Bachi-Reffitt v. Kev (In re Reffitt)

• Decision Date: 04 December 2017
• Docket Number: Case No. 1:17-CV-263
• Parties: DAWN M. BACHI-REFFITT, Plaintiff, v. KEVIN REFFITT, RONALD REFFITT, SR., KAREN WIERENGA, and PENCON, INC., Defendants.
• Court: U.S. District Court — Western District of Michigan

DAWN M. BACHI-REFFITT, Plaintiff, v. KEVIN REFFITT, RONALDREFFITT, SR., KAREN WIERENGA,and PENCON, INC., Defendants.

Case No. 1:17-CV-263

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

December 4, 2017

HON. GORDON J. QUIST

OPINION REGARDING DEFENDANTS' MOTION TO DISMISS AND MOTION FOR RULE 11 SANCTIONS

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 theproceeds 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 Judgment Proceedings

On June 17, 2014, Dawn filed a motion for relief from judgment in the family court, pursuant to Michigan Court Rule 2.612(C)(1)(c) and/or 2.612(C)(1)(f), alleging that Kevin failed to disclose two assets during the divorce: (1) approximately $1.2 million in life insurance proceeds that Kevin received as the result of Reffitt, Jr.'s death; and (2) the ownership interest in Peninsula that Kevin transferred back to Reffitt, Sr., which Dawn alleged was worth in excess of $1 million. (ECF No. 13-7 at PageID.298.)

Kevin responded, arguing that the motion lacked merit and, in any event, was untimely. In particular, Kevin stated that he had fully disclosed his interest in Peninsula and the sale of his stock to his father, as well as the existence of the life insurance policy on Reffitt, Jr., during the divorce proceeding. Kevin further stated that he did not receive insurance proceeds from the policy until after the Consent Judgment was entered. (ECF No. 13-12 at PageID.376.) The family court judge held a hearing on Dawn's motion on August 8, 2014, and denied it as time-barred. In addition, the family court judge noted that Kevin disclosed the insurance policy and the stock sale to Dawn's counsel during the divorce proceeding. (ECF No. 13-8 at PageID.319-20, 323-24.)

On or about October 28, 2014, Dawn filed a new, separate action against Kevin and Reffitt, Sr. in the Grand Traverse County Circuit court, alleging fraud and other claims based on the same failures to disclose that Dawn had previously raised in the family court. (ECF No. 13-9.) Kevin thereafter moved for dismissal, and the circuit judge held a hearing on November 17, 2014. The circuit judge concluded that because the alleged fraud occurred during the divorce proceeding, Dawn should have raised the matter in the family court. ((ECF No. 13-10 at PageID.359-60.) Therefore, the circuit judge dismissed Dawn's complaint without prejudice to allow Dawn to raise it by motion before the family court in the divorce case.

Finally, although the family court judge initially denied Dawn's motion for relief from judgment, the judge, pursuant to paragraph 25 of the Consent Judgment, subsequently entered a judgment against Kevin in the full...