Ryan Racing, LLC v. Gentilozzi et al

Filing 162

OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

RYAN RACING, LLC,
Plaintiff,
Case No. 1:12-CV-488
v.
HON. ROBERT HOLMES BELL
PAUL GENTILOZZI, et al.,
Defendants.
/
OPINION
This is an action filed by Ryan Racing, LLC, to collect on a state court judgment
against Defendant Rocketsports, Inc. Defendants in this action include Rocketsports, Paul
Gentilozzi, RSR Racing, LLC, and six real estate companies owned by Defendant Gentilozzi
(the “Real Estate Defendants”).1 This matter is before the Court on all Defendants’ motions
in limine to preclude expert reports (ECF Nos. 121, 130), Defendant RSR Racing, LLC’s
motion to dismiss Count 3 alleging successor liability, (ECF No. 142), Defendant
Gentilozzi’s motions to dismiss and for partial summary judgment on Count 4 alleging
piercing the corporate veil (ECF Nos. 144 & 146), all Defendants’ motion for partial
summary judgment on Counts 1 and 2 alleging fraudulent transfer and conspiracy (ECF

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The Real Estate Defendants are Gentilozzi Real Estate and Management Company,
Inc., d/b/a Gentilozzi Real Estate, Inc., Victor Development II, LLC, Atrium Partners,
Westland Center Partners, 320 North Washington Square Partnership, and 3400 West Road,
LLC.

Nos.149), and on Plaintiff’s cross-motion for summary judgment on all four counts of its
complaint (ECF No. 151). For the reasons that follow, all of the motions will be denied.
I. FACTUAL BACKGROUND
Ryan Hunter-Reay is a professional race car driver who conducts his business
activities through Plaintiff Ryan Racing, LLC. Defendant Paul Gentilozzi is the sole owner
of Defendant Rocketsports Racing, Inc. (“Rocketsports”), a race car team he formed in 1991.
Gentilozzi was Rocketsports’ sole owner. In 2005, Hunter-Reay entered into a one-year race
car driver agreement with Rocketsports. Rocketsports terminated Hunter-Reay’s driving
contract prior to the end of the contract term.
On May 9, 2008, Ryan Racing, together with

Hunter-Reay and R&R Racing

Enterprises LLC, filed a demand for arbitration against Rocketsports for breach of contract.
(Arb. Demand, ECF No. 147-5; Afendoulis Decl. ¶ 3, ECF No. 152-4.) The claimants
alleged that Rocketsports breached the driver agreement by terminating Ryan prior to the end
of the contract term, failing to provide him with equipment and engineering support, and
making false statements that were disparaging to Ryan’s reputation. (Afendoulis Decl. ¶ 4.)
The arbitration took place over several days in June 2009. (Id. at ¶ 6.) On August 18, 2009,
the arbitrator issued an award in favor of the claimants in the amount of $2,720,980. (Arb.
Award, ECF No. 152-3.) On September 30, 2009, the Ingham County Circuit Court entered
a judgment confirming the arbitration award in favor of Ryan Racing in the amount of
$2,720,980 plus interest. Ryan Racing, LLC v. Rocketsports, Inc., No. 09-1170-PZ (Ingham

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Cnty. Cir. Ct.). (ECF No. 1-1.)
On April 15, 2009, Gentilozzi filed articles of organization with the state for a new
limited liability company, RSR Racing, LLC (“RSR”). (Gentilozzi Dep. 175, ECF No. 1591; RSR Arts. of Org., ECF No. 154-2.) On July 31, 2009, Rocketsports entered into an Asset
Purchase Agreement (“APA”) and transferred substantially all of Rocketsports’ assets to
RSR. (APA, ECF No. 150-1; Gentilozzi Dep. 176.) Pursuant to the APA, Rocketsports
transferred $734,870 in property to RSR in exchange for RSR’s assumption of $1,292,147
in liabilities. (APA, ECF No. 150-1.) RSR, like Rocketsports, is a race car team. RSR is
owned by Gentilozzi and his two sons. Gentilozzi is the sole owner of Rocketsports and the
majority owner of RSR. After selling its assets to RSR, Rocketsports ceased operations.
(Gentilozzi Aff. ¶ 4, ECF No. 147-2.)
In addition to Rocketsports and RSR, Gentilozzi owns real estate businesses in the
Lansing area, including Defendants 320 North Washington Square Partnership, 3400 West
Road, LLC, Atrium Partners, Victor Development II, LLC, and Westland Center Partners.
Defendant Gentilozzi also owns Defendant Gentilozzi Real Estate and Management Co., Inc.
(“GRE”), a property management company that does the general ledger for Gentilozzi’s
various business interests. Gentilozzi holds a 50% interest in 320 North Washington Square
Partnership, (Gentilozzi Dep. 32), a 60% interest in 3400 West Road, LLC (Id. at 23-24),
a 99.9% interest in Atrium Partners (Id. at 21), a 60% interest in Victor Development II, LLC
(Id. at 30-31), a 66.6% interest in Westland Center (Id. at 23), and a 100% interest in GRE.

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(Id. at 13.)
Gentilozzi personally loaned Rocketsports $8.9 million from the time Rocketsports
was formed in 1990 until it ceased operations in 2009. (Gentilozzi Dep. 72-73.) Between
2005 and 2009, Plaintiff’s expert has documented approximately $7.6 million in loans from
Gentilozzi or one of his companies to Rocketsports, and approximately $5.5 million in
repayments from Rocketsports to Gentilozzi or one of his companies. (Hawkins Rpt., Ex.
D, Loan List ll. 1-500.) If the time period is limited to the six years prior to the filing of this
complaint, Gentilozzi and his companies loaned Rocketsports approximately $5.5 million and
Rocketsports made loan repayments of approximately $2.7 million. (Id. at ll. 140-500). If
loan payments to Victor II Partnership, and Victor Development LLC, who are not
defendants, are removed from the list, Rocketsports transferred approximately $2.4 million
to Gentilozzi and the Real Estate Defendants in the six years prior to the filing of this action.
There is only one promissory note (“Note”) documenting Gentilozzi’s loans to
Rocketsports. (Gentilozzi Dep. 73.) That Note, from 1991, is for $10,000 and any additional
amounts that Gentilozzi, at his sole discretion, loaned to Rocketsports. (Note, ECF No. 15215.) The Note required repayment in monthly installments of not less than $100 at an annual
interest rate of “five percent (3%) [sic].” (Id.) There are no meeting minutes or corporate
resolutions authorizing the additional amounts loaned by Gentilozzi to Rocketsports. There
are no notes or minutes authorizing the amounts loaned by the Real Estate Defendants.
However, the loans are documented in ledger books and other operating, financial, and

