Refusing to Make Payments Due Under Agreements

Author: LegalEase Solutions 

RESPONSE BRIEF TO DEFENDANT’S MOTION

 FOR SUMMARY DISPOSITION

            NOW COMES the Plaintiff, Gloria J Moddack, by and through her Attorneys, AKEEL & VALENTINE, and for her Response to the Defendant’s Motion for Summary Judgment states as Follows:

 

FACTUAL BACKGROUND

The Plaintiff is a resident of Macomb County, Michigan and is a Trustee under the Revocable Trust of Gloria J.Moddack. The Plaintiff was the owner of Three Hundred Thirty Three and One Third (333 1/3) shares of the issued and outstanding common stock of the Defendant Corporation, Detroit Sales and Service, Inc. (“DSS”).  On November 17, 1998, the Plaintiff entered into a Stock Redemption Agreement (the “Agreement”) and sold her entire stock to the Defendants for a total purchase price of One Hundred Fifty Thousand dollars ($150,000.00).  This was done to effect a complete termination of her interest in the Corporation, pursuant to section 302 of the Internal Revenue code of 1986, as amended.

The Defendants Joseph T.Moddack, an officer of the Defendant Corporation and Linda Moddack are residents of Macomb County, Michigan and are related to the Plaintiff.  As per the terms of the Agreement, starting July 1, 1998, the Defendant Corporation, DSS, was to pay the Plaintiff the amount of Four Hundred Ninety Six and 73/100 dollars ($496.73) on the first day of each week, including interest accrued at the annual rate of 12.00% on the unpaid balance.

The Defendant Corporation, DSS, further agreed to make additional payments on a periodic basis to the Plaintiff if the Adjusted Net Income, subject to particular adjustments, of DSS exceeded certain levels.  DSS further agreed to acquire life insurance on the life of Joseph T. Moddack, Jr. naming the Plaintiff as the beneficiary of the insurance policy, which would eventually reduce the obligations of the Corporation under this Agreement and the Covenant.

It was agreed to by both the parties that in the event that the Defendant Corporation, DSS, defaulted in making any payments under the Agreement to the Plaintiff, the Plaintiff would have the right to keep all the monies paid to her by DSS and further proceed against DSS for collection of the monies due to her pursuant to the Agreement.

The Plaintiff, as per the terms of Agreement, entered into a Covenant Not To Compete Agreement dated November 17, 1998, where it was agreed that the Plaintiff would not directly or indirectly compete with any business activities presently being carried on by DSS or which may hereafter be conducted by DSS, or indulge in any activity that may be detrimental to the business interest of DSS for a period of fifteen years.

In exchange for the Covenant Not to Compete DSS, agreed to pay the Plaintiff, a total sum of Seven Hundred Forty One Thousand Seven Hundred dollars ($741,700), which shall be payable at the rate of Five Hundred Three and 27/100 dollars ($503.27) per week beginning July 1, 1998 continuing every week until June 30, 2013, at which time the entire balance due on this Covenant shall be due and payable to the Plaintiff.  The Plaintiff is also entitled to an amount equal to 25% of the Adjusted Net Income between Two Hundred Thousand dollars ($200,000) and Three Hundred Thousand dollars ($300,000) and an amount equal to Six and Two Thirds (6 2/3%) of the excess Adjusted Net Income over Three Hundred Thousand Dollars ($300,000).  In the event of any default on the part of DSS, the Plaintiff could take recourse through any legal remedy available to her for the purpose of collecting the monies due to her from DSS.

The Plaintiff now contends that the Defendants failed to provide insurance coverage for Plaintiff, until she reaches the age of sixty-five, as agreed to under the transaction for the sale of her stock.  The Defendants were involved in wrongfully diverting and converting funds of DSS to the personal benefit of the Defendants Joseph T. Moddack and his wife Linda Moddack, and the Defendants have not properly accounted for the diverted funds.  The Defendants also consistently and purposely failed to divulge the actual net income of the Corporation.  The Plaintiff made several attempts to review the books and records of DSS to ensure that she received proper payments under the agreements, but was unable to succeed.

The Plaintiff states that on February 8, 2005, DSS announced its intention not to pay the Plaintiff the amounts due under the Covenant Not To Compete and also declared that the Plaintiff would be liable for part of her insurance coverage contrary to what was explicitly promised to her by the Defendants. The Plaintiff, therefore, has filed, a claim for statutory conversion under MCL 600.2919a with a demand for trial by jury.

The Plaintiff, in its complaint has filed claims against the Defendants including Breach of Contract – Sale of Ownership Interest in Business, Breach of partnership agreement/sale of interest in Building and Fraudulent Misrepresentation. The Defendants have violated the terms of the Stock Redemption Agreement and the Covenant Not To Compete Agreements dated November, 17 1998 and thus violated Laws of Michigan. The Defendants have filed this Motion for Summary Disposition against the Plaintiff’s claim of Statutory Conversion.  The Plaintiff has stated a claim of statutory conversion where the Court could grant appropriate relief, and the facts remain in contention.  The Plaintiff will show that this Court must deny the Defendant’s motion for summary disposition.

