Michaelian v. Lawsuit Financial, Inc. et al

Filing 79

ORDER DENYING 67 Plaintiffs' Motion to Strike and 68 , 76 Cross Motions for Reconsideration. Signed by District Judge Terrence G. Berg. (AChu)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JUDITH MICHAELIAN,

2:17-CV-13321-TGB

Plaintiff,
ORDER
vs.
LAWSUIT FINANCIAL, INC.,
MARK M. BELLO,
Defendants.
ORDER DENYING PLAINTIFFS’ MOTION TO STRIKE
(ECF No. 67) AND CROSS-MOTIONS
FOR RECONSIDERATION (ECF Nos. 68, 76)
I.

Introduction

The facts of this case were set out in laborious detail in the Court’s
previous Order issued on March 20, 2019 addressing the parties’
summary judgment motions. ECF No. 73. To the extent they are relevant,
those facts are adopted here. For now, it is enough to recap that Plaintiff
Judith Michaelian sued Defendants Lawsuit Financial, Inc. and its
owner Mark Bello because her deceased husband had invested hundreds
of thousands of dollars with Bello and his company, and Mrs. Michaelian
wanted the money back.

Earlier in the litigation, Plaintiff twice requested the Court to appoint
a receiver to take over the assets of the defendant company, first on April
3, 2018, and again on August 6, 2018. ECF Nos. 27, 50. The Court found
the record before it insufficient to determine whether appointing a
receiver would be appropriate. For that reason, on October 30, 2018, the
Court appointed a special master/examiner to conduct a forensic
accounting of Defendant Lawsuit Financial’s finances and report on
whether it had the capacity to pay Plaintiff back. ECF No. 62. On
December 21, 2018, the Court filed the special master/examiner’s report
under seal and directed the parties to file any objections to unsealing the
report within fourteen days. ECF No. 65. Receiving no objections, on
January 10, 2019 the Court unsealed the report and denied Plaintiffs’
Motion to Appoint a Receiver. ECF No. 66. Plaintiff now moves to strike
the report of the special master/examiner, ECF No. 67, and further to
reconsider the Court’s order denying appointment of a receiver, ECF No.
68. For the reasons set forth below, it is ORDERED that both motions
are DENIED.
Also before the Court is Defendants’ motion asking for partial
reconsideration of the Court’s March 20, 2019 summary judgment Order
on the ground that the Court failed to consider Defendant’s affirmative
defense that Count X of Plaintiffs’ Complaint was brought outside the
one-year statute of limitations for sale of an unregistered security. ECF
No. 76. Defendant’s Motion is also DENIED.

II.

Legal Standards

Plaintiffs cite no legal standard that the Court should apply in
considering their Motion to Strike. Instead, Plaintiffs raise several
arguments related to the veracity of the report itself: (1) the report relies
on flawed or false data; (2) the report is incomplete; and therefore (3) the
report is not useful to the Court. Rather than filing these objections
during the fourteen-day period the Court established to consider such
arguments before adding the report to the public record, or during the
twenty-one-day period for objections to such reports set forth in Fed. R.
Civ. P. 53(f)(2), Plaintiffs did not interpose their objections until after the
Court had considered the report in making its decision not to appoint a
receiver. In any event, Plaintiffs’ tardy objections do not warrant striking
the report of the special master/examiner. Fed. R. Civ. P. 53(f)(3)
indicates that “[t]he court must decide de novo all objections to findings
of fact made or recommended by a master.”
With respect to the Cross-Motions for Reconsideration, the Court may
grant a motion for reconsideration if the movant satisfactorily shows: (1)
the existence of a palpable defect that misled the parties and the Court;
and (2) the correction of such defect would result in a different disposition
of the case. E.D. Mich. L.R. 7.1(h)(3). A defect is palpable if it is “obvious,
clear, unmistakable, manifest, or plain.” Olson v. Home Depot, 321 F.
Supp. 2d 872, 874 (E.D. Mich. 2004).

