G3 Properties v CBC - Memorandum of Law

7/29/2019 G3 Properties v CBC - Memorandum of Law

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STATE OF MICHIGANCIRCUIT COURT FOR THE COUNTY OF INGHAM

G3 PROPERTIES, LLC, STEVEN SAMUELGLANDER, JOHN IANNUCCI FAMILYTRUST Dtd. 10/17/2000, JOHN IANNU CCI,TTEE, ANGELO IANNUCCI, THEKENNETH A. & DEBBIE A. KEFALASFAMILY TRUST Dtd. 5/31/2006, KENNETHA. & DEBBIE A. KEFALAS, TTEES,BENJAMIN W. POST, JR., SEIFMANFAMILY TRUST Dtd. 5/12/1994, BILL &SARA SEIFMAN, TTEES, HENRY B.SOLOWAY 1991 IRREVOCABLE FAMILYTRUST Dtd. 1/22/91, ALBERT L. BARDIER,TTEE, and CAPITOL DEVELOPMENTBANCORP LIMITED VIII, a MichiganCorporation,

Plaintiffs,V .CAPITOL BANC ORP LTD., CRISTIN K.REID, JOSEPH D. REID, and L. DOUGLASJOHNS,

Defendants.

Jeffrey G. Muth (P65041)Scott R. Murphy (P68015)BARNES & THORNBURG LLP171 Monroe Ave NW, Ste 1000Grand Rapids, Michigan 49503(616) 742-3930Attorneys for Plaintiffs

Case No. 11-39-CZHon. Clinton Can ady, III

Raymond W. Henney (P35860)Michael P. Hindelang (P62900)HONIGMAN MILLER SCHWARTZAND COHN LLP660 Woodward Ave, Ste 2290Detroit, Michigan 48226(313) 465-7412Attorneys for Defendants

PLAINTIFFS' MEMORANDUM OF LAW IN SUPPORT OFMOTION TO REMOVE DIRECTORS OF CAPITOL DEVELOPMENT BANCORPLIMITED VIII, DISSOLVE AND WIND UP ITS AFFAIRS AND APPOINT RECEIVER


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TABLE OF CONTENTSTABLE OF AUTHORITIESiiINTRODUCTIONSTATEMENT OF FACTSI. The Individual Defendants are Directors of Both CDBL VIII and CBC, the EntityWhich Committed Acts of Minority Oppression3II. The Directors Authorized a Sham Loan Transaction Without the Required Shareholderand Disinterested Director Approval.5III. CDBL VIII Has Never Received a Payment on the CB C NotePROCEDURAL BACKGROUNDI. Defendants Instruct Mr. Johnson not to Issue a Report on Whether Derivative Claimsare Proper on Behalf of CDB L VIII.7

II. Derivative Claims Proceed and De fendants File Second Motion to DismissIII. This Court Already Found that the Controlling Shareholder Breached its FiduciaryDuty to CBDL VIII and Committed Acts of Minority Oppression.8IV . A Majority of Those Shareholders Entitled to Vote Have Approved the Removal of theDirectors, Dissolution of CD BL V III and the Appo intment of a Receiver.ARGUMENT0I. The Articles and Bylaws of CDBL VIII Authorize the Dissolution, Wind Up andLiquidation of CDBL VIII' s Assets10II. The M BCA Authorizes the Removal of the Directors.11III. The Appointment of a Receiver to Preserve and Protect the Assets of CDBL VIIIDuring its Dissolution, Wind Up and Liquidation is "Allowed by Law" UnderMichigan's General Receivership Statute12CONCLUSION4

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TABLE OF AUTHORITIESCasesBand v Livonia Associates,

176 Mich App 95; 439 NW2d 285 (1989)Franchino v Franchino,263 Mich App 172; 687 NW2d 620 (2004)Petitpren v Taylor Sch ool D istrict,104 Mich App 283; 304 NW 2d 553 (1981)Rytkonen v Butler,305 Mich 580; 9 NW2d 849 (1943)Weathervane W indows, Inc v White Lake Construction Co,

192 Mich App 316; 480 NW2d 337 (1992)StatutesMCL 450.1489(1)(b)MCL 450.1489(3)MCL 450.1495MCL 450.1514MCL 600.2926MCL 600.3505RulesMCR 2.116(C)(8)MCR 2.116(C)(10)1 , 13,14121, 13131 311 1711, 12121 388

