Nolan v. Thomas
Filing
111
OPINION and ORDER Granting in Part and Denying in Part 81 & 87 Cross Motions for Summary Judgment and Denying Plaintiff's 106 Motion for Leave to Amend. Signed by District Judge Judith E. Levy. (SBur)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
David Nolan,
Plaintiff,
v.
Case No. 16-cv-12224
Judith E. Levy
United States District Judge
Ronald Thomas,
Defendant.
Mag. Judge Stephanie Dawkins
Davis
________________________________/
OPINION AND ORDER GRANTING IN PART AND DENYING
IN PART CROSS MOTIONS FOR
SUMMARY JUDGMENT [81][87] AND DENYING PLAINTIFF’S
MOTION FOR LEAVE TO AMEND [106]
This case arises out of the fractured business relationship between
defendant Ronald Thomas, a local real-estate investor, and plaintiff
David Nolan, an Australian businessman. Plaintiff brings this suit
alleging that defendant froze him out of their joint business, violating the
Uniform Partnership Act and the duties partners owe each other in the
course of running a business.
Both parties move for summary judgment, and plaintiff moves for
leave to amend his complaint. For the reasons set forth below, the
summary judgment motions are denied in part and granted in part, and
the motion for leave to amend the complaint is denied.
I.
Background
The parties’ relationship began in July 2015, when they met for the
first time in Las Vegas. (Dkt. 81-14.) Defendant followed up on their inperson meeting with an email laying out their business plan, suggesting
that they would “split equity generated, cash profits from any
transactions and any other positive cash flows 50/50.” (Id. at 3.)
Defendant also laid out the role that each party would take in the
business: “I would see [plaintiff’s] role as primarily arranging capital for
projects, evaluating deals with me and of course continuing to fine-tune
strategy and direction. My role would be overseeing everything here on
the ground, initially evaluating deals and making sure the business stays
on course[.]” (Id.)
In reply to this email, plaintiff generally agreed with defendant’s
plan, and suggested that he would come to Michigan “every 6 weeks or so
as needed.” (Dkt. 87-5 at 2.) In addition, on plaintiff’s first visit the
parties would “set up [their] LLC and associated accounts.” (Id.) Plaintiff
explained in his deposition that it was always their intent for the legal
2
structure of the entity to be an LLC. (Dkt. 87-2 at 5.) Instead of setting
up a new LLC, the parties “agreed to use Rise Above Asset Management
LLC, which [defendant] had already registered, with the view that we
would register the name Thomas Nolan LLC.” (Id.)
When, in an August 2015 email, plaintiff asked defendant what
information he needed to set up the LLC, defendant replied that doing so
was a “simple task” and that information about owners, officers, and
directors would be spelled out in an operating agreement between the
parties. (Dkt. 81-5 at 3.) Defendant followed through on this “simple task”
and changed Rise Above Asset Management LLC’s name to Thomas
Nolan LLC on October 19, 2015; however, the parties never signed the
operating agreement. (Dkt. 87-4.)
Meanwhile, the parties discussed the initial financing of the
business. At the end of September 2015, they agreed that they would each
contribute $7,000 as initial capital into the company’s bank account.
(Dkt. 87-24.) Defendant disputes whether plaintiff ever made this
payment, alleging that, at most, plaintiff only paid $4,127.90. (Dkt. 87 at
12; Dkt. 87-9.)
3
From roughly September 2015, through March or April 2016,
plaintiff and defendant operated their business buying, selling, and
renting
real
estate.
(See,
e.g.
Dkts.
87-10
(Nolan
proposing
investing/funding model for the business), 87-25 (parties discussing leads
and initial purchases), 87-26 (same), 81-25 (discussing the plan for
paying interest on a loan secured by plaintiff).) In February, 2016,
plaintiff found a third party investor to put $150,000 Australian into the
company. (Dkt. 81-25.) Also during that time, the parties engaged legal
counsel to write the operating agreement mentioned previously. (Dkt. 8120.) Defendant emailed plaintiff a final draft of this operating agreement
on April 19, 2016, but it is not clear from the record why the parties never
signed it. (Dkt. 87-14; see also Dkt. 87-21 at 3.)
At the end of March 2016, defendant began to be concerned with
plaintiff’s contributions to their business. He emailed plaintiff on March
30, 2016 regarding the imbalance between his investment – both capital
and labor – and plaintiff’s. (Dkt. 87-13.) In response, plaintiff expressed
his willingness to find a solution to the imbalance, but offered various
deferrals regarding his inability to find investors. (Id.) Six days later, on
April 5, 2016, defendant wrote to plaintiff updating him on various deals
4
in progress and on the company’s financial situation. (Dkt. 87-19.) In that
email, defendant explained that in order to close on the next deal, both
parties would need to make another capital contribution, in addition to
the $11,350 contribution defendant placed in the company’s bank account
to keep it afloat in the meantime. (Id.) Plaintiff never made this
contribution. (Dkt. 87-21.)