III. Analysis
a. Plaintiffs’ Motion to Strike the Report of the Special
Master/Examiner
On October 15, 2018, the Court heard oral argument on Plaintiff’s
Second Motion to Appoint a Receiver. At the hearing, the Court indicated
that the pleadings and exhibits pertaining to the request to appoint a
receiver raised sufficient questions about Lawsuit Financial’s solvency to
justify the appointment of a special master/examiner to investigate the
financial condition of Defendant Lawsuit Financial, Inc. The Court
directed parties to submit a proposed stipulated order that specified the
duties of the special master/examiner. The parties submitted this
proposed stipulated order on October 19, 2018. The stipulation indicated
that the special master/examiner should investigate the following:
 The current financial health and stability of LFC, including an
assessment of its assets and short and long-term debt
obligations, and its long-term sustainability and viability, both
assuming LFC receives no additional capital and assuming that
LFC receives capital injections at various levels during the next
12-24 months;
 The ability of LFC to fund the payment of a settlement or
judgment in the amount of approximately $800,000 (less the
$266,000 LFC has escrowed or repaid to date), with monthly
payments over a 24-36 month time frame, while continuing to
operate under its current business model of funding cases; and,
 A determination of the largest regular monthly payment that
LFC could consistently make while still continuing operations.

In addition, the Order required Defendants to “promptly comply with
any and all requests for documents and records” by the special
master/examiner and permitted the special master/examiner to contact
the attorneys and parties to the case. ECF No. 62, PageID.6097. The
Order included the name and address of the special master/examiner.
In appointing the special master/examiner, the Court acted pursuant
to Fed. R. Civ. P. 53(a)(1)(A) and (C), which authorizes the appointment
of a special master to “perform duties consented to by the parties,” or
“address pretrial and posttrial matters that cannot be effectively and
timely addressed by an available district judge or magistrate judge of the
district.” In addition, the Court has inherent power to appoint “persons
unconnected with the court to aid judges in the performance of specific
judicial duties, as they may arise in the progress of a cause.” In re
Peterson, 253 U.S. 300, 312 (1920)1; cf. Curtis v. Brunsting, No. 4:12-CV592, 2013 WL 12100751 (S.D. Tex. Apr. 19, 2013) (appointing an
accountant to investigate financial records of a trust); cf. Festival Fun
Parks, LLC v. Mountain Creek Resort, Inc., No. 12-410 (FSH), 2015 WL
758467 (D.N.J. Feb. 23, 2015) (entertaining the defendant’s Motion for
Instructions to Accountant after the court appointed an accountant
agreed upon by the parties).

In re Peterson predates the adoption of the Federal Rules of Civil Procedure, but the
following district court cases postdate it, suggesting that the Court’s inherent power
in this arena coexists with its codified, Rules-based power.
1

The special master completed the report on Defendant’s solvency and
submitted it to the Court. On December 21, 2018, the Court issued an
Order filing the special master/examiner’s report under seal and
directing the parties to show cause within fourteen days why the report
should not be unsealed. ECF No. 65 PageID.6291. Neither party
submitted objections within fourteen days. In addition, Fed. R. Civ. P.
53(f)(2) provides that “[a] party may file objections to—or a motion to
adopt or modify—the master’s order, report, or recommendations no later
than 21 days after a copy is served, unless the court sets a different time.”
Neither party objected to the report within twenty-one days of being
served with it.
Nonetheless, Plaintiffs’ Reply brought to the Court’s attention that the
procedure set forth for objecting to the special master/examiner’s report
was unclear because it only referenced objections to unsealing the report.
Therefore, while Plaintiffs did not timely submit objections to the Court’s
adoption of the special master/examiner’s report under Rule 53(f)(2), the
Court will construe Plaintiffs’ Motion to Strike as a pleading that also
timely states objections to the Court’s reliance on the report. The Court
has carefully reviewed Plaintiffs’ arguments and, for the reasons set forth
below, the Court DENIES Plaintiffs’ Motion to Strike, OVERRULES
Plaintiffs’ objections to adoption of the report of the special
master/examiner, and ADOPTS the December 21, 2018 Report of the

