Brown v. Village Green , 342 F.3d 620 ( 2003 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 In re Brown Nos. 01-1015/2500
ELECTRONIC CITATION: 2003 FED App. 0315P (6th Cir.)File Name: 03a0315p.06
EASTLAND PARTNERS -
LIMITED PARTNERS , -
UNITED STATES COURT OF APPEALS Plaintiff-Appellant, -
-
FOR THE SIXTH CIRCUIT -
_________________ v. -
-
VILLAGE GREEN -
No. 01-1015 X -
- MANAGEMENT COMPANY ,
In re: ANTHONY STEVEN
- Defendant-Appellee, -
BROWN , -
- Nos. 01-1015/2500 -
Debtor. -
> ANTHONY STEVEN BROWN , et -
_____________________
, al., -
- Defendants. -
EASTLAND PARTNERS - -
LIMITED PARTNERS , et al., - N
Plaintiffs-Appellees, - Appeal from the United States District Court
-
- for the Eastern District of Michigan at Detroit.
v. No. 97-70866—Bernard A. Friedman, District Judge.
-
-
VILLAGE GREEN - Argued: October 18, 2002
MANAGEMENT COMPANY , -
Decided and Filed: September 3, 2003
Defendant-Appellant, -
-
- Before: BOGGS, SUHRHEINRICH, and CLAY, Circuit
ANTHONY STEVEN BROWN , et - Judges.
al., -
Defendants. - _________________
- COUNSEL
No. 01-2500 -
In re: ANTHONY STEVEN - ARGUED: Stephen F. Wasinger, WASINGER, KICKHAM
- & HANLEY, Royal Oak, Michigan, Felice V. Iafrate,
BROWN , - PUZZOULI & HRIBAR, Clinton Township, Michigan, for
Debtor. - Defendants. David R. Parker, CHARFOOS &
_____________________ - CHRISTENSEN, Detroit, Michigan, Mayer Morganroth,
- MORGANROTH & MORGANROTH, Southfield, Michigan,
1
Nos. 01-1015/2500 In re Brown 3 4 In re Brown Nos. 01-1015/2500
for Plaintiffs. ON BRIEF: Stephen F. Wasinger, Judith petition for Chapter 7 bankruptcy, and Eastland’s complaint
Sawicki, WASINGER, KICKHAM & HANLEY, Royal Oak, was refiled as an adversary proceeding. Specifially, Eastland
Michigan, Felice V. Iafrate, PUZZOULI & HRIBAR, Clinton brought the adversary proceeding against Brown, Brown’s
Township, Michigan, for Defendants. David R. Parker, two companies, Anthony S. Brown Development Company
CHARFOOS & CHRISTENSEN, Detroit, Michigan, Mayer and ASB Asset Management Company (“ASB”), and Village
Morganroth, Jeffrey B. Morganroth, Jason R. Hirsch, Green for breach of contract through negligence, fraud,
MORGANROTH & MORGANROTH, Southfield, Michigan, misrepresentation, defalcation and breach of fiduciary duty,
for Plaintiffs. essentially arguing that Brown and his two companies
converted funds that were to be used to pay property taxes
_________________ and other reserves on behalf of Eastland, thereby causing
Eastland’s apartment complex to be lost in foreclosure to the
OPINION mortgage holder. Village Green moved to dismiss the
_________________ complaint on the ground that Eastland did not have standing
to commence the lawsuit since Eastland’s sole managing
CLAY, Circuit Judge. In Case No. 01-1015, Defendant, general partner, JAM Associates (“JAM”)—a co-partnership
Village Green Management Company (“Village Green”), comprised of partners Brown and Lutz— had not authorized
appeals from an order entered by the district court on the lawsuit. The district court issued an order on October 10,
November 17, 2000, denying Village Green’s motion for 1997, denying Village Green’s motion to dismiss.
judgment notwithstanding the verdict or for new trial,
following a jury verdict in favor of Plaintiffs, Eastland Village Green moved for summary judgment of the tort
Partners Limited Partners, et al. (collectively “Eastland”), and claims that Eastland had filed against it. By order entered on
against Village Green, on Eastland’s breach of contract claim December 7, 1998, the district court dismissed Eastland’s tort
filed against Village Green. In Case No. 01-2500, Eastland claims against Village Green. Eastland then filed a motion
appeals from the district court’s order entered on October 3, for clarification, asking whether the district court intended to
2001, denying Eastland’s motion for rehearing of an order dismiss its claims for breach of fiduciary duty and
declaring Anthony Steven Brown sole managing partner of defalcation. The district court issued an order on January 20,
Eastland. The two cases have been consolidated on appeal, 1999, granting the motion. In its order, the district court
and for the reasons set forth below, we AFFIRM the district stated that all of Eastland’s tort claims, including those for
court’s order in Case No. 01-1015; and REVERSE the breach of fiduciary duty and defalcation, filed against Village
district court’s order in Case No. 01-2500. Green were dismissed, and thereby allowed the matter to
proceed against Village Green solely on a breach of contract
BACKGROUND claim, but against Brown and his companies on the various
Procedural History tort claims as well.