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accounting records kept by GRE on behalf of all of Gentilozzi’s companies.
Plaintiff has not been able to collect on the judgment against Rocketsports because
Rocketsports does not have any assets. Plaintiff filed this action against Rocketsports,
Gentilozzi, and other Gentilozzi-owned businesses in an effort to obtain satisfaction on the
judgment from Gentilozzi and his other businesses, pursuant to claims of fraudulent transfer
under Mich. Comp. Laws §§ 566.31-.43, against all defendants (Count 1), conspiracy to
commit fraudulent conveyance against all defendants (Count 2), successor liability against
RSR Racing (Count 3), and piercing the corporate veil of Rocketsports against Paul
Gentilozzi (Count 4).
Defendants Gentillozi and RSR Racing filed motions to dismiss Counts 3 and 4, all
Defendants have filed motions for summary judgment as to Counts 1, 2, and 4, and Plaintiff
has filed a cross-motion for summary judgment as to all counts.
II. MOTIONS TO DISMISS
Defendant RSR Racing, LLC has moved to dismiss Count 3 of the complaint alleging
successor liability (ECF No. 142), and Defendant Gentillozi has filed a motion to dismiss
Count 4 of the complaint alleging piercing the corporate veil (ECF No. 144).
Rule 12(c) motions for judgment on the pleadings are analyzed under the same
standard as motions to dismiss pursuant to Rule 12(b)(6). Albrecht v. Treon, 617 F.3d 890,
893 (6th Cir. 2010). The Court must “‘construe the complaint in the light most favorable to
the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the

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plaintiff,’” but “‘need not accept as true legal conclusions or unwarranted factual
inferences.’” Hunter v. Sec’y of U.S. Army, 565 F.3d 986, 992 (6th Cir. 2009) (quoting Jones
v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir. 2008)). To survive a motion to dismiss
under Rule 12(b)(6) or 12(c), a complaint must allege facts that “state a claim to relief that
is plausible on its face,” and that, if accepted as true, are sufficient to “raise a right to relief
above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007).
A. Successor Liability Claim Against RSR Racing
Defendant RSR Racing moves to dismiss Count 3 alleging successor liability based
on its contention that RSR Racing did not expressly assume the Ryan Racing liability, and,
pursuant to Starks v. Michigan Welding Specialists, Inc., 722 N.W.2d 888, 889 (Mich. 2006),
successor liability is no longer a viable cause of action for judgment creditors outside the area
of products liability unless there is an express assumption of liability.2 Defendant cites two

2

In Starks, the Michigan Supreme Court stated the following in a one-page opinion
denying leave to appeal:
Where, as here, a successor corporation acquires the assets of a predecessor
corporation and does not explicitly assume the liabilities of the predecessor,
the traditional rule of corporate successor non-liability applies. See, Foster v.
Cone-Blanchard Machine Co., 460 Mich. 696, 702, 597 N.W.2d 506 (1999).
Because an exception designed to protect injured victims of defective products
rests upon policy reasons not applicable to a judgment creditor, the Court
declines to expand the exception to the traditional rule set forth in Turner v.
Bituminous Casualty Co., 397 Mich. 406, 244 N.W.2d 873 (1976), to cases in
which the plaintiff is a judgment creditor.
722 N.W.2d at 889.

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unpublished Michigan Court of Appeals cases in support of the proposition that “Starks
makes clear that the Supreme Court will not apply the doctrine of successor liability in a
purely commercial context.” DeWitt v. Sealtex Co., Inc., No. 273387, 2008 WL 2312668,
at *4 (Mich. Ct. App. June 5, 2008); see also Oliver v. Perry, No. 296871, 2011 WL
2204128, at *8 (Mich. Ct. App. June 7, 2011) (“[T]he decision in Starks clearly and plainly
provides that a judgment creditor cannot enforce a judgment against a successor corporation
unless there has been an explicit assumption of the predecessor’s debts . . . .”).
RSR Racing and the two unpublished cases it relies on read Starks, a one-page
opinion affirming the judgment of the court of appeals, too broadly. Contrary to Defendant’s
assertion, Starks did not purport to abolish the traditional exceptions to successor
nonliability. See C.T. Charlton & Assocs. Inc. v. Thule, Inc., 541 F. App’x 549, 552-53 (6th
Cir. 2013) (holding that the “mere continuation” doctrine of successor liability still applies
under Michigan law, and is not limited to products liability cases, even after Starks); see also
In re Clements Mfg. Liquidation Co., LLC, No. 09-65895-TJT, 2014 WL 5324095, at *19
(Bankr. E.D. Mich. Oct. 17, 2014).

Even after Starks, published Michigan cases have

continued to recognize the five exceptions to the traditional rule of nonliability for corporate
successors who acquire a predecessor through the purchase of assets, including the mere
continuation exception. See, e.g., Lakeview Commons v. Empower Yourself, 802 N.W.2d
712, 715 (Mich. Ct. App. 2010); RDM Holdings, LTD v. Cont’l Plastics Co., 762 N.W.2d
529, 552 (Mich. Ct. App. 2008); see also Stramaglia v. United States, 377 F. App’x 472,

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474-75 (6th Cir. 2010); Ferguson v. Glaze, No. 268586, 2008 WL 314544, at *5 (Mich. Ct.
App. Feb. 5, 2008). Those courts’ failure to mention Starks does not suggest that they
ignored binding Michigan Supreme Court authority to the contrary. Rather, as Judge Boggs
explained in C.T. Charlton, Starks was discussing Turner’s “continuity of the enterprise”
doctrine, not the “mere continuation” exception to successor nonliability, and the two
doctrines are not the same. 541 F. App’x at 552-53. Starks should be understood as
declining only to apply Turner’s “continuity of the enterprise” doctrine to commercial cases.
Id. “The ‘mere continuation’ exception remains narrow, but retains its general applicability.”
Id. at 552.
Because Starks did not eliminate the exceptions to corporate non-liability, Defendant
RSR’s motion to dismiss will be denied.
B. Piercing the Corporate Veil Against Gentilozzi
In Count 4, Plaintiff seeks to pierce the corporate veil of Defendant Rocketsports to
reach its owner, Defendant Gentilozzi. Defendant Gentilozzi has moved to dismiss Count
4, based on his assertion that neither state nor federal law allows a new suit alleging the
remedy of veil piercing for a liability established in a prior action.
Plaintiff does not dispute that piercing the corporate veil is not by itself a cause of
action, but contends that its veil-piercing claim is properly brought in this litigation as a
remedy for its fraudulent conveyance claims, neither of which were required to have been
brought in the earlier litigation.

