Zervos, Inc. v. Johnson et al

Filing 61

ORDER denying 34 Motion for Summary Judgment; granting in part and denying in part 44 Motion for Summary Judgment. Signed by District Judge Arthur J. Tarnow. (MLan)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Zervos, Inc.
Plaintiff,

Case No.12-13121
SENIOR UNITED STATES DISTRICT JUDGE
ARTHUR J. TARNOW

v.
Darius Xavier Johnson, et al.,

MAGISTRATE JUDGE R. STEVEN WHALEN
Defendants.
/
ORDER
I. Introduction
Before the Court are Plaintiff Zervos, Inc.’s Motion for Summary Judgment
[34], and Defendants Darius Xavier Johnson and Darius X Johnson, P.C.’s Motion for
Summary Judgment [44].
For the reasons stated below, Plaintiff’s Motion for Summary Judgment [34]
is DENIED and Defendants Darius Xavier Johnson and Darius X Johnson, P.C.’s
Motion for Summary Judgment [44] as to all claims other than Plaintiff’s claims of
Breach of Agreement. Defendants’ Motion [44] GRANTED as to this claim.

II. Procedural Background
Plaintiff Zervos Inc. d/b/a Montho Premium Finance, filed its Motion for
Summary Judgment [34] on February 6, 2013. Defendants AF Global Revest

