United States v. Holland
| Citation | 265 F.Supp.3d 722 |
| Decision Date | 12 September 2017 |
| Docket Number | CASE NO. 2:13–cv–10082–MOB–MKM |
| Parties | UNITED STATES of America, Plaintiff, v. Edward J. HOLLAND, Jr., Edward Holland, L.P., the Royal Bank of Scotland, PLC, Frederick A. Patmon, Jr., as personal representative of the Estate of Frederick A. Patmon, Sr., and Peggy Young, as personal representative of the Estate of Hallison H. Young, Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
Edward J. Murphy, Stephen A. Sherman, James E. Brown, U.S. Department of Justice, Washington, DC, for Plaintiff.
Clarence B. Tucker, Sr., Clarence B. Tucker Sr., PLLC, Southfield, MI, Jason R. Hirsch, Morganroth & Morganroth, PLLC, Linda M. Watson, Birmingham, MI, Neal Nusholtz, Troy, MI, Gregory J. Fleesler, Lawrence Leo Ginsburg, Matthew Handler, Moses & Singer, LLP, New York, NY, Bertram L. Marks, Litigation Associates, Farmington Hills, MI, Avery K. Williams, Detroit, MI, for Defendants.
This matter—involving five competing claims to an interpleader fund arising from the sale of a catalog of songs of which Edward Holland, Jr. was a co-author—is before the Court on motions for summary judgment filed by the United States of America ("US") (Doc. 239), the Royal Bank of Scotland ("RBS") (Doc. 224), the Estate of Frederick A. Patmon, Sr. ("Patmon") (Doc. 291), and Edward J. Holland, Jr. ("Holland") and Edward Holland, L.P. ("EHLP") (Doc. 285). The Estate of Hallison H. Young ("Young") opposes the relief sought by the US, RBS, Holland and EHLP, but has not filed its own motion for summary judgment.
With the exception of Holland (who claims no right to the fund) and EHLP (which stipulates to being subordinate to RBS), each party seeks a first-priority distribution from the fund. As set forth below, RBS' claim is valid and superior to the competing claims, and its motion for summary judgment is GRANTED . In addition, because the US fails to demonstrate a viable basis for reaching the assets of EHLP, its motion for summary judgment is DENIED . Finally, because the claims of Patmon and Young remain pending in state court, Patmon's motion for summary judgment is DENIED , and Holland and EHLP's motion for summary judgment is DENIED .
Defendant Edward Holland, Jr. is a prolific songwriter who wrote (or co-wrote) several classic Motown compositions, including "Baby Love," "Stop in the Name of Love," and "Jimmy Mack." Through songwriter agreements with Jobete Music Company, Inc. ("Jobete/EMI") and Broadcast Music, Inc. ("BMI"), Holland owned rights to royalty payments accruing on these works (the "Royalty Assets").
The US seeks a judgment against Holland for his federal income tax liabilities for the years 1991–94, 1996–2004, 2006, and 2008–12. (Doc. 30). The US alleges that as of December 19, 2016 Holland owed a total balance of $19,982,932.46. (Doc. 239, p. 1).
In 1998, Holland retained the law firm Willkie Farr & Gallagher and the investment bank Fahnestock & Company to execute a transaction in which Holland would receive cash from the sale of securities backed by the Royalty Assets (the "1998 Transaction"). In order to "securitize" the Royalty Assets, Holland assigned his rights in the Royalty Assets to Edward Holland, L.P. ("EHLP"), which was a "special purpose vehicle" designed to "isolate [the Royalty Assets] from Mr. Holland's estate" in order to "maximize[ ] bankruptcy remoteness of those assets." Holland owned 99.75% of EHLP. The other 0.25% was held by Edward Holland Royalty Venture I SPC, Inc. ("EHRV"), which was at all relevant times owned entirely by Holland. (Doc. 224, pp. 3, 4).
Upon receiving the Royalty Assets from Holland, EHLP issued interest-bearing notes with a principal balance of $15,033,600 (the "Notes") and delivered the Notes to Bankers Trust Company ("BTC") to be sold to institutional investors. In addition, EHLP assigned the Royalty Assets to BTC and directed BMI and Jobete/EMI to make all royalty payments directly to BTC until the notes were repaid. (Doc. 239, p. 6). The Notes were sold to two insurance companies for face value, and approximately $8.4 million was remitted to Holland. An additional $1.7 million from the proceeds was deposited into an escrow account, which was then used to pay certain debts of Mr. Holland, including a payment of approximately $1.4 million to the IRS. (Doc. 224, pp. 4–6).
