Vehicle Development Corporation PTY LTD v. Livernois Vehicle Development, LLC

Filing 46

OPINION AND ORDER DENYING 2 Plaintiffs' Motion for Possession Pending Final Judgment. (Final Pretrial Order due by 12/11/2013. TELEPHONIC Final Pretrial Conference **INITIATED BY PLAINTIFF** set for 12/13/2013 10:00 AM. Bench Trial set for 12/17/2013 09:30 AM.) Signed by District Judge Terrence G. Berg. (Chubb, A)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
VEHICLE DEVELOPMENT,
CORPORATION PTY, LLD, ET
AL.,
Plaintiffs/CounterDefendants,
v.
LIVERNOIS VEHICLE
DEVELOPMENT, LLC AND
COMERICA BANK,

CIV. NO. 13-14090
HON. TERRENCE G. BERG
HON. MICHAEL J. HLUCHANIUK

Defendants/CounterPlaintiff.
_________________________________/
OPINION AND ORDER DENYING PLAINTIFFS’ MOTION
FOR POSSESSION PENDING FINAL JUDGMENT (DKT. 2)
This is a claim and delivery action, in which Plaintiffs/Counter-Defendants
Vehicle Development Corporation PTY LTD and Vehicle Development Corporation
PTE LTD (collectively, “VDC”)1 seek possession of 81 Ford F550 XL trucks (the
“Trucks”) from Defendant Livernois Vehicle Development, LCC (“Livernois”).
Defendant/Counter-Plaintiff Comerica Bank (“Comerica”) intervened in this lawsuit
(Dkt. 12), as a secured creditor of Livernois.
This matter is before the Court on VDC’s motion for possession pending final
judgment (Dkt. 2), pursuant to Fed. R. Civ. P. 64, MCR 3.105 and MCL § 600.2920.
Livernois and Comerica responded to VDC’s motion (Dkts. 21, 24), and the parties

VDC brings this action as an assignee of Vantage Automotive Limited (“VAL”), a Republic of
Singapore Corporation. VAL’s role in this dispute is described in greater detail below.
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filed numerous replies, sur-replies and supplemental briefs (Dkts. 26, 30, 33, 38, 39,
40, 41). The Court heard oral argument on VDC’s motion on October 21, 2013. For
the reasons set forth below, VDC’s motion for possession pending final judgment is
DENIED. It is FURTHER ORDERED that Livernois and Comerica are
restrained and enjoined from damaging, destroying, concealing, or disposing of the
Trucks and that Comerica and/or Livernois maintain insurance coverage over the
Trucks. Finally, it is ordered that Livernois and/or Comerica furnish a penalty
bond – payable to VDC – in the amount of $3,200,000 and that Comerica and
Livernois shall agree to surrender the Trucks to the person adjudged entitled to
possession and pay any money that may be recovered in this action.
BACKGROUND
The underlying facts in this lawsuit are largely undisputed. VAL has a
contract to supply right-hand drive Ford trucks to the Singapore military for use as
cross-country ambulances. VDC has experience converting left-hand drive Ford
trucks to right-hand drive trucks for the Australian market. VAL contracted with
VDC to have the conversion of the Ford trucks performed in the United States. VDC
in turn contracted with Livernois to perform the conversion in Michigan, pursuant
to an Installment Agreement (Dkt. 1, Ex. 2). More specifically, under the
Installation Agreement, Livernois agreed to convert a total of 186 left-hand drive
F550s to right-hand drive. Id. Livernois remains in possession of 81 Trucks. In the
Complaint, VDC alleged that the approximate value of the 81 Trucks in Livernois’
possession is $1.6 million (Dkt. 1 ¶ 43).

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VDC avers that Livernois performed its obligations under the Installation
Agreement deficiently and that VDC therefore terminated that Agreement (Dkt. 1).
Livernois is currently undergoing severe financial difficulties, and is winding down
its business and liquidating its assets. Comerica is a lender to Livernois, and
claims that Livernois is in default of various promissory notes; Comerica claims the
unpaid principal and interest owed by Livernois to Comerica “exceeds $4.1 million”
(Dkt. 21 at 3). Livernois granted Comerica an all-assets security interest as
security for repayment of the debts of Livernois (Dkt. 21, Ex. C, Security
Agreement). Comerica perfected its security interest by filing a UCC-1 financing
statement (Dkt. 21, Ex. D pp 4-7, UCC Search Results). Neither VDC nor VAL filed
a UCC-1 financing statement with respect to the Trucks.
Currently, the Trucks are held by Livernois, stored indoors at three Livernois
facilities in Inkster, Michigan (Dkt. 21, Ex. E, Decl. of N. Wallis ¶ 21-22). Livernois
and Comerica maintain that the facilities where the Trucks are being stored are
closed structures that are locked and secured (Id. ¶¶ 26, 30). Pedestrian doors are
locked, and larger doors and gates are both locked and secured with additional
protective barriers. The Livernois facilities and their contents are insured (Id. ¶
31). Furthermore, a third-party security company currently provides perimeter
security at the Livernois facilities on a daily basis (Id. ¶ 32).
ANALYSIS
As noted earlier, VDC brings the motion before the Court under Fed. R. Civ.
P. 64, MCR 3.105 and MCL § 600.2920. Rule 64 provides, in pertinent part, that