Indemnity Trust, AF Global Revest Series 1, LLC, Diamond Indemnity Corporation,
and Diamond Indemnity Trust filed its Response [35] on February 27, 2013. On the
same day, Defendants Darius Xavier Johnson and Darius X Johnson, P.C. filed its
Response [36], and Defendant Polec Lawrence C. Polec d/b/a The Surety Suite, filed
its Response [37]. Plaintiff filed a Reply [39] on March 12, 2013, and a Supplemental
Brief [40] on March 15, 2013.
Defendants Darius Xavier Johnson and Darius X Johnson, P.C. filed its Motion
for Summary Judgment [44] on April 26, 2013. Plaintiff filed its Response [47] on
May 15, 2013.
This Court held a hearing on these motions on June 13, 2013. On June 14, 2013,
this Court entered an Order [51] holding these motions in abeyance. On July 3, 2013,
Defendants Darius X Johnson, P.C. and Darius Xavier Johnson filed a Third Party
Complaint [52] against an added third-party, Melde Rutledge. On July 30, 2013,
Plaintiff Zervos, Inc. filed an Amended Complaint [55].
III. Factual Background
Plaintiff alleges that Defendant Polec, acting as a representative of Dumas
Concepts and Building, Inc., approached Plaintiff with the following proposal: Dumas
is a construction company which was awarded a contract with Detroit Public Schools
(DPS); Polec was able to obtain the requested bonds for this construction project, and
that these bonds would be procured from Defendants Johnson and Diamond and/or
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AF Global Entities; however, Dumas was unable to fund the bond premium of
$216,329.
Plaintiff alleges that Polec then offered Plaintiff the opportunity to provide
Defendants this premium. Plaintiff further alleges that as part of the agreement, if the
bonds were rejected, Plaintiff would be refunded the premium paid. In compliance
with this alleged agreement, Plaintiff paid $216,329 in premiums to an account
allegedly controlled by Defendants. All parties except Defendant Polec agree that DPS
later rejected the bonds. At that time, Plaintiff demanded a refund of the premiums,
pursuant to the initial agreement. Following these demands, the parties agree that
Defendants AF Global Revest Indemnity Trust, AF Global Revest Series 1, LLC,
Diamond Indemnity Corporation, and Diamond Indemnity Trust have given Plaintiff
$55,000.
IV. Analysis
A. Standard of Review
A motion for summary judgment is granted under Fed. R. Civ. P. 56(c) when
there is no genuine issue as to any material fact, and the moving party is entitled to
judgment as a matter of law. Summary judgment is also proper where the moving
party shows that the non-moving party is unable to meet its burden of proof. Celotex
Corp. v. Catrett, 477 U.S. 317, 326 (1987). Facts and inferences must be viewed in
the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v.
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Zenith Radio Corp., 475 U.S. 574 (1986). However, the non-moving party must
present “specific facts showing that there is a genuine issue for trial” that demonstrate
that there is more than “some metaphysical doubt as to the material facts.” Moore v.
Philip Morris Cos., Inc., 8 F.3d 335, 339-40 (6th Cir. 1993) (internal citations
omitted).
B. Plaintiff Zervos, Inc.’s Motion for Summary Judgment [34]
Plaintiff’s Complaint [1] makes claims of conversion of funds, unjust
enrichment, fraud, conspiracy, and breach of agreement. However, Plaintiff’s Motion
[34] is based only on its claim of unjust enrichment/quasi contract.
“A contract implied-in-law is ‘imposed by fiction of law, to enable justice to
be accomplished, even in case no contract was intended.’” Daimler-Chrysler Servs.
N. Am., LLC v. Summit Nat'l, Inc., 289 Fed. Appx. 916, 925 (6th Cir. 2008)(quoting
Cascadeh v. Magryta, 247 Mich. 267, 225 N.W. 511, 512 (Mich. 1929)). “A contract
may be implied in law where there is a receipt of a benefit by a defendant from a
plaintiff and retention of the benefit is inequitable, absent reasonable compensation.”
Daimler-Chrysler, 289 Fed. Appx. at 925 (quoting Matter of Estate of Lewis, 168
Mich. App. 70, 423 N.W.2d 600, 603 (Mich. Ct. App. 1988)). “Thus, under Michigan
law, part of the rationale for implying a contract-in-law--whether it is called unjust
enrichment or quantum meruit--is to prevent unjust enrichment.” Daimler-Chrysler,
289 Fed. Appx. at 925.
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“Even where a person has received a benefit from another, he is liable to pay
therefor only if the circumstances of its receipt or retention are such that, as between
the two persons, it is unjust for him to retain it.” Daimler-Chrysler, 289 Fed. Appx.
at 925 (internal quotation marks and citations omitted). “The Michigan Supreme Court
has emphasized that implying a contract-in-law to prevent unjust enrichment should
be approached with some caution.” Id. (citation and quotation marks omitted).
Under Michigan law, a plaintiff must establish the following to sustain a claim
of unjust enrichment: “(1) the receipt of a benefit by defendant from plaintiff, and (2)
an inequity resulting to plaintiff because of the retention of the benefit by defendant.”
Oak St. Funding, LLC v. Ingram, 2013 U.S. App. LEXIS 692, at *15-16 (6th Cir.
2013)(internal quotation marks and citations omitted). However, “[t]here is no claim
for unjust enrichment when there exists a valid contract covering the same subject
matter. Iverson Indus. v. Metal Mgmt. Ohio, Inc., 525 F. Supp. 2d 911, 922 (E.D.
Mich. 2007).
In arguing that there is no genuine issue of fact as to its claims of unjust
enrichment, Plaintiff provides relevant invoices and bank records to show a series of
fund transfers. Plaintiff first provides a “Bond Invoice” allegedly provided by
Defendant Polec to Plaintiff. Plaintiff argues that Defendant Polec was acting as an
agent for the other Defendants in this matter. The invoice instructs Plaintiff to send

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the bond premium amount to “Guardian One Capital Corporation1 c/o Diamond
Indemnity Trust 2010-1.” Plaintiff now claims that Defendant Guardian One Capital
Corporation was a defunct entity at the time of the transfer, based upon an affidavit
from the Secretary of State of Delaware stating that Guardian One Capital became
inoperative on March 1, 2009.
Plaintiff then provides its own bank records that shows a transfer of $216,329
to the Guardian One Capital Corporation c/o Diamond Indemnity Trust 2010-1 bank
account on September 7, 2010. Next, Plaintiff points to the bank records of Guardian
One Capital, which shows the receipt of these funds on September 7, 2010. On the
same date, $199,000 was transferred from the Guardian One Capital to “Darius X
Johnson PC.” One September 8, 2013, another $10,000 was transferred to Johnson,
for a total of $209,000.
Following the course of these transfers, Plaintiff provides the bank account
records of “Darius X Johnson Legal Counseling PC” that confirms the receipt of a
total of $209,000 on September 7 and September 8, 2010. This account also shows a
September 14, 2010 transfer to Defendant Polec in the amount of $21,632.50.
Plaintiff argues that these transfers, from Plaintiff to Guardian One Capital
Corporation c/o Diamond Indemnity Trust 2010-1, to Darius X Johnson PC, and from