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INTRODUCTIONOn September 12, 2012, this Court correctly found, as a matter of law, that Defendant

Capitol Bancorp, LTD ("CBC") breached its fiduciary duty and committed acts of oppressionagainst Plaintiffs as minority shareholders of Capitol Development Bancorp Limited VIII("CDBL VIII"). In reaching its opinion, this Court found that Plaintiffs were deprived of theirstatutory and contractual right to vote on a sham loan transaction whereby CDBL VIIItransferred nearly all of its assets to its majority and controlling shareholder, CBC. As a result,an Order was entered on September 20, 2012, granting summary disposition to Plaintiffs on theirfiduciary duty and minority oppression claims. Plaintiffs now seek to remove those bad actors incharge of CDBL VIII to ensure that any remaining assets of the corporation are preserved andprotected for the benefit of its shareholders.

To accomplish this task, Plaintiffs are moving this Court to (i) remove the Directors ofCDBL VIII who authorized the "sham loan" transaction in accordance with MCL 450.1514,(ii) dissolve and wind-up the affairs of CDBL VIII in accordance with MCL 450.1489(1)(b),and (iii) appoint a receiver to manage the affairs of CDBL VIII during its dissolution and wind-up. In accordance with the By-Laws of CDBL VIII, Plaintiffs have already obtained the writtenconsent from a clear majority of its shareholders to remove the Directors, dissolve and wind upthe affairs of CDBL VIII, and appoint a receiver to oversee the orderly liquidation of thecorporation.

Michigan Courts have appointed receivers under circumstances much less egregious thanthose presented here. Indeed, this Court has the discretion to appoint a receiver "where the factsand circumstances render the appointment of a receiver an appropriate exercise of the circuitcourt's equitable jurisdiction." Petitpren v Taylor School District, 104 Mich App 283, 294; 304NW2d 553, 557 (1981). Clearly such discretion is warranted here where a majority of

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shareholders have agreed to remove the directors and dissolve the corporation and are requestingthat a receiver be appointed to preserve and protect CDB L VIII's remaining assets.

STATEMENT OF FACTSIn November 2007, CBC formed CDBL VIII and filed its Articles of Incorporation (the

"Articles") with the Michigan Department of Labor and Economic Growth. A copy of theArticles is attached as Exhibit A. CDBL VIII issued its Offering Memorandum shortly after theArticles were filed for a proposed bank holding company and summarized the offering and theamounts it expected to receive. A copy of the Offering Memorandum is attached as Exhibit B.

Initially the offering was only to remain open until December 21, 2007, but Defendants extendedthe offering until February 15, 2008. The Offering Memorandum describes CDBL VIII as aninvestment vehicle to "fund the start-up or acquisition of controlling interests in new communitybanks within the United States." Id. at p.1. Although the Offering Memorandum contemplatedraising $20,000,000.00, only 6,025 shares of Class B Stock were sold for a total investment of$6,025,000.00. Rather than return this money to the investors, Defendants accepted the cash,issued shares to the investors, and purported to operate CDBL VIII pursuant to the terms andconditions of the Offering Memorandum.

A significant investment was made by Plaintiffs G3 and the Seifman Family Trust, whicheach purchased 2000 shares at an aggregate price of $2,000,000 pursuant to their SubscriptionAgreement(s). The Subscription Agreement(s) stated that the shares were sold "pursuant to theterms and conditions of the Offering Memorandum," as well as the Articles and Bylaws of theCompany. A copy of the Bylaws of CDBL VIII is attached as Exhibit C. The terms andconditions of the Offering Memorandum clearly and unambiguously established that proceedsderived therefrom would be utilized to purchase majority interests in community banks. See

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Offering M emorandum, passim. For example, the Offering Memorandum on page 11, describes"use of proceeds" as follows:

CBDL VIII intends to use the net proceeds from the sale of shares offered topurchase a majority interest in community banks. The remainder of the offeringproceeds will be used for general corporate purposes and for potential futureinvestment in de novo or other banks.

