RBS Citizens NA v. M-59 Telegraph Petroleum, LLC et al

Filing 32

OPINION AND ORDER GRANTING PLAINTIFF'S 21 MOTION FOR SUMMARY JUDGMENT, Signed by District Judge Gerald E. Rosen. (Ciesla, C)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
RBS CITIZENS, NA,
Plaintiff,
No. 2:12-cv-11193
Hon. Gerald E. Rosen

vs.
M-59 TELEGRAPH PETROLEUM
LLC, a Michigan limited liability company;
SE CORPORATION OF MICHIGAN, a
Michigan corporation; and FAWZI SIMON,
an individual;
Defendants.
___________________________________/

OPINION AND ORDER GRANTING PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT
I. INTRODUCTION
On March 16, 2012, Plaintiff RBS Citizens, NA, filed a complaint against
Defendants M-59 Petroleum, LLC, SE Corporation of Michigan, and their owner,
Fawzi Simon, alleging Breach of Contract, Violation of MCL § 600.2952, Fraud,
Negligence, and Civil Conspiracy related to a purported check-kiting scheme.
Following Defendants consistent failure to comply with discovery requests and the
deadlines set for this litigation, Plaintiff filed a Motion for Default Judgment and a
Motion to Compel Discovery. Plaintiff eventually deposed Defendant Simon,

1

during which Simon asserted his Fifth Amendment privilege against selfincrimination.

Plaintiff filed the instant Motion for Summary Judgment on

November 29, 2012, to which Defendants failed to respond in a timely manner.
Following a hearing on January 3, 2013, the Court -- having still not received
Defendants’ response to Plaintiff’s Motion for Summary Judgment -- ruled that
Defendants would not be allowed to file a response and determined that it would
decide the case on the merits of Plaintiff’s motion.
II. FACTUAL BACKGROUND
Plaintiff RBS Citizens, N.A., d/b/a Charter One, is a banking institution
holding three accounts for Defendant M-59 Telegraph Petroleum, L.L.C.
(hereinafter “M-59”), a Michigan limited liability company whose sole member is
Defendant Fawzi Simon (hereinafter “Simon”). Simon is also the sole owner of
Defendant SE Corporation (hereinafter “SE Corp.”).
In January 2011, Simon opened three checking accounts with Plaintiff’s
bank on behalf of his LLC, M-59. In doing so, he signed Business Signature Cards
and a General Deposit Resolution, acknowledging that he agreed to Plaintiff’s
Business Deposit Account Agreement (hereinafter “Account Agreement”). As part
of the Account Agreement, M-59 agreed to “reimburse [Plaintiff] for [its] Losses
resulting from . . . the return of any deposited check for any reason.” M-59 also
agreed “to deposit sufficient funds to cover the overdraft” and to “reimburse

2

[Plaintiff] for any Losses we incur in collecting the overdraft from you.” Pl.’s
Mot. Summ. J., Ex. F. Simon also controlled SE Corp.’s two checking accounts one at Talmer Bank and Trust, the other at Main Street Bank.
From August through December of 2011, Defendants began to engage in an
alleged check-kiting scheme.

From August through November, Simon drew

checks from SE Corp.’s Talmer Account and deposited them into SE Corp.’s Main
Street Account. Simon then issued a check from Main Street to M-59, which he
deposited in two of his three accounts with Plaintiff. He then consolidated the
funds in the second account, and transferred them to his third account with
Plaintiff. Next, Simon would transfer the funds to an unknown account with an
unknown entity, before being electronically transferred to the SE Talmer account.
The result of this activity is to falsely inflate the balance of each bank account by
taking advantage of the time lag between when the money is transferred and when
it actually arrives in the account, during which period the bank lists the account as
having received the transferred funds. Plaintiff suffered no harm as a result of this
kite.
Defendants began another alleged check-kiting scheme in December 2011.
The record shows that, on an almost daily basis, Simon withdrew funds from two
of his three accounts with Plaintiff and purchased two cashier’s checks -- in
identical amounts -- from Plaintiff, made payable to himself. Simon endorsed