On May 13, 2016, defendant emailed plaintiff to suggest that they
dissolve
their
business
relationship.
(Dkt.
87-21.)
Defendant
acknowledged that he “run[s] Thomas Nolan, which [he] own[s] 50% of,”
and suggested that “Thomas Nolan LLC sign a promissory note to
[plaintiff] to pay [him] half of all cash flows (rents and sales) resulting
from all 10 of the properties.” (Id.) He also stated that plaintiff would be
paid back for his entire investment. (Id.) Plaintiff then responded,
demanding full immediate repayment of his investment, as well as a
$300,000 payment representing his equity interest in the company. (Id.)
In exchange, he would sign over all of his rights in Thomas Nolan, LLC
to defendant. (Id.) After defendant then reminded plaintiff of plaintiff’s
failure to invest an additional $20,000 as needed to close on an upcoming
property (id.), plaintiff replied with a long email reiterating his request
5
for reimbursement in full. (Dkt. 87-22.) On May 24 and May 29, the
parties exchanged a final round of emails about the state of the company
and information needed to wind it down. (Dkts. 81-8, 81-9.)
Plaintiff filed this lawsuit alleging the existence of a partnership
and violations of the Uniform Partnership Act, among other causes of
action, on June 16, 2016. On March 27, 2017, the Court issued an opinion
and order granting plaintiff’s motion to amend the complaint. (Dkt. 43.)
Plaintiff’s amended complaint re-pleaded his fraud and constructive
fraud claims as two separate counts, but his attempt to add a conversion
claim was denied as futile.
In addition, during the course of litigation, the Court appointed a
receiver to manage the properties at issue and to provide an accounting
of the parties’ assets. (Dkt. 27.) The receiver returned his final report on
November 30, 2017, which showed that ten of the fifteen properties at
issue were owned by Thomas Nolan LLC. (Dkt. 85.) It also showed that
every capital contribution made by either party went into the LLC
eventually known as Thomas Nolan. (Id. at 20-22.)
The parties now bring cross motions for summary judgment.
Plaintiff moves for partial summary judgment on counts II and III of the
6
first amended complaint for violations of the fiduciary duties partners
owe one another and violations of the Michigan Uniform Partnership Act.
(Dkt. 81.) Plaintiff’s motion is for liability only and does not include
damages. Plaintiff also moves for summary judgment on defendant’s
three counterclaims, for unjust enrichment, promissory estoppel, and
fraud. Defendant cross-moves for summary judgment on all claims in
plaintiff’s complaint. (Dkt. 87.)
II.
Legal Standard
Summary judgment is proper when “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)).
7
III. Analysis
a. Standing
To start, defendant argues that plaintiff does not have standing to
bring his claims inasmuch as they seek to recover funds a third party
investor loaned to plaintiff. Defendant asserts that the third party
investor is the actual party in interest with respect to these funds, not
plaintiff, and, thus, plaintiff cannot bring these claims.
This argument lacks merit. A plaintiff has standing to bring a claim
when he can demonstrate that he was (1) injured, (2) the defendant
caused the injury, and (3) the court can provide a remedy that redresses
the injury. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992).
Here, defendant argues plaintiff was not actually injured when he
did not recover the funds loaned by the third party because only the third
party suffered the injury. However, there is no indication from the
pleadings or briefing that plaintiff is asserting the claim on behalf of the
third party. Instead, plaintiff brings his claims to remedy an injury he
suffered when he did not recover the funds he invested in his business
relationship with defendant. It does not matter that plaintiff obtained
those funds from a third party because, once given to him, they were his
8
funds until repaid. Accordingly, losing those funds was an injury
sufficient to establish standing.
The second and third elements of standing are also satisfied here.
Plaintiff alleges he was unable to recover the funds as a result of
defendant’s malfeasance, and, if the Court were to find in his favor, it
could issue a judgment for damages that would compensate for his losses.
For these reasons, plaintiff has standing to pursue this case.
b. Existence of a Partnership
Plaintiff alleges defendant breached the parties’ contract to carry
on as fifty-fifty partners, failed to adhere to the fiduciary duties partners
owe to each other, and violated various provisions of Michigan’s Uniform
Partnership Act. (Dkt. 44 at 7-11 (Counts I-III of the First Amended
Complaint).) These three claims all depend on the existence of a
partnership, and can only succeed if one is found to exist. Plaintiff argues
judgment should be entered in his favor because the parties’ business
relationship and dealings were sufficient to form a partnership.
Defendant counterargues that they could not have formed a partnership
because plaintiff failed to meet various conditions precedent required to
become part of defendant’s business.