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A veil piercing or alter ego claim “is not by itself a cause of action.” In re RCS Eng’d
Prods. Co., Inc., 102 F.3d 223, 226 (6th Cir. 1996); see also Kostopoulos v. Crimmins, No.
299478, 2011 WL 6848354 at *3 (Mich. Ct. App. Dec. 29, 2011) (noting that Michigan has
never recognized piercing the corporate veil “by itself” as a cause of action). Nevertheless,
Defendant Gentilozzi has identified no cases that have suggested that such a remedy could
not be sought in a second action if accompanied by another cause of action. In Green v.
Ziergelman, 767 N.W.2d 660 (Mich. Ct. App. 2009), the court held that under Michigan law
a party cannot use a proceeding supplementary to judgment to pierce the corporate veil and
to enter an additional judgment against a party not previously subject to a judgment on the
claim at issue. Id. at 303-04 (citing Mich. Comp. Laws § 600.6104; Mich. Ct. R. 2.621).
The Court emphasized that the case did not involve “allegations of an unlawful transfer of
property from [the judgment debtor] to [defendant] in avoidance of attempts to collect on the
judgment, nor allegations that [defendant] possessed assets legally belonging to [the
judgment debtor].” Id. at 304. Similarly, in entering summary judgment against the plaintiff
on its veil-piercing claim in Kostopoulous, the court noted that the complaint contained only
the veil piercing claim and “did not allege any unlawful conduct by defendant or [the
judgment debtor] subsequent to the prior lawsuit and the consent judgment.” 2011 WL
6848354, at *4.
Plaintiff’s complaint in this case alleges claims for fraudulent transfer (Count 1) and
conspiracy to commit fraudulent conveyance (Count 2). Neither of these claims were

9

required to have been brought in the earlier litigation. Accordingly, because Plaintiff has
alleged unlawful conduct that was not the subject of the previous state court action, and
because Plaintiff is seeking to pierce the corporate veil as a remedy for that unlawful
conduct, the Court is satisfied that Plaintiff has stated a claim on which relief can be granted.
Defendant Gentilozzi’s motion to dismiss will accordingly be denied.
III. MOTIONS IN LIMINE REGARDING EXPERT WITNESS
Defendants have moved to preclude from evidence the first and supplemental expert
reports and related testimony of Plaintiff’s expert witness, J. Stephen Hawkins, CPA.
Defendants contend that Hawkins’s first report is unreliable and based on “cherry picked”
facts that are improperly incorporated into legal conclusions. Defendants contend that
Hawkins’ supplemental report suffers from similar defects and that it is also untimely.
The admissibility of expert testimony is governed by Federal Rule of Evidence 702.3
A proposed expert’s opinion is admissible under Rule 702 if it satisfies three requirements:
(1) “the witness must be qualified by ‘knowledge, skill, experience, training, or education,’”

3

Rule 702 provides:

If scientific, technical, or other specialized knowledge will assist the trier of
fact to understand the evidence or to determine a fact in issue, a witness
qualified as an expert by knowledge, skill, experience, training, or education,
may testify thereto in the form of an opinion or otherwise, if (1) the testimony
is based upon sufficient facts or data, (2) the testimony is the product of
reliable principles and methods, and (3) the witness has applied the principles
and methods reliably to the facts of the case.
Fed. R. Evid 702.
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(2) “the testimony must be relevant, meaning that it ‘will assist the trier of fact to understand
the evidence or to determine a fact in issue,’” and (3) “the testimony must be reliable.” In
re Scrap Metal Antitrust Litig., 527 F.3d 517, 528-29 (6th Cir. 2008) (quoting Fed. R. Evid.
702.)
There is no question that Hawkins is qualified. He has been a CPA for 35 years, he
is a certified fraud examiner and forensic accountant, and he has testified as an expert in both
state and federal court cases. (Hawkins Rpt., ECF No. 122-1.) Nor is there any real dispute
that testimony from a forensic accountant would be helpful to assist the trier of fact to
understand the numerous inter-company loans and payments that are at the heart of this
action.

Defendants object to Hawkins’ expert reports based on their contention that

Hawkins’ opinions regarding solvency, payment of personal expenses, lack of
documentation, failure to follow corporate formalities, and the lack of a meaningful financial,
accounting or business purpose for the Rocketsports asset sale to RSR are unreliable and/or
constitute inadmissible legal opinions.
In deciding whether an expert’s opinion is reliable, the court’s task “is not to
determine whether it is correct, but rather to determine whether it rests upon a reliable
foundation, as opposed to, say, unsupported speculation.” In re Scrap Metal, 527 F.3d at
529-30. An expert’s opinion must find some support in the record, but “‘weaknesses in the
factual basis of an expert witness’ opinion . . . bear on the weight of the evidence rather than
on its admissibility.’” McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 801 (6th Cir. 2000)

11

(quoting United States v. L.E. Cooke Co., 991 F.2d 336, 342 (6th Cir. 1993)).
“An opinion is not objectionable just because it embraces an ultimate issue.” Fed. R.
Evid. 704(a). An opinion as to an ultimate issue may, however, be objectionable on other
grounds. An opinion that merely tells the jury what result to reach could be excluded because
it is not helpful to the trier for fact or would waste time. Torres v. Cnty. of Oakland, 758
F.2d 147, 150 (6th Cir. 1985). Moreover, “opinions phrased in terms of inadequately
explored legal criteria” should be excluded from evidence where they invade the province
of the court to determine the applicable law. United States v. Safa, 484 F.3d 818, 821 (6th
Cir. 2007); Torres, 758 F.2d at 150.
The Court is satisfied that Hawkins’ opinions are drawn from the ledger books
supplied by Defendants. Even though Defendants may disagree with the conclusions
Hawkins has drawn from those records, Hawkins’ opinions find some support in the record.
Defendants’ objections to those opinions goes to the weight of Hawkins’ testimony, not to
its admissibility. The Court is also satisfied that Hawkins’ opinions will not invade the
province of the court to define legal terms. For example, Hawkins’ opinion on solvency is
is based on fact-based accounting principles that consider whether liabilities exceed assets
and ability to pay debts as the come due. These opinions will not supplant the Court’s role
of determining the proper definition of solvency under the Michigan Uniform Fraudulent
Transfer Act (“UFTA”).
To the extent Defendants object to Hawkins’ supplemental report as untimely, the

12

objection lacks merit. Defendants contend that the August 28, 2013, supplemental report is
untimely because Plaintiff was required to produce its expert report under Rule 26(a)(2)(B)
by June 21, 2013. Although the Case Management Order, as amended, required Plaintiff to
produce its expert report by June 21, 2013, Rule 26 requires parties to supplement their
disclosures when required under Rule 26(e). Fed. R. Civ. P. 26(a)(2)(E). Rule 26(e) requires
supplementation in a “timely” manner, and, for expert reports, at least 30 days before trial.
Fed. R. Civ. P. 26(e) & 26(a)(3). Defendants have not shown that the supplemental report
was not timely filed, and they acknowledge that any harms they have suffered from the delay
are “not debilitating.” (Defs.’ Br. 4, ECF No. 131.)
For the reasons stated, Defendants’ motions to preclude expert reports and related
testimony will be denied.
IV. MOTIONS FOR SUMMARY JUDGMENT
Defendants have moved for partial summary judgment as to the fraudulent transfer,
conspiracy, and piercing the corporate veil counts (Counts 1, 2, and 4 of Plaintiff’s
complaint).4 Plaintiff has filed a cross-motion for summary judgment on all four counts of
its complaint, including the three counts that are the subject of Defendants’ motion, and the
successor liability count (Count 3).
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is