3

these checks to SE Corp. and deposited them into the Main Street account. Finally,
he issued checks from the Main Street account to M-59, and deposited the checks
into the original two accounts with Plaintiff.
On December 27, 2011, Main Street Bank returned fifteen of SE Corp.’s
checks (Nos. 10827-10842) -- totaling $697,412.00 -- to Plaintiff for insufficient
funds. On December 28, Main Street returned sixteen more checks -- totaling
$729,117.00 -- to Plaintiff for insufficient funds. These two returns resulted in
overdrafts on M-59’s accounts -- after some additional funds were deposited -- of
$573,254.41.
On January 20, 2012, Plaintiff sent Simon, M-59, and SE Corp. a letter
demanding reimbursement for the full amount of the dishonored checks. When
Defendants failed to comply, Plaintiff filed this suit, alleging Breach of Contract,
Violation of MCL § 600.2952, Fraud, Negligence, and Civil Conspiracy. Plaintiff
also seeks to pierce the corporate veil and receive exemplary damages in the
amount of $1,146,508.82, double the amount of RBS’s loss as provided by MCL
§ 600.2952. After several failed attempts to obtain Defendant Simon’s deposition,
Plaintiff filed a Motion for Default Judgment on September 13, 2012. Plaintiff
eventually deposed Simon, who invoked his Fifth Amendment privilege against
self-incrimination and refused to answer questions regarding: (i) whether he
reimbursed Plaintiff for the losses on those accounts; (ii) whether he defrauded

4

RBS by operating a check-kiting scheme; and (iii) whether the account balances
were fictional on the dates those checks were issued.
Plaintiff filed a Motion for Summary Judgment on November 29, 2012, to
which Defendants failed to respond in a timely manner. A Show Cause hearing
was held on December 10, 2012, at which the Court informed the parties that: (i)
because of Defendants’ consistent failure to adhere to litigation deadlines, the
Court would not allow Defendants to file a tardy response to Plaintiff’s Motion for
Summary Judgment; and (ii) that it would resolve the case on that motion.
Following that hearing, Plaintiff filed a request for a TRO on January 14,
2013, asking this Court to prevent Defendants from removing funds in their
attorney’s client trust account prior to adjudication of this claim on the merits.
That motion was heard and denied on February 12, 2013. Following this hearing,
the parties appeared close to a settlement agreement. The Court held a settlement
conference on August 5, 2013, during which the parties advised the Court that they
had agreed upon the amount of the settlement, but were stuck on an issue of
procedure.

Although this issue appears to be resolved, the parties have now

advised the Court that they are no longer in agreement on a settlement figure. As
such, the Court will proceed with this case on the merits.
Having reviewed Plaintiff’s brief -- which is unopposed -- and the record as
a whole, the Court finds that the relevant facts, allegations, and legal arguments are

5

adequately presented in these written materials, and that oral argument would not
aid the decisional process. Accordingly, the Court will decide Plaintiff’s motion
“on the briefs.” See Local Rule 7.1(f)(2), U.S. District Court, Eastern District of
Michigan. The Court’s Opinion and Order is set forth below.
III. DISCUSSION
A.

Summary Judgment Standard
Summary judgment is proper if the moving party “shows that there is no

genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). As the Supreme Court has explained, “the
plain language of Rule 56[] mandates the entry of summary judgment, after
adequate time for discovery and upon motion, against a party who fails to make a
showing sufficient to establish the existence of an element essential to that party’s
case, and on which that party will bear the burden of proof at trial.” Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986). In addition, where a moving party -- here,
Plaintiff -- seeks an award of summary judgment in its favor on a claim or issue as
to which it bears the burden of proof at trial, this party’s “showing must be
sufficient for the court to hold that no reasonable trier of fact could find other than
for the moving party.” Calderone v. United States, 799 F.2d 254, 259 (6th Cir.
1986) (internal quotation marks, citation, and emphasis omitted).

