Comerica Bank v. Jones et al
Filing
26
OPINION AND ORDER granting 15 plaintiff/counter-defendant's Motion for Partial Summary Judgment. Signed by District Judge George Caram Steeh (MBea)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
COMERICA BANK,
a Texas banking association,
successor in interest by merger
to Comerica Bank, a
Michigan banking corporation,
Plaintiff,
Case No. 10-CV-14572
v.
HON. GEORGE CARAM STEEH
JAMES R. JONES,
a Washington, D.C. citizen,
STONE CANYON VENTURE
PARTNERS, LP, a Delaware
limited partnership, WEST COAST
OPPORTUNITY FUND, LLC,
a Delaware limited liability company,
and SANDHARBOR INVESTMENT
COMPANY, LLC, a Nevada limited
liability company,
Defendants.
_____________________________________/
OPINION AND ORDER GRANTING PLAINTIFF/COUNTER-DEFENDANT’S
MOTION FOR PARTIAL SUMMARY JUDGMENT
On November 17, 2010, plaintiff/counter-defendant filed this action seeking, in part,
the payment of $950,000 to Comerica in partial satisfaction of Comerica’s loans to Catalina
and UFE. Defendants filed a counterclaim asserting, among other things, entitlement to
the $950,000 from the sale of UFE Singapore’s stock. Before the court is plaintiff/counterdefendant’s motion for partial summary judgment. In its motion, plaintiff/counter-defendant
seeks judgment on Count I of its amended complaint, defendants’ counterclaims, and all
of defendants’ affirmative defenses. Oral argument occurred at a hearing on this motion
on June 20, 2011. For the reasons that follow, the court grants plaintiff/counter-defendant’s
motion for partial summary judgment.
BACKGROUND
The Security Agreements
On April 25, 2008, UFE executed a Security Agreement that secured all existing and
future indebtedness of UFE and Catalina to Comerica.
Under the UFE Security
Agreement, UFE agreed that Comerica had a security interest in all present and future
assets of UFE. The UFE Security Agreement defined collateral to include, inter alia, all of
UFE’s “Accounts Receivable” (including all accounts, general intangibles, chattel paper,
and rights to payment for money or funds advanced or sold) as well as all of UFE’s
inventory, equipment and fixtures, software, and investment property (“including, without
limit, securities, securities entitlements, and financial assets”).
The March 2009 Master Revolving Note
On March 31, 2009, Catalina and UFE executed a $7,000,000 Master Revolving
Note in Comerica’s favor. Under the March 2009 Master Revolving Note, Catalina and
UFE agreed to pay Comerica all outstanding amounts (including interest thereon) due
under the Note on Comerica’s demand. The March 2009 Master Revolving Note also
provides that if Catalina and UFE fail to comply with any agreement with Comerica,
Comerica may declare a default. In the event of a default, Comerica is entitled to declare
any and all indebtedness under that note (and any other notes executed by Catalina and
UFE) to be due and payable “and exercise any one or more of the rights and remedies
granted to [Comerica] by any agreement with [Catalina and UFE] (or any of them) or given
to it under applicable law.”
The March 2009 Master Revolving Note was replaced with a virtually identical note,
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in the amount of $5,750,000, on September 29, 2009.
The Single Disbursement Demand and Term Notes
On September 29, 2009, Catalina and UFE executed a $500,000 Single
Disbursement Demand Note. The Single Disbursement Demand Note was payable on
Comerica’s demand.
Also on September 29, 2009, Catalina and UFE executed a
$1,202,666.72 Term Note. Both Notes provide that if Catalina and/or UFE are in default
of any agreement with Comerica, Comerica may declare a default.
Comerica’s Alleged Representations
Michael Seibert, a representative from Stone Canyon, attests that he met with
Atticus Lowe from West Coast, Comerica’s loan officer Michael Sheehan, and Comerica
bank officer Andrew Ottaway on January 22, 2010 to discuss the status of Comerica’s
loans to Catalina and UFE. Seibert states the bank officers represented that investors
needed to make a $1,000,000 capital infusion into UFE and that the investors would
receive a subordinated participation interest in Comerica’s loans to Catalina and UFE.
