Dugan v. Vlcko
Filing
47
ORDER denying 37 , 41 Defendant's Motions for Reconsideration.Signed by District Judge Terrence G. Berg. (AChu)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
ZORA DUGAN,
Plaintiff,
Case No. 16-13252
Hon. Terrence G. Berg
v.
MIROSLAV VLCKO,
Defendant.
ORDER DENYING DEFENDANT’S MOTIONS FOR
RECONSIDERATION
I.
Introduction
This matter is before the Court on Defendant Miroslav Vlcko’s
motions for reconsideration, ECF No. 37, 41, of the Court’s order
granting in part and denying in part Plaintiff’s motion for summary
judgment, ECF No. 36, docketed on March 29, 2018. Having reviewed the motion and accompanying exhibits, and the remainder
of the record, the Court finds that these documents adequately present the issues now before the Court, and that oral argument would
not aid the decision. Accordingly, the Court will decide the motion
without a hearing. E.D. Mich. LR 7.1(f)(2). For the reasons set forth
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below, it is ORDERED that Defendant’s motions for reconsideration are DENIED.
II.
Background
The Court set forth the facts giving rise to this case in its March
29, 2018 Order and repeats that information here for convenience.
In October 2007, Plaintiff invested approximately $150,000 in
WV Investments LLC, a real estate venture that was majorityowned and managed by her brother, Defendant Miroslav Vlcko.
ECF No. 11 PageID.89. The funds were to be invested in a shopping
center in the greater Washington, D.C. area. From the record, it
does not appear that anything in writing memorialized the investment in WV Investments, LLC. Nonetheless, Plaintiff received
monthly disbursements as returns on this investment from October
2007 through June 2012. ECF No. 11 PageID.89.
On or about September 29, 2011 Defendant emailed Plaintiff to
let her know that the shopping center was being sold, with an anticipated closing of February 1, 2012. ECF No. 11 PageID.389; ECF
No. 11-1 PageID.108. In that email Defendant Vlcko also stated
“when the loan closes [Plaintiff] will receive the unpaid portion of
[her] original contribution, and [her] percentage of the net sale proceeds” after the closing costs and expenses were deducted. ECF No.
11-1 PageID.108.
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Plaintiff continued receiving monthly disbursements until June
2012. But she did not receive any repayment of her original investment or any money representing a percentage of the net sale proceeds. ECF No. 11 PageID.90. Plaintiff made repeated requests to
Defendant during July and August 2012 for a return of her principal investment based on the sale of the shopping center, but Defendant told her he did not have the money. ECF No. 11 PageID.90.
Plaintiff testified that he told her that “he had to use that money
for his other projects.” ECF No. 27-1 PageID.356 (Pltf’s Dep. at 50).
On September 24, 2012 Defendant emailed Plaintiff with the
message: “My records show that you’re owed $80,377.00 return on
your original investment, and $116,039.44 as a return on percentage interest, for a total of $186,416.44.” ECF No. 11-2 PageID.110.
In that same email Defendant told her he would make her the same
“deal” he had extended to another investor in the property—“50%
interest on your money from 9/1/12 until you get paid”—if she would
agree both not to collect this debt and to allow him to use the funds
in a new investment. ECF No. 11-2 PageID.110.
Plaintiff responded on September 25, 2012 seeking clarification
as to the terms of the loan. ECF No. 11-2 PageID.110. In his sameday responses to her questions Defendant told her 1) the 50% interest rate would be for each year of the loan; 2) the life of the loan
would be until Defendant and his LLC could recoup “the $8,000,000
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cash I have in the projects,” likely by year-end; 3) the loan would be
to WV Urban Developments guaranteed by Defendant and Richard
Walker (Defendant’s partner in the LLC). ECF No. 11-2
PageID.110. According to Plaintiff, Defendant advised her that he
would execute a Promissory Note containing the agreed upon
terms. ECF No. 11 PageID.91.
After this email exchange, however, Defendant failed to send
Plaintiff a Promissory Note for the loan. ECF No. 11 PageID.91.
Finally, after several requests from Plaintiff, Defendant emailed
the Note to Plaintiff on June 20, 2013. ECF No. 11-3 PageID.112.
