Michaan et al v. Brinkley
Filing
59
MEMORANDUM OPINION re 58 Order on Motion for Partial Summary Judgment. Signed by District Judge Sharion Aycock on 5/3/2011. (psk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF MISSISSIPPI
EASTERN DIVISION
STEVEN MICHAAN and
METAGEN ENERGY, LLC
V.
PLAINTIFFS
CAUSE NO.: 1:10CV12-SA-JAD
WILLIAM BRINKLEY
DEFENDANT
MEMORANDUM OPINION
Plaintiffs have filed a Motion for Partial Summary Judgment [32] on their fraud claims.
After reviewing the pleadings, motion, responses, rules and authorities, the Court finds as follows:
Factual and Procedural Background
Steven Michaan and William Brinkley met in 2003 in a New York lawyer’s office. Brinkley
represented that he could produce the energy equivalent of a gallon of gasoline using a cheaper
alternate energy source. Specifically, Brinkley contended that he could produce the equivalent of
one gallon of gasoline (1GGE) using only 5.7 to 7 pounds of aluminum. At that first meeting,
Brinkley produced 99.9% pure hydrogen with his process in the law office’s basement sink. From
May 2003 to January 2005, Michaan advanced $92,000 to Brinkley for development of his “Metagen
Process.”1 Michaan also contributed $10,000 for testing of the process by the American Hydrogen
Association. On January 26, 2005, Michaan and Brinkley signed a Letter of Intent in which Michaan
was to provide $300,000 more in funding for Brinkley to construct and equip a research facility and
intellectual property company. In March of 2006, Michaan formed Metagen Energy, LLC, which
began providing the funding for the Brinkley Process. All totaled, Michaan and Metagen Energy
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The terms “Metagen Process” and “Brinkley Process” are used interchangeably
throughout this opinion but both refer to the alternate energy process developed by Defendant
William Brinkley.
provided $847,000 to Brinkley to develop his process. In April of 2008, Plaintiffs ceased funding
and demanded a scientific review of Brinkley’s methods. Brinkley agreed only to provide the
physicist hired to conduct the experiments with a list of the “ingredients” necessary for the Brinkley
Process. Dr. Robert Sohval determined that it was “scientifically impossible” to produce 1GGE
from anything less than 18 pounds of aluminum.
Plaintiffs filed this suit charging that Defendant misrepresented his ability to produce an
alternate energy as efficiently as Brinkley promised, and that Defendant concealed other testing
results proving that the Brinkley Process could not produce 1GGE with 5.7 to 7 pounds of
aluminum.
Plaintiffs filed a Motion for Partial Summary on their fraudulent misrepresentation,
fraudulent concealment, fraudulent inducement, negligent misrepresentation, breach of fiduciary
duty, unjust enrichment, and constructive trust claims.
Summary Judgment Standard
Summary judgment is warranted under Rule 56(c) when the evidence reveals no genuine
dispute regarding any material fact, and that the moving party is entitled to judgment as a matter of
law. FED. R. CIV. P. 56(c). The party moving for summary judgment bears the initial responsibility
of informing the district court of the basis for its motion and identifying those portions of the record
it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477
U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). The non-moving party must then go beyond
the pleadings and designate “specific facts showing that there is a genuine issue for trial.” Id. at 324,
106 S. Ct. 2548. Conclusory allegations, speculation, unsubstantiated assertions, and legalistic
arguments are not an adequate substitute for specific facts showing a genuine issue for trial. TIG Ins.
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Co. v. Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir. 2002); SEC v. Recile, 10 F.3d 1093,
1097 (5th Cir. 1997); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc).
In reviewing the evidence, factual controversies are to be resolved in favor of the nonmovant,
“but only when . . . both parties have submitted evidence of contradictory facts.” Little, 37 F.3d at
1075. In the absence of proof, the court does not “assume that the nonmoving party could or would
prove the necessary facts.” Id.
Discussion and Analysis
A. Fraudulent Misrepresentation
In order to maintain a cause of action for fraudulent misrepresentation, the plaintiff must
prove the following elements by clear and convincing evidence: (1) a representation, (2) its falsity,
(3) its materiality, (4) the speaker’s knowledge of its falsity or ignorance of its truth, (5) [the
speaker’s] intent that it should be acted on by the hearer and in the manner reasonably contemplated,
(6) the hearer’s ignorance of its falsity, (7) [the hearer’s] reliance on its truth, (8) [the hearer’s] right
to rely thereon, and (9) [the hearer’s] consequent and proximate injury. Levens v. Campbell. 733
So. 2d 753, 761-62 (Miss. 1999).
