The opinion of the court was delivered by: Honorable Sean F. Cox United States District Judge
OPINION & ORDER GRANTING IN PART DEFENDANT VENDOR MANAGED SOLLUTIONS, INC.'S MOTION FOR SUMMARY JUDGMENT [Doc. No. 71]
Plaintiff Earle Steinberg ("Steinberg") filed this breach of contract and fraudulent transfer action against Defendants Charles Young, Jr. ("Young") and numerous business entities owned in whole or in part by Young, in the Oakland County, Michigan, Circuit Court on April 7, 2009. Defendant JPMorgan Chase Bank, N.A. ("Chase") was allowed to intervene in the state court proceedings on April 29, 2009, and on May 13, 2009 Chase removed this action. [Doc. No. 1]. The matter is currently before the Court on Defendant SDE Vendor Managed Solutions, Inc., n/k/a Vendor Managed Solutions, Inc.'s ("VMS") motion for summary judgment [Doc. No. 71]. The parties have fully briefed the issues, and a hearing was held on February 25, 2010. For the reasons below, the Court GRANTS VMS's motion [Doc. No. 71] with respect to Count I of Mr. Steinberg's Complaint, and DISMISSES Mr. Steinberg's fraudulent conveyance action [Count I] against VMS. As genuine issues of material fact remain regarding Mr. Steinberg's successor liability claim against VMS, however, the Court DENIES VMS's motion [Doc. No. 71] with respect to Count III of Mr. Steinberg's Complaint.
Mr. Young is the owner or majority shareholder of several corporate entities ("the SDE Entities") that provide purchasing services to large companies in an effort to make purchasing more efficient.
On or about September 21, 2006, Mr. Steinberg entered into an employment contract with two of the SDE Entities, SDE MRO INC and SDE BP, with Mr. Young signing the employment contract on behalf of the SDE Entities. Mr. Steinberg began working for SDE MRO INC in 2007 pursuant to the written employment contract, receiving an initial retention bonus of $700,000 and an annual base salary of $750,000 per year.
Mr. Steinberg never received $500,000 of his $700,000 retention bonus. Mr. Young is also alleged to have twice acted unilaterally in reducing Steinberg's base salary: from $750,000 to $502,000 on September 28, 2007; and from $502,000 to $250,000 on January 7, 2008. When Mr. Steinberg objected to these reductions in his compensation, Mr. Young demanded that Mr. Steinberg accept a new employment contract or resign. Mr. Young ultimately terminated Mr. Steinberg's employment on February 4, 2008.
On February 8, 2008, Mr. Steinberg filed an arbitration claim against Mr. Young, SDE BP and SDE MRO INC with the American Arbitration Association ("AAA") for breach of the employment contract. On January 21, 2009, the AAA panel found Mr. Young's defense to be frivolous, and granted Mr. Steinberg a monetary award in the amount of $1,049,587.45, plus interest. Mr. Steinberg filed a Motion to Confirm Arbitration Award in the Oakland County, Michigan, Circuit Court on February 11, 2009, which was confirmed and entered as a judgment on February 18, 2009 in the amount of $1,052,777.53.
While Mr. Steinberg was pursuing the arbitration action against Mr. Young and the SDE Entities, Mr. Steinberg alleges that Mr. Young transferred funds, real property, and business opportunities between and among the SDE Entities in an effort to hinder Mr. Steinberg's collection efforts and to conceal or dissipate assets. During subsequent creditor's examinations, Mr. Young admitted that money had been shifted between companies whenever one entity needed funds, which Mr. Young himself characterized as "robbing Peter to pay Paul." [Doc. No. 11, Ex. 5, p.81].
Mr. Young also allegedly purchased several homes in the Flint, Michigan area with assets from the SDE Entities, and quitclaimed those properties between and among limited liability companies he controlled, in an effort to further conceal assets.
Finally - and directly pertinent to this motion - Mr. Young is accused of transferring his interests in several of the SDE Entities to third parties for less than full value, further evidence that Mr. Young may be attempting to hide assets from creditors. Mr. Young is also alleged to have transferred several lucrative contracts between the SDE Entities for negligible consideration. Relevant to this motion, Mr. Steinberg alleges that another corporation, VMS, was created as the "mere continuation" of SDE BP. SDE BP then transferred its interest in a procurement account for ExxonMobil ("the ExxonMobil Account") to VMS for what Mr. Steinberg alleges was negligible consideration.
After receiving his $1,052,777.53 judgment against Mr. Young and SDE MRO INC in Michigan state court, Mr. Steinberg filed the instant action in the Oakland County, Michigan, Circuit Court on April 7, 2009. In this action, Mr. Steinberg alleges that Mr. Young has abused the corporate form of the SDE Entities, and that Mr. Young has been fraudulently transferring assets out of the SDE Entities in an effort to defeat Mr. Steinberg's collection efforts. The Bank intervened in this action on May 13, 2009, and removed this action to federal court.
Mr. Steinberg's Complaint [Doc. No. 1] alleges two causes of action against VMS: 1) an action to avoid fraudulent transfers under Michigan's Uniform Fraudulent Transfer Act, M.C.L. § 566.31 et seq. [Count I]; and 2) an action for successor liability against VMS as the "mere continuation" of SDE BP [Count III].*fn1 On November 4, 2009, VMS filed its motion for summary judgment [Doc. No. 71], arguing that both causes of action filed by Mr. Steinberg against VMS should be dismissed. Mr. Steinberg opposes the motion, and filed a brief in opposition on December 7, 2009 [Doc. No. 76]. After the February 25, 2010 hearing, the Court allowed the parties to each file supplemental briefing. [See Doc. Nos. 90, 92].
Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). The party seeking summary judgment has the initial burden of informing the court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits which it believes demonstrate the absence of a genuine issue of material fact. Celotex v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the nonmoving party who "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (quoting FED. R. CIV. P. 56(e)).
VMS argues that both of Mr. Steinberg's causes of action against VMS - for fraudulent conveyance avoidance and for successor liability - should be dismissed. For the reasons that follow, the Court GRANTS IN PART VMS's motion with respect to Count I of Mr. Steinberg's Complaint, and DISMISSES Mr. Steinberg's fraudulent conveyance action [Count I] against VMS. As genuine issues of material fact remain regarding Mr. Steinberg's successor liability claim against VMS, however, the Court DENIES VMS's motion with respect to Count III of Mr. Steinberg's Complaint.
I. Steinberg's "Fraudulent Conveyance" Claim Against VMS
In Count I of his Complaint, Steinberg alleges that the transfer of the ExxonMobil Account from SDE-BP to VMS was fraudulent due to the fact that SDE-BP did not receive "reasonably equivalent value" in the exchange.
In its motion, VMS makes three independent arguments why it should be granted summary judgment on this claim: 1) because the ExxonMobil Account was not an "asset" of SDE-BP; 2) even if the ExxonMobil Account was an "asset" of SDE-BP, it remains encumbered by a valid security interest; and 3) reasonably equivalent value" was given by VMS in the transfer of the ExxonMobil Account from SDE-BP. The Court finds for VMS on the third of these arguments.
Steinberg has alleged that SDE-BP's transfer of the ExxonMobil Account to VMS was in violation of Michigan's Uniform Fraudulent Conveyance Act, M.C.L. § 566.31 et ...