9
After the parties submitted their briefs on the motions, the Court
ordered supplemental briefing on the partnership issue. (Dkt. 102.) The
order asked the parties to address the applicability of Mich. Comp. Laws
§ 449.6(2), which bars the existence of a partnership when a different
corporate form is present. In the supplemental briefing, defendant argues
that under Michigan law a partnership and an LLC are mutually
exclusive corporate forms, and, accordingly, one entity cannot be both a
partnership and an LLC at the same time. (Dkt. 104.) Plaintiff responds
by arguing that plaintiff was a member of defendant’s LLC because of his
investment,1 and, in the alternative, that the LLC was improperly formed
and thus a partnership existed. (Dkt. 105.)
Michigan implemented the Uniform Partnership Act of 1917
(“UPA”), a law adopted by a number of states around that time to “make
uniform the law relating to partnerships.” See Mich. Comp. Laws Ann. §
Ch. 449, Refs & Annos (West); see also Byker v. Mannes, 465 Mich. 637,
Plaintiff spends the vast majority of his brief laying out this argument, but,
ultimately, it has no bearing on the outcome of this case. Even if the Court accepts
plaintiff’s argument that he was a member of defendant’s LLC, it provides plaintiff
no relief because he asserts no claims that turn on whether he was a member of an
LLC. Instead, plaintiff’s fiduciary duty and accounting claims are brought for
violations of the Michigan Uniform Partnership Act. (Dkt. 44 at 7-11.)
1
10
644 (2002). This statute defines a partnership as “an association of 2 or
more persons . . . to carry on as co-owners a business for profit.” Mich.
Comp. Laws § 449.6(1). It also disclaims as a partnership “any
association formed under any other statute of this state.” Mich. Comp.
Laws § 449.6(2). The UPA’s drafters included comments explaining the
various provisions of the act, and those comments make clear that
“[s]ubsection (b) provides that business associations organized under
other statutes are not partnerships. Those statutory associations include
corporations, limited partnerships, and limited liability companies.”
Uniform Partnership Act of 1997 § 202 (Comment 2).2 “[G]eneral
partnership is the residual form of for profit business association,
existing only if another form does not.” Id.
Michigan law expressly precludes the existence of a partnership in
this case because the parties conducted all of their business through an
LLC. There is ample evidence in the record indicating that the parties’
LLC – first called Rise Above Management LLC, and later changed to
Thomas Nolan LLC – was the primary vehicle for their business.
Although Michigan’s legislature did not adopt the amendment to the UPA, the
Michigan Supreme Court has explicitly held “that MCL § 449.6 is consistent with
that amendment.” Byker, 465 Mich. at 645.
2
11
For example, in plaintiff’s deposition, defendant’s counsel asked
plaintiff about his understanding of the structure of the business he was
forming with defendant. (Dkt. 87-2 at 5.) Plaintiff responded “[i]t was
supposed to be an LLC. We, from memory as I sit here today, agreed to
use Rise Above Asset Management LLC, which Ron had already
registered, with the view that we would register the name Thomas Nolan
LLC . . . .” (Id.) The Articles of Organization for this LLC, as well as the
amendment changing its name, are part of the record in this case. (Dkt.
87-4.) Further, the Court-appointed receiver reported that all of the funds
plaintiff contributed to the alleged partnership were deposited directly
with the LLC, and that each of the disputed properties was either
purchased using an LLC, or directly by defendant outside of the parties’
business relationship. (Dkt. 85.)
Michigan courts have not yet interpreted the language of § 449.6(2),
but courts in other states have interpreted substantially similar
provisions of their own state laws. In those cases, the courts found that
evidence of a non-partnership corporate form precludes the existence of
a partnership. Defendant relies on two such cases: Vortex Corp. v.
12
Denkewicz, 235 Ariz. 551 (Ct. App. 2014) and Chevalier v. Woempner, 172
Wash. App. 467 (2012).
In Chevalier, the Washington Court of Appeals explained that
under a partnership statute similar to Michigan’s, “it is irrelevant
whether the parties intended to use the corporate form merely as a
medium for representing their partnership because [the statute] provides
that once an association has been formed under another statute, that
association is not a partnership.” Chevalier, 172 Wash. App. at 479. This
case is nearly identical. Plaintiff’s position is that he and defendant
formed a partnership to operate Thomas Nolan LLC, the entity that
eventually purchased the properties that were the subject of the
business. But, since the LLC existed at all times during the parties’
relationship and the parties used it to conduct all of their business, their
relationship could not have been a partnership. An LLC is formed under
a different statute than a partnership, and “once an association has been
formed under another statute, that association is not a partnership.” See
id.3
Plaintiff attempts to distinguish Chevalier by suggesting that the court did not
evaluate the evidence of partnership formation “because it concluded the operative
document was a sale document that merely conveyed an option, which was never
3
13
Vortex Corp. similarly supports defendant’s position. There, the
Arizona Court of Appeals held that “because the parties were already
working together through a corporate association and an LLC
association” their relationship was not that of partners. Vortex Corp., 235
Ariz. at 557. Indeed, the Arizona statute, which is nearly identical to
Michigan’s, only “create[s] a partnership when the parties do not already
have an established form of business entity or association.” Id.