Brinkley admits to representing to Plaintiffs that the Metagen Process could produce 1GGE
of hydrogen with 5.79 pounds of aluminum. Plaintiffs assert that this is clearly false as the only
expert designated in this case, Robert Sohval, reported that such a claim was “scientifically
impossible.” However, Defendant counters Sohval’s conclusion by noting that Sohval did not have
a detailed description of the Brinkley Process, so the expert’s knowledge of the process is “very
remote.” Sohval never observed the Process being operated and never observed the machinery
created for the purpose of running the Process. Kenneth Debelak, a chemical engineer from
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Vanderbilt University, observed the Brinkley Process and issued a report with findings different than
Sohval’s. Indeed, Debelak’s results indicated that the Brinkley Process produced 1GGE of energy
using eight pounds of aluminum. Thus, there are genuine issues of material fact as to the falsity of
Defendant’s statement to Plaintiffs. Summary judgment on this claim is inappropriate.
B. Fraudulent Concealment
To allege fraudulent concealment of a claim, a plaintiff must show: “(1) some affirmative act
or conduct was done and prevented discovery of a claim, and (2) due diligence was performed on
their part to discover it.” Whitaker v. Limeco Corp., 32 So. 3d 429, 436 (Miss. 2010) (citations
omitted).
Mississippi law requires that the affirmative act of concealment for fraudulent
concealment occur subsequent to the initial fraud. Id. at 436-37.
“In Mississippi, a claim of fraud by omission arises only where the defendant had a duty to
disclose material facts purportedly omitted. This duty generally arises only where there is a fiduciary
relationship between the parties.” Taylor v. So. Farm Bureau Cas. Co., 954 So. 2d 1045, 1049 (Miss.
Ct. App. 2007); Strong v. First Family Financial Services, Inc., 202 F. Supp. 2d 536, 540 (S.D. Miss.
2002). Indeed, “since silence, in the absence of a duty to speak, is not actionable, Plaintiff’s claims
for fraudulent concealment is dependent on the existence of a duty of disclosure, which would arise
if a fiduciary relationship existed.” Id. (citing Chiarella v. United States, 445 U.S. 222, 228, 100 S.
Ct. 1108, 63 L. Ed. 2d 348 (1980) (“One who fails to disclose material information prior to the
consummation of a transaction commits fraud only when he is under a duty to do so.”)).
“Fiduciary relationship” is a very broad term embracing both technical fiduciary
relations and those informal relations which exist wherever one person trusts in or
relies upon another. A fiduciary relationship may arise in a legal, moral, domestic,
or personal context, where there appears “on the one side an overmastering influence
or, on the other, weakness, dependence, or trust, justifiably reposed.” Additionally,
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a confidential relationship, which imposes a duty similar to a fiduciary relationship,
may arise when one party justifiably imposes special trust and confidence in another,
so that the first party relaxes the care and vigilance that he would normally exercise
in entering into a transaction with a stranger.
Langston v. Bigelow, 820 So. 2d 752, 756 (Miss. Ct. App. 2002) (citing Lowery, 592 So. 2d at 83
(citations omitted)).
A fiduciary relationship may arise on the basis of “contract, agency, or the reposing of trust
and confidence.” Lowery, 592 So. 2d at 83. Here, the Plaintiffs allege that a fiduciary relationship
arose because Michaan “placed special trust and confidence” in Brinkley. Brinkley does not dispute
that Brinkley was in a position of trust and confidence with respect to his relationship with Michaan
and Metagen Energy. Brinkley admitted to having control over the Metagen Process and the
technical information as to how the process works. Accordingly, Brinkley did owe a fiduciary duty
to Plaintiffs with respect to the Brinkley Process.
Plaintiffs contend that Brinkley was obligated to produce the results of the American
Hydrogen Association testing performed by Roy McAlister and his failure to do so is fraudulent
concealment. Michaan and Brinkley acknowledge that Michaan expressly supplied $10,000 to
Brinkley to have the testing performed by the American Hydrogen Association. There is some
question as to whether Michaan received a summary of the results from McAlister or not. The Letter
of Intent signed by both Brinkley and Michaan conditioned continued funding on “the results of the
McAlister evaluation . . . .” Thus, Michaan had an interest in those findings, but the record is
undeveloped as to whether he inquired about those results to Brinkley. Accordingly, there are
questions of fact as to whether Plaintiffs considered the disclosure material and whether due
diligence was exercised in discovering those findings. The Court finds sufficient genuine issues of
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material fact as to Plaintiffs’ fraudulent concealment claim to prohibit the grant of summary
judgment as to that cause of action.
C. Fraudulent Inducement
“Fraud in the inducement arises when a party to a contract makes a fraudulent
misrepresentation . . . for the purposes of inducing the innocent party to enter a contract.” Lacy v.
Morrison, 906 So. 2d 126, 129 (Miss. Ct. App. 2004). To prove fraudulent inducement, a party must
prove the following elements by clear and convincing evidence:
(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of
its falsity or ignorance of its truth; (5) his intent that it should be acted on by the
person and in the matter reasonably contemplated; (6) the hearer’s ignorance of its
falsity; (7) his reliance upon its truth; (8) his right to rely thereon; (9) his consequent
and proximate injury.
Id. (quoting Great S. Nat’l Bank v. McCullough Envtl. Servs. Inc., 595 So. 2d 1282, 1289 (Miss.
1992)).
As noted above, the Court finds there is at least genuine issues of material fact as to the
falsity and materiality of Brinkley’s representations to Plaintiffs. Thus, this claim will also be heard
at trial.