Signed by Defendant and Richard Walker1, the Note guaranteed
payment of $194,288.92 annually to Plaintiff, representing a 20%
return on the loan amount. It was effective as of December 12, 2012,
personally guaranteed by Defendant and Walker, and payable on
demand. ECF No. 11-4 PageID.115. The Note does not name or obligate WV Urban Developments, LLC.
Upon seeing that the Note contained a 20% interest term, instead of the 50% that she and Defendant had previously discussed,
and that it was effective as of December 2012, rather than September 2012, Plaintiff emailed Defendant on June 24, 2013 asking him
Defendant initially filed a Third Party Complaint against Richard
Walker. ECF No. 14. The parties ultimately entered into a consent
judgment under which Walker agreed to indemnify Vlcko for 50%
of any judgment entered against Vlcko in this action. ECF No. 17.
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to send her “a new note” with the 50% interest term and a September 1, 2012 effective date. ECF No. 11-5 PageID.117. Defendant replied the same day and told her he could not include a 50% interest
term in the Note because it was criminal usury and that they would
“talk.” Id.
According to Plaintiff’s deposition testimony, shortly after this
email exchange Plaintiff and Defendant spoke on the phone and
Defendant reiterated that he had included a 20% term because the
50% interest rate was usurious. ECF No. 27-1 PageID.363. Plaintiff
testified that she understood this to mean that 20% was non-usurious and thus enforceable and that she agreed to the loan under
those terms. Id. Defendant does not dispute that this phone conversation occurred or what was discussed during it.
No interest payments were made on the Note. Plaintiff claims
she made her first demand for payment on the Note over the phone
in late 2013 and made several subsequent demands throughout
2014. ECF No. 11 PageID.92. Plaintiff states that Defendant responded by indicating that all of the funds she had lent had been
used by WV Urban Investments LLC on options to purchase real
property, but that those investments had fallen through and she
was out of luck. Id. Defendant does not appear to dispute this account.
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On June 3, 2016 Plaintiff made her final demand for payment on
the Promissory Note in writing. ECF No. 11 PageID.92; ECF No.
11-8 PageID.129–30 (demand letter from Plaintiff’s lawyer). In that
letter Plaintiff requested a payment of $330,938.79, which she calculated as her principal investment ($194,288.93) plus the 20% per
year interest ($136,649.87) over the course of three years.
Defendant did not respond to that letter and has made no payments on the Note.
Plaintiff filed this suit on September 9, 2016. ECF No. 1. In her
Amended Complaint, filed November 28, 2016, she brought causes
of action for: 1) default on promissory note; 2) breach of contract; 3)
unjust enrichment; 4) fraudulent misrepresentation; 5) silent
fraud; 6) bad faith promise; 7) negligent misrepresentation; and 8)
innocent misrepresentation. ECF No. 11.
Defendant meanwhile filed a Third-Party Complaint against
Richard Walker, his partner in WV Investments LLC and the other
personal guarantor of Plaintiff’s Promissory Note on November 21,
2016. ECF No. 9. On January 25, 2017, Vlcko and Walker entered
into a Consent Judgment under which Third-Party Defendant
Walker agreed to indemnify Defendant Vlcko for 50% of any judgment Plaintiff won against Defendant Vlcko plus 50% of Defendant
Vlcko’s costs in defending against this action. ECF No. 17.
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Plaintiff moved for summary judgment on April 4, 2017. ECF No.
240. Defendant failed to respond, so the Court issued a text only
order on September 6, 2017 ordering Defendant to respond by September 22, 2017. On that date, Defendant filed a Cross-Motion for
Summary Judgment and Response to Plaintiff’s Motion for Summary Judgment. Plaintiff responded on October 13, 2017, ECF No.
29, and Defendant replied on October 27, 2017, ECF No. 30.
The Court heard oral argument on the cross motions for summary judgment on December 11, 2017. On March 29, 2018, the
Court denied in part and granted in part Defendant’s Cross Motion
for Summary Judgment and granted in part and denied in part
Plaintiff’s Motion for Summary Judgment. ECF No. 36. Because the
Order granted summary judgment to Plaintiff on Counts I (Default
on Promissory Note) and II (Breach of Contract), and to Defendant
on Counts III (Unjust Enrichment), V (Silent Fraud), VI (Fraud
Based on Bad-Faith Promise) and VII (Negligent Misrepresentation), the only remaining Counts were IV (Fraudulent Misrepresentation) and VIII (Innocent Misrepresentation). As to these two remaining Counts, Plaintiff had requested the same relief as she did
for Counts I and II, upon which she had prevailed. Consequently,
on April 13, 2018, Plaintiff voluntarily dismissed Counts IV and
VIII, the remaining two counts of her complaint. The Court entered
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judgment in favor of Plaintiff and against Defendant on that same
day in the amount of $194,288.92. ECF No. 39.
