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Nolan v. Thomas

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

June 26, 2018

David Nolan, Plaintiff,
v.
Ronald Thomas, Defendant.

          Mag. Judge Stephanie Dawkins Davis

          OPINION AND ORDER GRANTING IN PART AND DENYING IN PART CROSS MOTIONS FOR SUMMARY JUDGMENT [81][87] AND DENYING PLAINTIFF'S MOTION FOR LEAVE TO AMEND [106]

          JUDITH E. LEVY UNITED STATES DISTRICT JUDGE.

         This case arises out of the fractured business relationship between defendant Ronald Thomas, a local real-estate investor, and plaintiff David Nolan, an Australian businessman. Plaintiff brings this suit alleging that defendant froze him out of their joint business, violating the Uniform Partnership Act and the duties partners owe each other in the course of running a business.

         Both parties move for summary judgment, and plaintiff moves for leave to amend his complaint. For the reasons set forth below, the summary judgment motions are denied in part and granted in part, and the motion for leave to amend the complaint is denied.

         I. Background

         The parties' relationship began in July 2015, when they met for the first time in Las Vegas. (Dkt. 81-14.) Defendant followed up on their in-person meeting with an email laying out their business plan, suggesting that they would “split equity generated, cash profits from any transactions and any other positive cash flows 50/50.” (Id. at 3.) Defendant also laid out the role that each party would take in the business: “I would see [plaintiff's] role as primarily arranging capital for projects, evaluating deals with me and of course continuing to fine-tune strategy and direction. My role would be overseeing everything here on the ground, initially evaluating deals and making sure the business stays on course[.]” (Id.)

         In reply to this email, plaintiff generally agreed with defendant's plan, and suggested that he would come to Michigan “every 6 weeks or so as needed.” (Dkt. 87-5 at 2.) In addition, on plaintiff's first visit the parties would “set up [their] LLC and associated accounts.” (Id.) Plaintiff explained in his deposition that it was always their intent for the legal structure of the entity to be an LLC. (Dkt. 87-2 at 5.) Instead of setting up a new LLC, the parties “agreed to use Rise Above Asset Management LLC, which [defendant] had already registered, with the view that we would register the name Thomas Nolan LLC.” (Id.)

         When, in an August 2015 email, plaintiff asked defendant what information he needed to set up the LLC, defendant replied that doing so was a “simple task” and that information about owners, officers, and directors would be spelled out in an operating agreement between the parties. (Dkt. 81-5 at 3.) Defendant followed through on this “simple task” and changed Rise Above Asset Management LLC's name to Thomas Nolan LLC on October 19, 2015; however, the parties never signed the operating agreement. (Dkt. 87-4.)

         Meanwhile, the parties discussed the initial financing of the business. At the end of September 2015, they agreed that they would each contribute $7, 000 as initial capital into the company's bank account. (Dkt. 87-24.) Defendant disputes whether plaintiff ever made this payment, alleging that, at most, plaintiff only paid $4, 127.90. (Dkt. 87 at 12; Dkt. 87-9.)

         From roughly September 2015, through March or April 2016, plaintiff and defendant operated their business buying, selling, and renting real estate. (See, e.g. Dkts. 87-10 (Nolan proposing investing/funding model for the business), 87-25 (parties discussing leads and initial purchases), 87-26 (same), 81-25 (discussing the plan for paying interest on a loan secured by plaintiff).) In February, 2016, plaintiff found a third party investor to put $150, 000 Australian into the company. (Dkt. 81-25.) Also during that time, the parties engaged legal counsel to write the operating agreement mentioned previously. (Dkt. 81-20.) Defendant emailed plaintiff a final draft of this operating agreement on April 19, 2016, but it is not clear from the record why the parties never signed it. (Dkt. 87-14; see also Dkt. 87-21 at 3.)

         At the end of March 2016, defendant began to be concerned with plaintiff's contributions to their business. He emailed plaintiff on March 30, 2016 regarding the imbalance between his investment - both capital and labor - and plaintiff's. (Dkt. 87-13.) In response, plaintiff expressed his willingness to find a solution to the imbalance, but offered various deferrals regarding his inability to find investors. (Id.) Six days later, on April 5, 2016, defendant wrote to plaintiff updating him on various deals in progress and on the company's financial situation. (Dkt. 87-19.) In that email, defendant explained that in order to close on the next deal, both parties would need to make another capital contribution, in addition to the $11, 350 contribution defendant placed in the company's bank account to keep it afloat in the meantime. (Id.) Plaintiff never made this contribution. (Dkt. 87-21.)

         On May 13, 2016, defendant emailed plaintiff to suggest that they dissolve their business relationship. (Dkt. 87-21.) Defendant acknowledged that he “run[s] Thomas Nolan, which [he] own[s] 50% of, ” and suggested that “Thomas Nolan LLC sign a promissory note to [plaintiff] to pay [him] half of all cash flows (rents and sales) resulting from all 10 of the properties.” (Id.) He also stated that plaintiff would be paid back for his entire investment. (Id.) Plaintiff then responded, demanding full immediate repayment of his investment, as well as a $300, 000 payment representing his equity interest in the company. (Id.) In exchange, he would sign over all of his rights in Thomas Nolan, LLC to defendant. (Id.) After defendant then reminded plaintiff of plaintiff's failure to invest an additional $20, 000 as needed to close on an upcoming property (id.), plaintiff replied with a long email reiterating his request for reimbursement in full. (Dkt. 87-22.) On May 24 and May 29, the parties exchanged a final round of emails about the state of the company and information needed to wind it down. (Dkts. 81-8, 81-9.)