4

The denial of a motion to dismiss for failure to state a claim does not preclude a later
summary judgment motion arguing that the plaintiff in fact cannot show evidence to support
the claim. Stemler v. Florence, 350 F.3d 578, 590 (6th Cir. 2003).
13

proper if there is no genuine issue as to any material fact and the moving party is entitled to
judgment as a matter of law. In evaluating a motion for summary judgment the Court must
look beyond the pleadings and assess the proof to determine whether there is a genuine need
for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). If
the moving party carries its burden of showing there is an absence of evidence to support a
claim, then the nonmoving party must demonstrate by affidavits, depositions, answers to
interrogatories, and admissions on file that there is a genuine issue of material fact for trial.
Celotex Corp. v. Catrett, 477 U.S. 317, 324-25 (1986).
In reviewing a motion for summary judgment this Court cannot weigh the evidence,
make credibility determinations, or resolve material factual disputes. Alman v. Reed, 703
F.3d 887, 895 (6th Cir. 2013); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)
(stating that on a motion for summary judgment “[c]redibility determinations, the weighing
of the evidence, and the drawing of legitimate inferences from the facts are jury functions,
not those of a judge”). “Instead, the evidence must be viewed, and all reasonable inferences
drawn, in the light most favorable to the non-moving party.” Oh. Citizen Action v. City of
Englewood, 671 F.3d 564, 569-70 (6th Cir. 2012) (citing Matsushita, 475 U.S. at 587; Biegas
v. Quickway Carriers, Inc., 573 F.3d 365, 374 (6th Cir. 2009)). Nevertheless, the mere
existence of a scintilla of evidence in support of the nonmoving party’s position is not
sufficient to create a genuine issue of material fact. Anderson, 477 U.S. at 252. The proper
inquiry is “whether the evidence presents a sufficient disagreement to require submission to

14

a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 25152.
A. FRAUDULENT CONVEYANCE
Count 1 of Plaintiff’s complaint alleges a claim of fraudulent transfer under the
Michigan Uniform Fraudulent Transfer Act (“UFTA”), Mich. Comp. Laws §§ 566.31-46,
against all defendants. “The UFTA was designed to protect unsecured creditors against
debtors who make transfers out of, or make obligations against, the debtor’s estate in a
manner adverse to the creditors’ rights.” In re Michigan Mach. Tool Control Corp., 381 B.R.
657, 667 (Bankr. E.D. Mich. 2008) (quoting Multi-Grinding, Inc. v. Richardson Sales &
Consulting Servs., Inc., No. 245779, 2004 WL 1335813 at *2 (Mich. Ct. App. June 15, 2004)
(internal quotations omitted)). “The UFTA permits a creditor to seek remedies including
avoidance, attachment, execution, and injunctive relief when a fraudulent conveyance has
been made by a debtor.” John Ceci, P.L.L.C. v. Johnson, No. 288856, 2010 WL 1872927,
at *2 (Mich. Ct. App. May 11, 2010) (citing Mich. Comp. Laws § 566.37(1); Estes v. Titus,
751 N.W.2d 493, 500-01 (Mich. 2008)). “Relief under the UFTA determines only the
creditor’s right to fraudulently transferred property.”

Estes, 751 N.W.2d at 500-01.

Plaintiff contends that it is unable to collect on its judgment because Rocketsports
fraudulently transferred its assets to RSR, Gentilozzi and the Real Estate Defendants.
Plaintiff has asserted claims under two provisions of the UFTA: (1) section 4(a)(1), which
prohibits transfers made “[w]ith actual intent to hinder, delay, or defraud any creditor of the

15

debtor,” Mich. Comp. Laws § 566.34(1)(a); and (2) section 5(1), which prohibits transfers
made “without receiving a reasonably equivalent value in exchange for the transfer or
obligation” where “the debtor was insolvent at that time or the debtor became insolvent as
a result of the transfer or obligation.” Mich. Comp. Laws § 566.35(1).
“The party seeking to have a conveyance set aside as fraudulent has the burden of
producing evidence to support his claim.” Craft v. United States, 65 F. Supp. 2d 651, 656
(W.D. Mich. 1999) (citing Dean v. Torrence, 299 N.W. 793, 797 (1941)), rev’d on other
grounds, 535 U.S. 274 (2002).

Plaintiff asserts that transfers of

$6,235,000 from

Rocketsports to Gentilozzi and the Real Estate Defendants were made with the intent to
defraud the creditors of Rocketsports in violation of section 4(1)(a). Plaintiff asserts that the
July 2009 transfer from Rocketsports to RSR pursuant to the Asset Purchase Agreement was
made with the intent to defraud the creditors of Rocketsports in violation of section 4(1)(a),
and that the transfer was made without receiving a reasonably equivalent value in exchange
at a time when Rocketsports was insolvent, in violation of section 5(1).
Actions under UFTA sections 4(1)(a) and 5(1) are subject to a 6-year limitations
period. Mich. Comp. Laws § 566.39 (citing Mich. Comp. Laws § 600.5813 (action shall be
commenced within 6 years after claim accrues)). The Complaint was filed on May 5, 2012.
Plaintiff does not challenge Defendants’ assertion that Plaintiff’s fraudulent-transfer claims
are limited to May 5, 2006, forward.

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1. Assets
Defendants move for summary judgment on Plaintiffs’ UFTA claims. Defendants
have raised numerous defenses to the claims, but as a threshold matter Defendants contend
that the transfer from Rocketsports to RSR under the Asset Purchase Agreement (“APA”)
cannot violate the UFTA because there was no transfer of assets.
The UFTA prohibits fraudulent transfers of “assets.” The Act defines “assets” as
“property of a debtor, but the term does not include . . . [p]roperty to the extent it is
encumbered by a valid lien.” Mich. Comp. Laws § 566.31(b). Defendants contend that the
personal property items transferred from Rocketsports were not “assets” as defined in the
UFTA because they were subject to liens from creditors that exceeded the property’s value.
Specifically, Defendants contend that the assets were subject to UCC liens held by
Independent Bank and Sun Trust Bank, and two tax liens.
An asset can be the subject of a fraudulent transfer to the extent that the debtor retains
equity in it. See Multi-Grinding, 2004 WL 1335813, at *5 n.3 (noting that “[p]roperty of a
debtor is an asset to the extent it is not encumbered by a valid lien.”); Mussetter v. Lyke, 10
F. Supp. 2d 944, 958-59 (N.D. Ill. 1998) (“Uniform case law confirms the self-evident
proposition that the unencumbered portion of a debtor’s property is an ‘asset’ for UFTA
purposes.”) .
Plaintiff contends that Rocketsports maintained equity in its assets despite the liens
because Rocketsports was over-secured. According to Plaintiff, the outstanding debts to the

17

banks were less than the value of the assets.

(Hawkins Rpt. 5, 9-12.)

