United States District Court, E.D. Michigan, Southern Division
OPINION AND ORDER DENYING DEFENDANT'S CROSS
MOTION FOR SUMMARY JUDGMENT (DKT. 27) AND GRANTING
PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT IN PART (DKT.
TERRENCE G. BERG, UNITED STATES DISTRICT JUDGE
a dispute between siblings about money owed from a failed
real estate investment. Plaintiff Zora Dugan claims that her
brother, Defendant Miroslav Vlcko, breached a contract with
her by not paying her back on a promissory note. Plaintiff
moved for summary judgment. Dkt. 19. Defendant failed to
respond until the Court entered a text only order instructing
him to do so. Defendant then he filed a consolidated response
and cross motion for summary judgment. Dkt. 27.
reasons set out below, Defendant's Cross Motion for
Summary Judgment will be DENIED, and Plaintiff's Motion
for Summary Judgment will be GRANTED in part.
October 2007, Plaintiff invested approximately $150, 000 in
WV Investments LLC, a real estate venture majority-owned and
managed by her brother. Dkt. 11 at Pg ID 89. The money was
for a shopping center to be located in the greater D.C. area.
From the record, it does not appear that anything
memorialized this investment in writing. Nonetheless,
Plaintiff received monthly disbursements as returns on this
investment from October 2007 through June 2012. Dkt. 11 at Pg
around September 29, 2011 Defendant emailed Plaintiff to let
her know that the shopping center was being sold, with an
anticipated closing of February 1, 2012. Dkt. 11 at Pg ID
389; Dkt 11-1 at Pg ID 108. In that email he also stated
“when the loan closes [Plaintiff] will receive the
unpaid portion of [her] original contribution, and [her]
percentage of the net sale proceeds” after the closing
costs and expenses were deducted. Dkt. 11-1 at Pg ID 108.
continued receiving monthly disbursements until June 2012.
But she did not receive a check for her original investment
or any percentage of the net sale proceeds. Dkt. 11 at Pg ID
90. Plaintiff made repeated requests to Defendant during July
and August 2012 for a return of her principal investment, but
Defendant told her he did not have the money. Dkt. 11 at Pg
September 24, 2012 Defendant emailed Plaintiff and stated
“My records show that you're owed $80, 377.00
return on your original investment, and $116, 039.44 as a
return on percentage interest, for a total of $186,
416.44.” Dkt. 11-2 at Pg ID 110. In that same email
Defendant told her he would make her the same
“deal” he had extended to another investor in the
property-“50% interest on your money from 9/1/12 until
you get paid”-if she would agree not to collect this
debt and allow him to use the funds in a new investment: a
return of 50% interest on the outstanding amount from
September 1, 2012 until she got paid. Dkt. 11-2 at Pg ID 110.
responded on September 25, 2012 to clarify the terms of the
loan. Dkt. 11-2 at Pg ID 110. In his same-day responses to
her questions Defendant told her 1) the 50% interest rate
would be for each year of the loan; 2) the life of the loan
would be until Defendant and his LLC could recoup “the
$8, 000, 000 cash I have in the projects, ” and likely
by year-end; 3) the loan would be to WV Urban Developments
guaranteed by Defendant and Richard Walker (Defendant's
partner in the LLC). Dkt. 11-2 at Pg ID 110. According to
Plaintiff, Defendant advised her that he would execute a
Promissory Note containing the agreed upon terms. Dkt. 11 at
Pg ID 91.
this email exchange, however, Defendant failed to send
Plaintiff a Promissory Note for the loan. Dkt. 11 at Pg ID
91. Finally, after several requests from Plaintiff, Defendant
emailed the Note to Plaintiff on June 20, 2013. Dkt. 11-3 at
Pg ID 112. Signed by Defendant and Richard
Walker, the Note guaranteed payment of $194,
288.92 annually to Plaintiff, representing a 20% return on
the loan amount. It was effective as of December 12, 2012,
personally guaranteed by Defendant and Walker, and payable on
demand. Dkt. 1-4 at Pg ID 21.
seeing that the Note contained a 20% interest term instead of
the 50% that she and Defendant had previously discussed, and
that it was effective as of December 2012 rather than
September 2012, Plaintiff emailed Defendant on June 24, 2013
and asked him to send her “a new note” with the
50% interest term and a September 1, 2012 effective date.
