In re Mcinerney

Decision Date17 October 2013
Docket NumberNo. 11–58953.,11–58953.
PartiesIn re Michael E. McINERNEY, Debtor.
CourtUnited States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

OPINION TEXT STARTS HERE

Elias Xenos, Birmingham, MI, Michael I. Zousmer, Nathan Zousmer, P.C., Southfield, MI, for Debtor.

Sean M. Cowley (UST), Richard A. Roble (UST), United States Trustee, Detroit, MI, for U.S. Trustee.

Anthony J. Kochis, Scott A. Wolfson, Wolfson Bolton PLLC, Troy, MI, for Trustee.

OPINION REGARDING THE CHAPTER 7 TRUSTEE'S MOTION FOR APPROVAL OF SETTLEMENT

THOMAS J. TUCKER, Bankruptcy Judge.

This case is before the Court on the Chapter 7 Trustee's motion entitled Chapter 7 Trustee's Motion Pursuant to Fed. R. Bankr.P. 9019 Authorizing and Approving Settlement Agreement by and Between Chapter 7 Trustee and Charles E. Becker, Charles E. Becker, Trustee under Trust Agreement of Charles E. Becker Dated September 16, 1997, as Amended, and Becker Ventures, LLC [ (collectively the ‘Becker parties') ].” 1 The Motion seeks to compromise, for $250,000.00, claims that Debtor asserted against Charles E. Becker and Becker Ventures, LLC in a lawsuit Debtor filed prepetition, seeking in excess of $9 million in damages. The Debtor and certain creditors object to the Motion. For the reasons stated in this opinion, the Court will deny the Motion.

I. BackgroundA. The prepetition state court litigation

On August 6, 2009, Debtor Michael E. McInerney (“Debtor”) filed a lawsuit against Charles E. Becker (“Becker”) and Becker Ventures, LLC (“Becker Ventures”) (collectively, the Defendants or “Becker Defendants) in the Oakland County, Michigan, Circuit Court (Case No. 09–102922–CK), seeking damages in excess of $9 million, based on claims of (1) breach of contract; (2) breach of fiduciary duty; (3) unjust enrichment; and (4) promissory estoppel. The lawsuit arose out of two written agreements and an alleged oral agreement entered into between Debtor, Becker, and Becker Ventures, which are briefly summarized below.2

1. The agreements

In 1998, Debtor and Becker formed Becker Ventures, in which they were the sole members, and executed an operating agreement. Under the 1998 operating agreement, Debtor was to own 20% of Becker Ventures. Debtor was the Manager, President, and CEO of Becker Ventures, and managed that entity's daily business operations. The 1998 operating agreement provided that “no change hereto shall be valid unless executed in writing and signed by the party to be charged therewith.”

In January 1999, Debtor and Becker executed the “First Amended and Restated Operating Agreement for Becker Ventures, LLC (referred to below as the “Operating Agreement” or the 1999 Operating Agreement”). The Operating Agreement provided, in Section 3.19, that Managers of Becker Ventures “shall be entitled to compensation for [their] services in managing the affairs of the Company,” and that such compensation was to be “reasonable and consistent with competitive industry practices in the area in which the Company conducts its business.” (the “compensation provision”).3 While this compensation provision of the Operating Agreement did not specify the exact compensation Managers were to receive, the Debtor was paid an annual salary of $300,000 for managing Becker Ventures.

The Operating Agreement contained an integration clause, Section 8.15, which stated that it was “the entire agreement of the Company and the Members” and that it “supersed[ed] all prior conversations or writings which are merged herein and extinguished.” 4 The Operating Agreement also contained a non-modification clause, Section 8.21, which stated that the Operating Agreement “may be amended or modified from time to time only by a written instrument voted favorably upon and adopted by Members holding a majority of the Membership Interests of the Company.” 5

The Operating Agreement also contained an arbitration clause, which required the parties to submit disputes to binding arbitration, and set a time limit for doing so.6

In 1999, Becker transferred a substantial amount of his personal assets to Becker Ventures, to be managed by that company. Because of this, Debtor and Becker agreed that Debtor's 20% interest in Becker Ventures would be reduced to a 1% interest in that entity. That change is reflected in Schedule A of the 1999 Operating Agreement.

Debtor alleged in the state court lawsuit, but Becker disputed, that as consideration for Debtor's relinquishment of the 19% interest in Becker Ventures, Debtor and Becker orally agreed that Debtor “would receive 15% of the ‘free cash flow’ derived from '10 specific investments' that Becker Ventures would make” (the “15% Oral Agreement” or the “15% Agreement”). Debtor alleged that under this oral agreement, “free cash flow” meant “revenues, less operating expenses, less interest, less principal debt service, plus sale proceeds, less principal debt balance, less equity investment.”

In 2001, Debtor and Becker executed an amendment to the Operating Agreement (the 2001 Amendment), which is discussed in more detail in part III.C.1.a.i of this opinion.7 As part of the 2001 Amendment, Debtor became a “Non–Equity Member” and relinquished his remaining 1% interest in Becker Ventures.

Debtor continued to manage Becker until 2008. Debtor alleged in the state court lawsuit that between 1999 and 2009, the “free cash flow,” within the meaning of the 15% Oral Agreement, was $93 million, and that he was not paid the amounts owed to him under the 15% Oral Agreement. Also in the state court lawsuit, Debtor alleged that the Becker Defendants had destroyed emails on their computers, which Debtor had requested in discovery. Based on Defendants' alleged destruction of this evidence, Debtor filed a motion for entry of default as a sanction, or alternatively, for an evidentiary hearing to determine what information was contained in the emails, and whether the destruction was intentional (the “Spoilation Motion”). Ultimately, the state court denied the Spoilation Motion in its entirety, for reasons discussed in part III.C.1.b.1 of this opinion.