D. Negligent Misrepresentation
The elements of negligent misrepresentation are: (1) a misrepresentation or omission of a
fact; (2) that the representation or omission is material or significant; (3) that the defendant failed
to exercise that degree of diligence and expertise the public is entitled to expect of it; (4) that the
plaintiff reasonably relied on the defendant’s representations; and (5) that the plaintiff suffered
damages as a direct and proximate result of his reasonable reliance. Skrmetta v. Bayview Yacht
Club, Inc., 806 So. 2d 1120, 1124 (Miss. 2002).
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As noted in the above analysis, there are questions of fact as to whether Brinkley made a
misrepresentation to Michaan, and whether Michaan was reasonable in relying on those
representations when there was a clause in the Letter of Intent conditioning continued funding on
the results of the McAlister evaluation. Thus, summary judgment as to this claim is denied.
E. Breach of Fiduciary Duty
Pursuant to the analysis above, and the lack of objection by the Defendant, Brinkley owed
Plaintiffs a fiduciary duty. Whether that fiduciary duty entailed disclosure of reports known to
Brinkley remains a fact determination to be made at trial.
F. Unjust Enrichment and Constructive Trust
Under Mississippi law, unjust enrichment is not an independent theory of recovery. Coleman
v. Conseco, Inc., 238 F. Supp. 2d 804, 813 (S.D. Miss. 2002), partially abrogated on other grounds
Sweeney v. Sherwin Williams Co., 304 F. Supp. 2d 868 (S.D. Miss. 2004); see also Estate of
Johnson v. Adkins, 513 So. 2d 922, 926 (Miss. 1987) (discussing the doctrine of unjust enrichment
as a measure of damages as opposed to an independent theory of recovery). Furthermore, in order
to impose a constructive trust under Mississippi law, a court must find abuse of a confidential
relationship resulting in unjust enrichment. McNeil v. Hester, 753 So. 2d 1057, 1064 (Miss. 2000).
According to the Mississippi Supreme Court, “A constructive trust is one that arises by
operation of law against one who, by fraud, actual or constructive, by duress or abuse of confidence,
by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or
questionable means, or who in any way against equity and good conscience, either has obtained or
holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy.”
Union National Life Ins. Co. v. Crosby, 870 So. 2d 1175, 1179 n.1 (Miss. 2004) (quoting Saulsberry
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v. Saulsberry, 78 So.2d 758 (Miss. 1955)).
Thus, in order to impose a constructive trust under Mississippi law, a court must find abuse
of a confidential relationship resulting in unjust enrichment. See McNeil, 753 So. 2d at 1064; see
also Russell v. Douglas, 138 So.2d 730 (Miss. 1962) (quoting Sinclair v. Purdy, 235 N.Y. 245, 139
N.E. 255, 258 (N.Y. 1923), “[i]t is . . . . unjust enrichment under cover of the relation of confidence,
which puts the court in motion.”); McCarthy v. Smith, 2006 U.S. Dist. LEXIS 47022, at *8 (S.D.
Miss. June 30, 2006). While “[a]ny transaction may provide an appropriate setting for creating a
constructive trust,” Alvarez [v. Coleman, 642 So. 2d 361, 367 (Miss. 1994)], “[a] confidential
relationship is a necessary element,” Braddock Law Firm, PLLC v. Becnel, 949 So. 2d 38, 48 (Miss.
App. 2006).
The confidential relationship between Brinkley and Plaintiffs has been established. However,
as earlier addressed, Plaintiffs have failed to establish that no genuine issue of material fact exists
as to Brinkley’s alleged fraud in the development of their relationship.
Alternatively, Plaintiffs argue for recovery of $143,546.45 of Plaintiffs’ funds used by
Brinkley for personal expenditures. Brinkley admits that all funds received by him from Plaintiffs
were to be used in furtherance of the Brinkley Process. Brinkley does not deny using $143,546.45
for unauthorized personal expenditures. Plaintiffs were not aware Brinkley was using their funds
to pay his personal expenses. With the $143,546.45, Brinkley paid credit card bills, mortgages, and
utilities on his residence. No genuine issue of material fact exists as to Brinkley’s fraudulent use of
Plaintiffs’ funds for personal expenses. Accordingly, Brinkley has been unjustly enriched in the
amount of $143,546.45, and those damages are awarded to the Plaintiffs.
To the extent that Plaintiffs seek compensation for the remainder of the $847,000 under an
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unjust enrichment theory, there remain questions of fact as highlighted above regarding Defendant’s
allegedly fraudulent conduct.
Conclusion
As there are genuine issues of material fact on all counts requested by Plaintiffs’ Motion for
Partial Summary Judgment, that motion is DENIED. However, Plaintiffs’ unjust enrichment claim
for monies used for personal expenditures by Defendant without authorization from Plaintiffs is
GRANTED. Plaintiffs are awarded $143,546.45.
SO ORDERED, this the 3rd day of May, 2011.
/s/ Sharion Aycock
U.S. DISTRICT JUDGE
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