CJ)

-0 0 0 s Ci)

-0 C _J

~ n:::: w _J

u >­f­z ::i 0 0 w z ~ s .... +-' Q.J ,._ ,._ ro (.9

2 >, .c +-' Ci)

0

w 0 LL LL 0 >-2 z 0 w _J

LL

co 0

I

0

STATE OF MICHIGAN

IN THE CIRCUIT COURT FOR THE COUNTY OF WAYNE

TROWBRIDGE LAW FIRM, P.C.,

Plaintiff,

-v-

Case No. 16-010730-CB Hon. Edward Ewell, Jr.

BEACHWOOD APARTMENT ASSOCIATES, LLC, DETROIT SQUARE PROPERTIES, LLC, GFI

MANAGEMENET SERVICES, INC., AND

CHAD PAAVOLA,

Defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

I. THE COURT MAKES THE FOLLOWING FINDING OF FACT:

1. That Chad Paavola was not an owner, equity partner, shareholder of any of the

corporate Defendants and that he only worked for GFI from March 2013 to April

2014. Mr. Paavola did not participate in any refinance negotiations and no proofs

were offered that t he lockbox arrangement meant that there was impending

insolvency.

2. That the first proof of any demand on the delinquent accounts occurred when Chip

Baker corresponded with Chad Paavola on November 11, 2013.

3. The Deed in Lieu of Foreclosure transact ions did not occur until July, 2014 - well

after accrual of most of the accounts stated .

4. That by the time Mr. Paavola first learned about any account delinquencies

involving Pla intiff in November, 2013 Plaintiff-and the property owners, Beachwood

and Detroit Square, had already been in a business relationship for five years .

Plaintiff through the "course of dealings" had permitted the property owners to

accrue significant overdue balances without any encouragement from Mr. Paavola.

5. Mr. Paavola did maintain detailed financial information regarding the property

owners, undertook the appropriate procedures for obtaining payment of Plaintiff's

bills and never attempted to hide the fact that GFI was working for Detroit Square

and Beachwood.

1

(") -------- -!'-0 ..--0

I

<.o

CJ)

"O 0 0 s ro

'"O C _J

:::s::: C( w ......J u >-1-z :::J 0 u w z ~ s --a., .... .... m

(.9

2 >­.c -ro u w u LL LL 0 >-2 z

6. All payments made to the Plain t iff came from the property owners, Detroit Square

and Beachwood.

7. All legal documents and work were performed on behalf of Detroit Square and

Beachwood.

8. All Judgment payments were made for the benefit of Detroit Square and

Beachwood.

9. All invoices for legal services rendered were sent to Detroit Square and Beachwood,

not GFI.

10. There was no evidence that Pla intiff provided GFI with the unpaid invoices until

after litigation was initiated; the invoices produced at trial did not contain the

proper address. Mr. Braz testified that he never heard of Trowbridge until 2014 or

2015. The invo ices were never attached to or referenced in any of the emails

between Plaintiff and Mr. Paavola.

11. That Chad Paavola wa s not responsible for paying vendor expenses .

12. A very small percentage of Mr. Paavola 's time, approximately one percent was

spent on legal bills.

13. That according to Mr. Braz's testimony the Deed in Lieu of Foreclosure was

unexpected and occurred only aher a predatory lender assumed the debt. Prior to

that, the property owners were attempt ing to refinance their loan obligations with

the intent ion of remaining in possession.

14. That there was no proof that GFI intended to be the guarantor or promisor fo r debts

incurred by Detro it Square and Beachwood .

15. That a refinance of the commercial real estate property can occur for many reasons

other than insolvency. These reasons include removing equity, extending a loan

term, or changing loan interest rates.

16. Indeed, all mon ies received on behalf of Detroit Square and Bea chwood were

placed into the property owners' accounts, not a GFI account.1

o 1 Thus, GF I did not convert any of the funds, since it never exercised dominion over the fund s.

w ......J 2 LL (]J

u I

0 C'0 -I'-0 ....... 0

I (0 .......

Cf)

"'O 0 0

s Cil sJ C _J

..--0 N --<O --N

~ ~ w ....I u >-1-­z =i 0 u w z ~ s

w u LL LL 0 >-2 z 0 w ....I

LL (() (...)