The facts here are similar. Plaintiff’s initial investment in the
venture went directly into the LLC, and that LLC went into operation by
purchasing most of the properties identified in the receiver’s report. (Dkt.
85 at 20-21.) The business never existed independent of the LLC. For that
reason, the “parties were already working together through . . . an LLC
association” and thus a partnership could not exist. See Vortex, 235 Ariz.
at 557.
Plaintiff argues that Vortex is distinguishable because, there, the
parties’ business relationship pre-dated the alleged formation of a
partnership. But here, plaintiff and defendant never operated their
established at trial.” (Dkt. 105 at 5.) This argument fails because, here, the existence
of the LLC, on its own, precludes the existence of a partnership, making any
evaluation of the evidence of partnership formation irrelevant.
14
business in any way that was separate from the LLC. For plaintiff’s
argument to succeed, the parties would have had to start their operations
prior to forming the LLC, but there is no evidence that is the case. (See
Dkt. 85 at 20-21 (cataloguing each of plaintiff’s investments and showing
that they all went to Rise Above Asset Management LLC or Thomas
Nolan LLC).)
In all, the evidence shows that plaintiff and defendant had a
business relationship that operated through an LLC. This relationship
obligated each with a duty of care to the other. See generally Bromley v.
Bromley, No. 05-71798, 2006 WL 1662552 (E.D. Mich. Jun. 7, 2006).
However, because plaintiff and defendant’s business involved operating
an LLC, they could not have formed a partnership. See Mich. Comp. Laws
§ 449.6(2). Absent a valid partnership, plaintiff is not entitled to recovery
on his claims for breach of a partnership contract, breach of partnership
fiduciary duties, and violation of the Michigan Uniform Partnership Act.
Accordingly, summary judgment is granted to defendant on Counts I
(breach of contract to form a partnership), II (breach of fiduciary duties
owed in a partnership), and III (violation of the Michigan Uniform
Partnership Act) of the First Amended Complaint.
15
c. Plaintiff’s Fraud Claim
Counts IV and V of plaintiff’s complaint allege fraud against
defendant, and defendant moves for summary judgment on those counts.
Defendant claims there is no evidence in the record indicating that
fraud occurred, and the fraudulent activity plaintiff identifies in his
complaint – such as the sale of one property at a price below asking and
defendant’s failure to sign the LLC operating agreement – has innocent
explanations. (Dkt. 87 at 25-26.)
Plaintiff counters by presenting the affidavit of an accountant who
points out a series of accounting irregularities regarding the Thomas
Nolan LLC bank account. (Dkt. 93-3.) The accountant identifies as
fraudulent a number of payments Thomas Nolan LLC made to defendant
under allegedly suspicious circumstances, including withdrawals of
funds “wrongfully deposited in this account” for which there is no
evidence of an initial wrongful deposit; a lack of disbursements of returns
on investment to plaintiff; and the repayment of two loans for which there
was no initial deposit of loan funds in the Thomas Nolan LLC bank
account. (Id.) Plaintiff also cites a discrepancy between the number of
properties defendant represented that the company owned and the
16
number of properties found in the first receivership report. (Dkt. 93 at
21.)
Under Michigan law, a plaintiff claiming fraud must show:
(1) the defendant made a material representation; (2) the
representation was false; (3) when the defendant made the
representation, the defendant knew that it was false, or made
it recklessly, without knowledge of its truth and as a positive
assertion; (4) the defendant made the representation with the
intention that the plaintiff would act upon it; (5) the plaintiff
acted in reliance upon it; and (6) the plaintiff suffered
damage.
Belle Isle Grill Corp. v. Detroit, 256 Mich. App. 463, 477 (2003) (quoting
M & D Inc. v. McConkey, 226 Mich. App. 801, 806 (1997)).
Plaintiff cannot demonstrate an issue of material fact precluding
summary judgment on his fraud claim. Even though plaintiff’s
accountant has identified irregularities in the management of the
Thomas Nolan LLC bank account, such conduct is not fraud under
Michigan law.
The essence of this type of fraud claim is that the defendant
knowingly misrepresented something material to the plaintiff in order to
induce the plaintiff’s reliance. When plaintiffs prevail in fraud cases, they
do so in the face of clear evidence that the defendant was aware of some
17
material fact and still misrepresented it in order to induce the plaintiff
to take some course of action.
