Michelson v. Voison

• Decision Date: 26 March 2003
• Docket Number: Docket No. 233114.
• Parties: Ernestine Dorothy MICHELSON, Plaintiff-Appellee, v. Glenn A. VOISON and Voison Agency, Inc., Defendants, and Future First Financial Group, Inc., Randy Stelk, Fidelity GRoup, Inc., and Charles R. Sussman, Defendant-Appellants.
• Court: Court of Appeal of Michigan — District of US

658 N.W.2d 188

254 Mich. App. 691

Ernestine Dorothy MICHELSON, Plaintiff-Appellee, v. Glenn A. VOISON and Voison Agency, Inc., Defendants, and Future First Financial Group, Inc., Randy Stelk, Fidelity GRoup, Inc., and Charles R. Sussman, Defendant-Appellants.

Docket No. 233114.

Court of Appeals of Michigan.

Submitted December 4, 2002, at Lansing.

Decided January 10, 2003, at 9:05 a.m.

Released for Publication March 26, 2003.

Cynthia Fullwood PLC, (by Cynthia Fullwood), Saginaw, for the plaintiff.

Butzel Long, (by Dennis K. Egan), Bloomfield Hills, for Future First Financial Group, Inc., Randy Stelk, Fidelity Group, Inc., and Charles R. Sussman.

Before: NEFF, P.J., and HOEKSTRA and O'CONNELL, JJ.

O'CONNELL, J.

Defendants Future First Financial Group, Inc., Randy Stelk, Fidelity Group, Inc., and Charles R. Sussman appeal by leave granted from an order denying their motion for summary disposition and to compel arbitration and granting plaintiff Ernestine Dorothy Michelson summary disposition pursuant to MCR 2.116(I)(2) on her claims under the Michigan Uniform Securities Act (MUSA), M.C.L. § 451.501 et seq. We affirm.

After signing an agreement to purchase a viatical settlement¹ through defendants, plaintiff commenced this suit alleging breach of contract, misrepresentation or fraud, and a violation of the MUSA for a sale of unregistered securities. In her complaint, plaintiff named as defendants Glenn A. Voison and Voison Agency, Inc.,² the person and the agency who sold the viatical settlement to her. Only defendants Future First, Stelk, Fidelity Group, and Sussman, the brokers and their officers, filed the motion for summary disposition under MCR 2.116(C)(7) and to compel arbitration. They argued that plaintiff's claim was improperly before the circuit court because the parties' viatical settlement agreement contained a binding arbitration clause. The trial court held: (1) viatical settlements qualify as securities; (2) plaintiff's claim was properly before the circuit court; (3) the parties' agreement represented an improper unregistered security; (4) the agreement and its arbitration clause were void; and (5) plaintiff was entitled to summary disposition.

The grant or denial of summary disposition as well as the existence and enforceability of an arbitration agreement are questions of law for a court to determine de novo. Groncki v. Detroit Edison Co., 453 Mich. 644, 649-650, 557 N.W.2d 289 (1996); Watts v. Polaczyk, 242 Mich.App. 600, 603, 619 N.W.2d 714 (2000). Under MCR 2.116(C)(7), we must accept the well-pleaded allegations of the nonmoving party as true and construe them most favorably to the nonmoving party. Grazia v. Sanchez, 199 Mich.App. 582, 583, 502 N.W.2d 751 (1993).

Defendants first argue that the court erred in holding that viatical settlements³ are securities under the MUSA and that the parties' agreement, including its arbitration clause, was therefore void. We disagree.

Under M.C.L. § 451.810(a), any person who offers or sells a security in violation of the MUSA or by misrepresentation of a material fact "is liable to the [buyer] ... and the buyer may sue either at law or in equity to recover the consideration paid for the security...." M.C.L. § 451.810(h) expressly states that "[t]he rights and remedies provided by this act are in addition to any other rights or remedies that may exist at law or in equity...." (Emphasis added.) Because the MUSA does not specifically allow avoidance of a contract, we must determine whether the trial court was authorized to void the parties' agreement under another right or remedy existing at law or in equity.

Contracts founded on acts prohibited by a statute, or contracts in violation of public policy, are void. Maids Int'l, Inc. v. Saunders, Inc., 224 Mich.App. 508, 511, 569 N.W.2d 857 (1997). The MUSA does not expressly include viatical settlements in its definition of a "security." Furthermore, we have been unable to discover any statutory law or case law specifically indicating whether viatical settlements are included in the MUSA's definition of a "security."⁴

"In interpreting our security statutes, we look beyond the form of the transaction to its substance, paying close attention to the economic realities of the situation." Noyd v. Claxton, Morgan, Flockhart & VanLiere, 186 Mich.App. 333, 338, 463 N.W.2d 268 (1990). The MUSA "shall be so construed as to effectuate its general purpose to make uniform the law of those states which enact it and to coordinate the interpretation and administration of this act with the related federal regulation." MCL 451.815. Thus, it is appropriate to consider other state and federal decisions.

