Singhal v. Simon (In re Oakland Physicians Med. Ctr., LLC)
| Decision Date | 26 October 2020 |
| Docket Number | No. 19-2079,19-2079 |
| Parties | In re: OAKLAND PHYSICIANS MEDICAL CENTER, LLC, dba Doctors' Hospital of Michigan, Debtor. YATINDER M. SINGHAL, M.D., Appellant, v. BASIL T. SIMON, Trustee, Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
HELENE N. WHITE, Circuit Judge. Appellant Yatinder Singhal, M.D., was a board member of Oakland Physicians Medical Center, LLC, dba Doctors' Hospital of Michigan (the Hospital), which filed for Chapter 11 bankruptcy protection. Appellee Basil Simon, in his capacity as liquidation trustee of the Hospital, filed an adversary proceeding against Singhal alleging, as relevant here, conversion based on Singhal's diversion of money owed to the Hospital under contracts the Hospital had with two medical schools. The district court granted summary judgment to Simon on his common-law-conversion claim. Singhal appeals, arguing that there is a genuine dispute of material fact about whether the Hospital's Board of Directors consented to the relevant transactions and that he is entitled to a setoff in the amount of a settlement between another doctor and Simon. We REVERSE the grant of summary judgment as to the contracts with one of the medical schools, AFFIRM the grant of summary judgment as to the other, VACATE the setoff determination, and REMAND for further proceedings.
The Hospital was formed in 2008 to acquire the assets of another hospital. Its members consisted of physicians and McLaren Health Center. In 2010, McLaren demanded repayment of a secured loan, and the other members advanced money to the Hospital to repay the loan and keep the Hospital functioning. Singhal is a practicing psychiatrist and was a shareholder and member of the Hospital's Board of Directors (Board) during the relevant times.
The Hospital operated a student-education program for which the Hospital accepted students from medical schools for clinical rotations in exchange for the schools' payments to the Hospital of an agreed sum for each student that the Hospital's doctors ("preceptors") trained. Two of those medical schools were Ross University School of Medicine (Ross), and Windsor University School of Medicine (Windsor).
In February 2012, Dr. Nikhil Hemady formed American Medical Education Group LLC (AMEG), with Hemady and Singhal each holding a 50% membership interest. In March 2012, pursuant to an affiliation agreement, Ross agreed to pay the Hospital $500 per week for each student that the Hospital's preceptors trained in a clinical rotation. In February 2013, Singhal sent a letter to Ross, which he signed as "Chairman, Board of Directors" of the Hospital, stating the following:
This letter is to request that based on a decision made by the Board of Directors of Doctors' Hospital of Michigan earlier this week, all Ross payments moving forward be directed to [AMEG]. This decision will enable the clinical preceptors for various rotations at Doctors' Hospital to be paid in a timely manner. Can we please add the necessary provision to the existing agreement with Ross to make sure that this change is clearly stated?
Singhal testified that the Hospital had well-known financial problems and a reputation of not paying its bills; thus, having AMEG receive the money from Ross and pay the doctors meant that more doctors would be willing to train the medical students. In accordance with Singhal's letter, Ross paid AMEG $894,500 from June 2013 through September 2015. AMEG, in turn, distributed some of that money to Singhal, Hemady, and other preceptors. According to Singhal, this arrangement was "net profit . . . , zero loss" for the Hospital, which was supposed to receive $96,000 per year in profit from AMEG. Bk. AP R. 124-9 at 7. Simon alleges, however, that the Hospital never received any money from AMEG. Singhal testified that it was Hemady's responsibility to remit payment to the Hospital, and that Hemady was questioned at the Board meetings about the payments. Hemady later settled Simon's claims against him arising out of Hemady's creation of AMEG for $250,000.
Similarly, in January 2013, the Hospital and Windsor entered into an affiliation agreement in which Windsor agreed to pay the Hospital $400 per week for each student the Hospital trained in a clinical rotation. In August 2013, Dr. Prakash Sanghvi formed DHOM Education, LLC (DHOM), with Sanghvi and Singhal each holding a 50% membership interest. From November 2013 through November 2015, Windsor paid DHOM approximately $184,000. Sanghvi testified that DHOM did not have a contract with Windsor or the Hospital.