1

On February 4, 2013, the Clerk made an Entry of Default Judgment [34] as
to Defendant Guardian One Capital Corporation.
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Darius X Johnson Legal Counseling PC to Defendant Polec, clearly show the receipt
of a benefit by Defendants to Plaintiff. Again, Plaintiff argues that an inequity resulted
when the bonds were rejected and the premiums were not refunded by the Defendants.
i. Defendants AF Global Revest Indemnity Trust, AF Global Revest Series
1, LLC, Diamond Indemnity Corporation, and Diamond Indemnity Trust
Defendants AF Global Revest Indemnity Trust, AF Global Revest Series 1,
LLC, Diamond Indemnity Corporation, and Diamond Indemnity Trust argue that
Plaintiff has failed to meet its burden for summary judgment as to these entities as to
the claim of unjust enrichment. Defendants acknowledge that Defendant Diamond
Indemnity Trust provided a bond to non-party Dumas, and that this bond was
supported by the assets of Defendant AF Global Revest Indemnity Trust. However,
Defendants argue that Plaintiff’s agreement as to the bond premium was with Dumas,
as memorialized in the security agreement, which was covers the same subject matter
as Plaintiff’s claims now asserted against Defendants. Defendants assert that this
written contract voids Plaintiff’s claims of unjust enrichment. However, the precedent
cited by Defendants in support of this proposition specifically holds that a plaintiff can
“alternatively assert a contract claim against one defendant with whom an express
contract exists and a quantum meruit claim against a different defendant with whom
no express contract exists.” Morris Pumps v. Centerline Piping, Inc., 273 Mich. App
187, 199-200 (Mich. Ct. App. 2006) (emphasis in original). Therefore, any privity of

