The General Retirement System of the City of Detroit et al v. Alamerica Bank et al

Filing 54

MEMORANDUM OPINION and ORDER Denying Defendants' 29 MOTION for Summary Judgment - Signed by District Judge Judith E. Levy. (FMos)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
The General Retirement System of
the City of Detroit and the Police
and Fire Retirement System of the
City of Detroit,

Case No. 14-cv-10032
Hon. Judith E. Levy
Mag. Judge Mona K. Majzoub

Plaintiffs,
v.
Alamerica Bank, Alamerica
Bancorp, Inc., and Lawrence Tate,
Defendants.
________________________________/
OPINION AND ORDER DENYING DEFENDANTS’ MOTION FOR
SUMMARY JUDGMENT [29]
The General Retirement System of the City of Detroit and the
Police and Fire Retirement System of the City of Detroit (“plaintiffs”)
brought claims against Alamerica Bank, Alamerica Bancorp, Inc., and
Lawrence Tate (“defendants”), generally alleging that defendants made
fraudulent misrepresentations related to the financial status of Donald
Watkins, a non-party, which plaintiffs relied on to make a thirtymillion-dollar loan to their detriment. (See Dkt. 1.)

Before the Court is defendants’ motion for summary judgment.
(Dkt. 29.) Defendants argue that they acted as agents of Watkins in the
relevant transaction and are thus subject to a consent decree that
plaintiffs signed in the previous case against Watkins and Watkins
Aviation, LLC, (“Consent Decree”), generally involving the same
transaction. (See id. at 13-16.) In relevant part, the Consent Decree
ordered “the release, waiver, and discharge of the Watkins Parties and
their members, officers, agents, and attorneys from any potential claims
by [plaintiffs] based on any dealings, facts and/or circumstances that
arose before entry of [the] Consent Decree or that are related to
collection activities,” (“Release”).1 (Dkt. 40-20 at 8.)
Plaintiffs oppose the motion, arguing that there is no genuine
issue of material fact that defendants acted independently and not as
Watkins’ agents, there is no genuine issue of material fact that
defendants were not within the scope of the Release even if they were

Defendants did not attach the Consent Decree to their motion, claiming that it is
“governed by a Protective Order . . . , but can be made available to the Court if there
is a dispute as to the contents of the Release.” (Dkt. 29 at 2.) Plaintiffs note that to
the contrary, the Consent Decree “is a public document, filed with (and entered by)
the court in” Police and Fire Retirement System of the City of Detroit et al. v. Donald
V. Watkins and Watkins Aviation, LLC, No. 08-cv-12582 (E.D. Mich. filed June 17,
2008). (Dkt. 40 at 12-13.) Plaintiffs included the full Consent Decree as Exhibit I of
their response. (See Dkt. 40-20.)
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agents, and, in the alternative, there is a genuine issue of material fact
in dispute on these issues. (Dkt. 40 at 26-27.) For the reasons set forth
below, defendants’ motion is denied.
I.

Background
This is the second case brought by plaintiffs based on a loan they

made that went into default. In the first case, brought against Donald
Watkins, Sr. and his company Watkins Aviation, LLC, plaintiffs
generally alleged that Watkins made material misrepresentations
regarding his financial condition that induced plaintiffs to make the
loan, which subsequently went into default. (See Dkt. 29 at 10; Dkt. 40
at 12, 18-19.) In this case, plaintiffs allege that defendants assisted
Watkins in fraudulently misrepresenting his financial condition.
According to plaintiffs, defendants sent multiple bank letters to
plaintiffs’ designated representative in early 2008 regarding Watkins’
financial condition and capacity. (See Dkt. 40 at 13.) These letters
“specifically concerned, and verified, Watkins’ ability to personally
guarantee the contemplated $30 million loan transaction and/or to meet
his personal financial commitments.” (Id.) Plaintiffs allege that the
bank letters “each contained material misrepresentations regarding
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Watkins’ financial condition and capabilities,” which plaintiffs relied on
in making the loan. (Id. at 16-17.) Whether plaintiffs can establish
their claims against defendants is not at issue here. Rather, defendants
argue that they are entitled to summary judgment based on release.
Under the Consent Decree, plaintiffs agreed to “the release,
waiver, and discharge of the Watkins Parties and their members,
officers, agents, and attorneys from any potential claims by [plaintiffs]
based on any dealings, facts and/or circumstances that arose before
entry of [the] Consent Decree or that are related to collection activities.”
(Dkt. 40-20 at 8.) Defendants argue that as “agents” of Watkins, they
are “included within the scope of the Release,” and plaintiffs are thus
barred from bringing this suit. (Dkt. 29 at 9.) Defendants argue that
the inclusion of a release for all “companies and agents” in the first
version of the Consent Decree, its exclusion in the second version
(proposed by plaintiffs), and its inclusion again in the final version,
confirms that plaintiffs understood defendants to be within the scope of
the release. (Id. at 11-12.)