For example, in Electric Stick, Inc. v. Primeone Insurance Co., the
Michigan Court of Appeals held a party liable for fraud where it failed to
disclose each of the bankruptcy proceedings in which it was involved for
the preceding five years on an application for an insurance policy. Elec.
Stick, Inc. v. Primeone Ins. Co., No. 327421, 2016 WL 4954423, *2 (Mich.
Ct. App. Sept. 15, 2016). The owner of the party held liable “conceded
during his deposition that he was indeed aware of the multiple
bankruptcy proceedings . . . and could not give a plausible explanation
regarding why this information was not provided” in the application. Id.
This material misrepresentation was fraudulent because the counterplaintiff
insurance
company
relied
on
the
counter-defendant’s
representations about its financial health in deciding to issue it an
insurance policy. Id.
Similarly, in Demil v. Demil, a divorce case in which the court was
tasked with distributing the proceeds of a tax refund from a joint filing,
the Michigan Court of Appeals held that the defendant perpetrated fraud
when the plaintiff stated on the record that she believed the refund was
18
worth $2,300, and the defendant did not correct her, despite having
already received a $34,000 refund from the IRS. Demil v. Demil, No.
323205, 2015 WL 6161801, *6 (Mich. Ct. App. Oct. 20, 2015). The plaintiff
relied on the defendant’s stated valuation of the tax refund in entering a
consent agreement to resolve their divorce. Id.
Here, plaintiff does not make a similar evidentiary showing. He has
not clearly identified the material misrepresentation defendant made,
pointed to any evidence indicating that defendant intentionally or
recklessly made a false statement, nor demonstrated that he relied on
the false statement. Reading the motion in the light most favorable to
plaintiff as the non-moving party, it is possible that plaintiff seeks to
argue that there are two material misstatements: (1) that the books and
records showed only eight joint properties despite the receivership report
showing fifteen, and (2) that the various disbursements from the Thomas
Nolan LLC bank account were for the reasons stated. (See Dkt. 93 at 21.)
Premising a fraud claim on these two statements runs into two
problems. First, plaintiff does not point to any evidence that these
representations were intentionally or recklessly false when made. With
respect to the alleged misreporting of properties in the company’s
19
records, the Court appointed a receiver to resolve a good faith dispute
between the parties regarding which properties were part of their
business. At the most, there is evidence of a question of fact as to the
truth of that representation based on the receiver’s report, but plaintiff
has not carried his burden of bringing forth evidence of defendant’s intent
to mislead. Similarly, there is no evidence that the statements
surrounding the disbursements from the Thomas Nolan LLC bank
account were intentionally false. Plaintiff’s only evidence on this issue is
his own accountant’s affidavit. (Dkt. 93-3.) That affidavit identifies the
allegedly improper transactions, but it cannot speak to defendant’s
intent, nor does it.
The second issue regarding these two statements is that plaintiff
did not “act[] in reliance upon” them. See Belle Isle Grill Corp., 256 Mich.
App. at 477. Unlike in Electric Stick, where the insurance company relied
on the material misrepresentation in deciding to issue a policy,
defendant’s alleged misrepresentations did not cause plaintiff to engage
in any course of action. In fact, both of these statements occurred after
the parties’ business relationship was underway, and, for that reason, it
20
is not clear how plaintiff could have acted in reliance upon them. Absent
a showing of reliance, plaintiff’s fraud claim cannot go forward.
To be fair, plaintiff’s accountant does appear to have identified
irregularities in defendant’s management of Thomas Nolan LLC’s bank
account. The receiver and plaintiff’s accountant agree that Thomas Nolan
LLC repaid two loans to defendant’s wife and personal friend despite no
evidence of the loan funds ever having been deposited in the company’s
bank account. Similarly, defendant made two withdrawals of funds
“wrongfully deposited in this account” even though there is no record of
the initial wrongful deposit. However, this conduct is not fraud as defined
by the Michigan courts. It may violate the duties owed by an officer of an
LLC to the shareholders or investors, but there is no such claim in this
case.
In sum, plaintiff has not carried his evidentiary burden on his fraud
claim because he has not pointed to any evidence in the record that would
demonstrate that the relevant statements were intentionally false or that
he relied upon them. Accordingly, summary judgment is granted for
defendant on plaintiff’s fraud claim.
21
d. Defendant’s Counterclaims
Plaintiff
moves
for
summary
judgment
on
defendant’s
counterclaims. Defendant asserts three counterclaims against plaintiff:
unjust enrichment, promissory estoppel, and fraud. Because there is no
evidence in the record to support any of his theories of recovery, summary
judgment for plaintiff is warranted on each counterclaim.
i. Unjust Enrichment
To make out a claim for unjust enrichment, a plaintiff must
demonstrate “(1) receipt of a benefit by the defendant from the plaintiff
and (2) an inequity resulting to plaintiff because of the retention of the
benefit by defendant.” Barber v. SMH (US), Inc., 202 Mich. App. 366, 375
(1993) (citing Dumas v. Auto Club Ins. Ass’n, 437 Mich. 521, 546 (1991)).