Defendant moved for reconsideration of the Court’s summary
judgment order on April 12, 2018, ECF No. 37, and again for reconsideration of the Court’s order entering judgment for Plaintiff, ECF
No. 41.
III. Legal Standard
Under Local Rule 7.1, 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). Further, the Court will
not grant a motion for reconsideration “that merely present[s] the
same issues ruled upon by the court, either expressly or by reasonable implication.” Id. Plaintiff requested identical relief for each of
the six counts in her Complaint on which the Court granted summary judgment. Defendant cannot prevail on his motion for reconsideration unless he provides evidence sufficient to conclude that
the Court’s decision was incorrect as to all six because any other
finding would not “result in a different disposition of the case” pursuant to E.D. Mich. L.R. 7.1(h)(3).
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IV.
Analysis
In his motions for reconsideration, Defendant alleges that the
Court made five factual or legal errors in granting summary judgment in Plaintiff’s favor. Defendant does not identify any palpable
defect which has misled the parties, the correction of which would
change the disposition of the case. Rather, Defendant seeks to relitigate matters already decided. Defendant responds to the Court’s
Order as if it is opposing counsel’s brief, presenting arguments
largely identical to those the Court has already considered and rejected. Nothing in Defendant’s motion for reconsideration persuades the Court that any palpable error misled the Court or the
parties in the Court’s previous order. The Court was correct to enter
judgment in Plaintiff’s favor. Defendant’s remedy to the correct the
kind of error that he alleges in the motion for reconsideration lies
with the Court of Appeals.
a. Factual Issue I: Consideration for the Promissory Note
Defendant first claims that the Court erred in finding adequate
consideration for the Promissory Note based on the antecedent debt
Defendant’s company, VW Investments, LLC, owed to Plaintiff.
ECF No. 37 PageID.518. This is the precise ground Defendant
raised in his late-filed Cross Motion for Summary Judgment. ECF
No. 27 PageID.323. As the Court previously found, Defendant
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clearly received a benefit from Plaintiff’s agreement not to demand
repayment of her investment and to loan these funds to Defendant’s
new venture, even if the original investment was initially paid to
Walker. Where the benefit of a payment flows to an individual, that
benefit may serve as consideration for a promise made from the
beneficiary to the benefactor. See Scott v. Zimmerman, No. 296077,
2011 WL 1446100, at *7 (Mich. Ct. App. Apr. 14, 2011). Defendant’s
claim that, as a majority-holder and manager of a company, he does
not benefit from an agreement not to collect an antecedent debt to
that company is disingenuous. Defendant states that Plaintiff’s
original investment in WV Investments, LLC was actually a purchase of Walker’s ownership interest in the LLC and that “none of
Plaintiff’s funds flowed to the LLC or had any impact on the management of the LLC.” ECF No. 37 PageID.519. Plaintiff’s deposition
testimony, however, was that she believed she was purchasing
Walker’s shares, and although she was uncertain, she believed she
wrote the check to “Mirko [Defendant] or to the LLC for the shopping center.” ECF No. 27-1 PageID.349 (Dep. of Plaintiff at 24). But
regardless, a sale of shares of an LLC represents financial benefit
to the LLC.
In an email to Plaintiff dated September 24, 2012, Defendant explicitly acknowledged that the LLC owed Plaintiff what he calculated to be $196,416.44, based on her original investment in the
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LLC and a return on her percentage interest from the sale of the
shopping center. ECF No. 11-2 PageID.110. The following day Defendant further explained his need for a bridge loan of these funds
“[u]ntil we can get an injection of some capital and recoup some of
the $8,000,000 cash I have in the projects . . . Plan on having you
paid by year-end.” Id. The Promissory Note was signed personally
by Defendant and Walker. Both parties understood that Plaintiff
was owed a certain amount from the sale of the Brentwood shopping
center that had not been paid back. The funds from that sale had
apparently been retained by Vlcko and “that money was put on
other projects.” ECF No. 27-1 PageID.356 (Pltf’s Dep. at 51). Plaintiff’s agreement to allow the LLC to retain the funds that Defendant
stated were owed to Plaintiff was the consideration for the Note. In
return for the benefit of Plaintiff not demanding the immediate return of what was owed to her and agreeing instead to allow Defendant to use those funds in his other projects, Defendant agreed to
pay the amount in the Note to Plaintiff. There was no palpable error
in this finding.