6

In deciding a motion brought under Rule 56, the Court must view the
evidence in a light most favorable to the nonmoving party. Pack v. Damon Corp.,
434 F.3d 810, 813 (6th Cir. 2006). Yet, the nonmoving party may not rely on mere
allegations or denials, but must “cit[e] to particular parts of materials in the record”
as establishing that one or more material facts are “genuinely disputed.” Fed. R.
Civ. P. 56(c)(1). But, “the mere existence of a scintilla of evidence that supports
the nonmoving party’s claims is insufficient to defeat summary judgment.” Pack,
434 F.3d at 814 (alteration, internal quotation marks, and citation omitted).
Although Defendants have not responded to Plaintiff’s Motion for Summary
Judgment, such a failure is not the end of this Court’s inquiry. The Sixth Circuit
has held that a party’s failure to respond to an opponent’s motion for summary
judgment should not by itself warrant a grant of summary judgment. Carver v.
Bunch, 946 F.2d 451 (6th Cir. 1991). The Carver panel stated:
As the Supreme Court has repeatedly held, “The Federal Rules reject
the approach that pleading is a game of skill in which one misstep by
counsel may be decisive to the outcome and accept the principle that
the purpose of pleading is to facilitate a proper decision on the
merits.” Additionally, under Rule 56(c) a party moving for summary
judgment always bears the burden of demonstrating the absence of a
genuine issue as to a material fact . . . . Although subsequent Supreme
Court cases have redefined the movant’s initial burden . . . the
requirement that the movant bears the initial burden has remained
unaltered. More importantly for all purposes, the movant must always
bear this initial burden regardless if an adverse party fails to respond.
In other words, a district court cannot grant summary judgment in
favor of a movant simply because the adverse party has not
responded. The court is required, at a minimum, to examine the
7

movant's motion for summary judgment to ensure that he has
discharged that burden.
Carver at 454-455 (citations omitted).
In addition to their failure to respond to Plaintiff’s motion, Defendant Simon
-- along with the bookkeepers for M-59 and SE Corp. -- invoked their Fifth
Amendment privilege during their depositions, which precludes Defendants from
introducing evidence on those issues later in the litigation. See, e.g., Traficant v.
Commissioner of I.R.S., 884 F.2d 258, 265 (6th Cir. 1989); In re Edmond, 934 F.2d
1304, 1308-09 (4th Cir. 1991); U.S. v. Parcels of Land, 903 F.2d 36, 43 (1st Cir.
1990); Pedrina v. Han Kuk Chun, 906 F. Supp. 1377, 1398 (D. Haw. 1995), aff’d,
97 F.3d 1296 (9th Cir. 1996), cert. denied, 520 U.S. 1268 (1997); U.S. v. Island
Park, 888 F. Supp. 419, 431-32 (E.D.N.Y. 1995); U.S. v. All Assets & Equip. of
West Side Bldg. Corp., 843 F. Supp. 377, 382-83 (N.D. Ill.1993), aff’d, 58 F.3d
1181 (7th Cir. 1995). Federal courts find such a preclusive effect grounded in the
following reasoning:
[a] defendant may not use the fifth amendment to shield herself from
the opposition's inquiries during discovery only to impale her accusers
with surprise testimony at trial.
******
Because claimant has asserted a fifth amendment claim in discovery,
this court holds that he may not now waive the privilege and testify.
Neither may he submit affidavits in opposition to the government's
motion for summary judgment.

8

U.S. v. Sixty Thousand Dollars in U.S. Currency, 763 F. Supp. 909, 914 (E.D.
Mich. 1991).
Further, invocation of a Fifth Amendment privilege against selfincrimination in a civil suit entitles a trier of fact to draw an adverse inference from
this assertion of privilege. See, e.g., Nationwide Life Insurance Co. v. Richards,
541 F.3d 903, 911 (9th Cir. 2008); In re High Fructose Corn Syrup Antitrust
Litigation, 295 F.3d 651, 663-64 (7th Cir. 2002). Therefore, the Court must
examine the record and Plaintiff’s motion to ensure (i) that Plaintiff has presented
sufficient facts to meet its burden on each cause of action, and (ii) that no genuine
issues of material fact exist as to the evidence offered to support Plaintiff’s motion.
B.

