General Parts, Inc. v. Scotz

Filing 42

REPORT AND RECOMMENDATIONS that plaintiff's 39 MOTION for Summary Judgment be granted; that the transfer of the one-half interest in the property at 615 Shelia Boulevard in Prattville, Alabama be set aside as fraudulently transferred; that Plaintiff General Parts, Inc. be awarded damages in the amount of $220,422.80; that Judgment be rendered for the Plaintiff General Parts, Inc; Objections to R&R due by 10/8/2008. Signed by Honorable Terry F. Moorer on 9/25/2008. (cc, )

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IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF ALABAMA NORTHERN DIVISION G E N E R A L PARTS, INC., P la in tif f , v. R O B E R T J. SCOTZ D e f e n d a n t. ) ) ) ) ) ) ) ) ) C iv il Action No. 2:07-cv-740-MHT [w o] R E P O R T AND RECOMMENDATION OF THE MAGISTRATE JUDGE P u r s u a n t to 28 U.S.C. 636(b)(1) this case was referred to the undersigned United S ta te s Magistrate Judge for review and submission of a report with recommended findings o f fact and conclusions of law (Doc. 12, filed October 17, 2007). Pending before the Court is Plaintiff's Motion for Summary Judgment and brief in support (Docs. 39-40, filed August 4 , 2008). For good cause, it is the Recommendation of the Magistrate Judge the Motion for S u m m a ry Judgment be granted. I. PARTIES Plaintiff General Parts, Inc. ("GPI" or "Plaintiff") is a North Carolina corporation w h o s e principal place of business is in Raleigh, North Carolina. P r o se defendant, Robert J. Scotz ("Scotz" or "Defendant") is a resident of Prattville in Autauga County, Alabama located within the Middle District of Alabama.1 Scotz' current location is unknown to this Court and he did not enter a notice of change of address. The Court is aware Scotz entered a guilty plea in the underlying criminal Page 1 of 15 1 II. JURISDICTION T h e district court has subject matter jurisdiction over the claims in this action pursuant to 28 U.S.C. 1332(a) (Diversity Jurisdiction). The parties do not contest personal ju ris d ic tio n or venue, and there are adequate allegations to support both. III. NATURE OF THE CASE & MOTION FOR SUMMARY JUDGMENT G P I initiated this action on August 17, 2007. See Doc. 1, "Complaint." GPI filed an a m e n d e d complaint on October 22, 2007. See Doc. 18, "Amended Complaint." Scotz was a n employee of Carquest and GPI is the parent company of Carquest. GPI alleges Scotz m is a p p ro p ria te d , stole, and/or wrongfully converted for his own use and benefit funds of GPI i n the amount of $238,876.23. GPI asserts claims for conversion, unjust enrichment, and f ra u d and deception. Id. at 12-20. Additionally, GPI avers Scotz and his wife then used th e misappropriated and stolen funds to payoff the mortgage to their house. Scotz then tra n s f e r r e d his interest in the house and property to his wife, Elaine Folmar Scotz in June 2 0 0 7 . Id. at 21-28. GPI asserts this as a fraudulent transfer of property claim. Id. GPI re q u e sts a monetary judgment for the $238,876.23 as well as an order setting aside as void S c o tz 's transfer of his property to his wife. GPI also notes Scotz gave a signed confession t o Detective John Hall of the Montgomery Police Department admitting to writing all the c h e c k s . Id. at 27. action and was sentenced on June 16, 2008. See Doc. 39, Exhibit 9. However, Scotz address of record is allegedly the residence of Scotz' wife. Therefore, the Court determines Scotz has received adequate notice of the pending motion for summary judgment. Page 2 of 15 S c o tz filed his answers on October 15, 2007 and November 5, 2007 to the Complaint a n d Amended Complaint. See Doc. 9, "A Response to Summons" and Doc. 26, "A Response to Summons." In his responses, Scotz opposes GPI's request to set aside as void the transfer o f his one half interest in property to his wife. Id. He denies the transfer was an attempt to d e f ra u d GPI or any other creditor. Id. Scotz does not address any