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“throughout an action, every remedy is available that, under the law of the state
where the court is located, provides for seizing a person or property to secure
satisfaction of the potential judgment.” Thus, the Court will apply the standards
and procedures set forth in MCR 3.105, which provides, in pertinent part:
(C) Complaint; Joinder of Claims; Interim Payments. A claim and
delivery complaint must:
(1) specifically describe the property claimed;
(2) state the value of the property claimed (which will be used only to set the
amount of bond and not as an admission of value);
***
(E) Possession Pending Final Judgment.
(1) Motion for Possession Pending Final Judgment. After the complaint is
filed, the plaintiff may file a verified motion requesting possession pending
final judgment. The motion must
(a) describe the property to be seized, and
(b) state sufficient facts to show that the property described will be damaged,
destroyed, concealed, disposed of, or used so as to substantially impair its
value, before final judgment unless the property is taken into custody by
court order.
***
(b) At the hearing, each party may present proofs. To obtain possession before
judgment, the plaintiff must establish
(i) that the plaintiff’s right to possession is probably valid; and
(ii) that the property will be damaged, destroyed, concealed, disposed of,
or used so as to substantially impair its value, before trial.
***

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(4) Order for Custody Pending Final Judgment. After proofs have been taken
on the plaintiff’s motion for possession pending final judgment, the court may
order whatever relief the evidence requires. This includes:
(a) denying the motion;
(b) leaving the defendant in possession of the property and restraining the
defendant from damaging, destroying, concealing, or disposing of the
property. The court may condition the defendant’s continued possession by
requiring the defendant to
(i) furnish a penalty bond, payable to the plaintiff, of not less than $100
and at least twice the value of the property stated in the complaint; and
(ii) agree that he or she will surrender the property to the person adjudged
entitled to possession and will pay any money that may be recovered
against him or her in the action;
(c) ordering the sheriff or court officer to seize the property within 21 days
and either hold it or deliver it to the plaintiff. The court may condition the
plaintiff’s possession by requiring the plaintiff to
(i) furnish a penalty bond payable to the defendant, and to the sheriff or
court officer, of not less than $100 and at least twice the value of the
property stated in the complaint; and
(ii) agree that he or she will surrender the property to the person adjudged
entitled to possession, diligently prosecute the suit to final judgment, and
pay any money that may be recovered against him or her in the action.
A bond required in a claim and delivery action must be approved by and filed
with the court within the time the order provides.
The parties have raised numerous arguments in their briefs and during oral
argument concerning whether VDC has met its burden under the first element pf
MCR 3.105(E)(3)(b), proving that VDC’s right to possession is “probably valid.” All
parties have conceded that the question is a close one. Because VDC must meet
both elements under MCR 3.105(E)(3)(b), and it is quite clear that VDC has not
established the second element, that the Trucks will be “damaged, destroyed,
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concealed or disposed of, or used so as to substantially impair [their] value,” it not
necessary for the Court to make a finding on the more difficult question of which
party has the right to possess the Trucks at this preliminary stage. MCR
3.105(E)(3)(b)(ii) requires a showing that the property will be damaged, destroyed,
concealed, disposed of, or used so as to substantially impair its value. VDC has
expressed concerns that the property may be damaged, destroyed, concealed, or
disposed of, but there is insufficient evidence in the record of imminent danger to
the Trucks.
VDC argues in its motion that “[i]f Livernois were allowed to possess the
[Trucks] … for an extended period of time pending trial, the [Trucks] … would
depreciate and would likely be otherwise damaged in Livernois’ possession” (Dkt. 21
at 6). Defendants have adduced evidence that there is a current market for the
Trucks that could recover “well in excess” of their claimed value of $1.6 million
dollars (Dkt. 39, Ex. B). Although VDC contends that it will suffer consequential
damages relating to its inability to perform its contract with VAL, VDC has not
shown that the Trucks will be damaged, destroyed, concealed, disposed of, or used
by Defendants in a way that will substantially impair their value. Mere
depreciation in value is not sufficient under the language of MCR 3.105(E)(3)(b)(ii).2
In a post-hearing brief (Dkt. 38), VDC avers that three Chrysler vehicles (not
involved in this litigation) were recently stolen from Livernois’ premises and that