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II.

Standard
Summary judgment is proper where “the movant shows that there

is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The Court may
not grant summary judgment if “the evidence is such that a reasonable
jury could return a verdict for the nonmoving party.”

Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court “views the
evidence, all facts, and any inferences that may be drawn from the facts
in the light most favorable to the nonmoving party.” Pure Tech Sys.,
Inc. v. Mt. Hawley Ins. Co., 95 F. App’x 132, 135 (6th Cir. 2004) (citing
Skousen v. Brighton High Sch., 305 F.3d 520, 526 (6th Cir. 2002)).
III.

Analysis
Defendants are not entitled to summary judgment, because there

is, at minimum, a material dispute as to whether defendants were
Watkins’ agents under Michigan law.
Under Michigan law, “[a]gency is the fiduciary relationship that
arises when one person (a ‘principal’) manifests assent to another
person (an ‘agent’) that the agent shall act on the principal’s behalf and
subject to the principal’s control, and the agent manifests assent or
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otherwise consents so to act.” See Varlesi v. Wayne State Univ., 909 F.
Supp. 2d 827, 841 (E.D. Mich. 2012) (quoting Restatement (Third) of
Agency § 1.01 (2006)).
To establish that an agency relationship exists, the party seeking
to rely on the agency relationship must show three things: (1) the agent
has the power to alter the legal relations between the principal and
third parties; (2) the agent is a fiduciary of the principal regarding
matters within the scope of the agency; and (3) the principal has the
right to control the agent’s conduct of matters entrusted to him. See id.
at 842; see also Eyerman v. Mary Kay Cosmetics, Inc., 967 F.2d 213, 219
(6th Cir. 1992); W.C. Beardslee, Inc. v. Black, No. 04-70344, 2005 U.S.
Dist. LEXIS 22072, at *14 (E.D. Mich. Sept. 30, 2005). “Unless there is
no genuine issue of material fact, the presence, or absence, of agency
requires a factual analysis.” NLRB v. IBEW, Local 429, 514 F.3d 646,
650 (6th Cir. 2008). The Court must “look beyond [any] agreement to
the reality of the relationship between the parties.” See Eyerman, 967
F.2d at 219.2

Both parties rely on Eyerman for support, (see Dkt. 29 at 14; DKt. 40 at 27), but
that case was decided under the agency law of Ohio. See Eyerman, 967 F.2d at 219.
In any case, the Eyerman court relied on the Restatement (Second) of Agency, which
Michigan courts also rely on to decide issues related to agency. See Varlesi, 909 F.

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Defendants argue that prong one is established because plaintiffs’
complaint “makes it clear that [plaintiffs] relied on the ability and
authority of [defendant] Tate to speak on behalf of [] Watkins.” (Dkt. 29
at 15 (citing Bergin Financial, Inc. v. First American Title Co., 397 F.
App’x 119 (6th Cir. 2010).) The cited portion of Bergin does not apply,
because it relates to whether plaintiff there had established the
existence of apparent agency. See Bergin Financial, Inc., 397 F. App’x
at 127 (“Under Michigan law, apparent agency only exists where the
alleged principal [has] made a representation that leads the plaintiff to
reasonably believe that an agency existed and to suffer harm on account
of a justifiable reliance thereon.”) (internal quotations omitted). But the
relevant question here is whether defendants had the actual authority
to “bring about, modify, affect, accept performance of, or terminate
contractual obligations between” plaintiffs and Watkins.

See TAXI-

ROCKFORD v. GMC, No. 259565, 2006 Mich. App. LEXIS 1777, at *14
(Mich. Ct. App. May 30, 2006) (quoting Saums v. Parfet, 258 N.W. 235,
237 (Mich. 1935)); (see also Dkt. 29 at 15; Dkt. 29-7 at 7).

Supp. 2d at 841 n.13 (“The Restatement of Agency is routinely utilized by Michigan
courts.”) (citing cases).
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At oral argument, defendants’ counsel conceded that defendant
Tate could not himself have signed the loan agreement (or, for that
matter, other binding contracts) because this was allegedly “a limited
agency relationship.” (Dkt. 49 at 6.) Defendants’ counsel also indicated
that the alleged, limited agency relationship was “not in writing,” but
rather “was simply the way they had done things in the past.” (Id. at
7.) Asked if he could “point to testimony or anything else that would
show . . . what [defendant Tate’s] limited authority was,” defendants’
counsel responded: “Only in the sense that what he did, he testified . . .
that he did at the request and at the direction of [] Watkins.” (Id.)
Defendants’ counsel agreed that there was no evidence, “other
than . . . [defendant] Tate’s deposition[,] that would show . . . a limited
agency relationship.”

