Short v. Simon (In re Oakland Physicians Med. Ctr., L.L.C.)

• Decision Date: 22 July 2020
• Docket Number: 2:19-cv-12101
• Citation: 620 B.R. 870
• Parties: IN RE OAKLAND PHYSICIANS MEDICAL CENTER, L.L.C. Michael J. Short, Appellant, v. Basil Simon, Appellee.
• Court: U.S. District Court — Eastern District of Michigan

620 B.R. 870

IN RE OAKLAND PHYSICIANS MEDICAL CENTER, L.L.C.Michael J. Short, Appellant,

v.Basil Simon, Appellee.

2:19-cv-12101

United States District Court, E.D. Michigan, Southern Division.

Signed July 22, 2020

Thomas R. Morris, Silverman & Morris, P.L.L.C., Farmington Hills, MI, for Appellant.

Lawrence J. Acker, Lawrence J. Acker, P.C., Troy, MI, Stephen P. Stella, Simon, Stella & Zingas, P.C., Steven F. Alexsy, Alexsy Lang PC, Detroit, MI, for Appellee.

ORDER AFFIRMING BANKRUPTCY COURT'S ORDER ON SUMMARY JUDGMENT

TERRENCE G. BERG, UNITED STATES DISTRICT JUDGE

In this bankruptcy case, the Trustee (Plaintiff-Appellee Basil Simon) prevailed on several claims brought in an adversarial proceeding against Defendant-Appellant Michael J. Short ("Short"). The claims pertained to multiple transfers of money from Debtor to Short before Debtor filed for bankruptcy. Short argued the transfers were repayment for his prior advances to Debtor, which Short characterized as loans. Trustee contended that Short's advances to Debtor were capital contributions, not loans, so Debtor was not obligated to repay Short. Accordingly, Trustee argued, Debtor's transfers to Short before Debtor filed for bankruptcy can be avoided and recovered by Trustee. The bankruptcy court agreed with Trustee and entered summary judgment in his favor. Short now appeals.

Short raises nineteen issues on appeal, which can be boiled down to the following areas of alleged error: the bankruptcy court (1) ignored evidence that the advances were loans; (2) incorrectly applied federal law instead of Michigan law when considering whether the advances were loans; (3) engaged in improper burden shifting; (4) failed to consider Short's affirmative defenses; and (5) considered issues not set forth in the final pretrial order submitted prior to the evidentiary hearing.

The considerable number of Short's arguments on appeal does not rescue them from their lack of merit. For the reasons that follow, the judgment of the bankruptcy court will be affirmed.

BACKGROUND

The bankruptcy court provided a comprehensive recitation of the factual and procedural background of the case in its opinion following the evidentiary hearing. Adv. P. No. 16-5125, ECF No. 199. The following summary is taken largely from that opinion.

It is undisputed that Debtor was formed in 2008 to acquire the assets of Pontiac General Hospital. Debtor's members, who at the time consisted of approximately 45 physicians and McLaren Health Care ("McLaren"), invested millions of dollars into Debtor. In 2010, McLaren disassociated itself from the hospital and demanded repayment of its secured loan. The member-physicians made advances to Debtor to enable it to pay off the debt owed to McLaren and to later finance Debtor's revival.

At all relevant times, Short, a practicing psychiatrist, was a member on the board of directors of Debtor. Debtor's operating agreement reflects that Short made a capital contribution to Debtor in the amount of $250,000.00 on or about June 1, 2009 in exchange for 50 "Class B" membership units. Short was one of approximately 42 members in Debtor as of June 1, 2009. Short maintained a private practice at an office outside of the hospital as well as provided inpatient services at the hospital.

Despite the member-physician efforts to revive Debtor, Debtor suffered losses between 2010 and 2015 and required continued cash advances from its members in order to continue its operations. Between November 1, 2011 and July 1, 2015, Short made 20 advances to Debtor totaling $1,632,333.34. From April 1, 2013 to July 17, 2015, Debtor transferred $571,939.44 back to Short. The dates and amounts of the advances and transfers to Short are reflected in a chart in the bankruptcy court's opinion. Id. at PageID.5.

The advances were not enough to sustain Debtor. On July 22, 2015, Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. On August 24, 2016, Short filed a proof of claim in the amount of $952,377.80 for "monies loaned." There were no supporting documents attached to the claim. On October 28, 2016, Trustee objected to the claim. Trustee brought this avoidance action shortly thereafter. Trustee's second amended complaint against Short contained seven counts:

• Count I – Claim for Re-Characterization of any Advances by Defendant; • Count II – Preferential Transfers under 11 U.S.C. §§ 547(b), 550(a) and 551 ;

• Count III – Fraudulent Transfers under 11 U.S.C. §§ 548(a)(1)(A), 548(a)(1)(B), 550 and 551 ;

• Count IV – Avoidance of Fraudulent Transfers under Michigan's Uniform Fraudulent Transfer Act, M.C.L. §§ 566.31 et seq. 1, and 11 U.S.C. §§ 544(b) and 550 ;

• Count V – Breach of Statutory Duties to Act in Good Faith and in the Best Interests of the Company;

• Count VI – Equitable Subordination of Claims; and

• Count VII – Claim Disallowance under 11 U.S.C. § 502(d).