“Where the elements of unjust enrichment are established, ‘the law will
imply a contract in order to prevent unjust enrichment.’” Cooper v. Dean,
No. 283244, 2010 WL 1223160, at *6 (Mich. Ct. App. Mar. 30, 2010)
(quoting Belle Isle Grill Corp., 256 Mich. App. at 478).
Defendant alleges the benefit plaintiff gained from the parties’
business dealings is “valuable insight into the local real estate market as
well as proprietary information concerning defendant’s business.” (Dkt.
22
91 at 22.) However, this benefit is not sufficiently tangible to recover for
unjust enrichment. Even if it is, defendant makes no argument as to why
plaintiff’s retention of this knowledge is inequitable in light of the money
plaintiff invested in the parties’ business relationship. See Matar v.
Joobeen, No. 274669, 2008 WL 466857, *5 (Mich. Ct. App. Feb. 21, 2008)
(requiring accounting evidence of an inequity more substantial than the
parties’ stipulated accounting numbers to find for plaintiff on his unjust
enrichment claim).
Summary judgment is granted for plaintiff on this claim.
ii. Promissory Estoppel
The elements of a promissory estoppel claim are
(1) a promise; (2) that the promisor should reasonably have
expected to induce action of a definite and substantial
character on the part of the promisee; (3) which in fact
produced reliance or forbearance of that nature; and (4) in
circumstances such that the promise must be enforced if
injustice is to be avoided.”
Schipani
v.
Ford
Motor
Co.,
102
Mich.
App.
606,
612–13
(1981), disapproved of on other grounds by Ferrett v. Gen. Motors Corp.,
438 Mich. 235 (1991). This doctrine is “cautiously applied,” and its “sine
23
qua non . . . is a promise that is definite and clear.” Marrero v. McDonnell
Douglas Capital Corp., 200 Mich. App. 438, 442 (1993).
According to defendant, he “relied on plaintiff’s assurances that
plaintiff would satisfy the [] criteria” defendant had set out for plaintiff
to join his business. (Dkt. 91 at 23.) In reliance on these assurances,
“defendant committed himself and the LLC to acquiring more properties,
and, accordingly, more obligations.” (Id.) In response, plaintiff argues
that defendant fails to identify any clear and definite promise by plaintiff
or a detriment that defendant suffered. (Dkt. 94 at 6.)
Defendant may be correct that he relied on plaintiff’s assertions
that plaintiff would invest both capital and labor into the parties’
business relationship, but he fails to state with any specificity what
detriment he suffered. The only detriment defendant identifies is that he
“was damaged” as a result of his reliance on plaintiff’s promises. (Dkt. 91
at 23.) Absent allegations of an actual detriment, defendant cannot make
out a claim for promissory estoppel.
For this reason, summary judgment is granted for plaintiff on this
claim.
24
iii. Fraud
The same legal principles discussed above with respect to plaintiff’s
fraud claim against defendant apply to defendant’ fraud claim against
plaintiff. Defendant alleges that plaintiff committed fraud because he
made various representations about the capital and labor he would
commit to the parties’ business, but did so knowing “that those
representations were false.” (Dkt. 91 at 24.) Defendant cites nothing in
the record to support this assertion. In the absence of such evidence,
defendant has failed to create a genuine issue of material fact, and
summary judgment is granted for plaintiff on this claim.
In sum, each of defendant’s counterclaims fail for the reasons set
forth above. Accordingly, summary judgment is granted for plaintiff on
each of the counterclaims.
IV.
Plaintiff’s Motion to Amend the Complaint
During oral argument on the cross motions for summary judgment,
plaintiff’s counsel made an oral motion for leave to amend the complaint,
and, two days later, plaintiff filed a motion for leave to amend. (Dkt. 106.)
Plaintiff seeks to amend his complaint to assert new claims under the
Michigan Limited Liability Company Act.
25
Plaintiff makes two arguments in favor of amending the complaint:
amendment is necessary to “conform the pleadings to the proofs” and
amendment would not be futile. (Dkt. 106 at 8.) Defendant responds by
arguing that amendment would be futile, prejudicial, and was unduly
delayed. (Dkt. 108.)
Federal Rule of Civil Procedure 15(a) allows a plaintiff to amend
the complaint “once as a matter of course within 21 days after serving it”
or with “the court’s leave” which is given “freely . . . when justice so
requires.” Fed. R. Civ. P. 15(a). However, motions for leave to amend are
not granted “in cases of undue delay, undue prejudice to the opposing
party, bad faith, dilatory motive, repeated failure to cure deficiencies by
amendments previously allowed, or futility.” Duggins v. Steak 'N Shake,
Inc., 195 F.3d 828, 834 (6th Cir. 1999) (citing Foman v. Davis, 371 U.S.