Seibert represents he and Lowe told the bank officers that the investors would want to
secure their participation interests with a lien on the assets of UFE Singapore that would
not be subordinated to any Comerica security interests or liens. He attests Sheehan and
Ottaway stated Comerica had no objection, because the UFE Singapore receivables and
other assets were of no value to Comerica and the bank had not taken a security interest
in UFE Singapore or its other assets. He states the bank officers said Comerica would not
object if the investors were to secure the purchase of their participation interests in the
Comerica loans by taking a security interest in and placing a lien on UFE Singapore and
its assets and that the lien would not be subordinated to any Comerica security interests
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or liens.
Catalina and UFE’s Defaults and the Forbearance Agreement
On February 12, 2010, Comerica declared the September 2009 Master Revolving
Note (and the other notes described above) in default. On March 4, 2010, Catalina, UFE,
certain defendants, and Comerica entered into a Forbearance Agreement. The parties to
the Forbearance Agreement agreed that Catalina and UFE were in default of the March
2009 Master Revolving Note (and the other notes described above) and that Comerica
would forbear from certain enforcement activities until June 1, 2010 (subject to earlier
termination). In connection with the Forbearance Agreement, Catalina and UFE executed
a March 4, 2010 Master Revolving Note in the amount of $6,700,000 that provided it was
due on Comerica’s demand.
The Subordinated Participation Agreement
Also in connection with the Forbearance Agreement, on March 4, 2010, James
Jones, Gregory Willis, Stone Canyon Venture Partners LP, West Coast Opportunity Fund,
LLC, and Sandharbor Investment Company LLC (collectively, the “Participants”) entered
into the Subordinated Participation Agreement with Comerica.
Under the SPA, the
Participants purchased a last out, subordinated (that is, junior) participation in Comerica’s
loans to Catalina and UFE totaling $950,000. Paragraph 2 of the SPA provides:
Concurrently with the execution of this Agreement, Participants (other than
Gregory Willis) shall pay to Lender in immediately available funds an amount
equal to the First Participation Amount in the amounts provided below. On
or before March 15, 2010, Gregory Willis shall pay to Lender in immediately
available funds an amount equal to the Second Participation Amount.
Effective as of the date of payment of the First Participation Amount or
Second Participation Amount, Lender sells and grants to Participants, and
Participants accept from Lender, an undivided, subordinated participation in
the Loans, in each case, in the amount of each Participant’s portion of each
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Participation Amount (Stone Canyon - First - $643,000; West Coast - First
$100,000; Sandharbor - First $113,000; Jones - First $28,000; Willis Second $66,000).
The Participants further agreed in the SPA that their participation in the loans by Comerica
to Catalina and UFE “shall in all respects be subject and subordinate to the rights of
[Comerica] in the balance of the Loans and shall be subject further to the limitations
provided below.” In other words, the Participants agreed that Comerica is entitled to be
paid on its senior portion of the loans to Catalina and UFE before the Participants are
repaid any amount on account of their $950,000 participation. Paragraph 5 of the SPA
provides:
Participants shall not be entitled to any monies received by Lender in
accordance with the provisions of the Loan Documents, whether directly or
indirectly from the sale or liquidation of any collateral or otherwise in
reduction of its Participation unless and until Lender’s portion of the Loans
shall have been irrevocably repaid in full and all other reasonable costs,
expenses, consultant fees and attorneys’ fees of Borrowers to Lender have
been irrevocably paid in full and Lender’s loan commitments to Borrowers,
if any, have been terminated. If at any time prior to the time that all Loans
have been irrevocably paid in full (as described in the previous sentence)
Participants shall receive from any source whatsoever (whether by direct
remittance, setoff, recoupment, foreclosure of security interest or otherwise)
any payment on the Loans, Participants will hold such payment in trust for
Lender and promptly pay over to Lender such payment in the form received
with any necessary endorsements...