         Plaintiff filed this lawsuit alleging the existence of a partnership and violations of the Uniform Partnership Act, among other causes of action, on June 16, 2016. On March 27, 2017, the Court issued an opinion and order granting plaintiff's motion to amend the complaint. (Dkt. 43.) Plaintiff's amended complaint re-pleaded his fraud and constructive fraud claims as two separate counts, but his attempt to add a conversion claim was denied as futile.

         In addition, during the course of litigation, the Court appointed a receiver to manage the properties at issue and to provide an accounting of the parties' assets. (Dkt. 27.) The receiver returned his final report on November 30, 2017, which showed that ten of the fifteen properties at issue were owned by Thomas Nolan LLC. (Dkt. 85.) It also showed that every capital contribution made by either party went into the LLC eventually known as Thomas Nolan. (Id. at 20-22.)

         The parties now bring cross motions for summary judgment. Plaintiff moves for partial summary judgment on counts II and III of the first amended complaint for violations of the fiduciary duties partners owe one another and violations of the Michigan Uniform Partnership Act. (Dkt. 81.) Plaintiff's motion is for liability only and does not include damages. Plaintiff also moves for summary judgment on defendant's three counterclaims, for unjust enrichment, promissory estoppel, and fraud. Defendant cross-moves for summary judgment on all claims in plaintiff's complaint. (Dkt. 87.)

         II. Legal Standard

         Summary judgment is proper when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The Court may not grant summary judgment if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court “views the evidence, all facts, and any inferences that may be drawn from the facts in the light most favorable to the nonmoving party.” Pure Tech Sys., Inc. v. Mt. Hawley Ins. Co., 95 Fed.Appx. 132, 135 (6th Cir. 2004) (citing Skousen v. Brighton High Sch., 305 F.3d 520, 526 (6th Cir. 2002)).

         III. Analysis

         a. Standing

         To start, defendant argues that plaintiff does not have standing to bring his claims inasmuch as they seek to recover funds a third party investor loaned to plaintiff. Defendant asserts that the third party investor is the actual party in interest with respect to these funds, not plaintiff, and, thus, plaintiff cannot bring these claims.

         This argument lacks merit. A plaintiff has standing to bring a claim when he can demonstrate that he was (1) injured, (2) the defendant caused the injury, and (3) the court can provide a remedy that redresses the injury. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992).

         Here, defendant argues plaintiff was not actually injured when he did not recover the funds loaned by the third party because only the third party suffered the injury. However, there is no indication from the pleadings or briefing that plaintiff is asserting the claim on behalf of the third party. Instead, plaintiff brings his claims to remedy an injury he suffered when he did not recover the funds he invested in his business relationship with defendant. It does not matter that plaintiff obtained those funds from a third party because, once given to him, they were his funds until repaid. Accordingly, losing those funds was an injury sufficient to establish standing.

         The second and third elements of standing are also satisfied here. Plaintiff alleges he was unable to recover the funds as a result of defendant's malfeasance, and, if the Court were to find in his favor, it could issue a judgment for damages that would compensate for his losses.

         For these reasons, plaintiff has standing to pursue this case.

         b. Existence of a Partnership

         Plaintiff alleges defendant breached the parties' contract to carry on as fifty-fifty partners, failed to adhere to the fiduciary duties partners owe to each other, and violated various provisions of Michigan's Uniform Partnership Act. (Dkt. 44 at 7-11 (Counts I-III of the First Amended Complaint).) These three claims all depend on the existence of a partnership, and can only succeed if one is found to exist. Plaintiff argues judgment should be entered in his favor because the parties' business relationship and dealings were sufficient to form a partnership. Defendant counterargues that they could not have formed a partnership because plaintiff failed to meet various conditions precedent required to become part of defendant's business.

         After the parties submitted their briefs on the motions, the Court ordered supplemental briefing on the partnership issue. (Dkt. 102.) The order asked the parties to address the applicability of Mich. Comp. Laws § 449.6(2), which bars the existence of a partnership when a different corporate form is present. In the supplemental briefing, defendant argues that under Michigan law a partnership and an LLC are mutually exclusive corporate forms, and, accordingly, one entity cannot be both a partnership and an LLC at the same time. (Dkt. 104.) Plaintiff responds by arguing that plaintiff was a member of defendant's LLC because of his investment, [1] and, in the alternative, that the LLC was improperly formed and thus a partnership existed. (Dkt. 105.)

         Michigan implemented the Uniform Partnership Act of 1917 (“UPA”), a law adopted by a number of states around that time to “make uniform the law relating to partnerships.” See Mich. Comp. Laws Ann. § Ch. 449, Refs & Annos (West); see also Byker v. Mannes, 465 Mich. 637, 644 (2002). This statute defines a partnership as “an association of 2 or more persons . . . to carry on as co-owners a business for profit.” Mich. Comp. Laws § 449.6(1). It also disclaims as a partnership “any association formed under any other statute of this state.” Mich. Comp. Laws § 449.6(2). The UPA's drafters included comments explaining the various provisions of the act, and those comments make clear that “[s]ubsection (b) provides that business associations organized under other statutes are not partnerships. Those statutory associations include corporations, limited ...


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