I

0 C0 _ __ _ l'-0 ..--0

I

(0

17. That the invoices presented by Plaintiff at Trial were addressed to a location not

occupied by GFI unt il April, 2014, thus it was never established that the invoices

produced at trial , we re ever ma iled to GFI.

18. That the delay in pursuing the aged receivables caused prejudice to the Defendants

and suppo rts a finding that the doctrine of laches applies. Mr. Braz test ified that

tenant files - which cou ld have mathematically determined how much was actually

recovered as a result of Plaintiff's work - had to be delivered to the new property

owner and had become unavailable .

19. That no testimony or evidence was taken that Mr. Paavola made any guarantees or

promises to Plaintiff regarding payment of the past due account balances .

20. The Court credits the testimony of Mr. Paavola and finds he did not make any

knowingly false statements or statements with a reckless disregard for truth .

21 . That Plaint iff unreasonably re lied upon the statement of Mr. Paavola since it knew

that individuals at GIF's home office in New York City and/or the property owners

were the only ones who had accurate financial information.

CONCLUSION OF LAW

II. The COURT MAKES THE FOLLOWING CONCLUSION OF LAW:

1. That Plaintiff failed to prove by a ponderance of the evidence that Chad Paavola

committed fraud based upon his lack of financial knowledge, non-binding

statements, the pre-existence of the "course of dealings" between the corporate

entities, and the lack of reasonable reliance on the part of Plaintiff. Fraud can

only be proven if Mr. Paavola had knowledge of the truth or reckless belief in

the truth, either concealed the truth or failed to disclose the truth, with an

intent to deceive, and t hat there was detrimental reliance upon the misrepresent­

at ions. In this case, Plaintiff fa iled to meet the above elements regarding

Mr. Paavola .

2. That the Michigan Statute of Frauds precludes the enforcement of ~ contract

in this case . Moreover, the "course of dealings" proved only an agreement to pay

made by the property owners, Beachwood and Detroit Square . Any contractual

obligation to pay the overdue accounts is the responsibility of Detroit Square

and Beachwood . Existence and interpretation of a contract are questions of law.

Kloian v Domino's Pizza, LLC, 273 Mich App 449, 452 (2006). There must be an

offer and acceptance. Kloian , supra at pages 452-453. Here, the Court cannot

conclude there was a valid offer and acceptance with defendant GFI.

3

r/l "O 0 0

s ro -0 C _J

...... 0 N

---<.O ---N

~ er: w _J

u >-1-z :::, 0 u w z ~ s --a, ,._ ,._ cu (.9

~ >,

..c. -co u w u LL LL 0 >-2 z 0 w ...J LL

co u

I

0 C'0 l"-0 T""

0 I

(0

3. MCL §566.132 states that any agreement, contract, or promise that, by its terms,

cannot be performed within one year, must be in writing and signed by the party to

be charged with the agreement. This never occurred in this case. The contract was

performed over the course of six (6) years. Although Plaintiff characterizes each

case assignment as a separate contract, this is contradicted by the testimony of Mr.

Gromer who stated that only one "Terms and Conditions" handout was ever sent

and new Terms and Conditions were not negotiated upon each case referral.

4. That given Plaintiff's failure to establish a contract between itself and any of the

Defendants, the Court analyzes this case using the equitable principles of quantum

meruit or unjust enrichment .

5. That when a party comes before the Court seeking equity, it must have clean hands. 11 [H]e who comes into equity must come with clean hands." This is an elementary

and fundamental concept of equ ity jurisprudence. Richard v Tibaldi, 272 Mich App

522, 2006).

6. That !aches is an applicable equitable defense to the Plaintiff' s equitable claims.

Laches applies where the Court determines that there was an unjustified delay in

the pursuit of a claim causing material prejudice. Watkins v Northwestern Ohio

Tractor Pullers, 620 F.2nd, 1155, 1159 (6th Cir 1980) . The court finds the following

prejudice has occurred here: four principal attorneys from the Plaintiff's firm left

the firm; the management employee at GFI at the start of the business relationship

left GFI ; the tenant files which were the best source of amounts actually collected

from the tenants were handed over to the new owners and were not available .

Most importantly, the property owners, Beachwood and Detroit Square, ceased to

do business.