2. The trial court's summary disposition on Debtor's claims, in favor of Defendants.

In August 2010, the Becker Defendants filed a motion for summary disposition under Mich. Ct. R. 2.116(C)(10), the state court equivalent of a federal court motion for summary judgment.8 On January 6, 2011, the state court entered an Opinion and Order granting summary disposition for the Becker Defendants on all of Debtor's claims.9 The state court held that: (1) the compensation owed to Debtor as a manager of Becker Ventures was governed by the compensation provision of the 1999 Operating Agreement; (2) the Operating Agreement was “fully integrated” and did not include the requirement that Debtor be paid any specific amount of compensation; (3) the parol evidence rule barred the introduction of any evidence regarding the alleged 15% Oral Agreement; and (4) “sanctions related to the alleged destruction of emails on [D]efendant's computer is inappropriate because [Debtor] failed to establish conclusively that [D]efendant destroyed any material evidence (emails) that would be relevant in establishing [his] claim that an oral agreement existed between the parties.”

3. Debtor's motion for reconsideration of the state court's January 6 Opinion and Order.

Debtor moved for reconsideration of the state court's January 6 Opinion and Order. The state court held a hearing, and on May 17, 2011, filed an Opinion and Order denying the Debtor's motion for reconsideration.10

4. Becker Defendants' post judgment motion in the trial court for a declaration that Debtor's lawsuit was frivolous and for attorney's fees

On June 15, 2011, Defendants filed a motion in the state court entitled Motion for an Order Declaring Plaintiff's Action as Frivolous and Request for an Evidentiary Hearing for the Recovery of Their Attorney Fees Under [Mich. Ct. R.] 2.625(A)(2).” 11 On June 29, 2011, after a hearing, the state court entered an order denying that motion (the June 29 Order”).12

5. The state court appeals

Debtor appealed the state court's grant of the Defendants' motion for summary disposition to the Michigan Court of Appeals. That appeal remains pending. In his appeal briefs, Debtor has argued, in relevant part, that the state trial court erred (1) in failing to rule that Defendants' destruction of evidence gives rise to a presumption that the spoliated evidence is relevant and adverse to the spoliator's position; (2) in failing to rule that there was a genuine issue of material fact regarding whether the 15% Oral Agreement existed; and (3) in concluding that the parol evidence rule barred extrinsic evidence to support Debtor's claim. Debtor argued that for several reasons, the parol evidence rule did not bar his claim, including the argument that because the 15% Oral Agreement was made after the 1999 Operating Agreement, it was a subsequent, separate agreement not subject to the parol evidence rule. 13

The Becker Defendants filed a cross appeal, arguing, in relevant part, that the state trial court erred (1) in denying Defendants' first motion for summary disposition, because Debtor had failed to timely submit his claims to binding arbitration, as required by the 1999 Operating Agreement's arbitration clause; and (2) failing to allow Defendants to amend their affirmative defenses to explicitly add the arbitration clause as a defense.14 Defendants made these cross appeal arguments as alternative grounds for affirmance of the state trial court's grant of summary disposition against Debtor.

Defendants also filed a separate appeal of the state trial court's June 29 Order denying Defendants' motion for sanctions, based on Debtor's alleged filing of a frivolous lawsuit.15

The Michigan Court of Appeals consolidated the appeals, and they remain pending. Oral argument has been delayed at the Trustee's request, pending the outcome of the Trustee's Motion.

B. The bankruptcy case

On July 12, 2011, Debtor filed...

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10 cases
  • In re McInerney
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
    • December 24, 2014
    ...a case under title 11, because it is a proceeding that “by [its] very nature, could arise only in bankruptcy cases.” Id.In re McInerney, 499 B.R. 574, 580–81 (Bankr.E.D.Mich.2013).B. Standards governing settlement motions As the Court also stated in its first settlement opinion,“Settlements......
  • In re Clements Mfg. Liquidation Co., LLC, Case No. 09–65895
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
    • January 26, 2018
    ...cases." Id.III. Standards for approval or disapproval of a settlement agreement In its opinion in a prior case, In re McInerney , 499 B.R. 574, 581–83 (Bankr. E.D. Mich. 2013), this Court stated the standards and factors relevant to deciding whether to approve a proposed settlement. The Cou......
  • Kohut v. Ackerman & Ackerman P.C. (In re McInerney)
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
    • May 1, 2015
    ...This Court described and discussed the Becker Action at length in its first settlement opinion in this case. See [In re McInerney, 499 B.R. 574, 576–80, 584–97 (Bankr.E.D.Mich.2013).] Before McInerney filed his voluntary petition in this bankruptcy case on July 12, 2011, under Chapter 11, h......
  • Kohut v. Ackerman & Ackerman P.C. (In re McInerney)
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
    • May 1, 2015
    ...This Court described and discussed the Becker Action at length in its first settlement opinion in this case. See [In re McInerney, 499 B.R. 574, 576–80, 584–97 (Bankr.E.D.Mich.2013).]Before McInerney filed his voluntary petition in this bankruptcy case on July 12, 2011, under Chapter 11, he......
  • Request a trial to view additional results

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