Id . at p. 11. The Offering Memorandum also explains that CDBL VIII "was formed for thepurpose of serving as a bank development arm of CBC to fund the start-up and/or acquisition ofa controlling interest in new community banks within the United States." Id. at p. 14. Contraryto the expressly stated purpose of the Offering Memorandum, Defendants admit that CDBL VIIInever obtained any ownership interest in any bank. See Interrogatory Responses of C.Reid at If17, a copy of which is attached as Exhibit D. Indeed, CDBL VIII was never registered as a bankholding company thereby precluding it from holding an ownership interest in any bank. Instead,CBC "loaned" all of CDBL VIII's assets to itself in what can only be described as a "sham loan"transaction.I.he Individual Defendants are Directors of Both CDBL VIII and CBC, the EntityWhich Committed Acts of Minority Oppression.

The individual Defendants are all Directors and Officers of both CBC and CDBL VIII. Achart reflecting their positions at CBC and CDB L VIII is below:

CDBL VIII CBCCristin K. Reid President, Chairperson, CEO,Director President, DirectorJoseph D. Reid Secretary, Director Chairman, Director

L. Douglas Johns Vice President, Treasurer,Director Director

See Off. Memo., Ex. B at p. 17. For the purposes of this Brief, the individual defendants arecollectively referred to as the "D irectors".

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CDBL VIII had two class of common stock Class A Common Stock (voting) and ClassB Common Stock (non-voting). See Off. Memo., Ex. B at pp. 32-33. CBC retained 100%ownership of CDBL VIII' s Class A Common Stock and could vote on all matters that camebefore CDBL VIII in the ordinary course of business unless presented w ith a con flict of interest.Id . (emphasis added). By contrast, Shareholders of Class B Common Stock were only entitled tovote on certain transactions that had a significant impact on the business affairs of CDBL VIII.See Articles, Ex. A at Art. VIII, B.3; Off. Memo., Ex. B at pp. 32-33. The Articles identifycertain transactions that require the approval by a majority vote of all shareholders, including

Class B shareholders. Those transactions include:(i) the merger or share exch ange with another corporation or entity;(ii) the sale, assignment, lease exchange or other transfer or disposition of allor a major portion (equal to or exceeding the lesser of $2,000,000 or 20%)of the Corporation's assets; and(iii) the dissolution, liquidation or w inding up o f the corporation.

Articles, Ex. A at VIII, B.3; see also Off. Memo., Ex. B. at pp. 32-33 (emphasis added). Inaddition, the Offering Memorandum disclosed the possibility of related party transactions andprovided assurances that CDBL VIII investors would be protected from such transactions.Under the section titled "Related Party Transactions," the Offering M emorandu m states:

Off transactions between us or an Affiliate Bank and any of our organizers,directors or executive officers occur, the transaction . . . will be approved by amajority of the directors who do not have an interest in the transaction.

Id. at 18. Accordingly, any transaction between CDBL VIII and CBC needed approval by amajority of directors who did not hav e an interest in the transaction.

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I I .he Directors Authorized a Sham Loan Transaction Without the RequiredShareholder and Disinterested Director Approval.On or about December 31, 2008, the Directors authorized a purported loan from CDBLVIII to CBC in the amount of $6,000,000.00, thereby transferring nearly all of CDBL VIII'sassets to CBC, CD BL V III' s Class A and con trolling shareholder. A copy o f the Note is attachedat Exhibit E. The Note is signed by C.Reid in her capacity as Corporate President of CBC anddirected to "Capitol Development Bancorp Limited VIII" where C.Reid also holds the positionof Chairperson, President, Chief Executive Officer and Director. See Note, Ex. E; Off. Memo.,Ex. B at p. 17. The Note is unsecured and due on demand but has no maturity date. At the timeof the Note's issuance, CBC's stock value had plummeted nearly 70% in a three (3) monthperiod.' According to C.Reid, the Note was authorized by the CDBL VIII Board of Directors;namely herself, and the other Individual Defendants. See Interrogatories, Ex. D at 1 1 21. As allthe Individual Defendants are Officers and/or Directors of CBC, none of them qualify as"disinterested." Moreover, the Directors of CDBL VIII never sought shareholder approval forthe purported "loan" as the Class B shareholders were not afforded an opportunity to vote on thetransaction. Id . at I J 24, 25. In fact, the Class B shareholders (i.e., the Plaintiffs), were neverinformed of the transaction and did not learn of the transaction until approximately a year afterthe Note was issued.

Finally, a significant portion of the funds had already been transferred from CDBL VIIIto CBC even before the Note was issued. On June 30, 2008, the Directors of CDBL VIIIauthorized the transfer of $2,000,000.00 to CBC in exchange for an undocumented "Assignmentof Note" with Muskegon Community Bank. A copy of CDBL VIII's check register is attached

I On September 24, 2008, CBC's stock closed at $23.26 per share. By December 30, 2008, CBC's stockclosed at $7.30 per share.

