233 F.3d 922 (6th Cir. 2000)
In re: George D. Newpower, Jr.,  Debtor.Robert Kitchen; Harriet Kitchen; New Properties, Inc.,  Movants-Appellees/Cross-Appellants,v.James W. Boyd, Chapter 7 Trustee,  Respondent-Appellant/Cross-Appellee.
Nos. 99-1211, 99-1239
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Argued: June 13, 2000Decided and Filed: December 7, 2000

Appeal from the United States District Court for the Western District of Michigan at Grand Rapids.  No. 98-00418--Douglas W. Hillman, District Judge.[Copyrighted Material Omitted][Copyrighted Material Omitted]
Ronald A. Schuknecht, LEWIS & SCHUKNECHT, Traverse City, Michigan, for Appellant.
Jonathan R.  Moothart, BOWERMAN, BOWDEN & MOOTHART, Traverse City, Michigan, for Appellees.
Before: KENNEDY, BOGGS, and BATCHELDER, Circuit Judges.
KENNEDY, J., delivered the opinion of the court, in which BOGGS and BATCHELDER, JJ., concurred except as to  part III-B. BATCHELDER, J. (pp. 934-37), delivered a separate opinion, in which BOGGS, J., concurred, which constitutes  the opinion of the court with respect to the issue addressed in part III-B.
OPINION
KENNEDY, Circuit Judge.


1
Robert Kitchen ("Kitchen") and New Properties, Inc., ("NPI") (collectively referred to as  "movants") moved the bankruptcy court to lift the 11 U.S.C. §362 automatic stay in bankruptcy with respect to money that  debtor George D. Newpower, Jr., ("Newpower" or "debtor") embezzled. Movants argued that the embezzled funds were not  property of Newpower's bankruptcy estate because: as a thief Newpower did not take title to the funds he embezzled;  Newpower was acting as an agent and thus never had title to money loaned to NPI; money was held by Newpower pursuant  to an express trust. The bankruptcy court held that the $171,516.48 that Newpower transferred directly to third parties from  NPI was not property of Newpower's estate, but declined to lift the stay on the remaining $582,463. The Kitchens and NPI  appealed the bankruptcy court's ruling to the district court, which held that none of the embezzled funds were property of  Newpower's bankruptcy estate, and thus, were not subject to the automatic stay in bankruptcy. For the reasons that follow,  we shall affirm in part and reverse in part.

I.

2
The facts of this case were extensively detailed by the district court in In re Newpower, 229 B.R. 691 (W.D. Mich.  1999). However, for the purpose of analysis, we include a summary of those facts critical to the decision.


3
In January of 1996, Kitchen and Newpower, a licensed Michigan real estate broker, entered an agreement to form NPI.  The corporation's purpose was to purchase and develop real estate in northern Michigan. Kitchen and Newpower were the  sole shareholders and directors of the corporation. Kitchen was named vice president and secretary and Newpower was  named president and treasurer.


4
Kitchen and Newpower agreed that Newpower would identify properties in Michigan for purchase and development by  the corporation. If both shareholders agreed to purchase the property, NPI would do so, with a loan in the amount of 50% of  the purchase price to the corporation by each shareholder. At the time the agreement was entered into, Kitchen lived in  Alaska and Newpower lived in Michigan.


5
The first property that the shareholders agreed to purchase was an eighty-acre parcel in Kalkaska County, Michigan. The  price of the property was $400,000, and as agreed, Kitchen and his wife (the "Kitchens") sent a check to Newpower for  $200,000. The memo portion of the check stated that the check was for NPI, and contained a portion of the legal  description of the property to be purchased. Instead of using the money to purchase the agreed upon property, Newpower  deposited the check in his personal account and used the $200,000 for his own purposes.


6
Thereafter, for the remainder of 1996, Kitchen and Newpower conducted regular telephone discussions regarding the  Kalkaska property, as well as four other parcels. Prior to each closing, Newpower would tell Kitchen how much money was  needed to purchase the specified property. The Kitchens would then wire funds totaling one-half of the purchase price of  the property to the corporate account, on which Newpower was the sole authorized signatory. Newpower continued his  practice of misappropriating the funds for his own use with respect to these transfers as well. At the same time Newpower  reported to Kitchen that everything was progressing as planned and even went so far as to travel to Alaska to meet with  Kitchen and deliver fraudulent copies of deeds for the agreed upon properties.


7
When the Kitchens traveled to Michigan in December 1996 to check on the status of the properties, they quickly  discovered that no properties had actually been purchased by Newpower. By investigatingNewpower's financial records, the Kitchens were able to determine what Newpower had done with their money. Among other things, Newpower: bought a  Corvette, a four-wheel drive pickup truck, and a power boat; built a new house for his girlfriend; loaned $60,000 to a  former fiance; invested $50,000 in the production of a music CD for another girlfriend; spent tens of thousands of dollars in  "loan repayments" to customer trust accounts for Newpower's real estate business; and made thousands of dollars of cash  distributions to himself for "walking around money."


