Nolan v. Thomas

Filing 43

MEMORANDUM OPINION and ORDER Granting in Part and Denying in Part 40 MOTION to Amend/Correct - Signed by District Judge Judith E. Levy. (FMos)

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 MOTION TO AMEND COMPLAINT [40]
Before the Court is plaintiff David Nolan’s motion to amend the
complaint against defendant Ronald Thomas. (Dkt. 40.)
For the reasons set forth below, plaintiff’s motion is granted in part
and denied in part.
I.

Background
Plaintiff David Nolan has filed a complaint against defendant

Ronald Thomas in relation to the dissolution of an alleged business
partnership between the parties. The facts of this case are set forth in
detail in the Court’s December 20, 2016 opinion and order (Dkt. 27), and

are incorporated by reference here. In the complaint, plaintiff brought
claims for breach of contract (Count I), breach of fiduciary duties (Count
II), violations of the Michigan Uniform Partnership Act (Count III), a
formal account (Count IV), fraud and constructive fraud (Count V), and
unjust enrichment (Count VI). (See Dkt. 1.)
On February 1, 2017, the Court granted in part and denied in part
defendant’s motion to dismiss. Of relevance here is Count V, alleging
fraud and constructive fraud, which the Court dismissed without
prejudice. (Dkt. 34 at 2.)
On March 2, 2017, plaintiff filed this motion to amend the
complaint, requesting to replead Count V as two separate counts and add
a new count for conversion. (Dkt. 40 at 5.) Defendant objects to the
motion insofar as plaintiff seeks to add a claim for conversion. (Dkt. 41
at 7–8.)
II.

Legal Standard
Fed. R. Civ. P. 15(a)(2) instructs courts to “freely give leave [to

amend] when justice so requires.” But “[a] motion to amend a complaint
should be denied if the amendment is brought in bad faith, for dilatory
purposes, results in undue delay or prejudice to the opposing party, or
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would be futile.” Colvin v. Caruso, 605 F.3d 282, 294 (6th Cir. 2010)
(internal citations omitted).
III. Analysis
Plaintiff seeks to replead the fraud and constructive fraud claim
and to add a count for conversion.
Fraud and Constructive Fraud
Plaintiff seeks to replead his fraud and constructive fraud claims as
two counts.
To state a claim for fraud under Michigan law, a plaintiff must show
“(1) [t]hat defendant made a material representation; (2) that it was false;
(3) that when he made it he knew that it was false, or made it recklessly,
without any knowledge of its truth, and as a positive assertion; (4) that
he made it with the intention that it should be acted upon by plaintiff; (5)
that plaintiff acted in reliance upon it: and (6) that he thereby suffered
injury.” Talton v. BAC Home Loans Servicing LP, 839 F. Supp. 2d 896,
913 (E.D. Mich. 2012) (quoting Hi-Way Motor Co. v. Int’l Harvester Co.,
398 Mich. 330, 336 (1976); Higgins v. Lawrence, 107 Mich. App. 178, 184
(1981)); see also Titan Ins. v. Hyten, 491 Mich. 547, 555 (2012) (citations
and quotations omitted).
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“Constructive fraud is actual fraud without the element of intent.”
Talton, 839 F. Supp. 2d at 913. In other words, “actual fraud is an
intentional misrepresentation that a party makes to induce detrimental
reliance, while constructive fraud is a misrepresentation that causes the
same effect, but without a purposeful design to defraud.” Id. (quoting
Feldkamp v. Farm Bureau Ins. Co., No. 272855, 2009 WL 103223, at *5
(Mich. Ct. App. Jan. 15, 2009).
Under the Federal Rules of Civil Procedure, “a party must state
with particularity the circumstances constituting fraud or mistake.” Id.;
Fed. R. Civ. P. 9(b).
In the proposed amended complaint, plaintiff has alleged defendant
made false statements and misrepresentations with respect to the status
of the alleged partnership to induce plaintiff to invest capital in it, and
made false reports to induce plaintiff to accept a payout smaller than that
to which he was entitled. (Dkt. 40-2 at 13–16.) Plaintiff has also pleaded
that defendant knew the statements were false when made, and that
plaintiff relied on defendant’s misrepresentations to his financial
detriment.

(Id.)

Thus, plaintiff has sufficiently pleaded fraud and

constructive fraud. Nothing suggests plaintiff’s request to replead these
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claims was done in bad faith, for dilatory purposes, would result in undue
delay or prejudice defendant, or would be futile. Accordingly, plaintiff’s
motion to replead these counts is granted.
Conversion
Plaintiff seeks to add a new count for statutory conversion, MICH.
COMP. LAWS § 600.2919a. Plaintiff alleges defendant converted property
and assets by (1) concealing the properties in which plaintiff, through the
alleged partnership, had a financial stake, and (2) by falsely reporting
the income owed to plaintiff.