of the remaining a lle g a tio n s . Id. On the same date as his first "Response," Scotz also filed this request for an in ju n c tio n . See Doc. 10, "A Motion for an Injunction." In the motion, Scotz petitioned the C o u rt to grant an injunction to protect his assets and the assets of his wife including banking a c co u n ts , checking accounts, savings accounts, stock, retirement funds, and the transfer of h is interest in the real property to his wife. Id. In essence, he requested the Court prohibit " a n y future litigation or attack on/or concerning the above assets." Id. at p. 2. On November 3 0 , 2007, the Court denied the request for injunctive relief. See Doc. 29, "Order Adopting R e p o rt and Recommendation." On August 4, 2008, GPI filed this motion for summary judgment. See Docs. 39-40. In the motion, GPI requests summary judgment on its claims against Scotz stating there are n o material facts at issue. See Doc. 40 generally. The Court issued a show cause order w h e re in Scotz should file his response to the motion on or before August 25, 2008. See Doc. 4 1 . Scotz did not respond.2 Therefore, the Court reviews the Motion to Dismiss on the 2 Supra n. 1. Page 3 of 15 m e rits without the benefit of a responsive pleading. I V . STANDARD OF REVIEW A party in a lawsuit may move a court to enter summary judgment before trial. FED. R . CIV. P. 56(a) and (b). Summary judgment is appropriate when the moving party e sta b lish e s that there is no genuine issue of material fact and the moving party is entitled to ju d g m e n t as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 3 2 2 -2 4 , 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Gonzalez v. Lee County Housing Authority, 1 6 1 F.3d 1290, 1294 (11th Cir. 1998). "[T]he substantive law will identify which facts are m a te r i a l." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L .E d . 2 d 202 (1986). At the summary judgment juncture, the court does not "weigh the e v i d e n c e and determine the truth of the matter," but solely "determine[s] whether there is a g e n u in e issue for trial." Id. at 249. Only disputes about the material facts will preclude the g ra n tin g of summary judgment. Id. at 249. A material fact is one "that might affect the o u tc o m e of the suit under governing law," and a dispute about a material fact is "genuine" " if the evidence is such that a reasonable jury could return a verdict for the nonmoving p a rty." Id.; see also Slomcenski v. Citibank, N.A., 432 F.3d 1271, 1277 (11th Cir. 2005) (q u o tin g Hudgens v. Bell Helicopters/Textron, 328 F.3d 1329, 1344-45 (11th Cir. 2003)) ("In d eterm ining whether an issue of fact is `genuine' for the purpose of defeating summary ju d g m e n t, we ask whether the evidence is `such that a reasonable jury could return a verdict f o r the nonmoving party.'"). Thus, the initial burden of proof rests on the movant. Celotex, Page 4 of 15 4 7 7 U.S. at 325, 106 S.Ct. at 2554; Gonzalez, 161 F.3d at 1294. This burden is satisfied w h e n the movant shows that if the evidentiary record were reduced to admissible evidence a t trial, it would be insufficient to permit the non-movant from carrying its burden of proof. C e lo te x , 477 U.S. at 322-23; 106 S.Ct. at 2552-53. The admissibility of evidence is subject to the same standards and rules that govern admissibility of evidence at trial. Clemons v. D o u g h e rty County, Georgia, 684 F.2d 1365, 1369 n.5 (11th Cir. 1982) (citing Pan-Islamic T r a d e Corp. v. Exxon Corp., 632 F.2d 539, 556 (5th Cir. 1980)). Once the movant meets its burden under Rule 56, the non-movant must designate s p e c if ic facts showing there is a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Z e n ith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). C o n c lu s o ry assertions, unsupported by specific facts, presented in affidavits opposing the m o tio n for summary judgment are likewise insufficient to defeat a proper motion for s u m m a ry judgment. Lejaun