Dollar Corp., In re

• Decision Date: 13 June 1994
• Docket Number: Nos. 92-1944,92-2027,s. 92-1944
• Citation: 25 F.3d 1320
• Parties: In re DOLLAR CORPORATION; Bra-Con Industries, Inc., Debtors. DOLLAR CORPORATION; Bra-Con Industries, Inc., Plaintiffs-Appellees, Cross-Appellants, v. William Z. ZEBEDEE, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1320

25 F.3d 1320

In re DOLLAR CORPORATION; Bra-Con Industries, Inc., Debtors DOLLAR CORPORATION; Bra-Con Industries, Inc. Plaintiffs-Appellees, Cross-Appellants, v. William Z. ZEBEDEE, Defendant-Appellant, Cross-Appellee.

Nos. 92-1944, 92-2027.

United States Court of Appeals Sixth Circuit.

Argued June 25, 1993.

Decided June 13, 1994.

Raymond L. Morrow (briefed), Irwin Alterman (argued), Kemp, Klein, Umphrey & Endelman, Troy, MI, for plaintiffs-appellees cross-appellants.

James A. Newhard (briefed), Clark, Klein & Beaumont, Detroit, MI, Michael V. Kell (argued and briefed), Birmingham, MI, for defendant-appellant cross-appellee.

Before KENNEDY and NORRIS, Circuit Judges; and ENGEL, Senior Circuit Judge.

ENGEL, Senior Circuit Judge.

I.

Defendant William Zebedee, at all times relevant to this appeal, was the president, chairman of the board of directors, and largest single shareholder of plaintiff Dollar Corporation. Beginning in January, 1987, Zebedee began taking advances from Dollar for personal use. These advances were recorded by Dollar as accounts receivable, in the same manner that advances for business expenses to salespeople, a common occurrence, were recorded. Advances were repaid in one of two ways: (1) if the employee was a salesman, the advances would be offset against reimbursable expenses, (2) if the employee was an executive, such as Zebedee, the advances would be deducted from the employee's year-end bonus. In 1987 and 1988, Zebedee took advances of $115,296.64.

In 1986, Dollar elected to become a subchapter S corporation, which meant that Dollar would no longer be paying year-end bonuses. The parties, according to Zebedee, understood that any advances to executives would, from that point on, be deducted from the employee's share of earnings based on corporate profits. Dollar, however, never again earned a profit.

In 1987, Dollar sought to acquire Bra-Con Industries. Because the tax code prohibits subchapter S corporations from owning more than eighty percent of the stock of another corporation, Dollar orchestrated a transaction whereunder the company purchased seventy-five percent of Bra-Con's stock and Zebedee and two other Dollar shareholders acquired the remaining twenty-five percent. Dollar financed the purchase of the shares issued in the name of William Zebedee and the two other individuals. Dollar recorded these transactions as accounts receivable in amounts corresponding to the number of shares issued. When the transaction was completed, Zebedee owed Dollar, according to Dollar's books, $60,900 for his stake in Bra-Con.

On May 31, 1988, Dollar fired Zebedee. In December, 1988, Dollar and Bra-Con filed Chapter 11 bankruptcy petitions. In October, 1990, Dollar brought this adversary proceeding against Zebedee to recover the $115,296.64 representing his advances and the $60,900 representing the Bra-Con share purchases. Dollar premised its complaint upon several alternate legal theories, including breach of contract, breach of fiduciary duty, and conversion. Zebedee requested a jury trial and the case was accordingly withdrawn from bankruptcy court. The district court subsequently granted Dollar's summary judgment motion on its breach of contract claims and dismissed the remainder of the claims as moot.

Zebedee appeals, claiming that there remain genuine issues of material fact as to whether the parties intended Zebedee to repay the advances in the absence of any corporate earnings, and whether the parties intended Zebedee to pay for the Bra-Con shares issued in his name. Dollar cross-appeals the district court's dismissal of its counts alleging breach of fiduciary duty and conversion. Dollar seeks to litigate these claims in order to preserve a final judgment in the event Zebedee declares bankruptcy, because recovery under those counts will be nondischargeable in bankruptcy, unlike recovery under a breach of contract claim.

Because Zebedee has failed to rebut Dollar's summary judgment motion regarding Zebedee's liability for both the advances and the share purchase, and because we reject Dollar's contention that certain potentially nondischargeable claims must be litigated at the district court level at this time, we affirm, in part, the decision of the district court. We reverse only the district court's decision not to accord Zebedee credit for a $27,757 partial repayment of his Bra-Con share purchase debt.

II.

Zebedee argues that the $115,296.64 in advances from Dollar was only to have been offset against year-end corporate earnings in the same way that prior advances were only offset against year-end bonuses. He contends that the board of directors never discussed what would happen in years in which profits were not made. For this reason, he asserts that a factual issue exists whether he had an obligation to repay the money out of personal funds if the company was unable to funnel profits back to the shareholders.

Summary judgment is appropriate when the moving party shows that there is "no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). There is no genuine issue of material fact when "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party (Zebedee)." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Zebedee "must present affirmative evidence in order to defeat a properly supported motion for summary judgment," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986) (emphasis added), and, in so doing, he must "do more than simply show that there is some metaphysical doubt as to the material facts," in question. Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356. The "new era" of summary judgment analysis requires the district court to determine "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. at 2512. We review the district court's grant of summary judgment on a de novo basis. E.E.O.C. v. University of Detroit, 904 F.2d 331, 334 (6th Cir.1990).

The only evidence tendered by either party supports the conclusion that Zebedee was impliedly obligated to repay the $115,296.64, regardless of Dollar's financial situation. Amos Winsand, a fellow shareholder and director of Dollar, testified that the entire Dollar board was under the impression that Zebedee was responsible for repaying the borrowed money, and that Zebedee would have to repay this money out of personal funds if such a need arose. William Diehl, Dollar's chief financial officer, confirmed Winsand's testimony as he too stated that based on communications with Zebedee and other board members, Zebedee was obligated to return the money. See In re Heiler's Estate, 288 Mich. 49, 284 N.W. 641 (1939) (court recognized implied contractual obligation to repay loan).

Mere allegations that an unanticipated set of circumstances was never discussed do not create a disputed factual issue with regard to whether Zebedee was obligated to repay the $115,296.64. Zebedee never alleges that there were meetings or discussions during which he was led to believe that he could keep the $115,296.64 if the company made no profits, nor does he allege that documents exist that would give rise to such an understanding. Having already testified that he, and the other Dollar shareholders, never contemplated a situation where the company would be unable to turn a profit, Zebedee cannot now testify that there was some agreement or tacit understanding that he would be relieved of the responsibility to repay the $115,296.64 debt if the company was unable to produce a profit.

To avoid a summary judgment dismissal, Zebedee also argues that the district court misinterpreted a controlling line of cases holding that absent an agreement to the contrary, terminated salesmen are not obligated to repay advances that are supposed to be set off against future commissions or earnings. Agnew v. Cameron, 247 Cal.App.2d 619, 55 Cal.Rptr. 733 (1967); Valoco Building Products, Inc. v. Chafee, 231 A.2d 101 (Conn. Cir. Ct.1966). Zebedee argues that since the $115,296.64 can be characterized as an "advance," because it was recorded as such in Dollar's books, as opposed to a "loan," he deserves the protection afforded by this line of cases.

The rule in these cases protects salesmen who spend advanced money in pursuit of...