Defendants

acknowledge that as of July 2009, Rocketsports’ secured debt to Independent Bank was
$222,865.52, and it had tax liens of $145,719.50. (Defs.’ Br. 5-6, ECF No. 150.) As of June
30, 2009, Rocketsports gave a book value to its assets of $1,668,786, and fixed assets of
$737,915. (June 30, 2009, Rocketsports Asset List, ECF No. 156-16.) According to
Plaintiffs, the evidence reflects that Rocketsports’ assets exceeded its general asset liens by
more than $1 million, leaving ample equity. As to the two Sun Trust Bank liens totaling
$362,971.05, Plaintiff notes that these liens were on specific assets, and as of June 30, 2009,
those assets were valued at $361,201 and $225,000.
Defendants contend that Plaintiff’s assertion that there was equity in the property is
not supported by evidence of the value of the property, the balances due at the time of
transfer, or the extent of the liens. For purposes of their analysis, Defendants use the APA’s
valuation of $584,870 for the fixed assets, which is significantly less than the $737,915 value
reflected in the June 30, 2009, asset list. Defendants further contend that Plaintiff’s argument
regarding the liens ignores the fact that Rocketsports guaranteed a loan by Independent Bank
to Defendant 3400 West Road, LLC, secured by all assets. Defendants contend that with tax
liens and other secured loans which had a July 2009 balance of $731,566, and the $1,535,042
balance on the Rocketsports-guaranteed 3400 West Road loan, the secured loan and lien
balance as of July 2009 was $2,266,608, which was greater than the value of the assets.
There are significant factual disputes concerning which loans to consider and what

18

value should be ascribed to Rocketsports’ assets. These issues of fact preclude a finding that
Rocketsports had no equity in its assets at the time of the transfer to RSR. Accordingly,
Defendants’ motion for summary judgment on the UFTA claim basis that there was no
transfer of assets will be denied.
2. UFTA Section 4(a)(1) Actual Intent to Defraud
To succeed on its claim under UFTA section 4(a)(1) Plaintiff must show that transfers
were made “[w]ith actual intent to hinder, delay, or defraud” creditors. Mich. Comp. Laws
§ 566.34(1)(a). The UFTA provides that in determining whether the requisite intent has been
shown, courts may consider, among other factors, a list of eleven “badges of fraud.” Mich.
Comp. Laws § 566.34(2)(a)-(l). “‘Badges of fraud are not conclusive, but are more or less
strong or weak according to their nature and number concurring in the same case, and may
be overcome by evidence establishing the bona fides of the transaction.’” Wells v. Salmo (In
re Select One, Inc.), No. 12-05664, 2013 WL 4084103 at *17 (Bankr E.C. Mich. Aug. 13,
2013) (quoting Bentley v. Caille, 286 N.W. 163, 164 (Mich. 1939)); see also
Coleman-Nichols v. Tixon Corp., 513 N.W.2d 441, 449 (Mich. Ct. App. 1994).

“A

‘concurrence of several [of these factors] will always make out a strong case’ in support of
fraudulent intent.” John Ceci, P.L.L.C. v. Johnson, No. 288856, 2010 WL 1872927, at *4
(Mich. Ct. App. May 11, 2010) (quoting Bentley, 286 N.W. at 164).
Plaintiff contends that Rocketsports’ transfers to RSR, to Gentilozzi, and to the Real
Estate Defendants were all made with intent to defraud Rocketsports’ creditors, and that this

19

fraudulent intent is established by the presence of five of the badges of fraud.
a. Transfers to Insiders
One of the badges of fraud recognized by the UFTA is the transfer of assets to an
insider. Mich. Comp. Laws § 566.34(2)(a). Plaintiff contends that this badge is met because
Defendants are all insiders of one another. If the debtor is a corporation, the UFTA defines
an “insider” to include all of the following:
(ii) If the debtor is a corporation, all of the following:
(A) A director of the debtor.
(B) An officer of the debtor.
(C) A person in control of the debtor.
(D) A partnership in which the debtor is a general partner.
(E) A general partner in a partnership described in sub-subparagraph (D).
(F) A relative of a general partner, director, officer, or person in control of the debtor.
Mich. Comp. Laws § 566.31(g)(ii).
Defendants acknowledge that Gentilozzi is an insider because he is the sole owner of
Rocketsports.

Defendants contend, however, that neither RSR nor the Real Estate

Defendants fall within the definition of “insider” because they did not own or control
Rocketsports. Defendants are mistaken. The UFTA’s definition of insider also includes
“[a]n affiliate or an insider of an affiliate as if the affiliate were the debtor.” Id. at
§ 566.31(g)(iv). An “affiliate” includes “[a] corporation 20% or more of whose outstanding
voting securities are directly or indirectly owned, controlled, or held with power to vote by
the debtor or a person who directly or indirectly owns, controls, or holds, with power to vote,
20% or more of the outstanding voting securities of the debtor . . . .” Id. at § 566.31(a).

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Gentilozzi, RSR, and the Real Estate Defendants are all insiders for purposes of the UFTA.
b. Transfer of substantially all of the debtors’ assets
The second badge of fraud Plaintiff relies on is the transfer of substantially all of the
debtor’s assets. Mich. Comp. Laws § 566.34(2)(e). Plaintiff asserts that the Rocketsports
transfer to RSR under the APA and the “loan” transfers to all of the Defendants transferred
substantially all of Rocketsports’ assets.
There is no question that the transfer from Rocketsports to RSR qualifies under this
badge. Rocketsports transferred substantially all of its assets to RSR under the APA. It is
less clear whether Plaintiff has established this badge with respect to the various transfers
from Rocketsports to Gentilozzi and the Real Estate Defendants. Plaintiff has not identified
any single transfer that involved substantially all of Rocketsports’ assets. Rather, Plaintiff
relies on the fact that Rocketsports transferred over $6,235,000 from 2005 to 2009, during
which time period the value of Rocketsports’ assets ranged from $4 million to less than $1.7
million. Plaintiff contends that these transfers occurred at a time when Rocketsports was
insolvent and served to further push Rocketsports into debt. Plaintiff has also presented
evidence that the payments were made without loan documentation, that there were
inconsistencies between who made the loan and who was repaid, and that many of the loans
and repayments occurred on the same day. Defendants, on the other hand, characterize these
transfers as routine loan repayments, which are, by definition, transfers for value.
Whether the transfers to Gentilozzi and the Real Estate Defendants are non-events as

21

characterized by Defendants, or whether they are suspicious and problematic as characterized
by Plaintiff’s expert (Hawkins Supp. Rpt. 5-6, ECF No. 152-11), cannot be determined on
summary judgment.
c. Transfer not for reasonably equivalent value
The third badge of fraud Plaintiff relies on is that the transfer was not for a reasonably
equivalent value. Mich. Comp. Laws § 566.34(2)(h). Plaintiff only relies on this badge with
respect to the transfer to RSR. Plaintiff does not assert that the loan transfers to Gentilozzi
and the Real Estate Defendants were not for reasonably equivalent value.
The APA reflects that Rocketsports transferred $734,870 in property to RSR in
exchange for RSR’s assumption of $1,292,147 in liabilities. (ECF No. 150, Ex. 1, APA
§§ 1.1, 2.1.) In support of its contention that the transfer from Rocketsports to RSR was not
for reasonably equivalent value, Plaintiff has presented evidence that Rocketsports did not
obtain a third-party opinion on the value of the assets transferred. (Gentilozzi Dep. 170-71.)
Rather, Gentilozzi merely took values estimated by employees John Gentilozzi and John
Book and added 10 % to insure that RSR paid more than anybody could say that the property
was worth. (Gentilozzi Dep. 170-75.) According to Gentilozzi, in assigning a value of
$500,000 to the goodwill of Rocketsports, he just made the number up. (Gentilozzi Dep.
175, 190.) Plaintiff has also produced evidence that the $584,870 value assigned to the fixed
assets in the July 2009 APA was far less than the $737,915 value assigned to the fixed assets
in Rocketsports’ own June 2009 balance sheet.