v. Nat'l Wildlife Federation, 497 U.S. 871, 888, 110 S.Ct. 3177, 1 1 1 L.Ed.2d 695 (1990); see also Holifield v. Reno, 115 F.3d 1555, 1564 n.6 (11th Cir. 1997) (c o n c lu s o ry assertions in absence of supporting evidence are insufficient to withstand su m m a ry judgment). The party opposing summary judgment must respond by setting forth s p e c if ic evidence in the record and articulating the precise manner in which that evidence s u p p o rts his or her claim, and my not rest upon the mere allegations or denials of the p le a d in g s . FED. R. CIV. P. 56(e); Johnson v. Board of Regents of University of Georgia, 263 F .3 d 1234, 1264 (11th Cir. 2001). If the evidence is merely colorable or is not significantly Page 5 of 15 p ro b a tiv e , summary judgment may be granted. See Anderson, 477 U.S. at 249-50, 106 S.Ct. a t 2511 (citations omitted). Thus, to avoid summary judgment, the nonmoving party "must d o more than simply show that there is some metaphysical doubt as to the material facts." M a t su s h i ta Elec. Indus., 475 U.S. at 586 106 S.Ct. at 1356 (citations omitted). In determining whether a genuine issue for trial exists, the court must view all the e v id e n c e in the light most favorable to the nonmovant. McCormick v. City of Fort L a u d e rd a le , 333 F.3d 1234, 1243 (11th Cir. 2003); Johnson, 263 F.3d at 1242-43. Further, " a ll justifiable inferences are to be drawn in [that party's] favor." Anderson, 477 U.S. at 255; 1 0 6 S.Ct. at 2513; see also McCormick, 333 F.3d at 1243 (the evidence and all reasonable inf ere n ce s from the evidence must be viewed in the light most favorable to the nonmovant). If the non-moving party fails to make a showing sufficient to establish the existence of an elem en t essential to its case on which it will bear the burden of proof at trial, summary jud g m en t must be granted. Celotex, 477 U.S. at 322-23, 106 S.Ct. at 2552-53. In other w o rd s , summary judgment is proper after adequate time for discovery and upon motion a g a in s t a party who fails to make a showing sufficient to establish the existence of an element e s s e n tia l to that party's case. Id. at 322, 106 S.Ct. at 2552. In addition, all litigants, pro se or not, must comply with the Federal Rules of Civil P r o c e d u re . Although the court is required to liberally construe a pro se litigant's pleadings, th e court does not have "license to serve as de facto counsel for a party. . .or to rewrite an Page 6 of 15 o th e rw is e deficient pleading in order to sustain an action." GJR Investments, Inc. v. County o f Escambia, Fla., 132 F.3d 1359, 1369 (11th Cir. 1998) (citations omitted). V. DISCUSSION AND ANALYSIS G P I urges the Court to grant summary judgment in its favor on all four claims. The C o u rt has diversity jurisdiction, therefore it must apply state substantive law and federal p r o c e d u ra l law. See Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1 9 3 8 ). As such, the Court looks to Alabama law for the substantive guidance. A. C o n v e r sio n G P I asserts a claim for conversion of its funds since Scotz forged the checks made out to himself. To establish a claim for conversion, GPI must present proof of "a wrongful ta k in g , an illegal assumption of ownership, an illegal use or misuse of another's property, or a wrongful detention or interference with another's property." Newson v. Protective Indus. In s . Co. of Ala., 890 So.2d 81, 88 (Ala. 2003) (citations omitted). "Possession of a chattel o b ta in e d through fraud, artifice, stealth, or trickery without consent of the owner implied or e x p re ss e d , is wrongful and will support an action for the conversion of the chattel." Id. (q u o tin g Ford Motor Credit Co. v. Byrd, 351 So.2d 557, 560 (Ala. 1977)). Moreover, money m a y be subject to a conversion claim when there is an obligation to keep it intact. Id. A check, while representative of money, is a negotiable instrument. See ALA. CODE 7-3-104 (2008). "An instrument is converted under circumstances which would constitute c o n v e rs io n under personal property law." ALA. CODE 7-3-420 (2008). Therefore, checks Page 7 of 15 m a y be the subject of a conversion action. Crown Life Ins. Co. v. Smith, 657 So.2d 821, 823 (A la . 