Breach of Contract (Count I)
Plaintiff has presented evidence sufficient to establish that M-59 is liable for

breach of contract. M-59 entered into a contract when it signed the Signature Card
and Dispute Resolution with RBS, which bound 5-59 to the terms of the Account
Agreement. In doing so, M-59 agreed to “reimburse [Plaintiff] for [its] Losses
resulting from . . . the return of any deposited check for any reason” and “to
deposit sufficient funds to cover the overdraft and the related overdraft/insufficient
available funds fee immediately and you agree that the overdraft and any
overdraft/insufficient available funds fee may be repaid out of any subsequent
deposit.”

Pl.’s Mot. Summ. J., Ex. F, Account Agreement ¶¶ 4, 14, 17, 34.

9

Plaintiff, based on the statements for Defendants’ account -- which it has submitted
to this Court -- has determined that the current amount owed from Defendants’
dishonored checks is $573,254.41. M-59 has presented no evidence to counter this
figure, and pled the Fifth on the issue of whether they have reimbursed Plaintiff for
its losses. Therefore, summary judgment in favor of Plaintiff in the amount of
$573,254.41 is appropriate.
C.

Violation of Mich. Comp. Laws § 600.2952 (Count II)
For the reasons discussed in § III.B, M-59 is also liable under Mich. Comp.

Laws § 600.2952,1 which provides that “a person who makes, draws, utters, or
delivers a check, draft, or order for payment of money upon a bank . . . that refuses
to honor the check, draft, or order for lack of funds . . . is liable for the amount of
the dishonored check, draft, or order, plus a processing fee, civil damages, and
costs, as provided in this section.” Plaintiff has submitted evidence -- uncontested
by M-59 -- that M-59 has drafted several significant checks which they have
refused to honor.
While Plaintiff is correct that § 600.2952(4) provides for “civil damages of 2
times the amount of the dishonored check, draft, or order or $100, whichever is
greater,” it fails to mention the limitation placed on that provision by
§ 600.2952(5), which states that:
1

Given this, the Court declines to hold Defendants liable under Plaintiff’s
alternative Negligence theory (Count IV).
10

Subsection (4) does not apply if, before the trial of an action brought
pursuant to this section, the maker pays to the payee or a designated
agent of the payee, in cash, the total of the amounts described in
subsection (3)(b), plus reasonable costs, not exceeding $250.00, as
agreed to by the parties.
The “total of the amounts” in subsection (3)(b), in turn, are “the full amount of the
dishonored check[s] . . . plus a processing fee of $35.00.” Therefore, the plain
language of the statute provides that Plaintiff is not entitled to double damages if
the full payment of the account is made “prior to trial.” Ordering double damages
at this point would be premature and deny M-59 proper notice of its potential
increased liability under this section. In other words, M-59 would have until the
beginning of trial to make its payment and avoid double liability; immediately
ordering double damages would be fundamentally unfair to Defendants. Because
granting Plaintiff’s motion disposes of this case in its entirety, equity requires
granting Defendants a grace period to make their payment in full.

And, as

referenced at the January 3, 2013 hearing, the Court would like supplemental
briefing on the availability of § 600.2952(4)’s statutorily enhanced damages in this
matter. Therefore, if Defendants fail to make their payment in full within the grace
period or if this matter is not otherwise resolved, Plaintiff may file a motion with
this Court to amend the Judgment to recover § 600.2952(4)’s statutorily enhanced
damages.

11

D.