The Participants claim they relied on Comerica’s representations, including that UFE
Singapore’s assets were outside the scope of the SPA, in entering into the SPA.
Default
On April 22, 2010, Comerica notified Catalina and UFE that they were in default of
the March 2010 Forbearance Agreement (and, therefore, the March 2010 Master Revolving
Note).
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Catalina and UFE Cease Normal Business Operations
Comerica was informed by Catalina and UFE’s president and CEO Willis, and CFO
Zickfeld, that they had resigned from their positions as officers of each company and that
all members of the board of directors had resigned. On Friday, July 23, 2010, defendants
Willis and Zickfeld informed Comerica that they intended to cease Catalina and UFE’s
business operations and liquidate Catalina and UFE’s assets.
On August 4, 2010,
Comerica filed an action against Catalina and UFE in this court where a receiver was then
appointed over Catalina and UFE’s property.
Participants’ Lien on Assets of UFE Singapore
On or about July 16, 2010, several of the Participants (through Stone Canyon, as
agent) placed a lien on the assets of UFE Singapore, UFE’s wholly owned subsidiary. The
security documents prepared by Stone Canyon and signed by UFE Singapore purport to
take and/or place a lien on the assets of UFE Singapore to secure the $950,000
participation in Comerica’s loans to Catalina and UFE as defined in the SPA. On July 29,
2010, Comerica informed Participants and counsel for Catalina and UFE that the granting
of the lien was without Comerica’s consent and is prohibited by UFE’s loan agreement.
Comerica also stated amounts received on account of the lien must be paid to Comerica
under the SPA.
December 17, 2010 Order
On December 6, 2010, in the receivership action before this court, the receiver
moved for an order authorizing it to sell UFE’s interest in UFE Singapore and approving
and confirming the sale of UFE’s interest in UFE Singapore free and clear of any and all
liens, claims, security interests and encumbrances of any kind or type and transferring
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claim to the net proceeds of sale. (Dkt. #66, Case No. 10-cv-13089). SCVP, LLC and
Stone Canyon opposed the motion. On December 17, 2010, following hearing on the
motion, the court entered an order approving the sale, transferring the lien to the proceeds
of the sale, and preserving the arguments of the parties with respect to the $950,000.
Current Proceeding
In this case, Comerica seeks, in Count I of its amended complaint, an order requiring
the indebtedness of Catalina and UFE be satisfied, in part, by payment of the $950,000 to
Comerica. Defendants Jones, Stone Canyon, West Coast, and Sandharbor filed the
following counterclaims: (1) declaratory judgment; (2) fraud/fraudulent inducement; (3)
breach of contract/anticipatory breach of the SPA; and (4) reformation of the Subordinated
Participation and Forbearance Agreements. In their declaratory judgment counterclaim,
defendants seek a declaration that the lien is valid, that the agreements do not give
Comerica entitlement to the $950,000, and that defendants are entitled to payment of
$884,000 of the $950,000.
On April 13, 2011, Comerica filed a motion for partial summary judgment seeking
judgment in its favor on Count I of its amended complaint, defendants’ counterclaims, and
all of defendants’ affirmative defenses. The claim that Stone Canyon’s investment in UFE
and Catalina and its payment for its participation interest should be allocated to reduce
and/or eliminate the Support Agreement obligations of West Coast, Jones, and
Sandharbor, an issue presented in defendants’ counterclaims, is excluded from the
summary judgment request and therefore not before the court at this time. On May 11,
2011, defendants filed a response to the motion. Defendants argue (1) there is a question
of fact as to whether the UFE Singapore stock is covered by the UFE and/or Catalina
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Security Agreements (and therefore whether payment of proceeds from the sale of the
assets of UFE Singapore constitute “payment on the loans” as defined in the SPA); (2)
there is a question of fact concerning defendants’ fraud/fraudulent inducement claim, which
would render the contract at issue voidable; and (3) the December 17, 2010 order in the
receivership case does not resolve the issues in this case.