Eastland originally filed suit against Village Green and A jury trial was held in January of 2000, but ended in a
Brown seeking to recover damages allegedly sustained as a mistrial when, after deliberating for five days, the jury could
result of Village Green disbursing monies from Eastland’s not render a verdict. A second jury trial was held in July of
reserve bank accounts to Brown without consent of Brown’s 2000, after which the jury found in favor of Brown and his
co-general partner, Eric Lutz. Thereafter, Brown filed a companies on all claims, but against Village Green on
Nos. 01-1015/2500 In re Brown 5 6 In re Brown Nos. 01-1015/2500
Eastland’s breach of contract claim and thereby awarded Eastland filed a motion for rehearing of the April 19, 2001
Eastland $250,000 in damages. The district court entered order on the ground that the district court had erroneously
judgment against Village Green on August 22, 2000 in ordered the dissolution of Eastland because neither Brown nor
accordance with the jury verdict. Village Green then filed a Village Green had requested such relief, and because in
motion for judgment notwithstanding the verdict or for new ordering Eastland’s dissolution the district court erroneously
trial. The district court issued an order on November 17, relied upon a Michigan statute that authorizes a court-ordered
2000, denying the motion, and it is from the district court’s dissolution of a partnership. The district court issued an order
order denying Village Green’s motion that Village Green on October 3, 2001, denying Eastland’s motion, and it is from
now appeals in Case No. 01-1015. this order that Eastland now appeals in Case No. 01-2500.
Following the jury verdict, Brown filed a motion for Facts
attorneys’ fees and costs. The district court issued an order
on November 17, 2000, granting the motion for costs, but Eastland is a Michigan limited partnership created in 1984.
ordered the parties to brief the issue of whether Brown could As noted, Eastland’s sole general partner is JAM, a Michigan
recover attorneys’ fees under Eastland’s Limited Partnership co-partnership whose two co-partners are Brown and Lutz.
Agreement (“the Partnership Agreement”). Eastland asserted Eastland’s sole limited partner is Eastland Properties.
in its brief to the district court that under the Partnership Eastland Properties’ limited partners are a number of
Agreement, only JAM could seek indemnity for attorneys’ individuals and entities some of whom were individual
fees. Brown asserted in his brief that Eastland’s attorneys plaintiffs in this case.
lacked authority to represent Eastland, citing his August 3,
2000 letter notifying the attorneys that they had not been Eastland was the owner of an apartment complex known as
properly authorized by Eastland to act and their right to act Eastland Village Apartments (the “Property”). Eastland
had been terminated. Brown also asserted that, pursuant to an Properties, the sole limited partner of Eastland, entered into
agreement with Lutz, he had been the sole managing partner a “Management Agreement” (“the Agreement”) with Village
of JAM, and because JAM acted through him, he was entitled Green on May 9, 1990 to manage the Property. The
to indemnity for attorneys’ fees. The district court issued an Agreement listed Eastland Properties Limited Partnership as
order on January 19, 2001, denying Brown’s motion for the “owner” and Village Green Management Company as the
attorneys’ fees. “agent,” and provided a “List of Provisions” for which
Village Green was responsible such as “Disbursements from
Village Green had also filed a motion requesting that the Operating (and/or) Reserve Account(s)”and “Financial and
district court declare Brown the sole managing partner of Other Reporting.” (J.A. at 1415.) Also on May 9, 1990, ASB
Eastland. On April 18, 2001, the district court orally granted entered into a management subcontract agreement with
the motion, and further ordered that the dissolution of Village Green.
Eastland be supervised and conducted by Brown, although
neither Brown nor Village Green had requested that Eastland The Property did not perform as projected and Eastland
be dissolved. The district court memorialized its ruling on began experiencing cash flow difficulties in the early 1990’s.
April 19, 2001. In March of 1991, Eastland filed Chapter 11 bankruptcy.
Eastland did not emerge from bankruptcy until November of
1992.