8
The Kitchens also filed a complaint with the Michigan Attorney General's office and a Michigan State Police  investigation was commenced. Newpower initially fled, but eventually turned himself in and pled guilty to embezzlement.  He was sentenced to six-to-ten years in prison and ordered to pay $755,000 in restitution to the Kitchens. Shortly thereafter,  Newpower filed for bankruptcy and the Kitchens' lawsuit against the transferees of the embezzled funds was automatically  stayed by the bankruptcy court on November 7, 1997, pursuant to the automatic stay provisions of 11 U.S.C. §362. The  Kitchens and NPI moved to lift the stay or order an abandonment so that they could proceed with their state court action.


9
Following a hearing on movants' motion to lift the automatic stay, the bankruptcy court granted movants' motion in part  and denied it in part. The bankruptcy court concluded that the funds which were transferred by Newpower directly from the  NPI account to a third party, without passing through Newpower's personal account, were not property of the estate.  Accordingly, the court concluded that the Kitchens were entitled to proceed on their actions to recover such funds from the  recipients. However, as to money that passed through Newpower's hands in any way or that was used to purchase assets  titled in Newpower's name, the court concluded that it was property of the estate. Thus, the bankruptcy court lifted the stay  on $171,516.48 of assets that Newpower transferred directly to third parties from NPI but declined to lift the stay on the  remaining $582,463 of assets traceable to the money that the Kitchens loaned NPI1.


10
Kitchen and NPI appealed the bankruptcy court's ruling to the district court. The district court held that the bankruptcy  court erred in concluding that property traceable to the Kitchens' embezzled funds were property of Newpower's estate.  Consequently, the district court reversed the bankruptcy court's decision to the extent that it declined to lift the automatic  stay under 11 U.S.C. § 362 with respect to the remaining $582,463 of property traceable to movants' funds.

II.

11
In considering an appeal from a decision of the district court, which reviewed a decision of the bankruptcy court, this  court independently reviews the bankruptcy court's decision. In re Koenig Sporting Goods, Inc., 203 F.3d 986, 988 (6th Cir.  2000). In doing so, we will review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. In re Century Boat Co., 986 F.2d 154, 156 (6th Cir.1993). Because the only question presented-- whether the embezzled  funds at issue and proceeds thereof are part of debtor's bankruptcy estate pursuant to 11 U.S.C. § 541--is a legal one, we  review the bankruptcy court's decision de novo.

III.
A.

12
This appeal raises the question of whether the money misappropriated bydebtor, money and property traceable to the  misappropriated funds, and claims or causes of action to recover money and property traceable to the misappropriated funds  are property of debtor's bankruptcy estate. If the $582,463 of assets traceable to the money the Kitchens lent NPI is estate  property, then pursuant to 11 U.S.C § 541, the trustee must collect and distribute the money in proportional shares to all  creditors of the bankruptcy estate.


13
Section 541 provides: "(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate.  Such estate is comprised of all the following property, wherever located and by whomever held: (1) Except as provided in  subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement  of the case." 11 U.S.C. § 541(a). What qualifies as a property interest is determined by reference to state law, unless some  federal interest requires a different result.  Butner v. United States, 440 U.S. 48, 54-55 (1979).


14
The district court concluded that none of the funds and property at issue were part of debtor's bankruptcy estate because,  as a thief, debtor took no title to the funds, an express trust existed under the circumstances, and debtor held the embezzled  funds as an agent. Based on its conclusions, the district court reversed the bankruptcy court's order and remanded for entry  of an order granting relief from stay as to the $582,463 and causes of action to recover that sum.


15
Unless a countervailing federal interest exists, state law determines whether a debtor has a property interest for purposes  of § 541(a)(1). Butner v. United States, 440 U.S. 48 (1979); In re Van Dresser Corp., 128 F.3d 945 (6th Cir. 1997). Such  property may take the form of legal or equitable interest in property held by the debtor as of the commencement of the case. In re Van Dresser Corp., 128 F.3d at 947. If debtor's estate had a property interest in the funds at issue, then as a  fundamental principle of bankruptcy law, the funds should be ratably distributed to the creditors of the bankrupt estate. In re Omegas Group, Inc., 16 F.3d 1443, 1445 (6th Cir. 1994).


16
Movants argued that debtor stole the funds embezzled from NPI and further assert that because a thief takes no title  under Michigan law, embezzled funds or proceeds thereof are not property of debtor's bankruptcy estate. While the  bankruptcy court recognized that state law would determine the extent of debtor's property interest in the money he  embezzled, it did not specifically review Michigan law, merely concluding that "this was not a true theft." On appeal,  movants rely on Morgan v. Hodges, 50 N.W. 876 (Mich. 1891), in support of their position that under Michigan law,  debtor's bankruptcy estate did not have a property interest in the funds he embezzled.


