to convert its contents. This distinction matters for corporate officers and family business disputes where account access and ownership rights diverge. Going forward, businesses should promptly remove signatory authority upon separation or divorce to avoid ambiguity about actual authorization and to protect against later claims of embezzlement or conversion.