Comerica Bank v. Shaman et al
Filing
44
ORDER denying 37 defendant's Motion for Reconsideration re 33 Order on Motion for Leave to Amend. Signed by District Judge George Caram Steeh. (MBea)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
COMERICA BANK,
Plaintiff,
CASE NO. 18-CV-10449
HON. GEORGE CARAM STEEH
v.
JANINE SHAMAN et al.,
Defendants.
/
ORDER DENYING DEFENDANTS’ MOTION
FOR RECONSIDERATION (Doc. 37)
On November 2, 2018, this court granted Plaintiff Comerica Bank’s
motion to amend its Complaint to substitute the Defendant Bernadette
Esshaki Irrevocable Trust under agreement dated April 25, 1991,
(“Bernadette Esshaki Irrevocable Trust”) as a named Defendant, in place of
the Defendant trust formerly known as the “Bernadette Esshaki Living Trust
under agreement dated April 25, 1991,” (“Bernadette Esshaki Living
Trust.”). Now before the court is Defendants’ motion for reconsideration.
Having shown no palpable error in the court’s prior order, Defendants’
motion shall be denied.
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Under Local Rule 7.1(h)(3), a motion for reconsideration should be
granted only when a movant can “demonstrate a palpable defect by which
the court and the parties . . . have been misled” and “correcting the defect
will result in a different disposition of the case.” No such showing has been
met here.
The original Complaint named the Bernadette Esshaki Living Trust as
a Defendant, but Plaintiff recently learned that particular trust was
converted to an irrevocable trust in 2012. Thus, Plaintiff moved to amend
the Complaint to change the name of the Bernadette Esshaki trust. This
court granted Plaintiff’s motion to amend and ruled that the amendment
related back to the filing of the original Complaint under Federal Rule of
Civil Procedure 15(c), and thus the claims against the Bernadette Esshaki
Irrevocable Trust were timely.
In their motion for reconsideration, Defendants argue that the Sixth
Circuit’s decision in Durand v. Hanover Ins. Group, Inc., 806 F.3d 367 (6th
Cir. 2015) requires a different result. Not so. In Durand, the Sixth Circuit
held that certain ERISA claims added to the lawsuit in the first amended
complaint did not relate back to the filing of the original complaint because
they involved different plan policies, adopted at different times, which were
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illegal under different provisions of ERISA. Id. at 376. Obviously, the
claims here stand in marked contrast to those in Durand.
Here, the original Complaint named the Bernadette Esshaki Living
Trust, which unbeknownst to Plaintiff had been converted to an irrevocable
trust in 2012. Plaintiff’s mistake can be explained, at least in part, by
Defendants’ continued use of the “Living Trust” name in the months leading
up to the filing of this lawsuit. Defendants do not dispute that their counsel
sent a letter to Plaintiff’s counsel in September, 2017 identifying the trust as
the “Bernadette Esshaki Living Trust,” (Doc. 20-2) nor that the tax
documents delivered to Plaintiff prior to July, 2018 all gave the name of the
Bernadette trust, as the “Bernadette Esshaki Living Trust.” Also, it is
undisputed that Defendants did not produce the irrevocable trust
agreement until July, 2018, and not until ordered to produce it by
Magistrate Judge Whalen.
The Sixth Circuit’s decision in Norfold Cty. Retirement Sys. v.
Community Health Sys., Inc., 877 F.3d 687, 693-94 (6th Cir. 2017) compels
the result reached in the court’s prior order. In that case, the Sixth Circuit
explained that untimely allegations in an amended complaint relate back to
the initial complaint under Rule 15(c)(1)(B) where they “arose of the
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conduct, transaction, or occurrence set out – or attempted to be set out – in
the original complaint.” Id. at 694. The Sixth Circuit held that Rule
15(c)(1)(B) “is met if the original and amended complaints allege the same
‘general conduct’ and ‘general wrong.’” Id. (quoting Durand, 806 F.3d at
375). In Norfolk, Plaintiff’s initial complaint alleged securities fraud through
various concealments and misrepresentations, and the amended complaint
expounded on those allegations by adding other misrepresentations and
frauds. Id. Because all of the allegations involved the same overall fraud
whereby defendant sought to convince investors that defendant’s revenues
were sustainable, the newly added allegations related back to the filing of
the initial complaint. Id.
Likewise, there is no question that the substitution of the Bernadette
Esshaki Irrevocable Trust for the Bernadette Esshaki Living Trust in the
First Amended Complaint involves the same general conduct and general
wrong. Plaintiff alleges that the Trust wrongfully shields assets that should
be used to satisfy the more than $6.5 million dollar judgment Plaintiff is
seeking to collect in this case by voiding various allegedly fraudulent
transfers. Defendants’ attempts to categorize the allegedly fraudulent
transfers into discrete schemes does not ring true. Moreover, the most
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important aspect of the relation back doctrine is that the defendant be put
on notice of the plaintiff’s claims, and that there is no prejudice or surprise
when additional claims are added. Id. Indeed, the original Complaint in
this case put Defendants on notice of Plaintiff’s general claim of fraudulent
transfers of judgment debtor James Esshaki and his wife Bernadette. In
addition, this is a simple case of misnomer. Plaintiff sued the Bernadette
Esshaki Living Trust, which has not existed since 2012 when it was
converted to an irrevocable trust. There is no surprise or prejudice to
Defendants by allowing Plaintiff to correct this error, especially when the
error may be blamed on Defendants’ conduct in repeatedly referring to the
trust by its outdated name.
