Ryan Racing, LLC v. Gentilozzi

• Decision Date: 19 February 2015
• Docket Number: Case No. 1:12-CV-488
• Parties: RYAN RACING, LLC, Plaintiff, v. PAUL GENTILOZZI, et al., D efendants.
• Court: U.S. District Court — Western District of Michigan

RYAN RACING, LLC, Plaintiff, v. PAUL GENTILOZZI, et al., D efendants.

Case No. 1:12-CV-488

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

February 19, 2015

HON. ROBERT HOLMES BELL

OPINION

This is an action filed by Ryan Racing, LLC, to collect on a state court judgment against Defendant Rocketsports, Inc. Defendants in this action include Rocketsports, Paul Gentilozzi, RSR Racing, LLC, and six real estate companies owned by Defendant Gentilozzi (the "Real Estate Defendants").¹ This matter is before the Court on all Defendants' motions in limine to preclude expert reports (ECF Nos. 121, 130), Defendant RSR Racing, LLC's motion to dismiss Count 3 alleging successor liability, (ECF No. 142), Defendant Gentilozzi's motions to dismiss and for partial summary judgment on Count 4 alleging piercing the corporate veil (ECF Nos. 144 & 146), all Defendants' motion for partial summary judgment on Counts 1 and 2 alleging fraudulent transfer and conspiracy (ECFNos.149), and on Plaintiff's cross-motion for summary judgment on all four counts of its complaint (ECF No. 151). For the reasons that follow, all of the motions will be denied.

I. FACTUAL BACKGROUND

Ryan Hunter-Reay is a professional race car driver who conducts his business activities through Plaintiff Ryan Racing, LLC. Defendant Paul Gentilozzi is the sole owner of Defendant Rocketsports Racing, Inc. ("Rocketsports"), a race car team he formed in 1991. Gentilozzi was Rocketsports' sole owner. In 2005, Hunter-Reay entered into a one-year race car driver agreement with Rocketsports. Rocketsports terminated Hunter-Reay's driving contract prior to the end of the contract term.

On May 9, 2008, Ryan Racing, together with Hunter-Reay and R&R Racing Enterprises LLC, filed a demand for arbitration against Rocketsports for breach of contract. (Arb. Demand, ECF No. 147-5; Afendoulis Decl. ¶ 3, ECF No. 152-4.) The claimants alleged that Rocketsports breached the driver agreement by terminating Ryan prior to the end of the contract term, failing to provide him with equipment and engineering support, and making false statements that were disparaging to Ryan's reputation. (Afendoulis Decl. ¶ 4.) The arbitration took place over several days in June 2009. (Id. at ¶ 6.) On August 18, 2009, the arbitrator issued an award in favor of the claimants in the amount of $2,720,980. (Arb. Award, ECF No. 152-3.) On September 30, 2009, the Ingham County Circuit Court entered a judgment confirming the arbitration award in favor of Ryan Racing in the amount of $2,720,980 plus interest. Ryan Racing, LLC v. Rocketsports, Inc., No. 09-1170-PZ (InghamCnty. Cir. Ct.). (ECF No. 1-1.)

On April 15, 2009, Gentilozzi filed articles of organization with the state for a new limited liability company, RSR Racing, LLC ("RSR"). (Gentilozzi Dep. 175, ECF No. 159-1; RSR Arts. of Org., ECF No. 154-2.) On July 31, 2009, Rocketsports entered into an Asset Purchase Agreement ("APA") and transferred substantially all of Rocketsports' assets to RSR. (APA, ECF No. 150-1; Gentilozzi Dep. 176.) Pursuant to the APA, Rocketsports transferred $734,870 in property to RSR in exchange for RSR's assumption of $1,292,147 in liabilities. (APA, ECF No. 150-1.) RSR, like Rocketsports, is a race car team. RSR is owned by Gentilozzi and his two sons. Gentilozzi is the sole owner of Rocketsports and the majority owner of RSR. After selling its assets to RSR, Rocketsports ceased operations. (Gentilozzi Aff. ¶ 4, ECF No. 147-2.)

In addition to Rocketsports and RSR, Gentilozzi owns real estate businesses in the Lansing area, including Defendants 320 North Washington Square Partnership, 3400 West Road, LLC, Atrium Partners, Victor Development II, LLC, and Westland Center Partners. Defendant Gentilozzi also owns Defendant Gentilozzi Real Estate and Management Co., Inc. ("GRE"), a property management company that does the general ledger for Gentilozzi's various business interests. Gentilozzi holds a 50% interest in 320 North Washington Square Partnership, (Gentilozzi Dep. 32), a 60% interest in 3400 West Road, LLC (Id. at 23-24), a 99.9% interest in Atrium Partners (Id. at 21), a 60% interest in Victor Development II, LLC (Id. at 30-31), a 66.6% interest in Westland Center (Id. at 23), and a 100% interest in GRE.(Id. at 13.)