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contract that may exist between Plaintiff and other entities does not necessarily void
Plaintiff’s claim as to these Defendants.
Defendants add that Plaintiff is merely a third-party beneficiary to the
agreement between Plaintiff and Dumas, and therefore cannot be liable to Plaintiff.
Defendants again cite Morris Pumps to support this position, which states that a “third
party is not unjustly enriched when it receives a benefit from a contract between two
other parties, where the party benefited has not requested the benefit or misled the
other parties.” Morris Pumps, 273 Mich. App. at 196 (citations omitted). However,
Plaintiff’s argument is in fact that Defendants were involved in the bond arrangement
and misled the parties in order to secure an inequitable benefit.
Because a genuine issue of fact remains as to the role of Defendants AF Global
Revest Indemnity Trust, AF Global Revest Series 1, LLC, Diamond Indemnity
Corporation, and Diamond Indemnity Trust in the series of transaction described by
Plaintiff, Plaintiff’s Motion for Summary Judgment [34] as to these Defendants is
DENIED.
ii. Defendants Darius Xavier Johnson and Darius X Johnson, P.C.
First, Defendants Johnson and Johnson, P.C. assert that the bank account
Plaintiff has now attached to these Defendants was held by Defendants as part of his
duties as in-house counsel for third-party Defendant Melde Ruthledge, and that
Ruthledge directed the in and out-going funds. Defendants here further assert that it
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did not prepare, sign, or send the documents sent from Defendants Diamond entities
to DPS, and was not involved in the bonds issued to Dumas.
Defendants asserts that Guardian One Capital is owned by or associated with
Melde Ruthledge, who allegedly hired Defendant Johnson as in-house counsel for
Defendant Diamond and Defendant AF Global entities. In contrast, Plaintiff alleges
that Defendant Johnson had control over and/or created the Diamond and AF Global
entities.
Next, Defendants Johnson and Johnson, P.C. argue that Plaintiff can only show
that it sent funds to the Guardian One Capital Corporation c/o Diamond Indemnity
Trust. While Plaintiff shows that money was transferred from that account to
Defendant Johnson’s, Defendants argue that Plaintiff cannot show that Defendants
benefitted from Plaintiff’s transfer of funds. Defendants add that even if this transfer
is viewed as a benefit from Plaintiff to the account, that it cannot be seen as a benefit
to Defendant Johnson personally because the account was for and controlled by
Ruthledge. Similarly, Defendants Johnson and Johnson, P.C. argue that it cannot be
liable to Plaintiff because an agent cannot be liable when it has disclosed the
principle–Defendants as the agent and Defendants Diamond and AF Global entities
as the principals. Defendants Johnson and Johnson, P.C. also make the same argument
as to Plaintiff’s contract with Dumas as Defendants Defendants AF Global Revest
Indemnity Trust, AF Global Revest Series 1, LLC, Diamond Indemnity Corporation,
and Diamond Indemnity Trust.
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Because there remains an issue of fact as to whether Defendants Johnson and
Johnson, P.C. had control over the accounts as issue here, and as to whether
Defendants Johnson and Johnson, P.C. benefitted from Plaintiff’s transfer of funds,
Plaintiff’s Motion for Summary Judgment [34] is DENIED
iii. Defendant Lawrence Polec
Defendant Polec asserts that Plaintiff has failed to show all elements of a claim
of unjust enrichment. Defendant Polec argues that it never represented to Plaintiff, or
any of its representatives, that the bond premium paid to Dumas would be refunded
if DPS rejected Dumas’ bonds, which were acquired from Defendants Diamond
entities. Defendant Polec, like all other Defendants, asserts that Plaintiff made an
agreement with Dumas that voids Plaintiff’s claim of unjust enrichment.
There remains genuine questions of fact as to whether Defendant Polec derived
a benefit from Plaintiff, whether Defendant Polec made statements to Plaintiff that the
premiums would be refunded if or when the bonds were rejected, and whether
Defendant Polec was acting as a representative of any other entity in making the
alleged agreement. Therefore, Plaintiff’s Motion for Summary Judgment [34] is
DENIED as to Defendant Polec.
C. Defendants Darius Xavier Johnson and Darius X Johnson, P.C.’s Motion for
Summary Judgment [44]
Defendants Darius Xavier Johnson and Darius X Johnson, P.C.’s Motion for
Summary Judgment [44] addresses all other claims made in Plaintiff’s Complaint [1].
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Again, these claims include conversion of funds, fraud/misrepresentation, conspiracy,
and breach of agreement. Defendants also argue that Plaintiff lacks standing to bring
the instant action.
i. Standing
Plaintiff in this case is identified as Zervos, Inc. d/b/a Monthco Premium
Finance. Defendants asserts that Zervos Group and Monthco are registered as two
separate entities in the state of Michigan, and that it was Zervos Group that transferred
the bond premium funds to the account at issue. Defendants further attest that the
Plaintiff listed in this case is not Zervos Group, but Monthco. Defendants claims that
Monthco has not been injured, and therefore does not have standing in this case. On
July 30, 2013, Plaintiff filed an Amended Complaint [55], which states that Zervos,
Inc. and Zervos Group, Inc. will be collectively known as Plaintiff. This amendment
or clarification resolves the issue of standing.
ii. Conversion of Funds
Under Michigan law, the common-law tort of conversion is defined as “any
distinct act of domain wrongfully exerted over another's personal property in denial
of or inconsistent with the rights therein.” AFSCME v. Bank One, 705 N.W.2d 355,
364 (Mich. Ct. App. 2005). “An action for common-law conversion of money cannot
be maintained unless there was an obligation on the defendant's part to return specific