Special Master/Examiner for the limited purpose of deciding Plaintiffs’
Motion to Appoint Receiver.
Plaintiffs raise two objections to the report of the special
master/examiner: (1) the report is biased because the special
master/examiner did not contact plaintiffs’ counsel and relied only on
data generated by Defendant Bello; and (2) the Court asked the special
master/examiner to investigate the largest monthly payment Defendant
LFC could pay while continuing operations, but the special master did
not do so. The Court overrules these objections because the special
master fulfilled the assigned duties as set forth in the Court’s order of
appointment.
Plaintiffs’ first objection does not warrant rejecting the special
master’s report. The Court’s Order appointing the special master listed
his name and contact information and authorized contact between the
parties and the special master. Plaintiff and her counsel were free to
reach out to the special master at any time, either to offer information
and records of its own, or to express concerns about the data Defendant
Bello provided. In addition, the special master was fully aware of the
circumstances leading to his appointment, which involved conflicting
accounts of the veracity of Defendants’ financial records, and the Court’s
expressed need to have a trustworthy accounting of Defendants’ financial
condition. He had access to the briefs each party filed on the Motion to

Appoint a Receiver, as well as to the entire public docket of filings in this
case.
The Order appointing the special master did not require the special
master to contact Plaintiff, it merely permitted him to do so. Nothing
prohibited Plaintiff from taking the initiative and communicating her
specific concerns about records generated by the Defendants. And beyond
that, the specific factual contentions in the Motion to Strike reveal the
proof problems Plaintiffs face when attempting to satisfy their burden in
a Motion to Appoint a Receiver. Defendant Bello is the manager and
recordkeeper for Defendant Lawsuit Financial. It follows that Bello
would provide Lawsuit Financial’s business records to the special master
as the primary resource for anyone examining the financial health of
Lawsuit Financial. And even if Bello had poor recordkeeping practices,
that shortcoming on its own does not entitle a party suing a corporation
to a receiver during the litigation.
The language of the order stipulating the special master/examiner’s
duties also easily disposes of several other objections of Plaintiffs. The
stipulation asks the special master to consider an obligation to Plaintiffs
in the amount of $800,000. Plaintiffs now object that the special master
considered a repayment amount of $800,000, rather than that amount
plus the interest to which Plaintiffs are entitled. But Plaintiffs’ objection
that the report does not state that Defendants actually owe $1,118,580 is
without merit because the parties expressly agreed that the special

master should assume Defendants owed Plaintiffs $800,000. Similarly,
Plaintiffs stipulated to have the special master consider the amount
Defendants could pay over a period of 24-36 months. Plaintiffs’ objection
that they never assented to take payment over time is irrelevant; the
stipulation to which they agreed set out a possible time-frame for
repayment to delimit the boundaries of the special master’s inquiry—it
did not suggest that Plaintiffs had agreed to accept payment over that
period. The special master/examiner simply followed instructions set
forth in the stipulation.
Plaintiffs’ second objection is that the special master stated that he
could not conclude with any certainty the maximum amount of money
Defendants could pay Plaintiffs. As noted above, this is an area of inquiry
that the Court directed the special master to investigate pursuant to the
parties’ stipulation. Although Plaintiffs say that the “Special Examiner
explicitly declined to investigate this point,” ECF No. 67 PageID.6334,
this is incorrect. The special master investigated this question but
concluded that he could not state with any accuracy the maximum
amount Defendants could pay per month because Defendants’ cash flow
is irregular. This conclusion is sufficient to fulfill the special master’s
duty.
Finding Plaintiffs’ objections to the report of the special master
unpersuasive, the Court declines to strike the report. Plaintiffs’ Motion
to Strike (ECF No. 67) is DENIED.