b. Factual Issue II: Personal Liability for the Debt of an
LLC
Second, Defendant argues that he acted only as manager of WV
Investments LLC when he interacted with Plaintiff. ECF No. 37
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PageID.520. But Defendant personally guaranteed the Note as an
individual, not as the LLC. ECF No. 1-4 PageID.21. Therefore, the
argument that Defendant is not liable as an individual is meritless.
c. Factual Issue III: The Holder or Holder in Due Course
Argument
Defendant next takes issue with the Court’s statement that he
abandoned his argument that Plaintiff was not a holder in due
course of the Promissory Note. ECF No. 37 PageID.521. Comparing
Defendant’s Cross-Motion for Summary Judgment, ECF No. 27,
with his Reply in Support of Cross-Motion, ECF No. 30, it is clear
that Defendant altered his argument. Rather than making the case
that Plaintiff was not a “holder in due course,” Defendant argues in
his Reply that Plaintiff was not a holder at all. The term “holder in
due course” is not present in Defendant’s Reply. ECF No. 30. In both
pleadings, however Defendant cites to sections of Michigan’s Uniform Commercial Code defining who may enforce an instrument
which refer to the “holder.” MCLA § 440.3301. The law distinguishes between the rights of a mere “holder” of an instrument and
those of a “holder in due course,” the main difference being that
some defenses to enforcement available against a mere holder are
not available against a holder in due course. 2 White, Summers, &
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Hillman, Uniform Commercial Code § 18:30 (6th ed. 2017) (“A person taking an instrument, other than a person having rights of a
holder in due course, is subject to a claim of a property or possessory
right in the instrument or its proceeds, including a claim to rescind
a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim
to the instrument.”). Here, Defendant’s argument is that Plaintiff
fails to qualify even as a mere holder of the negotiable instrument.
In any event, such inconsequential dicta in an opinion is hardly
grounds for a motion for reconsideration.
d. Legal Issue I: Email Delivery
Defendant goes on to re-argue matters that this Court thoroughly considered when ruling on the motions for summary judgment. He first takes issue with the Court’s statement that delivery
of a negotiable instrument via e-mail appears to satisfy the plain
meaning of a voluntary transfer of possession because the Court did
not cite legal authority for that statement. ECF No. 37 PageID.521.
But the essence of a term’s “plain meaning” is that legal authority
is unnecessary in order to divine that meaning. Failure to cite legal
authority is not in itself grounds for granting a motion for reconsideration if the statement is otherwise accurate. Instead, a litigant
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must show a palpable defect that, if corrected, would alter the disposition of the motion. E.D. Mich. L.R. 7.1(h)(3). Upon review, the
Court again finds that the plain meaning of “voluntary transfer of
possession” includes e-mail delivery. An e-mail delivers a document
from a sender to a recipient. An ordinary person would understand
that to be true, which is the basis for determining the plain meaning of a term. Moreover, the evidence in this record demonstrated
that Defendant intended to transfer possession of the Note to Plaintiff by emailing her a signed copy of it.
Defendant reiterates his argument that only an original copy of
a negotiable instrument (otherwise known as a “wet ink” copy) is
an enforceable instrument under the UCC. ECF No. 37
PageID.522–526. But he is unable to produce any binding legal authority to support this proposition. In fact, he admits that “[t]here
is no case law in Michigan” contradicting the Court’s conclusion
that e-mail delivery of a negotiable instrument is sufficient to convey enforcement rights. ECF No. 37 PageID.526. Knowing that he
lacked any such authority, it is unclear why Defendant believes the
Court committed a palpable error. The Court set forth its reasoning
on this matter in full detail in its Order. ECF No. 36 PageID.486–
91. Because Defendant has not raised any new argument on this
point, there is no need to address it further.