Dkt. 11-5 at Pg ID 117. Defendant replied the same day and
told her he could not include a 50% interest term in the Note
because it was criminal usury and that they would
to Plaintiff's deposition testimony she and Defendant
spoke on the phone shortly after this email exchange and he
reiterated that 50% interest was usurious which was why he
had included a 20% term instead. Dkt. 27-1 at Pg ID 363,
79:18-81:12. She testified that she understood this to mean
that 20% was non- usurious and thus enforceable and that she
agreed to the loan under those terms. Id. Defendant
does not dispute that this phone conversation occurred or
what was discussed during it.
interest payments were made on the Note. Plaintiff claims she
made her first demand for payment on the Note over the phone
in late 2013, and made several subsequent demands throughout
2014. Dkt. 11 at Pg ID 92. Plaintiff states that Defendant
responded by indicating that all of the funds she had lent
had been used by WV Urban Investments LLC on options to
purchase real property, but that those investments had fallen
through and she was out of luck. Id. Defendant does
not appear to dispute this account.
Spring 2015 Plaintiff received an income tax form from
Defendant for WV Urban Investments LLC known as a K-1 form. A
K-1 form reports income or losses from a
partnership. This form named Plaintiff as a partner in
WV Urban Investments LLC, though she claims she never joined
the partnership. The K-1 form showed an “ordinary
business income loss” of $193, 320. Dkt. 11 at Pg ID
92; Dkt. 11-7 at Pg ID 124 (2014 K-1 for WV Urban Investments
LLC). Plaintiff claims Defendant told her to write off the
loss on her taxes, which she did not do. Dkt. 11 at Pg ID 92.
3, 2016 Plaintiff made her final demand for payment on the
Promissory Note in writing. Dkt. 11 at Pg ID 92; Dkt. 11-8 at
Pg ID 129-30 (demand letter from Plaintiff's lawyer). In
that letter Plaintiff request a payment of $330, 938.79,
which she calculated as her principal investment ($194,
288.93) plus the 20% per year interest ($136, 649.87) over
the course of three years.
did not respond to that letter, and has made no payments on
filed this suit on September 9, 2016. Dkt. 1. In her Amended
Complaint, filed November 28, 2016, she claimed: 1) default
on promissory note; 2) breach of contract; 3) unjust
enrichment; 4) fraudulent misrepresentation; 5) silent fraud;
6) bad faith promise; 7) negligent misrepresentation; and 8)
innocent misrepresentation. Dkt. 11.
meanwhile filed a Third-Party Complaint against Richard
Walker, his partner in WV Investments LLC and the other
personal guarantor of Plaintiff's Promissory Note on
November 21, 2016. Dkt. 9. The two Defendants entered into a
Consent Judgment on January 25, 2017 under which Third-Party
Defendant Walker agreed to indemnify Defendant Vlcko for 50%
of any judgment Plaintiff won against Defendant Vlcko plus
50% of Defendant Vlcko's costs in defending against this
action. Dkt. 17.
moved for summary judgment on April 4, 2017. Dkt. 240. When
Defendant failed to respond, the Court issued a text only
order on September 6, 2017 ordering Defendant to respond by
September 22, 2017. Defendant filed a Cross-Motion for
Summary Judgment and Response to Plaintiff's Motion for
Summary Judgment on September 22, 2017. Plaintiff responded
on October 13, 2017, Dkt. 29, and Defendant replied on
October 27, 2017. Dkt. 30.
hearing on the cross motions for summary judgment was held on
December 11, 2017.
Standard of Review
judgment is appropriate if the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with any affidavits, show that there is no genuine issue as
to any material fact such that the movant is entitled to a
judgment as a matter of law.” Villegas v. Metro.
Gov't of Nashville, 709 F.3d 563, 568 (6th Cir.