STANDARD FOR SUMMARY JUDGMENT
Federal Rule of Civil Procedure 56(c) empowers the court to render summary
judgment forthwith if the “pleadings, depositions, answers to interrogatories and admissions
on file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a matter of law." See
Redding v. St. Eward, 241 F.3d 530, 532 (6th Cir. 2001). The Supreme Court has affirmed
the court's use of summary judgment as an integral part of the fair and efficient
administration of justice. The procedure is not a disfavored procedural shortcut. Celotex
Corp. v. Catrett, 477 U.S. 317, 327 (1986).
The standard for determining whether summary judgment is appropriate is "'whether
the evidence presents a sufficient disagreement to require submission to a jury or whether
it is so one-sided that one party must prevail as a matter of law.'" Amway Distributors
Benefits Ass’n v. Northfield Ins. Co., 323 F.3d 386, 390 (6th Cir. 2003) (quoting Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986)). The evidence and all reasonable
inferences must be construed in the light most favorable to the non-moving party.
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "[T]he
mere existence of some alleged factual dispute between the parties will not defeat an
otherwise properly supported motion for summary judgment; the requirement is that there
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be no genuine issue of material fact." Anderson, 477 U.S. at 247-48 (emphasis in original).
If the movant establishes by use of the material specified in Rule 56(c) that there is
no genuine issue of material fact and that it is entitled to judgment as a matter of law, the
opposing party must come forward with "specific facts showing that there is a genuine issue
for trial." First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 270 (1968); see also McLean
v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). Mere allegations or denials in
the non-movant's pleadings will not meet this burden, nor will a mere scintilla of evidence
supporting the non-moving party. Anderson, 477 U.S. at 248, 252. Rather, there must be
evidence on which a jury could reasonably find for the non-movant. Id.
ANALYSIS
Comerica’s Declaratory Judgment Claim
In Count I of its amended complaint, Comerica asserts defendants breached the
agreements by placing a lien on UFE Singapore’s assets. Comerica claims the SPA gave
defendants only a subordinated participation in Comerica’s loans to UFE and Catalina and
thus Comerica should be paid the $950,000 in proceeds from the sale of UFE Singapore
stock as the stock is covered by the UFE Security Agreement. Comerica seeks a
declaratory judgment finding Comerica is entitled to the $950,000.
It is well-established Michigan law that “unambiguous contracts are not open to
judicial construction and must be enforced as written.” Rory v. Continental Ins. Co., 473
Mich. 457, 468 (2005) (emphasis in original). In “ascertaining the meaning of a contract,”
courts are to “give the words used in the contract their plain and ordinary meaning that
would be apparent to a reader of the instrument.” Id. at 464. A contract is ambiguous if its
language can be interpreted in two or more ways. Raska v. Farm Bureau Mutual Ins. Co.,
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412 Mich. 355, 362 (1982). “[I]f contract language is ambiguous, extrinsic evidence can
be presented to determine the intent of the parties.” Phillips v. Homer, 480 Mich. 19, 24
(2008). In addition, in interpreting an ambiguous contract, doubts should be resolved
against the drafter of the contract. Michigan Chandelier Co. v. Morse, 297 Mich. 41, 46
(1941).
Under the UFE Security Agreement, UFE agreed that Comerica had a security
interest in all present and future collateral of UFE. The UFE Security Agreement defined
collateral to include UFE’s “Accounts Receivable” (including “general intangibles”),
inventory, equipment and fixtures, and investment property (including, without limit,
securities, securities entitlements, and financial assets). The UCC defines “[i]nvestment
property” as “a security, whether certificated or uncertificated, security entitlement,
securities account, commodity contract, or commodity account.” M.C.L.A. § 440.9102(ww).