(See id.)

Without more, defendants fail to

establish that, as a matter of law, they had the ability to “bring about,
modify, affect, accept performance of, or terminate contractual
obligations between” plaintiffs and Watkins. See TAXI-ROCKFORD,
2006 Mich. App. LEXIS 1777, at *14.

Defendant Tate’s alleged

authority—characterized by defendants’ counsel as authority to review
“all of many [] Watkins’ financials,” and then “sit down with [plaintiffs’
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representative]” to “explain to him, tell him whether they’re worth X or
Y, whether they’re marketable[ or] unmarketable,” (see Dkt. 49 at 6)—
is

insufficient.

That

plaintiffs

relied

on

defendant

Tate’s

representations in making the loan determination does not itself
establish that defendant Tate, the alleged agent, had the authority to
legally bind Watkins, the alleged principal.
Defendants fail to establish the first prong, which is fatal to their
motion for summary judgment. But even if they had satisfied the first
prong, defendants fail to establish that there is no genuine issue of fact
as to the second and third prongs. Under prong two, defendants make
one conclusory statement in their brief, without citing any case law,
that defendant Tate, “as the financial advisor of [] Watkins, who worked
with him on preparing financial documents, bore a fiduciary obligation
to [] Watkins to carry out the responsibilities with respect to the
supplying of these letters and assisting [plaintiffs’ representative]’s due
diligence evaluation.”

(Dkt. 29 at 16.)

Plaintiffs responded that

“[d]efendants do not even attempt to articulate the nature or type of
fiduciary obligations [d]efendants allegedly owed to [] Watkins with
respect to the back letters,” (Dkt. 40 at 29), and defendants failed to
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address the issue in their reply, except to state that “[a]ll required
elements to prove an agency exists [sic].” (Dkt. 43 at 3.)
At oral argument, the Court asked defendants’ counsel to clarify
how the relationship was that of a fiduciary under Michigan law, and
defendants responded:
It’s a fiduciary relationship because [defendant Tate] had
access to all of the records that [plaintiffs’ representative]
had access to. He had the ability to protect those and do
things which were in [] Watkins’ best interests. He could not
take those documents that [] Watkins gave to him and share
them on the Internet, give them to anybody else. He had a
duty of loyalty to [] Watkins to assist him with providing
[plaintiffs’ representative] with the information that
[plaintiffs’ representative] wanted. That was his fiduciary
duty and not to anybody else or under any other
circumstances.
(Dkt. 49 at 17.)

Defendants have not satisfied their burden of

establishing that defendants, in their role to provide independent
verification of Watkins’ financial condition, (see, for example, Dkt. 40 at
29), bore any fiduciary obligations to Watkins. See W.C. Beardslee, Inc.,
2005 U.S. Dist. LEXIS 22072, at *14 (burden is on the party relying on
the alleged agency relationship to establish that agency existed).
Under prong three, defendants argue that they had the ability to
control the actions of defendant Tate “in that Watkins provided the
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information and reviewed all documents before they were sent out.”
(Dkt. 29 at 16.)

Plaintiffs dispute this, citing bank letters and also

Watkins’ testimony that “[d]efendants had the ability ‘to . . .
independently determine if [Tate, as the Chief Executive Officer of
Alamerica] was comfortable with the representations made [in the bank
letters].” (Dkt 40 at 29 (alterations in original).) Given this competing
evidence, there is at least a factual issue as to whether Watkins had the
ability to control defendant Tate regarding the information contained in
the letters.
Because defendants fail to establish any of the three prongs
required under the agency law of Michigan, summary judgment is
denied.
IV.

Conclusion
Defendants failed to establish that there is no genuine issue of

material fact under any of the three prongs required under the agency
law of Michigan. For the reasons set forth above, defendants’ motion for
summary judgment based on release, (Dkt. 29), is denied.
IT IS SO ORDERED.

Dated: December 2, 2015

s/Judith E. Levy
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Ann Arbor, Michigan

JUDITH E. LEVY
United States District Judge

CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing document was served
upon counsel of record and any unrepresented parties via the Court’s
ECF System to their respective email or First Class U.S. mail addresses
disclosed on the Notice of Electronic Filing on December 2, 2015.

s/Felicia M. Moses
FELICIA M. MOSES
Case Manager

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