Securities & Exchange Comm. v. Life Partners, Inc., 318 U.S.App.D.C. 302, 304, 87 F.3d 536, 538 (1996), held that viatical settlements are not securities under the federal securities laws. The court held that the investor was not dependent on the efforts of others,⁵ but instead relied "entirely upon the mortality of the insured...." 318 U.S.App.D.C. at 314, 87 F.3d at 548. However, in Siporin v. Carrington, 200 Ariz. 97, 104, 23 P.3d 92 (Ariz. App., 2001), the court held that the "mortality of the viator is merely another factor to be considered...." The Siporin court determined that viatical settlements are securities under Arizona's securities laws, and that "[t]he Life Partners rationale does not serve the prophylactic and remedial purposes" of the laws. Id. Under current Arizona law, viatical settlements are securities. Ariz. Rev. Stat. 44-1801.

Similarly, several other states have also included viatical settlements in the definition of a security: Alas Stat 45.55.990; Cal. Corp. Code 25019; Ga. Code Ann. 10-5-2;⁶ Ind. Code 23-2-1-1; Iowa Code 502.102; Me Rev. Stat. Ann., Title 32, 10501; Miss. Code Ann., XX-XX-XXX; Neb. Rev. Stat. 8-1102; NC Gen. Stat. 78A-2;⁷ ND Cent. Code 10-04-02; SD Codified Laws Ann. 47-31A-401; and W.Va. Code 32-4-401.⁸

Finally, Michigan Department of Commerce Corporation & Securities Bureau Bulletin No.2002-07-SEC by Commissioner of Financial and Insurance Services Frank Fitzgerald specifically includes viatical settlements within the MUSA's definition of a "security." Although it does not have the full force or effect of law, M.C.L. § 24.203(6), we generally give deference to administrative agency interpretations. McGill v. Automobile Ass'n of Michigan, 207 Mich.App. 402, 407, n. 1, 526 N.W.2d 12 (1994). Considering that the MUSA is intended to be broadly interpreted and provide conformity with other states' securities laws, and the intent of the Office of the Commissioner of Financial and Insurance Services, we find that the MUSA's use of the term "security" includes viatical settlements.

Therefore, the trial court properly rescinded a security contract made in violation of statutory law and public policy because defendants were not licensed or registered to sell securities.⁹ See Maids Int'l, supra at 511, 569 N.W.2d 857. Because plaintiff alleged a misrepresentation in defendants' procurement of the viatical settlement agreement, the arbitration clause may be avoided. See Watts, supra at 609, 619 N.W.2d 714. When a contract is rescinded, the contract is abrogated from the beginning, and none of its provisions, including the present contract's arbitration clause, are applicable. Lash v. Allstate Ins. Co., 210 Mich.App. 98, 102, 532 N.W.2d 869 (1995).

Defendants next argue that the court erred in finding that there was no genuine issue of material fact regarding plaintiff's MUSA claims. We disagree.

The court granted plaintiff summary disposition pursuant to MCR 2.116(I)(2). "Summary disposition is properly granted [under MCR 2.116(I)(2)] to the opposing party if it appears to the court that that party, rather than the moving party, is entitled to judgment." Sharper Image Corp. v. Dep't of Treasury, 216 Mich.App. 698, 701, 550 N.W.2d 596 (1996). The MUSA's definition of the term "security" and its application to the parties' agreement are questions of law concerning statutory interpretation. See Oade v. Jackson Nat'l Life Ins. Co., 465 Mich. 244, 250, 632 N.W.2d 126 (2001). Thus, the court's decision was based on a legal inquiry and factual proofs were unnecessary. See MCR 2.116(I)(2).

Finally, defendants contend that not all defendants were liable for the MUSA claim and the court erred in granting plaintiff summary disposition against all defendants. We disagree.

[5] Under the MUSA,

[e]very person who directly or indirectly controls a seller ... every partner, officer, or director of the seller, every person occupying a similar status or performing similar functions, every employee of the seller who materially aids in the sale, and every broker-dealer or agent who materially aids in the sale are also liable jointly and severally with and to the same extent as the seller.... [MCL 451.810(b).]

According to the parties' agreement, plaintiff purchased the viatical settlement from defendant Future First. Id. Thus, this defendant was liable under M.C.L. § 451.810(b) as a seller. Defendant Fidelity Group was also named in the agreement as the purchase administrator. Id. Therefore, as a material aid to the sale, Fidelity Group was also liable pursuant to M.C.L. § 451.810(b). Finally, defendants Stelk and Sussman were officers of defendants Future First and Fidelity Group, respectively. Thus, they were also clearly liable under M.C.L. § 451.810(b). Because the trial court has not granted or denied summary disposition with respect to plaintiff's claims against defendants Glenn A. Voison and Voison Agency, we need not consider the appellants' argument that the Voison defendants were similarly situated.

Affirmed.

NEFF, P.J., concurred.

HOEKSTRA, J., (dissenting).

I respectfully dissent. At issue in this case is whether plaintiff must submit to arbitration of her dispute with defendants regarding an agreement to purchase a viatical settlement. The trial court held, and the majority...