The term “General Intangibles”, under the UCC, includes “any personal property” and
“payment intangibles.”
M.C.L.A. § 440.9102(pp).
Comerica argues UFE’s 100%
shareholder interest in UFE Singapore fits within both of these categories - a general
intangible and an investment property - and is therefore included as collateral under the
UFE Security Agreement.
Defendants argue the UFE Security Agreement limits the geographic scope of the
collateral to include only assets located in Wisconsin, Texas, and Minnesota and thus UFE
Singapore’s stock is not included. The schedule of collateral locations attached to the UFE
Security Agreement states “[n]o assets currently located in non-U.S. facilities of Debtor
shall be deemed ‘Collateral’.” Defendants allege UFE Singapore’s assets, including its
stock, were located in Singapore.
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Comerica responds by arguing the UFE Singapore stock is an intangible and
“[n]umerous courts have observed that the situs of intangible property is, in truth, a legal
fiction.” Acme Contracting, Ltd. v. Toltest, Inc., Case No. 07-10950, 2008 WL 4534175, *6
(E.D. Mich. Oct. 3, 2008). “Various courts have also found that intangible property may
have more than one situs.” Id. As UFE’s place of incorporation is Minnesota and the UFE
financing statement was filed in Minnesota, a court might consider Minnesota as one situs.
Defendants fail to provide authority to the contrary. As the UFE Singapore stock fits within
the definition of “investment property” and the geographical limitation appears directed at
tangible assets given that the document lists the cities in which UFE’s facilities were
located, the stock may be considered collateral under the terms of the UFE Security
Agreement.1
Defendants also argue the UFE Security Agreement is at least ambiguous as to
whether UFE Singapore’s stock is included as collateral because there is no specific
reference to UFE Singapore within the agreement and because there is language indicating
there is no “collateral” outside of the United States. Defendants therefore argue the court
should examine extrinsic evidence, such as alleged representations, to ascertain the
parties’ intent. Defendants argue Comerica has represented, on several occasions, that
UFE Singapore’s assets are not collateral under the agreements. In support, defendants
cite (1) Comerica’s suggestion that defendants contact the Development Bank of Japan to
ascertain whether the bank would be interested in lending on the UFE Singapore assets;
1
Comerica also argues that this court’s December 17, 2010 order resolved this
issue. Because that order preserved the parties’ arguments, the court has addressed
the merits of the claim here.
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(2) correspondence in which Comerica represented that UFE Singapore’s accounts
receivable is not collateral; and (3) an agreement indicating that UFE Singapore’s accounts
receivable should not be used in certain credit calculations. In response, Comerica
explains that it has never claimed an interest in the accounts receivable of UFE Singapore.
Rather, Comerica claims an interest in UFE and its assets, including its 100% ownership
interest in UFE Singapore. Even if the court were to find the contract ambiguous, and
consider such extrinsic evidence, the court does not believe the evidence relied on by
defendants conflicts with Comerica’s present claim that UFE Singapore’s stock, which was
owned by UFE, is collateral under the UFE Security Agreement.
Moreover, defendants’ argument that the stock is not collateral under the UFE
Security Agreement is belied by defendants’ actions. The $950,000 lien defendants placed
on the assets of UFE Singapore appears, from the documents, based on defendants’
participation in the Comerica loans. Under the SPA, Comerica sold defendants “an
undivided, subordinated participation” in the loans to UFE, in other words, “an undivided,
subordinated interest in ordinary debt and related collateral security.”
Despite the
opportunity to do so, defendants have never identified what the payment of the $950,000
(now $884,000, after settlement with Willis) would be on account of, if not through its junior
participation in Comerica’s loans to UFE and Catalina.
Comerica argues the proceeds from the sale of the UFE Singapore stock currently
being held in escrow should be paid to Comerica. Section 13 of the SPA provides that
defendants shall not recover any amounts owed them under the agreement “unless and
until” Comerica’s portion of the loan was paid in full. Because the $884,000 contributed by
defendants was a participation in Comerica’s loans under the SPA only, and not a direct
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debt, UFE Singapore did not owe any money to defendants on account of the $884,000.