17
In Morgan, the plaintiff leased horses, a harness, buggy, robes, and a whip to Seaman. Seaman rented the horses and  gear for the purpose of driving to Frankfort, Michigan. Instead, however, Seaman drove to Grand Rapids and sold the  horses and gear to defendants, who knew Seaman and had no reason to doubt his representations of ownership. By the time  plaintiff finally traced his property to defendants' possession, defendants had sold the horses but still retained the rest of  plaintiff's property. Plaintiff informed defendants that they had his stolen property and proposed that if the buggy, robe, and  harness were returned, he would not pursue a claim for the value of the horses, as defendants had purchased them in good  faith. Defendants agreed and returned plaintiff's property to him. Plaintiff then sued defendants for the value of the horses.  In response, defendants argued that they had entered into a contract with plaintiff by agreeing to give plaintiff the horse and  buggy in exchange for his promise not to sue. However, the Michigan Supreme Court held that plaintiff was entitled topursue their claim for the value of the horses, stating that defendants "only did that, in surrendering the property, which in  law they were compelled to do, and therefore there was no consideration for the promise on the part of the plaintiff not to  reclaim the horse[s]." Morgan, 50 N.W. at 877. While the opinion is short, in reversing the lower court and concluding that  defendants gave no consideration in exchange for plaintiff's promise not seek remuneration for the value of his horses, the  Michigan Supreme Court apparently concluded that Seamen, as a thief, never had title to the horses, and thus could not  have conveyed title to defendants. This appears to be the only explanation for the court's statement indicating that, as  against plaintiff, the true owner, defendants had no interest in the buggy and equipment to exchange for plaintiff's promise  not to seek to recover the value of the horses.


18
While Morgan is an old case, as far as we were able to determine it remains good law in the state of Michigan. Morgan stands for the proposition, long established at common law, that a thief has no title in the property that he steals. See Restatement (Second) of Torts § 229 cmt. d (1965); Bogert, Trust & Trustees § 476 (2d ed. 1978). Bogert, Trust & Trustees  discusses this rule as it applies to proceeds from larceny, embezzlement, or conversion, providing:


19
A thief does not ordinarily become the owner of property he steals; he has mere possession. If the stolen property  is found in his hands, it is recoverable by the injured party in a possessory action at law. There is no basis for a  constructive trust as to the stolen property in the hands of the thief because of his lack of a property interest.


20
Bogert, Trust & Trustees § 476 at 119 (2d ed. 1978 & Supp. 1999) (citing cases recognizing this principle).


21
Appellees argue, however, that under Michigan law when title to property is obtained by fraud, the title is voidable, not  void. In support, appellees cite Jones v. Hicks, 100 N.W. 2d. 243 (Mich. 1960) and Cochran Timber Co. v. Fisher, 157  N.W. 282 (Mich. 1916), which do contain statements to this effect. Appellees argue that this is significant, because  Newpower pled guilty to embezzlement, which includes intent to defraud as a necessary element. See Mich. Comp. Laws §  750.174. As a consequence, appellees conclude that Newpower obtained voidable title to the money he embezzled. In  support, by way of analogy, appellees point out that under Michigan's crime of false pretenses with intent to defraud--which  also contains fraud as an element of the offense--title to the stolen property is viewed as passing to the debtor. Thus,  appellees reason, by defrauding the Kitchens and NPI, debtor obtained at least voidable title to the funds he stole.


22
Appellees correctly observe that under Michigan law, the critical difference between larceny crimes and false pretense  crimes is the passage of title. See, e.g., People v. Malach, 507 N.W. 2d 834, 837 (Mich. Ct. App. 1993) (discussing prior  case law and observing that "[t]he distinction between the two offenses . . . depends entirely upon the intent of the victim: if  the owner of the goods intends to keep title but part with possession, the crime is larceny; if the owner intends to part with  both title and possession, albeit for the wrong reasons, the crime is false pretenses). However, appellees' attempt to  analogize the offense of embezzlement to false pretenses fails. As the Malach court observed, an individual commits the  crime of false pretenses when he fraudulently convinces another to part with both possession of and title to property. In  such a situation, the offender obtains voidable title to the property. C.f. Restatement (Second) of Torts § 229 cmt. d (1965)  (observing that while a purchaser from or donee of a thief normally takes no title to the goods stolen, good faith purchasers  may acquire a legal interest from a thief that fraudulently purchased a chattel).


23
In contrast, the offense of embezzlement involves the fraudulent appropriation of property of which the embezzler is  rightfully in possession; the owner of the property retains title to the funds because he never intends for it to pass to the  embezzler. See Malach, 507 N.W. 2d at 837; see also J.A. Bryant, Jr., Annotation, Imposition of Constructive Trust in  Property Bought with Stolen or Embezzled Funds, 38 A.L.R. 1354 (1971) (observing that a thief takes no title to stolen or  embezzled funds). Thus, for purposes of our analysis, it is irrelevant whether a thief obtains goods through embezzlement  or larceny, as neither crime involves the voluntary passage of title to the thief. See 52A C.J.S. Larceny § 36 (1968); 29A  C.J.S. Embezzlement § 8 (1965). Further, both qualify as theft crimes under the common law. See Black's Law Dictionary  1477 (6th ed. 1990) (defining common law theft to include swindling and embezzling and observing that "one who obtains  property by lawful means and thereafter appropriates the property to the taker's own use is guilty of a 'theft'"); Bogert, Trust  & Trustees § 476 at 119 (2d ed. 1978 & Supp. 1999) (treating larceny, embezzlement and conversion in the same manner).