Nos. 01-1015/2500 In re Brown 7 8 In re Brown Nos. 01-1015/2500
After emerging from bankruptcy, Brown, through ASB, Partnership Agreement and the bankruptcy reorganization
assumed principal responsibility for the on-site daily plan under which Eastland was operating. Lutz then
management of the Property. Village Green’s role changed contacted Brown, and Brown admitted that he did not hold
primarily to accounting, reporting, and assisting ASB as the money in a replacement reserve account and claimed that
directed by either Brown or ASB, in such matters as he used the money instead to pay Eastland’s expenses,
establishing various reserve bank accounts for Eastland. The including a debt that Eastland allegedly owed to him. Brown
owner of these accounts was listed as Eastland Properties specifically admitted to taking all of the real estate tax escrow
Limited Partnership. Village Green issued a monthly “Cash fund which totaled more than $700,000.
Requirement” report to Eastland, in which was listed the cash
available in the accounts, the fixed expenses which needed to Because Eastland failed to pay its real estate taxes,
be funded, and an itemization of accounts payable. Each Prudential Insurance filed a complaint seeking to foreclose its
month Village Green received and followed specific mortgage on the Property, and in June of 1994, Prudential
instructions from Eastland as to which creditors should be purchased the Property at a foreclosure sale for
paid based on the available cash. Village Green also issued $21,098,866.37. Dean Nelson, a real estate appraiser,
a monthly report to Eastland called a “Monthly Operations testified on behalf of Eastland that the Property had a value of
Review” which included several subparts including a $23.5 million in 1992. Nelson projected that the Property
“variance report.” The variance report listed each of the would have a value of approximately $30 million in 2002,
accounts, addressed the reason for any variance between and did not reduce this amount to present value. However,
actual and budgeted amounts, and provided the amount of the Rodney Crawford, an accountant, testified on behalf of
variance. Lutz reviewed the monthly reports prepared by Village Green that a proper analysis of Nelson’s future
Village Green and approved the budget. damage estimate, reduced to present value and properly
accounting for all costs, would have resulted in negative
Beginning in January of 1993, Brown requested that equity.
Village Green disburse money from the accounts it held for
Eastland to him. The requests were made in writing primarily At trial, the court appointed expert James McTevia to report
by Robert Stillings, an officer of ASB. A significant number on damages. McTevia testified that he had not determined
of these requests stated that the money was for a “replacement whether there had been any wrongdoing by Brown and he
reserve” account. Village Green honored these requests and assumed that none of the money disbursed by Village Green
disclosed the disbursements in the Monthly Operations at Brown’s request had been used for partnership expenses.
Review report. At the second jury trial, Terry Schwartz, the McTevia also assumed that Eastland would have had
CEO of Village Green, testified that although Village Green sufficient resources, through capital infusions, to keep the
understood that it was disbursing money to Brown, Village Property. Based on these assumptions, McTevia testified that
Green continued to record the disbursements as deposits to a Eastland would have lost approximately $500,000 had the
replacement reserve account. money not been diverted but instead used for partnership
expenses.
In March of 1994, after reviewing the Monthly Operations
Review report, Lutz learned that Brown was withdrawing
money from Eastland’s accounts. Lutz notified Village Green
by letter that such disbursements were prohibited by the
Nos. 01-1015/2500 In re Brown 9 10 In re Brown Nos. 01-1015/2500
DISCUSSION State Univ., 565 N.W.2d 401, 409 (Mich. Ct. App. 1997)
(citation omitted).
I. Village Green’s Motion for Judgment Notwithstanding
the Verdict/New Trial (Case No. 01-1015) In reviewing a district court’s decision to deny a motion for
a new trial in a diversity action, however, this Court applies
A. Standard of Review federal procedural law. See Webster v. Edward D. Jones &
Co., L.P., 197 F.3d 815, 818 (6th Cir. 1999) (citing Tobin v.
Village Green claims that insufficient evidence was Astra Pharm. Prod., 993 F.2d 528, 541 (6th Cir. 1993)). That
presented upon which a reasonable jury could have found in is to say, a district court’s denial of a motion for a new trial is
favor of Eastland on Village Green’s breach of contract claim. reviewed for an abuse of discretion. Id. “The district court
In a diversity action such as this, a state law standard of must compare the offered evidence and set aside the verdict
review is applied when a Rule 50(b) motion is based on a only if it is against the clear weight of the evidence as a
challenge to the sufficiency of the evidence necessary to whole.” Id.support the jury’s verdict. See Morales v. Am. Honda Motor
Co. Inc., 151 F.3d 500, 506 (6th Cir. 1998). The Michigan B. Standing Issue
Supreme Court has explained the applicable standard as
follows: As a preliminary matter, Village Green argues that because
this lawsuit was not properly authorized by JAM, Eastland
In reviewing a trial court’s failure to grant a defendant’s lacked standing to assert its breach of contract claim. Village
motion for a directed verdict or judgment Green argues that only JAM, as Eastland’s sole managing
notwithstanding the verdict, we examine the testimony general partner, had the authority to bring this lawsuit on
and all legitimate inferences that may be drawn in the behalf of Eastland, and because Brown, as co-partner of JAM,
light most favorable to the plaintiff. If reasonable jurors did not consent to the lawsuit, the suit could not go forward.