7. Plaintiff failed to prove by a preponderance of evidence that the property owner

Defendants, Beachwood and Detroit Square, converted any proceeds in excess of

the $2,244 testified to by Mr. Ga lac. All other amounts are completely speculative

and without any foundation at trial. Moreover, GFI never converted any sums since

it never exercised the required dominion over the funds. All of the funds went into

the property owners' account.

DAMAGES

Plaintiff seeks a Judgment in the amount of $358, 299.50. It has been acknowledged

that the principal amount due is $182, 711.50 which includes cost advanced in the amount of

$87,794. Plaintiff seeks treble damages based on the theory that Defendants converted these

4

Cf)

"O 0 0

s m

"D C ::i

..--0 N --(0 --N

::::r::: 0::: w __J

u >­f-z :J 0 u w z ~ s -Q) .... .... m (.'J

2 >, .c -m u w u LL LL 0 >-2 z 0 w ......J

LL

ro u

I

0 CV)

l'-0 ..--0

I

(0

funds . Trial testimony only established that $2,244 was actually received by Detroit Square

Detroit and Beachwood. The claims for treble damages amounts to $266,382 of the total

claim for $358,299.50. This Court enters a Judgment based upon equitable principles. It has

already been conceded that the principal debt of $182,711.60 should have been paid by

Detroit Square and Beachwood. Initially, any verdict against GFI should be limited to 5%; given

testimony that it would only receive a management fee of 5% to the extent funds were avail­

able. 5% of $182,711 .50 is $9,135.58 . However, further testimony established that GFI had a

common ownership in the properties of approximately 8%; 8% of principal amount equals

$14,616.92 . The Court finds that a Judgment in excess of this range would be inequitable .

Further, the Court does not Award any conversion damages against GFI. Finally, an award for

conversion against Beachwood and Detroit Square is limited to treble of the $2,244 actually

received.

When available legal remedies are incomplete, doubtful, and uncertain, a Court may

award an equitable remedy. Tkachik v Mandeville, 487 Mich 38, 45-46 (2010). Only two

elements are required to establish an unjust enrichment claim: 1) that the Defendant received

a benefit from the Plaintiff; and 2) the Defendant's retention of the benefit is inequitable to the

Plaintiff. Morris Pumps v Centering Piping, Inc., 273 Mich App 187, 195 (2006) . In Michigan, the

measure of damages in an unjust enrichment claim is the value of the benefit received by the

Defendant. Green v Bambrick, 331 Mich 243, 250 (1951) . Given these principles, it would be

erroneous for the Court, sitting in equity, to award an amount greater than what GFI received -

eit her based upon the 5% management fee or 8% equity position.

The Court further considers that GFI was the disclosed agent for Beachwood and

Detroit Square . An agent cannot be held liable as a matter of law for the actions it undertakes

for disclosed principals. Bleau v Wright, 110 Mich 182, 185 (1896). Well settled agency principles

hold that "where the principle is disclosed, and the agent is known to be acting as such, the

5

Cf)

-0 0 0

s ro "O C :.J

::::i::: Cl'.'. w __J

u >-1-z ::i 0 u w z ~ s --Q.) ,._ ,._ ro (.9

2 >, ..c -co u

w u LL u.. 0 >-2 z 0 w __J

LL

CD u

I

0

latter cannot be made pe rsonally liable unless he agrees to be so ." Whitney v Wyman, 101 US

392 (1879); Howell v Encyclopedia Britannica, Inc, 325 Mich 35, 38 (1949); National Trout

Festival , Inc. v Cannon 32 Mich App 517, 521 (1971) .

Because this Court finds that Defendant Paavola was not liable for fraud, no cause

of action will be entered against him .

WHEREFORE, the Court awa rds a verdict of $14, 616.92 against GF12, a verdict

of $182,711 .50 against the Defendant Beachwood Apartment Associates, LLC and Detroit

Square Properties, LLC, 3 and a no cause of action against Chad Paavola .

Date: _2_/_7_/2_0_1_9 __

2 This verdi ct represents 8% of the principal amount. 3 This verdict is limi ted to the total principal balance.

6

~~l Circuit Judge '/I

<:<) --------!'-0 T"""

0 I

(0