178, 182 (1962)). “Notice and substantial prejudice to the opposing party
are critical factors in determining whether an amendment should be
granted.” Wade v. Knoxville Utilities Bd., 259 F.3d 452, 458–59 (6th Cir.
2001) (quoting Head v. Jellico Hous. Auth., 870 F.2d 1117, 1123 (6th Cir.
1989)).
26
“Delay by itself is not a sufficient reason to deny a motion to
amend,” id., but, a party seeking to amend “should act with due diligence
if it wants to take advantage of the Rule’s liberality.” Lipa v. Asset
Acceptance, LLC, 572 F. Supp. 2d 841, 853 (E.D. Mich. 2008) (quoting
Parry v. Mohawk Motors of Mich., Inc., 236 F.3d 299, 306 (6th Cir. 2000))
(internal quotations removed). “When amendment is sought at a late
stage in the litigation, there is an increased burden to show justification
for failing to move earlier.” Wade, 259 F.3d at 459.
Circuit courts generally agree that “allowing amendment after the
close of discovery creates significant prejudice” to the defendant, and
courts routinely deny motions to amend when they are filed in the late
stages of a lawsuit. Duggins, 195 F.3d at 834 (affirming denial of a motion
to amend as the result of undue delay where the plaintiff filed the motion
after the dispositive motion deadline had passed and dispositive motions
were filed, and which sought to add claims based on facts known
throughout the litigation); see also Wade, 259 F.3d at 459 (adopting the
district court’s explanation that a motion to amend filed after the
dispositive motion deadline passed and a motion for summary judgment
had been filed was unduly delayed); Szoke v. United Parcel Serv. of Am.,
27
Inc., 398 F. App’x 145, 152-53 (6th Cir. 2010) (affirming denial of a motion
to amend when the motion was filed “after the district court had granted
summary judgment on [the] ERISA claims and while motions for
summary judgment were pending on all remaning claims of the Amended
Complaint”).
Delay “may be excused in the case of newly discovered evidence or
a change in the law.” Lipa, 572 F. Supp. 2d at 855. But, a motion for leave
to amend is prejudicial, even if the delay on its own is not undue, when
the party seeking leave has been aware of the facts giving rise to its new
claims throughout the litigation. See, e.g., Szoke, 398 F. App’x at 153
(finding prejudice when the plaintiff sought to add a new defendant at
summary judgment despite learning that entity’s identity in the original
defendant’s answer); Wade, 259 F.3d at 459 (affirming a district court’s
finding of prejudice when plaintiff brought a claim of disability
discrimination before the EEOC but did not assert it in the complaint,
and sought leave to add it after discovery closed); Lipa, 572 F. Supp. 2d
at 855 (determining that an amendment brought late in litigation was
prejudicial when the deficiency it sought to correct was apparent from
defendant’s motion to dismiss).
28
Here, plaintiff’s motion to amend fails because it was both unduly
delayed and would cause substantial prejudice to defendant. First,
plaintiff’s motion was unduly delayed because he brings it not just after
the close of discovery, but after oral argument on the parties’ cross
motions for summary judgment. Moreover, this is the second time in this
case plaintiff has sought leave to amend the complaint. This case has
been pending for nearly two years, and plaintiff waited until the last
possible minute to file this motion. Such delay triggers “an increased
burden to show justification for failing to move earlier,” a burden that
plaintiff has not carried. See Wade, 259 F.3d at 459.
Plaintiff’s only justification for the delay in filing this motion is that
the motion seeks to “allow the pleadings to conform to the evidence.” (Dkt.
106 at 6.) To support this argument, plaintiff cites to Federal Rule of Civil
Procedure 15(b), “Amendments During and After Trial,”4 which allows a
“party [to] move—at any time, even after judgment—to amend the
pleadings to conform them to the evidence and to raise an unpleaded
issue.” Fed. R. Civ. P. 15(b)(2). However, this rule allows parties to amend
pleadings to conform to the evidence “[w]hen an issue not raised by the
4
Rule 15(a) is the applicable rule for “Amendments Before Trial.”
29
pleadings is tried by the parties’ express or implied consent.” Id.
(emphasis added). In other words, a party can only invoke Rule 15(b)
during and after trial, and, even then, only if an unpleaded issue was
actually tried. See Siler v. Webber, 443 F. App’x 50, 58 (6th Cir. 2011)
(holding that an attempt to amend under 15(b)(2) failed because
“Plaintiffs have not shown that the § 1983 issue was ‘tried by the parties'
... consent,’ for the Supervisors opposed such trial” by moving for
summary judgment); McColman v. St. Clair Cty., 479 F. App’x 1, 6 (6th
Cir. 2012) (“By its plain terms, Rule 15(b)(2) only applies to claims that
are tried, and this case was disposed of on summary judgment.”); Webb
v. Ky. State Univ., 468 F. App’x 515, 520 (6th Cir. 2012) (“Rule 15(b)
contemplates amendments during and after trial.”)