could honestly have reached different conclusions, the Eastland argues that it had standing to assert its breach of
motion should have been denied. If reasonable jurors contract claim since it has suffered an injury traceable to the
could disagree, neither the trial court nor this Court has conduct of Village Green, and because it had the capacity to
the authority to substitute its judgment for that of the sue Village Green inasmuch as Michigan law allows limited
jury. partners to sue on their own behalf as well as on behalf of the
partnership. We agree with Eastland.
Matras v. Amoco Oil Co., 385 N.W.2d 586, 588 (Mich. 1986)
(footnotes omitted). Said differently, a directed verdict or In Firestone v. Galbreath, 976 F.2d 279, 283 (6th Cir.
judgment notwithstanding the verdict is appropriate under 1992), we held that a plaintiff has standing if the complaint
Michigan law only when there is no factual dispute upon alleges an injury in fact traceable to the conduct of the
which reasonable minds could differ.1 Meagher v. Wayne defendant. We further held that, under Federal Rule of Civil
Procedure 17(b), a plaintiff has the capacity to sue if the law
of the state in which the district court is held allows the
1
The Michigan courts use the terms “directed verdict” and “judgment
notwithstanding the verdict” rather than the term “judgment as a matter
of law” as used in federal court. We shall employ the term “judgment as
a matter of law” as used in Rule 50 throughout this opinion.
Nos. 01-1015/2500 In re Brown 11 12 In re Brown Nos. 01-1015/2500
plaintiff to litigate in federal court.2 Id. The plaintiffs in partnership if the general partners refuse. Thus, Eastland’s
Firestone, who were beneficiaries of an inter vivos trust limited partners had the capacity to sue on their own behalf
created by their grandmother, brought state tort and federal and on behalf of Eastland without the consent of both general
racketeering claims against the trustee and the executor of partners, Brown and Lutz, and Village Green’s contention
their grandmother’s estate on behalf of themselves that Eastland had no standing is without merit. See id.; see
individually, the family trust, and the estate. The district court also Firestone, 976 F.2d at 283.
dismissed the claims on the ground that the plaintiffs lacked
standing to pursue those claims. Id. On appeal, this Court C. Sufficiency of the Evidence as to Eastland’s Breach
found that the plaintiffs had standing to sue because the of Contract Claim
complaint alleged an injury in fact traceable the conduct of
the trustee and the executor. Id. Village Green argues that it did not have a contract with
Eastland, but instead entered into a subcontract with ASB,
In this case, Eastland’s first amended complaint alleges an which had a contract with Eastland. Village Green argues in
injury in fact traceable to Village Green. Specifically, the the alternative that even if it did contract with Eastland, there
complaint alleges that Eastland suffered damages in the was no evidence of a breach inasmuch as Village Green acted
amount of $778,000 as result of Village Green’s actions at the direction of its principal when it disbursed money to
associated with diverting monies to Brown. See Firestone, Brown, its monthly reports accurately disclosed that taxes
976 F.2d at 283. Thus, having concluded that Eastland were not paid on the Property after November 1993 but that
alleged an injury in fact traceable to Village Green, the next money had been disbursed to the owner, and that the
inquiry becomes whether under Michigan law, Eastland had management subcontract agreement expressly provided that
the capacity to sue Village Green. Id. Village Green could not be held liable for the acts or
omissions of the owner.
In Adell v. Sommers, Schwartz, Silver & Schwartz, P.C.,
428 N.W.2d 26, 29 (Mich. Ct. App. 1988), the Michigan Eastland argues that the record indicates that Village Green
Court of Appeals recognized that pursuant to Mich. Comp. entered into the Agreement with Eastland on May 9, 1990,
Laws § 449.2001, limited partners have the capacity to sue on and that the subcontract with ABS did nothing to negate
their own behalf and to bring a derivative action on the behalf Village Green’s obligations to Eastland under the Agreement.
of the partnership for wrongs committed against the Eastland goes on to argue that there was overwhelming
evidence of Village Green’s breach of the Agreement by way
of Village Green’s disbursing money to Brown upon the
2 requests of a third person and submitting monthly reports that
Federal Rule of C ivil Pro cedure 17(b) provides in relevant part:
unambiguously misrepresented the amount of money held in
The capacity of an individual, other than one acting in a the accounts, which was in contravention of the terms of the
representative capa city, to sue o r be sued shall be determined by Agreement. Furthermore, Eastland maintains that Village
the law of the individual’s do micile. T he capacity of a
corporation to sue or be sued shall be determined by the law
Green took these actions at its own peril because there is no
under which it is organized. In all other cases capacity to sue or provision in the Agreement exempting Village Green from
be sued shall be determined by the law of the state in which the liability. We agree with Eastland.
district co urt is held . . . .