In 2005, EHLP and RBS entered into several interrelated agreements (the "2005 Transaction") in order to refinance the 1998 Transaction. RBS issued a loan to EHLP in the approximate amount of $14.6 million, and in exchange, EHLP assigned the Royalty Assets to RBS and directed BMI and Jobete/EMI to make royalty payments directly to RBS. The RBS loan comprised both a "Term Facility" of $10,168,000 and a "Revolving Facility" which allowed EHLP to borrow an additional $4,452,000 via "Utilisation Requests." (Doc. 284, p. 3). From the Term Facility proceeds, $9,088,720.55 was used to pay off the 1998 Notes, and Holland netted an additional $1,073,573. (Doc. 239, p. 13). EHLP made Utilisation Requests of $175,000 in 2006, and two requests in 2007 of $500,000 and $3,609,000, respectively. (Doc. 239, Exs. 137, 138). Those payments were made to Edward Holland or companies he owned. (Doc. 284, p. 4). In January of 2014, counsel for RBS sent a Notice of Default to EHLP, seeking immediate payment of the outstanding balance of the loan, approximately $8 million. (Doc. 239, Ex. 116).
Pursuant to 26 U.S.C. § 7403(b), the US added Defendants Frederick A. Patmon, Sr. (now Frederick A. Patmon, Jr., as personal representative of the Estate of Frederick A. Patmon, Sr.) ("Patmon") and Peggy Young, as the personal representative of the Estate of Hallison H. Young ("Young") because Patmon and Young purported to have rights to the Royalty Assets. Patmon and Young each claim to hold an attorneys' lien of approximately $3 million arising from their representation of Holland in lawsuits filed in Wayne County Circuit Court in 1988 (the "1988 Lawsuit") and 1992 (the "1992 Lawsuit"). Patmon and Young contend that their representation of Holland resulted in a 2004 settlement agreement between Holland and Berry Gordy that "created a pool of funds" to which their attorneys' liens attach. (Doc. 232, p. 7). Patmon and Young further assert that Holland has "surreptitiously hidden" these funds from Patmon and Young, and that a constructive trust should be imposed over the assets of EHLP. (Id. ).
In 2004, Patmon and Young filed a claim in Wayne County Circuit Court seeking unpaid attorneys' fees from Holland, EHLP, and other related entities. (Doc. 285, Ex. 1). Based on various theories including quantum meruit, breach of contract and constructive trust, Patmon and Young sought to recover the allegedly unpaid legal fees. In December of 2014, those claims partially survived the defendants' motions for summary disposition, with the Wayne County Circuit Court concluding that Patmon and Young "may pursue claims for constructive trust" and "may pursue attorneys' liens regarding Edward Holland's 1992 Wayne County Circuit Court case against Motown, Berry Gordy and their affiliates, if [Patmon and Young] can demonstrate that the subsequent loan was a fund of money derived from that litigation." (Doc. 285, Ex. 12). To date, those claims remain pending.
On April 30, 2015, the Court permitted EHLP to sell the Royalty Assets to Round Hill Music Royalty Fund L.P. ("Round Hill") pursuant to the terms of an Asset Acquisition Agreement, on the condition that the sale proceeds, $21 million, would be paid to the Clerk of the United States District Court for the Eastern District of Michigan, for deposit into the registry of the Court and for interpleader pursuant to 28 U.S.C. § 1335. (Doc. 118).
Summary judgment is appropriately rendered "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the declarations, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law."
Redding v. St. Eward, 241 F.3d 530, 532 (6th Cir. 2001). The standard for determining whether summary judgment is appropriate is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." State Farm Fire & Cas. Co. v. McGowan, 421 F.3d 433, 436 (6th Cir. 2005) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251–52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). The evidence and all reasonable inferences must be construed in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
Where the movant establishes the lack of a genuine issue of material fact, the burden of demonstrating the existence of such an issue shifts to the non-moving party to come forward with "specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). That is, the party opposing a motion for summary judgment must make an affirmative showing with proper evidence and must "designate specific facts in affidavits, depositions, or other factual material showing ‘evidence on which the jury could reasonably find for the plaintiff.’ " Brown v. Scott, 329 F.Supp.2d 905, 910 (E.D. Mich. 2004). In order to fulfill this burden, the non-moving party need only demonstrate the minimal standard that a jury could ostensibly find in his favor. Anderson, 477 U.S. at 248, 106 S.Ct. 2505 ; McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). However, mere allegations or denials in the non-movant's pleadings will not satisfy this...
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