Barclae v. Zarb

• Decision Date: 16 April 2013
• Docket Number: Docket No. 299986.
• Citation: 834 N.W.2d 100,300 Mich.App. 455
• Parties: BARCLAE v. ZARB.
• Court: Court of Appeal of Michigan — District of US

300 Mich.App. 455

834 N.W.2d 100

BARCLAE

v.ZARB.

Docket No. 299986.

Court of Appeals of Michigan.

Submitted April 2, 2013, at Detroit.

Decided April 16, 2013, at 9:00 a.m.

Garratt & Bachand, PC (by C. William Garratt, Bloomfield Hills, and Lauren B. Tritt), for Anthony L. Barclae, CYNBA International, Inc., and Robot Defined, LLC.

Bodman PLC, Detroit (by Robert G. Brower, Jeffrey G. Raphelson, and Jonathan A. Young), for Ernest M. Zarb.

Before: BORRELLO, P.J., and K.F. KELLY and GLEICHER, JJ.

PER CURIAM.

Plaintiffs, Anthony L. Barclae, CYNBA International, Inc., and Robot Defined, LLC, appeal as of right an order granting summary disposition in favor of defendant, Ernest Zarb. We affirm.

I. BASIC FACTS AND PROCEDURAL HISTORY

Some basic facts of this case were set forth in a prior appeal:

According to plaintiffs, Robot Printing, Inc., and Robot Properties, L.L.C., were businesses that needed working capital in 2007, but their assets were collateral for Comerica Bank loans. Further according to plaintiffs, Zarb (a senior vice president for Comerica Bank) made fraudulent misrepresentations to plaintiffs in April 2007 to induce them “to advance hundreds of thousands of dollars” for these assets to, and for the benefit of, Robot Printing, Inc., Robot Properties, L.L.C., and Comerica Bank. In return for the advance, plaintiffs expected to collect Robot Printing, Inc.'s receivables after April 17, 2007.

After the allegedly fraudulent misrepresentations by Zarb were made, on May 4, 2007, Robot Defined and Comerica Bank entered into a debt purchase agreement. According to the agreement, Robot Defined agreed to purchase outstanding loans made by Comerica Bank to Robot Printing Inc. and Robot Properties, L.L.C. The outstanding principal on the loan notes exceeded $7,000,000.00. The purchase price was the amount outstanding on the notes, less $800,000 (and certain fees). On the same day, a forbearance agreement was executed. In that agreement, Comerica Bank agreed to “forbear from taking action” in regard to defaults on the loans at issue in the debt purchase agreement. [Barclae v. Zarb, unpublished opinion per curiam of the Court of Appeals, issued January 18, 2011 (Docket No. 289878), 2011 WL 165406, p. 1.][[¹

While the appeal was pending, plaintiffs filed a second amended complaint. The second amended complaint refers to the “Robocolor Process”—an intangible property “involving a potentially patentable printing process of substantial commercial value that was not available to Robot Printing's competitors.” The second amended complaint alleged that Robot Printing sold the Robocolor Process in order to reduce the debt owed to Comerica and to procure working capital, an act that clearly benefitted Comerica. When plaintiffs were presented with the opportunity to purchase some of Robot Printing's assets in March 2007, they were unaware that the Robocolor Process had been sold and was no longer an asset. Plaintiffs alleged that, in spite of Comerica's knowledge of the sale, Zarb represented that plaintiffs could purchase Robot Printing's assets “including without limitation the Robocolor Process (whether by taking possession of the collateral and selling it as a secured creditor or by consenting to Robot's sale of the assets and applying sales proceeds to Robots' debt to Bank).” In addition, although plaintiffs had hoped to purchase Robot Printing's assets, Comerica demanded that plaintiffs “purchase all of Bank's rights against Robot and their guarantors for additional millions of dollars,” effectively converting an “asset sale” into a “debt sale.”

In the meantime, Comerica filed a suit against Robot Defined, alleging breach of contract and seeking indemnification for losses arising out of Robot Defined's failure to consummate the debt sale agreement. Robot Defined counterclaimed for the loss of money it advanced to Robot Printing as a result of Comerica's fraud. Robot Defined alleged in its first amended counterclaim that “[t]hroughout April 2007, Bank made a series of misrepresentations that Bank had the present intent and ability to cause the sale of certain assets of Robot [Printing], including without limitation the Robocolor Process (whether by taking possession of the collateral and selling it as a secured creditor or by consenting to Robot's sale of the assets and applying sales proceeds to Robot's debt to Bank).” Robot Defined further alleged that the bank wrongfully retained Robot Printing's receivables generated after April 17, 2007, which should have been applied to Robot Defined's working capital. Robot Defined alleged breach of contract, fraud, conversion, and unjust enrichment. It also alleged that Comerica had retained Robot Defined's $500,000 nonrefundable deposit and that the bank had, therefore, elected its remedy against Robot Defined and could not seek indemnification. The trial court consolidated the two cases, retaining the title and docket number of the action brought by Barclae.