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as Exhibit F. The remaining $4,000,000.00 was transferred to CBC on December 31, 2008,whereupon the Note was issued in the amount of $6,000,000.00, presumably to cover bothtransactions. Notably, neither the $2,000,000.00 transfer nor the $4,000,000.00 transfer wereever disclosed to the Class B shareholders no r was a vote ever taken to approve the transfers.

CDBL VIII Has Never Received a Payment on the CBC Note.CDBL VIII has never received any payments from CBC on the Note. Rather, CBC has

credited losses from its failed bank development efforts, all of which commenced prior to theformation of CDBL VIII, against the balance of the loan. See CBC 01272, a copy of which is

attached hereto as Exhibit G. In fact, after the Note was executed, CBC unilaterally reversedinterest payments on the Note, and systematically assigned losses from prior failed banks toCDBL VIII, despite the fact that CDBL VIII never owned any of the banks, and none of thebanks were capable of being owned by CDBL VIII because they were no longer going concerns.CBC's only motive in assigning these losses to CDBL VIII was to wipe out its liability under thenote, as if it was never entered into. See CBC 0 0542 00546, a copy of which is attached heretoas Exhibit H. In essence, CBC was able to force nearly $6MM of its liabilities upon CDBL VIIIwhile at the same time receiving the full benefit of all of CDB L VIII' s monetary assets, resultingin a $12MM windfall to CBC. All the while, the Individual Defendants, as fiduciaries of CDBLVIII, accepted these "payments" from CBC, which had the effect of raiding nearly all of CDBLVIII' s assets and rendering CD BL V III nothing more than an e mpty shell.

PROCEDURAL BACKGROUNDPlaintiffs filed suit against CBC and the Individual Defendants asserting, among other

things, derivative claims on behalf of CDBL VIII for breach of fiduciary duty and conversionand individual claims on behalf of Plaintiffs for breach of fiduciary duty and minorityoppression. Defendants initially moved to dismiss Plaintiffs' derivative claims as premature

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because the statutory notice required to investigate the merits of the claims had not beenprovided to CDBL VIII. As a result, the Court dismissed the derivative claims without prejudicein order to afford Defendants the full benefit of the statutory notice requirement under MCL450.1492(A). In addition, the statute of limitations on Plaintiffs' derivative claims was tolledpending the results of CDBL VIII's investigation. Nearly two months passed before Defendantsfinally selected Mr. William Johnson ("Mr. Johnson") to serve as the Independent Person toinvestigate the merits of the derivative claims and the Court appointed him to serve in thatcapacity pursuant to the stipulation of the parties.I.efendants Instruct Mr. Johnson not to Issue a Report on Whether DerivativeClaims are Proper on Behalf of CDBL VIII .Mr. Johnson spent the better part of four (4) months investigating the merits of thederivative claims, reviewing thousands of pages of documents and interviewing multiplewitnesses. In early March of 2012, Mr. Johnson was in the process of finalizing his report andrecommendation as to the merits of asserting derivative claims when he was instructed byDefendants not to finish his report. As a result, CDBL VIII did not receive any recommendationfrom Mr. Johnson as to whether derivative claims were proper despite an exhaustive six monthinvestigation. Presumably, had Mr. Johnson determined that derivative claims were not in thebest interest of CDBL VIII, Defendants would have utilized his findings to support a motion todismiss. 2

Derivative Claims Proceed and D efendants File Second Motion to Dismiss.Shortly after Mr. Johnson was instructed not to issue a report, Plaintiffs re-filed their

derivative claims on behalf of CDBL VIII. Importantly, the derivative claims are supported by2 MCL 450.1495 requires the court to dismiss a derivative action, upon motion of the corporation

providing that a disinterested person had conducted a reasonable investigation and concluded that the maintenanceof the derivative proceeding is not in the best interest of the corporation. A plaintiff's only defense to such a motionis to establish that the determination was not m ade in good faith, or that the investigation was unreasonab le.