At least one commentator agrees, observing that “[t]ransfer of possession is not ordinarily granted
upon a mere showing that over time, the property will depreciate.” Daniel M. Morley, The Claim
and Delivery Action: Recovering the Secured Creditor's Collateral, Mich. B.J., JULY 1999, at 674,
676. The Court believes that this conclusion is sound.
2

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the Trucks might be at similar risk. However, this concern is entirely speculative
and, in any event, the Trucks are insured against theft, and the Court will require
Livernois and/or Comerica to maintain such insurance coverage. VDC has not met
its burden under MCR 3.105 to justify an emergency transfer of possession of the
Trucks.
Under MCR 3.105(E)(4)(b)(i), the Court may require Defendants (Comerica
and/or Livernois) to post a bond to retain possession of the Trucks. The Court finds
that a bond is appropriate here, given the continuing damages that VDC is claiming
to suffer. MCR 3.105(E)(4)(b)(i) states that the amount of a bond must be “not less
than $100 and at least twice the value of the property stated in the complaint.” The
Complaint in this case states that the value of the Trucks is $1.6 million (Dkt. 1 ¶
43). A penalty bond is therefore required of at least twice that amount: $3.2
million. Furthermore, Defendants shall be enjoined and restrained from damaging,
destroying, concealing, or disposing of the Trucks. As part of this injunction,
Defendants are ordered to maintain insurance coverage over the Trucks, and must
file proof of such insurance with the Court within ten (10) days of date of this Order.
MCR 3.105(E)(4)(b)(ii) provides that the “court may condition the defendant’s
continued possession by requiring the defendant . . . to agree that he or she will
surrender the property to the person adjudged entitled to possession and will pay
any money that may be recovered against him or her in the action.” Defendants’
continued possession of the property is therefore further conditioned on their filing
a written stipulation with the Court, within ten (10) days of the date of this Order,

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expressing their agreement to surrender the Trucks to the person adjudged entitled
to possession and to pay any money that may be recovered against them in the
action.
During a settlement conference held with the Court on November 20, 2013,
all parties expressed a desire for a prompt trial on the merits, as provided for in
MCR 3.105(H). Therefore, the Court hereby schedules this matter for a bench trial
in Flint, Michigan on December 17, 2013, starting at 9:30 a.m. The parties are
directed to submit a joint final-pretrial order, which strictly complies with the
requirements of E.D. Mich. LR 16.2, on or before December 11, 2013. In the
“issues of law to be litigated” section, the parties are directed to focus particular
attention on Livernois’ “rights in the collateral,” as discussed in Litwiller Mach. &
Mfg., Inc. v. NBD Alpena Bank, 184 Mich. App. 369 (1990) and State Bank of Young
America v. Vidmar Iron Works, Inc., 292 N.W.2d 244 (Minn. 1980).3 The Court will
hold a final pre-trial conference – via telephone – on December 13, 2013 at 10:00
a.m.
CONCLUSION
For the reasons set forth above, VDC’s motion for possession pending final
judgment (Dkt. 2) is DENIED. It is FURTHER ORDERED that:

Specifically, the parties are directed to elaborate on Litwiller’s observation that the debtor “had
contract rights to the goods to the extent of the amount due for its work and could impose a lien on
the goods to enforce that right” and on Vidmar’s observation that “the secured party only gets rights
in the goods to the extent of the debtor’s rights in them. [The debtor’s] rights in the goods were
based on the payments due under the contracts…. In this case, the [secured party] properly seeks
only to recoup those payments and is not claiming the value of the raw materials...”
3

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(1) Livernois and Comerica are restrained and enjoined from damaging,
destroying, concealing, or disposing of the Trucks, or using them in any
manner that will substantially impair their value;
(2) Livernois and/or Comerica shall continue to maintain insurance coverage
over the Trucks, and must file proof of such insurance with the Court
within ten (10) days of date of this Order;
(3) Livernois and/or Comerica shall furnish a penalty bond – payable to VDC
– in the amount of $3,200,000, proof of which shall be filed with the Court
within ten (10) days of date of this Order; and
(4) Livernois and Comerica shall file a written stipulation with the Court
within ten (10) days of the date of this Order expressing their agreement
to surrender the Trucks to the person adjudged entitled to possession and
to pay any money that may be recovered against them in this action.
SO ORDERED.

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

Dated: November 27, 2013

Certificate of Service
I hereby certify that this Order was electronically submitted on November 27,
2013, using the CM/ECF system, which will send notification to each party.
By: s/A. Chubb
Case Manager
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