ARGUMENT

  1. The appropriate standard of review requires the court to determine if there are any questions of material fact in dispute with regard to this claim.

Defendants have filed the present motion for summary disposition on the ground that there are no genuine issues as to any material fact, and that the Defendants are, therefore, entitled to judgment as a matter of law.  The Defendants have very clearly failed to demonstrate that there are no genuine issues of any material facts.

The Michigan Court Rules and Michigan Supreme Court and Appellate Court decisions precisely describe the respective burdens of litigants when a motion for summary disposition is filed.   Michigan Court Rule 2.116(C)(10) provides for summary disposition where there are no genuine issue as to any material fact.  Michigan Court Rule 2.116(G)(4) further requires that the party seeking summary disposition must specify the issues for which it claims there is no genuine factual dispute.  Basically, a motion under MCR 2.116(C)(10) tests the factual sufficiency of the complaint.  Maiden v. Rozwood, 461 Mich. 109, 120; 597 N.W.2d 817 (1999); Spiek v. Dep’t of Transportation, 456 Mich. 331, 337; 572 N.W. 2d 201 (1998); Mino v. Clio School Dist, 255 Mich. App. 60, 67; 661 N.W. 2d 586 (2003).  In considering such a motion the trial court must also consider the affidavits, pleadings, depositions, admissions, and other evidence submitted by the parties in the light most favorable to the nonmoving party.  MCR 2.116(G)(5); Maiden, supra at 120; Quinto v. Cross & Peters Co., 451 Mich. 358, 362; 547 N.W. 2d 314 (1996).  In doing so, the trial court must grant the benefit of all reasonable doubt to the nonmoving party.  Bourne v. Farmers Ins. Exchange, 449 Mich. 193, 197; 534 NW2d 491 (1995).

In presenting a motion for summary disposition, the initial burden of factually supporting the motion through affidavits, depositions, admissions or other documentary evidence rests with the moving party. Neubacher v. Globe Furniture Rentals, 205 Mich. App. 418, 420; 522 N.W.2d 335 (1994); SSC Associates Ltd Partnership v. General Retirement System, 192 Mich. App. 360, 364; 480 N.W.2d 275 (1991).  The burden then shifts to the opposing party to establish that a genuine issue of fact does indeed exist.  Neubacher supra at 420.

Additionally, the Michigan Supreme Court has held that in determining whether to grant summary judgment for failure to state a claim pursuant to MCR 2.116 (C)(8), the pleadings alone are considered. Spiek v. Dep’t of Transportation, 456 Mich. 331, 336; 572 N.W. 2d 201 (1998)  Factual allegations contained in the complaint are taken as true, along with inferences or conclusions which may be fairly drawn from the facts alleged.” McCallister v Sun Valley Pools, Inc, 100 Mich App 131, 135; 298 NW2d 687 (1980), 411 Mich. 905 (1981).

The Michigan Court appeals set out a clear test by stating “The test which the court should apply in considering motions under [General Court] Rule 117.2(1) [(1963)] is whether plaintiff’s claim, on the pleadings, is so clearly unenforceable as a matter of law that no factual development can possibly justify a right to recovery,” and that “[w]here the resolution of the legal issue may depend greatly upon the factual context, summary judgment on the pleadings is never proper,” Sanders v. Clark Oil Refining Corp., 57 Mich. App. 687, 689 (Mich. Ct. App. 1975).  In evaluating such a motion, a court considers the entire record “in the light most favorable to the party opposing the motion, including affidavits, pleadings, depositions, admissions, and other evidence submitted by the parties.” Corley v. Detroit Bd. of Educ., 470 Mich. 274, 278 (Mich. 2004). These standards are very well settled and should be properly applied to the case at hand to determine whether the claim can go forward.

  1. There are genuine issues of fact still in contention with regard to the Plaintiff’s claim for conversion. Therefore it is inappropriate for the court to grant the Defendants’ motion for summary disposition.

The Plaintiff in its amended complaint has made a claim of conversion by stating that Defendants have been withholding the payments due to the Plaintiff under the agreements and that the Defendants have refused to make payments to the Plaintiff.  That along with the fact that the Defendants have been diverting funds to their own personal benefit clearly  present a claim upon which relief can be .

The court in Sanders supra, has stated that benefit of any reasonable doubt should be given to the opposing party and a court should not grant summary judgment unless it finds that it is impossible for the claim to be supported at trial because of some deficiency which cannot be overcome.  The court further held that inferences are to be drawn in favor of the one opposing the motion, and the court is to consider the affidavits, pleadings, depositions and other documentary evidence submitted by the parties when determining whether or not to grant the summary disposition.  Sanders, supra at 691.