Fraud (Count III)
To establish fraud, Plaintiff must show that (i) Defendants made a material

misrepresentation, (ii) which they knew to be false or made with reckless disregard
for its truth, (iii) with the intention that it be relied upon by Plaintiff. Further,
Plaintiff (iv) must have relied upon that statement (v) to its detriment. Disner v.
Westinghouse Electric Corp., 726 F.2d 1106, 1110 (6th Cir. 1989). Plaintiff has
established these elements. First, Plaintiff has presented evidence of the checks
signed by Defendants -- through their agent, Simon -- which constitute a
“representation.” Federman v. United States, 36 F.2d 441, 442 (7th Cir. 1929).
Second, Simon took the Fifth on the questions of whether he (i) “intend[ed]
Charter One [Bank] to believe that there were sufficient funds to cover these
checks,” (ii) whether it was his “intention to create a false balance at Charter One
Bank against which [he] could draw the next day by making deposits on . . . the
Main Street Bank account,” and (iii) whether he “engaged in this pattern for
purposes of defrauding . . . Charter One Bank.” Pl.’s Mot. Summ. J., Ex. A.
Because Simon invoked his Fifth Amendment privilege on these issues of intent -of which his statements are the best evidence -- the Court will apply the adverse
inference and find that Plaintiff has established the “knowledge” and “intent”
prongs of fraud. Further, there is no question that Plaintiff relied upon Defendants’

12

checks to its detriment. Therefore, Plaintiff is entitled to summary judgment on its
claim of fraud against all Defendants.
E.

Civil Conspiracy (Count V)
Plaintiff has presented sufficient evidence for this Court to find that all three

Defendants -- M-59, Simon, and SE Corp. -- were engaged in a conspiracy.
Conspiracy may be established by circumstantial evidence, Temborius v. Slatkin,
157 Mich. App. 587, 599 (1987), and an intra-corporate conspiracy may be found
where the conspiring agents’ conduct was outside the scope of their employment.
Mercure v. Van Buren Twp., 81 F. Supp. 2d 814, 833 (E.D. Mich. 2000).
Here, it is clear from the evidence that Simon was the conspiring agent for
both M-59 and SE Corp. Whether he made the deposits himself or the deposits
were made by agents under his authority -- he employed two bookkeepers who
were authorized to make deposits and sign checks for both M-59 and SE Corp. -the coordination of the transactions between Simon, M-59, and SE Corp. in
executing what this Court has already found to be fraudulent activity demonstrates
the all three were “jointly engaged” in defrauding Plaintiff. Further, Simon and
both of his bookkeepers invoked their Fifth Amendment privilege regarding their
role in executing the transactions relevant to Plaintiff’s harm.

Consequently,

Plaintiff is entitled to a negative inference that they were jointly engaged in this
fraudulent activity. Summary judgment in favor of Plaintiff is appropriate.

13

F.

Piercing the Corporate Veil
While the law generally treats a corporation as an entirely separate entity

from its stockholders -- even when it is entirely owned by a single individual -courts will “pierce the corporate veil” and impose liability upon a shareholder in
order to prevent fraud or injustice. Foodland Distributors v. Al-Naimi, 220 Mich.
App. 453, 456 (1996). In determining whether to pierce the corporate veil, the
Sixth Circuit has looked at factors such as (i) whether the corporation is the mere
instrumentality of another individual; (ii) whether the corporate entity was used to
commit fraud; and (iii) whether the plaintiff was unjustly harmed. Bodenhamer
Building Corp. v. Architectural Research Corp., 873 F.2d 109, 112 (6th Cir. 1989).
Evidence of improper separation includes commingling of funds between separate
entities, an individual treating the assets of a corporation as his own, and an
unauthorized diversion of corporate funds or assets for personal uses. Id.
The documentary evidence in this case -- as well as the negative
implications from Simon’s testimony -- demonstrates that the corporate veil should
be pierced in this case. The funds of M-59 and SE Corp. were consistently
commingled and improperly diverted, as transactions between them were executed
on a daily basis -- not for goods and services rendered -- but simply to help each
retain the appearance of financial solvency. Further, in accomplishing this end,
Simon would draw upon M-59’s bank account and use the funds to endorse

14

cashier’s checks to himself in his personal capacity, effectively treating the assets
of two separate legal entities “as his own” for purposes of maintaining their joint
outward appearance of solvency. Simon has presented no evidence to contradict
the facts presented by Plaintiff, and when offered a chance to explain the
transaction at his deposition, Simon invoked his Fifth Amendment privilege. From
these facts, the Court will grant Plaintiff’s request to pierce the corporate veil of
both M-59 and SE Corp., thereby allowing Defendant Simon to be held personally
liable for the actions of both corporations.
G.