24
Moreover, regardless of what crime debtor pled guilty to, it is clear that NPI never intended to pass title in the  appropriated funds to debtor. As the district court observed, Newpower had only limited authority to move corporate funds  for authorized corporate purposes, i.e., to purchase the agreed upon properties. Thus, the $382,4632 that debtor  embezzled directly from NPI was never property of debtor's estate. Cf. Malach, 507 N.W. 2d at 837; Dennis v. United  States, 372 F. Supp. 563, 567 (E.D. Va. 1974) (observing that "[a]t common law, the passing of title turns as a general rule  on the intent of the original owner"). However, the same cannot be said of property that debtor purchased for himself with  the stolen money. The good faith seller from which the thief purchases property intends to pass both title and possession of  the property sold to the thief, and obtains good title to the money the thief provides. See, e.g., 53A Am. Jur. 2d Stolen  Money § 23 (1996). Accordingly, the thief obtains legal title to the goods purchased, which thereby become part of his  estate. See Mich. Comp. Laws § 440.2403 (providing that "[a] purchaser of goods acquires all title which his transferor  had"); 1 Thomas M. Quinn, Quinn's Uniform Commercial Code Commentary and Law Digest, ¶2-403[A][2] (2d ed. 1991)  ("This is the basic rule, and simply put, it provides that the purchaser gets whatever his seller had to give."); J.A. Bryant,  Jr., Annotation, Imposition of Constructive Trust in Property Bought with Stolen or Embezzled Funds 38 A.L.R. 1354  (1971) (stating that "if a thief steals funds and uses them to purchase other property the owner cannot follow the funds, and  he is left to his remedy against the thief, who, although he had no title to the stolen funds, does have title to the property  purchased therewith"); United States v. Brimberry, 779 F.2d 1339, 1347-49 (8th Cir. 1985) (observing that "when an  embezzler purchases property with stolen funds, the property may be subjected to a constructive trust in favor of the  victim," but concluding that until this occurs, the victim merely has a claim to--rather than an interest in--such property); Costell v. First National Bank of Mobile, 150 So.2d 683, 686 (Ala. 1963) (noting that while a thief could not acquire title to  stolen money, the thief could acquire title to land purchased with the stolen money); The Restatement (First) of Restitution:  Conscious Wrongdoer § 202 (1937) (providing that when "a person wrongfully disposes of property of another knowing  that the disposition is wrongful and acquires inexchange other property," the others remedy is the enforcement of either a  constructive trust or an equitable lien upon the proceeds)3.


25
The original owner would normally not be without remedy in such a situation, as a constructive trust may be imposed on  the proceeds held by the thief or embezzler. Bogert, Trust & Trustees § 476 at n.74 (2d ed. 1978 & Supp. 1999) (collecting  cases standing for this proposition). However, under In re Omegas, a constructive trust is an equitable interest that exempts  property from the bankrupt's estate under § 541(d), only if the trust is declared by a court in a separate prepetition proceeding or a state statute provides that the property is to be held in trust for a particular purpose.  In re Omegas, 16 F.3d  at 1448-53.


26
Thus, we hold that the bankruptcy court erred in concluding that money which debtor embezzled from NPI was part of  debtor's bankruptcy estate. Consequently, we also hold that the debtor's bankruptcy estate has no property interest in such  embezzled funds which are now in the hands of third parties. As discussed, debtor never had a legal interest in such funds  and appellants should be allowed to pursue third party recipients to recover embezzled funds and property traceable to such  funds to the extent that the law allows.4 Finally, with respect to items debtor obtained with the embezzled funds, while  debtor did not obtain equitable title to these proceeds, he did obtain legal title; all that is necessary to include those assets in  the bankruptcy estate. Consequently, we conclude such proceeds are part of debtor's bankruptcy estate and are thus subject  to an automatic stay in bankruptcy under 11 U.S.C. § 362. See In re Omegas, 16 F.3d at 1451-53.

B.