Gentilozzi personally loaned Rocketsports $8.9 million from the time Rocketsports was formed in 1990 until it ceased operations in 2009. (Gentilozzi Dep. 72-73.) Between 2005 and 2009, Plaintiff's expert has documented approximately $7.6 million in loans from Gentilozzi or one of his companies to Rocketsports, and approximately $5.5 million in repayments from Rocketsports to Gentilozzi or one of his companies. (Hawkins Rpt., Ex. D, Loan List ll. 1-500.) If the time period is limited to the six years prior to the filing of this complaint, Gentilozzi and his companies loaned Rocketsports approximately $5.5 million and Rocketsports made loan repayments of approximately $2.7 million. (Id. at ll. 140-500). If loan payments to Victor II Partnership, and Victor Development LLC, who are not defendants, are removed from the list, Rocketsports transferred approximately $2.4 million to Gentilozzi and the Real Estate Defendants in the six years prior to the filing of this action.

There is only one promissory note ("Note") documenting Gentilozzi's loans to Rocketsports. (Gentilozzi Dep. 73.) That Note, from 1991, is for $10,000 and any additional amounts that Gentilozzi, at his sole discretion, loaned to Rocketsports. (Note, ECF No. 152-15.) The Note required repayment in monthly installments of not less than $100 at an annual interest rate of "five percent (3%) [sic]." (Id.) There are no meeting minutes or corporate resolutions authorizing the additional amounts loaned by Gentilozzi to Rocketsports. There are no notes or minutes authorizing the amounts loaned by the Real Estate Defendants. However, the loans are documented in ledger books and other operating, financial, andaccounting records kept by GRE on behalf of all of Gentilozzi's companies.

Plaintiff has not been able to collect on the judgment against Rocketsports because Rocketsports does not have any assets. Plaintiff filed this action against Rocketsports, Gentilozzi, and other Gentilozzi-owned businesses in an effort to obtain satisfaction on the judgment from Gentilozzi and his other businesses, pursuant to claims of fraudulent transfer under Mich. Comp. Laws §§ 566.31-.43, against all defendants (Count 1), conspiracy to commit fraudulent conveyance against all defendants (Count 2), successor liability against RSR Racing (Count 3), and piercing the corporate veil of Rocketsports against Paul Gentilozzi (Count 4).

Defendants Gentillozi and RSR Racing filed motions to dismiss Counts 3 and 4, all Defendants have filed motions for summary judgment as to Counts 1, 2, and 4, and Plaintiff has filed a cross-motion for summary judgment as to all counts.

II. MOTIONS TO DISMISS

Defendant RSR Racing, LLC has moved to dismiss Count 3 of the complaint alleging successor liability (ECF No. 142), and Defendant Gentillozi has filed a motion to dismiss Count 4 of the complaint alleging piercing the corporate veil (ECF No. 144).

Rule 12(c) motions for judgment on the pleadings are analyzed under the same standard as motions to dismiss pursuant to Rule 12(b)(6). Albrecht v. Treon, 617 F.3d 890, 893 (6th Cir. 2010). The Court must "'construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of theplaintiff,'" but "'need not accept as true legal conclusions or unwarranted factual inferences.'" Hunter v. Sec'y of U.S. Army, 565 F.3d 986, 992 (6th Cir. 2009) (quoting Jones v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir. 2008)). To survive a motion to dismiss under Rule 12(b)(6) or 12(c), a complaint must allege facts that "state a claim to relief that is plausible on its face," and that, if accepted as true, are sufficient to "raise a right to relief above the speculative level." Bell Ail. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007).

A. Successor Liability Claim Against RSR Racing

Defendant RSR Racing moves to dismiss Count 3 alleging successor liability based on its contention that RSR Racing did not expressly assume the Ryan Racing liability, and, pursuant to Starks v. Michigan Welding Specialists, Inc., 722 N.W.2d 888, 889 (Mich. 2006), successor liability is no longer a viable cause of action for judgment creditors outside the area of products liability unless there is an express assumption of liability.² Defendant cites twounpublished Michigan Court of Appeals cases in support of the proposition that "Starks makes clear that the Supreme Court will not apply the doctrine of successor liability in a purely commercial context." DeWitt v. Sealtex Co., Inc., No. 273387, 2008 WL 2312668, at *4 (Mich. Ct. App. June 5, 2008); see also Oliver v. Perry, No. 296871, 2011 WL 2204128, at *8 (Mich. Ct. App. June 7, 2011) ("[T]he decision in Starks clearly and plainly provides that a judgment creditor cannot enforce a judgment against a successor corporation unless there has been an explicit assumption of the predecessor's debts . . . .").

RSR Racing and the two unpublished cases it relies on read Starks, a one-page opinion affirming the judgment of the court of appeals, too broadly. Contrary to Defendant's assertion, Starks did not purport to abolish the traditional exceptions to successor nonliability. See C.T. Charlton & Assocs. Inc. v. Thule, Inc., 541 F. App'x 549, 552-53 (6th Cir. 2013) (holding that the "mere continuation" doctrine of successor liability still applies under Michigan law, and is not limited to products liability cases, even after Starks); see also In re Clements Mfg. Liquidation Co., LLC, No. 09-65895-TJT, 2014 WL 5324095, at *19 (Bankr. E.D. Mich. Oct. 17, 2014). Even after Starks, published Michigan cases have continued to recognize the five...