Fed. R. Civ. P. 17(b).
Nos. 01-1015/2500 In re Brown 13 14 In re Brown Nos. 01-1015/2500
To state a breach of contract claim under Michigan law, a existence of the Agreement or that it is a valid contract under
plaintiff must first establish the elements of a valid contract. Michigan law. Rather, Village Green contends that the
See Pawlak v. Redox Corp., 453 N.W.2d 304, 307 (Mich. Ct. Agreement was between Eastland and ASB, and that Village
App. 1990). The elements of a valid contract in Michigan are Green had a subcontract with ASB. The record does not
1) parties competent to contract, 2) a proper subject matter, support Village Green’s contention.
3) a legal consideration, 4) mutuality of agreement, and
5) mutuality of obligation. Thomas v. Leja, 468 N.W.2d 58, As indicated above, the Agreement clearly states the parties
60 (Mich. Ct. App. 1990). Once a valid contract has been that entered into the Agreement—Eastland and Village Green.
established, a plaintiff seeking to recover on a breach of Although in the Signatures section of the Agreement,
contract theory must then prove by a preponderance of the Brown’s name appears with the name “Anthony S.
evidence the terms of the contract, that the defendant Development Co., Inc.” thereunder, the Signatures section of
breached the terms of the contract, and that the breached the Agreement also designates “Eastland Properties Limited
caused the plaintiff’s injury. See Platsis v. E.F. Hutton & Partnership” as the “Owner” and Village Green as the
Co., Inc., 642 F. Supp. 1277, 1309 (W.D. Mich. 1986). “Agent” for which Terry B. Schwartz signed as Chief
Executive Officer. (J.A. at 1429.) Thus, the record supports
The record indicates that the “Agreement [was] made this a finding that reasonable minds could have found that a
9th day of May 1990 by and between Eastland Properties contract between Eastland and Village Green existed. See
Limited Partnership (the “Owner”) and Village Green Pawlak, 453 N.W.2d at 307. As a result, the terms of the
Management Company (the “Agent”)[,]” wherein Village Agreement and whether sufficient evidence was presented for
Green agreed to provide management services to Eastland in a reasonable jury to have found that Village Green breached
exchange for Eastland making payments to Village Green for the terms thereby causing Eastland to suffer an injury are the
the services. (J.A. at 1416.) Specifically, the Agreement next relevant inquiries. See Platsis, 642 F. Supp. at 1309;
provides: Matras, 385 N.W.2d at 588.
1.1 APPOINTMENT AND ACCEPTANCE As to the terms of the Agreement, among other things,
Owner [Eastland] hereby appoints Agent [Village Village Green was required to collect all accounts receivable
Green] as sole and exclusive Agent of Owner in connection with the management and operation of the
[Eastland] to lease and manage the property described Property, deposit and maintain such funds in reserve bank
in paragraph 1.2 upon the terms and conditions accounts, pay all expenses and costs necessary for the proper
provided herein. Agent [Village Green] accepts the management and operation of the Property, and provide
appointment and agrees to furnish the services of its Eastland with accurate and complete monthly reports of costs,
organization for the leasing and management of the receipts and disbursements. Eastland brought forth evidence
Premises; and Owner [Eastland] agrees to pay all that Village Green breached these obligations by way of
expenses in connection with those services. testimony and documentation that Village Green disbursed
money to Brown upon the requests of a third person
(J.A. at 1416.) Thus, this bargained for exchange of unauthorized to make such requests and provided monthly
mutuality between Eastland and Village Green satisfies reports to Eastland that did not accurately reflect the amount
Michigan’s requirements for a valid contract. See Pawlak, of money held in the accounts. Eastland also brought forth
453 N.W.2d at 307. Village Green does not deny the evidence that it suffered an injury as a result of Village
Nos. 01-1015/2500 In re Brown 15 16 In re Brown Nos. 01-1015/2500
Green’s breach of its obligations under the Agreement by way dealing has knowledge of the fact that he has no such
of the foreclosure and sale that took place following authority.
Eastland’s failure to pay its property taxes.
Mich. Comp. Laws Ann. § 449.9(1) (emphasis added).