27
I must disagree with my colleagues, however, in their assertion that the automatic stay should be lifted with respect to  property that debtor purchased with stolen funds. In her separate opinion, which is the opinion of the court on this issue,  Judge Batchelder observes that an automatic stay in bankruptcy may be lifted "where the debtor does not have an equity  interest in the property and the property is not necessary to an effective reorganization." See 11 U.S.C. §362(d). As Judge  Batchelder's notes, we have concluded that the debtor did not obtain equitable title to the proceeds at issue and "there is no  reorganization present in this case because debtor is liquidating his assets under Chapter 7." However, removing the  automatic stay in bankruptcy serves no purpose with respect to property debtor purchased with stolen funds. As we noted above, debtor clearly has legal title to such funds. While the Kitchens could havethese proceeds impressed with a  constructive trust in the state court proceeding, this would not remove such proceeds from the bankruptcy estate. Under In  re Omegas, a constructive trust must be impressed by a court prepetition to have any effect on the ownership of the  property at issue in a bankruptcy proceeding. In re Omegas, 16 F.3d at 1451-53. In In re Omegas, the court explained that:


28
Because a constructive trust, unlike an express trust, is a remedy, it does not exist until a plaintiff obtains a judicial  decision finding him to be entitled to a judgment "impressing" defendant's property or assets with a constructive trust.  Therefore, a creditor's claim of entitlement to a constructive trust is not an "equitable interest" in the debtor's estate  existing prepetition, excluded from the estate under § 541(d).


29
Id. at 1451. This apparently remains the case even if the state would view the constructive trust as coming into existence on  the date the wrongful acts which gave rise to it took place. Id. at 1449 (stating that "[u]nless a court  has already impressed  a constructive trust upon certain assets or a legislature has created a specific statutory right to have particular kinds of funds  held as if in trust, the claimant cannot properly represent to the bankruptcy court that he was, at the time of the  commencement of the case, a beneficiary of a constructive trust held by the debtor").


30
Because the Kitchens clearly have not had a court declare a constructive trust as to these proceeds prepetition, there is  no action that the state court could take which would affect their disposition. Even if a state court were to find that the  constructive trust arose at the time of the theft, In re Omegas states that this is irrelevant, as bankruptcy law controls. Seeid. at 1450-51 (concluding that for the purposes of Bankruptcy law, a constructive trust does not exist until judicially  decreed; see also id. at 1453-55 (Guy, J. Concurring) (disagreeing with the majority's approach and instead relying on his  belief that under Kentucky law constructive trusts do not come into existence until impressed by a court). Consequently, I  must disagree with the majority opinion on this issue. I would retain the stay in bankruptcy as to these proceeds. To do  otherwise is to ignore In re Omegas. The debtor had legal title; that is enough to include such proceeds in the bankruptcy  estate. Under In re Omegas, a subsequently imposed constructive trust does not remove property from the bankruptcy  estate.


31
Judge Batchelder attempts to draw a factual distinction between this case and In re Omegas in that, "In re Omegas dealt  with a situation wherein the debtor obtained property from a creditor in the ordinary course of business," whereas here the  debtor was a thief and never had any claim to an equitable interest. But the debtor in In re Omegas was alleged to be guilty  of fraud against the creditor and also did not have equitable title. Thus, there does not appear to be a relevant distinction  here.


32
Judge Batchelder also appears to draw a distinction between whether or not the bankruptcy court can impose a  constructive trust and whether the bankruptcy court can enforce a state court judgment. She says in her opinion, referring to In re Omegas, "[w]e held that it was not the province of the bankruptcy court to impose a constructive trust, but we were  not faced with the question of either obtaining or enforcing a state court judgment holding that the equitable interest  belonged to someone other than the debtor." This supposed distinction cannot matter, however, because the In re Omegas court specifically held that, "[u]nless a court has already impressed a constructive trust upon certain assets . . . the claimant  cannot properly represent to the bankruptcy court that he was, at the time of the commencement of the case, a beneficiary of  a constructive trust held by the debtor." 16 F.3d at 1449. Regardless of who might authorize the constructive trust, In reOmegas held that a constructive trust imposed after the bankruptcy petition will not remove property from the bankruptcy  estate.

C.

33
We next address the $200,000 that the Kitchens transferred to Newpower directly, in his name, prior to the formation of  NPI. The bankruptcy court found that the $200,000 that the Kitchens sent Newpower was a loan to the corporation, even  though the corporation was not yet in existence. The bankruptcy court reached this conclusion due to testimony that the  money the Kitchens sent was a loan to the corporation, the fact that the corporate minutes noted that it was a loan to the  corporation, and the fact that the memo section of the check that the Kitchens sent stated that check was for NPI, and  briefly described the property to be purchased. However, despite the fact that the court found that the $200,000 was a loan  to the corporation, it concluded that the money was property of debtor's bankruptcy estate, because debtor deposited the  money in his personal account.