22

Defendants claim that RSR paid a reasonably equivalent value for Rocketsports
because it assumed $1.2 million in liabilities. This claim hinges on Defendants’ assertion
that Rocketsports’ assets were only worth $734,870.

But if the correct valuation of

Rocketsports’ assets is $1,668,786, then the assumption of $1.2 million in liabilities was
insufficient to render the transfer an exchange for reasonably equivalent value. Whether the
transfer to RSR was for a reasonably equivalent value is a question of fact for trial.
d. Insolvency
The fourth badge of fraud Plaintiff relies on is that the debtor was insolvent or became
insolvent shortly after the transfer was made. Mich. Comp. Laws § 566.34(2)(i). Plaintiff
has produced substantial evidence that Rocketsports was insolvent for each year from 2005
until it closed in 2009. (Hawkins Rpt. 4-5.)
Defendants admit that Rocketsports’ liabilities always exceeded its assets. (Def. Br.
15-16, ECF No. 154; Glover Dep. 79-80; Gentilozzi Dep. 81-82). Gentilozzi’s accountant,
Steven W. Scott, testified that Rocketsports was insolvent in 2009, and that in the years 2005
and 2007 its liabilities exceeded its assets. (Scott Dep. 47-48.) Defendants contend that
Rocketsports’ technical insolvency was primarily due to loans from Gentilozzi that were
never called due in full and which were later classified as capital contributions.5 (Def. Br.
15, ECF No. 154.) Defendants contend that mere balance sheet insolvency is mitigated
5

In 2009, when Rocketsports filed its last 2009 tax return, Gentilozzi reclassified the
loan balance as paid-in capital. (Gentilozzi Aff. ¶ 29, ECF No. 147-2.) Gentilozzi contends
that as a result, he effectively contributed over $9 million to Rocketsports in excess of any
amounts Rocketsports may have repaid him over nearly 20 years. (Id. at ¶ 29.)
23

where the company debts to the company owner and third party lenders were not due in full
at the time of the challenged transfer. Lease Equities Fund, Inc. v. Charters, Inc., No.
219086, 2001 WL 936747 at *3-4 (Mich. Ct. App. Aug. 17, 2001) (“In sum, our courts
recognize that if a debtor’s existing assets were sufficient to meet his existing obligations,
i.e., his absolute and matured debts, just before and just after the challenged conveyance, he
was solvent.”)
The Gentilozzi loans were not reclassified as capital contributions until well after the
transfer to RSR, so this occurrence has little, if any, bearing on the insolvency analysis.
Moreover, Defendants’ reliance on Lease Equities is misplaced. Lease Equities applied a
prior definition of insolvency from UFTA section 566.12 that was repealed in 1998. 2001
WL 936747 at *3 (quoting definition of insolvency from Mich. Comp. Laws § 566.12, that
was repealed by 1998 Mich. Pub. Acts 434.) In addition, Plaintiff has produced evidence that
Rocketsports was not able to meet its existing obligations. Plaintiff’s expert has opined that
Rocketsports was insolvent not only because its debts exceeded its assets, but also under the
second measure of inability to pay debts as they come due. (Hawkins Rpt. 4-5.)
e. Transfer shortly before incurring a substantial debt
The final badge of fraud Plaintiff relies on is that the transfers occurred shortly before
Rocketsports incurred a substantial debt. Mich. Comp. Laws § 566.34(2)(j).
Plaintiff’s claim against Rocketsports arose in 2005 when Rocketsports breached its
driver contract with Plaintiff. On October 24, 2005, Hunter-Reay sent a letter demanding

24

that he be allowed to drive through the remainder of the season. (Gentilozzi Dep. 191, ECF
No. 152-1.) Gentilozzi understood in October 2005 that Ryan Racing was threatening to file
suit regarding the termination and signed an affidavit in anticipation of such a suit on
October 13, 2005. (Id. at 191-93; Id. at Ex. 7.) RSR was formed in April 2009, well after
Plaintiff filed its notice of arbitration in 2008, and just weeks before the June 2009
arbitration. RSR was not funded until July 31, 2009, just 19 days before the arbitration
award was issued.

The July 2009 Asset Transfer indisputably occurred shortly before

Rocketsports incurred a substantial debt. Defendants concede that Rocketsports’ sale of
assets to RSR was close in time to the arbitration award. (Defs.’ Br. 18, ECF No. 154.)
Plaintiff has also presented evidence that RSR was formed shortly before entering into a
lucrative May 6, 2009, contract with Jaguar that paid RSR $3.7 million in 2010. (ECF No.
158, Ex. C, Hawkins Rpt. 10; Ex. D, Gentilozzi Dep. 179; Jaguar Agrmt., ECF No. 154-3.)
Defendants have presented testimony that the Jaguar contract only reimbursed RSR
for expenses incurred in racing; profits were only to be realized by RSR if it parlayed that
race exposure into the sale of race cars, and RSR never sold any of the race cars. (Gentilozzi
Supp. Aff. ¶ 5.) Accordingly, Defendants assert that the Jaguar contract did not generate any
profit, and that it is not evidence of an intent to defraud.
It appears that the transfers to Gentilozzi and to the Real Estate Defendants were made
periodically during the entire six-year time period at issue. Plaintiff nevertheless contends
that these transfers qualify as transfers made shortly before incurring a substantial debt

25

because they were made after Defendants became aware in October 2005 that Plaintiff was
likely to sue regarding the breach of contract. The Court is not persuaded that transfers made
over a five-year period qualify as transfers made close in time to when Rocketsports incurred
a substantial debt.
Defendants contend that even if the transfer to RSR was close in time to the
arbitration, it is not evidence of an intent to defraud. Defendants have presented testimony
that the formation of RSR had been in the works for months, that RSR was formed due to
considerations that had nothing to do with the arbitration, including the lack of success of
Rocketsports and the need to form a new entity in order to obtain the Jaguar contract. In
addition, Defendants have presented testimony that they were not aware that they would lose
the arbitration, or that any arbitration award would be so great. As to the transfers to
Gentilozzi and the Real Estate Defendants, Defendants have presented evidence that these
were routine transactions of a type that had been occurring from before the 2005 breach of
contract. Defendants accordingly contend that these transfers had no connection to the
arbitration.
f. Conclusion Regarding Badges of Fraud
Plaintiff has made out a strong case of intent to defraud with respect to the transfer
of assets from Rocketsports to RSR based on the five badges of fraud under the UFTA.
Plaintiff contends that in light of this showing, it should be granted summary judgment on
its fraudulent transfer claim, as the court held in John Ceci.