Village Green argues that because Brown’s knowledge, as Section 12 of the Act provides:
general partner, is imputed to Eastland, Eastland had
knowledge of the disbursements made to Brown and therefore Notice to any partner of any matter relating to the
cannot be allowed to complain that Village Green acted partnership affairs, and the knowledge of the partner
improperly, i.e., evidence of Village Green’s actions upon acting in the particular matter, acquired while a partner
which Eastland relies in support of its breach of contract or then present to his mind, and the knowledge of any
claim could not be considered in determining whether a other partner who reasonably could and should have
breach occurred because Eastland was aware of Village communicated it to the acting partner, operates as notice
Green’s actions in this regard. to or knowledge of the partnership, except in the case of
fraud on the partnership committed by or with the
Eastland argues that because Brown acted outside the consent of that partner.
ordinary course of business when he withdrew money from
Eastland’s accounts for his personal use, Brown’s knowledge Mich. Comp. Laws Ann. § 449.12 (emphasis added). And
cannot be imputed to Eastland. In support of its contention, Section 13 of the Act provides:
Eastland points out that Brown’s actions were contrary to the
Partnership Agreement and the Bankruptcy Plan of Where, by any wrongful act or omission of any partner
Reorganization, and relies upon Michigan’s Uniform acting in the ordinary course of the business of the
Partnership Act (the “Act”), Mich. Comp. Laws Ann. § 449.1 partnership, or with the authority of the co-partners, loss
et seq. or injury is caused to any person, not being a partner in
the partnership, or any penalty is incurred, the
Specifically, Eastland relies upon sections §§ 449.9(1), partnership is liable therefor to the same extent as the
449.12, and 449.13 of the Act in support of its claim that the partner so acting or omitting to act.
acts of an individual partner outside the ordinary course of
business of the partnership or acts of fraud cannot impute Mich. Comp. Laws Ann. § 449.13 (emphasis added).
knowledge to or liability on the partnership. Section 9 of the
Act provides in relevant part: In order to determine whether Brown acted outside the
ordinary course of business when he withdrew money from
Every partner is an agent of the partnership for the Eastland’s accounts for his personal use, we must examine the
purposes of its business, and the act of every partner, Partnership Agreement and the Bankruptcy Plan. Section
including the execution in the partnership name of any 3.02 of the Partnership Agreement provides in relevant part:
instrument, for apparently carrying on in the usual way
the business of the partnership, unless the partner so The Operating Cash Flow of the Partnership, for each
acting has in fact no authority to act for the partnership fiscal year of the Partnership, to the extent (and only to
in the particular matter, and the person with whom he is the extent) that the General Partner determines, in its sole
and absolute discretion, that the Operating Cash Flow of
Nos. 01-1015/2500 In re Brown 17 18 In re Brown Nos. 01-1015/2500
the Partnership for such fiscal year is not required for cap. Finally, these is no evidence on the record, such as a
Partnership purposes and is available for distribution to loan agreement, to indicate that Brown had loaned Eastland
the Partners, shall be distributed to the Partners. All more than $700,000 and was entitled to repayment despite the
Operating Cash Flow that is distributed to the Partners lack of excess cash flow. Thus, Brown had neither actual nor
shall be distributed to, and allocated between, the implied authority to withdrew money from Eastland’s
Partners, 1% to the General Partner and 99% to the accounts for his personal use.3
Limited Partner.
Moreover, Eastland cannot be held to have affirmed
(J.A. at 1546.) Section 4.05 of the Partnership Agreement Brown’s unauthorized actions since there is no evidence on
provides: the record to indicate that Eastland received any direct benefit
from such actions. See City Nat’l Bank of Detroit v. Westland
The General Partner (and Affiliates of the General Towers Apartments, 393 N.W.2d 554, 556-57 (Mich. Ct. App.
Partner) shall have the right to contract and otherwise 1986) (holding that a partnership was not liable for a
deal with the Partnership and the Real Estate Partnership promissory note signed by a partner because the partnership
with respect to the sale or lease of real and/or personal received no direct benefit from the partner’s unauthorized
property, the rendition of services, the lending of money act).
and for other purposes, and to receive compensation,
fees, commissions, interest and other forms of We therefore are not persuaded by Village Green’s
consideration in connection therewith as the General arguments and conclude that Eastland presented sufficient
Partner may determine, without being subject to claims evidence for a reasonable jury to have found that a contract
for self dealing. existed between Eastland and Village Green, and that Village
Green breached the terms of the contract to the detriment of
(J.A. at 1552.) Eastland. See Platsis, 642 F. Supp. at 1309. Thus, the district
court did not err in denying Village Green’s motion for
In addition, the Bankruptcy Plan provides in relevant part judgment as a matter of law. See Matras, 385 N.W.2d at 588.
that Eastland “shall utilize all Excess Cash Flow, if any, as And, because the evidence on the record as a whole does not
and when it becomes available to pre-pay the outstanding outweigh the evidence proffered by Eastland in support of its
balance owing to the holders of allowed claims within Class breach of contract claim, we also conclude that the district
7 until such claims have been paid in full.” (J.A. at 2033.) court did not abuse its discretion in denying Village Green’s
motion for a new trial. See Webster, 197 F.3d at 818.