1994) (citing Alfa Mut. Ins. Co. v. Veal, 622 So.2d 1292 (Ala. 1993)). In the related criminal proceedings, Scotz pled guilty to the two count indictment for t h e f t of property and criminal possession of a forged instrument. See Doc. 39, Exhibit 9, T ra n sc rip t of Guilty Plea and Sentencing Hearing. Scotz confessed to forging $238,876.23 in checks Scotz wrote to himself while working for Carquest. Id. The final check had a stop p a ym e n t on it therefore Scotz only obtained $220,422.88. Id. From Scotz' guilty plea, it is c le a r GPI has established the necessary requirements for summary judgment on a conversion c la im . There is no material fact at issue since Scotz has a criminal conviction for forging c h e c k s while at Carquest. c o n v e rs io n . B. U n ju s t Enrichment U n d e r Alabama law, to establish a claim for unjust enrichment, defendant must hold m o n e y which in equity and good conscience belongs to plaintiff or was improperly paid to th e defendant because of mistake or fraud. Davis v. Sterne, Agee and Leach, Inc., 965 So.2d 1 0 7 6 , 1093 (Ala. 2007); Scrushy v. Tucker, 955 So.2d 988, 1011 (Ala. 2006); Dickinson v. C o s m o s Broad. Co., 782 So.2d 260, 266 (Ala. 2000). The retention of a benefit is unjust if " th e recipient of the benefit engaged in some unconscionable conduct, such as fraud, c o e rc io n , or abuse of a confidential relationship." Mantiply v. Mantiply, 951 So.2d 638, 6545 5 (Ala. 2006) (quoting Welch v. Montgomery Eye Physicians, P.C., 891 So.2d 837, 843 Therefore, summary judgment is due to be granted as to Page 8 of 15 (A la . 2004)) (internal modifications omitted). Scotz pleaded guilty to theft of property and criminal possession of a forged in s tru m e n t, therefore he cannot dispute that he engaged in unconscionable conduct when he f o rg e d and cashed the checks he wrongfully made payable to himself. He clearly received a benefit of $220,422.88 in monies to which he was not entitled. It would be unconscionable to permit Scotz to retain the benefit of monies he obtained by fraud. Summary judgmentmust is s u e as to the unjust enrichment claim. C. F r a u d and Deception G P I asserts a claim for fraud and deception. Two types of fraud exist under Alabama s t a tu t o r y law. "A fraud claim may involve an alleged affirmative misrepresentation of a m a ter ial fact or an alleged concealment of a material fact for which there is a duty to d is c lo s e ." Brown v. K&V Automotive, Inc., 946 So.2d 458 (Ala. Civ. App. 2006). First, misrepresentations of a material fact made willfully to deceive, or recklessly w ith o u t knowledge, and acted on by the opposite party, or if made by mistake and innocently a n d acted on by the opposite party, constitute legal fraud. ALA. CODE 6-5-101 (2008). U n d e r common law, the elements of fraud are (1) false representation, (2) of a material e x i stin g fact, (3) reasonably relief upon by the plaintiff, (4) who suffered damage as a p ro x im a te consequence of the misrepresentation. Exxon Mobil Corp. v. Ala. Dep't of C o n s e r v a t io n and Natural Res., 986 So.2d 1093, 1114 (Ala. 2007) (quoting Saia Food D is tr ib s . & Club, Inc. v. SecurityLink from Ameritech, Inc., 902 So.2d 46, 57 (Ala. 2004)); Page 9 of 15 s e e also McCutchen Co., Inc. v. Media General, Inc., -- So.2d -- , 2008 WL 204449, *3 (A la . 