26

In John Ceci, the Michigan Court of Appeals held that the trial court erred in denying
the plaintiff’s motion for summary disposition where the plaintiff presented evidence that
less than two weeks after an arbitration award in the plaintiff’s favor, the defendant
transferred her interest in property to a newly created limited liability company for less than
a reasonably equivalent amount. The court held that this evidence of three badges under
UFTA sections 4(2)(d), (h), and (j) was demonstrative of actual intent to hinder, delay or
defraud a creditor pursuant to the UFTA. 2010 WL 1872927, at *5. Nevertheless, John Ceci
does not stand for the proposition that the court must grant summary judgment in Plaintiff’s
favor. In John Ceci, the court held that summary judgment was proper because the plaintiff
made a strong showing of the badges of fraud, and the defendant did not bring in evidence
to create a genuine issue of material fact. Id. Here, by contrast, Defendants have come
forward with sufficient evidence of the bona fides of the transaction to create an issue of fact
for trial. Even though Plaintiff has shown a strong case of intent to defraud, the evidence is
not conclusive, and the Court is not entitled to weigh the evidence or make credibility
findings on summary judgment.
Plaintiff has made a showing that some of the badges of fraud occurred with respect
to the transfers from Rocketsports to Gentilozzi and to the Real Estate Defendants. Although
the showing is weak by comparison to the showing on the transfers to RSR, the showing is
sufficient to withstand Defendants’ motion for summary judgment. Accordingly, the Court
will deny the parties’ cross-motions for summary judgment on the section 4(a)(1) fraudulent

27

conveyance claim.
g. Good Faith Defense
Defendants contend they are entitled to dismissal of the UFTA section 4(1)(a) claim
based on the good faith defense. The UFTA provides that a transfer is not voidable under
section 4(1)(a) against a person who took in good faith and for a reasonably equivalent value.
Mich. Comp. Laws § 566.38(1). Rocketsports’ transfer of all of its assets to RSR after
arbitration ended, and just 19 days before the $2.7 million arbitration award was issued,
raises a question of fact for trial as to whether the RSR transfer was made as a good faith
business decision, or whether it was made in a bad faith effort to avoid paying the imminent
arbitration award. There is also a question of fact, as outlined above, as to whether the
transfer was for a reasonably equivalent value. Accordingly, Defendants’ request for
summary judgment based on the good faith defense is denied.
3. UFTA Section 5(1) Reasonably Equivalent Value and Insolvency
Plaintiff contends that the Asset Purchase Agreement between Rocketsports and RSR
violated section 5(1) of the UFTA because Rocketsports made the transfer “without receiving
a reasonably equivalent value in exchange for the transfer or obligation,” and “the debtor was
insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.”
Mich. Comp. Laws § 566.35(1).
The Court has already determined in Part IV(A)(2)(c) above that there are questions
of fact concerning whether Rocketsports received a reasonably equivalent value in exchange

28

for its transfer of assets to RSR. Accordingly, the parties’ cross-motions for summary
judgment on the UFTA section 5(a) claim will be denied.
B. CONSPIRACY
Count 2 of Plaintiff’s complaint alleges conspiracy to commit fraudulent conveyance
against all of the Defendants.
“A civil conspiracy is a combination of two or more persons, by some concerted
action, to accomplish a criminal or unlawful purpose, or to accomplish a lawful purpose by
criminal or unlawful means.” Admiral Ins. Co. v. Columbia Cas. Ins. Co., 486 N.W.2d 351,
358 (Mich. Ct. App. 1992). A civil conspiracy claim is only as good as the underlying tort
claim; if a plaintiff fails to establish any actionable underlying tort, the conspiracy claim must
also fail. Advocacy Org. for Patients & Providers v. Auto Club Ins. Ass’n, 670 N.W.2d 569,
580 (Mich. Ct. App. 2003).
Plaintiff and Defendants seek summary judgment on the conspiracy claim based on
their contention that they are each entitled to summary judgment on the underlying fraudulent
transfer claim. To the extent the motions are premised on the success or failure of the
underlying tort claim, they must be denied because the same questions of fact that preclude
the Court from granting summary judgment to either party on the fraudulent transfer claim
preclude the entry of summary judgment on the conspiracy claim.
Defendants also contend that they are entitled to summary judgment on the civil
conspiracy claim because conspiracy requires more than one participant, and Plaintiff has

29

improperly based its argument on the proposition that Gentilozzi conspired with himself.
Although Gentilozzi controlled his own actions and the actions of his various
companies, that does not preclude a finding of a conspiracy between the various companies.
Plaintiff has presented evidence that Gentilozzi and the various entities he owned participated
in a conspiracy to defraud Plaintiff. The fact that Gentilozzi controlled each of the separate
entities is not a basis for dismissing the conspiracy claim. Defendants’ argument that they
are entitled to dismissal of the conspiracy claim because one cannot conspire with oneself
almost sounds like a concession that the companies do not have separate corporate identities.
There may be a good basis for piercing the corporate veil, but unless and until the Court does
so, the Court will treat each of the Defendants as a separate legal entity that can enter into
agreements with the others.
C. SUCCESSOR LIABILITY
Count 3 of Plaintiff’s complaint alleges a claim of successor liability against
Defendant RSR Racing. Plaintiff has requested summary judgment in its favor on Count 3.
Defendant RSR opposes Plaintiff’s motion. RSR has not moved for summary judgment in
its own favor as to this count.
The basic rule in Michigan where a purchase is accomplished by an exchange of cash
for assets is that the successor is not liable for its predecessor’s liabilities unless one of the
following five narrow exceptions applies:
(1) where there is an express or implied assumption of liability; (2) where the
transaction amounts to a consolidation or merger; (3) where the transaction
30

was fraudulent; (4) where some of the elements of a purchase in good faith
were lacking, or where the transfer was without consideration and the creditors
of the transferor were not provided for; or (5) where the transferee corporation
was a mere continuation or reincarnation of the old corporation.
Lakeview Commons v. Empower Yourself, 802 N.W.2d 712, 715 (Mich. Ct. App. 2010)
(quoting Foster v. Cone-Blanchard Machine Co., 597 N.W.2d 506, 509-10 (Mich. 1999)).
Plaintiff asserts that three exceptions to the “traditional rule of successor liability”
apply: (1) the RSR transfer was made in bad faith; (2) the RSR transfer was fraudulent; and
(3) RSR was a mere continuation of Rocketsports.
The Court has already determined in Part IV(A)(2) above that Plaintiff presented
evidence that the transfer to RSR was fraudulent and in bad faith. Plaintiff has also presented
evidence that both RSR and Rocketsports were engaged in essentially the same business of
developing, constructing, selling, and racing race cars, that Gentilozzi controlled both RSR
and Rocketsports, that RSR was capitalized with only $1,000, and that RSR used
Rocketsports’ office location, furniture, and telephone number, and most of Rocketsports’
employees. (Warren Dep. 42-45; Gentilozzi Dep. 190; D. Gentilozzi Dep. 46-48, 162.)
Plaintiff’s expert has opined that Gentilozzi made a unilateral decision to transfer the assets
and business operations of Rocketsports to RSR without any business, financial, or tax
benefit either being discussed, reviewed, analyzed, or otherwise planned in advance, and that
given the timing, similarities of name, lack of business purpose, arbitrary assignment of asset
values, the picking and choosing of liabilities transferred, the lack of Rocketsports lender
approval for notes transferred, there was no purpose for creating RSR and entering into the
31