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the same operative facts as Plaintiffs' individual claims and both sets of claims require nearlyidentical proofs. Despite the alignment of the direct and derivative claims, Defendants againmoved to dismiss the Complaint. In so doing, Defendants rehashed several of the argumentsthey had raised nearly a year earlier, namely that the individual Plaintiffs could not assertderivative claims because their interests conflicted with those of CDBL VIII. This Courtdisagreed and again denied Defendants' Motion to Dismiss.III . This Court Already Found that the Controlling Shareholder Breached its FiduciaryDuty to CBDL VIII and Committed Acts of Minority Oppression.

It is against this backdrop that Plaintiffs filed their Motion for Summary Dispositionpursuant to MCR 2.116(C)(8) and (C)(10). Plaintiffs' motion was limited to one issue: whetherDefendants violate the express language of CDBL VIII's Articles along with Michigan statutoryand common law, by depriving Plaintiffs the right to vote on a transaction in which virtually allof CDBL VIII's assets were transferred to its majority and controlling shareholder, CBC. It isundisputed that C.Reid, as President of CDBL VIII, approved the transfer of $6MM to CBC,where she similarly holds the title of President. It is also undisputed that after the transfer wasmade, CDBL VIII had less than $300,000 in its account. It is further undisputed that Plaintiffsnever received notice of the transaction and were deprived of their right to vote on thistransaction in contravention of the Articles, Offering Memorandum, and Michigan law. Basedon these undisputed facts, the Trial Court correctly found that CBC, as the controllingshareholder of CDBL VIII, breached its fiduciary duties and was liable for minority shareholderoppression by depriving Plaintiffs of their right to vote on the transaction.IV. A Majority of Those Shareholders Entitled to Vote Have Approved the Removal ofthe Directors, Dissolution of CDBL VIII and the Appointment of a Receiver.

In accordance with Section 1.08 of the Bylaws, a majority of Class B Shareholders havevoted by written consent to remov e the Directors of CDB L VIII, dissolve and wind u p the affairs

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of CDBL VIII and to appoint a receiver to preserve and protect the assets of CDBL VIII duringits orderly liquidation. Out of the 7,025 available Class A and Class B shares, Class BShareholders representing 3,950 of those shares (56% ) have voted by written consent to the reliefsought by this Motion. Copies of the written consent forms executed by the Class BShareholders are attached as Exhibit I. The named Plaintiffs as well as the following individualsand/or entities have provided their written consent.

SHAREHOLDER SHARESG3 PROPERT IES, LLC 1,000STEVEN SAMUEL GLANDER 100JOHN IANNUCCI FAMILY TRUST Dtd. 10/17/2000 100ANGELO IANNUCCI 100THE KENNETH A. & DEBBIE KAFALAS FAMILY TRUST Dtd.5/31/2006 150BENJAM IN W. POST, JR. 50SEIFMAN FAMILY TRUST Dtd., 5/12/1994 1,000HENRY B. SOLOWAY 1991 IRREVOCABLE FAMILY TRUSTDtd. 1/22/91 400THOMAS P. SOLOWAY REVOCABLE FAMILY TRUST, Dtd.1/22/1991 100THE LUCAS FAMILY TRUST, Dtd. 9/25/2002 100ZORBA INVESTMENT S LIMITED TRUST, Dtd. 11/3/2003 100ALBERT A. FLANGAS, REVOCABLE LIVING TRUST, Dtd.7/22/2005 20 0PARTAP INVESTMENTS FBO DR. JAS WINDER GROVER 250TIMOTHY R. MORSE, IRA ROLLOVER, PREMIER TRUSTCUST 100

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BSE TR UST D td. 7/20/1995 100MARCUS LAMB MORSE TRUST Dtd. 7/29/1996 100TOTAL 3,950

A R G U M EN TI.he Articles and Bylaws of CDBL VIII Authorize the Dissolution, Wind Up andLiquidation of CDBL VIII's Assets.As set forth above, the Articles and Offering Memorandum for CDBL VIII identifycertain corporate acts that require the approval by a majority vote of both Class A and Class Bshareholders. For the purposes of this Motion, the key provision is found in Article III, section(B)(iii) which, in relevant part, provides "the holders of the shares of the C lass B Co mm on Stockshall be entitled to vote on each of the following actions, which action shall not be permitted bythe Corporation and shall be authorized only upon the receipt of the majority vote of all theissued and outstanding shares of Class A Common Stock and Class B Common Stock votingtogether as a single class . . . the dissolution, liquidation or winding up of the corporation."Articles, Ex. A at VIII, B.3; see also Off. Mem o., Ex. B at pp. 32-33.

