Dillard v. Schlussel

• Decision Date: 21 October 2014
• Docket Number: Docket No. 315485.
• Citation: 308 Mich.App. 429,865 N.W.2d 648
• Parties: DILLARD v. SCHLUSSEL.
• Court: Court of Appeal of Michigan — District of US

308 Mich.App. 429

865 N.W.2d 648

DILLARD

v.SCHLUSSEL.

Docket No. 315485.

Court of Appeals of Michigan.

Submitted July 8, 2014, at Detroit.

Decided Oct. 21, 2014.

Approved for publication Dec. 9, 2014, at 9:20 a.m.

Williams, Williams, Ratner & Plunkett, PC, Birmingham (by David E. Plunkett), and Bendure & Thomas, Detroit, (by Mark R. Bendure ) for Bentley T. Dillard.

Law Office of Bryan L. Schefman PC, Bloomfield Hills, (by Bryan L. Schefman ) for Mark E. Schlussel and Schlussel & Schefman, PLLC.

Lippitt O'Keefe, PLLC, Birmingham (by Daniel J. McCarthy ), for Rose L. Schlussel and M & A Consulting, LLC.

Before: BECKERING, P.J., and HOEKSTRA and GLEICHER, JJ.

Opinion

PER CURIAM.

This action, brought under the Michigan Uniform Fraudulent Transfer Act (MUFTA), MCL 566.31 et seq., presents two legal questions. The first concerns the applicable statute of limitations. We affirm the circuit court's ruling that MUFTA's six-year limitations period bars plaintiff Bentley Terrance Dillard's fraudulent-transfer claims arising before June 23, 2005. The second issue is whether a debtor's transfer of assets for the purpose of paying the debtor's ordinary household expenses immunizes the transfers from challenge under the MUFTA. We hold that it does not, and reverse the circuit court's contrary ruling.

I. BACKGROUND FACTS AND PROCEEDINGS

Bentley Terrace Dillard holds a substantial judgment against defendant Mark E. Schlussel (Mark), a Michigan attorney. Mark's debt stems from his failed investment in A Little More Red, an Arizona limited liability company formed in 2002.

Mark and Dillard funded the company with a $500,000 line of credit, for which both pledged personal guarantees. True to its name, however, A Little More Red consistently leaked cash. During 2003 and 2004, Mark personally contributed $206,936.83 to keep the enterprise afloat. A Little More Red closed its doors at the end of 2004. Dillard paid off the entire line of credit and sued Mark for his share. In November 2008, a jury found in Dillard's favor and judgment entered against Mark. The Arizona Court of Appeals affirmed. Dillard v. Schlussel, memorandum opinion of the Arizona Court of Appeals, issued May 10, 2011 (Docket No. 1 CA–CV 10–0219), 2011 WL 1854978. In May 2009, the Oakland Circuit Court domesticated the Arizona judgment, which by then exceeded $500,000.

In March 2010, Mark sat for a creditor's examination. Relevant to the issues presented here, Mark testified that until March 2004, he owned a company called M & A Enterprises. Mark explained that “M & A Enterprises was a consulting company that I had[.] I was receiving salary. [T]hat company was the company that employed me ... when I rendered services to Detroit Medical Center.” Mark's counsel explained in a subsequent letter written to Dillard's attorney that “while M & A did receive deposits, it had no assets, nor contracts, nor receivables; it was essentially a receptacle for whatever Mr. Schlussel could gather together to invest.” In support of his application for A Little More Red's line of credit, Mark valued M & A at $100,000.

In March 2004, Mark conveyed M & A to his wife, defendant Rose Lynn Schlussel (Rose Lynn).¹ Mark received no consideration from his wife for this transfer. Temporally, the transfer coincided with the period of A Little More Red's financial decline. By March 2004, A Little More Red had exhausted its line of credit and Schlussel had loaned the company more than $175,000.

During the continued creditor's exam in April 2010, Mark produced his tax returns for the years 2004 through 2008. The returns stated sizeable adjusted gross incomes for each year: $496,228 in 2004, $850,713 in 2005; $354,921 in 2006, $348,877 in 2007, and $427,959 in 2008. Mark claimed that none of the after-tax income earned during this five-year period remained available for collection because the Schlussels had spent it all.

Mark testified that his wife paid the couple's monthly expenses, which averaged approximately $18,000, with “[m]oney in her [personal] checking account.” When asked where his wife got the money to pay the bills, Mark responded:

Q. Do you pay any portion of the household bills?

A. No.

Q. What is the source of the money in her checking account?

A. Various sources.

Q. Does any of the money on a regular basis come from you?

A. I don't understand the question.

Q. Fair enough. You said that your wife pays your household expenses out of a checking account that's in her name, is that correct?