34
Appellees disagree, arguing that debtor was acting as their agent with respect to the money they loaned to the  corporation. As a result, appellees contend that the funds at issue remained their property while in the hands of debtor, and  thus could not be included in debtor's bankruptcy estate. In support, appellees cite several cases, including In re  Zwagerman, 115 B.R. 540, 547 (Bankr. W.D. Mich. 1990), In re Crouthamel Potato Chip Co., 6 B.R. 501, 503 (E.D. Penn.  1980), and In re Greenfield Direct Response, Inc., 171 B.R. 848, 857 (N.D. Ill. 1994), which support this proposition.  Appellees are correct in pointing out that it is generally recognized that an agent does not take title to funds or property  entrusted to him by his principal. Collier on Bankruptcy addresses the interaction of this principle with the bankrupcy code  in some detail, observing:


35
[A]n agency is a relationship arising from a contract, express or implied, by which one of the parties confides to  the other the transaction or management of some business or other activity in the principal's name, or on the  principal's behalf, and whereby the agent performs the anticipated act and renders an account thereof. [T]he title to  the property remains in the . . . principal, and the . . . agent holds the property . . . for the owner's benefit.  Consequently, it has been settled under the Code and prior law that absent state statutory enactment to the contrary, if  property was in a debtor's hands as bailee or agent, the debtor's estate holds only the same interest, and the bailor or  principal could recover the property or its proceeds.


36
Collier on Bankruptcy ¶ 541.06[1][a] (15th ed. 1999). Thus, if appellees are correct in arguing that debtor was their agent  with respect to the $200,000 they initially transferred to him, then the money would not be property of debtor's bankruptcy  estate.


37
In determining whether an agency has been created under Michigan law, the Michigan Supreme Court has stated that it  will consider "the relations of the parties as they in fact exist under their agreements or acts." Saint Clair Intermediate  School Dist. v. Intermediate Educ. Ass'n, 581 N.W.2d 707, 716 (Mich. 1998) (internal quotations omitted). The court  further provided:


38
[I]n its broadest sense agency "includes every relation in which one person acts for or represents another by his  authority." Saums v. Parfet, 270 Mich. 165, 170-71, 258 N.W. 235 (1935). We further recognized in Saums that  "[t]he characteristic of the agent is that he is a business representative. His function is to bring about, modify, affect,  accept performance of, or terminate contractual obligations between his principal and third persons." Id. at 172, 258  N.W. 235. Also fundamental to the existence of an agency relationship is the right to control the conduct of the agent, CapitolCity Lodge No. 141, FOP v. Meridian Twp., 90 Mich. App. 533, 541, 282 N.W.2d 383 (1979), with respect  to the matters entrusted to him.


39
Saint Clair Intermediate School Dist., 581 N.W.2d at 716.


40
While the bankruptcy court concluded that debtor was not an agent of NPI, it never addressed the issue of whether  debtor was an agent of the Kitchens with respect to the funds they sent directly to debtor prior to NPI's formation. As the  bankruptcy court observed, the minutes reflected that the initial $200,000 sent to Newpower by the Kitchens was a loan to  NPI. The parties also consistently referred to this money as a loan to the corporation and the memo section of the check  stated that the money was for NPI. Further, during sentencing for the criminal charge of embezzlement debtor admitted that  he operated as the Kitchen's agent. Debtor clearly did not have authority to do with the funds as he wished, as all evidence  indicated that the Kitchens sent the money to him for the sole and express purpose of depositing it with the Corporation  once it formally came into being. Under the circumstances, we agree with the district court's conclusion that an agency  relationship existed with respect to the $200,000 that the Kitchens initially sent the debtor. Consequently, the bankruptcy  court erred in concluding that these funds were part of debtor's bankruptcy estate. However, as discussed above, debtor would have legal title to any proceeds obtained with these embezzled funds, rendering such proceeds part of debtor's  bankruptcy estate.

D.

41
It is unnecessary to address appellee's contention that debtor was an agent of NPI or that debtor held funds in an express  trust for both NPI and the Kitchens with respect to items to which he had legal title, since legal title places those items in  the debtor's estate.

IV.

42
In sum, we AFFIRM the district court's conclusion that none of the money misappropriated by debtor was property of  the debtor's bankruptcy estate although some of the proceeds are. We REVERSE the district court to the extent it concluded  that debtor's bankruptcy estate did not have legal title to the property that debtor bought with such funds, and that he still  possessed at the time he filed his bankruptcy petition. Further, we AFFIRM the district court's decision to lift the 11 U.S.C.  § 362 automatic stay with respect to the $753,979.48 at issue, as well as funds or property traceable to this money. The  Kitchens are free to seek to recover such funds or proceeds thereof, wherever they may be found, to the extent that the law  allows. We REMAND this case to the bankruptcy court with directions to lift the automatic stay and for further  proceedings consistent with this opinion.



Notes:


1
  The Kitchens have yet to recover a total of $754,999.64 that they loaned to NPI. The bankruptcy court only addressed  whether the automatic stay was appropriate for $753,979.48, however, appellees do not dispute the difference, as they  conceded during oral argument that it represented the only valid transactions that debtor made on behalf of NPI.


2
  This figure represents the $582,463 which the bankruptcy court held was subject to the automatic stay minus the  $200,000 that the Kitchens sent directly to Newpower as a loan to NPI prior to its formal incorporation. The proper  disposition of the $200,000 will be discussed further below.


