Ria R Squared, Inc. v. McCown
| Docket Number | 21-12937 |
| Decision Date | 30 June 2023 |
| Parties | RIA R SQUARED, INC., Plaintiff, v. PHILLIP MCCOWN, Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
OMNIBUS OPINION AND ORDER
Before the Court is an unopposed motion for leave to file an unredacted copy of Defendant's expert witness list (ECF No. 57), Plaintiff's motion for partial summary judgment (ECF No. 69), Defendant's motion to compel the continuation of a deposition (ECF No. 73), Defendant's motion for summary judgment (ECF No. 74), Plaintiff's motion for sanctions against Defendant's counsel (ECF No 81), and Defendant's motion to stay briefing on the motion for sanctions pending resolution of the dispositive motions (ECF No. 82).
For the reasons below, Plaintiff's motion for partial summary judgment is GRANTED IN PART, Defendant's motion for summary judgment is GRANTED IN PART, the motion to seal is GRANTED, the motion to compel the continuation of a deposition is TERMINATED AS MOOT, the motion for sanctions is DENIED, the motion to stay briefing on the motion for sanctions is TERMINATED AS MOOT and this case is DISMISSED.
Defendant's brother, Paul McCown, was convicted of wire fraud, sentenced to a term of imprisonment, and ordered to pay restitution in connection with a loan contract between Plaintiff and Paul in Wyoming. (ECF No. 71-28). Specifically, Paul McCown fraudulently obtained a loan from Plaintiff for $15 million, minus the loan origination fee, providing a loan total of $14.7 million. There is also a civil judgment against Paul McCown in Wyoming District Court for the same. (ECF No. 71-33).
Before the fraud was uncovered, Paul made payments to various individuals, including his brother, Defendant Phillip McCown. Defendant received $375,000 on May 11, 2021, from his brother to his Fifth Third Bank savings account. (ECF No. 69-2). On May 13, 2021, Defendant transferred $23,800 of that $375,000 to his Fifth Third checking account. Four days later, he used $23,579.27 to pay three bills. (Id. at PageID.2215, at ¶17). On June 14, 2021, he withdrew $80 from his checking account to spend on food, beverages, and a haircut. (Id. at ¶ 18). In total, he spent $23,659.27 of the $375,000.
On June 21, 2021, Defendant learned that the Federal Bureau of Investigation (“FBI”) seized $351,300.67 from his Fifth Third savings account. (Id. at PageID.2216, at ¶ 20). Soon after, Paul McCown admitted fraudulently obtaining the $15 million loan from Plaintiff to Defendant. (Id. at ¶ 23). And Defendant was advised, by email from attorneys for Plaintiff in Wyoming, to consult counsel, to have counsel contact Plaintiff's attorneys, and demanded Defendant to forbear from transferring any portion of the $375,000. (Id. at PageID.2217, at ¶ 24). Defendant states the email was sent to an account he checks every 6-12 months; he read it on June 27, 2021. The email was sent June 4, 2021.[1] Defendant then hired counsel.
On July 12, 2021, Defendant produced documents in response to a subpoena issued by Plaintiff in the civil case brought against Paul McCown in Wyoming District Court. The documents included accounts statements showing the wire transfer from Paul to Defendant, Defendant's transfer of $23,800 to his checking account, and debits to pay bills totaling $23,579.27. (Id. at PageID.2218, at ¶ 29).
On September 30, 2021, Plaintiff's Wyoming counsel emailed Defendant's counsel demanding the return of the $23,699.33 remaining after the FBI seizure within ten days of the communication. (Id. at PageID.2218, at ¶ 30). Defendant instructed his attorney to negotiate a 30-day extension to return the money. Defendant's counsel believed an agreement was reached in which Defendant would return the funds within 30 days from October 4, 2021. (ECF No. 71-20, PageID.2638). On October 21, 2021, Defendant obtained the money to pay Plaintiff. Defendant's counsel later informed him that Plaintiff's counsel would not accept the proposed agreement without additional payment to release all claims. (ECF No. 69-2, PageID.2219, ¶¶ 31-33). Specifically, Plaintiff's counsel would not agree to release all potential claims against Defendant without payment beyond the amount left after the FBI seizure. (ECF No. 71-20, PageID.2640, at ¶ 17). Defendant offered to answer questions or provide discovery to satisfy Plaintiff that there were no claims against him with respect to the loan. (Id. at PageID.2641, ¶ 18).