Because Eastland had no excess cash flow available for
disbursement to partners in 1994, Brown was not entitled to
any disbursements and he acted outside the ordinary course of 3
In its reply brief, Village Green argues fo r the first time that it did
business when he withdrew money from Eastland’s accounts not have a duty to use reasonable diligence to determine whether Brown
for his personal use without the consent of his co-general was acting within the scope of his authority as a general partner when he
partner, Lutz. Furthermore, had excess cash flow been requested the disbursal of money from E astland ’s acco unts. W e will not
available for disbursement to partners, Brown was at most consider this argum ent because it was raised for the first time in Village
Green’s reply brief. See Wright v. Holbrook, 794 F.2d 1152, 1156-157
entitled to 1% of the excess, and by withdrawing more than (6th Cir. 198 6) (ho lding that argum ents raised for the first time in a reply
$700,000 from Eastland’s accounts, Brown exceeded the 1% brief will not be considered on appeal).
Nos. 01-1015/2500 In re Brown 19 20 In re Brown Nos. 01-1015/2500
D. Inconsistent Verdict Claim Eastland argues that ample evidence supported the jury’s
award of damages since Eastland presented evidence that had
As an alternative claim regarding the jury’s verdict in favor Village Green properly placed the funds in a replacement
of Eastland on its breach of contract claim, Village Green reserve account, as Village Green represented it had done, the
argues that the jury’s verdict in favor of Brown exonerated taxes would have been paid in full before the date of
Village Green. Said differently, Village Green argues that foreclosure; that had Village Green provided accurate and
because the jury found that Brown was not liable, its verdict complete monthly reports of the Property’s financial state,
finding that Village Green breached the terms of the Eastland would have been able to take corrective action to
Agreement by following Brown’s instructions was prevent foreclosure; and that the money disbursed to Brown
inconsistent. by Village Green was the precise money which would have
been used to pay taxes on the Property. Eastland notes that
We are not persuaded by Village Green’s argument in this McTevia, Nelson, and Lutz all testified that the loss of the
regard because, as Eastland points out, at most the jury was Property was a direct result of Village Green’s breaches of
allowed to decide that Brown had not committed intentional contract.
and malicious fraud by clear and convincing evidence. The
jury was not permitted to decide whether Brown’s actions To recover for damages under a breach of contract claim,
amounted to other torts, including innocent misrepresentation, a plaintiff must prove that the damages arose naturally from
breach of contract, or negligent misrepresentation because the breach or were in contemplation of the parties at the time
Brown’s pending bankruptcy precluded such a determination. the contract was made. Held Constr. Co., Inc. v. Mich. Nat’l
Thus, the jury’s verdicts in favor of Brown but against Bank of Detroit, 335 N.W.2d 8, 10 (Mich. Ct. App. 1983).
Village Green were consistent since Village Green was shown Lost profits resulting from a breach of contract may be
to have breached the management agreement by its own considered by a jury in determining damages. Lorenz Supply
actions. See, e.g., Morales, 151 F.3d at 509 (noting that when Co. v. Am. Standard, Inc., 300 N.W.2d 335, 340 (Mich. Ct.
reviewing an inconsistent verdict claim, this Court must “look App. 1980). However, lost profits must be proven with a
for a reasonable way” to view the case). We therefore reasonable degree of certainty and cannot be based solely on
conclude that the district court did not abuse its discretion in conjecture and speculation. Id. A jury’s award of lost profits
denying Village Green’s motion for a new trial on this basis must be reduced to present value. Coger v. Mackinaw Prods.
as well. See id. at 511. Co., 210 N.W. 2d 124, 130-31 (Mich. Ct. App. 1973), rev’d