Paragraph 11.6 of the Hospital's Operating Agreement provides:
In July 2015, the Hospital filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Michigan. The bankruptcy court appointed Simon as trustee, and later as liquidation trustee. Singhal filed a proof of claim in the amount of $1,499,983.13. Simon then filed an adversary proceeding against Singhal. In his second amended complaint, Simon alleged seven counts against Singhal: recharacterization of advances by Singhal (Count I); fraudulent transfers under 11 U.S.C. §§ 544, 548(a)(1)(B), 550 and 551 (Count II); avoidance of fraudulent transfers under Michigan's Uniform Fraudulent Transfer Act, Mich. Comp. Laws § 566.31 et seq., and 11 U.S.C. §§ 544(b) and 550 (Count III); breach of statutory duties to act in good faith and in the best interests of the company (Count IV); common-law and statutory conversion (Count V); equitable subordination of claims (Count VI); and claim disallowance under 11 U.S.C. § 502(d) (Count VII).
Both parties moved for partial summary judgment, with Simon seeking summary judgment on Counts II, III, and V, and Singhal seeking summary judgment on Counts II-V. After the bankruptcy court disposed of the summary-judgment motions, the district court withdrew the reference2 as to Counts IV and V, vacated the bankruptcy court's order as to those counts, andordered the bankruptcy court to file a report and recommendation on those counts. The bankruptcy court entered a report and recommendation concluding that Simon was not entitled to summary judgment on Count IV; that Simon was entitled to summary judgment on his common-law-conversion claim; and that Singhal was entitled to summary judgment on Simon's statutory-conversion claim. Singhal objected to the report and recommendation's conclusion that Simon was entitled to summary judgment on the common-law-conversion claim, arguing in part that Singhal had presented a genuine dispute of material fact about whether the Board consented to Singhal's diverting the payments from Ross and Windsor to AMEG and DHOM, and that any recovery should be reduced by the amount of Simon's settlement with Hemady.
The district court overruled Singhal's objections and adopted the bankruptcy court's report and recommendation. The district court concluded that Singhal "has not submitted any evidence of board approval," and that there was no reason to set off or reduce the damages based on Simon's settlement with Hemady because the common-law rule of setoff had been abrogated and because "the claims against Hemady were not parallel claims of conversion, and the law allows for 'some overlap,' while not barring double recovery." Dist. Ct. R. 18, PID 234, 239. The district court accordingly entered judgment on Simon's common-law-conversion claim in the amount of $1,078,500 and closed the case.3 Singhal now appeals.
Singhal first argues that the district court erred in finding that there was no genuine dispute of material fact about whether Singhal was liable for common-law conversion for diverting the Ross and Windsor payments to AMEG and DHOM. We review the district court's determination de novo, viewing all evidence in the light most favorable to Singhal, the non-moving party, and drawing all reasonable inferences in his favor. See In re Tri-City Turf Club, Inc., 323 F.3d 439, 442 (6th Cir. 2003); Fed. R. Civ. P. 56(a).
Under Michigan law, conversion is "any distinct act of dominion wrongfully exerted over another's personal property in denial of or inconsistent with his rights therein." Aroma Wines & Equip, Inc. v. Columbian Distrib. Servs., Inc., 871 N.W.2d 136, 141 (Mich. 2015) (internal quotation marks and citations omitted). For purposes of this appeal, the parties agree that Singhal directed that the Ross and Windsor payments be made to AMEG and DHOM, respectively, and that these acts constitute common-law conversion unless Singhal disclosed his interests in AMEG and DHOM to the Board and obtained Board approval for redirecting the payments, consistent with the Operating Agreement and Michigan law.
Regarding the disclosure of his interests in AMEG and DHOM, Singhal relies on the following portions of his deposition testimony:
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