Under Section 1.08 of the Bylaws, "any action required or permitted by the MichiganBusiness Corporation Act (the "MBCA") may be taken without a meeting, without prior noticeand without a vote, if consents in writing, setting forth the action so taken, are signed by theholders of outstanding shares having not less than the minimum number entitled to vote on theaction where presented and voted." See Bylaws, Ex. C at 1.08. As discussed, supra, a clearmajority of Class B Shareholders have voted by written consent to dissolve CDB L VIII and windup its affairs. Accordingly, the necessary corporate approval to authorize the dissolution andwind up of CDBL VIII has been met by the shareholders of CDBL VIII. See Articles, Ex. A atVIII, B.3.

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The MBCA Authorizes the Removal of the Directors.Aside from the fact that a clear majority of Class B Shareholders have voted to remove

the Directors of CDBL VIII, this Court has the authority under MCL 450.1514 to remove theDirectors if the Court finds that they engaged in fraudulent, illegal, or dishonest conduct orgrossly abused their authority or discretion and removal is in the best interest of the corporation.In pertinent part, MCL 450.1514 p rovides:

(1) The circuit court of the county in which the principal place of business orregistered office of the corporation is located may remove a director of thecorporation from office in a proceeding commenced either by the corporation orby its shareholders holding at least 10% of the outstanding shares of any class ifthe court finds that the director engaged in fraudulent, illegal, or dishonestconduct, or gross abuse of authority or discretion, with respect to the corporation,and rem oval is in the best interest of the corporation.(2) The court that removes a director may bar him or her from serving as adirector of the corporation for a period prescribed by the court.(3) If shareholders commence a proceeding under subsection (1), they shall makethe corporation a party defendant.

The standard for removal under MCL 450.1514 mimics the standard for establishing minorityoppression under M CL 450.1489 w hich, in relevant part, provides:

(1) A shareholder may bring an action in the circuit court of the county in whichthe principal place of business or registered office of the corporation is located toestablish that the acts of the directors or those in control of the corporation areillegal, fraudulent, or willfully unfair and oppressive to the corporation or to theshareholder. If the shareholder establishes grounds for relief, the circuit courtmay make an order or grant relief it considers appropriate, including, withoutlimitation, an order providing for any of the following:(a) The dissolution and liquidation of the assets and business of the corporation.

Both statutes require a showing that the Directors engaged in illegal, fraudulent and/or dishonestconduct. Willfully unfair and oppressive conduct is further defined in MCL 450.1489 as "acontinuing course of conduct or a significant action or series of actions that substantiallyinterferes with the interests of the shareholder as a shareholder." MCL 450.1489(3). The court

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in Franchino v Franchino, 263 Mich App 172; 687 NW2d 620 (2004) explained that"[s]hareholder's rights are typically considered to include voting at shareholder's meetings,electing directors, examining corporate books, and receiving co rporate dividends." Id. at 184. Inthis case, this honorable Court has already found that the majority shareholder, CBC,substantially interfered with the "voting rights" of Plaintiffs as minority shareholders andcommitted acts of minority oppression. The Directors of CBDL VIII, and in particular C. Reid,authorized the illegal act in contravention of the Articles and Michigan law. Accordingly, thisCourt is well within its discretion to: (i) remove the Directors as a remedy under MCL 450.1489 and MCL 450.1514; (ii) and appoint a receiver to manage the affairs of CDBL VIIIduring its orderly dissolution, wind up and liquidation.III. The Appointment of a Receiver to Preserve and Protect the Assets of CDBL VIII

During its Dissolution, Wind Up and Liquidation is "Allowed by Law" UnderMichigan's General Receivership Statute.Under Michigan law, the appointment of a receiver is permitted when such a remedy is

"allowed by law" within the meaning of MCL 600.2926. In relevant part, MCL 600.2926provides:

Circuit court judges in the exercise of their equitable powers, may appointreceivers in all cases pending where appointment is allowed by law. Thisauthority may be exercised in vacation, in chambers, and during sessions of thecourt. In all cases in which a receiver is appointed the court shall provide forbond and shall define the receiver's power and duties wh ere they are not otherwisespelled out by law. Subject to limitations in the law or imposed by the court, thereceiver shall be charged with all of the estate, real and personal debts of thedebtor as trustee for the bene fit of the debtor, creditors and others interested.The phrase, "allowed by law," has been interpreted by the Michigan Court of Appeals to

refer to two types of cases: (i) cases where appointment of a receiver is provided by statute; and(ii) cases "where the facts and circumstances rende r the appointment of a receiver an appropriateexercise of the circuit court's equitable jurisdiction." Petitpren v Taylor School District, 104

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Mich App 283, 294; 304 NW2d 553, 557 (1981). In this case, not only do the facts andcircumstances justify the appointment of a receiver, this Court is also vested with the statutoryauthority to appoint a receiver under MCL 600.3505 and MCL 450.1489.