On December 17, 2021, Plaintiff commenced this lawsuit. Four days later, Defendant wrote a check to his attorney's law firm for $23,699.33. (ECF No. 692, PageID.2220, at ¶ 34). This amount was given to Plaintiff on February 7, 2022. (Id. at PageID.2242).
Defendant insists the money from his brother was given to him in consideration for a formula related to hand sanitizer which Paul McCown's company produced and sold during the early days of the pandemic. Defendant asserts that in exchange for the formula, he received a 5% share of the company during November 2020 (after Paul had begun production and sale of the sanitizer). Yet he did not make this exact assertion in his affidavit, nor is there other admissible evidence showing that the money was payment for the formula. In his affidavit, he states the $375,000 was pursuant to his 5% share; he did not link his sanitizer formula and the 5% share. (See ECF No. 71-8, PageID.2417-18, ¶ 13).
Additionally, according to Defendant, sales from the sanitizer were part of the list of receivables Plaintiff reviewed before loaning $14.7 million to Paul McCown. (ECF No. 71, PageID.2291; ECF No. 71-14).
Summary judgment is mandated “after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A motion for summary judgment shall be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is material if it might affect the outcome under governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When evaluating a motion for summary judgment, the Court “views the evidence, all facts, and any inferences that may be drawn from the facts in the light most favorable to the nonmoving party.” Pure Tech Sys., Inc. v. Mt. Hawley Ins. Co., 95 Fed.Appx. 132, 135 (6th Cir. 2004).
“The moving party has the initial burden of proving that no genuine issue of material fact exists....” Stansberry v. Air Wis. Airlines Corp., 651 F.3d 482, 486 (6th Cir. 2011) (internal quotations omitted); cf. Fed.R.Civ.P. 56(e)(2) (). “Once the moving party satisfies its burden, ‘the burden shifts to the nonmoving party to set forth specific facts showing a triable issue.'” Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 453 (6th Cir. 2001) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). The nonmoving party must “make an affirmative showing with proper evidence in order to defeat the motion.” Alexander v. CareSource, 576 F.3d 551, 558 (6th Cir. 2009); see also Lee v. Metro. Gov't of Nashville & Davidson Cty., 432 Fed.Appx. 435, 441 (6th Cir. 2011) () (internal quotation marks and citation omitted). In other words, summary judgment is appropriate when “a motion for summary judgment is properly made and supported and the nonmoving party fails to respond with a showing sufficient to establish an essential element of its case....” Stansberry, 651 F.3d at 486 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).
Plaintiff moves for summary judgment on its Michigan common law and statutory conversion claims. Defendant moves for summary judgment on those claims and Plaintiff's third and final claim under the Michigan Uniform Voidable Transactions Act.
The facts relevant to the conversion claims are not in dispute for purposes of these motions. Paul McCown transferred money to Defendant originating from a loan from Plaintiff to Paul. At the time of that transfer, Defendant did not know that Paul obtained the loan through fraud. Defendant then used some of the money to pay bills, still not knowing of Paul's fraud. After learning of the fraud and being contacted by Plaintiff's attorney, Defendant hired counsel and the parties began discussing repayment of the money Defendant used, including giving Defendant an extension of time to acquire it. Plaintiff would not accept return of the funds without additional payment to release all potential claims against Defendant, a counteroffer which Defendant did not accept. After Plaintiff filed this case in November 2021, Defendant returned the money during February 2022. Since there are no questions of material fact, what remains is determining whether Plaintiff is entitled to judgment as a matter of law.
The arguments are more fully developed below, but by way of background, Plaintiff argues it is entitled to judgment on these claims because Defendant did not return Plaintiff's funds when he learned of Paul's fraud. Defendant argues...
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