Many genuine questions of material fact remain with regard to this claim.  These questions revolve around the time, place, and motives behind the conversion of the Plaintiff’s assets.  The Defendants have failed to show in their pleading how there are no issues of material fact surrounding the conversion of the Plaintiff’s claimed funds.  Merely asserting that the funds have not been converted does not make it so; it must be shown through documentary evidence.  Applying the cases in its favor, the Plaintiff states that she has in her pleadings drawn out a claim where relief can be granted under the law and where issues of fact exist.

The Defendants have entered into agreements with the Plaintiff, where payments were to be made on a specific timeline. The Defendants do not deny this fact, but claim a set-off.  The Defendants, have also refused to disburse the payments due to the Plaintiff.  The question of why these payments have stopped, and what has happened to these funds in the interim are genuine issues as to a material fact clearly warranting that litigation continue.  The Plaintiff by way of her affidavits, depositions and documentary evidence has demonstrated that there are issues of fact that need to be determined before the litigation can end, and that the Defendants claim that there is no genuine issue as to material fact cannot be sustained.

  1. The Plaintiffs argument for conversion is sufficient enough to withstand Summary Judgment.

The Plaintiff relies on the following to substantiate her claim of statutory conversion and equitable conversion against the Defendants.  The court in Foremost Ins. Co. v. Allstate Ins. Co., 439 Mich. 378, 391 (1992) discusses conversion in the civil context, and conversion is defined as any distinct act of domain wrongfully exerted over another’s personal property in denial of or inconsistent with the rights therein.  In general, it is viewed as an intentional tort in the sense that the converter’s actions are willful, although the tort can be committed unwittingly if unaware of the plaintiff’s outstanding property interest. Id. at 391.The Defendants are well aware of the outstanding dues to the Plaintiff and therefore the conversion is willful.

In Campbell v. Sullins, 257 Mich. App. 179, 191-192 (2003) the court discusses the elements of Statutory Conversion and states that it consists of knowingly “buying, receiving, or aiding in the concealment of any stolen, embezzled, or converted property,” MCL 600.2919a.  The clear language of the statute indicates that “the statute is not designed to provide a remedy against the individual who has actually stolen, embezzled, or converted the property.”  Marshall Lasser, PC v George, 252 Mich. App. 104, 112; 651 N.W.2d 158, 198 (2002).  Rather, “the actions proscribed–buying receiving, or aiding in the concealment–all occur after the property has been stolen, embezzled, or converted by the principal.” Id.  “If the Legislature had meant for the statute to also apply to the thief as well as someone who aids him, it could have written the statute to include the thief’s action in possessing or concealing the property.” Id.  In this case, the Defendants have sufficient knowledge of the conversion and have willfully used the funds to their own benefit and personal use.

In Camper Sales & Rental, Inc., 234 Mich. App. 94, 111-112 ( 1999) the court holds that in order to support an action for conversion of money, the defendant must 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.” Citizens Ins Co v Delcamp Truck Center, Inc, 178 Mich. App. 570, 575; 444 N.W.2d 210 (1989). On a similar note, the courts in Lawsuit Fin., L.L.C. v. Curry, 261 Mich. App. 579, 591 (2004)  held “[t]o support an action for conversion of money, the defendant “‘must have obtained the money without the owner’s consent to the creation of a debtor-creditor relationship'” and “must have had an obligation to return the specific money entrusted to his care.”

Conversion is an intentional tort in that the defendant’s action must be willful, but one can commit the tort unwittingly if unaware of the plaintiff’s outstanding property interest. Warren Tool Co v Stephenson, 11 Mich App 274, 299; 161 NW2d 133 (1968). When conversion is committed by a corporation, the agents and officers of the corporation may also be found personally liable for their active participation in the tort, even though they do not personally benefit thereby. Bush v Hayes, 286 Mich 546, 549; 282 NW 239 (1938); Trail Clinic, PC v Bloch, 114 Mich App 700, 709; 319 NW2d 638 (1982), lv den 417 Mich 959 (1983).

The Defendant by retaining the monies due to the Plaintiff under the explicit terms of the agreement and by refusing to disburse the same, although he is obligated to return the same, has committed an intentional tort of conversion. The willful act of the Defendant in refusing to make the payments due to the plaintiff under the agreements,  has created a debtor-creditor relationship between Defendant and Plaintiff, justifying the Plaintiff’s right to recover. The Defendants have, despite repeated inquiries by the Plaintiff failed to divulge the net income of the Defendant corporation and have thereby converted the funds due to the Plaintiff to their own and personal use. The Defendants have withheld monies due to the Plaintiff and to which they are not legally entitled thereby committing breach of contract and intentional tort of conversion.

WHEREFORE, the Plaintiff has stated a claim on which relief can be granted the Plaintiff asks this Honorable Court to deny Defendant’s motion for summary disposition.