on other grounds, Horen v. Coleco Indus., Inc., 426 N.W. 2d
E. Sufficiency of the Evidence as to the Jury’s Award 794 (1988).
of Damages
The record indicates that Eastland presented sufficient
Village Green argues that the jury’s award of damages was evidence to support the jury’s award of damages. McTevia,
not supported by the evidence since Eastland did not prove Nelson, and Lutz all testified that the loss of the Property
that Village Green caused it any damages with a reasonable arose naturally from Village Green’s breaches of contract,
degree of certainty and failed to reduce the alleged damages Nelson testified as to Eastland’s lost profits in the Property,
to present value as of the date of breach. Village Green also based on normal real estate market conditions, and the district
argues that the jury’s award of damages constituted an court instructed the jury to reduce damages for lost profits to
improper compromise verdict. present value. Furthermore, there is no evidence of juror
Nos. 01-1015/2500 In re Brown 21 22 In re Brown Nos. 01-1015/2500
misconduct to support Village Green’s argument that the A. Standard of Review
jury’s award of damages constituted an improper compromise
verdict.4 We review a district court’s denial of a motion for
rehearing for an abuse of discretion. Curry v. Scott, 249 F.3d
F. Summary 493, 503 (6th Cir. 2001). An abuse of discretion occurs when
the district court relies on clearly erroneous findings of fact,
Sufficient evidence was presented for a reasonable jury to improperly applies the law, or uses an erroneous legal
conclude that Village Green breached the terms of its standard. Southward v. S. Cent. Ready Mix Supply Corp., 7
Agreement with Eastland and that Eastland suffered damages F.3d 487, 492 (6th Cir. 1993).
in the amount awarded by the jury, and the verdict was not
inconsistent or against the great weight of the evidence. B. Analysis
II. Village Green’s Motion Requesting that Brown be We agree with Eastland that the district court abused its
Declared Sole Managing Partner of Eastland (Case discretion in denying Eastland’s motion to reconsider its order
No. 01-2500) declaring Brown sole managing partner of Eastland for the
purpose of supervising and implementing the dissolution of
Eastland argues that the district court abused its discretion Eastland. It is clear that in seeking to declare Brown sole
in denying its motion for rehearing regarding the court’s order managing partner of Eastland, Village Green actually was
granting Village Green’s motion to declare Brown Eastland’s seeking the dissolution of JAM and a declaration that Brown
sole managing partner. Eastland contends that Village Green have management control over JAM, because this would
did not have standing to bring such a motion, that even if allow for the dissolution of Eastland without Lutz’s consent
Village Green did have standing, the district court went inasmuch as Brown and Lutz were co-partners in JAM.
beyond the relief sought by Village Green when the court However, the district court had no authority to do so because
ordered the dissolution of Eastland under Brown’s control and neither Brown nor Lutz filed a motion requesting a court-
supervision, and that it is inequitable to declare Brown to be ordered dissolution of JAM.
Eastland’s sole managing partner inasmuch as Brown has
assigned all of the rights in the management of Eastland to Village Green acknowledged that the JAM partnership
Village Green, and Village Green will therefore simply agreement was controlled by the Act, and the Act provides the
negotiate the judgment debt that it owes to Eastland. circumstances under which a court may order the dissolution
of a co-partnership while specifically stating that only a
“partner” may apply for dissolution of the partnership. See
Mich. Comp. Laws Ann. § 449.32. Thus, only Brown or Lutz
could move to have their partnership in JAM dissolved,
4 thereby making Village Green’s efforts to do so by way of its
In its statement of issues presented, Village Green also raises the
issue of whether the district court erred in permitting a witness to offer motion to declare Brown sole managing partner of Eastland
opinion testimony about ultimate legal issues. W e will not co nsider this without a basis in Michigan law. Indeed, the district court
issue because Village Green failed to raise any argum ent in sup port of it. relied on Mich. Comp. Laws Ann.§ 449.32 in ordering the
See Bickel v. Korean Air Lines Co. Ltd., 96 F.3d 151, 153 (6th Cir. 1990)
(holding that issues m ust be raised in statement of issues presented and
dissolution of Eastland; however, it is clear that the court had
argued in the legal brief to be considered on appeal).
Nos. 01-1015/2500 In re Brown 23
no authority to do so, particularly where Eastland is a limited
partnership.
In addition, although § 449.1802 of the Act provides
authority for the court to order dissolution of a limited
partnership such as Eastland, the district court had no basis to
order the dissolution of Eastland under § 449.1802 in this
case because no partner of Eastland sought dissolution, and
neither Brown personally nor Village Green had the authority
to do so. Thus, although § 449.1802 provides a legal basis
upon which the district court could have ordered the
dissolution of Eastland, the court would have been without
authority to do so under these facts.
C. Summary
The district court abused its discretion in denying
Eastland’s motion to reconsider the order declaring that
Brown had sole managing authority over Eastland where the
court had no authority to grant Village Green’s motion.
CONCLUSION
For the forgoing reasons, we AFFIRM the district court’s
order in Case No. 01-1015; and REVERSE the district
court’s order in Case No. 01-2500, and REMAND with
instructions that the district court either appoint a neutral
third-party on behalf of Eastland to deal with Village Green,
or establish an escrow subject to further order as the district
court proceeds to determine the rights and remedies of any
party who has an interest in Eastland’s assets.