A. Correct.

Q. What I'm looking to find out is where does the money in her checking account come from, do you regularly deposit money in there, do you irregularly deposit money in there, does she have some different sources of money that she uses for her checking account, that's what I'm trying to find out[.]

A. She has personal sources of money and of late ... the money has come from my pension.

Q. You take money out of your pension and put it in the checking account?

A. Correct.

Dillard's counsel, David E. Plunkett, specifically inquired whether other “sources of funds” may have enhanced accounts owned by Rose Lynn, but was met with an objection by Mark's counsel, Norman L. Lippitt, and Mark's refusal to answer:

Q. Besides your wife's checking account that I understand you are not going to give me any details about, are there any other accounts of any kind that are held in your wife's name into which you have deposited money since November of 2004? And by that I mean, is there an investment account? Is there some other kind of account, other than this checking account that we have been discussing?

A. Not to the best of my recollection.

Q. Understanding that I am going to get an objection from your counsel, what are the other sources of funds that are in your wife's checking account?

Mr. Lippitt: Objection. Don't answer the question, unless they come from you.

Mr. Plunkett: And when I said other, I meant other than you.

Mr. Lippitt: Don't answer the question.

Mr. Plunkett: And you are taking that instruction?

A. Absolutely.

Q. Do you have authority to sign checks on your wife's checking account?

A. No.

Dillard filed this MUFTA action on June 23, 2011. Her first amended complaint avers that despite Mark's successful law practice and “substantial income,” she has “been able to locate only approximately $2,000 in his accounts at various financial institutions and ... collected an additional approximately $5,000 through other collection efforts.” The first amended complaint alleges that beginning in 2004, and continuing through 2009, Mark transferred large amounts of money to M & A accounts held by Rose Lynn. These transfers, the complaint asserted, were fraudulent. The first amended complaint further states that Mark fraudulently transferred the cash value of a Pacific Life insurance policy to Rose Lynn. Defendants' affirmative defenses to the first amended complaint include an allegation that Dillard's claims “are barred as any and all funds alleged to have constituted fraudulent transfers were used for customary living expenses.”

Rose Lynn was deposed in March 2011. By then, Dillard had obtained some discovery regarding Rose Lynn's personally held accounts. Between November 2010 and March 2011, one such account received $26,000 in deposits from Mark. Rose Lynn explained, “It is my account and it's an account that I did receive funds from Mark that I did pay some of our living expenses from.”² Additionally, M & A was “receiving funds for a consulting fee that Mark was doing for a company in California....”

According to Rose Lynn, Mark stopped depositing his law firm draw checks into his checking account in 2010, after Dillard garnished that account. Instead, he endorsed checks made out to him to Rose Lynn. She then deposited the checks into her personal account, or accounts held by M & A:

Q. Did you ever ask why all of a sudden he started giving you his law firm checks for deposit into your account?

A. No.

Q. When Mark—I'll take as an example the first check on here. It's a check dated March 1st, 2010 from Schlussel and Schefman, PLLC to Mark in the amount of 12 thousand 500 dollars that you deposited into your Comerica account on March 2nd, 2010, correct?

A. Correct.

Q. And when Mark gave you this check to deposit into your Comerica account, did you give him anything in return or did you just take the check and put it in your account?

A. I just take the check and put in my account.

Q. Did you segregate that money in any way or did you just put it into the account with the rest of the money?

A. To my recollection I just put it in my account.

Q. And I take it that it would, but would that answer be the same for the rest of these checks? Both the answers I guess, one, that you didn't give him anything in return, correct?

A. Correct.

Rose Lynn admitted that beginning in 2004, and continuing through 2010, she wrote $647,000 worth of checks to herself drawn on M & A accounts. The source of this money was Mark's law firm earnings. After depositing Mark's earnings in an M & A account, Rose Lynn wrote checks to herself or to Mark. According to a summary prepared by Dillard's counsel, between 2005 and 2007, Rose Lynn transferred $125,000 back to Mark using M & A as the conduit. Dillard contends that from 2004 through 2009, Rose Lynn deposited approximately $740,000 of Mark's law firm earnings into one account and an even greater amount (approximately $800,000) into another account, both held by M & A. Virtually all of that money was eventually distributed from the M & A accounts to Mark or Rose Lynn.³

Notably, defendants have not contested the amounts or the mechanism of these transfers.

The parties agree that during this time, M & A had no income other than Mark's consulting fees. The company performed no separate work, had no employees, and incurred no expenses. Rose Lynn gave no consideration for any of the checks endorsed to her. According to defendants, Rose Lynn used all the transferred money to pay the couple's substantial living expenses.

Dillard also...