Rule 15(b) is not applicable in this case because this case has not
yet reached trial, and the plain language of the rule limits its
applicability to “Amendments During and After Trial.”5 Moreover, the
Plaintiff relies on Smith v. Transworld Sys., Inc., for the proposition that Rule
15(b)(2) applies at summary judgment as well as at trial. 953 F.2d 1025, 1030 (6th
Cir. 1992). Plaintiff is correct the panel in that case applied Rule 15(b)(2) at summary
judgment, but that holding is limited to the specific factual scenario presented there.
In Transworld, the defendant raised a new affirmative defense in its motion for
summary judgment, and the plaintiff, while objecting that the defense had not been
pleaded, responded to it on the merits. Id. The court held that the plaintiff failed to
5
30
claims plaintiff seeks to add – violations of the Michigan Limited
Liability Company Act – were not addressed in the adjudication of the
summary judgment motions. The hearing on those motions focused only
on the claims pleaded in the complaint. Because plaintiff has no valid
justification for the delay in filing this motion, and the motion comes after
oral argument on cross motions for summary judgment, plaintiff’s delay
was undue.
Second, amendment would prejudice defendant because plaintiff
does not rely on any new evidence or a change in law to support his
additional claims. Instead, plaintiff seeks to assert claims known to him
since the outset of litigation. In the factual background section of the
original complaint, plaintiff alleges defendant “filed paperwork with the
State of Michigan to create a new limited liability company, Thomas
Nolan, LLC, intending that it would be the entity through which the two
would conduct business.” (Dkt. 1 at 4.) To support this allegation,
“demonstrate prejudice” from the new defense, and allowed it. Id. The facts of this
case are quite different. Plaintiff seeks to amend his complaint to add entirely new
claims, not defenses, and defendant has not responded to those new claims on the
merits. Furthermore, as discussed below, defendant has demonstrated that adding
these claims would prejudice him. Thus, even if Rule 15(b)(2) applied at summary
judgment, which it does not by its plain language, this case does not warrant its
application.
31
plaintiff attached the Articles of Incorporation for that LLC to the
complaint as Exhibit 2. (Dkt. 1-3.) Plaintiff offers no explanation for his
failure to assert claims based on the Michigan Limited Liability
Company Act at any point in the litigation despite having been aware of
the existence of the relevant LLC from the beginning.
Accordingly, plaintiff’s motion to amend, which comes “after the
close of discovery[,] creates significant prejudice” to defendant. Duggins,
195 F.3d at 834. If the motion were granted, the parties’ pending motions
for summary judgment would no longer be dispositive, and they would
incur the expenses additional litigation would generate. The parties have
already sunk two years of time and tens of thousands of dollars into this
litigation, including the receiver’s fees. Plaintiff now seeks a do-over,
having seen the writing on the wall at oral argument that his claims as
pleaded would not succeed. It is far too late for this litigation to restart
with brand new claims, and allowing it to do so would substantially
prejudice defendant.
Because the motion to amend was brought with undue delay and
granting it would substantially prejudice defendant, the Court need not
address whether the amendment would be futile.
32
Accordingly, plaintiff’s motion to amend is denied.
V.
Conclusion
In sum, none of the claims asserted in this action survive summary
judgment. Plaintiff’s claims that depend on the existence of a partnership
are dismissed because there is no dispute of fact that the parties’ business
relationship operated through an LLC, and an LLC cannot be a
partnership as a matter of law. In addition, plaintiff’s fraud claims are
dismissed because there is no evidence in the record indicating that
defendant intentionally or recklessly made false or misleading
statements, and, even if there is such evidence, there is no evidence
plaintiff relied on those statements to his detriment.
Similarly each of defendant’s counterclaims are dismissed for lack
of evidence. Plaintiff is entitled to summary judgment on defendant’s
unjust enrichment claim because there is no evidence that defendant
obtained any benefit from plaintiff, nor is there evidence that retention
of any benefit was inequitable. Defendant’s promissory estoppel claim is
unsuccessful because there is no evidence that he suffered any detriment.
Defendant’s fraud claim fails because there is no evidence that plaintiff
intentionally or recklessly made a false statement.
33
Plaintiff’s motion to amend the complaint is denied because the
motion was brought after undue delay and granting it would
substantially prejudice defendant.
IT IS SO ORDERED.
Dated: June 26, 2018
Ann Arbor, Michigan
s/Judith E. Levy
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 June 26, 2018.
s/Shawna Burns
SHAWNA BURNS
Case Manager
34
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