Defendants have no interest in the proceeds from the sale of UFE Singapore’s stock until
Comerica’s debt has been repaid. Comerica’s portion of the loan was not paid in full and
thus Comerica is entitled to the $884,000.
Comerica also seeks reimbursement for all attorney fees and costs pursuant to
paragraph 15 of the SPA which provides:
Each Participant agrees (which agreement shall survive any termination of
the Participations) to reimburse [Comerica] for all reasonable out-of-pocket
expenses (including attorneys’ fees) incurred by [Comerica] after the date of
this Agreement in connection with the Loans or with an event of default or in
enforcing the obligations of [Catalina and UFE] under the Loans for which
[Comerica] is not reimbursed by [Catalina and UFE], pro rata according to
each Participant’s percentage of the Loans.
Comerica fails, however, to discuss the application of the following provision in connection
with its request:
Notwithstanding anything to the contrary, each Participant’s obligation under
this paragraph shall not exceed the sum of any amount distributed or to be
distributed on account of the Participations, and Lender may apply any
distributions to be made to each Participant’s obligations under this
paragraph.
As Comerica failed to address this provision or provide additional explanation regarding its
request, the court will deny, without prejudice, Comerica’s request for attorney fees and
costs at this time.
Defendants’ Counterclaims
Defendants bring counterclaims for declaratory judgment, fraud/fraudulent
inducement, breach of contract, and reformation of contract. Defendants argue the SPA
was modified - verbally - so as to allow them to be repaid before Comerica. Defendants
argue Comerica fraudulently induced them to enter into the SPA by making the following
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misrepresentations: (1) that Comerica did not have a security interest in UFE Singapore
under the Security Agreements; (2) that Comerica would not object if the Participants
secured their participation interests with a security interest in, and a lien on, UFE Singapore
and its assets; (3) that Comerica was not interested in obtaining a security interest in UFE
Singapore and its assets; and (4) any lien placed on the assets of UFE Singapore would
not be subordinate to any lien held by Comerica.
Michigan does not allow unwritten agreements to modify agreements with financial
institutions. M.C.L.A. §566.132(2) prohibits actions against financial institutions to enforce
“a promise or commitment to waive a provision of a loan, extension of credit, or other
financial accommodation” or “a promise or commitment to lend money, grant or extend
credit, or make any other financial accommodation” unless the commitment is in writing and
signed by an agent of the financial institution. In Crown Tech. Park v. D&T Bank, FSB, 242
Mich. App. 538, 551 (2000), the court found the above-referenced statute is an unqualified
and broad ban on attempts to assert or enforce “against a financial institution...an oral
promise to waive a loan provision.”
In addition, “[w]here a binding agreement is integrated, it supersedes inconsistent
terms or prior agreements and previous negotiations to the extent that it is inconsistent with
them.” Ditzik v. Schaffer Lumber Co., 139 Mich. App. 81, 88 (1984). “[W]hen the parties
include an integration clause in their written contract, it is conclusive and parol evidence
is not admissible to show that the agreement is not integrated except in cases of fraud that
invalidate the integration clause or where an agreement is obviously incomplete ‘on its
face.’” UAW-GM Human Resources Center v. KSL Recreation Corp., 228 Mich. App. 486,
502 (1998). Moreover, “when a contract contains a valid merger clause, the only fraud that
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could vitiate the contract is fraud that would invalidate the merger clause itself, i.e., fraud
relating to the merger clause or fraud that invalidates the entire contract including the
merger clause.” Id. at 503.
In UAW-GM Human Resources Center, the plaintiff asserted it signed a contract to
use defendant’s hotel for a convention in reliance on the defendant’s oral promises to
provide plaintiff with a union represented hotel. The contract contained a merger clause.