Zarb moved for summary disposition on plaintiffs' claims, arguing that the statute of frauds, MCL 566.132, precluded plaintiffs from bringing an action for breach of alleged oral representations regarding financial accommodations. Zarb argued that, as an employee of Comerica, he was protected under the statute by basic agency principles. Additionally, Zarb argued that neither Barclae nor CYNBA had standing to bring the action because they were mere investors in Robot Defined, and Robot Defined was the only plaintiff who was a party to the debt sales agreement. Further, because of the merger clause in the parties' agreement, Robot Defined was also barred from bringing its claims regarding prior oral promises.

Comerica moved for partial summary disposition with regard to the majority of Robot Defined's counterclaims. Citing MCL 566.132, the statute of frauds, Comerica argued that Robot Defined was in no position to seek enforcement of any alleged oral agreements. Contrary to plaintiffs' contentions, the handwritten notes taken by Zarb at one of the meetings during the negotiation process did not establish a contract for purposes of circumventing the statute of frauds. Additionally, Comerica argued that the merger clause in the debt sale agreement barred evidence of any other agreement. Comerica also argued that there could be no claim for conversion because Robot Defined failed to allege that the bank had an obligation to return “specific money.” Comerica also pointed out that, pursuant to the debt sales agreement, Robot Defined had disclaimed any reliance on any statements or representations made by the bank's employees. Comerica argued that it was not unjustly enriched because there was no evidence that Robot Defined's investment increased the liquidation value of Robot Printing's assets. Finally, Comerica maintained that the language of the parties' agreement did not show an intention to limit Comerica's damages to the nonrefundable deposit; instead, the $500,000 deposit was forfeited as a penalty.

Plaintiffs filed separate responses opposing both Zarb's motion for summary disposition and Comerica's motion for partial summary disposition. Plaintiffs pointed out that when a debtor like Robot Printing defaults on a debt, a bank would generally either sell its debt instruments or conduct an “Article 9 sale” of collateral. Robot Printing needed working capital during the economic downturn, so with Comerica's encouragement, Robot Printing sold its Robocolor Process to a nonparty, Robocolor, L.L.C. With the sale, Robot Printing was able to stay in business and generate new receivables, to the benefit of Comerica. Plaintiffs hoped to purchase the Robocolor Process in an Article 9 sale. At the time, plaintiffs had no idea that the process had already been sold, yet Zarb made a series of statements that the bank was in a position to sell Robot Printing's assets. Zarb even generated a “present agreement” at the parties April 20, 2007, meeting, but then later did an “about face” and refused to proceed with the sale until plaintiffs agreed to purchase the debt instruments. Plaintiffs were put in a position whereby they would lose the many thousands of dollars already invested in Robot Printing to keep it “afloat” if they did not sign the agreement on Zarb's terms. However, Zarb knew that the Robocolor Process had been sold months earlier at the bank's request and for its benefit. “So, in this action, Plaintiffs seek damages from Zarb, not the Bank, for his fraudulent misrepresentations (admittedly beyond his authority as a Bank officer) about the intent and ability to sell Printing assets ( not the Bank's debt instruments ).”

Plaintiffs argued that, contrary to Zarb's assertion, plaintiffs had standing to bring the lawsuit. Plaintiffs alleged that Anthony Barclae and CYNBA were not merely investors of Robot Defined; rather, they directly advanced over $1 million to Robot Printing and its creditors and were directly damaged by Zarb's deceit.

Plaintiffs also denied that their claims were barred by MCL 566.132. Plaintiffs were not seeking to enforce any agreement; instead, they sought damages for money advanced to Robot Printing before the May 4, 2007, agreement was executed. Additionally, the statute applies only to the “financial accommodations” relating to loans and extensions of credit. Zarb was not a “financial institution” or “affiliate” within the meaning of the statute. To the extent the statute might apply, plaintiffs argued that Zarb's April 20, 2007, “present agreement” satisfied the writing requirement of the statute.

Finally, plaintiffs argued that the merger clause in the parties' agreement did not bar plaintiffs' claims because the merger clause only referred to prior agreements or understandings with respect to the debt sale and does not mention prior agreements relating to the sale of Robot Printing's assets. Even if the merger clause applied, the bank's fraudulent conduct vitiated the agreement....