3
  We note that Morgan v. Hodges does not provide authority to the contrary. As discussed above, in Morgan the original  owner was suing the purchasers to recover the value of goods that the purchaser bought from the thief. The purchasers  defended on the grounds that the original owner had entered into a contract not to sue the purchasers for the value of the  stolen horses if they handed over the original owner's buggy and related equipment. The trial judge instructed the jury that  such a contract could be found binding on the parties. The Michigan Supreme Court reversed and ordered a new trial,  holding that no contract could exist as the purchasers only did that which they were required by law to do (i.e., return the  stolen buggy to the original owner). See Morgan, 50 N.W. at 877. Thus, the case merely stands for the general common law  rule that a thief, or someone holding under a thief, takes no title in the stolen goods as against the true owner. See J.A.  Bryant, Jr., Annotation, Imposition of Constructive Trust in Property Bought with Stolen or Embezzled Funds, 38 A.L.R.  3d 1354 (1971) ("[A] sale by a thief or by any person claiming under a thief does not vest any title in the purchaser as  against the owner.") (emphasis added). The case does not speak to the issue of the title a thief has in the proceeds obtained  with stolen funds.


4
  In drawing this conclusion, we merely hold that debtor's bankruptcy estate has no property interest in such funds and  express no opinion as to movants' right, vis-a-vis third parties, to such funds or property traceable to them.



43
ALICE M. BATCHELDER, Circuit Judge, writing for the court as to part III-B and concurring in the remainder of the  majority opinion.  We held in part III-A that, as to the assets purchased with the stolen funds, the debtor obtained only bare  legal title, that those assets are includable in the bankruptcy estate, and that the assets are thus subject to an automatic stay  in bankruptcy under 11 U.S.C. §362. We agree with this holding as far as it goes, but it doesn't go far enough. Although  property in which a debtor holds only bare legal title may, in some cases, be protected by the automatic stay, in this case the  appellees' equitable interest in the property Newpower bought with embezzled funds precludes such protection.


44
The bankruptcy estate comprises all legal or equitable interests of the debtor, unless specifically excepted by the Code,  as of the commencement of the bankruptcy case. See 11 U.S.C. §541(a). However, "[p]roperty in which the debtorholds, as  of the commencement of the case, only legal title and not an equitable interest, . . . becomes property of the estate . . . only  to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that  the debtor does not hold." 11 U.S.C. §541(d) (emphasis added). And, the determination of ownership of the equitable  interest in the goods purchased by the debtor with the embezzled funds is a question of state law. See Butner v. United  States, 440 U.S. 48, 54-55 (1979). The Kitchens and New Properties Inc. (collectively "the Kitchens") moved the  bankruptcy court for an order lifting the automatic stay so they could proceed with their action in state court - filed prior to  Newpower's petition in bankruptcy - claiming, inter alia, Newpower's conversion of their funds and seeking the recovery of  those funds from Newpower and/or third parties and the imposition of a constructive trust on the property Newpower  purchased with the stolen funds.


45
The automatic stay imposed by the filing of a bankruptcy petition shall be lifted upon motion by a party in interest in  cases where (1) the party can show cause, including the lack of adequate protection of an interest in property of such party  in interest, or (2) where the debtor does not have an equity interest in the property and the property is not necessary to an  effective reorganization. See 11 U.S.C. §362(d). The Kitchens qualify under the second condition set forth in §362(d). As  we have already held, the debtor did not obtain equitable title to these proceeds, and this case does not involve a  reorganization because the debtor is liquidating his assets under Chapter 7. See also In re Leitner, 236 B.R. 420, 425  (D.Kan. 1999) (holding it entirely proper to lift the automatic stay to allow victim of embezzlement to proceed with state  court action initiated before the filing of the bankruptcy petition)1.


46
The trustee in this case argues that under In re Omegas Group, Inc., 16 F.3d 1443 (6th Cir. 1994), the bankruptcy court  may not impose a constructive trust, and, therefore, the Kitchens cannot recover their property ahead of the other creditors.  However, In re Omegas simply held that because a constructive trust is a remedy that does not come into existence until it  is judicially declared, a creditor claiming that a constructive trust should be impressed on particular property does not have  an equitable interest in that property and 11 U.S.C. §541(d) does not permit the bankruptcy court to exclude those assets  from the estate by impressing them with a constructive trust postpetition. This is not the situation presented by the  Kitchens' appeal. In this case, the Kitchens initiated a state court action to recover the stolen property before the debtor filed  his bankruptcy petition, and the sole reason that the state court has not yet issued a decision is the stay imposed by the  bankruptcy court. Under these circumstances, nothing in In re Omegas prevents the lifting of the automatic stay so that the  state court action may go forward.