The court found that the fraud asserted required reasonable reliance and the merger clause
“made it unreasonable for plaintiff’s agent to rely on any representations not included in the
letter of agreement.” Id. at 504. Thus, the court found the merger clause was valid and
parol evidence was not admissible to contradict the merger clause. Id. at 507.
In this case, the SPA and the March Forbearance Agreement contain integration
clauses. Section 18 of the SPA provides:
This Agreement and any other agreements referenced in it constitute the
entire understanding of the parties in connection with the matters referenced
and shall not be modified or altered except in a ruling signed by Participants
and Lender. There are no other agreements, oral or written, express or
implied, relating to its subject matter other than this Agreement and the other
agreements referenced and all prior agreements and understandings have
been merged into this Agreement.
The March Forbearance Agreement states:
There are no oral agreements among Bank and Borrowers; any agreements
concerning the Liabilities are expressed only in the existing Loan Documents.
The duties and obligations of Borrowers and Support Parties and Bank shall
be only as set forth in the Loan Documents and this Agreement, when
executed by all parties.
Defendants acknowledge these integration clauses and rely on Star Ins. Co. v.
United Commercial Ins. Agency, Inc., 392 F.Supp.2d 927, 929 (E.D. Mich. 2005), which
states:
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Michigan courts have said that, as it pertains to representations regarding
additional agreements or contractual terms, a party would not be justified in
relying on them where there is a merger clause. The reasoning behind this
is clear, one should not be heard to complain that they relied on oral
promises regarding additional or contrary contract terms when there is written
proof, signed by both parties, to the contrary. Yet, a party could still justifiably
rely upon representations made by another party regarding things outside the
scope of the contractual terms, such as the other party's solvency,
indebtedness, experience, clientele, client retention rate, business structure,
etc.
Relying on Star, defendants claim Comerica’s alleged representations concerning “the
scope of the Security Agreements” “and whether those agreements covered the assets of
UFE Singapore” constitute representations made by another party regarding things outside
the scope of the SPA and thus it was reasonable for defendants to rely on them. The court
disagrees. The SPA gave defendants a subordinated participation in Comerica’s loans to
UFE and Catalina, and the collateral for such loans was described in the Security
Agreements. Thus, the scope of the Security Agreements is not an “extraneous” matter.
Defendants do not assert fraud specific to the existence of the merger clause. Defendants
also do not claim that they were defrauded into believing that the SPA contained a
provision with any of the alleged representations. Given the existence of the broad merger
clause, defendants could not have reasonably relied on the alleged misrepresentations by
Comerica representatives in entering into the SPA. Defendants’ fraudulent inducement
counterclaim fails.2
2
In response to Comerica’s request for summary judgment on the counterclaims
and affirmative defenses, defendants rely solely on their claim of fraudulent inducement.
The parties agree the SPA contains release language, although neither side pointed out
such language to the court. Defendant argues fraudulent inducement voids the release
in the SPA, however, this argument fails for the same reason their fraudulent
inducement claim fails. Even without the release, defendants’ counterclaims (aside
from the Support Agreement claims, which are not at issue here) fail. The reformation
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Finally, defendants argue summary judgment is premature because defendants
have not had sufficient opportunity to conduct discovery. However, defendants did not
submit an affidavit pursuant to Federal Rule of Civil Procedure 56(d) or otherwise explain
why discovery is necessary before a determination of the issues presented.
CONCLUSION
For the reasons set forth above, the court grants plaintiff/counter-defendant’s motion
for partial summary judgment, except as to the request for attorney fees and costs.
Dated: September 22, 2011
S/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
September 22, 2011, by electronic and/or ordinary mail.
S/Josephine Chaffee
Deputy Clerk
of contract counterclaim is barred by the statute of frauds and also by the integration
clause. It is based on fraudulent inducement, which is untenable in light of the
integration clause. The declaratory judgment and breach of contract counterclaims fail
for the same reasons Comerica’s declaratory judgment claim prevails.
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