2008) (quoting Allstate Ins. Co. v. Eskridge, 823 So.2d 1254, 1258 (Ala. 2001) ("The e lem e n ts of fraud are: (1) a misrepresentation of a material fact, (2) made willfully to d e c eiv e , recklessly, without knowledge, or mistakenly, (3) that was reasonably relied on by th e plaintiff under the circumstances, and (4) that caused damage as a proximate c o n s e q u e n c e ." ) . S e c o n d , fraud by omission encompasses the "suppression of a material fact which the p a rty is under an obligation to communicate constitutes fraud." ALA. CODE 6-5-102 (2 0 0 8 ). "The obligation to communicate may arise from the confidential relations of the p a rtie s or from the particular circumstances of the case." Id. The elements of a fraudulent s u p p re ss io n claim are "(1) a duty on the part of the defendant to disclose facts, (2) c o n c ea lm e n t or nondisclosure of material facts by the defendant, (3) inducement of the p la in tif f to act, and (4) action by the plaintiff to his or her injury." Freightliner, L.L.C. v. W h a tle y Contract Carriers, L.L.C., 932 So.2d 883, 891 (Ala. 2005) (quoting Lambert v. Mail H a n d le rs Benefit Plan, 682 So.2d 61, 63 (Ala.1996)). "The question whether a party had a d u ty to disclose is a question of law to be determined by the trial court." Id. (quoting A r m s tr o n g Business Servs., Inc. v. AmSouth Bank, 817 So.2d 665, 676-77 (Ala. 2001)). T h e case at hand could involve both types of fraud, but more clearly involves fraud b y suppression. Scotz had an obligation to communicate when he wrote checks because of h is relationship with GPI. To determine whether a duty to disclose exists, the following Page 10 of 15 f a cto rs are considered: (1) the relationship of the parties, (2) the relative knowledge of the p a rties , (3) the value of the particular fact, (4) the plaintiffs' opportunity to ascertain the fact, (5 ) the customs of the trade, and (6) other relevant circumstances. Id. (quoting Armstrong B u s i n e s s , 817 So.2d at 677.). Scotz, as an account manager of GPI, had a fiduciary re la tio n s h ip with GPI which is "a confidential relationship in which one person is obligated to act in another person's best interests." Brushwitz v. Ezell, 757 So.2d 423, 431 (Ala. 2000). T h e fact Scotz illegally forged checks from GPI to himself is clearly a valuable and relevant f a ct. Further, based on the guilty plea in the underlying criminal case, there is no question a s to the illegality of his actions. GPI is entitled to summary judgment for fraud as well. D. W r o n g fu l Transfer of Title G P I asserts the transfer of Scotz' one-half interest in the Shelia Boulevard home to h is wife constitutes a fraudulent transfer and should be set aside. See Doc. 40 at p. 9. The a p p lic a b le state law is the Alabama Fraudulent Transfer Act ("the Act"). See ALA. CODE 8 -9 A -1 , et seq. "The purpose of the Alabama Uniform Fraudulent Transfer Act is to prevent f ra u d u len t transfers of property by a debtor who intends to defraud creditors by placing assets b e yo n d their reach." Folmar & Assocs. LLP v. Holberg, 776 So.2d 112, 117 (Ala. 2000); see a ls o Thompson Props. Under the Act, "[a] transfer made by a debtor is fraudulent as to a c re d ito r, whether the creditor's claim arose before or after the transfer was made, if the debtor m a d e the transfer with actual intent to hinder, delay, or defraud any creditor of the debtor." A LA. CODE 8-9A-4(a). Page 11 of 15 In the case at hand, Scotz admitted in his criminal proceedings that he used the stolen f u n d s to pay off the mortgage on his house. See Doc. 39, Exhibit 9. Specifically he wrote a check to Fidelity Bank in the amount of $43,134.91 on December 31, 2206. Id. at p. 5; see a l so Doc. 39, Exhibit 3 at p. 15, "Check 6013"; See Doc. 39, Exhibit 12, Satisfaction of M o rtg a g e . On June 4, 2007, Scotz then transferred his one-half interest in the property to his w if e for consideration of $100.00. See Doc. 39, Exhibit 13, Warranty Deed. " G e n e ra lly, inadequacy of consideration is only a `badge' or indicium of fraud. W h e re , however, the consideration is substantially or grossly inadequate, fraud may be in f e rre d as a matter of law from inadequacy alone." J.C. Jacobs Banking Co. v. Campbell, 4 0 6 So.2d 834, 844 (Ala. 1981). In the case with Scotz, fraud may be inferred because of th e inadequacy of