b. Plaintiffs’ Motion to Reconsider Order Denying Appointment
of a Receiver
On January 10, 2019, the Court unsealed the report of the special
master/examiner concluding that Defendant Lawsuit Financial was
solvent. Relying in part on the report, the Court denied Plaintiff’s Motion
to Appoint a Receiver. ECF No. 66. While the report of the special
master/examiner was not the only material of record upon which the
Court relied, the report’s conclusion regarding Lawsuit Financial’s
solvency did provide an additional basis for denying Plaintiffs’ motion.
The Court has already explained its reasons for denying Plaintiffs’
Motion to Strike the Report of the Special Master/Examiner and
overruling the objections its adoption. The Court briefly notes that
reliance on the report did not constitute a palpable defect for the reasons
stated above. In addition, the report was not the sole piece of evidence
the Court reviewed in denying Plaintiffs’ Motion to Appoint a Receiver.
The Court also explicitly considered Defendants’ ability to escrow a
significant amount of money pending the completion of the litigation. And
Plaintiffs’ proof problems, discussed in the subsection above, also
weighed against appointing a receiver to take control of Lawsuit
Financial. While meticulous recordkeeping would have been helpful in
this case, its absence does not entitle Plaintiffs to a receiver.

c. Defendants’ Motion to Reconsider Order Granting Summary
Judgment to Plaintiff on Count X
In support of their Motion for Reconsideration of the Court’s grant of
summary judgment to Plaintiff on Count X, Defendants point to footnote
17 of their Response. In this footnote, Defendants argue that Plaintiffs’
claim in Count X, which alleges sale of an unregistered security, falls
outside the statute of limitations prescribed in the Securities Act of 1933,
15 U.S.C. § 77m.2 Although the Court previously rejected this argument
in ruling from the bench on Plaintiffs’ Motion to File First Amended
Complaint, see October 15, 2018 Docket Entry, the Court will address
Defendants’ argument again here.
On October 15, 2018, the Court heard oral argument on Plaintiff’s
Motion to File First Amended Complaint. Defendant opposed the motion
on the ground that amendment would be futile as to the securities
violation claims (including Count X), because the claims of the party
Plaintiff was seeking to add—the Estate of Marshall Michaelian—fell
outside the statute of limitations. After the hearing, the Court ruled from
the bench, granting Plaintiff’s Motion to File Amended Complaint. The
Court found that amendment would not be futile as to Count X because
the addition of the new party related back to the date of initial filing of
the Complaint. To make this finding, the Court relied on Asher v. Unarco,
The Sixth Circuit has opined that “dropping a footnote in response to [a summary
judgment] motion” is “the summary judgment equivalent of ‘hid[ing] elephants in
mouseholes.’” Sumpter v. Wayne County, 868 F.3d 473, 489 (6th Cir. 2017) (quoting
Whitman v. Am. Trucking Assns., Inc., 531 U.S. 457, 468 (2001)).
2

596 F.3d 313, 319 (6th Cir. 2010), which states that when plaintiffs “seek
to correct a misnomer or misdescription of a proper party plaintiff already
in court,” or “change the capacity in which they sue[]; or to substitute or
add as plaintiffs the real party in interest,” the addition of the new
plaintiff will usually relate back to the date of initial filing. (quoting Hill
v. Shelander, 924 F.2d 1370, 1376 (7th Cir. 1991)).
Defendants argue again, as they have several times, that because
Plaintiff Judith Michaelian believes that she is the real party in interest,
her attempt to add the Estate as a plaintiff does not fall under the Asher
rule. But this ignores the fact that Defendants themselves, from the
beginning of this litigation, have maintained that the Estate is the real
party in interest. Defendants cannot have it both ways. For these
reasons, the addition of the Estate of Marshall Michaelian as a plaintiff
in this litigation plainly relates back to the date of initial filing of the
Complaint.
Under these circumstances, Defendants have not shown that the
Court’s omission of any discussion of footnote 17 from its Order of March
20, 2019 was a palpable defect. Plaintiff filed her Complaint on October
10, 2017. Defendants sold unregistered securities to Plaintiffs in a series
of transactions between March 2015 and July 2017. Therefore, some of
the sales of an unregistered security took place within one year of the
filing of the Complaint. Defendants’ statute of limitations argument

relates only to damage calculation, a matter which will later be
determined.
IV.

Conclusion

For the foregoing reasons, Plaintiffs’ Motion to Strike (ECF No. 67)
and the pending Cross-Motions for Reconsideration (ECF Nos. 68, 76) are
DENIED.

SO ORDERED.
Dated: April 19, 2019

s/Terrence G. Berg
TERRENCE G. BERG
UNITED STATES DISTRICT JUDGE