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money entrusted to him.” Martell v. Turcheck, 2008 U.S. Dist. LEXIS 51966, at
*28-29 (E.D. Mich. July 7, 2008).
Defendants Darius Xavier Johnson and Darius X Johnson, P.C. attempt to argue
that because it had no knowledge of Plaintiff’s transfer of funds, Defendants could not
have procured the money wrongfully and is also under no obligation to return the
money to Plaintiff. As addressed above, there remain genuine questions of fact as to
Defendants’ role in the transaction, including the creation of an agreement, transfer
of funds, and benefit derived from the transfer. See supra at 9-11.
Therefore, Defendants’ Motion for Summary Judgment [44] as to the claim of
common law conversion is DENIED.
iii. Fraud/Misrepresentation
Under applicable Michigan law, fraud or misrepresentation requires:
(1) the defendant made a material representation, (2) the representation
was false, (3) when making the representation, the defendant knew or
should have known it was false, (4) the defendant made the
representation with the intention that the plaintiff would act upon it, and
(5) the plaintiff acted upon it and suffered damages as a result.
Novak v. Nationwide Mut. Ins. Co., 235 Mich. App. 675, 688 (Mich. Ct. App. 1999).
Again, there are issues of fact as to Defendants involvement in the alleged agreements
and transactions at issue, including whether Defendants Darius Xavier Johnson and
Darius X Johnson, P.C. acted with Defendant Polec and whether Defendants
benefitted from Plaintiff’s transfer of funds. Therefore, Defendants’ Motion for
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Summary Judgment [44] is DENIED as to the claim of fraud and misrepresentation.
iv. Conspiracy
Under Michigan law, civil conspiracy is the “combination of two or more
persons, by some concerted action, to accomplish a criminal or unlawful purpose, or
to accomplish a lawful purpose by criminal or unlawful means.” Admiral Ins. Co. v.
Columbia Casualty Ins. Co., 194 Mich. App. 300, 313 (Mich. Ct. App. 1992).
Plaintiff’s claim of conspiracy rests on much the same facts as the claim of
fraud or misrepresentation–that Defendants acted in concert to wrongfully retain
Plaintiff’s funds. Because of the genuine issues of fact relating to the relationship
between the Defendants as well as to the Defendants’ roles in creating the agreement,
Defendants Darius Xavier Johnson and Darius X Johnson, P.C.’s Motion for
Summary Judgment [44] is DENIED as to Plaintiff’s state law claim of conspiracy.
v. Breach of Agreement
The elements for a breach of contract claim are: (1) a contract between the
parties, (2) the terms of the contract require performance of a certain action, (3) a
breach, and (4) the breach caused injury to the other party. Webster v. Edward D.
Jones & Co., 197 F.3d 815, 819 (6th Cir. 1999).
In its Motion for Summary Judgment [44] Defendants Johnson and Johnson,
P.C. assert that Plaintiff’s claim here fails because there was no contract between these
parties. Though not required, Plaintiff has not presented an express written contract
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between Plaintiff and Defendants Johnson and Johnson, P.C. Moreover, Plaintiff’s
Response [47] does not provide a defense of this claim or a response to Defendants’
argument.
Therefore, Defendants’ Motion [44] is GRANTED as to Plaintiff’s claim of
breach of contract.
vi. Unjust Enrichment
Plaintiff’s claim of unjust enrichment is addressed by the Court in detail above.
See supra at 4-12. For the reasons stated there, Defendants’ Motion for Summary
Judgment [44] as to the claim of unjust enrichment is DENIED.
v. Exemplar Damages
Defendants refute Plaintiff’s request for exemplar damages, and then argue that
Defendant Johnson is in fact due such damages from Plaintiff, because of the
erroneous claims made against Defendants by Plaintiff. Because all claims made by
Plaintiff against Defendants have not been resolved in this Order, resolution of
Plaintiff’s claim for exemplar damages is not yet needed. Therefore, Defendants
Darius Xavier Johnson and Darius X Johnson, P.C.’s Motion for Summary Judgment
[44] is DENIED as to the claim of exemplar damages.
vi. Unclean Hands
Defendants argue that Plaintiff has unclean hands because it first required
Defendant Polec to show that DPS would accept the bonds, but then did not receive
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such confirmation prior to providing the premium. Defendants’ argument is based on
allegations made by Defendant Polec. Therefore, there remains an issue of fact as to
Defendants’ claim of unclean hands and its Motion for Summary Judgment [44] is
DENIED on the claim.
V. Conclusion
For the reasons stated above, Plaintiff’s Motion for Summary Judgment [34]
is DENIED and Defendants Darius Xavier Johnson and Darius X Johnson, P.C.’s
Motion for Summary Judgment [44] as to all claims other than Plaintiff’s claims of
Breach of Agreement. Defendants’ Motion [44] GRANTED as to this claim.
Therefore,
IT IS HEREBY ORDERED that Plaintiff’s Motion for Summary Judgment
[34] is DENIED.
IT IS FURTHER ORDERED that Defendants Darius Xavier Johnson and
Darius X Johnson, P.C.’s Motion for Summary Judgment [44] is DENIED as to all
claims other than the claim of Breach of Agreement.
SO ORDERED.

DATED: September 11, 2013

s/Arthur J. Tarnow
ARTHUR J. TARNOW
SENIOR U.S. DISTRICT JUDGE

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