Injunctive Relief for Plaintiff
Prior to this adjudication on the merits, Plaintiff moved for injunctive relief

with respect to preventing the transfer of $375,000.00 from Defendants’ attorney’s
client trust account. This Court denied Plaintiff’s motion, finding that Plaintiff had
no property interest in these funds pre-adjudication. Having now reached the
merits of the case, the Court will now revisit Plaintiff’s request for injunctive relief
in light of (1) the risk that Defendants will transfer, remove or otherwise dispose of
the funds in Defendants’ attorney’s client trust account which are otherwise
available to satisfy, at least in part, the Judgment entered by the Court against
Defendants in this action; and (2) the likelihood that Plaintiff will not be able to
collect on the Judgment against Defendants without access to the funds in
Defendant’s attorney’s client trust account. Accordingly, the Court permanently

15

enjoins Defendants, their counsel, officers, servants, employees, representatives, or
agents from transferring, removing, or otherwise disposing of the $375,000.00 in
Defendants’ attorney’s client trust account unless for the purpose of satisfying
Judgment in this matter.
IV. CONCLUSION
For all of the foregoing reasons,
IT IS HEREBY ORDERED that Plaintiff’s Request for Summary Judgment
is GRANTED.
IT IS FURTHER ORDERED that Defendants M-59 TELEGRAPH
PETROLEUM LLC, SE CORPORATION OF MICHIGAN, and FAWZI SIMON,
as co-conspirators, are JOINTLY AND SEVERALLY LIABLE for Plaintiff’s
damages;
IT IS FURTHER ORDERED that the corporate veil for M-59 TELEGRAPH
PETROLEUM LLC is pierced, and that Defendant Fawzi Simon is personally
liable for Plaintiff’s damages.
IT

IS

FURTHER

ORDERED

that

the

corporate

veil

for

SE

CORPORATION OF MICHIGAN is pierced, and that Defendant Fawzi Simon is
personally liable for Plaintiff’s damages.

16

IT IS FURTHER ORDERED that, within thirty (30) days, Defendants shall
compensate Plaintiff for its damages in the amount of $573,254.41, plus reasonable
attorney fees.
IT IS FURTHER ORDERED that, if Defendants fail to compensate Plaintiff
within thirty (30) days from the issuance of this order or if this matter is not
otherwise resolved, Plaintiff may file a motion with this Court to amend the
Judgment to recover MCL § 600.2952(4)’s statutorily enhanced damages.
IT IS FURTHER ORDERED that in light of (1) the risk that Defendants will
transfer, remove or otherwise dispose of the funds in Defendants’ attorney’s client
trust account which are otherwise available to satisfy, at least in part, the Judgment
entered by the Court against Defendants in this action; and (2) the likelihood that
Plaintiff will not be able to collect on the Judgment against Defendants without
access to the funds in Defendant’s attorney’s client trust account, Defendants, their
counsel, officers, servants, employees, representatives, or agents are permanently
enjoined from transferring, removing, or otherwise disposing of the $375,000.00 in
Defendants’ attorney’s client trust account unless for the purpose of satisfying
Judgment in this matter.
IT IS FURTHER ORDERED that Plaintiff’s Motion for Default Judgment
[Dkt. # 14] is DISMISSED as MOOT.

17

IT IS FURTHER ORDERED that Plaintiff’s Motion to Compel Discovery
[Dkt. # 19] is DISMISSED as MOOT.
IT IS SO ORDERED.

Dated: August 21, 2013

s/Gerald E. Rosen
GERALD E. ROSEN
CHIEF, U.S. DISTRICT COURT

I hereby certify that a copy of the foregoing document was mailed to the attorneys
of record on this date, August 21, 2013, by electronic and/or ordinary mail.
s/Julie Owens
Case Manager, 313-234-5135

18