APA other than to avoid paying the imminent judgment in favor of Ryan Racing. (Hawkins
Rpt. 12.)
In response, Defendants have presented evidence that RSR and Rocketsports were not
in precisely the same business. While Gentilozzi was the exclusive owner of Rocketsports,
he owns RSR together with his sons who each hold a 20% share. (Gentilozzi Dep. 163.)
While Rocketsports was a general service company that built and sold Trans Am cars and ran
Indy cars, RSR builds and races cars exclusively for Jaguar and does not race Indy cars.
(Gentilozzi Dep. 152.) Moreover, RSR does not test cars for others, as Rocketsports did.
Defendants have also presented evidence that there was a business reason for creating RSR.
Specifically, they contend that Rocketsports’ long-time General Motors and Oldsmobile
brand affiliation would have prevented it from agreeing to an exclusive contract with Jaguar
because the Jaguar contract prohibited the endorsement of any automotive produce or service
that was in direct competition with Jaguar products or services. (Jaguar Contract § 5.2, ECF
No. 154-3.)
Plaintiff has made a substantial showing in support of its successor liability claim, but
the Court concludes, for the same reasons set forth with respect to the fraudulent transfer
claim, that this issue cannot be decided on summary judgment because there are numerous
issues of fact for trial, including issues concerning whether the transfer was made in bad
faith, whether the transfer was fraudulent, and whether RSR was a mere continuation or
reincarnation of Rocketsports.

32

D. Piercing the Corporate Veil of Rocketsports
Count 4 of Plaintiff’s complaint alleges a claim of piercing the corporate veil of
Rocketsports against Gentilozzi. The parties have filed cross-motions for summary judgment
on this claim.
“[T]he general principle in Michigan is that separate corporate identities will be
respected, and thus corporate veils will be pierced only to prevent fraud or injustice.”
Wodogaza v. H & R Terminals, Inc., 411 N.W.2d 848, 852 (Mich. Ct. App. 1987); see also
Wells v. Firestone Tire & Rubber Co., 364 N.W.2d 670, 674 (Mich. 1984). The equitable
doctrine of piercing the corporate veil “provides a means for a court of equity to disregard
the corporate structure when there is a unity interest between shareholders and a corporation
and an abuse of the corporate form.”

Multi-Grinding, 2004 WL 1335813, at *2 (citing

Foodland Distributors v. Al-Naimi, 559 N.W.2d 379, 381 (Mich. Ct. App. 1996)). “A court
may find that one entity is the alter ego of another and pierce the corporate veil upon proof
of three elements: first, the corporate entity must be a mere instrumentality of another;
second, the corporate entity must be used to commit a fraud or wrong; and third, there must
have been an unjust loss or injury to the plaintiff.” In re RCS Eng’d Prods., 102 F.3d at 226
(citing Nogueras v. Maisel & Assoc. of Mich., 369 N.W.2d 492, 498 (Mich. Ct. App. 1985)).
“Factors to be considered include undercapitalization of the corporation, the maintenance of
separate books, the separation of corporate and individual finances, the use of the corporation
to support fraud or illegality, the honoring of corporate formalities, and whether the

33

corporation is merely a sham.” Laborers’ Pension Trust Fund v. Sidney Weinberger Homes,
Inc., 872 F.2d 702, 704-05 (6th Cir. 1988) (citing Contractors, Laborers, Teamsters &
Eng’rs Health Plan v. Hroch, 757 F.2d 184, 190 (8th Cir.1985)).
A veil piercing or alter ego claim “is not by itself a cause of action.” In re RCS Eng’d
Prods., 102 F.3d at 226. If no fraudulent transfer is found, fraudulent transfer cannot be used
as a theory to support piercing the corporate veil. SCD Chem. Distrib. Inc. v. Medley, 512
N.W.2d 86, 90 (Mich. Ct. App. 1994). Because Plaintiff has not obtained a judgment on its
underlying fraudulent transfer claims, Plaintiff is not entitled to summary judgment on its
veil-piercing claim.
Gentilozzi has moved for summary judgment in his favor on the veil-piercing claim
on the basis that the evidence does not support this extraordinary remedy. Gentilozzi
contends that there is no evidence of a misuse of corporate funds for non-business items, and
that Rocketsports observed more than the requisite corporate formalities.
Notwithstanding Gentilozzi’s assertions to the contrary, the Court is satisfied that
there is sufficient evidence in the record to create issues of fact for trial. In support of its
request to pierce the corporate veil, Plaintiff has presented evidence that Gentilozzi and his
wife, who was not a Rocketsports employee, charged over $200,000 in personal expenses on
the Rocketsports corporate credit card, including airline tickets and accommodations for
Gentilozzi’s friends for admittedly non-business related travel (Gentilozzi Dep. 237-72), and
purchases at stores such as Tiffany’s, Toys-R-Us and Billabong. (Gentilozzi Dep. 52-53, 55.)

34

Plaintiff has also presented evidence that Rocketsports was insolvent for most of the years
of its operation. Finally, Plaintiff has presented evidence that Rocketsports did not honor
corporate formalities. For example, Plaintiff has presented expert testimony that the failure
to document over $6 million in intercorporate loans between 2005 and 2009 with loan
documents or minutes, the failure to have documented business plans, budgets, or cash flow
projections, and the transferring of funds in and out of the corporations on a same day basis
evidenced a failure to abide by normal business practices. (Hawkins Rpt. at 8.)
Although Gentilozzi has presented evidence that some of the items Plaintiff has
designated as personal were in fact business expenses, Gentilozzi does not deny some
personal use of the Rocketsports credit card. He contends, however, that there was no misuse
of corporate funds because all personal expenditures were listed as personal on the ledgers
maintained by Gentilozzi Real Estate and were treated as loan repayments. (Gentilozzi Dep.
22, 113, 115, 118, 239-40; Glover Dep. 81-85.) He affirmatively asserts that Rocketsports
did not incur any non-business expenses that he did not personally pay for, and that
Rocketsports’s operating records, financial records, accounting records, cash expenditure
records, and loan records are “impeccable.” (Gentilozzi Br. 1, 4, ECF No. 147.)
Viewing the evidence in the light most favorable to Plaintiff, the non-moving party,
the Court concludes that there are material issues of fact for trial, and that the evidence is not
so one-sided that Gentilozzi must prevail on the veil-piercing claim as a matter of law.

35

Accordingly, Gentilozzi’s motion for partial summary judgment on the veil-piercing claim
will be denied.
An order consistent with this opinion will be entered.

Dated: February 19, 2015

/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE

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