47
Judge Kennedy argues in section III-B that there is no purpose in lifting the stay because even if the Kitchens were able  to obtain a state court judgment impressing the property with a constructive trust, under In re Omegas "there is no action  that the state court could take which would affect disposition [of these proceeds]." This statement, however, fails to  recognize the crucial distinction between this case and In re Omegas and the cases cited therein. In re Omegas dealt with a  situation wherein the debtor obtained property from a creditor in the ordinary course ofbusiness. There was no question  that the debtor had legal title; the creditor intended such title to pass to the debtor. The debtor also had a colorable claim as  to the equitable title in the property at issue. The question in In re Omegas, and the other cases cited therein, was whether  some fraudulent or other bad act of the debtor in the course of those business dealings justified the bankruptcy court in  stripping the debtor of the equitable title in the property. We held that it was not the province of the bankruptcy court to  impose a constructive trust, but we were not faced with the question of either obtaining or enforcing a state court judgment  holding that the equitable interest belonged to someone other than the debtor. See In re Omegas, 16 F.3d at 1450.


48
The situation presented by this case is significantly different. Here, Newpower is a thief. The critical issue therefore is  not only who has legal title to the property, but also who has equitable title to the property purchased with the stolen funds.  We held in part III-A that as a thief, Newpower had no title in the money he stole from the Kitchens, and while Newpower  obtained bare legal title in the goods he purchased with the stolen funds, he clearly did not obtain equitable title in the  goods. The question therefore remains, in whom does the equitable interest in these goods lie? Because the bankruptcy  code is clear that property is includable only to the extent of the debtor's legal title and not to the extent of any equitable  interest that the debtor does not have, see 11 U.S.C. § 541(d), this question must be answered in order to determine to what  extent the goods purchased with stolen money are includable in the debtor's bankruptcy estate. In re Omegas precludes the  bankruptcy court from imposing a constructive trust on the property postpetition, but ownership of the equitable title in the  property must nonetheless be assigned2.  To hold as Judge Kennedy would, that the lifting of the stay serves no purpose  because In re Omegas precludes the enforcement of a constructive trust impressed by the state court under the  circumstances of this case, and that here bare legal title is sufficient to bring this properly entirely within the bankruptcy  estate is to permit a result clearly prohibited by the Bankruptcy Code. See 11 U.S.C. § 541(d). Furthermore, to preclude the  Kitchens from continuing their state court action to determine their equitable interest in the property would allow a thief,  such as Newpower, unilaterally to convert stolen funds, in which the debtor has no title, into property of the bankruptcy  estate simply by purchasing goods from an unknowing seller.


49
We disagree with Judge Kennedy's contention that In re Omegas bars the bankruptcy court's enforcement of any  constructive trust that the state court might enter on behalf of the Kitchens. In re Omegas did not present a situation in  which the debtor was a thief, and it did not purport to answer the question of the enforcement of a state court judgment  under the circumstances presented by this case. In re Omegas presented the more common situation in which all the  creditors have come to the bankruptcy court after having transferred property to the debtor in the ordinary course of  business only to discover that the debtor was unable to pay them back, and was aware of its inability to pay even while  engaging in the business transactions. Before In re Omegas, each of those unsecured creditors would rush to the bankruptcy  court to argue that debtor's dealings with it were more egregious than his dealings with the others and the debtor's bad  conduct justified special treatment, i.e., the imposition of a constructive trust by the bankruptcy court. In re Omegas spoke  definitively to quash such postpetition scrambling by creditors pushing to a place at the head of the line.


50
We recognize that In re Omegas speaks negatively of the role of constructive trustsin bankruptcy proceedings in  general. However, the case before us today raises two distinct issues, neither of which was before the Omegas court: first,  whether the automatic stay may be lifted to permit the victim of the debtor's theft to pursue a state court action, initiated  pre-petition, to trace the stolen funds and obtain a judgment of constructive trust; and second, whether, in such a  circumstance, the bankruptcy court may give effect to a state court judgment imposing a constructive trust. We express no  opinion on whether, in the event the Kitchens were successful in obtaining such a judgment, it would have an effective date  prior to the filing of the bankruptcy petition--a matter that is governed by state law. We simply hold that the Kitchens are  entitled to a lifting of the stay in order that they may pursue their state court action, and that, in the event they are able to  prevail in that action, In re Omegas does not bar the enforcement of such a judgment by the bankruptcy court. Therefore, as  to this specific property, we reverse the bankruptcy court decision and order the stay to be lifted to allow the Kitchens to  continue their state court action and seek whatever remedy is available to them, including the remedy of a constructive  trust.



Notes:


1
  In re Leitner ultimately concludes that a state court constructive trust, under Kansas law, would relate back to the date  of the wrongdoing, thus removing the property from the debtor's estate altogether. See 236 B.R. at 425. However, the  appeal before us does not present the question of the effect of a state court judgment impressing a constructive trust upon  certain property in the debtor's possession because the Kitchens have not yet obtained such a judgment.


2
  In our view, the state court where the Kitchens initiated their action before the bankruptcy petition was filed is best  suited to determine who holds the equitable interest in the property at issue under Michigan law.