Adv. P., ECF No. 145. The bankruptcy court entered summary judgment in favor of Trustee on Count II, finding Debtor's transfers to Short preferential. Adv. P., ECF No. 122. The bankruptcy court then held an evidentiary hearing on the limited issue of whether the advances were capital contributions or loans, noting that both parties agreed such a hearing would resolve the remaining claims before the court. See Adv. P., ECF No. 220. In the opinion after the hearing, the bankruptcy court determined that all but two of Short's advances were capital contributions and not loans. Adv. P., ECF No. 199.

After the hearing, Trustee moved for summary judgment on Counts I, III, IV, VI and VII. Adv. P., ECF No. 216. The bankruptcy court recharacterized the advances as capital contributions and not loans pursuant to the opinion after the hearing and granted summary judgment in favor of Trustee on Count I. Adv. P., ECF No. 214. The bankruptcy court further found that because Debtor was under no obligation to repay Short for the capital contributions, Debtor's transfers to Short preceding the bankruptcy petition were fraudulent and could be avoided and recovered by Trustee. Id. Accordingly, the bankruptcy court also granted summary judgment in favor of Trustee on Counts III, IV, and VII, but dismissed Counts V and VI. Id. ; Adv. P., ECF No. 233. Short's appeal followed.

STANDARD OF REVIEW

The bankruptcy court's findings of fact are reviewed under the clearly erroneous standard. Fed. R. Bankr. P. 8013. "A finding of fact is clearly erroneous when although there is evidence to support it, the reviewing court, on the entire evidence, is left with the definite and firm conviction that a mistake has been committed." United States v. Mathews (In re Mathews), 209 B.R. 218, 219 (6th Cir. B.A.P. 1997) (internal quotations omitted). The bankruptcy court's conclusions of law are reviewed de novo. Nuvell Credit Corp. v. Westfall (In re Westfall), 599 F.3d 498, 501 (6th Cir. 2010). This means the Court independently reviews the law and gives no deference to the conclusions of the bankruptcy court. Myers v. IRS (In re Myers), 216 B.R. 402, 403 (6th Cir. BAP 1998). "[I]f a question is a mixed question of law and fact, then [the reviewing court] must break it down into its constituent parts and apply the appropriate standard of review for each part." Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 88 (6th Cir.1993). See also In re Shefa, LLC , 535 B.R. 165, 169 (E.D. Mich. 2015).

DISCUSSION

A. Evidence of the loans

Short argues the bankruptcy court abused its discretion by discrediting or ignoring evidence that the advances were loans. On September 25 and 26, 2018, the bankruptcy court held a hearing to hear evidence on this limited issue. At the conclusion of the hearing, the bankruptcy court found that the two advances evidenced by signed, executed promissory notes were loans. The remaining advances were found to be capital contributions. See Adv. P., ECF No. 199. Short now claims this was error.

First, Short argues the bankruptcy court erred by failing to authenticate, under Federal Rule of Evidence 901, certain unsigned promissory notes produced before the hearing by Trustee. The bankruptcy court admitted the unsigned notes for a limited purpose, to establish the advances were made, but not to show the unsigned notes were authenticated and executed. Adv. P., ECF No. 199, PageID.19. Short argues this was insufficient and the notes should have been authenticated.

Federal Rule of Evidence 901 requires only that courts admit evidence if sufficient proof has been introduced so that a reasonable fact finder could find in favor of authenticity or identification. United States v. Jones , 107 F.3d 1147, 1150 (6th Cir. 1997). Before the court can admit any evidence for consideration, "the proponent must produce sufficient evidence to support a finding that the item is what the proponent claims it is." Fed. R. Evid. 901(a).

Short argues he provided sufficient proof of the unsigned notes' authenticity. First, he says the Trustee's production of the unsigned notes alone was sufficient to authenticate them. ECF No. 19, PageID.6238. Next, Short points to his own testimony that the notes were prepared by the secretaries of the CEO or CFO. Short further testified that there was always a promissory note prepared to evidence the loans made by him, and by the other doctors, to the hospital. Short says he identified the persons whose names appeared on the signature lines, and that the notes had distinctive characteristics. Id.

The bankruptcy court found this was not sufficient to authenticate the notes. First, the notes were unsigned, so they carry less weight than signed notes. See Universal Inv. Corp. v. Stephens P'ship , 2017 WL 104385, 895 N.W.2d 854 (Wis. Ct. App. Jan. 10, 2017) (emphasis in original) ("Even if we were to assume the purported copy of the note the circuit court reviewed was sufficiently authenticated, the copy of the note was unsigned . Therefore, the circuit court improperly considered it[.]") Next, Short did not create the notes, was not present when...