Since judgment was entered in the two companion cases and even
before this lawsuit was filed, Defendants have been on notice that Plaintiff
is seeking to enforce those judgments and to set aside various transfers
alleged to be fraudulent and thus, voidable. The Defendants in this
collection action are three trusts and the children of the judgment debtors,
who are also the beneficiaries of the three trusts. The original Complaint
sought to set aside transfers to the Irrevocable Trust for the Benefit of the
James Esshaki Family, transfers to the James Esshaki and Bernadette
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Esshaki Qualified Personal Residence Trust, and transfers to the
Bernadette Esshaki Living Trust, and transfers made to the children of the
Judgment Debtors. All of the trusts were established by agreements in
2012, and the transfers are part of the same alleged scheme to shield
assets that were available to satisfy the debt owed to Plaintiff. Accordingly,
Defendants have shown no prejudice or surprise by the amendment of the
Complaint to substitute the Bernadette Esshaki Irrevocable Trust, for the
trust formerly known as the Bernadette Esshaki Living Trust.
Defendants also argue this court erred in granting Plaintiff’s motion to
amend by failing to rely on several bankruptcy decisions they cited, which
they contend requires the opposite result. Those cases involve bankruptcy
law which is not particularly relevant here. For example, In In re Rosich,
562 B.R. 682, 684 (W.D. Mich. 2017), the Chapter 7 trustee sought to avoid
certain transfers of the debtor and sought to have new untimely claims
relate back to the filing of the original complaint. The court held the new
claims did not relate back because “a trustee’s avoidance powers, as a
matter of statute, are transaction-specific,” and the transaction sought to be
voided involved a different asset, transferee, and different time period. Id.
at 684-85. This case is distinguishable because Plaintiff is not a
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bankruptcy trustee whose powers of avoiding fraudulent transfers are
circumscribed by statute, and adding claims against the irrevocable trust is
clearly contemplated by the naming of that trust by its prior name.
Similarly, Defendants’ reliance on an unpublished bankruptcy appeal,
Dery v. Rosenberg, No. 02-73274, 2003 WL 21919267, at *1 (E.D. Mich.
Jan. 13, 2003) does not suggest this court should reverse its prior ruling. In
that case, the bankruptcy trustee sought revocation of the debtor’s
discharge based on fraudulent representations and omissions of the
debtor. Id. When the trustee sought to amend his complaint to add the
debtor’s ownership interest in a mobile home park that the debtor failed to
disclose, the court ruled the amendment would not relate back because it
was an entirely new case for revocation distinct from the alleged omissions
and misrepresentations set forth in the original complaint. Id. at *7. Again,
this case is markedly distinguishable from the bankruptcy case; in part,
simply because this is not a bankruptcy case. Also, here the initial
complaint sought to set aside the allegedly fraudulent transfers into
Bernadette Esshaki’s trust, whether as a “living” trust as Plaintiff mistakenly
believed the trust to be identified, or as an irrevocable trust.
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Defendants also argue that Moross Ltd, P’ship v. Fleckenstein
Capital, Inc., 466 F.3d 508 (6th Cir. 2006) supports reversal of the court’s
prior order. In Moross, the plaintiff never even sought leave to amend its
complaint, but argued a new theory of its fraud claims in its response to
defendants’ motion for summary judgment. Id. at 518. The Sixth Circuit
held that any amendment would have been futile, as the new claims were
time-barred and would not relate back to the initial complaint as they arose
out of completely different facts. Id. The initial complaint alleged “cherry
picking,” namely that defendant investors misrepresented how profits and
losses were allocated, but the amended claims took issue with statements
made in the defendants’ offering materials. Id. That case is also
distinguishable because plaintiff there delayed over 18-months after filing
suit to raise new claims, which the Sixth Circuit held amounted to undue
delay, and then only did so in response to defendants’ motion for summary
judgment. Id. at 519. By contrast, there has been no showing of undue
delay here as Plaintiff sought to amend shortly after Defendants provided
the relevant trust agreement. Also, substituting the irrevocable trust for the
revocable trust arises out of the same conduct or transaction attempted to
be set forth in the original pleading.
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Finally, the court considers Defendants’ argument that if the court
allows the claims against the Bernadette Esshaki Irrevocable Trust to relate
back to the filing of the original complaint, the claim should be limited to the
value of the household property transferred to it, and the trust’s liability
should not be extended beyond that amount. Defendants are no doubt
correct that the original Complaint specifically states that James Esshaki
transferred all of his personal property to the Bernadette Trust (Complaint,
¶ 32). But this is not a basis for circumscribing the liability of that Trust at
this juncture. If the judgment debtors made fraudulent transfers to the
Bernadette Esshaki Irrevocable Trust beyond the personal property of the
Walnut Lake Road residence specifically mentioned in the original
Complaint, that is an appropriate area of inquiry during discovery and may
be relevant at trial. Throughout this litigation, Plaintiff was led to believe
that the trust was revocable and thus, that assets in the trust were personal
assets available to creditors. Upon learning that the trust is irrevocable and
thus, funds are not available to creditors, Plaintiff seeks to recover transfers
on the grounds that they are fraudulent. Under these circumstances,
depriving Plaintiff of discovery as to all assets of the trust would be unfair.
By contrast, there is no prejudice to Defendants who have been on notice
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of Plaintiff’s intent to set aside all fraudulent transfers of the judgment
debtors going back to Plaintiff’s efforts to enforce the judgment in its
original collection case.
In sum, having failed to show a palpable defect by which the court or
parties have been misled, Defendants’ motion for reconsideration (Doc. 37)
is DENIED.
IT IS SO ORDERED.
Dated: December 11, 2018
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
December 11, 2018, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk
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