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As an additional argument in support of reconsideration of the
Court’s ruling that emailing the Note was sufficient to give Plaintiff
rights, Defendant raises a new ground: that the Michigan Uniform
Electronic Transactions Act (UETA), MCLA § 450.833 et seq.,
which applies to Article 2 of the UCC, does not apply to most of
Article 3, the portion of the UCC that covers negotiable instruments. ECF No. 37 PageID.529. On this ground, Defendant extrapolates that no electronic transfers are ever permissible with respect
to any other articles of the UCC.
Defendant also tries to claim that even where the UETA allows
for certain kinds of “transferable records” to include “a note under
article 3 of the uniform commercial code,” the issuer of the electronic record must expressly agree that it is a transferable record.
M.C.L. § 450.846. ECF No. 37 PageID530.
The Court notes—without deciding the issue—that the record
could support a finding that Defendant expressly agreed that the
Promissory Note which he sent to Plaintiff was intended to be a
transferable record. But this point is immaterial at this stage because Defendant never raised this argument when he had the
chance to do so. As Plaintiff notes in her response to this motion, a
litigant is not permitted to raise new legal arguments in a motion
for reconsideration. Evanston Ins. Co. v. Cogswell Props., LLC, 683
F.3d 684, 692 (6th Cir. 2012). In addition, at the very least, the
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Court’s previous order in this case is not “unmistakab[ly]” wrong in
light of the UETA argument. See Fleck v. Titan Tire Group, 177 F.
Supp. 2d 605, 624 (E.D. Mich. 2001) (internal citation omitted). And
even if delivery of the Note was insufficient under UETA, the Court
has already concluded that it was sufficient under the UCC. For
these multitude of reasons, the Court declines to reconsider its prior
finding that Plaintiff is a holder of the promissory note and entitled
to enforce it.
e. Legal Issue II: Basing a Fraud Claim on a Misstatement
of Law
Defendant’s final complaint is that the Court improperly denied
his motion for summary judgment on the fraudulent misrepresentation count. ECF No. 37 PageID.531. He bases this argument on
the principle that a misrepresentation of law—as opposed to fact—
cannot form the basis of a fraud claim. Defendant did not raise this
argument at any point before his motion for reconsideration, so the
Court need not consider it. However, it is correct that Michigan
courts have found that, in most circumstances, misrepresentation
of the law is not grounds for fraud claims. See, e.g., Cummins v.
Robinson Twp., 770 N.W.2d 421, 436 (Mich. Ct. App. 2009). At the
same time, Michigan courts have also hedged the universal applicability of this rule. See Waldorf v. Zinberg, 307 N.W.2d 749, 753
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(Mich. Ct. App. 1981)(“It is the general rule that ‘fraud cannot be
predicated upon misrepresentations as to matters of law.’ . . . The
writer, however, adds that the rule ‘may be rendered inapplicable
by the existence of peculiar facts and circumstances’.” (quoting Rosenburg v. Cyrowski, 198 N.W. 905, 906 (Mich. 1924) (internal quotation marks and ellipses omitted)).
Cummins involved parties bargaining at arms-length, while in
this case Plaintiff was Defendant’s little sister who testified that
she trusted him implicitly, both because he was her older brother,
and because he was an experienced commercial real estate attorney, and she was not. The rule in Cummins might well not apply in
light of the facts of this case. But none of this really matters. Defendant failed to raise this argument in his Motion for Summary
Judgment and he cannot raise it now. Evanston, 683 F.3d at 692.
Moreover, Defendant effectively has won on this issue anyway—
Plaintiff voluntarily dismissed the fraud count of her Complaint. It
is mystifying why Defendant would seek reconsideration on an aspect of the Court’s ruling that is so plainly a moot point.
Defendant’s Second Motion for Reconsideration is just a legal formality; it asks the Court to reconsider its judgment issued in Plaintiff’s favor. Because the first motion held no merit, the second likewise will be denied.
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V.
Conclusion
For the foregoing reasons, Defendants Motions for Reconsideration are DENIED.
SO ORDERED.
Dated: November 15,
s/Terrence G. Berg
2018
TERRENCE G. BERG
UNITED STATES DISTRICT JUDGE
Certificate of Service
I hereby certify that this Order was electronically filed,
and the parties and/or counsel of record were served on
November 15, 2018.
s/A. Chubb
Case Manager
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