Defendant opposes this portion of the

motion to amend, arguing the amendment is futile. (Dkt. 41 at 7–8.)
A claim for statutory conversion “consists of knowingly buying,
receiving, or aiding in the concealment of stolen, embezzled, or converted
property.” Olympic Forest Prods., Ltd. v. Cooper, 148 F. App’x 260, 265
(6th Cir. 2005) (citing MICH. COMP. LAWS § 600.2919a).1 But “simply

Plaintiff argues that all case law interpreting this statute prior to 2005 is
inapplicable because the statute was amended in 2005. (Dkt. 42 at 3.) Plaintiff’s
argument is unpersuasive. As the Supreme Court of Michigan has held, the present
form of MICH. COMP. LAWS § 600.2919a “is substantially similar to the former
version,” and was amended only to extend its reach from “third parties who aided
another’s act of conversion” to “the person who directly converted or embezzled.”
Dep’t of Agric. v. Appletree Mktg, LLC, 485 Mich. 1, 9 n.16 (2010). When the
legislature intends to substantially alter the elements of a crime and the existing case
law interpreting the statute, it knows how to do so. In the absence of evidence
showing the legislature intended to do more than expand the scope of the crime, the
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retaining a particular item or sum does not amount to ‘buying, receiving,
or aiding in the concealment of stolen, embezzled or converted property.’”
Id. (quoting Lawsuit Fin. v. Curry, 261 Mich. App. 579, 593 (2004)). The
definition of “converting” is supplied by Michigan common law, which
defines conversion as “any distinct act of domain wrongfully exerted over
another’s personal property in denial of or inconsistent with the rights
therein.” In re Dantone, 477 B.R. 28, 38 (6th Cir. 2012) (bankruptcy
appellate panel).
And, in actions for conversion of money, a plaintiff must also plead
“the defendant [] have an obligation to return the specific money
entrusted to his care. The defendant must have obtained the money
without the owner’s consent to the creation of a debtor and creditor
relationship.”

Beginin v. Thomas Hosp. Grp., No. 317515, 2014 WL

6859292, at *2 (Mich. App. Dec. 4, 2014) (quoting Head v. Phillips
Camper Sales & Rental, Inc., 234 Mich. App. 94, 111–12 (1999)).
In this case, although plaintiff appears to allege conversion of
monetary and nonmonetary property, the allegations support only

prior case law addressing what elements must be pleaded to state a claim for
statutory conversion remains applicable.

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monetary conversion. With respect to the property allegedly concealed
by defendant, plaintiff’s interest in the properties was fifty percent of any
profits and cash flows generated in relation to these properties. And to
the extent plaintiff alleges defendant induced him to invest in the
partnership, the property at issue here is also money. Thus, the question
is whether defendant obtained that money without consent and had an
obligation to return it to plaintiff.
With respect to the money plaintiff agreed to invest to start the
partnership, plaintiff alleges that defendant fraudulently induced
plaintiff to invest in the partnership, which vitiates consent. However,
plaintiff has failed to allege that defendant is obligated to return the
initial investment or that there exists a creditor-debtor relationship
between the parties.

Instead, plaintiff’s allegations establish he is

entitled to fifty percent of the profits and positive cash flow resulting from
the alleged partnership. Thus, plaintiff has not pleaded a claim for
statutory conversion with respect to the initial investment funds.
Plaintiff also alleges conversion related to the profits owed to him.
As alleged, defendant is obligated to split the profits 50/50. But these
profits were not initially given by plaintiff to defendant, and therefore do
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not create the requisite creditor-debtor relationship. See AFS/IBEX of
MetaBank v. Travelers Prop. Cas. Co. of Amer., Case No. 15-11409, 2016
WL 3541214, at *5 (E.D. Mich. June 29, 2016) (no conversion where
plaintiff gave litigation proceeds to agency because no creditor-debtor
relationship established). Thus, plaintiff has not pleaded a conversion
claim with respect to the profits owed.
As set forth above, plaintiff has not pleaded a conversion claim, and
the proposed amendment would be futile. Accordingly, plaintiff’s motion
to amend the complaint to add the conversion claim is denied.
IV.

Conclusion

For the reasons set forth above, plaintiff’s motion to amend the
complaint (Dkt. 40) is GRANTED IN PART as to the fraud and
constructive fraud claims, and DENIED IN PART as to the conversion
claim.
IT IS SO ORDERED.
Dated: March 27, 2017
Ann Arbor, Michigan

s/Judith E. Levy
JUDITH E. LEVY
United States District Judge

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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 March 27, 2017.
s/Felicia M. Moses
FELICIA M. MOSES
Case Manager

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