Under MCL 600.3505, this Court has the discretion to appoint a receiver during thedissolution of the corporation and provides:

If it appears to the court that the corporation is insolvent or that dissolutionthereof would be beneficial to the stockholders and not injurious to the public, thecourt may dissolve the corporation and appoint a receiver of its estate and effects.Pending the hearing, the court may appoint a temporary receiver and prescribe hispowers and duties.Here, the shareholders of CBDL VIII have voluntarily agreed to dissolve CDBL VIII andappoint a receiver to effectuate the orderly wind up of its affairs. Similarly, MCL 450.1489provides this Court with broad discretion to "make an order or grant relief it considersappropriate" where the Court finds that those in control of the corporation have engaged inillegal, fraudulent, or willfully unfair and oppressive acts toward the corporation or to theshareholders. Because this Court has already made such a finding, it is well within its discretionto order the dissolution of CBDL and appoint a receiver to oversee that process. See Rytkonen vButler, 305 M ich 580, 592; 9 NW2d 849 (1943 ) (holding that receiver should oversee dissolutionand wind up of corporation where corporation expressed desire for receiver and dissention andconflict existed between shareholder interests).

In addition to the statutory right to appoint a rece iver, this Court is afforded the discretionunder the general receivership statute to appoint a receiver where the facts and circumstanceswarrant such equitable relief Weathervane Windows, Inc v White Lake Construction Co, 192Mich App 316, 322; 480 NW2d 337, 340 (1992). For example, in Band v L ivonia Associates,176 Mich App 95; 439 NW2d 285 (1989), the plaintiffs held limited partnership interests in thedefendant partnership. The partnership had been formed to acquire, develop and manage

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specific parcels of real property for investment purposes. Contrary to these stated intentions andsubsequent to acquiring the property, the general partners embarked o n a pattern of behavior thatincluded the following: (i) failing to maintain the improvements located on the partnership'sproperty; (ii) failing to pay real estate taxes; (iii) refusing to provide the limited partners accessto the partnership records; (iv) failing to properly monitor and administer the capitalcontributions for each partner; (v) refusing to provide information regarding the rezoning of theland; (vi) and depositing the capital contributions into non-partnership accounts. In light of thegeneral partners' oppressive acts, the trial court "recognized that serious, immediate and

irreparable harm would occur if a receiver were not appointed." Id. at 105.The circumstances here are even more egregious than those before the Court in Band v

Livonia Associates. Because this Court has already granted summary disposition to Plaintiffs ontheir claims of minority oppression and breach of fiduciary duty, the facts and circumstancescertainly support the appointment of a receiver during the dissolution and wind up of CDBLVIII' s affairs.

CONCLUSIONIn short, from the formation of CDBL VIII through present, every time the Defendants

have been presented with the choice of acting in the best interests of CDBL VIII and itsshareholders, or serving their own self-interests, they have chosen the latter. Moreover, thisCourt has already found that CBC, which is indistinguishable from the Individual Defendants,has breached its fiduciary duties owned to CDBL VIII and the Individual Plaintiffs, as well asoppressed the rights of the Individual Plaintiffs as shareholders. These facts mandate theremoval of the Individual Defendants as Directors and the appointme nt of a receiver.

For the foregoing reasons, the Plaintiffs respectfully request that this Court enter anorder: (i) removing the Directors of CDBL VIII, (ii) authorizing the dissolution and wind-up of

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CDBL VIII's affairs, (iii) appointing a receiver for CDBL VIII, and (iv) granting such other andfurther relief as may be just and proper under the circumstances of this civil action.

Respectfully submitted,BARNES & THORNBURG LLP

Dated: February 25, 2013 Jeffrey G. uth (P65041)Scoh-Murphy (P68015)Attorneys for Plaintiffs

G3 Properties v CBC - Memorandum of Law

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Transcript of G3 Properties v CBC - Memorandum of Law