2013); see also Fed. R. Civ. P. 56(a). A fact is
material only if it might affect the outcome of the case
under the governing law. See Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 249 (1986).
motion for summary judgment, the Court must view the
evidence, and any reasonable inferences drawn from the
evidence, in the light most favorable to the non-moving
party. See Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986) (citations omitted);
Redding v. St. Edward, 241 F.3d 530, 531 (6th Cir.
moving party, the Defendant has the initial burden to show
that there is an absence of evidence to support
Plaintiff's case. Selby v. Caruso, 734 F.3d 554
(6th Cir. 2013); see also Celotex Corp. v. Catrett,
477 U.S. 317, 325 (1986). Once the moving party has met its
burden, the non-moving party “may not rest upon its
mere allegations or denials of the adverse party's
pleadings, but rather must set forth specific facts showing
that there is a genuine issue for trial.” Ellington
v. City of E. Cleveland, 689 F.3d 549, 552.
the Court is dealing with cross motions for summary judgment,
it will evaluate each claim to determine 1) if a genuine
dispute of material fact exists such that summary judgment
should not be granted to either side, and 2) if no genuine
dispute of material fact exists whether the undisputed facts
as a matter of law decide the claim.
has made eight claims: 1) Default on Promissory Note; 2)
Breach of Contract; 3) Unjust Enrichment/Quantum Meruit (as
an alternative to breach of contract theory); 4) Fraudulent
Misrepresentation; 5) Silent Fraud; 6) Fraud Based on
Bad-Faith Promise; 7) Negligent Misrepresentation; 8)
Innocent Misrepresentation. For each cause of action
Plaintiff has requested the same relief: a judgment against
Defendant in the amount of $344, 107.26-the amount she
alleges she is owed under the terms of the promissory note.
Default on Promissory Note/Breach of Contract
argues that Defendant is in default on the signed Promissory
Note that he emailed to her on June 24, 2013, and has thus
breached their contract.
argues that the Promissory Note is not enforceable because 1)
there was no consideration exchanged for it and 2) Plaintiff
is not the holder in due course of the Note. Finally the
Defendant argues that even if the Note is enforceable, the
20% interest rate is usurious under Michigan law and may not
The Promissory Note is a negotiable instrument under the
order to be a cognizable negotiable instrument under the UCC
as adopted by Michigan, the Promissory Note:
o a) must be payable to the bearer;
o b) on demand or at a definite time, and
o c) must not contain an undertaking other than payment of
money (i.e. it cannot impose any other additional conditions
of performance for payment).
Promissory Note satisfies this definition because it is a)
payable “to the order of Zora Dugan”; b) payable
“in full at any time or in part from time to
time”; and c) does not include any other additional
requirement with which Plaintiff must comply in order to
receive that promised payment on demand. Dkt. 1-4 at Pg ID
the Note is “certain as to the sum paid”- $194,
288.92 plus interest at 20% per annum-“and the time of
payment”- it states “effective as of December 12,
2012.” First Nat Bank v. Carson, 60 Mich. 432,
436; 27 N.W. 589 (1886).
The Promissory note is supported by sufficient
argues that because Plaintiff did not actually give Defendant
any funds at the time that the Note was executed, it is
unenforceable for lack of consideration. Dkt. 27 at Pg ID
argument cannot overcome the presumption of consideration
that accompanies negotiable instruments like promissory
notes. In re Booth's Estate, 326 Mich. 337, 343
(1949)(quoting C.L 1948 § 439.26) (“Every
negotiable instrument is deemed prima facie to have been
issued for valuable consideration; and every person whose
signature appears thereon to have become a party thereto for
a negotiable instrument has been transferred for value and
consideration is determined under MCL 440.3303, which states
that “a negotiable instrument is issued or transferred
for value if is issued of transferred as payment of, or as
security for an antecedent claim against any person.”
instrument is issued for value under 440.3303(1) has also
been issued for consideration. MCL 440.3303(2).
courts have found that a promissory note “given in
payment of a pre-existing debt” satisfies this
440.3303(1)(c) definition and is thus supported by valuable
consideration.” See Wienhold v. Pearsall, 2013
WL 3198129 at * 5 (Mich. App. June 25, 2013)(citing Ann
Arbor Constr Co. v. Glime Constr. Co., 369 Mich. 669
(1963)(finding that a promissory note for repayment of $105,
000 wired to defendant's bank account was supported by
adequate consideration as was a subsequent note issued when
the first note was defaulted on).
does not dispute that it owed Plaintiff an antecedent debt
based on original investment in the shopping center. And the
email records attached to Plaintiff's Amended Complaint
indicate Defendant communicated to her that she was owed this
money. In a September 24, 2012 email to Plaintiff, the
authenticity or validity of which Defendant does not dispute,
Defendant wrote: “My records show that you're
[Plaintiff] owed $80, 377.00 return on your ...