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The Great American Insurance Co. v. E.L. Bailey & Company, Inc.

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

March 14, 2018

The Great American Insurance Company, Plaintiff,
v.
E.L. Bailey & Company, Inc., et al., Defendants. Blanket Energy Systems, LLC, et al., Garnishees. The Great American Insurance Company, Plaintiff,
v.
E.L. Bailey & Company, Inc., et al., Defendants.

         ORDER ADOPTING REPORT AND RECOMMENDATION [199]; OVERRULING DEFENDANTS' OBJECTION [201]; DENYING AS MOOT PLAINTIFF'S MOTION FOR ENTRY OF DEFAULT [139]; GRANTING IN PART PLAINTIFF'S MOTION FOR ENTRY DEFAULT [145]; HOLDING IN ABEYANCE PLAINTIFF'S MOTION FOR ENTRY OF DEFAULT JUDGMENT [146]; AND RESOLVING PLAINTIFF'S MOTION FOR PROCEEDINGS SUPPLEMENTARY TO JUDGMENT FOR DETERMINATION OF FRAUDULENT TRANSFERS [161] [1]

          ARTHUR J. TARNOW SENIOR UNITED STATES DISTRICT JUDGE.

         Plaintiff Great American Insurance Company (“GAIC”) filed two Motions for Entry of Default Against Garnishee Blanket Energy Systems, LLC (“Blanket”) [Dkt. 139, 145] on December 7, 2016 and January 12, 2017. On January 13, 2017, Plaintiff filed a Motion for Entry of Judgment against Garnishee Blanket and its President, Reginald Bailey, for False Garnishment Disclosure [146]. On April 13, 2017, Plaintiff filed a Motion for Proceedings Supplementary to Judgment for Determination of Fraudulent Transfers [161]. The Court referred these motions to the Magistrate Judge [140, 147, 163], who issued a Report and Recommendation (“R&R”) [199] on October 31, 2017. Defendants E.L. Bailey & Company, Inc. and Edward L. Bailey filed an Objection [201] to the R&R on November 14, 2017. Plaintiff responded to the Objection on November 28, 2017.

         Counsel for all parties met with the Court during a status conference on March 12, 2018.

         For the reasons discussed below, the Court ADOPTS the R&R [199]. Defendants' Objection [201] is OVERRULED. Plaintiff's Motion for Entry of Default [139] is DENIED AS MOOT. Plaintiff's Motion for Entry of Default [145] is GRANTED IN PART. Plaintiff's Motion for Entry of Default Judgment [146] is HELD IN ABEYANCE, pending the outcome of the evidentiary hearing before the Magistrate Judge.

         On May 23, 2017, Plaintiff filed a complaint in No. 17-cv-11638 alleging the exact claims raised in this action. The 2017 case was reassigned to the Court as a companion on June 15, 2017 [4]. These cases are exactly the same, save for the named defendants. After conferring with counsel, the Court concludes that Plaintiff's Motion for Proceedings Supplementary to Judgment for Determination of Fraudulent Transfers [161] can be resolved by consolidating the two cases.

         Factual and Procedural Background The Magistrate Judge set forth the factual and procedural background as follows:

         I. PROCEDURAL HISTORY

         On August 24, 2015, plaintiff obtained a judgment against defendants in the amount of $645, 287.55, which was reduced by a $358, 000 payment by the State of Michigan, leaving a judgment amount due of approximately $287, 000. (Dkt. 36). Defendants have not paid the judgment amount due. Plaintiff filed and served defendant-garnishee Blanket Energy Systems, Inc. (BES) with a periodic garnishment on September 15, 2015. (Dkt. 145-1). On or about October 9, 2015, Reginald Bailey, on behalf of BES, responded to the garnishment with a disclosure stating that defendant Edward Bailey was not employed by BES, but that BES owed Edward Bailey $17, 900 for consultant fees. (Dkt. 145-2). Plaintiff served BES with post-judgment interrogatories and requests for production of documents; BES's responses to that discovery indicate that it had withheld approximately $3, 500 of monies owed to Edward Bailey pursuant to the garnishment, and that Edward Bailey was not and had never been an employee of BES. (Dkt. 145-4). Nevertheless, BES disbursed payments equaling only $1, 272.41 and failed to cure the deficiency despite plaintiff's notice of default issued in December 2015. (Dkt. 145-3). Plaintiff issued a second notice of default to BES for its failure to withhold the full amount owed to Edward and for misrepresenting the employment status of Edward. (Dkt. 145-5). BES did not cure the noticed defaults, and plaintiff filed three motions for entry of default against BES. The first motion for entry of default in the amount of $3, 500 (Dkt. 139) is subsumed within, and thus mooted by the second motion for entry of default in the amount of $17, 900[2] (Dkt. 145). In its response to these motions, BES concedes its liability to plaintiff for $17, 900 less the $1, 272.41 paid, or $16, 627.59 and does not oppose an entry of judgment in that amount. (Dkt. 177). Despite BES's concession that it owes the full amount sought by plaintiff in its motion, plaintiff replied to the response requesting an award of costs and attorney fees as well as an order mandating full disclosure of amounts paid to Edward Bailey since September 29, 2015. (Dkt. 185).

         Plaintiff's third motion for entry of judgment asserts that BES is liable to plaintiff for the full amount of the judgment because it falsely represented Edward Bailey's employment status in its garnishment disclosure. (Dkt. 146). Defendants and Garnishee BES refute this assertion in their response in opposition to that motion. (Dkt. 175). Plaintiff filed a reply brief in further support of its motion (Dkt. 187) and the issue remains unresolved. (Dkt. 189).

         Plaintiff also filed a third motion for an order to show cause for defendants' failure to comply with this Court's December 14, 2016 Order, arguing that defendants have still not supplied documents originally subpoenaed in 2015, and have not provided an affidavit that such documents do not exist. (Dkt. 148). Defendants filed a response in opposition (Dkt. 178) and plaintiff filed a reply in further support. (Dkt. 186). Finally, plaintiff filed a motion for proceedings supplementary to judgment for determination of fraudulent transfers. (Dkt. 161). Defendants and nonparties Mildred Bailey, EMB Investment Group, LLC and BES filed a response in opposition and plaintiff replied. (Dkt. 161, 176). A hearing on all of these motions was held Friday, July 14, 2017.

         II. FACTUAL BACKGROUND AND PARTIES' POSITIONS

         Plaintiff acknowledges that its Motion for Entry of Default (Dkt. 139) has been subsumed within and mooted by its Motion for Entry of Default (Dkt. 145). The parties resolved that default judgment may be entered against BES in the amount of $16, 627.59, but remain at odds over plaintiff's demands for costs and attorney fees relative to the motion. (Dkt. 145, 189).

         As to the motion for entry of default for the full amount of the judgment (Dkt. 146), plaintiff argues that BES's interrogatory response asserting that Edward Bailey was never an employee was knowingly false, thereby giving rise to liability on the part of BES and its principal, Reginald Bailey, for the full amount of the judgment against defendants. See Mich. Comp. Laws § 600.4051. Plaintiff relies on the fact that Bailey received W-2 statements reflecting earned wages from BES for 2013, 2014 and 2015 as proof that Edward was indeed a BES employee. BES counters that W-2 statements are not determinative of employment status. Rather, according to BES, courts have developed an economic reality test to determine employment status. BES argues that under the four-prong test, which takes into account the totality of the circumstances around the work performed, Edward was not an employee. (Dkt. 175). Alternatively, BES argues that these factors at least made Edward's employment status ambiguous such that any mischaracterization was due to mistake and not made “knowingly and willingly.” Defendant argues that an inadvertent mistake made in good faith does not give rise ...


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