the consideration and the use of stolen funds to pay off the mortgage. As s u c h , the Court should set aside the transfer of the one-half interest of the property. Alabama law is consistent with that of those jurisdictions that hold that the effect of s e ttin g aside a fraudulent transfer is not to revest title in the debtor. Ex parte Healthsouth C o r p ., 974 So.2d 288, 297 (Ala. 2007). The transfer is void only as to the creditor, and the c re d ito r can execute on those assets directly. See Ala. Code 8-9A-7(b) ("If a creditor has o b ta in e d a judgment on a claim against the debtor, the creditor, if the court so orders, may lev y execution on the asset transferred or its proceeds."). Consequently, GPI may execute its judgment on the one-half interest in the Shelia Boulevard home and therefore is entitled to a lien on the property. Page 12 of 15 E. D am ages In an action for conversion of an instrument, the measure of liability is presumed to b e the amount payable on the instrument and recovery may not exceed the amount of the p la in tif f 's interest in the instrument. ALA. CODE 7-3-420. GPI has a full interest in the a m o u n t paid as each check cashed by Scotz. GPI managed to stop payment on check number 7 2 2 8 in the amount of $18,453.35 and therefore have no damages as to that particular check. T h e remaining checks which total of $220,422.88 is the measure of damages as to the c o n v e rs io n claim. "The remedy of restitution is designed to remedy the detrimental effects caused by u n ju s t enrichment." Scrushy, 955 So.2d at 1011 (quoting Utah Foam Prods., Inc. v. Polytec, In c ., 584 So.2d 1345, 1351 (Ala. 1991)). Since restitution is designed to make whole the in j u re d party, in this case GPI, it stands to reason GPI is entitled to $220,422.88 in damages. R estitutio n is to make the party whole, therefore it would not be appropriate to award re stitu tio n in addition to the damages for the conversation claim. It is merely another path w h e r e in GPI can recover its lost monies. V I . CONCLUSION A c c o rd in g ly, it is the RECOMMENDATION of the Magistrate Judge that: (1) (2 ) P la in t if f ' s Motion for Summary Judgment (Doc. 39) be GRANTED. T h e transfer of the one-half interest in the property at 615 Shelia Boulevard in P r a ttv ille , Alabama be set aside as fraudulently transferred. Page 13 of 15 (3 ) P la i n t i f f General Parts, Inc. be awarded damages in the amount of $ 2 2 0 ,4 2 2 .8 0 . (4 ) J u d g m e n t be rendered for the Plaintiff General Parts, Inc. It is further ORDERED that the parties are DIRECTED to file any objections to the s a id Recommendation not later than October 8, 2008. Any objections filed must specifically id e n tif y the findings in the Magistrate Judge's Recommendation objected to. Frivolous, co n clus ive or general objections will not be considered by the District Court. The parties are a d v is e d that this Recommendation is not a final order of the court and, therefore, it is not a p p e a la b le . F a ilu re to file written objections to the proposed findings and recommendations in the M a g i s tr a t e Judge's report shall bar the party from a de novo determination by the District C o u rt of issues covered in the report and shall bar the party from attacking on appeal factual f in d in g s in the report accepted or adopted by the District Court except upon grounds of plain e rr o r or manifest injustice. Nettles v. Wainwright, 677 F.2d 404 (5th Cir. 1982); see Stein v . Reynolds Securities, Inc., 667 F.2d 33 (11th Cir. 1982); see also Bonner v. City of P r ic h a r d , 661 F.2d 1206 (11th Cir. 1981, en banc) (adopting as binding precedent all of the d e c is io n s of the former Fifth Circuit handed down prior to the close of business on S ep tem b er 30, 1981). Page 14 of 15 D O N E this 25th day of September, 2008. / s / Terry F. Moorer TERRY F. MOORER U N IT E D STATES MAGISTRATE JUDGE Page 15 of 15

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