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Bachi-Reffitt v. Reffitt

United States District Court, W.D. Michigan, Southern Division

December 4, 2017




         Plaintiff, Dawn Bachi-Reffitt, and Defendant Kevin Reffitt were married for approximately eighteen years when Kevin filed a complaint for divorce. The divorce became final on April 19, 2013, following the entry of a Consent Judgment of Divorce. Thereafter, Dawn concluded that, during the divorce proceeding, Kevin had committed fraud in connection with the sale of his stock in his family construction business to his father for “in excess of $1 million” (ECF No. 13-7 at PageID.298), and filed a motion for relief from judgment in the family court. The family court judge denied relief, as did a circuit judge in a subsequent, separate lawsuit that Dawn filed alleging that Kevin defrauded her in the divorce proceeding.

         Undeterred, Dawn has come to federal court, recasting her fraud claims as violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961et seq. Dawn also asserts fraud and other state-law claims. Defendants have filed a motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) and a separate motion for Rule 11 sanctions, which are fully briefed. Because Dawn's claims (including her RICO claim) allege intrinsic fraud-that is, fraud committed in the course of the divorce proceeding- and her RICO claims are barred by the doctrine of res judicata and the broad release set forth in the Consent Judgment, Dawn must seek relief (assuming it is available) in the family court that entered the Consent Judgment. In addition, even assuming that Dawn's RICO claims are not otherwise barred, they are nonetheless subject to dismissal because Dawn lacks statutory standing to maintain her RICO claims. Therefore, the Court will grant Defendants' motion to dismiss. In addition, the Court will grant Defendants' motion for Rule 11 sanctions.

         I. Background

         A. Pre-Divorce

         Dawn and Kevin were married in 1993 and had three children together. (ECF No. 1 at PageID.4; ECF No. 1-2 at PageID.41.) During the marriage, Kevin worked in his family's construction business, Peninsula Construction.[1] In 2006, Kevin and his brother, Ronald Reffitt, Jr. (Reffitt, Jr.), purchased all the outstanding stock of Peninsula from their father, Ronald Reffitt, Sr. (Reffitt, Sr.), when he retired from the business. (ECF No. 1 at PageID.6.) Kevin and Reffitt, Jr. each received a 50% interest in Peninsula. (Id.) Sometime after the stock purchase, Kevin and Reffitt, Jr. purchased life insurance policies on each other in the amount of $1.5 million, for the apparent purpose of funding the purchase of each other's interest in Peninsula in the event of death. Kevin was the owner and beneficiary of the policy insuring Reffitt, Jr.'s life, and Reffitt, Jr. was the owner and beneficiary of the policy insuring Kevin's life. (Id. at PageID.2, 6.) On or about November 15, 2011, Reffitt, Sr., Reffitt Jr., and Kevin entered into an Option Agreement granting Reffitt, Sr. the right to purchase Kevin's interest in Peninsula. (Id. at PageID.20; ECF No. 1-18.)

         B. The Divorce Proceeding

         On February 9, 2012, Kevin filed for divorce from Dawn in the Grand Traverse County Circuit Court, Family Division. Reffitt Sr. purportedly exercised his option to purchase Kevin's shares on February 7, 2012, two days before Kevin filed for divorce. According to Dawn, however, the transfer documents were executed after the divorce proceeding was initiated, sometime after February 17, 2012, and backdated prior to the date Kevin filed for divorce. (Id. at PageID.6-7.)

         During the divorce proceeding, Dawn served discovery requests on Kevin, which sought, among other things, information regarding Kevin's ownership interest in Peninsula. In his answers to Dawn's interrogatories and request for production of documents, Kevin disclosed that he had transferred his ownership interest in Peninsula to Reffitt, Sr. on February 7, 2012, and he stated the amount he received for his stock. (ECF No. 13-3 at PageID.245-47; ECF No. 13-4 at PageID.252-53.) In addition, Kevin gave Dawn's counsel copies of the option agreement, corporate consents, stock certificates, and other documents pertaining to the transfer. (Id. at PageId.269-80.)

         The value of Kevin's Peninsula ownership interest was one of the main issues in contention during the divorce case and was to be tried in April 2013. In preparation for trial, Kevin filed a trial brief on March 8, 2013, which disclosed that Reffitt Sr. had purchased Kevin's stock based on an appraised value set in July 2011, and that Kevin received $150, 000 from the sale of his stock, which was placed in a CD at Huntington Bank. (ECF No. 13-5 at PageID. 283-84.) Kevin also noted that Peninsula's corporate accountant, Brad Niergarth, had been available to Dawn's attorney to answer “any and all questions relative to the financial status of the company.” (Id. at PageID.287.) Kevin proposed dividing the proceeds of the stock sale equally with Dawn. (Id. at PageID.289.)

         Rather than incur the expense of a trial and risk an adverse judgment, the parties decided to settle the division of the marital estate, and all other issues, and entered into the Consent Judgment to memorialize the settlement. The Consent Judgment, entered on April 18, 2013, divided the proceeds of the stock sale equally between Dawn and Kevin. (ECF No. 1-2 at PageID.37.) It also contained the following provisions:

20. Release of Claims:

It is Further Ordered and Adjudged, that except as otherwise herein expressly provided, the parties shall and do hereby mutually release and forever discharge each other from any and all actions, suits, debts, claims, demands and obligations whatsoever both in law and in equity which either of them ever had, now has or may hereafter have against the other, upon or by reason of any matter, cause or thing, up to the date of the entry of this Judgment of Divorce.
21. Settlement of All Claims Arising Out of Marital Relationship:

It is Further Ordered and Adjudged, that the terms of this Judgment of Divorce forever settle any and all claims or rights between them arising out of their marriage and subsequent divorce, excepting the executory rights and obligations specifically set forth herein.
. . . .
25. Disclosure by Parties:

That each of the parties hereto represents that he or she has made a full and complete disclosure to the other party of all assets and liabilities acquired during the course of the marriage and that this Judgment contains a complete itemization of the aforesaid assets and liabilities and the distribution thereof. Subsequent to the entry of this Judgment of Divorce, if it is determined by the Court that a party to this divorce action has concealed assets acquired or appreciated during the marriage, failed to disclose assets acquired or appreciated during the marriage or otherwise attempted to secret or conceal assets from the other party; the Court shall award to the non-offending party the entire value of the asset(s) identified as concealed.
. . . .
27. Jurisdiction:

It Is Further Ordered and Adjudged, that this Court specifically reserves and retains jurisdiction over this cause and the parties for the purpose of assuring compliance with the executory provisions of this Judgment of Divorce and it reserves the right to make such other and further orders as shall be necessary to implement this Judgment including the use of the contempt powers of the Court.

(Id. at 44-46.)

         C. Post-Consent ...

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